Market Overview

Arch Coal, Inc. Reports Second Quarter 2013 Results

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Quarterly Adj. EBITDA increases 32% over first quarter, reaches $110 million

Successful execution of cost reduction initiatives leads to improved 2013 guidance

Outlook for U.S. thermal coal market improving

ST. LOUIS, July 30, 2013 /PRNewswire/ --

Earnings Highlights

In $ millions, except per share data


Quarter Ended


Six Months Ended



6/30/13


6/30/12



6/30/13


6/30/12

Revenues 1


$766.3


$965.7



$1,503.7


$1,925.9

Income (Loss) from Operations 1


(36.3)


(596.9)



(87.7)


(569.1)

Net Income (Loss) 2


(72.2)


(435.5)



(142.3)


(434.3)

Diluted EPS/LPS


(0.34)


(2.05)



(0.67)


(2.05)

Adjusted Net Income (Loss) 2,3


(60.5)


(22.1)



(132.4)


(29.7)

Adjusted Diluted EPS/LPS 3


(0.29)


(0.10)



(0.62)


(0.14)

Adjusted EBITDA 3


$110.5


$180.9



$194.2


$360.7











1/- Excludes discontinued operations.










2/- Net income attributable to ACI.










3/- Defined and reconciled under "Reconciliation of non-GAAP measures."
















Arch Coal, Inc. (NYSE: ACI) today reported a net loss of $72.2 million, or $0.34 per diluted share, in the second quarter of 2013. Excluding non-cash accretion of acquired coal supply agreements and asset impairment costs, Arch's second quarter 2013 adjusted net loss was $60.5 million, or $0.29 per diluted share. In the second quarter of 2012, Arch reported an adjusted net loss of $22.1 million, or $0.10 per diluted share.

(Logo: http://photos.prnewswire.com/prnh/20120727/CG47668LOGO)

Arch reported second quarter 2013 revenues of $766 million, representing a decline versus the prior-year quarter and reflective of overall weakness in the metallurgical coal markets compared with the year-ago period. Adjusted earnings before interest, taxes, depreciation, depletion and amortization ("EBITDA") totaled $110.5 million in the second quarter of 2013 compared with $180.9 million in the second quarter of 2012 and $83.6 million in the first quarter of 2013, representing an increase of 32 percent versus the prior-quarter period. Arch's second quarter 2013 adjusted EBITDA excludes an asset impairment charge of $20.5 million related to an investment in a clean coal power plant project that was cancelled.

"During the second quarter, we achieved a sequential improvement in our earnings as we continued to manage our business effectively in the face of weak coal market conditions," said John W. Eaves, Arch's president and chief executive officer. "Arch employed strong cost control, particularly in the Powder River Basin and in Appalachia, which positively impacted our per-ton margins. Our cost reduction initiatives are generating results, and we will continue to pursue aggressive cost reductions across all of our operations during the second half of the year."

As of June 30, 2013, Arch had a total liquidity position of approximately $1.2 billion, with nearly $900 million of that liquidity in the form of cash and short-term investments. The company had no borrowings under its revolving credit facility at June 30, and has no long-term debt maturities until August 2016.

"Looking ahead, we remain sharply focused on further reducing discretionary operating costs and capital expenditures across the organization, pursuing non-core asset sales and managing our liquidity closely," said Eaves. "To that end, we are reducing our full year 2013 cost guidance expectations in every operating region and lowering our annual capital spending levels. We remain committed to successfully managing through this market downturn while continuing to set the stage for value creation for our stakeholders over the long term."

Key Developments

On June 27, 2013, Arch signed a definitive agreement to sell its wholly-owned subsidiary, Canyon Fuel Company, LLC ("Canyon Fuel"), to Bowie Resources for $435 million. The sale includes the Sufco and Skyline longwall mines and the Dugout Canyon continuous miner operation as well as approximately 105 million tons of bituminous coal reserves in Utah.

"We are taking the right steps to weather this downturn and emerge as an even stronger player when the market rebounds," said Eaves. "Beyond exercising cost and capital restraint, we are executing our strategy to divest non-core thermal assets, such as Canyon Fuel. This sale pulls forward multiple years of expected cash flows, reduces our future capital outlays and greatly enhances our financial flexibility."

As a result of the sale of its Utah operations, Arch expects to achieve cumulative capital and administrative cost savings of more than $200 million from 2014 through 2017. This projected future spending would be required to sustain current production levels in the region. Upon closing, which is expected during the third quarter of 2013, Arch will receive gross cash proceeds of $435 million. After adjustments, the company expects to record a pre-tax gain of approximately $120 million related to the sale of Canyon Fuel.

"The divestiture of Canyon Fuel will streamline Arch's asset portfolio and allow us to focus our resources on the most value-enhancing parts of our business," said Eaves. "Those elements include optimizing a strong Powder River Basin franchise, building out and upgrading our Appalachian metallurgical coal platform and maintaining low-cost thermal coal assets to serve both the domestic and export coal markets."

Core Values

Arch continued to deliver strong safety and environmental performances in the second quarter of 2013. Arch's lost-time safety incident rate for the first half of 2013 was more than four times better than the national coal industry average and represented a 16 percent improvement over the company's incident rate during the same period last year. Arch also improved its environmental compliance record during the first six months of 2013 compared with the prior-year period.

Arch's operations were honored with five regional and statewide safety and environmental awards during the second quarter of 2013. The Rocky Mountain Coal Mining Institute honored Coal Creek, Dugout and Sufco with top awards for their outstanding safety records during 2012. In addition, the Skyline and Sufco mines in Utah received 2013 Earth Day Awards for their continued excellence in environmental performance.

"We congratulate our mine personnel for continuing to earn external recognition for outstanding safety and environmental performances in the second quarter, and we also want to recognize the eight operations and facilities that attained A Perfect Zero – a dual goal of operating without a reportable safety incident or SMCRA environmental violation – between April and June," said Paul A. Lang, Arch's executive vice president and chief operating officer. "These achievements reflect our ongoing commitment to operating safely and responsibly, and I commend the hard work and focus of our employees."

Operational Results

"Arch continued to decrease costs during the second quarter of 2013 and achieved lower cash costs per ton in several operating regions compared with the first quarter," said Lang. "Going forward, we believe our operations can continue to maintain and build on the strong cost performance demonstrated in the first half of the year." 












Arch Coal, Inc.



2Q13



1Q13



2Q12












Tons sold (in millions)


35.0



34.1



31.5


Average sales price per ton


$22.34



$21.66



$28.44


Cash cost per ton


$18.57



$18.02



$22.42


Cash margin per ton


$3.77



$3.64



$6.02


Total operating cost per ton 


$21.90



$21.46



$26.57


Operating margin per ton


$0.44



$0.20



$1.87












Consolidated results may not tie to regional breakout due to exclusion of other assets, rounding.


Operating results include Canyon Fuel subsidiary.








Operating cost per ton includes depreciation, depletion and amortization per ton.




Amounts reflected in this table have been adjusted for certain transactions.  





For a description of adjustments, refer to the regional schedule at http://investor.archcoal.com











Second quarter 2013 consolidated cash margin per ton increased approximately 4 percent compared with the first quarter, benefitting from increased shipments and strong cost control in the company's Powder River Basin and Appalachian segments. Consolidated sales price per ton and consolidated cash cost per ton increased slightly over the same time period measured, primarily due to a larger percentage of Appalachian tons in the company's overall volume mix.












Powder River Basin




2Q13



1Q13



2Q12












Tons sold (in millions)


27.1



26.6



21.8


Average sales price per ton


$12.56



$12.68



$13.65


Cash cost per ton


$10.47



$10.65



$11.01


Cash margin per ton


$2.09



$2.03



$2.64


Total operating cost per ton 


$12.02



$12.24



$12.71


Operating margin per ton


$0.54



$0.44



$0.94












Operating cost per ton includes depreciation, depletion and amortization per ton.


Amounts reflected in this table have been adjusted for certain transactions.  














In the Powder River Basin, second quarter 2013 cash margin per ton increased 3 percent compared with the first quarter due to the impact of higher sales volumes and strong cost control. Average sales price per ton declined slightly over the same period, mainly driven by lower pricing on market-based tons. The decline in average sales price per ton was more than offset by a 2 percent decline in cash cost per ton, largely driven by cost containment efforts and the impact of higher shipment levels.












Appalachia




2Q13



1Q13



2Q12












Tons sold (in millions)


4.0



3.4



5.2


Average sales price per ton


$74.18



$74.76



$85.45


Cash cost per ton


$65.70



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