Arch Coal, Inc. Reports Fourth Quarter and Full Year 2017 Results
ST. LOUIS, Feb. 13, 2018 /PRNewswire/ -- Arch Coal, Inc. (NYSE: ARCH) today reported net income of $81.3 million, or $3.64 per diluted share, in the fourth quarter of 2017, compared with net income of $33.4 million, or $1.31 per diluted share, in the prior-year period. The company reported adjusted earnings before interest, taxes, depreciation, depletion, amortization, reorganization items and early debt extinguishment charges ("adjusted EBITDAR") (1 )of $97.6 million in the fourth quarter of 2017, a slight increase versus a year ago. Fourth quarter revenues reached $560.2 million on 23.5 million tons of coal sales. Arch's net tax benefit of $34.8 million results primarily from the benefit associated with the alternative minimum tax (AMT) credits that became refundable under the Tax Cuts and Jobs Act.
For the first full year since its public relisting, Arch reported net income of $238.5 million, or $9.84 per diluted share. Annual revenues topped $2.3 billion and the company reported $417.8 million of adjusted EBITDAR, reflecting Arch's ability to leverage its diverse asset base to capitalize on strong coking and international thermal coal markets.
"We are proud of the financial results achieved in 2017 as well as the positive strides we have taken to reward our shareholders, bolster our financial foundation, streamline our operating portfolio and expand our global customer base," said John W. Eaves, Arch's chief executive officer. "Moreover, we are pleased with our solid fourth quarter performance, which benefitted from improved performance at our metallurgical mines, strong execution at our Other Thermal operations and positive momentum in international coking and thermal coal markets. While severe winter weather at year-end resulted in lower than anticipated metallurgical shipments, we expect to make up those tons in the first half of 2018."
Capital Allocation Update and Financial Position
During the quarter, Arch continued to execute upon its share repurchase program, purchasing 1.1 million shares of common stock, representing 4.2 percent of shares outstanding, at a total cost of $84 million and an average price of $79.73 per share. The fourth quarter purchases include the previously announced stock purchase transaction with Monarch Alternative Capital in early December.
In total, over the course of 2017, Arch purchased approximately 4 million shares of common stock, representing nearly 16 percent of shares outstanding, at a total cost of $302 million. At year-end, the company had up to $198 million remaining for share repurchases under the existing authorization.
In addition, the company paid $7.6 million in cash dividends to shareholders during the fourth quarter of 2017, and $24.4 million during the course of 2017.
"Arch had a strong finish to 2017, completing a number of initiatives to enhance its financial position and increase shareholder value," said John T. Drexler, Arch's chief financial officer. "In addition to returning excess capital to our shareholders, we successfully refinanced and repriced our term loan during the year, trimmed our annual interest expense, and reduced both our collateral requirements and restricted cash balance."
Today, Arch's board of directors announced that it has approved an increase in the company's quarterly dividend to $0.40 per share from $0.35 per share. The board believes this to be a sustainable level through all stages of the dynamic market cycle. The next quarterly cash dividend payment of $0.40 per common share is scheduled to be paid on March 15, 2018 to stockholders of record at the close of business on March 5, 2018.
In the short time period since the capital allocation program was introduced, Arch has provided more than $326 million to shareholders through share buybacks and dividends.
"Arch's ongoing repurchase activity and the announced increase in our quarterly dividend is in alignment with our goal of consistently providing strong shareholder returns while maintaining sufficient liquidity," said Drexler.
Future dividend declarations and share repurchases will be subject to ongoing board review and authorization and will be based on a number of factors, including business and market conditions, Arch's future financial performance and other capital priorities.
The passage of the Tax Cuts and Jobs Act was a significant positive for Arch. The elimination of the corporate AMT will allow Arch to realize all of its remaining AMT credits, resulting in a tax benefit of $35 million in the fourth quarter. Arch filed carryback claims for a portion of those AMT credits in the fourth quarter and a $24.3 million refund was received in January. The remaining $10.7 million of credits will be refunded between 2018 and 2022. Going forward, Arch believes that the reduction in the corporate tax rate, elimination of the AMT, and the company's large net operating loss position should result in a cash tax rate of effectively zero for the foreseeable future.
Arch's cash and short-term investments totaled $429 million at December 31, 2017. At quarter-end, Arch's debt level totaled $333 million, inclusive of the term loan, equipment financing and other debt. The company generated $396 million in cash provided by operating activities for full year 2017, while capital expenditures totaled $59 million, resulting in $337 million of free cash flow(2).
Operational Results
"As expected, our Leer and Mountain Laurel mines rebounded well from the geologic challenges experienced in the third quarter of 2017, and each of Arch's operating segments made a significant contribution in the quarter just ended," said Paul A. Lang, Arch's president and chief operating officer. "In particular, we were successful in achieving higher price realizations, good cost containment and expanded margins in our Metallurgical and Other Thermal segments."
Metallurgical
4Q17 3Q17 4Q16 FY17
---- ---- ---- ----
Tons sold (in millions) 1.8 2.2 2.4 8.2
Coking 1.5 1.8 1.7 6.4
PCI - 0.1 0.2 0.5
Thermal 0.3 0.3 0.5 1.3
Coal sales per ton sold $90.82 $88.60 $65.61 $90.17
Coking $101.76 $99.21 $75.36 $102.36
PCI - $69.01 $54.78 $69.41
Thermal $25.92 $34.65 $36.86 $39.21
Cash cost per ton sold $59.50 $64.46 $52.98 $60.76
Cash margin per ton $31.32 $24.14 $12.63 $29.41
Coal sales per ton sold and cash cost per ton sold is defined and reconciled under "Reconciliation of non-GAAP measures"
Mining complexes included in this segment are Beckley, Leer, Lone Mountain, Mountain Laurel and Sentinel
Lone Mountain is included through September 14, 2017, the date of divestiture
-----------------------------------------------------------------------------
In the Metallurgical segment, coking coal volumes declined 17 percent when compared with the third quarter due to severe weather in the country's eastern half during December that affected rail service as well as unloading operations at East Coast export facilities. Despite this short-term interruption in the Metallurgical segment, Arch's fourth quarter cash margin per ton expanded 30 percent to $31.32 compared to $24.14 for the prior-quarter period. Average coking coal realizations were lifted by stronger pricing on index-linked tons that priced during the period. Fourth quarter segment cash cost per ton sold declined 8 percent when compared to the third quarter of 2017, driven primarily by normalized mining operations at the company's two longwall mines and good cost control at the other two operations in the segment. The decrease in segment cash cost per ton sold was offset to some degree by the decline in quarterly volumes. Excluding Lone Mountain, which was sold in the third quarter, full year cash cost per ton sold for the segment would have been $59.24.
Powder River Basin
4Q17 3Q17 4Q16 FY17
---- ---- ---- ----
Tons sold (in millions) 19.5 21.7 21.8 80.6
Coal sales per ton sold $12.32 $12.51 $12.41 $12.49
Cash cost per ton sold $10.78 $10.27 $9.88 $10.53
Cash margin per ton $1.54 $2.24 $2.53 $1.96
Coal sales per ton sold and cash cost per ton sold is defined and reconciled under "Reconciliation of non-GAAP measures"
Mining complexes included in this segment are Black Thunder and Coal Creek
--------------------------------------------------------------------------
In the Powder River Basin, fourth quarter 2017 sales volumes declined 2.2 million tons as a result of weak thermal demand driven by still-inflated utility stockpiles and a slow start to winter. Average sales price declined modestly when compared with the third quarter of 2017, reflecting lower pricing on market and index-priced tons and customer shipment mix, while segment cash cost per ton sold increased $0.51 over the same time period. Higher cash cost per ton sold was driven by reduced volumes as well as higher diesel fuel costs.
Other Thermal
4Q17 3Q17 4Q16 FY 17
---- ---- ---- -----
Tons sold (in millions) 2.3 2.3 2.5 9.2
Coal sales per ton sold $35.43 $35.08 $34.01 $34.85
Cash cost per ton sold $24.88 $26.05 $21.79 $24.20
Cash margin per ton $10.55 $9.03 $12.22 $10.65
Coal sales per ton sold and cash cost per ton sold are defined and reconciled under "Reconciliation of non-GAAP measures"
Mining complexes included in this segment are Coal-Mac, Viper and West Elk
--------------------------------------------------------------------------
In the Other Thermal segment, fourth quarter cash margins were $10.55 per ton, an increase of 17 percent versus the third quarter, primarily driven by the region's strong cost performance. Sales volumes were flat during the quarter over the same time period, as they continued to benefit from robust demand in global thermal markets coupled with steady shipments to Viper's baseload customer. Average sales price increased modestly compared to the prior-quarter period, reflecting a favorable mix of customer shipments and attractive pricing on export business. Notably, West Elk and Coal-Mac exported approximately 2.6 million tons into the seaborne thermal market during the year - the highest volume to be shipped for export from those operations since 2013. Arch expects to capitalize on this seaborne opportunity in 2018 as well.
Key Market Developments
Coking Coal Markets
-- Metallurgical coal continues to trade in a very strong range. High-Vol A
prices off the U.S. East Coast, as assessed by Platts, currently stand
at $214.50 per metric ton.
-- Moreover, High-Vol A reclaimed its premium over Low-Vol coals in late
December, with a $19 per metric ton advantage as currently assessed.
The spread between high-vol coals has widened as well, with High-Vol A
commanding a $70 per metric ton premium over High-Vol B presently.
-- Overall, Arch believes the global metallurgical market is in healthy
balance. As seen repeatedly in recent months, even small supply
disruptions or demand bumps continue to translate into significant price
moves. Most recently, logistical challenges in Australia, continued
supply pressures in China and buoyant steel markets have acted to
support metallurgical pricing.
-- Looking ahead, Arch expects metallurgical markets to remain in relative
equilibrium throughout 2018.
Thermal Coal Markets
-- International thermal markets remain strong on growing Asian demand,
with prompt month Newcastle prices at just under $100 per metric ton - a
favorable level for Arch's West Elk operation.
-- In the domestic markets, heating degree days year to date are up more
than 15 percent over 2017 levels.
-- Arch believes coal stockpiles declined by an estimated 5 million tons in
January - and are down by a total of 65 million tons since the beginning
of 2016. However, they are still 20 million to 30 million tons higher
than target - at an estimated 130 million tons at the end of January.
-- Powder River Basin prices have moved sideways in recent months,
reflecting comfortable stockpile levels and limited buying activity.
However, Arch continues to believe that U.S. generators have a
significant amount of tonnage to buy for the remainder of 2018, and
expects increased activity as we progress through the first half of the
year.
2018 Outlook
The company is initiating full year sales volume guidance for 2018. Based on current expectations, Arch expects total sales of between 92 million and 99 million tons, a level in line with the company's 2017 sales volumes. Included in this range are projected sales of between 6.4 million and 7.0 million tons of metallurgical coal.
On the metallurgical side, Arch has committed select volumes at strong pricing with its North American customer base. Arch also has a large percentage of its 2018 coking coal either committed and subject to market pricing or still available, which will allow it to capitalize on strong seaborne coking coal market dynamics. At the expected midpoint of its volume guidance level, Arch is nearly 65 percent committed on coking coal sales for the full year, with approximately 60 percent of that committed volume exposed to market-based pricing. Arch expects that approximately 80 percent of its metallurgical production will be sold to international steelmakers.
Arch expects to sell between 86 million and 92 million tons of thermal coal in 2018. At the midpoint of guidance, Arch's thermal sales are approximately 82 percent committed for full year 2018.
Arch currently anticipates that cash cost per ton sold in the Metallurgical and Powder River Basin segments will be similar to 2017 levels. The Other Thermal segment's cash cost per ton sold is expected to be higher, adjusted for anticipated production mix between the mines in the segment.
"Looking ahead, given the company's low-cost operational profile and leverage to the upside potential of coal markets, Arch is exceptionally positioned to capitalize on positive fundamentals in international coking and thermal coal markets and the eventual recovery in domestic thermal markets," said Eaves. "We firmly believe Arch's diversified asset base, strategic marketing plan, talented and experienced workforce and strong balance sheet should enable the company to create significant value for our shareholders, earn substantial returns and generate considerable free cash flow in the future."
2018(3)
------
Tons $ per ton
---- ---------
Sales Volume
(in millions
of tons)
-------------
Coking 6.4 - 7.0
Thermal 86.0 - 92.0
------- ---- ----
Total 92.4 - 99.0
Metallurgical
(in millions
of tons)
-------------
Committed,
Priced
Coking 1.7 $103.96
Committed,
Unpriced
Coking 2.6
---------- ---
Total
Committed
Coking 4.3
Committed,
Priced
Thermal
Byproduct 0.5 $30.43
Committed,
Unpriced
Thermal
Byproduct -
---------- ---
Total
Committed
Thermal
Byproduct 0.5
Average
Metallurgical
Cash Cost $55.50 - $60.50
Powder River
Basin (in
millions of
tons)
------------
Committed,
Priced 62.1 $11.95
Committed,
Unpriced 2.3
---------- ---
Total
Committed 64.4
Average Cash
Cost $10.45 - $10.95
Other Thermal
(in millions
of tons)
-------------
Committed,
Priced 7.7 $36.88
Committed,
Unpriced -
---------- ---
Total
Committed 7.7
Average Cash
Cost $27.50 - $31.50
Corporate (in
$ millions)
-------------
D,D&A
excluding
Sales
Contract
Amortization $115 - $120
Sales
Contract
Amortization $11 - $12
ARO Accretion $27 - $29
S,G&A $83 - $90
Interest
Expense $17 - $19
Capital
Expenditures $80 - $90
Tax Provision
(%) Approximately 0%
------------- ---------------
A conference call regarding Arch Coal's fourth quarter and full year 2017 financial results will be webcast live today at 10 a.m. Eastern time. The conference call can be accessed via the "investor" section of the Arch Coal website (http://investor.archcoal.com).
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, and the Tax Cuts and Jobs Act and other tax reforms; 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 Securities and Exchange Commission.
(1) Adjusted EBITDAR is defined and reconciled in the "Reconciliation of Non-GAAP measures" in this release.
(2 )Free Cash Flow is defined and reconciled in the "Reconciliation of Non-GAAP measures" in this release.
(3 )The Company is unable to present a quantitative reconciliation of its forward-looking non-GAAP Segment cash cost per ton sold financial measures to the most directly comparable GAAP measures without unreasonable efforts due to the inherent difficulty in forecasting and quantifying with reasonable accuracy significant items required for the reconciliation. The most directly comparable GAAP measure, GAAP cost of sales, is not accessible without unreasonable efforts on a forward-looking basis. The reconciling items for this non-GAAP measure are transportation costs, which are a component of GAAP revenues and cost of sales; the impact of hedging activity related to commodity purchases that do not receive hedge accounting; and idle and administrative costs that are not included in a reportable segment. Management is unable to predict without unreasonable efforts transportation costs due to uncertainty as to the end market and FOB point for uncommitted sales volumes and the final shipping point for export shipments. Management is unable to predict without unreasonable efforts the impact of hedging activity related to commodity purchases that do not receive hedge accounting due to fluctuations in commodity prices, which are difficult to forecast due to their inherent volatility. These amounts have historically and may continue to vary significantly from quarter to quarter and material changes to these items could have a significant effect on our future GAAP results. Idle and administrative costs that are not included in a reportable segment are expected to be between $15 million and $20 million in 2018.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Successor Successor Predecessor
--------- --------- -----------
Three Months Ended Twelve Months October 2, 2016 January 1, 2016
December 31, 2017 Ended through December 31, through October 1,
December 31, 2017 2016 2016
---- ----
(Unaudited) (Unaudited)
Revenues $560,244 $2,324,623 $575,688 $1,398,709
Costs, expenses and other operating
Cost of sales 451,221 1,843,093 470,644 1,264,464
Depreciation,
depletion and
amortization 27,928 122,464 32,604 191,581
Accretion on asset
retirement
obligations 7,383 30,209 7,634 24,321
Amortization of sales
contracts, net 11,082 53,985 796 (728)
Change in fair value
of coal derivatives
and coal trading
activities, net 4,477 7,222 396 2,856
Asset impairment and
mine closure costs - - - 129,267
Selling, general and
administrative
expenses 23,100 86,821 22,836 59,343
Gain on sale of Lone
Mountain Processing,
Inc. 277 (21,297) - -
Other operating
income, net (16,175) (30,270) (5,340) (15,257)
------- ------- ------ -------
509,293 2,092,227 529,570 1,655,847
------- --------- ------- ---------
Income (loss) from
operations 50,951 232,396 46,118 (257,138)
Interest expense, net
Interest expense (5,505) (26,905) (11,241) (135,888)
Interest and
investment income 560 2,649 487 2,653
---
(4,945) (24,256) (10,754) (133,235)
------ ------- ------- --------
Income (loss) before
nonoperating expenses 46,006 208,140 35,364 (390,373)
Nonoperating income (loss)
Net loss resulting
from early retirement
of debt and debt
restructuring - (2,547) - (2,213)
Reorganization items,
net 494 (2,398) (759) 1,630,041
--- ------ ---- ---------
494 (4,945) (759) 1,627,828
--- ------ ---- ---------
Income before income
taxes 46,500 203,195 34,605 1,237,455
Provision for (benefit
from) income taxes (34,771) (35,255) 1,156 (4,626)
------- ------- ----- ------
Net income $81,271 $238,450 $33,449 $1,242,081
======= ======== ======= ==========
Net income per common share
Basic EPS $3.75 $10.05 $1.34 N/A
===== ====== ===== ===
Diluted EPS $3.64 $9.84 $1.31 N/A
===== ===== ===== ===
Weighted average shares outstanding
Basic weighted average
shares outstanding 21,653 23,725 25,002 N/A
====== ====== ====== ===
Diluted weighted
average shares
outstanding 22,333 24,240 25,469 N/A
====== ====== ====== ===
Dividends declared per
common share $0.35 $1.05 $ - $ -
===== ===== ================== ====================
Adjusted EBITDAR (A)
(Unaudited) $97,621 $417,757 $94,497 $87,303
======= ======== ======= =======
Adjusted diluted
income per common
share (A) $4.12 $11.36 $1.65 N/A
===== ====== ===== ===
(A) Adjusted EBITDAR and Adjusted diluted income per common share are defined and reconciled under "Reconciliation of Non-GAAP Measures" later in this release.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
December 31, December 31,
2017 2016
---- ----
(Unaudited)
Assets
Current assets
Cash
and
cash
equivalents $273,387 $305,372
Short
term
investments 155,846 88,072
Restricted
cash - 71,050
Trade
accounts
receivable 172,604 184,483
Other
receivables 29,771 19,877
Inventories 128,960 113,462
Other
current
assets 70,426 96,306
------ ------
Total
current
assets 830,994 878,622
Property,
plant
and
equipment,
net 955,948 1,053,603
Other assets
Equity
investments 106,107 96,074
Other
noncurrent
assets 86,583 108,298
------ -------
Total
other
assets 192,690 204,372
------- -------
Total
assets $1,979,632 $2,136,597
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts
payable $134,137 $95,953
Accrued
expenses
and
other
current
liabilities 184,161 205,240
Current
maturities
of
debt 15,783 11,038
------ ------
Total
current
liabilities 334,081 312,231
Long-
term
debt 310,134 351,841
Asset
retirement
obligations 308,855 337,227
Accrued
pension
benefits 14,036 38,884
Accrued
postretirement
benefits
other
than
pension 102,369 101,445
Accrued
workers'
compensation 184,835 184,568
Other
noncurrent
liabilities 59,457 63,824
------ ------
Total
liabilities 1,313,767 1,390,020
Stockholders' equity
Common
Stock 250 250
Paid-
in
capital 700,125 688,424
Retained
earnings 247,232 33,449
Treasury
stock,
at
cost (302,109) -
Accumulated
other
comprehensive
income 20,367 24,454
------ ------
Total
stockholders'
equity 665,865 746,577
------- -------
Total
liabilities
and
stockholders'
equity $1,979,632 $2,136,597
========== ==========
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Successor Successor Predecessor
--------- --------- -----------
Twelve Months Ended October 2, 2016 January 1, 2016
December 31, 2017 through December 31, through October 1,
2016 2016
---- ----
(Unaudited)
Operating activities
Net income $238,450 $33,449 $1,242,081
Adjustments to reconcile to cash provided by (used in) operating activities:
Depreciation,
depletion and
amortization 122,464 32,604 191,581
Accretion on asset
retirement
obligations 30,209 7,634 24,321
Amortization of sales
contracts, net 53,985 796 (728)
Prepaid royalties
expensed 2,905 2,587 4,791
Deferred income taxes (21,965) 3 (419)
Employee stock-based
compensation expense 10,437 1,032 2,096
Gains on disposals
and divestitures (24,327) (485) (6,628)
Asset impairment and
noncash mine closure
costs - - 119,194
Net loss resulting
from early
retirement of debt
and debt
restructuring 2,547 - 2,213
Non-cash bankruptcy
reorganization items - - (1,775,910)
Amortization relating
to financing
activities 3,736 467 12,800
Changes in:
Receivables 8,370 (22,196) (42,786)
Inventories (19,626) 24,870 34,440
Accounts payable,
accrued expenses and
other current
liabilities 17,173 34,129 15,316
Income taxes, net (6,834) 1,371 (4,216)
Other (21,051) (32,069) (46,364)
Cash provided by
(used in) operating
activities 396,473 84,192 (228,218)
Investing activities
Capital expenditures (59,205) (15,214) (82,434)
Minimum royalty
payments (5,296) (63) (305)
Proceeds from
(consideration paid
for) disposals and
divestitures 12,920 572 (2,921)
Purchases of short
term investments (258,948) - (98,750)
Proceeds from sales
of short term
investments 190,064 23,000 187,006
Investments in and
advances to
affiliates, net (10,173) (823) (3,441)
Withdrawals of
restricted cash 70,836 10,512 15,979
------ ------ ------
Cash provided by
(used in) investing
activities (59,802) 17,984 15,134
Financing activities
Proceeds from
issuance of term
loan due 2024 298,500 - -
Payments to
extinguish term loan
due 2021 (325,684) (816) -
Payments on term loan
due 2024 (2,250) - -
Net payments on other
debt (694) 3,374 (11,986)
Debt financing costs (10,149) - (23,011)
Net loss resulting
from early
retirement of debt
and debt
restructuring (2,360) - (2,213)
Dividends paid (24,369) - -
Purchases of treasury
stock (301,512) - -
Other (138) 151 -
---- --- ---
Cash provided by
(used in) financing
activities (368,656) 2,709 (37,210)
-------- ----- -------
Increase (decrease)
in cash and cash
equivalents (31,985) 104,885 (250,294)
Cash and cash
equivalents,
beginning of period 305,372 200,487 450,781
------- ------- -------
Cash and cash
equivalents, end of
period $273,387 $305,372 $200,487
======== ======== ========
Arch Coal, Inc. and Subsidiaries
Schedule of Consolidated Debt
(In thousands)
December 31, December 31,
2017 2016
---- ----
(Unaudited)
Term loan
due 2024
($297.8
million
face
value) $296,435 $ -
Term loan
due 2021
($325.7
million
face
value) - 325,684
Other 36,514 37,195
Debt
issuance
costs (7,032) -
------ ---
325,917 362,879
Less:
current
maturities
of debt 15,783 11,038
Long-term
debt $310,134 $351,841
======== ========
Calculation
of net debt
Total debt
(excluding
debt
issuance
costs) $332,949 $362,879
Less liquid
assets:
Cash and
cash
equivalents 273,387 305,372
Short term
investments 155,846 88,072
------- ------
429,233 393,444
Net debt $(96,284) $(30,565)
======== ========
Arch Coal, Inc. and Subsidiaries
Operational Performance
(In millions, except per ton data)
Three Months Ended Three Months Ended October 2, 2016 through Twelve Months Ended
December 31, 2017 September 30, 2017 December 31, 2016 December 31, 2017
----------------- ------------------ ----------------- -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Powder River Basin
Tons Sold 19.5 21.7 21.8 80.6
Segment Sales $239.9 $12.32 $271.7 $12.51 $270.9 $12.41 $1,006.8 $12.49
Segment Cash Cost
of Sales 209.9 10.78 223.1 10.27 215.5 9.88 849.0 10.53
----- ----- ----- ----- ----- ---- ----- -----
Segment Cash Margin 30.0 1.54 48.6 2.24 55.4 2.53 157.7 1.96
Metallurgical
Tons Sold 1.8 2.2 2.4 8.2
Segment Sales $164.1 $90.82 $196.8 $88.60 $160.2 $65.61 $738.6 $90.17
Segment Cash Cost
of Sales 107.5 59.50 143.2 64.46 129.4 52.98 497.7 60.76
----- ----- ----- ----- ----- ----- ----- -----
Segment Cash Margin 56.6 31.32 53.6 24.14 30.8 12.63 240.9 29.41
Other Thermal
Tons Sold 2.3 2.3 2.5 9.2
Segment Sales $80.1 $35.43 $81.6 $35.08 $85.4 $34.01 $320.8 $34.85
Segment Cash Cost
of Sales 56.3 24.88 60.6 26.05 54.7 21.79 222.7 24.20
---- ----- ---- ----- ---- ----- ----- -----
Segment Cash Margin 23.9 10.55 21.0 9.03 30.7 12.22 98.1 10.65
Total Segment Cash
Margin $110.4 $123.3 $116.9 $496.7
Selling, general
and administrative
expenses (23.1) (21.1) (22.8) (86.8)
Liquidated damages
under export
logistics
contracts - - - -
Other 10.3 2.1 0.4 7.9
---- --- --- ---
Adjusted EBITDAR $97.6 $104.3 $94.5 $417.8
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Arch Coal, Inc. and Subsidiaries
Reconciliation of NON-GAAP Measures
(In millions, except per ton data)
Included in the accompanying release, we have disclosed certain non-GAAP measures as defined by Regulation G.
The following reconciles these items to the most directly comparable GAAP measure.
Non-GAAP Segment coal sales per ton sold
Non-GAAP Segment coal sales per ton sold is calculated as segment coal sales revenues divided by segment tons sold. Segment coal sales revenues are adjusted for transportation costs, and may be adjusted for other
items that, due to generally accepted accounting principles, are classified in "other income" on the statement of operations, but relate to price protection on the sale of coal. Segment coal sales per ton sold is not
a measure of financial performance in accordance with generally accepted accounting principles. We believe segment coal sales per ton sold provides useful information to investors as it better reflects our revenue
for the quality of coal sold and our operating results by including all income from coal sales. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition.
Therefore, segment coal sales revenues should not be considered in isolation, nor as an alternative to coal sales revenues under generally accepted accounting principles.
Quarter ended
December 31, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Revenues in the
consolidated
statements of
operations $244,191 $195,661 $109,100 $11,292 $560,244
Other revenues - - - - -
Coal Sales $244,191 $195,661 $109,100 $11,292 $560,244
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - - 182 - $182
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - - - 11,291 11,291
Transportation costs 4,306 31,545 $28,771 1 64,623
Non-GAAP Segment
coal sales revenues $239,885 $164,116 $80,147 $ - $484,149
-------- -------- ------- --------------------- --------
Tons sold 19,473 1,807 2,262
Coal sales per ton
sold $12.32 $90.82 $35.43
Quarter ended
September 30, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Revenues in the
consolidated
statements of
operations $275,999 $238,946 $93,859 $4,734 $613,539
Other revenues - - - - -
Coal Sales $275,999 $238,946 $93,859 $4,734 $613,539
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - - 19 - $19
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - - - 3,720 3,720
Transportation costs 4,291 42,170 $12,239 1,014 59,714
Non-GAAP Segment
coal sales revenues $271,708 $196,776 $81,602 $ - $550,086
-------- -------- ------- --------------------- --------
Tons sold 21,713 2,221 2,326
Coal sales per ton
sold $12.51 $88.60 $35.08
October 2 through
December 31, 2016 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Revenues in the
consolidated
statements of
operations $275,702 $200,378 $97,382 $2,226 $575,688
Other revenues - - - - -
Coal Sales $275,702 $200,378 $97,382 $2,226 $575,688
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - - (112) - $(112)
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - - - 2,181 2,181
Transportation costs 4,825 40,171 $12,130 45 57,171
Non-GAAP Segment
coal sales revenues $270,877 $160,207 $85,364 $ - $516,448
-------- -------- ------- --------------------- --------
Tons sold 21,824 2,442 2,510
Coal sales per ton
sold $12.41 $65.61 $34.01
Year ended December
31, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Revenues in the
consolidated
statements of
operations $1,024,197 $887,839 $396,504 $16,083 $2,324,623
Other revenues - - - - -
Coal Sales $1,024,197 $887,839 $396,504 $16,083 $2,324,623
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - - 200 - $200
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - - - 15,061 15,061
Transportation costs 17,437 149,212 $75,491 1,022 243,162
Non-GAAP Segment
coal sales revenues $1,006,760 $738,627 $320,813 $ - $2,066,200
---------- -------- -------- --------------------- ----------
Tons sold 80,604 8,192 9,205
Coal sales per ton
sold $12.49 $90.17 $34.85
Non-GAAP Segment cash cost per ton sold
Non-GAAP Segment cash cost per ton sold is calculated as segment cash cost of coal sales divided by segment tons sold. Segment cash cost of coal sales is adjusted for transportation costs, and may be adjusted for
other items that, due to generally accepted accounting principles, are classified in "other income" on the statement of operations, but relate directly to the costs incurred to produce coal. Segment cash cost per ton
sold is not a measure of financial performance in accordance with generally accepted accounting principles. We believe segment cash cost per ton sold better reflects our controllable costs and our operating results
by including all costs incurred to produce coal. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Therefore, segment cash cost of coal sales
should not be considered in isolation, nor as an alternative to cost of sales under generally accepted accounting principles.
Quarter ended
December 31, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Cost of sales in
the consolidated
statements of
operations $214,006 $139,059 $85,038 $13,119 $451,221
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" (229) - - - (229)
Transportation costs 4,306 31,545 28,771 1 64,623
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - - - 11,405 11,405
Fresh start coal
inventory fair value
adjustment - - - - -
Other (operating
overhead, certain
actuarial, etc.) - - - 1,712 1,712
Non-GAAP Segment
cash cost of coal
sales $209,929 $107,514 $56,267 $ - $373,709
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Tons sold 19,473 1,807 2,262
Cash cost per ton
sold $10.78 $59.50 $24.88
Quarter ended
September 30, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Cost of sales in
the consolidated
statements of
operations $226,449 $185,321 $72,832 $10,823 $495,424
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" (921) - - - (921)
Transportation costs 4,291 42,170 12,239 1,014 59,714
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - - - 7,979 7,979
Fresh start coal
inventory fair value
adjustment - - - - -
Other (operating
overhead, certain
actuarial, etc.) - - - 1,829 1,829
Non-GAAP Segment
cash cost of coal
sales $223,079 $143,151 $60,593 $ - $426,822
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Tons sold 21,713 2,221 2,326
Cash cost per ton
sold $10.27 $64.46 $26.05
October 2 through
December 31, 2016 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
Cost of sales in the
consolidated
statements of
operations $220,714 $169,532 $66,811 $13,586 $470,644
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" 363 - - - 363
Transportation costs 4,825 40,171 12,130 45 57,171
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - - - 5,853 5,853
Fresh start coal
inventory fair value
adjustment - - - 7,345 7,345
Other (operating
overhead, certain
actuarial, etc.) - - - 344 344
Reported segment cost
of coal sales $215,526 $129,361 $54,681 $ - $399,568
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Tons sold 21,824 2,442 2,510
Cash cost per ton
sold $9.88 $52.98 $21.79
Year ended December
31, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
Cost of sales in the
consolidated
statements of
operations $863,836 $646,911 $298,229 $34,118 $1,843,093
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" (2,645) - - - (2,645)
Transportation costs 17,437 149,212 75,491 1,022 243,162
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - - - 28,065 28,065
Fresh start coal
inventory fair value
adjustment - - - - -
Other (operating
overhead, certain
actuarial, etc.) - - - 5,031 5,031
Reported segment cost
of coal sales $849,044 $497,699 $222,738 $ - $1,569,480
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Tons sold 80,604 8,192 9,205
Cash cost per ton
sold $10.53 $60.76 $24.20
Adjusted EBITDAR
Adjusted EBITDAR is defined as net income attributable to the Company before the effect of net interest expense, income taxes, depreciation, depletion and amortization, accretion on asset retirement obligations,
amortization of sales contracts and reorganization items, net. Adjusted EBITDAR may also be adjusted for items that may not reflect the trend of future results by excluding transactions that are not indicative of the
Company's core operating performance.
Adjusted EBITDAR is not a measure of financial performance in accordance with generally accepted accounting principles, and items excluded from Adjusted EBITDAR are significant in understanding and assessing our
financial condition. Therefore, Adjusted EBITDAR 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. The Company uses adjusted EBITDAR to measure the operating performance of its segments and allocate resources to the segments. Furthermore,
analogous measures are used by industry analysts and investors to evaluate our operating performance. Investors should be aware that our presentation of Adjusted EBITDAR may not be comparable to similarly titled
measures used by other companies. The table below shows how we calculate Adjusted EBITDAR.
Successor Successor Predecessor
--------- --------- -----------
Three Months Twelve Months October 2, 2016 January 1, 2016
Ended December Ended December through December through October 1,
31, 2017 31, 2017 31, 2016 2016
-------- -------- -------- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net income $81,271 $238,450 $33,449 $1,242,081
Provision for (benefit
from) income taxes (34,771) (35,255) 1,156 (4,626)
Interest expense, net 4,945 24,256 10,754 133,235
Depreciation, depletion
and amortization 27,928 122,464 32,604 191,581
Accretion on asset
retirement obligations 7,383 30,209 7,634 24,321
Amortization of sales
contracts, net 11,082 53,985 796 (728)
Asset impairment and mine
closure costs - - - 129,267
Gain on sale of Lone
Mountain Processing, Inc. 277 (21,297) - -
Net loss resulting from
early retirement of debt
and debt restructuring - 2,547 - 2,213
Reorganization items, net (494) 2,398 759 (1,630,041)
Fresh start coal inventory
adjustment - - 7,345 -
--- --- ----- ---
Adjusted EBITDAR $97,621 $417,757 $94,497 $87,303
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Adjusted net income (loss) and adjusted diluted income (loss) per share
Adjusted net income (loss) and adjusted diluted income (loss) per common share are adjusted for the after-tax impact of reorganization items, net and are not measures of financial performance in accordance with
generally accepted accounting principles. Adjusted net income (loss) and adjusted diluted income (loss) per common share may also be adjusted for items that may not reflect the trend of future results. We believe
that adjusted net income (loss) and adjusted diluted income (loss) per common share better reflect the trend of our future results by excluding transactions that are not indicative of the Company's core operating
performance. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Therefore, adjusted net income (loss) and adjusted diluted income (loss) per share
should not be considered in isolation, nor as an alternative to net income (loss) or diluted income (loss) per common share under generally accepted accounting principles.
Successor Successor Predecessor
--------- --------- -----------
Three Months Twelve Months October 2, 2016 January 1, 2016
Ended December Ended December through December through October 1,
31, 2017 31, 2017 31, 2016 2016
-------- -------- -------- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net income $81,271 $238,450 $33,449 $1,242,081
Amortization of sales
contracts, net 11,082 53,985 796 (728)
Asset impairment and mine
closure costs - - - 129,267
Gain on sale of Lone
Mountain Processing, Inc. 277 (21,297) - -
Net loss resulting from
early retirement of debt
and debt restructuring - 2,547 - 2,213
Reorganization items, net (494) 2,398 759 (1,630,041)
Fresh start coal inventory
adjustment - - 7,345 -
Tax impact of adjustment (217) (753) (287) 262
---- ---- ---- ---
Adjusted net income (loss) $91,919 $275,330 $42,062 $(256,946)
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Diluted weighted average
shares outstanding 22,333 24,240 25,469 N/A
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Diluted income per share $3.64 $9.84 $1.31 N/A
Amortization of sales
contracts, net 0.50 2.23 0.03 N/A
Asset impairment and mine
closure costs - - - N/A
Gain on sale of Lone
Mountain Processing, Inc. 0.01 (0.88) - N/A
Net loss resulting from
early retirement of debt
and debt restructuring - 0.11 - N/A
Reorganization items, net (0.02) 0.10 0.03 N/A
Fresh start coal inventory
adjustment - - 0.29
Tax impact of adjustments (0.01) (0.04) 0.28 N/A
Adjusted diluted income
per share $4.12 $11.36 $1.65 N/A
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Free Cash Flow
Free cash flow is defined as cash provided by (used in) operating activities less cash used for capital expenditures. Free cash flow is used by management as a measure of the Company's ability to generate excess cash
flow from our core business operations. Free cash flow should not be considered in isolation or as an alternative to similar measures under generally accepted accounting principles.
Successor Successor Predecessor
--------- --------- -----------
Twelve Months October 2, 2016 January 1, 2016
Ended December through December through October 1,
31, 2017 31, 2016 2016
-------- -------- ----
(Unaudited) (Unaudited) (Unaudited)
Cash provided by (used in) operating activities $396,473 $84,192 $(228,218)
Cash used for capital expenditures (59,205) (15,214) (82,434)
------- ------- -------
Free cash flow $337,268 $68,978 $(310,652)
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SOURCE Arch Coal, Inc.
