SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 21, 2003
(April 21, 2003)
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-13105 43-0921172
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
One CityPlace Drive, Suite 300, St. Louis, Missouri 63141
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (314) 994-2700
Page 1 of 4 pages.
Exhibit Index begins on page 4.
Item 5. Other Events.
On April 21, 2003, Arch Coal, Inc. (the "Company"), announced via press
release its earnings and operating results for the first quarter of 2003. A copy
of the Company's press release is attached hereto and incorporated herein by
reference in its entirety.
Item 7. Financial Statements and Exhibits.
(c) The following Exhibit is filed with this Current Report on Form
8-K:
Exhibit No. Description
99 Press Release dated as of April 21, 2003
Page 2 of 4 pages.
Exhibit Index begins on page 4.
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 hereunto duly authorized.
Dated: April 21, 2003 ARCH COAL, INC.
By: /s/ Janet L. Horgan
Janet L. Horgan
Assistant General Counsel and
Assistant Secretary
Page 3 of 4 pages.
Exhibit Index begins on page 4.
EXHIBIT INDEX
Exhibit No. Description
99 Press Release dated as of April 21, 2003
Page 4 of 4 pages.
Exhibit 99
News from
Arch Coal, Inc.
-------------------------------------------------------------------------------
FOR FURTHER INFORMATION:
Deck S. Slone
Vice President,
Investor and Public Relations
(314) 994-2717
FOR IMMEDIATE RELEASE
April 21, 2003
Arch Coal, Inc. Reports First Quarter Results
o Net loss of $14.4 million, or $.27 per share, before the cumulative effect of
an accounting change, vs. a net loss of $7.4 million, or $.14 per share, in 1Q02
o Reduction in debt of $42.5 million and increase in cash balance of $56.2
million
o Total revenues of $349.6 million, vs. $368.5 million in 1Q02
o Coal sales of 22.7 million tons, vs. 24.7 million tons in 1Q02
o Adjusted EBITDA of $38.7 million, vs. $49.1 million in 1Q02
St. Louis - Arch Coal, Inc. (NYSE:ACI) today reported that for its first
quarter ended March 31, 2003, the company had a net loss of $14.4 million, or
$.27 per share, before a $3.7 million, or $.07 per share, non-cash charge
related to the cumulative effect of an accounting change resulting from the
adoption of FAS 143, "Accounting for Asset Retirement Obligations." These
results include $1.2 million of accumulated dividends related to the company's
recently issued preferred stock. In the same quarter of 2002, Arch had a net
loss of $7.4 million, or $.14 per share.
"Coal demand was weaker than anticipated in the first quarter, as power
generators continued to draw down their coal stockpiles in lieu of purchasing
spot coal," said Steven F. Leer, Arch Coal's president and CEO. "As a result,
Arch further curtailed production at its mining operations, with predictable
consequences for our first quarter results. Nevertheless, we continue to believe
that our strategic decision to leave uncommitted tons in the ground, rather than
sell them at a price that does not provide an adequate return, is sound."
In addition, first quarter results were adversely affected by previously
announced post-retirement medical cost increases, heavy snows in February and
March that disrupted production and shipments, higher diesel fuel costs, and
difficult mining conditions at the Mingo Logan mine early in the quarter. Mingo
Logan has since mined through the difficult conditions and returned to normal
production levels. The increase in diesel fuel costs was partially mitigated by
the company's hedging program.
During the first quarter, Arch produced 1.2 million fewer tons in the east
and 1.5 million fewer tons in the west when compared to the first quarter of
2002, when production was already constrained.
Other developments
In February, Arch completed the sale of 2,875,000 shares of 5% Perpetual
Cumulative Convertible Preferred Stock, applying some of the net proceeds from
the sale, which totaled approximately $139.1 million, to debt reduction and the
repayment of lines of credit. During the first quarter, Arch reduced total debt
by $42.5 million, while building its cash balance to $65.8 million.
In addition, Arch announced in April that it had agreed to terms with a
large customer seeking to buy out of the remaining term of an above-market
contract. The buyout resulted in the receipt of approximately $52 million in
cash early in the second quarter. Arch will record a deferred gain of
approximately $15 million, which will be recognized ratably through 2012. Arch
has entered into a new contract for an equivalent number of eastern tons with
the same customer.
The value of Arch's equity investment in Natural Resource Partners also
increased significantly during the quarter. In October 2002, Arch contributed
reserves to NRP that had been valued on the company's balance sheet at $84.9
million. In exchange, Arch received 1.9 million common units of NRP that it sold
in an initial public offering for $33.6 million; an additional 7.7 million
common and subordinated units that the company continues to hold; and 42.25% of
the general partner interest. At NRP's closing price of $25.05 on April 17,
Arch's 7.7 million units of NRP were worth more than $190 million.
"The coal industry is in the midst of a dramatic restructuring, which has
caused a number of long-time industry participants to exit the business and
others to significantly pare back their operations," Leer said. "Our much
improved balance sheet and significant cash reserves have positioned us to take
advantage of attractive opportunities that may arise in the marketplace."
Market conditions
Despite continuing weakness in spot coal demand, there appears to be good
reason for optimism in coming quarters. Electricity demand increased by as much
as 4% in 2002, according to Edison Electric Institute, while U.S. coal
production fell by an estimated 35 million tons. Furthermore, both those trends
appear to have carried over into the first quarter of 2003.
"It appears that U.S. power generators are planning to maintain their
stockpiles at historically low levels, and that has delayed the recovery in U.S.
coal markets," Leer said. "However, the current trends in supply and demand
suggest that a correction is inevitable. Eventually, power generators will need
to re-enter the market, and that should provide an impetus for improving coal
demand and pricing."
Stockpiles were 15% to 20% lower at the end of March compared to 12 months
earlier, according to Arch's internal modeling. Meanwhile, competing fuels
appear to be in short supply. The U.S. nuclear system is running at very near
maximum output levels. Limited precipitation in the Pacific Northwest this
winter has raised serious concerns about hydroelectric output this coming
summer. And natural gas storage levels are at an all-time low, which has
prompted growing concern about gas supply, availability and pricing. Monthly
NYMEX natural gas prices currently average approximately $5.75 per million Btu's
for the remainder of 2003, and do not fall below $4 per million Btu's for any
month in the forward six-year period.
Operating statistics
Regional analysis: Of the 22.7 million tons of coal that Arch sold during
the first quarter, approximately 6.8 million tons originated at its eastern
mines and 15.9 million tons originated at its western operations. Arch had an
average realized sales price of $14.44 per ton and average operating costs of
$14.72 per ton during the quarter. The eastern operations had an average
realized sales price of $31.21 per ton and an average cost of $32.97 per ton.
The western operations had an average realized sales price of $7.24 per ton and
an average cost of $6.84 per ton. (Western operations data does not include the
results of 65%-owned Canyon Fuel Company, which is accounted for on the equity
method.)
Capital spending: Arch invested $50.8 million in its mining operations
during the first quarter of 2003, a total that included the fifth and final
annual payment of $31.6 million for the Thundercloud federal coal tract adjacent
to the Black Thunder mine. Arch acquired the 412-million-ton Thundercloud tract
in 1998. For the full year 2003, Arch expects capital expenditures to remain
relatively flat compared to 2002, at approximately $160 million. (Actual and
projected capital expenditure figures include Arch's ownership percentage in
Canyon Fuel Company.)
Depreciation, depletion and amortization: DD&A totaled $45.0 million in the
first quarter of 2003. For the full year 2003, DD&A is expected to total
approximately $190 million. (Actual and projected DD&A figures include Arch's
ownership percentage in Canyon Fuel Company.)
Looking Ahead
"We continue to be bullish on the future of U.S. coal markets," Leer said.
"With approximately 50 millions tons of planned production as yet uncommitted
for 2004, we have significant leverage to an improving market environment. At
the same time, we are implementing aggressive steps to reduce both overhead and
operating costs. While many of the cost increases we experienced during the
quarter were tied to lower volume levels or are unlikely to recur in future
periods, we have identified a number of areas where we can cut costs
significantly."
Arch expects second quarter results to range from breakeven to a loss of
$.10 per share, excluding severance costs associated with the aforementioned
cost reduction efforts. If coal demand and pricing strengthen this summer, the
company's financial performance should improve significantly in the year's
second half.
A conference call concerning first quarter earnings will be webcast live
today at 11 a.m. EDT. The conference call can be accessed via the "investor"
section of the Arch Coal Web site (www.archcoal.com).
Arch Coal is the nation's second largest coal producer, with subsidiary
operations in West Virginia, Kentucky, Virginia, Wyoming, Colorado and Utah.
Through these operations, Arch Coal provides the fuel for approximately 6% of
the electricity generated in the United States.
Forward-Looking Statements: Statements in this press release which are not
statements of historical fact are forward-looking statements within the "safe
harbor" provision of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on information currently available to, and
expectations and assumptions deemed reasonable by, the company. Because these
forward-looking statements are subject to various risks and uncertainties,
actual results may differ materially from those projected in the statements.
These expectations, assumptions and uncertainties include: the company's
expectation of continued growth in the demand for electricity; belief that
legislation and regulations relating to the Clean Air Act and the relatively
higher costs of competing fuels will increase demand for its compliance and
low-sulfur coal; expectation of improved market conditions for the price of
coal; expectation that the company will continue to have adequate liquidity from
its cash flow from operations, together with available borrowings under its
credit facilities, to finance the company's working capital needs; a variety of
operational, geologic, permitting, labor and weather related factors; and the
other risks and uncertainties which are described from time to time in the
company's reports filed with the Securities and Exchange Commission.
ARCH COAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
March 31,
---------------- ----------------
2003 2002
---------------- ----------------
Revenues
Coal sales $ 327,390 $ 358,595
Income from equity investment 11,110 1,268
Other revenues 11,089 8,604
---------------- ----------------
349,589 368,467
---------------- ----------------
Costs and expenses
Cost of coal sales 333,639 347,211
Selling, general and administrative expenses 11,873 9,870
Amortization of coal supply agreements 5,793 5,114
Other expenses 4,549 7,592
---------------- ----------------
355,854 369,787
---------------- ----------------
Loss from operations (6,265) (1,320)
Interest expense, net:
Interest expense (11,552) (12,002)
Interest income 332 268
---------------- ----------------
(11,220) (11,734)
---------------- ----------------
Loss before income taxes and cumulative effect of accounting change (17,485) (13,054)
Benefit from income taxes (4,300) (5,700)
---------------- ----------------
Loss before cumulative effect of accounting change (13,185) (7,354)
Cumulative effect of accounting change, net of taxes (3,654) -
---------------- ----------------
Net loss $ (16,839) $ (7,354)
Preferred stock dividends (1,198) -
---------------- ----------------
Net loss available to common shareholders $ (18,037) $ (7,354)
================ ================
Earnings per common share
Loss before cumulative effect of accounting change $ (0.27) $ (0.14)
Cumulative effect of accounting change (0.07) -
---------------- ----------------
Basic and diluted earnings (loss) per common share $ (0.34) $ (0.14)
================ ================
Weighted average shares outstanding 52,384 52,356
================ ================
Common dividends declared per share $ 0.0575 $ 0.0575
================ ================
Adjusted EBITDA (A) $ 38,739 $ 49,138
================ ================
(A) Adjusted EBITDA is defined as income (loss) from operations before the
effect of net interest expense; income taxes; our depreciation, depletion and
amortization; our equity interest in the depreciation, depletion and
amortization of Canyon Fuel Company, LLC, and the cumulative effect of
accounting changes. Adjusted EBITDA is not a measure of financial performance in
accordance with generally accepted accounting principles, and items excluded to
calculate Adjusted EBITDA are significant in understanding and assessing our
financial condition. Therefore, Adjusted EBITDA should not be considered in
isolation nor as an alternative to net income, income from operations, cash
flows from operations or as a measure of our profitability, liquidity or
performance under generally accepted accounting principles. We believe that
Adjusted EBITDA presents a useful measure of our ability to service and incur
debt based on ongoing operations. Furthermore, analogous measures are used by
industry analysts to evaluate operating performance. Investors should be aware
that our presentation of Adjusted EBITDA may not be comparable to similarly
titled measures used by other companies.
The table below shows how we calculate Adjusted EBITDA.
Three Months Ended
March 31
----------------------------
2003 2002
------------ -------------
Loss from operations $ (6,265) $ (1,320)
Depreciation, depletion and amortization of Arch Coal, Inc. 39,511 42,741
Arch Coal's equity interest in depreciation, depletion and
amortization of Canyon Fuel Company, LLC 5,493 7,717
------------ -------------
Adjusted EBITDA $ 38,739 $ 49,138
============ =============
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
March 31, December 31,
2003 2002
---------------------- ----------------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 65,787 $ 9,557
Trade receivables 127,549 135,903
Other receivables 23,124 30,927
Inventories 75,741 66,799
Prepaid royalties 6,250 4,971
Deferred income taxes 27,775 27,775
Other 13,285 15,781
---------------------- ----------------------
Total current assets 339,511 291,713
---------------------- ----------------------
Property, plant and equipment, net 1,335,614 1,284,968
---------------------- ----------------------
Other assets
Prepaid royalties 67,078 51,078
Coal supply agreements 53,447 59,240
Deferred income taxes 228,513 221,116
Equity investments 231,862 231,551
Other 44,617 43,142
---------------------- ----------------------
625,517 606,127
---------------------- ----------------------
Total assets $ 2,300,642 $ 2,182,808
====================== ======================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 99,438 $ 113,527
Accrued expenses 153,090 133,287
Current portion of debt 4,650 7,100
---------------------- ----------------------
Total current liabilities 257,178 253,914
Long-term debt 700,195 740,242
Accrued postretirement benefits other than pension 331,169 324,539
Asset retirement obligations 145,554 117,804
Accrued workers' compensation 81,771 80,985
Other noncurrent liabilities 132,792 130,461
---------------------- ----------------------
Total liabilities 1,648,659 1,647,945
---------------------- ----------------------
Stockholders' equity
Preferred stock 29 -
Common stock 528 527
Paid-in capital 974,877 835,763
Retained deficit (274,992) (253,943)
Treasury stock, at cost (5,047) (5,047)
Accumulated other comprehensive loss (43,412) (42,437)
---------------------- ----------------------
Total stockholders' equity 651,983 534,863
---------------------- ----------------------
Total liabilities and stockholders' equity $ 2,300,642 $ 2,182,808
====================== ======================
NOTE: Certain amounts in the December 31, 2002 balance sheet have been
reclassified to conform with the classifications in the 2003 balance sheet with
no effect on previously reported stockholders' equity.
ARCH COAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
---------------------------------------------
2003 2002
--------------------- --------------------
(Unaudited)
Operating activities
Net loss $ (16,839) $ (7,354)
Adjustments to reconcile to cash provided by operating activities:
Depreciation, depletion and amortization 39,511 42,741
Prepaid royalties expensed 3,105 1,874
Accretion on asset retirement obligations 3,442 -
Net gain on disposition of assets (148) (187)
Income from equity investment (11,110) (1,268)
Net distributions from equity investments 9,660 15,346
Cumulative effect of accounting change 3,654 -
Changes in:
Receivables 16,157 11,016
Inventories (8,942) (9,994)
Accounts payable and accrued expenses (8,662) 11,218
Income taxes (4,438) (5,700)
Accrued postretirement benefits other than pension 6,630 (480)
Asset retirement obligations (3,266) 2,313
Accrued workers' compensation benefits 786 293
Other 2,457 3,440
--------------------- --------------------
Cash provided by operating activities 31,997 63,258
--------------------- --------------------
Investing activities
Additions to property, plant and equipment (48,085) (73,068)
Proceeds from dispositions of property, plant and equipment 168 1,706
Additions to prepaid royalties (20,384) (18,812)
--------------------- --------------------
Cash used in investing activities (68,301) (90,174)
--------------------- --------------------
Financing activities
Net (payments on) proceeds from revolver and lines of credit (42,497) 24,999
Deferred financing costs (1,101) -
Reduction of obligations under capital lease - (519)
Dividends paid (3,012) (3,010)
Proceeds from sale of preferred stock 139,078 -
Proceeds from sale of common stock 66 158
--------------------- --------------------
Cash provided by (used in) financing activities 92,534 21,628
--------------------- --------------------
Increase (decrease) in cash and cash equivalents 56,230 (5,288)
Cash and cash equivalents, beginning of period 9,557 6,890
-------------------- --------------------
Cash and cash equivalents, end of period $ 65,787 $ 1,602
===================== ====================
Canyon Fuel Company cash flow information (Arch Coal ownership
percentage)
Depreciation, depletion and amortization 5,493 7,717
Additions to property, plant and equipment (2,666) (1,634)