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 June 30, 2013
|
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) |
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Identification Number) |
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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 |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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|
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 July 31, 2013 there were 212,240,999 shares of the registrant’s common stock outstanding.
FINANCIAL INFORMATION
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
(Unaudited) |
| ||||||||||
|
Revenues |
|
$ |
766,332 |
|
$ |
965,685 |
|
$ |
1,503,702 |
|
$ |
1,925,922 |
|
|
Costs, expenses and other |
|
|
|
|
|
|
|
|
| ||||
|
Cost of sales (exclusive of items shown separately below) |
|
656,198 |
|
799,558 |
|
1,305,941 |
|
1,605,817 |
| ||||
|
Depreciation, depletion and amortization |
|
111,085 |
|
124,536 |
|
221,278 |
|
255,689 |
| ||||
|
Amortization of acquired sales contracts, net |
|
(2,209 |
) |
(4,451 |
) |
(5,019 |
) |
(18,468 |
) | ||||
|
Change in fair value of coal derivatives and coal trading activities, net |
|
(9,008 |
) |
(32,054 |
) |
(7,700 |
) |
(35,667 |
) | ||||
|
Asset impairment and mine closure costs |
|
20,482 |
|
525,583 |
|
20,482 |
|
525,583 |
| ||||
|
Goodwill impairment |
|
— |
|
115,791 |
|
— |
|
115,791 |
| ||||
|
Selling, general and administrative expenses |
|
34,302 |
|
35,178 |
|
67,511 |
|
66,039 |
| ||||
|
Other operating income, net |
|
(8,239 |
) |
(1,563 |
) |
(11,081 |
) |
(19,766 |
) | ||||
|
|
|
802,611 |
|
1,562,578 |
|
1,591,412 |
|
2,495,018 |
| ||||
|
Loss from operations |
|
(36,279 |
) |
(596,893 |
) |
(87,710 |
) |
(569,096 |
) | ||||
|
Interest expense, net: |
|
|
|
|
|
|
|
|
| ||||
|
Interest expense |
|
(94,756 |
) |
(78,728 |
) |
(189,830 |
) |
(153,500 |
) | ||||
|
Interest and investment income |
|
1,216 |
|
1,088 |
|
4,052 |
|
2,109 |
| ||||
|
|
|
(93,540 |
) |
(77,640 |
) |
(185,778 |
) |
(151,391 |
) | ||||
|
Other nonoperating expense |
|
|
|
|
|
|
|
|
| ||||
|
Net loss resulting from early retirement and refinancing of debt |
|
— |
|
(19,042 |
) |
— |
|
(19,042 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Loss from continuing operations before income taxes |
|
(129,819 |
) |
(693,575 |
) |
(273,488 |
) |
(739,529 |
) | ||||
|
Benefit from income taxes |
|
(49,468 |
) |
(251,119 |
) |
(108,821 |
) |
(282,974 |
) | ||||
|
Loss from continuing operations |
|
(80,351 |
) |
(442,456 |
) |
(164,667 |
) |
(456,555 |
) | ||||
|
Income from discontinued operations, net of tax |
|
8,145 |
|
7,032 |
|
22,412 |
|
22,540 |
| ||||
|
Net loss |
|
(72,206 |
) |
(435,424 |
) |
(142,255 |
) |
(434,015 |
) | ||||
|
Less: Net income attributable to noncontrolling interest |
|
— |
|
(65 |
) |
— |
|
(268 |
) | ||||
|
Net loss attributable to Arch Coal, Inc. |
|
$ |
(72,206 |
) |
$ |
(435,489 |
) |
$ |
(142,255 |
) |
$ |
(434,283 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Loss per common share |
|
|
|
|
|
|
|
|
| ||||
|
Loss from continuing operations |
|
|
|
|
|
|
|
|
| ||||
|
Basic loss per common share |
|
$ |
(0.38 |
) |
$ |
(2.09 |
) |
$ |
(0.78 |
) |
$ |
(2.15 |
) |
|
Diluted loss per common share |
|
$ |
(0.38 |
) |
$ |
(2.09 |
) |
$ |
(0.78 |
) |
$ |
(2.15 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) attributable to Arch Coal, Inc. |
|
|
|
|
|
|
|
|
| ||||
|
Basic loss per common share |
|
$ |
(0.34 |
) |
$ |
(2.05 |
) |
$ |
(0.67 |
) |
$ |
(2.05 |
) |
|
Diluted loss per common share |
|
$ |
(0.34 |
) |
$ |
(2.05 |
) |
$ |
(0.67 |
) |
$ |
(2.05 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
| ||||
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Basic |
|
212,082 |
|
212,048 |
|
212,072 |
|
211,868 |
| ||||
|
Diluted |
|
212,082 |
|
212,048 |
|
212,072 |
|
211,868 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Dividends declared per common share |
|
$ |
0.03 |
|
$ |
0.03 |
|
$ |
0.06 |
|
$ |
0.14 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
(Unaudited) |
| ||||||||||
|
Net loss |
|
$ |
(72,206 |
) |
$ |
(435,424 |
) |
$ |
(142,255 |
) |
$ |
(434,015 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivative instruments |
|
|
|
|
|
|
|
|
| ||||
|
Comprehensive income (loss) before tax |
|
(391 |
) |
738 |
|
(1,570 |
) |
11,025 |
| ||||
|
Income tax benefit (provision) |
|
143 |
|
(265 |
) |
568 |
|
(3,967 |
) | ||||
|
|
|
(248 |
) |
473 |
|
(1,002 |
) |
7,058 |
| ||||
|
Pension, postretirement and other post-employment benefits |
|
|
|
|
|
|
|
|
| ||||
|
Comprehensive income (loss) before tax |
|
1,750 |
|
(5,600 |
) |
3,704 |
|
(4,876 |
) | ||||
|
Income tax benefit (provision) |
|
(630 |
) |
2,016 |
|
(1,333 |
) |
1,755 |
| ||||
|
|
|
1,120 |
|
(3,584 |
) |
2,371 |
|
(3,121 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
| ||||
|
Comprehensive income before tax |
|
4,959 |
|
97 |
|
6,512 |
|
491 |
| ||||
|
Income tax provision |
|
(1,788 |
) |
(35 |
) |
(2,347 |
) |
(177 |
) | ||||
|
|
|
3,171 |
|
62 |
|
4,165 |
|
314 |
| ||||
|
Total other comprehensive income (loss) |
|
4,043 |
|
(3,049 |
) |
5,534 |
|
4,251 |
| ||||
|
Total comprehensive loss |
|
$ |
(68,163 |
) |
$ |
(438,473 |
) |
$ |
(136,721 |
) |
$ |
(429,764 |
) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(Unaudited) |
| ||||
|
Assets |
|
|
|
|
| ||
|
Current assets |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
644,205 |
|
$ |
784,622 |
|
|
Restricted cash |
|
1,085 |
|
3,453 |
| ||
|
Short term investments |
|
248,464 |
|
234,305 |
| ||
|
Trade accounts receivable |
|
264,692 |
|
247,539 |
| ||
|
Other receivables |
|
71,846 |
|
84,541 |
| ||
|
Inventories |
|
356,653 |
|
365,424 |
| ||
|
Prepaid royalties |
|
8,970 |
|
11,416 |
| ||
|
Deferred income taxes |
|
67,350 |
|
67,360 |
| ||
|
Coal derivative assets |
|
31,261 |
|
22,975 |
| ||
|
Other |
|
60,811 |
|
92,469 |
| ||
|
Total current assets |
|
1,755,337 |
|
1,914,104 |
| ||
|
Property, plant and equipment, net |
|
7,231,221 |
|
7,337,098 |
| ||
|
Other assets: |
|
|
|
|
| ||
|
Prepaid royalties |
|
91,130 |
|
87,773 |
| ||
|
Goodwill |
|
265,423 |
|
265,423 |
| ||
|
Equity investments |
|
232,758 |
|
242,215 |
| ||
|
Other |
|
154,860 |
|
160,164 |
| ||
|
Total other assets |
|
744,171 |
|
755,575 |
| ||
|
Total assets |
|
$ |
9,730,729 |
|
$ |
10,006,777 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
|
Current liabilities |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
232,433 |
|
$ |
224,418 |
|
|
Coal derivative liabilities |
|
542 |
|
1,737 |
| ||
|
Accrued expenses and other current liabilities |
|
307,089 |
|
318,018 |
| ||
|
Current maturities of debt |
|
23,842 |
|
32,896 |
| ||
|
Total current liabilities |
|
563,906 |
|
577,069 |
| ||
|
Long-term debt |
|
5,078,634 |
|
5,085,879 |
| ||
|
Asset retirement obligations |
|
414,860 |
|
409,705 |
| ||
|
Accrued pension benefits |
|
66,903 |
|
67,630 |
| ||
|
Accrued postretirement benefits other than pension |
|
46,358 |
|
45,086 |
| ||
|
Accrued workers’ compensation |
|
79,004 |
|
81,629 |
| ||
|
Deferred income taxes |
|
565,047 |
|
664,182 |
| ||
|
Other noncurrent liabilities |
|
205,103 |
|
221,030 |
| ||
|
Total liabilities |
|
7,019,815 |
|
7,152,210 |
| ||
|
Stockholders’ equity |
|
|
|
|
| ||
|
Common stock, $0.01 par value, authorized 260,000 shares, issued 213,753 and 213,759 shares at June 30, 2013 and December 31, 2012 |
|
2,141 |
|
2,141 |
| ||
|
Paid-in capital |
|
3,032,626 |
|
3,026,823 |
| ||
|
Treasury stock, at cost |
|
(53,848 |
) |
(53,848 |
) | ||
|
Accumulated deficit |
|
(259,032 |
) |
(104,042 |
) | ||
|
Accumulated other comprehensive loss |
|
(10,973 |
) |
(16,507 |
) | ||
|
Total stockholders’ equity |
|
2,710,914 |
|
2,854,567 |
| ||
|
Total liabilities and stockholders’ equity |
|
$ |
9,730,729 |
|
$ |
10,006,777 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
|
|
|
Six Months Ended June 30, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(Unaudited) |
| ||||
|
Operating activities |
|
|
|
|
| ||
|
Net loss |
|
$ |
(142,255 |
) |
$ |
(434,015 |
) |
|
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation, depletion and amortization |
|
237,668 |
|
272,834 |
| ||
|
Amortization of acquired sales contracts, net |
|
(5,019 |
) |
(18,468 |
) | ||
|
Amortization relating to financing activities |
|
12,346 |
|
8,948 |
| ||
|
Prepaid royalties expensed |
|
9,251 |
|
16,551 |
| ||
|
Employee stock-based compensation expense |
|
5,804 |
|
7,014 |
| ||
|
Asset impairment and mine closure costs |
|
20,482 |
|
501,942 |
| ||
|
Goodwill impairment |
|
— |
|
115,791 |
| ||
|
Net loss resulting from early retirement of debt and financing activities |
|
— |
|
19,042 |
| ||
|
Changes in: |
|
|
|
|
| ||
|
Receivables |
|
(3,909 |
) |
52,291 |
| ||
|
Inventories |
|
8,771 |
|
(80,199 |
) | ||
|
Coal derivative assets and liabilities |
|
(11,122 |
) |
(37,985 |
) | ||
|
Accounts payable, accrued expenses and other current liabilities |
|
(4,062 |
) |
(64,965 |
) | ||
|
Income taxes, net |
|
(29 |
) |
22,869 |
| ||
|
Deferred income taxes |
|
(102,172 |
) |
(272,094 |
) | ||
|
Other |
|
26,291 |
|
(14,248 |
) | ||
|
Cash provided by operating activities |
|
52,045 |
|
95,308 |
| ||
|
Investing activities |
|
|
|
|
| ||
|
Capital expenditures |
|
(169,064 |
) |
(202,073 |
) | ||
|
Minimum royalty payments |
|
(10,162 |
) |
(8,634 |
) | ||
|
Proceeds from dispositions of property, plant and equipment |
|
5,080 |
|
22,551 |
| ||
|
Proceeds from sale-leaseback transactions |
|
34,919 |
|
— |
| ||
|
Purchases of short term investments |
|
(61,870 |
) |
— |
| ||
|
Proceeds from sales of short term investments |
|
47,097 |
|
— |
| ||
|
Investments in and advances to affiliates |
|
(8,142 |
) |
(9,292 |
) | ||
|
Change in restricted cash |
|
2,368 |
|
4,582 |
| ||
|
Cash used in investing activities |
|
(159,774 |
) |
(192,866 |
) | ||
|
Financing activities |
|
|
|
|
| ||
|
Proceeds from issuance of term loan |
|
— |
|
1,386,000 |
| ||
|
Payments on term note |
|
(8,250 |
) |
— |
| ||
|
Payments to retire debt |
|
(255 |
) |
(452,654 |
) | ||
|
Net decrease in borrowings under lines of credit |
|
— |
|
(391,300 |
) | ||
|
Net payments on other debt |
|
(11,448 |
) |
(11,164 |
) | ||
|
Debt financing costs |
|
— |
|
(34,381 |
) | ||
|
Dividends paid |
|
(12,735 |
) |
(29,696 |
) | ||
|
Proceeds from exercise of options under incentive plans |
|
— |
|
5,131 |
| ||
|
Cash provided by (used in) financing activities |
|
(32,688 |
) |
471,936 |
| ||
|
Increase (decrease) in cash and cash equivalents |
|
(140,417 |
) |
374,378 |
| ||
|
Cash and cash equivalents, beginning of period |
|
784,622 |
|
138,149 |
| ||
|
Cash and cash equivalents, end of period |
|
$ |
644,205 |
|
$ |
512,527 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
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 and controlled entities (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, Colorado and Utah. In addition, the Company has a metallurgical coal mine in development in West Virginia. All subsidiaries are wholly-owned. Intercompany transactions and accounts have been eliminated in consolidation.
The Company has entered into an agreement to sell a subsidiary which operates three mining complexes in the Western Bituminous reportable segment (“WBIT”). The results of these mining complexes have been segregated from continuing operations and are reflected, net of tax, as discontinued operations in the condensed consolidating statements of operations for all periods presented. See further discussion in Note 3, “Discontinued Operations”.
On June 21, 2012, the Company announced the closing of four mining complexes and the temporary idling of a fifth complex, which resulted in closure costs and impairment charges of $525.6 million, which are reflected on the line “Asset impairment and mine closures costs” on the condensed consolidated statements of operations.
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 six month periods ended June 30, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013. 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, 2012 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.
2. Accounting Policies
There is no new accounting guidance that is expected to have a significant impact on the Company’s financial statements.
3. Discontinued Operations
As part of a strategy to divest its non-core thermal coal assets, the Company entered into a definitive agreement on June 27, 2013 to sell Canyon Fuel Company, LLC (Canyon Fuel), to Bowie Resources, LLC. Canyon Fuel operates two longwall mining complexes and a continuous miner operation in Utah. The purchase price is $435.0 million in cash, subject to customary adjustments for working capital and other items. The transaction is expected to close during the third quarter of 2013.
The following table summarizes the results of discontinued operations:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Total Revenues |
|
$ |
85,107 |
|
$ |
97,853 |
|
$ |
173,239 |
|
$ |
177,267 |
|
|
Income from discontinued operations before income taxes |
|
$ |
9,748 |
|
$ |
7,909 |
|
$ |
28,737 |
|
$ |
34,193 |
|
|
Income tax expense |
|
(1,603 |
) |
(877 |
) |
(6,325 |
) |
(11,653 |
) | ||||
|
Income from discontinued operations, net of income taxes |
|
$ |
8,145 |
|
$ |
7,032 |
|
$ |
22,412 |
|
$ |
22,540 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings per common share from discontinued operations |
|
$ |
0.04 |
|
$ |
0.04 |
|
$ |
0.11 |
|
$ |
0.10 |
|
|
Diluted earnings per common share from discontinued operations |
|
$ |
0.04 |
|
$ |
0.04 |
|
$ |
0.11 |
|
$ |
0.10 |
|
The following table summarizes the assets held for sale and the liabilities held for sale, as classified in the Company’s condensed consolidated balance sheets:
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(In thousands) |
| ||||
|
Assets: |
|
|
|
|
| ||
|
Current assets |
|
$ |
59,604 |
|
$ |
61,281 |
|
|
Property, plant and equipment, net |
|
269,303 |
|
280,400 |
| ||
|
Other assets |
|
5,198 |
|
5,333 |
| ||
|
Total assets held for sale |
|
$ |
334,105 |
|
$ |
347,014 |
|
|
|
|
|
|
|
| ||
|
Liabilities: |
|
|
|
|
| ||
|
Current liabilities |
|
$ |
28,111 |
|
$ |
24,763 |
|
|
Noncurrent liabilities |
|
36,197 |
|
35,221 |
| ||
|
Total liabilities held for sale |
|
$ |
64,308 |
|
$ |
59,984 |
|
4. Accumulated Other Comprehensive Loss
Other comprehensive loss includes transactions recorded in stockholders’ equity during the year, excluding net income and transactions with stockholders. In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The standard requires that companies present, either parenthetically on the face of the financial statements or in a single note, the effect of significant amounts reclassified from each component of accumulated other comprehensive income and the income statement line items affected by the reclassification. The Company adopted the provisions of the new guidance in the first quarter of 2013.
The following items are included in accumulated other comprehensive loss:
|
|
|
|
|
Pension, |
|
|
|
|
| ||||
|
|
|
|
|
Postretirement |
|
|
|
|
| ||||
|
|
|
|
|
and Other |
|
|
|
Accumulated |
| ||||
|
|
|
|
|
Post- |
|
|
|
Other |
| ||||
|
|
|
Derivative |
|
Employment |
|
Available-for- |
|
Comprehensive |
| ||||
|
|
|
Instruments |
|
Benefits |
|
Sale Securities |
|
Loss |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Balance at December 31, 2012 |
|
$ |
2,244 |
|
$ |
(18,286 |
) |
$ |
(465 |
) |
$ |
(16,507 |
) |
|
Unrealized gains (losses) |
|
(106 |
) |
— |
|
3,967 |
|
3,861 |
| ||||
|
Amounts reclassified from accumulated other comprehensive income |
|
(896 |
) |
2,371 |
|
198 |
|
1,673 |
| ||||
|
Balance at June 30, 2013 |
|
$ |
1,242 |
|
$ |
(15,915 |
) |
$ |
3,700 |
|
$ |
(10,973 |
) |
The following items were reclassified out of accumulated other comprehensive loss during the six months ended June 30, 2013:
|
|
|
Amount Reclassified |
|
Line Item in the |
| |
|
|
|
from Accumulated Other |
|
Condensed Consolidated |
| |
|
Details about accumulated other comprehensive income components |
|
Comprehensive Loss |
|
Statement of Operations |
| |
|
|
|
(In thousands) |
|
|
| |
|
Derivative instruments |
|
$ |
1,401 |
|
Revenues |
|
|
|
|
(505 |
) |
Benefit from income taxes |
| |
|
|
|
$ |
896 |
|
Net of tax |
|
|
|
|
|
|
|
| |
|
Pension, postretirement and other post-employment benefits |
|
|
|
|
| |
|
Amortization of prior service credits |
|
$ |
5,581 |
|
(1) |
|
|
Amortization of actuarial gains (losses), net |
|
(9,285 |
) |
(1) |
| |
|
|
|
(3,704 |
) |
Total before tax |
| |
|
|
|
1,333 |
|
Benefit from income taxes |
| |
|
|
|
$ |
(2,371 |
) |
Net of tax |
|
|
|
|
|
|
|
| |
|
Available-for-sale securities |
|
$ |
(309 |
) |
Interest and investment income |
|
|
|
|
111 |
|
Benefit from income taxes |
| |
|
|
|
$ |
(198 |
) |
Net of tax |
|
(1) Production-related benefits and workers’ compensation costs are included in costs to produce coal. See Note 13, “Workers’ Compensation Expense” and Note 14 “Employee Benefit Plans” for more information about pension, postretirement and postemployment benefit costs.
5. Inventories
Inventories consist of the following:
|
|
|
June 30 |
|
December 31 |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(In thousands) |
| ||||
|
Coal |
|
$ |
177,238 |
|
$ |
180,917 |
|
|
Repair parts and supplies |
|
163,631 |
|
172,139 |
| ||
|
Work-in-process |
|
15,784 |
|
12,368 |
| ||
|
|
|
$ |
356,653 |
|
$ |
365,424 |
|
The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $13.8 million at June 30, 2013 and $13.6 million at December 31, 2012.
6. Investments in Available-for-Sale Securities
The Company has invested in marketable debt securities, primarily highly liquid AA - rated corporate bonds and U.S. government and government agency securities. These investments are held in the custody of a major financial institution. These securities, along with the Company’s investments in marketable equity securities, are classified as available-for-sale securities and, accordingly, the unrealized gains and losses are recorded through other comprehensive income.
The Company’s investments in available-for-sale marketable securities are as follows:
|
|
|
June 30, 2013 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
| ||||||||
|
|
|
|
|
Gross |
|
Gross |
|
|
|
Classification |
| ||||||||
|
|
|
|
|
Unrealized |
|
Unrealized |
|
Fair |
|
Short-Term |
|
Other |
| ||||||
|
|
|
Cost Basis |
|
Gains |
|
Losses |
|
Value |
|
Investments |
|
Assets |
| ||||||
|
|
|
(In thousands) |
| ||||||||||||||||
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
U.S. government and agency securities |
|
$ |
126,193 |
|
$ |
— |
|
$ |
(459 |
) |
$ |
125,734 |
|
$ |
125,734 |
|
$ |
— |
|
|
Corporate notes and bonds |
|
123,692 |
|
— |
|
(962 |
) |
122,730 |
|
122,730 |
|
— |
| ||||||
|
Equity securities |
|
5,271 |
|
10,108 |
|
(2,907 |
) |
12,472 |
|
— |
|
12,472 |
| ||||||
|
Total Investments |
|
$ |
255,156 |
|
$ |
10,108 |
|
$ |
(4,328 |
) |
$ |
260,936 |
|
$ |
248,464 |
|
$ |
12,472 |
|
|
|
|
December 31, 2012 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
| ||||||||
|
|
|
|
|
Gross |
|
Gross |
|
|
|
Classification |
| ||||||||
|
|
|
|
|
Unrealized |
|
Unrealized |
|
Fair |
|
Short-Term |
|
Other |
| ||||||
|
|
|
Cost Basis |
|
Gains |
|
Losses |
|
Value |
|
Investments |
|
Assets |
| ||||||
|
|
|
(In thousands) |
| ||||||||||||||||
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
U.S. government and agency securities |
|
$ |
146,993 |
|
$ |
2 |
|
$ |
(412 |
) |
$ |
146,583 |
|
$ |
146,583 |
|
$ |
— |
|
|
Corporate notes and bonds |
|
88,118 |
|
— |
|
(396 |
) |
87,722 |
|
87,722 |
|
— |
| ||||||
|
Equity securities |
|
5,271 |
|
2,704 |
|
(2,628 |
) |
5,347 |
|
— |
|
5,347 |
| ||||||
|
Total Investments |
|
$ |
240,382 |
|
$ |
2,706 |
|
$ |
(3,436 |
) |
$ |
239,652 |
|
$ |
234,305 |
|
$ |
5,347 |
|
The aggregate fair value of investments with unrealized losses that have been owned for less than a year was $248.5 million and $223.3 million at June 30, 2013 and December 31, 2012, respectively. The aggregate fair value of investments with unrealized losses that have been owned for over a year was $0.1 million and $0.4 million at June 30, 2013 and December 31, 2012, respectively.
The debt securities outstanding at June 30, 2013 have maturity dates ranging from the third quarter of 2013 through the fourth quarter of 2014. The Company classifies its investments as current based on the nature of the investments and their availability for use in current operations.
7. Equity Method Investments and Membership Interests in Joint Ventures
The Company accounts for its investments and membership interests in joint ventures under the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the entity. Below are the equity method investments reflected in the condensed consolidated balance sheets:
|
In thousands |
|
Knight Hawk |
|
DKRW |
|
DTA |
|
Tenaska |
|
Millennium |
|
Tongue River |
|
Total |
| |||||||
|
Balance at December 31, 2012 |
|
$ |
149,063 |
|
$ |
15,515 |
|
$ |
15,462 |
|
$ |
15,264 |
|
$ |
32,214 |
|
$ |
14,697 |
|
$ |
242,215 |
|
|
Advances to affiliates, net |
|
(3,713 |
) |
— |
|
1,944 |
|
— |
|
3,441 |
|
1,821 |
|
3,493 |
| |||||||
|
Equity in comprehensive income (loss) |
|
7,812 |
|
(1,241 |
) |
(2,629 |
) |
— |
|
(1,347 |
) |
(281 |
) |
2,314 |
| |||||||
|
Impairment of equity investment |
|
— |
|
— |
|
— |
|
(15,264 |
) |
— |
|
— |
|
(15,264 |
) | |||||||
|
Balance at June 30, 2013 |
|
$ |
153,162 |
|
$ |
14,274 |
|
$ |
14,777 |
|
$ |
— |
|
$ |
34,308 |
|
$ |
16,237 |
|
$ |
232,758 |
|
|
Notes receivable from investees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Balance at December 31, 2012 |
|
$ |
— |
|
$ |
38,680 |
|
$ |
— |
|
$ |
5,148 |
|
$ |
— |
|
$ |
— |
|
$ |
43,828 |
|
|
Balance at June 30, 2013 |
|
$ |
— |
|
$ |
42,501 |
|
$ |
— |
|
$ |
— |
|
|
|
$ |
— |
|
$ |
42,501 |
| |
Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable. Certain of our investments are in development stage companies
whose success depends on factors including receipt of permits and other regulatory environment issues, the ability of the investee companies to raise additional funds in financial markets that can be volatile, and other key business factors.
During the second quarter, Tenaska Trailblazer Partners, LLC (“Tenaska”) announced that it was discontinuing its development plans for the Trailblazer Energy Center in Texas. As a result, the Company recorded a $20.5 million impairment charge, which consisted of its 35% equity investment of $15.3 million and a $5.2 million receivable balance related to reimbursements for development work. The impairment is included in the line “Asset impairment and mine closure costs” on the condensed consolidated statement of operations.
The Company may be required to make future contingent payments of up to $58.5 million related to development financing for certain of its equity investees. The Company’s obligation to make these payments, as well as the timing of any payments required, is contingent upon the achievement of project development milestones, which can be affected by the factors named above.
8. Derivatives
Diesel fuel price risk management
The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company anticipates purchasing approximately 57 to 67 million gallons of diesel fuel for use in its operations during 2013. 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 June 30, 2013, the Company had protected the price of approximately 94% of its expected purchases for the remainder of 2013 and 73% of its 2014 purchases. At June 30, 2013, the Company had purchased heating oil call options for approximately 74 million gallons for the purpose of managing the price risk associated with future diesel purchases.
The Company has also purchased heating oil call options to manage the price risk associated with fuel surcharges on its barge and rail shipments, which cover increases in diesel fuel prices for the respective carriers. At June 30, 2013, the Company had protected 47% of its expected 2013 diesel fuel usage and 26% of its expected first quarter of 2014 diesel fuel usage on shipments subject to fuel surcharges. The Company held purchased heating oil call options for 4 million gallons for the purpose of managing the fluctuations in cash flows associated with fuel surcharges on future shipments.
These positions reduce the Company’s risk of cash flow fluctuations related to these surcharges but the positions are not accounted for as hedges.
Coal 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 June 30, 2013, the Company held derivatives for risk management purposes that are expected to settle in the following years:
|
(Tons in thousands) |
|
2013 |
|
2014 |
|
2015 |
|
Total |
| ||||
|
Coal sales |
|
$ |
4,449 |
|
$ |
4,458 |
|
$ |
780 |
|
$ |
9,687 |
|
|
Coal purchases |
|
723 |
|
1,260 |
|
— |
|
1,983 |
| ||||
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 $0.4 million of gains in the remainder of 2013 and $5.9 million of gains in 2014.
Tabular derivatives disclosures
The Company has master netting agreements with all of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce
the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the condensed consolidated balance sheets. The amounts shown in the table below represent the fair value position of individual contracts, and not the net position presented in the accompanying condensed consolidated balance sheets. The fair value and location of derivatives reflected in the accompanying condensed consolidated balance sheets are as follows:
|
|
|
June 30, 2013 |
|
|
|
December 31, 2012 |
|
|
| ||||||||||
|
Fair Value of Derivatives |
|
Asset |
|
Liability |
|
|
|
Asset |
|
Liability |
|
|
| ||||||
|
(In thousands) |
|
Derivative |
|
Derivative |
|
|
|
Derivative |
|
Derivative |
|
|
| ||||||
|
Derivatives Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Coal |
|
$ |
2,298 |
|
$ |
(539 |
) |
|
|
$ |
3,277 |
|
$ |
(10 |
) |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Heating oil — diesel purchases |
|
3,475 |
|
— |
|
|
|
7,379 |
|
— |
|
|
| ||||||
|
Heating oil — fuel surcharges |
|
117 |
|
— |
|
|
|
1,961 |
|
— |
|
|
| ||||||
|
Coal — held for trading purposes |
|
63,794 |
|
(57,506 |
) |
|
|
17,403 |
|
(16,933 |
) |
|
| ||||||
|
Coal — risk management |
|
25,767 |
|
(3,095 |
) |
|
|
24,843 |
|
(7,342 |
) |
|
| ||||||
|
Total |
|
93,153 |
|
(60,601 |
) |
|
|
51,586 |
|
(24,275 |
) |
|
| ||||||
|
Total derivatives |
|
95,451 |
|
(61,140 |
) |
|
|
54,863 |
|
(24,285 |
) |
|
| ||||||
|
Effect of counterparty netting |
|
(60,598 |
) |
60,598 |
|
|
|
(22,548 |
) |
22,548 |
|
|
| ||||||
|
Net derivatives as classified in the balance sheets |
|
$ |
34,853 |
|
$ |
(542 |
) |
$ |
34,311 |
|
$ |
32,315 |
|
$ |
(1,737 |
) |
$ |
30,578 |
|
|
|
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
Net derivatives as reflected on the balance sheets |
|
|
|
|
|
|
| ||
|
Heating oil |
|
Other current assets |
|
$ |
3,592 |
|
$ |
9,340 |
|
|
Coal |
|
Coal derivative assets |
|
31,261 |
|
22,975 |
| ||
|
|
|
Coal derivative liabilities |
|
(542 |
) |
(1,737 |
) | ||
|
|
|
|
|
$ |
34,311 |
|
$ |
30,578 |
|
The Company had a current asset for the right to reclaim cash collateral of $4.7 million and $16.2 million at June 30, 2013 and December 31, 2012, respectively. These amounts are not included with the derivatives presented in the table above and are included in “other current assets” in the accompanying condensed consolidated balance sheets.
The effects of derivatives on measures of financial performance are as follows:
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the three months ended June 30,
|
|
|
Gain (Loss) Recognized in Other |
|
Gains (Losses) Reclassified from Income |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Coal sales (1) |
|
$ |
(648 |
) |
$ |
2,231 |
|
$ |
689 |
|
$ |
809 |
|
|
Coal purchases (2) |
|
613 |
|
(742 |
) |
(148 |
) |
— |
| ||||
|
Totals |
|
$ |
(35 |
) |
$ |
1,489 |
|
$ |
541 |
|
$ |
809 |
|
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 June 30, 2013 and 2012.
Derivatives Not Designated as Hedging Instruments (in thousands)
For the three months ended June 30,
|
|
|
Gain (Loss) Recognized |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
Coal — unrealized (3) |
|
$ |
4,109 |
|
$ |
27,446 |
|
|
Coal — realized (4) |
|
$ |
6,579 |
|
$ |
8,671 |
|
|
Heating oil — diesel purchases (4) |
|
$ |
(5,211 |
) |
$ |
(22,509 |
) |
|
Heating oil — fuel surcharges (4) |
|
$ |
(30 |
) |
$ |
(2,599 |
) |
Location in statement of operations:
(1) — Revenues
(2) — Cost of sales
(3) — Change in fair value of coal derivatives and coal trading activities, net
(4) — Other operating income, net
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the six months ended June 30
|
|
|
Gain (Loss) Recognized in Other |
|
Gains (Losses) Reclassified from |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Coal sales (1) |
|
$ |
(824 |
) |
$ |
4,724 |
|
$ |
1,911 |
|
$ |
1,010 |
|
|
Coal purchases (2) |
|
431 |
|
(944 |
) |
(510 |
) |
— |
| ||||
|
Totals |
|
$ |
(393 |
) |
$ |
3,780 |
|
$ |
1,401 |
|
$ |
1,010 |
|
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 six month periods ended June 30, 2013 and 2012.
Derivatives Not Designated as Hedging Instruments (in thousands)
For the six months ended June 30
|
|
|
Gain (Loss) Recognized |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
Coal — unrealized (3) |
|
$ |
5,579 |
|
$ |
34,998 |
|
|
Coal — realized (4) |
|
$ |
15,796 |
|
$ |
11,829 |
|
|
Heating oil — diesel purchases (4) |
|
$ |
(9,472 |
) |
$ |
(22,086 |
) |
|
Heating oil — fuel surcharges (4) |
|
$ |
(595 |
) |
$ |
(2,232 |
) |
Location in statement of operations:
(1) — Revenues
(2) — Cost of sales
(3) — Change in fair value of coal derivatives and coal trading activities, net
(4) — Other operating income, net
The Company recognized net unrealized and realized gains of $4.9 million and $4.6 million during the three months ended June 30, 2013 and 2012, respectively, related to its trading portfolio. The Company recognized net unrealized and realized gains of $2.1 million and $0.7 million during the six months ended June 30, 2013 and 2012, respectively, related to its trading portfolio, which 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.
Based on fair values at June 30, 2013, gains on derivative contracts designated as hedge instruments in cash flow hedges of approximately $1.6 million are expected to be reclassified from other comprehensive income into earnings during the next twelve months.
9. Debt
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(In thousands) |
| ||||
|
Term loan ($1.63 billion face value) due 2018 |
|
$ |
1,620,526 |
|
$ |
1,627,384 |
|
|
8.75% senior notes ($600.0 million face value) due 2016 |
|
592,084 |
|
590,999 |
| ||
|
7.00% senior notes due 2019 at par |
|
1,000,000 |
|
1,000,000 |
| ||
|
9.875% senior notes ($375.0 million face value) due 2019 |
|
361,200 |
|
360,042 |
| ||
|
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 |
|
28,666 |
|
40,350 |
| ||
|
|
|
5,102,476 |
|
5,118,775 |
| ||
|
Less current maturities of debt |
|
23,842 |
|
32,896 |
| ||
|
Long-term debt |
|
$ |
5,078,634 |
|
$ |
5,085,879 |
|
At June 30, 2013, the available borrowing capacity under the Company’s lines of credit was approximately $245.8 million.
10. 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.
· 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 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 June 30, 2013.
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:
|
|
|
Fair Value at June 30, 2013 |
| ||||||||||
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
| ||||
|
Investments in marketable securities |
|
$ |
260,936 |
|
$ |
94,036 |
|
$ |
166,900 |
|
$ |
— |
|
|
Derivatives |
|
34,853 |
|
30,959 |
|
— |
|
3,894 |
| ||||
|
Total assets |
|
$ |
295,789 |
|
$ |
124,995 |
|
$ |
166,900 |
|
$ |
3,894 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
|
Derivatives |
|
$ |
542 |
|
$ |
— |
|
$ |
86 |
|
$ |
456 |
|
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 |
|
Six Months Ended June |
| ||
|
|
|
(In thousands) |
| ||||
|
Balance, beginning of period |
|
$ |
5,642 |
|
$ |
8,174 |
|
|
Realized and unrealized losses recognized in earnings, net |
|
(4,840 |
) |
(9,312 |
) | ||
|
Realized and unrealized losses recognized in other comprehensive income, net |
|
— |
|
— |
| ||
|
Purchases |
|
2,636 |
|
5,853 |
| ||
|
Issuances |
|
— |
|
(25 |
) | ||
|
Settlements |
|
— |
|
(1,252 |
) | ||
|
Ending balance |
|
$ |
3,438 |
|
$ |
3,438 |
|
Net unrealized losses during the three and six month periods ended June 30, 2013 related to level 3 financial instruments held on June 30, 2013 were $4.1 million and $6.9 million, respectively.
Fair Value of Long-Term Debt
At June 30, 2013 and December 31, 2012, the fair value of the Company’s debt, including amounts classified as current, was $4.7 billion and $5.0 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.
11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
|
|
(In thousands) |
| ||||
|
Payroll and employee benefits |
|
$ |
62,890 |
|
$ |
72,405 |
|
|
Taxes other than income taxes |
|
119,018 |
|
121,029 |
| ||
|
Interest |
|
40,150 |
|
42,413 |
| ||
|
Acquired sales contracts |
|
15,550 |
|
14,038 |
| ||
|
Workers’ compensation |
|
14,033 |
|
10,371 |
| ||
|
Asset retirement obligations |
|
38,919 |
|
38,920 |
| ||
|
Other |
|
16,529 |
|
18,842 |
| ||
|
|
|
$ |
307,089 |
|
$ |
318,018 |
|
12. Stock-Based Compensation and Other Incentive Plans
The Company granted options to purchase approximately 2.0 million shares of common stock during the six months ended June 30, 2013. The weighted average exercise price of the options was $5.23 per share and the weighted average grant-date fair value was $2.38 per share. The options’ fair value was determined using the Black-Scholes option pricing model, using a weighted average risk-free rate of 0.648%, a weighted average dividend yield of 2.29% and a weighted average volatility of 66.76%. The options’ expected life is 4.5 years and the options vest ratably over three years and provide for the continuation of vesting after retirement for recipients that meet certain criteria. The expense for these options will be recognized through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn all or part of the award.
During the six months ended June 30, 2013, the Company also granted restricted stock units totaling 974,500 shares whose grant date fair value at the time of grant was $5.23. The shares vest at the end of three years.
The Company has a long-term incentive program that allows for the award of performance units. The total number of units earned by a participant is based on financial and operational performance measures, and may be paid out in cash or in shares of the Company’s common stock. The Company recognizes compensation expense over the three-year term of the grant. Amounts accrued and unpaid for all grants under the plan totaled $12.7 million and $13.1 million as of June 30, 2013 and December 31, 2012, respectively.
13. Workers’ Compensation Expense
The following table details the components of workers’ compensation expense:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Service cost |
|
$ |
505 |
|
$ |
71 |
|
$ |
1,010 |
|
$ |
1,039 |
|
|
Interest cost |
|
657 |
|
399 |
|
1,313 |
|
1,079 |
| ||||
|
Net amortization |
|
235 |
|
(851 |
) |
469 |
|
(574 |
) | ||||
|
Curtailments |
|
— |
|
1,933 |
|
— |
|
1,933 |
| ||||
|
Total occupational disease |
|
1,397 |
|
1,552 |
|
2,792 |
|
3,477 |
| ||||
|
Traumatic injury claims and assessments |
|
4,791 |
|
6,423 |
|
12,149 |
|
11,599 |
| ||||
|
Total workers’ compensation expense |
|
$ |
6,188 |
|
$ |
7,975 |
|
$ |
14,941 |
|
$ |
15,076 |
|
14. Employee Benefit Plans
The following table details the components of pension benefit costs (credits):
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Service cost |
|
$ |
6,790 |
|
$ |
7,310 |
|
$ |
14,490 |
|
$ |
14,906 |
|
|
Interest cost |
|
3,876 |
|
4,092 |
|
7,802 |
|
8,072 |
| ||||
|
Curtailments |
|
— |
|
324 |
|
— |
|
324 |
| ||||
|
Expected return on plan assets |
|
(6,036 |
) |
(5,477 |
) |
(11,842 |
) |
(11,015 |
) | ||||
|
Amortization of prior service costs (credits) |
|
57 |
|
(37 |
) |
(101 |
) |
(73 |
) | ||||
|
Amortization of other actuarial losses |
|
4,264 |
|
4,200 |
|
8,814 |
|
7,771 |
| ||||
|
Net benefit cost |
|
$ |
8,951 |
|
$ |
10,412 |
|
$ |
19,163 |
|
$ |
19,985 |
|
The following table details the components of other postretirement benefit costs (credits):
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
(In thousands) |
| ||||||||||
|
Service cost |
|
$ |
538 |
|
$ |
539 |
|
$ |
1,094 |
|
$ |
1,088 |
|
|
Interest cost |
|
415 |
|
520 |
|
846 |
|
1,011 |
| ||||
|
Curtailments |
|
— |
|
(1,837 |
) |
— |
|
(1,837 |
) | ||||
|
Amortization of prior service credits |
|
(2,730 |
) |
(2,876 |
) |
(5,480 |
) |
(5,871 |
) | ||||
|
Amortization of other actuarial losses (gains) |
|
(75 |
) |
(171 |
) |
2 |
|
(261 |
) | ||||
|
Net benefit credit |
|
$ |
(1,852 |
) |
$ |
(3,825 |
) |
$ |
(3,538 |
) |
$ |
(5,870 |
) |
15. Earnings (Loss) Per Common Share
The effect of options, restricted stock and restricted stock units equaling 7.0 million and 5.3 million shares of common stock were excluded from the calculation of diluted weighted average shares outstanding for the three month periods ended June 30, 2013 and 2012, respectively, and 8.4 million and 4.5 million shares for the six month periods ending June 30, 2013 and 2012 respectively, because the exercise price or grant price of the securities exceeded the average market price of the Company’s common stock for these periods. The weighted average share impact 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 six month periods ended June 30, 2013 and 2012 were not significant.
16. Commitments and Contingencies
The Company accrues for cost 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.
Allegheny Energy Supply (“Allegheny”), the sole customer of coal produced at the Company’s subsidiary Wolf Run Mining Company’s (“Wolf Run”) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter Ridge Holdings, Inc. (“Hunter Ridge”), and ICG in state court in Allegheny County, Pennsylvania on December 28, 2006, and amended its complaint on April 23, 2007. Allegheny claimed that Wolf Run breached a coal supply contract when it declared force majeure under the contract upon idling the Sycamore No. 2 mine in the third quarter of 2006, and that Wolf Run continued to breach the contract by failing to ship in volumes referenced in the contract. The Sycamore No. 2 mine was idled after encountering adverse geologic conditions and abandoned gas wells that were previously unidentified and unmapped.
After extensive searching for gas wells and rehabilitation of the mine, it was re-opened in 2007, but with notice to Allegheny that it would necessarily operate at reduced volumes in order to safely and effectively avoid the many gas wells within the reserve. The amended complaint also alleged that the production stoppages constitute a breach of the guarantee agreement by Hunter Ridge and breach of certain representations made upon entering into the contract in early 2005. Allegheny voluntarily dropped the breach of representation claims later. Allegheny claimed that it would incur costs in excess of $100 million to purchase replacement coal over the life of the contract. ICG, Wolf Run and Hunter Ridge answered the amended complaint on August 13, 2007, disputing all of the remaining claims.
On November 3, 2008, ICG, Wolf Run and Hunter Ridge filed an amended answer and counterclaim against the plaintiffs seeking to void the coal supply agreement due to, among other things, fraudulent inducement and conspiracy. On September 23, 2009, Allegheny filed a second amended complaint alleging several alternative theories of liability in its effort to extend contractual liability to ICG, which was not a party to the original contract and did not exist at the time Wolf Run and Allegheny entered into the contract. No new substantive claims were asserted. ICG answered the second amended complaint on October 13, 2009, denying all of the new claims. The Company’s counterclaim was dismissed on motion for summary judgment entered on May 11, 2010. Allegheny’s claims against ICG were also dismissed by summary judgment, but the claims against Wolf Run and Hunter Ridge were not. The court conducted a non-jury trial of this matter beginning on January 10, 2011 and concluding on February 1, 2011.
At the trial, Allegheny presented its evidence for breach of contract and claimed that it is entitled to past and future damages in the aggregate of between $228 million and $377 million. Wolf Run and Hunter Ridge presented their defense of the claims, including evidence with respect to the existence of force majeure conditions and excuse under the contract and applicable law. Wolf Run and Hunter Ridge presented evidence that Allegheny’s damages calculations were significantly inflated because it did not seek to determine damages as of the time of the breach and in some instances artificially assumed future nondelivery or did not take into account the apparent requirement to supply coal in the future. On May 2, 2011, the trial court entered a Memorandum and Verdict determining that Wolf Run had breached the coal supply contract and that the performance shortfall was not excused by force majeure. The trial court awarded total damages and interest in the amount of $104.1 million, which consisted of $13.8 million for past damages, and $90.3 million for future damages. ICG and Allegheny filed post-verdict motions in the trial court and on August 23, 2011, the court denied the parties’ motions. The court entered a final judgment on August 25, 2011, in the amount of $104.1 million, which included pre-judgment interest.
The parties appealed the lower court’s decision to the Superior Court of Pennsylvania. On August 13, 2012, the Superior Court of Pennsylvania affirmed the award of past damages, but ruled that the lower court should have calculated future damages as of the date of breach, and remanded the matter back to the lower court with instructions to recalculate that portion of the award. On November 19, 2012, Allegheny filed a Petition for Allowance of Appeal with the Supreme Court of Pennsylvania and Wolf Run and Hunter Ridge filed an Answer. On July 2, 2013, the Supreme Court of Pennsylvania denied the Petition of Allowance. As this action finalized the past damage award, Wolf Run paid $15.6 million for the past damage amount, including interest, to Allegheny in July 2013. The future damage award is now back before the lower court, but no hearing dates have been set at this time.
In addition, the Company is a party to numerous claims and lawsuits with respect to various matters. As of June 30, 2013 and December 31, 2012, the Company had accrued $32.7 million and $32.8 million, respectively, for all legal matters, including $3.6 million and $4.4 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 has three reportable business segments, which are based on the major coal producing basins in which the Company operates. Each of these reportable business segments includes a number of mine complexes. The Company manages its coal sales by coal basin, not by individual mine complex. Geology, coal transportation routes to customers, regulatory environments and coal quality or type are characteristic to a basin. Accordingly, market and contract pricing have developed by coal basin. Mine operations are evaluated based on their per-ton operating costs (defined as including all mining costs but excluding pass-through transportation expenses), as well as on other non-financial measures, such as safety and environmental performance. The Company’s reportable segments are the Powder River Basin (PRB) segment, with operations in Wyoming; the WBIT segment, with operations in Utah and Colorado; the Appalachia (APP) segment, with operations in West Virginia, Kentucky, Maryland and Virginia. The “Other” operating segment includes primarily the Company’s Illinois operations and ADDCAR subsidiary, which manufactures and sells its patented highwall mining system.
Operating segment results for the three and six months ended June 30, 2013 and 2012 are presented below. Results for the reportable segments include all direct costs of mining, including all depreciation, depletion and amortization related to the mining operations, even if the assets are not recorded at the operating segment level. Corporate, Other and Eliminations includes these charges, as well as the change in fair value of coal derivatives and coal trading activities, net; corporate overhead; land management; other support functions; and the elimination of intercompany transactions. The operating segment results for the WBIT segment for all periods presented reflect only continuing operations, since Canyon Fuel results are classified as discontinued operations in the condensed consolidated statement of operations.
The asset amounts below represent an allocation of assets consistent with the basis used for the Company’s incentive compensation plans. The amounts in Corporate, Other and Eliminations represent primarily corporate assets (cash, receivables, investments, plant, property and equipment) as well as unassigned coal reserves, above-market acquired sales contracts and other unassigned assets. Goodwill is allocated to the respective reporting units, even though it may not be reflected in the subsidiaries’ financial statements. Asset balances for the WBIT segment include assets held for sale. Prior year asset amounts have been restated to reflect a change in how certain unassigned coal reserves and goodwill amounts are presented.
|
|
|
PRB |
|
APP |
|
WBIT |
|
Other |
|
Corporate, |
|
Consolidated |
| ||||||
|
|
|
(in thousands) |
| ||||||||||||||||
|
|
|
|
| ||||||||||||||||
|
Three months ended June 30, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Revenues |
|
$ |
353,425 |
|
$ |
337,678 |
|
$ |
41,840 |
|
$ |
33,389 |
|
$ |
— |
|
$ |
766,332 |
|
|
Income (loss) from operations |
|
16,798 |
|
(5,238 |
) |
12,140 |
|
1,167 |
|
(61,146 |
) |
(36,279 |
) | ||||||
|
Depreciation, depletion and amortization |
|
42,147 |
|
56,006 |
|
8,396 |
|
2,660 |
|
1,876 |
|
111,085 |
| ||||||
|
Amortization of acquired sales contracts, net |
|
(941 |
) |
(2,812 |
) |
— |
|
1,544 |
|
— |
|
(2,209 |
) | ||||||
|
Asset impairment and mine closure costs |
|
— |
|
— |
|
— |
|
— |
|
20,482 |
|
20,482 |
| ||||||
|
Capital expenditures |
|
1,819 |
|
43,470 |
|
5,786 |
|
3,031 |
|
60,436 |
|
114,542 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Three months ended June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Revenues |
|
$ |
322,512 |
|
$ |
504,309 |
|
$ |
101,699 |
|
$ |
37,165 |
|
$ |
— |
|
$ |
965,685 |
|
|
Income (loss) from operations |
|
22,747 |
|
(493,093 |
) |
5,870 |
|
1,291 |
|
(133,708 |
) |
(596,893 |
) | ||||||
|
Depreciation, depletion and amortization |
|
37,131 |
|
73,176 |
|
10,122 |
|
3,423 |
|
684 |
|
124,536 |
| ||||||
|
Amortization of acquired sales contracts, net |
|
31 |
|
(4,859 |
) |
— |
|
377 |
|
— |
|
(4,451 |
) | ||||||
|
Asset impairment and mine closure costs |
|
— |
|
525,916 |
|
— |
|
(227 |
) |
(106) |
|
525,583 |
| ||||||
|
Capital expenditures |
|
5,793 |
|
78,102 |
|
14,114 |
|
(1,131 |
) |
11,924 |
|
108,802 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Six months ended June 30, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Revenues |
|
$ |
715,371 |
|
$ |
620,296 |
|
$ |
109,352 |
|
$ |
58,683 |
|
$ |
— |
|
$ |
1,503,702 |
|
|
Income (loss) from operations |
|
32,550 |
|
(32,395 |
) |
14,480 |
|
(407 |
) |
(101,938 |
) |
(87,710 |
) | ||||||
|
Depreciation, depletion and amortization |
|
84,374 |
|
111,337 |
|
17,092 |
|
5,269 |
|
3,206 |
|
221,278 |
| ||||||
|
Amortization of acquired sales contracts, net |
|
(2,140 |
) |
(5,284 |
) |
— |
|
2,405 |
|
— |
|
(5,019 |
) | ||||||
|
Asset impairment and mine closure costs |
|
— |
|
— |
|
— |
|
— |
|
20,482 |
|
20,482 |
| ||||||
|
Total assets |
|
1,954,828 |
|
4,264,500 |
|
651,884 |
|
154,354 |
|
2,705,163 |
|
9,730,729 |
| ||||||
|
Capital expenditures |
|
3,976 |
|
92,766 |
|
7,288 |
|
3,513 |
|
61,521 |
|
169,064 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Six months ended June 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Revenues |
|
$ |
723,689 |
|
$ |
973,367 |
|
$ |
166,844 |
|
$ |
62,022 |
|
$ |
— |
|
|||