Arch Coal, Inc. Reports Fourth Quarter Results
Arch Coal, Inc. Reports Fourth Quarter Results
- Income available to common shareholders of $22.1 million, or $.40 per fully diluted share, vs. net income of $1.1 million, or $.02 per fully diluted share, in 4Q02
- Adjusted EBITDA of $75.9 million, vs. $57.9 million in 4Q02
- Revenues from coal sales of $374.9 million, vs. $369.7 million in 4Q02
- Income from operations of $30.7 million, vs. $8.2 million in 4Q02
- Coal sales volumes of 27.0 million tons, vs. 28.4 million tons in 4Q02
- Total cash on hand of $254.5 million, vs. $9.6 million at Dec. 31, 2002
St. Louis - Arch Coal, Inc. (NYSE:ACI) today announced that it had income available to common shareholders of $22.1 million, or $.40 per fully diluted share, for its fourth quarter ended December 31, 2003. Excluding a net gain of $20.0 million, which includes the partial sale of the company's investment in Natural Resource Partners offset in part by a charge related to a long-term incentive compensation plan, Arch had income available to common shareholders of $2.2 million, or $.04 per fully diluted share. In the same quarter of 2002, Arch had net income of $1.1 million, or $.02 per fully diluted share.
"Arch Coal made good progress on a number of fronts during the fourth quarter," said Steven F. Leer, Arch Coal's president and chief executive officer. "We increased our cash balance to more than $250 million through the monetization of a percentage of our stake in Natural Resource Partners. We signed contracts in a rising coal market environment for much of our previously unsold tonnage for 2004, as well as committing nearly 20 million tons for delivery in 2005 and 2006. And we reduced the average mining cost per ton for the corporation as a whole, although eastern costs were up modestly compared to the previous quarter due to a 5% reduction in produced volumes in that region related to routine variations in mining rates at several operations." (Arch expects a return to normal mining rates for the first quarter of 2004.)
For the year ended December 31, 2003, Arch Coal had a net loss available to common shareholders of $9.0 million, or $.17 per fully diluted share, excluding a total of $19.0 million, or $.36 per fully diluted share, related to the full year impact of the items discussed above. That compares to a loss of $2.6 million, or $.05 per fully diluted share, during the same period of 2002. Total coal sales for the year were $1,435.5 million and coal sales volumes totaled 100.6 million tons, vs. $1,473.6 million and 106.7 million tons in the comparable period of 2002. Adjusted EBITDA totaled $220.3 million in 2003, compared to $228.9 million in 2002.
U.S. coal markets
In recent months, U.S. coal markets have strengthened markedly, particularly in the eastern United States where cold weather has recently emerged as a key driver for coal consumption after a slow start to winter.
Even without the cold, demand for coal-fired power was already on the rise - the result of a strengthening U.S. economy in general and an uptick in industrial activity in particular. Through September 30, 2003, coal consumption for electric generation was up an estimated 3%, according to the U.S. Energy Information Administration. "The resurgence in U.S. manufacturing is boosting demand for baseload power, and that means coal," Leer said.
As a result, utility stockpiles have dipped into the lower end of their five-year average range, according to recent estimates. Arch estimates that stockpiles declined to approximately 123 million tons at the end of December, 16% lower than last year. "In the near future, we expect activity in both the spot and contract markets to accelerate as power generators re-enter the market," Leer said.
In fact, the expectation of that development may already be pushing coal prices higher. The current spot price for eastern coal is approximately 40% higher than at the same time last year, according to Coal Daily's most recently published pricing indices. Spot prices for Powder River Basin coal have increased approximately 10% over the same time period, according to Coal Daily.
Arch signed a number of new commitments in the rising market environment that prevailed during the quarter. At present, Arch has signed commitments for nearly 95% of its expected 2004 production. On those already committed tons, Arch expects average realizations for the full year to increase by approximately 8% compared to 2003 levels. (Average realizations are expected to increase gradually throughout the year due to differences in the timing of the new commitments.)
Arch also signed commitments since October for approximately 10 million tons to be delivered in 2005. At present, Arch has priced approximately 65% of its expected 2005 production and 50% of its expected 2006 production. Arch has also signed contracts for approximately 700,000 tons of metallurgical coal to be delivered during 2004 and 2005.
"We are pleased with our recent contract activity, and we regard our sizable open positions in 2005 and 2006 as highly advantageous given our expectations for U.S. coal demand and pricing in the near to intermediate term," Leer said.
Natural Resource Partners
During the quarter, Arch strengthened its balance sheet and greatly increased its liquidity through the previously announced sale of its 4.8 million subordinated units, general partner interest and incentive distribution rights in Natural Resource Partners for a purchase price of $115 million. The sale was part of a long-term effort to monetize the value of certain non-strategic, fee-based royalty properties previously undervalued on the company's balance sheet.
"The sale of the NRP units provides us with tremendous financial flexibility as we continue to prepare for the acquisition of Triton Coal Company," Leer said. "Our balance sheet is the strongest it has been since 1998, when we purchased Arco Coal Company. With our large cash balance, net debt as a percent of total capitalization currently stands at 40% -- down from 83% at the beginning of 2000."
Arch continues to hold 2.9 million common units of NRP, which have a current market value of $118 million at close of market at Jan. 27, 2004. The Triton acquisition is currently undergoing review by the Federal Trade Commission.
Award-winning reclamation and safety practices
Arch received a number of prestigious honors for its industry-leading safety and reclamation practices during 2003. For the third year in a row, an Arch Coal subsidiary - Arch of West Virginia - claimed the Greenlands Award for best mine reclamation in the state of West Virginia. In addition, Ducks Unlimited awarded Catenary Coal with the 2003 West Virginia Wetlands Award for its outstanding accomplishments in the creation and preservation of wetlands habitat.
Moreover, two Arch subsidiaries - Hobet Mining and Coal-Mac, Inc. - received Mountaineer Guardian awards "for their determined and successful efforts in producing energy from within a safe working environment." Overall, Arch reduced its total incident rate by 14% during 2003.
"We regard excellence in safety and environmental performance as defining characteristics of our organization, and the foundation upon which our future success will be built," Leer said.
"The outlook for U.S. coal markets is strong," Leer said. "We believe there is great potential for increased profitability in the future, driven in large part by the ongoing expiration of older, lower-priced contracts."
During 2004, Arch will begin to benefit from the replacement of legacy contracts with new commitments signed in the current market environment, according to Leer. Arch currently expects profits of between $.08 and $.12 in the first quarter, excluding charges related to the termination of hedge accounting for interest rate swaps. (Note: First quarter projections include approximately $1.5 million in severance costs related to the previously announced closure of Canyon Fuel Company's Skyline mine in Utah.) The company expects stronger results in subsequent quarters.
A conference call concerning fourth quarter earnings will be webcast live today at 11 a.m. Eastern. The conference call can be accessed via the "investor" section of the Arch Coal Web site (www.archcoal.com).
During the fourth quarter, the conditions necessary for the conversion option in Arch's cumulative convertible preferred stock to become exercisable were met. As a result, beginning with the fourth quarter, the impact of the preferred shares must be considered in the calculation of fully diluted weighted average shares outstanding.
Arch Coal is the nation's second largest coal producer, with subsidiary operations in West Virginia, Kentucky, Virginia, Wyoming, Colorado and Utah. Through these operations, Arch Coal provides the fuel for approximately 6% of the electricity generated in the United States.
Forward-Looking Statements: Statements in this press release which are not statements of historical fact are forward-looking statements within the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on information currently available to, and expectations and assumptions deemed reasonable by, the company. Because these forward-looking statements are subject to various risks and uncertainties, actual results may differ materially from those projected in the statements. These expectations, assumptions and uncertainties include: the company's expectation of continued growth in the demand for electricity; belief that legislation and regulations relating to the Clean Air Act and the relatively higher costs of competing fuels will increase demand for its compliance and low-sulfur coal; expectation of continued improved market conditions for the price of coal; expectation that the company will continue to have adequate liquidity from its cash flow from operations, together with available borrowings under its credit facilities, to finance the company's working capital needs; a variety of operational, geologic, permitting, labor and weather related factors; and the other risks and uncertainties which are described from time to time in the company's reports filed with the Securities and Exchange Commission.