Arch Coal, Inc. Reports First Quarter 2018 Results
Arch Coal, Inc. Reports First Quarter 2018 Results
ST. LOUIS, April 26, 2018 /PRNewswire/ -- Arch Coal, Inc. (NYSE: ARCH) today reported net income of $60.0 million, or $2.74 per diluted share, in the first quarter of 2018, compared with net income of $51.7 million, or $2.03 per diluted share, in the prior-year period. The company earned adjusted earnings before interest, taxes, depreciation, depletion, amortization and non-operating expenses ("adjusted EBITDA") (1) of $104.9 million in the first quarter of 2018, compared with $121.2 million of adjusted EBITDA earned in the first quarter of 2017. Revenues totaled $575.3 million for the three months ended March 31, 2018.
"During the first quarter, Arch made significant progress on advancing a range of strategic objectives, including increasing our penetration into seaborne coking coal markets and executing on our ongoing stock buyback program," said John W. Eaves, Arch's chief executive officer. "Our greater international sales exposure yielded significant benefits as we achieved our strongest-ever Metallurgical segment margins despite higher average costs from the coking coal portfolio, and we spent nearly $40 million during the quarter to buy back additional shares. Given the anticipation of substantial free cash flow during the remainder of the year, we expect to focus intently on our capital return program as we strive to create compelling value for our shareholders."
Capital Allocation and Financial Update
During the first quarter, Arch continued to systematically execute upon its share repurchase program, purchasing more than 0.4 million shares of common stock at a total cost of $39 million and an average price of $94.79 per share.
To date, Arch has purchased approximately 4.4 million shares of common stock, representing approximately 18 percent of shares outstanding at the time of the program's initiation, at a total cost of nearly $341 million and at an average price of $77.71 per share. At quarter-end, the company had up to $159 million remaining for share repurchases under the existing authorization.
Notably, since May 2017, inclusive of $341 million in share repurchases and more than $32 million in quarterly dividends, Arch has returned nearly $375 million to shareholders.
"We are pleased with the great progress we have achieved to date on our capital allocation initiatives," said John T. Drexler, Arch's senior vice president and chief financial officer. "With a stated and proven capital strategy and the potential for strong cash flows in future quarters, we would expect to continue our robust capital return activities over the balance of the year."
In addition to the stock repurchases, the company paid $8.3 million in cash dividends to shareholders during the first quarter of 2018. The next quarterly cash dividend payment of $0.40 per common share was approved by the board of directors, and is scheduled to be paid on June 15, 2018 to stockholders of record at the close of business on May 31, 2018.
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.
In early April 2018, Arch enhanced its already-strong capital structure by reducing the interest rate on its senior secured term loan facility by 50 basis points. With this reduction, Arch now expects its 2018 net interest expense to be between $16 million and $18 million. Notably, since the public relisting in October 2016, Arch has lowered the interest rate on the term loan by a total of 625 basis points and reduced its annual interest expense by approximately $22 million.
At quarter-end, Arch's cash and short-term investments totaled nearly $433 million. Arch's debt totaled $329 million, inclusive of the term loan, equipment financing and other debt, resulting in a $104 million net cash position.
"Arch's successful series of capital market transactions has further improved and simplified our capital structure," said Drexler. "Looking ahead, we remain committed to maintaining our industry-leading balance sheet strength and are resolute in our commitment to efficiently returning excess free cash to shareholders while satisfying the capital requirements of our business."
Operational Results
"During the quarter, our global coking coal sales strategy, better-than-expected operating performance at the Leer mine and solid support from our cash-generating thermal franchise allowed Arch to overcome weather-related logistical complications and higher costs in the Metallurgical segment," said Paul A. Lang, Arch's president and chief operating officer. "Going forward, we will continue to focus on controlling and lowering costs and managing the quarterly volume volatility that comes with a more significant global customer base."
Metallurgical
1Q18 4Q17 1Q17
---- ---- ----
Tons sold (in
millions) 1.8 1.8 2.1
Coking 1.5 1.5 1.5
PCI - - 0.1
Thermal 0.3 0.3 0.5
Coal sales per ton
sold $115.97 $90.82 $90.84
Coking $131.90 $101.76 $105.51
PCI - - $62.34
Thermal $31.37 $25.92 $47.64
Cash cost per ton
sold $68.33 $59.50 $57.67
Cash margin per
ton $47.64 $31.32 $33.17
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
First quarter 2018 coking coal shipments include 0.2 million tons to North American customers, the vast majority of which is
carryover, at $91.74 per ton and approximately 1.3 million tons to seaborne customers at $139.79 per ton
----------------------------------------------------------------------------------------------------------------------------
In the Metallurgical segment, coking coal sales volumes were flat when compared with the fourth quarter of 2017. Shipment levels were less than ratable due to weather and supply-chain disruptions in the early part of the quarter and, more recently, to widespread loading delays at export facilities on the East Coast. Arch estimates that 0.1 million tons of coking coal slipped into the second quarter. Metallurgical coal margins per ton expanded significantly, reaching $47.64 per ton during the quarter and representing a more than 50 percent increase over the prior-quarter period. This is the highest ever recorded cash margin per ton for the segment. Average coking coal realizations rose more than $30 per ton over the same time period due to a larger percentage of seaborne shipments, ongoing supportive metallurgical coal market fundamentals and significantly higher pricing on index-based and negotiated tons that priced during the quarter.
Increased price realizations were offset somewhat by higher-than-expected cash cost per ton sold during the period. The 15 percent sequential increase in cash cost per ton sold was driven by several one-time items, higher sales-sensitive costs associated with increased coking coal prices, lower sales volumes and higher mining costs at Mountain Laurel.
"After a solid fourth quarter performance, Mountain Laurel again encountered challenging geology during the first quarter of 2018," said Lang. "The mine is preparing to transition to a new panel where we anticipate improved operating conditions. However, we have tempered our expectations for the mine for the remainder of the year."
As result of the challenges at Mountain Laurel and ongoing shipment variability due to timing complexities in the seaborne logistics chain, Arch is lowering its annual coking coal sales expectations modestly to approximately 6.5 million tons. Arch expects coking coal shipments to be roughly flat in the second quarter of 2018 when compared with the first quarter of the year. This view reflects two scheduled longwall moves in the segment and a heavy shipment schedule in the last 10 days of June, which could potentially result in volumes slipping into the third quarter of 2018.
Arch now expects its annual cash cost per ton sold for the segment to be in the range of $60.00 per ton to $65.00 per ton. Despite this increase, Arch is confident its coking coal operations represent some of the most cost-competitive assets in the U.S. metallurgical space and will focus on controlling and taking costs out of the segment's operational structure.
Powder River Basin
1Q18 4Q17 1Q17
---- ---- ----
Tons sold (in
millions) 19.7 19.5 21.3
Coal sales per
ton sold $12.15 $12.32 $12.57
Cash cost per
ton sold $10.77 $10.78 $10.33
Cash margin per
ton $1.38 $1.54 $2.24
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, first quarter 2018 sales volumes and cash costs per ton sold were essentially flat when compared to the fourth quarter of 2017, on steady customer shipments driven by normal winter weather patterns during the period. Average sales price per ton sold declined marginally when compared with the same time period due to the roll-off of higher-priced legacy sales contracts, which resulted in a sequential cash margin decline of $0.16 per ton.
Looking ahead, given current market fundamentals for domestic thermal coal and persistent weak spot pricing for Powder River Basin products in general, Arch has elected to reduce its annual production from the segment - specifically from its Black Thunder mine. For full year 2018, the company now expects Black Thunder to produce between 62 million and 68 million tons compared with the previously indicated 70 million to 80 million tons. Arch is maintaining its segment cost guidance of $10.45 to $10.95 per ton for the full year.
Other Thermal
1Q18 4Q17 1Q17
---- ---- ----
Tons
sold
(in
millions) 2.2 2.3 2.3
Coal
sales
per
ton
sold $35.59 $35.43 $35.51
Cash
cost
per
ton
sold $28.53 $24.88 $23.82
Cash
margin
per
ton $7.06 $10.55 $11.69
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, first quarter sales volumes declined modestly from the fourth quarter as a result of two export vessels, or nearly 0.2 million tons, slipping out of late March into April. Coal sales per ton sold during the quarter remained robust, sustained by strong pricing on international commitments and solid pricing on domestic business, while segment cash costs per ton sold increased $3.65 over the same time period. Higher cash costs per ton sold were driven primarily by planned lower volume levels from the low-cost West Elk mine, higher shipments from the Viper mine and increased maintenance expense at the Coal-Mac operation. Arch now expects its annual cash cost per ton sold for the segment to be between $27.00 and $31.00 per ton.
Key Market Developments
Coking Coal Markets
-- Global steel production remains a key support for global coking coal
markets, with steel output up more than 4 percent year-to-date and steel
prices still at very robust levels in Arch's core Atlantic Basin steel
markets.
-- While coking coal prices have retraced somewhat in recent weeks, they
remain at highly attractive levels - with High-Vol A currently assessed
at $185 per metric ton FOB the vessel on the U.S. East Coast.
-- Coking coal exports from Australia - the dominant seaborne market
supplier - are in recovery mode following a difficult, cyclone-impacted
2017, but the logistics chain could be tested by maintenance issues
affecting both the rail system and the ports.
Thermal Coal Markets
-- Seaborne thermal prices remain elevated, with prompt month API-2 pricing
for movements into Northern Europe solidly above $80 per metric ton and
Newcastle prices firmly above $90 per metric ton.
-- Arch anticipates healthy U.S. thermal export levels in 2018, which
should continue to provide a level of support to U.S. domestic thermal
fundamentals.
-- The slow and steady decline in U.S. generator stockpiles continued
during the first quarter - with more than 10 million tons liquidated.
-- Average days of supply are now just 10 days above projected target
inventory levels and should decline further as the year progresses.
2018 Outlook
As indicated, Arch anticipates projected coking coal sales of between 6.3 million and 6.7 million tons. Included in this range are 0.2 million tons of previously announced carryover volume. The vast majority of the carryover tons were shipped during the first quarter, effectively completing the 2017 lower fixed-priced commitments.
Since the last update, Arch committed roughly 0.8 million tons of coking coal into the seaborne marketplace for 2018 delivery. Pricing on these commitments will be index-based or subject to negotiation. At the expected midpoint of its new volume guidance level, Arch is approximately 78 percent committed on coking coal sales for the full year, with approximately 45 percent of that committed volume exposed to market-based pricing.
On the thermal side, while buying activity during the first quarter was muted, the company selectively placed approximately 1.0 million tons of Powder River Basin coal at prices that met or exceeded the regional average forward market price or that were linked to an index, as well as committed incremental volume from the Other Thermal segment. Given revised volume levels and the sales commitments signed in the first quarter, Arch now expects to sell a total of between 80 million and 84 million tons of thermal coal in 2018. At the new midpoint of guidance, Arch's thermal sales are more than 90 percent committed for full year 2018.
"We have strategically reduced our thermal sales exposure in 2018, while continuing to capitalize and hone our focus on seaborne coking coal and international thermal markets - areas that we expect to continue to provide significant contribution this year," said Eaves. "We believe our complementary asset portfolio, simple and clean financial structure, efficient and transparent method for capital allocation and carefully crafted marketing strategy will continue to provide our shareholders with meaningful value as we progress through the remainder of the year."
2018(2)
------
Tons $ per ton
---- ---------
Sales Volume (in millions of tons)
---------------------------------
Coking 6.3 - 6.7
Thermal 80.0 - 84.0
------- ---- ----
Total 86.3 - 90.7
Metallurgical (in millions of tons)
----------------------------------
Committed, Priced Coking North American* 1.2 $96.40
Committed, Priced Coking Seaborne 1.6 $133.39
Committed, Unpriced Coking 2.3
-------------------------- ---
Total Committed Coking 5.1
Committed, Priced Thermal Byproduct 0.7 $32.18
Committed, Unpriced Thermal Byproduct __-
------------------------------------- ---
Total Committed Thermal Byproduct 0.7
Average Metallurgical Cash Cost $60.00 - $65.00
Powder River Basin (in millions of tons)
---------------------------------------
Committed, Priced 63.7 $11.98
Committed, Unpriced 1.7
------------------- ---
Total Committed 65.4
Average Cash Cost $10.45 - $10.95
Other Thermal (in millions of tons)
----------------------------------
Committed, Priced 8.3 $36.71
Committed, Unpriced __-
------------------- ---
Total Committed 8.3
Average Cash Cost $27.00 - $31.00
Corporate (in $ millions)
------------------------
D,D&A excluding Sales Contract Amortization $115 - $120
Sales Contract Amortization $11 - $12
ARO Accretion $27 - $29
S,G&A $89 - $92
Interest Expense $16 - $18
Capital Expenditures $80 - $90
Tax Provision (%) Approximately 0%
---------------- ---------------
*Includes approximately 200,000 tons of carryover from 2017
A conference call regarding Arch Coal's first quarter 2018 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 EBITDA is defined and reconciled in the "Reconciliation of Non-GAAP measures" in this release.
(2) 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 Income Statements
(In thousands, except per share data)
Three Months Ended March 31,
----------------------------
2018 2017
---- ----
(Unaudited)
Revenues $575,295 $600,975
Costs, expenses and other operating
Cost of sales 454,780 460,450
Depreciation, depletion and
amortization 29,703 31,921
Accretion on asset
retirement obligations 6,992 7,623
Amortization of sales
contracts, net 3,051 14,690
Change in fair value of coal
derivatives and coal
trading activities, net (3,414) 854
Selling, general and
administrative expenses 25,948 20,762
Other operating income, net (6,932) (2,310)
------ ------
510,128 533,990
------- -------
Income from operations 65,167 66,985
Interest expense, net
Interest expense (5,395) (9,425)
Interest and investment
income 1,273 527
(4,122) (8,898)
------ ------
Income before nonoperating
expenses 61,045 58,087
Nonoperating expenses
Non-service related pension
and postretirement benefit
costs (1,303) (721)
Net loss resulting from
early retirement of debt
and debt restructuring - (2,030)
Reorganization items, net (301) (2,828)
---- ------
(1,604) (5,579)
------ ------
Income before income taxes 59,441 52,508
Provision for (benefit from)
income taxes (544) 840
---- ---
Net income $59,985 $51,668
======= =======
Net income per common share
Basic EPS $2.87 $2.07
===== =====
Diluted EPS $2.74 $2.03
===== =====
Weighted average shares outstanding
Basic weighted average
shares outstanding 20,901 25,008
====== ======
Diluted weighted average
shares outstanding 21,875 25,408
====== ======
Dividends declared per
common share $0.40 $ -
===== ===========
Adjusted EBITDA (A)
(Unaudited) $104,913 $121,219
======== ========
Adjusted diluted income per
common share (A) $2.95 $2.82
===== =====
(A) Adjusted EBITDA 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)
March 31, December 31,
2018 2017
---- ----
(Unaudited)
Assets
Current assets
Cash and
cash
equivalents $288,332 $273,387
Short term
investments 144,652 155,846
Restricted
cash 2,926 -
Trade
accounts
receivable 208,100 172,604
Other
receivables 11,405 29,771
Inventories 143,831 128,960
Other
current
assets 68,459 70,426
------ ------
Total
current
assets 867,705 830,994
Property,
plant and
equipment,
net 935,511 955,948
Other assets
Equity
investments 104,786 106,107
Other
noncurrent
assets 68,676 86,583
------ ------
Total
other
assets 173,462 192,690
------- -------
Total
assets $1,976,678 $1,979,632
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts
payable $127,149 $134,137
Accrued
expenses
and other
current
liabilities 158,882 184,161
Current
maturities
of debt 14,328 15,783
------ ------
Total
current
liabilities 300,359 334,081
Long-term
debt 307,742 310,134
Asset
retirement
obligations 312,544 308,855
Accrued
pension
benefits 13,370 14,036
Accrued
postretirement
benefits
other
than
pension 104,902 102,369
Accrued
workers'
compensation 185,159 184,835
Other
noncurrent
liabilities 64,140 59,457
------ ------
Total
liabilities 1,288,216 1,313,767
Stockholders' equity
Common
Stock 250 250
Paid-in
capital 703,980 700,125
Retained
earnings 298,664 247,232
Treasury
stock, at
cost (340,698) (302,109)
Accumulated
other
comprehensive
income 26,266 20,367
------ ------
Total
stockholders'
equity 688,462 665,865
------- -------
Total
liabilities
and
stockholders'
equity $1,976,678 $1,979,632
========== ==========
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended March 31,
----------------------------
2018 2017
---- ----
(Unaudited)
Operating activities
Net income $59,985 $51,668
Adjustments to reconcile to cash provided by operating
activities:
Depreciation, depletion
and amortization 29,703 31,921
Accretion on asset
retirement obligations 6,992 7,623
Amortization of sales
contracts, net 3,051 14,690
Prepaid royalties
expensed - 2,281
Deferred income taxes 12,127 5,830
Employee stock-based
compensation expense 3,845 2,426
Gains on disposals and
divestitures 134 (347)
Net loss resulting from
early retirement of debt
and debt restructuring - 2,030
Amortization relating to
financing activities 1,080 535
Changes in:
Receivables (28,728) 37,134
Inventories (14,871) (11,732)
Accounts payable, accrued
expenses and other
current liabilities (26,052) (20,529)
Income taxes, net 11,596 (4,965)
Other 8,005 6,964
Cash provided by
operating activities 66,867 125,529
Investing activities
Capital expenditures (9,453) (5,950)
Minimum royalty payments (62) (63)
Proceeds from disposals
and divestitures 54 420
Purchases of short term
investments (38,458) (78,523)
Proceeds from sales of
short term investments 49,400 45,886
Investments in and
advances to affiliates,
net - (7,905)
--- ------
Cash provided by (used
in) investing activities 1,481 (46,135)
Financing activities
Proceeds from issuance of
term loan due 2024 - 298,500
Payments to extinguish
term loan due 2021 - (325,684)
Payments on term loan due
2024 (750) -
Net payments on other
debt (3,431) (2,810)
Debt financing costs - (7,228)
Net loss resulting from
early retirement of debt
and debt restructuring - (2,030)
Dividends paid (8,335) -
Purchases of treasury
stock (38,186) -
Other 10 -
--- ---
Cash used in financing
activities (50,692) (39,252)
------- -------
Increase in cash and cash
equivalents, including
restricted cash 17,656 40,142
Cash and cash
equivalents, including
restricted cash,
beginning of period 273,602 376,422
------- -------
Cash and cash
equivalents, including
restricted cash, end of
period $291,258 $416,564
======== ========
Cash and cash equivalents, including restricted cash, end of
period
Cash and cash equivalents $288,332 $347,580
Restricted cash 2,926 68,984
----- ------
$291,258 $416,564
======== ========
Arch Coal, Inc. and Subsidiaries
Schedule of Consolidated Debt
(In thousands)
March 31, December 31,
2018 2017
---- ----
(Unaudited)
Term loan due
2024 ($297.0
million face
value) $295,732 $296,435
Other 33,120 36,514
Debt issuance
costs (6,782) (7,032)
------ ------
322,070 325,917
Less: current
maturities
of debt 14,328 15,783
Long-term
debt $307,742 $310,134
======== ========
Calculation
of net debt
Total debt
(excluding
debt
issuance
costs) $328,852 $332,949
Less liquid
assets:
Cash and cash
equivalents 288,332 273,387
Short term
investments 144,652 155,846
------- -------
432,984 429,233
Net debt $(104,132) $(96,284)
========= ========
Arch Coal, Inc. and Subsidiaries
Operational Performance
(In millions, except per ton data)
Three Months Ended Three Months Ended Three Months Ended
March 31, 2018 December 31, 2017 March 31, 2017
-------------- ----------------- --------------
(Unaudited) (Unaudited) (Unaudited)
Powder River Basin
Tons Sold 19.7 19.5 21.3
Segment Sales $239.9 $12.15 $239.9 $12.32 $268.1 $12.57
Segment Cash Cost of
Sales 212.6 10.77 209.9 10.78 220.4 10.33
----- ----- ----- ----- ----- -----
Segment Cash Margin 27.3 1.38 30.0 1.54 47.7 2.24
Metallurgical
Tons Sold 1.8 1.8 2.1
Segment Sales $203.5 $115.97 $164.1 $90.82 $187.1 $90.84
Segment Cash Cost of
Sales 119.9 68.33 107.5 59.50 118.8 57.67
----- ----- ----- ----- ----- -----
Segment Cash Margin 83.6 47.64 56.6 31.32 68.3 33.17
Other Thermal
Tons Sold 2.2 2.3 2.3
Segment Sales $77.1 $35.59 $80.1 $35.43 $81.4 $35.51
Segment Cash Cost of
Sales 61.8 28.53 56.3 24.88 54.6 23.82
---- ----- ---- ----- ---- -----
Segment Cash Margin 15.3 7.06 23.9 10.55 26.8 11.69
Total Segment Cash
Margin $126.2 $110.4 $142.8
Selling, general and
administrative
expenses (25.9) (23.4) (20.8)
Liquidated damages
under export
logistics contracts - - -
Other 4.6 10.8 (0.8)
--- ---- ----
Adjusted EBITDA $104.9 $97.8 $121.2
====== ===== ======
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 March
31, 2018 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Revenues in the
consolidated
statements of
operations $245,427 $238,348 $91,520 $ - $575,295
Other revenues - - - - -
Coal Sales $245,427 $238,348 $91,520 $ - $575,295
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - - 1,031 - $1,031
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - - - - -
Transportation costs 5,478 34,885 $13,394 - 53,757
Non-GAAP Segment
coal sales revenues $239,949 $203,463 $77,095 $ - $520,507
-------- -------- ------- --------------------- --------
Tons sold 19,744 1,754 2,166
Coal sales per ton
sold $12.15 $115.97 $35.59
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 $ - $484,148
-------- -------- ------- --------------------- --------
Tons sold 19,473 1,807 2,262
Coal sales per ton
sold $12.32 $90.82 $35.43
Quarter ended March
31, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Revenues in the
consolidated
statements of
operations $273,428 $225,582 $101,906 $59 $600,975
Other revenues - - - - -
Coal Sales $273,428 $225,582 $101,906 $59 $600,975
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - - - - $ -
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - - - 52 52
Transportation costs 5,340 38,471 $20,541 7 64,359
Non-GAAP Segment
coal sales revenues $268,088 $187,111 $81,365 $ - $536,564
-------- -------- ------- --------------------- --------
Tons sold 21,326 2,060 2,291
Coal sales per ton
sold $12.57 $90.84 $35.51
Arch Coal, Inc. and Subsidiaries
Reconciliation of NON-GAAP Measures
(In millions, except per ton data)
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 March
31, 2018 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Cost of sales in
the consolidated
statements of
operations $218,526 $154,763 $75,188 $6,303 $454,780
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" 439 - - - 439
Transportation costs 5,478 34,885 13,394 - 53,757
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - - - 4,232 4,232
Other (operating
overhead, certain
actuarial, etc.) - - - 2,071 2,071
Non-GAAP Segment
cash cost of coal
sales $212,609 $119,878 $61,794 $ - $394,281
======== ======== ======= ===================== ========
Tons sold 19,744 1,754 2,166
Cash cost per ton
sold $10.77 $68.33 $28.53
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 $12,596 $450,699
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
Other (operating
overhead, certain
actuarial, etc.) - - - 1,190 1,190
Non-GAAP Segment
cash cost of coal
sales $209,929 $107,514 $56,267 $ - $373,710
======== ======== ======= ===================== ========
Tons sold 19,473 1,807 2,262
Cash cost per ton
sold $10.78 $59.50 $24.88
Quarter ended March
31, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
Cost of sales in the
consolidated
statements of
operations $225,107 $157,259 $75,117 $2,967 $460,450
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" (604) - - - (604)
Transportation costs 5,340 38,471 20,541 7 64,359
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - - - 3,447 3,447
Other (operating
overhead, certain
actuarial, etc.) - - - (487) (487)
Reported segment cost
of coal sales $220,371 $118,788 $54,576 $ - $393,735
======== ======== ======= ===================== ========
Tons sold 21,326 2,060 2,291
Cash cost per ton
sold $10.33 $57.67 $23.82
Arch Coal, Inc. and Subsidiaries
Reconciliation of Non-GAAP Measures
(In thousands, except per share data)
Adjusted EBITDA
Adjusted EBITDA 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 nonoperating expenses. Adjusted EBITDA 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 EBITDA is not a measure of financial performance in accordance with generally accepted
accounting principles, and items excluded from Adjusted EBITDA are significant in understanding and
assessing our financial condition. Therefore, Adjusted EBITDA should not be considered in isolation,
nor as an alternative to net income, income from operations, cash flows from operations or as a measure
of our profitability, liquidity or performance under generally accepted accounting principles. The
Company uses adjusted EBITDA 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
EBITDA may not be comparable to similarly titled measures used by other companies. The table below
shows how we calculate Adjusted EBITDA.
Three Months Ended
March 31,
-------------------
2018 2017
---- ----
(Unaudited)
Net income $59,985 $51,668
Provision for (benefit
from) income taxes (544) 840
Interest expense, net 4,122 8,898
Depreciation, depletion
and amortization 29,703 31,921
Accretion on asset
retirement obligations 6,992 7,623
Amortization of sales
contracts, net 3,051 14,690
Non-service related
pension and
postretirement benefit
costs 1,303 721
Net loss resulting from
early retirement of debt
and debt restructuring - 2,030
Reorganization items, net 301 2,828
--- -----
Adjusted EBITDA $104,913 $121,219
======== ========
Adjusted net income and adjusted diluted income per share
Adjusted net income and adjusted diluted income 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 and adjusted diluted income per common share may
also be adjusted for items that may not reflect the trend of future results. We believe that adjusted
net income and adjusted diluted income 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 and adjusted diluted income per share should not
be considered in isolation, nor as an alternative to net income or diluted income per common share
under generally accepted accounting principles.
Three Months Ended
March 31,
-------------------
2018 2017
---- ----
(Unaudited)
Net income $59,985 $51,668
Amortization of sales
contracts, net 3,051 14,690
Non-service related
pension and
postretirement benefit
costs 1,303 721
Net loss resulting from
early retirement of debt
and debt restructuring - 2,030
Reorganization items, net 301 2,828
Tax impact of adjustment (93) (405)
--- ----
Adjusted net income $64,547 $71,532
======= =======
Diluted weighted average
shares outstanding 21,875 25,408
====== ======
Diluted income per share $2.74 $2.03
Amortization of sales
contracts, net 0.14 0.58
Non-service related
pension and
postretirement benefit
costs 0.06 0.03
Net loss resulting from
early retirement of debt
and debt restructuring - 0.08
Reorganization items, net 0.01 0.11
Tax impact of adjustments 0.00 (0.01)
Adjusted diluted income
per share $2.95 $2.82
===== =====
CONTACT: Logan Bonacorsi, Investor Relations, 314/994-2766
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SOURCE Arch Coal, Inc.
