SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 24, 2002(April 22, 2002)
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-13105 43-0921172
State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
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
Page 1 of 4 pages.
Exhibit Index begins on page 4.
Item 5. Other Events.
On April 22, 2002, Arch Coal, Inc. (the "Company"), announced via press
release its earnings and operating results for the first quarter of 2002. A copy
of the Company's press release is attached hereto and incorporated herein by
reference in its entirety.
Item 7. Financial Statements and Exhibits.
(c) The following Exhibit is filed with this Current Report on Form 8-K:
Exhibit No. Description
99 Press Release dated as of April 22, 2002
Page 2 of 4 pages.
Exhibit Index begins on page 4.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated: April 24, 2002 ARCH COAL, INC.
By: /s/ Robert G. Jones
Robert G. Jones
Vice President - Law, General Counsel
and Secretary
Page 3 of 4 pages.
Exhibit Index begins on page 4.
EXHIBIT INDEX
Exhibit No. Description
99 Press Release dated as of April 22, 2002
Page 4 of 4 pages.
Exhibit 99
Arch Coal, Inc.
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FOR FURTHER INFORMATION:
Deck S. Slone
Vice President,
Investor and Public Relations
(314) 994-2717
FOR IMMEDIATE RELEASE
April 22, 2002
Arch Coal, Inc. reports first quarter results
Highlights:
* Net loss of $7.4 million, or $.14 per share, vs. net income of $6.1 million,
or $.15 per share, in 1Q01 * Adjusted EBITDA of $49.1 million, vs. $80.3 million
in 1Q01 * Total revenues of $368.5 million, vs. $381.4 million in 1Q01 * Coal
sales of 24.7 million tons, vs. 27.2 million tons in 1Q01 ST. LOUIS, April 22 --
Arch Coal, Inc. (NYSE: ACI) today announced that it had a net loss of $7.4
million, or $.14 per share, for its first quarter ended March 31, 2002. The
company had previously announced that it expected a net loss of between $.05 and
$.15 for the quarter. In the same quarter of 2001, Arch had net income of $6.1
million, or $.15 per share.
U.S. coal markets are currently in a state of oversupply following an extremely
mild winter and a period of economic weakness that dampened electricity demand
in recent quarters. In response to this unfavorable near- term spot market
environment, Arch announced in March that it had reduced the rate of production
at its mining operations by approximately 7%. At the same time, the company
announced that it would cut 2002 capital spending from its previous estimate of
between $180 million and $200 million, to an expected $150 million.
"The single biggest influence on the quarter's performance was our decision to
curtail production at our mines in response to the weak market environment,"
Leer said. "As a market-driven company, we don't believe it is wise to force
tonnage into an oversupplied market. These actions increase our per-ton costs in
the short term, but should have a significant long-term benefit."
"We continue to take steps to align our costs with reduced production levels,
and we expect this effort to lead to an improved performance in the year's
second half and thereafter," Leer added. "However, most of our costs are
relatively fixed in the near term -- and the fact that those costs are now being
spread over fewer tons will have a continuing impact on our operating results as
we enter the second quarter. Nevertheless, we are confident that we are doing
the right thing for the company, its shareholders and its employees by electing
not to sell coal into the spot market at very low prices."
Market environment
Stockpile levels at power producers remain high, and, in keeping with its
market-driven philosophy, Arch has tried to work with its customers to address
that issue. However, Leer noted that there is good reason for optimism in the
intermediate and longer term. "Industrial activity appears to be picking up,
natural gas prices have climbed higher on the expectation of more robust demand,
and coal prices -- especially for coal to be delivered in future periods -- are
showing signs of a rebound," Leer said. "If normal weather patterns return --
and I might note that we have seen an early start to the air-conditioning season
-- we expect the market to continue to strengthen as we move into summer."
Leer pointed out that the company should be in a strong position to respond as a
stronger market environment materializes. "The steps that we have taken to
curtail production will enhance our ability to provide low-cost coal to the
market as electricity demand rebounds, and should serve the company well as it
makes commitment for future periods," he said.
Leer reiterated that the decision to curtail production instead of participating
in the spot market would continue to have an adverse impact on revenues and
margins in the near term, and indicated that the company currently expects a
loss of between $.04 and $.12 in the second quarter absent a change in the
current market environment. "With continued cost control efforts and the
prospects of a stronger demand and pricing environment, we are optimistic that
the company will have a much stronger second half," Leer said. "We believe that
the operational challenges at two of our mines, West Elk and Samples, are behind
us, and we are well positioned to capitalize when coal markets strengthen."
Other developments
Arch Coal and its Arch Western Resources subsidiary completed the refinancing of
their existing credit facilities on April 18. The new credit facilities include
five- and six-year term loans totaling $675 million at Arch Western Resources,
and a five-year revolver totaling $350 million for Arch Coal. Arch expects its
blended cost of debt to be generally consistent with the level of past years.
The company also announced on April 19 that it had created a limited
partnership, Natural Resource Partners L.P., with three affiliated private
companies -- Western Pocahontas Properties Limited Partnership, Great Northern
Properties Limited Partnership and New Gauley Coal Corporation (collectively,
the "WPP Group"). Natural Resource Partners was formed to engage principally in
the business of owning and managing coal royalty properties in the three major
coal-producing regions of the United States: Appalachia, the Illinois Basin and
the Western United States. The partnership has filed a registration statement on
Form S-1 with the Securities and Exchange Commission relating to a proposed
underwritten initial public offering of common units representing limited
partner interests in Natural Resource Partners. Arch is contributing
approximately 454 million tons of its 3.4 billion tons of total reserves to
Natural Resource Partners.
Operating statistics
Regional analysis: Of the 24.7 million tons of coal that Arch sold during the
first quarter, approximately 8.1 million tons originated at its eastern
operations and 16.6 million tons originated at its western operations. Arch Coal
had an average realized sales price of $14.53 per ton and average operating
costs of $14.07 per ton. The eastern operations had an average realized sales
price of $30.39 per ton and an average cost of $29.30 per ton during the
quarter. The western operations had an average realized sales price of $6.73 per
ton and an average cost of $6.53 per ton during the quarter. (Western operations
data does not include the results of 65%-owned Canyon Fuel Company, which is
accounted for on the equity method.)
Expected sales volume for the second quarter of 2002: In the east, Arch expects
to sell a total of approximately 7.2 million tons of coal in the second quarter
from its mines in Central Appalachia, excluding brokered tons. In the west, Arch
expects to sell approximately 15.0 million tons of coal at its Black Thunder
mine in the Powder River Basin of Wyoming, and roughly 1.7 million tons at the
West Elk mine in Colorado, excluding brokered tons. Total sales (on a 100%
basis) at Arch's 65%-owned Canyon Fuel operations in Utah are expected to exceed
3.0 million tons for the second quarter.
Financial: Arch expects depreciation, depletion and amortization to total
approximately $210 million in 2002, which is lower than previously expected due
to downward revisions in anticipated capital spending. Capital expenditures are
expected to total approximately $150 million. (Projections for depreciation,
depletion and amortization and capital expenditures include Arch's ownership
percentage in Canyon Fuel Company.)
Looking ahead
"We are very optimistic about the future," Leer said. "We believe we have
successfully addressed operating challenges that adversely affected the recent
performances of two of our mines, and we are well-positioned to respond to an
improving demand and price environment as we look beyond the current shoulder
season."
Leer added that the long-term outlook for coal looks bright. "The driving forces
that spurred last year's strong demand and pricing environment are still very
much in place," Leer said. "Nuclear power plants are unlikely to improve on
their record performances of recent years. High natural gas prices in the face
of a strong storage picture suggest concerns about supply going forward. And an
increasingly tense geopolitical environment may lead to a greater emphasis on
domestic energy sources such as coal. We firmly believe that coal is the only
economic option available for fueling the nation's ever-increasing demand for
baseload electric power over the course of the next decade."
A conference call concerning first quarter earnings will be webcast live today
at 11 a.m. EDT. The conference call can be accessed via the "investor" section
of the Arch Coal web site (www.archcoal.com).
Arch Coal is the nation's second largest coal producer with subsidiary
operations in West Virginia, Kentucky, Virginia, Wyoming, Colorado and Utah.
Through these operations, Arch Coal provides the fuel for approximately 6% of
the electricity generated in the United States.
Definition: Adjusted EBITDA is presented above because it is a widely accepted
financial indicator of a company's ability to incur and service debt. Adjusted
EBITDA should not be considered in isolation or as an alternative to net income,
operating income, cash flows from operations, or as a measure of a company's
profitability, liquidity or performance under generally accepted accounting
principles. Adjusted EBITDA is defined as income from operations before the
effect of net interest expense, income taxes, and depreciation, depletion and
amortization for Arch Coal, Inc., its subsidiaries and its ownership percentage
in its equity investments.
Forward-Looking Statements: Statements in this press release which are not
statements of historical fact are forward-looking statements within the "safe
harbor" provision of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on information currently available to, and
expectations and assumptions deemed reasonable by, the company. Because these
forward-looking statements are subject to various risks and uncertainties,
actual results may differ materially from those projected in the statements.
These expectations, assumptions and uncertainties include: the company's
expectation of continued growth in the demand for electricity; belief that
legislation and regulations relating to the Clean Air Act and the relatively
higher costs of competing fuels will increase demand for its compliance and
low-sulfur coal; expectation of improved market conditions for the price of
coal; expectation that the company will continue to have adequate liquidity from
its cash flow from operations, together with available borrowings under its
credit facilities, to finance the company's working capital needs; a variety of
operational, geologic, permitting, labor and weather related factors; and the
other risks and uncertainties which are described from time to time in the
company's reports filed with the Securities and Exchange Commission.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended
March 31
2002 2001
(Unaudited)
Revenues
Coal sales $358,595 $360,043
Income from equity investment 1,268 6,059
Other revenues 8,604 15,325
368,467 381,427
Costs and expenses
Cost of coal sales 347,211 329,525
Selling, general and administrative
expenses 9,870 13,794
Amortization of coal supply agreements 5,114 7,586
Other expenses 7,592 4,329
369,787 355,234
Income (loss) from operations (1,320) 26,193
Interest expense, net:
Interest expense (12,002) (21,354)
Interest income 268 251
(11,734) (21,103)
Income (loss) before income taxes (13,054) 5,090
Benefit from income taxes (5,700) (1,000)
Net Income (loss) $(7,354) $6,090
Basic and diluted earnings (loss) per
common share $(0.14) $0.15
Weighted average shares outstanding 52,356 40,411
Dividends declared per share $0.0575 $0.0575
Adjusted EBITDA (A) $49,138 $80,313
(A) Adjusted EBITDA is defined as income from operations before the effect
of net interest expense; income taxes; and depreciation, depletion and
amortization for Arch Coal, Inc., its subsidiaries and its ownership
percentage in its equity investments.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
March 31, December 31,
2002 2001
Assets (Unaudited)
Current assets
Cash and cash equivalents $1,602 $6,890
Trade receivables 139,104 149,956
Other receivables 32,139 32,303
Inventories 70,127 60,133
Prepaid royalties 3,035 1,997
Deferred income taxes 23,840 23,840
Other 13,190 14,337
Total current assets 283,037 289,456
Property, plant and equipment, net 1,430,170 1,396,786
Other assets
Prepaid royalties 51,116 35,216
Coal supply agreements 76,309 81,424
Deferred income taxes 197,209 195,411
Investment in Canyon Fuel 156,608 170,686
Other 36,750 34,580
517,992 517,317
Total assets $2,231,199 $2,203,559
Liabilities and stockholders' equity
Current liabilities
Accounts payable $115,228 $99,081
Accrued expenses 147,133 134,062
Current portion of debt 6,500 6,500
Total current liabilities 268,861 239,643
Long-term debt 792,354 767,355
Accrued postretirement benefits other
than pension 325,618 326,098
Accrued reclamation and mine closure 126,074 123,761
Accrued workers' compensation 79,061 78,768
Accrued pension cost 5,353 22,539
Obligations under capital leases 7,691 8,210
Other noncurrent liabilities 59,548 66,443
Total liabilities 1,664,560 1,632,817
Stockholders' equity
Common stock 527 527
Paid-in capital 835,585 835,427
Retained deficit (249,700) (239,336)
Treasury stock, at cost (5,047) (5,047)
Accumulated other comprehensive loss (14,726) (20,829)
Total stockholders' equity 566,639 570,742
Total liabilities and stockholders'
equity $2,231,199 $2,203,559
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Three Months Ended
March 31,
2002 2001
(Unaudited)
Operating activities
Net income (loss) $(7,354) $6,090
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 42,741 44,240
Prepaid royalties expensed 1,874 1,607
Net gain on disposition of assets (187) (3,435)
Income from equity investment (1,268) (6,059)
Net distributions from equity investment 15,346 20,755
Changes in:
Receivables 11,016 2,334
Inventories (9,994) (3,358)
Accounts payable and accrued expenses 11,218 14,249
Income taxes (5,700) (5,767)
Accrued postretirement benefits other
than pension (480) (3,826)
Accrued reclamation and mine closure 2,313 (2,795)
Accrued workers' compensation benefits 293 1,044
Other 3,440 413
Cash provided by operating
activities 63,258 65,492
Investing activities
Additions to property, plant and equipment (73,068) (48,547)
Proceeds from dispositions of property,
plant and equipment 1,706 3,631
Additions to prepaid royalties (18,812) (18,804)
Cash used in investing activities (90,174) (63,720)
Financing activities
Net proceeds from (payments on) revolver
and lines of credit 24,999 (51,725)
Payments on term loans - (47,000)
Reductions of obligations under capital
lease (519) (752)
Dividends paid (3,010) (2,495)
Proceeds from sale of common stock 158 96,521
Cash provided by (used in) financing
activities 21,628 (5,451)
Increase in cash and cash equivalents (5,288) (3,679)
Cash and cash equivalents, beginning of
period 6,890 6,028
Cash and cash equivalents, end of period $1,602 $2,349
Canyon Fuel Company cash flow information
(Arch Coal ownership percentage)
Depreciation, depletion and amortization 7,717 9,880
Additions to property, plant and equipment (1,634) (2,901)