ABINGDON, Va., May 4 /PRNewswire-FirstCall/ -- Financial & Operating Highlights (in millions, except per-share and per-ton amounts) Q1 Q4 Q1 2007 2006 2006 Coal sales revenues $376.9 $407.6 $424.3 Income from operations $20.2 $21.0 $46.6 Net income $8.3 $63.3* $27.2 Earnings per diluted share $0.13 $0.98* $0.43 EBITDA $56.1 $56.0 $80.6 Tons of coal produced and processed 6.1 6.0 6.3 Tons of coal sold 6.6 7.1 7.1 Coal margin per ton $10.21 $10.19 $13.12 A reconciliation of EBITDA to net income, the most directly comparable U.S. GAAP measure, is included in the notes accompanying the financial schedules. * Q4 2006 results include tax benefit of $55.6 million ($0.86 per diluted share)
Alpha Natural Resources, Inc. (NYSE:ANR), a leading supplier of high-quality Appalachian coal, reported total revenues of $427.4 million and net income of $8.3 million, or $0.13 per diluted share, for the first quarter of 2007.
In the first quarter of 2006, mild weather and a carryover of high-priced business from the prior year resulted in revenues of $482.1 million and net income of $27.2 million, or $0.43 per diluted share. The period included a non-cash charge of $3.2 million after tax, or $0.05 per diluted share, for stock-based compensation related to the company's initial public offering and related internal restructuring. These charges ceased in the fourth quarter of 2006.
"A number of factors led to record operating results in the first quarter last year, and we recognized that it would be difficult to match those results, but our performance this year has been essentially in line with what we expected," said Michael J. Quillen, Alpha's chairman and CEO. "Last year, a large amount of higher priced metallurgical business carried over from 2005 into early 2006, and we had an exceptionally mild winter that enabled us to start shipping metallurgical coal on the Great Lakes earlier than normal. We didn't get that head start in 2007.
"Over the course of 2006 and early 2007, we also saw markets and prices soften for steam coal. As we've stated in the past, Alpha is not willing to commit sales at levels that do not support adequate returns, and in many cases we passed on new business due to price. Given this environment, we've concentrated on cost containment and our ability to adjust product mix in order to maintain unit margins in the double digits, with a greater emphasis on export sales."
Financial Performance - First Quarter
Alpha recorded coal sales revenues of $376.9 million in the most recent quarter, down 11 percent from the prior year, as the company sold 400,000 fewer tons of metallurgical coal than the first quarter of 2006. Other revenues of $7.2 million were down from $11.4 million in the first quarter of last year, when the Callaway division contributed $3 million from construction of a segment of West Virginia's King Coal Highway. That portion of the project was completed last September.
Earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA) was $56.1 million in the quarter just ended, compared with last year's record high of $80.6 million. The definition of EBITDA and a reconciliation to net income, the most directly comparable U.S. GAAP measure, is provided in a table included with the accompanying financial schedules.
Selling, general and administrative (SG&A) expenses during the first three months of 2007 were 20 percent lower than the corresponding period last year, which included the IPO-related stock compensation charge of $3.2 million after tax. Excluding the charge, SG&A declined by 2 percent. Depreciation, depletion and amortization (DD&A) totaled $35.8 million in the most recent quarter, compared with $33.6 million in the same period last year.
Production and Sales - First Quarter
Total coal sales for the most recent quarter were 6.6 million tons. Metallurgical coal sales volumes for the quarter were essentially unchanged on a sequential basis, but were down 14 percent from the strong first quarter of a year ago. Steam coal sales of 4.3 million tons were down 2 percent from 2006 levels and down 9 percent sequentially, as Alpha withheld sales from the spot markets and adjusted its production mix to sell into the metallurgical export market.
Coal production from company and contract-operated mines totaled 6.1 million tons in the quarter just ended, a 2 percent decline from the first quarter of 2006 but 3 percent higher sequentially. Alpha reduced coal purchases in the most recent quarter to 714,000 tons from 1.1 million tons in the first quarter of 2006, as third-party purchases were scaled back in favor of production from lower cost company mines.
The company's average realized price per ton of $56.87 was 5 percent lower than the same period last year, and down 1 percent sequentially. The average metallurgical per-ton realization of $72.70 was down 5 percent year-over-year, reflecting the carryover of higher-priced business into last year, while the average steam coal realization of $48.07 was down 2 percent.
Alpha's average cost of coal sales per ton in the most recent quarter was $46.66, down from $47.52 per ton in the prior quarter and flat versus a year ago. Planned reductions of purchased coal impacted overall unit costs favorably. Cost of coal sales per ton for company mines was up 1 percent sequentially, while the unit cost of both contractor and purchased coal declined sequentially by 5 percent and 9 percent, respectively.
Alpha's margin per ton of $10.21 in the first quarter of 2007 declined from the all-time high of $13.12 attained during the same period last year, but was in line with the $10.19 margin achieved in the fourth quarter of 2006.
Production and sales highlights are as follows: Production and Sales Data (in thousands, except per-ton amounts % Increase/ % Increase/ Q1 2007 Q4 2006 (Decrease) Q1 2006 (Decrease) Production: Produced/processed 6,144 5,967 3% 6,268 (2%) Purchased 714 1,043 (32%) 1,115 (36%) Total 6,858 7,010 (2%) 7,383 (7%) Tons sold: Steam 4,260 4,706 (9%) 4,354 (2%) Metallurgical 2,368 2,357 0% 2,768 (14%) Total 6,628 7,063 (6%) 7,123 (7%) Coal sales revenue/ton: Steam $ 48.07 $ 48.86 (2%) $ 49.00 (2%) Metallurgical $ 72.70 $ 75.38 (4%) $ 76.22 (5%) Total $ 56.87 $ 57.71 (1%) $ 59.58 (5%) % Increase/ % Increase/ Q1 2007 Q4 2006 (Decrease) Q1 2006 (Decrease) Cost of coal sales/ton (1) Alpha mines $ 45.46 $ 44.83 1% $ 40.51 12% Contract mines(2) $ 50.16 $ 52.73 (5%) $ 53.24 (6%) Total produced and processed $ 46.22 $ 45.96 1% $ 42.50 9% Purchased $ 50.30 $ 55.50 (9%) $ 66.28 (24%) Total $ 46.66 $ 47.52 (2%) $ 46.46 0% Coal margin per ton(3) $ 10.21 $ 10.19 0% $13.12 (22%) (1) Excludes freight, DD&A and SG&A (2) Includes coal purchased from third parties & processed at our plants prior to resale (3) Coal sales revenue/ton less cost of coal sales/ton
Liquidity and Capital Resources
Cash provided by operations for the most recent quarter was $52.6 million, compared with $33.4 million in the first quarter of 2006. Cash flows last year were adversely impacted by working capital requirements, including higher receivables generated from the strong export sales in the first quarter and from payments to third parties for coal purchases in anticipation of those export commitments.
Capital expenditures for the first three months of 2007 totaled $44.6 million, compared with $51.4 million in the corresponding period last year. Alpha continues to forecast total capital expenditures for mining operations of $110 million to $125 million in 2007, or $120 million to $150 million including the Gallatin lime venture, compared with $132 million in 2006.
Total debt outstanding at the end of the first quarter of 2007 was $437.9 million, compared with $445.7 million at the end of fiscal year 2006 and $462.2 million at the end of the first quarter of 2006. The company had available liquidity of $203.7 million at March 31, 2007, including cash of $30.9 million and $193.9 million available under the company's credit facility.
Alpha's balance sheet at the end of the first quarter of 2007 included total legacy liabilities (workers' compensation, retiree medical and reclamation) of $139.8 million, including current obligations of $9.1 million. Alpha continues to have one of the lowest levels of legacy liabilities among publicly traded coal companies.
Recent Developments -- The company-wide rate for days lost due to accidents, a key safety measure, improved by 19 percent compared to last year's average for the first quarter, and was 20 percent better than the industry benchmark for comparable coal mining operations. -- The Black Bear #4 surface mine, operated by Alpha's Virginia-based Paramont subsidiary, won awards for outstanding reclamation achievement from the Appalachian Regional Reforestation Initiative, a coalition of groups involving seven states and environmental organizations in the Eastern U.S., and from the Virginia Mining Association and Virginia Division of Mined Land Reclamation. -- Construction of the Gallatin greenfield lime plant is on schedule. Fabrication and site work has been ongoing since January and major component assembly is expected to commence this month. The first of two planned kilns is targeted to start producing late this year, with about three-fourths of planned production already sold through 2012. Through April 2007, Alpha had paid approximately $9.8 million to date out of its total commitment of $14.1 million for the project's first phase, including $2.9 million in capital expenditures in the first quarter of 2007.
Alpha concluded contract negotiations for the bulk of its remaining metallurgical export tonnage in the first quarter -- approximately 4 million tons -- and pricing met the company's expectations. Strength in the global steel markets, coupled with high ocean freight rates and logistical problems encountered by Australian and Canadian exporters, has created opportunities for unplanned metallurgical sales overseas in the first quarter and beyond. Alpha has used its flexible mine portfolio and blending capabilities to shift captive production from the steam to the metallurgical markets, while reducing coal purchases. The company expects that, as a proportion of its overall 2007 sales, metallurgical coal volumes will be at the higher end of the 30 percent to 35 percent range provided during the last quarterly reporting cycle.
Steam coal market conditions also appear to be improving, with Eastern supply and demand coming back into better balance, higher utility coal burns and strong overseas demand drawing steam coal out of the U.S. Alpha has been cautious and will continue to be so in committing forward steam coal production into 2008 and 2009 at prices that do not provide adequate returns to the company.
As of April 20, 2007, the company had approximately 98 percent of 2007 planned production committed and priced at a blended (steam and metallurgical) price per ton of approximately $56. Also as of April 20, Alpha had committed and priced 43 percent of planned 2008 production, with an additional 6 percent of planned production committed but unpriced. The uncommitted balance was composed of 49 percent metallurgical coal and 51 percent steam coal.
At this time, Alpha believes there are no developments that would cause the company to substantially alter the financial outlook it gave on February 14, 2007. Alpha maintains its target for produced and processed tons of 24 million to 25 million tons, but based on the current outlook, is scaling back its target for purchased coal to 3 million tons from the previous target of 4 million to 5 million tons. The target for average realized price per ton is unchanged at $55 to $56, and average cost of coal sales is expected to remain essentially unchanged from last year. The company is also maintaining its outlook for DD&A between $150 million and $155 million, and lowering its projected tax rate to between 24 percent and 26 percent.
Conference Call Webcast
Alpha will hold a conference call to discuss first-quarter 2007 results on Friday, May 4, 2007 at 11:00 a.m. ET. The call will be accessible through the Internet at Alpha's web site, http://www.alphanr.com, and will be archived on the site as well. A replay will be available through May 18 on the company's web site, or can be accessed by phone by dialing 800-642-1687 (toll-free) or 706-645-9291 and entering pass code 6082401.
About Alpha Natural Resources
Alpha Natural Resources is a leading supplier of high-quality Appalachian coal to electric utilities, steel producers and heavy industry. Approximately 91 percent of the company's reserve base is high Btu coal and 82 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 69 mines feeding 10 coal preparation and blending plants. The company and its subsidiaries employ more than 3,500 people.
Forward Looking Statements
This news release includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Alpha's expectations and beliefs concerning future events and involve risks and uncertainties that may cause actual results to differ materially from current expectations. These factors are difficult to predict accurately and may be beyond Alpha's control. 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; future economic or capital market conditions; weather conditions or catastrophic weather-related damage; our production capabilities; the consummation of financing, acquisition or disposition transactions and the effect thereof on our business; our ability to successfully integrate the operations we have acquired with our existing operations, as well as our ability to successfully integrate operations we may acquire in the future; our plans and objectives for future operations and expansion or consolidation; the progress of project construction plans and marketing agreements relating to Gallatin Materials LLC; our relationships with, and other conditions affecting, our customers; timing of changes in customer coal inventories; changes in, renewal of and acquiring new long-term coal supply arrangements; inherent risks of coal mining beyond our control; environmental laws, including those directly affecting our coal mining production, and those affecting our customers' coal usage; competition in coal markets; railroad, barge, truck and other transportation performance and costs; the geological characteristics of Central and Northern Appalachian coal reserves; availability of mining and processing equipment and parts; our assumptions concerning economically recoverable coal reserve estimates; availability of skilled employees and other employee workforce factors; regulatory and court decisions; future legislation and changes in regulations, governmental policies or taxes; changes in postretirement benefit obligations; our liquidity, results of operations and financial condition; decline in coal prices; forward sales and purchase contracts not accounted for as a hedge; indemnification of certain obligations not being met; continued funding of the road construction business; and disruption in coal supplies. These and other risks and uncertainties are discussed in greater detail in Alpha's Annual Report on Form 10-K and other documents filed with the Securities and Exchange Commission. Forward-looking statements 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 Alpha to predict these events or how they may affect the company. Alpha 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 EBITDA
EBITDA is a non-GAAP financial 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 U.S. GAAP and should not be considered as an alternative to net income, operating income or cash flow as determined in accordance with U.S. GAAP. Moreover, EBITDA is not calculated identically by all companies. A reconciliation of EBITDA to net income, the most directly comparable U.S. GAAP measure, is provided in an accompanying table.
FINANCIAL TABLES FOLLOW ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) (In thousands, except share and per share amounts) Three months ended March 31, 2007 2006 Revenues: Coal sales revenues $376,930 $424,331 Freight and handling revenues 43,211 46,392 Other revenues 7,230 11,417 Total revenues 427,371 482,140 Costs and expenses: Cost of coal sales (exclusive of items shown separately below) 309,255 330,885 Freight and handling costs 43,211 46,392 Cost of other revenues 5,628 7,951 Depreciation, depletion and amortization 35,789 33,634 Selling, general and administrative expenses - - (exclusive of depreciation and amortization shown separately above) 13,239 16,639 Total costs and expenses 407,122 435,501 Income from operations 20,249 46,639 Other income (expense): Interest expense (9,993) (10,277) Interest income 637 188 Miscellaneous income, net 42 282 Total other income (expense), net (9,314) (9,807) Income before income taxes and minority interest 10,935 36,832 Income tax expense 2,629 9,620 Minority interest (43) - Net income $8,349 $27,212 Net income per basic and diluted share $0.13 $0.43 Weighted average shares-basic 64,579,163 63,800,952 Weighted average shares-diluted 64,793,602 63,946,158 ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts) March 31, December 31, 2007 2006 Assets Current assets: Cash and cash equivalents $30,896 33,256 Trade accounts receivable, net 156,738 171,195 Notes and other receivables 6,694 6,466 Inventories 84,780 76,844 Prepaid expenses and other current assets 40,002 50,893 Total current assets 319,110 338,654 Property, plant, and equipment, net 640,598 637,136 Goodwill 20,547 20,547 Other intangibles, net 11,228 11,720 Deferred income taxes 94,847 94,897 Other assets 44,806 42,839 Total assets $1,131,136 1,145,793 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $3,274 3,254 Note payable 14,069 20,941 Bank overdraft 21,110 23,814 Trade accounts payable 69,808 75,986 Deferred income taxes 7,151 7,601 Accrued expenses and other current liabilities 82,227 90,594 Total current liabilities 197,639 222,190 Long-term debt, net of current portion 420,586 421,456 Workers' compensation benefits 8,003 7,169 Postretirement medical benefits 52,346 50,712 Asset retirement obligation 70,345 69,495 Deferred gains on sale of property interests 3,657 3,885 Other liabilities 23,600 26,887 Total liabilities 776,176 801,794 Minority Interest 363 (50) 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, 65,531,641 and 64,964,287 shares issued and outstanding 655 650 Additional paid-in capital 217,209 215,020 Accumulated other comprehensive loss (19,014) (19,019) Retained earnings 155,747 147,398 Total stockholders' equity 354,597 344,049 Total liabilities and stockholders' equity $1,131,136 1,145,793 ALPHA NATURAL RESOURCES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three months ended March 2007 2006 Operating activities: Net income $8,349 27,212 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 35,788 33,634 Amortization of debt issuance costs 570 566 Accretion of asset retirement obligation 1,556 1,077 Stock-based compensation 2,650 3,833 Amortization of deferred gains on sales of property interests (228) (239) Gain on sale of fixed assets, net (282) (153) Minority interest (43) - Change in fair value of derivative instruments (449) - Deferred income taxes (402) 1,975 Other 86 384 Changes in operating assets and liabilities 5,015 (34,861) Net cash provided by operating activities 52,610 33,428 Investing activities: Capital expenditures $(44,577) (51,439) Proceeds from disposition of property, plant, and equipment 508 182 Investment in and advances to investee (71) (15) Collections on note receivable from coal supplier - 1,432 Other (404) - Net cash used in investing activities (44,544) (49,840) Financing activities: Repayments of notes payable (6,872) (45,457) Proceeds from issuance of long-term debt - 95,000 Repayments on long-term debt (850) (73,125) Increase (decrease) in bank overdraft (2,704) 12,313 Distributions to prior members of ANR Holdings, LLC subsequent to Internal Restructuring - (1,200) Proceeds from exercise of stock options - 410 Net cash used in financing activities (10,426) (12,059) Net decrease in cash and cash equivalents (2,360) (28,471) Cash and cash equivalents at beginning of period 33,256 39,622 Cash and cash equivalents at end of period $30,896 11,151 The following table reconciles EBITDA to net income, the most directly comparable GAAP measure: Quarter ended March 31, 2007 2006 (In thousands) Net income $8,349 27,212 Interest expense 9,993 10,277 Interest income (637) (188) Income tax expense 2,629 9,620 Depreciation, depletion and amortization 35,789 33,634 EBITDA 56,123 80,555
Source: Alpha Natural Resources, Inc.