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Arch Coal, Inc. Reports Third Quarter 2019 Results

- Maintained excellent momentum in core coking coal franchise, with strong volumes and effective cost control

- Signed agreement that will increase High-Vol A reserves at Leer mine by 24 million tons at a cost of around $2.50 per ton; will extend mine life to late 2030s

- Secured $39 million in credits - via the resolution of a 1970s-era land dispute - that will be used to offset federal royalty obligations

- Invested $91 million to buy back 1.2 million shares of stock; have now reduced share count by approximately 40 percent since initiating capital return program

- Committed 1.5 million tons of coking coal for delivery to North American customers in 2020, at an average price of approximately $110 per ton

ST. LOUIS, Oct. 22, 2019 /PRNewswire/ -- Arch Coal, Inc. (NYSE: ARCH) today reported net income of $106.8 million, or $6.34 per diluted share, in the third quarter of 2019, compared with net income of $123.2 million, or $6.10 per diluted share, in the prior-year period.  The company had adjusted earnings before interest, taxes, depreciation, depletion, amortization, accretion on asset retirement obligations, amortization of sales contracts, and non-operating expenses ("adjusted EBITDA")1 of $106.6 million in the third quarter of 2019, which includes a $1.5 million non-cash mark-to-market loss associated with the company's coal-hedging activities.  Not included in adjusted EBITDA is a $39.0 million gain resulting from the settlement of a 1970s-era land dispute.  This compares to $124.9 million of adjusted EBITDA recorded in the third quarter of 2018, which included a $10.4 million non-cash mark-to-market loss associated with the company's coal-hedging activities.  Revenues totaled $619.5 million for the three months ended September 30, 2019, versus $633.2 million in the prior-year quarter.

"During the quarter, Arch again exhibited operational excellence and generated strong cash flows across its operating platform despite a pull-back in coking coal prices," said John W. Eaves, Arch's chief executive officer.  "Our core Metallurgical segment turned in an excellent cost performance, overcoming elevated costs in the final longwall panel at the Mountain Laurel mine, and our legacy thermal segments generated five times more cash than they expended in capital.  In addition, we made significant progress on our ongoing capital return program, investing $91.4 million to buy back nearly 1.2 million shares, bringing total repurchases since May 2017 to nearly 10 million shares, or approximately 40 percent of initial shares outstanding."

During the third quarter, Arch returned a total of $98.4 million to shareholders via buybacks and dividends, and has now returned $255.3 million through the first nine months of 2019, which is 18 percent more than during the same period in 2018.  All told, Arch has returned $894.8 million to shareholders since launching its capital return program in May 2017.  At quarter-end, Arch had board authorization to expend an additional $233.1 million on share buybacks, out of a total authorization of $1.05 billion.     

"We believe we are in a highly advantageous position to drive long-term, sustainable returns for our shareholders across a wide range of market conditions," Eaves added.  "In coming quarters, we expect to improve further on our first-quartile coking coal cost position; continue to generate cash from our thermal assets well in excess of our capital spending requirements; drive forward with the accelerated build-out of our world-class Leer South growth project; and return additional capital to shareholders."

Capital Allocation Progress and Liquidity Update

During the third quarter, Arch repurchased 1,170,000 shares of common stock – representing 4.7 percent of initial shares outstanding – for a total investment of $91.4 million.  In the past 10 quarters, Arch has invested a total of $816.9 million to buy back 10.0 million shares.

In addition to the buybacks, Arch returned $7.0 million to shareholders through its recurring quarterly dividend.  In the past 10 quarters, Arch has returned a total of $77.9 million to shareholders via dividend payments. 

"As a result of its low-cost position, premium product slate, and strong balance sheet, Arch is well-positioned to generate strong levels of cash flow across a broad range of market conditions," said John T. Drexler, Arch's chief financial officer.  "Despite softening in coking coal markets during the period, we returned robust levels of capital to shareholders, funded the accelerated build-out of Leer South with internally generated cash, and maintained our iron-clad balance sheet with a net cash position." 

Arch ended the quarter with approximately $465.9 million in liquidity – including $351.5 million in cash – and a negative net debt (or net cash) position of $41.5 million

Arch is also announcing board approval of the next quarterly cash dividend payment of $0.45 per common share, which is scheduled to be paid on December 13, 2019 to stockholders of record at the close of business on November 29, 2019.

Future dividend declarations and share repurchases will be subject to ongoing board review and authorization and will be based on a number of factors, including business and market conditions, Arch's future financial performance and other capital priorities.

Reserve Acquisition at Leer Mine

In September, Arch entered into a definitive agreement to acquire 20 million tons of low-cost, high-quality, High-Vol A coking coal reserves directly adjacent to its Leer mine for a purchase price of $52.5 million.  This acquisition, which is expected to close in the fourth quarter, will facilitate an increase of nearly 24 million tons in the Leer mine plan.  

These incremental reserves — located in the same seam as the Leer longwall — are contiguous to Leer's existing reserves and accessible underground by the longwall operation without the expenditure of meaningful incremental capital.  The purchase price equates to approximately $2.50 per ton, versus an average cash margin at the Leer mine of more than $65 per ton year-to-date in 2019.  The reserve addition is expected to extend the life of Arch's flagship operation to the late 2030s, with the potential for still further extensions thereafter.

"We view this transaction as a highly strategic investment in our Leer reserve base, which is the centerpiece of our core coking coal franchise," said Paul A. Lang, Arch's president and chief operating officer.  "The Leer reserves contain some of the highest quality, lowest cost and highest margin steel-making coal in the United States.  We believe that these reserves provide us with a pipeline of proven, low-risk, and low capital-intensity growth projects that should drive increasing earnings and cash generation well into the future."

Successful Resolution of Longstanding Land Dispute

During the quarter, Arch recorded a $39.0 million gain stemming from the resolution of a longstanding land dispute with the federal government involving "preference rights lease applications" (PRLAs) in northwestern New Mexico that were secured by the company and its joint venture partner in the 1970s.  In the settlement agreement, Arch agreed to relinquish the PRLAs to the U.S. Bureau of Land Management (BLM) in exchange for credits that can be used to offset an equivalent amount of federal royalty obligations.  Arch expects to monetize the vast majority of these credits during the 2020 calendar year.  

"We are pleased to have brought this matter to a successful conclusion," Lang said.  "We commend all the interested parties – and particularly the BLM – for working closely and collaboratively with us to craft a positive outcome for all stakeholders."

Operational Results

"During the quarter, our core Metallurgical segment turned in another excellent cost performance and solid margins despite elevated costs in the last longwall panel at Mountain Laurel and a significant step-down in index-based coking coal prices," Lang said.  "Supplementing that strong performance, our two legacy thermal segments achieved solid margins, continued to demonstrate great capital discipline, and generated significant amounts of excess cash that we once again put to good use in both our capital return program and the build-out of Leer South."

         

Metallurgical

     
   

3Q19

   

2Q19

   

3Q18

                 

Tons sold (in millions)

 

2.1

   

1.9

   

1.9

         Coking

 

1.9

   

1.6

   

1.7

        Thermal

 

0.2

   

0.3

   

0.2

Coal sales per ton sold

 

$98.89

   

$115.87

   

$104.75

         Coking

 

$105.72

   

$131.91

   

$114.89

        Thermal

 

$32.13

   

$29.05

   

$35.35

Cash cost per ton sold

 

$64.89

   

$62.07

   

$62.54

Cash margin per ton

 

$34.00

   

$53.80

   

$42.21

Coal sales per ton sold and cash cost per ton sold are defined and reconciled under "Reconciliation of non-GAAP measures."

Mining complexes included in this segment are Beckley, Leer, Mountain Laurel and Sentinel.

The Metallurgical segment achieved a per-ton cash margin of $34.00 on the strength of an average per-ton cost of $64.89

"During the quarter, the Leer mine continued its outstanding operating performance, achieving cash costs below $45 per ton," Lang said.  "As expected, Leer completed mining activities in the western portion of its reserve base and – at the end of the third quarter – moved the longwall into a new district where the coal seam is thicker.  As previously indicated, we expect a 20-percent increase in Leer's average seam thickness in future panels.  As a result, we expect Leer to maintain and potentially improve upon its strong operational performance in coming quarters." 

The Mountain Laurel mine – which is currently mining its final longwall panel – incurred significantly elevated cash costs during the quarter related to mining conditions on the longwall.  As previously indicated, Mountain Laurel expects to complete longwall mining near the end of 2019 and to transition to a continuous miner operation thereafter.  The transition is expected to translate into modestly lower costs, improved coal quality, and a more consistent operating performance.

Looking ahead, Arch is reaffirming its coking coal volume guidance of 6.7 to 7.1 million tons and its cost guidance of $61 to $65 per ton for full year 2019.  Arch expects its coking coal price realizations to decline in the fourth quarter due to lower average projected index-based pricing.

   

Powder River Basin

   

3Q19

   

2Q19

   

3Q18

                 

Tons sold (in millions)

 

22.2

   

17.1

   

21.5

Coal sales per ton sold

 

$12.02

   

$12.08

   

$12.02

Cash cost per ton sold

 

$9.77

   

$11.29

   

$9.76

Cash margin per ton

 

$2.25

   

$0.79

   

$2.26

Coal sales per ton sold and cash cost per ton sold are defined and reconciled under "Reconciliation of non-GAAP measures."

Mining complexes included in this segment are Black Thunder and Coal Creek.

In the Powder River Basin, sales volumes for the third quarter totaled 22.2 million tons versus 17.1 million tons in the second quarter of 2019.  Per-unit cash costs declined to $9.77 per ton compared to $11.29 per ton in the flood-impacted second quarter.  The segment's per-ton cash margin increased markedly to $2.25 versus the second quarter of 2019.

Looking ahead, Arch expects reduced volumes and correspondingly higher unit costs in the fourth quarter.  Even with those expected pressures, the company is reducing its per-ton cash cost guidance range to between $10.60 and $10.80 for full year 2019.

   

Other Thermal

   

3Q19

   

2Q19

   

3Q18

                 

Tons sold (in millions)

 

2.0

   

1.9

   

2.5

Coal sales per ton sold 

 

$39.52

   

$39.09

   

$36.96

Cash cost per ton sold

 

$31.16

   

$33.62

   

$27.68

Cash margin per ton

 

$8.36

   

$5.47

   

$9.28

Coal sales per ton sold and cash cost per ton sold are defined and reconciled under "Reconciliation of non-GAAP measures." 

Mining complexes included in this segment are Coal-Mac, Viper and West Elk. 

In the Other Thermal segment, the average cash margin increased more than 50 percent to $8.36 per ton versus the second quarter of 2019, due primarily to increased longwall production at the West Elk mine. 

Arch is reiterating its per-ton cash cost guidance for the segment of $29.00 to $33.00 for full year 2019.

Progress at Leer South

As indicated, Arch is making excellent headway in the development of Leer South.  The company continues to expect capex of between $360 million and $390 million to develop the new mine, with more than $100 million of that total coming in 2019.  During the third quarter, Arch invested approximately $26.4 million on the build-out, bringing the year-to-date total to $62.6 million.

"The development team is making excellent progress and we remain well on track to commence longwall mining in the third quarter of 2021," Lang said. 

With the addition of Leer South, Arch expects to expand its High-Vol A output by an incremental 3 million tons; enhance its already advantageous position on the U.S. cost curve; strengthen its coking coal profit margins in virtually any market environment; and cement its position as the leading supplier of High-Vol A coking coal globally.

New Coking Coal Commitments for 2020

During the quarter, Arch entered into agreements to supply 1.5 million tons of coking coal to North American customers in 2020, at a fixed price of approximately $110 per ton.  In addition, Arch committed 1.6 million tons into the seaborne market with an index-based pricing structure, bringing total commitments for 2020 to 3.1 million tons.

"As we have stated in the past, we see value in maintaining a meaningful presence in the North American marketplace, and believe we have secured pricing – given current market conditions – that is reflective of the premium quality of our products," Lang said. 

Key Market Developments

During the quarter, global coking coal markets weakened in response to slowing steel demand, trade-related tensions and concerns over global economic growth.  The average price of Arch's primary product – premium High-Vol A coking coal – declined from an average of nearly $200 per metric ton in the ocean vessel during the year's first half to under $140 per metric ton at the end of the third quarter, according to Platts.

Counterbalancing those concerns to some degree, global coking coal output remains muted.  In the United States, several high-cost coking coal mines have idled in recent weeks in response to the lower pricing environment, and U.S. coking coal exports are down 11 percent year-to-date.  Australian production is up only modestly and continues to undershoot the peak levels achieved in 2016.  Major coking coal producers continue to expend very limited capital on expansion projects.

In short, supply and demand appear only modestly out of balance at present, and high-cost production is being taken off line.  With its first-quartile U.S. cost structure, Arch is well-positioned to weather the current pull-back.    

Outlook

"We are confident in our well-defined strategy for long-term value creation and growth, and we are pursuing it aggressively," Eaves said.  "We expect several major drivers to elevate shareholder value in coming quarters regardless of market conditions.  These drivers include the build-out of our world-class Leer South mine; the transition of our flagship Leer mine into the heart of its reserve base; the completion of our highly synergistic joint venture with Peabody; and the continuation of our capital return program.  Coupled with continued, strong operational execution, these drivers should enhance our already strong competitive position in coking coal markets, increase our cash-generating capabilities significantly, and translate into greater value for our shareholders."

 

2019

 

2020

 

 Tons 

 $ per ton 

 

Tons

$ per ton

Sales Volume (in millions of tons)

                         

Coking

6.7

 

-

7.1

                 

Thermal

80.0

 

-

85.0

                 

Total

86.7

 

-

92.1

                 
                           

Metallurgical (in millions of tons)

                         

Committed, Priced Coking North American

     

1.5

     

$121.87

   

1.5

 

$109.89

Committed, Unpriced Coking North American

     

0.2

           

-

   

Committed, Priced Coking Seaborne

     

3.9

     

$121.92

   

-

   

Committed, Unpriced Coking Seaborne

     

1.1

           

1.6

   

Total Committed Coking

     

6.8

           

3.1

   
                           

Committed, Priced Thermal Byproduct

     

1.0

     

$32.15

         

Committed, Unpriced Thermal Byproduct

     

-

                 

Total Committed Thermal Byproduct

     

1.0

                 
                           

Average Metallurgical Cash Cost

       

$61.00

 

-

$65.00

         
                           

Powder River Basin (in millions of tons)

                         

Committed, Priced

     

75.3

     

$12.06

   

43.7

 

$12.27

Committed, Unpriced

     

0.6

           

1.5

   

Total Committed

     

75.9

           

45.2

   

Average Cash Cost

       

$10.60

 

-

$10.80

         
                           
                           

Other Thermal (in millions of tons)

                         

Committed, Priced

     

7.5

     

$38.42

   

3.7

 

$40.36

Committed, Unpriced

     

0.3

           

-

   

Total Committed

     

7.8

           

3.7

   

Average Cash Cost

       

$29.00

 

-

$33.00

         
                           

Corporate (in $ millions)

                         

D,D&A  

       

$111

 

-

$114

         

ARO Accretion 

       

$19

 

-

$21

         

S,G&A - Cash

       

$74

 

-

$78

         

S,G&A - Non-Cash

       

$18

 

-

$20

         

Net Interest Expense 

       

$7

 

-

$9

         

Capital Expenditures

       

$195

 

-

$205

         

Tax Provision (%)

       

Approximately 0% 

         

 

Note:  The Company is unable to present a quantitative reconciliation of its forward-looking non-GAAP Segment cash cost per ton sold financial measures to the most directly comparable GAAP measures without unreasonable efforts due to the inherent difficulty in forecasting and quantifying with reasonable accuracy significant items required for the reconciliation. The most directly comparable GAAP measure, GAAP cost of sales, is not accessible without unreasonable efforts on a forward-looking basis. The reconciling items include transportation costs, which are a component of GAAP cost of sales. Management is unable to predict without unreasonable efforts transportation costs due to uncertainty as to the end market and FOB point for uncommitted sales volumes and the final shipping point for export shipments. In addition, the impact of hedging activity related to commodity purchases that do not receive hedge accounting and idle and administrative costs that are not included in a reportable segment are additional reconciling items for Segment cash cost per ton sold. Management is unable to predict without unreasonable efforts the impact of hedging activity related to commodity purchases that do not receive hedge accounting due to fluctuations in commodity prices, which are difficult to forecast due to their inherent volatility. These amounts have historically varied and may continue to vary significantly from quarter to quarter and material changes to these items could have a significant effect on our future GAAP results. Idle and administrative costs that are not included in a reportable segment are expected to be between $15 million and $20 million in 2019.

A conference call regarding Arch Coal's third quarter 2019 financial results will be webcast live today at 10 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, Inc. is a top coal producer for the global steel and power generation industries.  Arch operates a streamlined portfolio of large-scale, low-cost mining complexes that produce high-quality metallurgical coals in Appalachia and low-emitting thermal coals in the Powder River Basin and other strategic supply regions.  For more information, visit www.archcoal.com.

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 "should," "appears," "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 our emergence from Chapter 11 bankruptcy protection; from changes in the demand for our coal by the domestic electric generation and steel industries; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from competition within our industry and with producers of competing energy sources; from our ability to successfully acquire or develop coal reserves; from operational, geological, permit, labor and weather-related factors; from the Tax Cuts and Jobs Act and other tax reforms; from the effects of foreign and domestic trade policies, actions or disputes; from fluctuations in the amount of cash we generate from operations, which could impact, among other things, our ability to pay dividends or repurchase shares in accordance with our announced capital allocation plan; from our ability to successfully integrate the operations that we acquire; from our ability to complete the joint venture transaction with Peabody Energy in a timely manner, including obtaining regulatory approvals and satisfying other closing conditions; from our ability to achieve expected synergies from the joint venture; from our ability to successfully integrate the operations of certain mines in the joint venture; 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.

______________

1Adjusted EBITDA is defined and reconciled in the "Reconciliation of Non-GAAP measures" in this release.

 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Income Statements

(In thousands, except per share data)

           
           
 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

2018

 

2019

2018

 

(Unaudited)

 

(Unaudited)

           

Revenues

$619,467

$633,180

 

$1,744,872

$1,800,824

           

Costs, expenses and other operating

         

Cost of sales (exclusive of items shown separately below)

491,004

482,029

 

1,380,563

1,411,197

Depreciation, depletion and amortization

30,402

31,775

 

82,199

92,027

Accretion on asset retirement obligations

5,137

6,992

 

15,411

20,977

Amortization of sales contracts, net

(153)

3,241

 

(77)

9,540

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

1,530

10,418

 

(19,851)

22,142

Selling, general and administrative expenses

24,566

22,909

 

73,864

73,613

Costs related to proposed joint venture with Peabody Energy

3,754

-

 

6,772

-

Loss on sale of Lone Mountain Processing LLC

-

-

 

4,304

-

Preference Rights Lease Application settlement income

(39,000)

-

 

(39,000)

-

Other operating income, net

(4,254)

(7,070)

 

(9,143)

(21,320)

 

512,986

550,294

 

1,495,042

1,608,176

           

Income from operations

106,481

82,886

 

249,830

192,648

           

Interest expense, net

         

Interest expense

(4,049)

(5,179)

 

(12,856)

(15,624)

Interest and investment income

3,709

1,801

 

7,940

4,626

 

(340)

(3,378)

 

(4,916)

(10,998)

           

Income before nonoperating expenses

106,141

79,508

 

244,914

181,650

           

Nonoperating (expenses) income

         

Non-service related pension and postretirement benefit (costs) credits

975

(971)

 

(2,127)

(2,206)

Net loss resulting from early retirement of debt and debt restructuring

-

-

 

-

(485)

Reorganization items, net

-

(560)

 

71

(1,601)

 

975

(1,531)

 

(2,056)

(4,292)

           

Income before income taxes

107,116

77,977

 

242,858

177,358

Provision for (benefit from) income taxes

347

(45,215)

 

508

(49,125)

           

Net income

$106,769

$123,192

 

$ 242,350

$ 226,483

           

Net income per common share

         

Basic EPS

$ 6.79

$ 6.40

 

$ 14.61

$ 11.27

Diluted EPS

$ 6.34

$ 6.10

 

$ 13.66

$ 10.76

           

Weighted average shares outstanding

         

Basic weighted average shares outstanding

15,736

19,250

 

16,591

20,102

Diluted weighted average shares outstanding

16,852

20,208

 

17,744

21,040

           

Dividends declared per common share

$ 0.45

$ 0.40

 

$ 1.35

$ 1.20

           

Adjusted EBITDA (A)

$106,621

$124,894

 

$ 319,439

$ 315,192

 

(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,

 

2019

2018

 

(Unaudited)

 

Assets

   

Current assets

   

Cash and cash equivalents

$ 175,428

$ 264,937

Short-term investments

176,056

162,797

Trade accounts receivable

206,149

200,904

Other receivables

24,291

48,926

Inventories

171,543

125,470

Other current assets

113,502

75,749

Total current assets

866,969

878,783

     

Property, plant and equipment, net

889,295

834,828

     

Other assets

   

Equity investments

107,543

104,676

Other noncurrent assets

70,793

68,773

Total other assets

178,336

173,449

Total assets

$ 1,934,600

$ 1,887,060

     

Liabilities and Stockholders' Equity

   

 Current liabilities

   

 Accounts payable

$ 166,129

$ 128,024

 Accrued expenses and other current liabilities

161,939

183,514

 Current maturities of debt

11,925

17,797

 Total current liabilities

339,993

329,335

 Long-term debt

292,781

300,186

 Asset retirement obligations

238,440

230,304

 Accrued pension benefits

12,491

16,147

 Accrued postretirement benefits other than pension

78,308

83,163

 Accrued workers' compensation

174,118

174,303

 Other noncurrent liabilities

93,033

48,801

 Total liabilities

1,229,164

1,182,239

     

Stockholders' equity

   

  Common Stock

250

250

  Paid-in capital

734,829

717,492

  Retained earnings

746,928

527,666

  Treasury stock, at cost

(816,882)

(583,883)

  Accumulated other comprehensive income

40,311

43,296

   Total stockholders' equity

705,436

704,821

Total liabilities and stockholders' equity

$ 1,934,600

$ 1,887,060

 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

     
     
 

Nine Months Ended September 30,

 

2019

2018

 

(Unaudited)

Operating activities

   

Net income

$242,350

$226,483

Adjustments to reconcile to cash provided by operating activities:

   

Depreciation, depletion and amortization

82,199

92,027

Accretion on asset retirement obligations

15,411

20,977

Amortization of sales contracts, net

(77)

9,540

Deferred income taxes

13,680

(22,999)

Employee stock-based compensation expense

17,305

12,161

Gains on disposals and divestitures

(818)

(54)

Net loss resulting from early retirement of debt and debt restructuring

-

485

Amortization relating to financing activities

2,757

3,300

Preference Rights Lease Application settlement income

(39,000)

-

Changes in:

   

Receivables

(4,622)

(5,983)

Inventories

(46,073)

(34,918)

Accounts payable, accrued expenses and other current liabilities

1,569

(24,762)

Income taxes, net

32,440

(1,942)

Other

16,932

(8,200)

Cash provided by operating activities

334,053

266,115

     

Investing activities

   

Capital expenditures

(137,396)

(55,742)

Minimum royalty payments

(1,187)

(522)

Proceeds from disposals and divestitures

1,799

512

Purchases of short term investments

(158,578)

(140,097)

Proceeds from sales of short term investments

146,170

133,400

Investments in and advances to affiliates, net

(4,810)

(1,817)

Cash used in investing activities

(154,002)

(64,266)

     

Financing activities

   

Payments on term loan due 2024

(2,250)

(2,250)

Net payments on other debt

(12,077)

(10,286)

Debt financing costs

-

(1,009)

Net loss resulting from early retirement of debt and debt restructuring

-

(50)

Dividends paid

(22,264)

(23,966)

Purchases of treasury stock

(232,999)

(192,221)

Other

30

10

Cash used in financing activities

(269,560)

(229,772)

     

Decrease in cash and cash equivalents

(89,509)

(27,923)

Cash and cash equivalents, beginning of period

264,937

273,602

     

Cash and cash equivalents, end of period

$175,428

$245,679

     

Cash and cash equivalents, including restricted cash, end of period

   

Cash and cash equivalents

$175,428

$245,679

Restricted cash

-

-

     
 

$175,428

$245,679

 

Arch Coal, Inc. and Subsidiaries

Schedule of Consolidated Debt

(In thousands)

       
   

September 30,

December 31,

   

2019

2018

   

(Unaudited)

 
       

Term loan due 2024 ($292.5 million face value)

 

$ 291,524

$ 293,626

Other

 

18,471

30,449

Debt issuance costs

 

(5,289)

(6,092)

   

304,706

317,983

Less: current maturities of debt

11,925

17,797

Long-term debt

 

$ 292,781

$ 300,186

       

Calculation of net debt

     

Total debt (excluding debt issuance costs)

 

$ 309,995

$ 324,075

Less liquid assets:

     

Cash and cash equivalents

 

175,428

264,937

Short term investments

 

176,056

162,797

   

351,484

427,734

Net debt

 

$ (41,489)

$ (103,659)

 

Arch Coal, Inc. and Subsidiaries

Operational Performance

(In millions, except per ton data)

             
             
 

Three Months Ended
September 30, 2019

Three Months Ended
June 30, 2019

Three Months Ended
September 30, 2018

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Powder River Basin

           

Tons Sold

22.2

 

17.1

 

21.5

 
             

Segment Sales

$ 266.4

$12.02

$ 207.2

$ 12.08

$ 258.3

$ 12.02

Segment Cash Cost of Sales

216.4

9.77

193.6

11.29

209.8

9.76

Segment Cash Margin

49.9

2.25

13.6

0.79

48.5

2.26

             

Metallurgical

           

Tons Sold

2.1

 

1.9

 

1.9

 
             

Segment Sales

$ 206.1

$98.89

$ 219.3

$115.87

$ 198.5

$104.75

Segment Cash Cost of Sales

135.2

64.89

117.5

62.07

118.5

62.54

Segment Cash Margin

70.9

34.00

101.8

53.80

80.0

42.21

             

Other Thermal

           

Tons Sold

2.0

 

1.9

 

2.5

 
             

Segment Sales

$ 78.5

$39.52

$ 74.9

$ 39.09

$ 94.1

$ 36.96

Segment Cash Cost of Sales

61.9

31.16

64.4

33.62

70.5

27.68

Segment Cash Margin

16.6

8.36

10.5

5.47

23.6

9.28

             

Total Segment Cash Margin

$ 137.4

 

$ 125.9

 

$ 152.1

 
             

Selling, general and administrative expenses

(24.6)

 

(25.2)

 

(22.9)

 

Other

(6.2)

 

4.9

 

(4.3)

 
             

Adjusted EBITDA

$ 106.6

 

$ 105.6

 

$ 124.9

 

 

Arch Coal, Inc. and Subsidiaries

Reconciliation of NON-GAAP Measures

(In thousands, except per ton data)

 

Included in the accompanying release, we have disclosed certain non-GAAP measures as defined by Regulation G.

The following reconciles these items to the most directly comparable GAAP measure.

           

Non-GAAP Segment coal sales per ton sold

 

Non-GAAP Segment coal sales per ton sold is calculated as segment coal sales revenues divided by segment tons sold. Segment coal sales revenues are adjusted for transportation costs, and may be adjusted for other items that, due to generally accepted accounting principles, are classified in "other income" on the consolidated income statements, but relate to price protection on the sale of coal. Segment coal sales per ton sold is not a measure of financial performance in accordance with generally accepted accounting principles. We believe segment coal sales per ton sold provides useful information to investors as it better reflects our revenue for the quality of coal sold and our operating results by including all income from coal sales. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Therefore, segment coal sales revenues should not be considered in isolation, nor as an alternative to coal sales revenues under generally accepted accounting principles.

           

Quarter ended September 30, 2019

Powder River
Basin

Metallurgical

Other Thermal

Idle and Other

Consolidated

(In thousands)

         

GAAP Revenues in the consolidated income statements

$ 269,968

$ 254,493

$ 94,052

$ 954

$ 619,467

Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue

         

Coal risk management derivative settlements classified in "other income"

-

(506)

(4,533)

-

(5,039)

Coal sales revenues from idled or otherwise disposed operations not included in segments

-

-

-

954

954

Transportation costs

3,581

48,925

20,080

-

72,586

Non-GAAP Segment coal sales revenues

$ 266,387

$ 206,074

$ 78,505

$ -

$ 550,966

Tons sold

22,156

2,084

1,986

   

Coal sales per ton sold

$ 12.02

$ 98.89

$ 39.52

   
           
           

Quarter ended June 30, 2019

Powder River Basin

Metallurgical

Other Thermal

Idle and Other

Consolidated

(In thousands)

         

GAAP Revenues in the consolidated income statements

$ 210,149

$ 261,245

$ 98,205

$ 623

$ 570,222

Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue

         

Coal risk management derivative settlements classified in "other income"

-

-

(1,036)

-

(1,036)

Coal sales revenues from idled or otherwise disposed operations not included in segments

-

-

-

623

623

Transportation costs

2,924

41,963

24,339

-

69,226

Non-GAAP Segment coal sales revenues

$ 207,225

$ 219,282

$ 74,902

$ -

$ 501,409

Tons sold

17,149

1,892

1,916

   

Coal sales per ton sold

$ 12.08

$ 115.87

$ 39.09

   
           
           

Quarter ended September 30, 2018

Powder River Basin

Metallurgical

Other Thermal

Idle and Other

Consolidated

(In thousands)

         

GAAP Revenues in the consolidated income statements

$ 261,927

$ 236,328

$ 130,663

$ 4,262

$ 633,180

Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue

         

Coal risk management derivative settlements classified in "other income"

-

-

2,522

-

2,522

Coal sales revenues from idled or otherwise disposed operations not included in segments

-

-

-

4,262

4,262

Transportation costs

3,592

37,857

34,031

-

75,480

Non-GAAP Segment coal sales revenues

$ 258,335

$ 198,471

$ 94,110

$ -

$ 550,916

Tons sold

21,486

1,895

2,546

   

Coal sales per ton sold

$ 12.02

$ 104.75

$ 36.96

   

 

Arch Coal, Inc. and Subsidiaries

Reconciliation of NON-GAAP Measures

(In thousands, except per ton data)

 

Non-GAAP Segment cash cost per ton sold

 

Non-GAAP Segment cash cost per ton sold is calculated as segment cash cost of coal sales divided by segment tons sold. Segment cash cost of coal sales is adjusted for transportation costs, and may be adjusted for other items that, due to generally accepted accounting principles, are classified in "other income" on the consolidated income statements, but relate directly to the costs incurred to produce coal. Segment cash cost per ton sold is not a measure of financial performance in accordance with generally accepted accounting principles. We believe segment cash cost per ton sold better reflects our controllable costs and our operating results by including all costs incurred to produce coal. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Therefore, segment cash cost of coal sales should not be considered in isolation, nor as an alternative to cost of sales under generally accepted accounting principles.

           

Quarter ended September 30, 2019

Powder River
Basin

Metallurgical

Other Thermal

Idle and Other

Consolidated

(In thousands)

         

GAAP Cost of sales in the consolidated income statements

$ 218,966

$ 184,149

$ 81,976

$ 5,913

$ 491,004

Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales

         

Diesel fuel risk management derivative settlements classified in "other income"

(1,057)

-

-

-

(1,057)

Transportation costs

3,581

48,925

20,080

-

72,586

Cost of coal sales from idled or otherwise disposed operations not included in segments

-

-

-

3,871

3,871

Other (operating overhead, certain actuarial, etc.)

-

-

-

2,042

2,042

Non-GAAP Segment cash cost of coal sales

$ 216,442

$ 135,224

$ 61,896

$ -

$ 413,562

Tons sold

22,156

2,084

1,986

   

Cash cost per ton sold

$ 9.77

$ 64.89

$ 31.16

   
           
           

Quarter ended June 30, 2019

Powder River Basin

Metallurgical

Other Thermal

Idle and Other

Consolidated

(In thousands)

         

GAAP Cost of sales in the consolidated income statements

$ 195,948

$ 159,419

$ 88,749

$ 6,972

$ 451,088

Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales

         

Diesel fuel risk management derivative settlements classified in "other income"

(612)

-

-

-

(612)

Transportation costs

2,924

41,963

24,339

-

69,226

Cost of coal sales from idled or otherwise disposed operations not included in segments

-

-

-

4,580

4,580

Other (operating overhead, certain actuarial, etc.)

-

-

-

2,392

2,392

Non-GAAP Segment cash cost of coal sales

$ 193,636

$ 117,456

$ 64,410

$ -

$ 375,502

Tons sold

17,149

1,892

1,916

   

Cash cost per ton sold

$ 11.29

$ 62.07

$ 33.62

   
           
           

Quarter ended September 30, 2018

Powder River Basin

Metallurgical

Other Thermal

Idle and Other

Consolidated

(In thousands)

         

GAAP Cost of sales in the consolidated income statements

$ 214,921

$ 156,353

$ 104,516

$ 6,239

$ 482,029

Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales

         

Diesel fuel risk management derivative settlements classified in "other income"

1,528

-

-

-

1,528

Transportation costs

3,592

37,857

34,031

-

75,480

Cost of coal sales from idled or otherwise disposed operations not included in segments

-

-

-

3,174

3,174

Other (operating overhead, certain actuarial, etc.)

-

-

-

3,065

3,065

Non-GAAP Segment cash cost of coal sales

$ 209,801

$ 118,496

$ 70,485

$ -

$ 398,782

Tons sold

21,486

1,895

2,546

   

Cash cost per ton sold

$ 9.76

$ 62.54

$ 27.68

   

 

Arch Coal, Inc. and Subsidiaries

Reconciliation of Non-GAAP Measures

(In thousands)

           

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, accretion on asset retirement obligations, amortization of sales contracts and nonoperating expenses. Adjusted EBITDA may also be adjusted for items that may not reflect the trend of future results by excluding transactions that are not indicative of the Company's core operating performance.

 

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. The Company uses adjusted EBITDA to measure the operating performance of its segments and allocate resources to the segments. Furthermore, analogous measures are used by industry analysts and investors to evaluate our operating performance. 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 September 30,

 

Nine Months Ended September 30,

 

2019

2018

 

2019

2018

 

(Unaudited)

 

(Unaudited)

Net income

$ 106,769

$ 123,192

 

$ 242,350

$ 226,483

Provision for (benefit from) income taxes

347

(45,215)

 

508

(49,125)

Interest expense, net

340

3,378

 

4,916

10,998

Depreciation, depletion and amortization

30,402

31,775

 

82,199

92,027

Accretion on asset retirement obligations

5,137

6,992

 

15,411

20,977

Amortization of sales contracts, net

(153)

3,241

 

(77)

9,540

Costs related to proposed joint venture with Peabody Energy

3,754

-

 

6,772

-

Loss on sale of Lone Mountain Processing LLC

-

-

 

4,304

-

Preference Rights Lease Application settlement income

(39,000)

-

 

(39,000)

-

Non-service related pension and postretirement benefit costs

(975)

971

 

2,127

2,206

Net loss resulting from early retirement of debt and debt restructuring

-

-

 

-

485

Reorganization items, net

-

560

 

(71)

1,601

           

Adjusted EBITDA

$ 106,621

$ 124,894

 

$ 319,439

$ 315,192

EBITDA from idled or otherwise disposed operations

2,584

(1,391)

 

3,151

4,020

Selling, general and administrative expenses

24,566

22,909

 

73,864

73,613

Other

3,855

8,684

 

(13,038)

14,173

           

Segment Adjusted EBITDA from coal operations

$ 137,626

$ 155,096

 

$ 383,416

$ 406,998

           

Segment Adjusted EBITDA

         

Powder River Basin

$ 50,153

$ 48,646

 

$ 85,433

$ 102,639

Metallurgical

70,814

81,250

 

264,284

251,649

Other Thermal

16,659

25,200

 

33,699

52,710

           

Total Segment Adjusted EBITDA

$ 137,626

$ 155,096

 

$ 383,416

$ 406,998

 

 

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SOURCE Arch Coal, Inc.

Investor Relations, 314/994-2897