UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
Form 10-Q/A
(Amendment No. 1)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[_] 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 of Employer Identification No.)
incorporation or organization)
CityPlace One, 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 ___
---
At May 5, 2000, there were 38,164,482 shares of registrant's common stock
outstanding.
EXPLANATORY NOTE
----------------
This Form 10-Q/A amends and restates Items 1 and 2 of Part I -
Financial Information and Item 6 of Part II - Other Information of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
as filed by the Registrant on May 15, 2000. No other information included in
the original report on Form 10-Q is amended by this Form 10-Q/A to reflect any
information or events subsequent to the filing of the original report on Form
10-Q.
i
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
ARCH COAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
2000 1999
-----------------------------------------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 3,088 $ 3,283
Trade accounts receivable 145,014 162,802
Other receivables 24,494 25,659
Inventories 63,573 62,382
Prepaid royalties 1,621 1,310
Deferred income taxes 21,600 21,600
Other 8,784 8,916
---------- ----------
Total current assets 268,174 285,952
---------- ----------
Property, plant and equipment, net 1,487,063 1,479,171
---------- ----------
Other assets
Prepaid royalties 16,000 --
Coal supply agreements 142,192 151,978
Deferred income taxes 187,142 182,500
Investment in Canyon Fuel 211,191 199,760
Other 34,452 33,013
---------- ----------
Total other assets 590,977 567,251
---------- ----------
Total assets $2,346,214 $2,332,374
========== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 121,596 $ 109,359
Accrued expenses 159,631 145,561
Current portion of debt 86,000 86,000
---------- ----------
Total current liabilities 367,227 340,920
Long-term debt 1,106,093 1,094,993
Accrued postretirement benefits other than pension 343,332 343,993
Accrued reclamation and mine closure 130,568 129,869
Accrued workers' compensation 98,865 105,190
Accrued pension cost 22,369 22,445
Other noncurrent liabilities 53,687 53,669
---------- ----------
Total liabilities 2,122,141 2,091,079
---------- ----------
Stockholders' equity
Common stock 397 397
Paid-in capital 473,335 473,335
Accumulated deficit (230,688) (213,466)
Treasury stock, at cost (18,971) (18,971)
---------- ----------
Total stockholders' equity 224,073 241,295
---------- ----------
Total liabilities and stockholders' equity $2,346,214 $2,332,374
========== ==========
See notes to condensed consolidated financial statements.
1
ARCH COAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31
----------------------------
2000 1999
---------- ----------
Revenues
Coal sales $ 344,399 $ 405,952
Income from equity investment 3,631 4,029
Other revenues 9,771 11,145
--------- ---------
357,801 421,126
--------- ---------
Costs and expenses
Cost of coal sales 329,985 379,920
Selling, general and administrative expenses 9,756 12,498
Amortization of coal supply agreements 10,096 10,622
Other expenses 5,066 4,103
--------- ---------
354,903 407,143
--------- ---------
Income from operations 2,898 13,983
Interest expense, net:
Interest expense (22,920) (23,992)
Interest income 295 329
--------- ---------
(22,625) (23,663)
---------
Loss before income taxes and cumulative effect
of accounting change (19,727) (9,680)
Benefit from income taxes (4,700) (7,300)
--------- ---------
Loss before cumulative effect of accounting change (15,027) (2,380)
Cumulative effect of accounting change, net of taxes - 3,813
--------- ---------
Net income (loss) $ (15,027) $ 1,433
========= =========
Basic and diluted earnings (loss) per common share:
Loss before cumulative effect of accounting change $ (0.39) $ (0.06)
Cumulative effect of accounting change, net of taxes - 0.10
--------- ---------
Basic and diluted earnings (loss) per common share $ (0.39) $ 0.04
========= =========
Weighted average shares outstanding 38,164 39,004
========= =========
Dividends declared per share $ 0.0575 $ 0.1150
========= =========
See notes to condensed consolidated financial statements.
2
ARCH COAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31
--------------------------------------------
2000 1999
------------------- -------------------
Operating activities
Net income (loss) $ (15,027) $ 1,433
Adjustments to reconcile to cash provided by operating activities:
Depreciation, depletion and amortization 51,769 62,342
Prepaid royalties expensed 1,590 4,333
Net gain on disposition of assets (2,343) (731)
Income from equity investment (3,631) (4,029)
Distributions from (contributions to) equity investment (7,800) 50,742
Cumulative effect of accounting change - (3,813)
Changes in:
Receivables 18,953 (54,112)
Inventories (1,191) (9,782)
Accounts payable and accrued expenses 26,307 38,929
Income taxes (4,642) (7,548)
Accrued postretirement benefits other than pension (661) 1,499
Accrued reclamation and mine closure 699 1,714
Accrued workers' compensation benefits (6,325) (630)
Other (1,711) 6,449
----------- -----------
Cash provided by operating activities 55,987 86,796
----------- -----------
Investing activities
Additions to property, plant and equipment (50,129) (22,245)
Proceeds from dispositions of property, plant and equipment 2,942 13,272
Proceeds from coal supply agreements - 14,874
Additions to prepaid royalties (17,901) (19,348)
----------- ----------
Cash used in investing activities (65,088) (13,447)
----------- ----------
Financing activities
Net payments on revolver and lines of credit 11,101 (65,159)
Payment on term loans - (15,745)
Dividends paid (2,195) (4,447)
Purchases of treasury stock - (7,886)
----------- ----------
Cash provided by (used) in financing activities 8,906 (93,237)
----------- ----------
Decrease in cash and cash equivalents (195) (19,888)
Cash and cash equivalents, beginning of period 3,283 27,414
----------- ----------
Cash and cash equivalents, end of period $ 3,088 $ 7,526
=========== ==========
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
Note A - General
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations, but are
subject to any year-end adjustments which may be necessary. 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 period ended March 31, 2000 are not necessarily indicative of results to be
expected for the year ending December 31, 2000. Arch Coal, Inc. (the "Company")
operates one reportable segment: the production of steam and metallurgical coal
from surface and deep mines throughout the United States, for sale to utility,
industrial and export markets. The Company's mines are located in the central
Appalachian and western regions of the United States. All subsidiaries (except
as noted below) are wholly owned. Significant intercompany transactions and
accounts have been eliminated in consolidation.
Arch Western Resources, LLC ("Arch Western"), a subsidiary of the Company, is
99% owned by the Company and 1% owned by Atlantic Richfield Company ("ARCO").
The principal operating units of Arch Western are Thunder Basin Coal Company,
L.L.C., owned 100% by Arch Western, which operates two coal mines in the
Southern Powder River Basin in Wyoming; Mountain Coal Company, L.L.C., owned
100% by Arch Western, which operates one coal mine in Colorado; Canyon Fuel
Company, LLC ("Canyon Fuel"), 65% owned by Arch Western and 35% by ITOCHU Coal
International Inc., a subsidiary of ITOCHU Corporation, which operates three
coal mines in Utah; and Arch of Wyoming, LLC, owned 100% by Arch Western, which
operates two coal mines in the Hanna Basin of Wyoming.
The Company's 65% ownership of Canyon Fuel is accounted for on the equity method
in the Condensed Consolidated Financial Statements as a result of certain super-
majority voting rights in the joint venture agreement. Income from Canyon Fuel
is reflected in the Condensed Consolidated Statements of Operations as income
from equity investment (see additional discussion in "Investment in Canyon Fuel"
in Note C).
Note B - Change in Accounting Method
Through December 31, 1998, plant and equipment have principally been depreciated
on the straight-line method over the estimated useful lives of the assets, which
range from three to twenty years. Effective January 1, 1999, depreciation on the
Company's preparation plants and loadouts was computed using the units-of-
production method, which is based upon units produced, subject to a minimum
level of depreciation. These assets are usage-based assets and their economic
lives are typically based and measured on coal throughput. The Company believes
the units-of-production method is preferable to the method previously used
because the new method recognizes that depreciation of this equipment is related
substantially to physical wear due to usage and also to the passage of time.
This method, therefore, more appropriately matches production costs over the
lives of the preparation plants and loadouts with coal sales revenue and results
in a more accurate allocation of the cost of the physical assets to the periods
in which the assets are consumed. The cumulative effect of applying the new
method for years prior to 1999 is an increase to income of $3.8 million net-of-
tax ($6.3 million pre-tax) reported as a cumulative effect of accounting change
in the Condensed Consolidated Statement of Operations for the three months ended
March 31, 1999.
Note C - Investment in Canyon Fuel
The following table presents unaudited summarized financial information for
Canyon Fuel which, as part of the Company's June 1, 1998 acquisition of ARCO's
coal operations (the "Arch Western transaction"), is accounted for on the equity
method:
4
Three Months Ended
March 31,
---------------------
Condensed Income Statement Information 2000 1999
-------------------------------------- --------- --------
(in thousands)
Revenues $ 65,292 $ 58,381
Total costs and expenses 61,227 53,242
--------- --------
Net income $ 4,065 $ 5,139
========= ========
65% of Canyon Fuel net income $ 2,642 $ 3,340
Effect of purchase adjustments 989 689
--------- --------
Arch Coal's income from its equity
investment in Canyon Fuel $ 3,631 $ 4,029
========= ========
The Company's income from its equity investment in Canyon Fuel represents 65% of
Canyon Fuel's net income after adjusting for the effect of its investment in
Canyon Fuel. The Company's investment in Canyon Fuel reflects purchase
adjustments primarily related to the reduction in amounts assigned to sales
contracts, mineral reserves and other property, plant and equipment.
Note D - Inventories
Inventories are comprised of the following:
March 31, December 31,
2000 1999
--------- ------------
(in thousands)
Coal $ 30,279 $ 28,183
Repair parts and supplies 33,294 34,199
--------- ------------
$ 63,573 $ 62,382
========= ============
Note E - Debt
Debt consists of the following:
March 31, December 31,
2000 1999
--------------------- -----------------------
(in thousands)
Indebtedness to banks under lines of credit $ 1,100 $ -
Indebtedness to banks under revolving credit
agreement, expiring May 31, 2003 375,000 365,000
Variable rate term loan payable quarterly
from July 1, 2001 through May 31, 2003 135,000 135,000
Variable rate term loan payable May 31, 2003 675,000 675,000
Other 5,993 5,993
--------------------- -----------------------
1,192,093 1,180,993
Less current portion 86,000 86,000
--------------------- -----------------------
Long-term debt $ 1,106,093 $ 1,094,993
===================== =======================
5
In connection with the Arch Western transaction, the Company entered into two
five-year credit facilities: a $675 million non-amortizing term loan in the name
of Arch Western, the entity owning the right to the coal reserves and operating
assets acquired in the Arch Western transaction, and a $900 million credit
facility in the name of the Company, including a $300 million fully amortizing
term loan and a $600 million revolver. Borrowings under these credit facilities
were used to finance the acquisition of ARCO's Colorado and Utah coal
operations, to pay related fees and expenses, to refinance existing corporate
debt and for general corporate purposes. Borrowings under the Arch Western
credit facility were used to fund a portion of a $700 million cash distribution
by Arch Western to ARCO, which distribution occurred simultaneously with ARCO's
contribution of its Wyoming coal operations and certain other assets to Arch
Western and which distribution represented part of the purchase price of the
ARCO operations. The $675 million term loan is secured by Arch Western's
membership interests in its subsidiaries. The Arch Western credit facility is
not guaranteed by the Company. The rate of interest on the borrowings under the
agreements is, at the Company's option, the PNC Bank base rate or a rate based
on LIBOR. At March 31, 2000, the Company's debt is approximately 84% of capital
employed.
Terms of the Company's credit facilities and leases contain financial and other
restrictive covenants that limit the ability of the Company to, among other
things, pay dividends, effect acquisitions or dispositions and borrow additional
funds and require the Company to, among other things, maintain various financial
ratios and comply with various other financial covenants. Failure by the
Company to comply with such covenants could result in an event of default which,
if not cured or waived, could have a material adverse effect on the Company. At
December 31, 1999, as a result of the effect of the write-down of impaired
assets and other restructuring costs incurred during 1999, the Company did not
comply with certain of these restrictive covenant requirements, for which the
Company received an amendment on January 21, 2000. These amendments contain,
among other things, provisions for the payment of fees of .25% and an increase
in the interest rate of .375% associated with the Company's term loan and the
$600 million revolver. In addition, the amendments require the pledging of
assets to collateralize the term loan and the $600 million revolver by May 17,
2000. The parties are continuing to negotiate the terms of the pledging of
these assets. The assets to be pledged are expected to include equity interests
in wholly owned entities, certain real property interests, accounts receivable
and inventory of the Company and such wholly owned entities.
The Company enters into interest-rate swap agreements to modify the interest-
rate characteristics of the Company's outstanding debt. At March 31, 2000, the
Company had interest-rate swap agreements having a total notional value of $765
million. These swap agreements were used to convert variable-rate debt to
fixed-rate debt. Under these swap agreements, the Company pays a weighted-
average fixed-rate of 5.70% (before the credit spread over LIBOR) and is
receiving a weighted-average variable-rate based upon 30-day and 90-day LIBOR.
At March 31, 2000, the remaining term of the swap agreements ranged from 29 to
53 months.
Note F - Stockholder Rights Plan
On March 3, 2000, the Board of Directors adopted a stockholder rights plan under
which preferred share purchase rights were distributed as a dividend to the
Company's stockholders of record on March 20, 2000. The rights are exercisable
only if a person or group acquires 20% or more of the Company's Common Stock (an
"Acquiring Person") or announces a tender or exchange offer the consummation of
which would result in ownership by a person or group of 20% or more of the
Company's Common Stock. Each right entitles the holder to buy one one-hundredth
of a share of a series of junior participating preferred stock at an exercise
price of $42, or in certain circumstances allows the holder (except for the
Acquiring Person) to purchase the Company's Common Stock or voting stock of the
Acquiring Person at a discount. At its option, the Board of Directors may allow
some or all holders (except for the Acquiring Person) to exchange their rights
for Company Common Stock. The rights will expire on March 20, 2010, subject to
earlier redemption or exchange by the Company as described in the plan.
Note G - Contingencies
The Company is a party to numerous claims and lawsuits with respect to various
matters. The Company provides for costs related to contingencies, including
environmental matters, when a loss is probable and the amount is reasonably
determinable. The Company estimates that its probable aggregate loss as a
result of such claims as of March 31, 2000 is $4.5 million (included in other
noncurrent liabilities), of which $2.5 million relates to a settlement with the
U.S. Department of the Interior associated with the 1996 impoundment failure at
Lone Mountain. The Company estimates that its reasonably possible aggregate
losses from all material litigation that is currently pending
6
could be as much as $.5 million (before taxes) in excess of the probable loss
previously recognized. After conferring with counsel, it is the opinion of
management that the ultimate resolution of these claims, to the extent not
previously provided for, will not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company.
Note H - Changes in Estimates and Other Non-Recurring Revenues and Expenses
The Company's operating results for the three months ended March 31, 1999
reflect a charge of $6.5 million related to the planned temporary shut down of
its Dal-Tex mine in Logan County, West Virginia on July 23, 1999. The charge
consisted principally of severance costs, obligations for non-cancelable lease
payments and a change in the reclamation liability due to the temporary shut
down. The shut down was due to a delay in obtaining mining permits resulting
from legal action in the U.S. District Court for the Southern District of West
Virginia (for a discussion of the legal action, see the "Contingencies - Legal
Contingencies - Dal-Tex Litigation" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations in this report).
During 1999, the Company recorded pre-tax charges totaling $23.1 million
(including the $6.5 million charge discussed above) related to (i) the
restructuring of its administrative workforce; (ii) the closure of its Dal-Tex
mine in West Virginia due to permitting problems; and (iii) the closure of
several small mines in Kentucky (Coal-Mac) and the one remaining underground
mine in Illinois (Arch of Illinois) due to depressed coal prices, caused in part
by increased competition from western coal mines. The following are the
components of severance and other exit costs included in the restructuring
charge along with related activity:
Utilized
During First Balance at
1999 Utilized in Quarter March 31,
(in thousands) Charge 1999 2000 2000
- ----------------------------------------------------------------------------------------------------------------------
Employee costs $ 7,354 $ 704 $ 3,730 $ 2,919
Obligations for non-cancelable
lease payments 9,858 484 8,366 1,009
Reclamation liabilities 3,667 1,200 310 2,157
Depreciation acceleration 2,172 2,172 - -
----------------------------------------------------------------------------------
$ 23,051 $ 4,560 $ 12,406 $ 6,085
==================================================================================
Except for the charge related to depreciation acceleration, all of the 1999
restructuring charge will require the Company to use cash. Also, the Company
expects to utilize the balance of the amounts reserved for employee cost during
the remainder of 2000, while obligations for non-cancelable lease payments and
reclamation liabilities will be utilized in future periods as lease payments are
made and reclamation procedures are performed.
Note I - Sale and Leaseback
On January 29, 1998, the Company sold mining equipment for approximately $74.2
million and leased back the equipment under an operating lease with a term of
three years. This included the sale and leaseback of equipment purchased under
an existing operating lease that expired on the same day. The proceeds of the
sale were used to purchase the equipment under the expired lease for $28.3
million and to pay down debt. At the end of the lease term, the Company has the
option to renew the lease for two additional one-year periods or purchase the
equipment. Alternatively, the equipment may be sold to a third party. In the
event of such a sale, the Company will be required to make a payment to the
lessor in the event, and to the extent, that the sale proceeds are below a
certain threshold. The gain on the sale and leaseback of $10.7 million was
deferred and is being amortized over the base of the lease as a reduction of
lease expense. The Company has elected to renew the lease for an additional one
year period as described above. Also, effective February 4, 2000, the Company
purchased for $10.3 million several pieces of equipment under lease that were
included in this transaction and transferred them to the Company's Wyoming
operations. A pro-rata portion of the deferred gain, $.3 million, was offset
against the cost of the assets. After the effect of this and previous
purchases, at the end of the renewed lease term, the remaining assets can be
purchased for $28.3 million or sold to a third party with the Company required
to make a payment to the lessor in the event, and to the extent that, proceeds
are below $22.6 million. Future non-cancelable rental payments remaining under
this lease are expected to be approximately $3.5 million for the remainder of
2000 and $3.9 million in 2001.
7
Note J - Earnings (Loss) per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per common share from continuing operations.
Three Months Ended
March 31,
--------------------------------------------
2000 1999
------------------ ------------------
(in thousands, except per share data)
Numerator:
Loss before extraordinary item and
cumulative effect of accounting change $ (15,027) $ (2,380)
Cumulative effect of accounting change, net of taxes - 3,813
---------------- -----------------
Net income (loss) $ (15,027) $ 1,433
================ =================
Denominator:
Weighted average shares - denominator for basic 38,164 39,004
Dilutive effect of employee stock options - -
---------------- -----------------
Adjusted weighted average shares - denominator
for diluted 38,164 39,004
================ =================
Basic and diluted loss per common share before
cumulative effect of accounting change $ (.39) $ (.06)
================ =================
Basic and diluted earnings (loss) per common share $ (.39) $ .04
================= =================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This amendment to quarterly report on Form 10-Q/A contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including statements in the
"Outlook" and "Liquidity and Capital Resources" sections below. Words such as
"anticipates," "believes," "estimates," "expects," "is likely," "predicts,"
"may" and variations of such words and similar expressions are intended to
identify such forward-looking statements. Although the Company believes that
its expectations are based on reasonable assumptions, it cannot assure that the
expectations contained in such statements will be achieved. Important factors
which could cause actual results to differ materially from those contained in
such statements are discussed in the "Contingencies" and "Certain Trends and
Uncertainties" sections below.
RESULTS OF OPERATIONS
Quarter Ended March 31, 2000, Compared
to Quarter Ended March 31, 1999
The Company incurred a net loss of $15.0 million for the quarter ended March 31,
2000 compared to net income of $1.4 million for the quarter ended March 31,
1999. Results for the quarter were adversely impacted by the idling of the West
Elk mine in Gunnison County, Colorado. The mine was idled on January 28, 2000,
following the detection of combustion gases in a portion of the mine. During
the current quarter, the mine contributed $8.9 million and a loss of $11.9
million to coal sales and operating income, respectively, compared to $27.2
million and $1.5 million to coal sales and operating income, respectively,
during the quarter ended March 31, 1999.
Total revenues for the quarter ended March 31, 2000 decreased 15% from the
quarter ended March 31, 1999 as a result of several factors. Those factors
include reduced sales at the Company's West Elk mine as a result of the January
28 idling described above. In addition, the Company closed its Dal-Tex, Wylo
and Arch of Illinois operations and two surface mines in Kentucky during 1999.
8
The Company idled the Dal-Tex operation on July 23, 1999 due to a delay in
obtaining new mining permits which resulted from legal action in the U.S.
District Court for the Southern District of West Virginia (see additional
discussion in the "Contingencies - Legal Contingencies - Dal-Tex Litigation"
section of this report). The Wylo operation ceased production in December 1999
due to the depletion of its recoverable reserves. The Arch of Illinois
operation was closed due to a lack of demand for the mine's high-sulfur coal.
Demand for high-sulfur coal has declined rapidly as a result of the stringent
Clean Air Act requirements that are driving a shift to low-sulfur coal. The two
small surface mines in Kentucky are affiliated with the Coal-Mac operation and
were closed as a result of its cost structure not being competitive in the
current market. These factors were partially offset by increased production and
sales at the Company's Black Thunder mine in Wyoming. On a per-ton-sold basis,
the Company's average selling price of $12.40 decreased $2.24 from the same
period in the prior year primarily as a result of the expected shift of coal
sales from the Company's eastern operations to its western operations. Western
coal has a significantly lower average sales price than that provided from the
Company's eastern coal operations, due in part to the lower Btu content of
Powder River Basin coal.
Excluding the loss from operations resulting from the temporary idling of the
West Elk mine described above, income from operations increased $.8 million for
the quarter ended March 31, 2000 when compared to the same period in the prior
year. The increase is attributable to improved performance at several of the
Company's mines which resulted from the Company's continued focus on reducing
costs and improving productivity, and reduced costs in the current quarter
resulting from the closure of the Dal-Tex operation in July 1999. This was
partially offset by continuing difficult market conditions that prevailed in
U.S. coal markets during the quarter along with increased fuel costs experienced
in the current quarter. Income from operations also declined at the Company's
Mingo Logan longwall operation (Mountaineer Mine) where, despite another strong
first quarter and the contribution of $13.1 million to the Company's income from
operations, results were below the $16.3 million of income from operations from
the first quarter of 1999. The decrease was primarily caused by continuing
depressed coal prices, generally less favorable mining conditions and increased
mine development expenses associated with the start-up of the Alma seam
operation. The Mountaineer Mine contributed 13% and 12% of the Company's coal
sales revenue in the quarter ended March 31, 2000 and 1999, respectively. Other
factors that affected quarter to quarter comparisons of income from operations
included production shortfalls, deterioration of mining conditions and resulting
lower income contributions from the Company's Dal-Tex mine complex during the
first quarter of 1999 which culminated in the idling of that operation on July
23, 1999. As a result of the idling, the Company recorded a charge of $6.5
million during the first quarter of 1999, comprised principally of severance
costs, obligations for non-cancelable lease payments and a change in the
reclamation liability due to the idling (see additional discussion below).
Selling, general and administrative expenses decreased $2.7 million from the
first quarter of 1999. The decrease is attributable to cost savings resulting
from the restructuring of the Company's administrative workforce that occurred
during the fourth quarter of 1999 and also due to reduced legal and media
expenses incurred during the first quarter of 2000 when compared to the first
quarter of 1999.
Interest expense decreased $1.1 million due to lower average debt levels
outstanding during the first quarter of 2000 when compared to the first quarter
of 1999 partially offset by higher interest rates during the current quarter.
The Company's effective tax rate is sensitive to changes in annual profitability
and percentage depletion. During the fourth quarter of 1999, the Company
determined that as it relates to future income taxes, the Company does not
anticipate recognizing all of its alternative minimum tax credit carry-forwards
in the future and expects to recognize part of the benefit of its deferred tax
asset at the alternative minimum tax rate of approximately 24%.
Adjusted EBITDA is income (loss) from operations before the effect of changes in
accounting principles and extraordinary items; merger-related costs, unusual
items, asset impairment and restructuring charges; net interest expense; income
taxes; depreciation, depletion and amortization of Arch Coal, its subsidiaries
and its ownership percentage in its equity investments) was $63.6 million for
the current quarter compared to $86.0 million for the first quarter of 1999.
The decrease in Adjusted EBITDA was primarily attributable to the temporary
idling of the West Elk mine and Mingo Logan's performance, as described above.
Adjusted EBITDA should not be considered in
9
isolation or as an alternative to net income, operating income or cash flows
from operations or as a measure of a company's profitability, liquidity or
performance under U.S. generally accepted accounting principles.
OUTLOOK
West Elk Mine. The Company temporarily idled its West Elk underground mine in
Gunnison County, Colorado, on January 28, 2000 following the detection of
higher-than-normal levels of carbon monoxide in a portion of the mine. Higher-
than-normal levels of carbon monoxide indicate that combustion is present
somewhere within the affected portion of the mine. The Company has isolated the
combustion, constructed a number of water-tight seals around the combustion and
flooded that area with water. Since then, air readings have returned to normal
levels.
With the approval of the Mine Safety and Health Administration ("MSHA"), the
Company has re-entered the mine. None of the major equipment, including the
longwall, appears to have been damaged during the extended idling of the mine,
and the Company has completed the longwall move that was interrupted by the
idling. Currently, the Company is completing its recovery efforts at the mine
and is also implementing ventilation changes required by MSHA. As previously
announced, the Company expects to incur after-tax losses of $4 million to $6
million per month at the operation while it is idled. Based on the progress
made to date, the Company expects that the mine may resume production by the end
of the second quarter. The Company has business interruption insurance and
believes that a substantial portion of the losses related to the West Elk mine
will be covered by an insurance settlement later in the year. There can be no
assurance of recovery however, until the claim is resolved with the insurance
carrier.
West Virginia Operations. On October 20, 1999, the U.S. District Court for the
Southern District of West Virginia permanently enjoined the West Virginia
Division of Environmental Protection (the "West Virginia DEP") from issuing any
permits that authorize the construction of valley fills as part of coal mining
operations. The West Virginia DEP complied with the injunction by issuing an
order banning the issuance of nearly all new permits for valley fills and
prohibiting the further advancement of nearly all existing fills. On October
29, 1999, the district court granted a stay of its injunction, pending the
outcome of an appeal of the court's decision filed by the West Virginia DEP with
the U.S. Court of Appeals for the Fourth Circuit. The West Virginia DEP
rescinded its order in response to the stay granted by the court. It is
impossible to predict the outcome of the West Virginia DEP's appeal to the
Fourth Circuit. If, however, the district court's ruling is not overturned or
if a legislative or other solution is not achieved, then the ability of the
Company and other coal producers to mine coal in West Virginia would be
seriously compromised.
The injunction discussed above was entered as part of the litigation that caused
the delay in obtaining mining permits for the Company's Dal-Tex operation (see
additional discussion of this litigation in the "Contingencies - Legal
Contingencies - Dal-Tex Litigation" section of this report). As a result of
such delay, the Company idled its Dal-Tex mining operation on July 23, 1999.
The Company remains hopeful that it can reopen the Dal-Tex operation after all
necessary permits are obtained, which is not expected to occur until mid-2001 at
the earliest. Reopening the mine is, however, contingent upon the district
court's injunction being overturned or a legislative or other solution being
achieved, as well as then-existing market conditions.
Coal Markets. The Company continues to be adversely affected by the weak
conditions that have prevailed in U.S. coal markets during the past 16 months,
especially in the east. Signs that market conditions for coal may improve are,
however, beginning to appear. These signs include the following: electric
output is up approximately 4% so far this year; nuclear plant outages for
refuelings have increased approximately 25% over last year; hydro conditions are
weaker than normal due to dry conditions; petroleum and gas prices are higher;
and the National Weather Service has predicted a warmer-than-normal summer.
Because most of the Company's production is already committed and priced for the
current year, the Company expects its performance for the remainder of the year
to reflect the current market weakness. However, the signs indicating a
possible improved market may translate into improved pricing during 2001.
Low-Sulfur Coal Producer. Despite the current weak market and other ongoing
challenges facing the coal industry, the Company continues to believe that it is
uniquely positioned to capitalize on the continuing growth in demand for
electricity. With Phase II of the Clean Air Act in effect, the Company believes
that in the long term, compliance coal will command a premium in the
marketplace. Compliance coal is coal that meets the requirements of Phase II
10
of the Clean Air Act without the use of expensive scrubbing technology. All of
Arch's western coal production and approximately half of its eastern production
is compliance quality.
The Company continues to develop its assets at its western operations, including
the Black Thunder mine near Gillette, Wyoming. The Company has completed the
construction of a fourth dragline at the operation and has begun production on
the Thundercloud federal lease tract, a large contiguous block of reserves
containing 370 million tons of recoverable coal. These actions should allow the
mine to increase production 20% this year to approximately 60 million tons. The
Company hopes to maintain that level of production for the foreseeable future in
light of the increased demand for Powder River Basin coal. Demand for Powder
River Basin coal has more than doubled in the past decade and continues to grow
at a far higher rate than that of the coal market overall.
Chief Financial Objectives. The Company continues to focus on realizing the
substantial potential of its assets and maximizing shareholder value by making
decisions based upon its five chief financial objectives: (i) aggressively
paying down debt, (ii) further strengthening cash generation, (iii) improving
earnings, (iv) increasing productivity and (v) reducing costs throughout the
Company.
The Company's total debt increased $11 million during the current quarter due in
large part to the second of five annual payments of $31.6 million for the
Thundercloud federal reserve lease, which was acquired in 1998, as well as
reduced cash generation and increased expenditures related to the idling of the
West Elk mine. Given the timing of the payments for the Thundercloud lease and
the temporary idling of the West Elk mine, the Company expects to make most of
its progress toward reducing debt in the second half of 2000.
As part of its corporate-wide effort to reduce costs, the Company streamlined
the structure of its organization during the fourth quarter of 1999 and as a
result eliminated approximately 81 administrative jobs, 58 of which were
corporate and the remainder of which were subsidiary positions. The elimination
of jobs occurred through layoffs and attrition. The Company believes that the
corporate-wide restructuring will likely reduce future operating costs by
approximately $11 million a year compared to 1999.
Ashland Distribution. On March 29, 2000, Ashland Inc. ("Ashland"), which owned
approximately 58% of the outstanding common stock of the Company, distributed
17.4 million of its 22.1 million shares of Arch Coal, Inc. common stock to its
shareholders as a taxable dividend. Ashland has announced that it plans to
dispose of its remaining 4.7 million shares of Company common stock in a tax-
efficient manner during the year following the distribution, subject to existing
market conditions. Ashland's distribution did not impact the Company's
operations.
LIQUIDITY AND CAPITAL RESOURCES
The following is a summary of cash provided by or used in each of the indicated
types of activities during the three months ended March 31, 2000 and 1999:
2000 1999
------------------ ------------------
(in thousands)
Cash provided by (used in):
Operating activities $ 55,987 $ 86,796
Investing activities (65,088) (13,447)
Financing activities 8,906 (93,237)
Cash provided by operating activities decreased in the first quarter of 2000
compared to the same period in 1999 due to: a decrease in cash provided from
equity investments and reduced cash from coal sales and increased costs
resulting from the West Elk mine combustion. These were partially offset by
increased receivable collections in the current quarter when compared to the
prior year's quarter. The decrease in cash provided from equity investments
results primarily from the amendment in the prior year's quarter of a coal
supply agreement with the Intermountain Power Agency, which was a significant
portion of the $50.7 million cash distribution from Canyon Fuel. During the
current quarter, the Company contributed $7.8 million to Canyon Fuel to fund
cash requirements.
Cash used in investing activities increased in the first quarter of 2000
compared to the first quarter of 1999 primarily as a result of the Company
making the second of five annual payments on the Thundercloud federal lease
which is
11
part of the Black Thunder mine in Wyoming. The first payment was due at the time
of the acquisition of the lease in 1998. The remaining four payments are due
each January of the years 2000 through 2003. Quarter over quarter comparisons
are also affected by the amendment of another coal supply agreement during 1999.
The amendment changed the contract terms from above-market to market-based
pricing. As a result of the amendment, the Company received proceeds of $14.1
million (net of royalty and tax obligations) during the first quarter of 1999
from the customer.
Cash provided by financing activities reflects net borrowings of $11.1 million
in the current quarter compared to net payments of $80.9 million in the previous
year's quarter. In addition, requirements for dividend payments have decreased
$2.3 million in the current quarter as compared to the prior year's quarter,
resulting from a decrease in shares outstanding, and a reduction in the
quarterly dividend from 11.5 cents per share to 5.75 cents per share. The
dividend reduction is attributable to the Company's goal to aggressively pay
down debt.
The Company periodically establishes uncommitted lines of credit with banks.
These agreements generally provide for short-term borrowings at market rates.
At March 31, 2000, there were $25 million of such agreements in effect, of which
$1.1 million were outstanding.
The Company is exposed to market risk associated with interest rates. At March
31, 2000, debt included $1.186 billion of floating-rate debt, which is, at the
Company's option, the PNC Bank base rate or a rate based on LIBOR and current
market rates for bank lines of credit. To manage these exposures, the Company
enters into interest-rate swap agreements to modify the interest-rate
characteristics of outstanding Company debt. At March 31, 2000, the Company had
interest-rate swap agreements having a total notional value of $765 million.
These swap agreements are used to convert variable-rate debt to fixed-rate debt.
Under these swap agreements, the Company pays a weighted average fixed rate of
5.70% (before the credit spread over LIBOR) and receives a weighted average
variable rate based upon 30-day and 90-day LIBOR. The Company accrues amounts
to be paid or received under interest-rate swap agreements over the lives of the
agreements. Such amounts are recognized as adjustments to interest expense over
the lives of agreements, thereby adjusting the effective interest rate on the
Company's debt. The fair value of the swap agreements are not recognized in the
financial statements. Gains and losses on terminations of interest-rate swap
agreements are deferred on the balance sheet (in other long-term liabilities)
and amortized as an adjustment to interest expense over the remaining term of
the terminated swap agreement. The remaining terms of the swap agreements at
March 31, 2000 ranged from 29 to 53 months. All instruments are entered into
for other than trading purposes.
The discussion below presents the sensitivity of the market value of the
Company's financial instruments to selected changes in market rates and prices.
The range of changes reflects the Company's view of changes that are reasonably
possible over a one-year period. Market values are the present value of
projected future cash flows based on the market rates and prices chosen. The
major accounting policies for these instruments are described in Note 1 to the
consolidated financial statements of the Company as of and for the year ended
December 31, 1999 as filed on Form 10-K with the Securities and Exchange
Commission.
Changes in interest rates have different impacts on the fixed-rate and variable-
rate portions of the Company's debt portfolio. A change in interest rates on
the fixed portion of the debt portfolio impacts the net financial instrument
position but has no impact on interest incurred or cash flows. A change in
interest rates on the variable portion of the debt portfolio impacts the
interest incurred and cash flows but does not impact the net financial
instrument position.
The sensitivity analysis related to the fixed portion of the Company's debt
portfolio assumes an instantaneous 100-basis-point move in interest rates from
their levels at March 31, 2000 with all other variables held constant. A 100-
basis-point decrease in market interest rates would result in an increase in the
net financial instrument position of the fixed portion of debt of $18.3 million
at March 31, 2000. Based on the variable-rate debt included in the Company's
debt portfolio as of March 31, 2000, after considering the effect of the swap
agreements, a 100-basis-point increase in interest rates would result in an
annualized additional $4.2 million of interest expense incurred based on
quarter-end debt levels.
CONTINGENCIES
12
Reclamation
The federal Surface Mining Control and Reclamation Act of 1977 ("SMCRA") and
similar state statutes require that mine property be restored in accordance with
specified standards and an approved reclamation plan. The Company accrues for
the costs of final mine closure reclamation over the estimated useful mining
life of the property. These costs relate to reclaiming the pit and support
acreage at surface mines and sealing portals at deep mines. Other costs of final
mine closure common to surface and underground mining are related to reclaiming
refuse and slurry ponds, eliminating sedimentation and drainage control
structures and dismantling or demolishing equipment or buildings used in mining
operations. The Company also accrues for significant reclamation that is
completed during the mining process prior to final mine closure. The
establishment of the final mine closure reclamation liability and the other
ongoing reclamation liability are based upon permit requirements and require
various estimates and assumptions, principally associated with costs and
productivities.
The Company reviews its entire environmental liability periodically and makes
necessary adjustments, including permit changes and revisions to costs and
productivities to reflect current experience. These recosting adjustments are
recorded to cost of coal sales. No such adjustments were recorded in the three
months ended March 31, 2000 or in the three months ended March 31, 1999. The
Company's management believes it is making adequate provisions for all expected
reclamation and other associated costs.
Legal Contingencies
The Company is a party to numerous claims and lawsuits with respect to various
matters, including those discussed below. The Company provides for costs related
to contingencies, including environmental matters, when a loss is probable and
the amount is reasonably determinable. The Company estimates that its probable
aggregate loss as a result of such claims as of March 31, 2000 is $4.5 million
(included in other noncurrent liabilities). The Company estimates that its
reasonably possible aggregate losses from all material litigation that is
currently pending could be as much as $.5 million (before taxes) in excess of
the probable loss previously recognized. After conferring with counsel, it is
the opinion of management that the ultimate resolution of these claims, to the
extent not previously provided for, will not have a material adverse effect on
the consolidated financial condition, results of operations or liquidity of the
Company.
Dal-Tex Litigation. On July 16, 1998, ten individuals and The West Virginia
Highlands Conservancy filed suit in U.S. District Court for the Southern
District of West Virginia against the director of the West Virginia DEP and
officials of the Corps alleging violations of SMCRA and the Clean Water Act. The
plaintiffs alleged that the West Virginia DEP and the Corps have violated their
duties under SMCRA and the Clean Water Act by authorizing the construction of
"valley fills" under certain surface coal mining permits. These fills are the
large, engineered works into which the excess earth and rock extracted during
surface mining are placed. The plaintiffs also alleged that the West Virginia
DEP has failed to require (i) that lands mined are restored to "approximate
original contour" and (ii) that approved post-mining land uses are enforced
following reclamation.
Four indirect, wholly owned subsidiaries of the Company hold nine permits that
were identified in the complaint as violating the legal standards that the
plaintiffs requested the district court interpret. In addition, a pending permit
application for the Company's Dal-Tex operation (known as the "Spruce Fork
Permit") was specifically identified as a permit the issuance of which should be
enjoined. Three subsidiaries of the Company intervened in the lawsuit in support
of the Corps and the West Virginia DEP on August 6, 1998.
A partial settlement between the plaintiffs and the Corps was reached on
December 23, 1998. Pursuant to that settlement, all claims were dismissed
against the Corps for its alleged failure to execute its duties under the Clean
Water Act. The settlement agreement reached between the Corps and the plaintiffs
requires the preparation of a programmatic environmental impact statement (an
"EIS") under the National Environmental Policy Act of 1969 ("NEPA") to evaluate
the environmental effects of mountaintop mining. This EIS is scheduled to be
completed by January 2001. Until it is completed, any proposed fill greater than
250 acres in size must secure an individual Clean Water Act Section 404 "dredge
and fill" permit, instead of a general permit like the one the Corps indicated
it would issue for the Dal-Tex operation under its nationwide authorization
program. The Spruce Fork Permit was not included in the settlement, and the
claims against the Corps with respect to that permit were not dismissed.
13
On March 3, 1999, the district court issued a preliminary injunction which
prohibited the Corps from issuing a general Clean Water Act Section 404 dredge
and fill permit for the Dal-Tex operation and enjoined the Company from future
operations on the permit until a full trial on the merits could be held. As a
result of the entry of the preliminary injunction, the Company idled the Dal-Tex
mine on July 23, 1999.
On July 26, 1999, the plaintiffs and the West Virginia DEP tendered to the
district court a proposed consent decree which would resolve most of the
remaining issues in the case. Pursuant to the proposed consent decree, the West
Virginia DEP agreed in principle to amend its regulations and procedures to
correct alleged deficiencies. In addition, the parties agreed in principle on a
new definition of approximate original contour as it applies to mountaintop
mining, as well as to certain regulatory changes involving post-mining land
uses. After inviting public comment of the proposed consent decree, the court
entered the consent decree in a final order on February 17, 2000.
The Company's Hobet Mining subsidiary agreed as part of the consent decree to
revise portions of its Spruce Fork Permit application to conform to the new
definition of approximate original contour to be adopted by the West Virginia
DEP. Hobet Mining also agreed to seek an individual Clean Water Act Section 404
dredge and fill permit from the Corps as part of its future mining operation.
Before issuing that permit, the Corps must first complete an EIS to comply with
the provisions of NEPA. The completion of this EIS and issuance of all permits
are not expected until mid-2001 at the earliest.
The plaintiffs' allegation that the West Virginia DEP violated its duties under
the Clean Water Act by authorizing the construction of valley fills under
certain coal mining permits was not resolved by the consent decree. On October
20, 1999, the district court entered a permanent injunction against the West
Virginia DEP prohibiting the issuance of any new permits that authorize the
construction of valley fills as part of mining operations. The court concluded
that the excess earth and rock that is placed in a valley fill during mining is
not fill material, but rather is waste, which may not be placed in intermittent
and perennial streams because the disposal of such material cannot meet
applicable water quality standards.
The West Virginia DEP immediately complied with the district court's injunction
by issuing an administrative order banning the expansion of nearly all existing
valley fills as well as prohibiting the issuance of nearly all new permits for
valley fills. The West Virginia DEP also filed an appeal of the district court's
decision with the U.S. Court of Appeals for the Fourth Circuit. On October 29,
1999, the district court granted a stay of its decision, pending the outcome of
the appeal. The West Virginia DEP rescinded its administrative order on November
1, 1999 in response to the district court's action.
It is impossible to predict the outcome of the West Virginia DEP's appeal. If,
however, the district court's decision is upheld, the Company and other coal
producers may be forced to close all or a portion of their mining operations in
West Virginia because of the prohibition on constructing valley fills for their
existing and future mines.
Cumulative Hydrologic Impact Assessment ("CHIA") Litigation. On January 20,
2000, two environmental organizations, the Ohio Valley Environmental Coalition
and the Hominy Creek Watershed Association, filed suit against the West Virginia
DEP in U.S. District Court in Huntington, West Virginia. In addition to
allegations that the West Virginia DEP violated state law and provisions of the
Clean Water Act, the plaintiffs allege that the West Virginia DEP's issuance of
permits for surface and underground coal mining has violated certain non-
discretionary duties mandated by SMCRA. Specifically, the plaintiffs allege that
the West Virginia DEP has failed to require coal operators seeking permits (i)
to conduct water monitoring to verify stream flows and ascertain water quality,
(ii) to always include certain water quality information in their permit
applications and (iii) to analyze the probable hydrologic consequences of their
operations. The plaintiffs also allege that the West Virginia DEP has failed to
analyze the cumulative hydrologic impacts of mining operations on specific
watersheds.
The plaintiffs seek an injunction to prohibit the West Virginia DEP from issuing
any new permits which fail to comply with all of the elements identified in
their complaint. The complaint identifies, and seeks to enjoin, three pending
permits that are sought by the Company's Mingo Logan subsidiary to continue
existing surface mining operations at the Phoenix reserve. If the permits are
not issued, it is possible that those operations will have to be suspended early
in 2001. On May 1, 2000, the court denied the West Virginia DEP's motion to
dismiss all claims in the lawsuit.
14
It is impossible to predict whether this litigation will result in a suspension
of the affected surface mining operations. If, however, the operations are
suspended, the Company's financial condition and results of operations could be
adversely affected and, depending upon the length of the suspension, the effect
could be material. This matter does not affect Mingo Logan's existing permits
related to underground operations.
Lone Mountain Litigation. On October 24, 1996, the rock strata overlaying an
abandoned underground mine adjacent to the coal-refuse impoundment used by the
Lone Mountain preparation plant failed, resulting in the discharge of
approximately 6.3 million gallons of water and fine coal slurry into a tributary
of the Powell River in Lee County, Virginia.
The U.S. Department of the Interior has notified the Company that it intends to
file a civil action under the Clean Water Act and the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") to recover the
natural resource damages suffered as a result of the discharge. The Interior
Department alleges that fresh water mussels listed on the federal Endangered
Species List that reside in the Powell River were affected as a consequence of
the discharge. The Company and the Interior Department have reached an agreement
in principle to settle this matter, which would require a payment of $2.5
million by the Company. The settlement is subject to the Company and the
Interior Department entering into a definitive agreement. The Company's
consolidated balance sheet as of March 31, 2000 reflects a reserve for the full
amount of this settlement.
Other Litigation. On October 31, 1997, the EPA notified a Company subsidiary
that it was a potentially responsible party in the investigation and remediation
of two hazardous waste sites located in Kansas City, Kansas, and Kansas City,
Missouri. The Company's involvement arises from the subsidiary's sale, in the
mid-1980's, of fluids containing small quantities of polychlorinated biphenyls
("PCBs") to a company authorized to engage in the processing and disposal of
these wastes. Some of these waste materials were sent to one of the sites for
final disposal. The Company responded to the information request submitted by
the EPA on December 1, 1997. Any liability which might be asserted by the EPA
against the Company is not believed to be material because of the de minimis
quantity and concentration of PCBs linked to the Company. Moreover, the party
with which the subsidiary contracted to dispose of the waste material has agreed
to indemnify the Company for any costs associated with this action.
CERTAIN TRENDS AND UNCERTAINTIES
Substantial Leverage; Variable Interest Rate; Restrictive Covenants
The Company has substantial leverage and significant debt service and lease and
royalty payment obligations. As of March 31, 2000, the Company had outstanding
consolidated indebtedness of approximately $1.2 billion, representing
approximately 84% of the Company's total capitalization.
The Company's ability to satisfy its debt service and lease payment obligations
will depend upon the future operating performance of its subsidiaries, which
will be affected by prevailing economic conditions in their markets, as well as
financial, business and other factors, certain of which are beyond their
control. Based upon current levels of operations, the Company believes that cash
flow from operations and available cash, together with available borrowings
under the Company's credit facilities, will be adequate to meet the Company's
future liquidity needs for at least the next several years. However, there can
be no assurance that the Company's business will generate sufficient cash flow
from operations or that future borrowings will be available in an amount
sufficient to enable the Company to fund its debt service and lease payment
obligations or its other liquidity needs.
The degree to which the Company is leveraged could have material consequences to
the Company and its business, including, but not limited to: (i) making it more
difficult for the Company to satisfy its debt service, lease payment and other
obligations; (ii) increasing the Company's vulnerability to general adverse
economic and industry conditions; (iii) limiting the Company's ability to obtain
additional financing to fund future acquisitions, working capital, capital
expenditures or other general corporate requirements; (iv) reducing the
availability of cash flow from operations to fund acquisitions, working capital,
capital expenditures or other general corporate purposes; (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industry in which it competes and (vi) placing the Company at a
competitive disadvantage when compared to competitors with less debt.
15
A significant portion of the Company's indebtedness bears interest at variable-
rates that are linked to short-term interest rates. If interest rates rise, the
Company's costs relative to those obligations would also rise.
Terms of the Company's credit facilities and leases contain financial and other
restrictive covenants that limit the ability of the Company to, among other
things, pay dividends, effect acquisitions or dispositions and borrow additional
funds and require the Company to, among other things, maintain various financial
ratios and comply with various other financial covenants. Failure by the Company
to comply with such covenants could result in an event of default which, if not
cured or waived, could have a material adverse effect on the Company.
Environmental and Regulatory Factors
Federal, state and local governmental authorities regulate the coal mining
industry on matters as diverse as employee health and safety, air quality
standards, water pollution, groundwater quality and availability, plant and
wildlife protection, the reclamation and restoration of mining properties, the
discharge of materials into the environment and surface subsidence from
underground mining. In addition, federal legislation mandates certain benefits
for various retired coal miners represented by the United Mine Workers of
America ("UMWA"). These regulations and legislation have had and will continue
to have a significant effect on the Company's costs of production and
competitive position.
New legislation, regulations or orders may be adopted or become effective which
may adversely affect the Company's mining operations, its cost structure or the
ability of the Company's customers to use coal. For example, new legislation,
regulations or orders may require the Company to incur increased costs or to
significantly change its operations. New legislation, regulations or orders may
also cause coal to become a less attractive fuel source, resulting in a
reduction in coal's share of the market for fuels used to generate electricity.
Any such regulation, legislation or order could have an adverse effect on the
Company's business, results of operations and financial condition and, depending
upon the nature and scope of the legislation, regulations or orders, the effect
could be material.
Permits. Mining companies must obtain numerous permits that impose strict
regulations on various environmental and health and safety matters in connection
with coal mining, including the emission of air and water borne pollutants, the
manner and sequencing of coal extractions and reclamation, the storage, use and
disposal of non-hazardous and hazardous substances, and the construction of
fills and impoundments. Because regulatory authorities have considerable
discretion in the timing of permit issuance and because both private individuals
and the public at large possess rights to comment on and otherwise engage in the
permitting process, including through intervention in the courts, no assurance
can be made that permits necessary for mining operations will be issued or, if
issued, that such issuance will be timely or that permitting requirements will
not be changed or interpreted in a manner that would have a material adverse
effect on the Company's financial condition or results of operations.
As indicated by the legal action involving the Company's Dal-Tex operation which
is discussed in "Contingencies - Legal Contingencies - Dal-Tex Litigation"
above, the regulatory environment in West Virginia is changing with respect to
coal mining. No assurance can be made that the Fourth Circuit will overturn the
district court's decision in such legal action or that a legislative or other
solution will be achieved. If the district court's ruling is not overturned or a
legislative or other solution is not achieved, there could be a material adverse
effect on the Company's financial condition or results of operations.
NOx Emissions. The use of explosives in surface mining causes oxides of
nitrogen ("NOx") to be emitted into the air. The emission of NOx from the use of
explosives at surface mines in the Powder River Basin is gaining increased
scrutiny from regulatory agencies and the public. The Company has taken steps to
monitor the level of NOx emitted during blasting activities at its surface mines
in the Powder River Basin and is continuing efforts to find a method of reducing
these NOx emissions. Any increase in the regulation of NOx emissions from
blasting activities could have an adverse effect on the Company's Powder River
Basin surface mines. Depending upon the nature and scope of any such
regulations, the effect on the mines could be material.
Kyoto Protocol. On December 11, 1997, the U.S. government representatives at
the climate change negotiations in Kyoto, Japan, agreed to reduce the emissions
of greenhouse gases (including carbon dioxide and other gas emissions that are
believed to be trapping heat in the atmosphere and warming the earth's climate)
in the United States. The
16
U.S. adoption of the requirements of the Kyoto protocol is subject to conditions
which may not occur and is also subject to the protocol's ratification by the
U.S. Senate. The U.S. Senate has indicated that it will not ratify an agreement
unless certain conditions, not currently provided for in the Kyoto protocol, are
met. At present, it is not possible to predict whether the Kyoto protocol will
attain the force of law in the United States or what its impact would be on the
Company. Further developments in connection with the Kyoto protocol could have a
material adverse effect on the Company's financial condition and results of
operations.
Customers. In July 1997, the EPA proposed that twenty-two eastern states,
including states in which many of the Company's customers are located, make
substantial reductions in nitrous oxide emissions. The EPA expects the states to
achieve these reductions by requiring power plants to reduce their nitrous oxide
emissions by an average of 85%. To achieve such reductions, power plants would
be required to install reasonably available control technology ("RACT") and
additional control measures. Installation of RACT and additional control
measures required under the EPA's proposal would make it more costly to operate
coal-fired utility power plants and, depending on the requirements of individual
state implementation plans and the development of revised new source performance
standards, could make coal a less attractive fuel alternative in the planning
and building of utility power plants in the future.
The EPA is also proposing to implement stricter ozone standards by 2003. The
U.S. Court of Appeals for the District of Columbia Circuit has, however,
enjoined the EPA from implementing the new ozone standards on constitutional and
other legal grounds. Implementation of the standards may be delayed or precluded
because of the injunction. The injunction may also result in modification of the
proposed ozone standards.
The U.S. Department of Justice, on behalf of the EPA, has filed a lawsuit
against seven investor-owned utilities and brought an administrative action
against one government-owned utility for alleged violations of the Clean Air
Act. The EPA claims that over thirty of these utilities' power stations have
failed to obtain permits required under the Clean Air Act for major improvements
which have extended the useful service of the stations or increased their
generating capacity. The Company supplies coal to seven of the eight utilities.
It is impossible to predict the outcome of this legal action. Any outcome that
adversely affects the Company's customers or makes coal a less attractive fuel
source could, however, have a material adverse effect on the Company's financial
condition or results of operations.
Reserve Degradation and Depletion
The Company's profitability depends substantially on its ability to mine coal
reserves that have the geologic characteristics that enable them to be mined at
competitive costs. There can be no assurance that replacement reserves,
particularly in central Appalachia, will be available when required or, if
available, that such replacement reserves can be mined at costs comparable to
those characteristic of the depleting mines. Exhaustion of reserves at
particular mines can also have an adverse effect on operating results that is
disproportionate to the percentage of overall production and operating income
represented by such mines. Mingo Logan's Mountaineer Mine is estimated to
exhaust its longwall mineable reserves in 2002. The Mountaineer Mine generated
$13.1 million of the Company's total operating income for the three months ended
March 31, 2000.
Reliance on and Terms of Long-Term Coal Supply Contracts
The Company sells a substantial portion of its coal production pursuant to long-
term coal supply agreements and, as a consequence, may experience fluctuations
in operating results due to the expiration or termination of, or sales price
redeterminations or suspensions of deliveries under such coal supply agreements.
Other short- and long-term contracts define base or optional tonnage
requirements by reference to the customer's requirements, which are subject to
change as a result of factors beyond the Company's (and in certain instances the
customer's) control, including utility deregulation. In addition, certain price
adjustment provisions permit a periodic increase or decrease in the contract
price to reflect increases and decreases in production costs, changes in
specified price indices or items such as taxes or royalties. Price reopener
provisions provide for an upward or downward adjustment in the contract price
based on market factors. The Company has from time to time renegotiated
contracts after execution to extend the contract term or to accommodate changing
market conditions. The contracts also typically include stringent minimum and
maximum coal quality specifications and penalty or termination provisions for
failure to meet such specifications and force majeure provisions allowing
suspension of performance or termination by the parties during
17
the duration of certain events beyond the control of the affected party.
Contracts occasionally include provisions that permit a utility to terminate the
contract if changes in the law make it illegal or uneconomic for the utility to
consume the Company's coal or if the utility has unexpected difficulties in
utilizing the Company's coal. Imposition of new nitrous oxide emissions limits
in connection with Phase II of the Clean Air Act could result in price
adjustments or in affected utilities seeking to terminate or modify long-term
contracts in reliance on such termination provisions. If the parties to any
long-term contracts with the Company were to modify, suspend or terminate those
contracts, the Company could be adversely affected to the extent that it is
unable to find alternative customers at a similar or higher level of
profitability.
From time to time, disputes with customers may arise under long-term contracts
relating to, among other things, coal quality, pricing and quantity. The Company
may thus become involved in arbitration and legal proceedings regarding its
long-term contracts. There can be no assurance that the Company will be able to
resolve such disputes in a satisfactory manner.
Although the Company cannot predict changes in its costs of production and coal
prices with certainty, the Company believes that in the current economic
environment of low to moderate inflation, the price adjustment provisions in its
older long-term contracts will largely offset changes in the costs of providing
coal under those contracts, except for those costs related to changes in
productivity. However, the increasingly short terms of sales contracts and the
consequent absence of price adjustment provisions in such contracts also make it
more likely that inflation related increases in mining costs during the contract
term will not be recovered by the Company through a later price adjustment.
Potential Fluctuations in Operating Results; Seasonality
The Company may experience significant fluctuations in operating results in the
future, both on an annual and quarterly basis, as a result of one or more
factors beyond its control, including expiration or termination of, or sale
price redeterminations or suspensions of deliveries under, coal supply
agreements; disruption of transportation services; changes in mine operating
conditions; changes in laws or regulations, including permitting requirements;
unexpected results in litigation; work stoppages or other labor difficulties;
competitive and overall coal market conditions; and general economic conditions.
The Company's mining operations are also subject to factors beyond its control
that can negatively or positively affect the level of production and thus the
cost of mining at particular mines for varying lengths of time. These factors
include weather conditions, equipment replacement and repair requirements;
variations in coal seam thickness, amount of overburden, rock and other natural
materials; and other surface or subsurface conditions. Such production factors
frequently result in significant fluctuations in operating results.
Third quarter results of operations are frequently adversely affected by lower
production and resultant higher costs due to scheduled vacation periods at the
majority of the Company's mines. In addition, costs are typically somewhat
higher during vacation periods because of maintenance activity carried on during
those periods. These adverse effects may prevent the third quarter from being
comparable to the other quarters and also prevent the third quarter results from
being indicative of results to be expected for the full year.
Certain Contractual Arrangements
The Company owns a 99% interest in Arch Western Resources, LLC ("Arch Western"),
a joint venture that was formed in connection with the Company's acquisition of
the U.S. coal operations of Atlantic Richfield Company on June 1, 1998. The
Limited Liability Company Agreement pursuant to which Arch Western was formed
provides that a subsidiary of the Company, as the managing member of Arch
Western, generally has exclusive power and authority to conduct, manage and
control the business of Arch Western. However, if Arch Western at the time has a
debt rating less favorable than Ba3 from Moody's Investors Service or BB- from
Standard & Poors Ratings Group or does not meet certain specified indebtedness
and interest coverage ratios, then a proposal that Arch Western make certain
distributions, incur indebtedness, sell properties or merge or consolidate with
any other entity would require the consent of all the members of Arch Western.
18
In connection with the Arch Western transaction, the Company entered into an
agreement pursuant to which the Company agreed to indemnify another member of
Arch Western against certain tax liabilities in the event that such liabilities
arise as a result of certain actions taken prior to June 1, 2013, including the
sale or other disposition of certain properties of Arch Western, the repurchase
of certain equity interests in Arch Western by Arch Western or the reduction
under certain circumstances of indebtedness incurred by Arch Western in
connection with the Arch Western transaction. Depending on the time at which any
such indemnification obligation were to arise, it could have a material adverse
effect on the business, results of operations and financial condition of the
Company.
The membership interests in Canyon Fuel are owned 65% by Arch Western and 35% by
a subsidiary of ITOCHU Corporation, a Japanese corporation. The agreement which
governs the management and operations of Canyon Fuel provides for a Management
Board to manage its business and affairs. Generally, the Management Board acts
by affirmative vote of the representatives of the members holding more than 50%
of the membership interests. However, certain actions require either the
unanimous approval of the members or the approval of representatives of members
holding more than 70% of the membership interests. The Canyon Fuel agreement
also contains various restrictions on the transfer of membership interests in
Canyon Fuel.
Pursuant to a stockholders agreement among the Company, Ashland and Carboex S.A.
("Carboex"), the Company has agreed to nominate for election as a director of
the Company a person designated by Carboex, and Ashland has agreed to vote its
shares of common stock in a manner sufficient to cause the election of such
nominee, in each case for so long (subject to earlier termination in certain
circumstances) as shares of common stock owned by Carboex represent at least 63%
of the shares of common stock acquired by Carboex in the Company's merger with
Ashland's subsidiary, Ashland Coal, Inc. The Agreement terminates as to Ashland
once Ashland ceases to be the beneficial owner (as defined in Rule 13d-3(a)
under the Securities Exchange Act of 1934) of 10% or more of the Company's
common stock. In addition, for so long as the various trusts for the benefit of
descendants of H.L. and Lyda Hunt and various corporations owned by trusts for
the benefit of descendants of H.L. and Lyda Hunt (collectively the "Hunt
Entities") have the collective voting power to elect one or more persons to
serve on the Board of Directors of the Company, the Company has agreed to
nominate for election as directors of the Company that number of persons
designated by certain of the Hunt Entities that could be elected to the Board by
the Hunt Entities by exercise of such voting power.
The Company's Amended and Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least two-thirds of outstanding common
stock voting thereon to approve a merger or consolidation and certain other
fundamental actions involving or affecting control of the Company. The Company's
Bylaws require the affirmative vote of at least two-thirds of the members of the
Board of Directors of the Company in order to declare dividends and to authorize
certain other actions.
Transportation
The coal industry depends on rail, trucking and barge transportation to deliver
shipments of coal to customers. Disruption of these transportation services
could temporarily impair the Company's ability to supply coal to its customers
and thus adversely affect the Company's business and operating results. In
addition, transportation costs are a significant component of the total cost of
supplying coal to customers and can significantly affect a coal producer's
competitive position and profitability. Increases in the Company's
transportation costs, or changes in such costs relative to transportation costs
incurred by providers of competing coal or of other fuels, could have an adverse
effect on the Company's business and results of operations.
Reliance on Estimates of Reserves; Title
There are numerous uncertainties inherent in estimating quantities of
recoverable reserves, including many factors beyond the control of the Company.
Estimates of economically recoverable coal reserves and net cash flows
necessarily depend upon the number of variable factors and assumptions, such as
geological and mining conditions (which may not be fully identified by available
exploration data and/or differ from experience in current operations),
historical production from the area compared with production from other
producing areas, the assumed effects of regulation by governmental agencies and
assumptions concerning coal prices, operating costs, severance and excise taxes,
development costs and reclamation costs, all of which may cause estimates to
vary considerably from actual results.
19
For these reasons, estimates of the economically recoverable quantities
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of net cash flows expected
therefrom prepared by different engineers or by the same engineers at different
times may vary substantially. Actual coal tonnage recovered from identified
reserve areas or properties and revenues and expenditures with respect to the
Company's reserves may vary from estimates, and such variances may be material.
No assurance can be given that these estimates are an accurate reflection of the
Company's actual reserves.
The Company's mining operations are conducted on properties owned or leased by
the Company. The loss of any lease could adversely affect the Company's ability
to develop the applicable reserves. Because title to most of the Company's
leased properties and mineral rights is not usually verified until a commitment
is made by the Company to develop a property, which may not occur until after
the Company has obtained necessary permits and completed exploration of the
property, the Company's right to mine certain of its reserves may be adversely
affected if defects in title or boundaries exist. In addition, there can be no
assurance that the Company can successfully negotiate new leases or mining
contracts for properties containing additional reserves or maintain its
leasehold interests in properties on which mining operations are not commenced
during the term of the lease.
Factors Routinely Affecting Results of Operations
Any one or a combination of the following factors may occur at times or in a
manner that causes results of the Company's operations to deviate from
expectations: changing demand; fluctuating selling prices; contract penalties,
suspensions or terminations; operational, geologic, transportation and weather-
related factors; unexpected regulatory changes; results of litigation; or labor
disruptions. Any event disrupting substantially all production at any of the
Company's principal mines for a prolonged period would have a material adverse
effect on the Company's current and projected results of operations. The effect
of such a disruption at the Mingo Logan operations would be particularly severe
because of the high volume of coal produced by those operations and the
relatively high contribution to operating income from the sale of such coal.
20
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
2.1 Purchase and Sale Agreement dated as of March 22, 1998 among Atlantic
Richfield Company, ARCO Uinta Coal Company, Arch Coal, Inc. and Arch
Western Acquisition Corporation (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed June 15,
1998)
2.2 Contribution Agreement among Arch Coal, Inc., Arch Western Acquisition
Corporation, Atlantic Richfield Company, Delta Housing, Inc., and Arch
Western Resources LLC, dated as of March 22, 1998 (incorporated herein by
reference to Exhibit 2.2 of the Company's Current Report on Form 8-K filed
June 15, 1998)
3.1* Amended and Restated Certificate of Incorporation of Arch Coal, Inc.
3.2* Amended and Restated Bylaws of Arch Coal, Inc.
4.1 Stockholders Agreement, dated as of April 4, 1997, among Carboex
International, Ltd. Ashland Inc. and Arch Coal, Inc. (formerly Arch
Mineral Corporation) (incorporated herein by reference to Exhibit 4.1 of
the Company's Registration Statement on Form S-4 (Registration No. 333-
28149) filed on May 30, 1997)
4.2 Assignment of Rights, Obligations and Liabilities under the Stockholders
Agreement between Carboex International, Limited and Carboex, S.A.
effective as of October 15, 1998 (incorporated herein by reference to
Exhibit 4.2 of the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1998)
4.3 Registration Rights Agreement, dated as of April 4, 1997, among Arch Coal,
Inc. (formerly Arch Mineral Corporation), Ashland Inc., Carboex
International, Ltd. and the entities listed on Schedules I and II thereto
(incorporated herein by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-4 (Registration No. 333-28149) filed on
May 30, 1997, except for amended Schedule I thereto, incorporated herein
by reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1998)
4.4 Assignment of Registration Rights between Carboex International, Limited
and Carboex, S.A. effective as of October 15, 1998 (incorporated herein by
reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1998)
4.5 Agreement Relating to Nonvoting Observer, executed as of April 4, 1997,
among Carboex International, Ltd., Ashland Inc., Ashland Coal, Inc. and
Arch Coal, Inc. (formerly Arch Mineral Corporation) (incorporated herein
by reference to Exhibit 4.3 of the Company's Registration Statement on
Form S-4 (Registration No. 333-28149) filed on May 30, 1997)
4.6 Assignment of Right to Maintain a Non-Voting Observer at Meetings of the
Board of Directors of Arch Coal, Inc. between Carboex International,
Limited and Carboex, S.A. effective as of October 15, 1998 (incorporated
herein by referenced to Exhibit 4.6 of the Company's Annual Report on Form
10-K for the Year Ended December 31, 1998)
4.7 Agreement for Termination of the Arch Mineral Corporation Voting Agreement
and for Nomination of Directors, dated as of April 4, 1997, among Hunt
Coal Corporation, Petro-Hunt Corporation, each of the trusts listed on
Schedule I thereto, Ashland Inc. and Arch Mineral Corporation
(incorporated herein by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-4 (Registration No. 333-28149) filed on
May 30, 1997)
4.8 $600,000,000 Revolving Credit Facility, $300,000,000 Term Loan Credit
Agreement by and among Arch Coal, Inc., the Lenders party thereto, PNC
Bank, National Association, as Administrative Agent, Morgan
21
Guaranty Trust Company of New York, as Syndication Agent, and First Union
National Bank, as Documentation Agent, dated as of June 1, 1998
(incorporated herein by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed June 15, 1998)
4.9 Amendment 1 to Credit Agreement by and among Arch Coal, Inc., the Lenders
party thereto, PNC Bank, National Association, as Administrative Agent,
Morgan Guaranty Trust Company of New York, as Syndication Agent, and First
Union National Bank, as Documentation Agent, dated as of January 21, 2000
(incorporated herein by reference to Exhibit 4.9 of the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1999)
4.10 $675,000,000 Term Loan Credit Agreement by and among Arch Western
Resources, LLC, the Banks party thereto, PNC Bank, National Association,
as Administrative Agent, Morgan Guaranty Trust Company of New York, as
Syndication Agent, and NationsBank N.A., as Documentation Agent dated as
of June 1, 1998 (incorporated herein by reference to Exhibit 4.2 of the
Company's Current Report on Form 8-K filed June 15, 1998)
4.11 Omnibus Amendment Agreement dated as of June 1, 1998 in respect to Arch
Coal Trust no. 1998-1, Parent Guaranty and Suretyship Agreement, Lease
Intended as Security, Subsidiary Guaranty and Suretyship Agreement, each
dated as of January 15, 1998, among Apogee Coal Company, Catenary Coal
Company, Hobet Mining, Inc. Arch Coal, Inc., Great-West Life & Annuity
Insurance Company, Bank of Montreal, Barclays Bank, PLC, First Union
National Bank, BA Leasing and Capital Corporation, First Security Bank,
National Association, Arch Coal Sales Company, Inc., Ark Land Company and
Mingo Logan Coal Company (incorporated herein by reference to Exhibit 4.3
of the Company's Current Report on Form 8-K filed June 15, 1998)
4.12 Lease Intended as Security dated as of January 15, 1998, among Apogee Coal
Company, Catenary Coal Company and Hobet Mining, Inc., as Lessees; The
First Security Bank, National Association, as Lessor, and the Certificate
Purchasers named therein (incorporated herein by reference to Exhibit 4.5
of the Company's Annual Report on Form 10-K for the Year Ended December
31, 1997)
4.13 Form of Rights Agreement, dated March 3, 2000, between Arch Coal, Inc. and
First Chicago Trust Company of New York, as Rights Agent (incorporated
herein by reference to Exhibit 1 to a Current Report on Form 8-A filed on
March 9, 2000)
18 Preferability Letter of Ernst & Young LLP dated May 11, 1999 (incorporated
herein by reference to Exhibit 18 of the Company's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1999)
27* Financial Data Schedule
_________________________
* Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q filed for the quarter ended March 31, 2000 filed with the Securities
and Exchange Commission on May 15, 2000.
(b) Reports on Form 8-K
A report on Form 8-K dated March 9, 2000 (announcing the Board of
Directors' declaration of a dividend of one preferred share purchase right
for each outstanding share of the Company's common stock, payable to
stockholders of record on March 20, 2000) was filed during the quarter
ended March 31, 2000.
22
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 thereunto duly authorized.
ARCH COAL, INC.
---------------
(Registrant)
Date: February 8, 2001 /s/ John W. Lorson
---------------------
John W. Lorson
Controller
(Chief Accounting Officer)
23
ARCH COAL, INC.
FORM 10-Q/A FOR QUARTER ENDED MARCH 31, 2000
INDEX TO EXHIBITS
2.1 Purchase and Sale Agreement dated as of March 22, 1998 among Atlantic
Richfield Company, ARCO Uinta Coal Company, Arch Coal, Inc. and Arch
Western Acquisition Corporation (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed June 15,
1998)
2.2 Contribution Agreement among Arch Coal, Inc., Arch Western Acquisition
Corporation, Atlantic Richfield Company, Delta Housing, Inc., and Arch
Western Resources LLC, dated as of March 22, 1998 (incorporated herein by
reference to Exhibit 2.2 of the Company's Current Report on Form 8-K filed
June 15, 1998)
3.1* Amended and Restated Certificate of Incorporation of Arch Coal, Inc.
3.2* Amended and Restated Bylaws of Arch Coal, Inc.
4.1 Stockholders Agreement, dated as of April 4, 1997, among Carboex
International, Ltd. Ashland Inc. and Arch Coal, Inc. (formerly Arch
Mineral Corporation) (incorporated herein by reference to Exhibit 4.1 of
the Company's Registration Statement on Form S-4 (Registration No. 333-
28149) filed on May 30, 1997)
4.2 Assignment of Rights, Obligations and Liabilities under the Stockholders
Agreement between Carboex International, Limited and Carboex, S.A.
effective as of October 15, 1998 (incorporated herein by reference to
Exhibit 4.2 of the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1998)
4.3 Registration Rights Agreement, dated as of April 4, 1997, among Arch Coal,
Inc. (formerly Arch Mineral Corporation), Ashland Inc., Carboex
International, Ltd. and the entities listed on Schedules I and II thereto
(incorporated herein by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-4 (Registration No. 333-28149) filed on
May 30, 1997, except for amended Schedule I thereto, incorporated herein
by reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1998)
4.4 Assignment of Registration Rights between Carboex International, Limited
and Carboex, S.A. effective as of October 15, 1998 (incorporated herein by
reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1998)
4.5 Agreement Relating to Nonvoting Observer, executed as of April 4, 1997,
among Carboex International, Ltd., Ashland Inc., Ashland Coal, Inc. and
Arch Coal, Inc. (formerly Arch Mineral Corporation) (incorporated herein
by reference to Exhibit 4.3 of the Company's Registration Statement on
Form S-4 (Registration No. 333-28149) filed on May 30, 1997)
4.6 Assignment of Right to Maintain a Non-Voting Observer at Meetings of the
Board of Directors of Arch Coal, Inc. between Carboex International,
Limited and Carboex, S.A. effective as of October 15, 1998 (incorporated
herein by referenced to Exhibit 4.6 of the Company's Annual Report on Form
10-K for the Year Ended December 31, 1998)
4.7 Agreement for Termination of the Arch Mineral Corporation Voting Agreement
and for Nomination of Directors, dated as of April 4, 1997, among Hunt
Coal Corporation, Petro-Hunt Corporation, each of the trusts listed on
Schedule I thereto, Ashland Inc. and Arch Mineral Corporation
(incorporated herein by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-4 (Registration No. 333-28149) filed on
May 30, 1997)
4.8 $600,000,000 Revolving Credit Facility, $300,000,000 Term Loan Credit
Agreement by and among Arch Coal, Inc., the Lenders party thereto, PNC
Bank, National Association, as Administrative Agent, Morgan Guaranty Trust
Company of New York, as Syndication Agent, and First Union National Bank,
as
Documentation Agent, dated as of June 1, 1998 (incorporated herein by
reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed
June 15, 1998)
4.9 Amendment 1 to Credit Agreement by and among Arch Coal, Inc., the Lenders
party thereto, PNC Bank, National Association, as Administrative Agent,
Morgan Guaranty Trust Company of New York, as Syndication Agent, and First
Union National Bank, as Documentation Agent, dated as of January 21, 2000
(incorporated herein by reference to Exhibit 4.9 of the Company's Annual
Report on Form 10-K for the Year Ended December 31, 1999)
4.10 $675,000,000 Term Loan Credit Agreement by and among Arch Western
Resources, LLC, the Banks party thereto, PNC Bank, National Association,
as Administrative Agent, Morgan Guaranty Trust Company of New York, as
Syndication Agent, and NationsBank N.A., as Documentation Agent dated as
of June 1, 1998 (incorporated herein by reference to Exhibit 4.2 of the
Company's Current Report on Form 8-K filed June 15, 1998)
4.11 Omnibus Amendment Agreement dated as of June 1, 1998 in respect to Arch
Coal Trust no. 1998-1, Parent Guaranty and Suretyship Agreement, Lease
Intended as Security, Subsidiary Guaranty and Suretyship Agreement, each
dated as of January 15, 1998, among Apogee Coal Company, Catenary Coal
Company, Hobet Mining, Inc. Arch Coal, Inc., Great-West Life & Annuity
Insurance Company, Bank of Montreal, Barclays Bank, PLC, First Union
National Bank, BA Leasing and Capital Corporation, First Security Bank,
National Association, Arch Coal Sales Company, Inc., Ark Land Company and
Mingo Logan Coal Company (incorporated herein by reference to Exhibit 4.3
of the Company's Current Report on Form 8-K filed June 15, 1998)
4.12 Lease Intended as Security dated as of January 15, 1998, among Apogee Coal
Company, Catenary Coal Company and Hobet Mining, Inc., as Lessees; The
First Security Bank, National Association, as Lessor, and the Certificate
Purchasers named therein (incorporated herein by reference to Exhibit 4.5
of the Company's Annual Report on Form 10-K for the Year Ended December
31, 1997)
4.13 Form of Rights Agreement, dated March 3, 2000, between Arch Coal, Inc. and
First Chicago Trust Company of New York, as Rights Agent (incorporated
herein by reference to Exhibit 1 to a Current Report on Form 8-A filed on
March 9, 2000)
18 Preferability Letter of Ernst & Young LLP dated May 11, 1999 (incorporated
herein by reference to Exhibit 18 of the Company's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1999)
27* Financial Data Schedule
_________________________
* Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000 filed with the Securities and
Exchange Commission on May 15, 2000.
2