10-Q 1 a13-13886_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 

(Mark One)

 

x

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

 

For the quarterly period ended June 30, 2013

 

o

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

 

For the transition period from                      to                      .

 

Commission file number: 1-13105

 

GRAPHIC

 

Arch Coal, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

43-0921172

(State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization)

 

Identification Number)

 

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

 

63141

(Address of principal executive offices)

 

(Zip code)

 

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

 

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

 

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

 

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

 

Large accelerated filer x

 

Accelerated filer o

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

At July 31, 2013 there were 212,240,999 shares of the registrant’s common stock outstanding.

 

 

 




Table of Contents

 

Part I

FINANCIAL INFORMATION

 

Item 1.   Financial Statements.

 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(Unaudited)

 

Revenues

 

$

766,332

 

$

965,685

 

$

1,503,702

 

$

1,925,922

 

Costs, expenses and other

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of items shown separately below)

 

656,198

 

799,558

 

1,305,941

 

1,605,817

 

Depreciation, depletion and amortization

 

111,085

 

124,536

 

221,278

 

255,689

 

Amortization of acquired sales contracts, net

 

(2,209

)

(4,451

)

(5,019

)

(18,468

)

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

 

(9,008

)

(32,054

)

(7,700

)

(35,667

)

Asset impairment and mine closure costs

 

20,482

 

525,583

 

20,482

 

525,583

 

Goodwill impairment

 

 

115,791

 

 

115,791

 

Selling, general and administrative expenses

 

34,302

 

35,178

 

67,511

 

66,039

 

Other operating income, net

 

(8,239

)

(1,563

)

(11,081

)

(19,766

)

 

 

802,611

 

1,562,578

 

1,591,412

 

2,495,018

 

Loss from operations

 

(36,279

)

(596,893

)

(87,710

)

(569,096

)

Interest expense, net:

 

 

 

 

 

 

 

 

 

Interest expense

 

(94,756

)

(78,728

)

(189,830

)

(153,500

)

Interest and investment income

 

1,216

 

1,088

 

4,052

 

2,109

 

 

 

(93,540

)

(77,640

)

(185,778

)

(151,391

)

Other nonoperating expense

 

 

 

 

 

 

 

 

 

Net loss resulting from early retirement and refinancing of debt

 

 

(19,042

)

 

(19,042

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(129,819

)

(693,575

)

(273,488

)

(739,529

)

Benefit from income taxes

 

(49,468

)

(251,119

)

(108,821

)

(282,974

)

Loss from continuing operations

 

(80,351

)

(442,456

)

(164,667

)

(456,555

)

Income from discontinued operations, net of tax

 

8,145

 

7,032

 

22,412

 

22,540

 

Net loss

 

(72,206

)

(435,424

)

(142,255

)

(434,015

)

Less: Net income attributable to noncontrolling interest

 

 

(65

)

 

(268

)

Net loss attributable to Arch Coal, Inc.

 

$

(72,206

)

$

(435,489

)

$

(142,255

)

$

(434,283

)

 

 

 

 

 

 

 

 

 

 

Loss per common share

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$

(0.38

)

$

(2.09

)

$

(0.78

)

$

(2.15

)

Diluted loss per common share

 

$

(0.38

)

$

(2.09

)

$

(0.78

)

$

(2.15

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Arch Coal, Inc.

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$

(0.34

)

$

(2.05

)

$

(0.67

)

$

(2.05

)

Diluted loss per common share

 

$

(0.34

)

$

(2.05

)

$

(0.67

)

$

(2.05

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

212,082

 

212,048

 

212,072

 

211,868

 

Diluted

 

212,082

 

212,048

 

212,072

 

211,868

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.03

 

$

0.03

 

$

0.06

 

$

0.14

 

 

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

 

3



Table of Contents

 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(Unaudited)

 

Net loss

 

$

(72,206

)

$

(435,424

)

$

(142,255

)

$

(434,015

)

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

(391

)

738

 

(1,570

)

11,025

 

Income tax benefit (provision)

 

143

 

(265

)

568

 

(3,967

)

 

 

(248

)

473

 

(1,002

)

7,058

 

Pension, postretirement and other post-employment benefits

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

1,750

 

(5,600

)

3,704

 

(4,876

)

Income tax benefit (provision)

 

(630

)

2,016

 

(1,333

)

1,755

 

 

 

1,120

 

(3,584

)

2,371

 

(3,121

)

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

Comprehensive income before tax

 

4,959

 

97

 

6,512

 

491

 

Income tax provision

 

(1,788

)

(35

)

(2,347

)

(177

)

 

 

3,171

 

62

 

4,165

 

314

 

Total other comprehensive income (loss)

 

4,043

 

(3,049

)

5,534

 

4,251

 

Total comprehensive loss

 

$

(68,163

)

$

(438,473

)

$

(136,721

)

$

(429,764

)

 

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

 

4



Table of Contents

 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

644,205

 

$

784,622

 

Restricted cash

 

1,085

 

3,453

 

Short term investments

 

248,464

 

234,305

 

Trade accounts receivable

 

264,692

 

247,539

 

Other receivables

 

71,846

 

84,541

 

Inventories

 

356,653

 

365,424

 

Prepaid royalties

 

8,970

 

11,416

 

Deferred income taxes

 

67,350

 

67,360

 

Coal derivative assets

 

31,261

 

22,975

 

Other

 

60,811

 

92,469

 

Total current assets

 

1,755,337

 

1,914,104

 

Property, plant and equipment, net

 

7,231,221

 

7,337,098

 

Other assets:

 

 

 

 

 

Prepaid royalties

 

91,130

 

87,773

 

Goodwill

 

265,423

 

265,423

 

Equity investments

 

232,758

 

242,215

 

Other

 

154,860

 

160,164

 

Total other assets

 

744,171

 

755,575

 

Total assets

 

$

9,730,729

 

$

10,006,777

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

232,433

 

$

224,418

 

Coal derivative liabilities

 

542

 

1,737

 

Accrued expenses and other current liabilities

 

307,089

 

318,018

 

Current maturities of debt

 

23,842

 

32,896

 

Total current liabilities

 

563,906

 

577,069

 

Long-term debt

 

5,078,634

 

5,085,879

 

Asset retirement obligations

 

414,860

 

409,705

 

Accrued pension benefits

 

66,903

 

67,630

 

Accrued postretirement benefits other than pension

 

46,358

 

45,086

 

Accrued workers’ compensation

 

79,004

 

81,629

 

Deferred income taxes

 

565,047

 

664,182

 

Other noncurrent liabilities

 

205,103

 

221,030

 

Total liabilities

 

7,019,815

 

7,152,210

 

Stockholders’ equity

 

 

 

 

 

Common stock, $0.01 par value, authorized 260,000 shares, issued 213,753 and 213,759 shares at June 30, 2013 and December 31, 2012

 

2,141

 

2,141

 

Paid-in capital

 

3,032,626

 

3,026,823

 

Treasury stock, at cost

 

(53,848

)

(53,848

)

Accumulated deficit

 

(259,032

)

(104,042

)

Accumulated other comprehensive loss

 

(10,973

)

(16,507

)

Total stockholders’ equity

 

2,710,914

 

2,854,567

 

Total liabilities and stockholders’ equity

 

$

9,730,729

 

$

10,006,777

 

 

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

 

5



Table of Contents

 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

Operating activities

 

 

 

 

 

Net loss

 

$

(142,255

)

$

(434,015

)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

Depreciation, depletion and amortization

 

237,668

 

272,834

 

Amortization of acquired sales contracts, net

 

(5,019

)

(18,468

)

Amortization relating to financing activities

 

12,346

 

8,948

 

Prepaid royalties expensed

 

9,251

 

16,551

 

Employee stock-based compensation expense

 

5,804

 

7,014

 

Asset impairment and mine closure costs

 

20,482

 

501,942

 

Goodwill impairment

 

 

115,791

 

Net loss resulting from early retirement of debt and financing activities

 

 

19,042

 

Changes in:

 

 

 

 

 

Receivables

 

(3,909

)

52,291

 

Inventories

 

8,771

 

(80,199

)

Coal derivative assets and liabilities

 

(11,122

)

(37,985

)

Accounts payable, accrued expenses and other current liabilities

 

(4,062

)

(64,965

)

Income taxes, net

 

(29

)

22,869

 

Deferred income taxes

 

(102,172

)

(272,094

)

Other

 

26,291

 

(14,248

)

Cash provided by operating activities

 

52,045

 

95,308

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(169,064

)

(202,073

)

Minimum royalty payments

 

(10,162

)

(8,634

)

Proceeds from dispositions of property, plant and equipment

 

5,080

 

22,551

 

Proceeds from sale-leaseback transactions

 

34,919

 

 

Purchases of short term investments

 

(61,870

)

 

Proceeds from sales of short term investments

 

47,097

 

 

Investments in and advances to affiliates

 

(8,142

)

(9,292

)

Change in restricted cash

 

2,368

 

4,582

 

Cash used in investing activities

 

(159,774

)

(192,866

)

Financing activities

 

 

 

 

 

Proceeds from issuance of term loan

 

 

1,386,000

 

Payments on term note

 

(8,250

)

 

Payments to retire debt

 

(255

)

(452,654

)

Net decrease in borrowings under lines of credit

 

 

(391,300

)

Net payments on other debt

 

(11,448

)

(11,164

)

Debt financing costs

 

 

(34,381

)

Dividends paid

 

(12,735

)

(29,696

)

Proceeds from exercise of options under incentive plans

 

 

5,131

 

Cash provided by (used in) financing activities

 

(32,688

)

471,936

 

Increase (decrease) in cash and cash equivalents

 

(140,417

)

374,378

 

Cash and cash equivalents, beginning of period

 

784,622

 

138,149

 

Cash and cash equivalents, end of period

 

$

644,205

 

$

512,527

 

 

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

 

6



Table of Contents

 

Arch Coal, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1.  Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Arch Coal, Inc. and its subsidiaries and controlled entities (the “Company”). The Company’s primary business is the production of thermal and metallurgical coal from surface and underground mines located throughout the United States, for sale to utility, industrial and steel producers both in the United States and around the world. The Company currently operates mining complexes in West Virginia, Kentucky, Maryland, Virginia, Illinois, Wyoming, Colorado and Utah. In addition, the Company has a metallurgical coal mine in development in West Virginia.  All subsidiaries are wholly-owned. Intercompany transactions and accounts have been eliminated in consolidation.

 

The Company has entered into an agreement to sell a subsidiary which operates three mining complexes in the Western Bituminous reportable segment (“WBIT”).  The results of these mining complexes have been segregated from continuing operations and are reflected, net of tax, as discontinued operations in the condensed consolidating statements of operations for all periods presented.  See further discussion in Note 3, “Discontinued Operations”.

 

On June 21, 2012, the Company announced the closing of four mining complexes and the temporary idling of a fifth complex, which resulted in closure costs and impairment charges of $525.6 million, which are reflected on the line “Asset impairment and mine closures costs” on the condensed consolidated statements of operations.

 

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 six month periods ended June 30, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013. 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, 2012 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

 

2.  Accounting Policies

 

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

 

3. Discontinued Operations

 

As part of a strategy to divest its non-core thermal coal assets, the Company entered into a definitive agreement on June 27, 2013 to sell Canyon Fuel Company, LLC (Canyon Fuel), to Bowie Resources, LLC.  Canyon Fuel operates two longwall mining complexes and a continuous miner operation in Utah.   The purchase price is $435.0 million in cash, subject to customary adjustments for working capital and other items. The transaction is expected to close during the third quarter of 2013.

 

The following table summarizes the results of discontinued operations:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(In thousands)

 

Total Revenues

 

$

85,107

 

$

97,853

 

$

173,239

 

$

177,267

 

Income from discontinued operations before income taxes

 

$

9,748

 

$

7,909

 

$

28,737

 

$

34,193

 

Income tax expense

 

(1,603

)

(877

)

(6,325

)

(11,653

)

Income from discontinued operations, net of income taxes

 

$

8,145

 

$

7,032

 

$

22,412

 

$

22,540

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share from discontinued operations

 

$

0.04

 

$

0.04

 

$

0.11

 

$

0.10

 

Diluted earnings per common share from discontinued operations

 

$

0.04

 

$

0.04

 

$

0.11

 

$

0.10

 

 

7



Table of Contents

 

The following table summarizes the assets held for sale and the liabilities held for sale, as classified in the Company’s condensed consolidated balance sheets:

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

Current assets

 

$

59,604

 

$

61,281

 

Property, plant and equipment, net

 

269,303

 

280,400

 

Other assets

 

5,198

 

5,333

 

Total assets held for sale

 

$

334,105

 

$

347,014

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Current liabilities

 

$

28,111

 

$

24,763

 

Noncurrent liabilities

 

36,197

 

35,221

 

Total liabilities held for sale

 

$

64,308

 

$

59,984

 

 

4. Accumulated Other Comprehensive Loss

 

Other comprehensive loss includes transactions recorded in stockholders’ equity during the year, excluding net income and transactions with stockholders. In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The standard requires that companies present, either parenthetically on the face of the financial statements or in a single note, the effect of significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification.   The Company adopted the provisions of the new guidance in the first quarter of 2013.

 

The following items are included in accumulated other comprehensive loss:

 

 

 

 

 

Pension,

 

 

 

 

 

 

 

 

 

Postretirement

 

 

 

 

 

 

 

 

 

and Other

 

 

 

Accumulated

 

 

 

 

 

Post-

 

 

 

Other

 

 

 

Derivative

 

Employment

 

Available-for-

 

Comprehensive

 

 

 

Instruments

 

Benefits

 

Sale Securities

 

Loss

 

 

 

(In thousands)

 

Balance at December 31, 2012

 

$

2,244

 

$

(18,286

)

$

(465

)

$

(16,507

)

Unrealized gains (losses)

 

(106

)

 

3,967

 

3,861

 

Amounts reclassified from accumulated other comprehensive income

 

(896

)

2,371

 

198

 

1,673

 

Balance at June 30, 2013

 

$

1,242

 

$

(15,915

)

$

3,700

 

$

(10,973

)

 

8



Table of Contents

 

The following items were reclassified out of accumulated other comprehensive loss during the six months ended June 30, 2013:

 

 

 

Amount Reclassified

 

Line Item in the

 

 

 

from Accumulated Other

 

Condensed Consolidated

 

Details about accumulated other comprehensive income components

 

Comprehensive Loss

 

Statement of Operations

 

 

 

(In thousands)

 

 

 

Derivative instruments

 

$

1,401

 

Revenues

 

 

 

(505

)

Benefit from income taxes

 

 

 

$

896

 

Net of tax

 

 

 

 

 

 

 

Pension, postretirement and other post-employment benefits

 

 

 

 

 

Amortization of prior service credits

 

$

5,581

 

(1)

 

Amortization of actuarial gains (losses), net

 

(9,285

)

(1)

 

 

 

(3,704

)

Total before tax

 

 

 

1,333

 

Benefit from income taxes

 

 

 

$

(2,371

)

Net of tax

 

 

 

 

 

 

 

Available-for-sale securities

 

$

(309

)

Interest and investment income

 

 

 

111

 

Benefit from income taxes

 

 

 

$

(198

)

Net of tax

 

 


(1) Production-related benefits and workers’ compensation costs are included in costs to produce coal. See Note 13, “Workers’ Compensation Expense” and Note 14 “Employee Benefit Plans” for more information about pension, postretirement and postemployment benefit costs.

 

5. Inventories

 

Inventories consist of the following:

 

 

 

June 30

 

December 31

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Coal

 

$

177,238

 

$

180,917

 

Repair parts and supplies

 

163,631

 

172,139

 

Work-in-process

 

15,784

 

12,368

 

 

 

$

356,653

 

$

365,424

 

 

The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $13.8 million at June 30, 2013 and $13.6 million at December 31, 2012.

 

6. Investments in Available-for-Sale Securities

 

The Company has invested in marketable debt securities, primarily highly liquid AA - rated corporate bonds and U.S. government and government agency securities.  These investments are held in the custody of a major financial institution.  These securities, along with the Company’s investments in marketable equity securities, are classified as available-for-sale securities and, accordingly, the unrealized gains and losses are recorded through other comprehensive income.

 

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The Company’s investments in available-for-sale marketable securities are as follows:

 

 

 

June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Gross

 

Gross

 

 

 

Classification

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

Short-Term

 

Other

 

 

 

Cost Basis

 

Gains

 

Losses

 

Value

 

Investments

 

Assets

 

 

 

(In thousands)

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

126,193

 

$

 

$

(459

)

$

125,734

 

$

125,734

 

$

 

Corporate notes and bonds

 

123,692

 

 

(962

)

122,730

 

122,730

 

 

Equity securities

 

5,271

 

10,108

 

(2,907

)

12,472

 

 

12,472

 

Total Investments

 

$

255,156

 

$

10,108

 

$

(4,328

)

$

260,936

 

$

248,464

 

$

12,472

 

 

 

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Gross

 

Gross

 

 

 

Classification

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

Short-Term

 

Other

 

 

 

Cost Basis

 

Gains

 

Losses

 

Value

 

Investments

 

Assets

 

 

 

(In thousands)

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

146,993

 

$

2

 

$

(412

)

$

146,583

 

$

146,583

 

$

 

Corporate notes and bonds

 

88,118

 

 

(396

)

87,722

 

87,722

 

 

Equity securities

 

5,271

 

2,704

 

(2,628

)

5,347

 

 

5,347

 

Total Investments

 

$

240,382

 

$

2,706

 

$

(3,436

)

$

239,652

 

$

234,305

 

$

5,347

 

 

The aggregate fair value of investments with unrealized losses that have been owned for less than a year was $248.5 million and  $223.3 million at June 30, 2013 and December 31, 2012, respectively. The aggregate fair value of investments with unrealized losses that have been owned for over a year was $0.1 million and $0.4 million at June 30, 2013 and December 31, 2012, respectively.

 

The debt securities outstanding at June 30, 2013 have maturity dates ranging from the third quarter of 2013 through the fourth quarter of 2014.  The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations.

 

7. Equity Method Investments and Membership Interests in Joint Ventures

 

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

 

In thousands

 

Knight Hawk

 

DKRW

 

DTA

 

Tenaska

 

Millennium

 

Tongue River

 

Total

 

Balance at December 31, 2012

 

$

149,063

 

$

15,515

 

$

15,462

 

$

15,264

 

$

32,214

 

$

14,697

 

$

242,215

 

Advances to affiliates, net

 

(3,713

)

 

1,944

 

 

3,441

 

1,821

 

3,493

 

Equity in comprehensive income (loss)

 

7,812

 

(1,241

)

(2,629

)

 

(1,347

)

(281

)

2,314

 

Impairment of equity investment

 

 

 

 

(15,264

)

 

 

(15,264

)

Balance at June 30, 2013

 

$

153,162

 

$

14,274

 

$

14,777

 

$

 

$

34,308

 

$

16,237

 

$

232,758

 

Notes receivable from investees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

 

$

38,680

 

$

 

$

5,148

 

$

 

$

 

$

43,828

 

Balance at June 30, 2013

 

$

 

$

42,501

 

$

 

$

 

 

 

$

 

$

42,501

 

 

Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable. Certain of our investments are in development stage companies

 

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whose success depends on factors including receipt of permits and other regulatory environment issues, the ability of the investee companies to raise additional funds in financial markets that can be volatile, and other key business factors.

 

During the second quarter, Tenaska Trailblazer Partners, LLC (“Tenaska”) announced that it was discontinuing its development plans for the Trailblazer Energy Center in Texas. As a result, the Company recorded a $20.5 million impairment charge, which consisted of its 35% equity investment of $15.3 million and a $5.2 million receivable balance related to reimbursements for development work. The impairment is included in the line “Asset impairment and mine closure costs” on the condensed consolidated statement of operations.

 

The Company may be required to make future contingent payments of up to $58.5 million related to development financing for certain of its equity investees. The Company’s obligation to make these payments, as well as the timing of any payments required, is contingent upon  the achievement of project development milestones, which can be affected by the factors named above.

 

8. Derivatives

 

Diesel fuel price risk management

 

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company anticipates purchasing approximately 57 to 67 million gallons of diesel fuel for use in its operations during 2013. To protect the Company’s cash flows from increases in the price of diesel fuel for its operations, the Company uses forward physical diesel purchase contracts and purchased heating oil call options. At June 30, 2013, the Company had protected the price of approximately 94% of its expected purchases for the remainder of 2013 and 73% of its 2014 purchases. At June 30, 2013, the Company had purchased heating oil call options for approximately 74 million gallons for the purpose of managing the price risk associated with future diesel purchases.

 

The Company has also purchased heating oil call options to manage the price risk associated with fuel surcharges on its barge and rail shipments, which cover increases in diesel fuel prices for the respective carriers. At June 30, 2013, the Company had protected 47% of its expected 2013 diesel fuel usage and 26% of its expected first quarter of 2014 diesel fuel usage on shipments subject to fuel surcharges. The Company held purchased heating oil call options for 4 million gallons for the purpose of managing the fluctuations in cash flows associated with fuel surcharges on future shipments.

 

These positions reduce the Company’s risk of cash flow fluctuations related to these surcharges but the positions are not accounted for as hedges.

 

Coal risk management positions

 

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

 

At June 30, 2013, the Company held derivatives for risk management purposes that are expected to settle in the following years:

 

(Tons in thousands)

 

2013

 

2014

 

2015

 

Total

 

Coal sales

 

$

4,449

 

$

4,458

 

$

780

 

$

9,687

 

Coal purchases

 

723

 

1,260

 

 

1,983

 

 

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 $0.4 million of gains in the remainder of 2013 and $5.9 million of gains in 2014.

 

Tabular derivatives disclosures

 

The Company has master netting agreements with all of its counterparties which 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

 

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the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the condensed consolidated balance sheets. The amounts shown in the table below represent the fair value position of individual contracts, and not 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:

 

 

 

June 30, 2013

 

 

 

December 31, 2012

 

 

 

Fair Value of Derivatives

 

Asset

 

Liability

 

 

 

Asset

 

Liability

 

 

 

(In thousands)

 

Derivative

 

Derivative

 

 

 

Derivative

 

Derivative

 

 

 

Derivatives Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

$

2,298

 

$

(539

)

 

 

$

3,277

 

$

(10

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Heating oil — diesel purchases

 

3,475

 

 

 

 

7,379

 

 

 

 

Heating oil — fuel surcharges

 

117

 

 

 

 

1,961

 

 

 

 

Coal — held for trading purposes

 

63,794

 

(57,506

)

 

 

17,403

 

(16,933

)

 

 

Coal — risk management

 

25,767

 

(3,095

)

 

 

24,843

 

(7,342

)

 

 

Total

 

93,153

 

(60,601

)

 

 

51,586

 

(24,275

)

 

 

Total derivatives

 

95,451

 

(61,140

)

 

 

54,863

 

(24,285

)

 

 

Effect of counterparty netting

 

(60,598

)

60,598

 

 

 

(22,548

)

22,548

 

 

 

Net derivatives as classified in the balance sheets

 

$

34,853

 

$

(542

)

$

34,311

 

$

32,315

 

$

(1,737

)

$

30,578

 

 

 

 

 

 

June 30, 2013

 

December 31, 2012

 

Net derivatives as reflected on the balance sheets

 

 

 

 

 

 

 

Heating oil

 

Other current assets

 

$

3,592

 

$

9,340

 

Coal

 

Coal derivative assets

 

31,261

 

22,975

 

 

 

Coal derivative liabilities

 

(542

)

(1,737

)

 

 

 

 

$

34,311

 

$

30,578

 

 

The Company had a current asset for the right to reclaim cash collateral of $4.7 million and $16.2 million at June 30, 2013 and December 31, 2012, 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.

 

The effects of derivatives on measures of financial performance are as follows:

 

Derivatives used in Cash Flow Hedging Relationships (in thousands)

For the three months ended June 30,

 

 

 

Gain (Loss) Recognized in Other
Comprehensive
Income(Effective Portion)

 

Gains (Losses) Reclassified from
Other Comprehensive Income into

Income
(Effective Portion)

 

 

 

2013

 

2012

 

2013

 

2012

 

Coal sales (1)

 

$

(648

)

$

2,231

 

$

689

 

$

809

 

Coal purchases (2)

 

613

 

(742

)

(148

)

 

Totals

 

$

(35

)

$

1,489

 

$

541

 

$

809

 

 

No ineffectiveness or amounts excluded from effectiveness testing relating to the Company’s cash flow hedging relationships were recognized in the results of operations in the three month periods ended June 30, 2013 and 2012.

 

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Table of Contents

 

Derivatives Not Designated as Hedging Instruments (in thousands)

For the three months ended June 30,

 

 

 

Gain (Loss) Recognized

 

 

 

2013

 

2012

 

Coal — unrealized (3)

 

$

4,109

 

$

27,446

 

Coal — realized (4)

 

$

6,579

 

$

8,671

 

Heating oil — diesel purchases (4)

 

$

(5,211

)

$

(22,509

)

Heating oil — fuel surcharges (4)

 

$

(30

)

$

(2,599

)

 


Location in statement of operations:

(1) — Revenues

(2) — Cost of sales

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

(4) — Other operating income, net

 

Derivatives used in Cash Flow Hedging Relationships (in thousands)

For the six months ended June 30

 

 

 

Gain (Loss) Recognized in Other
Comprehensive
Income(Effective Portion)

 

Gains (Losses) Reclassified from
Other Comprehensive Income into
Income
(Effective Portion)

 

 

 

2013

 

2012

 

2013

 

2012

 

Coal sales (1)

 

$

(824

)

$

4,724

 

$

1,911

 

$

1,010

 

Coal purchases (2)

 

431

 

(944

)

(510

)

 

Totals

 

$

(393

)

$

3,780

 

$

1,401

 

$

1,010

 

 

No ineffectiveness or amounts excluded from effectiveness testing relating to the Company’s cash flow hedging relationships were recognized in the results of operations in the six month periods ended June 30, 2013 and 2012.

 

Derivatives Not Designated as Hedging Instruments (in thousands)

For the six months ended June 30

 

 

 

Gain (Loss) Recognized

 

 

 

2013

 

2012

 

Coal — unrealized (3)

 

$

5,579

 

$

34,998

 

Coal — realized (4)

 

$

15,796

 

$

11,829

 

Heating oil — diesel purchases (4)

 

$

(9,472

)

$

(22,086

)

Heating oil — fuel surcharges (4)

 

$

(595

)

$

(2,232

)

 


Location in statement of operations:

(1) — Revenues

(2) — Cost of sales

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

(4) — Other operating income, net

 

The Company recognized net unrealized and realized gains of $4.9 million and $4.6 million during the three months ended June 30, 2013 and 2012, respectively, related to its trading portfolio. The Company recognized net unrealized and realized gains of $2.1 million and $0.7 million during the six months ended June 30, 2013 and 2012, respectively, related to its trading portfolio, which are included in the caption “Change in fair value of coal derivatives and coal trading activities, net” in the accompanying condensed consolidated statements of operations, and are not included in the previous tables reflecting the effects of derivatives on measures of financial performance.

 

Based on fair values at June 30, 2013, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $1.6 million are expected to be reclassified from other comprehensive income into earnings during the next twelve months.

 

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9. Debt

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Term loan ($1.63 billion face value) due 2018

 

$

1,620,526

 

$

1,627,384

 

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

 

592,084

 

590,999

 

7.00% senior notes due 2019 at par

 

1,000,000

 

1,000,000

 

9.875% senior notes ($375.0 million face value) due 2019

 

361,200

 

360,042

 

7.25% senior notes due 2020 at par

 

500,000

 

500,000

 

7.25% senior notes due 2021 at par

 

1,000,000

 

1,000,000

 

Other

 

28,666

 

40,350

 

 

 

5,102,476

 

5,118,775

 

Less current maturities of debt

 

23,842

 

32,896

 

Long-term debt

 

$

5,078,634

 

$

5,085,879

 

 

At June 30, 2013, the available borrowing capacity under the Company’s lines of credit was approximately $245.8 million.

 

10. Fair Value Measurements

 

The hierarchy of fair value measurements assigns a level to fair value measurements based on the inputs used in the respective valuation techniques. 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, U.S. Treasury securities, and coal futures that are submitted for clearing on the New York Mercantile Exchange.

 

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

 

·    Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. These include the Company’s commodity option contracts (coal and heating oil) valued using modeling techniques, such as Black-Scholes, that require the use of inputs, particularly volatility, that are rarely observable. Changes in the unobservable inputs would not have a significant impact on the reported Level 3 fair values at June 30, 2013.

 

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

 

 

 

Fair Value at June 30, 2013

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

Investments in marketable securities

 

$

260,936

 

$

94,036

 

$

166,900

 

$

 

Derivatives

 

34,853

 

30,959

 

 

3,894

 

Total assets

 

$

295,789

 

$

124,995

 

$

166,900

 

$

3,894

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

$

542

 

$

 

$

86

 

$

456

 

 

The Company’s contracts with 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.

 

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Table of Contents

 

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

 

 

 

Three Months Ended
June 30, 2013

 

Six Months Ended June
30, 2013

 

 

 

(In thousands)

 

Balance, beginning of period

 

$

5,642

 

$

8,174

 

Realized and unrealized losses recognized in earnings, net

 

(4,840

)

(9,312

)

Realized and unrealized losses recognized in other comprehensive income, net

 

 

 

Purchases

 

2,636

 

5,853

 

Issuances

 

 

(25

)

Settlements

 

 

(1,252

)

Ending balance

 

$

3,438

 

$

3,438

 

 

Net unrealized losses during the three and six month periods ended June 30, 2013 related to level 3 financial instruments held on June 30, 2013 were $4.1 million and $6.9 million, respectively.

 

Fair Value of Long-Term Debt

 

At June 30, 2013 and December 31, 2012, the fair value of the Company’s debt, including amounts classified as current, was $4.7 billion and $5.0 billion, respectively. Fair values are based upon observed prices in an active market, when available, or from valuation models using market information, which fall into Level 2 in the fair value hierarchy.

 

11. Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(In thousands)

 

Payroll and employee benefits

 

$

62,890

 

$

72,405

 

Taxes other than income taxes

 

119,018

 

121,029

 

Interest

 

40,150

 

42,413

 

Acquired sales contracts

 

15,550

 

14,038

 

Workers’ compensation

 

14,033

 

10,371

 

Asset retirement obligations

 

38,919

 

38,920

 

Other

 

16,529

 

18,842

 

 

 

$

307,089

 

$

318,018

 

 

12. Stock-Based Compensation and Other Incentive Plans

 

The Company granted options to purchase approximately 2.0 million shares of common stock during the six months ended June 30, 2013.  The weighted average exercise price of the options was $5.23 per share and the weighted average grant-date fair value was $2.38 per share. The options’ fair value was determined using the Black-Scholes option pricing model, using a weighted average risk-free rate of 0.648%, a weighted average dividend yield of 2.29% and a weighted average volatility of 66.76%. The options’ expected life is 4.5 years and the options vest ratably over three years and provide for the continuation of vesting after retirement for recipients that meet certain criteria. The expense for these options will be recognized through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn all or part of the award.

 

During the six months ended June 30, 2013, the Company also granted restricted stock units totaling 974,500 shares whose grant date fair value at the time of grant was $5.23. The shares vest at the end of three years.

 

The Company has a long-term incentive program that allows for the award of performance units. The total number of units earned by a participant is based on financial and operational performance measures, and may be paid out in cash or in shares of the Company’s common stock. The Company recognizes compensation expense over the three-year term of the grant. Amounts accrued and unpaid for all grants under the plan totaled $12.7 million and $13.1 million as of June 30, 2013 and December 31, 2012, respectively.

 

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Table of Contents

 

13. Workers’ Compensation Expense

 

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(In thousands)

 

Service cost

 

$

505

 

$

71

 

$

1,010

 

$

1,039

 

Interest cost

 

657

 

399

 

1,313

 

1,079

 

Net amortization

 

235

 

(851

)

469

 

(574

)

Curtailments

 

 

1,933

 

 

1,933

 

Total occupational disease

 

1,397

 

1,552

 

2,792

 

3,477

 

Traumatic injury claims and assessments

 

4,791

 

6,423

 

12,149

 

11,599

 

Total workers’ compensation expense

 

$

6,188

 

$

7,975

 

$

14,941

 

$

15,076

 

 

14. Employee Benefit Plans

 

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(In thousands)

 

Service cost

 

$

6,790

 

$

7,310

 

$

14,490

 

$

14,906

 

Interest cost

 

3,876

 

4,092

 

7,802

 

8,072

 

Curtailments

 

 

324

 

 

324

 

Expected return on plan assets

 

(6,036

)

(5,477

)

(11,842

)

(11,015

)

Amortization of prior service costs (credits)

 

57

 

(37

)

(101

)

(73

)

Amortization of other actuarial losses

 

4,264

 

4,200

 

8,814

 

7,771

 

Net benefit cost

 

$

8,951

 

$

10,412

 

$

19,163

 

$

19,985

 

 

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

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(In thousands)

 

Service cost

 

$

538

 

$

539

 

$

1,094

 

$

1,088

 

Interest cost

 

415

 

520

 

846

 

1,011

 

Curtailments

 

 

(1,837

)

 

(1,837

)

Amortization of prior service credits

 

(2,730

)

(2,876

)

(5,480

)

(5,871

)

Amortization of other actuarial losses (gains)

 

(75

)

(171

)

2

 

(261

)

Net benefit credit

 

$

(1,852

)

$

(3,825

)

$

(3,538

)

$

(5,870

)

 

15. Earnings (Loss) Per Common Share

 

The effect of options, restricted stock and restricted stock units equaling 7.0 million and 5.3 million shares of common stock were excluded from the calculation of diluted weighted average shares outstanding for the three month periods ended June 30, 2013 and 2012, respectively, and 8.4 million and 4.5 million shares for the six month periods ending June 30, 2013 and 2012 respectively, because the exercise price or grant price of the securities exceeded the average market price of the Company’s common stock for these periods. The weighted average share impact of options, restricted stock and restricted stock units that were excluded from the calculation of weighted average shares due to the Company’s incurring a net loss for the three and six month periods ended June 30, 2013 and 2012 were not significant.

 

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Table of Contents

 

16. Commitments and Contingencies

 

The Company accrues for cost related to contingencies when a loss is probable and the amount is reasonably determinable. Disclosure of contingencies is included in the financial statements when it is at least reasonably possible that a material loss or an additional material loss in excess of amounts already accrued may be incurred.

 

Allegheny Energy Supply (“Allegheny”), the sole customer of coal produced at the Company’s subsidiary Wolf Run Mining Company’s (“Wolf Run”) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter Ridge Holdings, Inc. (“Hunter Ridge”), and ICG in state court in Allegheny County, Pennsylvania on December 28, 2006, and amended its complaint on April 23, 2007. Allegheny claimed that Wolf Run breached a coal supply contract when it declared force majeure under the contract upon idling the Sycamore No. 2 mine in the third quarter of 2006, and that Wolf Run continued to breach the contract by failing to ship in volumes referenced in the contract.  The Sycamore No. 2 mine was idled after encountering adverse geologic conditions and abandoned gas wells that were previously unidentified and unmapped.

 

After extensive searching for gas wells and rehabilitation of the mine, it was re-opened in 2007, but with notice to Allegheny that it would necessarily operate at reduced volumes in order to safely and effectively avoid the many gas wells within the reserve.  The amended complaint also alleged that the production stoppages constitute a breach of the guarantee agreement by Hunter Ridge and breach of certain representations made upon entering into the contract in early 2005.  Allegheny voluntarily dropped the breach of representation claims later.  Allegheny claimed that it would incur costs in excess of $100 million to purchase replacement coal over the life of the contract.  ICG, Wolf Run and Hunter Ridge answered the amended complaint on August 13, 2007, disputing all of the remaining claims.

 

On November 3, 2008, ICG, Wolf Run and Hunter Ridge filed an amended answer and counterclaim against the plaintiffs seeking to void the coal supply agreement due to, among other things, fraudulent inducement and conspiracy.  On September 23, 2009, Allegheny filed a second amended complaint alleging several alternative theories of liability in its effort to extend contractual liability to ICG, which was not a party to the original contract and did not exist at the time Wolf Run and Allegheny entered into the contract.  No new substantive claims were asserted.  ICG answered the second amended complaint on October 13, 2009, denying all of the new claims.  The Company’s counterclaim was dismissed on motion for summary judgment entered on May 11, 2010.  Allegheny’s claims against ICG were also dismissed by summary judgment, but the claims against Wolf Run and Hunter Ridge were not.  The court conducted a non-jury trial of this matter beginning on January 10, 2011 and concluding on February 1, 2011.

 

At the trial, Allegheny presented its evidence for breach of contract and claimed that it is entitled to past and future damages in the aggregate of between $228 million and $377 million.  Wolf Run and Hunter Ridge presented their defense of the claims, including evidence with respect to the existence of force majeure conditions and excuse under the contract and applicable law.  Wolf Run and Hunter Ridge presented evidence that Allegheny’s damages calculations were significantly inflated because it did not seek to determine damages as of the time of the breach and in some instances artificially assumed future nondelivery or did not take into account the apparent requirement to supply coal in the future.  On May 2, 2011, the trial court entered a Memorandum and Verdict determining that Wolf Run had breached the coal supply contract and that the performance shortfall was not excused by force majeure.  The trial court awarded total damages and interest in the amount of $104.1 million, which consisted of $13.8 million for past damages, and $90.3 million for future damages.  ICG and Allegheny filed post-verdict motions in the trial court and on August 23, 2011, the court denied the parties’ motions.  The court entered a final judgment on August 25, 2011, in the amount of $104.1 million, which included pre-judgment interest.

 

The parties appealed the lower court’s decision to the Superior Court of Pennsylvania.  On August 13, 2012, the Superior Court of Pennsylvania affirmed the award of past damages, but ruled that the lower court should have calculated future damages as of the date of breach, and remanded the matter back to the lower court with instructions to recalculate that portion of the award. On November 19, 2012, Allegheny filed a Petition for Allowance of Appeal with the Supreme Court of Pennsylvania and Wolf Run and Hunter Ridge filed an Answer.  On July 2, 2013, the Supreme Court of Pennsylvania denied the Petition of Allowance.  As this action finalized the past damage award, Wolf Run paid $15.6 million for the past damage amount, including interest, to Allegheny in July 2013.  The future damage award is now back before the lower court, but no hearing dates have been set at this time.

 

In addition, the Company is a party to numerous claims and lawsuits with respect to various matters. As of June 30, 2013 and December 31, 2012, the Company had accrued $32.7 million and $32.8 million, respectively, for all legal matters, including $3.6 million and $4.4 million, respectively, classified as current.  The ultimate resolution of any such legal matter could result in outcomes which may be materially different from amounts the Company has accrued for such matters.

 

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Table of Contents

 

17. Segment Information

 

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

 

Operating segment results for the three and six months ended  June 30, 2013 and 2012 are presented below. Results for the reportable segments include all direct costs of mining, including all depreciation, depletion and amortization related to the mining operations, even if the assets are not recorded at the operating segment level. Corporate, Other and Eliminations includes these charges, as well as 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 operating segment results for the WBIT segment for all periods presented reflect only continuing operations, since Canyon Fuel results are classified as discontinued operations in the condensed consolidated statement of operations.

 

The asset amounts below represent an allocation of assets consistent with the basis used for the Company’s incentive compensation plans. The amounts in Corporate, Other and Eliminations represent primarily corporate assets (cash, receivables, investments, plant, property and equipment) as well as unassigned coal reserves, above-market acquired sales contracts and other unassigned assets. Goodwill is allocated to the respective reporting units, even though it may not be reflected in the subsidiaries’ financial statements.  Asset balances for the WBIT segment include assets held for sale.  Prior year asset amounts have been restated to reflect a change in how certain unassigned coal reserves and goodwill amounts are presented.

 

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Table of Contents

 

 

 

PRB

 

APP

 

WBIT

 

Other
Operating
Segments

 

Corporate,
Other and
Eliminations

 

Consolidated

 

 

 

(in thousands)

 

 

 

 

 

Three months ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

353,425

 

$

337,678

 

$

41,840

 

$

33,389

 

$

 

$

766,332

 

Income (loss) from operations

 

16,798

 

(5,238

)

12,140

 

1,167

 

(61,146

)

(36,279

)

Depreciation, depletion and amortization

 

42,147

 

56,006

 

8,396

 

2,660

 

1,876

 

111,085

 

Amortization of acquired sales contracts, net

 

(941

)

(2,812

)

 

1,544

 

 

(2,209

)

Asset impairment and mine closure costs

 

 

 

 

 

20,482

 

20,482

 

Capital expenditures

 

1,819

 

43,470

 

5,786

 

3,031

 

60,436

 

114,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

322,512

 

$

504,309

 

$

101,699

 

$

37,165

 

$

 

$

965,685

 

Income (loss) from operations

 

22,747

 

(493,093

)

5,870

 

1,291

 

(133,708

)

(596,893

)

Depreciation, depletion and amortization

 

37,131

 

73,176

 

10,122

 

3,423

 

684

 

124,536

 

Amortization of acquired sales contracts, net

 

31

 

(4,859

)

 

377

 

 

(4,451

)

Asset impairment and mine closure costs

 

 

525,916

 

 

(227

)

(106)

 

525,583

 

Capital expenditures

 

5,793

 

78,102

 

14,114

 

(1,131

)

11,924

 

108,802

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

715,371

 

$

620,296

 

$

109,352

 

$

58,683

 

$

 

$

1,503,702

 

Income (loss) from operations

 

32,550

 

(32,395

)

14,480

 

(407

)

(101,938

)

(87,710

)

Depreciation, depletion and amortization

 

84,374

 

111,337

 

17,092

 

5,269

 

3,206

 

221,278

 

Amortization of acquired sales contracts, net

 

(2,140

)

(5,284

)

 

2,405

 

 

(5,019

)

Asset impairment and mine closure costs

 

 

 

 

 

20,482

 

20,482

 

Total assets

 

1,954,828

 

4,264,500

 

651,884

 

154,354

 

2,705,163

 

9,730,729

 

Capital expenditures

 

3,976

 

92,766

 

7,288

 

3,513

 

61,521

 

169,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

723,689

 

$

973,367

 

$

166,844

 

$

62,022

 

$

 

$

1,925,922

 

Income (loss) from operations

 

55,290