XNYS:ACI Arch Coal Inc Quarterly Report 10-Q/A Filing - 3/31/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q/A

(Amendment No. 1)

 

(Mark One)

 

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2012

 

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                  to                  .

 

Commission file number: 1-13105

 

GRAPHIC

Arch Coal, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

43-0921172

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification Number)

 

One CityPlace Drive, Suite 300, St. Louis, Missouri

 

63141

(Address of principal executive offices)

 

(Zip code)

 

Registrant’s telephone number, including area code: (314) 994-2700

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

At May 10, 2012 there were 212,247,652 shares of the registrant’s common stock outstanding.

 

 

 



 

Explanatory Note

 

Arch Coal, Inc. (the “Company”) is filing this Amendment No. 1 (this “Amendment”) to its Quarterly Report on Form 10-Q for the period ended March 31, 2012, filed with the Securities and Exchange Commission on May 10, 2012 (the “Original Report”), solely for the purposes of (i) correcting certain numbers contained in Note 17 in the Original Report to conform to the financial statements reported herein and (ii) correcting the inadvertent omission in the Original Report of the number of shares, and total dollar value of such shares, available for purchase under the Company’s share repurchase program.  This Amendment amends and restates in their entirety Item 1 of Part I, Item 2 of Part II and Item 6 of Part II of the Original Report.

 

No other amendments, modifications, updates or changes are being made to the Original Report other than as described above.  This Amendment speaks as of the date of the filing of the Original Report.  The Company has not taken into account any other events occurring after the filing of the Original Report which might have affected any disclosures in the Original Report, nor has the Company amended, modified, updated or otherwise changed any disclosures to reflect any subsequent events.

 

2



 

Part I

FINANCIAL INFORMATION

 

Item 1.      Financial Statements.

 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Revenues

 

$

1,039,651

 

$

872,938

 

 

 

 

 

 

 

Costs, expenses and other

 

 

 

 

 

Cost of sales

 

850,871

 

653,684

 

Depreciation, depletion and amortization

 

139,966

 

83,537

 

Amortization of acquired sales contracts, net

 

(14,017

)

5,944

 

Selling, general and administrative expenses

 

30,861

 

30,435

 

 

 

 

 

 

 

Change in fair value of coal derivatives and coal trading activities, net

 

(3,613

)

(1,784

)

Other operating income, net

 

(18,498

)

(1,116

)

 

 

985,570

 

770,700

 

 

 

 

 

 

 

Income from operations

 

54,081

 

102,238

 

 

 

 

 

 

 

Interest expense, net:

 

 

 

 

 

Interest expense

 

(74,772

)

(34,580

)

Interest income

 

1,021

 

746

 

 

 

(73,751

)

(33,834

)

 

 

 

 

 

 

Income before income taxes

 

(19,670

)

68,404

 

Provision for (benefit from) income taxes

 

(21,079

)

12,530

 

Net income

 

1,409

 

55,874

 

Less: Net income attributable to noncontrolling interest

 

(203

)

(273

)

Net income attributable to Arch Coal, Inc.

 

$

1,206

 

$

55,601

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

Basic earnings per common share

 

$

0.01

 

$

0.34

 

Diluted earnings per common share

 

$

0.01

 

$

0.34

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

211,687

 

162,576

 

Diluted

 

211,908

 

163,773

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.11

 

$

0.10

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3



 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

 

 

 

Three Months Ended March 31

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Net income

 

$

1,409

 

$

55,874

 

Other comprehensive income, net of income taxes:

 

 

 

 

 

Pension, postretirement and other post-employment benefits, reclassifications into net income

 

463

 

573

 

Unrealized gains (losses) on available-for-sale securities

 

252

 

747

 

Unrealized gains and losses on derivatives, net of reclassifications into net income:

 

 

 

 

 

Unrealized gains (losses) on derivatives

 

1,760

 

9,501

 

Reclassifications of (gains) losses into net income

 

4,825

 

(2,124

)

Total other comprehensive income

 

7,300

 

8,697

 

Total comprehensive income

 

$

8,709

 

$

64,571

 

 

4



 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

117,770

 

$

138,149

 

Restricted cash

 

8,866

 

10,322

 

Trade accounts receivable

 

295,012

 

380,595

 

Other receivables

 

66,702

 

88,584

 

Inventories

 

488,686

 

377,490

 

Prepaid royalties

 

18,025

 

21,944

 

Deferred income taxes

 

65,531

 

42,051

 

Coal derivative assets

 

22,043

 

13,335

 

Other

 

96,484

 

110,304

 

Total current assets

 

1,179,119

 

1,182,774

 

 

 

 

 

 

 

Property, plant and equipment, net

 

7,892,733

 

7,949,150

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Prepaid royalties

 

90,221

 

86,626

 

Goodwill

 

596,103

 

596,103

 

Equity investments

 

230,519

 

225,605

 

Other

 

176,423

 

173,701

 

Total other assets

 

1,093,266

 

1,082,035

 

Total assets

 

$

10,165,118

 

$

10,213,959

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

294,341

 

$

383,782

 

Coal derivative liabilities

 

9,100

 

7,828

 

Accrued expenses and other current liabilities

 

357,386

 

348,207

 

Current maturities of debt and short-term borrowings

 

102,356

 

280,851

 

Total current liabilities

 

763,183

 

1,020,668

 

Long-term debt

 

3,967,796

 

3,762,297

 

Asset retirement obligations

 

432,620

 

446,784

 

Accrued pension benefits

 

49,378

 

48,244

 

Accrued postretirement benefits other than pension

 

42,784

 

42,309

 

Accrued workers’ compensation

 

74,012

 

71,948

 

Deferred income taxes

 

982,596

 

976,753

 

Other noncurrent liabilities

 

268,585

 

255,382

 

Total liabilities

 

6,580,954

 

6,624,385

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

11,739

 

11,534

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Common stock

 

2,141

 

2,136

 

Paid-in capital

 

3,024,553

 

3,015,349

 

Treasury stock, at cost

 

(53,848

)

(53,848

)

Retained earnings

 

600,230

 

622,353

 

Accumulated other comprehensive loss

 

(651

)

(7,950

)

Total stockholders’ equity

 

3,572,425

 

3,578,040

 

Total liabilities and stockholders’ equity

 

$

10,165,118

 

$

10,213,959

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5



 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

Operating activities

 

 

 

 

 

Net income

 

$

1,409

 

$

55,874

 

Adjustments to reconcile to cash provided by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

139,966

 

83,537

 

Amortization of acquired sales contracts, net

 

(14,017

)

5,944

 

Prepaid royalties expensed

 

8,586

 

8,916

 

Employee stock-based compensation expense

 

4,079

 

5,290

 

Amortization relating to financing activities

 

4,288

 

2,442

 

Changes in:

 

 

 

 

 

Receivables

 

88,082

 

(53,586

)

Inventories

 

(111,196

)

(12,292

)

Coal derivative assets and liabilities

 

(5,347

)

(1,087

)

Accounts payable, accrued expenses and other current liabilities

 

(66,222

)

(38,054

)

Income taxes, net

 

23,002

 

12,558

 

Deferred income taxes

 

(21,742

)

(1,026

)

Other

 

4,102

 

17,629

 

 

 

 

 

 

 

Cash provided by operating activities

 

54,990

 

86,145

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Decrease in restricted cash

 

1,455

 

 

Capital expenditures

 

(93,271

)

(38,711

)

Proceeds from dispositions of property, plant and equipment

 

22,105

 

516

 

Purchases of investments and advances to affiliates

 

(5,777

)

(34,419

)

Additions to prepaid royalties

 

(8,262

)

(20,915

)

 

 

 

 

 

 

Cash used in investing activities

 

(83,750

)

(93,529

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Payments to retire debt

 

(1,330

)

 

Net increase in borrowings under lines of credit and commercial paper program

 

34,000

 

3,681

 

Net payments on other debt

 

(5,993

)

(5,161

)

Debt financing costs

 

(100

)

(8

)

Dividends paid

 

(23,327

)

(16,269

)

Issuance of common stock under incentive plans

 

5,131

 

768

 

 

 

 

 

 

 

Cash provided by (used in) financing activities

 

8,381

 

(16,989

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(20,379

)

(24,373

)

Cash and cash equivalents, beginning of period

 

138,149

 

93,593

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

117,770

 

$

69,220

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

6



 

Arch Coal, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Arch Coal, Inc. and its subsidiaries and controlled entities (the “Company”). The Company’s primary business is the production of steam and metallurgical coal from surface and underground mines located throughout the United States, for sale to utility, industrial and export markets. On June 15, 2011, the Company acquired International Coal Group, Inc. (“ICG”), as described in Note 3, “Business Combinations”.  The Company operates 23 mining complexes in West Virginia, Kentucky, Maryland, Virginia, Illinois, Wyoming, Colorado and Utah. All subsidiaries (except as noted below) are wholly-owned. Intercompany transactions and accounts have been eliminated in consolidation.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and U.S. Securities and Exchange Commission regulations. In the opinion of management, all adjustments, consisting of normal, recurring accruals considered necessary for a fair presentation, have been included. Results of operations for the three period ended March 31, 2012 are not necessarily indicative of results to be expected for the year ending December 31, 2012. These financial statements should be read in conjunction with the audited financial statements and related notes as of and for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K/A filed with the U.S. Securities and Exchange Commission.

 

The Company owns a 99% membership interest in a joint venture named Arch Western Resources, LLC (“Arch Western”) which operates coal mines in Wyoming, Colorado and Utah. The Company also acts as the managing member of Arch Western. On April 9, 2012, Delta Housing, Inc., the other member in Arch Western, exercised their contractual right to require us to purchase their membership interests in Arch Western.  The negotiation of this sale and purchase is ongoing and we expect to complete this acquisition by the end of the third quarter.

 

2. Accounting Policies

 

There is no new accounting guidance that is expected to have a significant impact on the Company’s financial statements.

 

3. Business Combination

 

On June 15, 2011, the Company completed its acquisition of ICG, a leading coal producer.  During the first quarter of 2012, the Company finalized the determination of the fair values of the assets acquired and liabilities assumed in the acquisition, with no material adjustments to what was recorded as of December 31, 2011.

 

4. Debt

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Indebtedness to banks under credit facilities

 

$

515,300

 

$

481,300

 

6.75% senior notes ($450.0 million face value) due 2013

 

450,809

 

450,971

 

8.75% senior notes ($600.0 million face value) due 2016

 

589,463

 

588,974

 

7.00% senior notes due in 2019 at par

 

1,000,000

 

1,000,000

 

7.25% senior notes due 2020 at par

 

500,000

 

500,000

 

7.25% senior notes due 2021 at par

 

1,000,000

 

1,000,000

 

Other

 

14,580

 

21,903

 

 

 

4,070,152

 

4,043,148

 

Less current maturities of debt and short-term borrowings

 

102,356

 

280,851

 

Long-term debt

 

$

3,967,796

 

$

3,762,297

 

 

7



 

The current maturities of debt include contractual maturities, as well as amounts borrowed that are supported by credit facilities that have a term of less than one year and amounts borrowed under credit facilities with terms longer than one year that the Company does not intend to refinance on a long-term basis, based on cash projections and management’s plans.

 

On April 30, 2012, the Company received commitment letters with lending institutions to refinance certain indebtedness having near-term maturities and to increase the Company’s liquidity in order to execute on key long-term growth initiatives, particularly the development of the Company’s metallurgical coal properties.  As part of the financing package, these lenders have agreed, subject to certain customary conditions, to enter into an amendment to the existing senior secured revolving credit facility which will, among other things, suspend the Company’s compliance with the debt-to-EBITDA ratio and other financial covenants in the existing credit agreement over the next 24 months and replace them with minimum performance targets at levels consistent with the current coal market environment.  We will also receive a $1 billion, six-year term loan facility, which will contain no financial maintenance covenants, and the maximum borrowing capacity of the revolving credit facility will be reduced from $2 billion to $1 billion. The proceeds of the term loan will be used to retire the outstanding $450.0 million aggregate principal amount of 6 ¾% Senior Notes due 2013 issued by Arch Western Finance, LLC (“Arch Western Finance”), the Company’s indirect subsidiary.

 

On May 1, 2012, Arch Western Finance commenced a cash tender offer for any and all of its outstanding $450.0 million aggregate principal amount of 6 ¾% Senior Notes due 2013.  In connection with the tender offer, Arch Western Finance is soliciting consents from the holders of the senior notes for certain proposed amendments to the indenture governing the notes that eliminates most of the covenants and certain default provisions applicable to the senior notes, as well as reduce the minimum notice period in the optional redemption provision of the senior notes from 30 days to three days If Arch Western Finance purchases less than all of the outstanding senior notes in the tender offer, it intends to redeem any senior notes that remain outstanding.  The terms and conditions of the tender offer and consent solicitation are described in an Offer to Purchase and Consent Solicitation Statement (the “Statement”) and a related Consent and Letter of Transmittal (the “Letter of Transmittal”), which have been sent to holders of the senior notes.  The Consent Solicitation expires on May 14, 2012, prior to which the consideration for each $1,000 of principal is $1,002.50. For notes tendered after the expiration of the Consent Solicitation and before May 29, 2012, the end of the tender offer, the consideration for each $1,000 of principal is $972.50.

 

5.  Goodwill

 

An approximate 20% drop in the Company’s stock price during the first quarter of 2012, combined with significant decrease in thermal coal demand during the quarter, indicated that the fair value of the Company’s goodwill could be less than its carrying value. Accordingly, we performed the first step of the two-step goodwill impairment test as of March 31, 2012.  The fair value of all reporting units that have been assigned goodwill exceeded their respective carrying values, so no further testing was necessary. The value of our Black Thunder reporting unit, where $115.8 million of goodwill has been allocated, would be sensitive to future volume variations should thermal markets weaken further, which could cause us to perform step 2 of the test.  The goodwill allocated to certain Appalachia reporting units is particularly sensitive to volatility in the demand for metallurgical coal.  Should metallurgical coal markets weaken, it could cause the fair value of the reporting units to be less than their carrying value, requiring us to perform step 2 of the test for impairment. Additionally, further sustained declines in the Company’s stock price below levels experienced in the first quarter would also require us to perform step-2 of the test for impairment.  Performance of step 2 of the impairment test, which requires a valuation of individual assets and liabilities of the respective reporting units in order to calculate the implied fair value of goodwill could result in an impairment of goodwill.

 

8



 

6. Equity Investments and Membership Interests in Joint Ventures

 

The Company accounts for its investments and membership interests in joint ventures under the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the entity. Below are the equity method investments reflected in the condensed consolidated balance sheets:

 

 

 

Knight Hawk

 

DKRW

 

Dominion

 

Tenaska

 

Millennium

 

Tongue

 

 

 

 

 

Holdings,

 

Advanced

 

Terminal

 

Trailblazer

 

Bulk

 

River

 

 

 

 

 

LLC

 

Fuels, LLC

 

Associates

 

Partners, LLC

 

Terminals, LLC

 

Railroad, LLC

 

 

 

(In thousands)

 

(“KH”)

 

(“DKRW”)

 

(“DTA”)

 

(“Tenaska”)

 

(“MBT”)

 

(“TRR”)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

$

135,225

 

$

19,715

 

$

16,086

 

$

15,266

 

$

26,324

 

$

12,989

 

$

225,605

 

Investments in affiliates

 

 

 

 

 

 

 

 

Advances to (distributions from) affiliates, net

 

(1,801

)

 

925

 

 

2,562

 

675

 

2,361

 

Equity in comprehensive income (loss)

 

5,243

 

(879

)

(1,254

)

 

(557

)

 

2,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2012

 

$

138,667

 

$

18,836

 

$

15,757

 

$

15,266

 

$

28,329

 

$

13,664

 

$

230,519

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes receivable from investees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

$

 

$

30,751

 

$

 

$

5,059

 

$

 

$

 

$

35,810

 

Balance at March 31, 2012

 

$

 

$

33,561

 

$

 

$

5,031

 

$

 

$

 

$

38,592

 

 

Summarized financial information of the Company’s equity method investees follows:

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2012

 

2011

 

 

 

 

 

 

 

Condensed combined income statement information:

 

 

 

 

 

Revenues

 

$

51,743

 

$

44,470

 

Gross profit

 

2,475

 

6,084

 

Income from operations

 

(376

)

3,643

 

Net income (loss)

 

(2,437

)

2,283

 

 

 

 

March 31, 2012

 

December 31, 2011

 

Condensed combined balance sheet information:

 

 

 

 

 

Current assets

 

$

94,811

 

$

94,645

 

Noncurrent assets

 

361,918

 

332,124

 

Total assets

 

$

456,729

 

$

426,769

 

Current liabilities

 

$

62,260

 

$

51,953

 

Noncurrent liabilities

 

125,350

 

120,494

 

Equity

 

268,918

 

254,161

 

Noncontrolling interest

 

201

 

161

 

Total liabilities and equity

 

$

456,729

 

$

426,769

 

 

The Company may be required to make future contingent payments of up to $73.0 million related to development financing for certain of its equity investees. The Company’s obligation to make these payments, as well as the timing of any payments required, is contingent upon a number of factors, including project development progress, receipt of permits and construction financing.

 

7. Derivatives

 

Diesel fuel price risk management

 

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company anticipates purchasing approximately 75 to 80 million gallons of diesel fuel for use in its operations during 2012. To reduce the volatility in the

 

9



 

price of diesel fuel for its operations, the Company uses forward physical diesel purchase contracts, as well as heating oil swaps and purchased call options. At March 31, 2012, the Company had protected the price of approximately 85% of its expected purchases for the remainder of fiscal year 2012 and 50% of its first quarter of 2013 purchases.

 

At March 31, 2012, the Company had purchased heating oil call options for approximately 59 million gallons for the purpose of managing the price risk associated with future diesel purchases. During the first quarter of 2012 the Company determined, the effectiveness of the heating oil options could not be established as of December 31, 2011 on an ongoing basis.  As a result, the amount remaining in accumulated other comprehensive income of $8.2 million, or $5.2 million net of income taxes, was recorded in earnings, in the “other income, net” line on the condensed consolidated statement of income. The out of period adjustment is not deemed material to prior period results, the expected results of the full 2012 fiscal year or for the trend of earnings of the Company.

 

The Company also purchased heating oil call options to hedge the fuel surcharges on its barge and rail shipments that cover increases in diesel fuel prices. These positions reduce the Company’s risk of cash flow fluctuations related to these surcharges but the positions are not accounted for as hedges. At March 31, 2012, Company held purchased call options for approximately 15.5 million gallons for the purpose of managing the fluctuations in cash flows associated with fuel surcharges on future shipments.

 

Coal risk management positions

 

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted sales or purchases of coal or to the risk of changes in the fair value of a fixed price physical sales contract. Certain derivative contracts may be designated as hedges of these risks.

 

At March 31, 2012, the Company held derivatives for risk management purposes that are expected to settle in the following years :

 

(Tons in thousands)

 

2012

 

2013

 

2014

 

2015

 

Coal sales

 

(3,025

)

(1,117

)

(1,440

)

(720

)

Coal purchases

 

417

 

 

 

 

 

Coal trading positions

 

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market for trading purposes. The Company is exposed to the risk of changes in coal prices on the value of its coal trading portfolio. The estimated future realization of the value of the trading portfolio is $4.3 million of losses in 2012 and $2.2 million of losses in 2013.

 

Tabular derivatives disclosures

 

The Company’s contracts with certain of its counterparties allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the consolidated balance sheets. The amounts shown in the table below represent the fair value position of individual contracts, regardless of the net position presented in the accompanying consolidated balance sheets. The fair value and location of derivatives reflected in the accompanying consolidated balance sheets are as follows:

 

10



 

 

 

March 31, 2012

 

 

 

December 31, 2011

 

 

 

Fair Value of Derivatives

 

Asset

 

Liability

 

 

 

Asset

 

Liability

 

 

 

(In thousands)

 

Derivative

 

Derivative

 

 

 

Derivative

 

Derivative

 

 

 

Derivatives Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Heating oil — diesel purchases

 

$

 

$

 

 

 

$

8,997

 

$

 

 

 

Coal

 

3,256

 

(218

)

 

 

1,109

 

 

 

 

Total

 

3,256

 

(218

)

 

 

10,106

 

 

 

 

Derivatives Not Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Heating oil — diesel purchases

 

12,869

 

 

 

 

 

 

 

 

Heating oil — fuel surcharges

 

2,837

 

 

 

 

1,797

 

 

 

 

Coal — held for trading purposes

 

26,945

 

(33,411

)

 

 

15,505

 

(19,927

)

 

 

Coal

 

22,491

 

(6,119

)

 

 

14,855

 

(6,035

)

 

 

Total

 

65,142

 

(39,530

)

 

 

32,157

 

(25,962

)

 

 

Total derivatives

 

68,398

 

(39,748

)

 

 

42,263

 

(25,962

)

 

 

Effect of counterparty netting

 

(30,648

)

30,648

 

 

 

(18,134

)

18,134

 

 

 

Net derivatives as classified in the balance sheets

 

$

37,750

 

$

(9,100

)

$

28,650

 

$

24,129

 

$

(7,828

)

$

16,301

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

 

2012

 

2011

 

Net derivatives as reflected on the balance sheets

 

 

 

 

 

 

 

Heating oil

 

Other current assets

 

$

15,707

 

$

10,794

 

Coal

 

Coal derivative assets

 

22,043

 

13,335

 

 

 

Coal derivative liabilities

 

(9,100

)

(7,828

)

 

 

 

 

$

28,650

 

$

16,301

 

 

The Company had a current asset for the right to reclaim cash collateral of $15.0 million and $12.4 million at March 31, 2012 and December 31, 2011, respectively. These amounts are not included with the derivatives presented in the table above and are included in “other current assets” in the accompanying consolidated balance sheets.

 

The effects of derivatives on measures of financial performance are as follows for the three month periods ended March 31:

 

Three Months Ended March 31

 

 

 

 

 

 

 

Derivatives used in Fair Value Hedging

 

Hedged Items in Fair Value

 

 

 

Loss on Hedged Items In Fair

 

Relationships (in thousands)

 

Hedge Relationships

 

 

 

Value Hedge Relationships

 

 

 

2012

 

2011

 

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

$

 

$

 

Firm commitments

 

$

 

$

 

 

11



 

 

 

 

 

 

 

 

 

Gains (Losses) Reclassified

 

 

 

Gain (Loss) Recognized in OCI

 

 

 

from OCI into Income

 

Derivatives used in Cash Flow Hedging Relationships

 

(Effective Portion)

 

 

 

(Effective Portion)

 

(in thousands)

 

2012

 

2011

 

 

 

2012

 

2011

 

Heating oil — diesel purchases

 

$

 

$

14,258

 

 

 

$

 

$

3,170

(2)

Coal sales

 

2,493

 

1,406

 

 

 

201

 

87

(1)

Coal purchases

 

(202

)

(876

)

 

 

 

(2)

Totals

 

$

2,291

 

$

14,788

 

 

 

$

201

 

$

3,257

 

 

 

 

Gain (Loss) Recognized in

 

 

 

Income (Ineffective Portion

 

 

 

and Amount Excluded from

 

 

 

Effectiveness Testing)

 

 

 

2012

 

2011

 

Heating oil — diesel purchases

 

$

 

$

 

Coal sales

 

 

 

Coal purchases

 

 

 

Totals

 

$

 

$

 

 

 

 

Derivatives Not Designated as

 

 

 

Hedging Instruments

 

 

 

2012

 

2011

 

Coal — unrealized

 

$

7,552

 

$

(1,045

)(3)

Coal — realized

 

3,158

 

(4)

Heating oil — diesel purchases

 

423

 

(4)

Heating oil — fuel surcharges — unrealized

 

$

367

 

$

(4)

 

Location in Statement of Income:

 


(1) — Revenues

 

(2) — Cost of sales

 

(3) — Change in fair value of coal derivatives and coal trading activities, net

 

(4) — Other operating income, net

 

The Company recognized net unrealized and realized losses of $3.9 million and net unrealized and realized gains of $2.8 million during the three months ended March 31, 2012 and 2011, respectively, related to its trading portfolio (including derivative and non-derivative contracts). These balances are included in the caption “Change in fair value of coal derivatives and coal trading activities, net” in the accompanying consolidated statements of income and are not included in the previous table.

 

During the next twelve months, based on fair values at March 31, 2012, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $3.2 million are expected to be reclassified from other comprehensive income into earnings.

 

12



 

8. Inventories

 

Inventories consist of the following:

 

 

 

March 31

 

December 31

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Coal

 

$

298,744

 

$

206,517

 

Repair parts and supplies

 

174,747

 

163,527

 

Work-in-process

 

15,195

 

7,446

 

 

 

$

488,686

 

$

377,490

 

 

The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $13.4 million at March 31, 2012, and $13.1 million at December 31, 2011.

 

9. Fair Value Measurements

 

The hierarchy of fair value measurements prioritizes the inputs to valuation techniques used to measure fair value. The levels of the hierarchy, as defined below, give the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

 

·              Level 1 is defined as observable inputs such as quoted prices in active markets for identical assets. Level 1 assets include available-for-sale equity securities and coal futures that are submitted for clearing on the New York Mercantile Exchange.

 

·              Level 2 is defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s level 2 assets and liabilities include commodity contracts (coal and heating oil) with fair values derived from quoted prices in over-the-counter markets or from prices received from direct broker quotes.

 

·              Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.  These include the Company’s commodity option contracts (primarily coal and heating oil) valued using modeling techniques, such as Black-Scholes, that require the use of inputs, particularly volatility, that are rarely observable.  Changes in the unobservable inputs would not have a significant impact on the reported Level 3 fair values at March 31, 2012.

 

The table below sets forth, by level, the Company’s financial assets and liabilities that are recorded at fair value in the accompanying condensed consolidated balance sheet:

 

 

 

Fair Value at March 31, 2012

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

Investments in equity securities

 

$

7,936

 

$

7,936

 

$

 

$

 

Derivatives

 

37,750

 

20,177

 

2,068

 

15,505

 

Total assets

 

$

45,686

 

$

28,113

 

$

2,068

 

$

15,505

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

$

9,100

 

$

 

$

6,836

 

$

2,264

 

 

The Company’s contracts with certain of its counterparties allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. For classification purposes, the Company records the net fair value of all the positions with these counterparties as a net asset or liability. Each level in the table above displays the underlying contracts according to their classification in the accompanying condensed consolidated balance sheet, based on this counterparty netting.

 

13



 

The following table summarizes the change in the fair values of financial instruments categorized as level 3.

 

 

 

Three Months
Ended

 

 

 

March 31, 2012

 

 

 

(In thousands)

 

 

 

 

 

Balance, beginning of period

 

$

6,211

 

Realized and unrealized losses recognized in earnings, net

 

2,496

 

Realized and unrealized losses recognized in other comprehensive income, net

 

 

Purchases

 

5,261

 

Issuances

 

 

Settlements

 

(727

)

 

 

 

 

Ending balance

 

$

13,241

 

 

Net unrealized gains during the three month period ended March 31, 2012 related to level 3 financial instruments held on March 31, 2012 were $2.8 million.

 

Fair Value of Long-Term Debt

 

At March 31, 2012 and December 31, 2011, the fair value of the Company’s senior notes and other long-term debt, including amounts classified as current, was $3.9 billion and $4.2 billion, respectively. The fair values are based upon observed prices in an active market, and as such are classified as Level 1 in the fair value hierarchy.

 

10. Stock-Based Compensation and Other Incentive Plans

 

During the three months ended March 31, 2012, the Company granted options to purchase approximately 1.1 million shares of common stock with a weighted average exercise price of $13.93 per share and a weighted average grant-date fair value of $5.42 per share. The options’ fair value was determined using the Black-Scholes option pricing model, using a weighted average risk-free rate of .767%, a weighted average dividend yield of 3.16% and a weighted average volatility of 60.18%. The options’ expected life is 4.5 years and the options vest ratably over three years, and provide for the continuation of vesting after retirement for recipients that meet certain criteria. The expense for these options will be recognized through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn all or part of the award.

 

The Company has a long-term incentive program that allows for the award of performance units. The total number of units earned by a participant is based on financial and operational performance measures, and may be paid out in cash or in shares of the Company’s common stock. The Company recognizes compensation expense over the three-year term of the grant. Amounts unpaid for all grants under the plan totaled $7.5 million and $9.6 million as of March 31, 2012 and December 31, 2011, respectively.

 

11. Workers’ Compensation Expense

 

The following table details the components of workers’ compensation expense:

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Service cost

 

$

968

 

$

193

 

Interest cost

 

680

 

254

 

Net amortization

 

277

 

(101

)

Total occupational disease

 

1,925

 

346

 

Traumatic injury claims and assessments

 

5,176

 

2,325

 

Total workers’ compensation expense

 

$

7,101

 

$

2,671

 

 

14



 

12. Employee Benefit Plans

 

The following table details the components of pension benefit costs:

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Service cost

 

$

7,596

 

$

4,319

 

Interest cost

 

3,980

 

4,131

 

Expected return on plan assets

 

(5,538

)

(5,468

)

Amortization of prior service cost (credit)

 

(36

)

47

 

Amortization of other actuarial losses

 

3,571

 

2,140

 

Net benefit cost

 

$

9,573

 

$

5,169

 

 

The following table details the components of other postretirement benefit costs (credits):

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Service cost

 

$

549

 

$

405

 

Interest cost

 

491

 

498

 

Amortization of prior service credits

 

(2,995

)

(591

)

Amortization of other actuarial gains

 

(90

)

(598

)

Net benefit cost (credit)

 

$

(2,045

)

$

(287

)

 

13. Earnings per Common Share

 

The following table provides the basis for earnings per share calculations by reconciling basic and diluted weighted average shares outstanding:

 

 

 

Three Months Ended March 31

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

Weighted average shares outstanding:

 

 

 

 

 

Basic weighted average shares outstanding

 

211,687

 

162,576

 

Effect of common stock equivalents under incentive plans

 

221

 

1,197

 

Diluted weighted average shares outstanding

 

211,908

 

163,773

 

 

The effect of options to purchase 3.0 million and 1.1 million shares of common stock were excluded from the calculation of diluted weighted average shares outstanding for the three month periods ended March 31, 2012 and 2011, respectively, because the exercise price of these options exceeded the average market price of the Company’s common stock for these periods.

 

14. Guarantees

 

The Company has agreed to continue to provide surety bonds and letters of credit for the reclamation and retiree healthcare obligations of Magnum Coal Company (“Magnum”) related to the properties the Company sold to Magnum on December 31, 2005. Patriot Coal Corporation (“Patriot”) acquired Magnum in July 2008. The purchase agreement requires Magnum to reimburse the Company for costs related to the surety bonds and letters of credit and to use commercially reasonable efforts to replace the obligations.  If the surety bonds and letters of credit related to the reclamation obligations are not replaced by Magnum within a specified period of time, Magnum must post a letter of credit in favor of the Company in the amounts of the reclamation obligations. As of March 31, 2012, Patriot has replaced $48.9 million of the surety bonds and has posted letters of credit of $16.7 million in the Company’s favor.  At March 31, 2012, the Company had $38.5 million of surety bonds remaining related to properties sold to Magnum.  The surety bonding amounts are mandated by the state and are not directly related to the estimated cost to reclaim the properties.

 

15



 

Magnum also acquired certain coal supply contracts with customers who have not consented to the contracts’ assignment from the Company to Magnum. The Company has committed to purchase coal from Magnum to sell to those customers at the same price it is charging the customers for the sale. Under the amended coal supply contracts, as amended, Magnum has the ability to buy out of its obligations under the contract at prices that are predetermined for the remainder of the agreement.  Certain other contracts were assigned to Magnum. If Magnum is unable to supply the coal for these coal sales contracts or pay the buy out amount if elected, then the Company would be required to fulfill Magnum’s delivery or payment obligations. The longest of the coal supply contracts extends to the year 2017.  At market prices effective at March 31, 2012, the maximum amount to fulfill Magnum’s obligations under the contracts that have not been assigned over their duration would be approximately $64.1 million, and the cost of purchasing 573 thousand tons of coal to supply the assigned and guaranteed contracts over their duration would exceed the sales price under the contracts by approximately $12.2 million. As the Company does not believe that it is probable that it would have to purchase replacement coal, no losses have been recorded in the consolidated financial statements as of March 31, 2012. However, if the Company would have to perform under these guarantees, it could potentially have a material adverse effect on the business, results of operations and financial condition of the Company.

 

In connection with the Company’s acquisition of the coal operations of Atlantic Richfield Company (ARCO) and the simultaneous combination of the acquired ARCO operations and the Company’s Wyoming operations into the Arch Western joint venture, the Company agreed to indemnify the other member of Arch Western against certain tax liabilities in the event that such liabilities arise prior to June 1, 2013 as a result of certain actions taken, including the sale or other disposition of certain properties of Arch Western, the repurchase of certain equity interests in Arch Western by Arch Western or the reduction under certain circumstances of indebtedness incurred by Arch Western in connection with the acquisition. If the Company were to become liable, the maximum amount of potential future tax payments is $16.3 million at March 31, 2012, which is not recorded as a liability in the Company’s condensed consolidated financial statements. Since the indemnification is dependent upon the initiation of activities within the Company’s control and the Company does not intend to initiate such activities, it is remote that the Company will become liable for any obligation related to this indemnification. However, if such indemnification obligation were to arise, it could potentially have a material adverse effect on the business, results of operations and financial condition of the Company.

 

15. Contingencies

 

Allegheny Energy Supply (“Allegheny”), the sole customer of coal produced at the Company’s subsidiary Wolf Run Mining Company’s (“Wolf Run”) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter Ridge Holdings, Inc. (“Hunter Ridge”), and ICG in state court in Allegheny County, Pennsylvania on December 28, 2006, and amended its complaint on April 23, 2007. Allegheny claimed that Wolf Run breached a coal supply contract when it declared force majeure under the contract upon idling the Sycamore No. 2 mine in the third quarter of 2006, and that Wolf Run continued to breach the contract by failing to ship in volumes referenced in the contract. The Sycamore No. 2 mine was idled after encountering adverse geologic conditions and abandoned gas wells that were previously unidentified and unmapped. After extensive searching for gas wells and rehabilitation of the mine, it was re-opened in 2007, but with notice to Allegheny that it would necessarily operate at reduced volumes in order to safely and effectively avoid the many gas wells within the reserve. The amended complaint also alleged that the production stoppages constitute a breach of the guarantee agreement by Hunter Ridge and breach of certain representations made upon entering into the contract in early 2005. Allegheny voluntarily dropped the breach of representation claims later. Allegheny claimed that it would incur costs in excess of $100 million to purchase replacement coal over the life of the contract. ICG, Wolf Run and Hunter Ridge answered the amended complaint on August 13, 2007, disputing all of the remaining claims.

 

On November 3, 2008, ICG, Wolf Run and Hunter Ridge filed an amended answer and counterclaim against the plaintiffs seeking to void the coal supply agreement due to, among other things, fraudulent inducement and conspiracy. On September 23, 2009, Allegheny filed a second amended complaint alleging several alternative theories of liability in its effort to extend contractual liability to ICG, which was not a party to the original contract and did not exist at the time Wolf Run and Allegheny entered into the contract.  No new substantive claims were asserted.  ICG answered the second amended complaint on October 13, 2009, denying all of the new claims ICG’s counterclaim was dismissed on motion for summary judgment entered on May 11, 2010.  Allegheny’s claims against ICG were also dismissed by summary judgment, but the claims against Wolf Run and Hunter Ridge were not. The court conducted a non-jury trial of this matter beginning on January 10, 2011 and concluding on February 1, 2011. At the trial, Allegheny presented its evidence for breach of contract and claimed that it is entitled to past and future damages in the aggregate of between $228.0 million and $377.0 million. Wolf Run and Hunter Ridge presented their defense of the claims, including evidence with respect to the existence of force majeure conditions and excuse under the contract and applicable law. Wolf Run and Hunter Ridge presented evidence that Allegheny’s damages calculations were significantly inflated because it did not seek to determine damages as of the time of the breach and in some instances artificially assumed future non-delivery or did not take into account the apparent requirement to supply coal in the future. On May 2, 2011, the trial court entered a Memorandum and Verdict determining that Wolf Run had breached the coal supply contract and that the performance shortfall was not excused by force majeure. ICG and Allegheny filed post-verdict motions in the trial court and on August 23, 2011, the court denied the parties’ motions.  The court entered a final judgment on August 25, 2011, in the amount of $104.1 million, which included pre-judgment interest.  The parties appealed the lower court’s decision to the

 

16



 

Superior Court of Pennsylvania.  Wolf Run and Hunter Ridge have filed an appeal bond in the amount of $124.9 million.  Briefing is complete and oral argument is scheduled for May 16, 2012.

 

As of March 31, 2012 and December 31, 2011, the Company had accrued $109.8 million and $108.3 million, respectively, for this lawsuit, including interest.  The ultimate resolution of this matter could result in an outcome which may be materially different than what the Company has accrued.

 

In addition, the Company is a party to numerous claims and lawsuits with respect to various matters. The Company provides for costs related to contingencies when a loss is probable and the amount is reasonably determinable. After conferring with counsel, it is the opinion of management that the ultimate resolution of pending claims, other than as noted above, will not have a material adverse effect on the consolidated financial condition, results of operations or liquidity of the Company.

 

16. Segment Information

 

The Company has three reportable business segments, which are based on the major coal producing basins in which the Company operates. Each of these reportable business segments includes a number of mine complexes. The Company manages its coal sales by coal basin, not by individual mine complex. Geology, coal transportation routes to customers, regulatory environments and coal quality are characteristic to a basin. Accordingly, market and contract pricing have developed by coal basin. Mine operations are evaluated based on their per-ton operating costs (defined as including all mining costs but excluding pass-through transportation expenses), as well as on other non-financial measures, such as safety and environmental performance. The Company’s reportable segments are the Powder River Basin (PRB) segment, with operations in Wyoming; the Western Bituminous (WBIT) segment, with operations in Utah, Colorado and southern Wyoming; the Appalachia (APP) segment, with operations in West Virginia, Kentucky, Maryland and Virginia.  The Appalachia segment includes the acquired ICG operations in Appalachia, as well as the Company’s previous Central Appalachia segment. The “Other” operating segment represents primarily the Company’s Illinois operations and ADDCAR subsidiary, which manufactures and sells its patented highwall mining system.

 

Operating segment results for the three months ended March 31, 2012 and 2011 are presented below. Results for the reportable segments include all direct costs of mining, including all depreciation, depletion and amortization related to the mining operations, even if the assets are not recorded at the operating segment level. See discussion of segment assets below. Corporate, Other and Eliminations includes the change in fair value of coal derivatives and coal trading activities, net; corporate overhead; land management; other support functions; and the elimination of intercompany transactions.

 

The asset amounts below represent an allocation of assets used in the segments’ cash-generating activities. The amounts in Corporate, Other and Eliminations represent primarily corporate assets (cash, receivables, investments, plant, property and equipment) as well as unassigned coal reserves, above-market acquired sales contracts and other unassigned assets.

 

 

 

 

 

 

 

 

 

Other

 

Corporate,

 

 

 

 

 

 

 

 

 

 

 

Operating

 

Other and

 

 

 

(in thousands)

 

PRB

 

APP

 

WBIT

 

Segments

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

401,177

 

$

469,058

 

$

144,559

 

$

24,857

 

$

 

$

1,039,651

 

Income (loss) from operations

 

32,543

 

15,835

 

31,241

 

(3,750

)

(21,788

)

54,081

 

Total assets

 

2,263,517

 

4,640,344

 

752,197

 

940,245

 

1,568,815

 

10,165,118

 

Depreciation, depletion and amortization

 

41,223

 

76,017

 

18,600

 

3,687

 

439

 

139,966

 

Amortization of acquired sales contracts, net

 

(816

)

(13,088

)

 

(113

)

 

(14,017

)

Capital expenditures

 

3,986

 

66,303

 

15,137

 

5,644

 

2,201

 

93,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

393,113

 

$

155,439

 

$

324,386

 

$

 

$

 

$

872,938

 

Income from operations

 

46,874

 

26,892

 

54,394

 

 

(25,922

)

102,238

 

Total assets

 

2,244,173

 

683,949

 

710,324

 

 

1,261,532

 

4,899,978

 

Depreciation, depletion and amortization

 

41,691

 

20,529

 

21,016

 

 

301

 

83,537

 

Amortization of acquired sales contracts, net

 

5,944

 

 

 

 

 

5,944

 

Capital expenditures

 

2,838

 

11,777

 

17,302

 

 

6,794

 

38,711

 

 

17



 

A reconciliation of segment income from operations to consolidated income before income taxes follows:

 

 

 

Three Months Ended March 31

 

 

 

2012

 

2011

 

 

 

(In thousands)

 

 

 

 

 

 

 

Income from operations

 

$

54,081

 

$

102,238

 

Interest expense

 

(74,772

)

(34,580

)

Interest income

 

1,021

 

746

 

Income before income taxes

 

$

(19,670

)

$

68,404

 

 

17. Supplemental Condensed Consolidating Financial Information

 

Pursuant to the indentures governing Arch Coal, Inc.’s senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present condensed consolidating financial information for (i) the Company, (ii) the issuer of the senior notes, (iii) the guarantors under the senior notes, and (iv) the entities which are not guarantors under the senior notes (Arch Western Resources, LLC and its subsidiaries, Arch Receivable Company, LLC and the Company’s subsidiaries outside the U.S.):

 

18



 

Condensed Consolidating Statements of Income

Three Months Ended March 31, 2012

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

Parent/Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 

$

498,728

 

$

540,923

 

$

 

$

1,039,651

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs, expenses and other

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

2,964

 

425,009

 

448,054

 

(25,156

)

850,871

 

Depreciation, depletion and amortization

 

1,217

 

100,006

 

38,744

 

(1

)

139,966

 

Amortization of acquired sales contracts, net

 

 

(13,201

)

(816

)

 

(14,017

)

Selling, general and administrative expenses

 

18,642

 

1,987

 

12,046

 

(1,814

)

30,861

 

Change in fair value of coal derivatives and coal trading activities, net

 

 

(3,613

)

 

 

(3,613

)

Other operating (income) expense, net

 

(3,110

)

(37,700

)

(4,659

)

26,971

 

(18,498

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,713

 

472,488

 

493,369

 

 

985,570

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from investment in subsidiaries

 

77,312

 

 

 

(77,312

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

57,599

 

26,240

 

47,554

 

(77,312

)

54,081

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(82,096

)

(1,179

)

(11,344

)

19,847

 

(74,772

)

Interest income

 

4,827

 

248

 

15,793

 

(19,847

)

1,021

 

 

 

(77,269

)

(931

)

4,449

 

 

(73,751

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

(19,670

)

25,309

 

52,003

 

(77,312

)

(19,670

)

Benefit from income taxes

 

(22,660

)

 

1,581

 

 

(21,079

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

2,990

 

25,309

 

50,422

 

(77,312

)

1,409

 

Less: Net income attributable to noncontrolling interest

 

(203

)

 

 

 

(203

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Arch Coal

 

$

2,787

 

$

25,309

 

$

50,422

 

$

(77,312

)

$

1,206

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

3,948

 

$

27,242

 

$

54,831

 

$

(77,312

)

$

8,709

 

 

19



 

Condensed Consolidating Statements of Income

Three Months Ended March 31, 2011

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

Parent/Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 

$

338,533

 

$

534,405

 

$

 

$

872,938

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs, expenses and other

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

3,279

 

251,884

 

423,323

 

(24,802

)

653,684

 

Depreciation, depletion and amortization

 

672

 

43,277

 

39,588

 

 

83,537

 

Amortization of acquired sales contracts, net

 

 

 

5,944

 

 

5,944

 

Selling, general and administrative expenses

 

20,336

 

1,883

 

9,913

 

(1,697

)

30,435

 

Change in fair value of coal derivatives and coal trading activities, net

 

 

(1,784

)

 

 

(1,784

)

Other operating (income) expense, net

 

(4,567

)

(27,456

)

4,408

 

26,499

 

(1,116

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,720

 

267,804

 

483,176

 

 

770,700

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from investment in subsidiaries

 

125,003

 

 

 

(125,003

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

105,283

 

70,729

 

51,229

 

(125,003

)

102,238

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(40,621

)

(714

)

(10,982

)

17,737

 

(34,580

)

Interest income

 

3,742

 

296

 

14,445

 

(17,737

)

746

 

 

 

(36,879

)

(418

)

3,463

 

 

(33,834

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

68,404

 

70,311

 

54,692

 

(125,003

)

68,404

 

Benefit from income taxes

 

12,530

 

 

 

 

12,530

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

55,874

 

70,311

 

54,692

 

(125,003

)

55,874

 

Less: Net income attributable to noncontrolling interest

 

(273

)

 

 

 

(273

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Arch Coal

 

$

55,601

 

$

70,311

 

$

54,692

 

$

(125,003

)

$

55,601

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

66,372

 

$

70,253

 

$

52,949

 

$

(125,003

)

$

64,571

 

 

20



 

Condensed Consolidating Balance Sheets

March 31, 2012

 

 

 

 

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

Parent/Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,196