UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2013
o |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission file number: 1-13105
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
43-0921172 |
(State or other jurisdiction |
|
(I.R.S. Employer |
of incorporation or organization) |
|
Identification Number) |
One CityPlace Drive, Suite 300, St. Louis, Missouri |
|
63141 |
(Address of principal executive offices) |
|
(Zip code) |
Registrants telephone number, including area code: (314) 994-2700
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At May 1, 2013 there were 212,246,799 shares of the registrants common stock outstanding.
FINANCIAL INFORMATION
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(Unaudited) |
| ||||
Revenues |
|
$ |
825,502 |
|
$ |
1,039,651 |
|
Costs, expenses and other |
|
|
|
|
| ||
Cost of sales (exclusive of items shown separately below) |
|
710,573 |
|
850,871 |
| ||
Depreciation, depletion and amortization |
|
118,868 |
|
139,966 |
| ||
Amortization of acquired sales contracts, net |
|
(2,810 |
) |
(14,017 |
) | ||
Change in fair value of coal derivatives and coal trading activities, net |
|
1,308 |
|
(3,613 |
) | ||
Selling, general and administrative expenses |
|
33,209 |
|
30,861 |
| ||
Other operating income, net |
|
(3,217 |
) |
(18,498 |
) | ||
|
|
857,931 |
|
985,570 |
| ||
Income (loss) from operations |
|
(32,429 |
) |
54,081 |
| ||
Interest expense, net: |
|
|
|
|
| ||
Interest expense |
|
(95,087 |
) |
(74,772 |
) | ||
Interest and investment income |
|
2,836 |
|
1,021 |
| ||
|
|
(92,251 |
) |
(73,751 |
) | ||
|
|
|
|
|
| ||
Loss before income taxes |
|
(124,680 |
) |
(19,670 |
) | ||
Benefit from income taxes |
|
(54,631 |
) |
(21,079 |
) | ||
Net income (loss) |
|
(70,049 |
) |
1,409 |
| ||
Less: Net income attributable to noncontrolling interest |
|
|
|
(203 |
) | ||
Net income (loss) attributable to Arch Coal, Inc. |
|
$ |
(70,049 |
) |
$ |
1,206 |
|
Earnings per common share |
|
|
|
|
| ||
Basic earnings (loss) per common share |
|
$ |
(0.33 |
) |
$ |
0.01 |
|
Diluted earnings (loss) per common share |
|
$ |
(0.33 |
) |
$ |
0.01 |
|
Weighted average shares outstanding |
|
|
|
|
| ||
Basic |
|
212,062 |
|
211,687 |
| ||
Diluted |
|
212,062 |
|
211,908 |
| ||
Dividends declared per common share |
|
$ |
0.03 |
|
$ |
0.11 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(Unaudited) |
| ||||
Net income (loss) |
|
$ |
(70,049 |
) |
$ |
1,409 |
|
|
|
|
|
|
| ||
Derivative instruments |
|
|
|
|
| ||
Total comprehensive income (loss) before tax |
|
(1,179 |
) |
10,287 |
| ||
Tax impact |
|
425 |
|
(3,702 |
) | ||
|
|
(754 |
) |
6,585 |
| ||
|
|
|
|
|
| ||
Pension, postretirement and other post-employment benefits |
|
|
|
|
| ||
Total comprehensive income before tax |
|
1,954 |
|
724 |
| ||
Tax impact |
|
(703 |
) |
(261 |
) | ||
|
|
1,251 |
|
463 |
| ||
|
|
|
|
|
| ||
Available-for-sale securities |
|
|
|
|
| ||
Total comprehensive income before tax |
|
1,553 |
|
394 |
| ||
Tax impact |
|
(559 |
) |
(142 |
) | ||
|
|
994 |
|
252 |
| ||
Total other comprehensive income |
|
1,491 |
|
7,300 |
| ||
Total comprehensive income (loss) |
|
$ |
(68,558 |
) |
$ |
8,709 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(Unaudited) |
| ||||
Assets |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
730,119 |
|
$ |
784,622 |
|
Restricted cash |
|
2,290 |
|
3,453 |
| ||
Short term investments |
|
248,414 |
|
234,305 |
| ||
Trade accounts receivable |
|
263,294 |
|
247,539 |
| ||
Other receivables |
|
81,750 |
|
84,541 |
| ||
Inventories |
|
368,240 |
|
365,424 |
| ||
Prepaid royalties |
|
13,105 |
|
11,416 |
| ||
Deferred income taxes |
|
67,337 |
|
67,360 |
| ||
Coal derivative assets |
|
20,856 |
|
22,975 |
| ||
Other |
|
88,977 |
|
92,469 |
| ||
Total current assets |
|
1,884,382 |
|
1,914,104 |
| ||
Property, plant and equipment, net |
|
7,272,541 |
|
7,337,098 |
| ||
Other assets: |
|
|
|
|
| ||
Prepaid royalties |
|
91,691 |
|
87,773 |
| ||
Goodwill |
|
265,423 |
|
265,423 |
| ||
Equity investments |
|
246,807 |
|
242,215 |
| ||
Other |
|
159,300 |
|
160,164 |
| ||
Total other assets |
|
763,221 |
|
755,575 |
| ||
Total assets |
|
$ |
9,920,144 |
|
$ |
10,006,777 |
|
Liabilities and Stockholders Equity |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable |
|
$ |
229,269 |
|
$ |
224,418 |
|
Coal derivative liabilities |
|
643 |
|
1,737 |
| ||
Accrued expenses and other current liabilities |
|
352,040 |
|
318,018 |
| ||
Current maturities of debt |
|
28,306 |
|
32,896 |
| ||
Total current liabilities |
|
610,258 |
|
577,069 |
| ||
Long-term debt |
|
5,082,205 |
|
5,085,879 |
| ||
Asset retirement obligations |
|
410,975 |
|
409,705 |
| ||
Accrued pension benefits |
|
69,342 |
|
67,630 |
| ||
Accrued postretirement benefits other than pension |
|
46,413 |
|
45,086 |
| ||
Accrued workers compensation |
|
81,039 |
|
81,629 |
| ||
Deferred income taxes |
|
610,195 |
|
664,182 |
| ||
Other noncurrent liabilities |
|
227,363 |
|
221,030 |
| ||
Total liabilities |
|
7,137,790 |
|
7,152,210 |
| ||
Stockholders equity |
|
|
|
|
| ||
Common stock, $0.01 par value, authorized 260,000 shares, issued 213,759 shares at both March 31, 2013 and December 31, 2012 |
|
2,141 |
|
2,141 |
| ||
Paid-in capital |
|
3,029,536 |
|
3,026,823 |
| ||
Treasury stock, at cost |
|
(53,848 |
) |
(53,848 |
) | ||
Accumulated deficit |
|
(180,459 |
) |
(104,042 |
) | ||
Accumulated other comprehensive loss |
|
(15,016 |
) |
(16,507 |
) | ||
Total stockholders equity |
|
2,782,354 |
|
2,854,567 |
| ||
Total liabilities and stockholders equity |
|
$ |
9,920,144 |
|
$ |
10,006,777 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(Unaudited) |
| ||||
Operating activities |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net income (loss) |
|
$ |
(70,049 |
) |
$ |
1,409 |
|
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
| ||
Depreciation, depletion and amortization |
|
118,868 |
|
139,966 |
| ||
Amortization of acquired sales contracts, net |
|
(2,810 |
) |
(14,017 |
) | ||
Amortization relating to financing activities |
|
6,167 |
|
4,288 |
| ||
Prepaid royalties expensed |
|
3,537 |
|
8,586 |
| ||
Employee stock-based compensation expense |
|
2,713 |
|
4,079 |
| ||
Changes in: |
|
|
|
|
| ||
Receivables |
|
(12,340 |
) |
88,082 |
| ||
Inventories |
|
(2,816 |
) |
(111,196 |
) | ||
Coal derivative assets and liabilities |
|
(192 |
) |
(5,347 |
) | ||
Accounts payable, accrued expenses and other current liabilities |
|
38,249 |
|
(66,222 |
) | ||
Income taxes, net |
|
458 |
|
23,002 |
| ||
Deferred income taxes |
|
(54,801 |
) |
(21,742 |
) | ||
Other |
|
16,307 |
|
4,102 |
| ||
Cash provided by operating activities |
|
43,291 |
|
54,990 |
| ||
Investing activities |
|
|
|
|
| ||
Capital expenditures |
|
(54,522 |
) |
(93,271 |
) | ||
Minimum royalty payments |
|
(9,142 |
) |
(8,262 |
) | ||
Proceeds from dispositions of property, plant and equipment |
|
714 |
|
22,105 |
| ||
Purchases of short term investments |
|
(26,787 |
) |
|
| ||
Proceeds from sales of short term investments |
|
11,534 |
|
|
| ||
Investments in and advances to affiliates |
|
(4,298 |
) |
(5,777 |
) | ||
Change in restricted cash |
|
1,163 |
|
1,455 |
| ||
Cash used in investing activities |
|
(81,338 |
) |
(83,750 |
) | ||
Financing activities |
|
|
|
|
| ||
Net increase in borrowings under lines of credit |
|
|
|
34,000 |
| ||
Payments on term note |
|
(4,125 |
) |
|
| ||
Net payments on other debt |
|
(5,964 |
) |
(7,323 |
) | ||
Debt financing costs |
|
|
|
(100 |
) | ||
Dividends paid |
|
(6,367 |
) |
(23,327 |
) | ||
Proceeds from exercise of options under incentive plans |
|
|
|
5,131 |
| ||
Cash provided by (used in) financing activities |
|
(16,456 |
) |
8,381 |
| ||
Decrease in cash and cash equivalents |
|
(54,503 |
) |
(20,379 |
) | ||
Cash and cash equivalents, beginning of period |
|
784,622 |
|
138,149 |
| ||
Cash and cash equivalents, end of period |
|
$ |
730,119 |
|
$ |
117,770 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Arch Coal, Inc. and its subsidiaries and controlled entities (the Company). The Companys primary business is the production of thermal and metallurgical coal from surface and underground mines located throughout the United States, for sale to utility, industrial and steel producers both in the United States and around the world. The Company currently operates 16 mining complexes in West Virginia, Kentucky, Maryland, Virginia, Illinois, Wyoming, Colorado and Utah. In addition, the Company has a metallurgical coal mine in development in West Virginia. All subsidiaries are wholly-owned. Intercompany transactions and accounts have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and U.S. Securities and Exchange Commission regulations. In the opinion of management, all adjustments, consisting of normal, recurring accruals considered necessary for a fair presentation, have been included. Results of operations for the three month period ended March 31, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013. These financial statements should be read in conjunction with the audited financial statements and related notes as of and for the year ended December 31, 2012 included in the Companys Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.
Arch Western Resources, LLC became a wholly-owned subsidiary when the remaining 0.5% interest was purchased on July 2, 2012. Net income attributable to noncontrolling interest is shown on the condensed consolidated statement of operations prior to this date.
2. Accounting Policies
There is no new accounting guidance that is expected to have a significant impact on the Companys financial statements.
3. Accumulated Other Comprehensive Loss
Other comprehensive loss includes transactions recorded in stockholders equity during the year, excluding net income and transactions with stockholders. In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The standard requires that companies present, either parenthetically on the face of the financial statements or in a single note, the effect of significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. The Company adopted the provisions of the new guidance during the first quarter of 2013.
The following items are included in accumulated other comprehensive loss:
|
|
|
|
Pension, |
|
|
|
|
| ||||
|
|
|
|
Postretirement |
|
|
|
|
| ||||
|
|
|
|
and Other |
|
|
|
Accumulated |
| ||||
|
|
|
|
Post- |
|
|
|
Other |
| ||||
|
|
Derivative |
|
Employment |
|
Available-for- |
|
Comprehensive |
| ||||
|
|
Instruments |
|
Benefits |
|
Sale Securities |
|
Loss |
| ||||
|
|
(In thousands) |
| ||||||||||
Balance at December 31, 2012 |
|
$ |
2,244 |
|
$ |
(18,286 |
) |
$ |
(465 |
) |
$ |
(16,507 |
) |
Unrealized gains (losses) |
|
(204 |
) |
|
|
956 |
|
752 |
| ||||
Amounts reclassified from accumulated other comprehensive income |
|
(550 |
) |
1,251 |
|
38 |
|
739 |
| ||||
Balance at March 31, 2013 |
|
$ |
1,490 |
|
$ |
(17,035 |
) |
$ |
529 |
|
$ |
(15,016 |
) |
The following items were reclassified out of accumulated other comprehensive loss during the three months ended March 31, 2013:
|
|
Amount Reclassified |
|
Affected Line Item in |
| |
|
|
From Accumulated Other |
|
the Condensed Consolidated |
| |
Details about accumulated other comprehensive income components |
|
Comprehensive Loss |
|
Statement of Operations |
| |
|
|
(In thousands) |
|
|
| |
Derivatives instruments |
|
$ |
859 |
|
Revenues |
|
|
|
(309 |
) |
Benefit from income taxes |
| |
|
|
$ |
550 |
|
Net of tax |
|
|
|
|
|
|
| |
Pension, postretirement and other post-employment benefits |
|
|
|
|
| |
Amortization of prior service credits |
|
$ |
2,908 |
|
(1) |
|
Amortization of actuarial gains (losses) net |
|
(4,862 |
) |
(1) |
| |
|
|
(1,954 |
) |
Total before tax |
| |
|
|
703 |
|
Benefit from income taxes |
| |
|
|
$ |
(1,251 |
) |
Net of tax |
|
|
|
|
|
|
| |
Available-for-sale securities |
|
$ |
(59 |
) |
Interest and investment income |
|
|
|
21 |
|
Benefit from income taxes |
| |
|
|
$ |
(38 |
) |
Net of tax |
|
(1) Production-related benefit and workers compensation costs are included in the costs of coal inventory. See Note 12, Workers Compensation Expense and Note 13Employee Benefit Plans for more information about pension, postretirement and postemployment benefit costs.
4. Inventories
Inventories consist of the following:
|
|
March 31 |
|
December 31 |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(In thousands) |
| ||||
Coal |
|
$ |
182,998 |
|
$ |
180,917 |
|
Repair parts and supplies |
|
170,040 |
|
172,139 |
| ||
Work-in-process |
|
15,202 |
|
12,368 |
| ||
|
|
$ |
368,240 |
|
$ |
365,424 |
|
The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $14.0 million at March 31, 2013, and $13.6 million at December 31, 2012.
5. Investments in Available-for-Sale Securities
The Company has invested in marketable debt securities, primarily highly liquid AA - rated corporate bonds and U.S. government and government agency securities. These investments are held in the custody of a major financial institution. These securities, along with the Companys investments in marketable equity securities, are classified as available-for-sale securities and, accordingly, the unrealized gains and losses are recorded through other comprehensive income.
The Companys investments in available-for-sale marketable securities are as follows:
|
|
March 31, 2013 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
| ||||||||
|
|
|
|
Gross |
|
Gross |
|
|
|
Classification |
| ||||||||
|
|
|
|
Unrealized |
|
Unrealized |
|
Fair |
|
Short-Term |
|
Other |
| ||||||
|
|
Cost Basis |
|
Gains |
|
Losses |
|
Value |
|
Investments |
|
Assets |
| ||||||
|
|
(In thousands) |
| ||||||||||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. government and agency securities |
|
$ |
135,457 |
|
$ |
1 |
|
$ |
(705 |
) |
$ |
134,753 |
|
$ |
134,753 |
|
$ |
|
|
Corporate notes and bonds |
|
114,905 |
|
|
|
(1,244 |
) |
113,661 |
|
113,661 |
|
|
| ||||||
Equity securities |
|
5,271 |
|
5,547 |
|
(2,774 |
) |
8,044 |
|
|
|
8,044 |
| ||||||
Total Investments |
|
$ |
255,633 |
|
$ |
5,548 |
|
$ |
(4,723 |
) |
$ |
256,458 |
|
$ |
248,414 |
|
$ |
8,044 |
|
|
|
December 31, 2012 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
| ||||||||
|
|
|
|
Gross |
|
Gross |
|
|
|
Classification |
| ||||||||
|
|
|
|
Unrealized |
|
Unrealized |
|
Fair |
|
Short-Term |
|
Other |
| ||||||
|
|
Cost Basis |
|
Gains |
|
Losses |
|
Value |
|
Investments |
|
Assets |
| ||||||
|
|
(In thousands) |
| ||||||||||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. government and agency securities |
|
$ |
146,993 |
|
$ |
2 |
|
$ |
(412 |
) |
$ |
146,583 |
|
$ |
146,583 |
|
$ |
|
|
Corporate notes and bonds |
|
88,118 |
|
|
|
(396 |
) |
87,722 |
|
87,722 |
|
|
| ||||||
Equity securities |
|
5,271 |
|
2,704 |
|
(2,628 |
) |
5,347 |
|
|
|
5,347 |
| ||||||
Total Investments |
|
$ |
240,382 |
|
$ |
2,706 |
|
$ |
(3,436 |
) |
$ |
239,652 |
|
$ |
234,305 |
|
$ |
5,347 |
|
The aggregate fair value of investments with unrealized losses that have been owned for less than a year was $245.4 million and $223.3 million at March 31, 2013 and December 31, 2012, respectively. The aggregate fair value of investments with unrealized losses that have been owned for over a year was $0.3 million and $0.4 million at March 31, 2013 and December 31, 2012, respectively.
The debt securities outstanding at March 31, 2013 have maturity dates ranging from the second quarter of 2013 through the third quarter of 2014. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations.
6. Equity Method Investments and Membership Interests in Joint Ventures
The Company accounts for its investments and membership interests in joint ventures under the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the entity. Below are the equity method investments reflected in the condensed consolidated balance sheets:
In thousands |
|
Knight Hawk |
|
DKRW |
|
DTA |
|
Tenaska |
|
Millennium |
|
Tongue River |
|
Total |
| |||||||
Balance at December 31, 2012 |
|
$ |
149,063 |
|
$ |
15,515 |
|
$ |
15,462 |
|
$ |
15,264 |
|
$ |
32,214 |
|
$ |
14,697 |
|
$ |
242,215 |
|
Advances to affiliates, net |
|
|
|
|
|
593 |
|
|
|
1,790 |
|
1,001 |
|
3,384 |
| |||||||
Equity in comprehensive income (loss) |
|
4,515 |
|
(733 |
) |
(1,609 |
) |
|
|
(684 |
) |
(281 |
) |
1,208 |
| |||||||
Balance at March 31, 2013 |
|
$ |
153,578 |
|
$ |
14,782 |
|
$ |
14,446 |
|
$ |
15,264 |
|
$ |
33,320 |
|
$ |
15,417 |
|
$ |
246,807 |
|
Notes receivable from investees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at December 31, 2012 |
|
$ |
|
|
$ |
38,680 |
|
$ |
|
|
$ |
5,148 |
|
$ |
|
|
$ |
|
|
$ |
43,828 |
|
Balance at March 31, 2013 |
|
$ |
|
|
$ |
41,019 |
|
$ |
|
|
$ |
5,197 |
|
|
|
$ |
|
|
$ |
46,216 |
|
The Company may be required to make future contingent payments of up to $72.8 million related to development financing for certain of its equity investees. The Companys obligation to make these payments, as well as the timing of any payments required, is contingent upon a number of factors, including project development progress, receipt of permits and construction financing.
7. Derivatives
Diesel fuel price risk management
The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company anticipates purchasing approximately 57 to 67 million gallons of diesel fuel for use in its operations during 2013. To protect the Companys cash flows from increases in the price of diesel fuel for its operations, the Company uses forward physical diesel purchase contracts and purchased heating oil call options. At March 31, 2013, the Company had protected the price of approximately 97% of its expected purchases for the remainder of 2013 and 42% of its 2014 purchases. At March 31, 2013, the Company had purchased heating oil call options for approximately 71 million gallons for the purpose of managing the price risk associated with future diesel purchases.
The Company also purchased heating oil call options to manage the price risk associated with fuel surcharges on its barge and rail shipments, which cover increases in diesel fuel prices. At March 31, 2013, the Company held purchased call options for approximately 6 million gallons for the purpose of managing the fluctuations in cash flows associated with fuel surcharges on future shipments.
These positions reduce the Companys risk of cash flow fluctuations related to these surcharges but the positions are not accounted for as hedges.
Coal risk management positions
The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted sales or purchases of coal or to the risk of changes in the fair value of a fixed price physical sales contract. Certain derivative contracts may be designated as hedges of these risks.
At March 31, 2013, the Company held derivatives for risk management purposes that are expected to settle in the following years:
(Tons in thousands) |
|
2013 |
|
2014 |
|
2015 |
|
Total |
|
Coal sales |
|
5,399 |
|
4,260 |
|
780 |
|
10,439 |
|
Coal purchases |
|
1,131 |
|
1,260 |
|
|
|
2,391 |
|
Coal trading positions
The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market for trading purposes. The Company is exposed to the risk of changes in coal prices on the value of its coal trading portfolio. The estimated future realization of the value of the trading portfolio is $4.1 million of losses in 2013 and $3.6 million of gains in 2014.
Tabular derivatives disclosures
The Company has master netting agreements with all of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Companys credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the condensed consolidated balance sheets. The amounts shown in the table below represent the fair value position of individual contracts, and not the net position presented in the accompanying condensed consolidated balance sheets. The fair value and location of derivatives reflected in the accompanying condensed consolidated balance sheets are as follows:
|
|
March 31, 2013 |
|
|
|
December 31, 2012 |
|
|
| ||||||||||
Fair Value of Derivatives |
|
Asset |
|
Liability |
|
|
|
Asset |
|
Liability |
|
|
| ||||||
(In thousands) |
|
Derivative |
|
Derivative |
|
|
|
Derivative |
|
Derivative |
|
|
| ||||||
Derivatives Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Coal |
|
$ |
2,379 |
|
$ |
(252 |
) |
|
|
$ |
3,277 |
|
$ |
(10 |
) |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Heating oil diesel purchases |
|
6,227 |
|
|
|
|
|
7,379 |
|
|
|
|
| ||||||
Heating oil fuel surcharges |
|
207 |
|
|
|
|
|
1,961 |
|
|
|
|
| ||||||
Coal held for trading purposes |
|
41,675 |
|
(42,234 |
) |
|
|
17,403 |
|
(16,933 |
) |
|
| ||||||
Coal risk management |
|
22,354 |
|
(3,709 |
) |
|
|
24,843 |
|
(7,342 |
) |
|
| ||||||
Total |
|
70,463 |
|
(45,943 |
) |
|
|
51,586 |
|
(24,275 |
) |
|
| ||||||
Total derivatives |
|
72,842 |
|
(46,195 |
) |
|
|
54,863 |
|
(24,285 |
) |
|
| ||||||
Effect of counterparty netting |
|
(45,552 |
) |
45,552 |
|
|
|
(22,548 |
) |
22,548 |
|
|
| ||||||
Net derivatives as classified in the balance sheets |
|
$ |
27,290 |
|
$ |
(643 |
) |
$ |
26,647 |
|
$ |
32,315 |
|
$ |
(1,737 |
) |
$ |
30,578 |
|
|
|
|
|
March 31, 2013 |
|
December 31, |
| ||
Net derivatives as reflected on the balance sheets |
|
|
|
|
|
|
| ||
Heating oil |
|
Other current assets |
|
$ |
6,434 |
|
$ |
9,340 |
|
Coal |
|
Coal derivative assets |
|
20,856 |
|
22,975 |
| ||
|
|
Coal derivative liabilities |
|
(643 |
) |
(1,737 |
) | ||
|
|
|
|
$ |
26,647 |
|
$ |
30,578 |
|
The Company had a current asset for the right to reclaim cash collateral of $24.6 million and $16.2 million at March 31, 2013 and December 31, 2012, respectively. These amounts are not included with the derivatives presented in the table above and are included in other current assets in the accompanying condensed consolidated balance sheets.
The effects of derivatives on measures of financial performance are as follows:
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the three months ended March 31,
|
|
Gain (Loss) Recognized in Other |
|
Gains (Losses) Reclassified from |
| |||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| |||||
Coal sales |
(1) |
|
$ |
(176 |
) |
$ |
2,493 |
|
$ |
1,221 |
|
$ |
201 |
|
Coal purchases |
(2) |
|
(182 |
) |
(202 |
) |
(362 |
) |
|
| ||||
Totals |
|
$ |
(358 |
) |
$ |
2,291 |
|
$ |
859 |
|
$ |
201 |
|
No ineffectiveness or amounts excluded from effectiveness testing relating to the Companys cash flow hedging relationships were recognized in the results of operations in the three month periods ended March 31, 2013 and 2012.
Derivatives Not Designated as Hedging Instruments (in thousands)
For the three months ended March 31,
|
|
Gain (Loss) Recognized |
| |||||
|
|
2013 |
|
2012 |
| |||
Coal unrealized |
(3) |
|
$ |
1,470 |
|
$ |
7,552 |
|
Coal realized |
(4) |
|
$ |
9,217 |
|
$ |
3,158 |
|
Heating oil diesel purchases |
(4) |
|
$ |
(4,261 |
) |
$ |
423 |
|
Heating oil fuel surcharges |
(4) |
|
$ |
(565 |
) |
$ |
367 |
|
Location in statement of operations:
(1) Revenues
(2) Cost of sales
(3) Change in fair value of coal derivatives and coal trading activities, net
(4) Other operating income, net
The Company recognized net unrealized and realized losses of $2.8 million and $3.9 million during the three months ended March 31, 2013 and 2012, respectively, related to its trading portfolio, which are included in the caption Change in fair value of coal derivatives and coal trading activities, net in the accompanying condensed consolidated statements of operations, and are not included in the previous tables reflecting the effects of derivatives on measures of financial performance.
Based on fair values at March 31, 2013, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $1.0 million are expected to be reclassified from other comprehensive income into earnings during the next twelve months.
8. Debt
|
|
March 31, 2013 |
|
December 31, |
| ||
|
|
(In thousands) |
| ||||
Term loan ($1.64 billion face value) due 2018 |
|
$ |
1,623,955 |
|
$ |
1,627,384 |
|
8.75% senior notes ($600.0 million face value) due 2016 |
|
591,535 |
|
590,999 |
| ||
7.00% senior notes due 2019 at par |
|
1,000,000 |
|
1,000,000 |
| ||
9.875% senior notes ($375.0 million face value) due 2019 |
|
360,621 |
|
360,042 |
| ||
7.25% senior notes due 2020 at par |
|
500,000 |
|
500,000 |
| ||
7.25% senior notes due 2021 at par |
|
1,000,000 |
|
1,000,000 |
| ||
Other |
|
34,400 |
|
40,350 |
| ||
|
|
5,110,511 |
|
5,118,775 |
| ||
Less current maturities of debt |
|
28,306 |
|
32,896 |
| ||
Long-term debt |
|
$ |
5,082,205 |
|
$ |
5,085,879 |
|
9. Fair Value Measurements
The hierarchy of fair value measurements assigns a level to fair value measurements based on the inputs used in the respective valuation techniques. The levels of the hierarchy, as defined below, give the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
· Level 1 is defined as observable inputs such as quoted prices in active markets for identical assets. Level 1 assets include available-for-sale equity securities, U.S. Treasury securities, and coal futures that are submitted for clearing on the New York Mercantile Exchange.
· Level 2 is defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The
Companys level 2 assets and liabilities include U.S. government agency securities and commodity contracts (coal and heating oil) with fair values derived from quoted prices in over-the-counter markets or from prices received from direct broker quotes.
· Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. These include the Companys commodity option contracts (coal and heating oil) valued using modeling techniques, such as Black-Scholes, that require the use of inputs, particularly volatility, that are rarely observable. Changes in the unobservable inputs would not have a significant impact on the reported Level 3 fair values at March 31, 2013.
The table below sets forth, by level, the Companys financial assets and liabilities that are recorded at fair value in the accompanying condensed consolidated balance sheet:
|
|
Fair Value at March 31, 2013 |
| ||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
(In thousands) |
| ||||||||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Investments in marketable securities |
|
$ |
256,458 |
|
$ |
98,410 |
|
$ |
158,048 |
|
$ |
|
|
Derivatives |
|
27,290 |
|
21,250 |
|
|
|
6,040 |
| ||||
Total assets |
|
$ |
283,748 |
|
$ |
119,660 |
|
$ |
158,048 |
|
$ |
6,040 |
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Derivatives |
|
$ |
643 |
|
$ |
|
|
$ |
245 |
|
$ |
398 |
|
The Companys contracts with its counterparties allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. For classification purposes, the Company records the net fair value of all the positions with these counterparties as a net asset or liability. Each level in the table above displays the underlying contracts according to their classification in the accompanying condensed consolidated balance sheet, based on this counterparty netting.
The following table summarizes the change in the fair values of financial instruments categorized as level 3.
|
|
Three Months Ended |
| |
Balance, beginning of period |
|
$ |
8,174 |
|
Realized and unrealized losses recognized in earnings, net |
|
(4,472 |
) | |
Realized and unrealized losses recognized in other comprehensive income, net |
|
|
| |
Purchases |
|
3,217 |
| |
Issuances |
|
(25 |
) | |
Settlements |
|
(1,252 |
) | |
Ending balance |
|
$ |
5,642 |
|
Net unrealized losses during the three month period ended March 31, 2013 related to level 3 financial instruments held on March 31, 2013 were $4.0 million.
Fair Value of Long-Term Debt
At March 31, 2013 and December 31, 2012, the fair value of the Companys debt, including amounts classified as current, was $5.0 billion. Fair values are based upon observed prices in an active market, when available, or from valuation models using market information, which fall into Level 2 in the fair value hierarchy.
10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(In thousands) |
| ||||
Payroll and employee benefits |
|
$ |
63,375 |
|
$ |
72,405 |
|
Taxes other than income taxes |
|
121,159 |
|
121,029 |
| ||
Interest |
|
83,855 |
|
42,413 |
| ||
Acquired sales contracts |
|
14,456 |
|
14,038 |
| ||
Workers compensation |
|
12,732 |
|
10,371 |
| ||
Asset retirement obligations |
|
38,919 |
|
38,920 |
| ||
Other |
|
17,544 |
|
18,842 |
| ||
|
|
$ |
352,040 |
|
$ |
318,018 |
|
11. Stock-Based Compensation and Other Incentive Plans
During the three months ended March 31, 2013 the Company granted options to purchase approximately 2.0 million shares of common stock with a weighted average exercise price of $5.23 per share and a weighted average grant-date fair value of $2.38 per share. The options fair value was determined using the Black-Scholes option pricing model, using a weighted average risk-free rate of 0.648%, a weighted average dividend yield of 2.29% and a weighted average volatility of 66.76%. The options expected life is 4.5 years and the options vest ratably over three years and provide for the continuation of vesting after retirement for recipients that meet certain criteria. The expense for these options will be recognized through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn all or part of the award.
During the three months ended March 31, 2013, the Company also granted restricted stock units totaling 974,500 shares whose grant date fair value at the time of grant was $5.23. The shares vest at the end of three years.
The Company has a long-term incentive program that allows for the award of performance units. The total number of units earned by a participant is based on financial and operational performance measures, and may be paid out in cash or in shares of the Companys common stock. The Company recognizes compensation expense over the three-year term of the grant. Amounts accrued and unpaid for all grants under the plan totaled $10.4 million and $13.1 million as of March 31, 2013 and December 31, 2012, respectively.
12. Workers Compensation Expense
The following table details the components of workers compensation expense:
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(In thousands) |
| ||||
Service cost |
|
$ |
505 |
|
$ |
968 |
|
Interest cost |
|
656 |
|
680 |
| ||
Net amortization |
|
235 |
|
277 |
| ||
Total occupational disease |
|
1,396 |
|
1,925 |
| ||
Traumatic injury claims and assessments |
|
7,358 |
|
5,176 |
| ||
Total workers compensation expense |
|
$ |
8,754 |
|
$ |
7,101 |
|
13. Employee Benefit Plans
The following table details the components of pension benefit costs (credits):
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(In thousands) |
| ||||
Service cost |
|
$ |
7,700 |
|
$ |
7,596 |
|
Interest cost |
|
3,926 |
|
3,980 |
| ||
Expected return on plan assets |
|
(5,806 |
) |
(5,538 |
) | ||
Amortization of prior service credits |
|
(158 |
) |
(36 |
) | ||
Amortization of other actuarial losses |
|
4,551 |
|
3,571 |
| ||
Net benefit cost |
|
$ |
10,213 |
|
$ |
9,573 |
|
The following table details the components of other postretirement benefit costs (credits):
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(In thousands) |
| ||||
Service cost |
|
$ |
556 |
|
$ |
549 |
|
Interest cost |
|
431 |
|
491 |
| ||
Amortization of prior service credits |
|
(2,750 |
) |
(2,995 |
) | ||
Amortization of other actuarial losses (gains) |
|
77 |
|
(90 |
) | ||
Net benefit credit |
|
$ |
(1,686 |
) |
$ |
(2,045 |
) |
14. Earnings (Loss) Per Common Share
The following table provides the basis for earnings (loss) per share calculations by reconciling basic and diluted weighted average shares outstanding:
|
|
Three Months Ended March 31, |
| ||
|
|
2013 |
|
2012 |
|
|
|
(In thousands) |
| ||
Weighted average shares outstanding: |
|
|
|
|
|
Basic weighted average shares outstanding |
|
212,062 |
|
211,687 |
|
Effect of common stock equivalents under incentive plans |
|
|
|
221 |
|
Diluted weighted average shares outstanding |
|
212,062 |
|
211,908 |
|
The effect of options, restricted stock and restricted stock units equaling 8.6 million and 3.0 million shares of common stock were excluded from the calculation of diluted weighted average shares outstanding for the three month periods ended March 31, 2013 and 2012, respectively, because the exercise price or grant price of the securities exceeded the average market price of the Companys common stock for these periods. The weighted average share impact of options, restricted stock and restricted stock units that were excluded from the calculation of weighted average shares due to the Companys incurring a net loss for the three months ended March 31, 2013 were not significant.
15. Commitments and Contingencies
Allegheny Energy Supply (Allegheny), the sole customer of coal produced at the Companys subsidiary Wolf Run Mining Companys (Wolf Run) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter Ridge Holdings, Inc. (Hunter Ridge), and ICG in state court in Allegheny County, Pennsylvania on December 28, 2006, and amended its complaint on April 23, 2007. Allegheny claimed that Wolf Run breached a coal supply contract when it declared force majeure under the contract upon idling the Sycamore No. 2 mine in the third quarter of 2006, and that Wolf Run continued to breach the contract by failing to ship in volumes referenced in the contract. The Sycamore No. 2 mine was idled after encountering adverse geologic conditions and abandoned gas wells that were previously unidentified and unmapped. After extensive searching for gas wells and rehabilitation of the mine, it was re-opened in 2007, but with notice to Allegheny that it would necessarily operate at reduced volumes in order to safely and effectively avoid the many gas wells within the reserve. The amended complaint also alleged that the production stoppages constitute a breach of the guarantee agreement by Hunter Ridge and breach of certain representations made upon entering into the contract in early 2005. Allegheny voluntarily dropped the breach of representation claims later. Allegheny claimed that it would incur costs in excess of $100 million to purchase replacement coal over the life of the contract. ICG, Wolf Run and Hunter Ridge answered the amended complaint on August 13, 2007, disputing all of the remaining claims.
On November 3, 2008, ICG, Wolf Run and Hunter Ridge filed an amended answer and counterclaim against the plaintiffs seeking to void the coal supply agreement due to, among other things, fraudulent inducement and conspiracy. On September 23, 2009, Allegheny filed a second amended complaint alleging several alternative theories of liability in its effort to extend contractual liability to ICG, which was not a party to the original contract and did not exist at the time Wolf Run and Allegheny entered into the contract. No new substantive claims were asserted. ICG answered the second amended complaint on October 13, 2009, denying all of the new claims. ICGs counterclaim was dismissed on motion for summary judgment entered on May 11, 2010. Alleghenys claims against ICG were also dismissed by summary judgment, but the claims against Wolf Run and Hunter Ridge were not. The court conducted a non-jury trial of this matter beginning on January 10, 2011 and concluding on February 1, 2011. At the trial, Allegheny presented its evidence for breach of contract and claimed that it is entitled to past and future damages in the aggregate of between $228.0 million and $377.0 million. Wolf Run and Hunter Ridge presented their defense of the claims, including evidence with respect to the existence of force majeure conditions and excuse under the contract and applicable law. Wolf Run and Hunter Ridge presented evidence that Alleghenys damage calculations were significantly inflated because they were not determined as of the time of the breach and, in some instances, artificially assumed future non-delivery or did not take into account the apparent requirement to supply coal in the future. On May 2, 2011, the trial court entered a Memorandum and Verdict determining that Wolf Run had breached the coal supply contract and that the performance shortfall was not excused by force majeure. ICG and Allegheny filed post-verdict motions in the trial court and on August 23, 2011, the court denied the parties motions. The court entered a final judgment on August 25, 2011, in the amount of $104.1 million, which included pre-judgment interest. The parties appealed the lower courts decision to the Superior Court of Pennsylvania. Wolf Run and Hunter Ridge have filed an appeal bond in the amount of $124.9 million. On August 13, 2012, the Superior Court of Pennsylvania ruled that the lower court should have calculated damages as of the date of breach, and remanded the matter back to the lower court with instructions to recalculate the award. This ruling resulted in a reduction of the Companys best estimate of the probable loss related to this lawsuit. On November 19, 2012, Allegheny filed a Petition for Allowance of Appeal with the Supreme Court of Pennsylvania and Wolf Run and Hunter Ridge filed an Answer. This Petition is pending.
In addition, the Company is a party to numerous claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably determinable. As of March 31, 2013 and December 31, 2012, the Company had accrued $32.7 million and $32.8 million, respectively, for all legal matters, including $4.0 million and $4.4 million classified as current. The ultimate resolution of any such legal matter could result in outcomes which may be materially different from amounts the Company has accrued for such matters.
16. Segment Information
The Company has three reportable business segments, which are based on the major coal producing basins in which the Company operates. Each of these reportable business segments includes a number of mine complexes. The Company manages its coal sales by coal basin, not by individual mine complex. Geology, coal transportation routes to customers, regulatory environments and coal quality are characteristic to a basin. Accordingly, market and contract pricing have developed by coal basin. Mine operations are evaluated based on their per-ton operating costs (defined as including all mining costs but excluding pass-through transportation expenses), as well as on other non-financial measures, such as safety and environmental performance. The Companys reportable segments are the Powder River Basin (PRB) segment, with operations in Wyoming; the Western Bituminous (WBIT) segment, with operations in Utah and Colorado; the Appalachia (APP) segment, with operations in West Virginia, Kentucky, Maryland and Virginia. The Other operating segment represents primarily the Companys Illinois operations and ADDCAR subsidiary, which manufactures and sells its patented highwall mining system.
Operating segment results for the three months ended March 31, 2013 and 2012 are presented below. Results for the reportable segments include all direct costs of mining, including all depreciation, depletion and amortization related to the mining operations, even if the assets are not recorded at the operating segment level. Corporate, Other and Eliminations includes these charges, as well as the change in fair value of coal derivatives and coal trading activities, net; corporate overhead; land management; other support functions; and the elimination of intercompany transactions.
The asset amounts below represent an allocation of assets consistent with the basis used for the Companys incentive compensation plans. The amounts in Corporate, Other and Eliminations represent primarily corporate assets (cash, receivables, investments, plant, property and equipment) as well as unassigned coal reserves, above-market acquired sales contracts and other unassigned assets. Goodwill is allocated to the respective reporting units, even though it may not be reflected in the subsidiaries financial statements. Prior year asset amounts have been restated to reflect a change in how certain unassigned coal reserves and goodwill amounts are presented.
|
|
PRB |
|
APP |
|
WBIT |
|
Other |
|
Corporate, |
|
Consolidated |
| ||||||
|
|
(in thousands) |
| ||||||||||||||||
|
|
|
| ||||||||||||||||
Three months ended March 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues |
|
$ |
361,946 |
|
$ |
282,618 |
|
$ |
155,644 |
|
$ |
25,294 |
|
$ |
|
|
$ |
825,502 |
|
Income (loss) from operations |
|
15,515 |
|
(27,117 |
) |
24,951 |
|
1,435 |
|
(47,213 |
) |
(32,429 |
) | ||||||
Depreciation, depletion and amortization |
|
42,227 |
|
55,331 |
|
17,371 |
|
2,609 |
|
1,330 |
|
118,868 |
| ||||||
Amortization of acquired sales contracts, net |
|
(1,199 |
) |
(2,472 |
) |
|
|
861 |
|
|
|
(2,810 |
) | ||||||
Total assets |
|
1,939,892 |
|
4,334,324 |
|
623,243 |
|
159,090 |
|
2,863,595 |
|
9,920,144 |
| ||||||
Capital expenditures |
|
2,157 |
|
49,296 |
|
1,502 |
|
482 |
|
1,085 |
|
54,522 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Three months ended March 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues |
|
$ |
401,177 |
|
$ |
469,058 |
|
$ |
144,559 |
|
$ |
24,857 |
|
$ |
|
|
$ |
1,039,651 |
|
Income (loss) from operations |
|
32,543 |
|
15,835 |
|
31,241 |
|
(3,750 |
) |
(21,788 |
) |
54,081 |
| ||||||
Depreciation, depletion and amortization |
|
41,223 |
|
76,017 |
|
18,600 |
|
3,687 |
|
439 |
|
139,966 |
| ||||||
Amortization of acquired sales contracts, net |
|
(816 |
) |
(13,088 |
) |
|
|
(113 |
) |
|
|
(14,017 |
) | ||||||
Total assets |
|
2,263,517 |
|
4,640,344 |
|
752,197 |
|
72,382 |
|
2,436,678 |
|
10,165,118 |
| ||||||
Capital expenditures |
|
3,986 |
|
66,303 |
|
15,137 |
|
5,644 |
|
2,201 |
|
93,271 |
|
A reconciliation of segment income (loss) from operations to consolidated loss before income taxes follows:
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(In thousands) |
| ||||
Income (loss) from operations |
|
$ |
(32,429 |
) |
$ |
54,081 |
|
Interest expense |
|
(95,087 |
) |
(74,772 |
) | ||
Interest and investment income |
|
2,836 |
|
1,021 |
| ||
Loss before income taxes |
|
$ |
(124,680 |
) |
$ |
(19,670 |
) |
17. Supplemental Condensed Consolidating Financial Information
Pursuant to the indentures governing Arch Coal, Inc.s senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present condensed consolidating financial information for (i) the Company, (ii) the issuer of the senior notes, (iii) the guarantors under the senior
notes, and (iv) the entities which are not guarantors under the senior notes (Arch Receivable Company, LLC and the Companys subsidiaries outside the U.S.):
Condensed Consolidating Statements of Operations
Three Months Ended March 31, 2013
|
|
Parent/Issuer |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
(In thousands) |
| |||||||||||||
Revenues |
|
$ |
|
|
$ |
825,502 |
|
$ |
|
|
$ |
|
|
$ |
825,502 |
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales |
|
2,883 |
|
707,690 |
|
|
|
|
|
710,573 |
| |||||
Depreciation, depletion and amortization |
|
1,406 |
|
117,453 |
|
9 |
|
|
|
118,868 |
| |||||
Amortization of acquired sales contracts, net |
|
|
|
(2,810 |
) |
|
|
|
|
(2,810 |
) | |||||
Change in fair value of coal derivatives and coal trading activities, net |
|
|
|
1,308 |
|
|
|
|
|
1,308 |
| |||||
Selling, general and administrative expenses |
|
21,698 |
|
10,035 |
|
1,476 |
|
|
|
33,209 |
| |||||
Other operating income, net |
|
(5,907 |
) |
3,702 |
|
(1,012 |
) |
|
|
(3,217 |
) | |||||
|
|
20,080 |
|
837,378 |
|
473 |
|
|
|
857,931 |
| |||||
Income from investment in subsidiaries |
|
(2,871 |
) |
|
|
|
|
2,871 |
|
|
| |||||
Loss from operations |
|
(22,951 |
) |
(11,876 |
) |
(473 |
) |
2,871 |
|
(32,429 |
) | |||||
Interest expense, net: |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
(110,827 |
) |
(6,455 |
) |
(1,041 |
) |
23,236 |
|
(95,087 |
) | |||||
Interest and investment income |
|
9,098 |
|
15,443 |
|
1,531 |
|
(23,236 |
) |
2,836 |
| |||||
|
|
(101,729 |
) |
8,988 |
|
490 |
|
|
|
(92,251 |
) | |||||
Income (loss) before income taxes |
|
(124,680 |
) |
(2,888 |
) |
17 |
|
2,871 |
|
(124,680 |
) | |||||
Benefit from income taxes |
|
(54,631 |
) |
|
|
|
|
|
|
(54,631 |
) | |||||
Net income (loss) |
|
(70,049 |
) |
(2,888 |
) |
17 |
|
2,871 |
|
(70,049 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total comprehensive income (loss) |
|
$ |
(68,558 |
) |
$ |
(3,324 |
) |
$ |
17 |
|
$ |
3,307 |
|
$ |
(68,558 |
) |
Condensed Consolidating Statements of Operations
Three Months Ended March 31, 2012
|
|
Parent/Issuer |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
(In thousands) |
| |||||||||||||
Revenues |
|
$ |
|
|
$ |
1,039,651 |
|
$ |
|
|
$ |
|
|
$ |
1,039,651 |
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales |
|
2,967 |
|
847,904 |
|
|
|
|
|
850,871 |
| |||||
Depreciation, depletion and amortization |
|
1,216 |
|
138,744 |
|
6 |
|
|
|
139,966 |
| |||||
Amortization of acquired sales contracts, net |
|
|
|
(14,017 |
) |
|
|
|
|
(14,017 |
) | |||||
Change in fair value of coal derivatives and coal trading activities, net |
|
|
|
(3,613 |
) |
|
|
|
|
(3,613 |
) | |||||
Selling, general and administrative expenses |
|
18,644 |
|
9,637 |
|
2,580 |
|
|
|
30,861 |
| |||||
Other operating income, net |
|
(3,111 |
) |
(3,027 |
) |
(12,360 |
) |
|
|
(18,498 |
) | |||||
|
|
19,716 |
|
975,628 |
|
(9,774 |
) |
|
|
985,570 |
| |||||
Income from investment in subsidiaries |
|
77,315 |
|
|
|
|
|
(77,315 |
) |
|
| |||||
Income from operations |
|
57,599 |
|
64,023 |
|
9,774 |
|
(77,315 |
) |
54,081 |
| |||||
Interest expense, net: |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
(82,097 |
) |
(11,484 |
) |
(1,038 |
) |
19,847 |
|
(74,772 |
) | |||||
Interest and investment income |
|
4,828 |
|
14,128 |
|
1,912 |
|
(19,847 |
) |
1,021 |
| |||||
|
|
(77,269 |
) |
2,644 |
|
874 |
|
|
|
(73,751 |
) | |||||
Income (loss) before income taxes |
|
(19,670 |
) |
66,667 |
|
10,648 |
|
(77,315 |
) |
(19,670 |
) | |||||
Provision for (benefit from) income taxes |
|
(22,660 |
) |
|
|
1,581 |
|
|
|
(21,079 |
) | |||||
Net income |
|
2,990 |
|
66,667 |
|
9,067 |
|
(77,315 |
) |
1,409 |
| |||||
Less: Net income attributable to noncontrolling interest |
|
(203 |
) |
|
|
|
|
|
|
(203 |
) | |||||
Net income attributable to Arch Coal, Inc. |
|
$ |
2,787 |
|
$ |
66,667 |
|
$ |
9,067 |
|
$ |
(77,315 |
) |
$ |
1,206 |
|
Total comprehensive income |
|
$ |
8,709 |
|
$ |
68,111 |
|
$ |
9,067 |
|
$ |
(77,178 |
) |
$ |
8,709 |
|
Condensed Consolidating Balance Sheets
March 31, 2013
|
|
Parent/Issuer |
|
Guarantor |
|
Non-Guarantor Subsidiaries |
|
Eliminations |
|
Consolidated |
| |||||
|
|
(In thousands) |
| |||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
597,308 |
|
$ |
120,429 |
|
$ |
12,382 |
|
$ |
|
|
$ |
730,119 |
|
Restricted cash |
|
2,290 |
|
|
|
|
|
|
|
2,290 |
| |||||
Short term investments |
|
248,414 |
|
|
|
|
|
|
|
248,414 |
| |||||
Receivables |
|
50,179 |
|
36,477 |
|
263,123 |
|
(4,735 |
) |
345,044 |
| |||||
Inventories |
|
|
|
368,240 |
|
|
|
|
|
368,240 |
| |||||
Other |
|
101,003 |
|
88,903 |
|
369 |
|
|
|
190,275 |
| |||||
Total current assets |
|
999,194 |
|
614,049 |
|
275,874 |
|
(4,735 |
) |
1,884,382 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Property, plant and equipment, net |
|
26,716 |
|
7,245,761 |
|
64 |
|
|
|
7,272,541 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investment in subsidiaries |
|
8,259,302 |
|
|
|
|
|
(8,259,302 |
) |
|
| |||||
Intercompany receivables |
|
(1,389,356 |
) |
1,637,093 |
|
(247,737 |
) |
|
|
|
| |||||
Note receivable from Arch Western |
|
675,000 |
|
|
|
|
|
(675,000 |
) |
|
| |||||
Other |
|
184,571 |
|
578,560 |
|
90 |
|
|
|
763,221 |
| |||||
Total other assets |
|
7,729,517 |
|
2,215,653 |
|
(247,647 |
) |
(8,934,302 |
) |
763,221 |
| |||||
Total assets |
|
$ |
8,755,427 |
|
$ |
10,075,463 |
|
$ |
28,291 |
|
$ |
(8,939,037 |
) |
$ |
9,920,144 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
$ |
27,269 |
|
$ |
201,925 |
|
$ |
75 |
|
$ |
|
|
$ |
229,269 |
|
Accrued expenses and other current liabilities |
|
105,059 |
|
251,850 |
|
509 |
|
(4,735 |
) |
352,683 |
| |||||
Current maturities of debt |
|
26,218 |
|
2,088 |
|
|
|
|
|
28,306 |
| |||||
Total current liabilities |
|
158,546 |
|
455,863 |
|
584 |
|
(4,735 |
) |
610,258 |
| |||||
Long-term debt |
|
5,059,611 |
|
22,594 |
|
|
|
|
|
5,082,205 |
| |||||
Note payable to Arch Coal |
|
|
|
675,000 |
|
|
|
(675,000 |
) |
|
| |||||
Asset retirement obligations |
|
1,672 |
|
409,303 |
|
|
|
|
|
410,975 |
| |||||
Accrued pension benefits |
|
34,595 |
|
34,747 |
|
|
|
|
|
69,342 |
| |||||
Accrued postretirement benefits other than pension |
|
14,486 |
|
31,927 |
|
|
|
|
|
46,413 |
| |||||
Accrued workers compensation |
|
24,032 |
|
57,007 |
|
|
|
|
|
81,039 |
| |||||
Deferred income taxes |
|
610,195 |
|
|
|
|
|
|
|
610,195 |
| |||||
Other noncurrent liabilities |
|
69,936 |
|
157,210 |
|
217 |
|
|
|
227,363 |
| |||||
Total liabilities |
|
5,973,073 |
|
1,843,651 |
|
801 |
|
(679,735 |
) |
7,137,790 |
| |||||
Stockholders equity |
|
2,782,354 |
|
8,231,812 |
|
27,490 |
|
(8,259,302 |
) |
2,782,354 |
| |||||
Total liabilities and stockholders equity |
|
$ |
8,755,427 |
|
$ |
10,075,463 |
|
$ |
28,291 |
|
$ |
(8,939,037 |