e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2010
|
|
|
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
(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) |
Registrants 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 þ 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 þ 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 þ | |
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 þ
At November 5, 2010 there were 162,482,200 shares of the registrants common stock
outstanding.
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 September 30 |
|
|
Nine Months Ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(unaudited) |
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales |
|
$ |
874,705 |
|
|
$ |
614,957 |
|
|
$ |
2,350,874 |
|
|
$ |
1,850,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS, EXPENSES AND OTHER |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales |
|
|
651,853 |
|
|
|
489,290 |
|
|
|
1,773,464 |
|
|
|
1,503,937 |
|
Depreciation, depletion and amortization |
|
|
92,857 |
|
|
|
71,390 |
|
|
|
269,135 |
|
|
|
213,078 |
|
Amortization of acquired sales contracts, net |
|
|
10,038 |
|
|
|
78 |
|
|
|
26,005 |
|
|
|
(92 |
) |
Selling, general and administrative expenses |
|
|
26,999 |
|
|
|
24,029 |
|
|
|
89,509 |
|
|
|
70,770 |
|
Change in fair value of coal derivatives and coal trading activities, net |
|
|
1,832 |
|
|
|
(3,342 |
) |
|
|
12,296 |
|
|
|
(10,328 |
) |
Gain on Knight Hawk transaction |
|
|
|
|
|
|
|
|
|
|
(41,577 |
) |
|
|
|
|
Costs related to acquisition of Jacobs Ranch |
|
|
|
|
|
|
791 |
|
|
|
|
|
|
|
7,166 |
|
Other operating income, net |
|
|
(7,221 |
) |
|
|
(15,617 |
) |
|
|
(15,004 |
) |
|
|
(28,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
776,358 |
|
|
|
566,619 |
|
|
|
2,113,828 |
|
|
|
1,756,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
98,347 |
|
|
|
48,338 |
|
|
|
237,046 |
|
|
|
94,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(37,698 |
) |
|
|
(29,791 |
) |
|
|
(107,906 |
) |
|
|
(70,466 |
) |
Interest income |
|
|
927 |
|
|
|
399 |
|
|
|
1,888 |
|
|
|
7,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,771 |
) |
|
|
(29,392 |
) |
|
|
(106,018 |
) |
|
|
(63,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
(6,776 |
) |
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
54,800 |
|
|
|
18,946 |
|
|
|
124,252 |
|
|
|
31,037 |
|
Provision for (benefit from) income taxes |
|
|
7,941 |
|
|
|
(6,270 |
) |
|
|
12,889 |
|
|
|
(9,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
46,859 |
|
|
|
25,216 |
|
|
|
111,363 |
|
|
|
40,627 |
|
Less: Net (income) loss attributable to noncontrolling interest |
|
|
(181 |
) |
|
|
(31 |
) |
|
|
(325 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Arch Coal, Inc. |
|
$ |
46,678 |
|
|
$ |
25,185 |
|
|
$ |
111,038 |
|
|
$ |
40,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.29 |
|
|
$ |
0.16 |
|
|
$ |
0.68 |
|
|
$ |
0.28 |
|
Diluted earnings per common share |
|
$ |
0.29 |
|
|
$ |
0.16 |
|
|
$ |
0.68 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
162,391 |
|
|
|
155,622 |
|
|
|
162,384 |
|
|
|
147,122 |
|
Diluted weighted average shares outstanding |
|
|
163,174 |
|
|
|
156,005 |
|
|
|
163,128 |
|
|
|
147,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.10 |
|
|
$ |
0.09 |
|
|
$ |
0.29 |
|
|
$ |
0.27 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(unaudited) |
|
ASSETS
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
63,753 |
|
|
$ |
61,138 |
|
Trade accounts receivable |
|
|
249,189 |
|
|
|
190,738 |
|
Other receivables |
|
|
45,590 |
|
|
|
40,632 |
|
Inventories |
|
|
218,958 |
|
|
|
240,776 |
|
Prepaid royalties |
|
|
45,129 |
|
|
|
21,085 |
|
Deferred income taxes |
|
|
33,850 |
|
|
|
|
|
Coal derivative assets |
|
|
10,322 |
|
|
|
18,807 |
|
Other |
|
|
96,633 |
|
|
|
113,606 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
763,424 |
|
|
|
686,782 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
3,303,028 |
|
|
|
3,366,186 |
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Prepaid royalties |
|
|
60,103 |
|
|
|
86,622 |
|
Goodwill |
|
|
113,701 |
|
|
|
113,701 |
|
Deferred income taxes |
|
|
323,874 |
|
|
|
354,869 |
|
Equity investments |
|
|
148,893 |
|
|
|
87,268 |
|
Other |
|
|
121,763 |
|
|
|
145,168 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
768,334 |
|
|
|
787,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,834,786 |
|
|
$ |
4,840,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
172,281 |
|
|
$ |
128,402 |
|
Coal derivative liabilities |
|
|
5,721 |
|
|
|
2,244 |
|
Deferred income taxes |
|
|
|
|
|
|
5,901 |
|
Accrued expenses and other current liabilities |
|
|
200,868 |
|
|
|
227,716 |
|
Current maturities of debt and short-term borrowings |
|
|
139,334 |
|
|
|
267,464 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
518,204 |
|
|
|
631,727 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,538,470 |
|
|
|
1,540,223 |
|
Asset retirement obligations |
|
|
323,025 |
|
|
|
305,094 |
|
Accrued pension benefits |
|
|
64,145 |
|
|
|
68,266 |
|
Accrued postretirement benefits other than pension |
|
|
45,609 |
|
|
|
43,865 |
|
Accrued workers compensation |
|
|
28,226 |
|
|
|
29,110 |
|
Other noncurrent liabilities |
|
|
120,058 |
|
|
|
98,243 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,637,737 |
|
|
|
2,716,528 |
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest |
|
|
10,173 |
|
|
|
8,962 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, authorized 260,000 shares, issued 163,991 shares
and 163,953 shares, respectively |
|
|
1,643 |
|
|
|
1,643 |
|
Paid-in capital |
|
|
1,731,209 |
|
|
|
1,721,230 |
|
Treasury stock, 1,512 shares at September 30, 2010 and December 31, 2009, at cost |
|
|
(53,848 |
) |
|
|
(53,848 |
) |
Retained earnings |
|
|
529,852 |
|
|
|
465,934 |
|
Accumulated other comprehensive loss |
|
|
(21,980 |
) |
|
|
(19,853 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
2,186,876 |
|
|
|
2,115,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
4,834,786 |
|
|
$ |
4,840,596 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
|
(unaudited) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
111,363 |
|
|
$ |
40,627 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
269,135 |
|
|
|
213,078 |
|
Amortization of acquired sales contracts, net |
|
|
26,005 |
|
|
|
(92 |
) |
Prepaid royalties expensed |
|
|
26,190 |
|
|
|
24,140 |
|
Employee stock-based compensation |
|
|
9,640 |
|
|
|
10,253 |
|
Amortization of debt financing costs |
|
|
7,395 |
|
|
|
5,053 |
|
Gain on Knight Hawk transaction |
|
|
(41,577 |
) |
|
|
|
|
Loss on early extinguishment of debt |
|
|
6,776 |
|
|
|
|
|
Changes in: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(48,718 |
) |
|
|
63,785 |
|
Inventories |
|
|
21,818 |
|
|
|
(45,725 |
) |
Coal derivative assets and liabilities |
|
|
14,116 |
|
|
|
21,911 |
|
Accounts payable, accrued expenses and other current liabilities |
|
|
20,879 |
|
|
|
(74,607 |
) |
Deferred income taxes |
|
|
(7,561 |
) |
|
|
(15,165 |
) |
Other |
|
|
41,219 |
|
|
|
3,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
|
|
456,680 |
|
|
|
246,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(221,583 |
) |
|
|
(280,033 |
) |
Proceeds from dispositions of property, plant and equipment |
|
|
252 |
|
|
|
806 |
|
Purchases of investments and advances to affiliates |
|
|
(16,740 |
) |
|
|
(10,353 |
) |
Additions to prepaid royalties |
|
|
(23,715 |
) |
|
|
(22,874 |
) |
Reimbursement of deposits on equipment |
|
|
|
|
|
|
3,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(261,786 |
) |
|
|
(309,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from the issuance of long-term debt |
|
|
500,000 |
|
|
|
584,784 |
|
Repayments of long-term debt, including redemption premium |
|
|
(505,627 |
) |
|
|
|
|
Proceeds from the sale of common stock |
|
|
|
|
|
|
326,452 |
|
Net increase (decrease) in borrowings under lines of credit and commercial
paper program |
|
|
(118,337 |
) |
|
|
4,345 |
|
Net payments on other debt |
|
|
(9,794 |
) |
|
|
(13,276 |
) |
Debt financing costs |
|
|
(12,630 |
) |
|
|
(29,596 |
) |
Dividends paid |
|
|
(47,121 |
) |
|
|
(40,347 |
) |
Issuance of common stock under incentive plans |
|
|
339 |
|
|
|
84 |
|
Contribution from noncontrolling interest |
|
|
891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities |
|
|
(192,279 |
) |
|
|
832,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
2,615 |
|
|
|
769,644 |
|
Cash and cash equivalents, beginning of period |
|
|
61,138 |
|
|
|
70,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
63,753 |
|
|
$ |
840,293 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
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 Companys 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. The
Companys mines are located in southern West Virginia, eastern Kentucky, Virginia, 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 and nine month periods ended
September 30, 2010 are not necessarily indicative of results to be expected for the year ending
December 31, 2010. 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, 2009 included in
the Companys Annual Report on Form 10-K 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.
2. Accounting Policies
There are no new accounting pronouncements whose adoption is expected to have a material
impact on the Companys consolidated financial statements.
3. Knight Hawk Transaction
In the second quarter of 2010, the Company exchanged 68.4 million tons of coal reserves in the
Illinois Basin for an additional 9% ownership interest in Knight Hawk Holdings, LLC (Knight
Hawk), increasing the Companys ownership in Knight Hawk to 42%. The Company recognized a gain of
$41.6 million on the transaction, representing the difference between the fair value and the $12.1
million net book value of the coal reserves, adjusted for the Companys retained ownership interest
in the reserves through its investment in Knight Hawk.
4. Property Transactions
On March 18, 2010, the Company was awarded a Montana state coal lease for the Otter Creek
tracts for a price of $85.8 million. The Company now controls approximately 1.5 billion tons of
coal reserves in Montanas Otter Creek area, including a coal lease secured in November 2009.
Payments to acquire non-cancelable royalty lease agreements and federal lease bonus payments
under which future minimum payments are due are capitalized as a cost of the underlying mineral
reserves. During the nine months ended September 30, 2010, the Company made payments of $93.1
million related to these agreements, including the Otter Creek lease, and will make a payment of
$16.1 million in the fourth quarter. Future payments under these arrangements will be $23.4
million in 2011, 2012 and 2013 and $7.3 million in 2014.
5. 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 |
4
|
|
|
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 Companys 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
Companys 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. |
The table below sets forth, by level, the Companys financial assets and liabilities that are
accounted for at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2010 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in equity securities |
|
$ |
4,347 |
|
|
$ |
3,990 |
|
|
$ |
|
|
|
$ |
357 |
|
Derivatives |
|
|
20,926 |
|
|
|
|
|
|
|
14,273 |
|
|
|
6,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
25,273 |
|
|
$ |
3,990 |
|
|
$ |
14,273 |
|
|
$ |
7,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
$ |
5,721 |
|
|
$ |
3,509 |
|
|
$ |
2,660 |
|
|
$ |
(448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys 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.
The following table summarizes the change in the fair values of financial instruments
categorized as level 3.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2010 |
|
|
|
(In thousands) |
|
Balance, beginning of period |
|
$ |
7,403 |
|
|
$ |
8,217 |
|
Realized and unrealized losses recognized in earnings |
|
|
(1,844 |
) |
|
|
(7,220 |
) |
Realized and unrealized gains (losses) recognized in
other comprehensive income |
|
|
2,411 |
|
|
|
(3,708 |
) |
Settlements, purchases and issuances |
|
|
(512 |
) |
|
|
10,169 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
7,458 |
|
|
$ |
7,458 |
|
|
|
|
|
|
|
|
Net unrealized gains (losses) during the three and nine month periods ended September 30, 2010
related to level 3 financial instruments held on September 30, 2010 were $0.1 million and $(5.6)
million, respectively.
Fair Value of Long-Term Debt
At September 30, 2010 and December 31, 2009, the fair value of the Companys senior notes and
other long-term debt, including amounts classified as current, was $1,784.0 million and $1,844.1
million, respectively. Fair values are based upon observed prices in an active market when
available or from valuation models using market information.
6. Derivatives
The Company generally utilizes derivative financial instruments to manage exposures to
commodity prices. Additionally, the Company may hold certain coal derivative financial instruments
for trading purposes.
All derivative financial instruments are recognized in the balance sheet at fair value. In a
fair value hedge, the Company hedges the risk of changes in the fair value of a firm commitment,
typically a fixed-price coal sales contract. Changes in both the hedged firm commitment and the
fair value of a derivative used as a hedge instrument in a fair value hedge are recorded in
earnings. In a cash flow hedge, the Company hedges the risk of changes in future cash flows
related to a
5
forecasted purchase or sale. Changes in the fair value of the derivative instrument used as a
hedge instrument in a cash flow hedge are recorded in other comprehensive income. Amounts in other
comprehensive income are reclassified to earnings when the hedged transaction affects earnings and
are classified in a manner consistent with the transaction being hedged. The Company formally
documents the relationships between hedging instruments and the respective hedged items, as well as
its risk management objectives for hedge transactions.
The Company evaluates the effectiveness of its hedging relationships both at the hedges
inception and on an ongoing basis. Any ineffective portion of the change in fair value of a
derivative instrument used as a hedge instrument in a fair value or cash flow hedge is recognized
immediately in earnings. The ineffective portion is based on the extent to which exact offset is
not achieved between the change in fair value of the hedge instrument and the cumulative change in
expected future cash flows on the hedged transaction from inception of the hedge in a cash flow
hedge or the change in the fair value of the firm commitment in a fair value hedge.
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 purchases approximately 60 million to 70 million gallons of diesel fuel
annually in its operations. To reduce the volatility in the 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 September 30, 2010, the Company had protected the price of
approximately 67% of its remaining expected purchases for fiscal year 2010 and 55% for fiscal year
2011.
At September 30, 2010, the Company held heating oil swaps and purchased call options for
approximately 47.6 million gallons for the purpose of managing the price risk associated with
future diesel purchases. Since the changes in the price of heating oil highly correlate to changes
in the price of the hedged diesel fuel purchases, the heating oil swaps and purchased call options
qualify for cash flow hedge accounting.
Coal risk management positions
The Company may sell or purchase forward contracts 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 September 30, 2010, the Company held derivatives for risk management purposes totaling 0.8
million tons of coal sales and 0.7 million tons of coal purchases that are expected to settle
during the remainder of 2010 and 1.0 million tons of coal sales and 0.1 million tons of coal
purchases that are expected to settle in 2011.
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 $1.4 million for the remainder of 2010, $4.6 million in 2011 and $(0.8)
million in 2012.
6
Tabular derivatives disclosures
The Companys 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 Companys credit exposure related to these
counterparties. For classification purposes, the Company records the net fair value of all the
positions with these counterparties as a net asset or liability. The amounts shown in the table
below represent the fair value position of individual contracts, regardless of the net position
presented in the accompanying condensed consolidated balance sheets. The fair value and location of
derivatives reflected in the accompanying condensed consolidated balance sheets are as follows:
Fair Value of Derivatives
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Asset |
|
|
Liability |
|
|
|
|
|
|
Asset |
|
|
Liability |
|
|
|
|
|
|
|
Derivatives |
|
|
Derivatives |
|
|
|
|
|
|
Derivatives |
|
|
Derivatives |
|
|
|
|
|
Derivatives Designated as Hedging
Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating oil |
|
$ |
10,604 |
|
|
$ |
|
|
|
|
|
|
|
$ |
13,954 |
|
|
$ |
(2,432 |
) |
|
|
|
|
Coal |
|
|
3,476 |
|
|
|
(4,884 |
) |
|
|
|
|
|
|
3,075 |
|
|
|
(6,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
14,080 |
|
|
|
(4,884 |
) |
|
|
|
|
|
|
17,029 |
|
|
|
(8,787 |
) |
|
|
|
|
Derivatives Not Designated as Hedging
Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal held for trading purposes |
|
|
20,735 |
|
|
|
(15,605 |
) |
|
|
|
|
|
|
41,544 |
|
|
|
(31,262 |
) |
|
|
|
|
Coal |
|
|
2,860 |
|
|
|
(1,981 |
) |
|
|
|
|
|
|
11,459 |
|
|
|
(1,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
23,595 |
|
|
|
(17,586 |
) |
|
|
|
|
|
|
53,003 |
|
|
|
(33,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
37,675 |
|
|
|
(22,470 |
) |
|
|
|
|
|
|
70,032 |
|
|
|
(41,947 |
) |
|
|
|
|
Effect of counterparty netting |
|
|
(16,749 |
) |
|
|
16,749 |
|
|
|
|
|
|
|
(39,227 |
) |
|
|
39,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives as classified in the
balance sheet |
|
$ |
20,926 |
|
|
$ |
(5,721 |
) |
|
$ |
15,205 |
|
|
$ |
30,805 |
|
|
$ |
(2,720 |
) |
|
$ |
28,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivatives as reflected on the balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
2010 |
|
|
2009 |
|
Heating oil |
|
Other current assets |
|
$ |
10,604 |
|
|
$ |
11,998 |
|
|
|
Accrued expenses and other
current liabilities |
|
|
|
|
|
|
(476 |
) |
|
|
|
|
|
|
|
|
|
|
|
Coal |
|
Coal derivative assets |
|
|
10,322 |
|
|
|
18,807 |
|
|
|
Coal derivative liabilities |
|
|
(5,721 |
) |
|
|
(2,244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,205 |
|
|
$ |
28,085 |
|
|
|
|
|
|
|
|
|
|
The Company had a current asset for the right to reclaim cash collateral of $12.9 million and
$12.5 million at September 30, 2010 and December 31, 2009, respectively. These amounts are not
included with the derivatives presented in the table above and are included in other current
assets in the accompanying condensed consolidated balance sheets.
7
The effects of derivatives on measures of financial performance are as follows:
Three Months Ended September 30
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Derivatives |
|
|
|
|
|
|
Hedged Items in |
|
Loss on Hedged |
|
|
|
|
|
Derivatives used in |
|
Used in Fair Value |
|
|
|
|
|
|
Fair Value Hedge |
|
Items In Fair Value |
|
|
|
|
|
Fair Value Hedging Relationships |
|
Hedge Relationships |
|
|
|
|
|
|
Hedge Relationships |
|
Hedge Relationships |
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
Coal |
|
$ |
|
|
|
$ |
2,235 |
|
|
|
1 |
|
|
Firm commitments |
|
$ |
|
|
|
$ |
(2,235 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in |
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) |
|
|
|
|
|
|
Income (Ineffective |
|
|
|
Gain (Loss) |
|
|
Reclassified from |
|
|
|
|
|
|
Portion and Amount |
|
Derivatives used in |
|
Recognized in OCI |
|
|
OCI into Income |
|
|
|
|
|
|
Excluded from |
|
Cash Flow Hedging Relationships |
|
(Effective Portion) |
|
|
(Effective Portion) |
|
|
|
|
|
|
Effectiveness Testing) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Heating oil |
|
$ |
3,052 |
|
|
$ |
(2,393 |
) |
|
$ |
93 |
|
|
$ |
(11,854 |
) |
|
|
2 |
|
|
$ |
|
|
|
$ |
|
|
Coal sales |
|
|
1,500 |
|
|
|
(4,739 |
) |
|
|
(226 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Coal purchases |
|
|
(2,535 |
) |
|
|
3,407 |
|
|
|
(866 |
) |
|
|
(5,652 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
2,017 |
|
|
$ |
(3,725 |
) |
|
$ |
(999 |
) |
|
$ |
(17,506 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as |
|
|
|
|
|
Hedging Instruments |
|
Gain (Loss) |
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
Coal unrealized |
|
$ |
(993 |
) |
|
$ |
7,881 |
|
3 |
|
|
|
|
|
|
|
|
|
|
Coal realized |
|
$ |
1,079 |
|
|
$ |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Location in Statement of Income: |
|
1 |
- |
Coal sales |
|
2 |
- |
Cost of coal sales |
|
3 |
- |
Change in fair value of coal
derivatives and coal trading
activities, net |
|
4 |
- |
Other operating income, net |
During the three months ended September 30, 2010 and 2009, the Company recognized net
unrealized and realized losses of $0.8 million and $4.5 million, 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 condensed consolidated statements of income and are not included in the previous
table.
Nine Months Ended September 30
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Derivatives |
|
|
|
|
|
|
Hedged Items in |
|
Loss on Hedged |
|
|
|
|
|
Derivatives used in |
|
Used in Fair Value |
|
|
|
|
|
|
Fair Value Hedge |
|
Items In Fair Value |
|
|
|
|
|
Fair Value Hedging Relationships |
|
Hedge Relationships |
|
|
|
|
|
|
Hedge Relationships |
|
Hedge Relationships |
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
Coal |
|
$ |
|
|
|
$ |
651 |
|
|
|
1 |
|
|
Firm commitments |
|
$ |
|
|
|
$ |
(651 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in |
|
|
|
|
|
|
|
|
|
|
|
Losses |
|
|
Income (Ineffective |
|
|
|
Gain (Loss) |
|
|
Reclassified from |
|
|
Portion and Amount |
|
Derivatives used in |
|
Recognized in OCI |
|
|
OCI into Income |
|
|
Excluded from |
|
Cash Flow Hedging Relationships |
|
(Effective Portion) |
|
|
(Effective Portion) |
|
|
Effectiveness Testing) |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Heating oil |
|
$ |
(5,508 |
) |
|
$ |
6,346 |
|
|
$ |
(211 |
) |
|
$ |
(38,438 |
) 2 |
|
$ |
|
|
|
$ |
|
|
Coal sales |
|
|
(6,138 |
) |
|
|
(6,055 |
) |
|
|
(1,556 |
) |
|
|
(2,984 |
) 1 |
|
|
|
|
|
|
|
|
Coal purchases |
|
|
5,534 |
|
|
|
(1,095 |
) |
|
|
(1,202 |
) |
|
|
(11,092 |
) 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
(6,112 |
) |
|
$ |
(804 |
) |
|
$ |
(2,969 |
) |
|
$ |
(52,514 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as |
|
|
|
|
Hedging Instruments |
|
Gain (Loss) |
|
|
|
|
2010 |
|
|
2009 |
|
|
Coal unrealized |
|
$ |
(9,381 |
) |
|
$ |
8,569 |
3 |
|
|
|
|
|
|
|
|
|
Coal realized |
|
$ |
3,931 |
|
|
$ |
|
4 |
|
|
|
|
|
|
|
|
|
Location in Statement of Income:
|
|
1 - |
Coal sales |
|
2 - |
Cost of coal sales |
|
3 - |
Change in fair value of coal
derivatives and coal trading
activities, net |
|
4 - |
Other operating income, net |
During the nine months ended September 30, 2010 and 2009, the Company recognized net
unrealized and realized losses of $2.9 million and net unrealized and realized gains of $1.8
million, 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 condensed consolidated statements of income
and are not included in the previous table.
During the next twelve months, based on fair values at September 30, 2010, gains on derivative
contracts designated as hedge instruments in cash flow hedges of approximately $7.9 million are
expected to be reclassified from other comprehensive income into earnings.
7. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Coal |
|
$ |
96,139 |
|
|
$ |
99,161 |
|
Repair parts and supplies, net of allowance |
|
|
122,819 |
|
|
|
141,615 |
|
|
|
|
|
|
|
|
|
|
$ |
218,958 |
|
|
$ |
240,776 |
|
|
|
|
|
|
|
|
The repair parts and supplies are stated net of an allowance for slow-moving and obsolete
inventories of $14.2 million at September 30, 2010, and $13.4 million at December 31, 2009.
9
8. Debt
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Commercial paper |
|
$ |
55,716 |
|
|
$ |
49,453 |
|
Indebtedness to banks under credit facilities |
|
|
79,400 |
|
|
|
204,000 |
|
6.75% senior notes ($450.0 million and $950.0 million face value,
respectively) due July 1, 2013 |
|
|
451,780 |
|
|
|
954,782 |
|
8.75% senior notes ($600.0 million face value) due August 1, 2016 |
|
|
586,690 |
|
|
|
585,441 |
|
7.25% senior notes ($500.0 million face value) due October 1, 2020 |
|
|
500,000 |
|
|
|
|
|
Other |
|
|
4,218 |
|
|
|
14,011 |
|
|
|
|
|
|
|
|
|
|
|
1,677,804 |
|
|
|
1,807,687 |
|
Less current maturities of debt and short-term borrowings |
|
|
139,334 |
|
|
|
267,464 |
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
1,538,470 |
|
|
$ |
1,540,223 |
|
|
|
|
|
|
|
|
The current maturities of debt and short-term borrowings includes 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 managements plans.
Refinancing of senior notes
On August 9, 2010, the Company issued $500.0 million in aggregate principal amount of 7.25%
senior unsecured notes due in 2020 at par. The Company used the net proceeds from the offering and
cash on hand to fund the redemption on September 8, 2010 of $500.0 million aggregate principal
amount of its outstanding 6.75% senior notes at a redemption price of 101.125%. The Company
recognized a loss on the redemption of $6.8 million, including the payment of the $5.6 million
redemption premium and the write-off of $3.3 million of unamortized debt financing costs, partially
offset by the write-off of $2.1 million of the original issue premium on the 6.75% senior notes.
Interest is payable on the 7.25% senior notes on April 1 and October 1 of each year,
commencing April 1, 2011. The notes are guaranteed by most of the Companys subsidiaries, except
for Arch Western and its subsidiaries and Arch Receivable Company, LLC. If the Company fails to
meet a coverage ratio test as defined in the indenture, the ability of the Company and its
subsidiaries to incur additional debt; pay dividends and make distributions or repurchase stock;
make investments; create liens; issue and sell capital stock of subsidiaries; sell assets; enter
into restrictions affecting the ability of restricted subsidiaries to make distributions, loans or
advances to the Company; engage in transactions with affiliates; enter into sale and leasebacks;
and merge or consolidate or transfer and sell assets would be limited.
At any time on or after October 1, 2015, the Company may redeem some or all of the notes. The
redemption price reflected as a percentage of the principal amount is: 103.625% for notes redeemed
between October 1, 2015 and September 30, 2016; 102.417% for notes redeemed between October 1, 2016
and September 30, 2017; 101.208% for notes redeemed between October 1, 2017 and September 30, 2018;
and 100% for notes redeemed on or after October 1, 2018. In addition, at any time and from time to
time, prior to October 1, 2013, on one or more occasions, the Company may redeem an aggregate
principal amount of senior notes not to exceed 35% of the original aggregate principal amount of
the senior notes outstanding with the proceeds of one or more public equity offerings, at a
redemption price equal to 107.250%. Upon a change of control involving the Company, holders of
notes have the right to require the Company to repurchase all of their senior notes at a repurchase
price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the
date of repurchase.
Amendments to agreements
On February 24, 2010, the Company entered into an amendment to its accounts receivable
securitization program revising certain terms to expand the pool of receivables included in the
program. The credit facility supporting the borrowings under the program was also renewed and now
expires on February 23, 2011. The size of the program continues to allow for aggregate borrowings
and letters of credit of up to $175.0 million, as limited by eligible accounts receivable.
On March 19, 2010 the Company entered into an amendment to its $860.0 million secured
revolving credit facility. The amendment enables Arch Coal to make certain intercompany loans to
its subsidiary, Arch Western Resources LLC (AWR), without repaying the existing loan from AWR to
Arch Coal.
On March 25, 2010, the Company entered into an amendment to its commercial paper program which
decreased the maximum aggregate principal amount of the program to $75 million from $100 million.
The commercial paper program is supported by a line of credit that expires on April 30, 2011.
10
Availability
The Company had no borrowings outstanding under the revolving credit facility as of September
30, 2010 and $120.0 million in borrowings outstanding as of December 31, 2009. At September 30,
2010, the Company had availability of $860.0 million under the revolving credit facility. The
Company had borrowings under the accounts receivable securitization program of $79.4 million and
$84.0 million at September 30, 2010 and December 31, 2009, respectively. The Company also had
letters of credit outstanding under the accounts receivable securitization program of $65.5 million
as of September 30, 2010. At September 30, 2010, the Company had availability of $30.1 million
under the accounts receivable securitization program.
9. Stock-Based Compensation
During the nine months ended September 30, 2010, the Company granted options to purchase
approximately 0.8 million shares of common stock with a weighted average exercise price of $22.64
per share and a weighted average grant-date fair value of $9.43 per share. The options fair value
was determined using the Black-Scholes option pricing model, using a weighted average risk-free
rate of 2.16%, a weighted average dividend yield of 1.99% and a weighted average volatility of
57.11%. The options expected life is 4.5 years and the options vest ratably over four years.
The options provide for the continuation of vesting for retirement-eligible 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 recognized stock-based compensation expense from all plans of $2.2 million and
$3.4 million for the three months ended September 30, 2010 and 2009, respectively, and $9.6 million
and $10.3 million for the nine months ended September 30, 2010 and 2009, respectively. This expense
is primarily included in selling, general and administrative expenses in the accompanying condensed
consolidated statements of income.
10. Workers Compensation Expense
The following table details the components of workers compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Self-insured occupational disease benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
182 |
|
|
$ |
132 |
|
|
$ |
545 |
|
|
$ |
398 |
|
Interest cost |
|
|
169 |
|
|
|
139 |
|
|
|
507 |
|
|
|
418 |
|
Net amortization |
|
|
(465 |
) |
|
|
(719 |
) |
|
|
(1,395 |
) |
|
|
(2,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total occupational disease |
|
|
(114 |
) |
|
|
(448 |
) |
|
|
(343 |
) |
|
|
(1,343 |
) |
Traumatic injury claims and assessments |
|
|
2,642 |
|
|
|
2,781 |
|
|
|
6,562 |
|
|
|
6,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total workers compensation expense |
|
$ |
2,528 |
|
|
$ |
2,333 |
|
|
$ |
6,219 |
|
|
$ |
4,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Employee Benefit Plans
The following table details the components of pension benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
3,967 |
|
|
$ |
3,360 |
|
|
$ |
11,902 |
|
|
$ |
10,082 |
|
Interest cost |
|
|
3,955 |
|
|
|
3,981 |
|
|
|
11,866 |
|
|
|
11,943 |
|
Expected return on plan assets |
|
|
(4,848 |
) |
|
|
(4,429 |
) |
|
|
(14,544 |
) |
|
|
(13,289 |
) |
Amortization of prior service cost |
|
|
44 |
|
|
|
48 |
|
|
|
130 |
|
|
|
145 |
|
Amortization of other actuarial gains and losses |
|
|
1,782 |
|
|
|
992 |
|
|
|
5,348 |
|
|
|
2,975 |
|
Curtailments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,900 |
|
|
$ |
3,952 |
|
|
$ |
14,702 |
|
|
$ |
12,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details the components of other postretirement benefit costs (credits):
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Service cost |
|
$ |
378 |
|
|
$ |
815 |
|
|
$ |
1,132 |
|
|
$ |
2,446 |
|
Interest cost |
|
|
520 |
|
|
|
1,009 |
|
|
|
1,562 |
|
|
|
3,026 |
|
Amortization of prior service cost (credit) |
|
|
(591 |
) |
|
|
946 |
|
|
|
(1,773 |
) |
|
|
2,836 |
|
Amortization of other actuarial gains and losses |
|
|
(729 |
) |
|
|
(853 |
) |
|
|
(2,188 |
) |
|
|
(2,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(422 |
) |
|
$ |
1,917 |
|
|
$ |
(1,267 |
) |
|
$ |
5,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other
comprehensive income items are transactions recorded in stockholders equity during the year,
excluding net income and transactions with stockholders.
The following table presents the components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net income attributable to Arch Coal, Inc. |
|
$ |
46,678 |
|
|
$ |
25,185 |
|
|
$ |
111,038 |
|
|
$ |
40,638 |
|
Other comprehensive income, net of income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension, postretirement and other
post-employment benefits, reclassifications
into net income |
|
|
28 |
|
|
|
13,889 |
|
|
|
84 |
|
|
|
14,680 |
|
Unrealized gains (losses) on available-for-sale
securities |
|
|
738 |
|
|
|
(38 |
) |
|
|
(178 |
) |
|
|
(132 |
) |
Unrealized gains (losses) on derivatives, net
of reclassifications into net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivatives |
|
|
1,200 |
|
|
|
(2,456 |
) |
|
|
(3,889 |
) |
|
|
(586 |
) |
Reclassifications of losses into net income |
|
|
639 |
|
|
|
10,892 |
|
|
|
1,856 |
|
|
|
33,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
49,283 |
|
|
$ |
47,472 |
|
|
$ |
108,911 |
|
|
$ |
87,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Earnings per Share
The following table provides the basis for earnings per share calculations by
reconciling basic and diluted
weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30 |
|
September 30 |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
162,391 |
|
|
|
155,622 |
|
|
|
162,384 |
|
|
|
147,122 |
|
Effect of common stock equivalents under
incentive plans |
|
|
783 |
|
|
|
383 |
|
|
|
744 |
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
163,174 |
|
|
|
156,005 |
|
|
|
163,128 |
|
|
|
147,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of options to purchase 3.4 million and 2.7 million shares of common stock were
excluded from the calculation of diluted weighted average shares outstanding for the three month
periods ended September 30, 2010 and 2009, respectively, because the exercise price of these
options exceeded the average market price of the Companys common stock for these periods. The
effect of options to purchase 2.7 million and 2.1 million shares of common stock were excluded from
the calculation of diluted weighted average shares outstanding for the nine month periods ended
September 30, 2010 and 2009, respectively, because the exercise price of these options exceeded the
average market price of the Companys 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
12
December 31, 2005. 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. At September 30,
2010, the Company had approximately $91.6 million of surety bonds related to properties sold to
Magnum. As a result of Magnums purchase by Patriot Coal Corporation, Magnum will be required to
post letters of credit in the Companys favor for the full amount of the reclamation obligation on
or before February 2011.
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.
In addition, certain contracts were assigned to Magnum, but the Company has guaranteed Magnums
performance under the contracts. The longest of the coal supply contracts extends to the year 2017.
If Magnum is unable to supply the coal for these coal sales contracts then the Company would be
required to purchase coal on the open market or supply contracts from its existing operations. At
market prices effective at September 30, 2010, the cost of purchasing 11.9 million tons of coal to
supply the contracts that have not been assigned over their duration would exceed the sales price
under the contracts by approximately $310.2 million, and the cost of purchasing 1.8 million tons of
coal to supply the assigned and guaranteed contracts over their duration would exceed the sales
price under the contracts by approximately $38.0 million. The Company has also guaranteed Magnums
performance under certain operating leases, the longest of which extends through 2011. If the
Company were required to perform under its guarantees of the operating lease agreements, it would
be required to make $1.1 million of lease payments. As the Company does not believe that it is
probable that it would have to purchase replacement coal or fulfill its obligations under the lease
guarantees, no losses have been recorded in the condensed consolidated financial statements as of
September 30, 2010. 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 Companys acquisition of the coal operations of Atlantic Richfield
Company (ARCO) and the simultaneous combination of the acquired ARCO operations and the Companys
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 $33.8 million at September 30, 2010, which is not
recorded as a liability in the Companys condensed consolidated financial statements. Since the
indemnification is dependent upon the initiation of activities within the Companys 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
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 estimable. After conferring with counsel, it is the opinion of management that the
ultimate resolution of pending claims 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 low-sulfur
coal 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 generally consistent within 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 Companys 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; and the Central
Appalachia (CAPP) segment, with operations in southern West Virginia, eastern Kentucky and
Virginia.
Operating segment results for the three and nine month periods ended September 30, 2010 and
2009 are presented below. Results for the operating segments include all direct costs of mining,
including all depreciation, depletion and
13
amortization related to the mining operations. 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
goodwill, unassigned coal reserves, above-market acquired sales contracts and other unassigned
assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other and |
|
|
|
|
PRB |
|
WBIT |
|
CAPP |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
Three months ended September 30,
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales |
|
$ |
440,439 |
|
|
$ |
138,039 |
|
|
$ |
296,227 |
|
|
$ |
|
|
|
$ |
874,705 |
|
Income from operations |
|
|
51,787 |
|
|
|
14,816 |
|
|
|
55,664 |
|
|
|
(23,920 |
) |
|
|
98,347 |
|
Depreciation, depletion and amortization |
|
|
49,005 |
|
|
|
18,940 |
|
|
|
24,435 |
|
|
|
477 |
|
|
|
92,857 |
|
Amortization of acquired sales
contracts, net |
|
|
10,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,038 |
|
Capital expenditures |
|
|
8,164 |
|
|
|
20,703 |
|
|
|
16,910 |
|
|
|
3,848 |
|
|
|
49,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales |
|
$ |
267,455 |
|
|
$ |
148,293 |
|
|
$ |
199,209 |
|
|
$ |
|
|
|
$ |
614,957 |
|
Income from operations |
|
|
19,465 |
|
|
|
16,349 |
|
|
|
29,694 |
|
|
|
(17,170 |
) |
|
|
48,338 |
|
Depreciation, depletion and amortization |
|
|
27,189 |
|
|
|
22,203 |
|
|
|
21,451 |
|
|
|
547 |
|
|
|
71,390 |
|
Amortization of acquired sales
contracts, net |
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78 |
|
Capital expenditures |
|
|
7,518 |
|
|
|
13,871 |
|
|
|
10,864 |
|
|
|
1,218 |
|
|
|
33,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales |
|
$ |
1,170,353 |
|
|
$ |
402,902 |
|
|
$ |
777,619 |
|
|
$ |
|
|
|
$ |
2,350,874 |
|
Income from operations |
|
|
101,525 |
|
|
|
41,122 |
|
|
|
147,336 |
|
|
|
(52,937 |
) |
|
|
237,046 |
|
Total assets |
|
|
2,304,277 |
|
|
|
677,968 |
|
|
|
701,670 |
|
|
|
1,150,871 |
|
|
|
4,834,786 |
|
Depreciation, depletion and amortization |
|
|
138,059 |
|
|
|
57,700 |
|
|
|
72,190 |
|
|
|
1,186 |
|
|
|
269,135 |
|
Amortization of acquired sales
contracts, net |
|
|
26,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,005 |
|
Capital expenditures |
|
|
12,614 |
|
|
|
54,507 |
|
|
|
41,519 |
|
|
|
112,943 |
|
|
|
221,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal sales |
|
$ |
847,255 |
|
|
$ |
382,931 |
|
|
$ |
620,423 |
|
|
$ |
|
|
|
$ |
1,850,609 |
|
Income from operations |
|
|
68,772 |
|
|
|
4,238 |
|
|
|
85,527 |
|
|
|
(64,318 |
) |
|
|
94,219 |
|
Total assets |
|
|
1,633,405 |
|
|
|
700,740 |
|
|
|
762,113 |
|
|
|
1,697,680 |
|
|
|
4,793,938 |
|
Depreciation, depletion and amortization |
|
|
84,210 |
|
|
|
60,878 |
|
|
|
66,502 |
|
|
|
1,488 |
|
|
|
213,078 |
|
Amortization of acquired sales
contracts, net |
|
|
219 |
|
|
|
(311 |
) |
|
|
|
|
|
|
|
|
|
|
(92 |
) |
Capital expenditures |
|
|
49,389 |
|
|
|
57,377 |
|
|
|
41,392 |
|
|
|
131,875 |
|
|
|
280,033 |
|
A reconciliation of segment income from operations to consolidated income before income taxes
is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30 |
|
|
September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Income from operations |
|
$ |
98,347 |
|
|
$ |
48,338 |
|
|
$ |
237,046 |
|
|
$ |
94,219 |
|
Interest expense |
|
|
(37,698 |
) |
|
|
(29,791 |
) |
|
|
(107,906 |
) |
|
|
(70,466 |
) |
Interest income |
|
|
927 |
|
|
|
399 |
|
|
|
1,888 |
|
|
|
7,284 |
|
Loss on early extinguishment of debt |
|
|
(6,776 |
) |
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
54,800 |
|
|
$ |
18,946 |
|
|
$ |
124,252 |
|
|
$ |
31,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
17. Supplemental Condensed Consolidating Financial Information
Pursuant to the indenture governing the 8.75% and 7.25% 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 unaudited condensed consolidating
financial information for (i) the issuer of the notes (Arch Coal), (ii) the guarantors under the
notes, and (iii) the entities which are not guarantors under the notes:
15
Condensed Consolidating Statements of Income
Three Months Ended September 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent/Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Sales |
|
$ |
|
|
|
$ |
324,507 |
|
|
$ |
550,198 |
|
|
$ |
|
|
|
$ |
874,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales |
|
|
3,578 |
|
|
|
229,731 |
|
|
|
445,814 |
|
|
|
(27,270 |
) |
|
|
651,853 |
|
Depreciation, depletion and amortization |
|
|
794 |
|
|
|
52,302 |
|
|
|
39,761 |
|
|
|
|
|
|
|
92,857 |
|
Amortization of acquired sales contracts, net |
|
|
|
|
|
|
|
|
|
|
10,038 |
|
|
|
|
|
|
|
10,038 |
|
Selling, general and administrative expenses |
|
|
18,245 |
|
|
|
1,858 |
|
|
|
8,818 |
|
|
|
(1,922 |
) |
|
|
26,999 |
|
Change in fair value of coal derivatives and
coal trading activities, net |
|
|
|
|
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
1,832 |
|
Other operating (income) expense, net |
|
|
(3,346 |
) |
|
|
(35,107 |
) |
|
|
2,040 |
|
|
|
29,192 |
|
|
|
(7,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,271 |
|
|
|
250,616 |
|
|
|
506,471 |
|
|
|
|
|
|
|
776,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from investment in subsidiaries |
|
|
108,974 |
|
|
|
|
|
|
|
|
|
|
|
(108,974 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
89,703 |
|
|
|
73,891 |
|
|
|
43,727 |
|
|
|
(108,974 |
) |
|
|
98,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(38,041 |
) |
|
|
(745 |
) |
|
|
(16,738 |
) |
|
|
17,826 |
|
|
|
(37,698 |
) |
Interest income |
|
|
3,138 |
|
|
|
119 |
|
|
|
15,496 |
|
|
|
(17,826 |
) |
|
|
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,903 |
) |
|
|
(626 |
) |
|
|
(1,242 |
) |
|
|
|
|
|
|
(36,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
54,800 |
|
|
|
73,265 |
|
|
|
35,709 |
|
|
|
(108,974 |
) |
|
|
54,800 |
|
Provision for income taxes |
|
|
7,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
46,859 |
|
|
|
73,265 |
|
|
|
35,709 |
|
|
|
(108,974 |
) |
|
|
46,859 |
|
Less: Net income attributable to
noncontrolling interest |
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Arch Coal |
|
$ |
46,678 |
|
|
$ |
73,265 |
|
|
$ |
35,709 |
|
|
$ |
(108,974 |
) |
|
$ |
46,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Condensed Consolidating Statements of Income
Three Months Ended September 30, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent/Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Sales |
|
$ |
|
|
|
$ |
224,644 |
|
|
$ |
390,313 |
|
|
$ |
|
|
|
$ |
614,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales |
|
|
1,462 |
|
|
|
174,376 |
|
|
|
323,972 |
|
|
|
(10,520 |
) |
|
|
489,290 |
|
Depreciation, depletion and amortization |
|
|
967 |
|
|
|
32,122 |
|
|
|
38,301 |
|
|
|
|
|
|
|
71,390 |
|
Amortization of acquired sales contracts, net |
|
|
|
|
|
|
|
|
|
|
78 |
|
|
|
|
|
|
|
78 |
|
Selling, general and administrative expenses |
|
|
10,613 |
|
|
|
1,719 |
|
|
|
13,109 |
|
|
|
(1,412 |
) |
|
|
24,029 |
|
Change in fair value of coal derivatives and
coal trading activities, net |
|
|
|
|
|
|
(3,342 |
) |
|
|
|
|
|
|
|
|
|
|
(3,342 |
) |
Costs related to acquisition of Jacobs Ranch |
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
791 |
|
Other operating expense (income), net |
|
|
(6,421 |
) |
|
|
(24,171 |
) |
|
|
3,043 |
|
|
|
11,932 |
|
|
|
(15,617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,412 |
|
|
|
180,704 |
|
|
|
378,503 |
|
|
|
|
|
|
|
566,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from investment in subsidiaries |
|
|
50,455 |
|
|
|
|
|
|
|
|
|
|
|
(50,455 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
43,043 |
|
|
|
43,940 |
|
|
|
11,810 |
|
|
|
(50,455 |
) |
|
|
48,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(25,526 |
) |
|
|
(746 |
) |
|
|
(17,253 |
) |
|
|
13,734 |
|
|
|
(29,791 |
) |
Interest income |
|
|
1,429 |
|
|
|
144 |
|
|
|
12,560 |
|
|
|
(13,734 |
) |
|
|
399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,097 |
) |
|
|
(602 |
) |
|
|
(4,693 |
) |
|
|
|
|
|
|
(29,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
18,946 |
|
|
|
43,338 |
|
|
|
7,117 |
|
|
|
(50,455 |
) |
|
|
18,946 |
|
Benefit from income taxes |
|
|
(6,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
25,216 |
|
|
|
43,338 |
|
|
|
7,117 |
|
|
|
(50,455 |
) |
|
|
25,216 |
|
Less: Net income attributable to
noncontrolling interest |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Arch Coal |
|
$ |
25,185 |
|
|
$ |
43,338 |
|
|
$ |
7,117 |
|
|
$ |
(50,455 |
) |
|
$ |
25,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent/Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Sales |
|
$ |
|
|
|
$ |
846,351 |
|
|
$ |
1,504,523 |
|
|
$ |
|
|
|
$ |
2,350,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales |
|
|
8,554 |
|
|
|
591,692 |
|
|
|
1,239,893 |
|
|
|
(66,675 |
) |
|
|
1,773,464 |
|
Depreciation, depletion and amortization |
|
|
2,270 |
|
|
|
142,961 |
|
|
|
123,904 |
|
|
|
|
|
|
|
269,135 |
|
Amortization of acquired sales contracts, net |
|
|
|
|
|
|
|
|
|
|
26,005 |
|
|
|
|
|
|
|
26,005 |
|
Selling, general and administrative expenses |
|
|
60,139 |
|
|
|
5,500 |
|
|
|
29,226 |
|
|
|
(5,356 |
) |
|
|
89,509 |
|
Change in fair value of coal derivatives and
coal trading activities, net |
|
|
|
|
|
|
12,296 |
|
|
|
|
|
|
|
|
|
|
|
12,296 |
|
Gain on Knight Hawk transaction |
|
|
|
|
|
|
(41,577 |
) |
|
|
|
|
|
|
|
|
|
|
(41,577 |
) |
Other operating (income) expense, net |
|
|
(8,124 |
) |
|
|
(84,031 |
) |
|
|
5,120 |
|
|
|
72,031 |
|
|
|
(15,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,839 |
|
|
|
626,841 |
|
|
|
1,424,148 |
|
|
|
|
|
|
|
2,113,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from investment in subsidiaries |
|
|
282,794 |
|
|
|
|
|
|
|
|
|
|
|
(282,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
219,955 |
|
|
|
219,510 |
|
|
|
80,375 |
|
|
|
(282,794 |
) |
|
|
237,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(102,996 |
) |
|
|
(2,104 |
) |
|
|
(53,241 |
) |
|
|
50,435 |
|
|
|
(107,906 |
) |
Interest income |
|
|
7,293 |
|
|
|
283 |
|
|
|
44,747 |
|
|
|
(50,435 |
) |
|
|
1,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,703 |
) |
|
|
(1,821 |
) |
|
|
(8,494 |
) |
|
|
|
|
|
|
(106,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
(6,776 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
124,252 |
|
|
|
217,689 |
|
|
|
65,105 |
|
|
|
(282,794 |
) |
|
|
124,252 |
|
Provision for income taxes |
|
|
12,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
111,363 |
|
|
|
217,689 |
|
|
|
65,105 |
|
|
|
(282,794 |
) |
|
|
111,363 |
|
Less: Net income attributable to
noncontrolling interest |
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Arch Coal |
|
$ |
111,038 |
|
|
$ |
217,689 |
|
|
$ |
65,105 |
|
|
$ |
(282,794 |
) |
|
$ |
111,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Condensed Consolidating Statements of Income
Nine Months Ended September 30, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent/Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Sales |
|
$ |
|
|
|
$ |
683,240 |
|
|
$ |
1,167,369 |
|
|
$ |
|
|
|
$ |
1,850,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales |
|
|
2,957 |
|
|
|
527,647 |
|
|
|
1,005,640 |
|
|
|
(32,307 |
) |
|
|
1,503,937 |
|
Depreciation, depletion and amortization |
|
|
2,725 |
|
|
|
97,255 |
|
|
|
113,098 |
|
|
|
|
|
|
|
213,078 |
|
Amortization of acquired sales contracts, net |
|
|
|
|
|
|
|
|
|
|
(92 |
) |
|
|
|
|
|
|
(92 |
) |
Selling, general and administrative expenses |
|
|
38,245 |
|
|
|
5,523 |
|
|
|
31,262 |
|
|
|
(4,260 |
) |
|
|
70,770 |
|
Change in fair value of coal derivatives and coal
trading activities, net |
|
|
|
|
|
|
(10,328 |
) |
|
|
|
|
|
|
|
|
|
|
(10,328 |
) |
Costs related to acquisition of Jacobs Ranch |
|
|
7,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,166 |
|
Other operating (income) expense, net |
|
|
(8,318 |
) |
|
|
(60,185 |
) |
|
|
3,795 |
|
|
|
36,567 |
|
|
|
(28,141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,775 |
|
|
|
559,912 |
|
|
|
1,153,703 |
|
|
|
|
|
|
|
1,756,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from investment in subsidiaries |
|
|
122,025 |
|
|
|
|
|
|
|
|
|
|
|
(122,025 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
79,250 |
|
|
|
123,328 |
|
|
|
13,666 |
|
|
|
(122,025 |
) |
|
|
94,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(60,561 |
) |
|
|
(1,951 |
) |
|
|
(52,577 |
) |
|
|
44,623 |
|
|
|
(70,466 |
) |
Interest income |
|
|
12,348 |
|
|
|
654 |
|
|
|
38,905 |
|
|
|
(44,623 |
) |
|
|
7,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,213 |
) |
|
|
(1,297 |
) |
|
|
(13,672 |
) |
|
|
|
|
|
|
(63,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
31,037 |
|
|
|
122,031 |
|
|
|
(6 |
) |
|
|
(122,025 |
) |
|
|
31,037 |
|
Benefit from income taxes |
|
|
(9,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
40,627 |
|
|
|
122,031 |
|
|
|
(6 |
) |
|
|
(122,025 |
) |
|
|
40,627 |
|
Less: Net loss attributable to noncontrolling interest |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Arch Coal |
|
$ |
40,638 |
|
|
$ |
122,031 |
|
|
$ |
(6 |
) |
|
$ |
(122,025 |
) |
|
$ |
40,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Condensed Consolidating Balance Sheets
September 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent/Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,790 |
|
|
$ |
52 |
|
|
$ |
61,911 |
|
|
$ |
|
|
|
$ |
63,753 |
|
Receivables |
|
|
31,181 |
|
|
|
13,124 |
|
|
|
250,858 |
|
|
|
(384 |
) |
|
|
294,779 |
|
Inventories |
|
|
|
|
|
|
78,081 |
|
|
|
140,877 |
|
|
|
|
|
|
|
218,958 |
|
Other |
|
|
58,132 |
|
|
|
110,652 |
|
|
|
17,150 |
|
|
|
|
|
|
|
185,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
91,103 |
|
|
|
201,909 |
|
|
|
470,796 |
|
|
|
(384 |
) |
|
|
763,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
9,583 |
|
|
|
1,795,993 |
|
|
|
1,497,452 |
|
|
|
|
|
|
|
3,303,028 |
|
Investment in subsidiaries |
|
|
4,429,088 |
|
|
|
|
|
|
|
|
|
|
|
(4,429,088 |
) |
|
|
|
|
Intercompany receivables |
|
|
(1,755,561 |
) |
|
|
470,943 |
|
|
|
1,284,618 |
|
|
|
|
|
|
|
|
|
Other |
|
|
661,403 |
|
|
|
320,423 |
|
|
|
11,508 |
|
|
|
(225,000 |
) |
|
|
768,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
3,334,930 |
|
|
|
791,366 |
|
|
|
1,296,126 |
|
|
|
(4,654,088 |
) |
|
|
768,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,435,616 |
|
|
$ |
2,789,268 |
|
|
$ |
3,264,374 |
|
|
$ |
(4,654,472 |
) |
|
$ |
4,834,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
9,317 |
|
|
$ |
64,478 |
|
|
$ |
98,486 |
|
|
$ |
|
|
|
$ |
172,281 |
|
Accrued expenses and other current liabilities |
|
|
43,119 |
|
|
|
34,543 |
|
|
|
129,311 |
|
|
|
(384 |
) |
|
|
206,589 |
|
Current maturities of debt and short-term borrowings |
|
|
4,218 |
|
|
|
|
|
|
|
135,116 |
|
|
|
|
|
|
|
139,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
56,654 |
|
|
|
99,021 |
|
|
|
362,913 |
|
|
|
(384 |
) |
|
|
518,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,086,690 |
|
|
|
|
|
|
|
676,780 |
|
|
|
(225,000 |
) |
|
|
1,538,470 |
|
Asset retirement obligations |
|
|
579 |
|
|
|
30,690 |
|
|
|
291,756 |
|
|
|
|
|
|
|
323,025 |
|
Accrued pension benefits |
|
|
23,837 |
|
|
|
4,562 |
|
|
|
35,746 |
|
|
|
|
|
|
|
64,145 |
|
Accrued postretirement benefits other than pension |
|
|
16,136 |
|
|
|
|
|
|
|
29,473 |
|
|
|
|
|
|
|
45,609 |
|
Accrued workers compensation |
|
|
10,709 |
|
|
|
13,669 |
|
|
|
3,848 |
|
|
|
|
|
|
|
28,226 |
|
Other noncurrent liabilities |
|
|
43,962 |
|
|
|
23,706 |
|
|
|
52,390 |
|
|
|
|
|
|
|
120,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,238,567 |
|
|
|
171,648 |
|
|
|
1,452,906 |
|
|
|
(225,384 |
) |
|
|
2,637,737 |
|
Redeemable noncontrolling interest |
|
|
10,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,173 |
|
Stockholders equity |
|
|
2,186,876 |
|
|
|
2,617,620 |
|
|
|
1,811,468 |
|
|
|
(4,429,088 |
) |
|
|
2,186,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
3,435,616 |
|
|
$ |
2,789,268 |
|
|
$ |
3,264,374 |
|
|
$ |
(4,654,472 |
) |
|
$ |
4,834,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Condensed Consolidating Balance Sheets
December 31, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent/Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
54,255 |
|
|
$ |
64 |
|
|
$ |
6,819 |
|
|
$ |
|
|
|
$ |
61,138 |
|
Receivables |
|
|
16,339 |
|
|
|
15,574 |
|
|
|
199,457 |
|
|
|
|
|
|
|
231,370 |
|
Inventories |
|
|
|
|
|
|
75,126 |
|
|
|
165,650 |
|
|
|
|
|
|
|
240,776 |
|
Other |
|
|
28,741 |
|
|
|
101,407 |
|
|
|
23,350 |
|
|
|
|
|
|
|
153,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
99,335 |
|
|
|
192,171 |
|
|
|
395,276 |
|
|
|
|
|
|
|
686,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
7,783 |
|
|
|
1,809,340 |
|
|
|
1,549,063 |
|
|
|
|
|
|
|
3,366,186 |
|
Investment in subsidiaries |
|
|
4,127,075 |
|
|
|
|
|
|
|
|
|
|
|
(4,127,075 |
) |
|
|
|
|
Intercompany receivables |
|
|
(1,679,003 |
) |
|
|
232,076 |
|
|
|
1,446,927 |
|
|
|
|
|
|
|
|
|
Other |
|
|
455,972 |
|
|
|
317,486 |
|
|
|
14,170 |
|
|
|
|
|
|
|
787,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
2,904,044 |
|
|
|
549,562 |
|
|
|
1,461,097 |
|
|
|
(4,127,075 |
) |
|
|
787,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,011,162 |
|
|
$ |
2,551,073 |
|
|
$ |
3,405,436 |
|
|
$ |
(4,127,075 |
) |
|
$ |
4,840,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
12,828 |
|
|
$ |
41,066 |
|
|
$ |
74,508 |
|
|
$ |
|
|
|
$ |
128,402 |
|
Accrued expenses and other current liabilities |
|
|
54,957 |
|
|
|
36,394 |
|
|
|
144,510 |
|
|
|
|
|
|
|
235,861 |
|
Current maturities of debt and short-term borrowings |
|
|
134,012 |
|
|
|
|
|
|
|
133,452 |
|
|
|
|
|
|
|
267,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
201,797 |
|
|
|
77,460 |
|
|
|
352,470 |
|
|
|
|
|
|
|
631,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
585,441 |
|
|
|
|
|
|
|
954,782 |
|
|
|
|
|
|
|
1,540,223 |
|
Asset retirement obligations |
|
|
927 |
|
|
|
29,253 |
|
|
|
274,914 |
|
|
|
|
|
|
|
305,094 |
|
Accrued pension benefits |
|
|
29,001 |
|
|
|
4,742 |
|
|
|
34,523 |
|
|
|
|
|
|
|
68,266 |
|
Accrued postretirement benefits other than pension |
|
|
15,046 |
|
|
|
|
|
|
|
28,819 |
|
|
|
|
|
|
|
43,865 |
|
Accrued workers compensation |
|
|
10,595 |
|
|
|
14,448 |
|
|
|
4,067 |
|
|
|
|
|
|
|
29,110 |
|
Other noncurrent liabilities |
|
|
44,287 |
|
|
|
27,213 |
|
|
|
26,743 |
|
|
|
|
|
|
|
98,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
887,094 |
|
|
|
153,116 |
|
|
|
1,676,318 |
|
|
|
|
|
|
|
2,716,528 |
|
Redeemable noncontrolling interest |
|
|
8,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,962 |
|
Stockholders equity |
|
|
2,115,106 |
|
|
|
2,397,957 |
|
|
|
1,729,118 |
|
|
|
(4,127,075 |
) |
|
|
2,115,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
3,011,162 |
|
|
$ |
2,551,073 |
|
|
$ |
3,405,436 |
|
|
$ |
(4,127,075 |
) |
|
$ |
4,840,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Parent/Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Consolidated |
|
Cash provided by (used in) operating activities |
|
$ |
(224,066 |
) |
|
$ |
404,836 |
|
|
$ |
275,910 |
|
|
$ |
456,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(3,942 |
) |
|
|
(141,825 |
) |
|
|
(75,816 |
) |
|
|
(221,583 |
) |
Proceeds from dispositions of property, plant and equipment |
|
|
|
|
|
|
178 |
|
|
|
74 |
|
|
|
252 |
|
Purchases of investments and advances to affiliates |
|
|
(12,671 |
) |
|
|
(4,069 |
) |
|
|
|
|
|
|
(16,740 |
) |
Additions to prepaid royalties |
|
|
|
|
|
|
(20,880 |
) |
|
|
(2,835 |
) |
|
|
(23,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(16,613 |
) |
|
|
(166,596 |
) |
|
|
(78,577 |
) |
|
|
(261,786 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of long-term debt |
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
500,000 |
|
Repayments of long-term debt, including redemption premium |
|
|
|
|
|
|
|
|
|
|
(505,627 |
) |
|
|
(505,627 |
) |
Net increase (decrease) in borrowings under lines of
credit and commercial paper program |
|
|
(120,000 |
) |
|
|
|
|
|
|
1,663 |
|
|
|
(118,337 |
) |
Net payments on other debt |
|
|
(9,794 |
) |
|
|
|
|
|
|
|
|
|
|
(9,794 |
) |
Debt financing costs |
|
|
(11,901 |
) |
|
|
|
|
|
|
(729 |
) |
|
|
(12,630 |
) |
Dividends paid |
|
|
(47,121 |
) |
|
|
|
|
|
|
|
|
|
|
(47,121 |
) |
Issuance of common stock under incentive plans |
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
339 |
|
Contribution from non-controlling interest |
|
|
|
|
|
|
|
|
|
|
891 |
|
|
|
891 |
|
Transactions with affiliates, net |
|
|
(123,309 |
) |
|
|
(238,252 |
) |
|
|
361,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities |
|
|
188,214 |
|
|
|
(238,252 |
) |
|
|
(142,241 |
) |
|
|
(192,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(52,465 |
) |
|
|
(12 |
) |
|
|
55,092 |
|
|
|
2,615 |
|
Cash and cash equivalents, beginning of period |
|
|
54,255 |
|
|
|
64 |
|
|
|
6,819 |
|
|
|
61,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
1,790 |
|
|
$ |
52 |
|
|
$ |
61,911 |
|
|
$ |
63,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
Parent/Issuer |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Consolidated |
|
Cash provided by (used in) operating
activities |
|
$ |
(120,471 |
) |
|
$ |
198,300 |
|
|
$ |
168,614 |
|
|
$ |
246,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(2,450 |
) |
|
|
(170,818 |
) |
|
|
(106,765 |
) |
|
|
(280,033 |
) |
Proceeds from dispositions of property, plant and equipment |
|
|
|
|
|
|
776 |
|
|
|
30 |
|
|
|
806 |
|
Purchases of investments and advances to affiliates |
|
|
(8,000 |
) |
|
|
(2,353 |
) |
|
|
|
|
|
|
(10,353 |
) |
Additions to prepaid royalties |
|
|
|
|
|
|
(20,465 |
) |
|
|
(2,409 |
) |
|
|
(22,874 |
) |
Reimbursement of deposits on equipment |
|
|
|
|
|
|
|
|
|
|
3,209 |
|
|
|
3,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(10,450 |
) |
|
|
(192,860 |
) |
|
|
(105,935 |
) |
|
|
(309,245 |
) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of long-term debt |
|
|
584,784 |
|
|
|
|
|
|
|
|
|
|
|
584,784 |
|
Proceeds from the sale of common stock |
|
|
326,452 |
|
|
|
|
|
|
|
|
|
|
|
326,452 |
|
Net increase (decrease) in borrowings under lines of
credit and commercial paper program |
|
|
95,000 |
|
|
|
|
|
|
|
(90,655 |
) |
|
|
4,345 |
|
Net payments on other debt |
|
|
(13,276 |
) |
|
|
|
|
|
|
|
|
|
|
(13,276 |
) |
Debt financing costs |
|
|
(29,456 |
) |
|
|
|
|
|
|
(140 |
) |
|
|
(29,596 |
) |
Dividends paid |
|
|
(40,347 |
) |
|
|
|
|
|
|
|
|
|
|
(40,347 |
) |
Issuance of common stock under incentive plans |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
84 |
|
Transactions with affiliates, net |
|
|
(23,070 |
) |
|
|
(5,437 |
) |
|
|
28,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing
activities |
|
|
900,171 |
|
|
|
(5,437 |
) |
|
|
(62,288 |
) |
|
|
832,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
769,250 |
|
|
|
3 |
|
|
|
391 |
|
|
|
769,644 |
|
Cash and cash equivalents, beginning of
period |
|
|
67,737 |
|
|
|
61 |
|
|
|
2,851 |
|
|
|
70,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
836,987 |
|
|
$ |
64 |
|
|
$ |
3,242 |
|
|
$ |
840,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This document contains forward-looking statements that is, statements related to future,
not past, events. In this context, forward-looking statements often address our expected future
business and financial performance, and often contain words such as expects, anticipates,
intends, plans, believes, seeks, or will. Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us, particular uncertainties arise
from changes in the demand for our coal by the domestic electric generation industry; from
legislation and regulations relating to the Clean Air Act and other environmental initiatives; from
regulations relating to mine safety; from operational, geological, permit, labor and
weather-related factors; from fluctuations in the amount of cash we generate from operations; from
future integration of acquired businesses; and from numerous other matters of national, regional
and global scale, including those of a political, economic, business, competitive or regulatory
nature. These uncertainties may cause our actual future results to be materially different than
those expressed in our forward-looking statements. We do not undertake to update our
forward-looking statements, whether as a result of new information, future events or otherwise,
except as may be required by law. For a description of some of the risks and uncertainties that
may affect our future results, see Risk Factors under Item 1A of our Annual Report on Form 10-K
for the year ended December 31, 2009 and under Item 1A of our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010.
Overview
We are one of the largest coal producers in the United States. We sell substantially all of
our coal to power plants, steel mills and industrial facilities. The locations of our mines enable
us to ship coal to most of the major coal-fueled power plants, steel mills and export facilities
located in the United States. We also export coal, particularly the metallurgical coal that is used
in the steel industry, but, increasingly, steam coal as well.
Our three reportable business segments are based on the low-sulfur U.S. coal producing regions
in which we operate the Powder River Basin, the Western Bituminous region and the Central
Appalachia region. These geographically distinct areas are characterized by geology, coal
transportation routes to consumers, regulatory environments and coal quality. These regional
similarities have caused market and contract pricing environments to develop by coal region and
form the basis for the segmentation of our operations.
The Powder River Basin is located in northeastern Wyoming and southeastern Montana. The coal
we mine from surface operations in this region is very low in sulfur content and has a low heat
value compared to the other regions in which we operate. The price of Powder River Basin coal is
generally less than that of coal produced in other regions because Powder River Basin coal exists
in greater abundance, is easier to mine and thus has a lower cost of production. In addition,
Powder River Basin coal is generally lower in heat content, which requires some electric power
generation facilities to blend it with higher Btu coal or retrofit some existing coal plants to
accommodate lower Btu coal. The Western Bituminous region includes Colorado, Utah and southern
Wyoming. Coal we mine from underground and surface mines in this region typically is low in sulfur
content and varies in heat content. Central Appalachia includes eastern Kentucky, Tennessee,
Virginia and southern West Virginia. Coal we mine from both surface and underground mines in this
region generally has a high heat content and low sulfur content. In addition, we may sell a portion
of the coal we produce in the Central Appalachia region as metallurgical coal, which has high heat
content, low expansion pressure, low sulfur content and various other chemical attributes. As such,
the prices at which we sell metallurgical coal to customers in the steel industry generally exceed
the prices for steam coal offered by power plants and industrial users.
Growth in domestic and global coal demand combined with declining domestic coal production
have positively impacted coal markets during 2010. Year-to-date U.S. power generation increased
approximately 4% through the third week of October, in response to improving economic conditions,
as well as favorable weather trends across most regions of the U.S. We estimate that U.S. steam
coal consumption grew by 6.5% through September 2010, driven by the increase in power generation as
well as improving industrial demand. Growth in global coal demand has also positively influenced
the U.S. coal markets. After a slowing of the metallurgical coal markets earlier in the third
quarter, the markets appear to have rebounded, and Chinese met coal imports increased in September.
We expect that 2010 U.S. coal exports will improve over 2009 levels, linked primarily to increased
demand for metallurgical coal.
Conversely, U.S. coal production has declined more than 6 million tons through the first nine
months of 2010, according to data released by MSHA, including a 12 million ton decline in Central
Appalachia. We expect the Central Appalachia supply pressures to create growth potential for other
coal basins, particularly the Powder River Basin. Coal production in the Powder River Basin
increased 2 million tons through September 30, 2010, and forward prices for Powder River Basin coal
have improved since the beginning of the year.
24
Items Affecting Comparability of Reported Results
We temporarily suspended production at our Dugout Canyon mine in Carbon County, Utah, on April
29, 2010 after an increase in carbon monoxide levels resulted from a heating event in a previously
mined area. After permanently sealing the area, we resumed full coal production on May 21, 2010.
On June 22, 2010, an ignition event at our longwall resulted in a second evacuation of all
underground employees at the mine. All employees were safely evacuated in both events. The
resumption of mining required us to render the mines atmosphere inert, ventilate the longwall
area, determine the cause of the ignition, implement preventive measures, and secure an
MSHA-approved longwall ventilation plan. We restarted the longwall system on September 9, 2010, and
resumed production at normalized levels by the end of September. As a result of the outages in the second
and third quarters, the Dugout Canyon mine incurred a loss of $10.4
million for the three months ended September 30, 2010, and $28.9
million for the nine months ended September 30, 2010. We have provided additional information about
the performance of our operating segments under the heading Operating segment results.
In the second quarter of 2010, we exchanged 68.4 million tons of coal reserves in the Illinois
Basin for an additional 9% ownership interest in Knight Hawk Holdings, LLC (Knight Hawk),
increasing our ownership to 42%. We recognized a pre-tax gain of $41.6 million on the transaction,
representing the difference between the fair value and net book value of the coal reserves,
adjusted for our retained ownership interest in the reserves through the investment in Knight Hawk.
On August 9, 2010, we issued $500.0 million in aggregate principal amount of 7.25% senior
unsecured notes due in 2020 at par. We used the net proceeds from the offering and cash on hand to
fund the redemption on September 8, 2010 of $500.0 million aggregate principal amount of our
outstanding 6.75% senior notes due in 2013 at a redemption price of 101.125%. We recognized a loss
on the redemption of $6.8 million, including the payment of the $5.6 million redemption premium,
the write-off of $3.3 million of unamortized debt financing costs, partially offset by the
write-off of $2.1 million of the original issue premium on the 6.75% senior notes.
Results of Operations
Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
Summary. Our improved results during the third quarter of 2010, when compared to the third
quarter of 2009, were primarily generated from increased sales volumes, including an increase in
metallurgical coal volumes sold. Higher interest and other financing costs partially offset the
benefit from these factors, as did a decrease in revenues from other operating sources.
Revenues. The following table summarizes information about coal sales for the three months
ended September 30, 2010 and compares it with the information for the three months ended September
30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Increase (Decrease) |
|
|
September 30 |
|
in Net Income |
|
|
2010 |
|
2009 |
|
Amount |
|
% |
|
|
(Amounts in thousands, except per ton data and percentages) |
Coal sales |
|
$ |
874,705 |
|
|
$ |
614,957 |
|
|
$ |
259,748 |
|
|
|
42.2 |
% |
Tons sold |
|
|
44,173 |
|
|
|
29,338 |
|
|
|
14,835 |
|
|
|
50.6 |
% |
Coal sales realization per ton sold |
|
$ |
19.80 |
|
|
$ |
20.96 |
|
|
$ |
(1.16 |
) |
|
|
(5.5 |
)% |
Coal sales increased in the third quarter of 2010 from the third quarter of 2009 due to
an increase in tons sold in the Powder River Basin and Central Appalachia regions. Our coal sales
realizations per ton were lower in the 2010 quarter as the impact on our average selling price of
the increased Powder River Basin volumes offset the benefit from an increase in metallurgical coal
sales volumes. We have provided more information about the tons sold and the coal sales
realizations per ton by operating segment under the heading Operating segment results.
Costs, expenses and other. The following table summarizes costs, expenses and other
components of operating income for the three months ended September 30, 2010 and compares them with
the information for the three months ended September 30, 2009:
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
Three Months Ended September 30 |
|
|
in Net Income |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(Amounts in thousands, except percentages) |
|
Cost of coal sales |
|
$ |
651,853 |
|
|
$ |
489,290 |
|
|
$ |
(162,563 |
) |
|
|
(33.2 |
)% |
Depreciation, depletion and amortization |
|
|
92,857 |
|
|
|
71,390 |
|
|
|
(21,467 |
) |
|
|
(30.1 |
) |
Amortization of acquired sales contracts, net |
|
|
10,038 |
|
|
|
78 |
|
|
|
(9,960 |
) |
|
|
N/A |
|
Selling, general and administrative expenses |
|
|
26,999 |
|
|
|
24,029 |
|
|
|
(2,970 |
) |
|
|
(12.4 |
) |
Change in fair value of coal derivatives and
coal trading activities, net |
|
|
1,832 |
|
|
|
(3,342 |
) |
|
|
(5,174 |
) |
|
|
(154.8 |
) |
Costs related to acquisition of Jacobs Ranch |
|
|
|
|
|
|
791 |
|
|
|
791 |
|
|
|
100.0 |
|
Other operating income, net |
|
|
(7,221 |
) |
|
|
(15,617 |
) |
|
|
(8,396 |
) |
|
|
(53.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
776,358 |
|
|
$ |
566,619 |
|
|
$ |
(209,739 |
) |
|
|
(37.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales. Our cost of coal sales increased in the third quarter of 2010 from
the third quarter of 2009 primarily due to the higher sales volumes discussed above, partially
offset by a lower average cost per ton sold, resulting from the impact of the increased Powder
River Basin volumes, as well as lower per-ton production costs in the Powder River Basin. We have
provided more information about our operating segments under the heading Operating segment
results.
Depreciation, depletion and amortization and amortization of acquired sales contracts, net.
When compared with the third quarter of 2009, higher depreciation and amortization costs in the
third quarter of 2010 resulted primarily from the impact of the acquisition of the Jacobs Ranch
mining complex in the fourth quarter of 2009.
Selling, general and administrative expenses. The increase in selling, general and
administrative expenses from the third quarter of 2009 to the third quarter of 2010 is due
primarily to compensation-related costs. In particular, our improved results resulted in higher
costs of $2.5 million in 2010 related to our incentive compensation plans when compared to 2009.
Change in fair value of coal derivatives and coal trading activities, net. Net (gains)
losses relate to the net impact of our coal trading activities and the change in fair value of
other coal derivatives that have not been designated as hedge instruments in a hedging
relationship. During the third quarter of 2010, rising coal prices resulted in losses on
derivative positions and trading activities, compared with weaker market conditions in the third
quarter of 2009, which resulted in gains.
Other operating income, net. The decrease in net other operating income from the third
quarter of 2009 is primarily the result of a decrease in income from contract settlements and
bookout transactions, partially offset by an increase in income from our investment in Knight Hawk
of $1.9 million.
Operating segment results. The following table shows results by operating segment for the
three months ended September 30, 2010 and compares it with information for the three months ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30 |
|
Increase (Decrease) |
|
|
2010 |
|
2009 |
|
$ |
|
% |
Powder River Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold (in thousands) |
|
|
36,129 |
|
|
|
21,528 |
|
|
|
14,601 |
|
|
|
67.8 |
% |
Coal sales realization per ton sold (1) |
|
$ |
12.12 |
|
|
$ |
12.26 |
|
|
$ |
(0.14 |
) |
|
|
(1.1 |
)% |
Operating margin per ton sold (2) |
|
$ |
1.41 |
|
|
$ |
0.95 |
|
|
$ |
0.46 |
|
|
|
48.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Bituminous |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold (in thousands) |
|
|
4,024 |
|
|
|
4,560 |
|
|
|
(536 |
) |
|
|
(11.8 |
)% |
Coal sales realization per ton sold (1) |
|
$ |
30.66 |
|
|
$ |
29.08 |
|
|
$ |
1.58 |
|
|
|
5.4 |
% |
Operating margin per ton sold (2) |
|
$ |
3.61 |
|
|
$ |
3.51 |
|
|
$ |
0.10 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Appalachia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold (in thousands) |
|
|
4,020 |
|
|
|
3,250 |
|
|
|
770 |
|
|
|
23.7 |
% |
Coal sales realization per ton sold (1) |
|
$ |
69.29 |
|
|
$ |
59.77 |
|
|
$ |
9.52 |
|
|
|
15.9 |
% |
Operating margin per ton sold (2) |
|
$ |
13.34 |
|
|
$ |
5.47 |
|
|
$ |
7.87 |
|
|
|
143.9 |
% |
|
|
|
(1) |
|
Coal sales prices per ton exclude certain transportation costs that we pass through
to our customers. We use these financial measures because we believe the amounts as adjusted
better represent the coal sales prices we achieved within our operating segments. Since other
companies may calculate coal sales prices per ton differently, our calculation may not be
comparable to similarly titled measures used by those companies. For the three months ended
September 30, 2010, transportation costs per ton were $0.07 for the Powder River Basin, $3.64
for the Western Bituminous region and $4.40 for Central Appalachia. For the three months ended
September 30, 2009, transportation costs per ton were $0.17 for the Powder River Basin, $3.44
for the Western Bituminous region and $1.52 for Central Appalachia. |
|
(2) |
|
Operating margin per ton sold is calculated as coal sales revenues less cost of coal
sales and depreciation, depletion and amortization divided by tons sold. |
26
Powder River Basin The increase in sales volume in the Powder River Basin in the third
quarter of 2010 when compared with the third quarter of 2009 resulted primarily from the
acquisition of the Jacobs Ranch mining operations on October 1, 2009, although improving demand for
Powder River Basin coal also had an impact on sales volumes. Sales prices decreased during the
third quarter of 2010 when compared with the third quarter of 2009 primarily reflecting the
roll-off of contracts committed when market conditions were more favorable, as well as the effect
of lower sulphur dioxide emission allowance pricing. On a per-ton basis, operating margins in the
third quarter of 2010 increased from the third quarter of 2009 due to a decrease in per-ton costs,
which offset the impact of the lower per-ton sales prices. The decrease in per-ton costs resulted
primarily from efficiencies achieved from combining the acquired Jacobs Ranch mining operations
with our existing Black Thunder operations, increased base production volumes and a decrease in
hedged diesel fuel costs.
Western Bituminous In the Western Bituminous region, sales volumes in the third quarter of
2010 decreased when compared to the depressed sales volume levels in the third quarter of 2009 due
primarily to the production outage at the Dugout Canyon mine for a substantial part of the quarter.
Sales volumes in the third quarter of 2009 were affected by weaker market conditions that had an
impact on our ability to market coal with a high ash content, which resulted from geologic
conditions at our West Elk mine, and the decision to reduce production accordingly. We have
recently completed construction of a preparation plant at the West Elk mine to address quality
issues that could result from sandstone intrusions similar to those we encountered previously.
Despite the detrimental impact in 2009 on our per-ton realizations of selling coal with a higher
ash content, our realizations improved only slightly in 2010, due to ongoing soft steam coal market
conditions in the region. Slightly higher per-ton
operating margins in the third quarter of 2010 were the result of the higher realizations but were
mostly offset by the impact of the production outage at the Dugout Canyon mine.
Central Appalachia The increase in sales volumes in the third quarter of 2010, when
compared with the third quarter of 2009, was due to the improvement in the metallurgical coal
markets. We sold 1.4 million tons into metallurgical markets in the third quarter of 2010 compared
to 0.5 million tons in the third quarter of 2009. Because metallurgical coal generally commands a
higher price than steam coal, the increase had a favorable impact on our average realizations, as
did the higher pricing on metallurgical tons sold, compared to the third quarter of 2009. The
benefit from higher per-ton realizations drove the substantial improvement in our operating margins
over the third quarter of 2009, partially offset by slightly higher production and sales-sensitive
costs.
Net interest expense. The following table summarizes our net interest expense for the three
months ended September 30, 2010 and compares it with the information for the three months ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Net |
|
|
|
Three Months Ended September 30 |
|
|
Income |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(Amounts in thousands, except percentages) |
|
Interest expense |
|
$ |
(37,698 |
) |
|
$ |
(29,791 |
) |
|
$ |
(7,907 |
) |
|
|
(26.5 |
)% |
Interest income |
|
|
927 |
|
|
|
399 |
|
|
|
528 |
|
|
|
132.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(36,771 |
) |
|
$ |
(29,392 |
) |
|
$ |
(7,379 |
) |
|
|
(25.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net interest expense in the third quarter of 2010 compared to the third
quarter of 2009 is primarily due to an increase in average debt outstanding due to the issuance of
the 8.75% senior notes in the third quarter of 2009 to finance the acquisition of the Jacobs Ranch
mining complex and the issuance of the 7.25% senior notes on August 9, 2010. The proceeds from the
issuance 7.25% senior notes were used to redeem a portion of the
6.75% senior notes on September 8, 2010.
Other non-operating expense. The following table summarizes our other non-operating expense
for the three months ended September 30, 2010 and compares it with the information for the three
months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30 |
|
Decrease in Net Income |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
(Amounts in thousands, except percentages) |
Loss on early extinguishment of debt |
|
$ |
(6,776 |
) |
|
$ |
|
|
|
$ |
(6,776 |
) |
|
|
N/A |
|
Amounts reported as non-operating consist of income or expense resulting from our
financing activities, other than interest costs. The loss on early extinguishment of debt relates
to the redemption of $500 million in principal amount of the 6.75% senior notes. The loss includes
the payment of $5.6 million of redemption premium and the write-off of $3.3 million of unamortized
debt financing costs, partially offset by the write-off of $2.1 million of the original issue
premium.
Income taxes. Our effective income tax rate is sensitive to changes in estimates of annual
profitability and the
27
deduction for percentage depletion. The following table summarizes our income taxes for the
three months ended September 30, 2010 and compares it with information for the three months ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30 |
|
Decrease in Net Income |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
(Amounts in thousands, except percentages) |
Provision for (benefit from) income taxes |
|
$ |
7,941 |
|
|
$ |
(6,270 |
) |
|
$ |
(14,211 |
) |
|
|
(226.7 |
)% |
Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
Summary. Our improved results during the nine months ended September 30, 2010 when compared
to the nine months ended September 30, 2009, were generated from increased sales volumes, including
an increase in metallurgical coal volumes sold, lower production costs and the gain on the Knight
Hawk transaction. Higher selling, general and administrative costs, unrealized losses on coal
derivatives and higher interest and financing costs partially offset the benefit from these
factors.
Revenues. The following table summarizes information about coal sales for the nine months
ended September 30, 2010 and compares it with the information for the nine months ended September
30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
Nine Months Ended September 30 |
|
in Net Income |
|
|
2010 |
|
2009 |
|
Amount |
|
% |
|
|
(Amounts in thousands, except per ton data and percentages) |
Coal sales |
|
$ |
2,350,874 |
|
|
$ |
1,850,609 |
|
|
$ |
500,265 |
|
|
|
27.0 |
% |
Tons sold |
|
|
120,319 |
|
|
|
87,888 |
|
|
|
32,431 |
|
|
|
36.9 |
% |
Coal sales realization per ton sold |
|
$ |
19.54 |
|
|
$ |
21.06 |
|
|
$ |
(1.52 |
) |
|
|
(7.2 |
)% |
Coal sales increased in 2010 from 2009, primarily due to an increase in tons sold in the
Powder River Basin region, resulting from the acquisition of the Jacobs Ranch mining complex in the
fourth quarter of 2009, as well as an increase in regional demand in the third quarter of 2010.
Our coal sales realizations per ton were lower in 2010 as lower pricing in the Powder River Basin
and the impact on our average selling price of the higher Powder River Basin volumes offset the
benefit of an increase in metallurgical coal sales volumes. We have provided more information about
the tons sold and the coal sales realizations per ton by operating segment under the heading
Operating segment results.
Costs, expenses and other. The following table summarizes costs, expenses and other
components of operating income for the nine months ended September 30, 2010 and compares them with
the information for the nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
Nine Months Ended September 30 |
|
|
in Net Income |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(Amounts in thousands, except percentages) |
|
Cost of coal sales |
|
$ |
1,773,464 |
|
|
$ |
1,503,937 |
|
|
$ |
(269,527 |
) |
|
|
(17.9 |
)% |
Depreciation, depletion and amortization |
|
|
269,135 |
|
|
|
213,078 |
|
|
|
(56,057 |
) |
|
|
(26.3 |
)% |
Amortization of acquired sales contracts, net |
|
|
26,005 |
|
|
|
(92 |
) |
|
|
(26,097 |
) |
|
|
N/A |
|
Selling, general and administrative expenses |
|
|
89,509 |
|
|
|
70,770 |
|
|
|
(18,739 |
) |
|
|
(26.5 |
)% |
Change in fair value of coal derivatives and
coal trading activities, net |
|
|
12,296 |
|
|
|
(10,328 |
) |
|
|
(22,624 |
) |
|
|
(219.1 |
)% |
Gain on Knight Hawk transaction |
|
|
(41,577 |
) |
|
|
|
|
|
|
41,577 |
|
|
|
N/A |
|
Costs related to acquisition of Jacobs Ranch |
|
|
|
|
|
|
7,166 |
|
|
|
7,166 |
|
|
|
100.0 |
% |
Other operating income, net |
|
|
(15,004 |
) |
|
|
(28,141 |
) |
|
|
(13,137 |
) |
|
|
(46.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,113,828 |
|
|
$ |
1,756,390 |
|
|
$ |
(357,438 |
) |
|
|
(20.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of coal sales. Our cost of coal sales increased in 2010 from 2009 primarily due to
the higher sales volumes discussed above, partially offset by the impact of a lower average cost
per-ton sold, due to the impact of the increased Powder River Basin volumes as well as lower
per-ton production costs in our Western regions. We have provided more information about our
operating segments under the heading Operating segment results.
Depreciation, depletion and amortization and amortization of acquired sales contracts, net.
When compared with 2009, higher depreciation and amortization costs in 2010 resulted primarily from
the impact of the acquisition of the Jacobs Ranch mining complex in the fourth quarter of 2009.
28
Selling, general and administrative expenses. The increase in selling, general and
administrative expenses in 2010 is due primarily to compensation-related costs and a contribution
to the Arch Coal Foundation of $5.0 million in 2010. In particular, our improved results were the
primary driver of higher costs of approximately $7.5 million in 2010 related to our incentive
compensation plans when compared to 2009. Costs related to our deferred compensation plan, where
amounts recognized are impacted by changes in the value of our common stock and changes in the
value of the underlying investments, also increased $3.9 million.
Change in fair value of coal derivatives and coal trading activities, net. Net (gains)
losses relate to the net impact of our coal trading activities and the change in fair value of
other coal derivatives that have not been designated as hedge instruments in a hedging
relationship. During 2010, rising coal prices resulted in losses on derivative positions and
trading activities, compared with weaker market conditions in 2009, which resulted in gains.
Gain on Knight Hawk Transaction. The gain was recognized on our exchange of Illinois Basin
reserves for an additional ownership interest in Knight Hawk, an equity method investee operating
in the Illinois Basin.
Other operating income, net. The decrease in net other operating income in 2010 from 2009 is
primarily the result of a decrease in income from contract settlements and bookout transactions of
$16.1 million, a decrease in income from outlease royalties of $1.4 million and a decrease in
transloading fees of $1.0 million, partially offset by an increase in income from our investment in
Knight Hawk of $4.3 million.
Operating segment results. The following table shows results by operating segment for the
nine months ended September 30, 2010 and compares it with information for the nine months ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30 |
|
Increase (Decrease) |
|
|
2010 |
|
2009 |
|
$ |
|
% |
Powder River Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold (in thousands) |
|
|
97,725 |
|
|
|
65,964 |
|
|
|
31,761 |
|
|
|
48.1 |
% |
Coal sales realization per ton sold (3) |
|
$ |
11.90 |
|
|
$ |
12.70 |
|
|
$ |
(0.80 |
) |
|
|
(6.3 |
)% |
Operating margin per ton sold (4) |
|
$ |
1.02 |
|
|
$ |
1.00 |
|
|
$ |
0.02 |
|
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Bituminous |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold (in thousands) |
|
|
12,149 |
|
|
|
11,987 |
|
|
|
162 |
|
|
|
1.4 |
% |
Coal sales realization per ton sold (3) |
|
$ |
29.90 |
|
|
$ |
29.00 |
|
|
$ |
0.90 |
|
|
|
3.1 |
% |
Operating margin per ton sold (4) |
|
$ |
3.10 |
|
|
$ |
0.14 |
|
|
$ |
2.96 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Appalachia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold (in thousands) |
|
|
10,445 |
|
|
|
9,937 |
|
|
|
508 |
|
|
|
5.1 |
% |
Coal sales realization per ton sold (3) |
|
$ |
69.12 |
|
|
$ |
60.08 |
|
|
$ |
9.04 |
|
|
|
15.0 |
% |
Operating margin per ton sold (4) |
|
$ |
13.56 |
|
|
$ |
6.77 |
|
|
$ |
6.79 |
|
|
|
100.3 |
% |
|
|
|
(3) |
|
Coal sales prices per ton exclude certain transportation costs that we pass
through to our customers. We use these financial measures because we believe the amounts as
adjusted better represent the coal sales prices we achieved within our operating segments.
Since other companies may calculate coal sales prices per ton differently, our calculation may
not be comparable to similarly titled measures used by those companies. For the nine months
ended September 30, 2010, transportation costs per ton were $0.08 for the Powder River Basin,
$3.27 for the Western Bituminous region and $5.33 for Central Appalachia. For the nine months
ended September 30, 2009, transportation costs per ton were $0.14 for the Powder River Basin,
$2.94 for the Western Bituminous region and $2.36 for Central Appalachia. |
|
(4) |
|
Operating margin per ton sold is calculated as coal sales revenues less cost of coal
sales and depreciation, depletion and amortization divided by tons sold. |
Powder River Basin The increase in sales volume in the Powder River Basin in 2010 when
compared with 2009 resulted from the acquisition of the Jacobs Ranch mining operations on October
1, 2009, although improving demand for Powder River Basin coal in the third quarter of 2010 also
had an impact on sales volumes. Decreases in sales prices during 2010 when compared with 2009
primarily reflect the roll-off of contracts committed when market conditions were more favorable.
On a per-ton basis, operating margins in 2010 were flat, as the effect of lower sales prices was
offset by a decrease in per-ton costs. The decrease in per-ton costs resulted from efficiencies
achieved from combining the acquired Jacobs Ranch mining operations with our existing Black Thunder
operations, as well as a decrease in hedged diesel fuel costs.
Western Bituminous In the Western Bituminous region, despite a soft steam coal market in
the region and the two outages at the Dugout Canyon mine in 2010, sales volumes increased slightly
compared to 2009. Sales volumes in 2009 were affected by weaker market conditions that had an
impact on our ability to market coal with a high ash content, which resulted from geologic
conditions at our West Elk mine, and the decision to reduce production accordingly. We have
recently completed construction of a preparation plant at the West Elk mine to address quality
issues that could result from
29
sandstone intrusions similar to those we encountered previously. Despite the detrimental
impact in 2009 on our per-ton realizations of selling coal with a higher ash content, our
realizations increased only slightly in 2010, due to the soft steam coal market and an unfavorable
mix of customer contracts. Effective cost control in the region resulted in the higher per-ton
operating margins in 2010, partially offset by the impact of the two outages at the Dugout Canyon
mine in 2010.
Central Appalachia The slight increase in sales volumes in 2010, when compared with 2009,
was due to the improvement in metallurgical coal demand, partially offset by weaker steam coal
demand. We sold 3.8 million tons into metallurgical markets in 2010 compared to 1.2 million tons
in 2009. Because metallurgical coal generally commands a higher price than steam coal, the
increase had a favorable impact on our average realizations, as did the higher pricing on
metallurgical tons sold, compared to 2009. The benefit from higher per-ton realizations in 2010,
net of sales sensitive costs, drove the improvement in our operating margins over 2009.
Net interest expense. The following table summarizes our net interest expense for the nine
months ended September 30, 2010 and compares it with the information for the nine months ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30 |
|
|
Decrease in Net Income |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
(Amounts in thousands, except percentages) |
|
Interest expense |
|
$ |
(107,906 |
) |
|
$ |
(70,466 |
) |
|
$ |
(37,440 |
) |
|
|
(53.1 |
)% |
Interest income |
|
|
1,888 |
|
|
|
7,284 |
|
|
|
(5,396 |
) |
|
|
(74.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(106,018 |
) |
|
$ |
(63,182 |
) |
|
$ |
(42,836 |
) |
|
|
(67.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net interest expense in 2010 compared to 2009 is primarily due to an
increase in outstanding senior notes due to the issuance of the 8.75% senior notes in the third
quarter of 2009 to finance the acquisition of the Jacobs Ranch mining complex and the issuance of
the 7.25% senior notes on August 9, 2010. The proceeds from the issuance 7.25% senior notes were
used to redeem a portion of the 6.75% senior notes on September 8, 2010.
In 2009, we recorded interest income of $6.1 million related to a black lung excise tax refund
that we recognized in the fourth quarter of 2008.
Other non-operating expense. The following table summarizes our other non-operating expense
for the nine months ended September 30, 2010 and compares it with the information for the nine
months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30 |
|
Decrease in Net Income |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
(Amounts in thousands, except percentages) |
Loss on early extinguishment of debt |
|
$ |
(6,776 |
) |
|
$ |
|
|
|
$ |
(6,776 |
) |
|
|
(100 |
)% |
Amounts reported as non-operating consist of income or expense resulting from our
financing activities, other than interest costs. The loss on early extinguishment of debt relates
to the redemption of $500 million in principal amount of the 6.75% senior notes. The loss includes
the payment of $5.6 million of redemption premium and the write-off of $3.3 million of unamortized
debt financing costs, partially offset by the write-off of $2.1 million of the original issue
premium.
Income taxes. Our effective income tax rate is sensitive to changes in estimates of annual
profitability and the deduction for percentage depletion. The following table summarizes our
income taxes for the nine months ended September 30, 2010 and compares it with information for the
nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30 |
|
Decrease in Net Income |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
(Amounts in thousands, except percentages) |
Provision for (benefit from) income taxes |
|
$ |
12,889 |
|
|
$ |
(9,590 |
) |
|
$ |
(22,479 |
) |
|
|
(234.4 |
)% |
The income tax provision in 2010 includes a tax benefit of $4.0 million related to the
recognition of tax benefits based on settlements with taxing authorities.
Liquidity and Capital Resources
Liquidity and capital resources
Our primary sources of cash include sales of our coal production to customers, borrowings
under our credit facilities and other financing arrangements, and debt and equity offerings to
finance significant transactions. Excluding any
30
significant mineral reserve acquisitions, we generally satisfy our working capital
requirements and fund capital expenditures and debt-service obligations with cash generated from
operations or borrowings under our credit facility, accounts receivable securitization or
commercial paper programs. The borrowings under these arrangements are classified as current if
the underlying credit facilities expire within one year or if, based on cash projections and
management plans, we do not have the intent to replace them on a long-term basis. Such plans are
subject to change based on our cash needs.
We believe that cash generated from operations and borrowings under our credit facilities or
other financing arrangements will be sufficient to meet working capital requirements, anticipated
capital expenditures and scheduled debt payments for at least the next several years. We manage our
exposure to changing commodity prices for our non-trading, long-term coal contract portfolio
through the use of long-term coal supply agreements. We enter into fixed price, fixed volume supply
contracts with terms greater than one year with customers with whom we have historically had
limited collection issues. Our ability to satisfy debt service obligations, to fund planned
capital expenditures, to make acquisitions, to repurchase our common shares and to pay dividends
will depend upon our future operating performance, which will be affected by prevailing economic
conditions in the coal industry and financial, business and other factors, some of which are beyond
our control.
In the nine months ended September 30, 2010, we were able to generate record levels of
operating cash flows which, when combined with control on capital spending, enabled us to pay down
our borrowings under our lines of credit and commercial paper program by approximately $100.0
million in the third quarter of 2010. At September 30, 2010, our
debt-to-capitalization ratio (defined as
total debt divided by the sum of total debt and equity) was 43%, a decrease of 3 percentage points
from the beginning of the year, and our availability under lines of credit was $890.1 million.
On August 9, 2010, we issued $500.0 million in aggregate principal amount of 7.25% senior
unsecured notes due in 2020 at par. We used the net proceeds from the offering and cash on hand to
fund the redemption on September 8, 2010 of $500.0 million aggregate principal amount of our
outstanding 6.75% senior notes due in 2013 at a redemption price of 101.125%. As a result of the
refinancing, we reduced our 2013 principal maturities by more than half.
Interest is payable on the 7.25% senior notes on April 1 and October 1 of each year,
commencing April 1, 2011. The notes are guaranteed by most of our subsidiaries, except for Arch
Western and its subsidiaries and Arch Receivable Company, LLC. If we fail to meet a coverage ratio
test as defined in the indenture, our ability to incur additional debt; pay dividends and make
distributions or repurchase stock; make investments; create liens; issue and sell capital stock of
subsidiaries; sell assets; enter into restrictions affecting the ability of restricted subsidiaries
to make distributions, loans or advances to us; engage in transactions with affiliates; enter into
sale and leasebacks; and merge or consolidate or transfer and sell assets would be limited.
At any time on or after October 1, 2015, we may redeem some or all of the notes. The
redemption price reflected as a percentage of the principal amount is: 103.625% for notes redeemed
between October 1, 2015 and September 30, 2016; 102.417% for notes redeemed between October 1, 2016
and September 30, 2017; 101.208% for notes redeemed between October 1, 2017 and September 30, 2018;
and 100% for notes redeemed on or after October 1, 2018. In addition, at any time and from time to
time, prior to October 1, 2013, on one or more occasions, we may redeem an aggregate principal
amount of senior notes not to exceed 35% of the original aggregate principal amount of the senior
notes outstanding with the proceeds of one or more public equity offerings, at a redemption price
equal to 107.250%. Upon a change of control, holders of notes have the right to require us to
repurchase all of their senior notes at a repurchase price equal to 101% of their principal amount,
plus accrued and unpaid interest, if any, to the date of repurchase.
On March 19, 2010, we entered into an amendment to our $860.0 million secured revolving credit
facility. The amendment allows for us to make intercompany loans to our subsidiary, Arch Western
Resources LLC (AWR), without drawing down the existing loan from AWR to us. We had no borrowings
outstanding under the revolving credit facility at September 30, 2010 and $120.0 million at
December 31, 2009. At September 30, 2010, we had availability $860.0 million under the revolving
credit facility. Borrowings under the credit facility bear interest at a floating rate based on
LIBOR determined by reference to our leverage ratio, as calculated in accordance with the credit
agreement, as amended. Our revolving credit facility is secured by substantially all of our
assets, as well as our ownership interests in substantially all of our subsidiaries, except our
ownership interests in AWR. Financial covenants contained in our revolving credit facility, as
amended, consist of a maximum leverage ratio, a maximum senior secured leverage ratio and a minimum
interest coverage ratio. The leverage ratio requires that we not permit the ratio of total net
debt (as defined in the facility) at the end of any calendar quarter to EBITDA (as defined in the
facility) for the four quarters then ended to exceed a specified amount. The interest coverage
ratio requires that we not permit the ratio of EBITDA (as defined in the facility) at the end of
any calendar quarter to interest expense for the four quarters then ended to be less than a
specified amount. The senior secured leverage
31
ratio requires that we not permit the ratio of total net senior secured debt (as defined in
the facility) at the end of any calendar quarter to EBITDA (as defined in the facility) for the
four quarters then ended to exceed a specified amount. We were in compliance with all financial
covenants at September 30, 2010.
On February 24, 2010, we entered into an amendment of our $175.0 million accounts receivable
securitization program revising certain terms to expand the pool of receivables included in the
program. Under the program, eligible trade receivables are sold, without recourse, to a
multi-seller, asset-backed commercial paper conduit. The credit facility supporting the borrowings
under the program is subject to renewal annually and currently expires on February 23, 2011. Under
the terms of the program, eligible trade receivables consist of trade receivables generated by our
operating subsidiaries. Actual borrowing capacity is based on the allowable amounts of accounts
receivable as defined under the terms of the agreement. We had $79.4 million of borrowings
outstanding under the program at September 30, 2010 and $84.0 million outstanding at December 31,
2009. We also had letters of credit outstanding under the securitization program of $65.5 million
as of September 30, 2010. At September 30, 2010, we had availability of approximately $30 million
under the accounts receivable securitization program. Although the participants in the program
bear the risk of non-payment of purchased receivables, we have agreed to indemnify the participants
with respect to various matters. The participants under the program will be entitled to receive
payments reflecting a specified discount on amounts funded under the program, including drawings
under letters of credit, calculated on the basis of the base rate or commercial paper rate, as
applicable. We pay facility fees, program fees and letter of credit fees (based on amounts of
outstanding letters of credit) at rates that vary with our leverage ratio. Under the program, we
are subject to certain affirmative, negative and financial covenants customary for financings of
this type, including restrictions related to, among other things, liens, payments, merger or
consolidation and amendments to the agreements underlying the receivables pool. A termination
event would permit the administrator to terminate the program and enforce any and all rights,
subject to cure provisions, where applicable. Additionally, the program contains cross-default
provisions, which would allow the administrator to terminate the program in the event of
non-payment of other material indebtedness when due and any other event which results in the
acceleration of the maturity of material indebtedness.
On March 25, 2010, we entered into an amendment to our commercial paper program which
decreased the maximum aggregate principal amount of the program to $75 million from $100 million.
The commercial paper program is supported by a line of credit that expires on April 30, 2011. We
had commercial paper outstanding of $55.7 million at September 30, 2010 and $49.5 million at
December 31, 2009. Our commercial paper placement program provides short-term financing at rates
that are generally lower than the rates available under our revolving credit facility.
Our subsidiary, Arch Western Finance LLC, has outstanding an aggregate principal amount of
$450.0 million of 6.75% senior notes due on July 1, 2013, subsequent to the redemption discussed
previously. The notes are guaranteed by AWR and certain of its subsidiaries and are secured by an
intercompany note from Arch Coal, Inc. to AWR. The indenture under which the notes were issued
contains certain restrictive covenants that limit AWRs ability to, among other things, incur
additional debt, sell or transfer assets and make certain investments. The notes may be redeemed
as follows: at 101.125% of par for notes redeemed between July 1, 2010 and June 30, 2011, and at
100% for notes redeemed on or after July 1, 2011.
We have outstanding a principal amount of $600.0 million of 8.75% senior notes due on August
1, 2016. At any time on or after August 1, 2013, we may redeem some or all of the notes. The
redemption price, reflected as a percentage of the principal amount, is: 104.375% for notes
redeemed between August 1, 2013 and July 31, 2014; 102.188% for notes redeemed between August 1,
2014 and July 31, 2015; and 100% for notes redeemed on or after August 1, 2015. The notes are
guaranteed by most of our subsidiaries, except for AWR and its subsidiaries and Arch Receivable
Company, LLC, among others.
We have filed a universal shelf registration statement on Form S-3 with the SEC that
allows us to offer and sell from time to time an unlimited amount of unsecured debt securities
consisting of notes, debentures, and other debt securities, common stock, preferred stock,
warrants, and/or units. Related proceeds could be used for general corporate purposes, including
repayment of other debt, capital expenditures, possible acquisitions and any other purposes that
may be stated in any related prospectus supplement.
32
The following is a summary of cash provided by or used in each of the indicated types of
activities:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30 |
|
|
2010 |
|
2009 |
|
|
(in thousands) |
Cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
456,680 |
|
|
$ |
246,443 |
|
Investing activities |
|
|
(261,786 |
) |
|
|
(309,245 |
) |
Financing activities |
|
|
(192,279 |
) |
|
|
832,446 |
|
Cash provided by operating activities increased in 2010 compared to 2009, primarily as a
result of our increased profits during the year, driven primarily by higher sales volumes.
Cash used in investing activities in 2010 was $47.5 million less than in 2009, primarily due
to a $58.5 million reduction in capital expenditures. During 2010, we made payments of $93.1
million on our Montana leases and spent $25.4 million on the new preparation plant at the West Elk
mine that we mentioned previously. In 2009, in addition to the last payment of $122.0 million on
the Little Thunder federal coal lease, we spent approximately $19.0 million on additional longwall
equipment at the West Elk mining complex in Colorado and approximately $38.0 million on a new
shovel and haul trucks at the Black Thunder mine in Wyoming.
Cash used in financing activities was $192.3 million during 2010, compared to cash provided by
financing activities of $832.4 million during 2009. As mentioned previously, we used the net
proceeds from the offering of the 7.25% notes and cash on hand to fund the redemption on September
8, 2010 of $500.0 million aggregate principal amount of our outstanding 6.75% senior notes due in
2013 at a redemption price of 101.125%. We also repaid approximately $118 million under our
various financing arrangements during 2010, compared to maintaining level debt levels under these
arrangements during 2009. We paid financing costs of $12.6 million in 2010.
In 2009, we sold 19.55 million shares of our common stock at a public offering price of $17.50
per share and issued $600 million in aggregate principal amount of 8.750% senior unsecured notes
due 2016. Total net proceeds from these transactions were $896.8 million. We used the net proceeds
from these transactions primarily to finance the purchase of the Jacobs Ranch mining complex, which
closed on October 1, 2009. We paid financing costs of $29.6 million in 2009.
Ratio of Earnings to Fixed Charges
The following table sets forth our ratios of earnings to combined fixed charges and preference
dividends for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30 |
|
|
2010 |
|
2009 |
Ratio of earnings to combined fixed charges and preference dividends |
|
|
2.10 |
|
|
|
1.41 |
|
Critical Accounting Policies
For a description of our critical accounting policies, see Critical Accounting Policies
under Item 7of our Annual Report on Form 10-K for the year ended December 31, 2009. There have been
no significant changes to our critical accounting policies during the three and nine months ended
September 30, 2010.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We manage our commodity price risk for our non-trading, long-term coal contract portfolio
through the use of long-term coal supply agreements, and to a limited extent, through the use of
derivative instruments. At September 30, 2010, based on our expected production levels and current
sales commitments, we have committed substantially all of our 2010 production, with 5 million tons
not yet priced. Arch has uncommitted volumes of 30 million to 40 million tons in 2011, and
uncommitted volumes of 70 million to 80 million tons in 2012, with roughly 15 million tons
committed but not yet priced in both 2011 and 2012.
We are exposed to commodity price risk in our coal trading activities, which represents the
potential future loss that could be caused by an adverse change in the market value of coal. Our
coal trading portfolio included forward, swap and put and call option contracts at September 30,
2010. With respect to our coal trading portfolio at September 30, 2010, the potential for loss of
future earnings resulting from changing coal prices was insignificant. The estimated future
realization of the value of the trading portfolio is $1.4 million for the remainder of 2010, $4.6
million in 2011 and $(0.8) million in 2012.
33
We monitor and manage market price risk for our trading activities with a variety of tools,
including Value at Risk (VaR), position limits, escalating management alerts for mark to market
monitoring and loss limits, scenario analysis, sensitivity analysis and review of daily changes in
market dynamics. Management believes that presenting high, low, end of year and average VaR is the
best available method to give investors insight into the level of commodity risk of our trading
positions. Illiquid positions, such as long-dated trades that are not quoted by brokers or
exchanges, are not included in VaR.
VaR is a statistical one-tail confidence interval and down side risk estimate that relies on
recent history to estimate how the value of the portfolio of positions will change if markets
behave in the same way as they have in the recent past. While presenting VaR will provide a similar
framework for discussing risk across companies, VaR estimates from two independent sources are
rarely calculated in the same way. Without a thorough understanding of how each VaR model was
calculated, it would be difficult to compare two different VaR calculations from different sources.
The level of confidence is 95%. The time across which these possible value changes are being
estimated is through the end of the next business day. A closed-form delta-neutral method used
throughout the finance and energy sectors is employed to calculate this VaR. VaR is back tested to
verify usefulness.
On average, portfolio value should not fall more than VaR on 95 out of 100 business days.
Conversely, portfolio value declines of more than VaR should be expected, on average, 5 out of 100
business days. When more value than VaR is lost due to market price changes, VaR is not
representative of how much value beyond VaR will be lost.
During the nine months ended September 30, 2010, VaR ranged from under $0.1 million to $0.8 million. The
linear mean of each daily VaR was $0.3 million. The final VaR at September 30, 2010 was $0.7
million.
We are also exposed to the risk of fluctuations in cash flows related to our purchase of
diesel fuel. We use approximately 60 million to 70 million gallons of diesel fuel annually in our
operations. We enter into forward physical purchase contracts, as well as heating oil swaps and
options, to reduce volatility in the price of diesel fuel for our operations. At September 30,
2010, the Company had protected the price of approximately 67% of its expected purchases for the
remainder of fiscal year 2010 and 55% for fiscal year 2011, mostly through the use of the
derivative instruments noted above. Since the changes in the price of heating oil are highly
correlated to changes in the price of the hedged diesel fuel purchases, the heating oil swaps and
purchased call options qualify for cash flow hedge accounting. Accordingly, changes in the fair
value of the derivatives are recorded through other comprehensive income, with any ineffectiveness
recognized immediately in income. At September 30, 2010, a $0.25 per gallon decrease in the price
of heating oil would result in an approximate $4.3 million increase in our expense related to the
heating oil derivatives, which, if realized, would be offset by a decrease in the cost of our
physical diesel purchases.
We are exposed to market risk associated with interest rates due to our existing level of
indebtedness. At September 30, 2010, of our $1.7 billion principal amount of debt outstanding,
approximately $135 million of outstanding borrowings have interest rates that fluctuate based on
changes in the respective market rates. A one percentage point increase in the interest rates
related to these borrowings would result in an annualized increase in interest expense of $1.4
million, based on borrowing levels at September 30, 2010.
Item 4. Controls and Procedures.
We performed an evaluation under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of September 30, 2010. Based on
that evaluation, our management, including our chief executive officer and chief financial officer,
concluded that the disclosure controls and procedures were effective as of such date. There were
no changes in internal control over financial reporting that occurred during our fiscal quarter
ended September 30, 2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
34
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various claims and legal actions in the ordinary course of business. In the
opinion of management, the outcome of such ordinary course of business proceedings and litigation
currently pending will not have a material adverse effect on our results of operations or financial
results.
Permit Litigation Matters
As described in our Annual Report on Form 10-K for the year ended December 31, 2009, surface
mines at our Mingo Logan and Coal-Mac mining operations were identified in an existing lawsuit
brought by the Ohio Valley Environmental Coalition (OVEC) in the U.S. District Court for the
Southern District of West Virginia as having been granted Clean Water Act §404 permits by the Army
Corps of Engineers (the Corps), allegedly in violation of the Clean Water Act and the National
Environmental Policy Act.
The lawsuit, brought by OVEC in September 2005, originally was filed against the Corps
claiming that permits it had issued to four subsidiaries of a company unrelated to us or our
operating subsidiaries did not comply with the National Environmental Policy Act and violated the
Clean Water Act.
The court ruled on the claims associated with those four permits in orders of March 23 and
June 13, 2007. In the first of those orders, the court rescinded the four permits, finding that the
Corps had inadequately assessed the likely impact of valley fills on headwater streams and had
relied on inadequate or unproven mitigation to offset those impacts. In the second order, the court
entered a declaratory judgment that discharges of sediment from the valley fills into sediment
control ponds constructed in-stream to control that sediment must themselves be permitted under a
different provision of the Clean Water Act, § 402, and meet the effluent limits imposed on
discharges from these ponds. Both of the district court rulings were appealed to the U.S. Court of
Appeals for the Fourth Circuit.
Before the court entered its first order, the plaintiffs were permitted to amend their
complaint to challenge the Coal-Mac and Mingo Logan permits. Plaintiffs sought preliminary
injunctions against both operations, but later reached agreements with our operating subsidiaries
that have allowed mining to progress in limited areas while the district courts rulings were on
appeal. The claims against Coal-Mac were thereafter dismissed.
On February 13, 2009, the Fourth Circuit reversed the District Court. The Fourth Circuit held
that the Corps jurisdiction under Section 404 of the Clean Water Act is limited to the narrow
issue of the filling of jurisdictional waters. The court also held that the Corps findings of no
significant impact under the National Environmental Policy Act and no significant degradation under
the Clean Water Act are entitled to deference. Such findings entitle the Corps to avoid preparing
an environmental impact statement, the absence of which was one issue on appeal. These holdings
also validated the type of mitigation projects proposed by our operations to minimize impacts and
comply with the relevant statutes. Finally, the Fourth Circuit found that stream segments, together
with the sediment ponds to which they connect, are unitary waste treatment systems, not waters
of the United States, and that the Corps had not exceeded its authority in permitting them.
OVEC sought rehearing before the entire appellate court which was denied on May 29, 2009 and
the decision was given legal effect on June 24, 2009. An appeal to the U.S. Supreme Court was then
filed on August 26, 2009. On August 3, 2010 OVEC withdrew its appeal.
Mingo Logan filed a motion for summary judgment with the district court on July 17, 2009,
asking that judgment be entered in its favor because no outstanding legal issues remained for
decision as a result of the Fourth Circuits February decision. By a series of motions, the United
States obtained extensions and stays of the obligation to respond to the motion in the wake of its
letters to the Corps dated September 3 and October 16, 2009 (discussed below). By order dated
April 22, 2010, the District Court stayed the case as to Mingo Logan until the earlier of either
six months or the completion of the U.S. Environmental Protection Agencys (the EPA) proposed
action to deny Mingo Logan the right to use its Corps permit (as discussed below).
35
On September 24, 2010, EPA Region 3 issued a Recommended Determination to the EPA
Administrator recommending that EPA prohibit the placement of fill material in two of the three
watersheds for which filling is approved under the current Section 404 permit. On October 15,
2010, the United States moved to extend the existing stay for an additional 120 days (until
February 22, 2011) while the EPA Administrator reviews the Recommended Determination issued by
EPA Region 3. By order dated November 2, 2010, the District Court extended the stay until February
22, 2011.
Potential EPA Prohibitions Related to Water Discharges from the Spruce Permit
As described in our Annual Report on Form 10-K for the year ended December 31, 2009, by letter
of September 3, 2009, the EPA asked the Corps to suspend, revoke or modify the existing permit it
issued in January 2007 to Mingo Logan under Section 404 of the Clean Water Act, claiming that new
information and circumstances have arisen which justify reconsideration of the permit. By letter
of September 30, 2009, the Corps advised the EPA that it would not reconsider its decision to issue
the permit. By letter of October 16, 2009, the EPA advised the Corps that it has reason to
believe that the Mingo Logan mine will have unacceptable adverse impacts to fish and wildlife
resources and that it intends to issue a public notice of a proposed determination to restrict or
prohibit discharges of fill material that already are approved by the Corps permit. By federal
register publication dated April 2, 2010, the EPA issued its Proposed Determination to Prohibit,
Restrict or Deny the Specification, or the Use for Specification of an Area as a Disposal Site:
Spruce No. 1 Surface Mine, Logan County, WV pursuant to Section 404 c of the Clean Water Act. The
EPA accepted written comments on its proposed action (sometimes known as a veto proceeding),
through June 4, 2010 and conducted a public hearing, as well, on May 18, 2010. We submitted
comments on the action during this period. On September 24, 2010, EPA Region 3 issued a
Recommended Determination to the EPA Administrator recommending that the EPA prohibit the
placement of fill material in two of the three watersheds for which filling is approved under the
current Section 404 permit. The EPA is required to consult with us, along with the Corps and the
State of West Virginia, prior to issuing a final decision. By separate action, Mingo Logan sued the
EPA on April 2, 2010 in federal court in Washington, D.C. seeking a ruling that the EPA has no
authority under the Clean Water Act to veto a previously issued permit (Mingo Logan Coal Company,
Inc. v. USEPA, No. 1:10-cv-00541(D.D.C.)). The EPA has moved to dismiss that action, and we have
responded to that motion. The motion is now pending before the Court.
You should see Part I, Item 3 of our Annual Report on Form 10-K for the year ended December
31, 2009 for more information about some of the additional proceedings and litigation in which we
are involved.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In September 2006, our board of directors authorized a share repurchase program for the
purchase of up to 14,000,000 shares of our common stock. There is no expiration date on the current
authorization, and we have not made any decisions to suspend or cancel purchases under the program.
As of September 30, 2010, there were 10,925,800 shares of our common stock available for purchase
under this program. We did not purchase any shares of our common stock under this program during
the quarter ended September 30, 2010. Based on the closing price of our common stock as reported on
the New York Stock Exchange on November 5, 2010, the approximate dollar value of our common stock
that may yet be purchased under this program was $309.2 million.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Reserved.
Item 5. Other Information.
Mine Safety and Health Administration Safety Data
We believe that Arch Coal is one of the safest coal mining companies in the world. Safety is
a core value at Arch Coal and at our subsidiary operations. We have in place a comprehensive
safety program that includes extensive health & safety training for all employees, site
inspections, emergency response preparedness, crisis communications training, incident
investigation, regulatory compliance training and process auditing, as well as an open dialogue
between all levels of employees. The goals of our processes are to eliminate exposure to hazards
in the workplace, ensure that we comply with all mine safety regulations, and support regulatory
and industry efforts to improve the health and safety of our employees along with the industry as a
whole.
36
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, each operator of a coal
or other mine is required to include certain mine safety results in its periodic reports filed with
the Securities and Exchange Commission. The operation of our mines is subject to regulation by the
federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act
of 1977 (the Mine Act). Below we present the following items regarding certain mine safety and
health matters, broken down by mining complex owned and operated by Arch Coal or our subsidiaries,
for the three-month period ended September 30, 2010:
|
|
|
Section 104 Citations: Total number of violations of mandatory health or safety
standards that could significantly and substantially contribute to the cause and effect of
a coal or other mine safety or health hazard under section 104 of the Mine Act for which we
have received a citation from MSHA; |
|
|
|
|
Section 104(b) Orders: Total number of orders issued under section 104(b) of the Mine
Act; |
|
|
|
|
Section 104(d) Citations/Orders: Total number of citations and orders for unwarrantable
failure of the mine operator to comply with mandatory health or safety standards under
Section 104(d) of the Mine Act; |
|
|
|
|
Section 107(a) Orders: Total number of imminent danger orders issued under section
107(a) of the Mine Act; and |
|
|
|
|
Total Dollar Value of Proposed MSHA Assessments: Total dollar value of proposed
assessments from MSHA under the Mine Act. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dollar Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Proposed MSHA |
|
|
Section 104 |
|
Section 104(b) |
|
Section 104(d) |
|
Section 107(a) |
|
Assessments |
Mining complex(1) |
|
Citations |
|
Orders |
|
Citations/Orders |
|
Orders |
|
(in thousands)(2) |
|
Power River Basin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black Thunder |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2 |
|
Coal Creek |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Western Bituminous: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arch of Wyoming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1 |
|
Dugout Canyon |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2 |
|
Skyline |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14 |
|
Sufco |
|
|
5 |
|
|
|
|
|
|
|
4 |
|
|
|
1 |
|
|
$ |
1 |
|
West Elk |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
78 |
|
Central Appalachia: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal-Mac |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11 |
|
Cumberland River |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22 |
|
Lone Mountain |
|
|
38 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
$ |
37 |
|
Mountain Laurel |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48 |
|
Arch Coal Terminal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1 |
|
|
|
|
(1) |
|
MSHA assigns an identification number to each coal mine and may or may not assign
separate identification numbers to related facilities such as preparation plants. We are
providing the information in this table by mining complex rather than MSHA identification
number because we believe this format will be more useful to investors than providing
information based on MSHA identification numbers. For descriptions of each of these mining
operations please refer to the descriptions under Item 1. Business, in Part I of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009. |
|
(2) |
|
Amounts included under the heading Total Dollar Value of Proposed MSHA
Assessments are the total dollar amounts for proposed assessments received from MSHA on or
before October 25, 2010, for citations and orders occurring during the three-month period
ended September 30, 2010. |
For the three-month period ended September 30, 2010, none of our mining complexes
received written notice from MSHA of (i) a flagrant violation under section 110(b)(2) of the Mine
Act; (ii) a pattern of violations of mandatory health or safety standards that are of such nature
as could have significantly and substantially contributed to the cause and effect of coal or other
mine health or safety hazards under section 104(e) of the Mine Act; or (iii) the potential to have
such a pattern. For the three-month period ended September 30, 2010, none of our mining complexes
experienced a mining-related fatality.
As of September 30, 2010, we had a total of ninety-three matters pending before the Federal
Mine Safety and Health Review Commission. This includes legal actions that were initiated prior to
the three-month period ended September 30,
37
2010 and which do not necessarily relate to the citations, orders or proposed assessments
issued by MSHA during such three-month period.
In evaluating the above information regarding mine safety and health, investors should take
into account factors such as: (i) the number of citations and orders will vary depending on the
size of a coal mine, (ii) the number of citations issued will vary from inspector to inspector and
mine to mine, and (iii) citations and orders can be contested and appealed, and in that process are
often reduced in severity and amount, and are sometimes dismissed.
Item 6. Exhibits.
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:
|
|
|
|
|
Exhibit |
|
Description |
|
4.1 |
|
|
Indenture, dated August 9, 2010, by and among Arch Coal, Inc. and U.S. Bank
National Association, as trustee (incorporated herein by reference to Exhibit 4.1
to Arch Coal, Inc.s Current Report on Form 8-K filed on August 9, 2010). |
|
|
|
|
|
|
4.2 |
|
|
First Supplemental Indenture, dated August 9, 2010, by and among Arch Coal, Inc.,
the subsidiary guarantors named therein and U.S. Bank National Association, as
trustee (incorporated herein by reference to Exhibit 4.2 to Arch Coal, Inc.s
Current Report on Form 8-K filed on August 9, 2010). |
|
|
|
|
|
|
4.3 |
|
|
Form of 7 1/4% Senior Notes due 2020 (included in Exhibit 4.2). |
|
|
|
|
|
|
10.1 |
|
|
Underwriting Agreement, dated August 2, 2010, by and among Arch Coal, Inc., the
subsidiary guarantors named therein and Banc of America Securities LLC, Citigroup
Global Markets Inc., Morgan Stanley & Co. Incorporated and J.P. Morgan Securities
Inc., as representatives of the several underwriters named therein (incorporated
herein by reference to Exhibit 1.1 to Arch Coal, Inc.s Current Report on Form 8-K
filed on August 3, 2010). |
|
|
|
|
|
|
10.2* |
|
|
Arch Coal, Inc. 1997 Stock Incentive Plan (as amended and restated on October 21,
2010) (incorporated herein by reference to Exhibit 10.1 to Arch Coal, Inc.s
Current Report on Form 8-K filed on October 27, 2010). |
|
|
|
|
|
|
12.1 |
|
|
Computation of ratio of earnings to combined fixed charges and preference dividends. |
|
|
|
|
|
|
31.1 |
|
|
Rule 13a-14(a)/15d-14(a) Certification of Steven F. Leer. |
|
|
|
|
|
|
31.2 |
|
|
Rule 13a-14(a)/15d-14(a) Certification of John T. Drexler. |
|
|
|
|
|
|
32.1 |
|
|
Section 1350 Certification of Steven F. Leer. |
|
|
|
|
|
|
32.2 |
|
|
Section 1350 Certification of John T. Drexler. |
|
|
|
|
|
|
101 |
|
|
Interactive Data File (Form 10-Q for the quarter ended September 30, 2010 furnished
in XBRL). The financial information contained in the XBRL-related documents is
unaudited and unreviewed and, in accordance with Rule 406T of Regulation S-T,
is not deemed filed for purposes of Sections 11 and 12 of the Securities Act of
1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to liability under these sections. |
|
|
|
* |
|
Denotes management contract or compensatory plan arrangement. |
38
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
Arch Coal, Inc. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ John T. Drexler
John T. Drexler
|
|
|
|
|
|
|
Senior Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
November 9, 2010 |
|
|
39