UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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):  April 26, 2018 (April 26, 2018)

 

Arch Coal, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

1-13105

 

43-0921172

(State or other jurisdiction of
incorporation)

 

(Commission File Number)

 

(I.R.S. Employer Identification No.)

 

CityPlace One
One CityPlace Drive, Suite 300
St. Louis, Missouri 63141

(Address, including zip code, of principal executive offices)

 

Registrant’s telephone number, including area code:  (314) 994-2700

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (Section 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (Section 240.12b-2 of this chapter).

 

Emerging growth company o

 

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

 

 

 



 

Item 2.02                                           Results of Operations and Financial Condition.

 

On April 26, 2018, Arch Coal, Inc. (the “Company”) issued a press release containing its first quarter 2018 financial results.  A copy of the press release is attached hereto as exhibit 99.1.

 

The information contained in this Item 2.02, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information in this Item 2.02, including Exhibit 99.1, shall not be incorporated into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01                                           Financial Statements and Exhibits.

 

(d)                                 Exhibits

 

The following exhibits are attached hereto and filed herewith.

 

Exhibit
No.

 

Description

99.1

 

Press release dated April 26, 2018.

 

1



 

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: April 26, 2018

Arch Coal, Inc.

 

 

 

By:

/s/ Robert G. Jones

 

 

Robert G. Jones

 

 

Senior Vice President — Law, General Counsel and Secretary

 

2


Exhibit 99.1

 

News from

Arch Coal, Inc.

 

FOR FURTHER INFORMATION:

Logan Bonacorsi
Investor Relations

314/994-2766

 

FOR IMMEDIATE RELEASE

 

Arch Coal, Inc. Reports First Quarter 2018 Results

 

ST. LOUIS, April 26, 2018 — Arch Coal, Inc. (NYSE: ARCH) today reported net income of $60.0 million, or $2.74 per diluted share, in the first quarter of 2018, compared with net income of  $51.7 million, or $2.03 per diluted share, in the prior-year period. The company earned adjusted earnings before interest, taxes, depreciation, depletion, amortization and non-operating expenses (“adjusted EBITDA”) (1) of $104.9 million in the first quarter of 2018, compared with $121.2 million of adjusted EBITDA earned in the first quarter of 2017. Revenues totaled $575.3 million for the three months ended March 31, 2018.

 

“During the first quarter, Arch made significant progress on advancing a range of strategic objectives, including increasing our penetration into seaborne coking coal markets and executing on our ongoing stock buyback program,” said John W. Eaves, Arch’s chief executive officer. “Our greater international sales exposure yielded significant benefits as we achieved our strongest-ever Metallurgical segment margins despite higher average costs from the coking coal portfolio, and we spent nearly $40 million during the quarter to buy back additional shares. Given the anticipation of substantial free cash flow during the remainder of the year, we expect to focus intently on our capital return program as we strive to create compelling value for our shareholders.”

 

Capital Allocation and Financial Update

 

During the first quarter, Arch continued to systematically execute upon its share repurchase program, purchasing more than 0.4 million shares of common stock at a total cost of $39 million and an average price of $94.79 per share.

 

To date, Arch has purchased approximately 4.4 million shares of common stock, representing approximately 18 percent of shares outstanding at the time of the program’s initiation, at a total cost of nearly $341 million and at an average price of $77.71 per share. At quarter-end, the company had up to $159 million remaining for share repurchases under the existing authorization.

 


(1)  Adjusted EBITDA is defined and reconciled in the “Reconciliation of Non-GAAP measures” in this release.

 

1



 

Notably, since May 2017, inclusive of $341 million in share repurchases and more than $32 million in quarterly dividends, Arch has returned nearly $375 million to shareholders.

 

“We are pleased with the great progress we have achieved to date on our capital allocation initiatives,” said John T. Drexler, Arch’s senior vice president and chief financial officer. “With a stated and proven capital strategy and the potential for strong cash flows in future quarters, we would expect to continue our robust capital return activities over the balance of the year.”

 

In addition to the stock repurchases, the company paid $8.3 million in cash dividends to shareholders during the first quarter of 2018. The next quarterly cash dividend payment of $0.40 per common share was approved by the board of directors, and is scheduled to be paid on June 15, 2018 to stockholders of record at the close of business on May 31, 2018.

 

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.

 

In early April 2018, Arch enhanced its already-strong capital structure by reducing the interest rate on its senior secured term loan facility by 50 basis points. With this reduction, Arch now expects its 2018 net interest expense to be between $16 million and $18 million. Notably, since the public relisting in October 2016, Arch has lowered the interest rate on the term loan by a total of 625 basis points and reduced its annual interest expense by approximately $22 million.

 

At quarter-end, Arch’s cash and short-term investments totaled nearly $433 million. Arch’s debt totaled $329 million, inclusive of the term loan, equipment financing and other debt, resulting in a $104 million net cash position.

 

“Arch’s successful series of capital market transactions has further improved and simplified our capital structure,” said Drexler. “Looking ahead, we remain committed to maintaining our industry-leading balance sheet strength and are resolute in our commitment to efficiently returning excess free cash to shareholders while satisfying the capital requirements of our business.”

 

Operational Results

 

“During the quarter, our global coking coal sales strategy, better-than-expected operating performance at the Leer mine and solid support from our cash-generating thermal franchise allowed Arch to overcome weather-related logistical complications and higher costs in the Metallurgical segment,” said Paul A. Lang, Arch’s president and chief operating officer. “Going forward, we will continue to focus on controlling and lowering costs and managing the quarterly volume volatility that comes with a more significant global customer base.”

 

2



 

 

 

Metallurgical

 

 

 

1Q18

 

4Q17

 

1Q17

 

Tons sold (in millions)

 

1.8

 

1.8

 

2.1

 

Coking

 

1.5

 

1.5

 

1.5

 

PCI

 

 

 

0.1

 

Thermal

 

0.3

 

0.3

 

0.5

 

Coal sales per ton sold

 

$

115.97

 

$

90.82

 

$

90.84

 

Coking

 

$

131.90

 

$

101.76

 

$

105.51

 

PCI

 

 

 

$

62.34

 

Thermal

 

$

31.37

 

$

25.92

 

$

47.64

 

Cash cost per ton sold

 

$

68.33

 

$

59.50

 

$

57.67

 

Cash margin per ton

 

$

47.64

 

$

31.32

 

$

33.17

 

 

Coal sales per ton sold and cash cost per ton sold is defined and reconciled under “Reconciliation of non-GAAP measures” Mining complexes included in this segment are Beckley, Leer, Lone Mountain, Mountain Laurel and Sentinel Lone Mountain is included through September 14, 2017, the date of divestiture First quarter 2018 coking coal shipments include 0.2 million tons to North American customers, the vast majority of which is carryover, at $91.74 per ton and approximately 1.3 million tons to seaborne customers at $139.79 per ton

 

In the Metallurgical segment, coking coal sales volumes were flat when compared with the fourth quarter of 2017. Shipment levels were less than ratable due to weather and supply-chain disruptions in the early part of the quarter and, more recently, to widespread loading delays at export facilities on the East Coast. Arch estimates that 0.1 million tons of coking coal slipped into the second quarter. Metallurgical coal margins per ton expanded significantly, reaching $47.64 per ton during the quarter and representing a more than 50 percent increase over the prior-quarter period. This is the highest ever recorded cash margin per ton for the segment. Average coking coal realizations rose more than $30 per ton over the same time period due to a larger percentage of seaborne shipments, ongoing supportive metallurgical coal market fundamentals and significantly higher pricing on index-based and negotiated tons that priced during the quarter.

 

Increased price realizations were offset somewhat by higher-than-expected cash cost per ton sold during the period. The 15 percent sequential increase in cash cost per ton sold was driven by several one-time items, higher sales-sensitive costs associated with increased coking coal prices, lower sales volumes and higher mining costs at Mountain Laurel.

 

“After a solid fourth quarter performance, Mountain Laurel again encountered challenging geology during the first quarter of 2018,” said Lang. “The mine is preparing to transition to a new panel where we anticipate improved operating conditions. However, we have tempered our expectations for the mine for the remainder of the year.”

 

As result of the challenges at Mountain Laurel and ongoing shipment variability due to timing complexities in the seaborne logistics chain, Arch is lowering its annual coking coal sales expectations modestly to approximately 6.5 million tons. Arch expects coking coal shipments to be roughly flat in the second quarter of 2018 when compared with the first quarter of the year. This view reflects two scheduled longwall moves in the segment and a heavy shipment schedule in the last 10 days of June, which could potentially result in volumes slipping into the third quarter of 2018.

 

3



 

Arch now expects its annual cash cost per ton sold for the segment to be in the range of $60.00 per ton to $65.00 per ton. Despite this increase, Arch is confident its coking coal operations represent some of the most cost-competitive assets in the U.S. metallurgical space and will focus on controlling and taking costs out of the segment’s operational structure.

 

 

 

Powder River Basin

 

 

 

1Q18

 

4Q17

 

1Q17

 

Tons sold (in millions)

 

19.7

 

19.5

 

21.3

 

Coal sales per ton sold

 

$

12.15

 

$

12.32

 

$

12.57

 

Cash cost per ton sold

 

$

10.77

 

$

10.78

 

$

10.33

 

Cash margin per ton

 

$

1.38

 

$

1.54

 

$

2.24

 

 

Coal sales per ton sold and cash cost per ton sold is 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, first quarter 2018 sales volumes and cash costs per ton sold were essentially flat when compared to the fourth quarter of 2017, on steady customer shipments driven by normal winter weather patterns during the period. Average sales price per ton sold declined marginally when compared with the same time period due to the roll-off of higher-priced legacy sales contracts, which resulted in a sequential cash margin decline of $0.16 per ton.

 

Looking ahead, given current market fundamentals for domestic thermal coal and persistent weak spot pricing for Powder River Basin products in general, Arch has elected to reduce its annual production from the segment — specifically from its Black Thunder mine. For full year 2018, the company now expects Black Thunder to produce between 62 million and 68 million tons compared with the previously indicated 70 million to 80 million tons. Arch is maintaining its segment cost guidance of $10.45 to $10.95 per ton for the full year.

 

 

 

Other Thermal

 

 

 

1Q18

 

4Q17

 

1Q17

 

Tons sold (in millions)

 

2.2

 

2.3

 

2.3

 

Coal sales per ton sold

 

$

35.59

 

$

35.43

 

$

35.51

 

Cash cost per ton sold

 

$

28.53

 

$

24.88

 

$

23.82

 

Cash margin per ton

 

$

7.06

 

$

10.55

 

$

11.69

 

 

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, first quarter sales volumes declined modestly from the fourth quarter as a result of two export vessels, or nearly 0.2 million tons, slipping out of late March

4



 

into April. Coal sales per ton sold during the quarter remained robust, sustained by strong pricing on international commitments and solid pricing on domestic business, while segment cash costs per ton sold increased $3.65 over the same time period. Higher cash costs per ton sold were driven primarily by planned lower volume levels from the low-cost West Elk mine, higher shipments from the Viper mine and increased maintenance expense at the Coal-Mac operation. Arch now expects its annual cash cost per ton sold for the segment to be between $27.00 and $31.00 per ton.

 

Key Market Developments

 

Coking Coal Markets

 

·                  Global steel production remains a key support for global coking coal markets, with steel output up more than 4 percent year-to-date and steel prices still at very robust levels in Arch’s core Atlantic Basin steel markets.

 

·                  While coking coal prices have retraced somewhat in recent weeks, they remain at highly attractive levels — with High-Vol A currently assessed at $185 per metric ton FOB the vessel on the U.S. East Coast.

 

·                  Coking coal exports from Australia — the dominant seaborne market supplier — are in recovery mode following a difficult, cyclone-impacted 2017, but the logistics chain could be tested by maintenance issues affecting both the rail system and the ports.

 

Thermal Coal Markets

 

·                  Seaborne thermal prices remain elevated, with prompt month API-2 pricing for movements into Northern Europe solidly above $80 per metric ton and Newcastle prices firmly above $90 per metric ton.

 

·                  Arch anticipates healthy U.S. thermal export levels in 2018, which should continue to provide a level of support to U.S. domestic thermal fundamentals.

 

·                  The slow and steady decline in U.S. generator stockpiles continued during the first quarter — with more than 10 million tons liquidated.

 

·                  Average days of supply are now just 10 days above projected target inventory levels and should decline further as the year progresses.

 

2018 Outlook

 

As indicated, Arch anticipates projected coking coal sales of between 6.3 million and 6.7 million tons. Included in this range are 0.2 million tons of previously announced carryover volume. The vast majority of the carryover tons were shipped during the first quarter, effectively completing the 2017 lower fixed-priced commitments.

 

Since the last update, Arch committed roughly 0.8 million tons of coking coal into the seaborne marketplace for 2018 delivery. Pricing on these commitments will be index-based or subject to

 

5



 

negotiation. At the expected midpoint of its new volume guidance level, Arch is approximately 78 percent committed on coking coal sales for the full year, with approximately 45 percent of that committed volume exposed to market-based pricing.

 

On the thermal side, while buying activity during the first quarter was muted, the company selectively placed approximately 1.0 million tons of Powder River Basin coal at prices that met or exceeded the regional average forward market price or that were linked to an index, as well as committed incremental volume from the Other Thermal segment. Given revised volume levels and the sales commitments signed in the first quarter, Arch now expects to sell a total of between 80 million and 84 million tons of thermal coal in 2018. At the new midpoint of guidance, Arch’s thermal sales are more than 90 percent committed for full year 2018.

 

“We have strategically reduced our thermal sales exposure in 2018, while continuing to capitalize and hone our focus on seaborne coking coal and international thermal markets — areas that we expect to continue to provide significant contribution this year,” said Eaves. “We believe our complementary asset portfolio, simple and clean financial structure, efficient and transparent method for capital allocation and carefully crafted marketing strategy will continue to provide our shareholders with meaningful value as we progress through the remainder of the year.”

 

6



 

 

 

2018 (2)

 

 

 

Tons

 

$ per ton

 

Sales Volume (in millions of tons)

 

 

 

 

 

Coking

 

6.3

-

6.7

 

 

 

Thermal

 

80.0

-

84.0

 

 

 

Total

 

86.3

-

90.7

 

 

 

 

 

 

 

 

 

Metallurgical (in millions of tons)

 

 

 

 

 

Committed, Priced Coking North American*

 

1.2

 

$

 

96.40

 

Committed, Priced Coking Seaborne

 

1.6

 

$

 

133.39

 

Committed, Unpriced Coking

 

2.3

 

 

 

Total Committed Coking

 

5.1

 

 

 

 

 

 

 

 

 

Committed, Priced Thermal Byproduct

 

0.7

 

$

 

32.18

 

Committed, Unpriced Thermal Byproduct

 

 

 

 

Total Committed Thermal Byproduct

 

0.7

 

 

 

 

 

 

 

 

 

Average Metallurgical Cash Cost

 

 

 

$

60.00

-

$

65.00

 

 

 

 

 

 

 

Powder River Basin (in millions of tons)

 

 

 

 

 

Committed, Priced

 

63.7

 

$

 

11.98

 

Committed, Unpriced

 

1.7

 

 

 

Total Committed

 

65.4

 

 

 

Average Cash Cost

 

 

 

$

10.45

-

$

10.95

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Thermal (in millions of tons)

 

 

 

 

 

Committed, Priced

 

8.3

 

$

 

36.71

 

Committed, Unpriced

 

 

 

 

Total Committed

 

8.3

 

 

 

Average Cash Cost

 

 

 

$

27.00

-

$

31.00

 

 

 

 

 

 

 

Corporate (in $ millions)

 

 

 

 

 

D,D&A excluding Sales Contract Amortization

 

 

 

$

115

-

$

120

 

Sales Contract Amortization

 

 

 

$

11

-

$

12

 

ARO Accretion

 

 

 

$

27

-

$

29

 

S,G&A

 

 

 

$

89

-

$

92

 

Interest Expense

 

 

 

$

16

-

$

18

 

Capital Expenditures

 

 

 

$

80

-

$

90

 

Tax Provision (%)

 

 

 

Approximately 0%

 

 


*Includes approximately 200,000 tons of carryover from 2017

 

(2)  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 for this non-GAAP measure are transportation costs, which are a component of GAAP revenues and cost of sales; 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. 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. 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 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 2018.

 

7



 

A conference call regarding Arch Coal’s first quarter 2018 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).

 

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, and the Tax Cuts and Jobs Act and other tax reforms; 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.

 

# # #

 

8



 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Income Statements

(In thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Revenues

 

$

575,295

 

$

600,975

 

 

 

 

 

 

 

Costs, expenses and other operating

 

 

 

 

 

Cost of sales

 

454,780

 

460,450

 

Depreciation, depletion and amortization

 

29,703

 

31,921

 

Accretion on asset retirement obligations

 

6,992

 

7,623

 

Amortization of sales contracts, net

 

3,051

 

14,690

 

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

 

(3,414

)

854

 

Selling, general and administrative expenses

 

25,948

 

20,762

 

Other operating income, net

 

(6,932

)

(2,310

)

 

 

510,128

 

533,990

 

 

 

 

 

 

 

Income from operations

 

65,167

 

66,985

 

 

 

 

 

 

 

Interest expense, net

 

 

 

 

 

Interest expense

 

(5,395

)

(9,425

)

Interest and investment income

 

1,273

 

527

 

 

 

(4,122

)

(8,898

)

 

 

 

 

 

 

Income before nonoperating expenses

 

61,045

 

58,087

 

 

 

 

 

 

 

Nonoperating expenses

 

 

 

 

 

Non-service related pension and postretirement benefit costs

 

(1,303

)

(721

)

Net loss resulting from early retirement of debt and debt restructuring

 

 

(2,030

)

Reorganization items, net

 

(301

)

(2,828

)

 

 

(1,604

)

(5,579

)

 

 

 

 

 

 

Income before income taxes

 

59,441

 

52,508

 

Provision for (benefit from) income taxes

 

(544

)

840

 

 

 

 

 

 

 

Net income

 

$

59,985

 

$

51,668

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

Basic EPS

 

$

2.87

 

$

2.07

 

Diluted EPS

 

$

2.74

 

$

2.03

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

Basic weighted average shares outstanding

 

20,901

 

25,008

 

Diluted weighted average shares outstanding

 

21,875

 

25,408

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.40

 

$

 

 

 

 

 

 

 

Adjusted EBITDA (A) (Unaudited)

 

$

104,913

 

$

121,219

 

Adjusted diluted income per common share (A)

 

$

2.95

 

$

2.82

 

 


(A) Adjusted EBITDA and Adjusted diluted income per common share are defined and reconciled under “Reconciliation of Non-GAAP Measures” later in this release.

 



 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

288,332

 

$

273,387

 

Short term investments

 

144,652

 

155,846

 

Restricted cash

 

2,926

 

 

Trade accounts receivable

 

208,100

 

172,604

 

Other receivables

 

11,405

 

29,771

 

Inventories

 

143,831

 

128,960

 

Other current assets

 

68,459

 

70,426

 

Total current assets

 

867,705

 

830,994

 

 

 

 

 

 

 

Property, plant and equipment, net

 

935,511

 

955,948

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Equity investments

 

104,786

 

106,107

 

Other noncurrent assets

 

68,676

 

86,583

 

Total other assets

 

173,462

 

192,690

 

Total assets

 

$

1,976,678

 

$

1,979,632

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

127,149

 

$

134,137

 

Accrued expenses and other current liabilities

 

158,882

 

184,161

 

Current maturities of debt

 

14,328

 

15,783

 

Total current liabilities

 

300,359

 

334,081

 

Long-term debt

 

307,742

 

310,134

 

Asset retirement obligations

 

312,544

 

308,855

 

Accrued pension benefits

 

13,370

 

14,036

 

Accrued postretirement benefits other than pension

 

104,902

 

102,369

 

Accrued workers’ compensation

 

185,159

 

184,835

 

Other noncurrent liabilities

 

64,140

 

59,457

 

Total liabilities

 

1,288,216

 

1,313,767

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common Stock

 

250

 

250

 

Paid-in capital

 

703,980

 

700,125

 

Retained earnings

 

298,664

 

247,232

 

Treasury stock, at cost

 

(340,698

)

(302,109

)

Accumulated other comprehensive income

 

26,266

 

20,367

 

Total stockholders’ equity

 

688,462

 

665,865

 

Total liabilities and stockholders’ equity

 

$

1,976,678

 

$

1,979,632

 

 



 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

Operating activities

 

 

 

 

 

Net income

 

$

59,985

 

$

51,668

 

Adjustments to reconcile to cash provided by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

29,703

 

31,921

 

Accretion on asset retirement obligations

 

6,992

 

7,623

 

Amortization of sales contracts, net

 

3,051

 

14,690

 

Prepaid royalties expensed

 

 

2,281

 

Deferred income taxes

 

12,127

 

5,830

 

Employee stock-based compensation expense

 

3,845

 

2,426

 

Gains on disposals and divestitures

 

134

 

(347

)

Net loss resulting from early retirement of debt and debt restructuring

 

 

2,030

 

Amortization relating to financing activities

 

1,080

 

535

 

Changes in:

 

 

 

 

 

Receivables

 

(28,728

)

37,134

 

Inventories

 

(14,871

)

(11,732

)

Accounts payable, accrued expenses and other current liabilities

 

(26,052

)

(20,529

)

Income taxes, net

 

11,596

 

(4,965

)

Other

 

8,005

 

6,964

 

Cash provided by operating activities

 

66,867

 

125,529

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(9,453

)

(5,950

)

Minimum royalty payments

 

(62

)

(63

)

Proceeds from disposals and divestitures

 

54

 

420

 

Purchases of short term investments

 

(38,458

)

(78,523

)

Proceeds from sales of short term investments

 

49,400

 

45,886

 

Investments in and advances to affiliates, net

 

 

(7,905

)

Cash provided by (used in) investing activities

 

1,481

 

(46,135

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Proceeds from issuance of term loan due 2024

 

 

298,500

 

Payments to extinguish term loan due 2021

 

 

(325,684

)

Payments on term loan due 2024

 

(750

)

 

Net payments on other debt

 

(3,431

)

(2,810

)

Debt financing costs

 

 

(7,228

)

Net loss resulting from early retirement of debt and debt restructuring

 

 

(2,030

)

Dividends paid

 

(8,335

)

 

Purchases of treasury stock

 

(38,186

)

 

Other

 

10

 

 

Cash used in financing activities

 

(50,692

)

(39,252

)

 

 

 

 

 

 

Increase in cash and cash equivalents, including restricted cash

 

17,656

 

40,142

 

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

 

273,602

 

376,422

 

 

 

 

 

 

 

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

 

$

291,258

 

$

416,564

 

 

 

 

 

 

 

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

 

 

 

 

 

Cash and cash equivalents

 

$

288,332

 

$

347,580

 

Restricted cash

 

2,926

 

68,984

 

 

 

 

 

 

 

 

 

$

291,258

 

$

416,564

 

 



 

Arch Coal, Inc. and Subsidiaries

Schedule of Consolidated Debt

(In thousands)

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Term loan due 2024 ($297.0 million face value)

 

$

295,732

 

$

296,435

 

Other

 

33,120

 

36,514

 

Debt issuance costs

 

(6,782

)

(7,032

)

 

 

322,070

 

325,917

 

Less: current maturities of debt

 

14,328

 

15,783

 

Long-term debt

 

$

307,742

 

$

310,134

 

 

 

 

 

 

 

Calculation of net debt

 

 

 

 

 

Total debt (excluding debt issuance costs)

 

$

328,852

 

$

332,949

 

Less liquid assets:

 

 

 

 

 

Cash and cash equivalents

 

288,332

 

273,387

 

Short term investments

 

144,652

 

155,846

 

 

 

432,984

 

429,233

 

Net debt

 

$

(104,132

)

$

(96,284

)

 



 

Arch Coal, Inc. and Subsidiaries

Operational Performance

(In millions, except per ton data)

 

 

 

Three Months Ended
March 31, 2018

 

Three Months Ended
December 31, 2017

 

Three Months Ended
March 31, 2017

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Powder River Basin

 

 

 

 

 

 

 

 

 

 

 

 

 

Tons Sold

 

19.7

 

 

 

19.5

 

 

 

21.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Sales

 

$

239.9

 

$

12.15

 

$

239.9

 

$

12.32

 

$

268.1

 

$

12.57

 

Segment Cash Cost of Sales

 

212.6

 

10.77

 

209.9

 

10.78

 

220.4

 

10.33

 

Segment Cash Margin

 

27.3

 

1.38

 

30.0

 

1.54

 

47.7

 

2.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metallurgical

 

 

 

 

 

 

 

 

 

 

 

 

 

Tons Sold

 

1.8

 

 

 

1.8

 

 

 

2.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Sales

 

$

203.5

 

$

115.97

 

$

164.1

 

$

90.82

 

$

187.1

 

$

90.84

 

Segment Cash Cost of Sales

 

119.9

 

68.33

 

107.5

 

59.50

 

118.8

 

57.67

 

Segment Cash Margin

 

83.6

 

47.64

 

56.6

 

31.32

 

68.3

 

33.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Thermal

 

 

 

 

 

 

 

 

 

 

 

 

 

Tons Sold

 

2.2

 

 

 

2.3

 

 

 

2.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Sales

 

$

77.1

 

$

35.59

 

$

80.1

 

$

35.43

 

$

81.4

 

$

35.51

 

Segment Cash Cost of Sales

 

61.8

 

28.53

 

56.3

 

24.88

 

54.6

 

23.82

 

Segment Cash Margin

 

15.3

 

7.06

 

23.9

 

10.55

 

26.8

 

11.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Segment Cash Margin

 

$

126.2

 

 

 

$

110.4

 

 

 

$

142.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

(25.9

)

 

 

(23.4

)

 

 

(20.8

)

 

 

Liquidated damages under export logistics contracts

 

 

 

 

 

 

 

 

 

 

Other

 

4.6

 

 

 

10.8

 

 

 

(0.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

104.9

 

 

 

$

97.8

 

 

 

$

121.2

 

 

 

 



 

Arch Coal, Inc. and Subsidiaries

Reconciliation of NON-GAAP Measures

(In millions, 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 statement of operations, 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 March 31, 2018

 

Powder River
Basin

 

Metallurgical

 

Other Thermal

 

Idle and Other

 

Consolidated

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Revenues in the consolidated statements of operations

 

$

245,427

 

$

238,348

 

$

91,520

 

$

 

$

575,295

 

Other revenues

 

 

 

 

 

 

Coal Sales

 

$

245,427

 

$

238,348

 

$

91,520

 

$

 

$

575,295

 

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

 

 

 

 

 

 

 

 

 

 

 

Coal risk management derivative settlements classified in “other income”

 

 

 

1,031

 

 

$

1,031

 

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

 

 

 

 

 

 

Transportation costs

 

5,478

 

34,885

 

$

13,394

 

 

53,757

 

Non-GAAP Segment coal sales revenues

 

$

239,949

 

$

203,463

 

$

77,095

 

$

 

$

520,507

 

Tons sold

 

19,744

 

1,754

 

2,166

 

 

 

 

 

Coal sales per ton sold

 

$

12.15

 

$

115.97

 

$

35.59

 

 

 

 

 

 

Quarter ended December 31, 2017

 

Powder River
Basin

 

Metallurgical

 

Other Thermal

 

Idle and Other

 

Consolidated

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Revenues in the consolidated statements of operations

 

$

244,191

 

$

195,661

 

$

109,100

 

$

11,292

 

$

560,244

 

Other revenues

 

 

 

 

 

 

Coal Sales

 

$

244,191

 

$

195,661

 

$

109,100

 

$

11,292

 

$

560,244

 

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

 

 

 

 

 

 

 

 

 

 

 

Coal risk management derivative settlements classified in “other income”

 

 

 

182

 

 

$

182

 

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

 

 

 

 

11,291

 

11,291

 

Transportation costs

 

4,306

 

31,545

 

$

28,771

 

1

 

64,623

 

Non-GAAP Segment coal sales revenues

 

$

239,885

 

$

164,116

 

$

80,147

 

$

 

$

484,148

 

Tons sold

 

19,473

 

1,807

 

2,262

 

 

 

 

 

Coal sales per ton sold

 

$

12.32

 

$

90.82

 

$

35.43

 

 

 

 

 

 

Quarter ended March 31, 2017

 

Powder River
Basin

 

Metallurgical

 

Other Thermal

 

Idle and Other

 

Consolidated

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Revenues in the consolidated statements of operations

 

$

273,428

 

$

225,582

 

$

101,906

 

$

59

 

$

600,975

 

Other revenues

 

 

 

 

 

 

Coal Sales

 

$

273,428

 

$

225,582

 

$

101,906

 

$

59

 

$

600,975

 

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

 

 

 

 

 

 

 

 

 

 

 

Coal risk management derivative settlements classified in “other income”

 

 

 

 

 

$

 

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

 

 

 

 

52

 

52

 

Transportation costs

 

5,340

 

38,471

 

$

20,541

 

7

 

64,359

 

Non-GAAP Segment coal sales revenues

 

$

268,088

 

$

187,111

 

$

81,365

 

$

 

$

536,564

 

Tons sold

 

21,326

 

2,060

 

2,291

 

 

 

 

 

Coal sales per ton sold

 

$

12.57

 

$

90.84

 

$

35.51

 

 

 

 

 

 



 

Arch Coal, Inc. and Subsidiaries

Reconciliation of NON-GAAP Measures

(In millions, 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 statement of operations, 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 March 31, 2018

 

Powder River
Basin

 

Metallurgical

 

Other Thermal

 

Idle and Other

 

Consolidated

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Cost of sales in the consolidated statements of operations

 

$

218,526

 

$

154,763

 

$

75,188

 

$

6,303

 

$

454,780

 

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

 

 

 

 

 

 

 

 

 

 

 

Diesel fuel risk management derivative settlements classified in “other income”

 

439

 

 

 

 

439

 

Transportation costs

 

5,478

 

34,885

 

13,394

 

 

53,757

 

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

 

 

 

 

4,232

 

4,232

 

Other (operating overhead, certain actuarial, etc.)

 

 

 

 

2,071

 

2,071

 

Non-GAAP Segment cash cost of coal sales

 

$

212,609

 

$

119,878

 

$

61,794

 

$

 

$

394,281

 

Tons sold

 

19,744

 

1,754

 

2,166

 

 

 

 

 

Cash cost per ton sold

 

$

10.77

 

$

68.33

 

$

28.53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended December 31, 2017

 

Powder River
Basin

 

Metallurgical

 

Other Thermal

 

Idle and Other

 

Consolidated

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Cost of sales in the consolidated statements of operations

 

$

214,006

 

$

139,059

 

$

85,038

 

$

12,596

 

$

450,699

 

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

 

 

 

 

 

 

 

 

 

 

 

Diesel fuel risk management derivative settlements classified in “other income”

 

(229

)

 

 

 

(229

)

Transportation costs

 

4,306

 

31,545

 

28,771

 

1

 

64,623

 

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

 

 

 

 

11,405

 

11,405

 

Other (operating overhead, certain actuarial, etc.)

 

 

 

 

1,190

 

1,190

 

Non-GAAP Segment cash cost of coal sales

 

$

209,929

 

$

107,514

 

$

56,267

 

$

 

$

373,710

 

Tons sold

 

19,473

 

1,807

 

2,262

 

 

 

 

 

Cash cost per ton sold

 

$

10.78

 

$

59.50

 

$

24.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended March 31, 2017

 

Powder River
Basin

 

Metallurgical

 

Other Thermal

 

Idle and Other

 

Consolidated

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales in the consolidated statements of operations

 

$

225,107

 

$

157,259

 

$

75,117

 

$

2,967

 

$

460,450

 

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

 

 

 

 

 

 

 

 

 

 

 

Diesel fuel risk management derivative settlements classified in “other income”

 

(604

)

 

 

 

(604

)

Transportation costs

 

5,340

 

38,471

 

20,541

 

7

 

64,359

 

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

 

 

 

 

3,447

 

3,447

 

Other (operating overhead, certain actuarial, etc.)

 

 

 

 

(487

)

(487

)

Reported segment cost of coal sales

 

$

220,371

 

$

118,788

 

$

54,576

 

$

 

$

393,735

 

Tons sold

 

21,326

 

2,060

 

2,291

 

 

 

 

 

Cash cost per ton sold

 

$

10.33

 

$

57.67

 

$

23.82

 

 

 

 

 

 



 

Arch Coal, Inc. and Subsidiaries

Reconciliation of Non-GAAP Measures

(In thousands, except per share data)

 

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 March 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

Net income

 

$

59,985

 

$

51,668

 

Provision for (benefit from) income taxes

 

(544

)

840

 

Interest expense, net

 

4,122

 

8,898

 

Depreciation, depletion and amortization

 

29,703

 

31,921

 

Accretion on asset retirement obligations

 

6,992

 

7,623

 

Amortization of sales contracts, net

 

3,051

 

14,690

 

Non-service related pension and postretirement benefit costs

 

1,303

 

721

 

Net loss resulting from early retirement of debt and debt restructuring

 

 

2,030

 

Reorganization items, net

 

301

 

2,828

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

104,913

 

$

121,219

 

 

Adjusted net income and adjusted diluted income per share

 

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

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

Net income

 

$

59,985

 

$

51,668

 

 

 

 

 

 

 

Amortization of sales contracts, net

 

3,051

 

14,690

 

Non-service related pension and postretirement benefit costs

 

1,303

 

721

 

Net loss resulting from early retirement of debt and debt restructuring

 

 

2,030

 

Reorganization items, net

 

301

 

2,828

 

Tax impact of adjustment

 

(93

)

(405

)

 

 

 

 

 

 

Adjusted net income

 

$

64,547

 

$

71,532

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

21,875

 

25,408

 

 

 

 

 

 

 

Diluted income per share

 

$

2.74

 

$

2.03

 

 

 

 

 

 

 

Amortization of sales contracts, net

 

0.14

 

0.58

 

Non-service related pension and postretirement benefit costs

 

0.06

 

0.03

 

Net loss resulting from early retirement of debt and debt restructuring

 

 

0.08

 

Reorganization items, net

 

0.01

 

0.11

 

Tax impact of adjustments

 

0.00

 

(0.01

)

Adjusted diluted income per share

 

$

2.95

 

$

2.82