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 September 30, 2015
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
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) |
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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 |
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Accelerated filer o |
|
|
|
|
|
Non-accelerated filer o |
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Smaller reporting company o |
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(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 October 20, 2015 there were 21,291,635 shares of the registrant’s common stock outstanding.
Part I
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
|
(Unaudited) |
| ||||||||||
|
Revenues |
|
$ |
688,544 |
|
$ |
742,180 |
|
$ |
2,010,011 |
|
$ |
2,191,927 |
|
|
Costs, expenses and other operating |
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales (exclusive of items shown separately below) |
|
540,192 |
|
647,096 |
|
1,668,766 |
|
1,955,547 |
| ||||
|
Depreciation, depletion and amortization |
|
103,965 |
|
105,155 |
|
306,211 |
|
312,042 |
| ||||
|
Amortization of acquired sales contracts, net |
|
(1,994 |
) |
(3,013 |
) |
(7,028 |
) |
(9,948 |
) | ||||
|
Change in fair value of coal derivatives and coal trading activities, net |
|
(3,559 |
) |
(3,733 |
) |
(1,128 |
) |
(5,811 |
) | ||||
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Asset impairment and mine closure costs |
|
2,120,292 |
|
5,060 |
|
2,139,438 |
|
6,572 |
| ||||
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Losses from disposed operations resulting from Patriot Coal bankruptcy |
|
149,314 |
|
–– |
|
149,314 |
|
–– |
| ||||
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Selling, general and administrative expenses |
|
25,731 |
|
28,136 |
|
72,604 |
|
87,203 |
| ||||
|
Other operating (income) expense, net |
|
(8,625 |
) |
(1,221 |
) |
7,864 |
|
(9,451 |
) | ||||
|
|
|
2,925,316 |
|
777,480 |
|
4,336,041 |
|
2,336,154 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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Loss from operations |
|
(2,236,772 |
) |
(35,300 |
) |
(2,326,030 |
) |
(144,227 |
) | ||||
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Interest expense, net |
|
|
|
|
|
|
|
|
| ||||
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Interest expense |
|
(99,759 |
) |
(98,217 |
) |
(298,585 |
) |
(292,648 |
) | ||||
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Interest and investment income |
|
672 |
|
1,949 |
|
4,007 |
|
5,828 |
| ||||
|
|
|
(99,087 |
) |
(96,268 |
) |
(294,578 |
) |
(286,820 |
) | ||||
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Nonoperating expense |
|
|
|
|
|
|
|
|
| ||||
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Expenses related to debt restructuring |
|
(7,482 |
) |
— |
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(11,498 |
) |
— |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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Loss before income taxes |
|
(2,343,341 |
) |
(131,568 |
) |
(2,632,106 |
) |
(431,047 |
) | ||||
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Benefit from income taxes |
|
(343,865 |
) |
(34,350 |
) |
(351,332 |
) |
(112,830 |
) | ||||
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Net loss |
|
$ |
(1,999,476 |
) |
$ |
(97,218 |
) |
$ |
(2,280,774 |
) |
$ |
(318,217 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
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Net loss per common share |
|
|
|
|
|
|
|
|
| ||||
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Basic and diluted LPS - Net loss |
|
$ |
(93.91 |
) |
$ |
(4.58 |
) |
$ |
(107.16 |
) |
$ |
(15.00 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
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Basic and diluted weighted average shares outstanding |
|
21,292 |
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21,224 |
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21,283 |
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21,221 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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Dividends declared per common share |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
0.10 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
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|
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2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
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(Unaudited) |
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Net loss |
|
$ |
(1,999,476 |
) |
$ |
(97,218 |
) |
$ |
(2,280,774 |
) |
$ |
(318,217 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
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Derivative instruments |
|
|
|
|
|
|
|
|
| ||||
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Comprehensive income (loss) before tax |
|
(2,527 |
) |
520 |
|
(681 |
) |
1,298 |
| ||||
|
Income tax benefit (provision) |
|
910 |
|
(187 |
) |
246 |
|
(467 |
) | ||||
|
|
|
(1,617 |
) |
333 |
|
(435 |
) |
831 |
| ||||
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Pension, postretirement and other post-employment benefits |
|
|
|
|
|
|
|
|
| ||||
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Comprehensive income (loss) before tax |
|
1,182 |
|
(1,210 |
) |
4,950 |
|
(5,326 |
) | ||||
|
Income tax benefit (provision) |
|
(425 |
) |
435 |
|
(1,782 |
) |
1,917 |
| ||||
|
|
|
757 |
|
(775 |
) |
3,168 |
|
(3,409 |
) | ||||
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Available-for-sale securities |
|
|
|
|
|
|
|
|
| ||||
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Comprehensive income (loss) before tax |
|
(362 |
) |
(2,401 |
) |
(3 |
) |
(5,637 |
) | ||||
|
Income tax benefit (provision) |
|
128 |
|
864 |
|
(4 |
) |
2,029 |
| ||||
|
|
|
(234 |
) |
(1,537 |
) |
(7 |
) |
(3,608 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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Total other comprehensive income (loss) |
|
(1,094 |
) |
(1,979 |
) |
2,726 |
|
(6,186 |
) | ||||
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Total comprehensive loss |
|
$ |
(2,000,570 |
) |
$ |
(99,197 |
) |
$ |
(2,278,048 |
) |
$ |
(324,403 |
) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2015 |
|
2014 |
| ||
|
|
|
(Unaudited) |
| ||||
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Assets |
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|
|
|
| ||
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Current assets |
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|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
494,788 |
|
$ |
734,231 |
|
|
Short term investments |
|
199,731 |
|
248,954 |
| ||
|
Restricted cash |
|
50,409 |
|
5,678 |
| ||
|
Trade accounts receivable |
|
217,667 |
|
211,506 |
| ||
|
Other receivables |
|
21,742 |
|
20,511 |
| ||
|
Inventories |
|
239,035 |
|
190,253 |
| ||
|
Prepaid royalties |
|
10,352 |
|
11,118 |
| ||
|
Deferred income taxes |
|
20,454 |
|
52,728 |
| ||
|
Coal derivative assets |
|
13,743 |
|
13,257 |
| ||
|
Other current assets |
|
51,398 |
|
54,515 |
| ||
|
Total current assets |
|
1,319,319 |
|
1,542,751 |
| ||
|
Property, plant and equipment, net |
|
4,173,038 |
|
6,453,458 |
| ||
|
Other assets |
|
|
|
|
| ||
|
Prepaid royalties |
|
29,867 |
|
66,806 |
| ||
|
Equity investments |
|
206,347 |
|
235,842 |
| ||
|
Other noncurrent assets |
|
119,426 |
|
130,866 |
| ||
|
Total other assets |
|
355,640 |
|
433,514 |
| ||
|
Total assets |
|
$ |
5,847,997 |
|
$ |
8,429,723 |
|
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
| ||
|
Current liabilities |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
152,229 |
|
$ |
180,113 |
|
|
Accrued expenses and other current liabilities |
|
310,747 |
|
302,396 |
| ||
|
Current maturities of debt |
|
32,237 |
|
36,885 |
| ||
|
Total current liabilities |
|
495,213 |
|
519,394 |
| ||
|
Long-term debt |
|
5,108,492 |
|
5,123,485 |
| ||
|
Asset retirement obligations |
|
414,194 |
|
398,896 |
| ||
|
Accrued pension benefits |
|
12,061 |
|
16,260 |
| ||
|
Accrued postretirement benefits other than pension |
|
33,966 |
|
32,668 |
| ||
|
Accrued workers’ compensation |
|
95,905 |
|
94,291 |
| ||
|
Deferred income taxes |
|
44,806 |
|
422,809 |
| ||
|
Other noncurrent liabilities |
|
248,800 |
|
153,766 |
| ||
|
Total liabilities |
|
6,453,437 |
|
6,761,569 |
| ||
|
Stockholders’ deficit |
|
|
|
|
| ||
|
Common stock, $0.01 par value, authorized 26,000 shares, issued 21,443 shares and 21,379 shares at September 30, 2015 and December 31, 2014, respectively |
|
2,145 |
|
2,141 |
| ||
|
Paid-in capital |
|
3,052,910 |
|
3,048,460 |
| ||
|
Treasury stock, at cost, 152 shares at September 30, 2015 and December 31, 2014 |
|
(53,863 |
) |
(53,863 |
) | ||
|
Accumulated deficit |
|
(3,612,599 |
) |
(1,331,825 |
) | ||
|
Accumulated other comprehensive income |
|
5,967 |
|
3,241 |
| ||
|
Total stockholders’ deficit |
|
(605,440 |
) |
1,668,154 |
| ||
|
Total liabilities and stockholders’ deficit |
|
$ |
5,847,997 |
|
$ |
8,429,723 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
|
|
|
Nine Months Ended September 30, |
| ||||
|
|
|
2015 |
|
2014 |
| ||
|
|
|
(Unaudited) |
| ||||
|
Operating activities |
|
|
|
|
| ||
|
Net loss |
|
$ |
(2,280,774 |
) |
$ |
(318,217 |
) |
|
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
| ||
|
Depreciation, depletion and amortization |
|
306,211 |
|
312,042 |
| ||
|
Amortization of acquired sales contracts, net |
|
(7,028 |
) |
(9,948 |
) | ||
|
Amortization relating to financing activities |
|
18,960 |
|
12,349 |
| ||
|
Prepaid royalties expensed |
|
6,661 |
|
5,645 |
| ||
|
Employee stock-based compensation expense |
|
4,459 |
|
7,689 |
| ||
|
Asset impairment and non-cash mine closure costs |
|
2,136,610 |
|
1,512 |
| ||
|
Losses from disposed operations resulting from Patriot Coal bankruptcy |
|
149,314 |
|
— |
| ||
|
Expenses related to debt restructuring |
|
11,498 |
|
— |
| ||
|
Amortization of premiums on debt securities held |
|
2,143 |
|
— |
| ||
|
Gains on disposals and divestitures, net |
|
(1,191 |
) |
(21,965 |
) | ||
|
Deferred income taxes |
|
(347,180 |
) |
(112,998 |
) | ||
|
Changes in: |
|
|
|
|
| ||
|
Receivables |
|
(3,165 |
) |
(6,779 |
) | ||
|
Inventories |
|
(48,848 |
) |
22,589 |
| ||
|
Accounts payable, accrued expenses and other current liabilities |
|
(19,338 |
) |
73,324 |
| ||
|
Income taxes, net |
|
(4,303 |
) |
(514 |
) | ||
|
Other |
|
(3,711 |
) |
37,261 |
| ||
|
Cash provided by (used in) operating activities |
|
(79,682 |
) |
1,990 |
| ||
|
Investing activities |
|
|
|
|
| ||
|
Capital expenditures |
|
(109,250 |
) |
(118,701 |
) | ||
|
Additions to prepaid royalties |
|
(5,808 |
) |
(3,604 |
) | ||
|
Proceeds from disposals and divestitures |
|
1,020 |
|
50,971 |
| ||
|
Purchases of marketable securities |
|
(203,094 |
) |
(181,546 |
) | ||
|
Proceeds from sale or maturity of marketable securities and other investments |
|
248,362 |
|
178,293 |
| ||
|
Investments in and advances to affiliates |
|
(7,944 |
) |
(13,393 |
) | ||
|
Cash used in investing activities |
|
(76,714 |
) |
(87,980 |
) | ||
|
Financing activities |
|
|
|
|
| ||
|
Payments on term loan |
|
(14,625 |
) |
(14,625 |
) | ||
|
Net payments on other debt |
|
(12,192 |
) |
(10,187 |
) | ||
|
Expenses related to debt restructuring |
|
(11,498 |
) |
— |
| ||
|
Dividends paid |
|
— |
|
(2,123 |
) | ||
|
Debt financing costs |
|
— |
|
(2,219 |
) | ||
|
Deposits of restricted cash |
|
(44,732 |
) |
(6 |
) | ||
|
Other |
|
— |
|
(15 |
) | ||
|
Cash used in financing activities |
|
(83,047 |
) |
(29,175 |
) | ||
|
Decrease in cash and cash equivalents |
|
(239,443 |
) |
(115,165 |
) | ||
|
Cash and cash equivalents, beginning of period |
|
734,231 |
|
911,099 |
| ||
|
Cash and cash equivalents, end of period |
|
$ |
494,788 |
|
$ |
795,934 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
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 (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 and Colorado. All subsidiaries are wholly-owned. Intercompany transactions and accounts have been eliminated in consolidation.
On August 4, 2015 we effected a 1-for-10 reverse stock split of our common stock. Each stockholder’s percentage ownership and proportional voting power remained unchanged as a result of the reverse stock split. All applicable share data, per share amounts and related information in the Condensed Consolidated Financial Statements and notes thereto have been adjusted retroactively to give effect to the 1-for-10 reverse stock split.
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 months ended September 30, 2015 are not necessarily indicative of results to be expected for the year ending December 31, 2015. 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, 2014 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.
The Company incurred a net loss for the years ended 2014, 2013 and 2012 and will report a net loss in the current year as well. Additionally, in 2014 and 2015, the Company has been unable to generate sufficient cash to cover interest expense and capital expenditures. The Company launched subordinated debt exchange offers in July 2015 that, if successful, would have substantially improved the Company’s leverage profile. The exchange offers were terminated on October 27, 2015 as a result of various factors, including the actions of the Company’s term lenders in directing the term loan agent not to execute the required documents as well as highly challenging market conditions.
With the extremely challenging market conditions currently facing the industry, the Company will require a significant restructuring of its balance sheet to continue to operate as a going concern over the long term. The Company is currently in active dialogue with various creditors with respect to restructuring of the Company’s balance sheet. The Company’s mining operations and customer shipments are continuing as normal and the Company has no near-term maturities.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s ability to continue as a going concern is contingent upon the Company’s ability to restructure its balance sheet with the various creditor parties; there can be no assurance that these efforts will results in any such agreement. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Accounting Policies
In April 2015, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Update No. 2015-03 (“ASU 2015-03”), Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that liability,
consistent with debt discounts. Amendments in this update are effective retrospectively for fiscal years and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. Upon adoption of this guidance, the current financial statement classification of debt issuance costs will change from total assets to long-term debt on our Condensed Consolidated Balance Sheet.
3. Accumulated Other Comprehensive Income
The following items are included in accumulated other comprehensive income (“AOCI”):
|
|
|
|
|
Pension, |
|
|
|
|
| ||||
|
|
|
|
|
Postretirement |
|
|
|
|
| ||||
|
|
|
|
|
and Other |
|
|
|
Accumulated |
| ||||
|
|
|
|
|
Post- |
|
|
|
Other |
| ||||
|
|
|
Derivative |
|
Employment |
|
Available-for- |
|
Comprehensive |
| ||||
|
|
|
Instruments |
|
Benefits |
|
Sale Securities |
|
Income |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Balance at December 31, 2014 |
|
$ |
2,550 |
|
$ |
2,860 |
|
$ |
(2,169 |
) |
$ |
3,241 |
|
|
Unrealized gains (losses) |
|
3,919 |
|
— |
|
(3,401 |
) |
518 |
| ||||
|
Amounts reclassified from AOCI |
|
(4,354 |
) |
3,168 |
|
3,394 |
|
2,208 |
| ||||
|
Balance at September 30, 2015 |
|
$ |
2,115 |
|
$ |
6,028 |
|
$ |
(2,176 |
) |
$ |
5,967 |
|
The following amounts were reclassified out of AOCI:
|
|
|
Amounts Reclassified from AOCI |
|
|
| ||||||||||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
Line Item in the |
| ||||||||
|
Details About AOCI Components |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
Statement of Operations |
| ||||
|
|
|
(In thousands) |
|
|
| ||||||||||
|
Derivative instruments |
|
$ |
3,598 |
|
$ |
892 |
|
$ |
6,806 |
|
$ |
1,346 |
|
Revenues |
|
|
|
|
(1,295 |
) |
(321 |
) |
(2,452 |
) |
(485 |
) |
Benefit from income taxes |
| ||||
|
|
|
$ |
2,303 |
|
$ |
571 |
|
$ |
4,354 |
|
$ |
861 |
|
Net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Pension, postretirement and other post-employment benefits |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Amortization of prior service credits (1) |
|
$ |
2,083 |
|
$ |
1,759 |
|
$ |
6,250 |
|
$ |
6,976 |
|
|
|
|
Amortization of actuarial gains (losses), net (1) |
|
(3,266 |
) |
(550 |
) |
(11,200 |
) |
(1,650 |
) |
|
| ||||
|
|
|
(1,183 |
) |
1,209 |
|
(4,950 |
) |
5,326 |
|
|
| ||||
|
|
|
426 |
|
(435 |
) |
1,782 |
|
(1,917 |
) |
Benefit from income taxes |
| ||||
|
|
|
$ |
(757 |
) |
$ |
774 |
|
$ |
(3,168 |
) |
$ |
3,409 |
|
Net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Available-for-sale securities |
|
$ |
(1,081 |
) |
$ |
(145 |
) |
$ |
(5,308 |
) |
$ |
(1,824 |
) |
Interest and investment income |
|
|
|
|
358 |
|
53 |
|
1,914 |
|
657 |
|
Benefit from income taxes |
| ||||
|
|
|
$ |
(723 |
) |
$ |
(92 |
) |
$ |
(3,394 |
) |
$ |
(1,167 |
) |
Net of tax |
|
1 Production-related benefits and workers’ compensation costs are included in inventoriable production costs.
4. Divestitures
During the first quarter of 2014, the Company entered into agreements to sell an operating thermal coal complex and an idled thermal coal mine in Kentucky and the Company’s ADDCAR subsidiary, which manufactures a patented highwall mining system. The sales closed in the first quarter of 2014 for total consideration of $45.3 million. The Company received $26.3 million in cash in the first quarter of 2014, and the remainder was paid in the second and fourth quarters of 2014. The Company recognized a net pre-tax gain of $14.3 million from these divestitures, reflected in “other operating (income) expense, net” in the Condensed Consolidated Statements of Operations.
5. Asset Impairment and Mine Closure Costs
The following describes the costs reflected on the line “Asset impairment and mine closure costs” in the Condensed Consolidated Statements of Operations.
As a result of the continued deterioration in thermal and metallurgical coal markets and projections for a muted pricing recovery, certain of the Company’s mine complexes have incurred and are expected to continue to incur operating losses. The company has determined that the further weakening of the pricing environment in the third quarter and the projected operating losses represent indicators of impairment with respect to certain of its long-lived assets or assets groups. Using current pricing expectations which reflect marketplace participant assumptions, life of mine cash flows were used to determine if the undiscounted cash flows exceed the current asset values for certain operating complexes in the Company’s Appalachia segment. For two operating complexes, the undiscounted cash flows did not exceed the carrying value of the long-lived assets. Discounted cash flows were utilized to reduce the carrying value of those assets to fair value. The discount rate used reflects the current financial difficulties present in the commodities sector in general and coal mining specifically; the perceived risk of financing coal mining in light of industry defaults; and the lack of an active market for buying or selling coal mining assets. Additionally, the Company determined that the current market conditions represent an indicator of impairment for certain undeveloped coal properties that were acquired in times of significantly higher coal prices. Current prices and the significant capital outlay that would be required to develop these reserves indicate that the carrying value is not recoverable. As a result the Company recorded a $2.1 billion asset impairment charge in the current quarter of which $1.7 billion was recorded to our Appalachian segment, and the remaining $0.4 billion to other operating segments. The remaining fair value of the impaired assets is $470.6 million.
During the second quarter of 2015, the Company recorded $19.1 million to “Asset impairment and mine closure costs” in the Condensed Consolidated Statements of Operations. An impairment charge of $12.2 million relates to the portion of an advance royalty balance on a reserve base mined at the Company’s Mountain Laurel, Spruce and Briar Branch operations that will not be recouped based on latest estimates of sales volume and pricing through the March 2017 recoupment period. Additionally, the company recorded a $5.6 million impairment charge related to the closure of a higher-cost mining complex serving the metallurgical coal markets.
In response to weak metallurgical coal markets, the Company idled a higher-cost mining complex in the third quarter of 2014 in order to concentrate on metallurgical coal production from its lowest-cost and highest-margin operations. Closure charges of $5.1 million were recognized during the third quarter of 2014 relating to the idling.
6. Losses from disposed operations resulting from Patriot Coal bankruptcy
On December 31, 2005, Arch entered into a purchase and sale agreement with Magnum to sell certain operations. On July 23, 2008, Patriot acquired Magnum. On May 12, 2015, Patriot and certain of its wholly owned subsidiaries (“Debtors”), including Magnum, filed voluntary petitions for reorganization under Chapter 11 of the U.S. Code in the U.S. Bankruptcy Court for the Eastern District of Virginia. Subsequently, on October 28, 2015, Patriot’s Plan of Reorganization was approved, including an authorization to reject their collective bargaining agreements and modify certain union-related retiree benefits. As a result of the Plan of Reorganization, the Company became statutorily responsible for retiree medical benefits pursuant to Section 9711 of the Coal Industry Retiree Health Benefit Act of 1992 for certain retirees of Magnum who retired prior to October 1, 1994.
In addition, the Company has provided surety bonds to Patriot related to permits that were sold to an affiliate of Virginia Conservation Legacy Fund, Inc. (“VCLF”). Should VCLF not perform required reclamation, the Company would incur losses under the bonds and related indemnity agreements. During the third quarter of 2015, the Company recognized $149.3 million in losses related to the previously disposed operations as a result of the Patriot Coal bankruptcy.
7. Inventories
Inventories consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2015 |
|
2014 |
| ||
|
|
|
(In thousands) |
| ||||
|
Coal |
|
$ |
119,785 |
|
$ |
71,901 |
|
|
Repair parts and supplies |
|
119,250 |
|
118,352 |
| ||
|
|
|
$ |
239,035 |
|
$ |
190,253 |
|
The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $6.7 million at September 30, 2015 and $6.6 million at December 31, 2014.
8. Investments in Available-for-Sale Securities
The Company has invested in marketable debt securities, primarily highly liquid investment grade corporate bonds. 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.
The Company’s investments in available-for-sale marketable securities are as follows:
|
|
|
September 30, 2015 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
| ||||||||
|
|
|
|
|
Accumulated |
|
|
|
Classification |
| ||||||||||
|
|
|
|
|
Gross Unrealized |
|
Fair |
|
Short-Term |
|
Other |
| ||||||||
|
|
|
Cost Basis |
|
Gains |
|
Losses |
|
Value |
|
Investments |
|
Assets |
| ||||||
|
|
|
(In thousands) |
| ||||||||||||||||
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Corporate notes and bonds |
|
$ |
199,440 |
|
$ |
359 |
|
$ |
(68 |
) |
$ |
199,731 |
|
$ |
199,731 |
|
$ |
— |
|
|
Equity securities |
|
3,937 |
|
549 |
|
(2,871 |
) |
1,615 |
|
— |
|
1,615 |
| ||||||
|
Total Investments |
|
$ |
203,377 |
|
$ |
908 |
|
$ |
(2,939 |
) |
$ |
201,346 |
|
$ |
199,731 |
|
$ |
1,615 |
|
|
|
|
December 31, 2014 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
| ||||||||
|
|
|
|
|
Gross |
|
Gross |
|
|
|
Classification |
| ||||||||
|
|
|
|
|
Unrealized |
|
Unrealized |
|
Fair |
|
Short-Term |
|
Other |
| ||||||
|
|
|
Cost Basis |
|
Gains |
|
Losses |
|
Value |
|
Investments |
|
Assets |
| ||||||
|
|
|
(In thousands) |
| ||||||||||||||||
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Corporate notes and bonds |
|
$ |
253,590 |
|
$ |
— |
|
$ |
(4,636 |
) |
$ |
248,954 |
|
$ |
248,954 |
|
$ |
— |
|
|
Equity securities |
|
3,910 |
|
4,125 |
|
(2,890 |
) |
5,145 |
|
— |
|
5,145 |
| ||||||
|
Total Investments |
|
$ |
257,500 |
|
$ |
4,125 |
|
$ |
(7,526 |
) |
$ |
254,099 |
|
$ |
248,954 |
|
$ |
5,145 |
|
The aggregate fair value of investments with unrealized losses that were owned for less than a year was $56.1 million and $163.0 million at September 30, 2015 and December 31, 2014, respectively. The aggregate fair value of investments with unrealized losses that were owned for over a year, and were also in a continuous unrealized loss position during that time, was $0.2 million and $86.1 million at September 30, 2015 and December 31, 2014, respectively. The unrealized losses in the Company’s portfolio are the result of normal market fluctuations. The Company does not currently intend to sell these investments before recovery of their amortized cost base.
The debt securities outstanding at September 30, 2015 have maturity dates ranging from the fourth quarter of 2015 through the first quarter of 2017. The Company classifies its investments as current based on the nature of the investments and their availability to provide cash for use in current operations.
9. 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 55 to 65 million gallons per year of diesel fuel for use in its operations during 2015 and 2016. 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 September 30, 2015, the Company had protected the price of approximately 100% of its expected purchases for the remainder of the year with out-of-the-money call options with an average strike price of $3.13 per gallon. Additionally, the Company has protected approximately 67% of our expected 2016 purchases with out-of-the-money call options with an average strike price of $2.26 per gallon. At September 30, 2015, the Company had outstanding heating oil call options for approximately 54 million gallons for the purpose of managing the price risk associated with future diesel purchases. These positions are not accounted for as hedges.
Coal price 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 September 30, 2015, the Company held derivatives for risk management purposes that are expected to settle in the following years:
|
(Tons in thousands) |
|
2015 |
|
2016 |
|
Total |
|
|
Coal sales |
|
1,205 |
|
280 |
|
1,485 |
|
|
Coal purchases |
|
696 |
|
240 |
|
936 |
|
The Company has also entered into a nominal quantity of natural gas put options to protect the Company from decreases in natural gas prices, which could impact coal demand. These options are not accounted for as hedges.
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 of gains during the remainder of 2015 and $5.3 million of gains in 2016.
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 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:
|
|
|
September 30, 2015 |
|
|
|
December 31, 2014 |
|
|
| ||||||||||
|
Fair Value of Derivatives |
|
Asset |
|
Liability |
|
|
|
Asset |
|
Liability |
|
|
| ||||||
|
(In thousands) |
|
Derivative |
|
Derivative |
|
|
|
Derivative |
|
Derivative |
|
|
| ||||||
|
Derivatives Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Coal |
|
$ |
1,608 |
|
$ |
— |
|
|
|
$ |
6,535 |
|
$ |
(2,492 |
) |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Heating oil — diesel purchases |
|
600 |
|
— |
|
|
|
300 |
|
— |
|
|
| ||||||
|
Coal — held for trading purposes |
|
121,312 |
|
(114,636 |
) |
|
|
96,898 |
|
(93,272 |
) |
|
| ||||||
|
Coal — risk management |
|
9,965 |
|
(6,257 |
) |
|
|
8,510 |
|
(3,688 |
) |
|
| ||||||
|
Natural gas |
|
1,215 |
|
— |
|
|
|
— |
|
— |
|
|
| ||||||
|
Foreign currency |
|
285 |
|
— |
|
|
|
|
|
|
|
|
| ||||||
|
Total |
|
133,377 |
|
(120,893 |
) |
|
|
105,708 |
|
(96,960 |
) |
|
| ||||||
|
Total derivatives |
|
134,985 |
|
(120,893 |
) |
|
|
112,243 |
|
(99,452 |
) |
|
| ||||||
|
Effect of counterparty netting |
|
(120,357 |
) |
120,357 |
|
|
|
(98,686 |
) |
98,686 |
|
|
| ||||||
|
Net derivatives as classified in the balance sheets |
|
$ |
14,628 |
|
$ |
(536 |
) |
$ |
14,092 |
|
$ |
13,557 |
|
$ |
(766 |
) |
$ |
12,791 |
|
|
|
|
|
|
September 30, |
|
December 31, 2014 |
| ||
|
Net derivatives as reflected on the balance sheets (in thousands) |
|
|
|
|
|
|
| ||
|
Heating oil and foreign currency |
|
Other current assets |
|
$ |
885 |
|
$ |
300 |
|
|
Coal and natural gas |
|
Coal derivative assets |
|
13,743 |
|
13,257 |
| ||
|
|
|
Accrued expenses and other current liabilities |
|
(536 |
) |
(766 |
) | ||
|
|
|
|
|
$ |
14,092 |
|
$ |
12,791 |
|
The Company had a current asset for the right to reclaim cash collateral of $2.9 million at September 30, 2015 and the obligation to return cash collateral of $2.4 million at December 31, 2014, respectively. These amounts are not included with the derivatives presented in the table above and are included in “other current assets” and “accrued expenses and other current liabilities”, respectively, 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)
Three Months Ended September 30,
|
|
|
Gain (Loss) Recognized in |
|
Gains (Losses) Reclassified |
| ||||||||
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
Coal sales |
(1) |
$ |
3,636 |
|
$ |
3,449 |
|
$ |
6,683 |
|
$ |
1,639 |
|
|
Coal purchases |
(2) |
(2,561 |
) |
(2,041 |
) |
(3,084 |
) |
(747 |
) | ||||
|
Totals |
|
$ |
1,075 |
|
$ |
1,408 |
|
$ |
3,599 |
|
$ |
892 |
|
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 September 30, 2015 and 2014.
Derivatives Not Designated as Hedging Instruments (in thousands)
Three Months Ended September 30,
|
|
|
Gain (Loss) Recognized |
| ||||
|
|
|
2015 |
|
2014 |
| ||
|
Coal — unrealized |
(3) |
$ |
(809 |
) |
$ |
1,610 |
|
|
Coal — realized |
(4) |
$ |
511 |
|
$ |
502 |
|
|
Natural gas — unrealized |
(3) |
$ |
(16 |
) |
$ |
238 |
|
|
Heating oil — diesel purchases |
(4) |
$ |
(5,525 |
) |
$ |
(3,746 |
) |
|
Heating oil — fuel surcharges |
(4) |
$ |
— |
|
$ |
(104 |
) |
|
Foreign currency |
(4) |
$ |
(602 |
) |
$ |
— |
|
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) expense, net
Derivatives used in Cash Flow Hedging Relationships (in thousands)
Nine Months Ended September 30,
|
|
|
Gain (Loss) Recognized in |
|
Gains (Losses) Reclassified |
| ||||||||
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
Coal sales |
(1) |
12,738 |
|
$ |
4,806 |
|
$ |
12,555 |
|
$ |
2,568 |
| |
|
Coal purchases |
(2) |
(6,612 |
) |
(2,162 |
) |
(5,748 |
) |
(1,222 |
) | ||||
|
Totals |
|
$ |
6,126 |
|
$ |
2,644 |
|
$ |
6,807 |
|
$ |
1,346 |
|
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 nine month periods ended September 30, 2015 and 2014.
Derivatives Not Designated as Hedging Instruments (in thousands)
Nine Months Ended September 30,
|
|
|
Gain (Loss) Recognized |
| ||||
|
|
|
2015 |
|
2014 |
| ||
|
Coal — unrealized |
(3) |
$ |
(2,095 |
) |
$ |
455 |
|
|
Coal — realized |
(4) |
$ |
2,428 |
|
$ |
4,699 |
|
|
Natural gas — unrealized |
(3) |
$ |
(78 |
) |
$ |
(21 |
) |
|
Heating oil — diesel purchases |
(4) |
$ |
(7,262 |
) |
$ |
(6,709 |
) |
|
Heating oil — fuel surcharges |
(4) |
$ |
— |
|
$ |
(405 |
) |
|
Foreign currency |
(4) |
$ |
(602 |
) |
$ |
— |
|
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) expense, net
Based on fair values at September 30, 2015, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $0.9 million are expected to be reclassified from other comprehensive income into earnings during the next twelve months.
Related to its trading portfolio, the Company recognized net unrealized and realized gains of $4.4 million and $1.9 million during the three months ended September 30, 2015 and 2014, respectively; and net unrealized and realized gains of $3.3 million and $5.4 million during the nine months ended September 30, 2015 and 2014. Gains and losses from trading activities 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.
10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2015 |
|
2014 |
| ||
|
|
|
(In thousands) |
| ||||
|
Payroll and employee benefits |
|
$ |
52,305 |
|
$ |
73,362 |
|
|
Taxes other than income taxes |
|
111,208 |
|
114,598 |
| ||
|
Interest |
|
77,423 |
|
30,384 |
| ||
|
Acquired sales contracts |
|
4,946 |
|
12,453 |
| ||
|
Workers’ compensation |
|
17,635 |
|
16,714 |
| ||
|
Asset retirement obligations |
|
19,199 |
|
19,222 |
| ||
|
Other |
|
28,031 |
|
35,663 |
| ||
|
|
|
$ |
310,747 |
|
$ |
302,396 |
|
11. Debt and Financing Arrangements
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2015 |
|
2014 |
| ||
|
|
|
(In thousands) |
| ||||
|
Term loan due 2018 ($1.9 billion face value) |
|
$ |
1,879,261 |
|
$ |
1,890,846 |
|
|
7.00% senior notes due 2019 at par |
|
1,000,000 |
|
1,000,000 |
| ||
|
9.875% senior notes due 2019 ($375.0 million face value) |
|
365,050 |
|
363,493 |
| ||
|
8.00% senior secured notes due 2019 at par |
|
350,000 |
|
350,000 |
| ||
|
7.25% senior notes due 2020 at par |
|
500,000 |
|
500,000 |
| ||
|
7.25% senior notes due 2021 at par |
|
1,000,000 |
|
1,000,000 |
| ||
|
Other |
|
46,418 |
|
56,031 |
| ||
|
|
|
5,140,729 |
|
5,160,370 |
| ||
|
Less current maturities of debt |
|
32,237 |
|
36,885 |
| ||
|
Long-term debt |
|
$ |
5,108,492 |
|
$ |
5,123,485 |
|
As of September 30, 2015, availability under our revolver was subject to limits on secured debt in our indentures. At September 30, 2015, the limit under our most restrictive indenture did not provide meaningful availability under the revolver and, as a result, on November 6, 2015 we delivered an irrevocable 5 day notice to the administrative agent to voluntarily terminate all commitments thereunder, which will terminate on November 11, 2015. We had no borrowings outstanding under our revolving credit facility at September 30, 2015 and had not been using it as a source of liquidity in the recent past. At September 30, 2015, we had utilized $185.2 million of our $200.0 million receivables securitization facility for letters of credit. The credit agreement related to the securitization facility expires on December 8, 2017, unless the Company’s minimum liquidity, including liquid assets, falls below $550 million. If liquidity falls below $550 million, the expiration date of the securitization facility becomes the earlier of December 8, 2017 or nine months from the date that liquidity falls below the minimum.
12. Income Taxes
During the first nine months of 2015, the Company determined it was more likely than not that the federal and state net operating losses it expects to generate in 2015 will not be realized based on projections of future taxable income. Accordingly, the estimated annual effective rate for the year ended December 31, 2015 includes the impact of recording a valuation allowance against these attributes. During the nine months ended September 30, 2015, the Company realized a net tax benefit of $351.3 million, which included a $794.0 million tax benefit associated with the asset impairment charges partially offset by a valuation allowance of $426.4 million for federal net operating losses and tax credits and $19.3 million for the state net operating losses.
During the first nine months of 2014, the Company increased its valuation allowance for the portion of the federal and state net operating losses it expected to generate in 2014. The Company increased its valuation allowance by $51.7 million for the federal net operating losses and $6.3 million for the state net operating losses.
13. 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, natural gas 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 September 30, 2015.
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:
|
|
|
September 30, 2015 |
| ||||||||||
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
| ||||
|
Investments in marketable securities |
|
$ |
201,346 |
|
$ |
1,615 |
|
$ |
199,731 |
|
$ |
— |
|
|
Derivatives |
|
14,628 |
|
8,322 |
|
890 |
|
5,416 |
| ||||
|
Total assets |
|
$ |
215,974 |
|
$ |
9,937 |
|
$ |
200,621 |
|
$ |
5,416 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
|
Derivatives |
|
$ |
536 |
|
$ |
— |
|
$ |
536 |
|
$ |
— |
|
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.
The following table summarizes the change in the fair values of financial instruments categorized as level 3.
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||
|
|
|
(In thousands) |
| ||||
|
Balance, beginning of period |
|
$ |
7,840 |
|
$ |
3,040 |
|
|
Realized and unrealized losses recognized in earnings, net |
|
(4,200 |
) |
(6,028 |
) | ||
|
Realized and unrealized gains recognized in other comprehensive income, net |
|
— |
|
(1,341 |
) | ||
|
Purchases |
|
2,334 |
|
11,959 |
| ||
|
Issuances |
|
(558 |
) |
(2,214 |
) | ||
|
Ending balance |
|
$ |
5,416 |
|
$ |
5,416 |
|
Net unrealized losses of $3.9 million and net unrealized losses of $5.1 million were recognized during the three and nine months ended September 30, 2015, respectively, related to level 3 financial instruments held on September 30, 2015.
Fair Value of Long-Term Debt
At September 30, 2015 and December 31, 2014, the fair value of the Company’s debt, including amounts classified as current, was $1.4 billion and $2.7 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.
14. Loss Per Common Share
The effect of options, restricted stock and restricted stock units that were excluded from the calculation of diluted weighted average shares outstanding because the exercise price or grant price of the securities exceeded the average market price of the Company’s common stock were: 1.0 million shares of common stock for both the three and nine months ended September 30, 2015, respectively; and 1.0 million shares of common stock for both the three and nine months ended September 30, 2014. The weighted average share impacts 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 nine months ended September 30, 2015 were 0.1 million shares; and 0.2 million shares for the both the three and nine months ended September 30, 2014, respectively.
15. Employee Benefit Plans
The following table details the components of pension benefit costs (credits):
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Service cost |
|
$ |
2 |
|
$ |
4,910 |
|
$ |
7 |
|
$ |
16,311 |
|
|
Interest cost |
|
3,688 |
|
4,278 |
|
10,953 |
|
12,834 |
| ||||
|
Expected return on plan assets |
|
(5,044 |
) |
(5,929 |
) |
(15,275 |
) |
(17,786 |
) | ||||
|
Curtailments |
|
526 |
|
1,504 |
|
526 |
|
1,504 |
| ||||
|
Amortization of prior service costs (credits) |
|
— |
|
(51 |
) |
— |
|
(158 |
) | ||||
|
Amortization of other actuarial losses |
|
1,395 |
|
741 |
|
6,638 |
|
2,221 |
| ||||
|
Net benefit cost |
|
$ |
567 |
|
$ |
5,453 |
|
$ |
2,849 |
|
$ |
14,926 |
|
The following table details the components of other postretirement benefit costs (credits):
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Service cost |
|
$ |
216 |
|
$ |
383 |
|
$ |
649 |
|
$ |
1,267 |
|
|
Interest cost |
|
321 |
|
460 |
|
964 |
|
1,381 |
| ||||
|
Amortization of prior service credits |
|
(2,084 |
) |
(2,500 |
) |
(6,251 |
) |
(7,502 |
) | ||||
|
Amortization of other actuarial losses (gains) |
|
(527 |
) |
(191 |
) |
(1,582 |
) |
(571 |
) | ||||
|
Net benefit credit |
|
$ |
(2,074 |
) |
$ |
(1,848 |
) |
$ |
(6,220 |
) |
$ |
(5,425 |
) |
16. Commitments and Contingencies
The Company accrues for costs 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.
In addition, the Company is a party to numerous other claims and lawsuits with respect to various matters. As of September 30, 2015 and December 31, 2014, the Company had accrued $4.1 million and $22.3 million, respectively, for all legal matters, including $4.1 million and $10.1 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.
17. Segment Information
The Company’s reportable business segments are based on the major coal producing basins in which the Company operates and may include a number of mine complexes. The Company manages its coal sales by coal basin, not by individual mining complex. Geology, coal transportation routes to customers, regulatory environments and coal quality or type are characteristic to a basin, and, accordingly, market and contract pricing have developed by coal basin. Mining operations are evaluated based on adjusted EBITDA, 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; and the Appalachia (APP) segment, with operations primarily in West Virginia. The “Other” category combines other operating segments and includes the Company’s coal mining operations in Colorado and Illinois.
Operating segment results for the three and nine months ended September 30, 2015 and 2014 are presented below. The Company uses Adjusted EBITDA to assess the operating segments’ performance and to allocate resources. The Company’s management believes that Adjusted EBITDA presents a useful measure of our ability to service existing debt and incur additional debt based on ongoing 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.
|
|
|
PRB |
|
APP |
|
Other |
|
Corporate, |
|
Consolidated |
| |||||
|
|
|
(in thousands) |
| |||||||||||||
|
Three Months Ended September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Revenues |
|
$ |
390,360 |
|
$ |
205,573 |
|
$ |
92,611 |
|
$ |
— |
|
$ |
688,544 |
|
|
Adjusted EBITDA |
|
86,204 |
|
41,754 |
|
12,927 |
|
(6,080 |
) |
134,805 |
| |||||
|
Depreciation, depletion and amortization |
|
47,321 |
|
44,098 |
|
11,193 |
|
1,353 |
|
103,965 |
| |||||
|
Amortization of acquired sales contracts, net |
|
(1,124 |
) |
(870 |
) |
— |
|
— |
|
(1,994 |
) | |||||
|
Capital expenditures |
|
869 |
|
3,990 |
|
2,889 |
|
2,141 |
|
9,889 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Three Months Ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Revenues |
|
$ |
389,386 |
|
$ |
272,354 |
|
$ |
80,440 |
|
$ |
0 |
|
$ |
742,180 |
|
|
Adjusted EBITDA |
|
62,771 |
|
12,327 |
|
22,412 |
|
(25,608 |
) |
71,902 |
| |||||
|
Depreciation, depletion and amortization |
|
43,962 |
|
48,867 |
|
10,499 |
|
1,827 |
|
105,155 |
| |||||
|
Amortization of acquired sales contracts, net |
|
(1,200 |
) |
(1,815 |
) |
3 |
|
(1 |
) |
(3,013 |
) | |||||
|
Capital expenditures |
|
8,174 |
|
9,039 |
|
4,678 |
|
1,064 |
|
22,955 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Nine Months Ended September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Revenues |
|
$ |
1,124,046 |
|
$ |
653,310 |
|
$ |
232,655 |
|
$ |
— |
|
$ |
2,010,011 |
|
|
Adjusted EBITDA |
|
214,920 |
|
92,988 |
|
22,074 |
|
(68,077 |
) |
261,905 |
| |||||
|
Depreciation, depletion and amortization |
|
134,393 |
|
135,028 |
|
32,082 |
|
4,708 |
|
306,211 |
| |||||
|
Amortization of acquired sales contracts, net |
|
(3,170 |
) |
(3,858 |
) |
— |
|
— |
|
(7,028 |
) | |||||
|
Total assets |
|
1,711,945 |
|
1,374,436 |
|
321,449 |
|
2,440,167 |
|
5,847,997 |
| |||||
|
Capital expenditures |
|
22,263 |
|
15,323 |
|
7,199 |
|
64,465 |
|
109,250 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Nine Months Ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Revenues |
|
$ |
1,106,258 |
|
$ |
832,452 |
|
$ |
251,239 |
|
$ |
1,978 |
|
$ |
2,191,927 |
|
|
Adjusted EBITDA |
|
135,136 |
|
67,794 |
|
44,007 |
|
(82,498 |
) |
164,439 |
| |||||
|
Depreciation, depletion and amortization |
|
124,243 |
|
155,087 |
|
29,601 |
|
3,111 |
|
312,042 |
| |||||
|
Amortization of acquired sales contracts, net |
|
(2,774 |
) |
(7,266 |
) |
93 |
|
(1 |
) |
(9,948 |
) | |||||
|
Capital expenditures |
|
17,230 |
|
28,232 |
|
8,837 |
|
64,402 |
|
118,701 |
| |||||
A reconciliation of adjusted EBITDA to consolidated loss before income taxes follows:
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| ||||||||
|
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Adjusted EBITDA |
|
$ |
134,805 |
|
$ |
71,902 |
|
$ |
261,905 |
|
$ |
164,439 |
|
|
Depreciation, depletion and amortization |
|
(103,965 |
) |
(105,155 |
) |
(306,211 |
) |
(312,042 |
) | ||||
|
Amortization of acquired sales contracts, net |
|
1,994 |
|
3,013 |
|
7,028 |
|
9,948 |
| ||||
|
Asset impairment and mine closure costs |
|
(2,120,292 |
) |
(5,060 |
) |
(2,139,438 |
) |
(6,572 |
) | ||||
|
Losses from disposed operations resulting from Patriot Coal bankruptcy |
|
(149,314 |
) |
–– |
|
(149,314 |
) |
–– |
| ||||
|
Interest expense, net |
|
(99,087 |
) |
(96,268 |
) |
(294,578 |
) |
(286,820 |
) | ||||
|
Nonoperating expense |
|
|
(7,482 |
) |
|
— |
|
(11,498 |
) |
— |
| ||
|
Loss before income taxes |
|
$ |
(2,343,341 |
) |
$ |
(131,568 |
) |
$ |
(2,632,106 |
) |
$ |
(431,047 |
) |
18. Subsequent Events
On July 2, 2015 we launched two private debt exchange offers in an effort to de-lever our balance sheet and improve our liquidity profile. However, as a result of various factors, including the actions of our term lenders in directing the term loan agent not to execute required documents and current market conditions, on October 27, 2015 we announced termination of the exchange offers.
19. Supplemental Consolidating Financial Information
Pursuant to the indentures governing Arch Coal, Inc.’s senior notes, certain wholly-owned subsidiaries of the Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following tables present condensed consolidating financial information for (i) the Company, (ii) the issuer of the senior notes, (iii) the guarantors under the senior notes, and (iv) the entities which are not guarantors under the senior notes (Arch Receivable Company, LLC and the Company’s subsidiaries outside the United States):
Condensed Consolidating Statements of Operations
Three Months Ended September 30, 2015
|
|
|
Parent/Issuer |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
|
(In thousands) |
| |||||||||||||
|
Revenues |
|
$ |
— |
|
$ |
688,544 |
|
$ |
— |
|
$ |
— |
|
$ |
688,544 |
|
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Cost of sales (exclusive of items shown separately below) |
|
3,211 |
|
537,471 |
|
— |
|
(490 |
) |
540,192 |
| |||||
|
Depreciation, depletion and amortization |
|
896 |
|
103,069 |
|
— |
|
— |
|
103,965 |
| |||||
|
Amortization of acquired sales contracts, net |
|
— |
|
(1,994 |
) |
— |
|
— |
|
(1,994 |
) | |||||
|
Change in fair value of coal derivatives and coal trading activities, net |
|
— |
|
(3,559 |
) |
— |
|
— |
|
(3,559 |
) | |||||
|
Asset impairment and mine closure costs |
|
21,292 |
|
2,099,000 |
|
— |
|
— |
|
2,120,292 |
| |||||
|
Losses from disposed operations resulting from Patriot Coal bankruptcy |
|
149,314 |
|
–– |
|
–– |
|
|
|
149,314 |
| |||||
|
Selling, general and administrative expenses |
|
18,059 |
|
6,725 |
|
1,489 |
|
(542 |
) |
25,731 |
| |||||
|
Other operating (income) expense, net |
|
3,503 |
|
(12,343 |
) |
(817 |
) |
1,032 |
|
(8,625 |
) | |||||
|
|
|
196,275 |
|
2,728,369 |
|
672 |
|
— |
|
2,925,316 |
| |||||
|
Loss from investment in subsidiaries |
|
(2,025,900 |
) |
— |
|
— |
|
2,025,900 |
|
— |
| |||||
|
Loss from operations |
|
(2,222,175 |
) |
(2,039,825 |
) |
(672 |
) |
2,025,900 |
|
(2,236,772 |
) | |||||
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest expense |
|
(120,404 |
) |
(6,629 |
) |
(1,199 |
) |
28,473 |
|
(99,759 |
) | |||||
|
Interest and investment income |
|
6,710 |
|
20,781 |
|
1,654 |
|
(28,473 |
) |
672 |
| |||||
|
|
|
(113,694 |
) |
14,152 |
|
455 |
|
— |
|
(99,087 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Expenses related to debt restructuring |
|
(7,482 |
) |
— |
|
— |
|
— |
|
(7,482 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Income (loss) from continuing operations before income taxes |
|
(2,343,351 |
) |
(2,025,673 |
) |
(217 |
) |
2,025,900 |
|
(2,343,341 |
) | |||||
|
Provision for (benefit from) income taxes |
|
(343,875 |
) |
— |
|
10 |
|
— |
|
(343,865 |
) | |||||
|
Net income (loss) |
|
$ |
(1,999,476 |
) |
$ |
(2,025,673 |
) |
$ |
(227 |
) |
$ |
2,025,900 |
|
$ |
(1,999,476 |
) |
|
Total comprehensive income (loss) |
|
$ |
(2,000,570 |
) |
$ |
(2,026,697 |
) |
$ |
(227 |
) |
$ |
2,026,924 |
|
$ |
(2,000,570 |
) |
Condensed Consolidating Statements of Operations
Three Months Ended September 30, 2014
|
|
|
Parent/Issuer |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
|
(In thousands) |
| |||||||||||||
|
Revenues |
|
$ |
— |
|
$ |
742,180 |
|
$ |
— |
|
$ |
— |
|
$ |
742,180 |
|
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Cost of sales (exclusive of items shown separately below) |
|
2,442 |
|
645,672 |
|
— |
|
(1,018 |
) |
647,096 |
| |||||
|
Depreciation, depletion and amortization |
|
1,175 |
|
103,971 |
|
9 |
|
— |
|
105,155 |
| |||||
|
Amortization of acquired sales contracts, net |
|
— |
|
(3,013 |
) |
— |
|
— |
|
(3,013 |
) | |||||
|
Change in fair value of coal derivatives and coal trading activities, net |
|
— |
|
(3,733 |
) |
— |
|
— |
|
(3,733 |
) | |||||
|
Asset impairment and mine closure costs |
|
— |
|
5,060 |
|
— |
|
— |
|
5,060 |
| |||||
|
Selling, general and administrative expenses |
|
19,542 |
|
7,427 |
|
1,679 |
|
(512 |
) |
28,136 |
| |||||
|
Other operating (income) expense, net |
|
1,562 |
|
(2,942 |
) |
(1,371 |
) |
1,530 |
|
(1,221 |
) | |||||
|
|
|
24,721 |
|
752,442 |
|
317 |
|
— |
|
777,480 |
| |||||
|
Income from investment in subsidiaries |
|
2,005 |
|
— |
|
— |
|
(2,005 |
) |
— |
| |||||
|
Loss from operations |
|
(22,716 |
) |
(10,262 |
) |
(317 |
) |
(2,005 |
) |
(35,300 |
) | |||||
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest expense |
|
(116,742 |
) |
(6,577 |
) |
(1,116 |
) |
26,218 |
|
(98,217 |
) | |||||
|
Interest and investment income |
|
7,872 |
|
18,987 |
|
1,308 |
|
(26,218 |
) |
1,949 |
| |||||
|
|
|
(108,870 |
) |
12,410 |
|
192 |
|
— |
|
(96,268 |
) | |||||