UNITED STATES
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): October 27, 2008 (October 27, 2008)
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) | (IRS Employer Identification No.) |
| CityPlace One 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
| (Former name or former address if changed since last report.) |
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 October 27, 2008, Arch Coal, Inc. (the “Company”) issued a press release containing its third 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 October 27, 2008 announcing third 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: October 27, 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 October 27, 2008 announcing third quarter 2008 results. |
Exhibit 99.1
News from Arch Coal, Inc. |
 |
FOR FURTHER INFORMATION:
Deck S. Slone
Vice President, Government, Investor and Public Affairs
314/994-2717
Deck S. Slone
Vice President, Government, Investor and Public Affairs
314/994-2717
FOR IMMEDIATE RELEASE
Arch Coal, Inc. Reports Third Quarter 2008 Results
Earnings per share more than triple from prior-year quarter;
EBITDA expands by nearly 50% versus the year-ago quarter;
Company forecasts record financial results for calendar year 2008
Earnings per share more than triple from prior-year quarter;
EBITDA expands by nearly 50% versus the year-ago quarter;
Company forecasts record financial results for calendar year 2008
Earnings Highlights
| Quarter Ended | Nine Months Ended | |||||||||||||||
| In $ millions, except per share data | 9/30/2008 | 9/30/2007 | 9/30/2008 | 9/30/2007 | ||||||||||||
Revenues |
$ | 769.5 | $ | 599.2 | $ | 2,253.9 | $ | 1,769.2 | ||||||||
Income from Operations |
87.8 | 49.8 | 373.2 | 154.5 | ||||||||||||
Net Income |
97.8 | 27.3 | 292.0 | 93.6 | ||||||||||||
Fully Diluted EPS |
0.68 | 0.19 | 2.02 | 0.65 | ||||||||||||
Adjusted EBITDA1 |
$ | 159.9 | $ | 108.5 | $ | 590.3 | $ | 328.8 | ||||||||
| 1/- | Adjusted EBITDA is defined and reconciled under “Reconciliation of Non-GAAP Measures” in this release. |
ST. LOUIS (October 27, 2008) – Arch Coal, Inc. (NYSE:ACI) today reported third quarter 2008
net income of $97.8 million, or $0.68 per fully diluted share, compared with $27.3 million, or
$0.19 per fully diluted share, in the prior-year period. The company earned $87.8 million in
income from operations, representing a 76 percent increase from the third quarter of 2007.
Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) rose 47 percent
from the year-ago quarter to reach $159.9 million. Arch also recorded $769.5 million in
consolidated revenues, a 28 percent increase from the prior-year period.
“Arch Coal continued to deliver strong operating results in the third quarter, with
substantial increases in our key earnings metrics – EPS, operating income and EBITDA,” said Steven
F. Leer, Arch’s chairman and chief executive officer. “All operating regions contributed to this
success – particularly Central Appalachia, whose per-ton operating margin expanded nearly
nine-fold from the year-ago quarter.”
Arch’s trading and optimization function reported an $18.4 million loss in the third quarter
of 2008, which was more than offset by a $26.9 million income tax benefit for the three months
ended September 30, 2008. During the third quarter, Arch reached a settlement with the Internal
Revenue Service (“IRS”) related to the company’s 1998 acquisition of its western assets, triggering
the release of the company’s remaining valuation allowance in the quarter just ended. The company
anticipates that the settlement will reduce cash taxes during the next several years.
1
For the first nine months of 2008, Arch’s net income more than tripled, and income from
operations more than doubled, when compared with the first nine months of 2007. Over the same time
period, the company earned a record $590.3 million in EBITDA, representing an 80 percent increase
from the prior-year period.
“Despite a near-term softening of coal demand, we remain on pace to deliver our best financial
performance in company history,” said Leer. “Our EBITDA contribution thus far in 2008 has
surpassed Arch’s annual record EBITDA set in 2006. Also, the company’s year-to-date export sales
already exceed last year’s total – and will extend from the East Coast, Gulf of Mexico and now
West Coast ports.”
“Looking ahead, we continue to expect a strong financial performance in 2009 despite a weaker
global economic environment,” added Leer. “Dynamic market conditions should continue to benefit
our strong Central Appalachian and Western Bituminous operations given broad industry supply
challenges in those regions. Also, increased competition for Powder River Basin coal from eastern
U.S. generators, new coal power plant start-ups and international customers should help to improve
market fundamentals in that region as next year unfolds.”
Arch Takes Steps to Strengthen Balance Sheet and Enhance Shareholder Value
“Given the unprecedented economic events that have unfolded since July, we are pleased to
report strong operating cash flows in the third quarter and for the first nine months of 2008,”
said John T. Drexler, Arch’s senior vice president and chief financial officer. “We also made
select financial decisions in the quarter that will benefit the company and our shareholders –
namely strengthening our cash and credit position in response to the financial crisis, as well as
repurchasing company stock during this volatile period in U.S. financial markets.”
In response to tightening credit conditions in financial markets, the company elected to
increase its cash position, which totaled $41 million at September 30, while reducing its
debt-to-total-capital ratio to 43 percent. The company also generated $508 million in operating
cash flow during the first nine months of 2008, more than a 90 percent improvement from the
prior-year period. At September 30, Arch had roughly $660 million of committed total liquidity,
comprised of cash on hand and approximately $620 million available to be borrowed under its bank
facility and accounts receivable securitization program.
Arch also repurchased 1.5 million shares of its outstanding common stock at an average price
of $35.62 per share in the third quarter of 2008. These repurchases were funded by operating cash
flows. Since the company’s board authorized the 14-million-share common stock repurchase program
in September 2006, Arch has repurchased a total of 3.1 million shares.
In September, Standard & Poor’s Rating Services raised its corporate credit rating on Arch
Coal to BB. This upgrade reflects the agency’s expectation of Arch’s strengthening credit profile
and potential for significant free cash flow generation in coming years.
2
Arch’s Operations Execute a Solid Quarterly Performance
“Arch’s operations ran well and overcame challenges in the third quarter,” said John W. Eaves,
Arch’s president and chief operating officer. “In particular, our Central Appalachian segment
achieved record quarterly results, benefiting from strong metallurgical and steam coal pricing.
Our results demonstrate the ability to effectively manage through ongoing challenges, including
cost inflation, extended longwall moves and weakening market conditions in the Powder River Basin,
driven by milder summer weather and a slowing U.S. economy.”
“Going forward, we will continue to execute a market-driven strategy, which seeks to match
production levels to our best estimate of market demand,” continued Eaves. “As a result, we have
elected to idle a dragline and a shovel at our Powder River Basin operations in the fourth quarter.
We believe this operating decision – along with continued rigorous cost control – will create
long-term value for our shareholders.”
| Arch Coal, Inc. | ||||||||||||
| 3Q08 | 2Q08 | 3Q07 | ||||||||||
Tons sold (in millions) |
34.8 | 34.4 | 34.0 | |||||||||
Average sales price per ton |
$ | 20.38 | $ | 21.04 | $ | 16.02 | ||||||
Cash cost per ton |
$ | 14.59 | $ | 14.75 | $ | 12.44 | ||||||
Cash margin per ton |
$ | 5.79 | $ | 6.29 | $ | 3.58 | ||||||
Total operating cost per ton |
$ | 16.65 | $ | 16.83 | $ | 14.15 | ||||||
Operating margin per ton |
$ | 3.73 | $ | 4.21 | $ | 1.87 | ||||||
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.
During the third quarter of 2008, consolidated average sales price per ton declined $0.66,
while consolidated per-ton operating costs declined $0.18 compared with the second quarter,
resulting from a higher percentage of Powder River Basin coal in the company’s overall volume mix.
Consolidated per-ton operating margin doubled from the year-ago quarter to reach $3.73 in the third
quarter of 2008; however, operating margin declined $0.48 per ton compared with the record $4.21
per ton earned during the second quarter of 2008.
| Powder River Basin | ||||||||||||
| 3Q08 | 2Q08 | 3Q07 | ||||||||||
Tons sold (in millions) |
26.2 | 24.8 | 25.9 | |||||||||
Average sales price per ton |
$ | 11.21 | $ | 11.38 | $ | 10.66 | ||||||
Cash cost per ton |
$ | 9.27 | $ | 9.29 | $ | 8.25 | ||||||
Cash margin per ton |
$ | 1.94 | $ | 2.09 | $ | 2.41 | ||||||
Total operating cost per ton |
$ | 10.41 | $ | 10.44 | $ | 9.41 | ||||||
Operating margin per ton |
$ | 0.80 | $ | 0.94 | $ | 1.25 | ||||||
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization per ton.
3
In the Powder River Basin, Arch’s third quarter 2008 sales volume increased 1.4 million tons
compared with the second quarter, as rail service rebounded from severe weather events that
hampered shipments in the prior-quarter period. Average sales price per ton declined $0.17 over
the same time period, primarily reflecting lower premiums on Arch’s contract portfolio due to the
decreased value of sulfur-dioxide emission allowances. Third quarter 2008 per-ton operating costs
declined slightly versus the second quarter, as the benefit of higher volume levels and
cost-control efforts offset ongoing operating cost pressures. Arch’s Powder River Basin segment
earned $0.80 per ton in operating margin in the third quarter of 2008 versus $0.94 per ton in the
prior-quarter period.
| Western Bituminous Region | ||||||||||||
| 3Q08 | 2Q08 | 3Q07 | ||||||||||
Tons sold (in millions) |
5.1 | 5.7 | 5.1 | |||||||||
Average sales price per ton |
$ | 26.76 | $ | 29.91 | $ | 25.16 | ||||||
Cash cost per ton |
$ | 19.01 | $ | 18.90 | $ | 17.38 | ||||||
Cash margin per ton |
$ | 7.75 | $ | 11.01 | $ | 7.78 | ||||||
Total operating cost per ton |
$ | 22.69 | $ | 22.37 | $ | 20.73 | ||||||
Operating margin per ton |
$ | 4.07 | $ | 7.54 | $ | 4.43 | ||||||
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization per ton.
In the Western Bituminous region, third quarter 2008 sales volume declined more than 10
percent compared with the second quarter due to two longwall moves in the region. Average sales
price per ton declined $3.15 over the same time period, reflecting fewer open market sales and a
less favorable mix of customer shipments. Third quarter 2008 per-ton operating costs increased
$0.32 compared with the prior-quarter period, as the impact of lower volumes and the cost of the
longwall moves more than offset the benefit of lower sales-related costs and cost-control efforts.
Arch’s Western Bituminous operations earned $4.07 per ton in operating margin in the third quarter
of 2008 compared with $7.54 per ton earned in the prior-quarter period.
| Central Appalachia | ||||||||||||
| 3Q08 | 2Q08 | 3Q07 | ||||||||||
Tons sold (in millions) |
3.5 | 3.9 | 3.0 | |||||||||
Average sales price per ton |
$ | 78.95 | $ | 69.54 | $ | 46.41 | ||||||
Cash cost per ton |
$ | 47.56 | $ | 43.43 | $ | 39.87 | ||||||
Cash margin per ton |
$ | 31.39 | $ | 26.11 | $ | 6.54 | ||||||
Total operating cost per ton |
$ | 54.11 | $ | 49.38 | $ | 43.55 | ||||||
Operating margin per ton |
$ | 24.84 | $ | 20.16 | $ | 2.86 | ||||||
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, third quarter 2008 sales volume declined 0.4 million tons compared with
the second quarter. Average sales price per ton increased $9.41 over the same time period,
benefiting from higher pricing on metallurgical and pulverized coal injection (“PCI”) sales. Third
quarter 2008 per-ton operating costs rose $4.73 versus the second quarter, driven by higher
sales-sensitive costs as well as the impact of lower volumes attributable to the traditional third
quarter miner-vacation period. Arch’s Central Appalachian segment earned a record operating margin
of $24.84 per ton in the third quarter of 2008, a 23 percent increase from the prior-quarter
period.
4
Arch Signs Attractive Domestic and Export Sales Agreements in Third Quarter
Coal index pricing across Arch’s key operating basins declined in the third quarter of 2008
compared with the second quarter, but remains substantially above year-ago levels. Forward year
steam coal index pricing has more than doubled for the Central Appalachian and Western Bituminous
regions, and has risen 80 percent for the Powder River Basin, since the third quarter of 2007.
“While coal index pricing has declined from the record highs experienced during the first half
of 2008, forward year index levels remain strong and represent a meaningful improvement from Arch’s
third quarter average realization levels,” said Eaves. “More importantly, the physical contract
market remains well above the paper index market. As a result, Arch is well positioned to
capitalize on this continuing pricing strength as we seek to place our remaining uncommitted
volumes.”
During the third quarter of 2008, Arch signed sales commitments for meaningful volumes of
Powder River Basin coal for 2009 delivery at average prices nearly 60 percent above – and for 2010
delivery at average prices more than 80 percent above – the company’s average realized price in the
region in the third quarter of 2008. Arch also increased shipments to non-traditional and
traditional Powder River Basin customers to test and increase burn of its coal in the quarter just
ended. In addition, the company has entered into an agreement to begin testing its Powder River
Basin coal in Chinese power plants, with shipments arranged off the West Coast.
Also during the third quarter, Arch signed selective sales agreements in Central Appalachia
for PCI coal for 2009 delivery, at average netback mine prices in the range of $175 to $195 per
short ton. In recent weeks, the company also selectively committed coal into metallurgical markets
for 2009 delivery, at average netback mine prices above $200 per short ton. Additionally, in the
Western Bituminous region, Arch entered into sales agreements for modest volumes for 2009 delivery,
at more than 2.5 times the company’s average realized price in the region during the third quarter
of 2008.
Based on Arch’s current expected production during the next two years, the company now has
unpriced volumes of 30 million to 40 million tons in 2009 and 75 million to 85 million tons in
2010.
“The attractive price levels signed during the quarter should help to expand Arch’s future
profitability,” said Eaves. “We’ve also begun executing our strategy to unlock additional value
from the Powder River Basin. Increasing market penetration further East, diversifying the customer
base to include international – and specifically Asian – players, and building an export platform
for future growth remain our key priorities for 2009.”
“At the same time, we will remain patient in signing contracts, preferring to leave our
low-cost reserves in place for future development if expected returns are not satisfactory,” added
Eaves. “This strategy should provide the best long-term value for our shareholders.”
5
Long-Term Market Fundamentals Remain Intact Despite Near-Term Trends
Milder weather patterns and slowing U.S. economic activity have impacted coal consumption in
2008. On the domestic demand side, the Edison Electric Institute estimates that year-to-date
electric power demand has declined approximately 1.0 percent through the third week of October.
This decline reflects cooler weather trends affecting major coal consuming regions this summer,
along with weaker economic conditions in the country’s industrial and commercial segments. Arch
estimates that year-to-date coal consumption for power generation has declined roughly 0.5 percent
through September 30.
On the supply-side, year-to-date U.S. coal production has increased approximately 13 million
tons through the third week of October, according to government estimates. Nearly one-half of the
estimated production increase is attributable to Central Appalachia, where further production
increases are being hampered by severe cost pressures and labor challenges, regulatory hurdles and
difficult geologic conditions, as demonstrated by recent announcements of production cutbacks and
force majeures in the region.
U.S. generator coal stockpile levels are now estimated to have reached 145 million tons at the
end of September 2008 – a 51-day supply – compared with 144 million tons, or a 50-day supply, in
the year-ago time period.
However, Arch believes U.S. coal industry fundamentals remain intact despite near-term trends.
The company estimates that U.S. coal exports should reach nearly 80 million tons in 2008, while
coal imports into the United States will likely plateau at 34 million tons. Based on actual
figures released by the U.S. Department of Commerce through August, annualized 2008 net coal
exports represent roughly double the year-ago levels.
Additionally, Arch estimates that approximately 15.5 gigawatts of new coal-fueled capacity are
under construction in the United States, equating to more than 55 million tons of new coal demand
annually. These plants will come online during the next four years, with more than 60 percent of
the capacity online by the end of 2010. These figures exclude nearly 2 gigawatts that have come
online during 2008.
“While our current near-term coal demand forecast is below our earlier expectations – driven
by milder weather and economic concerns – we remain confident in the favorable long-term
fundamentals of the coal industry,” said Leer. “Growing coal consumption around the globe is
likely to continue to outpace supply growth, presenting an opportunity for the United States to
increase its net coal exports. Furthermore, demand growth from new coal plants coming online in
the U.S. represents a major growth driver over the next five years. Lastly, coal remains the most
abundant and economical fuel source to meet America’s growing energy needs and to help make our
energy supply secure for future generations.”
Arch Maintains Focus on Core Values
Arch’s focus on safety and environmental excellence has shown continued progress throughout
2008. Through the end of the third quarter, Arch’s lost-time incident rate marked nearly an 11
percent improvement from its industry-leading 2007 lost-time incident rate, and is on track to
deliver one of the best safety performances in company history. Also, Arch’s year-to-date 2008
environmental performance represents more than a 40 percent improvement from its industry-leading
2007 mark, and could set a new company record in environmental compliance.
6
Also during the third quarter, two of Arch’s subsidiaries – Coal-Mac in Central Appalachia and
Thunder Basin’s Black Thunder mine in the Powder River Basin – were honored with national Good
Neighbor Awards by the U.S. Department of Interior for demonstrating the nation’s best stewardship
practices of the past year. Arch Coal subsidiaries have earned five national Good Neighbor Awards
since the program was established in 2003. The Black Thunder mine also won the 28th
Annual International Surface Mine Rescue competition held in August.
“We’re pleased that our exemplary stewardship practices and community involvement were
recognized at the national level,” said Leer. “Our goal is to continuously improve in three core
areas – safety, environmental stewardship and financial performance. We believe that adherence to
these values will ultimately translate into superior shareholder return over the long term.”
Arch Lowers Earnings Guidance Range for 2008
Based on the company’s current expectations, Arch is adjusting its 2008 guidance range as
follows:
| • | We anticipate 2008 sales volume from company-controlled operations to be in the 132 million to 135 million ton range, excluding purchased coal from third parties. | |
| • | Earnings per fully diluted share are expected to be in the $2.30 to $2.55 range. | |
| • | Adjusted EBITDA is expected to be in the $726 million to $781 million range. | |
| • | 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 be in the $287 million to $292 million range. | |
| • | Arch’s 2008 effective income tax rate is projected to be in the 10 percent to 13 percent range. |
“Despite our reduced earnings guidance, we continue to expect 2008 to be a record year for
Arch,” said Leer. “We have positioned the company to perform well in weak and robust market cycles
given our scale and diversity of operations, low-cost asset base, extensive reserve position and
strong balance sheet. While the credit crisis in financial markets will pose challenges for many
companies, it may also create opportunities for companies like Arch that have solid liquidity,
stable capital requirements and expected cash flow growth.”
“Looking ahead, we remain committed to following a market-driven strategy, with a goal of
matching our production levels with market demand, while leaving the remainder of our valuable,
low-cost reserves in place for future development,” continued Leer. “This strategy is the right
decision for the company and our shareholders, and has helped deliver superior operating results
over the complete market cycle.”
7
“We also believe that the long-term outlook for U.S. coal remains bright,” added Leer. “While
there will be cycles of short-term demand destruction coupled with supply challenges and
rationalization, we believe the secular uptrend in global energy markets remains intact.
Industrialization in developing countries along with continued economic growth in developed nations
will create immense challenges in bringing sufficient world energy supplies to market, helping to
exert continued upward pressure on commodity prices – and on coal in particular.”
A conference call regarding Arch Coal’s third 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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
Revenues |
||||||||||||||||
Coal sales |
$ | 769,458 | $ | 599,151 | $ | 2,253,925 | $ | 1,769,245 | ||||||||
Costs, expenses and other |
||||||||||||||||
Cost of coal sales |
567,372 | 476,434 | 1,650,259 | 1,408,188 | ||||||||||||
Depreciation, depletion and amortization |
72,185 | 58,628 | 217,180 | 174,238 | ||||||||||||
Selling, general and administrative expenses |
22,235 | 18,868 | 80,937 | 59,885 | ||||||||||||
Change in fair value of coal derivatives and coal trading activities, net |
18,382 | (541 | ) | (65,336 | ) | (1,317 | ) | |||||||||
Other operating expense (income), net |
1,533 | (4,062 | ) | (2,266 | ) | (26,286 | ) | |||||||||
| 681,707 | 549,327 | 1,880,774 | 1,614,708 | |||||||||||||
Income from operations |
87,751 | 49,824 | 373,151 | 154,537 | ||||||||||||
Interest expense, net: |
||||||||||||||||
Interest expense |
(17,019 | ) | (17,151 | ) | (56,228 | ) | (53,142 | ) | ||||||||
Interest income |
235 | 513 | 1,128 | 1,637 | ||||||||||||
| (16,784 | ) | (16,638 | ) | (55,100 | ) | (51,505 | ) | |||||||||
Non-operating expense |
— | (806 | ) | — | (2,126 | ) | ||||||||||
Income before income taxes |
70,967 | 32,380 | 318,051 | 100,906 | ||||||||||||
Provision for (benefit from) income taxes |
(26,881 | ) | 5,100 | 26,059 | 7,350 | |||||||||||
Net income |
$ | 97,848 | $ | 27,280 | $ | 291,992 | $ | 93,556 | ||||||||
Earnings per common share |
||||||||||||||||
Basic earnings per common share |
$ | 0.68 | $ | 0.19 | $ | 2.03 | $ | 0.66 | ||||||||
Diluted earnings per common share |
$ | 0.68 | $ | 0.19 | $ | 2.02 | $ | 0.65 | ||||||||
Weighted average shares outstanding |
||||||||||||||||
Basic |
144,035 | 142,627 | 143,885 | 142,392 | ||||||||||||
Diluted |
144,898 | 144,151 | 144,848 | 143,920 | ||||||||||||
Dividends declared per common share |
$ | 0.09 | $ | 0.07 | $ | 0.25 | $ | 0.20 | ||||||||
Adjusted EBITDA (A) |
$ | 159,936 | $ | 108,452 | $ | 590,331 | $ | 328,775 | ||||||||
| (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)
| September 30, | December 31, | |||||||||||||||
| 2008 | 2007 | |||||||||||||||
| (Unaudited) | ||||||||||||||||
Assets |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
$ | 41,066 | $ | 5,080 | ||||||||||||
Trade accounts receivables |
260,564 | 229,965 | ||||||||||||||
Other receivables |
24,963 | 19,724 | ||||||||||||||
Inventories |
173,862 | 177,785 | ||||||||||||||
Prepaid royalties |
52,662 | 22,055 | ||||||||||||||
Deferred income taxes |
89,164 | 18,789 | ||||||||||||||
Coal derivative assets |
86,545 | 7,743 | ||||||||||||||
Other |
42,839 | 40,004 | ||||||||||||||
Total current assets |
771,665 | 521,145 | ||||||||||||||
Property, plant and equipment, net |
2,655,884 | 2,463,638 | ||||||||||||||
Other assets |
||||||||||||||||
Prepaid royalties |
66,767 | 105,106 | ||||||||||||||
Goodwill |
46,832 | 40,032 | ||||||||||||||
Deferred income taxes |
224,448 | 296,559 | ||||||||||||||
Equity investments |
86,866 | 82,950 | ||||||||||||||
Other |
89,105 | 85,169 | ||||||||||||||
Total other assets |
514,018 | 609,816 | ||||||||||||||
Total assets |
$ | 3,941,567 | $ | 3,594,599 | ||||||||||||
Liabilities |
||||||||||||||||
Current liabilities |
||||||||||||||||
Accounts payable |
$ | 200,891 | $ | 150,026 | ||||||||||||
Accrued expenses |
181,067 | 188,875 | ||||||||||||||
Coal derivative liabilities |
23,544 | — | ||||||||||||||
Current maturities of debt and short-term borrowings |
385,566 | 217,614 | ||||||||||||||
Total current liabilities |
791,068 | 556,515 | ||||||||||||||
Long-term debt |
956,490 | 1,085,579 | ||||||||||||||
Asset retirement obligations |
231,352 | 219,991 | ||||||||||||||
Accrued postretirement benefits other than pension |
62,227 | 59,181 | ||||||||||||||
Accrued workers’ compensation |
39,467 | 41,071 | ||||||||||||||
Other noncurrent liabilities |
111,206 | 100,576 | ||||||||||||||
Total liabilities |
2,191,810 | 2,062,913 | ||||||||||||||
Stockholders’ equity |
||||||||||||||||
Preferred stock |
— | 1 | ||||||||||||||
Common stock |
1,447 | 1,436 | ||||||||||||||
Paid-in capital |
1,378,633 | 1,358,695 | ||||||||||||||
Treasury stock, at cost |
(53,848 | ) | — | |||||||||||||
Retained earnings |
429,254 | 173,186 | ||||||||||||||
Accumulated other comprehensive loss |
(5,729 | ) | (1,632 | ) | ||||||||||||
Total stockholders’ equity |
1,749,757 | 1,531,686 | ||||||||||||||
Total liabilities and stockholders’ equity |
$ | 3,941,567 | $ | 3,594,599 | ||||||||||||
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Condensed Consolidated Statements of Cash Flows
(In thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2008 | 2007 | |||||||
| (Unaudited) | ||||||||
Operating activities |
||||||||
Net income |
$ | 291,992 | $ | 93,556 | ||||
Adjustments to reconcile to cash provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
217,180 | 174,238 | ||||||
Prepaid royalties expensed |
27,161 | 8,452 | ||||||
Gain on dispositions of property, plant and equipment |
(178 | ) | (17,658 | ) | ||||
Employee stock-based compensation expense |
9,768 | 4,050 | ||||||
Changes in: |
||||||||
Receivables |
(29,646 | ) | 43,877 | |||||
Inventories |
3,923 | (22,908 | ) | |||||
Coal derivative assets and liabilities |
(57,929 | ) | (2,543 | ) | ||||
Accounts payable and accrued expenses |
28,821 | (76,275 | ) | |||||
Deferred income taxes |
8,067 | 6,382 | ||||||
Other |
8,935 | 53,211 | ||||||
Cash provided by operating activities |
508,094 | 264,382 | ||||||
Investing activities |
||||||||
Capital expenditures |
(414,125 | ) | (423,885 | ) | ||||
Proceeds from dispositions of property, plant and equipment |
1,069 | 69,860 | ||||||
Purchases of investments and advances to affiliates |
(4,359 | ) | (5,152 | ) | ||||
Additions to prepaid royalties |
(19,429 | ) | (19,373 | ) | ||||
Reimbursement of deposits on equipment |
2,697 | 18,325 | ||||||
Cash used in investing activities |
(434,147 | ) | (360,225 | ) | ||||
Financing activities |
||||||||
Net proceeds from commercial paper and net borrowings on lines of credit |
50,882 | 134,108 | ||||||
Net payments on other debt |
(10,995 | ) | (10,408 | ) | ||||
Debt financing costs |
(233 | ) | (139 | ) | ||||
Dividends paid |
(35,989 | ) | (28,725 | ) | ||||
Purchases of treasury stock |
(47,932 | ) | — | |||||
Issuance of common stock under incentive plans |
6,306 | 1,873 | ||||||
Cash provided by (used in) financing activities |
(37,961 | ) | 96,709 | |||||
Increase in cash and cash equivalents |
35,986 | 866 | ||||||
Cash and cash equivalents, beginning of period |
5,080 | 2,523 | ||||||
Cash and cash equivalents, end of period |
$ | 41,066 | $ | 3,389 | ||||
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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
Net income |
$ | 97,848 | $ | 27,280 | $ | 291,992 | $ | 93,556 | ||||||||
Income tax expense (benefit) |
(26,881 | ) | 5,100 | 26,059 | 7,350 | |||||||||||
Interest expense, net |
16,784 | 16,638 | 55,100 | 51,505 | ||||||||||||
Depreciation, depletion and amortization |
72,185 | 58,628 | 217,180 | 174,238 | ||||||||||||
Non-operating expense |
— | 806 | — | 2,126 | ||||||||||||
Adjusted EBITDA |
$ | 159,936 | $ | 108,452 | $ | 590,331 | $ | 328,775 | ||||||||
Reconciliation of Adjusted EBITDA to Net Income — 2008 Targets
| Targeted Results | ||||||||
| Year Ended | ||||||||
| December 31, 2008 | ||||||||
| Low | High | |||||||
| (Unaudited) | ||||||||
Net income |
$ | 333,000 | $ | 370,000 | ||||
Income tax expense |
36,000 | 54,000 | ||||||
Interest expense, net |
70,000 | 65,000 | ||||||
Depreciation, depletion and amortization |
287,000 | 292,000 | ||||||
Adjusted EBITDA |
$ | 726,000 | $ | 781,000 | ||||