Arch Coal, Inc. Reports Second Quarter 2011 Results
Arch completes acquisition of ICG Company achieves record quarterly revenues, EBITDA and cash flow Per-ton sales prices increase across all regions Company updates full year 2011 earnings guidance
ST. LOUIS, July 29, 2011 /PRNewswire/ --
Earnings Highlights
-------------------
Quarter Ended Six Months Ended
In $ millions, except
per share data 6/30/11 6/30/10 6/30/11 6/30/10
--------------------- ------- ------- ------- -------
Revenues $985.1 $764.3 $1,858.0 $1,476.2
Income from Operations 102.8 106.5 205.1 138.7
Net Income (1) 11.1 66.2 66.7 64.4
Fully Diluted EPS 0.06 0.41 0.39 0.40
----------------- -- -- -- --
Adjusted Fully Diluted
EPS (2) 0.44 0.43 0.81 0.46
Adjusted EBITDA (2) $247.8 $199.4 $439.3 $330.8
1/- Net income attributable to ACI.
2/- Defined and reconciled under 'Reconciliation of non-GAAP
measures' in the release.
Arch Coal, Inc.
today reported second quarter 2011 earnings per diluted share of $0.06 versus $0.41 in the prior-year quarter. Second quarter 2011 results include after-tax charges of $67 million that encompass acquisition-related expenses, debt financing and retirement fees for the International Coal Group ('ICG') transaction, and non-cash amortization of acquired coal supply agreements. Excluding these charges, adjusted net income for the second quarter of 2011 was $78 million, or $0.44 per diluted share.'The second quarter was a momentous one for Arch Coal - we announced, completed and made considerable progress in integrating the largest acquisition in our company's history,' said Steven F. Leer, Arch's chairman and chief executive officer. 'With this acquisition, we have expanded and strengthened Arch's value proposition - by creating a world-class global metallurgical and thermal coal franchise poised for growth - while maintaining our sharp focus on mine safety and environmental stewardship.'
Adjusted earnings before interest, taxes, depreciation, depletion and amortization ('EBITDA') rose nearly 25 percent versus the prior-year period to reach a record $248 million in the second quarter of 2011. Quarterly revenues also grew nearly 30 percent versus a year ago to hit a record $985 million, led by higher per-ton sales prices across all regions.
'Arch achieved record revenues and EBITDA in the quarter just ended - a combination of solid operating results and the addition of ICG on June 15,' said Leer. 'In particular, per-ton margins expanded meaningfully in our Appalachian and Western Bituminous regions, both of which benefitted from higher sales prices, increased volumes and lower operating costs.'
In the first half of 2011, Arch generated adjusted EBITDA of $439 million, an increase of 33 percent versus the prior-year period. Cash flow from operations increased 21 percent to $314 million for the first six months of 2011, while capital expenditures totaled $108 million, resulting in record free cash flow of $206 million year-to-date.
'Looking ahead, we have updated our full-year earnings guidance to reflect our current expectation for metallurgical and thermal coal markets, contributions from newly acquired assets, acquisition-related financing considerations and reduced volume expectations in the Powder River Basin stemming from ongoing flooding in the Midwest,' added Leer. 'We currently expect 2011 to be the company's best year yet and project a very strong second half.'
Strategic Acquisition
As previously announced, Arch completed the acquisition of ICG on June 15, 2011. The aggregate value of the transaction totaled $3.5 billion, including the redemption of ICG's outstanding debt. This acquisition establishes Arch as the second largest U.S. - and a top 10 global - metallurgical coal supplier, while creating a powerful platform for future growth in international metallurgical and thermal markets.
'We expect the addition of ICG to create tremendous value for shareholders, and we have now turned our attention to unlocking the full potential of this highly strategic acquisition,' said Leer. Based upon the milestones achieved during the first six weeks of integration, Arch has increased its annual synergy estimate to between $100 million and $120 million, starting in 2012. Roughly 65 percent of those synergies relate to operational cost savings and administrative cost reductions, and 35 percent stem from marketing and blending optimization efforts.
'The integration of ICG has been smooth and swift, and is materially complete from both an operations and administrative perspective,' said John W. Eaves, Arch's president and chief operating officer. 'We're now charged with delivering the synergies we have quantified, identifying new ways to streamline operations, further improving the combined company's cost structure, liberating incremental tons into seaborne markets and accelerating metallurgical development projects.'
Arch recorded $98 million in pre-tax acquisition-related expenses in the second quarter of 2011, comprised of advisory, bridge financing and legal fees as well as severance and other costs stemming from the integration of the operations. The company also anticipates incurring some additional expenses related to the acquisition during the third quarter of 2011.
Financial Developments
Arch financed the purchase of ICG with a combination of new debt and equity offerings completed in June, as well as borrowings under the company's amended credit facility. During the second quarter, Arch secured a $2 billion revolving credit facility, increasing the capacity from $860 million previously, and extending the term of the facility through June 2016.
Also during the second quarter, Arch issued $2.0 billion in senior notes and sold $1.3 billion in common stock to raise funds for - and maintain its credit rating after - the ICG acquisition. At June 30, 2011, Arch's debt totaled $3.8 billion, net of cash, and its net debt-to-total-capital ratio was 52 percent.
'Arch successfully executed capital markets transactions to prudently finance the ICG acquisition, retain our existing credit ratings and preserve a strong balance sheet,' said John T. Drexler, Arch's senior vice president and chief financial officer. 'Looking ahead, our ability to advance future growth projects and bring forward those cash flows, while maintaining a low-cost operating structure across our regions, should unlock further value for our stakeholders.'
Operational Results
'Our second quarter results reflect solid operating performances at our legacy and newly acquired operations,' said Eaves. 'We are capturing higher prices in each region, effectively managing our costs and seamlessly integrating ICG's operations into the fold.'
'In addition, the power of our diverse operating platform was on display in the second quarter, as strong contributions from our Appalachian and Western Bituminous segments helped to overcome the impact of Midwestern flooding, which affected planned quarterly shipments out of the Powder River Basin,' added Eaves.
Arch Coal, Inc.
2Q11 1Q11 2Q10
---- ---- ----
Tons sold (in millions) 36.7 36.2 38.1
Average sales price per ton $24.67 $22.30 $19.16
Cash cost per ton $17.17 $16.25 $14.17
Cash margin per ton $7.50 $6.05 $4.99
Total operating cost per ton $19.75 $18.55 $16.47
Operating margin per ton $4.92 $3.75 $2.69
Consolidated results may not tie to regional breakout due to
exclusion of other assets, rounding.
Operating cost per ton includes depreciation, depletion and
amortization per ton.
Amortization of acquired coal supply agreements not included in
results.
Amounts reflected in this table exclude certain coal sales and
purchases which have no effect
on company results. For further description of the excluded
transactions, please refer to
the supplemental regional schedule that can be found at
http://investor.archcoal.com/.
Second quarter 2011 consolidated operating margin per ton expanded more than 30 percent versus the first quarter, primarily due to strong performances from Arch's Western Bituminous Region and its Appalachian operations, which include the ICG mines since June 15. Average sales price per ton rose 10.6 percent, led by higher pricing in each region and a larger percentage of higher-priced tons in the company's overall volume mix. Consolidated operating costs per ton increased 6.5 percent over the same time period, reflecting the impact of lower Powder River Basin volume levels, a larger volume contribution from the company's Appalachian segment and higher sales-sensitive costs.
Powder River Basin
2Q11 1Q11 2Q10
---- ---- ----
Tons sold (in millions) 28.0 28.8 31.0
Average sales price per ton $13.70 $13.51 $11.88
Cash cost per ton $10.79 $10.26 $9.23
Cash margin per ton $2.91 $3.25 $2.65
Total operating cost per ton $12.26 $11.71 $10.67
Operating margin per ton $1.44 $1.80 $1.21
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and
amortization per ton.
Amortization of acquired coal supply agreements not included in
results.
In the Powder River Basin, second quarter 2011 operating margin per ton declined when compared with the first quarter, resulting from higher per-ton costs associated with lower shipment levels. Second quarter sales volumes were lower than expected, with 1.5 million tons lost during the quarter just ended due to the aforementioned flooding in the Midwest. Sales price increased $0.19 per ton over the same time period, while operating costs rose on the impact of lower volume levels, increased maintenance expense and higher sales-sensitive costs.
Appalachia
2Q11 1Q11 2Q10
---- ---- ----
Tons sold (in millions) 3.8 3.2 3.1
Average sales price per ton $91.41 $85.10 $73.96
Cash cost per ton $58.16 $60.57 $49.19
Cash margin per ton $33.25 $24.53 $24.77
Total operating cost per ton $66.28 $67.14 $57.10
Operating margin per ton $25.13 $17.96 $16.86
Note: Appalachia segment includes ICG operations (ex. Illinois) since
June 15, 2011.
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. These transactions are not reflected in this
table.
Second quarter 2011 operating margin per ton in Arch's newly designated Appalachian segment rose 40 percent versus the first quarter, benefiting from strong metallurgical coal markets and solid mine operating performances. Second quarter sales volumes rose nearly 20 percent versus the first quarter with the return of Mountain Laurel's longwall production in mid-April and the addition of ICG volumes. Average sales price increased $6.31 per ton over the same time period, reflecting a larger percentage of metallurgical coal shipments and higher pricing on metallurgical coal sales, offset to some degree by lower-priced steam coal sales shipped in the second quarter. Operating costs declined $0.86 per ton in the second quarter when compared with the first quarter, due to the effect of higher volume levels and the return of Mountain Laurel's longwall.
Western Bituminous Region
2Q11 1Q11 2Q10
---- ---- ----
Tons sold (in millions) 4.7 4.2 4.0
Average sales price per ton* $35.59 $34.87 $32.91
Cash cost per ton* $21.75 $23.61 $25.21
Cash margin per ton $13.84 $11.26 $7.70
Total operating cost per ton* $26.43 $28.51 $29.81
Operating margin per ton $9.16 $6.36 $3.10
*Beginning with this report, sales prices and costs in the region are
presented f.o.b.
point for all domestic customers. There is no impact to reported
cash and
operating margin per ton.
Operating cost per ton includes depreciation, depletion and
amortization per ton.
In the second quarter of 2011, operating margin in the Western Bituminous Region rose nearly 45 percent versus the first quarter to reach $9.16 per ton. Second quarter average sales price increased slightly compared with the first quarter, reflecting a more favorable mix of customer shipments, including volumes destined for the eastern U.S. and for export out of the West Elk mine in Colorado. Operating costs fell 7 percent over the same time period, due to the effect of higher volume levels and solid operational cost control.
Coal Market Trends
Arch believes coal market fundamentals continue to improve as 2011 progresses.
-- Although down modestly from record levels set earlier this year,
global metallurgical coal prices remain strong, benefiting from
continued growth in worldwide steel demand and supply constraints due
to infrastructure, transportation and geologic mine challenges.
-- Forward 2012 prices for seaborne steam coal into northern Europe are
trading above $125 per metric tonne, which should support continued
U.S. coal exports into Europe and Asia. Moreover, index prices for
Powder River Basin coal have increased more than 10 percent for
forward year deliveries since the shoulder season lows.
-- Arch projects U.S. coal exports will reach 106 million tons (including
overland shipments in North America) during 2011, an increase of 25
million tons versus 2010. In addition, Arch estimates coal imported
into the United States will continue to decline in 2011, further
tightening U.S. coal supply.
-- Domestic power demand so far in 2011 is even with last year, through
the third week of July, according to the Edison Electric Institute.
U.S. coal consumption through May has declined due to strong
contributions from other fuel sources, but is expected to increase
meaningfully during the summer burn season, particularly in light of
hot summer temperatures across much of the country in recent weeks.
-- U.S. coal production in the first half of 2011 remained essentially
flat versus a year ago, according to recently released MSHA data and
company estimates. Notably, second quarter Powder River Basin
production totaled 99 million tons, a decline of 7 million tons versus
the first quarter, likely due to rail transportation disruptions
caused by Midwest flooding. Arch also expects that shipments in the
basin will be negatively impacted in the third quarter.
-- Arch projects continued reductions in total U.S. generator coal
stockpile levels during 2011. According to government data, coal
power plant stockpiles experienced a much smaller-than-normal build in
May. Coupled with rail disruptions and warm temperatures in June and
July, Arch believes that stockpiles on a national basis could be below
the five-year average by the end of August, which should further
support domestic price levels into 2012 and beyond.
'Strengthening fundamentals have buoyed coal prices in recent weeks, especially in the PRB, and we expect that trend to continue as the year progresses,' said Leer.
Production and Sales Contract Portfolio
Arch has updated its 2011 sales volume forecast to include ICG volumes since June 15 and to take into account lower-than-expected shipments from its Powder River Basin operations due to flooding, and now forecasts the full year range to be between 160 million and 165 million tons. Arch's sales volume guidance includes tons destined for metallurgical coal markets (coking and pulverized coal injection/PCI), which the company projects will reach approximately 9 million tons in 2011, assuming roughly a half year contribution from ICG.
2011 2012
Tons Price Tons Price
---- ----- ---- -----
Powder River Basin
Committed, Priced 115.4 $13.57 81.5 $14.23
Committed, Unpriced 2.3 11.0
Appalachia
Committed, Priced (Coking/
PCI) 7.8 $121.29 0.6 $136.90
Committed, Priced (Steam) 12.1 $66.43 7.2 $67.84
Western Bituminous Region
Committed, Priced 18.0 $35.61 11.3 $38.88
----------------- ---- ------ ---- ------
'Arch committed or priced volumes across all operating regions during the second quarter, with a focus on growing our export thermal and met business,' said Eaves. 'In particular, our Appalachian commitments rose with the inclusion of ICG contracts, while our Powder River Basin commitments - approximately one-third of which were 8,400-Btu coal - reflect improving domestic thermal market conditions.'
2011 Earnings Guidance
Arch has updated its 2011 earnings guidance as follows:
-- Earnings per diluted share on a GAAP basis is projected to be between
$1.49 and $1.93, including advisory, financing and legal fees,
severance, amortization of acquired coal supply agreements and other
costs stemming from the acquisition of ICG.
-- Excluding the aforementioned charges, adjusted earnings per diluted
share would be in the range of $1.75 to $2.15.
-- Adjusted EBITDA is forecasted to be in the $1.08 billion to $1.2
billion range.
-- Capital spending is expected to be in the $480 million to $520 million
range, including $75 million to $80 million for the development of
Tygart Valley No. 1.
-- Depreciation, depletion and amortization expense (excluding non-cash
amortization of acquired coal supply agreements) is projected to be
between $452 million and $470 million.
'As mentioned, we expect Arch's shipments in the Powder River Basin to be impacted into the third quarter - with up to 4.5 million tons affected for the full year - due to flooding and rail disruptions,' said Leer. 'Despite that fact, our forecast points to a strong second half, as global markets remain strong and domestic markets appear poised to tighten further.'
'The enhanced Arch is keenly focused on integrating and managing our operations to excel in our three key areas: safety, stewardship and shareholder value,' added Leer. 'We believe Arch's expanded size, superior metallurgical and thermal coal asset base, low-cost operations and highly productive workforce will enable us to deliver substantial value over the long term.'
A conference call regarding Arch Coal's second quarter 2011 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 website (http://investor.archcoal.com/).
U.S.-based Arch Coal is a top five global coal producer and marketer, with 179 million tons of coal sold pro forma in 2010. Arch is the most diversified American coal company, with mining complexes across every major U.S. coal supply basin. Its core business is supplying cleaner-burning, low-sulfur thermal and metallurgical coal to power generators and steel manufacturers on four continents.
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.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended
June 30,
------------------
2011 2010
---- ----
(Unaudited)
Revenues
Coal sales $985,087 $764,295
Costs, expenses and other
Cost of coal sales 709,953 570,861
Depreciation, depletion and
amortization 95,183 87,759
Amortization of acquired
sales contracts, net 1,489 5,214
Selling, general and
administrative expenses 29,039 35,344
Change in fair value of coal
derivatives and coal trading
activities, net 2,672 4,587
Acquisition and transition
costs related to ICG 48,666 -
Gain on Knight Hawk
transaction - (41,577)
Other operating income, net (4,732) (4,392)
------ ------
882,270 657,796
Income from operations 102,817 106,499
Interest expense, net:
Interest expense (42,249) (35,125)
Interest income 755 623
--- ---
(41,494) (34,502)
------- -------
Other non-operating expense
Bridge financing costs
related to ICG (49,490) -
Net loss resulting from early
retirement of ICG debt (250) -
---- ---
(49,740) -
------- ---
Income before income taxes 11,583 71,997
Provision for income taxes 186 5,723
--- -----
Net income 11,397 66,274
Less: Net income attributable
to noncontrolling interest (318) (118)
Net income attributable to
Arch Coal, Inc. $11,079 $66,156
======= =======
Earnings per common share
Basic earnings per common
share $0.06 $0.41
===== =====
Diluted earnings per common
share $0.06 $0.41
===== =====
Weighted average shares
outstanding
Basic 174,244 162,388
======= =======
Diluted 175,272 163,130
======= =======
Dividends declared per common
share $0.11 $0.10
===== =====
Adjusted EBITDA (A) $247,837 $199,354
======== ========
Six Months Ended
June 30,
----------------
2011 2010
---- ----
(Unaudited)
Revenues
Coal sales $1,858,025 $1,476,169
Costs, expenses and other
Cost of coal sales 1,363,637 1,121,611
Depreciation, depletion and
amortization 178,720 176,278
Amortization of acquired
sales contracts, net 7,433 15,967
Selling, general and
administrative expenses 59,474 62,510
Change in fair value of coal
derivatives and coal trading
activities, net 888 10,464
Acquisition and transition
costs related to ICG 48,666 -
Gain on Knight Hawk
transaction - (41,577)
Other operating income, net (5,848) (7,783)
------ ------
1,652,970 1,337,470
Income from operations 205,055 138,699
Interest expense, net:
Interest expense (76,829) (70,208)
Interest income 1,501 961
----- ---
(75,328) (69,247)
------- -------
Other non-operating expense
Bridge financing costs
related to ICG (49,490) -
Net loss resulting from early
retirement of ICG debt (250) -
---
(49,740) -
------- ---
Income before income taxes 79,987 69,452
Provision for income taxes 12,716 4,948
------ -----
Net income 67,271 64,504
Less: Net income attributable
to noncontrolling interest (591) (144)
Net income attributable to
Arch Coal, Inc. $66,680 $64,360
======= =======
Earnings per common share
Basic earnings per common
share $0.40 $0.40
===== =====
Diluted earnings per common
share $0.39 $0.40
===== =====
Weighted average shares
outstanding
Basic 168,442 162,380
======= =======
Diluted 169,554 163,105
======= =======
Dividends declared per common
share $0.21 $0.19
===== =====
Adjusted EBITDA (A) $439,283 $330,800
======== ========
(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)
December
June 30, 31,
2011 2010
---- ----
(Unaudited)
Assets
Current assets
Cash and cash
equivalents $82,345 $93,593
Restricted
cash 350,966 -
Trade accounts
receivable 335,052 208,060
Other
receivables 91,064 44,260
Inventories 350,201 235,616
Prepaid
royalties 38,119 33,932
Deferred
income taxes 7,015 -
Coal
derivative
assets 12,780 15,191
Other 121,123 104,262
------- -------
Total current
assets 1,388,665 734,914
--------- -------
Property,
plant and
equipment,
net 7,726,456 3,308,892
--------- ---------
Other assets
Prepaid
royalties 94,382 66,525
Goodwill 539,963 114,963
Deferred
income taxes - 361,556
Equity
investments 207,646 177,451
Other 194,333 116,468
------- -------
Total other
assets 1,036,324 836,963
--------- -------
Total assets $10,151,445 $4,880,769
=========== ==========
Liabilities
and
Stockholders'
Equity
Current
liabilities
Accounts
payable $286,437 $198,216
Coal
derivative
liabilities 5,791 4,947
Deferred
income taxes - 7,775
Accrued
expenses and
other current
liabilities 395,020 245,411
Current
maturities of
debt and
short-term
borrowings 428,610 70,997
------- ------
Total current
liabilities 1,115,858 527,346
Long-term
debt 3,773,923 1,538,744
Asset
retirement
obligations 412,324 334,257
Accrued
pension
benefits 36,047 49,154
Accrued
postretirement
benefits
other than
pension 87,626 37,793
Accrued
workers'
compensation 65,027 35,290
Deferred
income taxes 863,970 -
Other
noncurrent
liabilities 258,261 110,234
------- -------
Total
liabilities 6,613,036 2,632,818
--------- ---------
Redeemable
noncontrolling
interest 11,032 10,444
Stockholders'
Equity
Common stock 2,127 1,645
Paid-in
capital 2,991,550 1,734,709
Treasury
stock, at
cost (53,848) (53,848)
Retained
earnings 593,896 561,418
Accumulated
other
comprehensive
loss (6,348) (6,417)
------ ------
Total
stockholders'
equity 3,527,377 2,237,507
--------- ---------
Total
liabilities
and
stockholders'
equity $10,151,445 $4,880,769
=========== ==========
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30,
----------------
2011 2010
---- ----
(Unaudited)
Operating activities
Net income $67,271 $64,504
Adjustments to reconcile to cash provided
by operating activities:
Depreciation, depletion and amortization 178,720 176,278
Amortization of acquired sales contracts,
net 7,433 15,967
Bridge financing costs related to ICG 49,490 -
Net loss resulting from early retirement
of ICG debt 250 -
Write down of assets acquired from ICG 7,316 -
Prepaid royalties expensed 19,491 16,048
Employee stock-based compensation expense 7,071 7,439
Amortization of debt financing costs 5,093 4,901
Gain on Knight Hawk transaction - (41,577)
Changes in:
Receivables (25,329) (44,057)
Inventories (37,113) 2,458
Coal derivative assets and liabilities 4,902 11,631
Accounts payable, accrued expenses and
other current liabilities 8,912 32,060
Income taxes, net (15,186) (309)
Deferred income taxes 20,873 (4,719)
Other 15,006 18,731
------ ------
Cash provided by operating activities 314,200 259,355
------- -------
Investing activities
Acquisition of ICG, net of cash acquired (2,910,380) -
Increase in restricted cash (74,814) -
Capital expenditures (107,725) (171,958)
Proceeds from dispositions of property,
plant and equipment 1,411 229
Purchases of investments and advances to
affiliates (38,059) (14,249)
Additions to prepaid royalties (25,212) (23,466)
------- -------
Cash used in investing activities (3,154,779) (209,444)
---------- --------
Financing activities
Proceeds from the issuance of senior notes 2,000,000 -
Proceeds from the issuance of common
stock, net 1,249,407 -
Payments to retire ICG debt (307,984) -
Increase in restricted cash for retirement
of ICG debt (260,663) -
Net increase (decrease) in borrowings
under lines of credit and commercial
paper program 303,096 (15,555)
Net payments on other debt (8,845) (8,249)
Debt financing costs (112,334) (437)
Dividends paid (34,192) (30,870)
Issuance of common stock under incentive
plans 846 137
Contribution from noncontrolling interest - 891
--- ---
Cash provided by (used in) financing
activities 2,829,331 (54,083)
--------- -------
Decrease in cash and cash equivalents (11,248) (4,172)
Cash and cash equivalents, beginning of
period 93,593 61,138
------ ------
Cash and cash equivalents, end of period $82,345 $56,966
======= =======
Arch Coal, Inc. and Subsidiaries
Schedule of Consolidated Debt
(In thousands)
December
June 30, 31,
2011 2010
---- ----
(Unaudited)
Commercial paper $- $56,904
Revolving credit agreement 360,000 -
9.125% senior notes ($200.0 million face value)
due 2018 250,000 -
4.00% convertible senior notes ($16.5 million
face value) due 2017 42,902 -
9.00% convertible senior notes ($18 thousand
face value) due 2012 44 -
6.75% senior notes ($450.0 million face value)
due 2013 451,294 451,618
8.75% senior notes ($600.0 million face value)
due 2016 588,029 587,126
7.25% senior notes due 2020 at par 500,000 500,000
7.00% senior notes due in 2019 at par 1,000,000 -
7.25% senior notes due 2021 at par 1,000,000 -
Other 10,264 14,093
------ ------
4,202,533 1,609,741
Less: current maturities of debt and short-term
borrowings 428,610 70,997
Long-term debt $3,773,923 $1,538,744
========== ==========
Restricted cash $350,966 $-
======== ===
Arch Coal, Inc. and Subsidiaries
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 and cash flows as
reported under GAAP.
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 and the amortization
of acquired sales contracts. Adjusted EBITDA
may also be adjusted for items that may not reflect the trend of
future results.
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. In addition, acquisition related expenses are
excluded to make results more comparable
between periods. 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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2011 2010 2011 2010
---- ---- ---- ----
(Unaudited) (Unaudited)
Net income $11,397 $66,274 $67,271 $64,504
Income
tax
expense 186 5,723 12,716 4,948
Interest
expense,
net 41,494 34,502 75,328 69,247
Depreciation,
depletion
and
amortization 95,183 87,759 178,720 176,278
Amortization of
acquired sales
contracts,
net 1,489 5,214 7,433 15,967
Acquisition and
transition
costs 48,666 - 48,666 -
Bridge
financing
costs
related to
ICG 49,490 - 49,490 -
Net loss
resulting
from early
retirement
of ICG
debt 250 - 250 -
Net income
attributable to
noncontrolling
interest (318) (118) (591) (144)
---- ---- ---- ----
Adjusted
EBITDA $247,837 $199,354 $439,283 $330,800
======== ======== ======== ========
Adjusted net income and adjusted diluted earnings per common share
Adjusted net income and adjusted diluted earnings per common share are
adjusted for the after-tax impact of acquisition
related costs and are not measures of financial performance in accordance
with generally accepted accounting
principles. We believe that adjusted net income and adjusted diluted
earnings per common share better reflect the trend of our future
results by excluding items relating to significant transactions. The
adjustments made to arrive at these measures are
significant in understanding and assessing our financial condition.
Therefore, adjusted net income and adjusted diluted earnings per
share should not be considered in isolation, nor as an alternative to net
income or diluted earnings per common share under generally
accepted accounting principles.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2011 2010 2011 2010
---- ---- ---- ----
(Unaudited) (Unaudited)
Net income
attributable
to
Arch Coal $11,079 $66,156 $66,680 $64,360
Amortization
of
acquired
sales
contracts,
net 1,489 5,214 7,433 15,967
Acquisition
and
transition
costs 48,666 - 48,666 -
Bridge
financing
costs
related to
ICG 49,490 - 49,490 -
Net loss
resulting
from
early
retirement
of ICG
debt 250 - 250 -
Tax impact
of
adjustments (33,005) (1,903) (35,205) (5,828)
------- ------ ------- ------
Adjusted net
income
attributable
to
Arch Coal $77,969 $69,467 $137,314 $74,499
======= ======= ======== =======
Diluted weighted
average shares
outstanding 175,272 163,130 169,554 163,105
======= ======= ======= =======
Diluted
earnings
per share $0.06 $0.41 $0.39 $0.40
Amortization
of
acquired
sales
contracts,
net 0.01 0.03 0.04 0.10
Acquisition
and
transition
costs 0.28 - 0.29 -
Bridge
financing
costs
related to
ICG 0.28 - 0.29 -
Net loss
resulting
from early
debt
extinguishment - - - -
Tax impact
of
adjustments (0.19) (0.01) (0.20) (0.04)
----- ----- ----- -----
Adjusted diluted
earnings per
share $0.44 $0.43 $0.81 $0.46
===== ===== ===== =====
Free Cash Flow
Free cash flow is defined as operating cash flows minus capital
expenditures and is not a measure of cash flow in accordance
with generally accepted accounting principles. We use free cash flow as a
measure of our ability to make
investments, acquisitions and payments to our debt and equity security
holders. Free cash flow should not be
considered in isolation, nor as an alternative to cash flows generated from operations.
Six Months Ended June 30,
-------------------------
2011 2010
---- ----
(Unaudited)
Cash provided by
operating
activities $314,200 $259,355
Capital
expenditures (107,725) (171,958)
-------- --------
Free cash flow $206,475 $87,397
======== =======
Reconciliation of 2011 Targets
Adjusted EBITDA
Targeted Results
Year Ended December 31, 2011
----------------------------
Low High
--- ----
(Unaudited)
Net income
attributable to
Arch Coal 284,000 369,000
Income tax expense 46,000 80,000
Interest expense,
net 224,000 221,000
Depreciation,
depletion and
amortization 452,000 470,000
Amortization of
acquired sales
contracts, net (27,000) (43,000)
Acquisition and
transition costs 51,260 53,260
Bridge financing
costs related to
ICG 49,490 49,490
Net loss resulting
from early
retirement of ICG
debt 250 250
--- ---
Adjusted EBITDA $1,080,000 $1,200,000
========== ==========
Adjusted net income and adjusted
diluted earnings per share
Targeted Results
Year Ended December 31, 2011
----------------------------
Low High
--- ----
(Unaudited)
Net income
attributable to
Arch Coal $284,000 $369,000
Amortization of
acquired sales
contracts, net (27,000) (43,000)
Acquisition and
transition costs 51,260 53,260
Bridge financing
costs related to
ICG 49,490 49,490
Net loss resulting
from early
retirement of ICG
debt 250 250
Tax impact of
adjustments (23,424) (18,244)
------- -------
Adjusted net
income
attributable to
Arch Coal $334,576 $410,756
======== ========
Diluted weighted
average shares
outstanding 191,092 191,092
======= =======
Diluted earnings
per share $1.49 $1.93
Amortization of
acquired sales
contracts, net (0.14) (0.23)
Acquisition and
transition costs 0.27 0.28
Bridge financing
costs related to
ICG 0.26 0.26
Net loss resulting
from early debt
extinguishment - -
Tax impact of
adjustments (0.13) (0.09)
----- -----
Adjusted diluted
earnings per
share $1.75 $2.15
===== =====
Arch Coal, Inc.
CONTACT: Deck S. Slone, Vice President, Government, Investor and Public
Affairs of Arch Coal, Inc., 1-314-994-2717
Web Site: http://www.archcoal.com/