Arch Coal, Inc. Reports Third Quarter 2019 Results
ST. LOUIS, Oct. 22, 2019 /PRNewswire/ -- Arch Coal, Inc. (NYSE: ARCH) today reported net income of $106.8 million, or $6.34 per diluted share, in the third quarter of 2019, compared with net income of $123.2 million, or $6.10 per diluted share, in the prior-year period. The company had adjusted earnings before interest, taxes, depreciation, depletion, amortization, accretion on asset retirement obligations, amortization of sales contracts, and non-operating expenses ("adjusted EBITDA")(1) of $106.6 million in the third quarter of 2019, which includes a $1.5 million non-cash mark-to-market loss associated with the company's coal-hedging activities. Not included in adjusted EBITDA is a $39.0 million gain resulting from the settlement of a 1970s-era land dispute. This compares to $124.9 million of adjusted EBITDA recorded in the third quarter of 2018, which included a $10.4 million non-cash mark-to-market loss associated with the company's coal-hedging activities. Revenues totaled $619.5 million for the three months ended September 30, 2019, versus $633.2 million in the prior-year quarter.
"During the quarter, Arch again exhibited operational excellence and generated strong cash flows across its operating platform despite a pull-back in coking coal prices," said John W. Eaves, Arch's chief executive officer. "Our core Metallurgical segment turned in an excellent cost performance, overcoming elevated costs in the final longwall panel at the Mountain Laurel mine, and our legacy thermal segments generated five times more cash than they expended in capital. In addition, we made significant progress on our ongoing capital return program, investing $91.4 million to buy back nearly 1.2 million shares, bringing total repurchases since May 2017 to nearly 10 million shares, or approximately 40 percent of initial shares outstanding."
During the third quarter, Arch returned a total of $98.4 million to shareholders via buybacks and dividends, and has now returned $255.3 million through the first nine months of 2019, which is 18 percent more than during the same period in 2018. All told, Arch has returned $894.8 million to shareholders since launching its capital return program in May 2017. At quarter-end, Arch had board authorization to expend an additional $233.1 million on share buybacks, out of a total authorization of $1.05 billion.
"We believe we are in a highly advantageous position to drive long-term, sustainable returns for our shareholders across a wide range of market conditions," Eaves added. "In coming quarters, we expect to improve further on our first-quartile coking coal cost position; continue to generate cash from our thermal assets well in excess of our capital spending requirements; drive forward with the accelerated build-out of our world-class Leer South growth project; and return additional capital to shareholders."
Capital Allocation Progress and Liquidity Update
During the third quarter, Arch repurchased 1,170,000 shares of common stock - representing 4.7 percent of initial shares outstanding - for a total investment of $91.4 million. In the past 10 quarters, Arch has invested a total of $816.9 million to buy back 10.0 million shares.
In addition to the buybacks, Arch returned $7.0 million to shareholders through its recurring quarterly dividend. In the past 10 quarters, Arch has returned a total of $77.9 million to shareholders via dividend payments.
"As a result of its low-cost position, premium product slate, and strong balance sheet, Arch is well-positioned to generate strong levels of cash flow across a broad range of market conditions," said John T. Drexler, Arch's chief financial officer. "Despite softening in coking coal markets during the period, we returned robust levels of capital to shareholders, funded the accelerated build-out of Leer South with internally generated cash, and maintained our iron-clad balance sheet with a net cash position."
Arch ended the quarter with approximately $465.9 million in liquidity - including $351.5 million in cash - and a negative net debt (or net cash) position of $41.5 million.
Arch is also announcing board approval of the next quarterly cash dividend payment of $0.45 per common share, which is scheduled to be paid on December 13, 2019 to stockholders of record at the close of business on November 29, 2019.
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.
Reserve Acquisition at Leer Mine
In September, Arch entered into a definitive agreement to acquire 20 million tons of low-cost, high-quality, High-Vol A coking coal reserves directly adjacent to its Leer mine for a purchase price of $52.5 million. This acquisition, which is expected to close in the fourth quarter, will facilitate an increase of nearly 24 million tons in the Leer mine plan.
These incremental reserves -- located in the same seam as the Leer longwall -- are contiguous to Leer's existing reserves and accessible underground by the longwall operation without the expenditure of meaningful incremental capital. The purchase price equates to approximately $2.50 per ton, versus an average cash margin at the Leer mine of more than $65 per ton year-to-date in 2019. The reserve addition is expected to extend the life of Arch's flagship operation to the late 2030s, with the potential for still further extensions thereafter.
"We view this transaction as a highly strategic investment in our Leer reserve base, which is the centerpiece of our core coking coal franchise," said Paul A. Lang, Arch's president and chief operating officer. "The Leer reserves contain some of the highest quality, lowest cost and highest margin steel-making coal in the United States. We believe that these reserves provide us with a pipeline of proven, low-risk, and low capital-intensity growth projects that should drive increasing earnings and cash generation well into the future."
Successful Resolution of Longstanding Land Dispute
During the quarter, Arch recorded a $39.0 million gain stemming from the resolution of a longstanding land dispute with the federal government involving "preference rights lease applications" (PRLAs) in northwestern New Mexico that were secured by the company and its joint venture partner in the 1970s. In the settlement agreement, Arch agreed to relinquish the PRLAs to the U.S. Bureau of Land Management (BLM) in exchange for credits that can be used to offset an equivalent amount of federal royalty obligations. Arch expects to monetize the vast majority of these credits during the 2020 calendar year.
"We are pleased to have brought this matter to a successful conclusion," Lang said. "We commend all the interested parties - and particularly the BLM - for working closely and collaboratively with us to craft a positive outcome for all stakeholders."
Operational Results
"During the quarter, our core Metallurgical segment turned in another excellent cost performance and solid margins despite elevated costs in the last longwall panel at Mountain Laurel and a significant step-down in index-based coking coal prices," Lang said. "Supplementing that strong performance, our two legacy thermal segments achieved solid margins, continued to demonstrate great capital discipline, and generated significant amounts of excess cash that we once again put to good use in both our capital return program and the build-out of Leer South."
Metallurgical
3Q19
2Q19
3Q18
Tons sold (in
millions) 2.1 1.9 1.9
Coking 1.9 1.6 1.7
Thermal 0.2 0.3 0.2
Coal sales per ton
sold $98.89 $115.87 $104.75
Coking $105.72 $131.91 $114.89
Thermal $32.13 $29.05 $35.35
Cash cost per ton
sold $64.89 $62.07 $62.54
Cash margin per
ton $34.00 $53.80 $42.21
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, Mountain Laurel and Sentinel.
---
The Metallurgical segment achieved a per-ton cash margin of $34.00 on the strength of an average per-ton cost of $64.89.
"During the quarter, the Leer mine continued its outstanding operating performance, achieving cash costs below $45 per ton," Lang said. "As expected, Leer completed mining activities in the western portion of its reserve base and - at the end of the third quarter - moved the longwall into a new district where the coal seam is thicker. As previously indicated, we expect a 20-percent increase in Leer's average seam thickness in future panels. As a result, we expect Leer to maintain and potentially improve upon its strong operational performance in coming quarters."
The Mountain Laurel mine - which is currently mining its final longwall panel - incurred significantly elevated cash costs during the quarter related to mining conditions on the longwall. As previously indicated, Mountain Laurel expects to complete longwall mining near the end of 2019 and to transition to a continuous miner operation thereafter. The transition is expected to translate into modestly lower costs, improved coal quality, and a more consistent operating performance.
Looking ahead, Arch is reaffirming its coking coal volume guidance of 6.7 to 7.1 million tons and its cost guidance of $61 to $65 per ton for full year 2019. Arch expects its coking coal price realizations to decline in the fourth quarter due to lower average projected index-based pricing.
Powder River Basin
3Q19 2Q19 3Q18
Tons sold (in
millions) 22.2 17.1 21.5
Coal sales per
ton sold $12.02 $12.08 $12.02
Cash cost per
ton sold $9.77 $11.29 $9.76
Cash margin per
ton $2.25 $0.79 $2.26
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, sales volumes for the third quarter totaled 22.2 million tons versus 17.1 million tons in the second quarter of 2019. Per-unit cash costs declined to $9.77 per ton compared to $11.29 per ton in the flood-impacted second quarter. The segment's per-ton cash margin increased markedly to $2.25 versus the second quarter of 2019.
Looking ahead, Arch expects reduced volumes and correspondingly higher unit costs in the fourth quarter. Even with those expected pressures, the company is reducing its per-ton cash cost guidance range to between $10.60 and $10.80 for full year 2019.
Other Thermal
3Q19 2Q19 3Q18
Tons sold (in
millions) 2.0 1.9 2.5
Coal sales per
ton sold $39.52 $39.09 $36.96
Cash cost per
ton sold $31.16 $33.62 $27.68
Cash margin per
ton $8.36 $5.47 $9.28
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, the average cash margin increased more than 50 percent to $8.36 per ton versus the second quarter of 2019, due primarily to increased longwall production at the West Elk mine.
Arch is reiterating its per-ton cash cost guidance for the segment of $29.00 to $33.00 for full year 2019.
Progress at Leer South
As indicated, Arch is making excellent headway in the development of Leer South. The company continues to expect capex of between $360 million and $390 million to develop the new mine, with more than $100 million of that total coming in 2019. During the third quarter, Arch invested approximately $26.4 million on the build-out, bringing the year-to-date total to $62.6 million.
"The development team is making excellent progress and we remain well on track to commence longwall mining in the third quarter of 2021," Lang said.
With the addition of Leer South, Arch expects to expand its High-Vol A output by an incremental 3 million tons; enhance its already advantageous position on the U.S. cost curve; strengthen its coking coal profit margins in virtually any market environment; and cement its position as the leading supplier of High-Vol A coking coal globally.
New Coking Coal Commitments for 2020
During the quarter, Arch entered into agreements to supply 1.5 million tons of coking coal to North American customers in 2020, at a fixed price of approximately $110 per ton. In addition, Arch committed 1.6 million tons into the seaborne market with an index-based pricing structure, bringing total commitments for 2020 to 3.1 million tons.
"As we have stated in the past, we see value in maintaining a meaningful presence in the North American marketplace, and believe we have secured pricing - given current market conditions - that is reflective of the premium quality of our products," Lang said.
Key Market Developments
During the quarter, global coking coal markets weakened in response to slowing steel demand, trade-related tensions and concerns over global economic growth. The average price of Arch's primary product - premium High-Vol A coking coal - declined from an average of nearly $200 per metric ton in the ocean vessel during the year's first half to under $140 per metric ton at the end of the third quarter, according to Platts.
Counterbalancing those concerns to some degree, global coking coal output remains muted. In the United States, several high-cost coking coal mines have idled in recent weeks in response to the lower pricing environment, and U.S. coking coal exports are down 11 percent year-to-date. Australian production is up only modestly and continues to undershoot the peak levels achieved in 2016. Major coking coal producers continue to expend very limited capital on expansion projects.
In short, supply and demand appear only modestly out of balance at present, and high-cost production is being taken off line. With its first-quartile U.S. cost structure, Arch is well-positioned to weather the current pull-back.
Outlook
"We are confident in our well-defined strategy for long-term value creation and growth, and we are pursuing it aggressively," Eaves said. "We expect several major drivers to elevate shareholder value in coming quarters regardless of market conditions. These drivers include the build-out of our world-class Leer South mine; the transition of our flagship Leer mine into the heart of its reserve base; the completion of our highly synergistic joint venture with Peabody; and the continuation of our capital return program. Coupled with continued, strong operational execution, these drivers should enhance our already strong competitive position in coking coal markets, increase our cash-generating capabilities significantly, and translate into greater value for our shareholders."
2019 2020
Tons
$ per ton Tons
$ per ton
Sales Volume (in
millions of tons)
---
Coking 6.7 7.1
Thermal 80.0 85.0
---
Total 86.7 92.1
Metallurgical (in
millions of tons)
---
Committed, Priced
Coking North
American 1.5 $121.87 1.5 $109.89
Committed, Unpriced
Coking North
American 0.2
Committed, Priced
Coking Seaborne 3.9 $121.92
Committed, Unpriced
Coking Seaborne 1.1 1.6
---
Total Committed
Coking 6.8 3.1
Committed, Priced
Thermal Byproduct 1.0 $32.15
Committed, Unpriced
Thermal Byproduct
---
Total Committed
Thermal Byproduct 1.0
Average Metallurgical
Cash Cost $61.00 $65.00
Powder River Basin
(in millions of
tons)
---
Committed, Priced 75.3 $12.06 43.7 $12.27
Committed, Unpriced 0.6 1.5
---
Total Committed 75.9 45.2
Average Cash Cost $10.60 $10.80
Other Thermal (in
millions of tons)
---
Committed, Priced 7.5 $38.42 3.7 $40.36
Committed, Unpriced 0.3
---
Total Committed 7.8 3.7
Average Cash Cost $29.00 $33.00
Corporate (in $
millions)
---
D,D&A $111 $114
ARO Accretion $19 $21
S,G&A -Cash $74 $78
S,G&A - Non-Cash $18 $20
Net Interest Expense $7 $9
Capital Expenditures $195 $205
Tax Provision (%) Approximately 0%
---
Note: 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 include transportation
costs, which are a component of
GAAP cost of sales. 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. In addition, 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 are additional reconciling
items for Segment cash cost per
ton sold. 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
varied 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 2019.
A conference call regarding Arch Coal's third quarter 2019 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).
U.S.-based Arch Coal, Inc. is a top coal producer for the global steel and power generation industries. Arch operates a streamlined portfolio of large-scale, low-cost mining complexes that produce high-quality metallurgical coals in Appalachia and low-emitting thermal coals in the Powder River Basin and other strategic supply regions. For more information, visit www.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 "should," "appears," "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 our emergence from Chapter 11 bankruptcy protection; 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 competition within our industry and with producers of competing energy sources; from our ability to successfully acquire or develop coal reserves; 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 our ability to successfully integrate the operations that we acquire; from our ability to complete the joint venture transaction with Peabody Energy in a timely manner, including obtaining regulatory approvals and satisfying other closing conditions; from our ability to achieve expected synergies from the joint venture; from our ability to successfully integrate the operations of certain mines in the joint venture; 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.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Income Statements
(In thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
---
2019 2018 2019 2018
---
(Unaudited)
(Unaudited)
Revenues $619,467 $633,180 $1,744,872 $1,800,824
Costs, expenses and other operating
Cost of sales (exclusive
of items shown separately
below) 491,004 482,029 1,380,563 1,411,197
Depreciation, depletion
and amortization 30,402 31,775 82,199 92,027
Accretion on asset
retirement obligations 5,137 6,992 15,411 20,977
Amortization of sales
contracts, net (153) 3,241 (77) 9,540
Change in fair value of
coal derivatives and coal
trading activities, net 1,530 10,418 (19,851) 22,142
Selling, general and
administrative expenses 24,566 22,909 73,864 73,613
Costs related to proposed
joint venture with
Peabody Energy 3,754 6,772 -
Loss on sale of Lone
Mountain Processing LLC 4,304 -
Preference Rights Lease
Application settlement
income (39,000) (39,000) -
Other operating income,
net (4,254) (7,070) (9,143) (21,320)
---
512,986 550,294 1,495,042 1,608,176
---
Income from operations 106,481 82,886 249,830 192,648
Interest expense, net
Interest expense (4,049) (5,179) (12,856) (15,624)
Interest and investment
income 3,709 1,801 7,940 4,626
(340) (3,378) (4,916) (10,998)
---
Income before nonoperating
expenses 106,141 79,508 244,914 181,650
Nonoperating (expenses) income
Non-service related
pension and
postretirement benefit
(costs) credits 975 (971) (2,127) (2,206)
Net loss resulting from
early retirement of debt
and debt restructuring (485)
Reorganization items, net (560) 71 (1,601)
975 (1,531) (2,056) (4,292)
---
Income before income taxes 107,116 77,977 242,858 177,358
Provision for (benefit
from) income taxes 347 (45,215) 508 (49,125)
---
Net income $106,769 $123,192 $242,350 $226,483
===
Net income per common share
Basic EPS $6.79 $6.40 $14.61 $11.27
===
Diluted EPS $6.34 $6.10 $13.66 $10.76
===
Weighted average shares outstanding
Basic weighted average
shares outstanding 15,736 19,250 16,591 20,102
===
Diluted weighted average
shares outstanding 16,852 20,208 17,744 21,040
===
Dividends declared per
common share $0.45 $0.40 $1.35 $1.20
===
Adjusted EBITDA (A) $106,621 $124,894 $319,439 $315,192
===
(A) Adjusted EBITDA is defined and
reconciled under "Reconciliation of
Non-GAAP Measures" later in this
release.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
2019 2018
(Unaudited)
Assets
Current assets
Cash and cash
equivalents $175,428 $264,937
Short-term investments 176,056 162,797
Trade accounts
receivable 206,149 200,904
Other receivables 24,291 48,926
Inventories 171,543 125,470
Other current assets 113,502 75,749
Total current assets 866,969 878,783
Property, plant and
equipment, net 889,295 834,828
Other assets
Equity investments 107,543 104,676
Other noncurrent assets 70,793 68,773
Total other assets 178,336 173,449
Total assets $1,934,600 $1,887,060
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $166,129 $128,024
Accrued expenses and
other current
liabilities 161,939 183,514
Current maturities of
debt 11,925 17,797
Total current
liabilities 339,993 329,335
Long-term debt 292,781 300,186
Asset retirement
obligations 238,440 230,304
Accrued pension
benefits 12,491 16,147
Accrued postretirement
benefits other than
pension 78,308 83,163
Accrued workers'
compensation 174,118 174,303
Other noncurrent
liabilities 93,033 48,801
Total liabilities 1,229,164 1,182,239
Stockholders' equity
Common Stock 250 250
Paid-in capital 734,829 717,492
Retained earnings 746,928 527,666
Treasury stock, at cost (816,882) (583,883)
Accumulated other
comprehensive income 40,311 43,296
Total stockholders'
equity 705,436 704,821
Total liabilities and
stockholders' equity $1,934,600 $1,887,060
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended September 30,
2019 2018
---
(Unaudited)
Operating activities
Net
income $242,350 $226,483
Adjustments to reconcile to cash provided by
operating activities:
Depreciation,
depletion
and
amortization 82,199 92,027
Accretion
on
asset
retirement
obligations 15,411 20,977
Amortization
of
sales
contracts,
net (77) 9,540
Deferred
income
taxes 13,680 (22,999)
Employee
stock-
based
compensation
expense 17,305 12,161
Gains
on
disposals
and
divestitures (818) (54)
Net
loss
resulting
from
early
retirement
of
debt
and
debt
restructuring - 485
Amortization
relating
to
financing
activities 2,757 3,300
Preference
Rights
Lease
Application
settlement
income (39,000)
Changes in:
Receivables (4,622) (5,983)
Inventories (46,073) (34,918)
Accounts
payable,
accrued
expenses
and
other
current
liabilities 1,569 (24,762)
Income
taxes,
net 32,440 (1,942)
Other 16,932 (8,200)
Cash
provided
by
operating
activities 334,053 266,115
Investing activities
Capital
expenditures (137,396) (55,742)
Minimum
royalty
payments (1,187) (522)
Proceeds
from
disposals
and
divestitures 1,799 512
Purchases
of
short
term
investments (158,578) (140,097)
Proceeds
from
sales
of
short
term
investments 146,170 133,400
Investments
in
and
advances
to
affiliates,
net (4,810) (1,817)
---
Cash
used
in
investing
activities (154,002) (64,266)
Financing activities
Payments
on
term
loan
due
2024 (2,250) (2,250)
Net
payments
on
other
debt (12,077) (10,286)
Debt
financing
costs - (1,009)
Net
loss
resulting
from
early
retirement
of
debt
and
debt
restructuring - (50)
Dividends
paid (22,264) (23,966)
Purchases
of
treasury
stock (232,999) (192,221)
Other 30 10
---
Cash
used
in
financing
activities (269,560) (229,772)
---
Decrease
in
cash
and
cash
equivalents (89,509) (27,923)
Cash
and
cash
equivalents,
beginning
of
period 264,937 273,602
---
Cash
and
cash
equivalents,
end
of
period $175,428 $245,679
===
Cash and cash equivalents, including restricted
cash, end of period
Cash
and
cash
equivalents $175,428 $245,679
Restricted
cash -
---
$175,428 $245,679
===
Arch Coal, Inc. and Subsidiaries
Schedule of Consolidated Debt
(In thousands)
September 30, December 31,
2019 2018
(Unaudited)
Term loan due 2024
($292.5 million
face value) $291,524 $293,626
Other 18,471 30,449
Debt issuance
costs (5,289) (6,092)
304,706 317,983
Less: current
maturities of
debt 11,925 17,797
Long-term debt $292,781 $300,186
Calculation of net
debt
Total debt
(excluding debt
issuance costs) $309,995 $324,075
Less liquid
assets:
Cash and cash
equivalents 175,428 264,937
Short term
investments 176,056 162,797
351,484 427,734
Net debt $(41,489) $(103,659)
Arch Coal, Inc. and Subsidiaries
Operational Performance
(In millions, except per ton data)
Three Months Ended Three Months Ended Three Months Ended
September 30, 2019 June 30, 2019 September 30, 2018
(Unaudited)
(Unaudited)
(Unaudited)
Powder River Basin
Tons Sold 22.2 17.1 21.5
Segment Sales $266.4 $12.02 $207.2 $12.08 $258.3 $12.02
Segment Cash Cost of
Sales 216.4 9.77 193.6 11.29 209.8 9.76
Segment Cash Margin 49.9 2.25 13.6 0.79 48.5 2.26
Metallurgical
Tons Sold 2.1 1.9 1.9
Segment Sales $206.1 $98.89 $219.3 $115.87 $198.5 $104.75
Segment Cash Cost of
Sales 135.2 64.89 117.5 62.07 118.5 62.54
Segment Cash Margin 70.9 34.00 101.8 53.80 80.0 42.21
Other Thermal
Tons Sold 2.0 1.9 2.5
Segment Sales $78.5 $39.52 $74.9 $39.09 $94.1 $36.96
Segment Cash Cost of
Sales 61.9 31.16 64.4 33.62 70.5 27.68
Segment Cash Margin 16.6 8.36 10.5 5.47 23.6 9.28
Total Segment Cash
Margin $137.4 $125.9 $152.1
Selling, general and
administrative
expenses (24.6) (25.2) (22.9)
Other (6.2) 4.9 (4.3)
Adjusted EBITDA $106.6 $105.6 $124.9
Arch Coal, Inc. and Subsidiaries
Reconciliation of NON-GAAP Measures
(In thousands, 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 consolidated income statements, 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
September 30, 2019
Powder River Metallurgical
Other Thermal Idle and Other
Consolidated
Basin
---
(In thousands)
GAAP Revenues in the
consolidated income
statements $269,968 $254,493 $94,052 $954 $619,467
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - (506) (4,533) (5,039)
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - 954 954
Transportation costs 3,581 48,925 20,080 72,586
Non-GAAP Segment
coal sales revenues $266,387 $206,074 $78,505
$ - $550,966
Tons sold 22,156 2,084 1,986
Coal sales per ton
sold $12.02 $98.89 $39.52
Quarter ended June
30, 2019 Powder River Basin Metallurgical
Other Thermal Idle and Other
Consolidated
---
(In thousands)
GAAP Revenues in the
consolidated income
statements $210,149 $261,245 $98,205 $623 $570,222
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - (1,036) (1,036)
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - 623 623
Transportation costs 2,924 41,963 24,339 69,226
Non-GAAP Segment
coal sales revenues $207,225 $219,282 $74,902
$ - $501,409
Tons sold 17,149 1,892 1,916
Coal sales per ton
sold $12.08 $115.87 $39.09
Quarter ended
September 30, 2018 Powder River Basin Metallurgical
Other Thermal Idle and Other
Consolidated
---
(In thousands)
GAAP Revenues in the
consolidated income
statements $261,927 $236,328 $130,663 $4,262 $633,180
Less: Adjustments to reconcile to Non-GAAP Segment coal
sales revenue
Coal risk management
derivative
settlements
classified in "other
income" - 2,522 2,522
Coal sales revenues
from idled or
otherwise disposed
operations not
included in segments - 4,262 4,262
Transportation costs 3,592 37,857 34,031 75,480
Non-GAAP Segment
coal sales revenues $258,335 $198,471 $94,110
$ - $550,916
Tons sold 21,486 1,895 2,546
Coal sales per ton
sold $12.02 $104.75 $36.96
Arch Coal, Inc. and Subsidiaries
Reconciliation of NON-GAAP Measures
(In thousands, 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 consolidated income statements, 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
September 30, 2019
Powder River Metallurgical
Other Thermal Idle and Other
Consolidated
Basin
---
(In thousands)
GAAP Cost of sales in
the consolidated
income statements $218,966 $184,149 $81,976 $5,913 $491,004
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" (1,057) (1,057)
Transportation costs 3,581 48,925 20,080 72,586
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - 3,871 3,871
Other (operating
overhead, certain
actuarial, etc.) - 2,042 2,042
Non-GAAP Segment
cash cost of coal
sales $216,442 $135,224 $61,896
$ - $413,562
Tons sold 22,156 2,084 1,986
Cash cost per ton
sold $9.77 $64.89 $31.16
Quarter ended June
30, 2019 Powder River Basin Metallurgical
Other Thermal Idle and Other
Consolidated
---
(In thousands)
GAAP Cost of sales in
the consolidated
income statements $195,948 $159,419 $88,749 $6,972 $451,088
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" (612) (612)
Transportation costs 2,924 41,963 24,339 69,226
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - 4,580 4,580
Other (operating
overhead, certain
actuarial, etc.) - 2,392 2,392
Non-GAAP Segment
cash cost of coal
sales $193,636 $117,456 $64,410
$ - $375,502
Tons sold 17,149 1,892 1,916
Cash cost per ton
sold $11.29 $62.07 $33.62
Quarter ended
September 30, 2018 Powder River Basin Metallurgical
Other Thermal Idle and Other
Consolidated
---
(In thousands)
GAAP Cost of sales in
the consolidated
income statements $214,921 $156,353 $104,516 $6,239 $482,029
Less: Adjustments to reconcile to Non-GAAP Segment cash
cost of coal sales
Diesel fuel risk
management
derivative
settlements
classified in "other
income" 1,528 1,528
Transportation costs 3,592 37,857 34,031 75,480
Cost of coal sales
from idled or
otherwise disposed
operations not
included in segments - 3,174 3,174
Other (operating
overhead, certain
actuarial, etc.) - 3,065 3,065
Non-GAAP Segment
cash cost of coal
sales $209,801 $118,496 $70,485
$ - $398,782
Tons sold 21,486 1,895 2,546
Cash cost per ton
sold $9.76 $62.54 $27.68
Arch Coal, Inc. and Subsidiaries
Reconciliation of Non-GAAP Measures
(In thousands)
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 September 30, Nine Months Ended September 30,
---
2019 2018 2019 2018
---
(Unaudited)
(Unaudited)
Net income $106,769 $123,192 $242,350 $226,483
Provision for (benefit
from) income taxes 347 (45,215) 508 (49,125)
Interest expense, net 340 3,378 4,916 10,998
Depreciation, depletion
and amortization 30,402 31,775 82,199 92,027
Accretion on asset
retirement obligations 5,137 6,992 15,411 20,977
Amortization of sales
contracts, net (153) 3,241 (77) 9,540
Costs related to proposed
joint venture with
Peabody Energy 3,754 6,772 -
Loss on sale of Lone
Mountain Processing LLC 4,304 -
Preference Rights Lease
Application settlement
income (39,000) (39,000) -
Non-service related
pension and
postretirement benefit
costs (975) 971 2,127 2,206
Net loss resulting from
early retirement of debt
and debt restructuring 485
Reorganization items, net 560 (71) 1,601
Adjusted EBITDA $106,621 $124,894 $319,439 $315,192
EBITDA from idled or
otherwise disposed
operations 2,584 (1,391) 3,151 4,020
Selling, general and
administrative expenses 24,566 22,909 73,864 73,613
Other 3,855 8,684 (13,038) 14,173
---
Segment Adjusted EBITDA
from coal operations $137,626 $155,096 $383,416 $406,998
===
Segment Adjusted EBITDA
Powder River Basin $50,153 $48,646 $85,433 $102,639
Metallurgical 70,814 81,250 264,284 251,649
Other Thermal 16,659 25,200 33,699 52,710
---
Total Segment Adjusted
EBITDA $137,626 $155,096 $383,416 $406,998
===
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SOURCE Arch Coal, Inc.
