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): January 23, 2003
(January 23, 2003)
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 January 23, 2003, Arch Coal, Inc. (the "Company"), announced via press
release its earnings and operating results for the fourth 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 January 23, 2003
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: January 23, 2003 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 January 23, 2003
Page 4 of 4 pages.
Exhibit 99
News from
Arch Coal, Inc.
--------------------------------------------------------------------------------
FOR FURTHER INFORMATION
Deck S. Slone
Vice President,
Investor and Public Relations
(314) 994-2717
FOR IMMEDIATE RELEASE
January 23, 2003
Arch Coal, Inc. Reports Fourth Quarter Results
Highlights:
o Net income of $1.1 million, or $.02 per share, vs. net income of $8.4 million,
or $.16 per share, in 4Q01 o Adjusted EBITDA of $57.9 million, vs. $75.1 million
in 4Q01
o Total revenues of $390.4 million, vs. $385.4 million in 4Q01
o Coal sales of 28.4 million tons, vs. 28.5 million tons in 4Q01
o Debt reduction of $51.5 million during the quarter
St. Louis - Arch Coal, Inc. (NYSE:ACI) today announced that it had net
income of $1.1 million, or $.02 per share, for its fourth quarter ended December
31, 2002. In the same quarter of 2001, Arch had net income of $8.4 million, or
$.16 per share.
"We achieved solid operating performances at nearly all of our mines during
the fourth quarter, albeit at reduced operating rates," said Steven F. Leer,
Arch Coal's president and chief executive officer. "We continue to see many
positive signs that a rebound in U.S. coal demand and pricing may be
forthcoming, and we are managing our operations in a manner that should enable
us to capitalize when that rebound occurs."
During most of 2002, a weak economy and high coal stockpile levels at U.S.
power plants exerted downward pressure on U.S. coal markets. In response, Arch
made the strategic decision in early 2002 to reduce production until market
fundamentals improved. During the fourth quarter, lower production levels,
principally at Arch's eastern operations, again had an adverse impact on the
company's results. Offsetting that impact somewhat was a nearly 400,000-ton
increase in shipped volumes from the company's West Elk mine in Colorado
compared to the same quarter of 2001. (Production at West Elk in the fourth
quarter of 2001 was curtailed by high methane levels.) Brokered volumes also
increased in the fourth quarter compared to the same period a year ago.
For the year ended December 31, 2002, Arch Coal had a net loss of $2.6
million, or $.05 per share, compared to net income of $7.2 million, or $.15 per
share, in 2001. Total revenues for the year totaled $1,534.1 million and coal
sales totaled 106.7 million tons, vs. $1,488.7 million and 109.5 million tons in
2001. Adjusted EBITDA totaled $228.9 million for the year, compared to $282.3
million in 2001.
Natural Resource Partners
In October, Arch completed the sale of 1.9 million units of Natural
Resource Partners (NYSE:NRP), a newly formed joint venture created to manage
coal royalty properties. Net proceeds to Arch, after the underwriting discount
and expenses, totaled $33.6 million, which were applied to debt reduction
efforts. The transaction is expected to be accretive to earnings. Arch continues
to hold 34.1% of the NRP limited partnership units and 42.25% of the general
partner interest.
Using the funds from the sale of NRP units and cash available from ongoing
operations, the company reduced its debt by $51.5 million, or 6%, from levels at
Sept. 30, 2002.
Arch's continuing interest in Natural Resource Partners contributed $2.3
million to equity income during the quarter. (Arch's equity income from its
investment in NRP is reported on a one-month time lag and includes the effects
of Arch's historical basis in the assets it contributed to NRP. As such, Arch's
equity income from NRP may not be indicative of the results to be reported by
NRP for the noted period.) Offsetting the increase in equity income related to
NRP, equity income from Arch's 65%-owned Canyon Fuel Company declined from $11.9
million to $5.5 million, reflecting the expiration of a favorable sales contract
at the end of 2001 and a weak market environment for Utah coal in the fourth
quarter of 2002.
Operating statistics
Regional analysis: Of the 28.4 million tons of coal that Arch sold during
the fourth quarter, approximately 7.7 million tons originated at its eastern
operations and 20.7 million tons originated at its western operations. Arch Coal
had an average realized sales price of $13.04 per ton and average operating
costs of $12.57 per ton. The eastern operations had an average realized sales
price of $29.93 per ton and an average cost of $29.34 per ton during the
quarter. The western operations had an average realized sales price of $6.80 per
ton and an average cost of $6.36 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 first quarter of 2003: In the east, Arch
expects to sell a total of approximately 6.0 million tons of coal in the first
quarter of 2003 from its mines in Central Appalachia, excluding brokered tons.
In the west, Arch expects to sell approximately 16.0 million tons of coal at its
Black Thunder mine in the Powder River Basin of Wyoming, and roughly 1.5 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
be approximately 3.7 million tons for the quarter.
Financial: Arch expects depreciation, depletion and amortization to total
approximately $200 million for 2003. Capital expenditures are expected to total
around $160 million, as the company continues to limit capital spending due to
the weak market environment. (Projections for depreciation, depletion and
amortization and capital expenditures include Arch's ownership percentage in
Canyon Fuel Company.)
Other developments: During the quarter, the company reduced its days sales
outstanding in accounts receivable, from 38 days at year-end 2001 to 33 days at
year-end 2002.
U.S. coal markets
Although coal markets remain under significant pressure, there are many
positive indications that a recovery in demand and pricing is possible in the
near term, Leer said. Among them:
o Electricity demand is growing.
o Many regions of the country, including the major coal-burning regions,
have experienced substantially colder temperatures this winter compared
to last winter.
o Natural gas prices are trading at levels more than double those of a
year ago, which should result in power producers seeking to maximize
output at coal-fired power plants.
o Coal production declined by an estimated 2.5% in 2002, and
announcements of eastern mine closures and curtailments have continued
in recent weeks.
o Extremely dry conditions in the western half of the country are
threatening to reduce hydroelectric generation this spring and summer,
which could boost demand for coal-fired generation.
"We are already seeing the first signs of a recovery in coal prices," Leer
said. "In recent weeks, eastern spot prices have increased approximately 10%,
although volumes remain light. If temperatures remain at normal or
colder-than-normal levels for the remainder of the winter, and economic activity
does not falter, we anticipate a pick-up in demand for coal in the near term."
Leer reiterated that Arch is focused on being a market-driven company and
would not seek to increase output at its mines until the improving pricing
environment attains levels that will allow satisfactory returns on the company's
investment. "In the current environment, we believe it is in the best interests
of our shareholders to leave uncommitted, low-cost reserves in the ground,
rather than produce and sell them for little or no return," Leer added.
Looking ahead
Leer said that the company is not expecting an improvement in its financial
results until coal markets complete their rebound. "In the first quarter, we
expect continued stability and consistency at our mining operations," he said.
"We expect sales volumes to be somewhat lower than in the fourth quarter as we
continue to refrain from selling coal into the spot market, and ship only that
tonnage which is already committed under contract."
While results from mining operations are expected to be comparable in the
first quarter to those achieved in the fourth quarter, the company does expect
an increase in costs in 2003, principally due to higher expenses related to its
post-retirement health care obligations. These obligations, coupled with a much
smaller increase in pension-related expenses, are expected to increase costs by
approximately $8.0 million per quarter, reducing earnings by approximately $.12
per share. As a result, the company expects to lose between $.05 and $.20 cents
per share during the first quarter of 2003, absent improvements in coal demand
and pricing in the near term.
"Our projection for the first quarter assumes that shipping volumes will be
substantially lower in the first quarter than in future quarters," Leer said.
"If eastern coal markets continue the trend of recent weeks by strengthening
further, and if western markets follow suit, we could see increased shipping
rates and a stronger performance in the first quarter."
"We are confident that power generators will require more coal in 2003 than
they currently have under contract," he said. "While we can't predict exactly
when demand will accelerate, market fundamentals continue to strengthen, and we
expect an improving market to have a favorable impact on sales volumes and
pricing as the year progresses."
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 continued 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 Twelve Months Ended
December 31 December 31
-----------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------
(Unaudited) (Unaudited)
Revenues
Coal sales $ 369,676 $ 355,867 $1,473,558 $1,403,370
Income from equity investments 7,800 11,878 10,092 26,250
Other revenues 12,966 17,671 50,489 59,108
-----------------------------------------------------------------
390,442 385,416 1,534,139 1,488,728
-----------------------------------------------------------------
Costs and expenses
Cost of coal sales 356,347 344,491 1,412,541 1,336,788
Selling, general and administrative expenses 10,344 9,245 40,019 43,834
Amortization of coal supply agreements 6,311 6,082 22,184 27,460
Other expenses 9,262 5,569 30,118 18,190
-----------------------------------------------------------------
382,264 365,387 1,504,862 1,426,272
-----------------------------------------------------------------
Income from operations 8,178 20,029 29,277 62,456
Interest expense, net:
Interest expense (12,140) (13,002) (51,922) (64,211)
Interest income 284 383 1,083 4,264
-----------------------------------------------------------------
(11,856) (12,619) (50,839) (59,947)
-----------------------------------------------------------------
Income (loss) before income taxes (3,678) 7,410 (21,562) 2,509
Benefit from income taxes (4,750) (1,000) (19,000) (4,700)
-----------------------------------------------------------------
Net Income (loss) $ 1,072 $ 8,410 $ (2,562) $ 7,209
=================================================================
Basic and diluted earnings (loss) per common share $ 0.02 $ 0.16 $ (0.05) $ 0.15
=================================================================
Weighted average shares outstanding
Basic 52,382 52,349 52,374 48,650
Diluted 52,533 52,506 52,374 48,918
=================================================================
Dividends declared per share $ 0.0575 $ 0.0575 $ 0.2300 $ 0.2300
=================================================================
Adjusted EBITDA (A) $ 57,853 $ 75,108 $ 228,910 $ 282,285
=================================================================
(A) Adjusted EBITDA is defined as income from operations before the effect of
net interest expense; income taxes; our depreciation, depletion and
amortization; and our equity interest in the depreciation, depletion and
amortization of Canyon Fuel Company, LLC. Adjusted EBITDA is not a measure
of financial performance in accordance with generally accepted accounting
principles, and items excluded to calculate Adjusted EBITDA are significant
in understanding and assessing our financial condition. Therefore, Adjusted
EBITDA should not be considered in isolation nor as an alternative to net
income, income from operations, cash flows from operations or as a measure
of our profitability, liquidity or performance under generally accepted
accounting principles. We believe that Adjusted EBITDA presents a useful
measure of our ability to service and incur debt based on ongoing
operations. Furthermore, analogous measures are used by industry analysts
to evaluate operating performance. Investors should be aware that our
presentation of Adjusted EBITDA may not be comparable to similarly titled
measures used by other companies. The table below shows how we calculate
Adjusted EBITDA.
Three Months Ended Twelve Months Ended
December 31 December 31
--------------------------------------------------------------
2002 2001 2002 2001
--------------------------------------------------------------
Income from operations $ 8,178 $ 20,029 $ 29,277 $ 62,456
Depreciation, depletion and amortization of Arch Coal, Inc. 43,917 45,207 174,752 177,504
Arch Coal's equity interest in depreciation, depletion and
amortization of Canyon Fuel Company, LLC 5,758 9,872 24,881 42,325
--------------------------------------------------------------
Adjusted EBITDA $ 57,853 $ 75,108 $ 228,910 $ 282,285
==============================================================
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
December 31, December 31,
2002 2001
-----------------------------------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 9,557 $ 6,890
Trade receivables 135,903 149,956
Other receivables 30,927 32,303
Inventories 66,799 60,133
Prepaid royalties 4,971 1,997
Deferred income taxes 27,775 23,840
Other 15,781 14,337
-----------------------------------------
Total current assets 291,713 289,456
-----------------------------------------
Property, plant and equipment, net 1,284,968 1,396,786
-----------------------------------------
Other assets
Prepaid royalties 51,078 35,216
Coal supply agreements 59,240 81,424
Deferred income taxes 221,116 195,411
Equity investments 231,551 170,686
Other 43,142 34,580
-----------------------------------------
606,127 517,317
-----------------------------------------
Total assets $ 2,182,808 $ 2,203,559
=========================================
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 113,527 $ 99,081
Accrued expenses 133,287 134,062
Current portion of debt 7,100 6,500
-----------------------------------------
Total current liabilities 253,914 239,643
Long-term debt 740,242 767,355
Accrued postretirement benefits other than pension 324,539 326,098
Accrued reclamation and mine closure 130,097 123,761
Accrued workers' compensation 80,985 78,768
Accrued pension cost - 22,539
Obligations under capital leases - 8,210
Other noncurrent liabilities 118,168 66,443
-----------------------------------------
Total liabilities 1,647,945 1,632,817
-----------------------------------------
Stockholders' equity
Common stock 527 527
Paid-in capital 835,763 835,427
Retained deficit (253,943) (239,336)
Treasury stock, at cost (5,047) (5,047)
Accumulated other comprehensive loss (42,437) (20,829)
-----------------------------------------
Total stockholders' equity 534,863 570,742
-----------------------------------------
Total liabilities and stockholders' equity $ 2,182,808 $ 2,203,559
=========================================
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Twelve Months Ended
December 31,
-------------------------------------------------
2002 2001
--------------- ---------------
(Unaudited)
Operating activities
Net income (loss) $ (2,562) $ 7,209
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 174,752 177,504
Prepaid royalties expensed 8,503 7,274
Net gain on disposition of assets (751) (14,627)
Income from equity investments (10,092) (26,250)
Net distributions from equity investments 17,121 42,219
Changes in:
Receivables 14,028 (1,992)
Inventories (6,666) (12,203)
Accounts payable and accrued expenses (4,711) (19,836)
Income taxes (15,826) 1,053
Accrued postretirement benefits other than pension (1,559) (10,565)
Accrued reclamation and mine closure 6,336 4,833
Accrued workers' compensation benefits 2,217 175
Other (4,373) (9,133)
--------------- ---------------
Cash provided by operating activities 176,417 145,661
--------------- ---------------
Investing activities
Additions to property, plant and equipment (137,089) (123,414)
Proceeds from sale of units of Natural Resource Partners, LP 33,603 -
Proceeds from dispositions of property, plant and equipment 2,522 18,930
Additions to prepaid royalties (27,339) (24,725)
--------------- ---------------
Cash used in investing activities (128,303) (129,209)
--------------- ---------------
Financing activities
Net payments on revolver and lines of credit (26,513) (241,940)
Payments on term loans - (135,000)
Debt financing costs (8,228) -
Proceeds from sale and leaseback of equipment 9,213 -
Reductions of obligations under capital lease (8,210) (3,138)
Dividends paid (12,045) (11,565)
Proceeds from sale of common stock 336 381,100
Purchase of treasury stock - (5,047)
--------------- ---------------
Cash used in financing activities (45,447) (15,590)
--------------- ---------------
Increase in cash and cash equivalents 2,667 862
Cash and cash equivalents, beginning of period 6,890 6,028
--------------- ---------------
Cash and cash equivalents, end of period $ 9,557 $ 6,890
=============== ===============
Canyon Fuel Company cash flow information (Arch Coal ownership percentage)
Depreciation, depletion and amortization 24,881 42,325
Additions to property, plant and equipment (21,773) (19,399)