ABINGDON, Va., Aug 18, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Alpha Natural Resources, Inc. (NYSE: ANR), a leading Appalachian coal producer, today reported higher coal production and sales volumes, revenues, margins and EBITDA in the second quarter of 2006 compared with 2005.
"Production and sales volumes were strong in the second quarter and, as expected, price realizations fell back a bit from the beginning of this year when we benefited from a carryover of higher priced export business and a larger proportion of metallurgical sales," said Michael J. Quillen, Alpha's president and CEO. "All in all, our business model of mining high-quality Appalachian coals through flexible, diversified operations continues to produce high margins and industry-leading revenues per ton."
Earlier this week, Alpha announced that it had substantially completed a review of the manner in which certain third-party coal purchases and sales contracts -- mainly on the over-the counter (OTC) market -- are accounted for within the purview of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." As a result of this review, in the second quarter of 2006 the company is recording a cumulative adjustment related to those OTC transactions for all periods through March 31, 2006 of $2.7 million, or $0.04 per diluted share. For the period April 1 - June 30, 2006, the mark-to-market adjustment for OTC transactions had an additional positive impact on second- quarter net income of $0.5 million ($0.01 per diluted share).
The resulting mark-to-market adjustments to other financial line items increased second-quarter 2006 coal sales revenues by $5.9 million, increased second-quarter cost of coal sales by $1.6 million and increased second-quarter income tax expense by $1.2 million. These amounts include both the impact of the April 1, 2006 correcting entry and the April-to-June activity.
The table below breaks out the effect these corrections had on the company's 2006 second-quarter results:
Financial & Operating Highlights (in millions, except per-share amounts) Q2/06 Q2/05 Coal Revenues $436.5 $364.1 OTC Mark-to-Market Revenues Included in Coal Revenues $5.9 - Net Income * $23.1 $26.4 OTC Mark-to-Market Margin Included in Net Income $3.2 - Earnings Per Diluted Share* $0.36 $0.43 OTC Mark-to-Market Earnings Included in Earnings Per Diluted Share $0.05 - EBITDA * $76.6 $56.7 OTC Mark-to-Market EBITDA Included in EBITDA $4.3 - *Includes charges for IPO-related stock-based compensation, as detailed below. See the notes accompanying the financial schedules for reconciliation of EBITDA to GAAP net income. All data in the table above and in this news release reflect continuing operations only. Second-Quarter Performance Review
For the quarter ended June 30, 2006, total revenues were $495.7 million, up 19 percent from the corresponding period in 2005. Quarterly coal sales revenues of $436.5 million were 20 percent higher than a year ago.
Net income for the most recent quarter of $23.1 million, or $0.36 per diluted share, included a non-cash charge of $3.2 million after tax ($0.05 per diluted share) for stock-based compensation related to the company's initial public offering and related internal restructuring in 2005. The company also recognized $2.1 million of after tax expense ($0.03 per diluted share) during the most recent quarter for employee stock-based awards as required under SFAS No. 123R, which the company adopted at the beginning of 2006.
By comparison, in the second quarter of 2005 Alpha recorded net income of $26.4 million ($0.43 per diluted share) including a charge for IPO-related stock-based compensation of $3.4 million after tax ($0.05 per diluted share). In the second quarter of 2005, Alpha also recorded an after-tax gain of $0.5 million ($0.01 per diluted share) from the sale of the NKC mining assets in Colorado that occurred in April 2005.
Earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA) totaled $76.6 million in the most recent quarter, including $3.2 million in stock-based compensation charges related to Alpha's 2005 IPO and a $2.9 million charge for employee-based stock award expense. In the same period in 2005, EBITDA was $56.7 million, including $3.4 million of stock-based compensation expense related to the IPO. The definition of EBITDA and a reconciliation to GAAP net income is provided in a table included with the accompanying financial schedules.
Depreciation, depletion and amortization (DD&A) in the most recent quarter totaled $34.2 million, compared with $15.1 million in the second quarter of 2005. Nearly all of the increase was attributable to the Nicewonder assets that Alpha acquired last October from the Nicewonder group, which now operate as Callaway Natural Resources. Results for the quarter ended June 30, 2006 include contributions from Callaway and the Progress Energy operations acquired on May 1, 2006.
Second-Quarter Operating Highlights
Alpha produced 6.4 million tons of coal from company and contractor-operated mines in the second quarter of this year, 24 percent more than the comparable quarter last year reflecting mostly added production from acquisitions. With greater output from Alpha captive mines, outside coal purchases were reduced to 1.0 million tons in the most recent quarter, a 35 percent decline from the prior year.
Total coal sales volumes of 7.5 million tons in the most recent quarter compared with 6.7 million tons in the same period a year ago. Alpha's average net realized price per ton rose 8 percent to $58.52 for the quarter ended June 30, 2006, compared with $54.42 for the same period in 2005. The OTC mark-to-market adjustment recorded in the second quarter of 2006 added $0.79 to per-ton realizations.
Alpha's average cost of coal sales per ton in the three months ended June 30, 2006 was $46.32, representing the second consecutive quarter in which overall unit costs have declined. Average cost of coal sales in the first quarter of 2006 was $46.46 and $47.14 in the fourth quarter of 2005. The OTC mark-to-market adjustment recorded in the second quarter of 2006 added $0.21 to per-ton cost of coal sales.
Alpha's coal margin per ton during the second quarter of 2006 was $12.20, compared with $10.55 in the comparable period of 2005, an increase of 16 percent. Excluding $0.58 per ton of added margin from the OTC adjustment for the most recent quarter, Alpha's per-ton margin was up 10 percent quarter-over-quarter.
"Our strategy has been to increase the proportion of lower-cost captive production in our sales mix -- particularly production from surface mines -- while closely managing outside purchases to match market conditions, and this strategy is working," said Quillen.
Final production and sales highlights for the second quarter and year-to- date are as follows:
Production and Sales Data (in thousands, except per-ton amounts) Q2-06 Q2-05 % Change YTD-06 YTD-05 % Change Production Produced/processed 6,420 5,165 24% 12,688 10,038 26% Purchased 963 1,480 -35% 2,078 2,670 -22% Total 7,383 6,645 11% 14,766 12,708 16% Tons sold Steam 4,892 3,906 25% 9,247 7,111 30% Metallurgical 2,567 2,785 -8% 5,336 5,112 4% Total 7,459 6,691 11% 14,583 12,223 19% Coal sales realization/ton Steam $50.16 $40.97 22% $49.62 $39.01 27% Metallurgical $74.44 $73.29 2% $75.36 $70.37 7% Total $58.52 $54.42 8% $59.04 $52.13 13% Cost of coal sales/ton(1) Alpha mines $42.63 $36.65 16% $41.57 $35.65 17% Contract mines(2) $53.40 $53.12 1% $53.18 $50.14 6% Total produced and processed $44.39 $40.40 10% $43.48 $38.78 12% Purchased $57.82 $56.46 2% $62.27 $58.09 7% Total $46.32 $43.87 6% $46.38 $42.52 9% Coal margin/ton $12.20 $10.55 16% $12.65 $9.61 32% (1) Excludes DD&A (2) Includes coal purchased and processed at our plants prior to resale Financial and Operating Highlights -- Year-to-Date
For the first half of 2006, Alpha's revenues totaled $978.0 million, a 34 percent increase from $729.8 million of revenue in the first half of 2005. Revenues from coal sales were $860.9 million for the first six months of this year, up 35 percent from last year.
Net income for the first half of 2006 of $50.3 million included $6.4 million of IPO-related stock-based compensation expense, after tax. This compares with $0.6 million earned in the first half of last year, when the company recorded $38.0 million in charges, after tax, from IPO-related stock compensation expense.
EBITDA in the first half of 2006 was $157.2 million ($163.6 million excluding stock-based compensation costs related to the IPO). This compares with EBITDA, as adjusted, of $56.8 million in the first half of 2005 ($96.5 million excluding stock-based compensation costs related to the IPO).
Company produced and processed coal volumes of 12.7 million tons were 26 percent higher than the first half of 2005, with 40 percent of production coming from surface mines and 60 percent from underground mines. Excluding acquisitions, production from ongoing operations during the first half of 2006 were 3 percent higher than last year. With higher internal mine production and added output from acquisitions, purchased coal volumes in the first half of 2006 were reduced by 22 percent compared with last year.
Metallurgical and steam coal sales volumes were 19 percent higher than last year, and the company's average coal margin per ton rose 32 percent in the first half of 2006 compared with last year, as gains in pricing outstripped inflation in cost of coal sales.
Conference Call Replay Extended
On, August 1, 2006 Alpha management held a conference call to discuss the company's preliminary second-quarter results, general performance and outlook. A replay of the call will be accessible through the Internet or by phone for an extended period. The replay is available through August 31 on the company's web site ( http://www.alphanr.com ), or can be accessed by phone by dialing 800-642-1687 (toll-free) or 706-645-9291 and entering pass code 3216987. Alpha does not intend to hold a conference call following this press release. Analysts and investors are welcome to address any questions they may have to Alpha Investor Relations at (276) 623-2920.
About Alpha Natural Resources
Alpha Natural Resources is a leading producer of high-quality Appalachian coal. Including the newly acquired Progress operations, approximately 91 percent of the company's reserve base is high Btu coal and 84 percent is low sulfur, qualities that are in high demand among electric utilities which use steam coal. Alpha is also one of the nation's largest producers and exporters of metallurgical coal, a key ingredient in steel manufacturing. Alpha and its subsidiaries currently operate mining complexes in four states, consisting of 67 mines feeding 12 coal preparation and blending plants. The company and its subsidiaries employ more than 3,700 people.
Certain statements in this news release are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Alpha Natural Resources, Inc. ("Alpha" or "the company") uses the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "predict," "project," "should," "target" and similar terms and phrases, including references to assumptions, to identify forward-looking statements. These forward-looking statements are based on Alpha's expectations and beliefs concerning future events affecting the company and involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this release. These factors are difficult to accurately predict and may be beyond the control of the company. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: market demand for coal, electricity and steel; the company's ability to integrate the Progress operations into Alpha's existing operations; Alpha's ability to maintain an adequate labor force and other employee workforce factors; weather conditions or catastrophic weather- related damage; the company's production capabilities; the company's relationships with, and other conditions affecting its customers; the timing of reductions or increases in customer coal inventories; long-term coal supply arrangements; environmental laws, including those directly affecting Alpha's coal mining and production, and those affecting its customers' coal usage; railroad, vessel and other transportation performance and costs; Alpha's assumptions concerning economically recoverable coal reserve estimates; regulatory and court decisions; future legislation and changes in regulations or governmental policies; uncertainties of pending litigation; changes in postretirement benefit and pension obligations; and Alpha's liquidity, results of operations and financial condition. These and other additional risk factors and uncertainties are discussed in greater detail in the company's Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. Forward-looking statements made by the company in this news release or elsewhere speak only as of the date made. New uncertainties and risks come up from time to time, and it is impossible for the company to predict these events or how they may affect the company. The company has no duty to, and does not intend to, update or revise the forward-looking statements in this news release after the date it is issued. In light of these risks and uncertainties, investors should keep in mind that the results, events or developments disclosed in any forward-looking statement made in this news release may not occur.
NOTES TO ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Reconciliation of Non-GAAP Measures
This news release includes certain non-GAAP financial measures as defined by SEC regulations. EBITDA is a measure used by management to gauge operating performance. Alpha defines EBITDA as net income or loss plus interest expense, income taxes, and depreciation, depletion and amortization, less interest income. Management presents EBITDA as a supplemental measure of the company's performance and debt-service capacity that may be useful to securities analysts, investors and others. EBITDA is not, however, a measure of financial performance under GAAP and should not be considered as an alternative to net income, operating income or cash flow as determined in accordance with GAAP. Moreover, EBITDA is not calculated identically by all companies. A reconciliation of these measures to the most directly comparable GAAP measures is provided in an accompanying table.
FINANCIAL TABLES FOLLOW ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) (In thousands, except share and per share amounts) Three months ended Six months ended June 30, June 30, 2006 2005 2006 2005 Revenues: Coal revenues $436,529 $364,070 $860,903 $637,204 Freight and handling revenues 50,935 48,239 97,327 79,991 Other revenues 8,217 5,327 19,761 12,596 Total revenues 495,681 417,636 977,991 729,791 Costs and expenses: Cost of coal sales (exclusive of items shown separately below) 345,505 293,493 676,391 519,777 Freight and handling costs 50,935 48,239 97,327 79,991 Cost of other revenues 5,445 4,319 13,396 10,384 Depreciation, depletion and amortization 34,207 15,075 67,841 29,245 Selling, general and administrative expenses (exclusive of depreciation and amortization shown separately above) 18,583 14,870 35,392 62,776 Total costs and expenses 454,675 375,996 890,347 702,173 Income from operations 41,006 41,640 87,644 27,618 Other income (expense): Interest expense (10,786) (6,647) (21,063) (12,764) Interest income 171 191 358 478 Miscellaneous income (expense), net 1,413 32 1,696 (9) Total other income (expense), net (9,202) (6,424) (19,009) (12,295) Income from continuing operations before income taxes and minority interest 31,804 35,216 68,635 15,323 Income tax expense 8,676 9,089 18,296 11,599 Minority interest - - - 2,918 Income from continuing operations 23,128 26,127 50,339 806 Discontinued operations: Income (loss) from discontinued operations before income taxes and minority interest - 359 - (379) Income tax (benefit) - 93 - (93) Minority interest - - - (72) Income (loss) from discontinued operations - 266 - (214) Net income $23,128 $26,393 $50,339 $592 Net income per basic share, as adjusted in 2005 Income from continuing operations $0.36 0.43 $0.79 0.01 Loss from discontinued operations - - - - Net income per basic share $0.36 $0.43 $0.79 $0.01 Weighted average shares-basic 64,012,586 61,091,806 63,907,353 50,220,404 Net income per diluted share, as adjusted in 2005 Income from continuing operations $0.36 $0.43 $0.79 $0.01 Loss from discontinued operations - - - - Net income per diluted share $0.36 $0.43 $0.79 $0.01 Weighted average shares-diluted 64,194,739 61,562,973 64,058,463 50,439,011 ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts) June 30, December 31, 2006 2005 Assets Current assets: Cash and cash equivalents $4,800 39,622 Trade accounts receivable, net 160,117 147,961 Notes and other receivables 3,692 10,330 Inventories 84,859 84,885 Prepaid expenses and other current assets 38,788 36,117 Total current assets 292,256 318,915 Property, plant, and equipment, net 649,769 582,750 Goodwill 18,641 18,641 Other intangibles, net 9,193 11,014 Deferred income taxes 39,863 38,967 Other assets 43,770 43,371 Total assets $1,053,492 1,013,658 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $3,224 3,242 Notes payable 8,783 59,014 Bank overdraft 14,416 17,065 Trade accounts payable 79,611 99,746 Deferred income taxes 12,575 11,243 Accrued expenses and other current liabilities 88,500 93,531 Total current liabilities 207,109 283,841 Long-term debt, net of current portion 452,369 423,547 Workers' compensation benefits 6,516 5,901 Postretirement medical benefits 28,874 24,461 Asset retirement obligation 55,389 46,296 Deferred gains on sale of property interests 5,274 5,762 Other liabilities 24,484 11,085 Total liabilities 780,015 800,893 Stockholders' equity Preferred stock - par value $0.01, 10,000,000 shares authorized, none issued - - Common stock - par value $0.01, 100,000,000 shares authorized, 64,995,357 and 64,420,414 shares issued and outstanding 650 644 Additional paid-in capital 204,500 193,608 Accumulated other comprehensive loss (525) - Retained earnings 68,852 18,513 Total stockholders' equity 273,477 212,765 Total liabilities and stockholders' equity $1,053,492 1,013,658 ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Six months ended June 30, 2006 2005 Operating activities: Net income $50,339 592 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 67,841 29,528 Amortization of debt issuance costs 1,132 875 Accretion of asset retirement obligation 2,246 1,631 Virginia tax credit - (343) Stock-based compensation - non-cash 9,945 32,312 Minority interest - 2,846 Deferred income taxes 5,274 1,588 Other non-cash items 131 (792) Changes in operating assets and liabilities (36,481) (69,657) Net cash provided by (used in) operating activities 100,427 (1,420) Investing activities: Capital expenditures $(84,000) (66,521) Proceeds from disposition of property, plant, and equipment 264 5,148 Purchase of acquired companies (28,273) (389) Payment of additional consideration on prior acquisition - (5,000) Investment in and advances to investee (107) (654) Collections on note receivable from coal supplier 3,000 2,612 Net cash used in investing activities (109,116) (64,804) Financing activities: Repayments of notes payable (50,232) (8,230) Proceeds from issuance of long-term debt 200,000 70,000 Repayments on long-term debt (171,806) (944) Increase in bank overdraft (2,649) 8,239 Proceeds from initial public offering, net of offering costs - 598,066 Repayment of restructuring notes payable - (517,692) Distributions to prior members of ANR Holdings, LLC subsequent to Internal Restructuring (2,400) (72,335) Distributions to prior members of ANR Holdings, LLC prior to Internal Restructuring - (7,732) Debt issuance costs - (422) Proceeds from exercise of stock options 954 - Net cash provided by (used in) financing activities (26,133) 68,950 Net increase (decrease) in cash and cash equivalents (34,822) 2,726 Cash and cash equivalents at beginning of period 39,622 7,391 Cash and cash equivalents at end of period $4,800 10,117 The following table reconciles EBITDA and EBITDA, as adjusted, to net income, the most directly comparable GAAP measure: Quarter ended Six months ended June 30, June 30, 2006 2005 2006 2005 (In thousands) (In thousands) Net income $23,128 26,127 $50,339 806 Interest expense 10,786 6,647 21,063 12,764 Interest income (171) (191) (358) (478) Income tax expense 8,676 9,089 18,296 11,599 Depreciation, depletion and amortization 34,207 15,075 67,841 29,245 EBITDA 76,626 56,747 157,181 53,936 Minority interest - - - 2,918 EBITDA, as adjusted $76,626 56,747 $157,181 56,854
SOURCE Alpha Natural Resources, Inc.
Ted Pile of Alpha Natural Resources, Inc., +1-276-623-2920
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