<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
-------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-39643
ANKER COAL GROUP, INC.
(Exact Name Of Registrant As Specified in Its Charter)
<TABLE>
<CAPTION>
Delaware 52-1990183
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
2708 Cranberry Square
Morgantown, West Virginia 26508
(Address Of Principal Executive Offices)
(304) 594-1616
(Registrant's telephone number, including area code)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of outstanding shares of each of the registrant's
classes of common stock, as of the latest practicable date: Common Stock, $.01
per share par value, 7,108 shares (November 11, 1999)
<PAGE> 2
ANKER COAL GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I
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<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1999 and 1998.............................................1
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998................................................................2
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998.......................................................3
Notes to Consolidated Financial Statements ....................................................................4-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..........................................................................7-13
PART II
ITEM 1. LEGAL PROCEEDINGS...............................................................................................13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................................................................13
Signature Page..................................................................................................14
</TABLE>
FORWARD-LOOKING DISCLAIMER
This report contains statements which constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements include statements regarding the intent, belief or current
expectations of the performance of the Company, the ability of the Company to
implement its business plan or related industry developments. Readers are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Readers are further cautioned
that actual results, levels of activity, performance or achievements of the
Company, or industry results may differ materially from those described or
implied in the forward-looking statements as a result of various factors, many
of which are beyond the control of the Company. These factors include, but are
not limited to: general economic and business conditions; the ability of the
Company to implement its business plan; the availability of liquidity and
capital resources; the ability of the Company to achieve anticipated cost
savings; the ability of the Company to secure new mining permits; changes in the
industry; weather; unexpected maintenance problems; adverse geologic conditions;
variations in coal seam thickness; variations in rock and soil overlying the
coal deposit; variations in rock and other natural minerals; a disruption in or
an increase in the cost of transportation services; early modification or
termination of the Company's long-term coal supply contracts; competition within
the coal production and electricity generation industries; regulatory
uncertainties; price fluctuations; and labor disruptions.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANKER COAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Coal sales and related revenue $ 60,070 $ 78,217 $ 174,293 $ 226,111
Expenses:
Cost of operations and selling expenses 53,971 73,512 157,419 214,443
Depreciation, depletion and amortization 4,591 4,792 13,430 13,009
General and administrative 2,836 2,679 6,781 7,767
Loss on impairment and restructuring 1,065 5,517 4,526 7,346
--------- --------- --------- ---------
Total expenses 62,463 86,500 182,156 242,565
--------- --------- --------- ---------
Operating loss (2,393) (8,283) (7,863) (16,454)
Interest, net of $386 capitalized for the
nine months September 30,1998 (3,711) (3,301) (10,911) (9,421)
Other income, net 1,158 273 2,579 821
--------- --------- --------- ---------
Loss before income taxes (4,946) (11,311) (16,195) (25,054)
Income tax benefit -- (3,167) (200) (7,015)
--------- --------- --------- ---------
Net loss (4,946) (8,144) (15,995) (18,039)
Mandatorily redeemable preferred stock dividends (352) (334) (1,055) (1,004)
Mandatorily redeemable preferred stock accretion (150) (150) (450) (450)
Common stock available for repurchase accretion (142) -- (421) --
--------- --------- --------- ---------
Net loss available to common
stockholders $ (5,590) $ (8,628) $ (17,921) $ (19,493)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
1
<PAGE> 4
ANKER COAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21 $ 15
Accounts receivable 25,431 27,887
Inventories 3,279 5,876
Current portion of long-term notes receivable 682 986
Prepaid expenses and other 3,271 1,989
Deferred income taxes 3,683 3,683
--------- ---------
Total current assets 36,367 40,436
Properties:
Coal lands and mineral rights 62,535 62,398
Machinery and equipment 71,893 72,355
--------- ---------
134,428 134,753
Less allowances for depreciation, depletion and amortization 34,023 26,161
--------- ---------
100,405 108,592
Other assets:
Assets held for sale 9,000 10,000
Advance minimum royalties 5,963 4,453
Goodwill, net of accumulated amortization of $3,700 and $2,517 at
September 30, 1999 and December 31, 1998, respectively 20,389 21,572
Other intangible assets, net of accumulated amortization of $1,419
and $694 at September 30, 1999 and December 31, 1998, respectively 5,493 6,268
Notes receivable 3,495 3,735
Other assets 5,930 6,664
--------- ---------
Total assets $ 187,042 $ 201,720
========= =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable:
Trade 10,319 10,982
Affiliate 547 480
Cash overdraft 2,928 5,111
Accrued interest 6,310 3,365
Accrued expenses and other 10,150 11,287
Accrued leasehold termination 3,214 3,957
Accrued reclamation expenses 5,015 5,234
Current maturities of long-term debt 2,472 2,777
Common stock available for repurchase 3,695 1,505
--------- ---------
Total current liabilities 44,650 44,698
Long-term debt 147,119 139,934
Other liabilities:
Accrued reclamation expenses 15,396 17,367
Deferred income taxes 8,242 8,242
Other 4,448 6,272
--------- ---------
Total liabilities 219,855 216,513
Commitments and contingencies -- --
Mandatorily redeemable preferred stock 26,093 24,588
Common stock available for repurchase 6,891 8,495
Stockholders' equity:
Preferred stock 23,000 23,000
Common stock -- --
Paid-in capital 47,900 47,900
Treasury stock (5,100) (5,100)
Accumulated deficit (131,597) (113,676)
--------- ---------
Total stockholders' equity (65,797) (47,876)
--------- ---------
Total liabilities and stockholders' equity $ 187,042 $ 201,720
========= =========
</TABLE>
The accompanying notes are an integral
Part of the consolidated financial statements.
2
<PAGE> 5
ANKER COAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (15,995) $ (18,039)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss on impairment and restructuring 4,526 7,346
Depreciation, depletion and amortization 13,430 13,009
Gain on sale of property, plant and equipment (77) (101)
Debt issuance costs 756 --
Deferred taxes -- (7,015)
Changes in operating assets and
liabilities:
Accounts receivable 2,456 (670)
Inventories, prepaid expenses and other 1,315 4,298
Advance minimum royalties (1,893) (1,875)
Accounts payable, accrued expenses and other (1,116) 2,711
Accrued reclamation (3,121) (968)
Other liabilities (1,824) (142)
--------- ---------
Net cash used in operating activities (1,543) (1,446)
Cash flows from investing activities:
Purchases of properties (5,222) (8,134)
Proceeds from sales of property, plant and equipment 1,690 345
Issuance of notes receivable -- (20)
Payments received on notes receivable 544 1,010
Other assets 794 (310)
Investment in affiliate -- (333)
--------- ---------
Net cash used in investing activities (2,194) (7,442)
Cash flows from financing activities:
Proceeds from revolving line of credit and long-term debt 187,538 84,600
Principal payments on revolving line of credit and long-term debt (180,658) (75,341)
Cash overdraft (2,183) (3,919)
Payment of debt issuance costs (954) (421)
Treasury stock purchase -- (5,100)
Proceeds received from life insurance proceeds -- 10,000
--------- ---------
Net cash provided by financing activities 3,743 9,819
Increase in cash and cash equivalents 6 931
Cash and cash equivalents at beginning of period 15 --
--------- ---------
Cash and cash equivalents at end of period $ 21 $ 931
========= =========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
3
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
The unaudited interim consolidated financial statements presented
herein have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q and do not include
all of the information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, these consolidated financial statements contain
all adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position, results of operations and
cash flows. These unaudited interim consolidated financial statements should be
read in conjunction with the other disclosures contained herein and with the
Company's audited consolidated financial statements and notes thereto contained
in the Company's Annual Form 10-K for the year ended December 31, 1998.
Operating results for interim periods are not necessarily indicative of results
that may be expected for the entire fiscal year.
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform with the 1999 presentation.
2. INCOME TAXES
Income taxes are provided for financial reporting purposes based on
management's best estimate of the effective tax rate expected to be applicable
for the full calendar year. The Company has established a full valuation
allowance on the net operating loss carryforwards, capital loss carryforwards
and contribution carryforwards because the realization of these assets are
uncertain.
3. INVENTORIES
Coal inventories are stated at the lower of average cost or market and
amounted to approximately $2.9 million and $4.4 million at September 30, 1999
and December 31, 1998, respectively. Supply inventories are stated at the lower
of average cost or market and amounted to approximately $0.4 million and $1.5
million at September 30, 1999 and December 31, 1998, respectively.
4. LOSS ON IMPAIRMENT AND RESTRUCTURING
The Company recorded loss on impairment and restructuring charges of
$1.1 million and $4.5 million for the three and nine months ended September 30,
1999.
The loss on impairment and restructuring recorded in the third quarter
consisted of three items. First, the operating sections of the Company's Barbour
County deep mine were moved from one area of the reserve to another. As a result
of the move, certain unamortized assets were no longer useful in the mining
operation, and the Company recorded a $0.6 million charge. Other unamortized
assets associated with this area of the Barbour County operation totaling $1.7
million were not impaired because the Company believes these assets will be used
for future mining activities. Second, in connection with the close down of the
Company's operations in Webster County, the Company recorded $1.0 million of
additional charges for reclamation and other close down costs to be incurred
over the next seven months. The third component of the loss consists of an
income offset of $0.5 million relating to the disposition of certain coal
reserves in Preston and Taylor Counties, West Virginia, that were previously
impaired during the fourth quarter of 1998.
During the second quarter of 1999, the Company reviewed the carrying
value of computer software and determined that, in connection with the use of
contract miners at the Company's deep mines, certain software would no longer be
utilized. As a result, the Company recorded an impairment loss of $1.1 million.
In addition, the Company recorded an impairment of $2.4 million relating to
properties located in Tazewell County, Virginia.
4
<PAGE> 7
The Company recorded loss on impairment and restructuring charges of
$5.5 million and $7.3 million for the three and nine months ended September 30,
1998. During 1998, the Company impaired its remaining investment in Oak Mountain
of $0.3 million and initiated steps to reduce general and administrative
expenses by making management changes resulting in $0.2 million of restructuring
charges. In addition, the Company recorded an impairment of $2.4 million in the
second quarter of 1998 relating to impairment losses on certain pieces of mining
equipment.
During the third quarter of 1998, a reclamation charge of $5.1 million
was recorded relating to the Company's operations in Webster County. This
reclamation charge was a result of a change in the mine plan for the Webster
County surface mine.
5. SUBSIDIARY GUARANTEES
The Company is a holding company with no assets other than its
investments in its subsidiaries. The Company's $125 million principal amount of
9.75% Senior Notes due October 2007 (the "Old Notes") are guaranteed by certain
subsidiaries of the Company (collectively, the "Guarantor Subsidiaries"). Each
of the Guarantor Subsidiaries is a wholly-owned subsidiary of the Company and
has fully and unconditionally guaranteed the Old Notes on a joint and several
basis. The following tables summarize the financial position, results of
operations and cash flows for the Company, the Guarantor Subsidiaries and the
subsidiaries of the Company which did not guarantee the Old Notes (collectively,
"Non-Guarantor Subsidiaries"). The Company has not presented separate financial
statements and other disclosure regarding the Guarantor Subsidiaries because
management has determined that such information is not material to investors.
The restrictions affecting the ability of the Guarantor Subsidiaries to make
distributions to the Company or other Guarantor Subsidiaries are set forth in
the Loan and Security Agreement dated November 21, 1998, among the Company,
Foothill Capital Corporation ("Foothill") and the lenders named therein (the
"Foothill Loan Agreement"). The ability of the Guarantor Subsidiaries to make
distributions is also affected by law generally (e.g., adequate capital to pay
dividends under corporate law). See Note 7 for information on the recent private
exchange of $108.5 million of Old Notes for New Secured Notes.
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
ANKER COAL
ANKER COAL GUARANTOR NON-GUARANTOR CONS. GROUP
GROUP SUBS. SUBS. ADJUST. CONS.
----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Total current assets $ 3,683 $ 29,755 -- $ 2,929 $ 36,367
Investment in subsidiaries 55,925 -- -- (55,925) --
Properties, net -- 93,115 $ 7,290 -- 100,405
Other assets -- 50,270 -- -- 50,270
--------- --------- --------- --------- ---------
Total assets $ 59,608 $ 173,140 $ 7,290 $ (52,996) $ 187,042
========= ========= ========= ========= =========
Total current liabilities 3,696 37,965 60 2,929 44,650
Long-term debt -- 147,119 -- -- 147,119
Intercompany payable (receivable), net (54,169) 45,954 8,215 -- --
Other long-term liabilities 6,745 21,341 -- -- 28,086
Mandatorily redeemable preferred stock 26,093 -- -- -- 26,093
Common stock available for repurchase 6,891 -- -- -- 6,891
Total stockholders' equity 70,352 (79,239) (985) (55,925) (65,797)
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity $ 59,608 $ 173,140 $ 7,290 $ (52,996) $ 187,042
========= ========= ========= ========= =========
STATEMENT OF OPERATIONS
Coal sales and related revenues -- $ 174,293 -- -- $ 174,293
Cost of operations and operating expenses -- 181,976 $ 180 -- 182,156
--------- --------- --------- --------- ---------
Operating loss -- (7,683) (180) -- (7,863)
Other expense $ -- (8,332) -- -- (8,332)
--------- --------- --------- --------- ---------
Loss before taxes -- (16,015) (180) -- (16,195)
Income tax benefit 200 -- -- -- 200
--------- --------- --------- --------- ---------
Net income (loss) $ 200 $ (16,015) $ (180) -- $ (15,995)
========= ========= ========= ========= =========
STATEMENT OF CASH FLOWS
Net cash provided by (used in)
operating activities 200 $ (1,743) -- -- $ (1,543)
========= ========= ========= ========= =========
Net cash used in investing activities -- $ (2,194) -- -- $ (2,194)
========= ========= ========= ========= =========
Net cash provided by financing activities -- $ 3,743 -- -- $ 3,743
========= ========= ========= ========= =========
</TABLE>
5
<PAGE> 8
6. COMMITMENTS AND CONTINGENCIES
In 1998, certain subsidiaries of the Company (the "Plaintiffs") sued
Consolidation Coal Company ("Consol"), the Social Security Administration (the
administrator of the Coal Industry Retiree Health Benefits Act of 1992 (the
"1992 Coal Act")), and the Trustees of the United Mine Workers of America
Combined Benefit Fund (the "Trustees") in the United States District for the
Western District of Pennsylvania claiming that (i) Consol is responsible for
paying certain of the Plaintiffs' 1992 Coal Act premiums relating to employees
that were affected by Consol's breach of several contract mining agreements in
the early 1980s (approximately 1/3 of the Plaintiffs' entire premium); (ii) the
Social Security Administration should be enjoined from continuing to invoice the
Plaintiff for these payments that should be made by Consol; and (iii) the 1992
Coal Act is unconstitutional. The Trustees filed a counterclaim against the
Plaintiffs for the amount of premiums they have failed to pay as a result of
their claim against Consol. The court granted the Trustee's motion for summary
judgment on their counterclaim, and the court granted the motions to dismiss
filed by Consol and the Social Security Administration.
The Plaintiffs appealed to the United States Third Circuit Court of
Appeals. The appeals court reversed the trial court ruling with respect to
Consol. However, the appeals court affirmed all other trial court rulings. Thus,
the appeals court ruled that the Plaintiffs can pursue their reimbursement claim
against Consol, but while that claim is proceeding they must pay the disputed
portion of their 1992 Coal Act premiums. At this time, the disputed portion of
premiums, including interest and penalties, is approximately $1.3 million.
Interest accrues at the post judgment rate of 9% per year.
The Plaintiffs filed a petition for appeal with the United States
Supreme Court on August 12, 1999. The Third Circuit's judgment has be stayed
pending the Supreme Court denial of the writ or otherwise ruling against the
Plaintiffs. The entire judgment has been fully accrued by the Company in prior
years. In the event the Plaintiffs are required to pay this judgment, the
Plaintiffs will fund the judgment from borrowings under the revolving credit
facility under the Foothill Loan Agreement.
The Company and its subsidiaries are party to various other lawsuits
and claims incidental to the conduct of their business. While it is not possible
to predict accurately the outcome of these matters, the Company's management
does not believe that these matters will have a material effect on the Company's
consolidated financial position, results of operations or cash flows.
7. SUBSEQUENT EVENTS
On October 28, 1999, the Company completed a private restructuring of
the Old Notes and a private placement to raise additional capital. In the
transactions, a limited number of qualified noteholders exchanged $108.5 million
of their Old Notes for $86.8 million of 14.25% Series A Second Priority Senior
Secured Notes due 2007 (paid in kind ("PIK") through April 1, 2000) ("New
Secured Notes"). The New Secured Notes are guaranteed by all of the subsidiaries
of the Company. Exchanging noteholders waived their right to receive the October
1, 1999 interest payment on the Old Notes. Exchanging noteholders also received
warrants to purchase 20% of the common stock of the Company at a nominal
exercise price. In connection with the private exchange, exchanging noteholders
consented to amendments to the indenture for the Old Notes that, among other
things, modified or eliminated various covenants. Following the private
exchange, approximately $16.5 million of the Old Notes remain outstanding. The
Company also paid the October 1, 1999 cash interest payment on the remaining Old
Notes on October 28, 1999, prior to the expiration of the grace period for that
interest payment.
The Company expects to record the private exchange transaction
described above in accordance with FAS-15 "Accounting By Debtors and Creditors
For Troubled Debt Restructurings." In the private exchange, the carrying amount
of the Old Notes ($125.0 million) and the accrued and unpaid interest of
approximately $6.1 million is compared with the New Secured Notes principal and
interest payments over time. To the extent the carrying amount is less than the
New Secured Notes interest and principal, the Company can adjust its carrying
amount. The Company does not expect to change its carrying amount in connection
with the private exchange.
In conjunction with the private exchange, the Company raised $11.2
million in cash through the sale to Rothschild Recovery Fund L.P. ("RRF") in a
private placement of $13.2 million principal amount of New Secured Notes and
warrants to purchase 10% of the common stock of the Company at a nominal
exercise price. The funds raised in the private placement were applied against
the revolving credit facility under the Foothill Loan Agreement. The issuance of
the New Secured Notes for cash in the private placement is expected to result in
the financial statement recognition of original issue discount. This discount
will be accreted over the term of the New Secured Notes.
6
<PAGE> 9
The Company also issued $6.0 million of New Secured Notes to JJF Group
Limited Liability Company ("JJF Group"), a shareholder of the Company controlled
by the estate of John J. Faltis, the former Chairman and Chief Executive Officer
of the Company. The New Secured Notes were issued to JJF Group in exchange for
cancellation of JJF Group's common stock in the Company and its rights to
require the Company to buy that stock for approximately $10.5 million under a
Put Agreement dated as of August 25, 1998 (the "Put Agreement"). In connection
with the expected accounting treatment for the private exchange with JJF Group,
the Company will record the New Secured Notes issued at their face value, and
the difference between the New Secured Notes and the common stock available for
repurchase (including current portion) will increase paid-in-capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
RECENT DEVELOPMENTS
As previously reported in its filings with the Securities and Exchange
Commission, the Company has experienced liquidity problems during the calendar
year 1999. To address these liquidity problems, on October 28, 1999, the Company
completed a private restructuring of its Old Notes and a private placement to
raise additional capital. As discussed in more detail below, in the
transactions, a limited number of qualified noteholders exchanged $108.5 million
of their Old Notes for $86.8 million of New Secured Notes. Exchanging
noteholders waived their right to receive the October 1, 1999 interest payment
on the Old Notes. In addition, the Company raised $11.2 million in cash through
the sale to RRF in a private placement of $13.2 million principal amount of New
Secured Notes. The funds raised in the private placement were applied against
the revolving credit facility under the Foothill Loan Agreement. As a result, as
of November 11, 1999, the Company had $17.0 million of availability under its
revolving credit facility.
At the end of October, 1999, a subsidiary of the Company completed a
coal sales agreement with AK Steel Corporation ("AK Steel") under which it will
supply all of AK Steel's low-vol metallurgical coal requirements for AK Steel's
Ashland, Kentucky and Middletown, Ohio coke plants through December 31, 2001.
Under the AK Steel agreement, the production for the remaining life of the
Company's underground metallurgical coal mine in Raleigh County, West Virginia,
is substantially sold out.
Also at the end of October, 1999, a subsidiary of the Company reached
an agreement to sell additional coal to Potomac Electric Power Company ("PEPCO")
for 2000, bringing the Company's total coal sales commitments to PEPCO for 2000
to approximately 2.15 million tons. The Company will supply the coal to PEPCO
from its underground mining operations in Barbour and Upshur Counties, West
Virginia.
THE FOOTHILL LOAN AGREEMENT
The Foothill Loan Agreement provides the Company with a $55.0 million
credit facility. The credit facility consists of a commitment for a $40.0
million working capital revolver and a term loan with an original principal
amount of $15.0 million. Commitments under the credit facility will expire in
2002. The credit facility is secured by substantially all of the Company's
present and future assets.
Borrowings under the revolver are limited to 85% of eligible accounts
receivable and 65% of eligible inventory and bear interest at the Company's
option at either 1% above the prime interest rate or at 3 3/4% above the
adjusted Eurodollar rate. For the year ended December 31, 1998, the average
interest rate under the revolver was approximately 8.75%. The term loan bears
interest at 2 1/2% above the prime interest rate and is payable in monthly
installments through 2002. The average interest rate for the term loan for the
year ended December 31, 1998 was approximately 10.25%.
To assist the Company with its liquidity needs pending completion of
the restructuring of its Old Notes, on August 27, 1999, the Company entered into
an amendment to the Foothill Loan Agreement. Under the amendment, Foothill and
the other lenders agreed to provide the Company with up to $3.25 million of
additional liquidity, $2.0 million of which (if drawn) was required to be repaid
on or before November 2, 1999.
7
<PAGE> 10
The following table sets forth the amounts outstanding and borrowing
availability under the Foothill Loan Agreement as of the dates shown below:
<TABLE>
<CAPTION>
REVOLVING REVOLVING ADDITIONAL
CREDIT CREDIT INTERIM
DATE TERM LOAN BORROWINGS AVAILABILITY AVAILABILITY
---- --------- ---------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
12/31/98 $ 15.0 $ 1.9 $ 15.5 --
03/31/99 14.4 1.4 16.5 --
06/30/99 13.9 12.9 6.9 --
09/30/99 13.2 13.3 5.3 2.0
10/31/99 13.2 13.2 3.7 2.0
11/11/99 13.0 -- 17.0 --
</TABLE>
The term loan changes are based on the normal amortization of the loan,
except that (i) in July, 1999 the term loan was paid down through the
application of approximately $1.25 million of asset sale proceeds and (ii) in
September, 1999, pursuant to the terms of the amendment to the Foothill Loan
Agreement described above, Foothill reversed this payment (causing the term loan
to increase by the same amount) and reapplied the proceeds to reduce revolving
credit borrowings in order to provide additional liquidity to the Company. The
increase in the revolving credit borrowings since March 31, 1999 is primarily
related to the Company's borrowing to make the interest payment on the Old Notes
on April 29, 1999, performing reclamation in Webster County, West Virginia, and
capital expenditures. Revolving credit availability also has been reduced as a
result of lower coal production and coal shipments. Future revolving credit
availability will be impacted by changes in coal production and the resulting
changes in coal inventory and accounts receivable.
The Foothill Loan Agreement contains covenants that, among other
matters, restrict or limit the ability of the Company to pay interest and
dividends, incur indebtedness or acquire or sell assets and make capital
expenditures. The Company must also maintain certain cash flow ratios. In
particular, the Foothill Loan Agreement provides that in order to advance funds
to the Company and other Guarantors, the borrowers under the Foothill Loan
Agreement must have borrowing availability of at least $5 million after giving
effect to the advances and for the thirty days immediately preceding such
advances. With respect to the term loan, in addition to regularly scheduled
amortizing principal and interest payments, the Foothill Loan Agreement requires
that the Company apply the first $5.0 million of proceeds from certain
designated asset sales to the repayment of the term loan. As of November 11,
1999, no amounts have been applied to the $5.0 million requirement. Proceeds
used to repay the term loan cannot be reborrowed.
As previously reported, the opinion of the Company's independent public
accountants with respect to the Company's consolidated financial statements for
the year ended December 31, 1998, included a qualification about the Company's
ability to continue as a going concern. See Item 8, Consolidated Financial
Statements, of the Company's Form 10-K for the period ended December 31, 1998,
for the opinion of the Company's independent public accountants. The issuance of
the qualified opinion by the Company's independent public accountants for the
year ended December 31, 1998 constituted a default under the Foothill Loan
Agreement. Foothill waived this default.
CAPITAL EXPENDITURES AND OTHER COMMITMENTS AND CONTINGENCIES
The Company budgeted approximately $9.3 million for capital
expenditures for 1999. As of September 30, 1999, the Company had incurred
approximately $5.2 million of capital expenditures. With the transition from
company operated deep mines to contractor run deep mines, certain capital
expenditures will no longer be necessary. As a result of this and other factors,
the Company expects that its capital expenditures for 1999 will be less than the
budgeted amount of $9.3 million.
As a result of the private exchange transaction discussed below, the
Company may incur income tax liabilities. As of October 28, 1999, the Company
estimated that its tax liability could be as much as $7 million. That estimate
is subject to uncertainty, and the actual tax liability may be less than that
amount. The Company is currently finalizing its determination of the tax
liability that will result from the private exchange transaction. If the Company
is required to pay tax, it will be due and payable on March 15, 2000. The
Company intends to borrow the funds to pay any tax due from the revolving credit
facility under the Foothill Loan Agreement.
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THE COMPANY'S BUSINESS PLAN
In late 1998, the Company developed a plan to improve its operating
performance and its short and long-term liquidity. The plan has four objectives:
(i) obtain more flexible senior financing; (ii) improve cash flow from
operations; (iii) raise cash by selling certain assets; and (iv) reduce the
Company's debt and secure additional liquidity.
The first objective of the plan was achieved in November 1998 upon the
closing of the Foothill Loan Agreement. The Foothill Loan Agreement replaced the
Company's prior Amended and Restated Credit Facility which provided for a $71
million line of credit. Under the prior facility, borrowing availability was
limited by certain financial ratios. Due to the Company's poor financial
performance during 1998, the Company had insufficient borrowing availability
under the prior facility. Under the Foothill Loan Agreement, borrowing
availability is based upon the Company's eligible accounts receivable and
inventory. As a result, the Company's borrowing availability is more stable.
The second objective of the Company's plan is to improve cash flow from
operations by using contract mining services for its underground mining
operations. The Company believes that by utilizing contract miners it will
reduce operating expenses, general and administrative expenses and
month-to-month cost fluctuations. In addition, because the contract miners are
responsible for mine development and maintenance, the Company will have reduced
capital costs. The Company has completed this objective of the plan. In April
1999, the Company entered into a contract mining agreement for the operations in
Garrett County, Maryland, and the contract miner began operations on April 12,
1999. In addition, the Company has entered into contract mining agreements for
its mining operations in Upshur, Barbour and Raleigh Counties, West Virginia.
The contract miners for the Upshur and Barbour County mines began operations on
June 1, 1999, and the contractor for the Raleigh County mine began operations on
July 5, 1999. The Company has also signed a contract mining agreement for the
Company's new deep mine in Upshur County, which began operations on September
20, 1999.
The third objective of the Company's plan involves the sale of certain
non-operating assets and selected non-strategic operating properties. The
non-operating assets that the Company is seeking to sell are those that require
substantial development costs and/or have significant holding costs. The
operating properties that the Company plans to sell either complement
non-operating assets being held for sale or are not integral to the Company's
long-term operating strategy. The Company has been discussing the sale of these
properties with third parties. In July 1999, the Company sold certain coal
reserves in Preston and Taylor Counties, West Virginia for net proceeds of $1.25
million plus royalties on future production. The cash proceeds from this asset
sale were applied to reduce the amounts outstanding under the revolving credit
facility under the Foothill Loan Agreement. The Company believes that its
efforts to market other properties have been hampered by the Company's financial
condition. The Company believes that it will be successful in selling all or a
part of these assets during the next 12 to 24 months. However, there can be no
assurance that asset sales will be completed on terms acceptable to the Company,
if at all. The Company is also planning to evaluate reasonable offers on other
assets as opportunities develop.
The fourth and final objective of the plan involves reducing the
Company's overall debt level and securing additional liquidity. The Company
believes that this objective of the plan will be achieved in part through the
success of the other objectives of the plan. In addition, as noted above, on
October 28, 1999, the Company completed a private restructuring of a significant
portion of its Old Notes and a private placement to raise additional capital. In
the transactions, a limited number of qualified noteholders exchanged $108.5
million of their Old Notes for $86.8 million of New Secured Notes. Exchanging
noteholders waived their right to receive the October 1, 1999 interest payment
on the Old Notes. These noteholders also received warrants to purchase an
aggregate of 20% of the Company's common stock at a nominal exercise price.
Approximately 86.8% of the Old Notes were exchanged, and approximately $16.5
million of the Old Notes remain outstanding. In connection with the private
exchange, the exchanging holders consented to amendments to the indenture for
the Old Notes that, among other things, modify or eliminate various covenants.
For example, the indenture for the Old Notes no longer requires the Company
to offer to repurchase Old Notes from proceeds of asset sales or upon the
occurrence of a change of control of the Company. The Company also paid the
October 1, 1999 cash interest payment on the remaining Old Notes on October 28,
1999 before the expiration of the grace period for that interest payment.
In connection with the restructuring transactions, the Company raised
$11.2 million in cash through the sale to RRF, one of the exchanging holders, in
a private placement of $13.2 million principal amount of New Secured Notes and
warrants to purchase 10% of the Company's common stock at a nominal exercise
price.
The Company also issued $6.0 million of New Secured Notes to JJF Group
Limited Liability Company ("JJF Group"), a shareholder of the Company controlled
by the estate of John J. Faltis, the former Chairman and Chief Executive Officer
of the Company, as a part of the private restructuring. The New Secured Notes
were issued to JJF Group in exchange
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for cancellation of JJF Group's common stock in the Company and its rights to
require the Company to buy that stock for approximately $10.5 million under the
Put Agreement.
As a part of the closing of the restructuring of the Old Notes,
Foothill consented to the restructuring transactions and waived existing
defaults under the Foothill Loan Agreement.
The private exchange transaction reduced the stated principal amount of
the Company's long-term debt by $21.7 million, and the Company eliminated
approximately $4.0 million of additional obligations through the transaction
with JJF Group. However, the additional principal amount of New Secured Notes
issued in the private placement to RRF and the New Secured Notes to be issued in
lieu of the April 1, 2000 interest payment will partially offset the principal
reduction accomplished in the private exchange. That principal reduction will
also be offset if the Company issues New Secured Notes to RRF in connection with
the October 1, 2000 interest payment as discussed below.
The need to make interest payments on the Old Notes had significantly
limited the Company's operating flexibility and substantially reduced its
ability to grow or replenish its production base. By completing the
restructuring, the Company believes it has adequate capital resources to meet
its short-term liquidity needs. As the Company implements its business plan, the
Company intends to increase its cash flow and improve its profitability to the
point that it will be able to service the New Secured Notes and any remaining
Old Notes, without impairing operations, but no assurance can be given that the
strategy will be successful. Beginning with the October 1, 2000 interest
payment, the Company will need to fund payments of interest on any unexchanged
Old Notes and the New Secured Notes from operating cash flow, borrowings under
credit facilities, asset sale proceeds or other sources. RRF has agreed to
purchase, at the Company's option and subject to certain conditions (including
the absence of a material adverse change or material liens on the collateral
securing the New Secured Notes arising after the closing of the private
placement), additional New Secured Notes to fund up to $6.3 million of the
October 1, 2000 interest payment on the New Secured Notes. The Company's ability
to service its long-term debt on October 1, 2000 and thereafter will depend upon
a variety of factors, some of which are beyond the Company's control.
The Company recently announced that it plans to conduct a public
exchange offer of its New Secured Notes for its outstanding Old Notes.
Currently, approximately $16.5 million of Old Notes are outstanding. In the
public exchange offer, the Company plans to offer holders of Old Notes $743
principal amount of New Secured Notes for each $1,000 principal amount of Old
Notes held. The public exchange offer will be conducted either as an exchange
offer registered under the Securities Act of 1933 or pursuant to the exemption
from Securities Act registration for exchanges with existing security holders.
The Company intends to offer the public exchange as soon as possible. However,
because of regulatory and other requirements, the Company cannot predict when
the public exchange offer will be made.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998
COAL SALES AND RELATED REVENUES. Coal sales and related revenues were
$60.0 and $174.3 million for the three and nine months ended September 30, 1999,
compared to $78.2 and $226.1 million for the same periods of 1998, decreases of
23.3% and 22.9%, respectively. The decreases in coal sales and related revenues
were due in part to lower tonnage levels as discussed below and a reduction in
sales of coal from the Company's metallurgical coal mine in Raleigh County, West
Virginia. Coal sales volume was 2.8 and 7.9 million tons for the three and nine
months ended September 30, 1999, compared to 3.2 and 9.4 million tons for the
same periods a year ago, decreases of 12.5% and 16.0%, respectively. These
decreases in coal sales volume were due to lower coal production at certain of
the Company's mining operations as described below:
1. Tonnage levels were lower in 1999 due to idling the Company's Webster
County surface mine in December 1998. In addition, the contract deep
mine in Webster County completed operations in the third quarter of
1999 due to the depletion of its reserve base.
2. Tonnage levels were lower in 1999 due to idling the Grant County
surface mine in December 1998. This surface mine was idled because the
Company had mined all of its then permitted reserves and was not able
to obtain a new mining permit for its adjacent properties which would
have allowed for the continuation of the surface mining operation.
Moreover, with the idling of the surface mine, the Company was unable
to sell the portion of production from its Grant County deep mine which
had previously been blended with coal from the idled surface mine. As a
result of
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this and other factors, the Company idled the deep mine in February
1999, which caused an additional decline in coal production. The
Company is continuing to work with the West Virginia Division of
Environmental Protection ("WVDEP") to secure a permit for the
resumption of operations at the Company's Grant Country surface mine.
Although the permit has not been issued, WVDEP has indicated by letter
to the Company that it anticipates a favorable consideration of the
Company's application for the permit. Because the Company did not
receive the permit by October 15, 1999, Virginia Electric Power Company
("VEPCO") has the right to terminate its contract to purchase coal from
the Company. Nevertheless, VEPCO has indicated by letter to the Company
that, in view of the progress being made in obtaining the permit, VEPCO
anticipates that it will not terminate its contract as long as the
Company receives the permit in the near term.
3. Tonnage levels were lower in 1999 due to the completion of one contract
mining operation in Preston County during the fourth quarter of 1998.
Production is expected to cease at the remaining contract deep mine in
Preston County at the end of 1999 due to the depletion of the reserve
base.
4. Tonnage levels were lower in 1999 due to the implementation of a
reduced production schedule at the Company's Raleigh County deep mine.
The Company reduced its production schedule in response to changing
geologic and market conditions and to more effectively mine the
remaining reserves. The Raleigh County deep mine will continue to
produce at a reduced tonnage level throughout 1999.
While the Company experienced lower production at the mines as
described above, tonnage levels during 1999 as compared to the same periods for
1998 increased at the Company's Upshur County, West Virginia deep mine and
Garrett County, Maryland deep mine.
COST OF OPERATIONS AND SELLING EXPENSES. The cost of operations and
selling expenses totaled $54.0 and $157.4 million for the three and nine months
ended September 30, 1999, compared to $73.5 and $214.4 million for the same
periods of 1998, decreases of 26.5% and 26.6%, respectively. The cost of
operations and selling expenses was $19.60 per ton shipped for the three months
ended September 30, 1999, compared to $22.65 per ton for the three months ended
September 30, 1998, a decrease of 13.5%. For the nine months ended September 30,
1999, the cost of operations and selling expenses was $19.80 per ton shipped
compared to $22.73 for the nine months ended September 30, 1998, a decrease of
12.9%. The decreases resulted from the implementation of the Company's business
plan to transition from company operated deep mines to contractor operated deep
mines and from the idling of some of the Company's higher cost mines.
OTHER OPERATING EXPENSES. Other operating expenses for the three and
nine months ended September 30, 1999, were $7.4 and $20.2 million compared to
$7.5 and $20.8 million for the three and nine months ended September 30, 1998.
Included in other operating expenses are general and administrative expenses and
depreciation, depletion and amortization.
General and administrative expenses increased 3.7% for the three months
ended September 30, 1999, to $2.8 million compared to $2.7 million for the three
months ended September 30, 1998. However, general and administrative expenses
decreased 12.8% for the nine months ended September 30, 1999, to $6.8 million
compared to $7.8 million for the nine months ended September 30, 1998. The
decrease in general and administrative expenses primarily resulted from
management changes made as the Company restructured its mining operations. The
increase for the three months ended September 30, 1999, is primarily related to
the costs incurred in connection with the financial restructuring discussed
above, and are not expected to continue beyond 1999. Approximately $0.8 million
was recorded as of September 30, 1999, for costs in connection with the
financial restructuring.
For the three months ended September 30, 1999 and 1998, depreciation,
depletion and amortization was $4.6 million and $4.8 million, a decrease of
4.2%. For the nine months ended September 30, 1999 and 1998, depreciation,
depletion and amortization was $13.4 million and $13.0 million, respectively, an
increase of 3.1%. Due to the restructuring of the Company's deep mining
operations that took place in 1998, the Company reviewed the carrying value of
long-lived assets to determine whether that value was recoverable from future
undiscounted operating cash flows. As a result of that review, the Company
impaired those assets in 1998 and adjusted prospectively the remaining asset
life based on the cash flow analysis. Accordingly, the useful life of goodwill
was reduced from 40 years to a prospective period ranging from 3 to 20 years,
and the useful life of certain fixed assets was also reduced. These reductions
in useful life resulted in higher depreciation, depletion and amortization.
LOSS ON IMPAIRMENT AND RESTRUCTURING CHARGES. The Company recorded loss
on impairment and restructuring charges of $1.1 million and $4.5 million for the
three and nine months ended September 30, 1999.
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The loss on impairment and restructuring recorded in the third quarter
consisted of three items. First, the operating sections of the Company's Barbour
County deep mine were moved from one area of the reserve to another. As a result
of the move, certain unamortized assets were no longer useful in the mining
operation, and the Company recorded a $0.6 million charge. Other unamortized
assets associated with this area of the Barbour County operation totaling $1.7
million were not impaired because the Company believes these assets will be used
for future mining activities. Second, in connection with the close down of the
Company's operations in Webster County, the Company recorded $1.0 million of
additional charges for reclamation and other close down costs to be incurred
over the next seven months. The third component of the loss consists of an
income offset of $0.5 million relating to the disposition of certain coal
reserves in Preston and Taylor Counties, West Virginia, that were previously
impaired during the fourth quarter of 1998.
During the second quarter of 1999, the Company reviewed the carrying
value of computer software and determined that, in connection with the use of
contract miners at the Company's deep mines, certain software would no longer be
utilized. As a result, the Company recorded an impairment loss of $1.1 million.
In addition, the Company recorded an impairment of $2.4 million relating to
properties located in Tazewell County, Virginia.
The Company recorded loss on impairment and restructuring charges of
$5.5 million and $7.3 million for the three and nine months ended September 30,
1998. During 1998, the Company impaired its remaining investment in Oak Mountain
of $0.3 million and initiated steps to reduce general and administrative
expenses by making management changes resulting in $0.2 million of restructuring
charges. In addition, the Company recorded an impairment of $2.4 million in the
second quarter of 1998 relating to impairment losses on certain pieces of mining
equipment.
During the third quarter of 1998, a reclamation charge of $5.1 million
was recorded relating to the Company's operations in Webster County. This
reclamation charge was a result of a change in the mine plan for the Webster
County surface mine.
INTEREST EXPENSE. Interest expense was $3.7 and $10.9 million for the
three and nine months ended September 30, 1999, compared to $3.3 and $9.4
million for the three and nine months ended September 30, 1998, an increase of
12.1% and 16.0%, respectively. The increases were due to an increase in the
average outstanding indebtedness and average effective interest rate in the
respective periods.
OTHER INCOME AND EXPENSE. Other income was $1.2 million and $2.6
million for the three and nine months ended September 30, 1999, compared to $0.3
million and $0.8 million for the three and nine months ended September 30, 1998,
an increase of 300% and 225%, respectively. Included in other income and expense
are the following: gain or loss from the sale of assets; interest income;
royalty income; production tax credits; timber sales; and miscellaneous income
and expense items.
INCOME TAXES. The income tax benefit for the three and nine months
ended September 30, 1999, is based on the effective tax rate expected to be
applicable for the full year. The Company has established a full valuation
allowance on the net operating loss carryforwards, capital loss carryforwards
and contribution carryforwards because the realization of these assets is
uncertain. In addition, the Company received a refund of $0.2 million in the
first quarter of 1999 related to a prior year federal tax deposit. In connection
with the private restructuring, the Company may incur income tax liabilities.
See Item 2, "Liquidity and Capital Resources - Capital Expenditures and Other
Commitments and Contingencies," for a discussion of this matter.
NET LOSS. For the three and nine months ended September 30, 1999, the
Company's net loss was $4.9 and $16.0 million compared to a net loss of $8.1 and
$18.0 million for the same periods of 1998, a decrease of $3.2 and $2.0 million,
respectively. The decreases in net loss are primarily due to the reduction of
operating and selling expenses as mentioned above.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs that
were written using two digits, rather than four, to define the applicable year.
Any of the Company's computers, computer programs, mining or administration
equipment that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If any of the Company's systems or
equipment has date-sensitive software using only two digits, system failures or
miscalculations may result causing disruptions of operations or disruptions in
normal business activities.
During 1998, the Company created an internal project team to assess the
Y2K issue and identified risks in four general categories: internal business
software and systems, mine operating equipment, coal processing facilities and
other.
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Internal Business Software and Systems. During July and August of 1998,
file servers, hubs, switches, routers and individual PCs and workstations, were
tested for Y2K compliance. As of September 30, 1999, the process was complete. A
final review of all internal systems as described in the initial Y2K plan is to
be conducted during the beginning of the fourth quarter of 1999. The Company's
estimated cost for 1999 is $0.2 million and will be funded through normal
operating cash.
Coal Processing Facilities. The Y2K project team has also identified a
person to serve as coordinator between the mine sites and vendors to assess Y2K
compliance in relation to the Company's coal processing facilities. Coal
processing facilities are composed of various components such as electronic belt
scales, analyzers and controllers. Each plant and its components have been
assessed. As of September 30, 1999, the assessment has been completed at all
coal processing facilities. The remediation on coal processing facilities should
be completed by November 30, 1999.
Although the Company believes its systems and facilities are Y2K
compliant, the Company has developed contingency plans. To date, expenditures on
Y2K have been minimal and funded by operating cash. Based on preliminary
information, the majority of the project cost will be attributed to the purchase
of new software to meet future industry requirements and will be capitalized.
Management believes that the Company is devoting the necessary resources to
identify and resolve significant Y2K issues in a timely manner.
DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES
For a discussion of dividend restrictions affecting subsidiaries, see
note five to the financial statements contained in and Item 1 of the Form 10-Q
and Item 2 "Liquidity and Capital Resources."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's Form 10-K filed on March 31, 1999, Kitt
Energy Corporation ("Kitt") instituted a civil action against Philippi
Development, Inc. (now Anker West Virginia Mining Company, Inc., "Anker West
Virginia"), a subsidiary of the Company, and others in the United States
District Court for the Western District of Pennsylvania in 1992 seeking to
recover in excess of $18 million based on an indemnity claim. The trial court
granted Anker West Virginia's Motion for Summary Judgment, and on July 14, 1999,
the United States Court of Appeals for the Third Circuit affirmed. Kitt did not
file a petition for writ of certiorari with the United States Supreme Court
within 90 days. As a result, Kitt no longer has the right to appeal the decision
of the Third Circuit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit number 3.1, Amendment No. 1 to First Amended and Restated
By-laws of Anker Coal Group, Inc., is filed herewith.
Exhibit number 3.2, Amendment No. 2 to First Amended and Restated
By-laws of Anker Coal Group, Inc., is filed herewith.
Exhibit number 27, Financial Data Schedule, is filed herewith.
(b) Reports on Form 8-K.
Form 8-K, dated April August 27, 1999, reporting on Item 5, regarding
additional liquidity provided under the Foothill Loan Agreement.
Form 8-K, dated September 8, 1999, reporting on Item 5, regarding an
agreement in principle with Rothschild Recovery Fund, L.P. with respect
to a revised restructuring transaction.
Form 8-K, dated September 30, 1999, reporting on Item 5, regarding the
provision of a proposal to a limited number of qualified holder to
restructure the Company's Old Notes and to raise additional capital.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANKER COAL GROUP, INC.
/s/ P. Bruce Sparks
--------------------------------------
P. Bruce Sparks
President
/s/ Michael M. Matesic
--------------------------------------
Michael M. Matesic
Treasurer and Chief Financial Officer
DATE: November 15, 1999
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EXHIBIT INDEX
(a) Exhibits.
Exhibit number 3.1, Amendment No. 1 to First Amended and Restated
By-laws of Anker Coal Group, Inc., is filed herewith.
Exhibit number 3.2, Amendment No. 2 to First Amended and Restated
By-laws of Anker Coal Group, Inc., is filed herewith.
Exhibit number 27, Financial Data Schedule, is filed herewith.
<PAGE> 1
Exhibit 3.1
AMENDMENT NO. 1 TO
FIRST RESTATED AND AMENDED BY-LAWS
OF
ANKER COAL GROUP, INC.
(Adopted April 28, 1999)
1. Article II, Section 5 of the Company's By-laws be and hereby
is stricken and replaced in full by the following:
SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes may be called by the Chairman and Chief Executive
Officer or President of the Corporation, or by resolution of the Board of
Directors and shall be called by the Chairman and Chief Executive Officer,
President or Secretary of the Corporation if requested in writing by the holders
of not less than 25% of the outstanding common stock of the Corporation.
2. Article IV, Section 1 of the Company's By-laws be and hereby
is stricken and replaced in full by the following:
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman and Chief Executive Officer, President, Executive Vice President,
Treasurer, Secretary and Assistant Secretary, all of whom shall be elected by
the Board of Directors and who shall hold office until their successors are
elected and qualified. None of the officers of the Corporation need be
directors. The officers shall be elected at the first meeting of the Board of
Directors after each annual meeting. Two or more offices may be held by the same
person. All officers shall be subject to the reasonable supervision and
direction of the Board of Directors in a manner consistent with the offices held
by such officers.
3. Article IV, Section 3 of the Company's By-laws be and hereby
is stricken and replaced full by the following:
SECTION 3. CHAIRMAN AND CHIEF EXECUTIVE OFFICER. The Chairman and Chief
Executive Officer shall serve as the Chairman of the Board of Directors, shall
preside at all meetings of the Board of Directors, shall be the chief executive
officer of the Corporation and shall have the general powers and duties of
supervision and management usually vested in a chief executive officer of a
corporation. The Chairman and Chief Executive Officer shall exercise supervision
and direction over all the business, affairs and property of the Corporation,
and he shall have and perform such other suitable duties incident to the conduct
of its business and as from time to time may be assigned to him by the Board of
Directors. He shall preside at all meetings of the stockholders if present
thereat. Except as the Board of Directors shall authorize the execution thereof
in some other manner, he shall execute deeds, bonds, mortgages and other
contracts and writings on behalf of the Corporation, and shall cause the seal to
be affixed to any instrument requiring it and when so affixed the seal shall be
attested by the signature of the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer.
<PAGE> 2
4. Article IV, Section 4 of the Company's By-laws be and hereby
is stricken and replaced full by the following:
SECTION 4. PRESIDENT. The President shall be the chief operating
officer of the Corporation and shall have the powers and duties and shall
perform the functions of the Chairman and Chief Executive Officer in his absence
or incapacity. The President shall have such other powers and duties of
supervision and management usually vested in the office of president of a
corporation and as from time to time may be assigned to him by the Board of
Directors
5. Article IV, Section 5 of the Company's By-laws be and hereby
is stricken and replaced in full by the following:
SECTION 5. EXECUTIVE VICE-PRESIDENT. The Executive Vice-President shall
have the duties and powers and perform the executive functions of the President
in the absence or incapacity of the President, and shall have such other powers
and shall perform such other suitable duties as shall be assigned to him by the
directors.
6. Article IV, Section 7 of the Company's By-laws be and hereby
is stricken and replaced in full by the following:
SECTION 7. TREASURER. The Treasurer shall be the chief financial
officer of the Corporation and shall have the custody of the corporate funds and
securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He shall deposit all moneys
and other valuables in the name and to the credit of the Corporation in such
depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, or the Chairman and Chief Executive Officer
or President, taking proper vouchers for such disbursements. He shall render to
the Chairman and Chief Executive Officer, President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation.
7. Article IV, Section 8 of the Company's By-laws be and hereby
is stricken and replaced in full by the following:
SECTION 8. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman and Chief Executive Officer or President, or by the directors,
or stockholders, upon whose requisition the meeting is called as provided in
these By-Laws. He shall record all the proceedings of the meetings of the
Corporation and of the directors in a book to be
2
<PAGE> 3
kept for that purpose, and shall perform such other suitable duties as may be
assigned to him by the directors, the Chairman and Chief Executive Officer or
President. He shall have the custody of the seal of the Corporation and shall
affix the same to all instruments requiring it, when authorized by the
directors, the Chairman and Chief Executive Officer or President, and attest the
same.
8. Article VII, Section 3 of the Company's By-laws be and hereby
is stricken and replaced in full by the following:
SECTION 3. CERTIFICATES OF STOCK. Certificates of stock, signed by the
Chairman and Chief Executive Officer, or the President or any Vice President,
and the Treasurer or an Assistant Treasurer, or Secretary or an Assistant
Secretary, shall be issued to each stockholder certifying the number of shares
owned by him in the Corporation. When such certificates are countersigned (1) by
a transfer agent other than the Corporation or its employee, or (2) by a
registrar other than the Corporation or its employee, the signatures of such
officers may be facsimiles.
3
<PAGE> 1
Exhibit 3.2
AMENDMENT NO. 2 TO
FIRST RESTATED AND AMENDED BY-LAWS
OF
ANKER COAL GROUP, INC.
(Adopted June 8, 1999)
The first sentence of Article VII, Section 2 of the Company's By-laws
be and hereby is stricken and replaced in full by the following:
"If the office of any director becomes vacant, by reason of death,
disability or otherwise, the vacancy may be filled by the affirmative
vote of a majority in interest of the stockholders entitled to vote or
by the affirmative vote of a majority of the remaining directors."
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 25,431
<ALLOWANCES> 0
<INVENTORY> 3,279
<CURRENT-ASSETS> 36,367
<PP&E> 134,428
<DEPRECIATION> 34,023
<TOTAL-ASSETS> 187,042
<CURRENT-LIABILITIES> 44,650
<BONDS> 149,591
26,093
23,000
<COMMON> 0
<OTHER-SE> (88,797)
<TOTAL-LIABILITY-AND-EQUITY> 187,042
<SALES> 174,293
<TOTAL-REVENUES> 174,293
<CGS> 157,419
<TOTAL-COSTS> 182,156
<OTHER-EXPENSES> (2,579)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,911
<INCOME-PRETAX> (16,195)
<INCOME-TAX> (200)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,995)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
