0000037748 2009-06-30 0000037748 2008-06-30 0000037748 2008-01-01 2008-06-30 0000037748 2008-12-31 0000037748 2009-01-01 2009-06-30 0000037748 2007-12-31 0000037748 2009-04-01 2009-06-30 Unaudited 0000037748 2008-04-01 2008-06-30 iso4217:USD iso4217:USD xbrli:shares xbrli:shares No (5) Debt Debt is comprised of the following: As Adjusted June 30, 2009 December 31, 2008 (In Thousands) 6.875% senior notes due 2013, net of discount of $3,622 and $3,959, respectively $756,378 $756,041 3.25% convertible senior notes due 2015, net of discount of $144,284 and $153,462, respectively 526,716 517,538 6.625% senior notes due 2010 21,949 21,949 2.25% convertible senior notes due 2024 9,647 9,647 4.75% convertible senior notes due 2023 - 70 Capital lease obligations 5,100 6,912 Total debt 1,319,790 1,312,157 Amounts due within one year (1,546) (1,976) Total long-term debt $1,318,244 $1,310,181 The weighted average effective interest rate of the outstanding borrowings was 7.3% both at June 30, 2009 and December 31, 2008. Convertible Debt Securities In May 2008, the FASB issued FSP APB 14-1 (as discussed in Note 1) which is applicable to our 3.25% Notes. We adopted FSP APB 14-1 as of January 1, 2009, which resulted in increased Interest expense of $4.6 and $9.1 million pre-tax for the three and six months ended June 30, 2009. The impact to Earnings per share was a decrease of $0.04 and $0.07 for the three and six months ended June 30, 2009. FSP APB 14-1 requires us to separately account for the liability and equity components in a manner reflective of the issuers' nonconvertible debt borrowing rate, which was determined to be 7.75% at the date of issuance. The discount associated with the 3.25% Notes will be amortized via the effective-interest method increasing the reported liability until the notes are carried at par value on their maturity date. 4.75% Notes During May 2009, we redeemed at par the remaining $70,000 of the 4.75% convertible senior notes due 2023. (2) Inventories Inventories consisted of the following: June 30, 2009 December 31, 2008 (In Thousands) Saleable coal $133,561 $144,834 Raw coal 28,155 16,802 Coal inventory 161,716 161,636 Supplies inventory 63,546 71,532 Total inventory $225,262 $233,168 Saleable coal represents coal ready for sale, including inventories designated for customer facilities under consignment arrangements of $24.4 million and $50.7 million at June 30, 2009 and December 31, 2008, respectively. Raw coal represents coal that generally requires further processing prior to shipment to the customer. 0 245276000 0 245276000 2560000 -13316000 0 16467000 -70000 0 24262000 0 9515000 314000 6474000 5629000 15121000 39383000 85270000 80162000 85226000 79965000 648922000 935412000 1344260000 1511062000 false (8) Black Lung and Workers Compensation Expense Expenses for black lung benefits and workers' compensation related benefits include the following components: Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008 (In Thousands) Self-insured black lung benefits: Service cost $1,145 $493 $1,845 $1,093 Interest cost 686 845 1,436 1,695 Amortization of actuarial gain (1,263) (870) (2,288) (1,745)Subtotal black lung benefits expense 568 468 993 1,043 Other workers' compensation benefits 5,696 7,416 15,065 16,547 Total black lung and workers' compensation benefits expense $6,264 $7,884 $16,058 $17,590 Payments for benefits, premiums and other costs related to black lung and workers' compensation liabilities were $5.7 million and $6.8 million for the three months ended June 30, 2009 and 2008, respectively, and were $17.6 million and $13.4 million for the six months ended June 30, 2009 and 2008, respectively. 12074000 20249000 -13538000 274534000 -25034000 0 2075359000 2041613000 2337855000 2297696000 0.24 -1.16 0.75 -0.64 -377000 0 -9244000 0 Yes -179131000 -301758000 7906000 -5229000 60948000 83460000 118730000 148502000 60948000 83460000 118730000 148502000 10-Q 7571508750 606997000 365220000 609557000 351904000 7016000 5922000 85469643 85447970 84872000 80162000 84865000 79965000 0000037748 Yes -12067000 12347000 0 4792000 16928000 4244000 53405000 53378000 20000000 20000000 62363000 63304000 48705000 -108574000 121455000 -39599000 Massey Energy Company --12-31 (12) Fair Value of Financial Instruments On January 1, 2008, we adopted SFAS 157, which requires the categorization of financial assets and liabilities based upon the level of judgments associated with the inputs used to measure their fair value. Hierarchical levels defined by SFAS 157 and directly related to the amount of subjectivity associated with the inputs used to determine the fair value of financial assets and liabilities are as follows: Level 1 Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life. Level 3 Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Each major category of financial assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations. June 30, 2009 (In Thousands) Level 1 Level 2 Level 3 TotalFixed income securities $13,421 $- $ - $13,421 Money market funds 623,003 - - 623,003 Short-term investment - - 15,121 15,121 Derivative instruments - 2,483 - 2,483 Total securities $636,424 $2,483 $15,121 $654,028 All investments in money market funds are cash equivalents or deposits pledged as collateral and are primarily invested in seven money market funds and four Treasury-backed funds. All fixed income securities are deposits, consisting of obligations of the U.S. Treasury, supporting various regulatory obligations. See Note 3 to the Notes to Condensed Consolidated Financial Statements for more information on deposits. Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" (SFAS 107) requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which the Statement of Financial Accounting Standard No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159) fair value option was not elected. The following methods and assumptions were used to estimate the fair value of those financial instruments: Short-term debt: The carrying amount reported in the balance sheets for short-term debt approximates its fair value due to the short-term maturity of these instruments. Long-term debt: The fair values of long-term debt are estimated using the most recent quoted market prices at which a trade occurred. The carrying amounts and fair values of financial instruments for which SFAS 159 was not elected are presented in the table below. The carrying value of the 3.25% Notes in the table below reflects the full face amount of $671,000, which has been adjusted on the balance sheet for the adoption of APB 14-1. See Note 5 to the Notes to Condensed Consolidated Financial Statements for more information on SFAS 157. June 30, 2009 December 31, 2008 Carring Value Fair Value Carring Value Fair Value (In Thousands) Short-term debt $1,546 $1,546 $1,976 1,976 Long-term debt $1,462,666 $1,183,385 $1,462,666 931,011 Short-Term Investment Short-term investment is comprised of an investment in The Reserve Primary Fund ("Primary Fund"), a money market fund that has suspended redemptions and is being liquidated. We have determined that our investment in the Primary Fund no longer meets the definition of a security within the scope of SFAS 115 "Accounting for Certain Investments In Debt and Equity Securities" ("SFAS 115"), since the equity investment no longer has a readily determinable fair value. Therefore, the investment has been classified as a short-term investment, subject to the cost method of accounting, on our Condensed Consolidated Balance Sheet. This classification as a short-term investment is based on our assessment of each of the individual securities that make up the underlying portfolio holdings in the Primary Fund, which primarily consisted of commercial paper and discount notes having maturity dates within the next 12 months, and the stated notifications from the Primary Fund that they expect to liquidate substantially all of their holdings and make distributions within a year. Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3): Short-term(In Thousands) Investments Balance at December 31, 2008 $39,383 Transfers out of Level 3, net (24,262)Change in fair value included in earnings - Balance at June 30, 2009 $15,121 Losses included in earnings attributable to the change in unrealized losses relating to assets still held at June 30, 2009 $- We received distributions from the Primary Fund in the amount of $24.3 million during the first six months of 2009, leaving an investment balance of $15.1 million, net of an estimated $6.5 million loss recorded in 2008. While we expect to receive substantially all of our remaining $15.1 million in the Primary Fund during 2009, we cannot predict during 2009 when this will occur or the actual amount we will eventually receive. Derivative Instruments Certain of our coal sales and coal purchase forward contracts are accounted for as derivative instruments in accordance with SFAS 133. SFAS 133 requires all derivative instruments to be recognized as assets or liabilities and to be measured at fair value. To establish fair values for these contracts, we use bid/ask price quotations obtained from independent third-party brokers. We could experience difficulty in valuing our derivative instruments if the number of third-party brokers should decrease or market liquidity is reduced. See Note 11 to the Notes to Condensed Consolidated Financial Statements for more information on SFAS 133. 2461973000 2545766000 163722000 244201000 0.06 0.05 0.12 0.10 2807000 3586000 11684000 8807000 840000 848000 1861000 1752000 (13) Contingencies Harman In December 1997, A.T. Massey's then subsidiary, Wellmore Coal Corporation ("Wellmore"), declared force majeure under its coal supply agreement with Harman Mining Corporation ("Harman") and reduced the amount of coal to be purchased from Harman. On October 29, 1998, Harman and its sole shareholder sued A.T. Massey and five of its other subsidiaries (the "Massey Defendants") in the Circuit Court of Boone County, West Virginia, alleging that the Massey Defendants tortiously interfered with Wellmore's agreement with Harman, causing Harman to go out of business. On August 1, 2002, the jury awarded the plaintiffs $50 million in compensatory and punitive damages. On October 24, 2006, the Massey Defendants timely filed their Petition for Appeal to the Supreme Court of Appeals of West Virginia ("WV Supreme Court"). On November 21, 2007, the WV Supreme Court issued a 3-2 majority opinion reversing the judgment against the Massey Defendants and remanding the case to the Circuit Court of Boone County with directions to enter an order dismissing the case, with prejudice, in its entirety. The Harman plaintiffs filed motions asking the WV Supreme Court to conduct a rehearing in the case. On January 24, 2008, the WV Supreme Court decided to rehear the case, which was re-argued on March 12, 2008. On April 3, 2008, the WV Supreme Court again reversed the judgment against the Massey Defendants and remanded the case with direction to enter an order dismissing the case, with prejudice, in its entirety. In July 2008, the Harman plaintiffs petitioned the United States Supreme Court (the "U.S. Supreme Court") to review the WV Supreme Court's dismissal of their claims. In December 2008, the U.S. Supreme Court agreed to review the case. The U.S. Supreme Court granted review based on the question of whether a justice of the WV Supreme Court should have recused himself from the appeal. The U.S. Supreme Court found that the justice should have recused himself and ruled on June 8, 2009 that the matter should be reheard by the West Virginia Supreme Court. The West Virginia Supreme Court will rehear the matter on September 8, 2009. We believe the maximum loss exposure related to this matter is approximately $85 million as of June 30, 2009, including post-judgment interest and other costs. We believe a loss is not probable and therefore have not recorded an accrual. It is reasonably possible that our judgments regarding these matters could change in the near term, resulting in the recording of material losses that would affect our operating results and financial position. West Virginia Flooding Since July 2001, we and nine of our subsidiaries have been sued in 17 consolidated civil actions filed in the Circuit Courts of Boone, Fayette, Kanawha, McDowell, Mercer, Raleigh and Wyoming Counties, West Virginia, for alleged property damages and personal injuries arising out of flooding on or about July 8, 2001. Along with 32 other consolidated cases not involving us or our subsidiaries, these cases cover approximately 1,800 plaintiffs seeking unquantified compensatory and punitive damages against approximately 100 defendants. The WV Supreme Court transferred all 49 cases (the "Referred Cases") to the Circuit Court of Raleigh County, West Virginia, to be handled by a mass litigation panel, which originally assigned three of its six judges to preside (the "Panel") over the litigation. We believe we have insurance coverage applicable to these items. Since August 2004, five of our subsidiaries have been sued in six civil actions filed in the Circuit Courts of Boone, McDowell, Mingo, Raleigh, Summers and Wyoming Counties, West Virginia, for alleged property damages and personal injuries arising out of flooding on or about May 2, 2002. These complaints cover approximately 350 plaintiffs seeking unquantified compensatory and punitive damages from approximately 35 defendants. Since May 2006, we and twelve of our subsidiaries have been sued in three civil actions filed in the Circuit Courts of Logan and Mingo Counties, West Virginia, for alleged property damages and personal injuries arising out of flooding between May 30 and June 4, 2004. Four of our subsidiaries have been dismissed from one of the Logan County cases. These complaints cover approximately 425 plaintiffs seeking unquantified compensatory and punitive damages from approximately 52 defendants. We believe these matters will be resolved without a material adverse impact on our cash flows, results of operations or financial condition. West Virginia Trucking Since January 2003, an advocacy group and residents in Boone, Kanawha, Mingo and Raleigh Counties, West Virginia, filed 17 suits in the Circuit Courts of Kanawha and Mingo Counties, West Virginia, against twelve of our subsidiaries. Plaintiffs alleged that defendants illegally transported coal in overloaded trucks, causing damage to state roads, thereby interfering with plaintiffs' use and enjoyment of their properties and their right to use the public roads. Plaintiffs seek injunctive relief and compensatory and punitive damages. The WV Supreme Court referred the consolidated lawsuits, and similar lawsuits against other coal and transportation companies not involving our subsidiaries, to the Circuit Court of Lincoln County, West Virginia, to be handled by a mass litigation panel judge. Plaintiffs filed motions requesting class certification. On June 7, 2007, plaintiffs voluntarily dismissed their public nuisance claims seeking monetary damages for road and bridge repairs. Defendants filed a motion requesting that the mass litigation panel judge recommend to the WV Supreme Court that the cases be sent back to the circuit courts of origin for resolution. That motion has not been ruled upon. Defendants moved to dismiss any remaining public nuisance claims and to limit any damages for nuisance to two years prior to the filing of any suit, and plaintiffs agreed to an order limiting any damages for nuisance to two years prior to the filing of any suit. The motion to dismiss any remaining public nuisance claims was resisted by plaintiffs and argued at hearings on December 14, 2007 and June 25, 2008.,No date has been set for trial. We believe we have insurance coverage applicable to these items and that they will be resolved without a material adverse impact on our cash flows, results of operations or financial condition. Well Water Suits Since September 2004, approximately 738 plaintiffs have filed approximately 400 suits against us and our subsidiary, Rawl Sales & Processing Co., in the Circuit Court of Mingo County, West Virginia, for alleged property damage and personal injuries arising out of slurry injection and impoundment practices allegedly contaminating plaintiffs' water wells. Plaintiffs seek injunctive relief and compensatory damages in excess of $170 million and unquantified punitive damages. Specifically, plaintiffs are claiming that defendants' activities during the period of 1978 through 1987 rendered their property valueless and request monetary damages to pay, inter alia, the value of their property and future water bills. In addition, many plaintiffs are also claiming that their exposure to the contaminated well water caused neurological injury or physical injury, including cancers, kidney problems and gall stones. Finally, all plaintiffs claimed entitlement to medical monitoring for the next 30 years and have requested unliquidated compensatory damages for pain and suffering, annoyance and inconvenience and legal fees. On April 30, 2009, the Court held a mandatory settlement conference. At that settlement conference, all plaintiffs agreed to settle and dismiss their medical monitoring claims. Additionally, 180 plaintiffs agreed to settle all of their remaining claims and be dismissed from the case. The Court is currently considering whether to dismiss the claims of an additional 179 plaintiffs who did not attend the mandatory settlement conference. All settlements to date will be funded by insurance proceeds. There are currently 557 plaintiffs remaining. The trial is scheduled for October 20, 2009. We do not believe there was any contamination caused by our activities or that plaintiffs suffered any damage and, therefore, we do not believe we have a probable loss related to this matter. We plan to vigorously contest these claims. We believe that we have insurance coverage applicable to these matters and have initiated litigation against our insurers to establish that coverage. At this time, we believe that the litigation by the plaintiffs will be resolved without a material adverse impact on our cash flows, results of operations or financial condition. Surface Mining Fills Since September 2005, three environmental groups sued the United States Army Corps of Engineers ("Corps") in the United States District Court for the Southern District of West Virginia (the "District Court"), asserting the Corps unlawfully issued permits to four of our surface mines to construct mining fills. The suit alleges the Corps failed to comply with the requirements of both Section 404 of the Clean Water Act and the National Environmental Policy Act, including preparing environmental impact statements for individual permits. We intervened in the suit to protect our interests. On March 23, 2007, the District Court rescinded four of our subsidiaries' permits, resulting in the temporary suspension of mining at these surface mines. We appealed that ruling to the United States Court of Appeals for the Fourth Circuit (the "Fourth Circuit Court"). On April 17, 2007, the District Court partially stayed its ruling, permitting mining to resume in certain fills that were already under construction. On June 14, 2007, the District Court issued an additional ruling, finding the Corps improperly approved placement of sediment ponds in streams below fills on the four permits in question. The District Court subsequently modified its ruling to allow these ponds to remain in place, as the ponds and fills have already been constructed. The District Court's ruling could impact the issuance of permits for the placement of sediment ponds for future operations. If the permits for the fills or sediment ponds are ultimately held to be unlawfully issued, production could be affected at these surface mines, and the process of obtaining new Corps permits for all surface mines could become more difficult. We appealed both rulings to the Fourth Circuit Court. On February 13, 2009, the Fourth Circuit Court reversed the prior rulings of the District Court and remanded the matter for further proceedings. On March 30, 2009, the Plaintiffs requested that the Fourth Circuit Court reconsider the case. The request was denied on May 20, 2009. The Plaintiffs have until August 27, 2009, to seek an appeal before the U.S. Supreme Court, but have not done so to date. Customer Disputes We have customers who claim they did not receive, or did not timely receive, all of the coal required to be shipped to them during 2008 ("unshipped tons"). In such cases, it is typical for a customer and coal producer to agree upon a schedule for shipping unshipped tons in subsequent years. A few of our customers, however, have notified us of filed claims or potential claims for cover damages, which damages are equal to the difference between the contract price of the coal that was not delivered and the market price of replacement coal or comparable quality coal. We recently resolved claims for cover by some of our customers, including several claims involving arbitration and litigation for cover by one customer who had failed to pay approximately $35 million owed to us for several shipments of coal. The customer notified us that it had offset the amounts from its required payments in response to damages allegedly suffered due to alleged shipment shortfalls. The resolution of all of these claims for cover was not materially different from our initial accounting estimates. Discussions with other customers remain ongoing. We believe we have strong defenses to these claims or potential claims for cover damages. In many cases, there was untimely or insufficient delivery of railcars by the rail carrier or the customer. In other cases, factors beyond our control caused production or shipment problems. Additionally, we believe that certain customers previously agreed to accept unshipped tons in subsequent years. We believe that all of these factors, and other factors, provide defenses to claims or potential claims for unshipped tons. Separately, we are currently in talks with a few other customers regarding disagreements over other contract matters. Specifically, we have disputes with two customers regarding whether or not binding contracts for the sale of coal were reached. One of these customers has improperly terminated a signed, higher-priced contract and argues that it was only required to purchase coal under a purported agreement reached by email. The other customer argues that it reached agreement with us in the absence of a signed agreement and has brought litigation against us for not honoring an alleged unsigned agreement. We do not believe that we have failed to honor any binding agreement with these customers. We believe that we have strong defenses to these claims and potential claims and further feel that many or all of these claims may be resolved without litigation. We have recorded an accrual for our best estimate of probable losses related to these matters. While we believe that all of these matters discussed above will be resolved without a material adverse impact on our cash flows, results of operations or financial condition, it is reasonably possible that our judgments regarding some or all of these matters could change in the near term. The aggregate exposure related to these claims in excess of our accrual is up to $76 million of charges that would affect our future operating results and financial position. Spartan Unfair Labor Practice Matter & Related Age Discrimination Class Action In 2005, the United Mine Workers of America ("UMWA") filed an unfair labor practice charge with the National Labor Relations Board ("NLRB") alleging that one of our subsidiaries, Spartan Mining Company ("Spartan"), discriminated on the basis of anti-union animus in its employment offers. The NLRB issued a complaint and an NLRB Administrative Law Judge ("ALJ") issued a recommended decision making detailed findings that Spartan committed a number of unfair labor practice violations and awarding, among other relief, back pay damages to union discriminatees. The ALJ's decision is on appeal to the NLRB. We have no insurance coverage applicable to this unfair labor practice matter; however, its resolution is not expected to have a material impact on our cash flows, results of operations or financial condition. On November 1, 2006, a class action age discrimination civil case was filed in West Virginia's Fayette County Circuit Court. The suit alleged that Spartan discriminated against employment applicants on the basis of age. The class includes approximately 229 individuals, 82 of whom are also union discriminatees at issue in the ALJ's decision. The plaintiffs made claims for back pay, front pay, punitive damages, and other compensatory damages, plus attorney fees. We have insurance coverage applicable to the class action and, on July 28, 2009, the parties executed a Class Settlement Agreement, that establishes a settlement fund from which all class claims and attorney fees will be paid. The majority of the settlement proceeds are to be paid by the insurer, with Spartan's portion of the settlement limited to its insurance deductible of $1 million dollars plus applicable employer payroll taxes for back pay allocated to class plaintiffs. The parties anticipate that a final hearing approving the settlement will be held by November 1, 2009. Consequently, we expect this matter to conclude without a material impact on our cash flows, results of operations or financial condition. Other Legal Proceedings We are parties to a number of other legal proceedings, incident to our normal business activities. These include contract dispute, personal injury, property damage and employment matters. While we cannot predict the outcome of these proceedings, based on our current estimates we do not believe that any liability arising from these matters individually or in the aggregate should have a material adverse impact upon our consolidated cash flows, results of operations or financial condition. It is possible, however, that the ultimate liabilities in the future with respect to these lawsuits and claims, in the aggregate, may be materially adverse to our cash flows, results of operations or financial condition. -1812000 -940000 5870000 -26494000 1193057000 1126612000 1340000 0 644000 873000 none (1) Significant Accounting Policies Basis of Presentation The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under accounting principles generally accepted in the United States and, therefore, should be read in conjunction with the Annual Report on Form 10-K of Massey Energy Company ("we," "our," "us" or the "Company") for the year ended December 31, 2008. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the quarterly period ended June 30, 2009 are not necessarily indicative of results that can be expected for the fiscal year ending December 31, 2009. The condensed consolidated financial statements included herein are unaudited; however, the financial statements contain all adjustments (consisting of normal recurring accruals), which, in our opinion, are necessary to present fairly our consolidated financial position at June 30, 2009, our consolidated results of operations for the three and six months ended June 30, 2009 and 2008, and cash flows for the six months ended June 30, 2009 and 2008, in conformity with accounting principles generally accepted in the United States ("GAAP"). The condensed consolidated financial statements include our accounts and the accounts of our wholly owned and sole, direct operating subsidiary, A.T. Massey Coal Company, Inc. ("A.T. Massey"), and A.T. Massey's wholly and majority owned direct and indirect subsidiaries. Significant intercompany transactions and accounts are eliminated in consolidation. We have no independent assets or operations. We do not have a controlling interest in any separate independent operations. Investments in business entities in which we do not have control, but have the ability to exercise significant influence over the operating and financial policies, are accounted for under the equity method. A.T. Massey and substantially all of our indirect operating subsidiaries, each such subsidiary being indirectly 100% owned by us, fully and unconditionally, jointly and severally, guarantee our obligations under the 6.625% senior notes due 2010 ("6.625% Notes"), the 6.875% senior notes due 2013 ("6.875% Notes"), the 3.25% convertible senior notes due 2015 ("3.25% Notes") and the 2.25% convertible senior notes due 2024 ("2.25% Notes"). The subsidiaries not providing a guarantee of the 6.625% Notes, the 6.875% Notes, the 3.25% Notes and the 2.25% Notes are minor (as defined under Securities and Exchange Commission ("SEC") Rule 3-10(h)(6) of Regulation S-X). See Note 5 to the Notes to Condensed Consolidated Financial Statements for a more complete discussion of debt. We have evaluated all subsequent events through August 10, 2009, the date the financial statements were issued. No material recognized or non-recognizable subsequent events were identified. Fair Value Measurements In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). In February 2008, the FASB issued FASB Staff Position 157-2, Partial Deferral of the Effective Date of SFAS 157, which delayed the effective date of SFAS 157 for all nonrecurring fair value measurements of non-financial assets and non-financial liabilities. We adopted SFAS 157 effective January 1, 2008, for financial assets and financial liabilities. The adoption of SFAS 157 for financial assets and financial liabilities did not have a material impact on our financial position or results of operations. We adopted SFAS 157 effective January 1, 2009, for non-financial assets and non-financial liabilities. The adoption of SFAS 157 for non-financial assets and non-financial liabilities did not have a material impact on our financial position or results of operations. See Note 12 to the Notes to Condensed Consolidated Financial Statements for more information on SFAS 157. Derivative Instruments Our coal sales and coal purchase forward contracts' derivative positions are offset on a counterparty-by-counterparty basis for derivative instruments executed with the same counterparty under a master netting arrangement, in accordance with FSP Interpretation No. 39-1. In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133" ("SFAS 161") which is effective for fiscal years beginning after November 15, 2008. SFAS 161 amends the disclosure requirements of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" to provide an enhanced understanding of how and why derivative instruments are used, how they are accounted for and their effect on an entity's financial condition, performance and cash flows. We adopted SFAS 161 effective January 1, 2009. See Note 11 to the Notes to Condensed Consolidated Financial Statements for disclosure in accordance with SFAS 161. Convertible Debt Securities In May 2008, the FASB issued FASB Staff Position APB 14-1 ("FSP APB 14-1"), "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)," which applies to all convertible debt instruments that have a net settlement feature,'' which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion. FSP APB 14-1 requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers' nonconvertible debt borrowing rate. FSP APB 14-1 requires that an entity determine the estimated fair value of a similar debt instrument as of the date of the issuance without the conversion feature but inclusive of any other embedded features and assign that value to the debt component of the instrument, which resulted in a discount being recorded. The debt is subsequently being accreted through interest expense to its par value over its expected life using the market rate at the date of issuance. The residual value between the initial proceeds and the value allocated to the debt is reflected in equity as additional paid in capital. FSP APB 14-1 is applicable to our 3.25% Notes. We adopted FSP APB 14-1 effective January 1, 2009. See Note 5 to the Notes to Condensed Consolidated Financial Statements for more information on FSP APB 14-1. The adoption of FSP APB 14-1 impacted the historical accounting for the 3.25% Notes, which resulted in the adjustment of our Consolidated Balance Sheets as of December 31, 2008, as follows: As Originally Presented As Adjusted December 31, December 31, 2008 2008 (In Thousands) Other Noncurrent Assets $142,644 $139,186 Total assets 3,675,836 3,672,378 Long-term debt 1,463,643 1,310,181 Deferred taxes 117,268 177,294 Total noncurrent liabilities 2,135,049 2,041,613 Total liabilities 2,639,202 2,545,766 Additional capital 444,122 542,519 Retained earnings 640,496 632,077 Total shareholders' equity 1,036,634 1,126,612 Total liabilities and shareholders' equity 3,675,836 3,672,378 As the 3.25% Notes were issued during the third quarter of 2008, the adoption of FSP APB 14-1 did not impact our Condensed Consolidated Statements of Income for the three and six months ended June 30, 2008. Accounting Pronouncements In May 2009, the FASB issued SFAS No. 165, "Subsequent Event." SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The pronouncement provides, (a) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (b) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (c) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is required to be adopted prospectively and was effective for interim or annual periods ending after June 15, 2009. We adopted SFAS 165 for the quarter ending June 30, 2009. The adoption of SFAS No. 165 did not have a material effect on our cash flows, results of operations or financial condition. In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles" ("SFAS 168"). SFAS 168 identifies the FASB Accounting Standards Codification as the authoritative source of GAAP in the United States. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We do not expect adoption to have a material impact on our condensed consolidated financial statements. -10185000 -7972000 15113000 1440000 154383000 274655000 510828000 490834000 66801000 61459000 138419000 120807000 14229000 26206000 33568000 51884000 51622000 56959000 1189476000 1235496000 240403000 233266000 (11) Derivative Instruments We evaluate each of our coal sales and coal purchase forward contracts under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") to determine if they qualify for the normal purchase normal sale ("NPNS") exception prescribed by SFAS 133. The majority of our forward contracts do qualify for the NPNS exception based on management's intent and ability to physically deliver or take physical delivery of the coal and therefore are not reflected in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income. For those contracts that do not qualify for the NPNS exception, the contracts are required to be accounted for as derivative instruments in accordance with SFAS 133, which requires all derivative instruments to be recognized as assets or liabilities and to be measured at fair value. We use purchase coal contracts to supplement our produced and processed coal in order to provide coal to meet customer requirements under sales contracts. Those contracts that have been identified as derivatives have not been designated as cash flow or fair value hedges and, accordingly, the net change in fair value is recorded in current period earnings. As of June 30, 2009, there were approximately 1.3 million and 2.5 million tons outstanding under these coal purchase and coal sales contracts, respectively. We have recorded a net gain of $0.4 million ($4.3 million of unrealized gains due to fair value measurement adjustments and $3.9 million of realized losses due to settlements on existing contracts) for the three months ended June 30, 2009, and a net gain of $9.2 million ($25.0 million of unrealized gains due to fair value measurement adjustments and $15.8 million of realized losses due to settlements on existing contracts) for the six months ended June 30, 2009, related to coal sales and purchase contracts that qualify as derivatives in the Condensed Consolidated Statements of Income under the caption Gain on derivative instruments. An asset of $2.5 million is included in Other current assets in the Condensed Consolidated Balance Sheets as of June 30, 2009. The fair values of our purchases and sales derivative contracts have been aggregated in Other current assets. We are exposed to certain risks related to coal price volatility. The forward purchases and sales contracts we enter into and deem derivatives allow us to mitigate a portion of the underlying risk associated with coal price volatility. (10) Earnings Per Share The number of shares of our common stock, $0.625 par value per share ("Common Stock"), used to calculate basic earnings per share for the three and six months ended June 30, 2009 and 2008 is based on the weighted average of outstanding shares of Common Stock during the respective periods. The number of shares of Common Stock used to calculate diluted earnings per share is based on the number of shares of Common Stock used to calculate basic earnings per share plus the dilutive effect of stock options and other stock-based instruments held by our employees and directors during each period and debt securities currently convertible into shares of Common Stock during each period. The effect of dilutive securities issuances in the amount of 2.7 million and 3.0 million shares of Common Stock for the three and six months ended June 30, 2009, and 2.4 million and 2.8 million shares of Common Stock for the three and six months ended June 30, 2008, respectively, were excluded from the calculation of diluted income per share of Common Stock, as such inclusion would result in antidilution. The computations for basic and diluted income per share are based on the following per share information: Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008 (In Thousands, Except Per Share Amounts) Numerator: Net income (loss) - numerator for basic $20,192 $(93,338) $63,618 $(51,404) Effect of convertible notes 43 - 87 - Adjusted net income (loss) - numerator for diluted $20,235 $(93,338) $63,705 $(51,404) Denominator: Weighted average shares - denominator for basic 84,872 80,162 84,865 79,965 Effect of stock options/restricted stock 109 - 71 - Effect of convertible notes 289 - 290 - Adjusted weighted average shares - denominator for diluted 85,270 80,162 85,226 79,965 Net income (loss) per share: Basic $0.24 $(1.16) $0.75 $(0.64) Diluted $0.24 $(1.16) $0.75 $(0.64) The 2.25% Notes are convertible by holders into shares of Common Stock during certain periods under certain circumstances. The 2.25% Notes were not eligible for conversion at June 30, 2009. If all of the 2.25% Notes outstanding at June 30, 2009 had been eligible for conversion and were converted, we would have issued 287,113 shares of Common Stock. The 3.25% Notes are convertible under certain circumstances and during certain periods into (i) cash, up to the aggregate principal amount of the 3.25% Notes subject to conversion and (ii) cash, Common Stock or a combination thereof, at our election in respect to the remainder (if any) of our conversion obligation. As of June 30, 2009, the price per share of Common Stock had not reached the specified threshold for conversion. (7) Other Noncurrent Liabilities Other noncurrent liabilities is comprised of the following: June 30, 2009 December 31, 2008 (In Thousands) Reclamation $165,964 $154,823 Workers' compensation and black lung 93,952 92,982 Other postretirement benefits 165,556 161,527 Other 85,356 81,502 Total other noncurrent liabilities $510,828 $490,834 of operations for the quarterly period ended June 30, 2009 are not necessarily indicative of results that can be expected for the fiscal year ending December 31, 2009. The condensed consolidated financial statements included herein are unaudited; however, the financial statements contain all adjustments (consisting of normal recurring accruals), which, in our opinion, are necessary to present fairly our consolidated financial position -2538000 -3440000 -6276000 -101240000 0 -28833000 0 0 0.24 -1.16 0.75 -0.64 19231000 6867000 29171000 17541000 603219000 710305000 1284246000 1253536000 2009-06-30 -139756000 -300318000 551053000 542519000 20001000 38516000 41871000 59995000 697627000 826838000 1465715000 1471463000 (6) Pension Expense Net periodic pension expense for both our qualified defined benefit pension plan and nonqualified supplemental benefit pension plan is comprised of the following components: Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008 (In Thousands) Service cost $2,972 $2,212 $5,354 $4,328 Interest cost 4,293 4,057 8,465 8,056 Expected return on plan assets (4,154) (5,713) (8,180) (11,426)Recognized loss 4,428 378 8,666 631 Amortization of prior service cost 130 11 140 21 Net periodic pension expense $7,669 $945 $14,445 $1,610 We paid benefits to participants of the nonqualified supplemental benefit pension plan of $0.03 million for the six month periods ended June 30, 2009 and 2008. We expect that contributions of an estimated $7.5 million will be required in 2009 for the qualified defined benefit pension plan. We have contributed a total of $5.0 million to the qualified defined benefit pension plan in 2009, $2.5 million in both April and July 2009. The increase in our 2009 pension cost related to our qualified defined benefit pension plan was due to investment losses on our pension assets incurred during 2008. Other Current Assets Other current assets are comprised of the following: June 30, 2009 December 31, 2008 (In Thousands) Longwall panel costs $14,722 $12,290 Deposits 59,432 59,648 Other 24,979 44,123 Total other current assets $99,133 $116,061 Deposits consist primarily of funds placed in restricted accounts with financial institutions to collateralize letters of credit that support workers' compensation requirements, insurance and other obligations. As of June 30, 2009 and December 31, 2008, Deposits includes $46.0 million of funds pledged as collateral to support $45.0 million of outstanding letters of credit. In addition, Deposits at June 30, 2009 and December 31, 2008 includes $13.4 and $13.0 million of United States Treasury securities supporting various regulatory obligations, respectively. 168384000 201017000 127699000 139186000 0 6621000 -80479000 38539000 7787000 1922000 685510000 632077000 0.625 0.625 150000000 150000000 1546000 1976000 -25453000 -20806000 -50689000 -41763000 -11046000 247000 0 0 20192000 -93338000 63618000 -51404000 26059000 -125794000 82450000 -72555000 (9) Other Postretirement Benefits Expense Net periodic postretirement benefit cost includes the following components: Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008 (In Thousands) Service cost $920 $777 $1,957 $1,602 Interest cost 2,491 2,072 5,009 4,422 Recognized loss 566 82 1,152 407 Amortization of prior service credit (188) (188) (376) (376)Net periodic postretirement benefit cost $3,789 $2,743 $7,742 $6,055 Payments for benefits related to postretirement benefit cost were $1.8 million and $1.7 million for the three months ended June 30, 2009 and 2008, respectively, and were $3.3 million and $3.1 million for the six months ended June 30, 2009 and 2008, respectively. 7865000 834000 7961000 16302000 63618000 -51404000 3655030000 3672378000 579000 622000 1362000 1408000 (4) Property, Plant and Equipment Property, plant and equipment is comprised of the following: June 30, 2009 December 31, 2008 (In Thousands) Property, plant and equipment, at cost $4,520,188 $4,373,325 Accumulated depreciation, depletion and amortization (2,182,333) (2,075,629) Net property, plant and equipment $2,337,855 $2,297,696 Property, plant and equipment includes gross assets under capital leases of $12.9 and $17.3 million at June 30, 2009 and December 31, 2008, respectively. During the first quarter of 2009, we sold our interest in certain coal reserves to a third party, recognizing a pre-tax gain of $7.1 million in Other revenue. During the first and second quarters of 2008, we exchanged coal reserves with various third parties, recognizing gains in Other revenue of $13.6 and $15.3 million (pre-tax), respectively, in accordance with SFAS 153. The acquired coal reserves were recorded in Property, plant and equipment at the fair value of the reserves surrendered. 140280000 122559000 3655030000 3672378000 99133000 116061000 225262000 233168000 484641000 499661000 1030566000 917888000 85469643 Large Accelerated Filer -96911000 -101362000 183924000 177294000 1318244000 1310181000 386614000 504153000 -5867000 32456000 -18832000 21151000 15489000 5570000 20695000 15434000