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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File No. 1-7775
MASSEY ENERGY COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-0740960
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
4 North 4th Street, Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 788-1800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.625 par value
Name of each exchange on which registered
New York Stock Exchange
Pacific Exchange, Inc.
Chicago Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates was $940,876,475 on December 31, 2000 based upon the average
between the highest and lowest sales prices of the registrant's Common Stock as
reported in the consolidated transactions reporting system.
Common Stock, $0.625 par value, outstanding as of December 31, 2000 -
73,496,939 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
registrant's definitive proxy statement for the 2001 annual meeting of
shareholders, which proxy statement will be filed no later than 120 days after
the close of the registrant's fiscal year ended October 31, 2000.
1
From time to time, Massey Energy Company (("Massey" or the
"Company")(formerly named Fluor Corporation ("Fluor")) makes certain comments
and disclosures in reports and statements, including this report, or statements
made by its officers or directors which may be forward-looking in nature.
Examples include statements related to Company growth, the adequacy of funds to
service debt and the Company's opinions about trends and factors which may
impact future operating results. These forward-looking statements could also
involve, among other things, statements regarding the Company's intent, belief
or expectation with respect to (i) the Company's results of operations and
financial condition, (ii) the consummation of acquisition, disposition or
financing transactions and the effect thereof on the Company's business, and
(iii) the Company's plans and objectives for future operations and expansion or
consolidation.
Any forward-looking statements are subject to the risks and uncertainties
that could cause actual results of operations, financial condition, cost
reductions, acquisitions, dispositions, financing transactions, operations,
expansion, consolidation and other events to differ materially from those
expressed or implied in such forward-looking statements. Any forward-looking
statements are also subject to a number of assumptions regarding, among other
things, future economic, competitive and market conditions generally. These
assumptions would be based on facts and conditions as they exist at the time
such statements are made as well as predictions as to future facts and
conditions, the accurate prediction of which may be difficult and involve the
assessment of events beyond the Company's control. As a result, the reader is
cautioned not to rely on these forward-looking statements.
The Company wishes to caution readers that forward-looking statements,
including disclosures which use words such as the Company "believes,"
"anticipates," "expects," "estimates" and similar statements, are subject to
certain risks and uncertainties which could cause actual results of operations
to differ materially from expectations. Any forward-looking statements should be
considered in context with the various disclosures made by the Company about its
businesses, including without limitation the risk factors more specifically
described below in Item 1. Business, under the heading "Business Risks."
Part I
Item 1. Business
On November 30, 2000, the Company completed a reverse spin-off, which
divided it into two separate publicly-traded corporations. As a result of the
reverse spin-off (the "Spin-Off"), the Company separated into:
(1) the spun-off corporation, "new" Fluor Corporation ("New Fluor"), which
owns all of the Company's then existing businesses except for the coal-related
business conducted by A.T. Massey Coal Company, Inc. ("A. T. Massey"); and
(2) Fluor, subsequently renamed Massey Energy Company, which owns the
coal-related business through its sole subsidiary A. T. Massey.
Except as the context otherwise requires, the terms "Massey" or the "Company" as
used herein shall include Massey Energy Company, A. T. Massey and A. T. Massey's
subsidiaries. This Form 10-K discusses the business, operations and financial
condition of Massey, and not New Fluor.
In the Energy Ventures Analysis ranking of coal companies by 1999 revenues,
Massey is the fifth largest coal company in the United States, and the largest
in the Central Appalachian region. Massey produces, processes and sells
bituminous, low sulfur coal of steam and metallurgical grades through its 18
processing and shipping centers, called "resource groups," many of which receive
coal from multiple coal mines. Massey currently operates more than 50 coal mines
in West Virginia, Kentucky and Virginia. Its steam coal is primarily purchased
by utilities and industrial clients as fuel for power plants. Its metallurgical
coal is used primarily to make coke for use in the manufacture of steel.
1
A. T. Massey was originally incorporated in Richmond, Virginia in 1920 as a
coal brokering business. In the late 1940s, A. T. Massey expanded its business
to include coal mining and processing. In 1974, St. Joe Minerals acquired a
majority interest in A. T. Massey. St. Joe Minerals was then acquired by Fluor
in 1981. A. T. Massey has been wholly owned by Fluor (now Massey) from 1987 and
operated as one of Fluor's principal business segments until the Spin-Off.
Industry Overview
A major contributor to the world energy supply, coal currently represents
approximately 26% of the world's primary energy consumption. The primary use for
coal is to fuel electrical power generation. In calendar year 2000, coal was
used to generate 55% of the electricity produced in the United States and 37%
worldwide.
The United States is the second largest coal producer in the world,
exceeded only by China. Other leading coal producers include India, South
Africa, and Australia. The United States is the largest holder of coal reserves
in the world, with over 250 years supply at current production rates. U.S. coal
reserves are more plentiful than oil or natural gas, with coal representing
approximately 95% of the nation's fossil fuel reserves.
U.S. coal production has more than doubled during the last 30 years. In
2000, total coal production was 1.09 billion tons. The primary producing regions
were the Powder River Basin (33%), Central Appalachia (24%), Midwest (14%), West
(other than the Powder River Basin) (14%) and Northern Appalachia (13%).
Approximately 62% of U.S. coal is produced by surface mining methods. The
remaining 38% is produced by underground mining methods that include room and
pillar mining and longwall mining.
Coal is used in the United States by utilities to generate electricity, by
steel companies to make steel products with blast furnaces, and by a variety of
industrial users to heat and power foundries, cement plants, paper mills,
chemical plants and other manufacturing and processing facilities. Significant
quantities of coal are also exported from both east and west coast terminals.
The breakdown of 2000 U.S. coal demand, as estimated by Resource Data
International, Inc. ("RDI"), is as follows:
End Use Tons (millions) % of Total
------- -------------- ----------
Electrical generation...... 928 85%
Industrial users........... 68 6%
Exports.................... 59 5%
Steel making............... 28 3%
Residential & commercial... 5 1%
-------------- ----
Total...................... 1,088 100%
============== ====
Coal has long been favored as an electrical generating fuel because of its
basic economic advantage. The largest cost component in electrical generation is
fuel. This fuel cost is typically lower for coal than competing fuels such as
oil and natural gas. RDI estimated the average total production costs of
electricity-using coal and competing generation alternatives in 2000 (January -
September) as follows:
Electrical Generation Type Cost per million
-------------------------- ----------------
Kilowatt Hours
--------------
Oil........................... $ 5.766
Natural Gas................... $ 5.307
Other (solar, wind, etc.)..... $ 2.453
Nuclear....................... $ 1.811
Coal.......................... $ 1.732
Hydroelectric................. $ 0.893
2
According to RDI, 19 of the 25 lowest operating cost electrical generation
power plants in the United States during 1999 were fueled by coal. Coal used as
fuel to generate electricity is commonly referred to as "steam coal."
3
There are several factors other than fuel cost that influence each
utility's choice of electrical generation mode, including facility construction
cost, access to fuel transportation infrastructure, environmental restrictions,
and other factors. The breakdown of U.S. electrical generation by fuel source in
2000, as estimated by RDI, is as follows:
Electrical Generation Source % of Total Electrical Generation
---------------------------- --------------------------------
Coal.................. 55%
Nuclear............... 20%
Natural Gas........... 14%
Hydro................. 8%
Oil................... 2%
Other................. 1%
----
Total................. 100%
====
RDI projects that generators of electricity will increase their demand for
coal as demand for electricity increases. Because coal-fired generation is used
in most cases to meet base load requirements, coal consumption has generally
grown at the pace of electricity demand growth. Demand for electricity has
historically grown in proportion to U.S. economic growth.
The United States ranks second among worldwide exporters of coal. Australia
is the largest exporter, with other major exporters including South Africa,
Indonesia, Canada, Taiwan, and Colombia. U.S. exports have decreased by over 40%
since 1992 as a result of increased international competition and the U.S.
dollar's strength in comparison to foreign currencies. According to RDI, the
usage breakdown for 1999 U.S. exports of 59 million tons was 46% for electrical
generation and 54% for steel making. U.S. coal exports were shipped to more than
40 countries. The largest purchaser of exported steam coal was Canada, which
took 16 million tons or 59% of total steam coal exports. The largest purchaser
of exported metallurgical coal was Europe, which represented 19 million tons or
61% of total metallurgical coal exports.
The type of coal used in steel making is referred to as metallurgical coal,
and is distinguished by special quality characteristics that include high carbon
content, low expansion pressure, low sulfur content, and various coal chemistry
attributes. Metallurgical coal is also high in heat content, and therefore is
desirable to utilities as fuel for electrical generation. Consequently,
metallurgical coal producers have the ongoing opportunity to select the market
that provides maximum revenue. The premium price offered by steel makers for the
metallurgical quality attributes is typically higher than the price offered by
utility coal buyers that value only the heat content. The primary concentration
of U.S. metallurgical coal reserves is located in the Central Appalachian
region. RDI estimates that the Central Appalachian region supplied 83% of
domestic metallurgical coal and 92% of U.S. exported metallurgical coal during
1999.
Industrial users of coal typically purchase high Btu products with the same
type of quality focus as utility coal buyers. The primary goal is to maximize
heat content, with other specifications like ash content, sulfur content, and
size varying considerably among different customers. Because most industrial
coal consumers use considerably less tonnage than electric generating stations,
they typically prefer to purchase coal that is screened and sized to
specifications that streamline coal handling processes. Due to the more
stringent size and quality specifications, industrial customers often pay a 10%
to 15% premium above utility coal pricing (on comparable quality). The largest
regional supplier to the industrial market sector has historically been Central
Appalachia, which supplied 39% of all U.S. industrial coal demand in 1999.
Coal shipped for North American consumption is typically sold at the mine
loading facility with transportation costs being borne by the purchaser.
Offshore export shipments are normally sold at the ship-loading terminal, with
the purchaser paying the ocean freight. According to the National Mining
Association, approximately two-thirds of U.S. coal production is shipped via
railroads. Final delivery to consumers often involves more than one
transportation mode. A significant portion of U.S. production is delivered to
customers via barges on the inland waterway system and ships loaded at Great
Lakes ports.
4
Mining Methods
- --------------
Massey produces coal using three distinct mining methods: underground room
and pillar, underground longwall and surface/highwall mining.
Use of continuous miner machines in the room and pillar method of
underground mining represented approximately 52% of Massey's 2000 production.
Production from underground longwall mining operations constituted about
14% of Massey's 2000 production. Massey's Upper Big Branch Mine was ranked (per
1999 Department of Labor productivity statistics) as the most productive
longwall mine in the Eastern United States. Massey now operates three additional
longwall units, adding one each in 1999, 2000 and 2001.
Surface mining represented approximately 34% of Massey's 2000 coal
production. Massey has established large-scale surface mines in Boone and
Nicholas counties of West Virginia. Other Massey surface mines are smaller in
scale. Massey surface mines also use highwall mining systems to produce coal
from high overburden areas.
Mining Operations
Massey currently has eighteen distinct resource groups or mining complexes,
including thirteen in West Virginia, four in Kentucky and one in Virginia. These
complexes receive, blend, process and ship coal that is produced from one or
more mines, with a single complex handling the coal production of as many as
eight distinct underground or surface mines. These mines have been developed at
strategic locations in close proximity to the Massey preparation plants and rail
shipping facilities. Coal is transported from Massey's mining complexes to
customers by means of railroad cars or trucks, with rail shipments representing
approximately 92% of 2000 coal shipments.
5
The following table provides key summary information on all Massey mining
complexes (Resource Groups) that were active in 2000.
Massey Resource Groups
2000 2000 Year Established
---- ---- ----------------
Resource Group Name Location Production(1) Shipments Coal Quality Reserves or Acquired
- ------------------- -------- ------------- --------- ------------ -------- -----------
(000's (000's (000's
of Tons) of Tons) of Tons)(2)
Delbarton.......... Mingo County, WV 760 0 Low Sulfur Utility 34,000 1999
Low Sulfur Industrial
Eagle Energy....... Boone County, WV 136 218 High Vol Met 0 1996
Elk Run............ Boone County, WV 4,535 7,313 High Vol Met 134,000 1978
Low Sulfur Utility
Low Sulfur Industrial
Green Valley....... Nicholas County, WV 490 465 High Vol Met 11,000 1996
Low Sulfur Utility
Low Sulfur Industrial
Independence....... Boone County, WV 5,892 3,101 High Vol Met 59,000 1994
Low Sulfur Utility
Low Sulfur Industrial
Knox Creek......... Tazewell County, VA 583 631 High Vol Met 50,000 1997
Low Sulfur Utility
Low Sulfur Industrial
Logan County....... Logan County, WV 1,589 1,268 Low Sulfur Utility 91,000 1998
Low Sulfur Industrial
Long Fork.......... Pike County, KY 0 1,153 Low Sulfur Utility 17,000 1991
Low Sulfur Industrial
Marfork............ Raleigh County, WV 3,139 6,347 High Vol Met 77,000 1993
Low Sulfur Utility
Low Sulfur Industrial
Martin County...... Martin County, KY 3,453 3,326 Low Sulfur Utility 66,000 1969
Low Sulfur Industrial
New Ridge.......... Pike County, KY 0 1,740 Low Sulfur Utility 0 1992
Low Sulfur Industrial
Nicholas Energy.... Nicholas County, WV 4,395 4,227 High Vol Met 114,000 1997
Low Sulfur Utility
Low Sulfur Industrial
Omar............... Boone County, WV 0 466 Low Sulfur Utility 35,000 1954
Low Sulfur Industrial
Performance........ Raleigh County, WV 4,099 1,477 High Vol Met 45,000 1994
Progress........... Boone County, WV 4,338 2,072 Low Sulfur Utility 84,000 1998
Low Sulfur Industrial
Rawl............... Mingo County, WV 2,356 2,471 High Vol Met 111,000 1974
Low Sulfur Utility
Low Sulfur Industrial
Sidney............. Pike County, KY 5,713 3,140 Low Sulfur Utility 151,000 1984
Low Sulfur Industrial
Stirrat............ Logan County, WV 0 368 High Vol Met 34,000 1993
Low Sulfur Utility
Low Sulfur Industrial
Other/Unassigned... N/A N/A 459 N/A 810,000 N/A
------ ------ ---------
Total............ 41,478 40,242 1,923,000
====== ====== =========
- --------------
(1) For purposes of this table, coal production has been allocated to the
Resource Group where the coal is mined, rather than the Resource Group
where the coal is processed and shipped. Several Massey Resource Groups
provide processing and rail shipping services for coal mined at other
nearby Massey operations.
(2) Reserves allocated to individual mining complexes include both assigned
reserves and unassigned reserves that are accessible from the established
operations.
6
West Virginia Resource Groups
Delbarton. The Delbarton complex processes coal produced by an underground
room and pillar mine in the Lower Cedar Grove seam. Production from this mine,
located adjacent to the Delbarton complex, is transported to the Delbarton
preparation plant via overland conveyor. The Delbarton preparation plant can
process 800 tons per hour of raw coal. The clean coal product is shipped to
customers via the Norfolk Southern railway in unit trains of up to 110 railcars.
Eagle Energy. The Eagle Energy complex is currently inactive but has
historically processed coal production from the adjacent underground longwall
mine in the Eagle seam. The economically accessible Eagle seam reserves were
depleted in January 2000 and the operation was idled. The Eagle Energy
preparation plant is a modern facility with a rated feed capacity of 750 tons
per hour. Customers can be served via CSX railway shipments loaded in unit
trains of up to 90 railcars. Plans are now under review to re-activate this
complex using production from new mines in seams above the Eagle seam.
Elk Run. The Elk Run complex is Massey's largest shipper of coal. Elk Run
produces coal from five underground room and pillar mines that are belted
directly to the preparation plant. Elk Run also has a large surface mine that
ships direct to customers via the Kanawha River docks. Additionally, the Elk Run
complex processes coal for shipment that is produced from two other Massey
resource groups. The Independence production shipped from Elk Run includes coal
produced from underground mines in the Upper Cedar Grove and the Hernshaw seams.
The Twilight surface mine in the Progress resource group transports all of its
production to the Elk Run facilities via underground conveyor system. The Elk
Run preparation plant has a processing capacity of 2200 tons per hour. Customer
shipments are loaded on the CSX rail system in unit trains of up to 150
railcars.
Green Valley. The Green Valley complex specializes in premium quality coals
servicing industrial customers in a variety of industries. The Green Valley
preparation plant receives coal via truck that is produced from two underground
room and pillar mines in the Sewell seam. The Green Valley preparation plant has
a processing capacity of 600 tons per hour. The rail loading facility services
customers on the CSX rail system with unit train shipments of up to 75 railcars.
Independence. The Independence complex processes coal from one large
underground longwall mine and one room and pillar mine. Production from both
mines is transported via underground conveyor system directly to the
Independence preparation plant. Independence has five additional underground
mining operations that produce coal for processing and shipment by other Massey
resource groups. The Independence plant has a processing capacity of 1400 tons
per hour. Customers are served via rail shipments on the CSX rail system in unit
trains of up to 150 railcars.
Logan County. The Logan County complex processes coal through the Bandmill
preparation plant from three surface mining operations and two underground
mines. All three surface mines and one underground mine deliver coal to the
Bandmill plant via truck. The Aracoma underground mine, which belts coal
directly to the Bandmill plant, currently produces with two continuous miner
sections but plans call for a future longwall installation. The Bandmill
preparation plant completed a major renovation in 2000 and has a processing
capacity of 1200 tons per hour. The rail loading facility services customers via
the CSX rail system with unit train shipments of up to 150 cars.
Marfork. The Marfork complex is Massey's leading shipper of premium
metallurgical coal. The largest production source for the Marfork complex is the
Upper Big Branch underground longwall mine of Massey's Performance resource
group. Other production sources for the Marfork complex include a new longwall
mine and five underground room and pillar mines. All Marfork production sources
are belted directly to the preparation plant via conveyor systems. The Marfork
preparation plant is a high capacity processing facility that processes 2300
tons per hour. All customers are serviced via the CSX rail system with unit
trains of up to 150 railcars.
Nicholas Energy. The Nicholas Energy complex processes coal from one new
longwall mine, two large surface mines and one underground room and pillar mine.
All coal from the underground mines, as well as the
7
portion of surface mined coal requiring processing, is transported to the Power
Mountain preparation plant via overland conveyor system. The Power Mountain
plant was upgraded in 1999, and currently has a processing capacity of 1200 tons
per hour. All coal shipments are loaded into rail cars for delivery via the
Norfolk Southern railway in unit trains of up to 140 railcars.
Omar. The Omar mining complex processes coal from adjacent mining
operations of Massey's Independence and Elk Run resource groups. All production
sources are transported via underground conveyor system to the Omar preparation
plant. The Omar plant can process 800 tons per hour. A new rail loading facility
was completed in May 2000. Omar can now service its CSX rail system customers
with unit train shipments of up to 150 railcars.
Performance. The Performance mining complex includes the Upper Big Branch
underground mine and the Goals preparation plant. The Upper Big Branch mine is a
longwall operation in the Eagle seam, with most production being processed and
shipped from Massey's Marfork resource group. The Goals preparation plant
processes the balance of the Upper Big Branch mine's production, as well as
production from adjacent underground mines of Massey's Independence resource
group. The Goals preparation plant can process 800 tons per hour. The rail
loading facility services CSX railway customers with unit trains of up to 90
railcars.
Progress. The Progress mining complex includes the Twilight MTR surface
mine, coal handling system and stoker plant. All production is processed through
a coal handling system and transported via underground conveyor to Massey's Elk
Run resource group for rail shipment.
Rawl. The Rawl complex includes six underground room and pillar mines and
the Sprouse Creek Processing plant. Four mines transport coal to the Sprouse
Creek plant--three via trucks and one via short-tagged rail cars. The other two
mines produce coal that is processed for shipment by Massey's Stirrat resource
group. The Sprouse Creek preparation plant has a throughput capacity of 1450
tons per hour. Customers are serviced via the Norfolk Southern railway with unit
trains of up to 150 railcars.
Stirrat. The Stirrat complex processes coal produced by the adjacent
Diamond Energy and Spring Branch underground mines of Massey's Rawl resource
group. All production is transported via truck to the Stirrat preparation plant.
The plant has a rated capacity of 500 tons per hour. Customers are serviced via
the CSX rail system with unit trains of up to 100 railcars.
Kentucky Resource Groups
Long Fork. The Long Fork complex processes coal produced by the adjacent
Solid Energy mine of Massey's Sidney resource group. All production is
transported via overland conveyor system to the Long Fork preparation plant. The
Long Fork plant has a rated capacity of 1100 tons per hour. The rail loading
facility services customers on the Norfolk Southern railway with unit trains of
up to 150 railcars.
Martin County. Production at the Martin County complex is sourced from one
surface mine and one underground room and pillar mine. Approximately 70% of all
surface mined production is saleable without processing and is shipped to
customers at the Ohio/Big Sandy river docks via truck. Both the underground mine
production and the portion of surface mine production requiring processing are
transported to the preparation plant via underground conveyor system. The Martin
County preparation plant has a throughput capacity of 1500 tons per hour. All
coal processed through the preparation plant is shipped via the Norfolk Southern
railway in unit trains of up to 125 railcars. Because of a partial failure at
the Martin County coal refuse impoundment on October 11, 2000, the preparation
plant is currently idled for an indefinite period. Raw coal production that
requires processing (approximately 40% of total Martin County production) is
being shipped to the Sprouse Creek plant of Massey's Rawl resource group for
processing and shipment on to customers.
8
New Ridge. The New Ridge complex processes coal that is transported via
truck from mining operations of Massey's Sidney resource group. The New Ridge
preparation plant has a throughput capacity of 800 tons per hour. All coal is
loaded for shipment to customers via the CSX rail system in unit trains of up to
100 railcars.
Sidney. The Sidney complex includes five underground room and pillar mines
and the Big Creek preparation plant. All mines transport production via
underground conveyor to the Big Creek plant, except one mine that belts coal to
Massey's Long Fork resource group for processing and shipment. The Big Creek
preparation plant has a throughput capacity of 1500 tons per hour. The Sidney
rail loading facility services customers on the Norfolk Southern rail system
with unit trains of up to 140 railcars.
Virginia Resource Group
Knox Creek. The Knox Creek complex processes coal from one underground room
and pillar mine. Production from the Tiller No. 1 mine is belted directly to the
Knox Creek preparation plant. The Knox Creek plant has a feed capacity of 850
tons per hour. The rail loading facility services customers on the Norfolk
Southern rail system with unit trains of up to 100 railcars.
Other Related Operations
Massey has other related operations and activities in addition to its
normal coal production and sales business. The following business activities are
included in this category:
Appalachian Synfuel Plant: Appalachian Synfuel, LLC ("Appalachian
Synfuel"), a subsidiary of the Company, owns a synthetic fuel manufacturing
facility located adjacent to the Marfork complex in Boone County, West Virginia.
This facility converts coal products to synthetic fuel and has operated since
June 1998. Appalachian Synfuel has obtained a private letter ruling from the IRS
that production from this synfuel facility qualifies the owner for tax credits
pursuant to Section 29 of the Code. Synthetic fuel sales during fiscal year 2000
were approximately 456,000 tons. Massey has been exploring the sale of the
Appalachian Synfuel manufacturing facility to optimize value of the associated
tax credit benefits.
Westvaco Coal Handling Facility: Massey subsidiaries own and operate the
coal unloading, storage and conveying facilities at Westvaco Corporation's paper
manufacturing facility in Covington, Virginia ("Westvaco CHF"). The Westvaco CHF
was constructed by Massey in 1992 as a means of reducing coal transportation and
handling costs for Westvaco Corporation, a long term industrial coal customer.
The Westvaco CHF operating agreement extends through 2007, and provides that
Massey be paid a per ton fee (annually adjusted) for coal handling services and
allows Massey to supply 100% of the coal required by Westvaco's facility.
Other: Massey also engages in the sale of timber, gas & oil rights and the
sale of non-strategic surface properties and reserves to third parties.
Marketing and Sales
The Massey marketing and sales force, based in the corporate office in
Richmond, Virginia, includes sales managers, distribution/traffic managers,
technical support and administrative personnel.
During the fiscal year ended October 31, 2000, Massey sold 40.2 million
tons of produced coal for total revenues of $1.08 billion. The breakdown by
market served was 56% utility, 35% metallurgical and 9% industrial. Sales were
concluded with over 120 customers. Export shipments (including Canada)
represented approximately 20% of 2000 tonnage sold. Massey's 2000 export
shipments serviced customers in 10 countries across North America, South
America, Europe and Asia. Almost all sales are made in U.S. dollars, which
eliminates the foreign currency risk.
9
The Company has established several partnering arrangements with customers
wherein services other than coal supply are provided on an ongoing basis.
Examples of such partnership arrangements include:
. The Westvaco CHF (described above). A Massey subsidiary owns and
operates the coal unloading and storage facilities. As consideration
for performing this service, the Massey subsidiary receives a per ton
processing fee and also secures the right to supply 100% of the coal
required by this plant.
. At two large steel companies, one synthetic fiber manufacturer and one
tobacco processing plant, a Massey subsidiary coordinates shipment of
coal to the customer's stockpile, maintains ownership of the coal
inventory on site and sells tonnage to the customer as it is consumed.
Other such partnering services are provided periodically in response to the
current needs of each individual customer.
Distribution
Massey employs transportation specialists who negotiate freight and
terminal agreements with various providers, including railroads, barge lines,
steamship lines, bulk motor carriers and terminal facilities. Transportation
specialists also coordinate with customers, mining facilities and transportation
providers to establish shipping schedules that meet the customer's needs.
Massey's 2000 shipments of 40.2 million tons were loaded from 18 mining
complexes. Rail shipments constituted 92% of total shipments, with 33% loaded on
Norfolk Southern trains and 59% loaded on CSX trains. The 8% balance was shipped
from Massey mining complexes via truck.
Approximately 18% of Massey's production is ultimately delivered via the
inland waterway system. Coal is transported by rail or truck to docks on the
Ohio, Big Sandy and Kanawha Rivers and then ultimately transported by barge to
electric utilities, integrated steel producers and industrial consumers served
by the inland waterway system. Massey also moves approximately 15% of its
production to Great Lakes Ports for transport beyond to various U.S. and
Canadian customers.
Customers and Coal Contracts
Massey has coal supply commitments with a wide range of electric utilities,
steel manufacturers and industrial customers. The majority of Massey's customers
purchase coal for terms of one year or longer, but Massey also supplies coal on
a spot basis for some of its customers. Massey's biggest customer, Duke Energy,
accounted for 14% of Massey's total fiscal year 2000 revenues. Massey has been
serving this customer for over thirty years and has agreements in place to
continue to supply coal through June 2003.
As the largest supplier of metallurgical coal to the American steel
industry, Massey is subject to being adversely affected by any decline in the
financial condition or production volume of American steel producers. Recently,
American steel producers have experienced a substantial decline in the prices
received for their products, due at least in part to a heavy volume of foreign
steel imported into this country. As a result, two of the largest producers
filed for bankruptcy protection in late 2000, including Wheeling-Pittsburgh
Steel Corporation, a substantial customer of Massey. Further deterioration in
conditions in the steel industry could reduce the demand for Massey's coal and
impact the collectibility of Massey's accounts receivable from steel industry
customers. Since Massey's metallurgical grade coal can also be marketed as a
high-Btu steam coal for use by utilities, a decline in the metallurgical market
could result in some coal being switched from the metallurgical market to the
utility market.
As is customary in the coal industry, Massey has entered into long-term
contracts (exceeding one year in duration) with many of its customers. These
arrangements allow customers to secure a supply for their future
10
needs and provide Massey with greater predictability of sales volume and sales
prices. During fiscal year 2001, Massey's sales pursuant to long-term sales
arrangements are projected to be at or above 75%.
By offering coal of both metallurgical and steam grades, Massey is able to
serve a diverse customer base. This market diversity allows Massey to adjust to
changing market conditions and sustain high sales volumes.
The terms of Massey's long-term contracts are a result of extensive
negotiations with the customer. As a result, the terms of these contracts vary
with respect to price adjustment mechanisms, pricing terms, permitted sources of
supply, force majeure provisions, quality adjustments and other parameters. Most
of the contracts contain price adjustment mechanisms that allow for changes to
prices based on statistics from the U.S. Department of Labor. Contracts contain
specifications for coal quality, which may be especially stringent for steel
customers. Many of these contracts also specify the approved locations from
which the coal is to be mined.
Competition
The coal industry in the United States is highly competitive. Massey
competes with other large producers and many small coal producers. Massey
competes with other producers primarily on the basis of price, coal quality,
transportation cost and reliability of supply. Continued demand for coal is also
dependent on factors outside Massey's control, including demand for electricity,
environmental and governmental regulations, technological developments and the
availability of alternative fuel sources.
The price at which the Company's production can be sold is dependent upon a
variety of factors, many of which are beyond the Company's control. The Company
sells coal under long-term contracts and on the spot market. See the "Customers
and Coal Contracts" section above. Generally, the relative competitiveness of
coal vis-a-vis other fuels or other coals is evaluated on a delivered cost per
heating value unit basis. In addition to competition from other fuels, coal
quality, the marginal cost of producing coal in various regions of the country
and transportation costs are major determinants of the price for which the
Company's production can be sold. Factors that directly influence production
cost include geological characteristics (including seam thickness), overburden
ratios, depth of underground reserves and transportation costs. The Company's
central Appalachian coal is more expensive to mine than western coal because
there is a high percentage of underground coal in the east and eastern surface
coal tends to have thinner coal seams. Additionally, underground mining has
higher labor (including reserves for future costs associated with labor benefits
and health care) and capital (including modern mining equipment and construction
of extensive ventilation systems) costs than those of surface mining. In recent
years, increased development of large surface mining operations, particularly in
the western United States, and more efficient mining equipment and techniques,
have contributed to excess coal production capacity in the United States.
Competition resulting from excess capacity has encouraged producers to reduce
prices and to pass productivity gains through to customers. The lower production
cost in the western mines is offset somewhat by the higher quality of many
eastern coals and higher transportation cost from these western mines to many
coal-fired power plants in the country. Demand for the Company's low-sulfur coal
and the prices that the Company will be able to obtain for it will also be
affected by the price and availability of high-sulfur coal, which can be
marketed in tandem with emissions allowances. Intraregional and interregional
competition is keen as producers seek to position themselves as the low-cost
producer and supplier of high-demand product to the electricity generating
industry.
Transportation costs are another fundamental factor affecting coal industry
competition. Coordination of the many eastern loadouts, the large number of
small shipments, terrain and labor issues all combine to make shipments
originating in the eastern United States inherently more expensive on a per-mile
basis than shipments originating in the western United States. Historically,
coal transportation rates from the western coal producing areas into central
Appalachian markets limited the use of western coal in those markets. More
recently, however, lower rail rates from the western coal producing areas to
markets served by eastern producers have created major competitive challenges
for eastern producers. Barge transportation is the lowest-cost method of
transporting coal long distances in the eastern United States, and the large
numbers of eastern producers with river access keep coal prices competitive. The
Company believes that many utilities with plants located on the Ohio River
system are
11
well positioned for deregulation as competition for river shipments should
remain high for central Appalachian coal. With close proximity to
competitively-priced central Appalachian coal and the ability to receive western
coals, the Company believes utilities with plants located on the Ohio River
system will become price setters in a deregulated environment. The ability of
these utilities to blend western and eastern coal will also create a new,
dynamic fuel procurement environment that could place western and eastern coals
in even greater competition and limit rail price premiums. River transport is an
important transportation option not available to Powder River Basin producers
between Wyoming and midwestern river terminals.
Although undergoing significant consolidation, the coal industry in the
United States remains highly fragmented. There can be no assurance that the
Company's costs will permit it to compete effectively with other producers
seeking to provide coal to a customer, however, the Company expects to be able
to maintain low production costs, offer a variety of products and have access to
multiple transportation systems that will enable it to compete effectively with
other producers.
Employees and Labor Relations
As of October 31, 2000, Massey had 3,610 employees, including 152 employees
affiliated with the United Mine Workers of America. Relations with employees are
generally good, and there have been no material work stoppages in the past ten
years.
Environmental, Safety and Health Matters
Massey is subject to federal, state and local laws and regulations relating
to environmental protection and plant and mine safety and health, including but
not limited to the federal Surface Mining Control and Reclamation Act of 1977;
Occupational Safety and Health Act; Mine Safety and Health Act of 1977; Water
Pollution Control Act, as amended by the Clean Water Act of 1977; Black Lung
Benefits Revenue Act of 1977; and Black Lung Benefits Reform Act of 1977.
On October 20, 1999, the United States District Court for the Southern
District of West Virginia ( the "District Court") issued an injunction which
prohibits the construction of valley fills over both intermittent and perennial
stream segments as part of mining operations. While Massey is not a party to
this litigation, virtually all mining operations (including those of Massey)
utilize valley fills to dispose of excess materials mined during coal
production. This decision is now under appeal to the Fourth Circuit Court of
Appeals and the District Court has issued a stay of its decision pending the
outcome of the appeal. Based upon the current state of the appeal, the Company
does not believe that the Massey mining operations will be materially affected
while the appeal is pending. If and to the extent that the District Court's
decision is upheld and legislation is not passed which limits the impact of the
decision, all or a portion of Massey's mining operations could be affected. The
potential impact on Massey arising from this proceeding is currently not
estimable.
On October 11, 2000, a partial failure of Martin County Coal Corporation's
coal refuse impoundment released approximately 230 million gallons of coal
slurry into adjacent underground mine workings. The slurry then discharged into
two tributary streams of the Big Sandy River in eastern Kentucky. Further
information on this release is set forth in Item 3, Legal Proceedings.
On June 27, 2000, the West Virginia Division of Environmental Protection
issued an administrative order to one of Massey's subsidiaries, Elk Run Coal
Company. Further information on this order is set forth in Item 3. Legal
Proceedings.
The U.S. Department of Labor has issued new regulations implementing the
federal black lung laws which, among other things, establish a presumption in
favor of a claimant's treating physician and limit a coal operator's ability to
introduce medical evidence regarding the claimant's medical condition. The
validity of these regulations is currently being challenged in litigation. If
upheld, the amendments could have an adverse impact on Massey, the extent of
which cannot be accurately predicted.
The Clean Air Act and corresponding state laws extensively regulate
emissions into the air of particulate matter and other substances, including
sulfur dioxide, nitrogen oxides and mercury. Although these regulations apply
directly to impose certain requirements for the permitting and operation of
Massey's mining facilities, by
12
far their greatest impact on Massey and the coal industry generally is the
effect of emission limitations applicable to utilities and other Massey
customers. The Environmental Protection Agency has imposed or attempted to
impose tighter emission restrictions in a number of areas, some of which are
currently subject to litigation. The general effect of such tighter restrictions
could be to reduce demand for coal.
The United States and more than 160 other nations are signatories to the
1992 Framework Convention on Global Climate Change (the "Kyoto Protocol") which
is intended to limit or reduce emissions of greenhouse gases, such as carbon
dioxide. Under the terms of the Kyoto Protocol, the United States would be
required to reduce emissions to 93% of 1990 levels over a five-year period from
2008 through 2012. Although the U.S. Senate has not yet ratified the Kyoto
Protocol and no comprehensive regulations focusing on greenhouse gas emissions
have been issued, efforts to control greenhouse gas emissions could result in
reduced use of coal if electric power generators switch to lower carbon sources
of fuel.
It is impossible to predict the full impact of future judicial, legislative
or regulatory developments on Massey's operations, because the standards to be
met, as well as the technology and length of time available to meet those
standards, continue to develop and change.
In fiscal year 2000, Massey spent approximately $6.4 million to comply with
environmental, health and safety laws and regulations, none of which
expenditures were capitalized. Massey anticipates making $6.8 million and $6.4
in such non-capital expenditures in fiscal 2001 and 2002, respectively. Of these
expenditures, $6.0 million, $6.4 million and $6.0 million for fiscal 2000, 2001
and 2002, respectively, were or are anticipated to be for surface reclamation.
Existing financial reserves are believed to be adequate to cover actual and
anticipated reclamation expenditures.
The Company believes, based upon present information available to it, that
its accruals with respect to future environmental costs are adequate and such
future costs will not have a material effect on the Company's consolidated
financial position, results of operations or liquidity. However, the imposition
of more stringent requirements under environmental laws or regulations, new
developments or changes regarding site cleanup costs or the allocation of such
costs among potentially responsible parties, or a determination that the Company
is potentially responsible for the release of hazardous substances at sites
other than those currently identified, could result in additional expenditures
or the provision of additional accruals in expectation of such expenditures.
Business Risks
Coal markets are highly competitive and affected by factors beyond Massey's
control.
Massey competes with coal producers in various regions of the United States
for domestic sales and with both domestic and overseas producers for sales to
international markets. Continued demand for Massey's coal and the prices that it
will be able to obtain primarily will depend upon coal consumption patterns of
the domestic electric utility industry and the domestic steel industry.
Consumption by the domestic utility industry is affected by the demand for
electricity, environmental and other governmental regulations, technological
developments and the price of competing coal and alternative fuel supplies
including nuclear, natural gas, oil and renewable energy sources, including
hydroelectric power. Consumption by the domestic steel industry is primarily
affected by the demand for U.S. steel. Massey's sales of metallurgical coal are
dependent on the continued financial viability of domestic steel companies and
their ability to compete with steel producers abroad.
Massey depends on continued demand from its customers.
Reduced demand from Massey's largest customers could have an adverse impact
on Massey's ability to achieve its projected revenues. When Massey's contracts
with its customers reach expiration, there can be no assurance that the
customers either will extend or enter into new long-term contracts or, in the
absence of long-term contracts, that they will continue to purchase the same
amount of coal as they have in the past or on terms, including pricing terms, as
favorable as under existing agreements.
13
Union represented labor creates an increased risk of work stoppages and higher
labor costs.
Eight of Massey's coal processing plants and one of its smaller surface
mines have a workforce that is represented by the United Mine Workers of
America. In fiscal 2000, these eight processing plants handled approximately 25%
of Massey's coal production. There may be an increased risk of strikes and other
related work actions, in addition to higher labor costs, associated with these
operations. At October 31, 2000, less than 5% of Massey's total workforce was
represented by a union. Massey has experienced some union organizing campaigns
at some of its open shop facilities within the past five years. If some or all
of Massey's current open shop operations were to become union represented,
Massey could incur additional risk of work stoppages and higher labor costs.
Transportation disruptions could impair Massey's ability to sell coal.
Massey's transportation providers are important in order to provide access
to markets. Massey's major rail transportation providers, CSX Transportation,
Inc. and Norfolk Southern Corporation, have experienced some operational
difficulties due to the integration by each of a portion of Conrail's
operations. In mid-1999, these providers' delays in service caused Massey to
miss some of its shipments. There has been recent improvement by these carriers;
however, Massey cannot be assured that these transportation providers will not
face continued difficulties. Disruption of transportation services because of
such problems or from weather-related problems, strikes, lockouts or other
events could temporarily impair Massey's ability to supply coal to customers.
Fluctuations in transportation costs could affect the demand for Massey's coal.
Transportation costs represent a significant portion of the delivered cost
of coal and, as a result, the cost of delivery is a critical factor in a
customer's purchasing decision. Increases in transportation costs could make
coal a less competitive source of energy. Such increases could have a material
adverse effect on Massey's ability to compete with other energy sources and on
its business, financial condition and results of operations. On the other hand,
significant decreases in transportation costs could result in increased
competition from coal producers in other parts of the country. For instance,
coal mines in the western United States could become an attractive source of
coal to consumers in the eastern part of the country if the costs of
transporting coal from the west were significantly reduced.
Foreign currency fluctuations could adversely affect the competitiveness of
Massey's coal abroad.
Massey relies on customers in other countries for a portion of its sales,
with shipments to countries in Europe, North America, South America and Asia.
Massey competes in these international markets against coal produced in other
countries. Coal is sold internationally in U.S. dollars. As a result, mining
costs in competing producing countries may be reduced in U.S. dollar terms based
on currency exchange rates, providing an advantage to foreign coal producers.
Currency fluctuations in producing countries could adversely affect the
competitiveness of U.S. coal in international markets.
Coal mining is subject to inherent risks.
Massey's operations are subject to certain events and conditions which
could disrupt operations, including fires and explosions from methane,
accidental minewater discharges, natural disasters, equipment failures and
maintenance problems, flooding, changes in geologic conditions, failure of
reserve estimates to prove correct and inability to acquire mining rights or
permits. Massey maintains business interruption insurance and property and
general liability insurance policies that provide limited coverage for some, but
not all, of these risks. Even where
14
insurance coverage applies, there can be no assurance that these risks would be
fully covered by Massey's insurance policies.
Government regulations increase Massey's costs and may discourage customers from
buying Massey's coal.
Numerous governmental permits and approvals are required for coal mining
operations. Massey may be required to prepare and present to federal, state and
local authorities more extensive data describing the effect or impact that any
proposed mining operations may have upon the environment. For example, the West
Virginia Division of Environmental Protection is involved in litigation
regarding its alleged failure to consider the hydrologic effects of mining
operations in issuing mining permits. This suit could lead to additional
requirements that Massey and other mining companies assess potential hydrologic
risks. These and any other increased requirements may be costly and
time-consuming and may delay commencement or continuation of mining operations.
New legislation and new regulations may be adopted which could materially
adversely affect Massey's mining operations, cost structure or its customers'
ability to use coal. New legislation and new regulations may also require Massey
or its customers to change operations significantly or incur increased costs.
The U.S. Environmental Protection Agency (the "EPA") has undertaken broad
initiatives aimed at increasing compliance with emissions standards and to
provide incentives to customers for decreasing emissions, often by switching to
an alternative fuel source.
The Clean Air Act affects Massey's customers and could influence their
purchasing decisions.
The Clean Air Act and corresponding state laws extensively regulate
emissions into the air of particulate matter and other substances, including
sulfur dioxide, nitrogen oxides and mercury. In order to comply with limitations
on emissions, Massey's customers may switch to other fuels or coal from other
regions.
The Clean Air Act affects coal mining operations by requiring utilities
that currently are major sources of nitrogen oxides in moderate or higher ozone
nonattainment areas to install reasonably available control technology. In July
1997, the EPA adopted new, more stringent National Ambient Air Quality Standards
for particulate matter and ozone. The adoption and implementation of these more
stringent standards have been challenged in litigation and the outcome of that
challenge is uncertain at this time. The specific provisions of these standards
could be revised by the EPA.
In October 1998, the EPA issued its final rule entitled "Finding of
Significant Contribution and Rulemaking for Certain States in the Ozone
Transport Assessment Group Region for Purposes of Reducing Regional Transport of
Ozone" (the NOx SIP Call rule). In the final rule, the EPA found that sources in
22 states and the District of Columbia emit NOx in amounts that significantly
contribute to nonattainment of National Ambient Air Quality Standards, or will
interfere with maintenance of those standards, in one or more downwind states.
The rule requires the 22 upwind states and the District of Columbia to submit
state implementation plan revisions to prohibit specified amounts of emissions
of oxides of nitrogen (NOx)--one of the precursors to ozone (smog)
pollution--for the purpose of reducing NOx and ozone transport across state
boundaries in the eastern half of the United States. Although states may choose
any mix of pollution reduction measures that will achieve the required
reductions, it is widely anticipated that states will target large utility and
industrial boilers, which could materially reduce the demand for coal by these
users.
Additionally, the EPA has granted petitions filed by four northeast states
under section 126 of the Clean Air Act. The granting of these petitions means
that stationary sources located in upwind states--mostly coal-fired
utilities--must reduce their emissions of NOx. The deadline for compliance under
the section 126 petitions is May 2003.
15
The EPA has filed suit against a number of leading electric utilities
(including Massey customers) in U.S. District Court, asserting that these
utilities must install new emission controls at plants previously
"grandfathered" from the more stringent requirements now applicable under the
Clean Air Act. The EPA is also pursuing an administrative proceeding against the
Tennessee Valley Authority on the same basis. Installation of these controls
would require very significant capital investment, and some utilities might
choose to switch to non-coal generation rather than make such investment. This
could materially decrease the demand for coal.
The passage of legislation responsive to the Framework Convention on Global
Climate Change could have an adverse effect on Massey's business.
The United States and more than 160 other nations are signatories to the
1992 Framework Convention on Global Climate Change ("Kyoto Protocol") which is
intended to limit emissions of greenhouse gases, such as carbon dioxide.
Although the U.S. Senate has not yet ratified the Kyoto Protocol and no
comprehensive regulations controlling greenhouse gas emissions have been issued,
efforts to control greenhouse gas emissions could result in reduced use of coal
if electric power generators switch to lower carbon sources of fuel.
Massey is subject to the Clean Water Act which imposes monitoring and reporting
obligations.
The federal Clean Water Act affects coal mining operations by imposing
restrictions on discharge of pollutants into waters and dredging and filling of
wetlands. Regular monitoring, as well as compliance with reporting requirements
and performance standards, are preconditions for the issuance and renewal of
permits governing the discharge of pollutants into water.
On October 20, 1999, the U.S. District Court for the Southern District of
West Virginia issued an injunction which prohibits the construction of valley
fills over both intermittent and perennial stream segments as part of mining
operations. While Massey is not a party to this litigation, virtually all mining
operations (including Massey's) utilize valley fills to dispose of excess
materials mined during coal production. This decision is now under appeal to the
Fourth Circuit Court of Appeals and the district court has issued a stay of its
decision pending the outcome of the appeal. If and to the extent that the
district court's decision is upheld and legislation is not passed which limits
the impact of the decision, all or a portion of Massey's mining operations could
be affected.
Deregulation of the electric utility industry could lead to efforts to reduce
coal prices.
Deregulation of the electric utility industry, when implemented, will
enable industrial, commercial and residential customers to shop for the lowest
cost supply of electricity. This fundamental change in the power industry may
result in efforts to reduce coal prices.
Item 2. Properties
Operations of Massey and its subsidiaries are conducted in both owned and
leased properties totaling approximately 900,000 acres in West Virginia,
Kentucky and Virginia. In addition, certain owned or leased properties of Massey
and its subsidiaries are leased or subleased to third party tenants. Massey and
its subsidiaries currently own or lease the equipment that is utilized in their
mining operations. The following table describes the location and general
character of the major existing facilities, exclusive of mines, coal preparation
plants and their adjoining offices.
Coal Offices:
Richmond, Virginia Owned Massey Corporate Headquarters
Charleston, West Virginia Leased Massey Coal Services Headquarters
16
Coal Reserves
Massey estimates that, as of October 31, 2000, Massey had total recoverable
reserves of approximately 1.9 billion tons of proven and probable reserves.
Reserves are coal deposits that could be economically and legally extracted or
produced. "Recoverable" reserves means coal that is recoverable using existing
equipment and methods under federal and state laws currently in effect.
Approximately 1.4 billion tons of Massey's reserves are classified as proven
reserves. This means that these deposits have been substantiated by adequate
information, including information derived from exploration, current and
previous mining operations, outcrop data and knowledge of mining conditions. The
remaining 500 million tons of Massey's reserves are classified as probable
reserves. These are deposits of coal which are based on information of a more
preliminary or limited extent or character, but which are considered likely.
Reserve estimates are updated annually using geologic data taken from drill
holes, adjacent mine workings, outcrop prospect openings and other sources. Coal
tonnages are categorized according to coal quality, seam thickness, mineability
and location relative to existing mines and infrastructure. In accordance with
applicable industry standards, proven reserves are those for which reliable data
points are spaced no more than 2,700 feet apart. Probable reserves are those for
which reliable data points are spaced 2,700 feet to 7,900 feet apart. Further
scrutiny is applied using geological criteria and other factors related to
profitable extraction of the coal. These criteria include seam height, roof and
floor conditions, yield and marketability.
The following table provides reserve data by state as of October 31, 2000,
as follows:
Tons % of Total
---------- ----------
(millions)
Southern West Virginia...... 1,491 78%
Eastern Kentucky............ 343 18
Southwestern Virginia....... 55 3
Southeastern Tennessee...... 34 1
---------- ----------
Total....................... 1,923 100%
========== ==========
When categorized by sulfur content, the reserve breakdown is as follows:
Tons % of Total
---------- ----------
(millions)
Sulfur Content
Compliance sulfur or less..................... 820 43%
Greater than compliance and less than 1%...... 466 24
Greater than 1% sulfur and less than 2%....... 587 31
Greater than 2% sulfur........................ 50 2
---------- ----------
Total......................................... 1,923 100%
========== ==========
Massey's reserve holdings include high volatile metallurgical coal
reserves. Although these metallurgical coal reserves receive the highest selling
price in the current coal market when marketed to steel-making customers, they
can also be marketed as an ultra high Btu, low sulfur steam coal for electrical
generation. The categorization of Massey's coal reserves as utility/industrial
or metallurgical quality is as follows:
Tons % of Total
---------- ----------
(millions)
Coal Type
High volatile metallurgical..... 625 33%
Low volatile metallurgical...... 98 5
Utility or industrial markets... 1,200 62
---------- ----------
Total........................... 1,923 100%
========== ==========
17
As with most coal-producing companies in Central Appalachia, the majority
of Massey's coal reserves are controlled pursuant to leases from third party
landowners. These leases convey mining rights to the coal producer in exchange
for a per ton or percentage of gross sales price royalty payment to the lessor.
However, a significant portion of Massey's reserves holdings are owned and
require no royalty or per ton payment to other parties. The following table
summarizes the portion of Massey reserves controlled by ownership versus lease:
Tons % of Total
---------- ----------
(millions)
Method of Reserve Control
Owned reserves.................. 321 17%
Leased reserves................. 1,602 83
---------- ----------
Total........................... 1,923 100%
========== ==========
See Item 1. Business, of this report for additional information regarding
the coal operations and properties of Massey.
Item 3. Legal Proceedings
Big Sandy Dispute
Sidney Coal Company, Inc. ("Sidney"), a wholly-owned subsidiary of Massey,
is the sublessee of Cliffs Mining Company ("Cliffs") under two coal leases from
Big Sandy Company, L.P. ("Big Sandy"). The leases cover coal reserves in Pike
County, Kentucky, and include active mining areas and reserves for Sidney's
Clean Energy and Freedom Energy Mines. Big Sandy claims that Sidney breached the
terms of the leases by underpaying certain coal royalties and that Big Sandy has
terminated both leases. Sidney and Cliffs deny that Big Sandy was underpaid any
royalties and deny that Big Sandy has terminated, or is entitled to terminate,
the leases. Big Sandy filed an action in the Fayette Circuit Court, Lexington,
Kentucky, seeking a declaration that the leases have been terminated and seeking
to recover unpaid royalties in the amount of approximately $100,000 with
interest through December 31, 1996, plus additional royalties and interest
through the date of judgment. Cliffs successfully sought an order compelling
arbitration and the case was heard by a panel of three arbitrators in October
2000. Sidney has continued to mine and pay royalties throughout the controversy
based upon its interpretation of the leases. Big Sandy has made no effort to
evict Sidney from the property or to compel it to cease mining although Big
Sandy obtained an order from the Fayette Circuit Court permitting it to pay the
royalties received from Sidney into escrow pending the outcome of the
arbitration. Sidney believes that it has paid all royalties in accordance with
the terms of the leases and that it has good defenses to the claim that the
leases have been terminated. Sidney expects that the arbitrators will render
their decision in February, 2001.
Harman Litigation
Harman Mining Corporation and certain of its affiliates (collectively
"Harman") have instituted two civil actions against Massey or its present or
former subsidiaries. In June 1998, Harman filed a breach of contract action
against Wellmore Coal Corporation ("Wellmore"), a former Massey subsidiary, in
Buchanan County, Virginia Circuit Court. Harman claims that Wellmore breached a
coal supply agreement, pursuant to which Harman sold coal to Wellmore, by
declaring a force majeure event and reducing the amount of coal to be purchased
from Harman as a result thereof. Wellmore claimed force majeure when its major
customer was forced to close its Pittsburgh coke plant due to regulatory action.
In May 2000, in a trial to determine liability only, Harman received a jury
verdict that Wellmore breached the contract. The damages phase of the trial was
held in August 2000. On August 24, 2000, Harman received a jury verdict against
Wellmore assessing $6 million in damages. Massey's subsidiary, Knox Creek Coal
Corporation, has assumed the defense of this action under the terms of the stock
purchase agreement by which it sold the stock of Wellmore. The adverse
determination on liability and damages will be appealed. Massey believes that it
has several grounds for reversal on appeal.
18
Additionally, Harman and its sole shareholder, Hugh Caperton, filed a
separate action against Massey and certain subsidiaries in Boone County, West
Virginia Circuit Court, alleging that Massey and its subsidiaries tortiously
interfered with Harman's contract with Wellmore and, as a result, caused Harman
to go out of business. Massey has filed a notice to remove this action to
federal court. The plaintiffs seek unspecified compensatory damages and punitive
damages. Massey believes that compensatory damages, if any, are duplicative of
any damages that may be awarded in the contract action, and are limited by the
same factors as in the contract action. Massey is defending this action
vigorously and believes that it has numerous valid defenses to the claims.
Environmental Protection Order
On June 27, 2000, the West Virginia Division of Environmental Protection
issued an administrative order to one of Massey's subsidiaries, Elk Run Coal
Company, requiring Elk Run either to suspend operations for three days beginning
July 17, 2000 or expend $100,000 on local community improvement projects. The
order was based on alleged violations of the surface mining laws relating to
dust, and Elk Run appealed the order to the West Virginia Surface Mining Board.
On October 25, 2000 the West Virginia Surface Mining Board upheld the order. Elk
Run has appealed the Surface Mining Board's order to the Kanawha Circuit Court,
Charleston, West Virginia. Elk Run believes that it has good defenses to the
alleged violations.
Martin County Impoundment Discharge
On October 11, 2000, a partial failure of Martin County Coal Corporation's
coal refuse impoundment released approximately 230 million gallons of coal
slurry into adjacent underground mine workings. The slurry then discharged into
two tributary streams of the Big Sandy River in eastern Kentucky. No one was
injured in the discharge. Clean up efforts began immediately and are continuing.
The States of Kentucky and West Virginia have issued various notices of
violation related to the discharge and ordered remedial measures. Fines and
penalties, which may not be covered by insurance, have not yet been assessed.
The Company has begun informal discussions with various agencies with respect to
the resolution of the notices of violation, including potential fines and
penalties.
Several lawsuits have been brought by downstream residents and other
individual plaintiffs claiming to be damaged by the spill. These suits assert
trespass, property damage, nuisance and other claims, and seek compensatory and
punitive damages. Certain of these suits seek to be certified as class action
lawsuits. These lawsuits remain in their initial stages.
Massey recorded a $3.0 million charge in the fourth quarter of 2000
relating to the Martin County slurry spill representing an accrual of $46.5
million in estimated spill-related clean up costs and liabilities, net of $43.5
million in probable insurance recoveries with respect to such clean up costs and
liabilities. Approximately $26 million in clean up costs have been incurred
through January 25, 2001. Massey has pollution insurance coverage and believes
that such insurance will cover clean up costs and third party claims arising out
of this event. Massey has not as yet received a formal coverage determination
from its insurance carriers.
As a result of the discharge described above, the Martin County preparation
plant is currently idled. It is still uncertain as to when or under what
conditions the plant will be able to resume operations.
At this early stage, it is not possible to accurately predict the full
scope of the cleanup costs, related liabilities or insurance recoveries and,
therefore, no assurance can be given at this time that the Martin County
discharge will not have material adverse impact on Massey's business.
Other Legal Proceedings
Fluor Daniel, a division of Fluor Enterprises, Inc., a former subsidiary of
the Company, is a party to dispute resolution with Anaconda Nickel in connection
with the Murrin Murrin Nickel Cobalt project located in Western Australia.
Anaconda contends that it is entitled to damages of $500,000,000, the majority
of which is alleged consequential damages. Prior to the Spin-Off, the Company
had guaranteed such subsidiary's obligations under the subsidiary's construction
agreement with Anaconda. Pursuant to an agreement between the Company and New
Fluor, New Fluor has assumed all liability and costs arising in connection with
this litigation.
In addition, Massey and its subsidiaries, incident to their normal business
activities, are parties to a number of other legal proceedings and other matters
in various stages of development. While Massey cannot predict the
19
outcome of these proceedings, in the opinion of Massey and based on reports of
counsel, any liability arising from these matters individually and in the
aggregate should not have a material adverse effect upon the consolidated
financial position, cash flows or results of operations of Massey. The Company
also is party to numerous lawsuits and other legal proceedings related to the
non-coal businesses previously conducted by the Company but now conducted by New
Fluor. Under the terms of the Distribution Agreement entered into by the Company
and New Fluor as of November 30, 2000, in connection with the Spin-Off of New
Fluor by the Company, New Fluor has agreed to indemnify the Company with respect
to all such legal proceedings and has assumed their defense.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders of the
Company through a solicitation of proxies or otherwise during the fourth quarter
of the Company's fiscal year ended October 31, 2000. However, on November 1,
2000, Fluor issued a Proxy Statement notifying its shareholders of a special
meeting on November 30, 2000, to vote on a reverse spin-off under which the
Company would be separated into: (1) the spun-off corporation, New Fluor, which
would own all of Fluor's existing businesses except for the coal-related
business conducted by A.T. Massey, and (2) Fluor, subsequently renamed Massey
Energy Company, which owns the coal-related business. On November 30, 2000, the
shareholders approved the reverse spin-off by a vote of 60,487,215 to 434,352
with 399,715 shares abstaining, and the reverse spin-off was consummated on the
same day.
The current executive officers of Massey are:
Don L. Blankenship, Age 50
Mr. Blankenship has been a Director since 1996 and the Chairman, President
and Chief Executive Officer of Massey since November 30, 2000. He has been
Chairman, President and Chief Executive Officer of A.T. Massey Coal Company,
Inc.(1) since 1992. He was formerly the President and Chief Operating Officer of
A.T. Massey from 1990 and President of Massey Coal Services, Inc.(2) from 1989.
He joined Rawls Sales & Processing Co.(3) in 1982. He is also Director of the
National Mining Association, the Governor's Mission West Virginia Board and the
Norfolk Southern Advisory Board.
Bennett K. Hatfield, Age 44
Mr. Hatfield has been Executive Vice President and Chief Operating Officer
of Massey since November 30, 2000. He also has been Executive Vice President and
Chief Operating Office of A.T. Massey since June 1998. Mr. Hatfield was formerly
Senior Vice President and Chief Administrative Officer of A.T. Massey from
December 1997 to May 1998, Vice President--Planning of A.T. Massey from November
1994 to November 1997, and Executive Vice President and Chief Coordinating
Officer, NS Region of Massey Coal Services, Inc. from 1991. Mr. Hatfield joined
A.T. Massey in 1979.
H. Drexel Short, Age 44
Mr. Short has been Senior Vice President, Group Operations of Massey since
November 30, 2000. He also has been Senior Vice President, Group Operations of
A.T. Massey since May 1995. Mr. Short was formerly Chairman of the Board and
Chief Coordinating Officer of Massey Coal Services from April 1991 to April
1995. Mr. Short joined A.T. Massey in 1981.
Roger L. Nicholson, Age 40
Mr. Nicholson has been Vice President, Secretary and General Counsel of
Massey since November 30, 2000. He also has been Vice President and General
Counsel of A.T. Massey since February 2000. Mr. Nicholson joined A.T. Massey in
1995 as Assistant General Counsel. Prior to joining A.T. Massey, Mr. Nicholson
was associated with the law firm of Robinson & McElwee in Lexington, Kentucky.
Prior to that, Mr.
20
Nicholson served as chief real estate counsel for Arch Mineral Corporation and
as vice president, secretary and general counsel of its land-holding subsidiary,
Ark Land Company.
Jeffrey M. Jarosinski, Age 40
Mr. Jarosinski has been Vice President, Finance and Chief Financial Officer
of Massey since November 30, 2000. He also has been Vice President, Finance and
Chief Financial Officer of A.T. Massey since September 1998. Mr. Jarosinski was
formerly Vice President, Taxation of A.T. Massey from 1997 to August 1998 and
Assistant Vice President, Taxation of A.T. Massey from 1993 to 1997. Mr.
Jarosinski joined A.T. Massey in 1988. Prior to joining A.T. Massey, Mr.
Jarosinski held various positions in accounting, most recently as Manager at
Womack, Burke & Associates, CPAs in Richmond, Virginia.
Baxter F. Phillips, Jr., Age 54
Mr. Phillips has been Vice President and Treasurer of Massey since November
30, 2000. He also has been Vice President and Treasurer of A.T. Massey since
October 2000. Mr. Phillips joined A.T. Massey in 1981 and has served in various
capacities with A.T. Massey, including Corporate Treasurer, Manager of Export
Sales, Corporate Human Resources Manager, Vice President of Benefits and Vice
President, Purchasing and Administration. Prior to joining A.T. Massey, Mr.
Phillips held various positions in banking and investments.
Madeleine M. Curle, Age 41
Ms. Curle has been Vice President, Human Resources of Massey since November
30, 2000. She also has been Vice President, Human Resources of A.T. Massey since
May 2000. Ms. Curle was formerly Vice President, Benefits from December 1995 to
April 2000, Assistant Vice President, Benefits Planning and Administration from
May 1995 to November 1995, and Director, Medical and Retirement Programs from
January 1995 to April 1995. Ms. Curle joined A.T. Massey in October 1993. Prior
to joining A.T. Massey, Ms. Curle served as an employee benefits consultant at
Foster Higgins, a national consulting firm (recently merged with William M.
Mercer, Inc.).
(1) A.T. Massey Coal Company, Inc., or A.T. Massey, is a wholly-owned
subsidiary of Massey Energy Company.
(2) Massey Coal Services, Inc. is a wholly-owned subsidiary of Massey Coal
Sales Company, Inc., a wholly-owned subsidiary of A.T. Massey.
(3) Rawl Sales & Processing Co. is a wholly-owned subsidiary of A.T. Massey.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's stock is currently listed on the New York Stock Exchange, the
Chicago Stock Exchange, Inc. and the Pacific Exchange, Inc. The Company has
voluntarily applied for delisting of its stock from the Chicago Stock Exchange,
Inc. and the Pacific Exchange, Inc. and such delisting is in progress. The
Company's Common Stock trading symbol is MEE.
At December 31, 2000, there were 73,496,939 shares outstanding and
approximately 8,031 shareholders of record of Massey's common stock.
As discussed above, on November 30, 2000, Fluor completed the spin-off of
New Fluor, which is conducting all of the businesses previously conducted by
Fluor, other than the coal business. New Fluor is treated as the accounting
successor of Fluor. As a result, information regarding dividends previously paid
by, or prices paid for the common stock of, Fluor is not indicative of the past
or future performance of Massey and has not been included.
21
The dividends paid and the stock prices of Fluor stock for the past two years
can be found in Fluor's Annual Report on Form 10-K for the fiscal year ended
October 31, 2000.
Transfer Agent and Registrar
Mellon Investor Services LLC (formerly known as ChaseMellon Shareholder
Services, L.L.C.) acts as transfer agent and registrar for the Massey Common
Stock.
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA (3)
For the Year Ended October 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in millions, except per share, per ton and
number of employees amounts)
(unaudited)
COMBINED STATEMENT OF EARNINGS DATA:
Net Sales................................. $ 1,081.0 $ 1,076.1 $ 1,121.1 $ 1,077.9 $ 957.8
Other Revenue............................. 59.6 38.4 32.8 31.9 18.0
Income from Operations.................... 96.9 139.4 170.1 154.8 134.5
Net Earnings.............................. 78.8 103.4 128.3 119.0 107.6
Pro forma earnings per share (1)..........
Basic and diluted (unaudited).......... 1.07 1.40 1.74 1.61 1.46
COMBINED BALANCE SHEET DATA:
Working capital (deficit)................. $ 109.1 $ 43.9 $ 4.0 $ (2.4) $ (5.3)
Total assets.............................. 2,161.1 1,980.0 1,836.9 1,641.6 1,398.9
Shareholder's equity...................... 1,374.6 1,277.4 1,181.2 1,054.8 905.2
OTHER DATA:
EBIT...................................... $ 96.9 $ 139.4 $ 170.1 $ 154.8 $ 134.5
EBITDA (2)................................ 268.2 306.9 320.6 286.1 239.9
Tons Sold................................. 40.2 37.9 37.6 35.6 31.1
Tons Produced............................. 41.5 38.4 38.0 36.6 31.2
Average cost per ton...................... $ 20.82 $ 20.39 $ 21.36 $ 22.47 $ 22.99
Average sales price per ton............... 26.89 28.40 29.83 30.24 30.81
Capital expenditures...................... $ 204.8 $ 230.0 $ 307.9 $ 305.2 $ 225.7
Number of employees....................... 3,610 3,190 3,094 2,968 2,809
(1) Shares used to calculate basic pro forma earnings per share is based on the
number of shares expected to be outstanding at the date of the Spin-Off
(assumed to be equal to the 75,743,345 shares of Fluor Corporation common
stock outstanding on October 31, 2000 less 1.85 million shares of common
stock acquired upon the settlement of its forward purchase contract).
Shares used to calculate diluted earnings per share is based on the number
of shares expected to be issued in connection with the Spin-Off and the
dilutive effect of stock options and other stock-based instruments of Fluor
Corporation, held by Massey employees, that were converted to equivalent
instruments in Massey Energy Company in connection with the Spin-Off.
(2) EBITDA is defined as earnings before deducting net interest expense
(interest expense less interest income), income taxes and depreciation,
depletion and amortization. Although EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting principles,
management believes that it is useful to an investor in evaluating Massey
because it is widely used in the coal industry as a measure to evaluate a
company's operating performance before debt expense and its cash flow.
EBITDA does not
22
purport to represent cash generated by operating activities and should not
be considered in isolation or as a substitute for measures of performance
in accordance with generally accepted accounting principles. In addition,
because EBITDA is not calculated identically by all companies, the
presentation here may not be comparable to other similarly titled measures
of other companies. Management's discretionary use of funds depicted by
EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal requirements,
commitments and uncertainties.
(3) This selected Financial Data may not necessarily be indicative of the
results of operations, financial position and cash flows of Massey in the
future or had it operated as a separate independent company during the
periods presented. The Selected Financial Data do not reflect any changes
that have or may occur in the financing and operations of Massey Energy as
a result of the Spin-Off.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
2000 Compared with 1999
Net sales have remained essentially unchanged in 2000 compared with 1999.
Net sales were $1,081.0 million in 2000 compared with $1,076.0 million for 1999.
Three factors that impacted revenues during 2000 were:
. The volume of steam coal sold increased by 14 percent in 2000 compared
to 1999.
. The volume of the higher priced metallurgical coal declined by 6
percent in 2000 compared to 1999.
. The average realized prices for both steam and metallurgical coal
declined by 5 percent in 2000 compared with 1999.
The metallurgical coal market continued to be adversely affected by a weak
coal export market and the slow recovery of the domestic steel market. Demand
was weak for United States coal exported to foreign markets as the U.S. dollar
remained strong. The market for steam coal continued to be adversely impacted by
two factors: (1) mild weather and (2) competition from western coals, which
increased its penetration of traditional eastern coal market areas.
Other revenue, which consists of royalties, rentals, miscellaneous income
and gains on the sale of non-strategic assets, increased 55 percent to $59.6
million for 2000 compared with $38.4 million for 1999. The increase was
primarily due to an increase in income from dispositions of non-strategic
mineral reserves which generated $26.5 million in 2000 compared with $10.2
million in 1999. As part of its management of coal reserves, Massey regularly
sells non-strategic reserves or exchanges them for reserves located in more
synergistic locations.
Cost of sales increased 8 percent to $837.1 million for 2000 from $774.8
million in 1999. This was primarily due to the increase in tons sold by 6
percent from 37.9 million tons in 1999 to 40.2 million tons in 2000. Cost of
sales for 2000 includes a $15.0 million credit related to refunds of black lung
excise taxes paid on coal export sales tonnage. The payment of black lung excise
taxes on exported coal was determined to be unconstitutional by a 1998 federal
district court decision. During 2000, the Internal Revenue Service issued
procedures for obtaining refunds related to such excise taxes. Cost of sales
also included charges of $9 million related to a geological impairment related
to the longwall development at the Upper Cedar Grove mine and a $3 million
charge related to a slurry spill from the impoundment breach at Martin County
Coal Corporation. Cost of sales on a per ton of coal sold basis, excluding the
aforementioned items, increased by approximately 2 percent in 2000 compared with
1999 as operational problems and adverse geologic conditions encountered during
the third and fourth quarters of 2000 more than offset cost reductions that had
been achieved in the first two quarters of 2000.
Depreciation, depletion and amortization slightly increased to $171.3
million for 2000 from $167.6 million in 1999. The increase of $3.7 million was
primarily due to capital expenditures made in recent years.
23
Selling, general and administrative expenses increased 8 percent to $35.4
million for 2000 compared with $32.7 million for 1999, due in part to a $5.8
million bad debt expense associated with the bankruptcy of a major steel
industry customer offset some by a reduction in accruals related to long-term
executive compensation plans.
Interest income increased to $25.7 million for 2000 compared with $14.4
million for 1999. This increase of $11.3 million was primarily due to the
additional interest income of $5.3 million related to the black lung excise tax
refunds discussed above and a general increase in the floating interest rate on
a note receivable from Fluor Corporation.
Income taxes decreased 13 percent to $43.4 million for 2000 compared with
$49.6 million in 1999. The decrease primarily reflects the decreased earnings in
2000 compared with 1999, partially offset by a rise in the effective tax rate to
35.5 percent for 2000 compared with 32.4 percent for 1999.
1999 Compared with 1998
Net sales for 1999 decreased 4 percent to $1,076.1 million from $1,121.1
million for 1998. Sales decreased $45.0 million in 1999 compared with 1998
primarily due to the combination of a reduction in volume of the higher priced
metallurgical coal and a decline in prices. Metallurgical coal volume decreased
nearly 18 percent during 1999 compared with 1998. This decrease was more than
offset by an increase in lower priced steam coal volume. Also contributing to
the decline in coal revenues were lower realized prices for both steam and
metallurgical coal. Steam coal prices declined 4 percent while metallurgical
coal prices declined 2 percent. The metallurgical coal market was adversely
affected by steel imports from outside the United States and a weak U.S. coal
export market. The imports reduced demand for steel produced in the U.S. and
thereby reduced U.S. demand for metallurgical coal, which is used in steel
production. Demand was weak for U.S. coal exported to foreign markets as the
U.S. dollar was strong and the Asian economies slowly recover from their
financial crises. Additionally, the market for steam coal continued to be
impacted by two factors: (1) a mild winter in 1998 and (2) competition from
western coals, which have continued to penetrate the traditional eastern coal
market areas.
Other revenue, which consists of royalties, rentals, miscellaneous income
and gains on the sale of non-strategic assets, increased 17 percent to $38.4
million for 1999 compared with $32.8 million for 1998. The increase of $5.6
million was primarily due to an increase in rebates received from railroads.
Cost of sales decreased 4 percent to $774.8 million for 1999 from $805.8
million in 1998 as a result of lower production costs. Cost reductions were
achieved which lowered the cost per ton of coal sold during the period by 5
percent from $21.36 per ton in 1998 to $20.39 in 1999. Massey continues to focus
on reducing mining production costs through expansion of its surface mining
capabilities and utilization of longwall mining.
Depreciation, depletion and amortization increased 11 percent to $167.6
million for 1999 from $150.5 million in 1998. The increase of $17.1 million was
primarily due to the start-up of Appalachian Synfuel; LLC's synthetic fuel plant
and the development of a new surface mine and a new longwall mine.
Selling, general and administrative expenses increased 19 percent to $32.7
million for 1999 compared with $27.6 million for 1998 as a result of a long-term
retention agreement negotiated with Massey's Chief Executive Officer.
Interest income decreased to $14.4 million for 1999 compared with $16.1
million for 1998. This decrease of $1.7 million was primarily due to a lower
outstanding balance on the note receivable from Fluor caused by capital spending
exceeding cash generated from operations.
Income taxes decreased 14 percent to $49.6 million for 1999 compared with
$57.4 million in 1998. The $7.8 million decrease reflects decreased earnings in
1999 compared with 1998. The effective tax rate was 32.4 percent for 1999
compared with 30.9 percent for 1998.
24
Liquidity and Capital Resources
Massey's cash and cash equivalents were $6.9 million at October 31, 2000.
The cash flow provided by operating activities was $285.5 million in 1998 and
$236.5 million in 1999 and $154.3 million in 2000. Cash provided by operating
activities reflects net earnings adjusted for non-cash charges and changes in
working capital requirements. Net cash used in investing activities was $282.3
million in 1998, $223.6 million in 1999 and $173.4 million in 2000. The cash
used in investing activities reflects expenditures for replacement of mining
equipment, the expansion of mining capacity and projects to improve the
efficiency of mining operations. Financing activities primarily reflect changes
in the note receivable from Fluor.
Immediately subsequent to the Spin-Off, Massey had $578.5 million in debt.
Fluor's previously-issued $300 million of 6.95% Senior Notes due March 1, 2007
remained an obligation of Massey following the Spin-Off. In addition, Massey has
a commercial paper program that provides up to $400 million of operating
liquidity. Massey has $150 million 364-day and $250 million 3-year revolving
credit facilities that serve to provide liquidity backstop to Massey's
commercial paper program and are also available to meet the Company's ongoing
liquidity needs. As of the Spin-Off, Massey's commercial paper borrowings were
$278.5 million.
Massey generally has satisfied its working capital requirements and funded
its capital expenditures from cash generated from operations. Massey believes
that cash generated from operations and its borrowing capacity will be
sufficient to meet its working capital requirements, anticipated capital
expenditures (other than major acquisitions), scheduled debt payments and
anticipated dividend payments for at least the next several years. Nevertheless,
the ability of Massey to satisfy its debt service obligations, to fund planned
capital expenditures or pay dividends will depend upon its future operating
performance, which will be affected by prevailing economic conditions in the
coal industry and financial, business and other factors, some of which are
beyond Massey's control. Massey frequently evaluates potential acquisitions. In
the past, Massey has funded acquisitions primarily with cash generated from
operations, but Massey may consider a variety of other sources, depending on the
size of any transaction, including debt or equity financing. There can be no
assurance that such additional capital resources will be available to Massey on
terms which Massey finds acceptable, or at all.
Inflation
Inflation in the United States has been relatively low in recent years and
did not have a material impact on Massey's results of operations for the years
presented.
New Accounting Standards
Accounting for Derivative Instruments and Hedging Activities. In June 1998,
the Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value.
In June 1999, FASB issued SFAS No. 137 which deferred the effective date of
SFAS No. 133 for all fiscal quarters of all fiscal years beginning after June
15, 2000. Massey will adopt SFAS No. 133 in the first fiscal quarter of 2001.
Massey believes that the adoption of SFAS No. 133 will not have a significant
impact on Massey's financial position, results of operations or liquidity,
however, the FASB continues to finalize and release interpretive guidance and,
therefore, no assurance can be given that any new interpretive guidance, if
contrary to Massey's current interpretation of SFAS No. 133, will not have
significant impact on Massey.
Item 7A. Quantitative and Qualitative Discussions about Market Risk
25
Massey's interest expense is sensitive to changes in the general level of
interest rates in the United States. At December 31, 2000, Massey had
outstanding $300 million aggregate principal amount of debt under fixed-rate
instruments and $275.1 million aggregate principal amount of debt under
variable-rate instruments. Massey's primary exposure to market risk for changes
in interest rates relates to its commercial paper program. At December 31, 2000,
Massey has an aggregate of $275.1 million in commercial paper outstanding.
Massey's commercial paper bore interest at an average rate of 7.79% at December
31, 2000. Based on the commercial paper balance outstanding at December 31,
2000, a 100 basis point increase in the average issuance rate for Massey's
commercial paper would increase Massey's annual interest expense by
approximately $2.8 million. The fair value of Massey's financial instruments is
set forth in Note 4 of the Notes to Consolidated Financial Statements.
Almost all of Massey's transactions are denominated in U.S. dollars, and,
as a result, it does not have material exposure to currency exchange-rate risks.
Massey has not engaged in any interest rate, foreign currency exchange-rate
or commodity price hedging transactions.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
To the Shareholder of Massey Energy Company
We have audited the accompanying combined balance sheets of Massey Energy
Company (see Note 1) as of October 31, 2000 and 1999, and the related combined
statements of earnings, cash flows, and shareholder's equity for each of the
three years in the period ended October 31, 2000. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Massey Energy
Company at October 31, 2000 and 1999, and the combined results of its operations
and its cash flows for each of the three years in the period ended October 31,
2000, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
January 11, 2001
26
MASSEY ENERGY COMPANY
COMBINED STATEMENTS OF EARNINGS
(In Thousands, Except Per Share Amounts)
Year Ended October 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousand, except per share amount)
Net sales.................................. $ 1,081,027 $ 1,076,059 $ 1,121,136
Other revenue ............................. 59,645 38,393 32,818
----------- ----------- -----------
Total revenue ................ 1,140,672 1,114,452 1,153,954
----------- ----------- -----------
Costs and expenses
Cost of sales ..................... 837,072 774,820 805,771
Depreciation, depletion and
amortization .................... 171,336 167,558 150,459
Selling, general and
administrative .................. 35,364 32,696 27,584
----------- ----------- -----------
Total costs and expenses ..... 1,043,772 975,074 983,814
----------- ----------- -----------
Income from operations .................... 96,900 139,378 170,140
Interest income ........................... 25,661 14,426 16,073
Interest expense .......................... (347) (803) (514)
----------- ----------- -----------
Earnings before taxes ..................... 122,214 153,001 185,699
Income tax expense ........................ 43,410 49,561 57,403
----------- ----------- -----------
Net earnings ................. $ 78,804 $ 103,440 $ 128,296
=========== =========== ===========
Pro forma earnings per share (unaudited)
Basic ............................. $ 1.07 $ 1.40 $ 1.74
=========== =========== ===========
Diluted ........................... $ 1.07 $ 1.40 $ 1.74
=========== =========== ===========
Shares used to calculate pro forma earnings
per share
Basic ............................. 73,893 73,893 73,893
====== ====== ======
Diluted ........................... 73,893 73,900 73,900
====== ====== ======
See Notes to Combined Financial Statements.
27
MASSEY ENERGY COMPANY
COMBINED BALANCE SHEETS
(In Thousands of Dollars)
At October 31,
------------------------
2000 1999
---------- ----------
ASSETS
- --------------------------------------------------------
Current Assets
Cash and cash equivalents....................... $ 6,929 $ 8,051
Trade and other accounts receivable............. 215,574 141,480
Inventories..................................... 104,132 91,723
Deferred taxes.................................. 8,398 8,666
Prepaid expenses and other...................... 48,966 36,724
---------- ----------
Total current assets....................... 383,999 286,644
Net Property, Plant and Equipment....................... 1,559,426 1,508,728
Other Noncurrent Assets
Pension assets.................................. 67,740 55,908
Other........................................... 149,965 128,717
---------- ----------
Total other noncurrent assets.............. 217,705 184,625
---------- ----------
Total assets............................... $2,161,130 $1,979,997
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
- --------------------------------------------------------
Current Liabilities
Accounts payable, principally trade............. $ 120,891 $ 109,826
Notes payable and bank overdrafts............... 32,566 50,360
Payroll and employee benefits................... 30,784 29,115
Income taxes payable............................ 12,222 10,025
Other current liabilities....................... 78,420 43,393
---------- ----------
Total current liabilities.................. 274,883 242,719
Noncurrent Liabilities
Deferred taxes.................................. 254,022 226,062
Other........................................... 257,607 233,823
---------- ----------
Total noncurrent liabilities............... 511,629 459,885
Shareholder's Equity
Net investment by Fluor Corporation............. 1,653,682 1,557,809
Due from Fluor Corporation...................... (279,064) (280,416)
---------- ----------
Total shareholder's equity................. 1,374,618 1,277,393
---------- ----------
Total liabilities and shareholder's equity. $2,161,130 $1,979,997
========== ==========
See Notes to Combined Financial Statements.
28
MASSEY ENERGY COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Year Ended October 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
Cash Flows From Operating Activities
Net earnings .................................................. $ 78,804 $ 103,440 $ 128,296
Adjustments to reconcile net earnings to cash provided by
operating activities:
Depreciation, depletion and amortization ................. 171,336 167,558 150,459
Deferred taxes ........................................... 28,228 42,409 32,683
Gain on disposal of assets ............................... (26,330) (8,982) (4,555)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable ........... (42,801) (6,653) 7,941
(Increase) decrease in inventories ................... (12,349) (20,089) 1,858
Increase in prepaid expenses and other current
assets ............................................. (13,983) (7,578) (10,374)
Increase in pension and other assets ................. (30,013) (36,733) (23,841)
Increase (decrease) in accounts payable and
bank overdrafts .................................... (6,729) 19,850 (4,588)
Increase (decrease) in accrued income taxes .......... 2,197 (11,340) 1,722
Increase (decrease) in other accrued liabilities ..... (5,204) (10,007) 3,035
Increase in other non-current liabilities ............ 11,135 4,609 2,873
--------- --------- ---------
Cash provided by operating activities ........... 154,291 236,484 285,509
--------- --------- ---------
Cash Flows From Investing Activities
Capital expenditures ..................................... (204,835) (230,001) (307,898)
Proceeds from sale of assets ............................. 31,468 6,437 25,549
--------- --------- ---------
Cash utilized by investing activities ........... (173,367) (223,564) (282,349)
--------- --------- ---------
Cash Flows From Financing Activities
Decrease (increase) in amount due from Fluor
Corporation ............................................ 1,352 (15,012) (14,238)
Equity contributions from Fluor Corporation .............. 17,069 7,739 12,335
Other, net ............................................... (467) (1,247) (1,189)
--------- --------- ---------
Cash provided (utilized) by financing
activities .................................... 17,954 (8,520) (3,092)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents .............. (1,122) 4,400 68
Cash and cash equivalents at beginning of period .............. 8,051 3,651 3,583
--------- --------- ---------
Cash and cash equivalents at end of period .................... 6,929 $ 8,051 $ 3,651
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid during the fiscal year for income taxes ........ $ 12,834 $ 18,492 $ 21,736
========= ========= =========
See Notes to Combined Financial Statements.
29
MASSEY ENERGY COMPANY
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(In Thousands of Dollars)
Net
---
Investment Due From Total
---------- -------- -----
by Fluor Fluor Corporation Shareholder's
-------- ----------------- -------------
Corporation Equity
----------- ------
Balance at October 31, 1997........................ $ 1,305,999 $ (251,166) $ 1,054,833
Net earnings....................................... 128,296 128,296
Capital contributions.............................. 12,335 12,335
Net change in amount due from Fluor Corporation.... (14,238) (14,238)
----------- ------------ -----------
Balance at October 31, 1998........................ 1,446,630 (265,404) 1,181,226
Net earnings....................................... 103,440 103,440
Capital contributions.............................. 7,739 7,739
Net change in amount due from Fluor Corporation.... (15,012) (15,012)
----------- ------------ -----------
Balance at October 31, 1999........................ 1,557,809 (280,416) 1,277,393
Net earnings ...................................... 78,804 78,804
Capital contributions ............................. 17,069 17,069
Net change in amount due from Fluor Corporation.... 1,352 1,352
----------- ------------ -----------
Balance at October 31, 2000........................ $ 1,653,682 $ (279,064) $ 1,374,618
=========== ============ ===========
See Notes to Combined Financial Statements.
30
MASSEY ENERGY COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Major Accounting Policies
Basis of Presentation
The accompanying combined financial statements of Massey Energy Company
("Massey" or the "Company") includes the accounts of A. T. Massey Coal Company,
Inc. ("A. T. Massey") and its subsidiaries, and Appalachian Synfuel LLC
("Appalachian"). Until the spin-off transaction on November 30, 2000 (See Note
9)(the "Spin-Off"), A. T. Massey and Appalachian were 100% controlled by Fluor
Corporation (Fluor). All significant intercompany transactions and accounts have
been eliminated.
These Combined Financial Statements may not necessarily be indicative of
the results of operations, financial position and cash flows of Massey in the
future or had it operated as a separate independent company during the periods
presented. The Combined Financial Statements do not reflect any changes that
occurred in the financing and operations of Massey as a result of the Spin-Off.
Use of Estimates
The preparation of the financial statements of the Company in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect reported amounts. These
estimates are based on information available as of the date of the financial
statements. Therefore, actual results could differ from those estimates.
Cash and Cash Equivalents
Securities with maturities of 90 days or less at the date of purchase are
classified as cash equivalents.
Revenue Recognition
Coal sales are generally recognized when coal is loaded onto transportation
vehicles for shipment to customers. For domestic sales, this generally occurs
when coal is loaded at the mine or at off-site storage locations. For export
sales, this generally occurs when coal is loaded onto marine vessels at terminal
locations.
Other revenue generally consists of royalties, rentals, miscellaneous
income and gains on the sale of non-strategic assets. For the years ended
October 31, 2000, 1999 and 1998, the Company recorded gains on the sale of non-
strategic reserves of $26.5 million, $10.2 million and $7.2 million,
respectively.
Property, Plant and Equipment
Property, plant and equipment is carried at cost and comprises:
At October 31,
------------------------
2000 1999
---------- ----------
(in thousands)
Land, buildings and equipment.............................. $1,561,122 $1,479,784
Mining properties and mineral rights....................... 582,512 566,492
Mine development........................................... 373,418 292,473
---------- ----------
Total property, plant and equipment 2,517,052 2,338,749
Less accumulated depreciation, depletion and amortization.. (957,626) (830,021)
---------- ----------
Net property, plant and equipment..................... $1,559,426 $1,508,728
========== ==========
31
Expenditures which extend the useful lives of existing building and
equipment are capitalized. Maintenance, repairs and minor renewals are expensed
as incurred. Coal exploration costs are expensed as incurred. Development costs
applicable to the opening of new coal mines and certain mine expansion projects
are capitalized. When properties are retired or otherwise disposed, the related
cost and accumulated depreciation are removed from the respective accounts and
any profit or loss on disposition is credited or charged to income.
Depreciation of buildings and equipment is calculated on the straight-line
method over their estimated useful lives, generally ranging from 3 to 50 years.
Depletion of mining properties and mineral rights and amortization of mine
development costs are computed using the units-of-production method over the
estimated recoverable tons.
Reclamation
The Company accrues for post-mining reclamation costs, as coal is mined, on
a unit of production basis over the estimated recoverable tons. Accrued
reclamation costs are regularly reviewed by management and are revised for
changes in future estimated costs and regulatory requirements. Reclamation of
disturbed acreage is performed as a normal part of the mining process.
Impairment of Long-Lived Assets
Impairment of long-lived assets is recorded when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying value. The carrying value of the
assets is then reduced to their estimated fair value which is usually measured
based on an estimate of future discounted cash flows.
During the fourth quarter of 2000, due to poor and unsafe mining
conditions, the Company abandoned certain longwall mining equipment and related
longwall panel development costs. This resulted in a write-off of approximately
$9 million which is included in cost of sales.
Advance Mining Royalties
Leases which require minimum annual or advance payments and are recoverable
from future production are generally deferred and charged to expense as the coal
is subsequently produced. At October 31, 2000 and 1999, advance mining royalties
included in other noncurrent assets totaled $27.5 million and $21.6 million,
respectively.
Black Lung Benefits
Coal mining subsidiaries are obligated to pay coal workers' pneumoconiosis
(black lung) benefits to eligible recipients with respect to claims awarded on
or after July 1, 1973. Charges are being made to operations as determined by
independent actuaries.
Income Taxes
Income tax expense was calculated as if Massey filed separate tax returns.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns.
Pro Forma Earnings per Share (unaudited)
Shares used to calculate basic pro forma earnings per share is based on the
number of shares expected to be outstanding at the date of the Spin-Off (assumed
to be equal to the 75,743,345 shares of Fluor Corporation common stock
outstanding on October 31, 2000 less 1.85 million shares of common stock
acquired upon the settlement of its forward purchase contract). Shares used to
calculate diluted earnings per share is based on the number of shares expected
to be
32
issued in connection with the Spin-Off and the dilutive effect of stock
options and other stock-based instruments of Fluor Corporation, held by Massey
employees, that were converted to equivalent instruments in Massey Energy
Company in connection with the Spin-Off.
Inventories
Purchased coal inventories are stated at the lower of cost, computed on the
first-in, first-out method, or market value. Produced coal and supplies
generally are stated at the lower of average cost or net realizable value.
Inventories are comprised of:
At October 31,
2000 1999
-------- -------
(in thousands)
Coal.... $ 82,636 $72,070
Other... 21,496 19,653
-------- -------
$104,132 $91,723
======== =======
Internal Use Software
Effective for fiscal year 1999, the Company adopted the American Institute
of Certified Public Accountants' Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed for or Obtained for Internal Use."
The statement requires capitalization of certain costs incurred in the
development of internal-use software, including external direct material and
service costs, employee payroll and payroll-related costs. All costs capitalized
are amortized using the straight-line method over the estimated useful life not
to exceed 7 years. Prior to the adoption of SOP 98-1, the Company capitalized
only purchased software which was ready for service; all other costs were
expensed as incurred. The adoption of this statement did not have a material
effect on the Company's financial statements.
Concentrations of Credit Risk and Major Customers
A. T. Massey is engaged in the production of high-quality low sulfur steam
coal for the electric generating industry, as well as industrial customers and
metallurgical coal for the steel industry. Steam coal sales accounted for
approximately 60%, 55%, and 46% of combined net sales during 2000, 1999, and
1998, respectively. Metallurgical coal sales accounted for approximately 40%,
45% and 54% of combined net sales during 2000, 1999 and 1998, respectively.
A. T. Massey's mining operations are conducted in eastern Kentucky, West
Virginia, Virginia and Tennessee and the coal is marketed primarily in the
United States.
For the years ended October 31, 2000, 1999, and 1998, approximately 14%,
12% and 13%, respectively, of combined net sales were made to one utility
customer, Duke Energy. At October 31, 2000, approximately 40% and 51% of
combined trade receivables represent amounts due from utility customers and
steel-producing customers, respectively, compared with 49% and 42%,
respectively, as of October 31, 1999 and 37% and 49%, respectively, as of
October 31, 1998. Credit is extended based on an evaluation of the customer's
financial condition and generally collateral is not required.
Derivatives
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts,
33
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value.
In June 1999, FASB issued SFAS No. 137 which deferred the effective date of
SFAS No. 133 for all fiscal quarters of all fiscal years beginning after June
15, 2000. Massey will adopt SFAS No. 133 in the first fiscal quarter of 2001.
Massey believes that the adoption of SFAS No. 133 will not have a significant
impact on Massey's financial position, results of operations or liquidity,
however, the FASB continues to finalize and release interpretive guidance and,
therefore, no assurance can be given that any new interpretive guidance, if
contrary to Massey's current interpretation of SFAS No. 133, will not have
significant impact on Massey.
Stock Plans
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for Fluor stock options granted to Massey
employees is measured as the excess, if any, of the quoted market price of Fluor
stock at the date of grant over the amount an employee must pay to acquire the
stock. Compensation cost for stock appreciation rights and performance equity
units is recorded based on the quoted market price of Fluor's stock at the end
of the period.
2. Income Taxes
Income tax expense (benefit) included in the Combined Statement of Earnings
is as follows:
Year Ended October 31,
----------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Current:
Federal........................ $13,735 $9,048 $22,518
State and local................ 1,447 (1,896) 2,202
------- ------- -------
Total current............. 15,182 7,152 24,720
------- ------- -------
Deferred:
Federal........................ 24,719 36,912 29,751
State and local................ 3,509 5,497 2,932
------- ------- -------
Total deferred............ 28,228 42,409 32,683
------- ------- -------
Total income tax expense. $43,410 $49,561 $57,403
======= ======= =======
A reconciliation of U.S. statutory federal income tax expense to the
Company's income tax expense on earnings is as follows:
Year Ended October 31,
-----------------------------
2000 1999 1998
------- ------- -------
(in thousands)
U.S. statutory federal tax expense.......... $42,775 $53,550 $64,995
Increase (decrease) in taxes resulting from:
State taxes............................ 3,799 2,341 3,337
Items without tax effect............... 4,283 2,487 871
Depletion.............................. (7,657) (9,625) (12,273)
Other, net............................. 210 808 473
------- ------- -------
Total income tax expense.......... $43,410 $49,561 $57,403
======= ======= =======
34
Deferred taxes reflect the tax effects of differences between the amounts
recorded as assets and liabilities for financial reporting purposes and the
amounts recorded for income tax purposes. The tax effects of significant
temporary differences giving rise to deferred tax assets and liabilities are as
follows:
October 31,
----------------------
2000 1999
--------- ---------
(in thousands)
Deferred tax assets:
Accrued liabilities not currently deductible........................ $ 40,579 $ 43,959
Alternative minimum tax credit carryforwards........................ 49,676 42,386
Other............................................................... 31,710 34,299
--------- ---------
121,965 120,644
Valuation allowance for deferred tax assets................................. (37,512) (38,199)
--------- ---------
Deferred tax assets, net.................................................... 84,453 82,445
--------- ---------
Deferred tax liabilities:
Book basis of property, equipment and other capital costs in excess
of tax basis...................................................... (268,605) (247,919)
Other............................................................... (61,472) (51,922)
--------- ---------
Total deferred tax liabilities................................. (330,077) (299,841)
--------- ---------
Net deferred tax liabilities................................................ $(245,624) $(217,396)
========= =========
The Company maintains a valuation allowance to reduce certain deferred tax
assets to amounts that are more likely than not to be realized. This allowance
primarily relates to the deferred tax assets established for the alternative
minimum tax credits.
3. Retirement Benefits
Massey sponsors a number of noncontributory defined benefit pension plans
covering substantially all administrative and non-union employees hired prior to
September 1, 1994. These plans generally provide pension benefits based on each
employee's compensation during the highest five of the last ten years before
retirement and years of service. Funding for such plans is generally at the
minimum annual contribution level required by applicable regulations.
Plan assets are held by an independent trustee or, in certain
circumstances, by insurance carriers. The plans' assets include cash and cash
equivalents, corporate and government bonds, preferred and common stocks,
investments in mutual funds and annuity contracts. Prior to the spin-off, the
Massey plan assets were invested in the Fluor Master Trust. The fair market
value of Massey investments in the Fluor Master Trust was $229.9 million at
October 31, 2000. The fair market value of Massey investments in the Fluor
Master Trust and Fluor common stock were $206 million and $6.9 million,
respectively, at October 31, 1999. In connection with the spin-off, the Massey
plan assets have been withdrawn from the Fluor Master Trust and are now invested
in funds separately managed from the Fluor Master Trust.
Net periodic pension income for defined benefit pension plans includes the
following components:
Year Ended October 31,
-------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Service cost............................ $ 2,509 $ 3,451 $ 3,372
Interest cost........................... 9,114 8,987 8,470
Expected return on plan assets.......... (20,732) (18,281) (17,797)
Amortization of unrecognized net asset.. (2,116) (872) (2,024)
Amortization of prior service cost...... 56 56 56
-------- -------- --------
Net periodic pension income............. $(11,169) $ (6,659) $ (7,923)
======== ======== ========
35
The weighted average assumptions used in determining pension obligations
are as follows:
At October 31,
---------------
2000 1999
----- -----
Discount rate..................................... 7.75% 7.75%
Rate of increase in compensation levels........... 4.00% 4.50%
Expected long-term rate of return on plan assets.. 9.50% 9.50%
36
The following table sets forth the change in benefit obligation, plan
assets and funded status of the Company's defined benefit pension plans:
At October 31,
--------------------
2000 1999
-------- --------
(in thousands)
Change in benefit obligation
Benefit obligation at beginning of year.. $123,865 $136,028
Service cost............................. 2,509 3,451
Interest cost............................ 9,114 8,987
Actuarial gain........................... (3,262) (19,576)
Benefits paid............................ (5,539) (5,025)
-------- --------
Benefit obligation at end of year... $126,687 $123,865
======== ========
Change in plan assets
Fair value at beginning of year.......... $221,223 $195,136
Actual return on assets.................. 21,840 31,108
Company contributions.................... 27 4
Benefits paid............................ (5,539) (5,025)
-------- --------
Fair value at end of year........... $237,551 $221,223
======== ========
Funded status................................. $110,864 $ 97,358
Unrecognized net actuarial gain............... (46,083) (43,886)
Unrecognized prior service cost............... 518 571
-------- --------
Pension assets................................ 65,299 54,043
Amount included in current liabilities........ 2,441 1,865
-------- --------
Noncurrent asset.............................. $ 67,740 $ 55,908
======== ========
Under labor contracts with the United Mine Workers of America Benefit
Funds, certain operations make payments into two multi-employer defined benefit
pension plan trusts established for the benefit of union employees. The
contributions are based on tons of coal produced and hours worked. Such payments
aggregated approximately, $0.1 million in 2000 and 1999, and $0.4 million in
1998.
Under the Coal Industry Retiree Health Benefits Act of 1992, coal producers
are required to fund medical and death benefits of certain retired union coal
workers based on premiums assessed by the United Mine Workers of America. Based
on available information at October 31, 2000, the Company's obligation
(discounted at 7.75%) under the Act is estimated at approximately $50.4 million.
This cost will be recognized as expense as payments are assessed and for the
years ended October 31, 2000, 1999, and 1998 totaled $3.6 million, $3.5 million,
and $4.1 million, respectively.
The Company sponsors three noncontributory defined contribution pension
plans for eligible employees. Contributions to defined contribution retirement
plans are based on hours worked. For the years ended October 31, 2000, 1999, and
1998, contributions to these plans aggregated approximately $5.6 million, $5.4
million, and $4.9 million, respectively.
The Company also sponsors a salary deferral and profit sharing plan
covering substantially all administrative and non-union employees. Eligible
employees may elect to contribute up to 10% of their compensation, as defined by
the plan. The Company may contribute to the plan at its discretion. Such
contributions aggregated approximately $2.2 million, $2.6 million, and $4.1
million in 2000, 1999, and 1998, respectively.
The Company also sponsors a defined benefit health care plan that provides
post-retirement medical benefits to eligible union and non-union members. To be
eligible, retirees must meet certain age and service requirements. Depending on
year of retirement, benefits may be subject to annual deductibles, coinsurance
requirements, lifetime limits, and retiree contributions. Service costs are
accrued currently. The accumulated postretirement benefit obligation at October
31, 2000 and 1999 was determined in accordance with the current terms of the
37
Company's health care plans, together with relevant actuarial assumptions and
health care cost trend rates projected at annual rates ranging from 5.7 percent
(5.3 percent for participants age 65 or older) in 2000 (6.4 percent and 5.7
percent, respectively in 1999) down to 5 percent in 2002 and beyond. The effect
of a one percent annual increase in the assumed cost trend rates would increase
the accumulated postretirement benefit obligation and the aggregate of the
annual service and interest costs by approximately $12.0 million and $1.7
million, respectively. The effect of a one percent annual decrease in these
assumed cost trend rates would decrease the accumulated postretirement benefit
obligation and the aggregate of the annual service and interest costs by
approximately $10.0 million and $1.4 million, respectively.
Net periodic postretirement benefit cost includes the following components:
Year Ended October 31,
------------------------
2000 1999 1998
------ ------ ------
(in thousands)
Service cost............................ $3,543 $3,850 $3,506
Interest cost........................... 4,611 4,092 4,055
Amortization of prior service cost...... 140 140 140
------ ------ ------
Net periodic postretirement benefit
cost.................................. $8,294 $8,082 $7,701
====== ====== ======
The following table sets forth the change in benefit obligation of the
Company's postretirement benefit plan:
At October 31,
-------------------
2000 1999
-------- --------
(in thousands)
Change in benefit obligation
Benefit obligation at beginning of year.. $ 58,203 $ 68,421
Service cost............................. 3,543 3,850
Interest cost............................ 4,611 4,092
Actuarial (gain) loss.................... 2,397 (16,515)
Benefits paid............................ (2,399) (1,645)
-------- --------
Benefit obligation at end of year... $ 66,355 $ 58,203
======== ========
Funded status................................. $(66,355) $(58,203)
Unrecognized net actuarial (gain) loss........ (3,892) (6,296)
Unrecognized prior service cost............... 1,636 1,776
-------- --------
Accrued postretirement benefit obligation..... (68,611) (62,723)
Amount included in other current liabilities.. 2,659 2,186
-------- --------
Noncurrent liability................ $(65,952) $(60,537)
======== ========
The discount rate used in determining the postretirement benefit obligation
was 7.75 percent at October 31, 2000 and 1999.
4. Fair Value of Financial Instruments
Certain subsidiaries provide loans to West Virginia businesses at
prevailing interest rates as part of an economic development program which
provides tax credits as incentives. Outstanding loans at October 31, 2000 and
1999 amounted to $11.3 million and $12.2 million, respectively, of which $3.0
million and $4.0 million, respectively, is unsecured. These loans are estimated
to be at fair value, after recording an allowance for loan losses of $2.9
million at October 31, 2000 and $2.7 million at October 31, 1999, based on
future cash flows and related credit risk. The current portion of these notes is
included in trade and other accounts receivable. The noncurrent portion is
included in other noncurrent assets.
38
Prior to the Spin-Off (see Note 9), the Company loaned funds in excess of
its operating and capital needs to Fluor and received interest on the average
daily balance at 130% of the federal short-term rate determined in accordance
with the Internal Revenue Code of 1986. Fluor repaid these loans to the Company
as the needs arise. The Company believes these financial practices to be a fair
arrangement with its parent and has concluded that any further assessment to
determine fair market value of amounts due from Fluor would not be cost
beneficial. Interest income for 2000, 1999, and 1998 related to these loans
amounted to $16.6 million, $11.7 million, and $13.3 million, respectively. These
loans have been classified as a reduction to shareholder's equity in the
combined balance sheets.
Included in other noncurrent assets is $21.8 million and $26.7 million,
respectively, as of October 31, 2000 and 1999, of Fluor commercial paper
acquired in the open market at prevailing interest rates. Interest income
associated with commercial paper amounted to $1.6 million for the year ended
October 31, 2000 and $1.1 million during the year ended October 31, 1999. The
commercial paper is classified as an available-for-sale security, and is carried
at cost which approximates fair value. Unrealized gains or losses are
insignificant. Due to restrictions on the use of the commercial paper, it has
been classified as a noncurrent asset. As of the Spin-Off, Massey ceased to have
any investment in Fluor commercial paper.
5. Other Noncurrent Liabilities
Other noncurrent liabilities comprise the following:
At October 31,
-------------------
2000 1999
-------- --------
(in thousands)
Black lung obligation..................... $ 24,033 $ 25,616
Reclamation............................... 111,101 98,677
Other post-employment benefits (Note 3)... 65,953 60,537
Workers' compensation..................... 24,429 20,329
Other..................................... 32,091 28,664
-------- --------
$257,607 $233,823
======== ========
Coal mining companies are subject to the Federal Coal Mine Health and
Safety Act of 1969, as amended, and various states' statutes for the payment of
medical and disability benefits to eligible recipients with respect to black
lung claims awarded on or after July 1, 1973. The Company provides for these
claims principally through a self-insurance program. Black lung costs for West
Virginia operations are funded through trusts. The West Virginia trusts are
irrevocable grantor trusts which have been funded at a level such that no
contributions will be required in the foreseeable future. Trusteed assets of
approximately $29.8 million and $26.6 million are applied to reduce the balance
sheet amount of black lung obligations at October 31, 2000 and 1999,
respectively. Subsidiaries in other states pay awarded claims on a current
basis. Charges are being made to operations as determined by independent
actuaries. The expense was determined using a discount rate of 7.75%.
Black lung expense includes the following components:
Year Ended October 31,
------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Service cost................... $ 950 $ 767 $ 980
Interest cost.................. 2,344 1,960 2,129
Amortization of actuarial
gain.......................... (3,492) (1,163) (2,191)
Interest on actuarial gain..... (270) (314) (498)
------- ------- -------
Total black lung expense.. $ (468) $ 1,250 $ 420
======= ======= =======
39
Under the Federal Surface Mining Control and Reclamation Act of 1977 and
similar state statutes, mine property is required to be restored in accordance
with regulated standards. The Company performs a certain amount of required
reclamation of disturbed acreage as an integral part of its normal mining
process. All such costs are expensed as incurred.
Reclamation costs to be incurred upon final mine closure are estimated and
accrued as mining progresses over the estimated useful mining life of the
property. The costs relate to reclaiming the pit and support acreage of surface
mines and sealing portals of deep mines. Other costs common to both types of
mining are related to reclaiming refuse and slurry ponds. The establishment of
the reclamation liability is based on permit requirements and requires various
estimates and assumptions, principally associated with costs and productivities.
For the years ended October 31, 2000, 1999, and 1998, the Company accrued
approximately $5 million, and $6 million, and $6 million, respectively, towards
final mine closure reclamation, excluding reclamation recosting adjustments
identified below. The Company reviews its entire environmental liability
annually and makes necessary adjustments, including permit changes and revisions
to costs and productivities to reflect current experience. These recosting
adjustments are recorded as a decrease in cost of sales and totaled $4.2
million, $0.8 million, and $7.2 million for the years ended October 31, 2000,
1999 and 1998, respectively. The Company's management believes it is
making adequate provision for all expected future reclamation costs. Final
reclamation costs for all operations as of October 31, 2000 are estimated to be
approximately $166 million.
6. Stock Plans
Massey maintains various stock plans for its employees. These stock plans
provide for grants of non-qualified or incentive stock options, restricted stock
awards and stock appreciation rights ("SARS"). Awards to employees of the
Company prior to the Spin-Off were converted to equivalent instruments in Massey
following its separation from Fluor.
Restricted stock awards issued under the plans provide that shares awarded
may not be sold or otherwise transferred until restrictions have lapsed or
performance objectives have been attained. Upon termination of employment,
shares upon which restrictions have not lapsed must be returned to the Company.
Restricted stock issued to Massey employees totaled 31,390 shares in 2000, and
42,647 shares in 1999. No restricted stock was issued to Massey employees in
1998.
A grant of 300,000 SARS was made to one Massey employee during 1998. These
SARS vest at the end of fiscal year 2001. No other grants of SARS were made to
Massey employees during the period 1998 through 2000.
For the fiscal years ended October 31, 2000, 1999 and 1998, expenses
related to Massey's various stock compensation plans totaled $3.8 million, $6.3
milliion and $1.4 million, respectively.
During 2000, 1999 and 1998, 290,080, 113,860 and 135,675 options,
respectively, were awarded to Massey employees. The 2000 awards cliff vest after
four years and expire in ten years, the 1999 awards vest over four years and
expire in ten years and the 1998 awards vest over four year periods and expire
in five years. The 2000 and 1998 awards have accelerated vesting provisions
based on the price of Massey's stock.
The estimated fair value as of the date of grant for options granted to
Massey employees in 2000, 1999 and 1998 was determined using the Black-Scholes
option-pricing model based on the following weighted average assumptions:
2000 1999 1998
----- ----- -----
Expected option lives (years). 6 6 5
Risk-free interest rates...... 6.03% 4.43% 5.86%
Expected dividend yield....... 1.74% 1.37% 1.18%
Expected volatility........... 39.80% 33.40% 29.60%
40
The weighted average fair value of options granted during 2000, 1999 and
1998 was $18, $15 and $11, respectively.
Option grant prices were established at the fair value of Fluor's common
stock at the date of grant. As the Company measures compensation cost using the
intrinsic value method, no compensation cost for stock options has been
recognized. If compensation cost had been determined based on the estimated fair
value of options granted as prescribed by Statement of Financial Accounting
Standards No. 123, Massey's net income for the years ended October 31, 2000,
1999 and 1998 would have been reduced by approximately $1.6 million, $0.8
million and $0.5 million, respectively.
7. Lease Obligations
Certain mining and other equipment is leased under operating leases.
Certain of these leases provide options for the purchase of the property at the
end of the initial lease term, generally at its then fair market value, or to
extend the terms at its then fair rental value. Rental expense for the years
ended October 31, 2000, 1999, and 1998 was $28.4 million, $22.0 million, and
$8.9 million, respectively.
The following presents future minimum rental payments, by year, required
under operating leases with initial terms greater than one year, in effect at
October 31, 2000:
Minimum
-------
Year Rentals
---- -------
(in thousands)
--------------
2001..................... $28,683
2002..................... 27,995
2003..................... 23,602
2004..................... 19,721
2005..................... 14,239
Thereafter 1,830
--------
$116,070
========
8. Contingencies and Commitments
The Company is the subject of, or a party to, various suits and pending or
threatened litigation involving governmental agencies or private interests.
Also, the Company's operations are affected by federal, state and local laws and
regulations regarding environmental matters and other aspects of its business.
On October 20, 1999, the U.S. District Court for the Southern District of West
Virginia issued an injunction which prohibits the construction of valley fills
over both intermittent and perennial stream segments as part of mining
operations. While the Company is not a party to this litigation, virtually all
mining operations, including Massey, utilize valley fills to dispose of excess
materials. This decision is now under appeal to the Fourth Circuit Court of
Appeals and the District Court has issued a stay of its decision pending the
outcome of the appeal. Based upon the current state of the appeal, the Company
does not believe that their mining operations will be materially affected during
the pendency of the appeal. If and to the extent that the District Court's
decision is upheld and legislation is not passed which limits the impact of the
decision, then all or a portion of the Company's mining operations could be
affected. The potential impact to the Company arising from this proceeding is
not currently estimable.
Harman Mining Corporation and certain of its affiliates (collectively
"Harman") filed a breach of contract actions against Wellmore Coal Corporation,
a former Massey subsidiary, in Buchanan County, Virginia Circuit Court. On
August 24, 2000, as part of the damages phase of the trial, a jury awarded
damages in the amount of $6 million. Massey intends to appeal the award and will
defend the action vigorously.
On October 11, 2000, a partial failure of a coal refuse impoundment
released approximately 230 million gallons of coal slurry into adjacent
underground mine workings. The slurry then discharged into two tributary streams
of the Big Sandy River in eastern Kentucky. Clean up efforts began immediately
and are continuing.
41
The states of Kentucky and West Virginia have issued various notices of
violation related to the discharge and ordered remedial measures. Fines and
penalties have not yet been assessed. Several lawsuits have been brought
asserting trespass, property damage, nuisance and other claims and seek
compensatory and punitive damages. Certain of these suits seek to be certified
as class action lawsuits. The Company has pollution insurance coverage and
believes that such coverage will cover clean-up related costs and third party
claims arising from this event.
The Company recorded a $3 million charge in the fourth quarter of 2000
relating to the slurry spill. The charge represents an accrual of $46.5 million
in estimated spill-related clean-up costs and liabilities net of $43.5 million
in probable insurance recoveries. In the combined balance sheet, the $46.5
million environmental accrual is included in other current liabilities and the
$43.5 million in probable insurance recoveries is included in trade and other
accounts receivable. Given that the remediation efforts are still in progress
and the degree of uncertainty with respect to potential claims, fines and
penalties, it is reasonably possible the Company's estimates with respect to the
slurry spill could change.
The outcome or timing of current legal or environmental matters or the
impact, if any, of pending legislation or regulatory developments (including the
matters noted above) on future operations is not currently estimable. Management
does not currently anticipate that such activity will result in amounts which in
the aggregate would have a material effect on the Company's combined financial
position.
The Company believes, based upon present information available to it, that
its reserves with respect to future environmental costs are adequate and such
future costs will not have a material effect on the Company's combined financial
position, results of operations or liquidity. However, the imposition of more
stringent requirements under environmental laws or regulations, or changes in
enforcement policies under such laws and regulations, could result in additional
expenditures, or the provision of additional reserves in expectation of such
expenditures.
9. Subsequent Events
On November 30, 2000, Fluor completed the Spin-Off, which divided it into
two separate publicly trade corporations. As a result of the Spin-Off, Fluor
separated into (i) the spun-off corporation, New Fluor, which owns all of the
Company's then existing businesses except for the coal-related business
conducted by A. T. Massey, and (ii) Fluor, subsequently renamed Massey, which
owns the coal-related business. Immediately after the spin-off, Massey had
approximately 73,468,707 shares of $0.625 par value common stock outstanding. In
connection with the Spin-Off, A. T. Massey became the sole direct, and wholly-
owned subsidiary of Massey. A. T. Massey now represents the sole operating
subsidiary of Massey, as Massey has no separate independent operations.
As a result of the Spin-Off, the following occurred which will affect
Massey's ongoing operations:
. As described in Note 4, Massey no longer invests in the Fluor
commercial paper;
. As described in Note 4, Massey no longer loans amounts in excess
of operating and capital needs to Fluor and the amounts due from
Fluor were repaid as part of the Spin-Off;
. Fluor's previously issued $300 million of 6.95% Senior Notes due
March 1, 2007, with interest payable semi-annually on March 1 and
September 1 of each year, became the obligation of Massey; and
. Massey issued $275 million of its own commercial paper and
utilized $3.5 million of cash to refund the $278.5 million of
Fluor commercial paper assumed as a result of the Spin-Off.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no changes in, or disagreements with, accountants on
accounting and financial disclosure.
42
Part III
Item 10. Directors and Executive Officers of the Registrant.
Biographical information of Executive Officers is included in Item 4 of
this Form 10-K. Other information required by this item is included in the
Biographical section of the Election of Directors portion of the definitive
proxy statement pursuant to Regulation 14A, involving the election of directors,
which is incorporated herein by reference and will be filed with the Securities
and Exchange Commission (the "Commission") not later than 120 days after the
close of Massey's fiscal year ended October 31, 2000.
Item 11. Executive Compensation.
Information required by this item is included in the Organization and
Compensation Committee Report on Executive Compensation and Executive
Compensation and Other Information sections of the definitive proxy statement
pursuant to Regulation 14A, involving the election of directors, which is
incorporated herein by reference and will be filed not later than 120 days after
the close of Massey's fiscal year ended October 31, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by this item is included in the Stock Ownership
section of the Election of Directors portion of the definitive proxy statement
pursuant to Regulation 14A, involving the election of directors, which is
incorporated herein by reference and will be filed not later than 120 days after
the close of Massey's fiscal year ended October 31, 2000.
Item 13. Certain Relationships and Related Transactions.
Information required by this item is included in the Other Matters section
of the Election of Directors portion of the definitive proxy statement pursuant
to Regulation 14A, involving the election of directors, which is incorporated
herein by reference and will be filed not later than 120 days after the close of
Massey's fiscal year ended October 31, 2000.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report:
1. Financial Reports:
Combined Statement of Earnings for the Fiscal Year Ended October 31,
2000, 1999 and 1998
Combined Balance Sheet at October 31, 2000 and October 31, 1999
Combined Statement of Cash Flows for the Fiscal Year Ended October 31,
2000, 1999 and 1998
Combined Statement of Shareholder's Equity for the Fiscal Year Ended
October 31, 2000, 1999 and 1998
Notes to Combined Financial Statements
43
2. Financial Statement Schedules: All schedules have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the combined financial statements and notes thereto.
3. Exhibits:
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of Massey, as amended
3.2 Restated Bylaws (as amended effective November 30, 2000) of Massey
Energy Company
4.1 Fluor Corporation Dividend Reinvestment Plan (as amended and
restated June 30, 1995) [filed as Exhibit 4.2 to Fluor's annual
report on Form 10-K for the fiscal year ended October 31, 1995 and
incorporated by reference]
4.2 Indenture dated as of February 18, 1997 between Fluor Corporation
and Banker's Trust Company, trustee [filed as Exhibit 4.1 to Form
8-K filed March 7, 1997 and incorporated by this reference].
10.1 Massey Energy Company 1999 Executive Performance Incentive Plan (as
amended and restated effective November 30, 2000)
10.2 Massey Executive Deferred Compensation Program (as amended and
restated effective November 30, 2000)
10.3 Massey Energy Company Executive Physical Program
10.4 Massey Energy Company Directors' Life Insurance Summary
10.5 Massey Energy Split Dollar Life Insurance Program Summary
10.6 Massey Energy Company 1988 Executive Stock Plan (as amended and
restated effective November 30, 2000)
10.7 Massey Energy Company Change of Control Compensation Plan (as
amended and restated effective November 30, 2000)
10.8 Massey Energy Company 1982 Shadow Stock Plan
10.9 Massey Energy Company 1997 Stock Appreciation Rights Plan
10.10 A. T. Massey Coal Company, Inc. Supplemental Benefit Plan
10.11 A. T. Massey Coal Company, Inc. Executive Deferred Compensation Plan
10.12 Massey Energy Company 1997 Restricted Stock Plan for Non-Employee
Directors (as amended and restated effective November 30, 2000)
10.13 Massey Energy Company 1996 Executive Stock Plan (as amended and
restated effective November 30, 2000)
10.14 Massey Energy Company Stock Plan for Non-Employee Directors (as
amended and restated effective November 30, 2000)
10.15 Massey Energy Company Deferred Directors' Fees Program
10.16 Employment Agreement between Massey Energy Company, A.T. Massey Coal
Company, Inc. and Don L. Blankenship dated as of October 1, 1998
[filed as Exhibit 10.20 to Fluor's annual report on Form 10-K for
the fiscal year ended October 31, 1998 and incorporated by this
reference]
44
Exhibit No. Description
- ----------- -----------
10.17 Amendment to Employment Agreement between Massey Energy Company,
A.T. Massey Coal Company, Inc. and Don L. Blankenship dated as of
October 1, 1998 [filed as Exhibit 10.3 to Massey's current report on
Form 8-K filed December 15, 2000 and incorporated by this reference]
10.18 Consulting Agreement between James L. Gardner and A. T. Massey Coal
Company, Inc. dated as of February 23, 2000
10.19 Amendment to Consulting Agreement between James L. Gardner and A. T.
Massey Coal Company dated February 23, 2000
10.20 Special Successor and Development Retention Program between Fluor
Corporation and Don L. Blankenship dated as of September 1998 [filed
as Exhibit 10.21 to Fluor's annual report on Form 10-K for the
fiscal year ended October 31, 1998 and incorporated by this
reference]
10.21 Distribution Agreement between Fluor Corporation and Massey Energy
Company dated as of November 30, 2000 [filed as Exhibit 10.1 to
Massey's current report on Form 8-K filed December 15, 2000 and
incorporated by this reference]
10.22 Tax Sharing Agreement between Fluor Corporation, Massey Energy
Company and A.T. Massey Coal Company, Inc. dated as of November
30, 2000 [filed as Exhibit 10.2 to Massey's current report on
Form 8-K filed December 15, 2000 and incorporated by this
reference]
10.23 First Amendment to A.T. Massey Coal Company, Inc. Executive Deferred
Compensation Plan
21 Massey Energy Company Subsidiaries
23 Consent of Independent Auditors
24 Manually signed Powers of Attorney executed by certain Fluor
directors
(b) Reports on Form 8-K: NONE
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MASSEY ENERGY COMPANY
January 29, 2001
By: /s/ J. M. JAROSINSKI
------------------------------
J. M. Jarosinski,
Vice President - Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Principal Executive Officer and Director:
/s/ D. L. BLANKENSHIP Chairman, Chief Executive Officer January 29, 2001
- ------------------------------------------------- and President
D. L. Blankenship
Principal Financial Officer:
Vice President - Finance and Chief
/s/ J. M. JAROSINSKI Financial Officer January 29, 2001
- -------------------------------------------------
45
Signature Title Date
--------- ----- ----
J. M. Jarosinski
Principal Accounting Officer
/s/ E. B. TOLBERT Controller January 29, 2001
- -------------------------------------------------
E. B. Tolbert
Other Directors:
* Director January 29, 2001
- -------------------------------------------------
J. L. Gardner
* Director January 29, 2001
- -------------------------------------------------
E. G. Gee.
* Director January 29, 2001
- -------------------------------------------------
W. R. Grant
* Director January 29, 2001
- -------------------------------------------------
B. R. Inman
* Director January 29, 2001
- -------------------------------------------------
M. R. Seger
By: /s/ R. L. NICHOLSON January 29, 2001
----------------------------------------------
R. L. Nicholson
Attorney-in-fact
Manually signed Powers of Attorney authorizing R. L. Nicholson Bennett
K. Hatfield and Jeffrey M. Jarosinski and each of them, to sign the annual
report on Form 10-K for the fiscal year ended October 31, 2000 and any
amendments thereto as attorneys-in-fact for certain directors and officers of
the registrant are included herein as Exhibits 24.
46