x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

MASSEY ENERGY COMPANY

(Name of Registrant as Specified In Its Charter)

Delaware

95-0740960

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

4 North 4th Street, Richmond, Virginia

23219

(Address of principal executive offices)

(Zip Code)

(804) 788-1800

(Registrant’s telephone number, including area code)

Yes

x

No

o

TABLE OF CONTENTS

PAGE

Part I:    Financial Information

3

Item 1.   Condensed Consolidated Financial Statements

3

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.   Quantitative and Qualitative Discussions About Market Risk

18

Item 4.   Controls and Procedures

18

Part II:   Other Information

19

Item 1.   Legal Proceedings

19

Item 5.   Other Information

22

Item 6.   Exhibits and Reports on Form 8-K

23

Signatures

23

Certifications

24

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,

$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

2002

2001

2002

2001

Net sales

$

343,182

$

306,680

$

997,589

$

924,396

Other revenue

19,857

12,098

55,015

33,371

Total revenue

363,039

318,778

1,052,604

957,767

Costs and expenses

Cost of sales

283,061

264,768

877,660

781,654

Depreciation, depletion and amortization

64,103

47,012

160,983

137,207

Selling, general and administrative

8,882

4,657

24,244

23,239

Total costs and expenses

356,046

316,437

1,062,887

942,100

Earnings (Loss) before interest and taxes

6,993

2,341

(10,283

)

15,667

Interest income

1,240

621

2,904

5,567

Interest expense

9,931

8,270

26,356

27,845

Loss before taxes

(1,698

)

(5,308

)

(33,735

)

(6,611

)

Income tax benefit

(595

)

(1,623

)

(14,247

)

(2,079

)

Net loss

$

(1,103

)

$

(3,685

)

$

(19,488

)

$

(4,532

)

Loss per share (Note 6)

Basic

$

(0.01

)

$

(0.05

)

$

(0.26

)

$

(0.06

)

Diluted

$

(0.01

)

$

(0.05

)

$

(0.26

)

$

(0.06

)

Shares used to calculate loss per share (Note 6)

Basic

74,468

73,988

74,421

73,783

Diluted

74,468

73,988

74,421

73,783

Dividends declared per share

$

0.04

$

0.04

$

0.12

$

0.12

$ IN THOUSANDS

SEPTEMBER 30,
2002

DECEMBER 31,
2001

ASSETS

Current Assets

Cash and cash equivalents

$

15,545

$

5,544

Trade and other accounts receivable, less allowance of $9,475 and $14,324, respectively

196,920

184,347

Inventories

185,565

155,793

Deferred taxes

13,889

13,572

Income taxes receivable

—  

1,880

Prepaid expenses and other

86,720

97,199

Total current assets

498,639

458,335

Net Property, Plant and Equipment

1,584,002

1,619,698

Other Noncurrent Assets

Pension assets

77,993

79,747

Other

110,560

108,744

Total other noncurrent assets

188,553

188,491

Total assets

$

2,271,194

$

2,266,524

$ IN THOUSANDS

SEPTEMBER 30,
2002

DECEMBER 31,
2001

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

Accounts payable, principally trade and bank overdrafts

$

133,815

$

186,810

Short-term debt

275,441

263,101

Payroll and employee benefits

32,509

29,605

Income taxes payable

40

—  

Other current liabilities

117,698

77,590

Total current liabilities

559,503

557,106

Noncurrent liabilities

Long-term debt

300,000

300,000

Deferred taxes

246,675

239,874

Other noncurrent liabilities

343,042

321,850

Total noncurrent liabilities

889,717

861,724

Shareholders’ Equity

Capital Stock

Preferred – authorized 20,000,000 shares without par value; none issued

—  

—  

Common – authorized 150,000,000 shares of $0.625 par value; issued and outstanding – 74,861,716 and 74,773,920 shares at September 30, 2002 and December 31, 2001, respectively

46,788

46,734

Additional capital

19,599

18,559

Retained earnings

760,109

788,534

Unamortized executive stock plan expense

(4,522

)

(6,133

)

Total shareholders’ equity

821,974

847,694

Total liabilities and shareholders’ equity

$

2,271,194

$

2,266,524

$ IN THOUSANDS

2002

2001

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$

(19,488

)

$

(4,532

)

Adjustments to reconcile net loss to cash provided by operating activities:

Depreciation, depletion and amortization

147,783

137,207

Development cost write-off

13,200

—  

Deferred taxes

6,692

3,080

Loss on disposal of assets

467

120

Changes in operating assets and liabilities

(28,401

)

50,827

Cash provided by operating activities

120,253

186,702

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures

(121,971

)

(191,549

)

Proceeds from sale of assets

6,908

5,071

Cash utilized by investing activities

(115,063

)

(186,478

)

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (Decrease) in short-term debt, net

12,340

(2,212

)

Dividends paid

(8,937

)

(8,788

)

Stock options exercised

1,408

9,369

Other, net

—  

1,000

Cash provided (utilized) by financing activities

4,811

(631

)

Increase (Decrease) in cash and cash equivalents

10,001

(407

)

Cash and cash equivalents at beginning of period

5,544

4,381

Cash and cash equivalents at end of period

$

15,545

$

3,974

(1)

General

Effective January 1, 2002, Massey Energy Company (“Massey” or “the Company”) changed its fiscal year-end from October 31 to December 31 to enhance the financial community’s ability to analyze and compare Massey to other companies in the coal industry.

The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under accounting principles generally accepted in the United States and, therefore, should be read in conjunction with Massey’s Annual Report on Form 10-K for the fiscal year ended October 31, 2001. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three months and nine months ended September 30, 2002 are not necessarily indicative of results that can be expected for the full year.

The condensed consolidated financial statements included herein are unaudited; however, they contain all adjustments (including normal recurring accruals) which, in the opinion of the Company, are necessary to present fairly its consolidated financial position at September 30, 2002 and December 31, 2001, its consolidated results of operations for the three months and nine months ended September 30, 2002 and 2001, and its consolidated cash flows for the nine months ended September 30, 2002 and 2001, in conformity with accounting principles generally accepted in the United States.

The condensed consolidated financial statements include the accounts of Massey, its wholly owned subsidiary A. T. Massey Coal Company, Inc. (“A. T. Massey”) and its subsidiaries.  The Company has no independent assets or operations.  A. T. Massey, which fully and unconditionally guarantees the Company’s obligations under the 6.95% Senior Notes due 2007, is the Company’s sole direct operating subsidiary.

Certain 2001 amounts have been reclassified to conform with the 2002 presentation.

(2)

New Accounting Standards

On August 15, 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). The standard requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred.  When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the related long-lived asset.  Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.  To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is incurred. This statement is effective for fiscal years beginning after June 15, 2002 and transition is by cumulative catch-up adjustment. The Company will adopt SFAS 143 on January 1, 2003 and adoption will change the Company’s current accounting for reclamation.  Due to the significant number of mines that the Company operates and the extensive amount of information that must be reviewed and estimates that must be made to assess the effects of the standard, the impact of adoption of SFAS 143 on the Company’s financial position or results of operations has not yet been determined.

(3)

Inventories

Inventories are comprised of:

$ in thousands

September 30,
2002

December 31,
2001

Coal

$

162,097

$

132,267

Other

23,468

23,526

$

185,565

$

155,793

(4)

Property, Plant and Equipment

Net Property, Plant and Equipment is comprised of:

$ in thousands

September 30,
2002

December 31,
2001

Property, Plant and Equipment, at cost

$

2,838,492

$

2,751,026

Accumulated depreciation, depletion and amortization

(1,254,490

)

(1,131,328

)

$

1,584,002

$

1,619,698

During the third quarter of 2002, the Company purchased the Holston mining operations, from Pittston Coal Company.  These assets, valued at approximately $11.0 million, included the Holston room and pillar mine and the preparation plant, among other assets.  Total consideration paid by the Company was $6.2 million in cash, plus assumed liabilities of approximately $4.8 million.

During the third quarter of 2002, the Company recorded a charge in the amount of $13.2 million (pre-tax) related to the write off of capitalized development costs at certain idled mines, which include the Pegs Branch mine, the Spring Branch mine, and the Ruby Energy mine. This charge is included in depreciation, depletion and amortization for the three months and nine months ended September 30, 2002.

During the third quarter, the Pegs Branch mine of the Sidney resource group was closed.  Based on operating conditions experienced in the Pegs Branch mine a decision was made to forego mining the final section of reserves.  The mining equipment was moved to another mine location with more favorable reserve conditions. Unamortized development costs of approximately $1.7 million were written off as a result of the Pegs Branch mine closure. 

The Spring Branch mine of the Stirrat resource group temporarily ceased mining in January of 2001 due in part to a lack of experienced mine personnel.  As part of the budget process for 2003, the mine, its reserves and its mining conditions were reassessed for future operating potential.  Management made the decision to permanently abandon this mine during the third quarter of 2002.  Unamortized development costs of approximately $2.3 million were written off in the third quarter as a result of the Spring Branch mine closure.

The Ruby Energy mine of the Delbarton resource group temporarily ceased operations in February of 2002 in reaction to market demand for steam coal by utilities. During the third quarter of 2002, as part of the 2003 budget process, Company management decided that a section of the mine that crossed under a creek would not be utilized in future mining plans.  Unamortized development costs related to this section of the mine of approximately $9.2 million were written off in the third quarter related to the Ruby Energy mine closure.  Other areas of the mine are expected to be mined in accordance with the mine plans as approved by management.

(5)

Debt

The Company had $275.4 million of short-term debt as of September 30, 2002, of which, $275.0 million consisted of borrowings under the revolving credit facilities. At September 30, 2002 the weighted average interest rate under the credit facilities was approximately 2.85 percent.  The Company has $150 million 364-day and $250 million 3-year revolving credit facilities.  The $150 million 364-day facility has been renewed through November 26, 2002, and prior to expiration, the facility allows for the conversion of outstanding obligations at the termination date to a term loan for a one-year period.  The $250 million 3-year revolving credit facility expires November 29, 2003.  The Company is currently negotiating with the participant banks to obtain a 364-day extension of the 364-day facility.   Borrowings under these facilities bear interest based on (i) the London Interbank Offer Rate (LIBOR) plus a margin, which is based on our credit rating as determined by Moody’s Investors Service (“Moody’s”) and Standard & Poor’s Ratings Service (“S&P”), (ii) the Base Rate (as defined in the facility agreements), and (iii) the Competitive Bid rate (as defined in the facility agreements).

The revolving credit facilities contain financial covenants requiring us to maintain various financial ratios. Failure to comply with these covenants could result in an event of default, which if not cured or waived could have a material adverse effect on us. The financial covenants consist of a maximum leverage ratio, a minimum interest coverage ratio, and a minimum net worth test. The leverage ratio requires that the ratio of our total indebtedness at the end of any quarter to our adjusted EBITDA for the four quarters then ended not exceed a specific amount. The interest coverage ratio requires that the ratio of our adjusted EBITDA to our interest expense for the four quarters then ended not be less than a specified amount. The net worth test requires that we maintain net worth of not less than a specified amount. We were in compliance with these covenants at September 30, 2002.

In determining EBITDA as defined in the debt agreements for use in computing the leverage ratio, the Company has excluded certain items, including the $25.6 million reserve relative to the Harman litigation described in Note 8.  The Company believes that the exclusion of such items is appropriate and has notified the lenders’ Administrative Agent of this exclusion.  If the accrual for the Harman litigation were to be included in the EBITDA calculation and no further adjustments were made, the Company would still be in compliance with the covenant at September 30, 2002.  For further detail on the financial covenants, see Section 5.07 of the Credit Agreement and the Amendment to Credit Agreement, which are included as Exhibits 10.1 and 10.2, respectively, to the Company’s Form 10-K for the fiscal year ended October 31, 2001.

The Company had $300.0 million of long-term debt as of September 30, 2002, which consisted entirely of 6.95 percent Senior Notes (the “Notes”) due March 1, 2007.  The Notes were issued in March 1997 at a discount, for aggregate proceeds of $296.7 million.  Interest is payable semiannually on March 1 and September 1 of each year, commencing September 1, 1997.  The Notes are redeemable in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of  (i) 100 percent of the principal amount of the Notes or (ii) as determined by a Quotation Agent as defined in the offering prospectus.

In early May 2002, Moody’s and S&P downgraded our credit ratings.  These ratings actions effectively prevented us from accessing the commercial paper market due to the restrictive investment policy credit guidelines of potential commercial paper investors and caused us to draw on the credit facilities for short-term financing needs.  On August 2, 2002, S&P downgraded Massey’s long-term debt rating from BBB to BBB-, with a stable outlook.  (See Note 10 for additional credit rating actions that occurred subsequent to September 30, 2002.)

The Company had $6.6 million in outstanding letters of credit as of September 30, 2002. 

(6)

Earnings Per Share

The number of shares used to calculate basic loss per share for the three months and nine months ended September 30, 2002 and 2001 is based on the weighted average outstanding shares of Massey Energy during the respective periods. The number of shares used to calculate diluted earnings (loss) per share is based on the number of shares used to calculate basic earnings (loss) per share plus the dilutive effect of stock options and other stock-based instruments held by Massey employees each period.  However, in accordance with accounting principles generally accepted in the United States, the effect of dilutive securities was excluded from the calculation of the diluted loss per common share in the three months and nine months ended September 30, 2002 and 2001, as such inclusion would result in antidilution.

The computations for basic and diluted loss per share are based on the following per share information:

Three Months Ended
September 30,

Nine Months Ended
September 30,

In thousands

2002

2001

2002

2001

Average shares of common stock outstanding:

Basic

74,468

73,988

74,421

73,783

Effect of stock options/restricted stock

—  

—  

—  

—  

Diluted

74,468

73,988

74,421

73,783

(7)

Appalachian Synfuel, LLC

On March 15, 2001 and May 9, 2002, the Company, in a two-part transaction, sold substantially all of its interest in Appalachian Synfuel, LLC, retaining all inventory and receivables as of March 15, 2001 and a one percent interest in future operating profits and losses. The Company received cash of $7.2 million, a recourse promissory note for $34.6 million that will be paid through December, 2007 in quarterly installments of $1.9 million including interest, and a contingent promissory note that is paid quarterly based on a percentage of the Section 29 credit dollars earned by Appalachian Synfuel, LLC.  Additional gains from the contingent promissory note will be recognized as earned.

Deferred gains of $25.3 million and $11.4 million as of September 30, 2002 and December 31, 2001, respectively, are included in other noncurrent liabilities to be recognized ratably through 2007. 

Marfork Coal Company, Inc., a subsidiary of the Company, manages the Appalachian Synfuel facility under an operating agreement.

(8)

Other Items Affecting Net Income

During the second quarter of 2002, the Company recorded a charge in the amount of $25.6 million (pre-tax) related to an adverse jury verdict in the West Virginia Harman Mining Corporation action, which was rendered on August 1, 2002  (see Note 9 for further discussion).  This charge is included in cost of sales for the nine months ended September 30, 2002.

During the first quarter of 2002, the Company reduced its bad debt reserves for receivables from two large bankrupt customers, Enron Corp., based on a reassessment of our total exposure, and Wheeling Pittsburgh Steel, due to a long-term repayment agreement.  This positive adjustment of $5.5 million (pre-tax) is reflected in selling, general and administrative expense for the first nine months of 2002.

Income from contract buyout payments from several customers of $5.6 million and $18.0 million (pre-tax) is included in Other Revenue for the three months and nine months ended September 30, 2002, respectively.   Included in the $18.0 million in the first nine months of 2002, is $5.1 million received from one large customer in the first quarter of 2002.

A refund for the settlement of a state tax dispute in the amount of $2.4 million, net of federal tax, was recorded in the first quarter of 2002 and is included in income tax benefit for the first nine months of 2002.

During the third quarter of 2001, management decided to move a longwall from the Jerry Fork mine of the Nicholas Energy resource group to another location with better mining conditions.  As a result, unamortized longwall panel development costs of $7.6 million (pre-tax) at the Jerry Fork mine were written off.  This charge is reflected in cost of sales for the three months and nine months ended September 30, 2001.

A $3.0 million and $9.5 million (pre-tax) refund related to black lung excise taxes paid on coal export sales tonnage is also included in cost of sales for the three months and nine months ended September 30, 2001, respectively.

(9)

Contingencies and Commitments

Harman Mining Corporation and certain of its affiliates (collectively “Harman”) 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 claimed 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.  Wellmore claimed force majeure when its major customer was forced to close its Pittsburgh coke plant due to regulatory action.  On August 24, 2000, a jury found that Wellmore had breached its contract and awarded Harman $6 million in damages.  The Company recorded a $5.4 million charge in its fourth fiscal quarter of 2000 related to the jury verdict.  Massey’s subsidiary, Knox Creek Coal Corporation, assumed the defense of this action under the terms of the stock purchase agreement by which it sold the stock of Wellmore and, on August 6, 2001, filed a petition for appeal of the adverse determination on liability and damages to the Supreme Court of Virginia.  Massey’s appeal to the Supreme Court of Virginia from a judgment entered on the jury verdict was dismissed on September 13, 2002 on technical grounds. On November 2, 2002, the Supreme Court of Virginia denied a petition for rehearing.  On November 12, 2002, Massey paid Harman $6.0 million plus post-judgment interest of approximately $1.2 million, in full satisfaction of the judgment.

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.  On August 1, 2002, the jury in the case awarded the plaintiffs $50 million in compensatory and punitive damages. The Company recorded a $25.6 million charge in the second quarter of 2002 related to this jury verdict.  Massey is vigorously pursuing post-judgment remedies, and a hearing on various motions filed in the trial court will be held on December 11, 2002.  Massey will appeal to the West Virginia Supreme Court of Appeals, if necessary.  As of September 30, 2002, the Company had accrued a liability of $31.0 million, excluding interest, which the Company believes is a fair estimate of the eventual total payout relating to both the Virginia and West Virginia actions.  After the payment of the Virginia verdict, the remaining accrual is $25.0 million.

The release of slurry following the partial impoundment failure at Massey’s Martin County Coal Corporation subsidiary (“MCCC”) on October 11, 2000 caused the destruction of the raw coal beltline feeding the preparation plant. In addition, the slurry impoundment was closed following the release by order of regulatory authorities. As a result, coal could not be processed through the MCCC preparation plant. Due to this, and certain other events, the Company was unable to deliver a portion of the coal under its contracts with Duke Energy Corporation. Among other defenses, we have asserted that our inability to perform our obligations under the contracts should be excused by reason of force majeure.  Each of the Company’s contracts with Duke Energy includes a force majeure provision that allows the Company to suspend performance of its obligations under the contract due to an occurrence of an event beyond its reasonable control, without its fault or negligence, that wholly or partially delays or prevents the mining, preparing, loading or delivering of coal. The Company believes that the force majeure definition encompasses the impoundment failure at MCCC and other events that resulted in the Company’s inability to fully perform its obligations under the contracts with Duke Energy. On December 14, 2001, Duke Energy made a demand for arbitration, disputing our claim that an event of force majeure had occurred and claiming $20.5 million in damages.  Through information provided during the discovery process, Duke Energy has reduced the amount of damages claimed to $10.6 million.  The arbitration hearing is scheduled to begin on December 9, 2002. 

On January 14, 2002, the West Virginia Division of Environmental Protection (“WVDEP”) entered an order finding a pattern of violations relating to water quality and suspending operations on Marfork Coal Company, Inc.’s refuse impoundment permit for 14 days.  Marfork obtained a stay of enforcement of the order pending appeal to the Surface Mine Board, which heard the appeal, and on June 27, 2002, reduced the suspension to nine days.  Marfork appealed the Surface Mine Board decision to the circuit court and the suspension has been temporarily stayed pending the circuit court’s decision.

On April 22, 2002, WVDEP entered an order finding a pattern of violations relating to water quality and suspending Massey’s Independence Coal Company subsidiary’s (1) preparation plant permit for 16 days, (2) Jake Gore coal refuse impoundment permit for 12 days and (3) Justice longwall permit for seven days. The suspensions were appealed to the Surface Mine Board.  On September 13, 2002, the Surface Mine Board reduced the preparation plant permit suspension to 12 days and overturned the suspensions related to the Jake Gore coal refuse impoundment and the Justice longwall permits.  Independence appealed the suspension of the preparation plant permit to the Circuit Court of Boone County, West Virginia, and the suspension has been temporarily stayed pending the circuit court’s decision.

On April 16, 2002, Appalachian Power Company, a subsidiary of American Electric Power, filed suit against the Company in the Franklin County, Ohio Court of Common Pleas.  The suit alleges that the Company improperly claimed force majeure with respect to a tonnage shortfall under its agreements with Appalachian Power in 2000 and 2001.  The complaint also alleged that the Company’s claim of force majeure constituted fraud, and sought to recover profits made by the Company on sales to other customers of the coal Appalachian Power claims should have been delivered to it.  However, by order entered July 25, 2002, the Court dismissed this fraud claim.  Among other defenses, the Company has asserted that its failure to deliver a portion of the coal required by its contract with Appalachian Power resulted from the impoundment failure at MCCC and certain other events.  The Company’s contract with Appalachian Power includes a force majeure provision that exempts the Company from liability for failure to perform its obligations under the contract due to an occurrence of an event beyond its reasonable control.  The Company believes that the force majeure definition encompasses the impoundment failure at MCCC and other events that resulted in the Company’s inability to fully perform it obligations under its contract with Appalachian Power.  The Company intends to defend the claims vigorously.  The case is in the discovery stage.

On August 5, 2002, a shareholder derivative complaint was filed in the Boone County, West Virginia, Circuit Court naming as defendants the Company, each of the Company’s directors (including Don L. Blankenship, Chairman, President and Chief Executive Officer), James L. Gardner, Executive Vice President and Chief Administrative Officer, Jeffrey M. Jarosinski, Vice President – Finance and Chief Financial Officer, Madeleine M. Curle, Vice President – Human Relations, and Bennett K. Hatfield, former Executive Vice President and Chief Operating Officer.  The complaint alleges (i) breach of fiduciary duties against all of the defendants for refusing to cause the Company to comply with environmental, labor and securities laws, and (ii) improper insider trading by Don L. Blankenship, Jeffrey M. Jarosinski, Madeleine M. Curle, and Bennett K. Hatfield.  The Company and the other defendants removed the case to Federal District Court in Charleston, West Virginia.  The plaintiffs have filed a notice seeking to remand this case to state court, which the defendants will oppose.  Also, motions to dismiss have been filed on behalf of all defendants.  A hearing date on these motions has not yet been set.  The Company intends to vigorously pursue defense of this case.

On February 2, 2001, approximately 160 residents of the Town of Sylvester, West Virginia, filed suit in the Circuit Court of Boone County, West Virginia against the Company and its subsidiary, Elk Run Coal Company, Inc., alleging that Elk Run’s operations create noise, light and dust constituting a nuisance and causing damage to the community and seeking to recover compensatory and punitive damages.  The case is set for trial by jury beginning December 2, 2002.  The Company’s insurer has defended the case on the Company’s behalf, and the Company anticipates that any damages awarded at trial should be covered by insurance. However, the Company’s insurer has reserved its rights, claiming that, among other things, the pollution and other exclusions in the policy preclude coverage for bodily injury or property damage and that fines, penalties and punitive damages are expressly excluded.

(10)

Subsequent Events

On October 2, 2002, Moody’s announced a downgrade of Massey’s senior unsecured debt rating to Ba1 from Baa3, citing concerns about continuing operating difficulties and higher production costs experienced by Massey. The senior unsecured debt of Massey remains under review for possible further downgrade, dependent on the final structure of any new credit facility.

On October 17, 2002, S&P placed Massey’s 6.95% Senior Notes credit rating of BBB- on CreditWatch with negative implications based on concerns about the renegotiation of the credit facility.

•

The volume of tons sold increased 2 percent from 10.7 million tons to 10.9 million tons, attributable to an increase in utility tons sold of 8 percent; and

•

The average per ton sales price for coal increased 10 percent from $28.66 per ton to $31.57 per ton consisting of increases of 16, 7, and 2 percent of the prices for utility, metallurgical and industrial coal, respectively.

•

The volume of tons sold decreased 5 percent from 33.5 million tons to 31.7 million tons, attributable to a reduction in metallurgical and industrial tons sold of 17 and 12 percent, respectively; and

•

The average per ton sales price for coal increased 14 percent from $27.61 per ton to $31.47 per ton consisting of increases of 16, 14, and 15 percent of the prices for utility, metallurgical and industrial coal, respectively.

Payments Due by Years

In thousands

Total

Within 1
Year

2 – 3
Years

4 – 5
Years

After 5
Years

Long-term debt

$

300,000

$

—  

$

—  

$

300,000

$

—  

Operating lease obligations

207,173

57,512

98,601

47,269

3,791

Total obligations

$

507,173

$

57,512

$

98,601

$

347,269

$

3,791

Payments Due by Years (In thousands)

Within 1
Year

2 – 3
Years

4 – 5
Years

$

30,275

$

56,246

$

63,257

a)

On August 21, 2001, the Kentuckians for the Commonwealth, an environmental group, sued the U.S. Army Corps of Engineers in Federal District Court in Charleston, West Virginia, alleging that the Corps of Engineers lacks the authority under its regulations pursuant to the Clean Water Act to issue permits for valley fills in the waters of the United States. While neither the Company nor its subsidiaries is a party to this litigation, virtually all mining operations (including ours) utilize valley fills to dispose of excess materials mined during coal production.

The U. S. Environmental Protection Agency (the “EPA”) and the Corps of Engineers published a rule on May 9, 2002 designed to clarify that the Corps of Engineers has the authority to issue permits for valley fills in the waters of the United States.  However, on May 8, 2002, prior to the rule being published, the court in this litigation entered an order holding that the Corps of Engineers is prohibited by the Clean Water Act from issuing permits for valley fills in waters of the United States and holding that the EPA and the Corps of Engineers are without authority under the Clean Water Act to issue any rule giving the Corps of Engineers such authority.  The order enjoins the Corps of Engineers from issuing any permits for valley fills in waters of the United States.  The Corps of Engineers and industry intervenors moved for a stay of the ruling pending an appeal; the District Court denied the motion for stay on June 17, 2002.  The Corps of Engineers and industry intervenors have appealed the order to the Fourth Circuit Federal Court of Appeals. 

The Corps of Engineers is reportedly analyzing how the District Court’s order applies to the numerous valley fills already authorized by the Corps.  Under the Clean Water Act, the Corps is empowered to issue “nationwide” permits for specific categories of filling activity that are determined to have minimal environmental adverse effects.   Valley fills have historically been authorized under a permit designated as Nationwide Permit 21.   In February 2002, Nationwide Permit 21 was re-issued, with a one-year grace period allowing existing filling activities to continue under the prior Nationwide Permit 21 until February 11, 2003.  Most valley fills in the industry will not be completed prior to February 11, 2003 and reportedly the Corps is currently analyzing: (1) whether existing valley fills are actually subject to the February 11, 2003 deadline; (2) whether the Corps can grant extensions to the deadline; and (3) whether the District Court order prohibits the Corps from granting authorizations to continue these fills under the new 2002 Nationwide Permit. It is impossible at this time to predict whether, when or how the Corps will decide these issues and, therefore, how the Company may be impacted.  It is likewise impossible to predict impacts to the Company because it is currently unclear whether any prohibition on filling after February 11, 2003 would apply only to the extension of existing fills into undisturbed waters or, more broadly, to the addition of fill material to already existing valley fills.  Either scenario would, absent relief from the Fourth Circuit, severely curtail surface mining production in the industry, with the latter scenario causing a production decline more quickly.  It is not possible at this time to determine how an industry decline in surface mining production would impact the prices paid for the coal from the Company’s underground production.  If the Corps determines that there will be a prohibition on filling after February 11, 2003, the industry will likely seek a stay from the Fourth Circuit.   

a)

Exhibits.

99.1

Certification of Chief Executive Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2

Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

b)

Reports on Form 8-K.

None.

MASSEY ENERGY COMPANY

(Registrant)

Date:  November 14, 2002

/s/ J. M. JAROSINSKI

J. M. Jarosinski,
Vice President - Finance
and Chief Financial Officer

/s/ E. B. TOLBERT

E. B. Tolbert, Controller

1.

I have reviewed this quarterly report on Form 10-Q of Massey Energy Company;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  November 14, 2002

/s/ J. M. JAROSINSKI

J. M. Jarosinski
Vice President – Finance and Chief Financial Officer

1.

I have reviewed this quarterly report on Form 10-Q of Massey Energy Company;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  November 14, 2002

/s/ D. L. BLANKENSHIP

D. L. Blankenship
President, Chairman and Chief Executive Officer