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): April 22, 2004
(April 21, 2004)
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 the 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 April 21, 2004, Arch Coal, Inc. (the "Company"), announced via press
release its earnings and operating results for the first quarter of 2004. 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:
Arch Western Resources, LLC
Three Months Ended
Reconciliation of net income to adjusted EBITDA March 31
------------------------------------
2004 2003
---------------- -------------------
(Amounts in 000's)
Net income (loss) $ 922 $ (10,167)
Cumulative effect of accounting change - 18,278
Interest expense, net 9,198 6,578
Depreciation, depletion and amortization - Arch
Western Resources 16,636 14,865
DD&A - Equity interest in Canyon Fuel Company, LLC 4,390 5,493
Other nonoperating expense 3,388 -
---------------- -------------------
Adjusted EBITDA $ 34,534 $ 35,047
================ ===================
Reconciliation of net income to income before other
nonoperating expense and cumulative effect of accounting
change
Net income $ 922 $ (10,167)
Cumulative effect of accounting change - 18,278
Other nonoperating expense 3,388 -
---------------- -------------------
Income before other nonoperating expense and
cumulative effect of accounting change $ 4,310 $ 8,111
================ ===================
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: April 22, 2004 ARCH COAL, INC.
By: /s/ Robert G. Jones
Robert G. Jones
Vice President - Law,
General Counsel and Secretary
Page 4 of 5 pages.
Exhibit Index begins on page 5.
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------
99 Press Release dated as of April 22, 2004
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
April 21, 2004
Arch Coal, Inc. Reports First Quarter Results
Earnings per fully diluted share increases to $1.14
Coal sales revenues increase 23% vs. same period in 2003
Adjusted EBITDA totals $147.4 million vs. $38.7 million in 1Q03
Excluding special items, earnings per fully diluted share climbs to $0.14
Debt to total capitalization ratio improves to 47%
Cash balance grows to $323.0 million
St. Louis - Arch Coal, Inc. (NYSE:ACI) today announced that it had income
available to common shareholders of $68.2 million, or $1.14 per fully diluted
share, for its first quarter ended March 31, 2004. Included in the company's
first quarter results were certain gains related to the sale of a significant
portion of the company's remaining interest in Natural Resource Partners (NRP),
as well as charges related to severance costs at the soon-to-be-idled Skyline
Mine and the termination of hedge accounting for interest rate swaps.
Excluding these items, Arch had income available to common shareholders of
$7.7 million, or $0.14 per fully diluted share, for the first quarter of 2004.
(See the attached table for a more complete reconciliation.) During the same
period of 2003, Arch recorded a net loss available to common shareholders of
$18.0 million, or $0.34 per fully diluted share, which included the cumulative
effect of an accounting change resulting from the adoption of FAS 143,
"Accounting for Asset Retirement Obligations."
"As expected, higher average realizations in both the east and west led to
improved margins and stronger overall results during the first quarter," said
Steven F. Leer, Arch Coal's president and chief executive officer. "These
results were supported by a solid overall performance by our mining operations
despite challenges related to rail service."
The March disposition of most of the company's remaining stake in Natural
Resource Partners was another highlight of the quarter, according to Leer. "In a
period of just 18 months, Arch has been able to convert non-strategic assets
valued at $85 million on its balance sheet into proceeds of nearly $250
million," he said. Arch ended the quarter with a cash balance of $323.0 million.
The results for the quarter include the effects of implementing FASB Staff
Position FAS 106-b "Accounting and Disclosure Requirements related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003" (FAS
106-b) in anticipation of its ratification by the Financial Accounting Standards
Board (FASB) in April 2004. Implementation of FAS 106-b resulted in a reduction
in Arch's postretirement benefit obligation of $68 million and a reduction in
its anticipated 2004 postretirement medical expenses of $18.1 million. Of this
amount, $4.5 million is reflected in Arch's results of operations for the
quarter ended March 31, 2004. If the FASB does not ratify the pronouncement
prior to the company's filing of its quarterly financial statements on Form
10-Q, Arch will revise its quarterly results to exclude its impact. The impact
of this implementation offsets the effects of changes to other actuarial
assumptions incorporated at the beginning of the year.
U.S. coal markets strengthened further during the quarter
During the quarter, U.S. coal markets benefited from a strengthening
economy, declining utility stockpiles and continuing pressure on natural gas
supplies. Through the first three months of 2004, U.S. power output increased
approximately 2.8% compared to the comparable period in 2003, according to
Edison Electric Institute, due in part to increased industrial activity. Based
on recent trends, it appears likely that coal consumption is increasing at an
even faster pace than electric generation. As a result, Arch estimates that
stockpiles at U.S. power plants declined by more than 15% during the quarter,
despite entering January at relatively low levels. In addition, the rebound in
global steel demand has boosted requirements for metallurgical coal.
"We believe the drivers are in place for a long and sustained period of
growth in U.S. coal demand," Leer said.
Although Arch entered the year with the vast majority of its expected first
quarter output already committed and priced, the company benefited from strong
pricing on the small volume of coal it had available for spot sales. Arch
directed some of that coal into metallurgical markets, with metallurgical
shipments increasing by approximately 200,000 tons, or 50%, compared to the same
period of last year. At present, Arch expects metallurgical sales to exceed 2.5
million tons for 2004, or roughly double the level of last year.
Arch continues to have unpriced tonnage for delivery in the second half of
2004, due in part to ongoing efforts to add incremental production at the
company's eastern operations. "With a relatively modest investment, we believe
we can add approximately 500,000 tons of incremental production at our eastern
mines this year," Leer said. As a result of these efforts, Arch has raised its
2004 forecast for capital spending from $160 million to approximately $185
million.
Arch continues to have significant volumes open to market-based pricing in
2005 and 2006. At present, Arch has priced approximately 65% of its expected
output for 2005, and approximately 50% of its expected output for 2006.
As for the remainder of 2004, Arch still has nearly 5% of its expected
production yet to be priced based on expected levels of production and rail
availability.
NRP sale enhances financial condition
In March, Arch sold 2.6 million of its 2.9 million common units in Natural
Resource Partners in a private transaction for $100 million. The transaction,
which resulted in a gain of approximately $81.5 million, nearly completes a
multi-phased effort to unlock the value of certain non-strategic assets that had
been undervalued on the company's balance sheet.
"Through this effort which began with the formation of Natural Resource
Partners in October 2002, we believe we have created tremendous value for our
shareholders, while greatly enhancing Arch's financial flexibility," Leer said.
Arch still holds approximately 279,000 shares of NRP, which had a market
value of approximately $10.5 million based on the closing price of NRP on April
20.
Arch is currently in its strongest financial condition since it acquired
its western assets in July 1998. Arch's debt to total capitalization has
declined by 37 points in the past three years and currently stands at 47%.
Arch's net debt to total capitalization - which reflects the corporation's
current cash balance of $323.0 million - now stands at just 33%.
"We are in an excellent position to grow in a marketplace that is likely to
create many exciting opportunities in the years ahead," Leer said. "We are
particularly excited about the potential for internal growth on our large and
strategic reserve base."
Arch plans to defend Triton acquisition in court
In early April, the Federal Trade Commission filed a lawsuit in federal
district court to block Arch's proposed acquisition of Triton Coal Company. Arch
continues to view the acquisition of Triton as pro-competitive and plans to
defend the transaction in court.
"We believe that the FTC incorrectly excluded from its analysis the fact
that competition in the coal business is intense," Leer said. "Coal companies
must work tirelessly to reduce costs and improve productivity in order to
survive in this challenging marketplace, which includes hundreds of competitors
in many different coal supply regions. Consumers of electricity are the clear
beneficiaries of this effort to continuously improve."
The hearing is scheduled to begin on June 21 in U.S. District Court. "We
look forward to presenting the facts in court," Leer said.
Operating statistics
First Quarter 2004 Regional Analysis:
Eastern Operations Western Operations Total
1Q 04 1Q 03 1Q 04 1Q 03 1Q 04 1Q 03
Tons sold (in mm) 7.5 6.8 18.3 15.9 25.8 22.7
Sales price per ton1 $33.06 $29.89 $7.80 $7.09 $15.15 $13.94
Operating cost per ton1,2 $30.25 $29.50 $7.07 $6.68 $13.84 $13.56
Operating margin per ton $ 2.81 $ 0.39 $0.73 $0.41 $ 1.31 $ 0.38
Note: Western operations data do not include the results of 65%-owned Canyon
Fuel Company, which is accounted for on the equity method.
(1) Per ton realizations and costs as detailed above exclude transportation
costs that are billed to customers. Eastern transportation costs totaled $10.4
million in the first quarter of 2004 and $9.0 million in the first quarter of
2003. Western transportation costs totaled $1.5 million in the first quarter of
2004 and $2.4 million in the first quarter of 2003.
(2) Per ton costs detailed above exclude postretirement medical costs totaling
$13.8 million in the first quarter of 2004 and $14.7 million in the first
quarter of 2003.
Capital Spending and DD&A (in millions):
Q1 2004 Q1 2003 FY 2004 (proj.)
Capital spending $33.5 $50.8 $185
DD&A $40.5 $45.0 $180
Note: Data on capital spending and depreciation, depletion and amortization
include Arch's ownership percentage in Canyon Fuel Company. Projected capital
spending and DD&A do not include Triton Coal Company, other potential
acquisitions or reserve additions.
Looking ahead
During 2004, Arch expects to benefit significantly from higher average
sales prices in both the east and west, despite the fact that the vast majority
of its expected output was committed and priced prior to the recent
strengthening in coal markets. "We believe Arch has great potential for higher
levels of profitability over the course of the next several years, as an
increasing percentage of our contracts expire and is repriced in the prevailing
market environment," Leer said.
For the second quarter of 2004, Arch expects profits of between $0.20 and
$0.30 per fully diluted share, excluding charges related to the termination of
hedge accounting for interest rate swaps. The company expects each quarter of
2004 to be stronger than the last, due principally to the timing of when new
commitments were signed.
A conference call concerning first 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 one of the nation's largest coal producers, 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
March 31
-----------------------------------
2004 2003
---------------- ------------------
(Unaudited)
Revenues
Coal sales $ 403,490 $ 327,390
Costs and expenses
Cost of coal sales 383,191 333,639
Selling, general and administrative expenses 15,626 11,873
Amortization of coal supply agreements 610 5,793
Other expenses 5,773 4,549
---------------- ------------------
405,200 355,854
---------------- ------------------
Other operating income
Income from equity investments 3,690 11,110
Gain on sale of units of Natural Resource Partners, LP 81,467 -
Other operating income 23,462 11,089
---------------- ------------------
108,619 22,199
---------------- ------------------
Income (loss) from operations 106,909 (6,265)
Interest expense, net:
Interest expense (14,741) (11,552)
Interest income 710 332
---------------- ------------------
(14,031) (11,220)
---------------- ------------------
Other non-operating income (expense):
Expenses resulting from early debt extinguishment and termination of hedge
accounting for interest rate swaps (2,066) -
Other non-operating income 171 -
---------------- ------------------
(1,895) -
---------------- ------------------
Income (loss) before income taxes and cumulative effect of
accounting change 90,983 (17,485)
Provision (benefit) from income taxes 21,000 (4,300)
---------------- -----------------
Income (loss) before cumulative effect of accounting change 69,983 (13,185)
Cumulative effect of accounting change, net of taxes - (3,654)
---------------- ------------------
Net income (loss) 69,983 (16,839)
Preferred stock dividends (1,797) (1,198)
---------------- ------------------
Net income (loss) available to common shareholders $ 68,186 $ (18,037)
================ ==================
Earnings per common share
Basic earnings (loss) before cumulative effect of accounting change $ 1.27 $ (0.27)
Cumulative effect of accounting change - (0.07)
---------------- ------------------
Basic earnings (loss) per common share $ 1.27 $ (0.34)
================ ==================
Diluted earnings (loss) before cumulative effect of accounting change $ 1.14 $ (0.27)
Cumulative effect of accounting change - (0.07)
---------------- ------------------
Diluted earnings (loss) per common share $ 1.14 $ (0.34)
================ ==================
Weighted average shares outstanding
Basic 53,825 52,384
Diluted 61,592 52,384
================ ==================
Dividends declared per common share $ 0.0575 $ 0.0575
================ ==================
Adjusted EBITDA (A) $ 147,404 $ 38,739
================ ==================
(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
March 31
-----------------------------------
2004 2003
---------------- ------------------
(Unaudited)
Net income (loss) $ 69,983 $ (16,839)
Cumulative effect of accounting change - 3,654
Provision (benefit) from income taxes 21,000 (4,300)
Interest expense, net 14,031 11,220
Depreciation, depletion and amortization - Arch Coal, Inc. 36,105 39,511
DD&A - Equity interest in Canyon Fuel Company, LLC 4,390 5,493
Expenses from early debt extinguishment and other nonoperating 1,895 -
---------------- ------------------
Adjusted EBITDA $ 147,404 $ 38,739
================ ==================
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2004 2003
------------------- --------------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 323,007 $ 254,541
Trade receivables 146,720 118,376
Other receivables 27,529 29,897
Inventories 75,841 69,907
Prepaid royalties 6,027 4,586
Deferred income taxes 7,400 19,700
Investment in Natural Resource Partners, LP, at market 10,738 -
Other 14,437 16,638
------------------- -------------------
Total current assets 611,699 513,645
------------------- --------------------
Property, plant and equipment, net 1,310,737 1,315,135
------------------- --------------------
Other assets
Prepaid royalties 86,897 70,880
Coal supply agreements 5,788 6,397
Deferred income taxes 242,651 246,024
Equity investments 146,846 172,045
Other 79,719 63,523
------------------- --------------------
561,901 558,869
------------------- --------------------
Total assets $ 2,484,337 $ 2,387,649
=================== ====================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 113,675 $ 89,975
Accrued expenses 152,674 180,314
Current portion of debt 4,250 6,349
------------------- --------------------
Total current liabilities 270,599 276,638
Long-term debt 700,022 700,022
Accrued postretirement benefits other than pension 360,618 352,097
Asset retirement obligations 144,156 143,545
Accrued workers' compensation 77,461 77,672
Other noncurrent liabilities 142,304 149,640
------------------- --------------------
Total liabilities 1,695,160 1,699,614
------------------- --------------------
Stockholders' equity
Preferred stock 29 29
Common stock 550 536
Paid-in capital 1,025,223 988,476
Retained deficit (190,846) (255,936)
Unearned compensation (3,783) -
Treasury stock, at cost (5,047) (5,047)
Accumulated other comprehensive loss (36,949) (40,023)
------------------- --------------------
Total stockholders' equity 789,177 688,035
------------------- --------------------
Total liabilities and
stockholders' equity $ 2,484,337 $ 2,387,649
=================== ====================
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Three Months Ended
March 31,
----------------------------
2004 2003
------------ ---------------
(Unaudited)
Operating activities
Net income (loss) $ 69,983 $ (16,839)
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 36,105 39,511
Prepaid royalties expensed 3,730 3,105
Accretion on asset retirement obligations 2,947 3,442
Net gain on disposition of assets (318) (148)
Gain on sale of units of Natural Resource Partners, LP (81,467) -
Mark to market adjustment for investment in Natural Resource Partners, LP (8,171) -
Income from equity investments (3,690) (11,110)
Net distributions from equity investments 2,461 9,660
Cumulative effect of accounting change - 3,654
Other nonoperating expense 1,895 -
Changes in:
Receivables (25,977) 16,157
Inventories (5,934) (8,942)
Accounts payable and accrued expenses (3,524) (8,662)
Income taxes 15,031 (4,438)
Accrued postretirement benefits other than pension 8,521 6,630
Asset retirement obligations (2,336) (3,266)
Accrued workers' compensation benefits (211) 786
Other 2,300 2,457
------------- --------------
Cash provided by operating activities 11,345 31,997
------------- --------------
Investing activities
Additions to property, plant and equipment (31,654) (48,085)
Proceeds from sale of units of Natural Resource Partners, LP 100,121 -
Proceeds from dispositions of property, plant and equipment 717 168
Additions to prepaid royalties (21,188) (20,384)
------------- --------------
Cash provided by (used in) investing activities 47,996 (68,301)
------------- --------------
Financing activities
Net payments on revolver and lines of credit - (42,497)
Payments on long-term debt (2,099) -
Debt financing costs (957) (1,101)
Dividends paid (4,893) (3,012)
Proceeds from issuance of preferred stock - 139,078
Proceeds from sale of common stock 17,074 66
------------- --------------
Cash provided by financing activities 9,125 92,534
------------- --------------
Increase in cash and cash equivalents 68,466 56,230
Cash and cash equivalents, beginning of period 254,541 9,557
------------- --------------
Cash and cash equivalents, end of period $ 323,007 $ 65,787
============= ==============
Canyon Fuel Company cash flow information (Arch Coal ownership percentage)
Depreciation, depletion and amortization 4,390 5,493
Additions to property, plant and equipment (1,860) (2,666)
Arch Coal, Inc. and Subsidiaries
Reconciliation of Non-GAAP Measures
(In thousands, except per share data)
Included in the accompanying release, we have disclosed income available to
common shareholders for the quarter ending March 31, 2004 excluding gains
related to the sale of of a significant portion of the company's investment in
Natural Resource Partners, as well as charges related to severance costs at the
soon-to-be-idled Skyline mine, certain charges related to incentive compensation
plans, and the termination of hedge accounting for interest rate swaps. This
measure is considered a non-GAAP measure as defined by the SEC's Regulation G.
The following reconciles this amount to net income available to common
shareholders reported under GAAP:
Three Months Ended
March 31
-----------------------
2004
-----------------------
(Unaudited)
Net income available to common shareholders $ 68,186
Gain on sale of units of Natural Resource Partners, LP (81,467)
Mark to market adjustment for investment in Natural Resource Partners, LP (8,171)
Severance costs related to Skyline idling 1,235
Incentive compensation plan expense 5,003
Other non-operating expense 1,895
Tax impact of the excluded items 20,990
-----------------------
Net income available to common shareholders excluding items $ 7,671
=======================
Fully diluted shares outstanding 61,592
Adjustment to exclude impact of convertible preferred shares
that would not be dilutive (6,896)
-----------------------
Fully diluted shares outstanding 54,696
-----------------------
Earnings per common share excluding items $ 0.14
=======================