SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 18, 2002 (July 18, 2002)
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-13105 43-0921172
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
One CityPlace Drive, Suite 300, St. Louis, Missouri 63141
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (314) 994-2700
Page 1 of 4 pages.
Exhibit Index begins on page 4.
Item 5. Other Events.
On July 18, 2002, Arch Coal, Inc. (the "Company"), announced via press
release its earnings and operating results for the second quarter of 2002. A
copy of the Company's press release is attached hereto and incorporated herein
by reference in its entirety.
Item 7. Financial Statements and Exhibits.
(c) The following Exhibit is filed with this Current Report on Form 8-K:
Exhibit No. Description
99 Press Release dated as of July 18, 2002
Page 2 of 4 pages.
Exhibit Index begins on page 4.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 18, 2002 ARCH COAL, INC.
By: /s/ Robert G. Jones
Robert G. Jones
Vice President - Law, General Counsel
and Secretary
Page 3 of 4 pages.
Exhibit Index begins on page 4.
EXHIBIT INDEX
Exhibit No. Description
99 Press Release dated as of July 18, 2002
Page 4 of 4 pages.
Exhibit 99
News from
Arch Coal, Inc.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION:
Deck S. Slone
Vice President,
Investor and Public Relations
(314) 994-2717
FOR IMMEDIATE RELEASE
July 18, 2002
Arch Coal, Inc. reports second quarter results
Highlights:
o Net income of $2.1 million, or $.04 per share, vs. net income of $0.8
million, or $.02 per share, in 2Q01
o Adjusted EBITDA of $62.7 million, vs. $68.3 million in 2Q01
o Total revenues of $374.5 million, vs. $368.6 million in 2Q01
o Coal sales of 24.9 million tons, vs. 26.7 million tons in 2Q01
St. Louis - Arch Coal, Inc. (NYSE:ACI) today announced that it had net
income of $2.1 million, or $.04 per share, for its second quarter ended June 30,
2002. In the same quarter of 2001, Arch had net income of $0.8 million, or $.02
per share.
"Our decision to reduce production in response to weak coal demand and
pricing continues to be the single most significant factor in our financial
performance," said Steven F. Leer, Arch Coal's president and chief executive
officer. "We remain confident that this decision is in the best interest of the
company and its shareholders. However, it has had an adverse impact on our
financial performance during the first two quarters of the year."
Arch had announced in March that it would reduce production at its mining
operations by an estimated 7% due to weak coal demand resulting from a very mild
winter and the U.S. economic downturn. In keeping with this announcement, Arch's
shipped volumes were down approximately 7% in the second quarter compared to the
same period of 2001.
Late in the quarter, Arch settled certain coal contracts with a customer
that was unwinding its coal supply position and desired to buy out of the
remaining terms of those contracts. These settlements resulted in a pre-tax gain
of $5.6 million. Without the settlements, Arch's results would have been within
the projected range announced by the company in April.
U.S. coal markets
"Although stockpiles at coal-fired power plants remain at
higher-than-optimal levels, we are optimistic about the potential for a rebound
in U.S. coal markets in the near future," Leer said. "Several recent
developments support that view. First, above-average temperatures during the
first half of the summer have led to substantially higher air conditioning load,
which has likely resulted in a draw-down of stockpiles. The summer months have
been 19% warmer than normal when measured by cooling degree days. Second, U.S.
coal production is down nearly 4% year to date through July 6, according to the
U.S. Energy Information Administration."
Coal supply is likely to remain constrained in the near term, especially in
the eastern United States, Leer added. "Not only are eastern producers
struggling to remain profitable given recent spot coal prices, but they are also
facing challenges related to permitting, trucking, bonding, access to capital
and insurance. Smaller producers continue to be most distressed."
Given these trends, and the potential for a stronger U.S. economy in the
year's second half, the prospects for better supply-demand balance and stronger
coal pricing appear strong, according to Leer.
"Although we are continuing to restrict production, we are seeing signs
that the market is progressing towards a healthier balance between supply and
demand," Leer said. In fact, coal prices have begun to move higher in recent
weeks.
"Spot pricing for eastern coal has strengthened by $1 to $2 per ton in
recent weeks, and we expect further increases as the summer wears on," Leer
said. "In the west, we have committed in recent weeks approximately 3 million
tons of Powder River Basin coal for delivery in 2003 or 2004, at an average
price of approximately $7 per ton."
Leer noted that the company had participated in recent contract
negotiations in a limited fashion only. "We are very comfortable with our
position and feel no sense of urgency to sign contracts at current pricing
levels," Leer said. "We continue to believe that the current market has far more
upside potential than downside."
Operating statistics
Regional analysis: Of the 24.9 million tons of coal that Arch sold during
the second quarter, approximately 8.0 million tons originated at its eastern
operations and 16.9 million tons originated at its western operations. Arch Coal
had an average realized sales price of $14.40 per ton and average operating
costs of $13.67 per ton. The eastern operations had an average realized sales
price of $30.47 per ton and an average cost of $29.12 per ton during the
quarter. The western operations had an average realized sales price of $6.85 per
ton and an average cost of $6.39 per ton during the quarter. (Western operations
data does not include the results of 65%-owned Canyon Fuel Company, which is
accounted for on the equity method.)
Expected sales volume for the third quarter of 2002: In the east, Arch
expects to sell a total of approximately 7.4 million tons of coal in the third
quarter of 2002 from its mines in Central Appalachia, excluding brokered tons.
In the west, Arch expects to sell approximately 18 million tons of coal at its
Black Thunder mine in the Powder River Basin of Wyoming, and roughly 1.5 million
tons at the West Elk mine in Colorado, excluding brokered tons. Total sales (on
a 100% basis) at Arch's 65%-owned Canyon Fuel operations in Utah are expected to
be approximately 3.4 million tons for the quarter.
Financial: Arch expects depreciation, depletion and amortization to total
approximately $210 million for the full year. Capital expenditures are expected
to total approximately $150 million. (Projections for depreciation, depletion
and amortization and capital expenditures include Arch's ownership percentage in
Canyon Fuel Company.)
Looking ahead
"While we are enthusiastic about recent developments in the contract
market, demand for spot coal in the year's second half remains relatively
light," Leer said. "As a result, we do not expect to increase shipments
significantly during the third quarter, traditionally our weakest earnings
period. At present, we expect roughly breakeven results for the third quarter."
Regardless of spot market activity, the fourth quarter should be stronger,
but the company is not yet prepared to project earnings for that period, Leer
said. "We continue to take steps to maximize the efficiency of our operations,
without compromising our ability to return our mines to optimal levels of
production when coal markets rebound," he added.
Leer also noted that the performances of both the West Elk and Samples
mines had improved substantially in the second quarter. "We are increasingly
confident that these mines have worked through their recent challenges and will
once again make positive contributions to the company's financial results once
market conditions rebound," he said.
"For the remainder of 2002, we will continue to ship most of our production
under contracts that were signed during the latter half of the 1990s," Leer
said. "Over the next 18 months, the vast majority of those contracts will roll
off. If we are able to replace those low-priced contracts in an improved market
environment, with commitments characterized by the more favorable terms and
pricing that the market currently seems to be indicating, we should see
significant improvements in our financial results."
A conference call concerning second quarter earnings 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 Web site (www.archcoal.com).
Arch Coal is the nation's second largest coal producer, with subsidiary
operations in West Virginia, Kentucky, Virginia, Wyoming, Colorado and Utah.
Through these operations, Arch Coal provides the fuel for approximately 6% of
the electricity generated in the United States.
Definition: Adjusted EBITDA is presented above because it is a widely
accepted financial indicator of a company's ability to incur and service debt.
Adjusted EBITDA should not be considered in isolation or as an alternative to
net income, operating income, cash flows from operations, or as a measure of a
company's profitability, liquidity or performance under generally accepted
accounting principles. Adjusted EBITDA is defined as income from operations
before the effect of net interest expense, income taxes, and depreciation,
depletion and amortization for Arch Coal, Inc., its subsidiaries and its
ownership percentage in its equity investments.
Forward-Looking Statements: Statements in this press release which are not
statements of historical fact are forward-looking statements within the "safe
harbor" provision of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on information currently available to, and
expectations and assumptions deemed reasonable by, the company. Because these
forward-looking statements are subject to various risks and uncertainties,
actual results may differ materially from those projected in the statements.
These expectations, assumptions and uncertainties include: the company's
expectation of continued growth in the demand for electricity; belief that
legislation and regulations relating to the Clean Air Act and the relatively
higher costs of competing fuels will increase demand for its compliance and
low-sulfur coal; expectation of continued improved market conditions for the
price of coal; expectation that the company will continue to have adequate
liquidity from its cash flow from operations, together with available borrowings
under its credit facilities, to finance the company's working capital needs; a
variety of operational, geologic, permitting, labor and weather related factors;
and the other risks and uncertainties which are described from time to time in
the company's reports filed with the Securities and Exchange Commission.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------------------------------------
--------------------------------------------------------------------
2002 2001 2002 2001
------------------------------------------- ---------------
(Unaudited) (Unaudited)
Revenues
Coal sales $ 358,990 $ 350,214 $ 717,585 $ 710,257
Income (loss) from equity investment (198) 4,247 1,070 10,306
Other revenues 15,684 14,119 24,287 29,444
------------- ------------ -------------- ---------------
374,476 368,580 742,942 750,007
------------- ------------ -------------- ---------------
Costs and expenses
Cost of coal sales 340,928 332,577 688,139 662,102
Selling, general and administrative expenses 10,071 12,043 19,940 25,837
Amortization of coal supply agreements 5,374 7,575 10,488 15,161
Other expenses 5,781 4,196 13,373 8,525
------------- ----------- ------------- ---------------
362,154 356,391 731,940 711,625
------------- ----------- ------------- ---------------
Income from operations 12,322 12,189 11,002 38,382
Interest expense, net:
Interest expense (14,356) (14,726) (26,358) (36,080)
Interest income 314 3,386 582 3,637
------------- ----------- ------------- ---------------
(14,042) (11,340) (25,776) (32,443)
------------- ----------- ------------- ---------------
Income (loss) before income taxes (1,720) 849 (14,774) 5,939
Benefit from income taxes (3,800) - (9,500) (1,000)
------------- ----------- ------------- ---------------
Net Income (loss) $ 2,080 $ 849 $ (5,274) $ 6,939
============== =========== ============= ===============
Earnings (loss) per common share
Basic $ 0.04 $ 0.02 $ (0.10) $ 0.16
Diluted $ 0.04 $ 0.02 $ (0.10) $ 0.15
============== =========== ============ ===============
Weighted average shares outstanding
Basic 52,377 48,194 52,367 44,721
Diluted 52,672 49,585 52,591 45,107
============== =========== ============= ===============
Dividends declared per share $ 0.0575 $ 0.0575 $ 0.1150 $ 0.1150
============== =========== ============= ===============
Adjusted EBITDA (A) $ 62,658 $ 68,274 $ 111,795 $ 148,586
============== =========== ============= ===============
(A) Adjusted EBITDA is defined as income from operations before the effect of
net interest expense; income taxes; and depreciation, depletion and
amortization for Arch Coal, Inc., its subsidiaries and its ownership
percentage in its equity investments.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2002 2001
--------------------------------------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 1,343 $ 6,890
Trade receivables 145,970 149,956
Other receivables 32,318 32,303
Inventories 76,084 60,133
Prepaid royalties 2,460 1,997
Deferred income taxes 23,840 23,840
Other 11,118 14,337
--------------------------------------------
Total current assets 293,133 289,456
--------------------------------------------
Property, plant and equipment, net 1,406,681 1,396,786
--------------------------------------------
Other assets
Prepaid royalties 51,116 35,216
Coal supply agreements 70,936 81,424
Deferred income taxes 202,178 195,411
Investment in Canyon Fuel 153,978 170,686
Other 45,021 34,580
--------------------------------------------
523,229 517,317
--------------------------------------------
Total assets $ 2,223,043 $ 2,203,559
============================================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 124,036 $ 99,081
Accrued expenses 141,004 134,062
Current portion of debt 6,497 6,500
--------------------------------------------
Total current liabilities 271,537 239,643
Long-term debt 790,641 767,355
Accrued postretirement benefits other than pension 323,571 326,098
Accrued reclamation and mine closure 127,557 123,761
Accrued workers' compensation 82,631 78,768
Accrued pension cost 839 22,539
Obligations under capital leases 519 8,210
Other noncurrent liabilities 61,517 66,443
--------------------------------------------
Total liabilities 1,658,812 1,632,817
--------------------------------------------
Stockholders' equity
Common stock 527 527
Paid-in capital 835,716 835,427
Retained deficit (250,631) (239,336)
Treasury stock, at cost (5,047) (5,047)
Accumulated other comprehensive loss (16,334) (20,829)
--------------------------------------------
Total stockholders' equity 564,231 570,742
--------------------------------------------
Total liabilities and stockholders' equity $ 2,223,043 $ 2,203,559
============================================
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Six Months Ended
June 30,
----------------------------------------------
2002 2001
--------------- ---------------
(Unaudited)
Operating activities
Net income (loss) $ (5,274) $ 6,939
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 86,589 89,109
Prepaid royalties expensed 3,674 3,304
Net gain on disposition of assets (607) (3,862)
Income from equity investment (1,070) (10,306)
Net distributions from equity investment 17,778 27,245
Changes in:
Receivables 3,971 962
Inventories (15,951) (3,701)
Accounts payable and accrued expenses 13,898 (4,081)
Income taxes (9,640) (7,639)
Accrued postretirement benefits other than pension (2,527) (9,174)
Accrued reclamation and mine closure 3,796 (2,325)
Accrued workers' compensation benefits 3,863 1,619
Other (1,029) (3,146)
--------------- ---------------
Cash provided by operating activities 97,471 84,944
--------------- ---------------
Investing activities
Additions to property, plant and equipment (96,089) (64,635)
Proceeds from dispositions of property, plant and equipment 2,162 4,595
Additions to prepaid royalties (20,037) (20,114)
--------------- ---------------
Cash used in investing activities (113,964) (80,154)
--------------- ---------------
Financing activities
Net proceeds from (payments on) revolver and lines of credit 23,283 (247,841)
Payments on term loans - (135,000)
Debt financing costs (8,127) -
Proceeds from sale and leaseback of equipment 9,213 -
Reductions of obligations under capital lease (7,691) (1,274)
Dividends paid (6,021) (5,524)
Proceeds from sale of common stock 289 380,985
-------------- --------------
Cash provided by (used in) financing activities 10,946 (8,654)
--------------- ---------------
Decrease in cash and cash equivalents (5,547) (3,864)
Cash and cash equivalents, beginning of period 6,890 6,028
--------------- ---------------
Cash and cash equivalents, end of period $ 1,343 $ 2,164
=============== ===============
Canyon Fuel Company cash flow information (Arch Coal ownership percentage)
Depreciation, depletion and amortization 14,204 21,095
Additions to property, plant and equipment (5,021) (5,740)