Arch Coal, Inc. Reports Second Quarter 2018 Results
ST. LOUIS, July 31, 2018 /PRNewswire/ -- Arch Coal, Inc. (NYSE: ARCH) today reported net income of $43.3 million, or $2.06 per diluted share, in the second quarter of 2018, compared with net income of $37.2 million, or $1.48 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 $85.4 million in the second quarter of 2018, which includes a $15.1 million non-cash mark-to-market loss associated with the company's coal hedging activities. This compares to $95.6 million of adjusted EBITDA recorded in the second quarter of 2017. Revenues totaled $592.3 million for the three months ended June 30, 2018, representing an 8 percent increase from the prior-year quarter.
"Arch capitalized on a strong operating performance, robust coking coal markets and an improving logistics system to again generate very substantial levels of free cash flow during the quarter just ended," said John W. Eaves, Arch's chief executive officer. "We used that free cash flow to buy back $78 million of stock, or nearly one million shares, as we continued to execute on a capital return program that we believe is creating excellent value for our shareholders, and the board showed its strong support for this strategy by expanding the buyback authorization significantly. We plan to build upon our strong record of returning excess cash to shareholders as we progress through the year."
Capital Allocation Progress
Recently, Arch's board of directors approved an incremental $250 million increase to the share repurchase authorization, resulting in a total authorization of $750 million since the program's inception.
"The expanded stock repurchase authorization reflects the board's continued confidence in Arch's outlook and financial strength and is consistent with our strategy of effectively deploying our cash to create long-term value for our shareholders," said John T. Drexler, Arch's chief financial officer. "We continue to view our stock as a highly attractive investment option and we expect to continue to execute on our balanced and proven capital return program, which underscores the strength of our balance sheet and the confidence in our free cash flow profile."
During the second quarter, Arch made excellent progress on its capital return program, buying back approximately 960,000 shares of common stock, representing 3.8 percent of shares outstanding, at a total cost of nearly $78 million.
Arch's share repurchase program was originally announced on May 2, 2017 and, since that date, the company has invested more than $419 million to repurchase 5.3 million shares. This represents a more than 21 percent reduction in Arch's share count. At quarter-end, and inclusive of the $250 million increase in authorization, the company has up to $331 million remaining for share repurchases under the program.
In addition to the stock repurchases, the company paid $8.3 million in cash dividends to shareholders during the second 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 September 14, 2018 to stockholders of record at the close of business on August 31, 2018.
Significantly, over the last five quarters, Arch has returned approximately $460 million of capital to shareholders, consisting of more than $419 million of share repurchases and nearly $41 million in dividends.
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.
Financial Update
At quarter-end, Arch's cash and short-term investments totaled nearly $403 million. Arch's debt totaled $324 million, inclusive of the term loan, equipment financing and other debt, resulting in a $78 million net cash position.
"We believe that our current cash balance represents ample and appropriate liquidity that will meet our needs throughout the market cycle," said Drexler. "Given our low leverage, modest capital needs and strong business outlook, we remain in an exceptionally strong financial position, and are sharply focused on maintaining that position even as we continue to pursue our aggressive capital return program."
Operational Results
"Arch delivered solid operating results during the second quarter of 2018, reducing costs in our key operating areas, exceeding sales volume expectations in both the Metallurgical and Powder River Basin segments, and addressing and overcoming the operating challenges from the first quarter," said Paul A. Lang, Arch's chief operating officer. "Looking ahead, we will continue to execute upon our global sales strategy with an intense focus on those markets that provide the greatest return."
Metallurgical
2Q18 1Q18 2Q17
---- ---- ----
Tons sold (in
millions) 2.0 1.8 2.1
Coking 1.7 1.5 1.5
PCI - - 0.3
Thermal 0.3 0.3 0.3
Coal sales per ton
sold $104.38 $115.97 $90.59
Coking $119.23 $131.90 $103.44
PCI - - $72.26
Thermal $31.65 $31.37 $42.02
Cash cost per ton
sold $61.33 $68.33 $60.95
Cash margin per
ton $43.05 $47.64 $29.64
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 Beckley, Leer, Lone Mountain, Mountain Laurel and Sentinel
Lone Mountain is included through September 14, 2017, the date of divestiture.
First half 2018 coking coal shipments include 0.6 million tons to North American customers and approximately 2.6 million
tons to seaborne customers.
------------------------------------------------------------------------------------------------------------------------
In the Metallurgical segment, coking coal sales volumes increased 13 percent when compared with the first quarter of 2018, benefitting from improved rail performance, favorable timing on export loadings at the end of the quarter, and solid execution on the two scheduled longwall moves at Leer and Mountain Laurel. Average coking coal realizations declined 10 percent over the same time period due to lower pricing on index-linked and negotiated tons that priced during the period - a reduction that is in-line with the quarterly decline in the Platts East Coast assessments for High-Vol A and Low-Vol products. Segment cash cost per ton for the second quarter declined 10 percent versus the prior-quarter period, driven by increased sales volumes, improved cost performance at Mountain Laurel and strong cost control from other operations in the segment. As a result, Arch recorded an impressive second quarter metallurgical cash margin per ton of $43.05.
As previously indicated, Arch is targeting full year cash cost per ton sold for its metallurgical segment of $60.00 to $65.00. Arch firmly believes its coking coal cost structure is well below the U.S metallurgical industry average and is competitively positioned to participate in both domestic and international coking coal markets at all points of the market cycle.
As expected, Mountain Laurel transitioned to a new panel during the quarter, with the longwall starting up in early June. Since that time, the mine has seen much-improved longwall performance when compared to the previous panel, and geologic and operating conditions have been consistent with company expectations.
Powder River Basin
2Q18 1Q18 2Q17
---- ---- ----
Tons sold (in
millions) 18.8 19.7 18.1
Coal sales per
ton sold $12.06 $12.15 $12.55
Cash cost per
ton sold $10.66 $10.77 $10.82
Cash margin per
ton $1.40 $1.38 $1.73
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 Black Thunder and Coal Creek.
---------------------------------------------------------------------------
In the Powder River Basin, second quarter 2018 cash margin per ton increased marginally when compared to the prior-quarter period, on stronger than anticipated sales volumes and effective cost control. Sales volumes during the second quarter were better than projected due to Black Thunder's ability to increase loadings during periods of heavy rain that appear to have constrained shipments at several mines in the basin. Additionally, the early arrival of summer temperatures boosted demand and worked to somewhat offset the normal shoulder season shipment lull. Average sales price per ton declined less than one percent, or $0.09 per ton, over the same time period, due to a larger percentage of lower-priced tons in the company's regional volume mix. Second quarter 2018 cash cost per ton sold decreased slightly versus the first quarter, driven by strong cost containment efforts that helped offset higher diesel prices and the impact of lower volume levels when compared with the first quarter. For the full year, Arch anticipates segment cash cost per ton sold of between $10.50 per ton and $10.90 per ton.
Other Thermal
2Q18 1Q18 2Q17
---- ---- ----
Tons sold (in
millions) 2.0 2.2 2.3
Coal sales per
ton sold $36.77 $35.59 $33.41
Cash cost per
ton sold $31.19 $28.53 $22.06
Cash margin per
ton $5.58 $7.06 $11.35
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, second quarter 2018 sales volumes declined 9 percent from the first quarter of 2018 due primarily to sub-standard rail performance, which delayed loadings from Arch's West Elk and Coal-Mac mines in June. As a result of these delays, two export vessels from West Elk and one export vessel from Coal-Mac that were expected to ship in the second quarter are now scheduled to load in the third quarter of 2018. While global sales exposure can sometimes result in variability in quarterly volumes, the persistent strength in seaborne thermal pricing coupled with strong demand for Arch's high-quality thermal products will enable the company to export more than 4.5 million tons from the segment in 2018 - a trend that is expected to continue into 2019.
Coal sales per ton sold during the quarter increased 3 percent, benefitting from continued strength in international thermal pricing and a favorable customer shipment mix during the period. This was offset somewhat by higher cash cost per ton sold. The 9 percent sequential increase in cash cost per ton sold was driven largely by lower volume levels from the low-cost West Elk mine and increased shipments from the relatively higher cost Coal-Mac operation. Despite the increase in quarterly segment cash costs, Arch still anticipates its 2018 cash cost per ton sold to be between $27.00 and $31.00 per ton.
In recent quarters, Arch has taken advantage of improving international thermal markets and layered in pricing at attractive netbacks for a portion of its expected future international thermal sales. Until the physical sales are finalized, these positions are required to be marked to market.
Key Market Developments
Coking Coal Markets
-- Coking coal markets appear to be in healthy balance, underpinned by a
strong global economy and robust steel markets.
-- Global steel production is up 5 percent year-to-date despite recent
trade tensions, with global steel prices strong on a historical basis in
all regions - particularly the United States.
-- Seaborne coking coal demand remains buoyant as well, with lower Chinese
purchases being offset by increased Indian buying. Given continued rapid
growth in its steel sector, India could soon rival China as a major
buyer of seaborne coking coal.
-- On the supply side, investment in new global coking coal production
remains muted, while a number of existing operations continue to
struggle with a range of geologic and logistics-related issues that have
dampened a supply response.
-- Coking coal prices are benefiting from this strong macro backdrop. The
Platts East Coast assessments, while down from the first quarter of
2018, are still at very attractive levels that deliver a substantial
margin for Arch's low-cost coking coal franchise.
Thermal Coal Markets
-- In the international arena, Newcastle prices are approximately $112 per
metric ton for prompt delivery, and API-2 prices for northern Europe are
$94 per metric ton.
-- These are highly attractive levels for Arch's West Elk and Coal-Mac
operations, respectively, and should spur a substantial overall increase
in U.S. thermal exports this year.
-- Domestically, the early summer heat has been advantageous, and has
accelerated the liquidation of stockpiles at U.S. power generators.
-- At present, generator stockpiles are estimated at just over 60 days of
supply - the lowest level in nearly four years.
-- Given the recent liquidation and assuming stable natural gas prices, we
would expect to see a modest increase in prompt buying activity as
stockpiles approach target levels over the course of the next few
quarters.
2018 Outlook
For full year 2018, Arch still expects to sell between 6.3 million and 6.7 million tons of coking coal and between 80 million and 84 million tons of thermal coal. At the midpoint of its volume guidance level, and inclusive of new commitments made during the second quarter, Arch is approximately 91-percent committed on coking coal sales, with 25 percent of that committed volume exposed to index-based pricing. At the midpoint of guidance, Arch's thermal sales are 97-percent committed for the full year 2018.
"We believe that strong demand in coking coal and international thermal markets and ongoing supply constraints around the world will continue to provide a stable foundation for coal pricing as we progress through the year," said Eaves. "Arch is strategically positioned to supply these dynamic markets and to leverage our premier asset base and industry-leading balance sheet to create substantial value for our shareholders over the long term."
2018(2) 2019
------ ----
Tons $ per ton 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 $97.54 -
Committed, Priced Coking
Seaborne 3.1 $128.12 -
Committed, Unpriced Coking 1.5 1.6
-------------------------- --- ---
Total Committed Coking 5.8 1.6
Committed, Priced Thermal
Byproduct 1.0 $32.47
Committed, Unpriced Thermal
Byproduct -
--------------------------- ---
Total Committed Thermal
Byproduct 1.0
Average Metallurgical Cash
Cost $60.00 - $65.00
Powder River Basin (in
millions of tons)
----------------------
Committed, Priced 69.2 $12.03 34.2 $12.40
Committed, Unpriced 1.1 2.2
------------------- --- ---
Total Committed 70.3 36.4
Average Cash Cost $10.50 - $10.90
Other Thermal (in millions of
tons)
-----------------------------
Committed, Priced 8.6 $37.10 2.5 $41.15
Committed, Unpriced 0.1 -
------------------- --- ---
Total Committed 8.7 2.5
Average Cash Cost $27.00 - $31.00
Corporate (in $ millions)
------------------------
D,D&A excluding Sales
Contract Amortization $113 - $118
Sales Contract Amortization $11 - $12
ARO Accretion $27 - $29
S,G&A $91 - $94
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 second 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 and steel industries; from legislation and regulations relating to the Clean Air Act and other environmental initiatives; from operational, geological, permit, labor and weather-related factors, from the Tax Cuts and Jobs Act and other tax reforms; from the effects of foreign and domestic trade policies, actions or disputes; from fluctuations in the amount of cash we generate from operations, which could impact, among other things, our ability to pay dividends or repurchase shares in accordance with our announced capital allocation plan 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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2018 2017 2018 2017
---- ---- ---- ----
(Unaudited)
Revenues $592,349 $549,866 $1,167,644 $1,150,841
Costs, expenses and other operating
Cost
of
sales 474,388 434,465 929,168 894,915
Depreciation,
depletion
and
amortization 30,549 30,701 60,252 62,622
Accretion
on
asset
retirement
obligations 6,993 7,623 13,985 15,246
Amortization
of
sales
contracts,
net 3,248 14,352 6,299 29,042
Change
in net
fair
value
of
coal
derivatives
and
coal
trading
activities, 15,138 863 11,724 1,717
Selling,
general
and
administrative
expenses 24,756 22,456 50,704 43,218
Other
operating
income,
net (7,318) (3,518) (14,250) (5,828)
------ ------ ------- ------
547,754 506,942 1,057,882 1,040,932
------- ------- --------- ---------
Income
from
operations 44,595 42,924 109,762 109,909
Interest expense, net
Interest
expense (5,050) (6,003) (10,445) (15,428)
Interest
and
investment
income 1,552 842 2,825 1,369
(3,498) (5,161) (7,620) (14,059)
------ ------ ------ -------
Income
before
nonoperating
expenses 41,097 37,763 102,142 95,850
Nonoperating expenses
Non-
service
related
pension
and
postretirement
benefit
(costs)
credits 68 (232) (1,235) (953)
Net
loss
resulting
from
early
retirement
of
debt
and
debt
restructuring (485) (31) (485) (2,061)
Reorganization
items,
net (740) (21) (1,041) (2,849)
---- --- ------ ------
(1,157) (284) (2,761) (5,863)
------ ---- ------ ------
Income
before
income
taxes 39,940 37,479 99,381 89,987
Provision
for
(benefit
from)
income
taxes (3,366) 319 (3,910) 1,159
------ --- ------ -----
Net
income $43,306 $37,160 $103,291 $88,828
======= ======= ======== =======
Net income per common share
Basic
EPS $2.15 $1.51 $5.03 $3.58
===== ===== ===== =====
Diluted
EPS $2.06 $1.48 $4.81 $3.52
===== ===== ===== =====
Weighted average shares outstanding
Basic
weighted
average
shares
outstanding 20,156 24,659 20,529 24,834
====== ====== ====== ======
Diluted
weighted
average
shares
outstanding 21,036 25,082 21,456 25,245
====== ====== ====== ======
Dividends
declared
per
common
share $0.40 $0.35 $0.80 $0.35
===== ===== ===== =====
Adjusted
EBITDA
(A)
(Unaudited) $85,385 $95,600 $190,298 $216,819
======= ======= ======== ========
Adjusted
diluted
income
per
common
share
(A) $2.26 $2.05 $5.23 $4.87
===== ===== ===== =====
(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)
June 30, December 31,
2018 2017
---- ----
(Unaudited)
Assets
Current assets
Cash and
cash
equivalents $241,590 $273,387
Short
term
investments 160,894 155,846
Trade
accounts
receivable 198,362 172,604
Other
receivables 12,612 29,771
Inventories 157,205 128,960
Other
current
assets 86,642 70,426
------ ------
Total
current
assets 857,305 830,994
Property,
plant and
equipment,
net 925,559 955,948
Other assets
Equity
investments 104,189 106,107
Other
noncurrent
assets 62,360 86,583
------ ------
Total
other
assets 166,549 192,690
------- -------
Total
assets $1,949,413 $1,979,632
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts
payable $131,027 $134,137
Accrued
expenses
and
other
current
liabilities 194,730 184,161
Current
maturities
of debt 12,533 15,783
------ ------
Total
current
liabilities 338,290 334,081
Long-
term
debt 305,157 310,134
Asset
retirement
obligations 316,341 308,855
Accrued
pension
benefits 7,481 14,036
Accrued
postretirement
benefits
other
than
pension 106,934 102,369
Accrued
workers'
compensation 185,068 184,835
Other
noncurrent
liabilities 49,194 59,457
------ ------
Total
liabilities 1,308,465 1,313,767
Stockholders' equity
Common
Stock 250 250
Paid-in
capital 708,127 700,125
Retained
earnings 333,753 247,232
Treasury
stock,
at cost (418,985) (302,109)
Accumulated
other
comprehensive
income 17,803 20,367
------ ------
Total
stockholders'
equity 640,948 665,865
------- -------
Total
liabilities
and
stockholders'
equity $1,949,413 $1,979,632
========== ==========
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended June 30,
-------------------------
2018 2017
---- ----
(Unaudited)
Operating activities
Net income $103,291 $88,828
Adjustments to reconcile to cash provided by operating activities:
Depreciation, depletion and
amortization 60,252 62,622
Accretion on asset retirement
obligations 13,985 15,246
Amortization of sales contracts, net 6,299 29,042
Prepaid royalties expensed - 2,288
Deferred income taxes 8,730 5,996
Employee stock-based compensation
expense 7,992 4,942
Gains on disposals and divestitures 131 (2,005)
Net loss resulting from early
retirement of debt and debt
restructuring 485 2,061
Amortization relating to financing
activities 2,170 1,565
Changes in:
Receivables (20,212) (3,864)
Inventories (28,245) (23,594)
Accounts payable, accrued expenses
and other current liabilities (11,879) (89)
Income taxes, net 11,560 (3,796)
Other (9,563) 21,557
Cash provided by operating activities 144,996 200,799
Investing activities
Capital expenditures (30,049) (16,922)
Minimum royalty payments (124) (4,211)
Proceeds from disposals and
divestitures 56 4,186
Purchases of short term investments (110,359) (157,364)
Proceeds from sales of short term
investments 105,150 85,035
Investments in and advances to
affiliates, net - (8,934)
--- ------
Cash used in investing activities (35,326) (98,210)
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 (1,500) (750)
Net payments on other debt (7,307) (5,207)
Debt financing costs (529) (8,900)
Net loss resulting from early
retirement of debt and debt
restructuring (50) (2,061)
Dividends paid (16,333) (8,563)
Purchases of treasury stock (115,973) (51,043)
Other 10 -
--- ---
Cash used in financing activities (141,682) (103,708)
-------- --------
Decrease in cash and cash
equivalents, including restricted
cash (32,012) (1,119)
Cash and cash equivalents, including
restricted cash, beginning of period 273,602 376,422
------- -------
Cash and cash equivalents, including
restricted cash, end of period $241,590 $375,303
======== ========
Cash and cash equivalents, including restricted cash, end of period
Cash and cash equivalents $241,590 $333,548
Restricted cash - 41,755
--- ------
$241,590 $375,303
======== ========
Arch Coal, Inc. and Subsidiaries
Schedule of Consolidated Debt
(In thousands)
June 30, December 31,
2018 2017
---- ----
(Unaudited)
Term loan
due 2024
($296.3
million
face
value) $295,029 $296,435
Other 29,280 36,514
Debt
issuance
costs (6,619) (7,032)
------ ------
317,690 325,917
Less:
current
maturities
of debt 12,533 15,783
Long-term
debt $305,157 $310,134
======== ========
Calculation
of net debt
Total debt
(excluding
debt
issuance
costs) $324,309 $332,949
Less liquid
assets:
Cash and
cash
equivalents 241,590 273,387
Short term
investments 160,894 155,846
------- -------
402,484 429,233
Net debt $(78,175) $(96,284)
======== ========
Arch Coal, Inc. and Subsidiaries
Operational Performance
(In millions, except per ton data)
Three Months Ended Three Months Ended Three Months Ended
June 30, 2018 March 31, 2018 June 30, 2017
------------- -------------- -------------
(Unaudited) (Unaudited) (Unaudited)
Powder River Basin
Tons Sold 18.8 19.7 18.1
Segment Sales $226.7 $12.06 $239.9 $12.15 $227.1 $12.55
Segment Cash Cost of
Sales 200.4 10.66 212.6 10.77 195.7 10.82
----- ----- ----- ----- ----- -----
Segment Cash Margin 26.3 1.40 27.3 1.38 31.4 1.73
Metallurgical
Tons Sold 2.0 1.8 2.1
Segment Sales $209.7 $104.38 $203.5 $115.97 $190.6 $90.59
Segment Cash Cost of
Sales 123.2 61.33 119.9 68.33 128.2 60.95
----- ----- ----- ----- ----- -----
Segment Cash Margin 86.5 43.05 83.6 47.64 62.4 29.64
Other Thermal
Tons Sold 2.0 2.2 2.3
Segment Sales $74.9 $36.77 $77.1 $35.59 $77.7 $33.41
Segment Cash Cost of
Sales 63.5 31.19 61.8 28.53 51.3 22.06
---- ----- ---- ----- ---- -----
Segment Cash Margin 11.4 5.58 15.3 7.06 26.4 11.35
Total Segment Cash
Margin $124.2 $126.2 $120.2
Selling, general and
administrative
expenses (24.8) (25.9) (22.5)
Other (14.0) 4.6 (2.1)
----- --- ----
Adjusted EBITDA $85.4 $104.9 $95.6
===== ====== =====
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 June
30, 2018 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Revenues in the
consolidated
statements of
operations $229,878 $259,032 $99,814 $3,625 $592,349
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - - 1,649 - 1,649
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - - - 3,625 3,625
Transportation costs 3,176 49,308 23,281 - 75,765
Non-GAAP Segment
coal sales revenues $226,702 $209,724 $74,884 $ - $511,310
-------- -------- ------- --------------------- --------
Tons sold 18,792 2,009 2,036
Coal sales per ton
sold $12.06 $104.38 $36.77
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
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 June
30, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Revenues in the
consolidated
statements of
operations $230,579 $227,649 $91,639 $(1) $549,866
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 - - - - -
Transportation costs 3,500 37,025 13,941 - 54,466
Non-GAAP Segment
coal sales revenues $227,079 $190,624 $77,698 $(1) $495,400
-------- -------- ------- --- --------
Tons sold 18,092 2,104 2,325
Coal sales per ton
sold $12.55 $90.59 $33.41
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 June
30, 2018 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
GAAP Cost of sales in
the consolidated
statements of
operations $205,532 $172,548 $86,800 $9,508 $474,388
Less: Adjustments to reconcile to Non-GAAP Segment cash cost of
coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" 1,968 - - - 1,968
Transportation costs 3,176 49,308 23,281 - 75,765
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - - - 6,731 6,731
Other (operating
overhead, certain
actuarial, etc.) - - - 2,777 2,777
Non-GAAP Segment
cash cost of coal
sales $200,388 $123,240 $63,519 $ - $387,147
======== ======== ======= ========================= ========
Tons sold 18,792 2,009 2,036
Cash cost per ton
sold $10.66 $61.33 $31.19
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 June
30, 2017 Powder River Metallurgical Other Thermal Idle and Other Consolidated
Basin
-----
(In thousands)
Cost of sales in the
consolidated
statements of
operations $198,274 $165,272 $65,242 $5,677 $434,465
Less: Adjustments to reconcile to Non-GAAP Segment cash cost of
coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" (891) - - - (891)
Transportation costs 3,500 37,025 13,941 - 54,466
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - - - 5,233 5,233
Other (operating
overhead, certain
actuarial, etc.) - - - 444 444
Reported segment cost
of coal sales $195,665 $128,247 $51,301 $ - $375,213
======== ======== ======= ========================= ========
Tons sold 18,092 2,104 2,325
Cash cost per ton
sold $10.82 $60.95 $22.06
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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2018 2017 2018 2017
---- ---- ---- ----
(Unaudited)
Net income $43,306 $37,160 $103,291 $88,828
Provision for (benefit
from) income taxes (3,366) 319 (3,910) 1,159
Interest expense, net 3,498 5,161 7,620 14,059
Depreciation, depletion
and amortization 30,549 30,701 60,252 62,622
Accretion on asset
retirement obligations 6,993 7,623 13,985 15,246
Amortization of sales
contracts, net 3,248 14,352 6,299 29,042
Non-service related
pension and
postretirement benefit
costs (68) 232 1,235 953
Net loss resulting from
early retirement of debt
and debt restructuring 485 31 485 2,061
Reorganization items, net 740 21 1,041 2,849
--- --- ----- -----
Adjusted EBITDA $85,385 $95,600 $190,298 $216,819
======= ======= ======== ========
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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
2018 2017 2018 2017
---- ---- ---- ----
(Unaudited)
Net income $43,306 $37,160 $103,291 $88,828
Amortization of sales
contracts, net 3,248 14,352 6,299 29,042
Non-service related
pension and
postretirement benefit
costs (68) 232 1,235 953
Net loss resulting from
early retirement of debt
and debt restructuring 485 31 485 2,061
Reorganization items, net 740 21 1,041 2,849
Tax impact of adjustment (88) (293) (181) (698)
--- ---- ---- ----
Adjusted net income $47,623 $51,503 $112,170 $123,035
======= ======= ======== ========
Diluted weighted average
shares outstanding 21,036 25,082 21,456 25,245
====== ====== ====== ======
Diluted income per share $2.06 $1.48 $4.81 $3.52
Amortization of sales
contracts, net 0.15 0.57 0.30 1.16
Non-service related
pension and
postretirement benefit
costs - 0.01 0.06 0.04
Net loss resulting from
early retirement of debt
and debt restructuring 0.02 - 0.02 0.08
Reorganization items, net 0.04 - 0.05 0.11
Tax impact of adjustments (0.01) (0.01) (0.01) (0.04)
Adjusted diluted income
per share $2.26 $2.05 $5.23 $4.87
===== ===== ===== =====
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SOURCE Arch Coal, Inc.
