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, 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)

 

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 20, 2015 there were 21,291,635 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

30

Item 3. Quantitative and Qualitative Disclosures About Market Risk

40

Item 4. Controls and Procedures

41

Part II OTHER INFORMATION

41

Item 1. Legal Proceedings

41

Item 1A. Risk Factors

44

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

46

Item 4. Mine Safety Disclosures

46

Item 6. Exhibits

46

 

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,

 

 

 

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

)

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

 

––

 

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

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(2,236,772

)

(35,300

)

(2,326,030

)

(144,227

)

Interest expense, net

 

 

 

 

 

 

 

 

 

Interest expense

 

(99,759

)

(98,217

)

(298,585

)

(292,648

)

Interest and investment income

 

672

 

1,949

 

4,007

 

5,828

 

 

 

(99,087

)

(96,268

)

(294,578

)

(286,820

)

Nonoperating expense

 

 

 

 

 

 

 

 

 

Expenses related to debt restructuring

 

(7,482

)

 

(11,498

)

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(2,343,341

)

(131,568

)

(2,632,106

)

(431,047

)

Benefit from income taxes

 

(343,865

)

(34,350

)

(351,332

)

(112,830

)

Net loss

 

$

(1,999,476

)

$

(97,218

)

$

(2,280,774

)

$

(318,217

)

 

 

 

 

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

 

 

 

 

Basic and diluted LPS - Net loss

 

$

(93.91

)

$

(4.58

)

$

(107.16

)

$

(15.00

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

 

21,292

 

21,224

 

21,283

 

21,221

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

 

$

 

$

 

$

0.10

 

 

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,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(Unaudited)

 

Net loss

 

$

(1,999,476

)

$

(97,218

)

$

(2,280,774

)

$

(318,217

)

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) before tax

 

(2,527

)

520

 

(681

)

1,298

 

Income tax benefit (provision)

 

910

 

(187

)

246

 

(467

)

 

 

(1,617

)

333

 

(435

)

831

 

Pension, postretirement and other post-employment benefits

 

 

 

 

 

 

 

 

 

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

)

Available-for-sale securities

 

 

 

 

 

 

 

 

 

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

)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

(1,094

)

(1,979

)

2,726

 

(6,186

)

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.

 

4



Table of Contents

 

Arch Coal, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

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.

 

5



Table of Contents

 

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.

 

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, 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,

 

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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
September 30,

 

Nine Months Ended
September 30,

 

Line Item in the
Condensed Consolidated

 

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.

 

8



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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.

 

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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.

 

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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.

 

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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.

 

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Table of Contents

 

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,
2015

 

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.

 

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Table of Contents

 

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)

 

 

 

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
Other Comprehensive
Income(Effective Portion)

 

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

 

 

 

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.

 

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Table of Contents

 

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

 

 

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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.

 

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·      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
September 30, 2015

 

Nine Months Ended
September 30, 2015

 

 

 

(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

 

 

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Table of Contents

 

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

 

 

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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.

 

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Table of Contents

 

 

 

PRB

 

APP

 

Other
Operating
Segments

 

Corporate,
Other and
Eliminations

 

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

)

 

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Table of Contents

 

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.

 

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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
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

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

)

 

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Table of Contents

 

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) 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