Arch Coal, Inc. Reports Third Quarter 2009 Results
Download XLS Earnings Highlights
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In $ millions, except per Quarter Ended Nine Months Ended
share data 9/30/09 9/30/08 9/30/09 9/30/08
------------------------ ------- ------- ------- -------
Revenues $615.0 $769.5 $1,850.6 $2,253.9
Income from Operations 48.3 87.9 94.2 373.9
Net Income(1) 25.2 97.8 40.6 292.0
Fully Diluted EPS 0.16 0.68 0.28 2.02
----------------- ---- ---- ---- ----
Adjusted EBITDA(2) $120.6 $159.9 $314.4 $590.3
(1)/- Net income attributable to ACI.
(2)/- Adjusted EBITDA is defined and reconciled under "Reconciliation of
Non-GAAP Measures" in this release.
"Arch's third quarter financial results reflect an improved performance over the second quarter," said
For the first nine months of 2009, Arch earned net income of
Strategic Acquisition
As previously announced, Arch completed the acquisition of Rio Tinto's
"The acquisition of
"The integration process has been smooth and swift to date, and we remain on target for complete integration during the fourth quarter," said Leer. "This acquisition will allow us to reduce the expanded operation's average cost structure, improve coal quality optimization, boost our operational flexibility and increase output as market conditions warrant."
"Looking ahead, this acquisition supplements our existing low-cost assets and reserves in the PRB and further positions the company to capitalize on improving coal market fundamentals as 2010 progresses," continued Leer.
During the fourth quarter of 2009, Arch expects to record roughly
Financial Developments
During the third quarter of 2009, Arch issued new debt and equity, with net proceeds from those transactions totaling nearly
Arch ended the third quarter of 2009 with
"Arch's successful capital markets transactions helped to pre-finance the
Operational Results
"Our mines turned in good operational performances in the third quarter of 2009 when compared with the second quarter, with each region achieving an increase in per-ton operating margin and demonstrating effective cost management," said
Arch Coal, Inc.
3Q09 2Q09 3Q08
---- ---- ----
Tons sold (in millions) 29.1 27.4 34.8
Average sales price per ton $20.05 $19.43 $20.38
Cash cost per ton $15.75 $16.26 $14.59
Cash margin per ton $4.30 $3.17 $5.79
Total operating cost per ton $18.19 $18.74 $16.65
Operating margin per ton $1.86 $0.69 $3.73
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.
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.
Consolidated tons sold and average sales price per ton increased modestly in the third quarter of 2009 compared with the second quarter, reflecting a larger sales percentage of Western Bituminous and Central Appalachian tons in the company's overall sales mix. Third quarter 2009 consolidated per-ton operating costs declined 3 percent over the same time period, benefiting from cost containment across the company's operating segments. Arch's consolidated operating margin expanded nearly three-fold in the third quarter of 2009 compared with the second quarter.
Powder River Basin
3Q09 2Q09 3Q08
---- ---- ----
Tons sold (in millions) 21.5 21.3 26.2
Average sales price per ton $12.26 $12.56 $11.21
Cash cost per ton $10.04 $10.54 $9.27
Cash margin per ton $2.22 $2.02 $1.94
Total operating cost per ton $11.31 $11.84 $10.41
Operating margin per ton $0.95 $0.72 $0.80
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and
amortization.
In the
Western Bituminous Region
3Q09 2Q09 3Q08
---- ---- ----
Tons sold (in millions) 4.6 3.5 5.1
Average sales price per ton $29.08 $29.93 $26.76
Cash cost per ton $20.70 $26.06 $19.01
Cash margin per ton $8.38 $3.87 $7.75
Total operating cost per ton $25.57 $31.49 $22.69
Operating margin per ton $3.51 ($1.56) $4.07
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and
amortization.
In the Western Bituminous region, third quarter 2009 volumes increased 1.1 million tons versus the second quarter, reflecting increased shipments among the operations in
Central Appalachia
3Q09 2Q09 3Q08
---- ---- ----
Tons sold (in millions) 3.0 2.7 3.5
Average sales price per ton $62.44 $60.66 $78.95
Cash cost per ton $49.32 $49.26 $47.56
Cash margin per ton $13.12 $11.40 $31.39
Total operating cost per ton $56.50 $57.30 $54.11
Operating margin per ton $5.94 $3.36 $24.84
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and
amortization.
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.
In Central Appalachia, third quarter 2009 volumes increased moderately compared with the second quarter, reflecting higher shipment levels of metallurgical, pulverized coal injection (PCI) and steam coal tons. Average price realizations rose by
Coal Market Trends
Arch believes that coal markets are in the early stages of recovery after having suffered a record decline in coal consumption during 2009. Specifically:
-- Improving global and domestic steel utilization is translating into
increased demand for U.S. metallurgical grade coal. As seen in prior
market cycles, strong metallurgical coal markets create a spillover
effect on steam markets as high-quality steam coal migrates to
metallurgical coal markets to meet rising demand.
-- A resumption of economic growth in Asia has fueled increased coal
consumption in that region. In addition, ongoing supply constraints in
traditional coal exporting nations should again help further tighten
seaborne coal supply. These shifting trends in global seaborne coal
supply flows will likely create opportunities for increased U.S.
metallurgical and steam coal exports over time into both the Atlantic
and Pacific markets.
-- While natural gas storage levels remain well above historical averages,
the significant decline in rig counts along with under-investment across
the natural gas sector and the prospect for recovery in industrial
demand have increased natural gas futures prices to well above $5 per
million Btu in 2010, which should reverse the trend of coal-to-gas
switching.
-- While Arch estimates U.S. power demand will decline 4 percent in 2009 -
due to one of the mildest summers on record in major coal consuming
regions as well as significant declines in industrial demand stemming
from the global recession - the company believes coal consumption could
grow again in 2010 even if power demand increases only modestly. In
particular, Arch expects coal to regain ground lost temporarily to
competing fuels such as nuclear, hydro and natural gas, considering the
start of nuclear refueling cycles, more normal weather patterns and
higher natural gas price futures.
-- An estimated 55 million tons of additional domestic coal will be
demanded by the new U.S. coal-fueled power plants coming online between
2009 and 2012.
-- Arch estimates total domestic coal supply will fall by roughly 100
million tons in 2009, with declines in nearly all coal producing basins.
In particular, Arch believes Central Appalachia is on pace to produce
200 million tons of coal in 2009, with a fourth quarter annualized run
rate of below 190 million tons. Rationalization of high-cost coal
mines, continued regulatory and permitting challenges and the roll-off
of high-priced contracts should further reduce production in that region
during 2010.
"While we are seeing improvement in met markets and in the underlying global and domestic economies, high stockpiles at U.S. generators will likely dampen steam coal markets in the first half of 2010," said Leer. "Thus, we will continue to implement our company strategy of matching production levels to our expectations of market demand, which we believe is in the best interest of our shareholders. We will also retain the flexibility to respond to improving coal market fundamentals, which we believe will occur during the course of 2010 and 2011."
Sales Contract Portfolio
Including volume from
Given revised volume levels and limited sales commitments signed in the third quarter, Arch is now fully committed and priced for 2009. Based on 2009 production levels, the company has uncommitted volumes of 15 million to 25 million tons in 2010, and uncommitted volumes of 80 million to 90 million tons in 2011. In addition, Arch has roughly 10 million tons of coal committed but not yet priced in 2010 and approximately 15 million tons committed but not yet priced in 2011.
"During the third quarter, we sold additional volumes into met markets, putting us on target to sell 2 million tons into met and pulverized coal injection markets in 2009," said Eaves. "Additionally, we successfully shipped another vessel of steam coal to
"Our priorities for 2010 will be to more than double our sales of met and PCI coal, compete in the seaborne steam markets on an opportunistic basis, patiently market our uncommitted sales position and remain focused on profitably managing our business through a potentially muted 2010 domestic steam coal market," added Eaves.
2009 Guidance
Including the integration of
-- Sales volume from company-controlled operations in the 121 million to
125 million ton range, excluding purchased coal from third parties.
-- Earnings per fully diluted share in the $0.28 to $0.43 range. The
company's 2009 earnings per share estimate includes an expected $15
million of acquisition-related expenses ($0.06 per share) for Jacobs
Ranch , and an estimated $16 million of non-cash intangible asset charges
($0.07 per share) related to above-market sales contract amortization
stemming from the Jacobs Ranch acquisition that is expected to be
recorded in the fourth quarter.
-- Adjusted EBITDA in the $449 million to $490 million range. EBITDA
estimates exclude the impact of acquisition-related expenses for Jacobs
Ranch .
-- Capital spending in the $160 million to $170 million range, excluding
reserve additions.
-- Depreciation, depletion and amortization expense in the $314 million to
$322 million range.
"In light of the 'Great Recession' of 2009, we're pleased to be profitably managing through a severe downturn in energy markets," said Leer. "We are also seeing domestic and global economies begin to transition from recession to recovery. With the addition of the former
"Looking ahead, it's our view that ongoing supply constraints here at home and around the world - coupled with a rebound in energy demand globally - will exert upward pressure on coal prices over the long term. We intend to manage our business accordingly. Arch is strategically positioned as the nation's second largest coal producer to service the expected growth in coal demand both domestically and abroad."
A conference call discussing
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
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenues
Coal sales $614,957 $769,458 $1,850,609 $2,253,925
Costs, expenses and other
Cost of coal sales 489,290 567,372 1,503,937 1,650,259
Depreciation, depletion
and amortization 71,468 72,185 212,986 217,180
Selling, general and
administrative expenses 24,029 22,235 70,770 80,937
Change in fair value
of coal derivatives
and coal trading
activities, net (3,342) 18,382 (10,328) (65,336)
Costs related to acquisition
of Jacobs Ranch 791 - 7,166 -
Other operating expense
(income), net (15,617) 1,354 (28,141) (2,993)
------- ----- ------- ------
566,619 681,528 1,756,390 1,880,047
------- ------- --------- ---------
Income from operations 48,338 87,930 94,219 373,878
Interest expense, net:
Interest expense (29,791) (17,019) (70,466) (56,228)
Interest income 399 235 7,284 1,128
--- --- ----- -----
(29,392) (16,784) (63,182) (55,100)
------- ------- ------- -------
Income before income
taxes 18,946 71,146 31,037 318,778
Provision for (benefit from)
income taxes (6,270) (26,881) (9,590) 26,059
------ ------- ------ ------
Net income 25,216 98,027 40,627 292,719
Less: Net (income) loss
attributable to
noncontrolling
interest (31) (179) 11 (727)
--- ---- --- ----
Net income attributable
to Arch Coal, Inc. $25,185 $97,848 $40,638 $291,992
======= ======= ======= ========
Earnings per common share
Basic earnings per
common share $0.16 $0.68 $0.28 $2.03
===== ===== ===== =====
Diluted earnings per
common share $0.16 $0.68 $0.28 $2.02
===== ===== ===== =====
Weighted average shares
outstanding
Basic 155,622 144,035 147,122 143,885
======= ======= ======= =======
Diluted 156,005 144,898 147,332 144,848
======= ======= ======= =======
Dividends declared per
common share $0.09 $0.09 $0.27 $0.25
===== ===== ===== =====
Adjusted EBITDA (A) $120,566 $159,936 $314,382 $590,331
======== ======== ======== ========
(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)
September 30, December 31,
2009 2008
---- ----
(Unaudited)
Assets
Current assets
Cash and cash equivalents $840,293 $70,649
Trade accounts receivable 173,994 215,053
Other receivables 20,662 43,419
Inventories 237,293 191,568
Prepaid royalties 25,711 43,780
Deferred income taxes 33,830 52,918
Coal derivative assets 23,721 43,173
Other 45,539 45,818
------ ------
Total current assets 1,401,043 706,378
--------- -------
Property, plant and equipment, net 2,745,469 2,703,083
--------- ---------
Other assets
Prepaid royalties 83,722 66,918
Goodwill 46,832 46,832
Deferred income taxes 302,377 294,682
Equity investments 90,306 87,761
Other 124,189 73,310
------- ------
Total other assets 647,426 569,503
------- -------
Total assets $4,793,938 $3,978,964
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $129,048 $186,322
Coal derivative liabilities 5,640 10,757
Accrued expenses and other current
liabilities 166,448 249,203
Current maturities of debt and short-term
borrowings 195,333 213,465
------- -------
Total current liabilities 496,469 659,747
Long-term debt 1,692,167 1,098,948
Asset retirement obligations 270,642 255,369
Accrued pension benefits 63,904 73,486
Accrued postretirement benefits other than
pension 40,566 58,163
Accrued workers' compensation 27,706 30,107
Other noncurrent liabilities 80,473 65,526
------ ------
Total liabilities 2,671,927 2,241,346
--------- ---------
Redeemable noncontrolling interest 8,940 8,885
Stockholders' Equity
Common stock 1,643 1,447
Paid-in capital 1,718,088 1,381,496
Treasury stock, at cost (53,848) (53,848)
Retained earnings 479,025 478,734
Accumulated other comprehensive loss (31,837) (79,096)
------- -------
Total stockholders' equity 2,113,071 1,728,733
--------- ---------
Total liabilities and stockholders'
equity $4,793,938 $3,978,964
========== ==========
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
September 30,
-------------
2009 2008
---- ----
(Unaudited)
Operating activities
Net income $40,627 $292,719
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 212,986 217,180
Prepaid royalties expensed 24,140 27,161
Gain on dispositions of property,
plant and equipment (81) (178)
Employee stock-based compensation expense 10,253 9,768
Changes in:
Receivables 63,785 (29,646)
Inventories (45,725) 3,923
Coal derivative assets and liabilities 21,911 (57,929)
Accounts payable, accrued expenses and
other current liabilities (74,607) 28,821
Deferred income taxes (15,165) 8,067
Other 8,319 8,208
----- -----
Cash provided by operating activities 246,443 508,094
------- -------
Investing activities
Capital expenditures (280,033) (414,125)
Proceeds from dispositions of property,
plant and equipment 806 1,069
Purchases of investments and advances to
affiliates (10,353) (4,359)
Additions to prepaid royalties (22,874) (19,429)
Reimbursement of deposits on equipment 3,209 2,697
----- -----
Cash used in investing activities (309,245) (434,147)
-------- --------
Financing activities
Proceeds from the issuance of long-term debt 584,784 -
Proceeds from the sale of common stock 326,452 -
Purchases of treasury stock - (47,932)
Net increase in borrowings under lines of credit
and commercial paper program 4,345 50,882
Net payments on other debt (13,276) (10,995)
Debt financing costs (29,596) (233)
Dividends paid (40,347) (35,989)
Issuance of common stock under incentive plans 84 6,306
--- -----
Cash provided by (used in)
financing activities 832,446 (37,961)
------- -------
Increase in cash and cash equivalents 769,644 35,986
Cash and cash equivalents, beginning of period 70,649 5,080
------ -----
Cash and cash equivalents, end of period $840,293 $41,066
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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 as reported under GAAP.
Adjusted EBITDA:
Adjusted EBITDA is defined as net income before the effect of net interest
expense, income taxes and our depreciation, depletion and amortization;
less the income or loss of subsidiaries attributable to noncontrolling
interests.
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, certain one-time events
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 Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited)
Net income $25,216 $98,027 $40,627 $292,719
Income tax expense
(benefit) (6,270) (26,881) (9,590) 26,059
Interest expense, net 29,392 16,784 63,182 55,100
Depreciation,
depletion and
amortization 71,468 72,185 212,986 217,180
Costs related to
acquisition of Jacobs
Ranch 791 - 7,166 -
(Income) loss
attributable to
noncontrolling
interest (31) (179) 11 (727)
--- ---- --- ----
Adjusted EBITDA $120,566 $159,936 $314,382 $590,331
======== ======== ======== ========
Reconciliation of Adjusted EBITDA to Net Income - 2009 Targets
Targeted Results
Year Ended
December 31, 2009
-----------------
Low High
--- ----
(Unaudited)
Net income attributable to Arch
Coal, Inc. $42,000 $65,000
Income tax benefit (20,000) (8,000)
Interest expense, net 98,000 96,000
Depreciation, depletion and
amortization 314,000 322,000
Costs related to acquisition
of Jacobs Ranch 15,000 15,000
------ ------
Adjusted EBITDA $449,000 $490,000
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