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 21, 2003
(October 20, 2003)
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-13105 43-0921172
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
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
Page 1 of 5 pages.
Exhibit Index begins on page 5.
Item 7 Financial Statements, ProForma Financial Information and Exhibits.
See Exhibit Index at page 5 of this Report.
Item 9. Regulation FD Disclosure.
Item 12. Disclosure of Results of Operations and Financial Condition.
The information in this Report is being furnished under Item 9, "Regulation FD
Disclosure" and Item 12, "Disclosure of Results of Operations and Financial
Condition."
On October 20, 2003, Arch Coal, Inc. (the "Company"), announced via press
release its earnings and operating results for the third quarter of 2003. A copy
of the Company's press release is attached hereto and incorporated herein by
reference in its entirety.
The Company is also providing the following reconciliation of Adjusted
EBITDA for its Arch Western Resources, LLC subsidiary:
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ------------ --------------
(Amounts in 000's)
Net income $ 1,785 $ 2,600 $ 2,039 $ 533
Cumulative effect of accounting change - - 18,278 -
Interest expense, net 8,425 7,988 21,481 23,025
Depreciation, depletion and amortization - Arch Western
Resources 15,882 19,728 46,862 55,283
DD&A - Equity interest in Canyon Fuel Company, LLC 5,299 4,918 16,618 19,122
Other nonoperating expense 3,388 - 8,283 -
----------- ----------- ------------ --------------
Adjusted EBITDA $34,779 $ 35,234 $ 113,561 $ 97,963
=========== =========== ============ ==============
Reconciliation of net income to income before other nonoperating
expense and cumulative effect of accounting change
Net income $ 1,785 $ 2,600 $ 2,039 $ 533
Cumulative effect of accounting change - - 18,278 -
Other nonoperating expense 3,388 - 8,283 -
----------- ----------- ------------ --------------
Income before other nonoperating expense and cumulative
effect of accounting change $ 5,173 $ 2,600 $ 28,600 $ 533
=========== =========== ============ ==============
Page 2 of 5 pages.
Exhibit Index begins on page 5
Note: Adjusted EBITDA is defined as net income before the effect of net
interest expense; income taxes; our depreciation, depletion and amortization;
our equity interest in the depreciation, depletion and amortization of Canyon
Fuel Company, LLC; cumulative effect of accounting changes; and expenses
resulting from early extinguishment of debt; and mark-to market adjustments in
the value of derivative instruments.
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.
In accordance with General Instruction B.6 of Form 8-K, the information in this
Current Report on Form 8-K, including Exhibit 99, shall not be deemed filed for
the purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liability of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific reference in such a
filing.
Page 3 of 5 pages.
Exhibit Index begins on page 5.
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 20, 2003 ARCH COAL, INC.
By: /s/ Janet L. Horgan
Janet L.Horgan
Assistant General Counsel and Assistant
Secretary
Page 4 of 5 pages.
Exhibit Index begins on page 5.
EXHIBIT INDEX
Exhibit No. Description
99 Press Release dated as of October 20, 2003
Page 5 of 5 pages.
Exhibit 99
News from
Arch Coal, Inc.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION:
Deck S. Slone
Vice President,
Investor and Public Relations
(314) 994-2717
FOR IMMEDIATE RELEASE
October 20, 2003
Arch Coal, Inc. Reports Third Quarter Results
Highlights:
o Income available to common shareholders of $9.3 million, or $.18 per
share, vs. income of $1.6 million, or $.03 per share, in 3Q02
o Adjusted EBITDA of $50.9 million, vs. $59.3 million in 3Q02
o Total revenues of $370.3 million, vs. $400.8 million in 3Q02
o Coal sales of 25.3 million tons, vs. 28.7 million tons in 3Q02
St. Louis - Arch Coal, Inc. (NYSE:ACI) today reported that for its third
quarter ended September 30, 2003, the company had income available to common
shareholders of $9.3 million, or $.18 per share. Included in these results was a
net gain of $8.4 million, or $.16 per share, related to mark-to-market
adjustments and charges stemming from the recent termination of hedge accounting
for certain interest rate swap agreements. In the third quarter of 2002, Arch
had income of $1.6 million, or $.03 per share.
"During the quarter, Arch's mining operations managed costs well despite
reduced sales volumes stemming from a relatively mild summer, normally scheduled
mine vacation shutdowns and three longwall moves," said Steven F. Leer, Arch
Coal's president and chief executive officer. "Meanwhile, U.S. coal markets
began a long-awaited rally, with coal prices moving up markedly and contract
activity heating up as well."
For the nine months ended September 30, 2003, Arch Coal had a loss
available to common shareholders of $10.2 million, or $.19 per share, excluding
severance costs of $2.6 million, a $3.7 million non-cash charge related to the
cumulative effect of an accounting change resulting from the adoption of FAS
143, charges of $6.9 million related to the early extinguishment of debt and
termination of hedge accounting, and an $11.3 million gain related to
mark-to-market adjustments. That compares to a loss of $3.6 million, or $.07 per
share, during the same period of 2002. Total revenues for the nine months were
$1,122.9 million and coal sales totaled 73.6 million tons, vs. $1,143.7 million
and 78.3 million tons in the comparable period of 2002. Adjusted EBITDA totaled
$144.4 million for the first nine months of 2003, compared to $171.1 million in
the same period of 2002.
Cost control efforts
During the quarter, Arch's eastern operations recorded all-in costs of
approximately $31.40 per ton, maintaining the improvements achieved in the
second quarter despite an 11% decline in sales volumes. Arch's western
operations effectively held the line on costs as well, after a more than 4%
reduction in costs in the second quarter.
"We continue to make good progress in our efforts to manage costs at all of
our operations," Leer said. "Arch's mining operations already rank No. 1 in
productivity among major producers in both the Powder River Basin and Central
Appalachia for the most recent four quarters for which data is available.
However, we expect to enhance our competitive position still further through
additional cost reductions in coming quarters." Arch continues to pursue a very
deliberate approach to cost-reduction efforts across the corporation.
U.S. coal markets
U.S. coal prices moved up strongly during the quarter, spurred by increased
coal consumption at U.S. power plants, declining utility stockpile levels, and
the continuing rationalization in eastern coal supply.
"We continue to see many positive signs that point to a sustained rebound
in U.S. coal markets," Leer said. "During the first half of 2003, coal
consumption at U.S. power plants increased 3.7%, as utilities sought to maximize
output from coal-fired units in the face of sharply higher natural gas prices
and reduced nuclear availability."
As a result of this increased consumption, Arch projects that coal
stockpiles at U.S. power plants declined to approximately 120 million tons at
the end of September, nearly 15% lower than at the same time last year.
While the long-term outlook for increased U.S. coal production is positive,
output from eastern coalfields has declined, as producers struggle with degraded
reserve bases, high costs and a host of other pressures. Last year, U.S. coal
production declined by an estimated 3.0%, driven principally by reduced eastern
output. In 2003, that trend has continued, with total U.S. coal production down
an estimated 2.2% year to date.
"During the past 18 months, many traditional eastern coal producers have
closed mines, filed for bankruptcy protection or even exited the business," Leer
said. "We believe that this rationalization process will continue, which should
translate into a stronger pricing environment for our productive and
cost-competitive eastern operations."
Market activity
While Arch has signed commitments for a small percentage of its uncommitted
2004 and 2005 tonnage in recent weeks, the company should benefit substantially
from further movements in the market. At present, approximately 25% of Arch's
expected 2004 production and 45% of its 2005 production is open to market-based
pricing.
"We are currently in the midst of negotiations with several large
coal-burning utilities concerning tonnage for delivery in 2004 and beyond," Leer
said. "However, we feel no sense of urgency about committing the remainder of
our tonnage, and we would be very comfortable entering 2004 with a significant
open position."
With eastern low-sulfur coal production struggling, the market is likely to
need every available ton of coal in 2004, according to Leer. "After an extended
utility stockpile correction, we believe supply and demand are close to
equilibrium," Leer said.
Operating statistics
Third Quarter 2003 Regional Analysis:
Eastern Operations Western Operation Total
- ------------------------------ ----------------------------- ------------------------------ --------------------------
Tons sold (in mm) 7.2 18.0 25.3
- ------------------------------ ----------------------------- ------------------------------ --------------------------
Sales price per ton $ 30.80 $ 7.28 $14.03
- ------------------------------ ----------------------------- ------------------------------ --------------------------
Cost per ton $ 31.40 $ 6.56 $13.71
- ------------------------------ ----------------------------- ------------------------------ --------------------------
Margin $ (.60) $ .71 $ .32
- ------------------------------ ----------------------------- ------------------------------ --------------------------
Note: Western operations data do not include the results of 65%-owned Canyon Fuel Company, which is accounted for on the equity
method.
Capital Spending and DD&A (in millions):
Q3 2003 Q3 2002 FY 2003 (projected)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Capital spending $28.0 $29.6 $140
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
DD&A $44.3 $49.2 $180
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Note: Actual and projected data on capital spending and depreciation, depletion
and amortization include Arch's ownership percentage in Canyon Fuel Company.
Safety and environmental stewardship
During the quarter, several Arch Coal subsidiaries received honors for
safety and reclamation excellence. Coal-Mac's Phoenix mine was named one of the
five safest surface coal mines in 2002 by the Mine Safety and Health
Administration for working more than 300,000 employee-hours without a lost time
injury. (In 2002, Thunder Basin's Black Thunder mine won the award as the
nation's safest surface mine the previous year.) In addition, two Arch Coal
subsidiaries - Catenary Coal and Coal-Mac - received national honors for
environmental stewardship and community outreach by the National Association of
State Land Reclamationists. "We regard safety and environmental stewardship as
cornerstones of our future success, and we take great pride in the
accomplishments of our operating subsidiaries in these crucial areas of
performance," Leer said.
Looking ahead
"With the economy showing signs of renewed vigor, the prospects for
increased demand for low-cost electricity from coal appear bright," Leer said.
"We believe Arch Coal is well positioned to capitalize on this improving market
environment."
Arch currently expects earnings of between $.05 and $.15 per share in the
fourth quarter of 2003, excluding charges related to the termination of hedge
accounting and future mark-to-market adjustments.
The pending Triton acquisition should further strengthen Arch's competitive
position, Leer said. "We look forward to integrating the Triton assets into our
existing operations," he added. "We are confident that this acquisition will
enable us to take a dramatic step forward in our ability to serve our customers
and capture new cost-saving opportunities." The Triton acquisition is in the
midst of the regulatory review process.
A conference call concerning third 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).
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.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------
(Unaudited) (Unaudited)
Revenues
Coal sales $ 354,276 $ 386,298 $ 1,060,558 $ 1,103,882
Income from equity investments 5,657 1,222 28,958 2,291
Other revenues 10,343 13,235 33,428 37,523
-------------------------------------------------------
370,276 400,755 1,122,944 1,143,696
-------------------------------------------------------
Costs and expenses
Cost of coal sales 346,142 368,054 1,052,105 1,056,194
Selling, general and administrative expenses 11,082 9,734 34,845 29,675
Amortization of coal supply agreements 2,890 5,385 13,209 15,872
Other expenses 3,636 7,484 13,157 20,856
-------------------------------------------------------
363,750 390,657 1,113,316 1,122,597
-------------------------------------------------------
Income from operations 6,526 10,098 9,628 21,099
Interest expense, net:
Interest expense (13,187) (13,425) (36,407) (39,783)
Interest income 425 217 1,251 799
-------------------------------------------------------
(12,762) (13,208) (35,156) (38,984)
-------------------------------------------------------
Other non-operating income (expense):
Expenses resulting from early debt extinguishment and termination of hedge
accounting for interest rate swaps (2,066) - (6,889) -
Other non-operating income 10,441 - 11,314 -
-------------------------------------------------------
8,375 - 4,425 -
-------------------------------------------------------
Income (loss) before income taxes and cumulative effect of
accounting change 2,139 (3,110) (21,103) (17,885)
Benefit from income taxes (8,910) (4,750) (17,510) (14,250)
-------------------------------------------------------
Income (loss) before cumulative effect of accounting change 11,049 1,640 (3,593) (3,635)
Cumulative effect of accounting change, net of taxes - - (3,654) -
-------------------------------------------------------
Net income (loss) 11,049 1,640 (7,247) (3,635)
Preferred stock dividends (1,797) - (4,792) -
-------------------------------------------------------
Net income (loss) available to common shareholders $ 9,252 $ 1,640 $ (12,039) $ (3,635)
=======================================================
Earnings per common share
Earnings (loss) before cumulative effect of accounting change $ 0.18 $ 0.03 $ (0.16) $ (0.07)
Cumulative effect of accounting change - - (0.07) -
-------------------------------------------------------
Basic and diluted earnings (loss) per common share $ 0.18 $ 0.03 $ (0.23) $ (0.07)
=======================================================
Weighted average shares outstanding
Basic 52,520 52,380 52,441 52,371
Diluted 52,824 52,561 52,441 52,371
=======================================================
Dividends declared per common share $ 0.0575 $ 0.0575 $ 0.1725 $ 0.1725
=======================================================
Adjusted EBITDA (A) $ 50,871 $ 59,262 $ 144,388 $ 171,056
=======================================================
(A) Adjusted EBITDA is defined as net income before the effect of net interest
expense; income taxes; our depreciation, depletion and amortization; our equity
interest in the depreciation, depletion and amortization of Canyon Fuel Company,
LLC; cumulative effect of accounting changes; expenses resulting from early
extinguishment of debt; and mark-to-market adjustments in the value of
derivative instruments.
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
-------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------
Net income (loss) $ 11,049 $ 1,640 $ (7,247) $ (3,635)
Cumulative effect of accounting change - - 3,654 -
Benefit from income taxes (8,910) (4,750) (17,510) (14,250)
Interest expense, net 12,762 13,208 35,156 38,984
Depreciation, depletion and amortization - Arch Coal, Inc. 39,046 44,246 118,142 130,835
DD&A - Equity interest in Canyon Fuel Company, LLC 5,299 4,918 16,618 19,122
Expenses from early debt extinguishment and other nonoperating (8,375) - (4,425) -
-------------------------------------------------------
Adjusted EBITDA $ 50,871 $ 59,262 $ 144,388 $ 171,056
=======================================================
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2003 2002
-------------------------------------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 125,551 $ 9,557
Trade receivables 122,281 135,903
Other receivables 23,292 30,927
Inventories 76,496 66,799
Prepaid royalties 3,934 4,971
Deferred income taxes 27,775 27,775
Other 10,642 15,781
-------------------------------------------
Total current assets 389,971 291,713
-------------------------------------------
Property, plant and equipment, net 1,308,865 1,284,968
-------------------------------------------
Other assets
Prepaid royalties 67,678 51,078
Coal supply agreements 9,810 59,240
Deferred income taxes 245,325 221,116
Equity investments 227,274 231,551
Other 62,419 43,142
-------------------------------------------
612,506 606,127
-------------------------------------------
Total assets $ 2,311,342 $ 2,182,808
===========================================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 97,499 $ 113,527
Accrued expenses 158,074 133,287
Current portion of debt 69 7,100
-------------------------------------------
Total current liabilities 255,642 253,914
Long-term debt 700,071 740,242
Accrued postretirement benefits other than pension 344,921 324,539
Asset retirement obligations 144,112 117,804
Accrued workers' compensation 80,027 80,985
Other noncurrent liabilities 134,632 130,461
-------------------------------------------
Total liabilities 1,659,405 1,647,945
-------------------------------------------
Stockholders' equity
Preferred stock 29 -
Common stock 529 527
Paid-in capital 977,113 835,763
Retained deficit (275,038) (253,943)
Treasury stock, at cost (5,047) (5,047)
Accumulated other comprehensive loss (45,649) (42,437)
-------------------------------------------
Total stockholders' equity 651,937 534,863
-------------------------------------------
Total liabilities and stockholders' equity $ 2,311,342 $ 2,182,808
===========================================
NOTE: Certain amounts in the December 31, 2002 balance sheet have been
reclassified to conform with the classifications in the 2003 balance sheet with
no effect on previously reported stockholders' equity.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Nine Months Ended
September 30,
-----------------------------------------------
2003 2002
--------------- ---------------
(Unaudited)
Operating activities
Net loss $ (7,247) $ (3,635)
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 118,142 130,835
Prepaid royalties expensed 10,206 5,738
Accretion on asset retirement obligations 10,148 -
Net gain on disposition of assets (3,174) (501)
Income from equity investments (29,153) (2,291)
Net distributions from equity investments 32,291 15,177
Cumulative effect of accounting change 3,654 -
Other nonoperating (income) expense (4,425) -
Changes in:
Receivables 22,004 7,119
Inventories (9,446) (13,577)
Accounts payable and accrued expenses (8,146) 403
Income taxes (18,868) (14,406)
Accrued postretirement benefits other than pension 20,381 (1,597)
Asset retirement obligations (12,771) 6,650
Accrued workers' compensation benefits (958) 3,947
Other (8,382) (4,113)
--------------- ---------------
Cash provided by operating activities 114,256 129,749
--------------- ---------------
Investing activities
Additions to property, plant and equipment (91,652) (117,363)
Proceeds from dispositions of property, plant and equipment 3,325 2,231
Proceeds from coal supply agreements 52,548 -
Additions to prepaid royalties (25,768) (21,717)
--------------- ---------------
Cash used in investing activities (61,547) (136,849)
--------------- ---------------
Financing activities
Net (payments on) proceeds from revolver and lines of credit (72,202) 24,936
Payments on term loans (675,000) -
Proceeds from issuance of senior notes 700,000 -
Debt financing costs (18,246) (8,228)
Proceeds from sale and leaseback of equipment - 9,213
Reductions of obligations under capital lease - (7,778)
Dividends paid (12,647) (9,033)
Proceeds from issuance of preferred stock 139,024 -
Proceeds from sale of common stock 2,356 313
--------------- ---------------
Cash provided by financing activities 63,285 9,423
--------------- ---------------
Increase in cash and cash equivalents 115,994 2,323
Cash and cash equivalents, beginning of period 9,557 6,890
--------------- ---------------
Cash and cash equivalents, end of period $ 125,551 $ 9,213
=============== ===============
Canyon Fuel Company cash flow information (Arch Coal ownership percentage)
Depreciation, depletion and amortization 16,618 19,122
Additions to property, plant and equipment (8,483) (13,353)