EX-99.1 2 a12-25199_1ex99d1.htm EX-99.1

Exhibit 99.1

 

News from

Arch Coal, Inc.

 

FOR FURTHER INFORMATION:

Jennifer Beatty

Vice President, Investor Relations

314/994-2781

 

FOR IMMEDIATE RELEASE

 

Arch Coal, Inc. Reports Third Quarter 2012 Results

Quarterly Adj. EBITDA increased to $257 million, 21% higher than a year ago

Shipments up 19% versus second quarter 2012 on improving thermal trends

Company reduces cost-per-ton guidance in key regions for full year 2012

 

Earnings Highlights

 

 

 

Quarter Ended

 

Nine Months Ended

 

In $ millions, except per share data

 

9/30/12

 

9/30/11

 

9/30/12

 

9/30/11

 

Revenues

 

$

1,087.6

 

$

1,198.7

 

$

3,190.8

 

$

3,057.1

 

Income (Loss) from Operations

 

136.0

 

76.3

 

(398.9

)

273.8

 

Net Income (Loss) (1)

 

45.8

 

8.9

 

(388.5

)

70.8

 

Diluted EPS/LPS

 

0.22

 

0.04

 

(1.83

)

0.39

 

Adjusted Net Income (1),(2)

 

41.8

 

7.4

 

12.0

 

143.9

 

Adjusted Diluted EPS (2)

 

0.20

 

0.03

 

0.06

 

0.78

 

Adjusted EBITDA (2)

 

$

256.5

 

$

211.5

 

$

617.3

 

$

650.7

 

 

(1) Net income attributable to ACI.

(2) Defined and reconciled under “Reconciliation of non-GAAP measures.”

 

ST. LOUIS (Oct. 26, 2012) — Arch Coal, Inc. (NYSE: ACI) today reported net income of $46 million, or $0.22 per diluted share, for the third quarter of 2012 compared with net income of $9 million, or $0.04 per diluted share, for the third quarter of 2011.  Excluding acquired sales contract amortization, exit costs arising from mine closures and the related tax effect of these items, third quarter adjusted earnings were $0.20 per share.

 

Arch shipped 37.5 million tons of coal in the third quarter of 2012, a decrease of 6 percent when compared with the third quarter of 2011 but an increase of 19 percent versus the second quarter of 2012.  Adjusted earnings before interest, taxes, depreciation, depletion and amortization (“EBITDA”) totaled $257 million in the third quarter of 2012, 21 percent higher than in the prior-year quarter and 41 percent higher than in the second quarter of 2012.  Revenues totaled $1.1 billion in the third quarter of 2012, a decline versus the prior-year quarter but an increase when compared with the second quarter of 2012.  Results for the third quarter of 2012 include an $80 million benefit from the reversal of a previously recorded legal contingency, or $54 million when adjusted for taxes and previously accrued interest expense.

 

“Arch’s third quarter performance reflects improvement over the second quarter due to our cost control efforts and modestly better domestic thermal markets driven by favorable summer weather and higher competing fuel prices,” said John W. Eaves, Arch’s president and

 

1


 

chief executive officer.  “During the third quarter, we saw margins in both of our western regions expand due to increased shipment levels, higher price realizations and strong cost control.”

 

For the first nine months of 2012, Arch generated adjusted EBITDA of $617 million versus $651 million in the prior-year period.  Revenues rose 4 percent to $3.2 billion year-to-date in 2012.  Over this same time period, cash flow from operations totaled $356 million, while capital expenditures were $304 million, resulting in free cash flow of $52 million.

 

“Looking ahead, we believe global coal markets are in the process of correcting — with the domestic thermal market building some momentum while metallurgical markets are bottoming out,” said Eaves.  “Because we expect global coal market conditions to remain challenging in 2013, Arch is executing a strategy to successfully navigate this weak market.  Our plan is focused on improving operational efficiency, optimizing our asset base and preserving liquidity so we are well positioned to capitalize as the market recovers.”

 

Executing Our Plan

 

“We are prudently matching our production levels to market demand, reducing costs and lowering capital spending,” said Paul A. Lang, Arch’s executive vice president and chief operating officer.  “We anticipate that 2013 will be a difficult year for the coal industry, but we believe our ongoing efforts will allow Arch to emerge from this cyclical downturn as an even stronger company.”

 

In the third quarter, Arch took steps to rationalize its higher-cost metallurgical coal supply, including idling three smaller mines in Appalachia.  The operations affected were Bismarck, Carlos and Imperial, which produced a total of 1.0 million tons of coal in 2011.  At the same time, Arch continued to optimize its diverse, low-cost asset portfolio with the build out of the high-quality Leer metallurgical coal mine in the region.  The Leer mine’s development is on track, with the continuous miner equipment and preparation plant now in operation.  On Oct. 23, 2012, Leer shipped its first train, with customers in Europe as the coal’s final destination.  Arch currently expects the longwall at Leer to start up in the third quarter of 2013.

 

Arch also continued to demonstrate strong cost control at its operations during the third quarter, driven by ongoing efforts to improve operational efficiencies across all regions, as well as increased shipment levels in the Powder River Basin and in the Western Bituminous Region.  As a result, the company has further reduced its full year 2012 cash cost guidance range in each of its key operating regions.

 

Arch continues to evaluate current market conditions when assessing its future capital expenditure plans.  The company expects capital spending of approximately $350 million for 2013, below its estimated 2012 capital spending range of $410 million to $430 million.

 

Enhancing Liquidity

 

At Sept. 30, 2012, Arch had $650 million in available funds on its balance sheet, comprising $551 million in cash and $99 million in short-term interest-bearing securities.  The company also had more than $350 million of additional liquidity, primarily consisting of available capacity under its revolving credit facility and other short-term borrowing programs, bringing its total liquidity position at Sept. 30 to more than $1 billion.  Moreover, the company has no significant debt maturities before 2016.

 

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“During the third quarter, we increased our cash position by more than $135 million and ended the quarter with no borrowings under our revolver,” said John T. Drexler, Arch’s senior vice president and chief financial officer.  “We are free cash flow positive year-to-date in 2012, and expect to end the year with roughly $600 million of cash and available funds on hand.  We remain committed to preserving and enhancing our liquidity as we position Arch to successfully navigate the current market conditions.”

 

Core Values

 

Arch operations received nine national, multi-state and statewide safety and environmental awards in the third quarter of 2012.  Most significantly, the Dugout Canyon mine in Utah was honored with the prestigious Sentinels of Safety award as the nation’s safest operation in the large underground mine category for 2011.  Also in the third quarter, Arch was the first mining company honored with the Conservation Legacy Award from the National Museum of Forest Service History for the company’s voluntary environmental efforts on public and private lands.

 

Arch’s third quarter 2012 lost-time safety incident rate of 0.67 per 200,000 employee-hours worked was three times better than the national coal industry average and 14 percent better than the company achieved in the third quarter of 2011.  Six of Arch’s operations and facilities attained A Perfect Zero — a dual goal of operating without a reportable safety incident or an SMCRA environmental violation — for the three months ended Sept. 30, 2012.

 

“We commend the hard work by our employees at the six locations that achieved A Perfect Zero,” said Lang.  “We are always striving for continuous improvement in our safety performance — with a goal of achieving A Perfect Zero at all of our operations, every year.”

 

Operational Results

 

“Strong cost control in the third quarter led to higher cash margins in Arch’s western operating regions,” said Eaves.  “In Appalachia, the effect of lower thermal volumes drove third quarter cash costs higher versus the second quarter.  In addition, we shipped 2.1 million tons of metallurgical coal from Appalachia in the third quarter — 11 percent more than in the second quarter — and we expect to ship 7.5 million tons of coal into metallurgical markets during 2012.”

 

 

 

Arch Coal, Inc.

 

 

 

3Q12

 

2Q12

 

3Q11

 

Tons sold (in millions)

 

37.5

 

31.5

 

39.9

 

Average sales price per ton

 

$

25.57

 

$

28.44

 

$

27.87

 

Cash cost per ton

 

$

20.16

 

$

22.42

 

$

21.59

 

Cash margin per ton

 

$

5.41

 

$

6.02

 

$

6.28

 

Total operating cost per ton

 

$

23.50

 

$

26.57

 

$

25.03

 

Operating margin per ton

 

$

2.07

 

$

1.87

 

$

2.84

 

 

Consolidated results may not tie to regional breakout due to exclusion of other assets, rounding.

Operating cost per ton includes depreciation, depletion and amortization per ton.

Amounts reflected in this table have been adjusted for certain transactions.

For a description of adjustments, refer to the regional schedule at http://investor.archcoal.com

 

Third quarter 2012 consolidated per-ton operating margin expanded 11 percent versus the second quarter.  Sales volumes increased 19 percent in the third quarter versus the prior-quarter period, driven by increased shipments in the company’s western operating regions.  Consolidated

 

3


 

sales price per ton declined 10 percent over the same time period, reflecting a larger percentage of Powder River Basin tons in Arch’s overall volume mix as well as lower volumes shipped from Appalachia.  Compared with the second quarter, consolidated cash cost per ton declined 10 percent in the third quarter, driven by strong operating performances in the company’s western regions and a larger percentage of lower-cost tons in the company’s overall volume mix.

 

 

 

Powder River Basin

 

 

 

3Q12

 

2Q12

 

3Q11

 

Tons sold (in millions)

 

27.7

 

21.8

 

28.8

 

Average sales price per ton

 

$

13.79

 

$

13.65

 

$

13.62

 

Cash cost per ton

 

$

10.92

 

$

11.01

 

$

10.68

 

Cash margin per ton

 

$

2.87

 

$

2.64

 

$

2.94

 

Total operating cost per ton

 

$

12.51

 

$

12.71

 

$

12.16

 

Operating margin per ton

 

$

1.28

 

$

0.94

 

$

1.46

 

 

Operating cost per ton includes depreciation, depletion and amortization per ton.

Amounts reflected in this table have been adjusted for certain transactions.

 

In the Powder River Basin, third quarter 2012 operating margin per ton increased 36 percent versus the second quarter, due to higher average realized prices and lower costs per ton.  Sales volumes increased 27 percent in the third quarter versus the prior-quarter period as shipments rose on improving trends in domestic thermal markets.  Average sales price rose $0.14 per ton over the same time period, due to a larger percentage of higher-priced tons in the company’s regional volume mix.  Cash cost decreased $0.09 per ton in the third quarter versus the second quarter, benefiting from the effect of higher shipment levels and strong cost control.

 

 

 

Appalachia

 

 

 

3Q12

 

2Q12

 

3Q11

 

Tons sold (in millions)

 

4.7

 

5.2

 

6.3

 

Average sales price per ton

 

$

83.84

 

$

85.45

 

$

86.50

 

Cash cost per ton

 

$

69.19

 

$

67.78

 

$

67.62

 

Cash margin per ton

 

$

14.65

 

$

17.67

 

$

18.88

 

Total operating cost per ton

 

$

82.41

 

$

81.85

 

$

79.23

 

Operating margin per ton

 

$

1.43

 

$

3.60

 

$

7.27

 

 

Operating cost per ton includes depreciation, depletion and amortization per ton.

Amounts reflected in this table have been adjusted for certain transactions.

 

In Appalachia, Arch recorded an operating margin of $1.43 per ton in the third quarter of 2012 versus $3.60 per ton in the second quarter.  Sales volumes declined 10 percent in the third quarter compared with the second quarter, as lower thermal sales offset higher metallurgical coal shipments.  Average sales price per ton declined over the same time period, driven by lower prices on metallurgical shipments.  Third quarter cash cost per ton increased slightly versus the prior-quarter period, due to the effect of lower volume levels and a larger percentage of metallurgical sales in the company’s regional volume mix.  Third quarter 2012 cash cost per ton in Appalachia would have been $1.35 per ton lower if the impact of previously announced idled operations were excluded.

 

4


 

 

 

Western Bituminous Region

 

 

 

3Q12

 

2Q12

 

3Q11

 

Tons sold (in millions)

 

4.6

 

4.0

 

4.2

 

Average sales price per ton*

 

$

35.50

 

$

33.35

 

$

36.09

 

Cash cost per ton*

 

$

23.94

 

$

24.25

 

$

25.77

 

Cash margin per ton

 

$

11.56

 

$

9.10

 

$

10.32

 

Total operating cost per ton*

 

$

27.84

 

$

28.88

 

$

30.29

 

Operating margin per ton

 

$

7.66

 

$

4.47

 

$

5.80

 

 

*Sales prices and costs in the region are presented f.o.b. point for domestic customers.
Operating cost per ton includes depreciation, depletion and amortization per ton.
Amounts reflected in this table have been adjusted for certain transactions.

 

In the Western Bituminous Region, third quarter 2012 operating margin per ton expanded 71 percent when compared with the second quarter.  Shipments rose in the third quarter versus the prior-quarter period despite the planned longwall move at Skyline, as mine inventory across the region was reduced due to improving domestic demand.  Average sales price increased $2.15 per ton over the same time period, benefitting from a favorable mix of customer shipments.  Third quarter cash cost decreased $0.31 per ton versus the second quarter, reflecting solid cost control across the operations, particularly at Arch’s West Elk and Sufco mines.  Looking ahead, the longwall at Skyline is expected to restart at the end of October.

 

Market Trends

 

Arch believes several factors will help rebalance global coal market fundamentals and set the stage for the next rebound:

 

·                  Prompt month natural gas prices have risen nearly 25 percent since the end of August and the forward curve is above $4 per million Btu, making western coals a competitively priced fuel for power generation.

 

·                  While U.S. coal demand for power generation is set to decline by more than 100 million tons in 2012 due to one of the mildest winters on record and decade-low natural gas prices, Arch believes coal consumption will grow again in 2013.  Coal demand could regain ground lost to competing fuels, including natural gas and hydroelectric power, and should increase on more normal winter temperatures.

 

·                  Coal stockpiles at U.S. power generators have declined from the record levels set in May 2012, and internal estimates suggest customer stockpiles could dip below 180 million tons at year’s end.  Over the course of 2013, Arch expects further liquidation of coal inventories at domestic power generators, helping to set the stage for a more balanced market.

 

·                  U.S. coal exports are projected to reach a record 125 million tons in 2012 even with anticipated slowing in the fourth quarter.  This record level would represent a more than doubling of coal exports since 2007.  During the next five years, Arch continues to expect U.S. exports to grow meaningfully as domestic port capacity is expanded, new power plants are built around the world and growing global infrastructure needs bolster steel and metallurgical coal demand.

 

·                  Despite strong hydroelectric generation year-to-date and recent reductions in steel production in China, that country is on pace to import between 220 million and 225 million metric tonnes of coal in 2012.  In addition, India’s recent blackouts may spur reform in the power

 

5


 

and coal sectors, and encourage incremental infrastructure investment and coal imports over time.  Longer term, roughly 85 percent of the world’s 7 billion people will live in emerging economies — with 1.3 billion estimated to move into the middle class by 2020.  This class migration will drive resource demand over the next decade.

 

·                  Metallurgical markets are weak currently, as global steel demand has been temporarily constrained by the economic recession in Europe and slower-than-expected growth in China.  However, announced infrastructure spending in China and Brazil and stimulus spending in developed economies — along with global production curtailments and delayed mining capital investments — should tighten metallurgical markets in the future.

 

“While our third quarter results benefitted from the modest improvement in domestic thermal demand, the uncertainty in global and domestic economies could affect coal markets in 2013,” said Eaves.  “Longer term, we remain encouraged by the opportunities in seaborne coal markets and our forecast of 2 billion tonnes of seaborne coal demand by 2020 has not changed.”

 

Company Outlook

 

 

 

2012

 

2013

 

 

 

Tons

 

$ per ton

 

Tons

 

$ per ton

 

Sales Volume (in million tons)

 

 

 

 

 

 

 

 

 

Thermal

 

129-135

 

 

 

 

 

 

 

Metallurgical

 

7.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Powder River Basin

 

 

 

 

 

 

 

 

 

Committed, Priced

 

105.7

 

$13.63

 

70.0

 

$

14.14

 

Committed, Unpriced

 

0.4

 

 

 

10.9

 

 

 

Total Committed

 

106.1

 

 

 

80.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Cash Cost

 

 

 

$11.00 - $11.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Western Bituminous

 

 

 

 

 

 

 

 

 

Committed, Priced

 

14.9

 

$35.75

 

10.7

 

$

39.10

 

Committed, Unpriced

 

0.2

 

 

 

0.6

 

 

 

Total Committed

 

15.1

 

 

 

11.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Cash Cost

 

 

 

$23.00 - $25.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appalachia

 

 

 

 

 

 

 

 

 

Committed, Priced Thermal

 

10.9

 

$66.26

 

4.4

 

$

62.12

 

Committed, Unpriced Thermal

 

0.3

 

 

 

0.3

 

 

 

Total Committed Thermal

 

11.2

 

 

 

4.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Committed, Priced Metallurgical*

 

7.2

 

$115.01

 

0.4

 

$

117.55

 

Committed, Unpriced Metallurgical

 

0.1

 

 

 

0.3

 

 

 

Total Committed Metallurgical

 

7.3

 

 

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Cash Cost

 

 

 

$68.00 - $71.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Illinois Basin

 

 

 

 

 

 

 

 

 

Committed, Priced

 

2.2

 

$41.49

 

1.9

 

$

41.72

 

Average Cash Cost

 

 

 

$34.00 - $36.00

 

 

 

 

 

 

*Includes tonnage shortfall and carry over into 2013

 

Corporate (in $ millions)

 

 

 

 

 

 

 

 

 

D,D&A

 

 

 

$500 - $515

 

 

 

 

 

S,G&A

 

 

 

$125 - $135

 

 

 

 

 

Interest Expense

 

 

 

$300 - $310

 

 

 

 

 

Capital Expenditures

 

 

 

$410 - $430

 

 

 

 

 

 

“On the marketing front, we continue to manage our exposure by layering in sales as appropriate while maintaining leverage to capture potential upside,” said Eaves.  “We are also working with some metallurgical and thermal customers to shift previously committed tons into 2013, and are selectively placing small tonnage into the export market for the fourth quarter.”

 

“Looking ahead, we will prudently manage our capital, control our costs and preserve our liquidity under current market conditions,” added Eaves.  “We will also retain the flexibility to

 

6


 

respond to improving coal market fundamentals, which we believe will occur over the course of 2013 and 2014.  As market conditions improve, Arch will leverage its superior low-cost asset base to create substantial value for shareholders.”

 

A conference call regarding Arch Coal’s third quarter 2012 financial results will be webcast live today at 11 a.m. Eastern time.  The conference call can be accessed via the “investor” section of the Arch Coal website (http://investor.archcoal.com).

 

U.S.-based Arch Coal is a top five global coal producer and marketer.  Arch is the most diversified American coal company, with mining complexes across every major U.S. coal supply basin.  Its core business is supplying cleaner-burning, low-sulfur thermal and metallurgical coal to power generators and steel manufacturers on five continents.

 

Forward-Looking Statements:  This press release contains “forward-looking statements” — that is, statements related to future, not past, events.  In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.”  Forward-looking statements by their nature address matters that are, to different degrees, uncertain.  For us, particular uncertainties arise from changes in the demand for our coal by the domestic electric generation industry; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from operational, geological, permit, labor and weather-related factors; from fluctuations in the amount of cash we generate from operations; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive or regulatory nature.  These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements.  We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.  For a description of some of the risks and uncertainties that may affect our future results, you should see the risk factors described from time to time in the reports we file with the Securities and Exchange Commission.

 

# # #

 

7


 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,087,618

 

$

1,198,673

 

$

3,190,807

 

$

3,057,139

 

 

 

 

 

 

 

 

 

 

 

Costs, expenses and other

 

 

 

 

 

 

 

 

 

Cost of sales

 

896,809

 

952,850

 

2,628,939

 

2,322,124

 

Depreciation, depletion and amortization

 

126,838

 

139,547

 

399,672

 

320,320

 

Amortization of acquired sales contracts, net

 

(4,093

)

(12,698

)

(22,561

)

(5,492

)

Change in fair value of coal derivatives and coal trading activities, net

 

5,840

 

8,360

 

(29,827

)

9,248

 

Selling, general and administrative expenses

 

33,266

 

33,275

 

99,305

 

92,749

 

Legal contingencies

 

(79,532

)

—

 

(79,532

)

—

 

Mine closure and asset impairment costs

 

(2,194

)

—

 

523,568

 

7,316

 

Goodwill impairment

 

—

 

—

 

115,791

 

—

 

Acquisition and transition costs - ICG

 

—

 

4,694

 

—

 

46,044

 

Other operating income, net

 

(25,276

)

(3,611

)

(45,605

)

(9,018

)

 

 

951,658

 

1,122,417

 

3,589,750

 

2,783,291

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

135,960

 

76,256

 

(398,943

)

273,848

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net:

 

 

 

 

 

 

 

 

 

Interest expense

 

(75,710

)

(77,694

)

(229,210

)

(154,523

)

Interest and investment income

 

1,459

 

840

 

3,568

 

2,341

 

 

 

(74,251

)

(76,854

)

(225,642

)

(152,182

)

Other nonoperating expenses

 

 

 

 

 

 

 

 

 

Bridge financing costs related to ICG

 

—

 

—

 

—

 

(49,490

)

Net loss resulting from early retirement and refinancing of debt

 

—

 

(1,708

)

(19,042

)

(1,958

)

 

 

—

 

(1,708

)

(19,042

)

(51,448

)

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

61,709

 

(2,306

)

(643,627

)

70,218

 

Provision for (benefit from) income taxes

 

15,958

 

(11,427

)

(255,363

)

(1,407

)

Net income (loss)

 

45,751

 

9,121

 

(388,264

)

71,625

 

Less: Net income attributable to noncontrolling interest

 

—

 

(231

)

(268

)

(822

)

Net income (loss) attributable to Arch Coal, Inc.

 

$

45,751

 

$

8,890

 

$

(388,532

)

$

70,803

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

0.22

 

$

0.04

 

$

(1.83

)

$

0.39

 

Diluted earnings (loss) per common share

 

$

0.22

 

$

0.04

 

$

(1.83

)

$

0.39

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

212,053

 

211,337

 

211,931

 

182,898

 

Diluted

 

212,076

 

211,974

 

211,931

 

183,850

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.03

 

$

0.11

 

$

0.17

 

$

0.32

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (A)

 

$

256,511

 

$

211,458

 

$

617,259

 

$

650,739

 

 

(A) Adjusted EBITDA is defined and reconciled under “Reconciliation of Non-GAAP Measures” later in this release.         

 


 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

550,756

 

$

138,149

 

Restricted cash

 

3,450

 

10,322

 

Short term investments

 

99,359

 

—

 

Trade accounts receivable

 

277,634

 

380,595

 

Other receivables

 

71,114

 

88,584

 

Inventories

 

391,526

 

377,490

 

Prepaid royalties

 

12,120

 

21,944

 

Deferred income taxes

 

65,395

 

42,051

 

Coal derivative assets

 

40,837

 

13,335

 

Other

 

67,495

 

110,304

 

Total current assets

 

1,579,686

 

1,182,774

 

 

 

 

 

 

 

Property, plant and equipment, net

 

7,372,063

 

7,949,150

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Prepaid royalties

 

85,842

 

86,626

 

Goodwill

 

480,312

 

596,103

 

Equity investments

 

237,645

 

225,605

 

Other

 

180,306

 

173,701

 

Total other assets

 

984,105

 

1,082,035

 

Total assets

 

$

9,935,854

 

$

10,213,959

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

304,442

 

$

383,782

 

Coal derivative liabilities

 

3,498

 

7,828

 

Accrued expenses and other current liabilities

 

355,448

 

348,207

 

Current maturities of debt and short-term borrowings

 

115,695

 

280,851

 

Total current liabilities

 

779,083

 

1,020,668

 

Long-term debt

 

4,465,445

 

3,762,297

 

Asset retirement obligations

 

426,044

 

446,784

 

Accrued pension benefits

 

45,160

 

48,244

 

Accrued postretirement benefits other than pension

 

41,061

 

42,309

 

Accrued workers’ compensation

 

85,251

 

71,948

 

Deferred income taxes

 

746,079

 

976,753

 

Other noncurrent liabilities

 

182,464

 

255,382

 

Total liabilities

 

6,770,587

 

6,624,385

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

—

 

11,534

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Common stock

 

2,141

 

2,136

 

Paid-in capital

 

3,024,435

 

3,015,349

 

Treasury stock, at cost

 

(53,848

)

(53,848

)

Retained earnings

 

197,749

 

622,353

 

Accumulated other comprehensive loss

 

(5,210

)

(7,950

)

Total stockholders’ equity

 

3,165,267

 

3,578,040

 

Total liabilities and stockholders’ equity

 

$

9,935,854

 

$

10,213,959

 

 


 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

Operating activities

 

 

 

 

 

Net income (loss)

 

$

(388,264

)

$

71,625

 

Adjustments to reconcile to cash provided by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

399,672

 

320,320

 

Amortization of acquired sales contracts, net

 

(22,561

)

(5,492

)

Bridge financing costs related to ICG

 

—

 

49,490

 

Net loss resulting from early retirement of debt and refinancing activities

 

19,042

 

1,958

 

Noncash mine closure and asset impairment costs

 

501,942

 

7,316

 

Goodwill impairment

 

115,791

 

—

 

Prepaid royalties expensed

 

19,802

 

26,880

 

Employee stock-based compensation expense

 

9,435

 

9,019

 

Amortization relating to financing activities

 

14,345

 

9,854

 

Changes in:

 

 

 

 

 

Receivables

 

102,252

 

(35,874

)

Inventories

 

(16,635

)

(23,716

)

Coal derivative assets and liabilities

 

(29,523

)

15,199

 

Accounts payable, accrued expenses and other current liabilities

 

(51,968

)

3,742

 

Income taxes, net

 

22,048

 

(21,971

)

Deferred income taxes

 

(255,530

)

17,062

 

Other

 

(83,453

)

25,955

 

 

 

 

 

 

 

Cash provided by operating activities

 

356,395

 

471,367

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Acquisition of ICG, net of cash acquired

 

—

 

(2,894,339

)

Change in restricted cash

 

6,872

 

(5,939

)

Capital expenditures

 

(303,968

)

(215,899

)

Proceeds from dispositions of property, plant and equipment

 

22,624

 

25,133

 

Purchases of short term investments

 

(99,628

)

—

 

Investments in and advances to affiliates

 

(12,685

)

(56,827

)

Purchase of noncontrolling interest

 

(17,500

)

—

 

Additions to prepaid royalties

 

(9,192

)

(26,135

)

 

 

 

 

 

 

Cash used in investing activities

 

(413,477

)

(3,174,006

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Proceeds from the issuance of senior notes

 

—

 

2,000,000

 

Proceeds from term note

 

1,386,000

 

—

 

Proceeds from the issuance of common stock, net

 

—

 

1,267,776

 

Payments to retire debt

 

(452,806

)

(604,096

)

Net increase (decrease) in borrowings under lines of credit and commercial paper program

 

(381,300

)

283,096

 

Payments on term note

 

(3,500

)

—

 

Net payments on other debt

 

(13,078

)

(8,792

)

Debt financing costs

 

(34,686

)

(114,587

)

Dividends paid

 

(36,072

)

(57,470

)

Issuance of common stock under incentive plans

 

5,131

 

1,628

 

 

 

 

 

 

 

Cash provided by financing activities

 

469,689

 

2,767,555

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

412,607

 

64,916

 

Cash and cash equivalents, beginning of period

 

138,149

 

93,593

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

550,756

 

$

158,509

 

 


 

Arch Coal, Inc. and Subsidiaries

Schedule of Consolidated Debt

(In thousands)

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Indebtedness to banks under credit facilities

 

$

100,000

 

$

481,300

 

Term loan due 2018

 

1,383,375

 

—

 

6.75% senior notes ($450.0 million face value) due 2013

 

—

 

450,971

 

8.75% senior notes ($600.0 million face value) due 2016

 

590,475

 

588,974

 

7.00% senior notes due in 2019 at par

 

1,000,000

 

1,000,000

 

7.25% senior notes due 2020 at par

 

500,000

 

500,000

 

7.25% senior notes due 2021 at par

 

1,000,000

 

1,000,000

 

Other

 

7,290

 

21,903

 

 

 

4,581,140

 

4,043,148

 

Less: current maturities of debt and short-term borrowings

 

115,695

 

280,851

 

Long-term debt

 

$

4,465,445

 

$

3,762,297

 

 


 

Arch Coal, Inc. and Subsidiaries

Reconciliation of Non-GAAP Measures

(In thousands)

 

Included in the accompanying release, we have disclosed certain non-GAAP measures as defined by Regulation G.  The following reconciles these items to net income and cash flows as reported under GAAP.

 

Adjusted EBITDA

 

Adjusted EBITDA is defined as net income attributable to the Company before the effect of net interest expense, income taxes, depreciation, depletion and amortization, and the amortization of acquired sales contracts.  Adjusted EBITDA may also be adjusted for items that may not reflect the trend of future results.

 

Adjusted EBITDA is not a measure of financial performance in accordance with generally accepted accounting principles, and items excluded from Adjusted EBITDA are significant in understanding and assessing our financial condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor as an alternative to net income, income from operations, cash flows from operations or as a measure of our profitability, liquidity or performance under generally accepted accounting principles. We believe that Adjusted EBITDA presents a useful measure of our ability to incur and service debt based on ongoing operations. Furthermore, analogous measures are used by industry analysts to evaluate our operating performance. In addition, acquisition related expenses are excluded to make results more comparable between periods.  Investors should be aware that our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies. The table below shows how we calculate Adjusted EBITDA.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(Unaudited)

 

Net income (loss)

 

$

45,751

 

$

9,121

 

$

(388,264

)

$

71,625

 

Income tax expense (benefit)

 

15,958

 

(11,427

)

(255,363

)

(1,407

)

Interest expense, net

 

74,251

 

76,854

 

225,642

 

152,182

 

Depreciation, depletion and amortization

 

126,838

 

139,547

 

399,672

 

320,320

 

Amortization of acquired sales contracts, net

 

(4,093

)

(12,698

)

(22,561

)

(5,492

)

Acquisition and transition costs

 

—

 

8,584

 

—

 

55,569

 

Mine closure and asset impairment costs

 

(2,194

)

—

 

523,568

 

7,316

 

Goodwill impairment

 

—

 

—

 

115,791

 

—

 

Other nonoperating expenses

 

—

 

1,708

 

19,042

 

51,448

 

Net income attributable to noncontrolling interest

 

—

 

(231

)

(268

)

(822

)

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

256,511

 

$

211,458

 

$

617,259

 

$

650,739

 

 

Adjusted net income and adjusted diluted earnings per common share

 

Adjusted net income and adjusted diluted earnings per common share are adjusted for the after-tax impact of acquisition related costs and are not measures of financial performance in accordance with generally accepted accounting principles.  We believe that adjusted net income and adjusted diluted earnings per common share better reflect the trend of our future results by excluding items relating to significant transactions. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition.  Therefore, adjusted net income and adjusted diluted earnings per share should not be considered in isolation, nor as an alternative to net income or diluted earnings per common share under generally accepted accounting principles.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(Unaudited)

 

Net income (loss) attributable to Arch Coal

 

$

45,751

 

$

8,890

 

$

(388,532

)

$

70,803

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired sales contracts, net

 

(4,093

)

(12,698

)

(22,561

)

(5,492

)

Acquisition and transition costs

 

—

 

8,584

 

—

 

55,569

 

Mine closure and asset impairment costs

 

(2,194

)

—

 

523,568

 

7,316

 

Goodwill impairment

 

—

 

—

 

115,791

 

—

 

Other nonoperating expenses

 

—

 

1,708

 

19,042

 

51,448

 

Tax impact of adjustments

 

2,326

 

890

 

(235,261

)

(35,709

)

 

 

 

 

 

 

 

 

 

 

Adjusted net income attributable to Arch Coal

 

$

41,790

 

$

7,374

 

$

12,047

 

$

143,935

 

Diluted weighted average shares outstanding

 

212,076

 

211,974

 

211,931

 

183,850

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

0.22

 

$

0.04

 

$

(1.83

)

$

0.39

 

 

 

 

 

 

 

 

 

 

 

Amortization of acquired sales contracts, net

 

(0.02

)

(0.06

)

(0.11

)

(0.03

)

Acquisition and transition costs

 

—

 

0.04

 

—

 

0.30

 

Mine closure and asset impairment costs

 

(0.01

)

—

 

2.47

 

0.04

 

Goodwill impairment

 

—

 

—

 

0.55

 

—

 

Other nonoperating expenses

 

—

 

0.01

 

0.09

 

0.28

 

Tax impact of adjustments

 

0.01

 

—

 

(1.11

)

(0.20

)

 

 

 

 

 

 

 

 

 

 

Adjusted diluted earnings per share

 

$

0.20

 

$

0.03

 

$

0.06

 

$

0.78