2008-07-25 07:00:00
Arch Coal, Inc. Reports Second Quarter 2008 Results
Earnings per share increase 200% from prior-year quarter;
Company earns record EBITDA of $240.9 million;
Raises full year 2008 guidance range
ST. LOUIS, July 25 /EMWNews/ -- Arch Coal, Inc. (NYSE:
ACI) today reported net income of $113.0 million, or $0.78 per fully
diluted share, in the second quarter of 2008 compared with net income of
$37.6 million, or $0.26 per fully diluted share, in the second quarter of
2007. Income from operations more than tripled to $169.0 million in the
quarter just ended, and adjusted earnings before interest, taxes,
depreciation and amortization ("EBITDA") more than doubled to a record
$240.9 million. The company also recorded $785.1 million in consolidated
revenues during the second quarter of 2008, an increase of more than 30
percent from the year-ago quarter.
Earnings Highlights
In $ millions, except per Quarter Ended Six Months Ended
share data 6/30/2008 6/30/2007 6/30/2008 6/30/2007
Revenues $785.1 $598.7 $1,484.5 $1,170.1
Income from Operations 169.0 53.9 285.4 104.7
Net Income 113.0 37.6 194.1 66.3
Fully Diluted EPS 0.78 0.26 1.34 0.46
Adjusted EBITDA(1) $240.9 $111.8 $430.4 $220.3
1/- Adjusted EBITDA is defined and reconciled under "Reconciliation of
Non-GAAP Measures" in this release.
"Arch delivered another strong earnings performance in the second
quarter, achieving a three-fold increase in net income and earnings per
share," said Steven F. Leer, Arch's chairman and chief executive officer.
"We also beat the company's previously established EBITDA record that was
set in the first quarter of 2008. Our solid financial results were driven
by expanded operating margins in our Central Appalachian and Western
Bituminous regions, coupled with a significant contribution from our
trading and asset optimization function. Our diverse asset base helped the
company overcome the impact of weather-related challenges at our Powder
River Basin operations during the quarter just ended."
In the first half of 2008, Arch's net income nearly tripled to $194.1
million compared with the first half of 2007. Over the same time period,
the company earned a record $430.4 million in EBITDA, representing a 95
percent increase compared with the prior-year period.
"We are pleased with our performance so far in 2008," continued Leer.
"Looking ahead, we expect continued solid execution from our Central
Appalachian and Western Bituminous segments coupled with improving
fundamentals in our Powder River Basin operations."
Arch Delivers a Strong Operational Performance Despite Challenges
"Arch's second quarter 2008 operating results underscore the value of
diversity in the company's asset base," said John W. Eaves, Arch's
president and chief operating officer. "Our mining complexes delivered
strong performances in the quarter, driven by our operations in Central
Appalachia -- particularly Mountain Laurel -- as well as an expanded
contribution from our operations in the Western Bituminous region.
Additionally, our Powder River Basin operations achieved a solid
performance in the second quarter while persevering through adverse weather
conditions and rail challenges."
"We were successful in achieving higher price realizations across all
of our operating regions in the second quarter, particularly in our Central
Appalachian and Western Bituminous regions, where pricing reached record
levels," added Eaves. "At the same time, we remain diligently focused on
cost control across the organization in an effort to enhance margins.
Managing controllable costs remains a key priority for Arch, and we expect
to build upon these efforts during the year's second half."
Arch Coal, Inc.
2Q08 1Q08 2Q07
Tons sold (in millions) 34.4 34.3 33.3
Average sales price per ton $21.04 $18.49 $16.42
Cash cost per ton $14.75 $13.05 $12.95
Cash margin per ton $6.29 $5.44 $3.47
Total operating cost per ton $16.83 $15.17 $14.67
Operating margin per ton $4.21 $3.32 $1.75
Consolidated results may not tie to regional breakout due to rounding.
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization
per ton.
Arch acts as an intermediary on certain pass-through transactions that
have no effect on company results. In addition, Arch services some legacy
sales contracts by purchasing and supplying third-party coal and records
offsetting revenue and expenses against a reserve established to account
for these transactions. These transactions are not reflected in this
table. A supplemental regional schedule for all quarters beginning with
FY06 can be found at http://investor.archcoal.com.
Consolidated average sales price per ton increased nearly 14 percent in
the second quarter of 2008 when compared with the first quarter, driven by
higher average price realizations across all operating regions and a
favorable regional sales mix. Consolidated per-ton operating costs
increased 11 percent over the same time period, reflecting increased
volumes from higher-cost regions as well as higher sales-sensitive and
commodity-related costs. Arch's second quarter 2008 consolidated per-ton
operating margin expanded by nearly 27 percent compared with the
prior-quarter period.
Powder River Basin
2Q08 1Q08 2Q07
Tons sold (in millions) 24.8 25.8 24.9
Average sales price per ton $11.38 $11.15 $10.51
Cash cost per ton $9.29 $8.79 $8.24
Cash margin per ton $2.09 $2.36 $2.27
Total operating cost per ton $10.44 $9.93 $9.41
Operating margin per ton $0.94 $1.22 $1.10
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization
per ton.
In the Powder River Basin, second quarter 2008 sales volume declined
1.0 million tons when compared with the first quarter, due to heavy
rainfall in Wyoming in May which affected production and Midwest flooding
in June which affected rail service. Average sales price per ton increased
$0.23 when compared with the first quarter of 2008, reflecting higher
pricing on market index-priced tons, while per-ton operating costs
increased $0.51 over the same time period. Higher per-ton operating costs
were driven by reduced volumes as well as higher commodity-related and
sales-sensitive costs. Arch's Powder River Basin operations contributed
$0.94 per ton in operating margin during the second quarter of 2008
compared with $1.22 per ton in the prior-quarter period.
Western Bituminous Region
2Q08 1Q08 2Q07
Tons sold (in millions) 5.7 5.1 5.0
Average sales price per ton $29.91 $26.76 $24.13
Cash cost per ton $18.90 $15.92 $17.28
Cash margin per ton $11.01 $10.84 $6.85
Total operating cost per ton $22.37 $20.17 $20.35
Operating margin per ton $7.54 $6.59 $3.78
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization
per ton.
In the Western Bituminous region, second quarter 2008 sales volume rose
by 0.6 million tons compared with the first quarter, driven by increased
shipments from Arch's West Elk mine in Colorado. Average sales price per
ton increased $3.15 when compared with the first quarter of 2008,
benefiting from a favorable mix of customer shipments and additional open
market sales in the quarter just ended. Per-ton operating costs increased
$2.20 over the same time period, reflecting higher sales-sensitive costs,
increased volumes from higher-cost mines as well as the impact of an
additional longwall move in the region. Arch's Western Bituminous
operations earned $7.54 per ton in operating margin during the second
quarter of 2008, representing more than a 14 percent increase from the
prior-quarter period.
Central Appalachia
2Q08 1Q08 2Q07
Tons sold (in millions) 3.9 3.5 3.4
Average sales price per ton $69.54 $60.73 $48.36
Cash cost per ton $43.43 $40.45 $41.04
Cash margin per ton $26.11 $20.28 $7.32
Total operating cost per ton $49.38 $46.71 $44.85
Operating margin per ton $20.16 $14.02 $3.51
Above figures exclude transportation costs billed to customers.
Operating cost per ton includes depreciation, depletion and amortization
per ton.
Arch acts as an intermediary on certain pass-through transactions that
have no effect on company results. In addition, Arch services some legacy
sales contracts by purchasing and supplying third-party coal and records
offsetting revenue and expenses against a reserve established to account
for these transactions. These transactions are not reflected in this
table.
In Central Appalachia, second quarter 2008 sales volume increased more
than 11 percent compared with the first quarter, primarily driven by higher
production rates at several of Arch's operations in the region. Average
sales price per ton increased $8.81 in the second quarter of 2008 when
compared with the first quarter, benefiting from higher pricing on
metallurgical and steam coal sales as well as increased metallurgical coal
shipments. Per-ton operating costs increased $2.67 over the same time
period, half of which is attributable to higher sales-sensitive costs.
Arch's Central Appalachian operations earned $20.16 per ton in operating
margin in the second quarter of 2008, representing a nearly 44 percent
increase from the prior-quarter period.
Continuously Improving Safety and Environmental Performance
For the first half of 2008, Arch's operations made significant
advancements in the pursuit of safety and environmental excellence,
including achieving more than a 20 percent improvement in the company's
lost-time safety incident rate compared with Arch's five-year average, and
setting a new company record for environmental performance. In fact, the
company's year-to-date 2008 safety and environmental performances are again
outpacing coal industry peers.
During the second quarter of 2008, Arch's mining operations also were
recognized with seven state awards for outstanding safety practices and
commitment to environmental stewardship. In particular, the Rocky Mountain
Coal Mining Institute again named Skyline as the safest underground coal
mine in the western United States based on its three-year incident rate.
Furthermore, the Utah Division of Oil, Gas and Mining recognized the
Skyline and Sufco mines with 2008 Earth Day Awards for environmental
stewardship efforts.
"Each year, mine employees set the bar higher, implementing new local
safety initiatives and good neighbor practices," said Leer. "We remain
sharply focused in our efforts not only to lead the coal mining industry,
but also to make continuous improvements in the three core values of our
success -- safety, environmental and financial performance."
Arch Signs Selective Sales Agreements in Attractive Coal Markets
Global and domestic coal price trends accelerated during the second
quarter of 2008, as price appreciation in coal indices outpaced the large
gains achieved in the first quarter. New records were set in June as
seaborne steam coal for delivery into northern Europe crossed the
$200-per-metric-tonne mark and Central Appalachian steam coal prices
surpassed the $100-per-short- ton mark. More recently, benchmark coal index
price levels have retreated from record highs, but still remain at elevated
levels.
"Despite near-term volatility in financial coal markets, physical coal
markets remain strong, underpinned by favorable supply and demand
fundamentals," said Leer.
Coal index pricing levels have risen meaningfully across all of Arch's
key operating basins in 2008. Since the beginning of the year, steam coal
prices for 2009 delivery have more than doubled in Central Appalachia and
the Western Bituminous region, while increasing nearly 50 percent in the
Powder River Basin.
"Given tight supply conditions and strong demand for coal globally, we
have reached price levels that are unprecedented," said Eaves. "At the same
time, we continue to believe these strong pricing levels are sustainable
over the next several years. Against this backdrop, we have chosen to
selectively sign sales commitments that will provide a solid foundation for
delivering superior returns on our asset portfolio in future years, while
continuing to maintain significant exposure to coal markets."
In Central Appalachia, Arch committed volumes to international and
domestic metallurgical coal customers for 2008 and 2009 delivery, at
average netback mine prices approaching $200 per short ton. A substantial
portion of the company's 2009 metallurgical coal volume -- and virtually
all of its metallurgical coal volume in 2010 -- remains unpriced. Arch also
signed selective steam coal sales agreements for 2009 and 2010 delivery, at
average pricing in the triple digits.
In the Western Bituminous region, Arch layered in sales commitments
during the second quarter of 2008 that in aggregate achieved more than a 60
percent premium to the company's average realized price in the region for
the quarter just ended. These commitments are scheduled for delivery over
the next three years. Forward pricing in the region has continued to
strengthen as the year has progressed, which suggests that Western
Bituminous supply is not keeping pace with current demand. Consequently,
Arch believes its remaining unpriced sales position in the region is even
more valuable in the marketplace.
In the Powder River Basin, Arch selectively committed and priced
volumes for 2009 and 2010 delivery, at average prices that are
approximately 55 percent above the company's average realized price in the
region for the second quarter of 2008. More recently, Arch has committed
additional volume under multi-year commitments, at a 100 percent premium to
the company's second quarter 2008 average realized price in the region.
Looking ahead, Arch has strategically chosen to maintain significant
leverage to the Powder River Basin market, as the company expects global
and domestic supply and demand pressures to further improve pricing in the
region.
Given recently signed sales commitments as well as reduced volume
expectations for the full year, Arch now has unpriced coal volumes of
between 4 million and 8 million tons in 2008, one third of which is already
committed but not yet priced. Arch also has unpriced volumes of between 65
million and 75 million tons for 2009 delivery, and between 85 million and
95 million tons for 2010 delivery.
"Looking ahead, we will continue to layer in new sales contracts when
we obtain attractive returns on our asset base," said Eaves. "However, we
will remain patient and selective. We strongly believe that our
market-driven approach will provide the best long-term return for our
shareholders."
Arch Sees Continued Strength in Coal Markets in Both Near and Long Term
Coal market trends have been favorable in 2008, setting the stage for a
long-term up-cycle in coal. According to the Edison Electric Institute,
U.S. power demand for electric generation has increased 0.6 percent
year-to-date through the third week of July. Based on internal analysis,
Arch believes that domestic coal consumption for electric generation has
grown approximately 1.0 percent, exceeding that of overall electric power
demand in the first half of 2008.
Also, U.S. coal supply growth has been constrained in 2008 despite
prevailing robust market conditions across many U.S. coal basins. According
to government estimates through the third week of July, domestic coal
production has increased 0.9 percent year-to-date. In particular, Central
Appalachian coal production has declined slightly, while Powder River Basin
production growth has slowed to 1.5 percent through the third week of July.
Furthermore, continued strength in the international coal marketplace
is contributing to strong domestic coal market conditions. Based on U.S.
Department of Commerce data, coal exports reached 32.0 million tons through
May -- a 56 percent increase from the prior year five-month period. At the
same time, coal imports into the United States totaled 13.3 million tons
through the first five months of the year, nearly 6 percent below the prior
year-to-date import levels. As a result, Arch now estimates a 4-million-ton
decline in U.S. coal imports for 2008, while raising its forecast for U.S.
coal exports to 83 million tons, which represents a 24-million-ton increase
over last year's improved levels.
Arch estimates that U.S. generators held 51 days of supply in coal
stockpiles at the end of June 2008, and continues to expect total stockpile
levels to decline as the year progresses. In particular, stockpile levels
in the eastern United States are believed to be significantly below
year-ago levels, while western U.S. stockpiles likely remain at target
levels. Looking ahead, Arch expects western stockpiles to decline during
the second half of the year.
Over the next five years, new coal-fueled plant build-outs around the
world will expand the demand for coal globally. In the United States,
approximately 17.5 gigawatts of new coal-fueled electric generating
capacity are now under construction or have recently started operation,
representing an increase of 1 gigawatt since the first quarter. These
plants will be phased in during the next four years, and are expected to
generate more than 62 million tons of incremental annual coal demand.
Roughly 75 percent of the new coal demand will be needed by 2010, and more
than half is likely to be supplied by Powder River Basin coal according to
company estimates. Another 7.3 gigawatts are estimated to be in advanced
stages of development, representing more than 20 million additional tons of
incremental annual coal demand, to be phased in by 2013. Arch expects the
majority of these plants to be built, and believes that more proposed
plants could move into the advanced development stage during the next 12
months.
On a global scale, Arch estimates that a substantial amount of new
coal-fueled capacity is being planned throughout the world, particularly in
Asia. Analyst estimates suggest that an additional 1.1 billion tons of coal
will be needed by 2012, essentially requiring the replication of the U.S.
coal industry during the next five years. Moreover, demand for coal used in
steel-making is projected to grow substantially in future years, with
growth in seaborne metallurgical coal demand likely to outpace any growth
in seaborne supply.
"Positive trends in domestic coal markets, coupled with sustained
growth in world coal markets, are supportive of current pricing levels,"
said Leer. "We also expect the current market tightness to continue to
positively influence Powder River Basin fundamentals as the year
progresses."
Over the long term, the strengthening outlook for the advancement of
Btu-conversion technologies, such as coal-to-gas and coal-to-liquids,
remains a favorable development for the coal industry. With crude oil and
natural gas trading at elevated levels, public interest in developing
affordable and domestic forms of energy has reached a tipping point.
Growing public concern over skyrocketing energy costs is focusing attention
on alternative fuel sources, including coal-to-liquids.
"We believe the advancement of coal-conversion technologies is a
critical component of America's long-term energy plan," said Leer. "The
abundance and longevity of U.S. coal reserves -- along with continued
elevated crude oil pricing and the geopolitical risk associated with the
location of major world oil and natural gas reserves -- favor domestic coal
use."
"Arch's equity interest in DKRW Advanced Fuels, a coal-to-liquids
developer, may prove to be timely," continued Leer. "The proposed DKRW
facility in southern Wyoming would convert coal from Arch's Carbon Basin
reserves to gasoline and capture the carbon dioxide from the plant for use
in enhanced oil recovery. We believe this project -- along with other
announced projects within the industry -- can help America meet its goal of
a secure and clean energy future."
Arch Raises 2008 Guidance Range
Based on the company's current expectations regarding the future
direction of coal markets, Arch is raising its 2008 guidance range as
follows:
-- Earnings per fully diluted share are expected to be in the $2.50 to
$2.85 range.
-- Adjusted EBITDA is expected to be in the $767 million to $853
million range.
-- Sales volume from company controlled operations is now expected to
be in the 133 million to 137 million ton range, excluding purchased coal
from third parties.
-- Capital spending is projected to remain in the $310 million to $340
million range, excluding reserve additions.
-- Depreciation, depletion and amortization expense is expected to
remain in the $285 million to $295 million range.
-- Arch's full year 2008 effective income tax rate is projected to be
between 11 percent and 15 percent.
"We are on track to deliver our best earnings performance in company
history during 2008," said Leer. "Our raised guidance range signals our
confidence in coal market fundamentals and in the company's future growth
prospects. At the same time, our reduced volume guidance -- which is in
part due to weather challenges experienced at our Powder River Basin
operations during the second quarter -- also reflects our commitment to
manage the business for the long-term benefit of shareholders."
"We are in a position today to capitalize on positive secular global
trends given our low-cost operational profile and significant unpriced
sales position," continued Leer. "Additionally, we believe Arch's
diversified and strategic national reserve base, talented and experienced
workforce and strong balance sheet have strengthened the company's ability
to earn substantial returns and to generate significant free cash flow in
future years."
A conference call regarding Arch Coal's second quarter 2008 financial
results will be webcast live today at 11 a.m. E.D.T. The conference call
can be accessed via the "investor" section of the Arch Coal Web site
(http://www.archcoal.com).
St. Louis-based Arch Coal is one of the largest U.S. coal producers,
with revenues of $2.4 billion in 2007. Through its national network of
mines, Arch supplies cleaner-burning, low-sulfur coal to fuel roughly 6
percent of the nation's electricity. The company also ships coal to
domestic and international steel manufacturers as well as international
power producers.
Forward-Looking Statements: This press release contains
"forward-looking statements" - that is, statements related to future, not
past, events. In this context, forward-looking statements often address our
expected future business and financial performance, and often contain words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
or "will." Forward- looking statements by their nature address matters that
are, to different degrees, uncertain. For us, particular uncertainties
arise from changes in the demand for our coal by the domestic electric
generation industry; from legislation and regulations relating to the Clean
Air Act and other environmental initiatives; from operational, geological,
permit, labor and weather-related factors; from fluctuations in the amount
of cash we generate from operations; from future integration of acquired
businesses; and from numerous other matters of national, regional and
global scale, including those of a political, economic, business,
competitive or regulatory nature. These uncertainties may cause our actual
future results to be materially different than those expressed in our
forward-looking statements. We do not undertake to update our
forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required by law. For a description of
some of the risks and uncertainties that may affect our future results, you
should see the risk factors described from time to time in the reports we
file with the Securities and Exchange Commission.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
(Unaudited) (Unaudited)
Revenues
Coal sales $785,117 $598,745 $1,484,467 $1,170,094
Costs, expenses and other
Cost of coal sales 568,483 482,424 1,082,887 931,754
Depreciation, depletion and
amortization 71,953 57,990 144,995 115,610
Selling, general and
administrative expenses 33,022 22,030 58,702 41,017
Change in fair value of coal
derivatives and coal
trading activities, net (53,160) 287 (83,718) (776)
Other operating income, net (4,131) (17,836) (3,799) (22,224)
616,167 544,895 1,199,067 1,065,381
Income from operations 168,950 53,850 285,400 104,713
Interest expense, net:
Interest expense (18,721) (18,733) (39,209) (35,991)
Interest income 468 453 893 1,124
(18,253) (18,280) (38,316) (34,867)
Non-operating expense - (418) - (1,320)
Income before income
taxes 150,697 35,152 247,084 68,526
Provision for (benefit from)
income taxes 37,700 (2,400) 52,940 2,250
Net income $112,997 $37,552 $194,144 $66,276
Earnings per common share
Basic earnings per common
share $0.78 $0.26 $1.35 $0.47
Diluted earnings per common
share $0.78 $0.26 $1.34 $0.46
Weighted average shares
outstanding
Basic 144,120 142,369 143,809 142,273
Diluted 145,049 143,819 144,823 143,803
Dividends declared per common
share $0.09 $0.07 $0.16 $0.13
Adjusted EBITDA (A) $240,903 $111,840 $430,395 $220,323
(A) Adjusted EBITDA is defined and reconciled under "Reconciliation of
Non-GAAP Measures" later in this release.
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
2008 2007
Assets (Unaudited)
Current assets
Cash and cash equivalents $1,161 $5,080
Trade accounts receivables 255,003 229,965
Other receivables 17,946 19,724
Inventories 177,285 177,785
Prepaid royalties 50,311 22,055
Deferred income taxes 71,972 18,789
Coal derivative assets 140,977 7,743
Other 59,847 40,004
Total current assets 774,502 521,145
Property, plant and equipment, net 2,650,529 2,463,638
Other assets
Prepaid royalties 79,384 105,106
Goodwill 40,032 40,032
Deferred income taxes 225,936 296,559
Equity investments 86,530 82,950
Other 91,761 85,169
Total other assets 523,643 609,816
Total assets $3,948,674 $3,594,599
Current liabilities
Accounts payable $174,005 $150,026
Accrued expenses 217,284 188,875
Coal derivative liabilities 52,410 -
Current maturities of debt and
short-term borrowings 376,248 217,614
Total current liabilities 819,947 556,515
Long-term debt 958,383 1,085,579
Asset retirement obligations 227,609 219,991
Accrued postretirement benefits
other than pension 61,204 59,181
Accrued workers' compensation 40,561 41,071
Other noncurrent liabilities 113,096 100,576
Total liabilities 2,220,800 2,062,913
Stockholders' equity
Preferred stock - 1
Common stock 1,447 1,436
Paid-in capital 1,371,856 1,358,695
Retained earnings 344,401 173,186
Accumulated other comprehensive
income (loss) 10,170 (1,632)
Total stockholders'
equity 1,727,874 1,531,686
Total liabilities and
stockholders' equity $3,948,674 $3,594,599
Arch Coal, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30,
2008 2007
(Unaudited)
Operating activities
Net income $194,144 $66,276
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and
amortization 144,995 115,610
Prepaid royalties expensed 16,544 7,382
Gain on dispositions of property,
plant and equipment (179) (16,772)
Employee stock-based compensation
expense 6,921 2,675
Changes in:
Receivables (21,572) 27,762
Inventories 500 (22,726)
Coal derivative assets and
liabilities (88,769) (712)
Accounts payable and accrued
expenses 52,239 (39,219)
Deferred income taxes 10,926 1,517
Other 19,766 27,476
Cash provided by operating
activities 335,515 169,269
Investing activities
Capital expenditures (336,080) (330,344)
Proceeds from dispositions of
property, plant and equipment 1,070 69,841
Purchases of investments and advances
to affiliates (2,994) (4,802)
Additions to prepaid royalties (19,079) (19,023)
Reimbursement of deposits on equipment 2,455 18,325
Cash used in investing activities (354,628) (266,003)
Financing activities
Net proceeds from commercial paper
and net borrowings on lines of
credit 41,016 121,036
Net payments on other debt (8,895) (8,125)
Debt financing costs (219) -
Dividends paid (22,996) (18,680)
Issuance of common stock under
incentive plans 6,288 1,673
Cash provided by financing
activities 15,194 95,904
Decrease in cash and cash equivalents (3,919) (830)
Cash and cash equivalents, beginning
of period 5,080 2,523
Cash and cash equivalents, end of
period $1,161 $1,693
Arch Coal, Inc. and Subsidiaries
Reconciliation of Non-GAAP Measures
(In thousands)
Included in the accompanying release, we have disclosed certain non-GAAP
measures as defined by Regulation G.
The following reconciles these items to net income as reported under GAAP.
Adjusted EBITDA:
Adjusted EBITDA is defined as net income before the effect of net
interest expense; income taxes; our depreciation, depletion and
amortization; expenses resulting from early extinguishment of debt;
and other non-operating expenses.
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 Six Months Ended
June 30, June 30,
2008 2007 2008 2007
(Unaudited) (Unaudited)
Net income $112,997 $37,552 $194,144 $66,276
Income tax expense (benefit) 37,700 (2,400) 52,940 2,250
Interest expense, net 18,253 18,280 38,316 34,867
Depreciation, depletion and
amortization 71,953 57,990 144,995 115,610
Non-operating expense - 418 - 1,320
Adjusted EBITDA $240,903 $111,840 $430,395 $220,323
Reconciliation of Adjusted EBITDA
to Net Income - 2008 Targets
Targeted Results
Year Ended
December 31, 2008
Low High
(Unaudited)
Net income $363,000 $413,000
Income tax expense 44,000 75,000
Interest expense, net 75,000 70,000
Depreciation, depletion and
amortization 285,000 295,000
Adjusted EBITDA $767,000 $853,000
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