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 September 30, 2014

 

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)

 

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 October 31, 2014 there were 212,274,112 shares of the registrant’s common stock outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

Part I FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

38

Item 4. Controls and Procedures

39

Part II OTHER INFORMATION

39

Item 1. Legal Proceedings

39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 4. Mine Safety Disclosures

43

Item 6. Exhibits

44

 

2



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 September
30,

 

Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(Unaudited)

 

Revenues

 

$

742,180

 

$

791,269

 

$

2,191,927

 

$

2,294,971

 

Costs, expenses and other operating

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of items shown separately below)

 

647,096

 

688,712

 

1,955,547

 

1,994,653

 

Depreciation, depletion and amortization

 

105,155

 

106,323

 

312,042

 

327,601

 

Amortization of acquired sales contracts, net

 

(3,013

)

(2,568

)

(9,948

)

(7,587

)

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

 

(3,733

)

9,753

 

(5,811

)

2,053

 

Asset impairment and mine closure costs

 

5,060

 

200,397

 

6,572

 

220,879

 

Selling, general and administrative expenses

 

28,136

 

28,800

 

87,203

 

96,311

 

Other operating income, net

 

(1,221

)

(5,395

)

(9,451

)

(16,476

)

 

 

777,480

 

1,026,022

 

2,336,154

 

2,617,434

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(35,300

)

(234,753

)

(144,227

)

(322,463

)

Interest expense, net

 

 

 

 

 

 

 

 

 

Interest expense

 

(98,217

)

(95,624

)

(292,648

)

(285,454

)

Interest and investment income

 

1,949

 

697

 

5,828

 

4,749

 

 

 

(96,268

)

(94,927

)

(286,820

)

(280,705

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(131,568

)

(329,680

)

(431,047

)

(603,168

)

Benefit from income taxes

 

(34,350

)

(121,913

)

(112,830

)

(230,734

)

Loss from continuing operations

 

(97,218

)

(207,767

)

(318,217

)

(372,434

)

Income from discontinued operations, net of tax

 

 

79,404

 

 

101,816

 

Net loss

 

$

(97,218

)

$

(128,363

)

$

(318,217

)

$

(270,618

)

 

 

 

 

 

 

 

 

 

 

Losses per common share

 

 

 

 

 

 

 

 

 

Basic and diluted LPS - Loss from continuing operations

 

$

(0.46

)

$

(0.98

)

$

(1.50

)

$

(1.76

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted LPS - Net loss

 

$

(0.46

)

$

(0.61

)

$

(1.50

)

$

(1.28

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

 

212,238

 

212,111

 

212,212

 

212,085

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

 

$

0.03

 

$

0.01

 

$

0.09

 

 

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 September
30,

 

Nine Months Ended September
30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(Unaudited)

 

Net loss

 

$

(97,218

)

$

(128,363

)

$

(318,217

)

$

(270,618

)

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

520

 

1,346

 

1,298

 

(224

)

Income tax benefit (provision)

 

(187

)

(486

)

(467

)

82

 

 

 

333

 

860

 

831

 

(142

)

Pension, postretirement and other post-employment benefits

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

(1,210

)

1,277

 

(5,326

)

4,981

 

Income tax benefit (provision)

 

435

 

(458

)

1,917

 

(1,791

)

 

 

(775

)

819

 

(3,409

)

3,190

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

(2,401

)

1,136

 

(5,637

)

7,648

 

Income tax benefit (provision)

 

864

 

(448

)

2,029

 

(2,795

)

 

 

(1,537

)

688

 

(3,608

)

4,853

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

(1,979

)

2,367

 

(6,186

)

7,901

 

Total comprehensive loss

 

$

(99,197

)

$

(125,996

)

$

(324,403

)

$

(262,717

)

 

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)

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

795,934

 

$

911,099

 

Short term investments

 

249,067

 

248,414

 

Trade accounts receivable

 

213,369

 

198,020

 

Other receivables

 

32,769

 

31,553

 

Inventories

 

209,659

 

264,161

 

Prepaid royalties

 

11,021

 

8,083

 

Deferred income taxes

 

48,786

 

49,144

 

Coal derivative assets

 

15,642

 

14,851

 

Other current assets

 

49,470

 

56,746

 

Total current assets

 

1,625,717

 

1,782,071

 

Property, plant and equipment, net

 

6,532,118

 

6,734,286

 

Other assets

 

 

 

 

 

Prepaid royalties

 

82,598

 

87,577

 

Equity investments

 

232,077

 

221,456

 

Other noncurrent assets

 

146,272

 

164,803

 

Total other assets

 

460,947

 

473,836

 

Total assets

 

$

8,618,782

 

$

8,990,193

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

173,835

 

$

176,142

 

Accrued expenses and other current liabilities

 

342,709

 

278,587

 

Current maturities of debt

 

29,977

 

33,493

 

Total current liabilities

 

546,521

 

488,222

 

Long-term debt

 

5,126,186

 

5,118,002

 

Asset retirement obligations

 

400,935

 

402,713

 

Accrued pension benefits

 

15,294

 

7,111

 

Accrued postretirement benefits other than pension

 

39,127

 

39,255

 

Accrued workers’ compensation

 

78,520

 

78,062

 

Deferred income taxes

 

296,639

 

413,546

 

Other noncurrent liabilities

 

181,163

 

190,033

 

Total liabilities

 

6,684,385

 

6,736,944

 

Stockholders’ equity

 

 

 

 

 

Common stock, $0.01 par value, authorized 260,000 shares, issued 213,791 shares and 213,792 shares at September 30, 2014 and December 31, 2013, respectively

 

2,141

 

2,141

 

Paid-in capital

 

3,046,302

 

3,038,613

 

Treasury stock, at cost, 1,517 shares and 1,512 shares at September 30, 2014 and December 31, 2013, respectively

 

(53,863

)

(53,848

)

Accumulated deficit

 

(1,091,689

)

(771,349

)

Accumulated other comprehensive income

 

31,506

 

37,692

 

Total stockholders’ equity

 

1,934,397

 

2,253,249

 

Total liabilities and stockholders’ equity

 

$

8,618,782

 

$

8,990,193

 

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

 

 

(Unaudited)

 

Operating activities

 

 

 

 

 

Net loss

 

$

(318,217

)

$

(270,618

)

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

 

 

 

 

 

Depreciation, depletion and amortization

 

312,042

 

348,863

 

Amortization of acquired sales contracts, net

 

(9,948

)

(7,587

)

Amortization relating to financing activities

 

12,349

 

18,525

 

Prepaid royalties expensed

 

5,645

 

11,973

 

Employee stock-based compensation expense

 

7,689

 

8,909

 

Asset impairment costs

 

1,512

 

220,879

 

Amortization of premiums on debt securities held

 

 

3,679

 

Gains on disposals and divestitures, net

 

(21,965

)

(120,702

)

Deferred income taxes

 

(112,998

)

(184,418

)

Changes in:

 

 

 

 

 

Receivables

 

(6,779

)

72,436

 

Inventories

 

22,589

 

21,387

 

Accounts payable, accrued expenses and other current liabilities

 

73,324

 

19,287

 

Income taxes, net

 

(514

)

787

 

Other

 

37,261

 

43,192

 

Cash provided by operating activities

 

1,990

 

186,592

 

Investing activities

 

 

 

 

 

Capital expenditures

 

(118,701

)

(223,168

)

Minimum royalty payments

 

(3,604

)

(10,901

)

Proceeds from sale-leaseback transactions

 

 

34,919

 

Proceeds from disposals and divestitures

 

50,971

 

431,462

 

Purchases of marketable securities

 

(181,546

)

(85,418

)

Proceeds from sale or maturity of marketable securities and other investments

 

178,293

 

67,255

 

Investments in and advances to affiliates

 

(13,393

)

(11,124

)

Change in restricted cash

 

 

3,453

 

Cash provided by (used in) investing activities

 

(87,980

)

206,478

 

Financing activities

 

 

 

 

 

Payments on term loan

 

(14,625

)

(12,375

)

Net payments on other debt

 

(10,187

)

(13,084

)

Dividends paid

 

(2,123

)

(19,105

)

Debt financing costs

 

(2,219

)

 

Other

 

(21

)

 

Cash used in financing activities

 

(29,175

)

(44,564

)

Increase (decrease) in cash and cash equivalents

 

(115,165

)

348,506

 

Cash and cash equivalents, beginning of period

 

911,099

 

784,622

 

Cash and cash equivalents, end of period

 

$

795,934

 

$

1,133,128

 

 

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 (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, Illinois, Wyoming and Colorado.  All subsidiaries are wholly-owned. Intercompany transactions and accounts have been eliminated in consolidation.

 

The Company completed the sale of Canyon Fuel Company, LLC (“Canyon Fuel”) on August 16, 2013.  The results of Canyon Fuel have been segregated from continuing operations and are reflected, net of tax, as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013.

 

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, 2014 are not necessarily indicative of results to be expected for the year ending December 31, 2014. 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, 2013 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

 

2.  Accounting Policies

 

In May 2014, the FASB issued comprehensive authoritative guidance for the recognition and presentation of revenue from contracts with customers. The revenue recognition model is based on changes in contract assets (right to receive consideration) and liabilities (obligations to provide a good or perform a service).  The guidance also requires comprehensive quantitative and qualitative disclosures intended to enable financial statement users to understand the nature, timing and uncertainty of revenue and the related cash flows. This guidance will be effective for the Company in the first quarter of 2017, with early adoption not permitted. The Company is currently assessing the impact the guidance will have upon adoption, but expects no significant changes to its existing revenue recognition policies.

 

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, 2013

 

$

565

 

$

31,112

 

$

6,015

 

$

37,692

 

Unrealized gains (losses)

 

1,692

 

 

(4,775

)

(3,083

)

Amounts reclassified from AOCI

 

(861

)

(3,409

)

1,167

 

(3,103

)

Balance at September 30, 2014

 

$

1,396

 

$

27,703

 

$

2,407

 

$

31,506

 

 

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Table of Contents

 

The following amounts were reclassified out of AOCI:

 

 

 

Amounts Reclassified from AOCI

 

 

 

Details About AOCI

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

Line Item in the
Condensed Consolidated

 

Components

 

2014

 

2013

 

2014

 

2013

 

Statement of Operations

 

 

 

(In thousands)

 

 

 

Derivative instruments

 

$

892

 

$

692

 

$

1,346

 

$

2,093

 

Revenues

 

 

 

(321

)

(249

)

(485

)

(754

)

Benefit from income taxes

 

 

 

$

571

 

$

443

 

$

861

 

$

1,339

 

Net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension, postretirement and other post-employment benefits

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service credits (1)

 

$

1,759

 

$

5,573

 

$

6,976

 

$

11,154

 

 

 

Amortization of actuarial gains

 

(550

)

(3,823

)

(1,650

)

(13,108

)

 

 

 

 

1,209

 

1,750

 

5,326

 

(1,954

)

 

 

 

 

(435

)

(631

)

(1,917

)

702

 

Benefit from income taxes

 

 

 

$

774

 

$

1,119

 

$

3,409

 

$

(1,252

)

Net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities (2)

 

$

(145

)

$

(4

)

$

(1,824

)

$

(313

)

Interest and investment income

 

 

 

53

 

2

 

657

 

113

 

Benefit from income taxes

 

 

 

$

(92

)

$

(2

)

$

(1,167

)

$

(200

)

Net of tax

 

 


1 Production-related benefits and workers’ compensation costs are included in inventoriable production costs.

2 The gains and losses on sales of available-for-sale-securities are determined on a specific identification basis.

 

8



Table of Contents

 

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 during the first quarter of 2014 for total consideration of $45.3 million.  The Company has received $35.7 million in cash, and the remaining $11.0 million is payable on December 31, 2014.  The Company recognized a net pre-tax gain of $14.3 million from these divestitures, reflected in “other operating income, net” in the condensed consolidated statement of operations.  The following table summarizes the assets and liabilities of these divested operations reflected in the December 31, 2013 consolidated balance sheet (in thousands):

 

 

 

 

 

Inventories

 

$

33,283

 

Other current assets

 

1,032

 

Net property, plant & equipment

 

104,587

 

Other noncurrent assets

 

139

 

Accounts payable and accrued expenses

 

13,005

 

Other noncurrent liabilities

 

24,276

 

 

The following table summarizes the results of Canyon Fuel, reflected as discontinued operations in the condensed consolidated statement of operations through the date of disposition:

 

 

 

Three Months Ended
September 30, 2013

 

Nine Months Ended
September 30, 2013

 

 

 

(in thousands)

 

Total revenues

 

$

45,763

 

$

219,002

 

 

 

 

 

 

 

Income from discontinued operations before income taxes

 

$

3,429

 

$

32,166

 

Gain on disposition

 

115,679

 

115,679

 

Less: income tax expense

 

39,704

 

46,029

 

Income from discontinued operations

 

$

79,404

 

$

101,816

 

Basic and diluted earnings per common share from discontinued operations

 

$

0.37

 

$

0.48

 

 

5.  Impairment Charges

 

In the face of weak 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 three months ended September 30, 2014 relating to the idling.

 

As a result of the weak thermal coal markets in Appalachia, the Company assessed in the third quarter of 2013 whether the carrying values of certain assets were recoverable through future cash flows.  The Company determined that the carrying amounts of certain assets associated with the Hazard mining complex in Kentucky and the Company’s ADDCAR subsidiary, which manufactures and sells its patented highwall mining system, could not be recovered through future cash flows expected to be generated from use of the assets and their ultimate disposal.  An impairment loss of $142.8 million was recognized to write the carrying value of the assets to their fair value of $71.3 million.

 

During the second quarter of 2013, Tenaska Trailblazer Partners, LLC 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.

 

9



Table of Contents

 

The Company recorded an impairment charge of $57.7 million in the third quarter of 2013 related to its investment in DKRW Advanced Fuels, LLC (“DKRW”), a company engaged in developing coal-to-liquids facilities.  DKRW had previously entered into an Engineering, Procurement and Construction Agreement with a Chinese company to construct and commission the Medicine Bow coal-to-liquids facility.  The project did not progress to the next stage of development, and the impairment charge included the Company’s 24% equity investment of $13.7 million and a $44.0 million loan receivable balance.

 

The impairment and closure charges are included on the line “Asset impairment and mine closure costs” in the condensed consolidated statement of operations.

 

6.  Inventories

 

Inventories consist of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(In thousands)

 

Coal

 

$

83,708

 

$

117,531

 

Repair parts and supplies

 

125,951

 

137,497

 

Work-in-process

 

 

9,133

 

 

 

$

209,659

 

$

264,161

 

 

The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $8.7 million at September 30, 2014 and $8.4 million at December 31, 2013.

 

7.   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.

 

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

 

 

 

September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Accumulated

 

 

 

Classification

 

 

 

 

 

Gross Unrealized

 

Fair

 

Short-Term

 

Other

 

 

 

Cost Basis

 

Gains

 

Losses

 

Value

 

Investments

 

Assets

 

 

 

(In thousands)

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

 

$

 

$

 

$

 

$

 

$

 

Corporate notes and bonds

 

$

252,813

 

$

1

 

$

(3,747

)

$

249,067

 

$

249,067

 

$

 

Equity securities

 

5,420

 

10,257

 

(2,759

)

12,918

 

 

12,918

 

Total Investments

 

$

258,233

 

$

10,258

 

$

(6,506

)

$

261,985

 

$

249,067

 

$

12,918

 

 

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Table of Contents

 

 

 

December 31, 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

 

$

65,002

 

$

11

 

$

(75

)

$

64,938

 

$

64,938

 

$

 

Corporate notes and bonds

 

184,773

 

7

 

(1,304

)

183,476

 

183,476

 

 

Equity securities

 

5,271

 

13,660

 

(2,902

)

16,029

 

 

16,029

 

Total Investments

 

$

255,046

 

$

13,678

 

$

(4,281

)

$

264,443

 

$

248,414

 

$

16,029

 

 

The aggregate fair value of investments with unrealized losses that were owned for less than a year was $230.3 million and $164.3 million at September 30, 2014 and December 31, 2013, 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 $17.1 million and $48.7 million at September 30, 2014 and December 31, 2013, respectively.

 

The debt securities outstanding at September 30, 2014 have maturity dates ranging from the fourth quarter of 2014 through the fourth quarter of 2015.  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.

 

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 2014 and 2015. 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, 2014, the Company had protected the price of approximately 87% of its expected purchases for the remainder of 2014 and 83% of its expected 2015 purchases.  At September 30, 2014, the Company had purchased heating oil call options for approximately 69 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 September 30, 2014, the Company held heating oil call options for 1.3 million gallons that will settle in the fourth quarter of 2014 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 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, 2014, the Company held derivatives for risk management purposes that are expected to settle in the following years:

 

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Table of Contents

 

(Tons in thousands)

 

2014

 

2015

 

2016

 

Total

 

Coal sales

 

1,156

 

2,340

 

160

 

3,656

 

Coal purchases

 

751

 

825

 

 

1,576

 

 

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 $4.7 million of gains during the remainder of 2014 and $4.2 million of gains in 2015.

 

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, 2014

 

 

 

December 31, 2013

 

 

 

Fair Value of Derivatives

 

Asset

 

Liability

 

 

 

Asset

 

Liability

 

 

 

(In thousands)

 

Derivative

 

Derivative

 

 

 

Derivative

 

Derivative

 

 

 

Derivatives Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal

 

$

1,680

 

$

 

 

 

$

909

 

$

(26

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Heating oil — diesel purchases

 

1,440

 

 

 

 

4,681

 

 

 

 

Heating oil — fuel surcharges

 

1

 

 

 

 

422

 

 

 

 

Coal — held for trading purposes

 

75,061

 

(66,137

)

 

 

55,327

 

(45,763

)

 

 

Coal — risk management

 

7,707

 

(2,861

)

 

 

6,342

 

(1,950

)

 

 

Natural gas

 

225

 

(90

)

 

 

 

 

 

 

Total

 

84,434

 

(69,088

)

 

 

66,772

 

(47,713

)

 

 

Total derivatives

 

86,114

 

(69,088

)

 

 

67,681

 

(47,739

)

 

 

Effect of counterparty netting

 

(69,032

)

69,032

 

 

 

(47,727

)

47,727

 

 

 

Net derivatives as classified in the balance sheets

 

$

17,082

 

$

(56

)

$

17,026

 

$

19,954

 

$

(12

)

$

19,942

 

 

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Table of Contents

 

 

 

 

September 30,
2014

 

December 31,
2013

 

Net derivatives as reflected on the balance sheets

 

 

 

 

 

 

 

Heating oil

 

Other current assets

 

$

1,440

 

$

5,103

 

Coal

 

Coal derivative assets

 

15,642

 

14,851

 

 

 

Accrued expenses and other current liabilities

 

(56

)

(12

)

 

 

 

 

$

17,026

 

$

19,942

 

 

The Company had a current liability for the obligation to post cash collateral of $3.8 million at September 30, 2014 and a current asset for the right to reclaim cash collateral of $2.2 million at December 31, 2013. These amounts are not included with the derivatives presented in the table above and are included in “accrued expenses and other current liabilities” and “other current assets”, 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 Other
Comprehensive
Income(Effective Portion)

 

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

 

 

 

 

 

2014

 

2013

 

2014

 

2013

 

Coal sales

 

(1)

 

$

3,449

 

$

3,132

 

$

1,639

 

$

911

 

Coal purchases

 

(2)

 

(2,041

)

(942

)

(747

)

123

 

Totals

 

 

 

$

1,408

 

$

2,190

 

$

892

 

$

1,034

 

 

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, 2014 and 2013.

 

Derivatives Not Designated as Hedging Instruments (in thousands)

Three Months Ended September 30,

 

 

 

 

 

Gain (Loss) Recognized

 

 

 

 

 

2014

 

2013

 

Coal — unrealized

 

(3)

 

$

1,610

 

$

(10,668

)

Coal — realized

 

(4)

 

$

502

 

$

9,929

 

Natural gas — unrealized

 

(3)

 

$

238

 

$

 

Heating oil — diesel purchases

 

(4)

 

$

(3,746

)

$

(288

)

Heating oil — fuel surcharges

 

(4)

 

$

(104

)

$

(222

)

 


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

 

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Table of Contents

 

Derivatives used in Cash Flow Hedging Relationships (in thousands)

Nine Months Ended September 30,

 

 

 

 

 

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

 

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

 

 

 

 

 

2014

 

2013

 

2014

 

2013

 

Coal sales

 

(1)

 

$

4,806

 

$

2,308

 

$

2,568

 

$

2,822

 

Coal purchases

 

(2)

 

(2,162

)

(511

)

(1,222

)

(633

)

Totals

 

 

 

$

2,644

 

$

1,797

 

$

1,346

 

$

2,189

 

 

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, 2014 and 2013.

 

Derivatives Not Designated as Hedging Instruments (in thousands)

Nine Months Ended September 30,

 

 

 

 

 

Gain (Loss) Recognized

 

 

 

 

 

2014

 

2013

 

Coal — unrealized

 

(3)

 

$

455

 

$

(5,089

)

Coal — realized

 

(4)

 

$

4,699

 

$

25,725

 

Natural gas — unrealized

 

(3)

 

$

(21

)

$

 

Heating oil — diesel purchases

 

(4)

 

$

(6,709

)

$

(9,760

)

Heating oil — fuel surcharges

 

(4)

 

$

(405

)

$

(817

)

 


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

 

Based on fair values at September 30, 2014, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $2.0 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 $1.9 million and $0.9 million during the three months ended September 30, 2014 and 2013, respectively; and net unrealized and realized gains of $5.4 million and $3.0 million during the nine months ended September 30, 2014 and 2013, respectively.  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.

 

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Table of Contents

 

9.   Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(In thousands)

 

Payroll and employee benefits

 

$

72,116

 

$

67,621

 

Taxes other than income taxes

 

114,183

 

114,664

 

Interest

 

77,564

 

18,528

 

Acquired sales contracts

 

12,690

 

14,373

 

Workers’ compensation

 

16,085

 

12,434

 

Asset retirement obligations

 

22,681

 

24,940

 

Other

 

27,390

 

26,027

 

 

 

$

342,709

 

$

278,587

 

 

10.  Debt and Financing Arrangements

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(In thousands)

 

Term loan due 2018 ($1.91 billion and $1.93 billion face value, respectively)

 

$

1,894,794

 

$

1,906,975

 

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)

 

363,173

 

362,358

 

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

 

48,196

 

32,162

 

 

 

5,156,163

 

5,151,495

 

Less current maturities of debt

 

29,977

 

33,493

 

Long-term debt

 

$

5,126,186

 

$

5,118,002

 

 

At September 30, 2014, the available borrowing capacity under the Company’s lines of credit was approximately $260.8 million.

 

11.    Income taxes

 

During the first quarter of 2014, the Company determined it was more likely than not that a portion of the federal and state net operating losses it expects to generate in 2014 will not be realized based on projections of future taxable income.  Accordingly, the estimated annual effective rate for the year ended December 31, 2014 includes a valuation allowance for that portion.  In applying the estimated annual effective rate to earnings, the Company increased its valuation allowance by $15.8 million for the three months ended September 30, 2014 and $57.9 million for the nine months ended September 30, 2014 relating to federal and state net operating losses.

 

12.  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.

 

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Table of Contents

 

·    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, 2014.

 

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, 2014

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

Investments in marketable securities

 

$

261,985

 

$

12,918

 

$

249,067

 

$

 

Derivatives

 

17,082

 

12,144

 

392

 

4,546

 

Total assets

 

$

297,067

 

$

25,062

 

$

249,459

 

$

4,546

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

$

56

 

$

 

$

49

 

$

7

 

 

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
September 30, 2014

 

Nine Months Ended
September 30, 2014

 

 

 

(In thousands)

 

Balance, beginning of period

 

$

6,037

 

$

4,946

 

Realized and unrealized losses recognized in earnings, net

 

(2,131

)

(4,851

)

Purchases

 

1,080

 

4,891

 

Issuances

 

(447

)

(447

)

Ending balance

 

$

4,539

 

$

4,539

 

 

Net unrealized losses of $1.8 million and losses of $1.7 million were recognized during the three and nine months ended September 30, 2014, respectively, related to level 3 financial instruments held on September 30, 2014.

 

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Table of Contents

 

Fair Value of Long-Term Debt

 

At September 30, 2014 and December 31, 2013, the fair value of the Company’s debt, including amounts classified as current, was $3.6 billion and $4.6 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.

 

13.   Loss Per Common Share

 

The effect of options, restricted stock and restricted stock units equaling 8.3 million shares and 7.4 million shares of common stock were excluded from the calculation of diluted weighted average shares outstanding for the three and nine months ended September 30, 2014 and 7.0 million and 7.9 million shares for the three and nine months ended September 30, 2013, 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 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, 2014 were 1.6 million and 2.0 million, respectively.  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, 2013 were not significant.

 

14.  Employee Benefit Plans

 

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

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(In thousands)

 

Service cost

 

$

4,910

 

$

6,672

 

$

16,311

 

$

21,162

 

Interest cost

 

4,278

 

3,994

 

12,834

 

11,796

 

Expected return on plan assets

 

(5,929

)

(5,848

)

(17,786

)

(17,690

)

Curtailments

 

1,504

 

47

 

1,504

 

47

 

Amortization of prior service costs (credits)

 

(51

)

(51

)

(158

)

(152

)

Amortization of other actuarial losses

 

741

 

3,617

 

2,221

 

12,430

 

Net benefit cost

 

$

5,453

 

$

8,431

 

$

14,926

 

$

27,593

 

 

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

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(In thousands)

 

Service cost

 

$

383

 

$

497

 

$

1,267

 

$

1,591

 

Interest cost

 

460

 

427

 

1,381

 

1,273

 

Curtailments

 

 

(5,444

)

 

(5,444

)

Amortization of prior service credits

 

(2,500

)

(2,641

)

(7,502

)

(8,121

)

Amortization of other actuarial losses (gains)

 

(191

)

(55

)

(571

)

(53

)

Net benefit credit

 

$

(1,848

)

$

(7,216

)

$

(5,425

)

$

(10,754

)

 

15.   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.

 

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Table of Contents

 

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.  Testimony on the future damage award in the lower court concluded on May 19, 2014, and post-trial briefs and responses were submitted on August 8, 2014.  The court held a hearing on this matter on November 5, 2014 and the parties are awaiting further determination by the court.

 

In addition, the Company is a party to numerous other claims and lawsuits with respect to various matters. As of September 30, 2014 and December 31, 2013, the Company had accrued $22.5 million and $30.4 million, respectively, for all legal matters, including $10.3 million and $11.7 million, respectively, classified as current.  The ultimate resolution of any such

 

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legal matter could result in outcomes which may be materially different from amounts the Company has accrued for such matters.

 

16.  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 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; 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 and its ADDCAR subsidiary, which the Company sold in the first quarter of 2014.

 

Operating segment results for the three and nine months ended September 30, 2014 and 2013 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.  These reportable segment results do not reflect impairment charges, since those are not reflected in the operating income reviewed by management.  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 and capital expenditures reflect only those from continuing operations, and exclude the results of Canyon Fuel, since they are classified as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013.  Because the condensed consolidated statement of cash flows includes cash flows from discontinued operations, capital expenditures from discontinued operations are included in “Corporate, Other and Eliminations” below.

 

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PRB

 

APP

 

Other
Operating
Segments

 

Corporate,
Other and
Eliminations

 

Consolidated

 

 

 

(in thousands)

 

Three Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

389,386

 

$

272,354

 

$

80,440

 

$

 

$

742,180

 

Income (loss) from operations

 

18,797

 

(35,888

)

17,912

 

(36,121

)

(35,300

)

Depreciation, depletion and amortization

 

43,962

 

48,867

 

10,499

 

1,827

 

105,155

 

Amortization of acquired sales contracts, net

 

(1,200

)

(1,815

)

2

 

 

(3,013

)

Asset impairment and mine closure costs

 

 

5,060

 

 

 

5,060

 

Capital expenditures

 

8,174

 

9,039

 

4,678

 

1,064

 

22,955

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

420,521

 

$

263,189

 

$

107,559

 

$

 

$

791,269

 

Income (loss) from operations

 

20,694

 

(157,883

)

56

 

(97,620

)

(234,753

)

Depreciation, depletion and amortization

 

46,619

 

46,530

 

11,958

 

1,216

 

106,323

 

Amortization of acquired sales contracts, net

 

(864

)

(2,691

)

987

 

 

(2,568

)

Asset impairment and mine closure costs

 

 

126,449

 

16,280

 

57,668

 

200,397

 

Capital expenditures

 

1,695

 

44,624

 

7,122

 

663

 

54,104

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,106,258

 

$

832,452

 

253,217

 

$

 

$

2,191,927

 

Income (loss) from operations

 

19,001

 

(79,890

)

34,640

 

(117,978

)

(144,227

)

Depreciation, depletion and amortization

 

124,243

 

155,087

 

29,601

 

3,111

 

312,042

 

Amortization of acquired sales contracts, net

 

(2,774

)

(7,266

)

92

 

 

(9,948

)

Asset impairment and mine closure costs

 

 

5,060

 

 

1,512

 

6,572

 

Capital expenditures

 

17,230

 

28,232

 

8,837

 

64,402

 

118,701

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2013

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,135,892

 

$

883,485

 

$

275,594

 

$

 

$

2,294,971

 

Income (loss) from operations

 

53,244

 

(190,278

)

23,359

 

(208,788

)

(322,463

)

Depreciation, depletion and amortization

 

130,993

 

157,867

 

34,319

 

4,422

 

327,601

 

Amortization of acquired sales contracts, net

 

(3,004

)

(7,975

)

3,392

 

 

(7,587

)

Asset impairment and mine closure costs

 

 

126,449

 

16,280

 

78,150

 

220,879

 

Capital expenditures

 

5,671

 

137,390

 

17,923

 

62,184

 

223,168

 

 

A reconciliation of segment income (loss) from operations to consolidated loss before income taxes follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(In thousands)

 

 

 

 

 

Loss from operations

 

$

(35,300

)

$

(234,753

)

$

(144,227

)

$

(322,463

)

Interest expense

 

(98,217

)

(95,624

)

(292,648

)

(285,454

)

Interest and investment income

 

1,949

 

697

 

5,828

 

4,749

 

Loss from continuing operations before income taxes

 

$

(131,568

)

$

(329,680

)

$

(431,047

)

$

(603,168

)

 

17. 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

 

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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, 2014

 

 

 

Parent/Issuer

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

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, 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

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

(131,586

)

2,148

 

(125

)

(2,005

)

(131,568

)

Benefit from income taxes

 

(34,368

)

 

18

 

 

(34,350

)

Net income (loss)

 

$

(97,218

)

$

2,148

 

$

(143

)

$

(2,005

)

$

(97,218

)

Total comprehensive income (loss)

 

$

(99,197

)