UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 25, 2008 (July 25, 2008)
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 1-13105 | 43-0921172 | ||
| (State or other jurisdiction of | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
| incorporation ) |
CityPlace One
One CityPlace Drive, Suite 300
St. Louis, Missouri 63141
(Address, including zip code, of principal executive offices)
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)) |
| Item 2.02 | Results of Operations and Financial Condition. |
On July 25, 2008, Arch Coal, Inc. (the “Company”) issued a press release containing its second
quarter 2008 financial results and updating guidance for its full year 2008 forecasted results. A
copy of the press release is attached hereto as exhibit 99.1.
The information contained in Item 2.02 and the exhibit attached hereto 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, nor shall they be deemed
incorporated by reference in any filing under the Securities Act of 1933, as amended, 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 exhibit is attached hereto and filed herewith.
| Exhibit | ||
| No. | Description | |
99.1
|
Press release dated July 25, 2008 announcing second quarter 2008 results. |
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: July 25, 2008 | Arch Coal, Inc. |
|||
| By: | /s/ John T. Drexler | |||
| John T. Drexler | ||||
| Senior Vice President and Chief Financial Officer | ||||
2
Exhibit Index
| Exhibit | ||
| No. | Description | |
99.1
|
Press release dated July 25, 2008 announcing second quarter 2008 results. |
Exhibit 99.1
| News from Arch Coal, Inc. |
 |
FOR FURTHER INFORMATION:
Deck S. Slone
Vice President, Investor Relations and Public Affairs
314/994-2717
Deck S. Slone
Vice President, Investor Relations and Public Affairs
314/994-2717
FOR IMMEDIATE RELEASE
Arch Coal, Inc. Reports Second Quarter 2008 Results
Earnings per share increase 200% from prior-year quarter;
Company earns record EBITDA of $240.9 million;
Raises full year 2008 guidance range
Earnings per share increase 200% from prior-year quarter;
Company earns record EBITDA of $240.9 million;
Raises full year 2008 guidance range
Earnings Highlights
| Quarter Ended | Six Months Ended | ||||||||||||||||
| In $ millions, except per share data | 6/30/2008 | 6/30/2007 | 6/30/2008 | 6/30/2007 | |||||||||||||
Revenues |
$ | 785.1 | $ | 598.7 | $ | 1,484.5 | $ | 1,170.1 | |||||||||
Income from Operations |
169.0 | 53.9 | 285.4 | 104.7 | |||||||||||||
Net Income |
113.0 | 37.6 | 194.1 | 66.3 | |||||||||||||
Fully Diluted EPS |
0.78 | 0.26 | 1.34 | 0.46 | |||||||||||||
Adjusted EBITDA1 |
$ | 240.9 | $ | 111.8 | $ | 430.4 | $ | 220.3 | |||||||||
| 1/- | Adjusted EBITDA is defined and reconciled under “Reconciliation of Non-GAAP Measures” in this release. |
ST. LOUIS (July 25, 2008) — Arch Coal, Inc. (NYSE:ACI) today reported net income of $113.0
million, or $0.78 per fully diluted share, in the second quarter of 2008 compared with net income
of $37.6 million, or $0.26 per fully diluted share, in the second quarter of 2007. Income from
operations more than tripled to $169.0 million in the quarter just ended, and adjusted earnings
before interest, taxes, depreciation and amortization (“EBITDA”) more than doubled to a record
$240.9 million. The company also recorded $785.1 million in consolidated revenues during the
second quarter of 2008, an increase of more than 30 percent from the year-ago quarter.
“Arch delivered another strong earnings performance in the second quarter, achieving a
three-fold increase in net income and earnings per share,” said Steven F. Leer, Arch’s chairman and
chief executive officer. “We also beat the company’s previously established EBITDA record that was
set in the first quarter of 2008. Our solid financial results were driven by expanded operating
margins in our Central Appalachian and Western Bituminous regions, coupled with a significant
contribution from our trading and asset optimization function. Our diverse asset base helped the
company overcome the impact of weather-related challenges at our Powder River Basin operations
during the quarter just ended.”
In the first half of 2008, Arch’s net income nearly tripled to $194.1 million compared
with the first half of 2007. Over the same time period, the company earned a record $430.4
1
million in EBITDA, representing a 95 percent increase compared with the prior-year period.
“We are pleased with our performance so far in 2008,” continued Leer. “Looking ahead, we
expect continued solid execution from our Central Appalachian and Western Bituminous segments
coupled with improving fundamentals in our Powder River Basin operations.”
Arch Delivers a Strong Operational Performance Despite Challenges
“Arch’s second quarter 2008 operating results underscore the value of diversity in the
company’s asset base,” said John W. Eaves, Arch’s president and chief operating officer. “Our
mining complexes delivered strong performances in the quarter, driven by our operations in Central
Appalachia — particularly Mountain Laurel — as well as an expanded contribution from our operations
in the Western Bituminous region. Additionally, our Powder River Basin operations achieved a solid
performance in the second quarter while persevering through adverse weather conditions and rail
challenges.”
“We were successful in achieving higher price realizations across all of our operating regions
in the second quarter, particularly in our Central Appalachian and Western Bituminous regions,
where pricing reached record levels,” added Eaves. “At the same time, we remain diligently focused
on cost control across the organization in an effort to enhance margins. Managing controllable
costs remains a key priority for Arch, and we expect to build upon these efforts during the year’s
second half.”
| Arch Coal, Inc. | ||||||||||||||
| 2Q08 | 1Q08 | 2Q07 | ||||||||||||
Tons sold (in millions) |
34.4 | 34.3 | 33.3 | |||||||||||
Average sales price per ton |
$ | 21.04 | $ | 18.49 | $ | 16.42 | ||||||||
Cash cost per ton |
$ | 14.75 | $ | 13.05 | $ | 12.95 | ||||||||
Cash margin per ton |
$ | 6.29 | $ | 5.44 | $ | 3.47 | ||||||||
Total operating cost per ton |
$ | 16.83 | $ | 15.17 | $ | 14.67 | ||||||||
Operating margin per ton |
$ | 4.21 | $ | 3.32 | $ | 1.75 | ||||||||
Consolidated results may not tie to regional breakout due to rounding.
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization per ton.
Arch acts as an intermediary on certain pass-through transactions that have no
effect on company results. In addition, Arch services some legacy sales
contracts by purchasing and supplying third-party coal and records offsetting
revenue and expenses against a reserve established to account for these
transactions. These transactions are not reflected in this table. A supplemental
regional schedule for all quarters beginning with FY06 can be found at
http://investor.archcoal.com.
Consolidated average sales price per ton increased nearly 14 percent in the second quarter of
2008 when compared with the first quarter, driven by higher average price realizations across all
operating regions and a favorable regional sales mix. Consolidated per-ton operating costs
increased 11 percent over the same time period, reflecting increased volumes from higher-cost
regions as well as higher sales-sensitive and commodity-related costs. Arch’s second quarter
2008 consolidated per-ton operating margin expanded by nearly 27 percent compared with the
prior-quarter period.
2
| Powder River Basin | ||||||||||||||
| 2Q08 | 1Q08 | 2Q07 | ||||||||||||
Tons sold (in millions) |
24.8 | 25.8 | 24.9 | |||||||||||
Average sales price per ton |
$ | 11.38 | $ | 11.15 | $ | 10.51 | ||||||||
Cash cost per ton |
$ | 9.29 | $ | 8.79 | $ | 8.24 | ||||||||
Cash margin per ton |
$ | 2.09 | $ | 2.36 | $ | 2.27 | ||||||||
Total operating cost per ton |
$ | 10.44 | $ | 9.93 | $ | 9.41 | ||||||||
Operating margin per ton |
$ | 0.94 | $ | 1.22 | $ | 1.10 | ||||||||
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization per ton.
In the Powder River Basin, second quarter 2008 sales volume declined 1.0 million tons when
compared with the first quarter, due to heavy rainfall in Wyoming in May which affected production
and Midwest flooding in June which affected rail service. Average sales price per ton increased
$0.23 when compared with the first quarter of 2008, reflecting higher pricing on market
index-priced tons, while per-ton operating costs increased $0.51 over the same time period. Higher
per-ton operating costs were driven by reduced volumes as well as higher commodity-related and
sales-sensitive costs. Arch’s Powder River Basin operations contributed $0.94 per ton in operating
margin during the second quarter of 2008 compared with $1.22 per ton in the prior-quarter period.
| Western Bituminous Region | ||||||||||||||
| 2Q08 | 1Q08 | 2Q07 | ||||||||||||
Tons sold (in millions) |
5.7 | 5.1 | 5.0 | |||||||||||
Average sales price per ton |
$ | 29.91 | $ | 26.76 | $ | 24.13 | ||||||||
Cash cost per ton |
$ | 18.90 | $ | 15.92 | $ | 17.28 | ||||||||
Cash margin per ton |
$ | 11.01 | $ | 10.84 | $ | 6.85 | ||||||||
Total operating cost per ton |
$ | 22.37 | $ | 20.17 | $ | 20.35 | ||||||||
Operating margin per ton |
$ | 7.54 | $ | 6.59 | $ | 3.78 | ||||||||
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization per ton.
In the Western Bituminous region, second quarter 2008 sales volume rose by 0.6 million tons
compared with the first quarter, driven by increased shipments from Arch’s West Elk mine in
Colorado. Average sales price per ton increased $3.15 when compared with the first quarter of
2008, benefiting from a favorable mix of customer shipments and additional open market sales in the
quarter just ended. Per-ton operating costs increased $2.20 over the same time period, reflecting
higher sales-sensitive costs, increased volumes from higher-cost mines as well as the impact of an
additional longwall move in the region. Arch’s Western Bituminous operations
earned $7.54 per ton in operating margin during the second quarter of 2008, representing more
than a 14 percent increase from the prior-quarter period.
3
| Central Appalachia | ||||||||||||||
| 2Q08 | 1Q08 | 2Q07 | ||||||||||||
Tons sold (in millions) |
3.9 | 3.5 | 3.4 | |||||||||||
Average sales price per ton |
$ | 69.54 | $ | 60.73 | $ | 48.36 | ||||||||
Cash cost per ton |
$ | 43.43 | $ | 40.45 | $ | 41.04 | ||||||||
Cash margin per ton |
$ | 26.11 | $ | 20.28 | $ | 7.32 | ||||||||
Total operating cost per ton |
$ | 49.38 | $ | 46.71 | $ | 44.85 | ||||||||
Operating margin per ton |
$ | 20.16 | $ | 14.02 | $ | 3.51 | ||||||||
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization per ton.
Arch acts as an intermediary on certain pass-through transactions that have no
effect on company results. In addition, Arch services some legacy sales
contracts by purchasing and supplying third-party coal and records offsetting
revenue and expenses against a reserve established to account for these
transactions. These transactions are not reflected in this table.
In Central Appalachia, second quarter 2008 sales volume increased more than 11 percent
compared with the first quarter, primarily driven by higher production rates at several of Arch’s
operations in the region. Average sales price per ton increased $8.81 in the second quarter of
2008 when compared with the first quarter, benefiting from higher pricing on metallurgical and
steam coal sales as well as increased metallurgical coal shipments. Per-ton operating costs
increased $2.67 over the same time period, half of which is attributable to higher sales-sensitive
costs. Arch’s Central Appalachian operations earned $20.16 per ton in operating margin in the
second quarter of 2008, representing a nearly 44 percent increase from the prior-quarter period.
Continuously Improving Safety and Environmental Performance
For the first half of 2008, Arch’s operations made significant advancements in the pursuit of
safety and environmental excellence, including achieving more than a 20 percent improvement in the
company’s lost-time safety incident rate compared with Arch’s five-year average, and setting a new
company record for environmental performance. In fact, the company’s year-to-date 2008 safety and
environmental performances are again outpacing coal industry peers.
During the second quarter of 2008, Arch’s mining operations also were recognized with seven
state awards for outstanding safety practices and commitment to environmental stewardship. In
particular, the Rocky Mountain Coal Mining Institute again named Skyline as the safest underground
coal mine in the western United States based on its three-year incident rate. Furthermore, the
Utah Division of Oil, Gas and Mining recognized the Skyline and Sufco mines with 2008 Earth Day
Awards for environmental stewardship efforts.
“Each year, mine employees set the bar higher, implementing new local safety initiatives and
good neighbor practices,” said Leer. “We remain sharply focused in our efforts not only to lead
the coal mining industry, but also to make continuous improvements in the three core values
of our success — safety, environmental and financial performance.”
4
Arch Signs Selective Sales Agreements in Attractive Coal Markets
Global and domestic coal price trends accelerated during the second quarter of 2008, as price
appreciation in coal indices outpaced the large gains achieved in the first quarter. New records
were set in June as seaborne steam coal for delivery into northern Europe crossed the
$200-per-metric-tonne mark and Central Appalachian steam coal prices surpassed the
$100-per-short-ton mark. More recently, benchmark coal index price levels have retreated from
record highs, but still remain at elevated levels.
“Despite near-term volatility in financial coal markets, physical coal markets remain strong,
underpinned by favorable supply and demand fundamentals,” said Leer.
Coal index pricing levels have risen meaningfully across all of Arch’s key operating basins in
2008. Since the beginning of the year, steam coal prices for 2009 delivery have more than doubled
in Central Appalachia and the Western Bituminous region, while increasing nearly 50 percent in the
Powder River Basin.
“Given tight supply conditions and strong demand for coal globally, we have reached price
levels that are unprecedented,” said Eaves. “At the same time, we continue to believe these strong
pricing levels are sustainable over the next several years. Against this backdrop, we have chosen
to selectively sign sales commitments that will provide a solid foundation for delivering superior
returns on our asset portfolio in future years, while continuing to maintain significant exposure
to coal markets.”
In Central Appalachia, Arch committed volumes to international and domestic metallurgical coal
customers for 2008 and 2009 delivery, at average netback mine prices approaching $200 per short
ton. A substantial portion of the company’s 2009 metallurgical coal volume — and virtually all of
its metallurgical coal volume in 2010 — remains unpriced. Arch also signed selective steam coal
sales agreements for 2009 and 2010 delivery, at average pricing in the triple digits.
In the Western Bituminous region, Arch layered in sales commitments during the second quarter
of 2008 that in aggregate achieved more than a 60 percent premium to the company’s average realized
price in the region for the quarter just ended. These commitments are scheduled for delivery over
the next three years. Forward pricing in the region has continued to strengthen as the year has
progressed, which suggests that Western Bituminous supply is not keeping pace with current demand.
Consequently, Arch believes its remaining unpriced sales position in the region is even more
valuable in the marketplace.
In the Powder River Basin, Arch selectively committed and priced volumes for 2009 and 2010
delivery, at average prices that are approximately 55 percent above the company’s average realized
price in the region for the second quarter of 2008. More recently, Arch has committed additional
volume under multi-year commitments, at a 100 percent premium to the company’s second quarter 2008
average realized price in the region. Looking ahead, Arch has strategically chosen to maintain
significant leverage to the Powder River Basin market, as the company expects global and domestic
supply and demand pressures to further improve pricing in the
region.
Given recently signed sales commitments as well as reduced volume expectations for the full
year, Arch now has unpriced coal volumes of between 4 million and 8 million tons in 2008, one third
of which is already committed but not yet priced. Arch also has unpriced volumes of between 65
million and 75 million tons for 2009 delivery, and between 85 million and 95 million tons for 2010
delivery.
5
“Looking ahead, we will continue to layer in new sales contracts when we obtain attractive
returns on our asset base,” said Eaves. “However, we will remain patient and selective. We
strongly believe that our market-driven approach will provide the best long-term return for our
shareholders.”
Arch Sees Continued Strength in Coal Markets in Both Near and Long Term
Coal market trends have been favorable in 2008, setting the stage for a long-term up-cycle in
coal. According to the Edison Electric Institute, U.S. power demand for electric generation has
increased 0.6 percent year-to-date through the third week of July. Based on internal analysis,
Arch believes that domestic coal consumption for electric generation has grown approximately 1.0
percent, exceeding that of overall electric power demand in the first half of 2008.
Also, U.S. coal supply growth has been constrained in 2008 despite prevailing robust market
conditions across many U.S. coal basins. According to government estimates through the third week
of July, domestic coal production has increased 0.9 percent year-to-date. In particular, Central
Appalachian coal production has declined slightly, while Powder River Basin production growth has
slowed to 1.5 percent through the third week of July.
Furthermore, continued strength in the international coal marketplace is contributing to
strong domestic coal market conditions. Based on U.S. Department of Commerce data, coal exports
reached 32.0 million tons through May — a 56 percent increase from the prior year five-month
period. At the same time, coal imports into the United States totaled 13.3 million tons through
the first five months of the year, nearly 6 percent below the prior year-to-date import levels. As
a result, Arch now estimates a 4-million-ton decline in U.S. coal imports for 2008, while raising
its forecast for U.S. coal exports to 83 million tons, which represents a 24-million-ton increase
over last year’s improved levels.
Arch estimates that U.S. generators held 51 days of supply in coal stockpiles at the end of
June 2008, and continues to expect total stockpile levels to decline as the year progresses. In
particular, stockpile levels in the eastern United States are believed to be significantly below
year-ago levels, while western U.S. stockpiles likely remain at target levels. Looking ahead, Arch
expects western stockpiles to decline during the second half of the year.
Over the next five years, new coal-fueled plant build-outs around the world will expand the
demand for coal globally. In the United States, approximately 17.5 gigawatts of new coal-fueled
electric generating capacity are now under construction or have recently started operation,
representing an increase of 1 gigawatt since the first quarter. These plants will be phased in
during the next four years, and are expected to generate more than 62 million tons of incremental
annual coal demand. Roughly 75 percent of the new coal demand will be needed by 2010, and
more than half is likely to be supplied by Powder River Basin coal according to company
estimates. Another 7.3 gigawatts are estimated to be in advanced stages of development,
representing more than 20 million additional tons of incremental annual coal demand, to be phased
in by 2013. Arch expects the majority of these plants to be built, and believes that more proposed
plants could move into the advanced development stage during the next 12 months.
6
On a global scale, Arch estimates that a substantial amount of new coal-fueled capacity is
being planned throughout the world, particularly in Asia. Analyst estimates suggest that an
additional 1.1 billion tons of coal will be needed by 2012, essentially requiring the replication
of the U.S. coal industry during the next five years. Moreover, demand for coal used in
steel-making is projected to grow substantially in future years, with growth in seaborne
metallurgical coal demand likely to outpace any growth in seaborne supply.
“Positive trends in domestic coal markets, coupled with sustained growth in world coal
markets, are supportive of current pricing levels,” said Leer. “We also expect the current market
tightness to continue to positively influence Powder River Basin fundamentals as the year
progresses.”
Over the long term, the strengthening outlook for the advancement of Btu-conversion
technologies, such as coal-to-gas and coal-to-liquids, remains a favorable development for the coal
industry. With crude oil and natural gas trading at elevated levels, public interest in developing
affordable and domestic forms of energy has reached a tipping point. Growing public concern over
skyrocketing energy costs is focusing attention on alternative fuel sources, including
coal-to-liquids.
“We believe the advancement of coal-conversion technologies is a critical component of
America’s long-term energy plan,” said Leer. “The abundance and longevity of U.S. coal reserves -
along with continued elevated crude oil pricing and the geopolitical risk associated with the
location of major world oil and natural gas reserves — favor domestic coal use.”
“Arch’s equity interest in DKRW Advanced Fuels, a coal-to-liquids developer, may prove to be
timely,” continued Leer. “The proposed DKRW facility in southern Wyoming would convert coal from
Arch’s Carbon Basin reserves to gasoline and capture the carbon dioxide from the plant for use in
enhanced oil recovery. We believe this project — along with other announced projects within the
industry — can help America meet its goal of a secure and clean energy future.”
Arch Raises 2008 Guidance Range
Based on the company’s current expectations regarding the future direction of coal markets,
Arch is raising its 2008 guidance range as follows:
| • | Earnings per fully diluted share are expected to be in the $2.50 to $2.85 range. | |
| • | Adjusted EBITDA is expected to be in the $767 million to $853 million range. | |
| • | Sales volume from company controlled operations is now expected to be in the 133 million to 137 million ton range, excluding purchased coal from third parties. | |
| • | Capital spending is projected to remain in the $310 million to $340 million range, excluding reserve additions. | |
| • | Depreciation, depletion and amortization expense is expected to remain in the $285 million to $295 million range. |
7
| • | Arch’s full year 2008 effective income tax rate is projected to be between 11 percent and 15 percent. |
“We are on track to deliver our best earnings performance in company history during 2008,”
said Leer. “Our raised guidance range signals our confidence in coal market fundamentals and in
the company’s future growth prospects. At the same time, our reduced volume guidance — which is in
part due to weather challenges experienced at our Powder River Basin operations during the second
quarter — also reflects our commitment to manage the business for the long-term benefit of
shareholders.”
“We are in a position today to capitalize on positive secular global trends given our low-cost
operational profile and significant unpriced sales position,” continued Leer. “Additionally, we
believe Arch’s diversified and strategic national reserve base, talented and experienced workforce
and strong balance sheet have strengthened the company’s ability to earn substantial returns and to
generate significant free cash flow in future years.”
A conference call regarding Arch Coal’s second quarter 2008 financial results will be webcast
live today at 11 a.m. E.D.T. The conference call can be accessed via the “investor” section of the
Arch Coal Web site (www.archcoal.com <http://www.archcoal.com>).
St. Louis-based Arch Coal is one of the largest U.S. coal producers, with revenues of $2.4
billion in 2007. Through its national network of mines, Arch supplies cleaner-burning, low-sulfur
coal to fuel roughly 6 percent of the nation’s electricity. The company also ships coal to
domestic and international steel manufacturers as well as international power producers.
Forward-Looking Statements: This press release contains “forward-looking statements” — that is,
statements related to future, not past, events. In this context, forward-looking statements often
address our expected future business and financial performance, and often contain words such as
“expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” or “will.” Forward-looking
statements by their nature address matters that are, to different degrees, uncertain. For us,
particular uncertainties arise from changes in the demand for our coal by the domestic electric
generation industry; from legislation and regulations relating to the Clean Air Act and other
environmental initiatives; from operational, geological, permit, labor and weather-related factors;
from fluctuations in the amount of cash we generate from operations; from future integration of
acquired businesses; and from numerous other matters of national, regional and global scale,
including those of a political, economic, business, competitive or regulatory nature. These
uncertainties may cause our actual future results to be materially different than those expressed
in our forward-looking statements. We do not undertake to update our forward-looking statements,
whether as a result of new information, future events or otherwise, except as may be required by
law. For a description of some of the risks and uncertainties that may affect our future results,
you should see the risk factors described from time to time in the reports we file with the
Securities and Exchange Commission.
# # #
8
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
Condensed Consolidated Statements of Income
(In thousands, except per share data)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
Revenues |
||||||||||||||||
Coal sales |
$ | 785,117 | $ | 598,745 | $ | 1,484,467 | $ | 1,170,094 | ||||||||
Costs, expenses and other |
||||||||||||||||
Cost of coal sales |
568,483 | 482,424 | 1,082,887 | 931,754 | ||||||||||||
Depreciation, depletion and amortization |
71,953 | 57,990 | 144,995 | 115,610 | ||||||||||||
Selling, general and administrative expenses |
33,022 | 22,030 | 58,702 | 41,017 | ||||||||||||
Change in fair value of coal derivatives and coal trading activities, net |
(53,160 | ) | 287 | (83,718 | ) | (776 | ) | |||||||||
Other operating income, net |
(4,131 | ) | (17,836 | ) | (3,799 | ) | (22,224 | ) | ||||||||
| 616,167 | 544,895 | 1,199,067 | 1,065,381 | |||||||||||||
Income from operations |
168,950 | 53,850 | 285,400 | 104,713 | ||||||||||||
Interest expense, net: |
||||||||||||||||
Interest expense |
(18,721 | ) | (18,733 | ) | (39,209 | ) | (35,991 | ) | ||||||||
Interest income |
468 | 453 | 893 | 1,124 | ||||||||||||
| (18,253 | ) | (18,280 | ) | (38,316 | ) | (34,867 | ) | |||||||||
Non-operating expense |
— | (418 | ) | — | (1,320 | ) | ||||||||||
Income before income taxes |
150,697 | 35,152 | 247,084 | 68,526 | ||||||||||||
Provision for (benefit from) income taxes |
37,700 | (2,400 | ) | 52,940 | 2,250 | |||||||||||
Net income |
$ | 112,997 | $ | 37,552 | $ | 194,144 | $ | 66,276 | ||||||||
Earnings per common share |
||||||||||||||||
Basic earnings per common share |
$ | 0.78 | $ | 0.26 | $ | 1.35 | $ | 0.47 | ||||||||
Diluted earnings per common share |
$ | 0.78 | $ | 0.26 | $ | 1.34 | $ | 0.46 | ||||||||
Weighted average shares outstanding |
||||||||||||||||
Basic |
144,120 | 142,369 | 143,809 | 142,273 | ||||||||||||
Diluted |
145,049 | 143,819 | 144,823 | 143,803 | ||||||||||||
Dividends declared per common share |
$ | 0.09 | $ | 0.07 | $ | 0.16 | $ | 0.13 | ||||||||
Adjusted EBITDA (A) |
$ | 240,903 | $ | 111,840 | $ | 430,395 | $ | 220,323 | ||||||||
| (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)
Condensed Consolidated Balance Sheets
(In thousands)
| June 30, | December 31, | |||||||
| 2008 | 2007 | |||||||
| (Unaudited) | ||||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 1,161 | $ | 5,080 | ||||
Trade accounts receivables |
255,003 | 229,965 | ||||||
Other receivables |
17,946 | 19,724 | ||||||
Inventories |
177,285 | 177,785 | ||||||
Prepaid royalties |
50,311 | 22,055 | ||||||
Deferred income taxes |
71,972 | 18,789 | ||||||
Coal derivative assets |
140,977 | 7,743 | ||||||
Other |
59,847 | 40,004 | ||||||
Total current assets |
774,502 | 521,145 | ||||||
Property, plant and equipment, net |
2,650,529 | 2,463,638 | ||||||
Other assets |
||||||||
Prepaid royalties |
79,384 | 105,106 | ||||||
Goodwill |
40,032 | 40,032 | ||||||
Deferred income taxes |
225,936 | 296,559 | ||||||
Equity investments |
86,530 | 82,950 | ||||||
Other |
91,761 | 85,169 | ||||||
Total other assets |
523,643 | 609,816 | ||||||
Total assets |
$ | 3,948,674 | $ | 3,594,599 | ||||
Current liabilities |
||||||||
Accounts payable |
$ | 174,005 | $ | 150,026 | ||||
Accrued expenses |
217,284 | 188,875 | ||||||
Coal derivative liabilities |
52,410 | — | ||||||
Current maturities of debt and short-term borrowings |
376,248 | 217,614 | ||||||
Total current liabilities |
819,947 | 556,515 | ||||||
Long-term debt |
958,383 | 1,085,579 | ||||||
Asset retirement obligations |
227,609 | 219,991 | ||||||
Accrued postretirement benefits other than pension |
61,204 | 59,181 | ||||||
Accrued workers’ compensation |
40,561 | 41,071 | ||||||
Other noncurrent liabilities |
113,096 | 100,576 | ||||||
Total liabilities |
2,220,800 | 2,062,913 | ||||||
Stockholders’ equity |
||||||||
Preferred stock |
— | 1 | ||||||
Common stock |
1,447 | 1,436 | ||||||
Paid-in capital |
1,371,856 | 1,358,695 | ||||||
Retained earnings |
344,401 | 173,186 | ||||||
Accumulated other comprehensive income (loss) |
10,170 | (1,632 | ) | |||||
Total stockholders’ equity |
1,727,874 | 1,531,686 | ||||||
Total liabilities and stockholders’ equity |
$ | 3,948,674 | $ | 3,594,599 | ||||
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Condensed Consolidated Statements of Cash Flows
(In thousands)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2008 | 2007 | |||||||
| (Unaudited) | ||||||||
Operating activities |
||||||||
Net income |
$ | 194,144 | $ | 66,276 | ||||
Adjustments to reconcile to cash provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
144,995 | 115,610 | ||||||
Prepaid royalties expensed |
16,544 | 7,382 | ||||||
Gain on dispositions of property, plant and equipment |
(179 | ) | (16,772 | ) | ||||
Employee stock-based compensation expense |
6,921 | 2,675 | ||||||
Changes in: |
||||||||
Receivables |
(21,572 | ) | 27,762 | |||||
Inventories |
500 | (22,726 | ) | |||||
Coal derivative assets and liabilities |
(88,769 | ) | (712 | ) | ||||
Accounts payable and accrued expenses |
52,239 | (39,219 | ) | |||||
Deferred income taxes |
10,926 | 1,517 | ||||||
Other |
19,766 | 27,476 | ||||||
Cash provided by operating activities |
335,515 | 169,269 | ||||||
Investing activities |
||||||||
Capital expenditures |
(336,080 | ) | (330,344 | ) | ||||
Proceeds from dispositions of property, plant and equipment |
1,070 | 69,841 | ||||||
Purchases of investments and advances to affiliates |
(2,994 | ) | (4,802 | ) | ||||
Additions to prepaid royalties |
(19,079 | ) | (19,023 | ) | ||||
Reimbursement of deposits on equipment |
2,455 | 18,325 | ||||||
Cash used in investing activities |
(354,628 | ) | (266,003 | ) | ||||
Financing activities |
||||||||
Net proceeds from commercial paper and net borrowings on lines of credit |
41,016 | 121,036 | ||||||
Net payments on other debt |
(8,895 | ) | (8,125 | ) | ||||
Debt financing costs |
(219 | ) | — | |||||
Dividends paid |
(22,996 | ) | (18,680 | ) | ||||
Issuance of common stock under incentive plans |
6,288 | 1,673 | ||||||
Cash provided by financing activities |
15,194 | 95,904 | ||||||
Decrease in cash and cash equivalents |
(3,919 | ) | (830 | ) | ||||
Cash and cash equivalents, beginning of period |
5,080 | 2,523 | ||||||
Cash and cash equivalents, end of period |
$ | 1,161 | $ | 1,693 | ||||
Arch Coal, Inc. and Subsidiaries
Reconciliation of Non-GAAP Measures
(In thousands)
Reconciliation of Non-GAAP Measures
(In thousands)
Included in the accompanying release, we have disclosed certain non-GAAP measures as defined by
Regulation G. The following reconciles these items to net income as reported under GAAP.
Adjusted EBITDA:
Adjusted EBITDA is defined as net income before the effect of net interest
expense; income taxes; our depreciation, depletion and amortization; expenses resulting from early
extinguishment of debt; and other non-operating expenses.
Adjusted EBITDA is not a measure of financial performance in accordance with generally
accepted accounting principles, and items excluded to calculate Adjusted EBITDA are significant in
understanding and assessing our financial condition. Therefore, Adjusted EBITDA should not be
considered in isolation nor as an alternative to net income, income from operations, cash flows
from operations or as a measure of our profitability, liquidity or performance under generally
accepted accounting principles. We believe that Adjusted EBITDA presents a useful measure of
our ability to service and incur debt based on ongoing operations. Furthermore, analogous
measures are used by industry analysts to evaluate 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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
Net income |
$ | 112,997 | $ | 37,552 | $ | 194,144 | $ | 66,276 | ||||||||
Income tax expense (benefit) |
37,700 | (2,400 | ) | 52,940 | 2,250 | |||||||||||
Interest expense, net |
18,253 | 18,280 | 38,316 | 34,867 | ||||||||||||
Depreciation, depletion and amortization |
71,953 | 57,990 | 144,995 | 115,610 | ||||||||||||
Non-operating expense |
— | 418 | — | 1,320 | ||||||||||||
Adjusted EBITDA |
$ | 240,903 | $ | 111,840 | $ | 430,395 | $ | 220,323 | ||||||||
Reconciliation of Adjusted EBITDA to Net Income — 2008 Targets
| Targeted Results | ||||||||
| Year Ended | ||||||||
| December 31, 2008 | ||||||||
| Low | High | |||||||
| (Unaudited) | ||||||||
Net income |
$ | 363,000 | $ | 413,000 | ||||
Income tax expense |
44,000 | 75,000 | ||||||
Interest expense, net |
75,000 | 70,000 | ||||||
Depreciation, depletion and amortization |
285,000 | 295,000 | ||||||
Adjusted EBITDA |
$ | 767,000 | $ | 853,000 | ||||