Segment Information

6 Months Ended

Jun. 30, 2013

Segment Information

Segment Information

14.  Segment Information

We have reportable segments of Owned and Operated Mines, Logistics and Related Activities, and Corporate and Other.

Our Owned and Operated Mines segment is characterized by the predominant focus on thermal coal production where the sale occurs at the mine site and where title and risk of loss pass to the customer at that point.  This segment includes our Antelope mine, Cordero Rojo mine, and Spring Creek mine.  Sales in this segment are primarily to domestic electric utilities; although a portion is made to our Logistics and Related Activities segment.  Our mines utilize surface mining extraction processes and are all located in the PRB.  The gains and losses resulting from our domestic coal futures contracts and WTI collar derivative financial instruments are reported within this segment.

Our Logistics and Related Activities segment is characterized by the services we provide to our international and domestic customers where we deliver coal to them.  Services provided typically include: delivered sales contract negotiations; purchase of coal from third parties or from our owned and operated mines; coordination of the transportation and delivery of purchased coal; and sales contract administration activities.  Title and risk of loss are retained by the Logistics and Related Activities segment through the transportation and delivery process.  Title and risk of loss pass to the customer in accordance with the contract and typically occurs at a vessel loading terminal, a vessel unloading terminal or an end use facility.  Risk associated with rail and terminal take-or-pay agreements is also borne by the Logistics and Related Activities segment.  The gains and losses resulting from our international coal forward derivative financial instruments are reported within this segment.

Our Corporate and Other segment includes results relating to broker activity, our share of the Decker mine operations, and unallocated corporate costs and assets.  All corporate costs, except Board of Directors related expenses, are allocated to the segments based upon their relative percentage of certain financial metrics.

Eliminations represent the purchase and sale of coal between reportable segments and the associated elimination of intercompany profit or loss in inventory.  Sales between reportable segments are priced based on prevailing market prices, as determined by us with reference to independent third-party publications.

Our chief operating decision maker uses Adjusted EBITDA as the primary measure of segment reporting performance.  EBITDA represents net income before (1) interest income (expense) net, (2) income tax provision, (3) depreciation and depletion, (4) amortization, and (5) accretion.  Adjusted EBITDA represents EBITDA as further adjusted for specifically identified items that management believes do not directly reflect our core operations.  For the periods presented herein, the specifically identified items are:  (1) adjustments to exclude the updates to the tax agreement liability, including tax impacts of the IPO and Secondary Offering, (2) adjustments for derivative financial instruments, excluding fair value mark-to-market gains or losses and including cash amounts received or paid, and (3) adjustments to exclude a significant broker contract that expired in the first quarter of 2010.

Revenue

The following table presents revenue (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Owned and Operated Mines	$	264,975		$	265,462		$	543,749		$	568,034
Logistics and Related Activities	67,069			83,491			132,939			163,045
Corporate and Other	11,811			10,769			17,640			16,466
Eliminations of intersegment sales	(13,860		)	(16,539		)	(26,280		)	(31,459		)
Consolidated revenue	$	329,996		$	343,183		$	668,048		$	716,086

The following table presents revenue from external customers by geographic region (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
United States	$	264,568	$	267,602	$	545,068	$	571,630
Asia	62,522		74,491		120,074		143,153
Other	2,906		1,090		2,906		1,303
Total revenue from external customers	$	329,996	$	343,183	$	668,048	$	716,086

We attribute revenue to individual countries based on the location of the physical delivery of the coal.  All of our revenue for the six months ended June 30, 2013 and 2012 originated in the U.S.

Adjusted EBITDA

The following tables reconcile segment Adjusted EBITDA to net income (in thousands):

	Three Months Ended June 30,
	2013						2012
Adjusted EBITDA
Owned and Operated Mines				$	34,230				$	51,564
Logistics and Related Activities				2,752					12,481
Corporate and Other				252					1,629
Eliminations				44					(41		)
Consolidated Adjusted EBITDA				37,277					65,632
Interest expense, net				(10,252		)			(7,624		)
Depreciation, depletion and accretion				(29,585		)			(25,707		)
Income tax				(2,462		)			(18,806		)
Tax agreement expense(1)				—					—
Derivative financial instruments:
Exclusion of fair value mark-to-market gains(2)	$	12,284					$	20,183
Inclusion of cash amounts received(3)	(2,553		)				—
Total derivative financial instruments				9,731					20,183
Expired significant broker contract				—					—
Net income				$	4,709				$	33,678

	Six Months Ended June 30,
	2013						2012
Adjusted EBITDA
Owned and Operated Mines				$	79,892					$	118,804
Logistics and Related Activities				4,117						22,850
Corporate and Other				1,743						(98		)
Eliminations				(224		)				(181		)
Consolidated Adjusted EBITDA				85,529						141,375
Interest expense, net				(20,611		)				(13,028		)
Depreciation, depletion and accretion				(56,924		)				(51,745		)
Income tax				(11,297		)				(33,908		)
Tax agreement expense(1)				—						—
Derivative financial instruments:
Exclusion of fair value mark-to-market gains (2)	$	25,936					$	18,127
Inclusion of cash amounts received (3)	(2,529		)				(524		)
Total derivative financial instruments				23,407						17,603
Expired significant broker contract				—						—
Net income				$	20,104					$	60,296

(1) Changes to related deferred taxes are included in income tax expense.

(2) Derivative fair value mark-to-market (gains) losses reflected on the statement of operations.

(3) Derivative cash gains and losses reflected within operating cash flows.

Total Assets

The following table presents total assets (in thousands):

	June 30,			December 31,
	2013			2012
Owned and Operated Mines	$	1,793,508		$	1,826,165
Logistics and Related Activities	71,943			46,426
Corporate and Other	536,357			478,536
Eliminations	(119		)	196
Consolidated assets	$	2,401,689		$	2,351,323

As of June 30, 2013 and December 31, 2012, all of our long-lived assets were located in the U.S.

Capital Expenditures

The following table presents total capital expenditures, including investments in project development and assets acquired under capital leases (in thousands):

	Six Months Ended
	June 30,
	2013		2012
Owned and Operated Mines	$	34,325	$	18,090
Logistics and Related Activities	337		—
Corporate and Other	1,501		3,785
Eliminations	—		—
Consolidated	$	36,163	$	21,875