connecting goals
with action
A R C H C O A L , I N C .
2013 Annual Report to Shareholders
J O H N W . E A V E S
P R E S I D E N T A N D C H I E F E X E C U T I V E O F F I C E R
A R C H C O A L , I N C .
2013 Annual Report to Shareholders
C O N N E C T I N G G O A L S W I T H A C T I O N
dear fellow shareholders
During 2013, Arch Coal made meaningful progress in connecting our goals with action. Our
company is intent on managing what we can control. Whether lowering costs and capital spending,
streamlining operations or reorienting our asset portfolio for growth, we’ve been active in sharpening
our focus on our core operating regions and our core competences of mining and marketing coal.
We’re also committed to advancing our strong safety and environmental performance.
We know the actions that Arch Coal has taken
over the past year will create value for our
shareholders for years to come.
At the same time, soft coal prices – unfortunately beyond the reach of our actions – negatively
impacted Arch’s operating cash flow and shareholder return during 2013. Looking ahead, we’ll
continue to control our costs, capital spending and sales commitments. Our goal is to increase cash
flow, and we’re seeing signs of improvement in the market. Thermal coal fundamentals are gaining
momentum, and metallurgical coal dynamics may follow suit as high-cost global supply wanes.
As global coal supply and demand better align, coal prices will improve. This, in turn, will improve
our financial performance and drive shareholder return. We’re confident that the actions we took in
2013 to further bolster our liquidity position will allow us to successfully navigate through the
current market cycle – and reshape Arch Coal into a stronger, more competitive global resource
provider to the world’s electricity and steel markets.
TA K I N G
A C T I O N
2
B U I L D I N G F O R
W H AT ’ S N E X T
4
M A I N TA I N I N G
F L E X I B I L I T Y
8
REINFORCING
KEY PILLARS
1 0
CREATING
VALUE
1 2
A R C H C O A L , I N C .
2013 Annual Report to Shareholders
C H A P T E R O N E
PA G E 2
taking action
Arch took action in 2013 to streamline our asset portfolio, focusing on core operations that will drive
our future growth. The divestiture of non-strategic thermal coal mines in Utah in August was a
decisive step that generated $423 million in cash, pulling forward multiple years of cash flow. What’s
more, we reduced future capital and cost outlays by $200 million with this sale – which we would
have spent just to maintain production in Utah. Our actions yielded significant savings that we can
use to repay debt or reinvest in areas of our business that offer a better long-term return potential.
Further streamlining our mining portfolio also allows us to leverage our most strategic assets,
including a strong Powder River Basin (PRB) thermal coal platform and a growing Appalachian
metallurgical coal franchise. In addition, the sale of our Utah subsidiary helped mitigate Arch’s
exposure to an insulated U.S. coal region that will likely be impacted by aggressive Environmental
Protection Agency (EPA) regulations. These regulations are expected to force the closure of 60
gigawatts of U.S. coal-fueled power plant capacity this decade.
Complementing our strategy of non-core asset sales, Arch successfully reduced costs in our core
operating regions in 2013. In total, our company lowered overall expenditures by nearly $500
million. As just one example, we cut unit costs by 5 percent in our largest thermal coal region,
the PRB. Whether it’s proactively tuning engines on large-scale haul trucks or testing natural
gas-powered vehicles at our flagship Black Thunder mine in an effort to reduce diesel fuel
consumption, we’re making real strides to create a lower-cost U.S. thermal coal platform.
Another goal we set in 2013 was to reduce capital expenditures – and we delivered on this front.
While we’ve always been prudent in deploying capital, we’ve dug even deeper to find additional
savings. Since 2011, we’ve cut our capital spending by 45 percent even while investing in high-
return growth projects. One way we’ve kept our capital costs low is by redeploying equipment from
idled operations to active ones, such as the transfer of equipment and personnel to the new Leer
metallurgical coal mine in Appalachia. Our goal in 2014 is to tighten our belts further to improve
cash flow and increase operational efficiencies.
-10%
-20%
-30%
-40%
-50%
-45%
PA G E 3
Reduction in Capital Expenditures Since 2011
While we’ve always been prudent in deploying capital, we’ve
dug even deeper to find additional savings. Since 2011,
we’ve cut our capital spending by 45 percent even while
investing in high-return growth projects.
Appalachia
(cash costs per ton)
$2.46
reduction
Powder River Basin
(cash costs per ton)
$0.54
reduction
$69.46
$11.19
$67.00
$10.65
2012
2013
2012
2013
A R C H C O A L , I N C .
2013 Annual Report to Shareholders
C H A P T E R T W O
building for
what’s next
PA G E 4
PA G E 5
Of course, our goals don’t solely involve cost cutting or curtailing capital investment. We also want
to grow our business. From mining coal to transporting it across the country and world, we have
built a highly specialized workforce of 5,000 personnel with deep expertise in the mining industry.
In 2013, that workforce helped secure business with 30 new customers around the world, including
new opportunities in Europe and Latin America. We also opened an office in the world’s largest
coal market, China, which expanded our global geographical footprint to nine U.S. states and four
countries worldwide. With our access to export facilities in North America, we’re transforming
Arch Coal from a U.S.-centric business into a truly global one.
Our actions are positioning Arch for growth in the seaborne coal trade. Since 2000, coal has been
the fastest growing fossil fuel on the planet. Coal now represents a 30 percent share of the global
energy market compared with the world’s largest energy source, oil, at 33 percent. Independent
forecasters predict coal will rival oil as the world’s top energy source in five years, thanks to rising
coal demand for use in electricity generation and in the steel, cement and chemical feedstock
industries. At current run rates, global coal demand should climb 20 percent by 2020.
A R C H C O A L , I N C .
2013 Annual Report to Shareholders
C H A P T E R T W O continued
PA G E 6
Based upon this growth, we’re building out a low-cost and high-quality metallurgical coal franchise
in Appalachia. We launched the longwall at our new Leer mine late in 2013. This mine will be the
cornerstone of Arch’s metallurgical coal portfolio for the next decade. Leer will lower our costs in
the region while improving our coking coal quality mix. In 2013, we also expanded the mine life
at Leer by nearly three years with the opportunistic purchase of the Guffey reserves.
Beyond that addition, Arch has the potential to further build out its metallurgical coal capacity in
the Tygart Valley area, which comprises a contiguous and uniform, high-volatile “A” coking coal
reserve block of 150 million tons that can support three additional mining operations. Although
metallurgical coal markets are in oversupply today, uneconomic supply will exit, reserves will
deplete and growth projects will cease. As the market cycle corrects, we believe a high-quality,
established and long-lived coking coal brand will be sought after in the market. We expect our
Tygart Valley asset to be that brand, and we will be ready to capitalize as this trend emerges.
But, we’re not only banking on a metallurgical coal rebound. We’re also prudently balancing Arch’s
revenue stream with a cash-generating, expandable and low-cost domestic thermal coal platform.
We expect stable domestic demand for our thermal coals, particularly in the PRB, over the next five
years. In addition, we’re actively expanding our reach to coal-fueled power plants and industrial
facilities in Europe and Latin America, where higher natural gas prices have put coal generation
back in the money. In particular, our Colorado and Illinois Basin coal reserves can benefit
meaningfully from these evolving dynamics.
Over the longer term, our goal is to further penetrate the Asia-Pacific region as new West Coast port
capacity is built. One planned facility making its way through the regulatory process with strong
local support is the Millennium Bulk Terminals (MBT) project in Washington state. At full build-
out, MBT would be capable of shipping nearly 50 million tons of coal annually. With a 38 percent
equity stake in the port, Arch will be able to link our cost-competitive Powder River Basin operations
more directly to the seaborne coal trade.
Metallurgical Coal Sales
as a Percent of Appalachian Volumes
>50%
48%
39%
60%
40%
20%
0%
17%
2009
2011
2013
2015E
PA G E 7
Powder River Basin
Black Thunder
Coal Creek
Otter Creek Reserves
MBT Port*
Bituminous Thermal
West Elk
Arch of Wyoming
Lost Prairie Reserves
Knight Hawk*
Viper
*Equity Investment
Appalachia
Beckley
Coal-Mac
Cumberland River
Leer
Lone Mountain
Mountain Laurel
Sentinel
Tygart Reserves
Vindex
DTA Port*
Offices
St. Louis Headquarters
Global Offices
Beijing
London
Singapore
5.3 billion
(ton reserve base)
$3.0 billion
(in revenues)
Arch is the most diversified U.S.
coal producer, and the No. 2 reserve
holder in the nation. Our revenues
are balanced along product lines.
30%
10%
60%
35%
45%
20%
Powder River Basin
Metallurgical
Other Thermal
A R C H C O A L , I N C .
2013 Annual Report to Shareholders
C H A P T E R T H R E E
During my first two years as CEO, Arch has faced real business challenges that have heightened our
focus on prudently managing factors within our control. It’s why we’re carefully preserving our
liquidity to ensure that Arch has the resources necessary to successfully navigate this soft coal
market. The U.S. coal industry is evolving … with further rationalization and consolidation possible.
At Arch, we’re taking actions to ensure that we emerge as a stronger, more balanced coal supplier.
PA G E 8
In 2013, Arch took prudent action to further bolster our liquidity, largely in the form of cash, and to
extend debt maturities until 2018. But we maintained a significant portion of our capital structure
in pre-payable debt, preserving the financial flexibility to de-lever as coal markets improve. Our
focus on liquidity also prompted Arch’s board of directors to reduce the dividend rate on our
common stock to $0.01 per share annually. This action, along with other goals we’ve set, will help
reduce our cash outflows in 2014.
We’re also taking a portfolio approach to managing our asset base and may pursue divestitures of
other non-strategic assets and reserves, just as we did in 2013 with the sale of our Utah subsidiary.
Our recent sale of the ADDCAR equipment business in February 2014 is just one example of actions
we’re taking to unlock incremental value at our company.
Arch’s operations also carry very low levels of legacy liabilities – more than three times lower than
our peers. This competitive advantage helps keep our costs low and our mines productive and
profitable. And as coal markets improve and our cash flows strengthen, our actions will allow Arch
to re-align our capital structure and right-size our debt level over time. This remains our top priority.
Financial Highlights
Y E A R E N D E D D E C E M B E R 3 1
(in millions, except per share data)
T O N S S O L D
C O A L R E S E R V E S
A D J U S T E D R E V E N U E S
A D J U S T E D E B I T D A
2013
1 3 9 . 6
201 2
1 4 0 . 8
201 1
1 5 6 . 9
5 , 2 7 8 . 2
5 , 4 9 0 . 0
5 , 5 8 9 . 4
$ 3 , 2 3 3 . 4
$ 4 , 1 5 9 . 0
$ 4 , 2 8 5 . 9
$ 4 2 5 . 9
$ 6 8 8 . 5
$ 9 2 1 . 1
C A P I TA L E X P E N D I T U R E S
$ 2 9 7 . 0
$ 3 9 5 . 2
5 4 0 . 9
A D J U S T E D D I L U T E D E A R N I N G S ( L O S S ) P E R S H A R E
D I V I D E N D S D E C L A R E D P E R C O M M O N S H A R E
$
$
( 1 . 0 8 )
0 . 1 2
$
$
( 0 . 3 6 )
0 . 2 0
1 . 0 7
0. 43
Note: All figures presented include Canyon Fuel subsidiary through August 2013.
All non-GAAP measures are defined and reconciled at the end of this report.
PA G E 9
Legacy Liabilities
(in millions, at Dec. 31, 2013)
Total Liquidity
(in millions, at Dec. 31, 2013)
3x
lower
$1,855
2x
higher
$1,428
$568
$691
Available Borrowings
Cash & Investments
Industry Average*
Arch Coal
2009
2013
*Major public, diversified peers
A R C H C O A L , I N C .
2013 Annual Report to Shareholders
C H A P T E R F O U R
reinforcing
key pillars
PA G E 1 0
I’m perhaps most proud of the actions we took in 2013 to uphold our safety and environmental
values. These key pillars drive our culture toward continuous improvement in performance. We
finished 2013 with our second-best total incident rate in company history – achieving a nearly 20
percent reduction in our total safety incident rate and a 30 percent improvement in our environmental
compliance rate versus 2012. Arch also continued our tradition as an industry leader in safety by
attaining a lost-time incident rate four times lower than the U.S. coal industry average.
Equally important, our subsidiaries earned more than 30 safety and environmental honors in 2013,
including two national Sentinels of Safety awards. The West Elk mine in Colorado reached a new
landmark of 2 million employee hours without a lost-time incident, and the Coal Creek mine in
Wyoming surpassed 1 million hours without a lost-time incident.
I applaud the efforts of our employees to maintain a strong commitment to safety and environmental
excellence every day. Sadly, though, we experienced two fatalities at our mines in 2013. We take our
commitment to our core values seriously and know that we can and must do better. We’re committed
to achieving our ultimate goal of A Perfect Zero – zero safety incidents and zero environmental
violations – at each operation each year. Two of our facilities achieved this high standard in 2013.
Please visit responsible.archcoal.com to learn about our world-class safety practices, water and
wildlife conservation efforts and philanthropic contributions in education to strengthen the
communities where we live and work. By reinforcing our key pillars, we advance our reputation as
a good corporate citizen and deliver real value to the stakeholders of Arch Coal.
PA G E 1 1
A R C H C O A L , I N C .
2013 Annual Report to Shareholders
C O N C L U S I O N
creating value
We’re connecting the dots and following the right path to create long-term value for our stakeholders.
We’ve taken important steps to ensure that Arch has the financial flexibility to manage through the
down cycle – and we’re confident that better days are ahead.
Our growing metallurgical coal franchise combined with a strong PRB platform creates a compelling
value proposition. Our expanding footprint in the seaborne coal trade and high-quality assets in
Colorado and Illinois provide incremental value. Our mines are positioned well on the global cost
curve. Together, our asset portfolio has significant growth potential as markets correct – and the
balance needed to manage the volatility inherent in the coal industry.
We continue to see a bright future for U.S. coal at home and abroad. That’s why we’re educating the
public on the important role the U.S. mining sector plays in our economy – creating 2 million jobs;
contributing $230 billion to our country’s GDP; and generating $50 billion in federal, state and local
taxes annually that help fund our nation’s schools, hospitals and highways.
PA G E 1 2
We’re also seeking ways to work with the current Administration and Congress to advance our
nation’s environmental and economic goals. We’re supportive of reasonable standards that give
our nation access to low-cost electricity, a reliable power grid, healthy fuel diversity and long-term
energy security and independence – all the while making progress toward our environmental goals.
We’re preparing Arch to succeed in an evolving energy landscape, and we’re taking action to create
measurable results for our shareholders. We appreciate your ongoing support.
J O H N W. E A V E S
president and ceo
M A R C H 1 , 2 0 1 4
22FEB201216211465
Annual Report On Form 10-K
For the Year Ended December 31, 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
or
(cid:2) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-13105
22FEB201216211465
Arch Coal, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
One CityPlace Drive, Ste. 300, St. Louis, Missouri
(Address of principal executive offices)
43-0921172
(I.R.S. Employer
Identification Number)
63141
(Zip code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (314) 994-2700
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1) No (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:2) No (cid:1)
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 (cid:1) No (cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such filed). Yes (cid:1) No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the
Exchange Act.
Large accelerated filer (cid:1)
Accelerated filer (cid:2)
Smaller reporting company (cid:2)
Non-accelerated filer (cid:2)
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:2) No (cid:1)
The aggregate market value of the voting stock held by non-affiliates of the registrant (excluding outstanding shares beneficially owned
by directors, officers, other affiliates and treasury shares) as of June 30, 2013 was approximately $791.1 million.
At February 13, 2014 there were 212,279,999 shares of the registrant’s common stock outstanding.
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the
2014 annual stockholders’ meeting to be held on April 24, 2014 are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . . . . .
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE . . .
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
4
34
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2
If you are not familiar with any of the mining terms used in this report, we have provided explanations of many of them
under the caption ‘‘Glossary of Selected Mining Terms’’ on page 32 of this report. Unless the context otherwise requires, all
references in this report to ‘‘Arch,’’ ‘‘we,’’ ‘‘us,’’ or ‘‘our’’ are to Arch Coal, Inc. and its subsidiaries.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, such as our expected
future business and financial performance, and are intended to come within the safe harbor protections provided by
those sections. The words ‘‘anticipates,’’ ‘‘believes,’’ ‘‘could,’’ ‘‘estimates,’’ ‘‘expects,’’ ‘‘intends,’’ ‘‘may,’’ ‘‘plans,’’
‘‘predicts,’’ ‘‘projects,’’ ‘‘seeks,’’ ‘‘should,’’ ‘‘will’’ or other comparable words and phrases identify forward-looking
statements, which speak only as of the date of this report. Forward-looking statements by their nature address
matters that are, to different degrees, uncertain. Actual results may vary significantly from those anticipated due to
many factors, including:
(cid:127) market demand for coal and electricity;
(cid:127) geologic conditions, weather and other inherent risks of coal mining that are beyond our control;
(cid:127) competition, both within our industry and with producers of competing energy sources;
(cid:127) excess production and production capacity;
(cid:127) our ability to acquire or develop coal reserves in an economically feasible manner;
(cid:127) inaccuracies in our estimates of our coal reserves;
(cid:127) availability and price of mining and other industrial supplies;
(cid:127) availability of skilled employees and other workforce factors;
(cid:127) disruptions in the quantities of coal produced by our contract mine operators;
(cid:127) our ability to collect payments from our customers;
(cid:127) defects in title or the loss of a leasehold interest;
(cid:127) railroad, barge, truck and other transportation performance and costs;
(cid:127) our ability to successfully integrate the operations that we acquire;
(cid:127) our ability to secure new coal supply arrangements or to renew existing coal supply arrangements;
(cid:127) our relationships with, and other conditions affecting, our customers;
(cid:127) the deferral of contracted shipments of coal by our customers;
(cid:127) our ability to service our outstanding indebtedness;
(cid:127) our ability to comply with the restrictions imposed by our credit facility and other financing arrangements;
(cid:127) the availability and cost of surety bonds;
(cid:127) our ability to manage the market and other risks associated with certain trading and other asset
optimization strategies;
(cid:127) terrorist attacks, military action or war;
(cid:127) our ability to obtain and renew various permits, including permits authorizing the disposition of certain
mining waste;
3
(cid:127) existing and future legislation and regulations affecting both our coal mining operations and our customers’
coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as
mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases;
(cid:127) the accuracy of our estimates of reclamation and other mine closure obligations;
(cid:127) the existence of hazardous substances or other environmental contamination on property owned or used by
us; and
(cid:127) other factors, including those discussed in Legal Proceedings, set forth in Item 3 of this report and Risk
Factors, set forth in Item 1A of this report.
All forward-looking statements in this report, as well as all other written and oral forward-looking statements
attributable to us or persons acting on our behalf, are expressly qualified in their entirety by the cautionary
statements contained in this section and elsewhere in this report. These factors are not necessarily all of the
important factors that could affect us. These risks and uncertainties, as well as other risks of which we are not
aware or which we currently do not believe to be material, may cause our actual future results to be materially
different than those expressed in our forward-looking statements. These forward-looking statements speak only as of
the date on which such statements were made, and we do not undertake to update our forward-looking statements,
whether as a result of new information, future events or otherwise, except as may be required by the federal
securities law.
Item 1. BUSINESS
Introduction
PART I
We are one of the world’s largest coal producers. For the year ended December 31, 2013, we sold
approximately 140 million tons of coal, including approximately 2.8 million tons of coal we purchased from third
parties, representing roughly 14% of the 2013 U.S. coal supply. We sell substantially all of our coal to power
plants, steel mills and industrial facilities. At December 31, 2013, we operated, or contracted out the operation of,
22 active mines located in each of the major coal-producing regions of the United States. The locations of our
mines and access to export facilities enable us to ship coal worldwide.
Our History
We were organized in Delaware in 1969 as Arch Mineral Corporation. In July 1997, we merged with Ashland
Coal, Inc., a subsidiary of Ashland Inc. that was formed in 1975. As a result of the merger, we became one of the
largest producers of low-sulfur coal in the eastern United States.
In June 1998, we expanded into the western United States when we acquired the coal assets of Atlantic
Richfield Company, which we refer to as ARCO. This acquisition included the Black Thunder and Coal Creek mines
in the Powder River Basin of Wyoming, the West Elk mine in Colorado and a 65% interest in Canyon Fuel
Company, which operated three mines in Utah. In October 1998, we acquired a leasehold interest in the
Thundercloud reserve, a 412-million-ton federal reserve tract adjacent to the Black Thunder mine.
In July 2004, we acquired the remaining 35% interest in Canyon Fuel Company. In August 2004, we acquired
Triton Coal Company’s North Rochelle mine adjacent to our Black Thunder operation. In September 2004, we
acquired a leasehold interest in the Little Thunder reserve, a 719-million-ton federal reserve tract adjacent to the
Black Thunder mine.
In December 2005, we sold the stock of Hobet Mining, Inc., Apogee Coal Company and Catenary Coal
Company and their four associated mining complexes (Hobet 21, Arch of West Virginia, Samples and Campbells
4
Creek) and approximately 455 million tons of coal reserves in Central Appalachia to Magnum Coal Company, which
was subsequently acquired by Patriot Coal Corporation.
In October 2009, we acquired Rio Tinto’s Jacobs Ranch mine complex in the Powder River Basin of
Wyoming, which included 345 million tons of low-cost, low-sulfur coal reserves, and integrated it into the Black
Thunder mine.
In June 2011, we acquired International Coal Group, Inc., which owned and operated mines primarily in the
Appalachian Region of the United States.
In August 2013, we sold the equity interests of Canyon Fuel Company, LLC (‘‘Canyon Fuel’’), which owned
and operated the Sufco and Skyline longwall mines and the Dugout Canyon continuous miner operation, and
controlled approximately 105 million tons of bituminous coal reserves, all located in Utah.
Coal Characteristics
End users generally characterize coal as steam coal or metallurgical coal. Heat value, sulfur, ash, moisture
content, and volatility, in the case of metallurgical coal, are important variables in the marketing and transportation
of coal. These characteristics help producers determine the best end use of a particular type of coal. The following is
a description of these general coal characteristics:
Heat Value.
In general, the carbon content of coal supplies most of its heating value, but other factors also
influence the amount of energy it contains per unit of weight. The heat value of coal is commonly measured in
Btus. Coal is generally classified into four categories, lignite, subbituminous, bituminous and anthracite, reflecting
the progressive response of individual deposits of coal to increasing heat and pressure. Anthracite is coal with the
highest carbon content and, therefore, the highest heat value, nearing 15,000 Btus per pound. Bituminous coal,
used primarily to generate electricity and to make coke for the steel industry, has a heat value ranging between
10,500 and 15,500 Btus per pound. Subbituminous coal ranges from 8,300 to 13,000 Btus per pound and is
generally used for electric power generation. Lignite coal is a geologically young coal which has the lowest carbon
content and a heat value ranging between 4,000 and 8,300 Btus per pound.
Sulfur Content.
Federal and state environmental regulations, including regulations that limit the amount of
sulfur dioxide that may be emitted as a result of combustion, have affected and may continue to affect the demand
for certain types of coal. The sulfur content of coal can vary from seam to seam and within a single seam. The
chemical composition and concentration of sulfur in coal affects the amount of sulfur dioxide produced in
combustion. Coal-fueled power plants can comply with sulfur dioxide emission regulations by burning coal with low
sulfur content, blending coals with various sulfur contents, purchasing emission allowances on the open market
and/or using sulfur-dioxide emission reduction technology.
Ash. Ash is the inorganic residue remaining after the combustion of coal. As with sulfur, ash content varies
from seam to seam. Ash content is an important characteristic of coal because it impacts boiler performance and
electric generating plants must handle and dispose of ash following combustion. The composition of the ash,
including the proportion of sodium oxide and fusion temperature, is also an important characteristic of coal, as it
helps to determine the suitability of the coal to end users. The absence of ash is also important to the process by
which metallurgical coal is transformed into coke for use in steel production.
Moisture. Moisture content of coal varies by the type of coal, the region where it is mined and the location of
the coal within a seam. In general, high moisture content decreases the heat value and increases the weight of the
coal, thereby making it more expensive to transport. Moisture content in coal, on an as-sold basis, can range from
approximately 2% to over 30% of the coal’s weight.
5
Other. Users of metallurgical coal measure certain other characteristics, including fluidity, swelling capacity
and volatility to assess the strength of coke produced from a given coal or the amount of coke that certain types of
coal will yield. These characteristics may be important elements in determining the value of the metallurgical coal
we produce and market.
The Coal Industry
Background. Coal is traded globally and can be transported to demand centers by ship, rail, barge or truck.
World coal production reached a record 7.8 billion tonnes in 2012 according to The International Energy Agency
(IEA) and the World Coal Association. Total hard coal production increased 3% to an estimated 6.9 billion tonnes
in 2012 from 2011 levels, while global production of brown coal was relatively flat at 900 million tonnes. Also
according to IEA estimates, China remained the largest producer of coal in the world, producing over 3.5 billion
tonnes in 2012. The United States and India follow China with hard coal production of over 900 million tonnes
and 590 million tonnes, respectively, in 2012.
Cross-border coal trade of hard coal was close to 1.2 billion tonnes in 2013 according to preliminary
information. China remained the largest importer of globally traded coal in 2013, taking over 265 million tonnes of
hard coal, having surpassed Japan in 2011. Japan imported more than 190 million tonnes in 2013, followed by
South Korea with nearly 130 million tonnes, both exhibiting growth. OECD Europe was lower but still relatively
strong at over 240 million tonnes.
Among the nations principally supplying coal to the global power and steel markets are Australia and
Indonesia, as well as Russia, the United States, Colombia and South Africa. Australia has significant reserves,
however environmental constraints, higher labor and capital costs, and the development of reserves farther from
export facilities are increasing development and production costs. Indonesia continues to exhibit substantial growth
in its coal exports; however, its growing domestic energy demand, together with governmental attempts to limit
exports, may result in a slowing of growth or even a decrease in exports over time. Increasing calls to bolster
domestic power supply, together with pressure to improve wages for miners, may also limit South African exports in
the future.
Global Coal Supply and Demand. The supply and demand fundamentals in global coal markets remained
challenged in 2013. Europe’s weak economic growth resulted in only modest changes in import coal demand. Coal
used for power generation fared reasonably well because of the difference in generation costs using coal over natural
gas in that area. Additionally, economic uncertainty lowered demand for imported finished goods, which led to
reduced steel consumption and therefore lower demand for metallurgical coal. In China, growing demand for
electric power increased hard steam coal imports by an estimated 16 million tonnes in 2013. China continues to
add coal-based power generation capacity at a rapid pace, but slower economic growth and new regulations on
emissions around large urban centers could lead to more moderate growth in the future. Imports of metallurgical
coal into China increased over 21 million tonnes in 2013 to a record high 75 million tonnes.
Despite near-term cyclical challenges, coal is expected to remain the dominant fuel for electric power
generation. According to the IEA, coal is projected to retain and even modestly improve upon its 41% market
share globally. Most of the growth in coal consumption is expected to occur in Asia, with China and India as the
largest consumers going forward. In the metallurgical markets, we expect some supply rationalization to occur over
the next 12 to 24 months; however, fundamental demand for metallurgical coal appears strong. Again, Asia is
expected to be the center for most of the global demand growth for metallurgical coal. China, India, Japan and
South Korea are all expected to increase steel production during the next five years.
U.S. Coal Consumption.
In the United States, coal is used primarily by power plants to generate electricity, by
steel companies to produce coke for use in blast furnaces, and by a variety of industrial users to heat and power
foundries, cement plants, paper mills, chemical plants and other manufacturing or processing facilities. Although
6
final data is not yet available, coal consumption in the United States is estimated to be approximately 924 million
tons in 2013, according to the Energy Information Administration’s (EIA) Short Term Energy Outlook. Coal
consumption increased in 2013 following several years of declines on improved competitiveness with other fuels used
for power generation, including natural gas.
According to the EIA, coal accounted for approximately 39% of U.S. electricity generation from January
through November 2013. This is an increase of approximately 2 percentage points from full-year 2012, as higher
natural gas prices allowed coal to recapture some lost market share from 2012. Overall, power generation was
generally flat from 2012 to 2013, with the year-to-date total through November down less than 0.2%. Inventories
of coal at power generation facilities ended the year close to 146 million tons, according to EIA’s Short Term
Energy Outlook. This is about 27 million tons or 18% lower than the end of 2012.
The following chart shows the breakdown of U.S. electricity generation by energy source for January through
November 2013, according to the EIA:
Renewable/
Other
7%
Hydro (Conv)
7%
Nuclear
19%
Coal
39%
Natural Gas
28%
25FEB201416585002
Source: EIA Electricity Monthly Update (January 2014).
The following chart shows historical and projected demand trends for U.S. coal by consuming sector for the
periods indicated, according to the EIA:
Sector
Actual
Estimated
Forecast
Annual
Growth
2008
2013
2014
2020
2040
2012 - 2040
Electric power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coke plants
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential/commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,041
54
22
4
(Tons, in millions)
859
44
21
2
887
45
23
3
*Total U.S. coal consumption . . . . . . . . . . . . . . . . . . . . . . . . .
1,121
924
955
892
49
23
2
965
909
50
18
2
979
0.3%
0.5%
(0.5)%
(0.1)%
0.3%
Source: EIA Annual Energy Outlook 2014
EIA Short Term Energy Outlook (January 2014)
EIA Monthly Energy Review (January 2014)
*
Columns may not total due to rounding.
Historically, coal has been considerably less expensive than natural gas or oil. However, the growth of hydraulic
fracturing (fracking) combined with the warm winter of 2011/2012 resulted in record high supplies and inventories
7
of natural gas throughout most of 2012. This oversupply altered the competitive balance for much of 2012 and
allowed natural gas to gain market share in the power generation market compared to historical levels. The excess
inventories of 2012 also affected 2013, but as natural gas demand improved in 2013, prices also moved higher. The
higher prices for natural gas allowed coal to recapture some of the lost market share and coal demand has
improved, especially in the power generation sector.
The average price of natural gas for the electric power sector in 2013 was $4.44 (EIA, Jan-Oct 2013) which
compares to $5.01 and $3.41 in 2011 and 2012, respectively. The 2012 price represented the lowest annual price
paid by power generators in over 10 years. Higher natural gas prices in 2013 resulted in increased market share for
coal. Through the end of February 2014, natural gas prices have averaged above $4.50 per million Btu or 46%
above this time last year. If these trends continue, coal should maintain or improve its competitiveness with natural
gas in 2014.
U.S. Coal Production. The United States is the second largest coal producer in the world, exceeded only by
China. According to the EIA, there is over 200 billion tons of recoverable coal in the United States. The U.S.
Department of Energy estimates that current domestic recoverable coal reserves could supply enough electricity to
satisfy domestic demand for over 150 years.
Coal is mined from coal fields throughout the United States, with the major production centers located in the
western United States, the Appalachian region and the Interior. According to the EIA and MSHA, U.S. coal
production declined an estimated 33 million tons in 2013, to 984 million tons, despite increasing consumption. The
decline in production reflects a drawdown of consumer stockpiles and lower coal exports in 2013.
The EIA subdivides United States coal production into three major areas: Western, Appalachia and Interior.
The Western area includes the Powder River Basin and the Western Bituminous region. According to the EIA,
coal produced in the western United States declined from an estimated 543 million tons in 2012 to 533 million
tons in 2013 as utilities reduced inventories. The Powder River Basin is located in northeastern Wyoming and
southeastern Montana and is the largest producing region in the United States. Coal from this region is
sub-bituminous coal with low sulfur content ranging from 0.2% to 0.9% and heating values ranging from 8,000 to
9,500 Btu. The price of Powder River Basin coal is generally less than that of coal produced in other regions
because Powder River Basin coal exists in greater abundance and is easier to mine and, thus, has a lower cost of
production. The Western Bituminous region includes Colorado, Utah and southern Wyoming. Coal from this region
typically has low sulfur content ranging from 0.4% to 0.8% and heating values ranging from 10,000 to 12,200
Btu.
The Appalachia region is further divided into north, central and southern regions. According to the EIA, coal
produced in the Appalachian region decreased from 294 million tons in 2012 to 285 million tons in 2013, on lower
exports and some displacement by coal originating from other regions. Central Appalachia is further disadvantaged
for power generation because of the depletion of economically attractive reserves, permitting issues, and increasing
costs of production. Central Appalachia includes eastern Kentucky, Tennessee, Virginia and southern West Virginia.
Coal mined from this region generally has a high heat value ranging from 11,400 to 13,200 Btu and a sulfur
content ranging from 0.2% to 2.0%. Northern Appalachia includes Maryland, Ohio, Pennsylvania and northern
West Virginia. Coal from this region generally has a high heat value ranging from 10,300 to 13,500 Btu and a
sulfur content ranging from 0.8% to 4.0%. Southern Appalachia primarily covers Alabama and generally has a heat
content ranging from 11,300 to 12,300 Btu and a sulfur content ranging from 0.7% to 3.0%.
The Interior region includes the Illinois Basin, Gulf Lignite production in Texas and Louisiana, and a small
producing area in Kansas, Oklahoma, Missouri and Arkansas. The Illinois Basin is the largest producing region in
the Interior and consists of Illinois, Indiana and western Kentucky. According to the EIA, coal produced in the
Interior region increased from 180 million tons in 2012 to approximately 183 million tons in 2013. Coal from the
Illinois Basin generally has a heat value ranging from 10,100 to 12,600 Btu and has a sulfur content ranging from
1.0% to 4.3%. Despite its high sulfur content, coal from the Illinois Basin can generally be used by electric power
generation facilities that have installed emissions control devices, such as scrubbers.
8
U.S. Coal Exports and Imports. Coal exports declined by approximately 8 million tons to 117 million in 2013,
following record exports in 2012. The decline in 2013 was primarily caused by growing global coal supply which
displaced some of the volume originating in the United States. Additionally, unfavorable foreign currency exchange
and higher shipping rates disadvantaged some United States coal in certain markets. The seaborne market is
cyclical, but third-party forecasters project the seaborne coal trade to grow to 1.7 billion tons by 2020, an increase
of 350 million tons from 2013 levels. The United States is expected to continue its role as a major supplier to the
global market. Interest in access to the coal markets overseas by domestic producers, along with increased
international consumer interest in United States coal, continues to fuel considerable interest in developing new port
capacity, particularly on the West Coast.
Historically, coal imported from abroad has represented a relatively small share of total domestic coal
consumption, and this remained the case in 2013. Imports reached close to 36 million tons in 2007, but have fallen
since then. According to the EIA, coal imports declined from 9.2 million tons in 2012 to 8.9 million in 2013. The
decline is mostly attributable to more competitive pricing for domestic coal and stronger demand from international
markets for seaborne coal. The majority of the coal imported into the United States originates from Colombia. Coal
imports into the United States have declined every year since 2007, and this trend may continue in 2014.
Coal Mining Methods
The geological characteristics of our coal reserves largely determine the coal mining method we employ. We
use two primary methods of mining coal: surface mining and underground mining.
Surface Mining. We use surface mining when coal is found close to the surface. We have included the
identity and location of our surface mining operations below under ‘‘Our Mining Operations—General.’’ The
majority of the coal we produce comes from surface mining operations.
Surface mining involves removing the topsoil then drilling and blasting the overburden (earth and rock
covering the coal) with explosives. We then remove the overburden with heavy earth-moving equipment, such as
draglines, power shovels, excavators and loaders. Once exposed, we drill, fracture and systematically remove the coal
using haul trucks or conveyors to transport the coal to a preparation plant or to a loadout facility. We reclaim
disturbed areas as part of our normal mining activities. After final coal removal, we use draglines, power shovels,
excavators or loaders to backfill the remaining pits with the overburden removed at the beginning of the process.
Once we have replaced the overburden and topsoil, we reestablish vegetation and plant life into the natural habitat
and make other improvements that have local community and environmental benefits.
9
The following diagram illustrates a typical dragline surface mining operation:
25FEB201416584011
Underground Mining. We use underground mining methods when coal is located deep beneath the surface.
We have included the identity and location of our underground mining operations below under ‘‘Our Mining
Operations—General.’’
Our underground mines are typically operated using one or both of two different mining techniques: longwall
mining and room-and-pillar mining.
Longwall Mining.
Longwall mining involves using a mechanical shearer to extract coal from long rectangular
blocks of medium to thick seams. Ultimate seam recovery using longwall mining techniques can exceed 75%. In
longwall mining, continuous miners are used to develop access to these long rectangular coal blocks. Hydraulically
powered supports temporarily hold up the roof of the mine while a rotating drum mechanically advances across the
face of the coal seam, cutting the coal from the face. Chain conveyors then move the loosened coal to an
underground mine conveyor system for delivery to the surface. Once coal is extracted from an area, the roof is
10
allowed to collapse in a controlled fashion. The following diagram illustrates a typical underground mining
operation using longwall mining techniques:
Room-and-Pillar Mining. Room-and-pillar mining is effective for small blocks of thin coal seams. In
room-and-pillar mining, a network of rooms is cut into the coal seam, leaving a series of pillars of coal to support
the roof of the mine. Continuous miners are used to cut the coal and shuttle cars are used to transport the coal to a
conveyor belt for further transportation to the surface. The pillars generated as part of this mining method can
constitute up to 40% of the total coal in a seam. Higher seam recovery rates can be achieved if retreat mining is
used. In retreat mining, coal is mined from the pillars as workers retreat. As retreat mining occurs, the roof is
allowed to collapse in a controlled fashion.
25FEB201416583039
11
The following diagram illustrates our typical underground mining operation using room-and-pillar mining
techniques:
25FEB201416583693
Coal Preparation and Blending. We crush the coal mined from our Powder River Basin mining complexes
and ship it directly from our mines to the customer. Typically, no additional preparation is required for a saleable
product. Coal extracted from some of our underground mining operations contains impurities, such as rock, shale
and clay occupying in a wide range of particle sizes. The majority of our mining operations in the Appalachia
region use a coal preparation plant located near the mine or connected to the mine by a conveyor. These coal
preparation plants allow us to treat the coal we extract from those mines to ensure a consistent quality and to
enhance its suitability for particular end-users. In addition, depending on coal quality and customer requirements,
we may blend coal mined from different locations, including coal produced by third parties, in order to achieve a
more suitable product.
The treatments we employ at our preparation plants depend on the size of the raw coal. For coarse material,
the separation process relies on the difference in the density between coal and waste rock where, for the very fine
fractions, the separation process relies on the difference in surface chemical properties between coal and the waste
minerals. To remove impurities, we crush raw coal and classify it into various sizes. For the largest size fractions, we
use dense media vessel separation techniques in which we float coal in a tank containing a liquid of a
pre-determined specific gravity. Since coal is lighter than its impurities, it floats, and we can separate it from rock
and shale. We treat intermediate sized particles with dense medium cyclones, in which a liquid is spun at high
speeds to separate coal from rock. Fine coal is treated in spirals, in which the differences in density between coal
and rock allow them, when suspended in water, to be separated. Ultra fine coal is recovered in column flotation
cells utilizing the differences in surface chemistry between coal and rock. By injecting stable air bubbles through a
suspension of ultra fine coal and rock, the coal particles adhere to the bubbles and rise to the surface of the column
where they are removed. To minimize the moisture content in coal, we process most coal sizes through centrifuges.
A centrifuge spins coal very quickly, causing water accompanying the coal to separate.
For more information about the locations of our preparation plants, you should see the section entitled ‘‘Our
Mining Operations’’ below.
12
Our Mining Operations
General. At December 31, 2013, we operated, or contracted out the operation of, 22 mines in the United
States. Our reportable segments are based on the major coal producing basins in which we operate. Our reportable
segments are the Powder River Basin segment, with operations in Wyoming and the Appalachia segment, with
operations in West Virginia, Kentucky, Maryland and Virginia; we also sell coal from operations in Colorado and
Illinois. Geology, coal transportation routes to consumers, regulatory environments and coal quality can vary from
segment to segment. We incorporate by reference the information about the operating results of each of our
segments for the years ended December 31, 2013, 2012 and 2011 contained in Note 26, Segment Information,
beginning on page F-49.
In general, we have developed our mining complexes and preparation plants at strategic locations in close
proximity to rail or barge shipping facilities. Coal is transported from our mining complexes to customers by means
of railroads, trucks, barge lines, and ocean-going vessels from terminal facilities. We currently own or lease under
long-term arrangements a substantial portion of the equipment utilized in our mining operations. We employ
sophisticated preventative maintenance and rebuild programs and upgrade our equipment to ensure that it is
productive, well-maintained and cost-competitive.
The following map shows the locations of our active mining operations:
The following table provides a summary of information regarding our active mining complexes as of
December 31, 2013, including the total sales associated with these complexes for the years ended December 31,
2011, 2012 and 2013 and the total reserves associated with these complexes at December 31, 2013. The amount
25FEB201416583347
13
disclosed below for the total cost of property, plant and equipment of each mining complex does not include the
costs of the coal reserves that we have assigned to an individual complex.
Mining Complex
Captive Contract
Mines(1) Mines(1)
Mining
Equipment
Railroad
2011
Total Cost of
Property,
Plant and
Equipment at
December 31,
2013
Assigned
Reserves
($ millions)
(Million tons)
Tons Sold(2)(3)
2012
(Million tons)
2013
S
S
U
U
Powder River Basin:
Black Thunder . . . . . . . . .
Coal Creek . . . . . . . . . . .
Other:
West Elk . . . . . . . . . . . . .
Viper* . . . . . . . . . . . . . . .
Appalachia:
S
Coal-Mac . . . . . . . . . . . . .
Cumberland River . . . . . . . U(2)
Lone Mountain . . . . . . . . . U(3)
U
Mountain Laurel . . . . . . . .
S(3)
Hazard* . . . . . . . . . . . . .
U
Beckley* . . . . . . . . . . . . .
Vindex* . . . . . . . . . . . . .
S
Sycamore No. 2* . . . . . . . —
U
Sentinel* . . . . . . . . . . . . .
U
Leer* . . . . . . . . . . . . . . .
— D, S
— D, S
UP/BN 104.9
UP/BN 10.0
92.9 100.7
8.5
7.5
$1,154.5
152.1
1,363.5
162.3
— LW, CM
— CM
UP
—
5.8
1.1
6.7
2.1
6.1
2.2
L, LW, CM
U L, E, CM
— CM
— CM
S(2)
— L, S
— CM
— L, S
U CM
— CM
— CM, LW
NS/CSX
NS
NS/CSX
CSX
CSX
CSX
CSX
CSX
CSX
CSX
3.1
3.3
3.3
1.0
1.5
2.2
2.0
2.0
2.4
2.9
3.7
4.1
1.7
2.1
1.6
1.1
1.1
0.6
0.6
1.0
0.6
0.4
0.4
0.2
1.0
1.2
0.6
— — —
471.0
85.4
209.4
175.7
247.3
520.1
5.6
106.5
85.4
7.0
63.6
405.4
84.2
21.5
21.8
19.6
22.8
53.0
20.9
31
3.9
7.8
12.2
33.4
Totals . . . . . . . . . . . . . . .
137.4 125.5 131.3
$3,689.0
1,857.9
S = Surface mine
U = Underground mine
D = Dragline
L = Loader/truck
S = Shovel/truck
E = Excavator/truck
LW = Longwall
CM = Continuous miner
HW = Highwall miner
UP = Union Pacific Railroad
CSX = CSX Transportation
BN = Burlington Northern-Santa Fe Railway
NS = Norfolk Southern Railroad
*
Mining complex acquired on June 15, 2011 in connection with our acquisition of International Coal Group, Inc. The
above table only shows tons sold from these mining complexes after June 14, 2011, and does not include tons sold by the
prior owner in 2011.
(1) Amounts in parentheses indicate the number of captive and contract mines, if more than one, at the mining complex as
of December 31, 2013. Captive mines are mines that we own and operate on land owned or leased by us. Contract mines
are mines that other operators mine for us under contracts on land owned or leased by us.
(2) Tons of coal we purchased from third parties that were not processed through our loadout facilities are not included in the
amounts shown in the table above.
(3)
2012 tons sold numbers do not include tons of coal sold from the following mining complexes that were closed or idled
during the 2012 calendar year: Arch of Wyoming, East Kentucky, Eastern, Flint Ridge, Imperial, Knott County/Raven
and Patriot. We sold 2.2 million tons of coal from these mining complexes in 2012. 2013 tons sold numbers do not
include tons of coal sold from the following mining complexes that were sold in the 2013 calendar year: Dugout Canyon,
Skyline and Sufco. We sold 5.3 million tons of coal from these mining complexes in 2013.
14
Powder River Basin
Black Thunder. Black Thunder is a surface mining complex located on approximately 35,800 acres in
Campbell County, Wyoming. The Black Thunder complex extracts steam coal from the Upper Wyodak and Main
Wyodak seams.
We control a significant portion of the coal reserves through federal and state leases. The Black Thunder
mining complex had approximately 1.4 billion tons of proven and probable reserves at December 31, 2013. The air
quality permit for the Black Thunder mine allows for the mining of coal at a rate of 190 million tons per year.
Without the addition of more coal reserves, the current reserves could sustain current production levels until 2020
before annual output starts to significantly decline, although in practice production would drop in phases extending
the ultimate mine life. Several large tracts of coal adjacent to the Black Thunder mining complex have been
nominated for lease, and other potential large areas of unleased coal remain available for nomination by us or other
mining operations. The U.S. Department of Interior Bureau of Land Management, which we refer to as the BLM,
will determine if the tracts will be leased and, if so, the final boundaries of, and the coal tonnage for, these tracts.
The Black Thunder mining complex currently consists of seven active pit areas and three loadout facilities. We
ship all of the coal raw to our customers via the Burlington Northern Santa Fe and Union Pacific railroads. We do
not process the coal mined at this complex. Each of the loadout facilities can load a 15,000-ton train in less than
two hours.
Coal Creek. Coal Creek is a surface mining complex located on approximately 7,400 acres in Campbell
County, Wyoming. The Coal Creek mining complex extracts steam coal from the Wyodak-R1 and Wyodak-R3
seams.
We control a significant portion of the coal reserves through federal and state leases. The Coal Creek mining
complex had approximately 162.3 million tons of proven and probable reserves at December 31, 2013. The air
quality permit for the Coal Creek mine allows for the mining of coal at a rate of 50 million tons per year. Without
the addition of more coal reserves, the current reserves could sustain current production levels until 2025 before
annual output starts to significantly decline.
The Coal Creek complex currently consists of two active pit areas and a loadout facility. We ship all of the coal
raw to our customers via the Burlington Northern Santa Fe and Union Pacific railroads. We do not process the coal
mined at this complex. The loadout facility can load a 15,000-ton train in less than three hours.
Appalachia
Coal-Mac. Coal-Mac is a surface and underground mining complex located on approximately 46,800 acres in
Logan and Mingo Counties, West Virginia. Surface mining operations at the Coal-Mac mining complex extract
steam coal primarily from the Coalburg and Stockton seams. Underground mining operations at the Coal-Mac
mining complex extract steam coal from the Coalburg seam.
We control a significant portion of the coal reserves through private leases. The Coal-Mac mining complex had
approximately 21.8 million tons of proven and probable reserves at December 31, 2013. Without the addition of
more coal reserves, the current reserves could sustain current production levels until 2019 before annual output
starts to significantly decline.
The complex currently consists of one captive surface mine, one contract underground mine, a preparation
plant and two loadout facilities, which we refer to as Holden 22 and Ragland. We ship coal trucked to the Ragland
loadout facility directly to our customers via the Norfolk Southern railroad. The Ragland loadout facility can load a
10,000-ton train in less than four hours. We ship coal trucked to the Holden 22 loadout facility directly to our
customers via the CSX railroad. We wash all of the coal transported to the Holden 22 loadout facility at an
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adjacent 600-ton-per-hour preparation plant. The Holden 22 loadout facility can load a 10,000-ton train in about
four hours.
Cumberland River. Cumberland River is an underground mining complex located on approximately 33,300
acres in Wise County, Virginia and Letcher County, Kentucky. Underground mining operations at the Cumberland
River mining complex extract steam and metallurgical coal from the Imboden, Taggart Marker, Middle Taggart,
Upper Taggart, Owl, and Parsons seams.
We control a significant portion of the coal reserves through private leases. The Cumberland River mining
complex had approximately 19.6 million tons of proven and probable reserves at December 31, 2013. Without the
addition of more coal reserves, the current reserves could sustain current production levels until 2022 before annual
output starts to significantly decline.
As of December 31, 2013, the complex consisted of two underground mines operating four continuous miner
sections, a preparation plant and a loadout facility. We process the coal through a 750-ton-per-hour preparation
plant before shipping it to our customers via the Norfolk Southern railroad. The loadout facility can load a
12,000-ton train in about four hours.
Lone Mountain.
Lone Mountain is an underground mining complex located on approximately 54,000 acres in
Harlan County, Kentucky and Lee County, Virginia. The Lone Mountain mining complex extracts steam and
metallurgical coal from the Kellioka, Darby and Owl seams.
We control a significant portion of the coal reserves through private leases. The Lone Mountain mining
complex had approximately 22.8 million tons of proven and probable reserves at December 31, 2013. Without the
addition of more coal reserves, the current reserves could sustain current production levels until 2023 before annual
output starts to significantly decline.
The complex currently consists of three underground mines operating a total of seven continuous miner
sections. We process coal through a 1,200-ton-per-hour preparation plant. We then ship the coal to our customers
via the Norfolk Southern or CSX railroad.
Mountain Laurel. Mountain Laurel is an underground and surface mining complex located on approximately
38,400 acres in Logan County and Boone County, West Virginia. Underground mining operations at the Mountain
Laurel mining complex extract steam and metallurgical coal from the Cedar Grove and Alma seams. Surface mining
operations at the Mountain Laurel mining complex extract coal from a number of different splits of the Five Block,
Stockton and Coalburg seams.
We control a significant portion of the coal reserves through private leases. The Mountain Laurel mining
complex had approximately 53.0 million tons of proven and probable reserves at December 31, 2013. The longwall
mine is expected to operate through at least 2018 and potentially longer. In addition, the existing reserve base
should support continuous miner operations for many years beyond that date.
The complex currently consists of one underground mine operating a longwall and a total of five continuous
miner sections, two contract surface operations, a preparation plant and a loadout facility. We process most of the
coal through a 2,100-ton-per-hour preparation plant before shipping the coal to our customers via the CSX railroad.
The loadout facility can load a 15,000-ton train in less than four hours.
Hazard. Hazard is a mining complex that consists of three surface mines, a preparation plant, a unit train
loadout and other support facilities located on approximately 119,200 acres in eastern Kentucky. The steam coal
from Hazard’s mines is being extracted from the Hazard 10, Hazard 9, Hazard 8, Hazard 7 and Hazard 5A seams.
Nearly all of the surface-mined coal is marketed as a blend of shipped direct product. Coal is transported by
on-highway trucks from the mines to the rail loadout, which is served by CSX. Some coal is direct shipped to the
customer by truck.
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A majority of the coal reserves are owned; the remainder are held through private leases. The mining complex
had approximately 20.9 million tons of proven and probable reserves at December 31, 2013, which could sustain
current production levels until at least 2030.
Beckley. The Beckley mining complex is located on approximately 25,300 acres in Raleigh County, West
Virginia. Beckley is extracting metallurgical coal in the Pocahontas No. 3 seam.
A significant portion of the coal reserves are controlled through private leases. As of December 31, 2013, we
had approximately 31.0 million tons of proven and probable reserves. Without the addition of more coal reserves,
the current reserves could sustain current production levels until 2030. Coal is belted from the mine to a
600-ton-per-hour preparation plant before shipping the coal via the CSX railroad. The loadout facility can load a
10,000-ton train in less than four hours.
Vindex. The Vindex mining complex consists of a surface mine located on approximately 40,900 acres in
Maryland and West Virginia. Mining operations extract steam and metallurgical coal from the Upper Freeport,
Middle Kittanning, Pittsburgh, Little Pittsburgh and Redstone seams.
We control all of the coal reserves through private leases. As of December 31, 2013, we had approximately
3.9 million tons of proven and probable reserves. Without the addition of more coal reserves, the current reserves
could sustain current production levels until at least 2020.
Sycamore No. 2. The Sycamore No. 2 mining complex is an active underground mine operated by a contract
miner located on approximately 8,900 acres in Harrison County, West Virginia. Mining operations extract steam
coal from the Pittsburgh seam. The coal produced by this mining complex is sold on a raw basis and is transported
to current customers by truck.
As of December 31, 2013, the Sycamore No. 2 mining complex had approximately 7.8 million tons of proven
and probable reserves. Without the addition of more coal reserves, the current reserves could sustain current
production levels until 2028.
Sentinel. The Sentinel mining complex consists of one underground mine, a preparation plant and a loadout
facility located on approximately 25,200 acres in Barbour County, West Virginia. Mining operations currently
extract steam and metallurgical coal from the Clarion coal seam. Coal from the Sentinel mining complex is
processed through the preparation plant and shipped by CSX rail to customers.
We control a significant portion of the Clarion seam coal reserves through private leases. As of December 31,
2013, we had approximately 12.2 million tons of proven and probable reserves. Without the addition of more coal
reserves, the current reserves could sustain current production levels until 2021.
Leer (formally Tygart Valley). The Leer Complex, located in Taylor County, West Virginia, includes
approximately 33.4 million tons of coal reserves as of December 31, 2013 and has both steam and metallurgical
quality coal in the Lower Kittanning seam, and is part of approximately 72,300 acres that is considered our Tygart
Valley area. Substantially all of the reserves at Leer are owned rather than leased from third parties.
Construction of the Leer Complex began in June 2010, initial coal production commenced in November 2011
and the longwall began operating in December 2013. At full output, the Leer Complex is designed to have
3.5 million tons of capacity per year of high quality coal that is well suited to both the high volatile metallurgical
and utility markets. All the production is processed through a 1,400 ton-per-hour preparation plant and loaded on
the CSX railroad. A 15,000-ton train can be loaded in less than 4 hours.
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Other
West Elk. West Elk is an underground mining complex located on approximately 19,500 acres in Gunnison
County, Colorado. The West Elk mining complex extracts steam coal from the E seam.
We control a significant portion of the coal reserves through federal and state leases. The West Elk mining
complex had approximately 84.2 million tons of proven and probable reserves at December 31, 2013. Without the
addition of more coal reserves, the current reserves could sustain current production levels through 2025 before
annual output starts to significantly decline.
The West Elk complex currently consists of a longwall, one continuous miner section and a loadout facility. We
ship most of the coal raw to our customers via the Union Pacific railroad. In 2010, we finished constructing a new
coal preparation plant with supporting coal handling facilities at the West Elk mine site. The loadout facility can
load an 11,000-ton train in less than three hours.
Viper. The Viper mining complex consists of one underground coal mine and a preparation plant located on
approximately 48,500 acres in central Illinois near the city of Springfield. Mining operations extract steam coal from
the Illinois No. 5 seam, also referred to as the Springfield seam. All coal is processed through an 800 ton-per-hour
preparation plant and shipped to customers by on-highway trucks.
We control a signification portion of the coal reserves through private leases. As of December 31, 2013, we
had approximately 21.5 million tons of proven and probable reserves. Without the addition of more coal reserves,
the current reserves could sustain current production levels until 2026.
Sales, Marketing and Trading
Overview. Coal prices are influenced by a number of factors and can vary materially by region. The price of
coal within a region is influenced by market conditions, coal quality, transportation costs involved in moving coal
from the mine to the point of use and mine operating costs. For example, higher carbon and lower ash content
generally result in higher prices, and higher sulfur and higher ash content generally result in lower prices within a
given geographic region.
The cost of coal at the mine is also influenced by geologic characteristics such as seam thickness, overburden
ratios and depth of underground reserves. It is generally less expensive to mine coal seams that are thick and
located close to the surface than to mine thin underground seams. Within a particular geographic region,
underground mining, which is the primary mining method we use in certain of our Appalachian mines, is generally
more expensive than surface mining, which is the mining method we use in the Powder River Basin, and for certain
of our Appalachian mines. This is the case because of the higher capital costs, including costs for construction of
extensive ventilation systems, and higher per unit labor costs due to lower productivity associated with underground
mining.
Our sales, marketing and trading functions are principally based in St. Louis, Missouri and consist of sales and
trading, transportation and distribution, quality control and contract administration personnel as well as revenue
management. We also have smaller groups of sales personnel in our Singapore, Beijing and London offices. In
addition to selling coal produced in our mining complexes, from time to time we purchase and sell coal mined by
others, some of which we blend with coal produced from our mines. We focus on meeting the needs and
specifications of our customers rather than just selling our coal production.
Customers. The Company markets its steam and metallurgical coal to domestic and foreign utilities, steel
producers and other industrial facilities. For the year ended December 31, 2013, we derived approximately 15% of
our total coal revenues from sales to our three largest customers Tennessee Valley Authority, U.S. Steel, and
DBK-Donau Brennstoffkontor GmbH—and approximately 35% of our total coal revenues from sales to our 10
largest customers.
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In 2013, we sold coal to domestic customers located in 42 different states. The locations of our mines enable
us to ship coal to most of the major coal-fueled power plants in the United States.
In addition, in 2013 we also exported coal to Europe, Asia, North America (outside the United States) and
South America. Exports to foreign countries were $0.8 billion, $1.2 billion and $0.9 billion for the years ended
December 31, 2013, 2012, and 2011, respectively. As of December 31, 2013 and 2012, trade receivables related to
metallurgical-quality coal sales totaled $70.5 million and $86.6 million, respectively, or 36% and 35%, of total
trade receivables, respectively. We do not have foreign currency exposure for our international sales as all sales are
denominated and settled in U.S. dollars.
The Company’s foreign revenues by coal shipment destination for the year ended December 31, 2013, were as
follows:
(In thousands)
Europe (includes Morocco) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central and South America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokered Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$371,363
160,404
80,322
55,493
154,442
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$822,024
Long-Term Coal Supply Arrangements
As is customary in the coal industry, we enter into fixed price, fixed volume long-term supply contracts, the
terms of which are more than one year, with many of our customers. Multiple year contracts usually have specific
and possibly different volume and pricing arrangements for each year of the contract. Long-term contracts allow
customers to secure a supply for their future needs and provide us with greater predictability of sales volume and
sales prices. In 2013, we sold approximately 59% of our coal under long-term supply arrangements. The majority
of our supply contracts include a fixed price for the term of the agreement or a pre-determined escalation in price
for each year. Some of our long-term supply agreements may include a variable pricing system. While most of our
sales contracts are for terms of one to five years, some are as short as one month and other contracts have terms
exceeding five years. At December 31, 2013, the average volume-weighted remaining term of our long-term
contracts was approximately 2.84 years, with remaining terms ranging from one to 7 years. At December 31, 2013,
remaining tons under long-term supply agreements, including those subject to price re-opener or extension
provisions, were approximately 192 million tons.
We typically sell coal to customers under long-term arrangements through a ‘‘request-for-proposal’’ process.
The terms of our coal sales agreements result from competitive bidding and negotiations with customers.
Consequently, the terms of these contracts vary by customer, including base price adjustment features, price
re-opener terms, coal quality requirements, quantity parameters, permitted sources of supply, future regulatory
changes, extension options, force majeure, termination, damages and assignment provisions. Our long-term supply
contracts typically contain provisions to adjust the base price due to new statutes, ordinances or regulations.
Additionally, some of our contracts contain provisions that allow for the recovery of costs affected by modifications
or changes in the interpretations or application of any applicable statute by local, state or federal government
authorities. These provisions only apply to the base price of coal contained in these supply contracts. In some
circumstances, a significant adjustment in base price can lead to termination of the contract.
Certain of our contracts contain index provisions that change the price based on changes in market based
indices or changes in economic indices or both. Certain of our contracts contain price re-opener provisions that may
allow a party to commence a renegotiation of the contract price at a pre-determined time. Price re-opener
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provisions may automatically set a new price based on prevailing market price or, in some instances, require us to
negotiate a new price, sometimes within a specified range of prices. In a limited number of agreements, if the
parties do not agree on a new price, either party has an option to terminate the contract. In addition, certain of our
contracts contain clauses that may allow customers to terminate the contract in the event of certain changes in
environmental laws and regulations that impact their operations.
Coal quality and volumes are stipulated in coal sales agreements. In most cases, the annual pricing and volume
obligations are fixed, although in some cases the volume specified may vary depending on the customer
consumption requirements. Most of our coal sales agreements contain provisions requiring us to deliver coal within
certain ranges for specific coal characteristics such as heat content (for thermal coal contracts), volatile matter (for
metallurgical coal contracts), and for both types of contracts, sulfur, ash and moisture content. Failure to meet these
specifications can result in economic penalties, suspension or cancellation of shipments or termination of the
contracts.
Our coal sales agreements also typically contain force majeure provisions allowing temporary suspension of
performance by us or our customers, during the duration of events beyond the control of the affected party,
including events such as strikes, adverse mining conditions, mine closures or serious transportation problems that
affect us or unanticipated plant outages that may affect the buyer. Our contracts also generally provide that in the
event a force majeure circumstance exceeds a certain time period, the unaffected party may have the option to
terminate the purchase or sale in whole or in part. Some contracts stipulate that this tonnage can be made up by
mutual agreement or at the discretion of the buyer. Agreements between our customers and the railroads servicing
our mines may also contain force majeure provisions. Generally, our coal sales agreements allow our customer to
suspend performance in the event that the railroad fails to provide its services due to circumstances that would
constitute a force majeure.
In most of our contracts, we have a right of substitution (unilateral or subject to counterparty approval),
allowing us to provide coal from different mines, including third-party mines, as long as the replacement coal meets
quality specifications and will be sold at the same equivalent delivered cost.
In some of our coal supply contracts, we agree to indemnify or reimburse our customers for damage to their or
their rail carrier’s equipment while on our property, which result from our or our agents’ negligence, and for
damage to our customer’s equipment due to non-coal materials being included with our coal while on our property.
Trading.
In addition to marketing and selling coal to customers through traditional coal supply arrangements,
we seek to optimize our coal production and leverage our knowledge of the coal industry through a variety of other
marketing, trading and asset optimization strategies. From time to time, we may employ strategies to use coal and
coal-related commodities and contracts for those commodities in order to manage and hedge volumes and/or prices
associated with our coal sales or purchase commitments, reduce our exposure to the volatility of market prices or
augment the value of our portfolio of traditional assets. These strategies may include physical coal contracts, as well
as a variety of forward, futures or options contracts, swap agreements or other financial instruments.
We maintain a system of complementary processes and controls designed to monitor and manage our exposure
to market and other risks that may arise as a consequence of these strategies. These processes and controls seek to
preserve our ability to profit from certain marketing, trading and asset optimization strategies while mitigating our
exposure to potential losses. You should see the section entitled ‘‘Quantitative and Qualitative Disclosures About
Market Risk’’ for more information about the market risks associated with these strategies at December 31, 2013.
Transportation. We ship our coal to domestic customers by means of railcars, barges, vessels or trucks, or a
combination of these means of transportation. We generally sell coal used for domestic consumption free on board
(f.o.b.) at the mine or nearest loading facility. Our domestic customers normally bear the costs of transporting coal
by rail, barge or vessel.
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Historically, most domestic electricity generators have arranged long-term shipping contracts with rail or barge
companies to assure stable delivery costs. Transportation can be a large component of a purchaser’s total cost.
Although the purchaser pays the freight, transportation costs still are important to coal mining companies because
the purchaser may choose a supplier largely based on cost of transportation. Transportation costs borne by the
customer vary greatly based on each customer’s proximity to the mine and our proximity to the loadout facilities.
Trucks and overland conveyors haul coal over shorter distances, while barges, Great Lake carriers and ocean vessels
move coal to export markets and domestic markets requiring shipment over the Great Lakes and several river
systems.
Most coal mines are served by a single rail company, but much of the Powder River Basin is served by two rail
carriers: the Burlington Northern-Santa Fe railroad and the Union Pacific railroad. We generally transport coal
produced at our Appalachian mining complexes via the CSX railroad or the Norfolk Southern railroad. Besides rail
deliveries, some customers in the eastern United States rely on a river barge system. Our Arch Coal Terminal is
located in Catlettsburg, Kentucky on a 111-acre site on the Big Sandy River above its confluence with the Ohio
River. The terminal provides coal and other bulk material storage and can load and offload river barges and trucks
at the facility. The terminal can provide up to 500,000 tons of storage and can load up to six million tons of coal
annually for shipment on the inland waterways.
We generally sell coal to international customers at the export terminal, and we are usually responsible for the
cost of transporting coal to the export terminals. In some cases we may enter into long-term throughput
agreements with export terminals that contain minimum throughput obligations. In the event we do not meet
those minimum thresholds, we may be obligated to pay liquidated damage amounts to such terminals. We
transport our coal to Atlantic or Pacific coast terminals or terminals along the Gulf of Mexico for transportation to
international customers. Our international customers are generally responsible for paying the cost of ocean freight.
We may also sell coal to international customers delivered to an unloading facility at the destination country.
We own a 22% interest in Dominion Terminal Associates, a partnership that operates a ground
storage-to-vessel coal transloading facility in Newport News, Virginia. The facility has a rated throughput capacity
of 20 million tons of coal per year and ground storage capacity of approximately 1.7 million tons. The facility
serves international customers, as well as domestic coal users located along the Atlantic coast of the United States.
We also own a 38% interest in Millennium Bulk Terminals—Longview, LLC (MBT), the owner of a bulk
commodity terminal on the Columbia River near Longview, Washington. MBT is currently working to obtain the
required approvals and necessary permits to complete upgrades to enable coal shipments through the brownfield
terminal.
Competition
The coal industry is intensely competitive. The most important factors on which we compete are coal quality,
delivered costs to the customer and reliability of supply. Our principal domestic competitors include Alpha Natural
Resources, Inc., Cloud Peak Energy, CONSOL Energy Inc., Patriot Coal Corporation, Peabody Energy Corp. and
Walter Energy, Inc. Some of these coal producers are larger than we are and have greater financial resources and
larger reserve bases than we do. We also compete directly with a number of smaller producers in each of the
geographic regions in which we operate, as well as companies that produce coal from one or more foreign countries,
such as Australia, Colombia, Indonesia, South Africa and Venezuela.
Additionally, coal competes with other fuels, such as natural gas, nuclear energy, hydropower, wind, solar and
petroleum, for steam and electrical power generation. Costs and other factors relating to these alternative fuels, such
as safety and environmental considerations, affect the overall demand for coal as a fuel.
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Suppliers
Principal supplies used in our business include petroleum-based fuels, explosives, tires, steel and other raw
materials as well as spare parts and other consumables used in the mining process. We use third-party suppliers for
a significant portion of our equipment rebuilds and repairs, drilling services and construction. We use sole source
suppliers for certain parts of our business such as explosives and fuel, and preferred suppliers for other parts of our
business such as dragline and shovel parts and related services. We believe adequate substitute suppliers are
available. For more information about our suppliers, you should see ‘‘Risk Factors—Increases in the costs of mining
and other industrial supplies, including steel-based supplies, diesel fuel and rubber tires, or the inability to obtain a
sufficient quantity of those supplies, could negatively affect our operating costs or disrupt or delay our production.’’
Environmental and Other Regulatory Matters.
Federal, state and local authorities regulate the U.S. coal mining industry with respect to matters such as
employee health and safety and the environment, including the protection of air quality, water quality, wetlands,
special status species of plants and animals, land uses, cultural and historic properties and other environmental
resources identified during the permitting process. Reclamation is required during production and after mining has
been completed. Materials used and generated by mining operations must also be managed according to applicable
regulations and law. These laws have, and will continue to have, a significant effect on our production costs and our
competitive position.
We endeavor to conduct our mining operations in compliance with all applicable federal, state and local laws
and regulations. However, due in part to the extensive, comprehensive and changing regulatory requirements,
violations during mining operations occur from time to time. We cannot assure you that we have been or will be at
all times in complete compliance with such laws and regulations. While it is not possible to accurately quantify the
expenditures we incur to maintain compliance with all applicable federal and state laws, those costs have been and
are expected to continue to be significant. Federal and state mining laws and regulations require us to obtain surety
bonds to guarantee performance or payment of certain long-term obligations, including mine closure and
reclamation costs, federal and state workers’ compensation benefits, coal leases and other miscellaneous obligations.
Compliance with these laws has substantially increased the cost of coal mining for domestic coal producers.
Future laws, regulations or orders, as well as future interpretations and more rigorous enforcement of existing
laws, regulations or orders, may require substantial increases in equipment and operating costs and delays,
interruptions or a termination of operations, the extent to which we cannot predict. Future laws, regulations or
orders may also cause coal to become a less attractive fuel source, thereby reducing coal’s share of the market for
fuels and other energy sources used to generate electricity. As a result, future laws, regulations or orders may
adversely affect our mining operations, cost structure or our customers’ demand for coal.
The following is a summary of the various federal and state environmental and similar regulations that have a
material impact on our business:
Mining Permits and Approvals. Numerous governmental permits or approvals are required for mining
operations. When we apply for these permits and approvals, we may be required to prepare and present to federal,
state or local authorities’ data pertaining to the effect or impact that any proposed production or processing of coal
may have upon the environment. For example, in order to obtain a federal coal lease, an environmental impact
statement must be prepared to assist the BLM in determining the potential environmental impact of lease issuance,
including any collateral effects from the mining, transportation and burning of coal. The authorization, permitting
and implementation requirements imposed by federal, state and local authorities may be costly and time consuming
and may delay commencement or continuation of mining operations. In the states where we operate, the applicable
laws and regulations also provide that a mining permit or modification can be delayed, refused or revoked if
officers, directors, shareholders with specified interests or certain other affiliated entities with specified interests in
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the applicant or permittee have, or are affiliated with another entity that has, outstanding permit violations. Thus,
past or ongoing violations of applicable laws and regulations could provide a basis to revoke existing permits and to
deny the issuance of additional permits.
In order to obtain mining permits and approvals from federal and state regulatory authorities, mine operators
must submit a reclamation plan for restoring, upon the completion of mining operations, the mined property to its
prior condition or other authorized use. Typically, we submit the necessary permit applications several months or
even years before we plan to begin mining a new area. Some of our required permits are becoming increasingly
more difficult and expensive to obtain, and the application review processes are taking longer to complete and
becoming increasingly subject to challenge, even after a permit has been issued.
Under some circumstances, substantial fines and penalties, including revocation or suspension of mining
permits, may be imposed under the laws described above. Monetary sanctions and, in severe circumstances, criminal
sanctions may be imposed for failure to comply with these laws.
Surface Mining Control and Reclamation Act. The Surface Mining Control and Reclamation Act, which we refer
to as SMCRA, establishes mining, environmental protection, reclamation and closure standards for all aspects of
surface mining as well as many aspects of underground mining. Mining operators must obtain SMCRA permits and
permit renewals from the Office of Surface Mining, which we refer to as OSM, or from the applicable state agency
if the state agency has obtained regulatory primacy. A state agency may achieve primacy if the state regulatory
agency develops a mining regulatory program that is no less stringent than the federal mining regulatory program
under SMCRA. All states in which we conduct mining operations have achieved primacy and issue permits in lieu of
OSM.
In 1999, a federal court in West Virginia ruled that the stream buffer zone rule issued under SMCRA
prohibited most excess spoil fills. While the decision was later reversed on jurisdictional grounds, the extent to
which the rule applied to fills was left unaddressed. On December 12, 2008, OSM finalized a rulemaking regarding
the interpretation of the stream buffer zone provisions of SMCRA which confirmed that excess spoil from mining
and refuse from coal preparation could be placed in permitted areas of a mine site that constitute waters of the
United States. That rule, however, is subject to a pending challenge in federal court. In addition, on November 30,
2009, OSM announced that it would re-examine and reinterpret the regulations finalized eleven months earlier. Its
efforts to reissue the rule are still pending. We cannot predict how the regulations may change or how they may
affect coal production, though there are reports that drafts of OSM’s preferred alternative rule would, if finalized,
curtail surface mining operations in and near streams—especially in central Appalachia.
SMCRA permit provisions include a complex set of requirements which include, among other things, coal
prospecting; mine plan development; topsoil or growth medium removal and replacement; selective handling of
overburden materials; mine pit backfilling and grading; disposal of excess spoil; protection of the hydrologic
balance; subsidence control for underground mines; surface runoff and drainage control; establishment of suitable
post mining land uses; and revegetation. We begin the process of preparing a mining permit application by
collecting baseline data to adequately characterize the pre-mining environmental conditions of the permit area. This
work is typically conducted by third-party consultants with specialized expertise and includes surveys and/or
assessments of the following: cultural and historical resources; geology; soils; vegetation; aquatic organisms; wildlife;
potential for threatened, endangered or other special status species; surface and ground water hydrology;
climatology; riverine and riparian habitat; and wetlands. The geologic data and information derived from the other
surveys and/or assessments are used to develop the mining and reclamation plans presented in the permit
application. The mining and reclamation plans address the provisions and performance standards of the state’s
equivalent SMCRA regulatory program, and are also used to support applications for other authorizations and/or
permits required to conduct coal mining activities. Also included in the permit application is information used for
documenting surface and mineral ownership, variance requests, access roads, bonding information, mining methods,
mining phases, other agreements that may relate to coal, other minerals, oil and gas rights, water rights, permitted
23
areas, and ownership and control information required to determine compliance with OSM’s Applicant Violator
System, including the mining and compliance history of officers, directors and principal owners of the entity.
Once a permit application is prepared and submitted to the regulatory agency, it goes through an
administrative completeness review and a thorough technical review. Also, before a SMCRA permit is issued, a mine
operator must submit a bond or otherwise secure the performance of all reclamation obligations. After the
application is submitted, a public notice or advertisement of the proposed permit is required to be given, which
begins a notice period that is followed by a public comment period before a permit can be issued. It is not
uncommon for a SMCRA mine permit application to take over a year to prepare, depending on the size and
complexity of the mine, and anywhere from six months to two years or even longer for the permit to be issued.
The variability in time frame required to prepare the application and issue the permit can be attributed primarily to
the various regulatory authorities’ discretion in the handling of comments and objections relating to the project
received from the general public and other agencies. Also, it is not uncommon for a permit to be delayed as a
result of litigation related to the specific permit or another related company’s permit.
In addition to the bond requirement for an active or proposed permit, the Abandoned Mine Land Fund, which
was created by SMCRA, requires a fee on all coal produced. The proceeds of the fee are used to restore mines
closed or abandoned prior to SMCRA’s adoption in 1977. The current fee is $0.28 per ton of coal produced from
surface mines and $0.12 per ton of coal produced from underground mines. In 2013, we recorded $34.6 million of
expense related to these reclamation fees.
Surety Bonds. Mine operators are often required by federal and/or state laws, including SMCRA, to assure,
usually through the use of surety bonds, payment of certain long-term obligations including mine closure or
reclamation costs, federal and state workers’ compensation costs, coal leases and other miscellaneous obligations.
Although surety bonds are usually noncancelable during their term, many of these bonds are renewable on an
annual basis.
The costs of these bonds have fluctuated in recent years while the market terms of surety bonds have generally
become more unfavorable to mine operators. These changes in the terms of the bonds have been accompanied at
times by a decrease in the number of companies willing to issue surety bonds. In order to address some of these
uncertainties, we use self-bonding to secure performance of certain obligations in Wyoming. As of December 31,
2013, we have self-bonded an aggregate of approximately $417.6 million, posted an aggregate of approximately
$247.3 million in surety bonds for reclamation purposes and secured $18.1 million in letters of credit for
reclamation bonding obligations. In addition, we had approximately $49.4 million of surety bonds and letters of
credit outstanding at December 31, 2013 to secure workers’ compensation, coal lease and other obligations.
Mine Safety and Health.
Stringent safety and health standards have been imposed by federal legislation since
Congress adopted the Mine Safety and Health Act of 1969. The Mine Safety and Health Act of 1977 significantly
expanded the enforcement of safety and health standards and imposed comprehensive safety and health standards on
all aspects of mining operations. In addition to federal regulatory programs, all of the states in which we operate
also have programs aimed at improving mine safety and health. Collectively, federal and state safety and health
regulation in the coal mining industry is among the most comprehensive and pervasive systems for the protection of
employee health and safety affecting any segment of U.S. industry. In reaction to recent mine accidents, federal and
state legislatures and regulatory authorities have increased scrutiny of mine safety matters and passed more stringent
laws governing mining. For example, in 2006, Congress enacted the MINER Act. The MINER Act imposes
additional obligations on coal operators including, among other things, the following:
(cid:127) development of new emergency response plans that address post-accident communications, tracking of
miners, breathable air, lifelines, training and communication with local emergency response personnel;
(cid:127) establishment of additional requirements for mine rescue teams;
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(cid:127) notification of federal authorities in the event of certain events;
(cid:127) increased penalties for violations of the applicable federal laws and regulations; and
(cid:127) requirement that standards be implemented regarding the manner in which closed areas of underground
mines are sealed.
In 2008, the U.S. House of Representatives approved additional federal legislation which would have required
new regulations on a variety of mine safety issues such as underground refuges, mine ventilation and
communication systems. Although the U.S. Senate failed to pass that legislation, it is possible that similar legislation
may be proposed in the future. Various states, including West Virginia, have also enacted laws to address many of
the same subjects. The costs of implementing these safety and health regulations at the federal and state level have
been, and will continue to be, substantial. In addition to the cost of implementation, there are increased penalties
for violations which may also be substantial. Expanded enforcement has resulted in a proliferation of litigation
regarding citations and orders issued as a result of the regulations.
Under the Black Lung Benefits Revenue Act of 1977 and the Black Lung Benefits Reform Act of 1977, each
coal mine operator must secure payment of federal black lung benefits to claimants who are current and former
employees and to a trust fund for the payment of benefits and medical expenses to claimants who last worked in
the coal industry prior to July 1, 1973. The trust fund is funded by an excise tax on production of up to $1.10 per
ton for coal mined in underground operations and up to $0.55 per ton for coal mined in surface operations. These
amounts may not exceed 4.4% of the gross sales price. This excise tax does not apply to coal shipped outside the
United States. In 2013, we recorded $70.1 million of expense related to this excise tax.
Clean Air Act. The federal Clean Air Act and similar state and local laws that regulate air emissions affect
coal mining directly and indirectly. Direct impacts on coal mining and processing operations include Clean Air Act
permitting requirements and emissions control requirements relating to particulate matter which may include
controlling fugitive dust. The Clean Air Act also indirectly affects coal mining operations by extensively regulating
the emissions of fine particulate matter measuring 2.5 micrometers in diameter or smaller, sulfur dioxide, nitrogen
oxides, mercury and other compounds emitted by coal-fueled power plants and industrial boilers, which are the
largest end-users of our coal. Continued tightening of the already stringent regulation of emissions is likely, such as
the Mercury and Air Toxics Standard (MATS), finalized in 2011 and discussed in more detail below. In addition,
regulation of additional emissions, such as greenhouse gases, has been announced by the U.S. Environmental
Protection Agency, which we refer to as EPA, and those regulations will likely apply to new and existing coal-fueled
power plants. Other greenhouse gas regulations apply to industrial boilers (see discussion of Climate Change, below)
and this application could eventually reduce the demand for coal.
Clean Air Act requirements that may directly or indirectly affect our operations include the following:
(cid:127) Acid Rain. Title IV of the Clean Air Act, promulgated in 1990, imposed a two-phase reduction of sulfur
dioxide emissions by electric utilities. Phase II became effective in 2000 and applies to all coal-fueled power
plants with a capacity of more than 25-megawatts. Generally, the affected power plants have sought to
comply with these requirements by switching to lower sulfur fuels, installing pollution control devices,
reducing electricity generating levels or purchasing or trading sulfur dioxide emissions allowances. Although
we cannot accurately predict the future effect of this Clean Air Act provision on our operations, we believe
that implementation of Phase II has been factored into the pricing of the coal market.
(cid:127) Particulate Matter. The Clean Air Act requires the EPA to set national ambient air quality standards, which
we refer to as NAAQS, for certain pollutants associated with the combustion of coal, including sulfur
dioxide, particulate matter, nitrogen oxides and ozone. Areas that are not in compliance with these
standards, referred to as non-attainment areas, must take steps to reduce emissions levels. For example,
NAAQS currently exist for particulate matter measuring 10 micrometers in diameter or smaller (PM10) and
25
for fine particulate matter measuring 2.5 micrometers in diameter or smaller (PM2.5), and the EPA revised
the PM2.5 NAAQS on December 14, 2012, making it more stringent. The states were required to make
recommendations on nonattainment designations for the new NAAQS in late 2013. Once the EPA finalizes
those designations, individual states must identify the sources of emissions and develop emission reduction
plans. These plans may be state-specific or regional in scope. Under the Clean Air Act, individual states
have up to 12 years from the date of designation to secure emissions reductions from sources contributing to
the problem. Future regulation and enforcement of the new PM2.5 standard will affect many power plants,
especially coal-fueled power plants, and all plants in non-attainment areas.
(cid:127) Ozone. The EPA is scheduled to propose a revision of their existing NAAQS for ozone in 2014. Significant
additional emission control expenditures will likely be required at coal-fueled power plants to meet the new
NAAQS. Nitrogen oxides, which are a byproduct of coal combustion, are classified as an ozone precursor.
As a result, emissions control requirements for new and expanded coal-fueled power plants and industrial
boilers will continue to become more demanding in the years ahead.
(cid:127) NOx SIP Call. The Nitrogen Oxides State Implementation Plan (NOx SIP) Call program was established by
the EPA in October 1998 to reduce the transport of ozone on prevailing winds from the Midwest and South
to states in the Northeast, which said that they could not meet federal air quality standards because of
migrating pollution. The program was designed to reduce nitrous oxide emissions by one million tons per
year in 22 eastern states and the District of Columbia. Phase II reductions were required by May 2007. As
a result of the program, many power plants were required to install additional emission control measures,
such as selective catalytic reduction devices. Installation of additional emission control measures has made it
more costly to operate coal-fueled power plants, which could make coal a less attractive fuel.
(cid:127) Clean Air Interstate Rule. The EPA finalized the Clean Air Interstate Rule, which we refer to as CAIR, in
March 2005. CAIR called for power plants in 28 Eastern states and the District of Columbia to reduce
emission levels of sulfur dioxide and nitrous oxide pursuant to a cap and trade program similar to the
system now in effect for acid deposition control and to that proposed by the Clean Skies Initiative.
In July 2008, in State of North Carolina v. EPA and consolidated cases, the U.S. Court of Appeals for the
District of Columbia Circuit disagreed with the EPA’s reading of the Clean Air Act and vacated CAIR in its
entirety. In December 2008, the U.S. Court of Appeals for the District of Columbia Circuit revised its
remedy and remanded the rule to the EPA. The EPA proposed a revised transport rule on August 2, 2010
(75 Fed Reg 45209) and received thousands of comments on the proposal. The rule was finalized as the
Cross State Air Pollution Rule (CSAPR) on July 6, 2011, with compliance required for SO2 reductions
beginning January 1, 2012 and compliance with NOx reductions required by May 1, 2012. Numerous
appeals of the rule were filed and, on August 21, 2012, the Federal Court of Appeals for the District of
Columbia Circuit vacated the rule, leaving the EPA to continue implementation of the CAIR Controls
required under the CAIR may affect the market for coal inasmuch as multiple existing coal fired units are
being retired rather than having required controls installed. The U.S. Supreme Court agreed to hear the
EPA’s appeal of the decision vacating CSAPR and could reinstate the requirements of CSAPR with a
delayed compliance deadline. If so, some coal-fired power plants will be required to install costly pollution
controls or shut down. A decision from the U.S. Supreme Court is expected by mid-2014 and may adversely
affect the demand for coal.
(cid:127) Mercury. In February 2008, the U.S. Court of Appeals for the District of Columbia Circuit vacated the
EPA’s Clean Air Mercury Rule (CAMR) and remanded it to the EPA for reconsideration. In response, the
EPA announced an Electric Generating Unit (EGU) Mercury and Air Toxics Standard (MATS) on
December 16, 2011. The MATS was finalized April 16, 2012. In addition, before the court decision
vacating the CAMR, some states had either adopted the CAMR or adopted state-specific rules to regulate
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mercury emissions from power plants that are more stringent than the CAMR. The result of the EGU
MATS and state mercury and air toxics controls is that these rules may adversely affect the demand for coal.
(cid:127) Regional Haze. The EPA has initiated a regional haze program designed to protect and improve visibility at
and around national parks, national wilderness areas and international parks, particularly those located in
the southwest and southeast United States. Under the Regional Haze Rule, affected states were required to
submit regional haze SIP’s by December 17, 2007, that, among other things, was to identify facilities that
would have to reduce emissions and comply with stricter emission limitations. The vast majority of states
failed to submit their plans by December 17, 2007, and the EPA issued a Finding of Failure to Submit
plans on January 15, 2009 (74 Fed. Reg. 2392). The EPA had taken no enforcement action against states to
finalize implementation plans and was slowly dealing with the state Regional Haze SIPs that were
submitted, which resulted in the National Parks Conservation Association commencing litigation in the
D. C. Circuit Court of Appeals on August 3, 2012, against the EPA for failure to enforce the rule (National
Parks Conservation Act v. EPA, D.C.Cir). Industry groups, including the Utility Air Regulatory Group have
intervened (Utility Air Regulatory Group v. EPA. D.C. Cir 12-1342, 8/6/2012) This program may result in
additional emissions restrictions from new coal-fueled power plants whose operations may impair visibility at
and around federally protected areas. This program may also require certain existing coal-fueled power
plants to install additional control measures designed to limit haze-causing emissions, such as sulfur dioxide,
nitrogen oxides, volatile organic chemicals and particulate matter. These limitations could affect the future
market for coal.
(cid:127) New Source Review. A number of pending regulatory changes and court actions are affecting the scope of the
EPA’s new source review program, which under certain circumstances requires existing coal-fueled power
plants to install the more stringent air emissions control equipment required of new plants. The new source
review program is continually revised and such revisions may impact demand for coal nationally, but we are
unable to predict the magnitude of the impact.
Climate Change. One by-product of burning coal is carbon dioxide, which is considered a greenhouse gas and
is a major source of concern with respect to global warming. In November 2004, Russia ratified the Kyoto Protocol
to the 1992 Framework Convention on Global Climate Change, which establishes a binding set of emission targets
for greenhouse gases. With Russia’s acceptance, the Kyoto Protocol became binding on all those countries that had
ratified it in February 2005. The United States has refused to ratify the Kyoto Protocol. Although the Kyoto
Protocol targets varied from country to country, the United States Kyoto Protocol target reductions of greenhouse
gas emissions would be to 93% of 1990 levels. Following the Kyoto meeting, multiple Conferences of the Parties
have been held. None to date, including the most recent Conference of the Parties in Abu Dhabi, in January 2013,
have resulted in any mandatory reduction requirements for the United States, but any such future conference may
do so.
Future regulation of greenhouse gases in the United States could occur pursuant to future U.S. treaty
obligations, statutory or regulatory changes under the Clean Air Act, federal or state adoption of a greenhouse gas
regulatory scheme, or otherwise. The U.S. Congress has considered various proposals to reduce greenhouse gas
emissions, but to date, none have become law. In April 2007, the U.S. Supreme Court rendered its decision in
Massachusetts v. EPA, finding that the EPA has authority under the Clean Air Act to regulate carbon dioxide
emissions from automobiles and can decide against regulation only if the EPA determines that carbon dioxide does
not significantly contribute to climate change and does not endanger public health or the environment. On
December 15, 2009, the EPA published a formal determination that six greenhouse gases, including carbon dioxide
and methane, endanger both the public health and welfare of current and future generations. In the same Federal
Register rulemaking, the EPA found that emission of greenhouse gases from new motor vehicles and their engines
contribute to greenhouse gas pollution. Although Massachusetts v. EPA did not involve the EPA’s authority to
regulate greenhouse gas emissions from stationary sources, such as coal-fueled power plants, the EPA has since
27
determined that it has the authority to regulate greenhouse gas emissions from power plants. In January 2014, EPA
proposed performance standards for emissions of carbon dioxide from new fossil-fuel fired power plants. The draft
rule proposes a separate standard of performance for coal-fired plants based on partial implementation of carbon
capture and storage as the best system of emission reduction. The rule, if finalized and upheld in court, is expected
to curtail the construction of new coal-fired power plants. In addition, once a standard for new plants is established,
the EPA is required to propose rules imposing performance standards related to carbon dioxide emissions on existing
power plants. These rules have not yet been proposed, but if finalized and upheld in court could further curtail the
use of coal in power plants.
In addition to the federal regulation, many states and regions have adopted greenhouse gas initiatives. These
state and regional climate change rules will likely require additional controls on coal-fueled power plants and
industrial boilers and may even cause some users of coal to switch from coal to a lower carbon fuel. There can be
no assurance at this time that a carbon dioxide cap and trade program, a carbon tax or other regulatory regime, if
implemented by the states in which our customers operate or at the federal level, will not affect the future market
for coal in those regions. Increased efforts to control greenhouse gas emissions could result in reduced demand for
coal.
Clean Water Act. The federal Clean Water Act (sometimes shortened to CWA) and corresponding state and
local laws and regulations affect coal mining operations by restricting the discharge of pollutants, including dredged
and fill materials, into waters of the United States. The Clean Water Act provisions and associated state and federal
regulations are complex and subject to amendments, legal challenges and changes in implementation. Recent court
decisions and regulatory actions have created uncertainty over Clean Water Act jurisdiction and permitting
requirements that could variously increase or decrease the cost and time we expend on Clean Water Act compliance.
Clean Water Act requirements that may directly or indirectly affect our operations include the following:
(cid:127) Water Discharge. Section 402 of the Clean Water Act creates a process for establishing effluent limitations for
discharges to streams that are protective of water quality standards through the National Pollutant
Discharge Elimination System, which we refer to as the NPDES, or an equally stringent program delegated
to a state regulatory agency. Regular monitoring, reporting and compliance with performance standards are
preconditions for the issuance and renewal of NPDES permits that govern discharges into waters of the
United States, especially on selenium, sulfate and specific conductance. Discharges that exceed the limits
specified under NPDES permits can lead to the imposition of penalties, and persistent non-compliance could
lead to significant penalties, compliance costs and delays in coal production. In addition, the imposition of
future restrictions on the discharge of certain pollutants into waters of the United States could increase the
difficulty of obtaining and complying with NPDES permits, which could impose additional time and cost
burdens on our operations. You should see Item 3—Legal Proceedings for more information about certain
regulatory actions pertaining to our operations.
Discharges of pollutants into waters that states have designated as impaired (i.e., as not meeting present
water quality standards) are subject to Total Maximum Daily Load, which we refer to as TMDL, regulations.
The TMDL regulations establish a process for calculating the maximum amount of a pollutant that a water
body can receive while maintaining state water quality standards. Pollutant loads are allocated among the
various sources that discharge pollutants into that water body. Mine operations that discharge into water
bodies designated as impaired will be required to meet new TMDL allocations. The adoption of more
stringent TMDL-related allocations for our coal mines could require more costly water treatment and could
adversely affect our coal production.
The Clean Water Act also requires states to develop anti-degradation policies to ensure that non-impaired
water bodies continue to meet water quality standards. The issuance and renewal of permits for the
discharge of pollutants to waters that have been designated as ‘‘high quality’’ are subject to anti-degradation
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review that may increase the costs, time and difficulty associated with obtaining and complying with
NPDES permits.
(cid:127) Dredge and Fill Permits. Many mining activities, such as the development of refuse impoundments, fresh
water impoundments, refuse fills, valley fills, and other similar structures, may result in impacts to waters of
the United States, including wetlands, streams and, in certain instances, man-made conveyances that have a
hydrologic connection to such streams or wetlands. Under the Clean Water Act, coal companies are required
to obtain a Section 404 permit from the Army Corps of Engineers, which we refer to as the Corps, prior to
conducting such mining activities. The Corps is authorized to issue general ‘‘nationwide’’ permits for specific
categories of activities that are similar in nature and that are determined to have minimal adverse effects on
the environment. Permits issued pursuant to Nationwide Permit 21, which we refer to as NWP 21,
generally authorize the disposal of dredged and fill material from surface coal mining activities into waters
of the United States, subject to certain restrictions. Since March 2007, permits under NWP 21 were
reissued for a five-year period with new provisions intended to strengthen environmental protections. There
must be appropriate mitigation in accordance with nationwide general permit conditions rather than less
restricted state-required mitigation requirements, and permit holders must receive explicit authorization from
the Corps before proceeding with proposed mining activities.
Notwithstanding the additional environmental protections designed in the NWP 21, on July 15, 2009, the
Corps proposed to immediately suspend the use of NWP 21 in six Appalachian states, including West
Virginia, Kentucky and Virginia where the Company conducts operations. On June 17, 2010, the Corps
announced that it had suspended the use of NWP 21 in the same six states although it remained for use
elsewhere. In February 2012, the Corps proposed to reissue NWP 21, albeit with significant restrictions on
the acreage and length of stream channel that can be filled in the course of mining operations. The Corps’
decisions regarding the use of NWP 21 does not prevent the Company’s operations from seeking an
individual permit under § 404 of the CWA, nor does it restrict an operation from utilizing another version
of the nationwide permit, NWP 50, authorized for small underground coal mines that must construct fills
as part of their mining operations.
The use of nationwide permits to authorize stream impacts from mining activities has been the subject of
significant litigation. Refer to Item 3—Legal Proceedings for more information about certain litigation
pertaining to our permits.
Resource Conservation and Recovery Act. The Resource Conservation and Recovery Act, which we refer to as
RCRA, may affect coal mining operations through its requirements for the management, handling, transportation
and disposal of hazardous wastes. Currently, certain coal mine wastes, such as overburden and coal cleaning wastes,
are exempted from hazardous waste management. In addition, Subtitle C of RCRA exempted fossil fuel combustion
wastes from hazardous waste regulation until the EPA completed a report to Congress and made a determination on
whether the wastes should be regulated as hazardous. In its 1993 regulatory determination, the EPA addressed
some high volume-low toxicity coal combustion products generated at electric utility and independent power
producing facilities, such as coal ash, and left the exemption in place. In May 2000, the EPA concluded that coal
combustion products do not warrant regulation as hazardous waste under RCRA and again retained the hazardous
waste exemption for these wastes. The EPA also determined that national non-hazardous waste regulations under
RCRA Subtitle D are needed for coal combustion products disposed in surface impoundments and landfills and used
as mine-fill. In March of 2007 the Office of Surface Mining and the EPA proposed regulations regarding the
management of coal combustion products. The EPA concluded that beneficial uses of these wastes, other than for
mine-filling, pose no significant risk and no additional national regulations are needed. As long as this exemption
remains in effect, it is not anticipated that regulation of coal combustion waste will have any material effect on the
amount of coal used by electricity generators. A final rule has not been promulgated. Most state hazardous waste
laws also exempt coal combustion products, and instead treat it as either a solid waste or a special waste. Any costs
29
associated with handling or disposal of hazardous wastes would increase our customers’ operating costs and
potentially reduce their ability to purchase coal. In addition, contamination caused by the past disposal of ash can
lead to material liability. In another development regarding coal combustion wastes, the EPA conducted an
assessment of impoundments and other units that manage residuals from coal combustion and that contain free
liquids following a massive coal ash spill in Tennessee in 2008, the EPA contractors conducted site assessments at
many impoundments and is requiring appropriate remedial action at any facility that is found to have a unit posing
a risk for potential failure. The EPA is posting utility responses to the assessment on its web site as the responses
are received. Future regulations resulting from the EPA coal combustion refuse assessments may impact the ability
of the Company’s utility customers to continue to use coal in their power plants.
Comprehensive Environmental Response, Compensation and Liability Act. The Comprehensive Environmental
Response, Compensation and Liability Act, which we refer to as CERCLA, and similar state laws affect coal mining
operations by, among other things, imposing cleanup requirements for threatened or actual releases of hazardous
substances that may endanger public health or welfare or the environment. Under CERCLA and similar state laws,
joint and several liability may be imposed on waste generators, site owners and lessees and others regardless of fault
or the legality of the original disposal activity. Although the EPA excludes most wastes generated by coal mining
and processing operations from the hazardous waste laws, such wastes can, in certain circumstances, constitute
hazardous substances for the purposes of CERCLA. In addition, the disposal, release or spilling of some products
used by coal companies in operations, such as chemicals, could trigger the liability provisions of the statute. Thus,
coal mines that we currently own or have previously owned or operated, and sites to which we sent waste materials,
may be subject to liability under CERCLA and similar state laws. In particular, we may be liable under CERCLA or
similar state laws for the cleanup of hazardous substance contamination at sites where we own surface rights.
Endangered Species. The Endangered Species Act and other related federal and state statutes protect species
threatened or endangered with possible extinction. Protection of threatened, endangered and other special status
species may have the effect of prohibiting or delaying us from obtaining mining permits and may include
restrictions on timber harvesting, road building and other mining or agricultural activities in areas containing the
affected species. A number of species indigenous to our properties are protected under the Endangered Species Act
or other related laws or regulations. Based on the species that have been identified to date and the current
application of applicable laws and regulations, however, we do not believe there are any species protected under the
Endangered Species Act that would materially and adversely affect our ability to mine coal from our properties in
accordance with current mining plans. We have been able to continue our operations within the existing spatial,
temporal and other restrictions associated with special status species. Should more stringent protective measures be
applied to threatened, endangered or other special status species or to their critical habitat, then we could
experience increased operating costs or difficulty in obtaining future mining permits.
Use of Explosives. Our surface mining operations are subject to numerous regulations relating to blasting
activities. Pursuant to these regulations, we incur costs to design and implement blast schedules and to conduct
pre-blast surveys and blast monitoring. In addition, the storage of explosives is subject to strict regulatory
requirements established by four different federal regulatory agencies. For example, pursuant to a rule issued by the
Department of Homeland Security in 2007, facilities in possession of chemicals of interest, including ammonium
nitrate at certain threshold levels, must complete a screening review in order to help determine whether there is a
high level of security risk such that a security vulnerability assessment and site security plan will be required.
Other Environmental Laws. We are required to comply with numerous other federal, state and local
environmental laws in addition to those previously discussed. These additional laws include, for example, the Safe
Drinking Water Act, the Toxic Substance Control Act and the Emergency Planning and Community Right-to-Know
Act.
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Employees
At December 31, 2013, we employed approximately 5,350 full and part-time employees, approximately 177 of
whom are represented by the Scotia Employees Association. We believe that our relations with all employees are
good.
Executive Officers
The following is a list of our executive officers, their ages as of February 28, 2014 and their positions and
offices during the last five years:
Name
Age
Position
Kenneth D. Cochran . . . . .
53 Mr. Cochran has served as our Senior Vice President—Operations since August
2012. From May 2011 to August 2012, Mr. Cochran served as Group President
of our western operations, which included Thunder Basin Coal Company, the
Arch Western Bituminous Group, Arch of Wyoming and the Otter Creek
development, and served as President and General Manager of Thunder Basin
Coal Company from 2005 to April 2011. Prior to joining Arch Coal in 2005,
Mr. Cochran spent 20 years with TXU Corporation. Mr. Cochran currently
serves on the boards of Millennium Bulk Terminals-Longview, LLC, Knight
Hawk Coal Company, and Tongue River Holding Company.
44 Mr. Drexler has served as our Senior Vice President and Chief Financial Officer
since April 2008. Mr. Drexler served as our Vice President—Finance and
Accounting from 2006 to April 2008. From 2005 to 2006, Mr. Drexler served
as our Director of Planning and Forecasting. Prior to 2005, Mr. Drexler held
several other positions within our finance and accounting department.
John T. Drexler . . . . . . . .
John W. Eaves . . . . . . . . .
56 Mr. Eaves currently serves as our President and Chief Executive Officer.
Mr. Eaves served as our President and Chief Operating Officer from 2006 until
he was appointed as Chief Executive Officer in April 2012. From 2002 to
2006, Mr. Eaves served as our Executive Vice President and Chief Operating
Officer. Mr. Eaves is currently a director of Arch Coal, Inc. and the chairman of
the National Coal Council, and also serves on the boards of COALOGIX,
National Mining Association, the Business Roundtable, the American Coalition
for Clean Coal Electricity and the Business Council, and he was previously a
director of Advanced Emissions Solutions, Inc.
Robert G. Jones . . . . . . . .
57 Mr. Jones has served as our Senior Vice President—Law, General Counsel and
Secretary since August 2008. Mr. Jones served as Vice President—Law, General
Counsel and Secretary from 2000 to August 2008.
Paul A. Lang . . . . . . . . . .
53 Mr. Lang has served as our Executive Vice President and Chief Operating
Officer since April 2012 and as our Executive Vice President—Operations from
August 2011 to April 2012. Mr. Lang served as Senior Vice President—
Operations from 2006 through August 2011, as President of Western
Operations from 2005 through 2006 and President and General Manager of
Thunder Basin Coal Company from 1998 to 2005. Effective February 2014
Mr. Lang became a director of Arch Coal, Inc. and has been a director of
Advanced Emissions Solutions, Inc. since August 2013.
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Name
Age
Position
Deck S. Slone . . . . . . . . .
50 Mr. Slone has served as our Senior Vice President—Strategy and Public Policy
since June 2012. Mr. Slone served as our Vice President—Government, Investor
and Public Affairs from August 2008 to June 2012. Mr. Slone served as our
Vice President—Investor Relations and Public Affairs from 2001 to August
2008.
Jeffrey W. Strobel . . . . . . .
51 Mr. Strobel has served as our Vice President of Business Development and
John A. Ziegler, Jr.
. . . . .
Strategy since October, 2011. Prior to joining Arch Coal, Mr. Strobel held the
following positions: Director of Energy Investment Banking for Wells Fargo
Securities, LLC, from 2008 to 2011; Director of Energy Investment Banking for
Wachovia Capital Markets, LLC, from 2007 to 2008; and Director, Vice
President and Associate for A.G. Edwards Capital Markets from 2000 to 2007.
47 Mr. Ziegler has served as our Vice President—Human Resources since April
2012. From October 2011 to April 2012, Mr. Ziegler served as our Senior
Director—Compensation and Benefits. From 2005 to October 2011 Mr. Ziegler
served as Vice President—Contract Administration of Arch Coal Sales Company,
as well as its Senior Vice President of Marketing Administration, Senior Vice
President, and President. Mr. Ziegler joined Arch Coal in 2002 as Director—
Internal Audit. Prior to joining Arch Coal, Mr. Ziegler held various finance and
accounting positions with bioMerieux and Ernst & Young.
Available Information
We file annual, quarterly and current reports, and amendments to those reports, proxy statements and other
information with the Securities and Exchange Commission. You may access and read our filings without charge
through the SEC’s website, at sec.gov. You may also read and copy any document we file at the SEC’s public
reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room.
We also make the documents listed above available without charge through our website, archcoal.com, as soon
as practicable after we file or furnish them with the SEC. You may also request copies of the documents, at no cost,
by telephone at (314) 994-2700 or by mail at Arch Coal, Inc., One CityPlace Drive, Suite 300, St. Louis, Missouri,
63141 Attention: Senior Vice President—Strategy and Public Policy. The information on our website is not part of
this Annual Report on Form 10-K.
GLOSSARY OF SELECTED MINING TERMS
Certain terms that we use in this document are specific to the coal mining industry and may be technical in
nature. The following is a list of selected mining terms and the definitions we attribute to them.
Assigned reserves . . . . . . . Recoverable reserves designated for mining by a specific operation.
Brown coal
. . . . . . . . . . . Coal of gross calorific value of less than 5700 kilocalories per kilogramme (kcal/kg),
which includes lignite and sub-bituminous coal where lignite has a gross calorific
value of less than 4165 kcal/kg and sub-bituminous coal has a gross calorific value
between 4165 kcal/kg and 5700 kcal/kg.
Btu . . . . . . . . . . . . . . . . . A measure of the energy required to raise the temperature of one pound of water one
degree of Fahrenheit.
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Compliance coal . . . . . . . . Coal which, when burned, emits 1.2 pounds or less of sulfur dioxide per million Btus,
requiring no blending or other sulfur dioxide reduction technologies in order to
comply with the requirements of the Clean Air Act.
Continuous miner . . . . . . . A machine used in underground mining to cut coal from the seam and load it onto
conveyors or into shuttle cars in a continuous operation.
Dragline . . . . . . . . . . . . . A large machine used in surface mining to remove the overburden, or layers of earth
and rock, covering a coal seam. The dragline has a large bucket, suspended by cables
from the end of a long boom, which is able to scoop up large amounts of overburden
as it is dragged across the excavation area and redeposit the overburden in another
area.
Hard coal
. . . . . . . . . . . . Coal of gross calorific value greater than 5700 kcal/kg on an ashfree but moist basis
and further disaggregated into anthracite, coking coal and other bituminous coal.
Longwall mining . . . . . . . One of two major underground coal mining methods, generally employing two
rotating drums pulled mechanically back and forth across a long face of coal.
Low-sulfur coal . . . . . . . . . Coal which, when burned, emits 1.6 pounds or less of sulfur dioxide per million Btus.
Preparation plant . . . . . . . A facility used for crushing, sizing and washing coal to remove impurities and to
prepare it for use by a particular customer.
Probable reserves . . . . . . . Reserves for which quantity and grade and/or quality are computed from information
similar to that used for proven reserves, but the sites for inspection, sampling and
measurement are farther apart or are otherwise less adequately spaced.
Proven reserves . . . . . . . . . Reserves for which (a) quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; grade and/or quality are computed from the results
of detailed sampling and (b) the sites for inspection, sampling and measurement are
spaced so closely and the geologic character is so well defined that size, shape, depth
and mineral content of reserves are well established.
Reclamation . . . . . . . . . . . The restoration of land and environmental values to a mining site after the coal is
extracted. The process commonly includes ‘‘recontouring’’ or shaping the land to its
approximate original appearance, restoring topsoil and planting native grass and
ground covers.
Recoverable reserves . . . . . The amount of proven and probable reserves that can actually be recovered from the
reserve base taking into account all mining and preparation losses involved in
producing a saleable product using existing methods and under current law.
Reserves . . . . . . . . . . . . . That part of a mineral deposit which could be economically and legally extracted or
produced at the time of the reserve determination.
Room-and-pillar mining . . One of two major underground coal mining methods, utilizing continuous miners
creating a network of ‘‘rooms’’ within a coal seam, leaving behind ‘‘pillars’’ of coal
used to support the roof of a mine.
Unassigned reserves
. . . . . Recoverable reserves that have not yet been designated for mining by a specific
operation.
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ITEM 1A. RISK FACTORS.
Our business involves certain risks and uncertainties. In addition to the risks and uncertainties described below,
we may face other risks and uncertainties, some of which may be unknown to us and some of which we may deem
immaterial. If one or more of these risks or uncertainties occur, our business, financial condition or results of
operations may be materially and adversely affected.
Risks Related to Our Operations
Coal prices are subject to change and a substantial or extended decline in prices could materially and adversely
affect our profitability and the value of our coal reserves.
Our profitability and the value of our coal reserves depend upon the prices we receive for our coal. The
contract prices we may receive in the future for coal depend upon factors beyond our control, including the
following:
(cid:127) the domestic and foreign supply and demand for coal;
(cid:127) the domestic and foreign demand for electricity and steel;
(cid:127) the quantity and quality of coal available from competitors;
(cid:127) competition for production of electricity from non-coal sources, including the price and availability of
alternative fuels;
(cid:127) domestic and foreign air emission standards for coal-fueled power plants and the ability of coal-fueled power
plants to meet these standards;
(cid:127) adverse weather, climatic or other natural conditions, including unseasonable weather patterns;
(cid:127) domestic and foreign economic conditions, including economic slowdowns;
(cid:127) domestic and foreign legislative, regulatory and judicial developments, environmental regulatory changes or
changes in energy policy and energy conservation measures that would adversely affect the coal industry,
such as legislation limiting carbon emissions or providing for increased funding and incentives for alternative
energy sources;
(cid:127) the proximity to, capacity of and cost of transportation and port facilities; and
(cid:127) market price fluctuations for sulfur dioxide emission allowances.
A substantial or extended decline in the prices we receive for our future coal sales contracts could materially
and adversely affect us by decreasing our profitability and the value of our coal reserves.
Our coal mining operations are subject to operating risks that are beyond our control, which could result in
materially increased operating expenses and decreased production levels and could materially and adversely affect
our profitability.
We mine coal at underground and surface mining operations. Certain factors beyond our control, including
those listed below, could disrupt our coal mining operations, adversely affect production and shipments and increase
our operating costs:
(cid:127) poor mining conditions resulting from geological, hydrologic or other conditions that may cause instability
of highwalls or spoil piles or cause damage to nearby infrastructure or mine personnel;
(cid:127) a major incident at the mine site that causes all or part of the operations of the mine to cease for some
period of time;
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(cid:127) mining, processing and plant equipment failures and unexpected maintenance problems;
(cid:127) adverse weather and natural disasters, such as heavy rains or snow, flooding and other natural events
affecting operations, transportation or customers;
(cid:127) unexpected or accidental surface subsidence from underground mining;
(cid:127) accidental mine water discharges, fires, explosions or similar mining accidents; and
(cid:127) competition and/or conflicts with other natural resource extraction activities and production within our
operating areas, such as coalbed methane extraction or oil and gas development.
If any of these conditions or events occurs, particularly at our Black Thunder mining complex, which
accounted for approximately 72% of the coal volume we sold in 2013, our coal mining operations may be disrupted
and we could experience a delay or halt of production or shipments or our operating costs could increase
significantly. In addition, if our insurance coverage is limited or excludes certain of these conditions or events, then
we may not be able to recover any of the losses we may incur as a result of such conditions or events, some of
which may be substantial.
Competition could put downward pressure on coal prices and, as a result, materially and adversely affect our
revenues and profitability.
We compete with numerous other domestic and foreign coal producers for domestic and international sales.
Overcapacity and increased production within the coal industry, both domestically and internationally, could
materially reduce coal prices and therefore materially reduce our revenues and profitability. In addition, our ability
to ship our coal to international customers depends on port capacity, which is limited. Increased competition within
the coal industry for international sales could result in us not being able to obtain throughput capacity at port
facilities, or the rates for such throughput capacity to increase to a point where it is not economically feasible to
export our coal.
In addition to competing with other coal producers, we compete generally with producers of other fuels, such
as natural gas. A decline in the price of natural gas, or sustained low natural gas prices, could cause demand for
coal to decrease and adversely affect the price of our coal. Sustained periods of low natural gas prices may also cause
utilities to phase out or close existing coal-fired power plants or reduce construction of any new coal-fired power
plants, which could have a material adverse effect on demand and prices for our coal.
Unfavorable economic and market conditions could adversely affect our revenues and profitability.
The recent global economic recession and credit market tightening has had a negative impact on both the coal
industry and on various customers. If any of these conditions persist or worsen, or if there are downturns in
economic conditions, our business, financial condition or results of operations could be adversely affected. During
unfavorable economic conditions we are focused on cost control and capital discipline, but there can be no assurance
that these actions, or any other actions that we may take, will be sufficient to offset any adverse affect these
conditions may have on our business, financial condition or results of operations.
Any change in the coal consumption of electric power generators could result in less demand and lower prices for
coal, which could materially and adversely affect our revenues and results of operations.
Thermal coal accounted for the majority of our coal sales during 2013. The majority of these sales were to
electric power generators. The amount of coal consumed for electric power generation is affected primarily by the
overall demand for electricity, the availability, quality and price of competing fuels for power generation and
governmental regulations. Gas-fueled generation has the potential to displace coal-fueled generation, particularly
from older, less efficient coal-powered generators. We expect that many of the new power plants needed in the
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United States to meet increasing demand for electricity generation will be fueled by natural gas because gas-fired
plants are cheaper to construct and permits to construct these plants are easier to obtain as natural gas is seen as
having a lower environmental impact than coal-fueled generators. In addition, state and federal mandates for
increased use of electricity from renewable energy sources could have an impact on the market for our coal. Several
states have enacted legislative mandates requiring electricity suppliers to use renewable energy sources to generate a
certain percentage of power. There have been numerous proposals to establish a similar uniform, national standard
although none of these proposals have been enacted to date. Possible advances in technologies and incentives, such
as tax credits, to enhance the economics of renewable energy sources could make these sources more competitive
with coal. Any reduction in the amount of coal consumed by electric power generators could reduce the price of
coal that we mine and sell, thereby reducing our revenues and materially and adversely affecting our business and
results of operations.
A decline in demand for metallurgical coal would limit our ability to sell our coal into higher-priced metallurgical
markets and could substantially affect our business.
Portions of our coal reserves possess quality characteristics that enable us to mine, process and market them as
either metallurgical coal or high quality steam coal, depending on the prevailing conditions in the metallurgical and
steam coal markets. We decide whether to mine, process and market these coals as metallurgical or steam coal
based on management’s assessment as to which market is likely to provide us with a higher margin. We consider a
number of factors when making this assessment, including the difference between the current and anticipated future
market prices of steam coal and metallurgical coal and the increased costs incurred in producing coal for sale in the
metallurgical market instead of the steam market. A decline in the metallurgical market relative to the steam
market could cause us, as well as our competitors, to shift coal from the metallurgical market to the steam market,
thereby reducing our revenues and profitability and increasing the availability of coal to customers in the steam
market.
Our inability to acquire additional coal reserves or our inability to develop coal reserves in an economically
feasible manner may adversely affect our business.
Our profitability depends substantially on our ability to mine and process, in a cost-effective manner, coal
reserves that possess the quality characteristics desired by our customers. As we mine, our coal reserves decline. As a
result, our future success depends upon our ability to acquire additional coal that is economically recoverable. If we
fail to acquire or develop additional coal reserves, our existing reserves will eventually be depleted. We may not be
able to obtain replacement reserves when we require them. If available, replacement reserves may not be available
at favorable prices, or we may not be capable of mining those reserves at costs that are comparable with our
existing coal reserves. Our ability to obtain coal reserves in the future could also be limited by the availability of
cash we generate from our operations or available financing, restrictions under our existing or future financing
arrangements, and competition from other coal producers, the lack of suitable acquisition or lease-by-application, or
LBA, opportunities or the inability to acquire coal properties or LBAs on commercially reasonable terms. If we are
unable to acquire replacement reserves, our future production may decrease significantly and our operating results
may be negatively affected. In addition, we may not be able to mine future reserves as profitably as we do at our
current operations.
Inaccuracies in our estimates of our coal reserves could result in decreased profitability from lower than expected
revenues or higher than expected costs.
Our future performance depends on, among other things, the accuracy of our estimates of our proven and
probable coal reserves. We base our estimates of reserves on engineering, economic and geological data assembled,
analyzed and reviewed by internal and third-party engineers and consultants. We update our estimates of the
quantity and quality of proven and probable coal reserves annually to reflect the production of coal from the
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reserves, updated geological models and mining recovery data, the tonnage contained in new lease areas acquired
and estimated costs of production and sales prices. There are numerous factors and assumptions inherent in
estimating the quantities and qualities of, and costs to mine, coal reserves, including many factors beyond our
control, including the following:
(cid:127) quality of the coal;
(cid:127) geological and mining conditions, which may not be fully identified by available exploration data and/or
may differ from our experiences in areas where we currently mine;
(cid:127) the percentage of coal ultimately recoverable;
(cid:127) the assumed effects of regulation, including the issuance of required permits, taxes, including severance and
excise taxes and royalties, and other payments to governmental agencies;
(cid:127) assumptions concerning the timing for the development of the reserves; and
(cid:127) assumptions concerning equipment and productivity, future coal prices, operating costs, including for critical
supplies such as fuel, tires and explosives, capital expenditures and development and reclamation costs.
As a result, estimates of the quantities and qualities of economically recoverable coal attributable to any
particular group of properties, classifications of reserves based on risk of recovery, estimated cost of production, and
estimates of future net cash flows expected from these properties as prepared by different engineers, or by the same
engineers at different times, may vary materially due to changes in the above factors and assumptions. Actual
production recovered from identified reserve areas and properties, and revenues and expenditures associated with our
mining operations, may vary materially from estimates. Any inaccuracy in our estimates related to our reserves
could result in decreased profitability from lower than expected revenues and/or higher than expected costs.
Increases in the costs of mining and other industrial supplies, including steel-based supplies, diesel fuel and rubber
tires, or the inability to obtain a sufficient quantity of those supplies, could negatively affect our operating costs or
disrupt or delay our production.
Our coal mining operations use significant amounts of steel, diesel fuel, explosives, rubber tires and other
mining and industrial supplies. The cost of roof bolts we use in our underground mining operations depend on the
price of scrap steel. We also use significant amounts of diesel fuel and tires for the trucks and other heavy
machinery we use, particularly at our Black Thunder mining complex. If the prices of mining and other industrial
supplies, particularly steel-based supplies, diesel fuel and rubber tires, increase, our operating costs could be
negatively affected. In addition, if we are unable to procure these supplies, our coal mining operations may be
disrupted or we could experience a delay or halt in our production.
Disruptions in the quantities of coal produced by our contract mine operators or purchased from other third parties
could temporarily impair our ability to fill customer orders or increase our operating costs.
We use independent contractors to mine coal at certain of our mining complexes, including select operations in
our Appalachian segment. In addition, we purchase coal from third parties that we sell to our customers.
Operational difficulties at contractor-operated mines or mines operated by third parties from whom we purchase
coal, changes in demand for contract miners from other coal producers and other factors beyond our control could
affect the availability, pricing, and quality of coal produced for or purchased by us. Disruptions in the quantities of
coal produced for or purchased by us could impair our ability to fill our customer orders or require us to purchase
coal from other sources in order to satisfy those orders. If we are unable to fill a customer order or if we are
required to purchase coal from other sources in order to satisfy a customer order, we could lose existing customers
and our operating costs could increase.
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Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates.
Our ability to receive payment for coal sold and delivered depends on the continued creditworthiness of our
customers. If we determine that a customer is not creditworthy, we may not be required to deliver coal under the
customer’s coal sales contract. If this occurs, we may decide to sell the customer’s coal on the spot market, which
may be at prices lower than the contracted price, or we may be unable to sell the coal at all. Furthermore, the
bankruptcy of any of our customers could materially and adversely affect our financial position.
In addition, our customer base may change with deregulation as utilities sell their power plants to their
non-regulated affiliates or third parties that may be less creditworthy, thereby increasing the risk we bear for
customer payment default. Some power plant owners may have credit ratings that are below investment grade, or
may become below investment grade after we enter into contracts with them. In addition, competition with other
coal suppliers could force us to extend credit to customers and on terms that could increase the risk of payment
default. Customers in other countries may also be subject to other pressures and uncertainties that may affect their
ability to pay, including trade barriers, exchange controls and local economic and political conditions.
A defect in title or the loss of a leasehold interest in certain property could limit our ability to mine our coal
reserves or result in significant unanticipated costs.
We conduct a significant part of our coal mining operations on properties that we lease. A title defect or the
loss of a lease could adversely affect our ability to mine the associated coal reserves. We may not verify title to our
leased properties or associated coal reserves until we have committed to developing those properties or coal reserves.
We may not commit to develop property or coal reserves until we have obtained necessary permits and completed
exploration. As such, the title to property that we intend to lease or coal reserves that we intend to mine may
contain defects prohibiting our ability to conduct mining operations. Similarly, our leasehold interests may be
subject to superior property rights of other third parties. In order to conduct our mining operations on properties
where these defects exist, we may incur unanticipated costs. In addition, some leases require us to produce a
minimum quantity of coal and require us to pay minimum production royalties. Our inability to satisfy those
requirements may cause the leasehold interest to terminate.
The availability, reliability and cost-effectiveness of transportation facilities and fluctuations in transportation costs
could affect the demand for our coal or impair our ability to supply coal to our customers.
We depend upon barge, ship, rail, truck and belt transportation systems, as well as seaborne vessels and port
facilities, to deliver coal to our customers. Disruptions in transportation services due to weather-related problems,
mechanical difficulties, strikes, lockouts, bottlenecks, and other events beyond our control could impair our ability
to supply coal to our customers. Since we do not have long-term contracts with all transportation providers we
utilize, decreased performance levels over longer periods of time could cause our customers to look to other sources
for their coal needs. In addition, increases in transportation costs, including the price of gasoline and diesel fuel,
could make coal a less competitive source of energy when compared to alternative fuels or could make coal
produced in one region of the United States less competitive than coal produced in other regions of the United
States or abroad. If we experience disruptions in our transportation services or if transportation costs increase
significantly and we are unable to find alternative transportation providers, our coal mining operations may be
disrupted, we could experience a delay or halt of production or our profitability could decrease significantly.
In addition, a growing portion of our coal sales in recent years has been into export markets, and we are
actively seeking additional international customers. Our ability to maintain and grow our export sales revenue and
margins depends on a number of factors, including the existence of sufficient and cost-effective export terminal
capacity for the shipment of coal to foreign markets. At present, there is limited terminal capacity for the export of
coal into foreign markets. Our access to existing and any future terminal capacity may be adversely affected by
regulatory and permit requirements, environmental and other legal challenges, public perceptions and resulting
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political pressures, operational issues at terminals and competition among domestic coal producers for access to
limited terminal capacity, among other factors. If we are unable to maintain terminal capacity, or are unable to
access additional future terminal capacity for the export of our coal on commercially reasonable terms, or at all, our
results could be materially and adversely affected.
From time to time we enter into ‘‘take-or-pay’’ contracts for rail and port capacity related to our export sales.
These contracts require us to pay for a minimum quantity of coal to be transported on the railway or through the
port regardless of whether we sell and ship any coal. If we fail to acquire sufficient export sales to meet our
minimum obligations under these contracts we are still obligated to make payments to the railway or port facility,
which could have a negative impact on our cash flows, profitability and results of operations.
Our profitability depends upon the long-term coal supply agreements we have with our customers. Changes in
purchasing patterns in the coal industry could make it difficult for us to extend our existing long-term coal supply
agreements or to enter into new agreements in the future.
We sell a portion of our coal under long-term coal supply agreements, which we define as contracts with terms
greater than one year. Under these arrangements, we fix the prices of coal shipped during the initial year and may
adjust the prices in later years. As a result, at any given time the market prices for similar-quality coal may exceed
the prices for coal shipped under these arrangements. Changes in the coal industry may cause some of our
customers not to renew, extend or enter into new long-term coal supply agreements with us or to enter into
agreements to purchase fewer tons of coal than in the past or on different terms or prices. In addition, uncertainty
caused by federal and state regulations, including the Clean Air Act, could deter our customers from entering into
long-term coal supply agreements.
Because we sell a portion of our coal production under long-term coal supply agreements, our ability to
capitalize on more favorable market prices may be limited. Conversely, at any given time we are subject to
fluctuations in market prices for the quantities of coal that we have produced or plan to produce but which we
have not committed to sell. As described above under ‘‘A substantial or extended decline in coal prices could
negatively affect our profitability and the value of our coal reserves,’’ the market prices for coal may be volatile and
may depend upon factors beyond our control. Our profitability may be adversely affected if we are unable to sell
uncommitted production at favorable prices or at all.
Our long-term coal supply agreements typically contain force majeure provisions allowing the parties to
temporarily suspend performance during specified events beyond their control. Most of our long-term coal supply
agreements also contain provisions requiring us to deliver coal that satisfies certain quality specifications, such as
heat value, sulfur content, ash content, hardness and ash fusion temperature. These provisions in our long-term coal
supply agreements could result in negative economic consequences to us, including price adjustments, purchasing
replacement coal in a higher-priced open market, the rejection of deliveries or, in the extreme, contract termination.
Our profitability may be negatively affected if we are unable to seek protection during adverse economic conditions
or if we incur financial or other economic penalties as a result of these provisions of our long-term supply
agreements. For more information about our long-term coal supply agreements, you should see the section entitled
‘‘Long-Term Coal Supply Arrangements.’’
The loss of, or significant reduction in, purchases by our largest customers could adversely affect our profitability.
For the year ended December 31, 2013, we derived approximately 15% of our total coal revenues from sales
to our three largest customers and approximately 35% of our total coal revenues from sales to our ten largest
customers. We are currently discussing the extension of coal sales agreements with some of these customers.
However, we may be unsuccessful in obtaining coal supply agreements with those customers, and some or all of
these customers could discontinue purchasing coal from us. If any of those customers, particularly any of our three
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largest customers, was to significantly reduce the quantities of coal it purchases from us, or if we are unable to sell
coal to those customers on terms as favorable to us, it may have an adverse impact on the results of our business.
Failure to obtain or renew surety bonds on acceptable terms could affect our ability to secure reclamation and coal
lease obligations and, therefore, our ability to mine or lease coal.
Federal and state laws require us to obtain surety bonds or post letters of credit to secure performance or
payment of certain long-term obligations, such as mine closure or reclamation costs, federal and state workers’
compensation costs, coal leases and other obligations. We may have difficulty procuring or maintaining our surety
bonds. Our bond issuers may demand higher fees, additional collateral, including letters of credit or other terms less
favorable to us upon renewal of bonds. Because we are required by state and federal law to have these bonds in
place before mining can commence or continue, our failure to maintain surety bonds, letters of credit or other
guarantees or security arrangements would materially and adversely affect our ability to mine or lease coal. That
failure could result from a variety of factors, including lack of availability, higher expense or unfavorable market
terms, the exercise by third party surety bond issuers of their right to refuse to renew the surety and restrictions on
availability of collateral for current and future third party surety bond issuers under the terms of our financing
arrangements.
We may incur losses as a result of certain marketing, trading and asset optimization strategies.
We seek to optimize our coal production and leverage our knowledge of the coal industry through a variety of
marketing, trading and other asset optimization strategies. We maintain a system of complementary processes and
controls designed to monitor and control our exposure to market and other risks as a consequence of these
strategies. These processes and controls seek to balance our ability to profit from certain marketing, trading and
asset optimization strategies with our exposure to potential losses. While we employ a variety of risk monitoring
and mitigation techniques, those techniques and accompanying judgments cannot anticipate every potential outcome
or the timing of such outcomes. In addition, the processes and controls that we use to manage our exposure to
market and other risks resulting from these strategies involve assumptions about the degrees of correlation or lack
thereof among prices of various assets or other market indicators. These correlations may change significantly in
times of market turbulence or other unforeseen circumstances. As a result, we may experience volatility in our
earnings as a result of our marketing, trading and asset optimization strategies.
Recent international growth in our operations adds new and unique risks to our business.
We have recently opened offices in China, Singapore and the United Kingdom. The international expansion of
our operations increases our exposure to country and currency risks. In addition, our international offices are selling
our coal to new customers and customers in new countries, whose business practices and reputations are not as well
known to us. We are also challenged by political risks by expanding internationally, including the potential for
expropriation of assets and limits on the repatriation of earnings. In the event that we are unable to effectively
manage these new risks, our results of operations, financial position or cash flow could be adversely affected by
these activities.
Risks Related to Our Indebtedness
The amount of indebtedness we have incurred could significantly affect our business.
At December 31, 2013, we had consolidated indebtedness of approximately $5.2 billion. We also have
significant lease and royalty obligations. Our ability to satisfy our debt, lease and royalty obligations, and our ability
to refinance our indebtedness, will depend upon our future operating performance. Our ability to satisfy our
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financial obligations may be adversely affected if we incur additional indebtedness in the future. In addition, the
amount of indebtedness we have incurred could have significant consequences to us, such as:
(cid:127) limiting our ability to obtain additional financing to fund growth, such as new LBA acquisitions or other
mergers and acquisitions, working capital, capital expenditures, debt service requirements or other cash
requirements;
(cid:127) exposing us to the risk of increased interest costs if the underlying interest rates rise;
(cid:127) limiting our ability to invest operating cash flow in our business due to existing debt service requirements;
(cid:127) making it more difficult to obtain surety bonds, letters of credit or other financing, particularly during weak
credit markets;
(cid:127) causing a decline in our credit ratings;
(cid:127) limiting our ability to compete with companies that are not as leveraged and that may be better positioned
to withstand economic downturns;
(cid:127) limiting our ability to acquire new coal reserves and/or plant and equipment needed to conduct operations;
and
(cid:127) limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our
business, the industry in which we compete and general economic and market conditions.
If we further increase our indebtedness, the related risks that we now face, including those described above,
could intensify. In addition to the principal repayments on our outstanding debt, we have other demands on our
cash resources, including capital expenditures and operating expenses. Our ability to pay our debt depends upon our
operating performance. In particular, economic conditions could cause our revenues to decline, and hamper our
ability to repay our indebtedness. If we do not have enough cash to satisfy our debt service obligations, we may be
required to refinance all or part of our debt, sell assets or reduce our spending. We may not be able to, at any
given time, refinance our debt or sell assets on terms acceptable to us or at all.
We may be unable to comply with restrictions imposed by our credit facilities and other financing arrangements.
The agreements governing our outstanding financing arrangements impose a number of restrictions on us. For
example, the terms of our credit facilities, leases and other financing arrangements contain financial and other
covenants that create limitations on our ability to borrow the full amount under our credit facilities, effect
acquisitions or dispositions and incur additional debt and require us to maintain minimum levels of liquidity and
various financial ratios and comply with various other financial covenants. Our ability to comply with these
restrictions may be affected by events beyond our control. A failure to comply with these restrictions could
adversely affect our ability to borrow under our credit facilities or result in an event of default under these
agreements. In the event of a default, our lenders and the counterparties to our other financing arrangements could
terminate their commitments to us and declare all amounts borrowed, together with accrued interest and fees,
immediately due and payable. If this were to occur, we might not be able to pay these amounts, or we might be
forced to seek an amendment to our financing arrangements which could make the terms of these arrangements
more onerous for us. As a result, a default under one or more of our existing or future financing arrangements
could have significant consequences for us. For more information about some of the restrictions contained in our
credit facilities, leases and other financial arrangements, you should see the section entitled ‘‘Liquidity and Capital
Resources.’’
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Risks Related to Environmental, Other Regulations and Legislation
Extensive environmental regulations, including existing and potential future regulatory requirements relating to
air emissions, affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and
sales of our coal to materially decline.
Coal contains impurities, including but not limited to sulfur, mercury, chlorine and other elements or
compounds, many of which are released into the air when coal is burned. The operations of our customers are
subject to extensive environmental regulation particularly with respect to air emissions. For example, the federal
Clean Air Act and similar state and local laws extensively regulate the amount of sulfur dioxide, particulate matter,
nitrogen oxides, and other compounds emitted into the air from electric power plants, which are the largest
end-users of our coal. A series of more stringent requirements relating to particulate matter, ozone, haze, mercury,
sulfur dioxide, nitrogen oxide and other air pollutants are expected to be proposed or become effective in coming
years. In addition, concerted conservation efforts that result in reduced electricity consumption could cause coal
prices and sales of our coal to materially decline.
Considerable uncertainty is associated with these air emissions initiatives. The content of regulatory
requirements in the United States is in the process of being developed, and many new regulatory initiatives remain
subject to review by federal or state agencies or the courts. Stringent air emissions limitations are either in place or
are likely to be imposed in the short to medium term, and these limitations will likely require significant emissions
control expenditures for many coal-fueled power plants. As a result, these power plants may switch to other fuels
that generate fewer of these emissions or may install more effective pollution control equipment that reduces the
need for low sulfur coal, possibly reducing future demand for coal and a reduced need to construct new coal-fueled
power plants. The EIA’s expectations for the coal industry assume there will be a significant number of as yet
unplanned coal-fired plants built in the future which may not occur. Any switching of fuel sources away from coal,
closure of existing coal-fired plants, or reduced construction of new plants could have a material adverse effect on
demand for and prices received for our coal. Alternatively, less stringent air emissions limitations, particularly related
to sulfur, to the extent enacted could make low sulfur coal less attractive, which could also have a material adverse
effect on the demand for and prices received for our coal.
You should see ‘‘Environmental and Other Regulatory Matters’’ for more information about the various
governmental regulations affecting us.
Our failure to obtain and renew permits necessary for our mining operations could negatively affect our business.
Mining companies must obtain numerous permits that impose strict regulations on various environmental and
operational matters in connection with coal mining. These include permits issued by various federal, state and local
agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change
frequently and are often subject to discretionary interpretations by the regulators, all of which may make
compliance more difficult or impractical, and may possibly preclude the continuance of ongoing operations or the
development of future mining operations. The public, including non-governmental organizations, anti-mining
groups and individuals, have certain statutory rights to comment upon and submit objections to requested permits
and environmental impact statements prepared in connection with applicable regulatory processes, and otherwise
engage in the permitting process, including bringing citizens’ lawsuits to challenge the issuance of permits, the
validity of environmental impact statements or performance of mining activities. Accordingly, required permits may
not be issued or renewed in a timely fashion or at all, or permits issued or renewed may be conditioned in a
manner that may restrict our ability to efficiently and economically conduct our mining activities, any of which
would materially reduce our production, cash flow and profitability.
42
Federal or state regulatory agencies have the authority to order certain of our mines to be temporarily or
permanently closed under certain circumstances, which could materially and adversely affect our ability to meet
our customers’ demands.
Federal or state regulatory agencies have the authority under certain circumstances following significant health
and safety incidents, such as fatalities, to order a mine to be temporarily or permanently closed. If this occurred, we
may be required to incur capital expenditures to re-open the mine. In the event that these agencies order the
closing of our mines, our coal sales contracts generally permit us to issue force majeure notices which suspend our
obligations to deliver coal under these contracts. However, our customers may challenge our issuances of force
majeure notices. If these challenges are successful, we may have to purchase coal from third-party sources, if it is
available, to fulfill these obligations, incur capital expenditures to re-open the mines and/or negotiate settlements
with the customers, which may include price reductions, the reduction of commitments or the extension of time for
delivery or terminate customers’ contracts. Any of these actions could have a material adverse effect on our business
and results of operations.
Extensive environmental regulations impose significant costs on our mining operations, and future regulations
could materially increase those costs or limit our ability to produce and sell coal.
The coal mining industry is subject to increasingly strict regulation by federal, state and local authorities with
respect to environmental matters such as:
(cid:127) limitations on land use;
(cid:127) mine permitting and licensing requirements;
(cid:127) reclamation and restoration of mining properties after mining is completed;
(cid:127) management of materials generated by mining operations;
(cid:127) the storage, treatment and disposal of wastes;
(cid:127) remediation of contaminated soil and groundwater;
(cid:127) air quality standards;
(cid:127) water pollution;
(cid:127) protection of human health, plant-life and wildlife, including endangered or threatened species;
(cid:127) protection of wetlands;
(cid:127) the discharge of materials into the environment;
(cid:127) the effects of mining on surface water and groundwater quality and availability; and
(cid:127) the management of electrical equipment containing polychlorinated biphenyls.
The costs, liabilities and requirements associated with the laws and regulations related to these and other
environmental matters may be costly and time-consuming and may delay commencement or continuation of
exploration or production operations. We cannot assure you that we have been or will be at all times in compliance
with the applicable laws and regulations. Failure to comply with these laws and regulations may result in the
assessment of administrative, civil and criminal penalties, the imposition of cleanup and site restoration costs and
liens, the issuance of injunctions to limit or cease operations, the suspension or revocation of permits and other
enforcement measures that could have the effect of limiting production from our operations. We may incur material
costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations.
If we are pursued for sanctions, costs and liabilities in respect of these matters, our mining operations and, as a
result, our profitability could be materially and adversely affected.
43
New legislation or administrative regulations or new judicial interpretations or administrative enforcement of
existing laws and regulations, including proposals related to the protection of the environment that would further
regulate and tax the coal industry, may also require us to change operations significantly or incur increased costs.
Such changes could have a material adverse effect on our financial condition and results of operations. You should
see the section entitled ‘‘Environmental and Other Regulatory Matters’’ for more information about the various
governmental regulations affecting us.
If the assumptions underlying our estimates of reclamation and mine closure obligations are inaccurate, our costs
could be greater than anticipated.
SMCRA and counterpart state laws and regulations establish operational, reclamation and closure standards for
all aspects of surface mining, as well as most aspects of underground mining. We base our estimates of reclamation
and mine closure liabilities on permit requirements, engineering studies and our engineering expertise related to
these requirements. Our management and engineers periodically review these estimates. The estimates can change
significantly if actual costs vary from our original assumptions or if governmental regulations change significantly.
We are required to record new obligations as liabilities at fair value under generally accepted accounting principles.
In estimating fair value, we considered the estimated current costs of reclamation and mine closure and applied
inflation rates and a third-party profit, as required. The third-party profit is an estimate of the approximate markup
that would be charged by contractors for work performed on our behalf. The resulting estimated reclamation and
mine closure obligations could change significantly if actual amounts change significantly from our assumptions,
which could have a material adverse effect on our results of operations and financial condition.
Our operations may impact the environment or cause exposure to hazardous substances, and our properties may
have environmental contamination, which could result in material liabilities to us.
Our operations currently use hazardous materials and generate limited quantities of hazardous wastes from
time to time. We could become subject to claims for toxic torts, natural resource damages and other damages as
well as for the investigation and cleanup of soil, surface water, groundwater, and other media. Such claims may
arise, for example, out of conditions at sites that we currently own or operate, as well as at sites that we previously
owned or operated, or may acquire. Our liability for such claims may be joint and several, so that we may be held
responsible for more than our share of the contamination or other damages, or even for the entire share.
We maintain extensive coal refuse areas and slurry impoundments at a number of our mining complexes. Such
areas and impoundments are subject to extensive regulation. Slurry impoundments can fail, which could release
large volumes of coal slurry into the surrounding environment. Structural failure of an impoundment can result in
extensive damage to the environment and natural resources, such as bodies of water that the coal slurry reaches, as
well as liability for related personal injuries and property damages, and injuries to wildlife. Some of our
impoundments overlie mined out areas, which can pose a heightened risk of failure and of damages arising out of
failure. If one of our impoundments were to fail, we could be subject to substantial claims for the resulting
environmental contamination and associated liability, as well as for fines and penalties.
Drainage flowing from or caused by mining activities can be acidic with elevated levels of dissolved metals, a
condition referred to as ‘‘acid mine drainage,’’ which we refer to as AMD. The treating of AMD can be costly.
Although we do not currently face material costs associated with AMD, it is possible that we could incur significant
costs in the future.
These and other similar unforeseen impacts that our operations may have on the environment, as well as
exposures to hazardous substances or wastes associated with our operations, could result in costs and liabilities that
could materially and adversely affect us.
44
Judicial rulings that restrict how we may dispose of mining wastes could significantly increase our operating costs,
discourage customers from purchasing our coal and materially harm our financial condition and operating results.
To dispose of mining overburden generated by our surface mining operations, we often need to obtain permits
to construct and operate valley fills and surface impoundments. Some of these permits are Clean Water Act § 404
permits issued by the Army Corps of Engineers. Two of our operating subsidiaries were identified in an existing
lawsuit, which challenged the issuance of such permits and asked that the Corps be ordered to rescind them. Two of
our operating subsidiaries intervened in the suit to protect their interests in being allowed to operate under the
issued permits, and one of them thereafter was dismissed. On February 13, 2009, the U.S. Court of Appeals for the
Fourth Circuit ruled on appeals from decisions rendered prior to our intervention, which may have a favorable
impact on our permits. The matter is pending before the U.S. District Court for the Southern District of West
Virginia on Mingo Logan’s motion for summary judgment. If the matter is resolved ultimately in a manner that is
adverse to the interests of our operating subsidiaries, their operating results may be adversely impacted.
Changes in the legal and regulatory environment could complicate or limit our business activities, increase our
operating costs or result in litigation.
The conduct of our businesses is subject to various laws and regulations administered by federal, state and
local governmental agencies in the United States. These laws and regulations may change, sometimes dramatically,
as a result of political, economic or social events or in response to significant events. Certain recent developments
particularly may cause changes in the legal and regulatory environment in which we operate and may impact our
results or increase our costs or liabilities. Such legal and regulatory environment changes may include changes in:
the processes for obtaining or renewing permits; costs associated with providing healthcare benefits to employees;
health and safety standards; accounting standards; taxation requirements; and competition laws.
For example, in April 2010, the EPA issued comprehensive guidance regarding the water quality standards
that EPA believes should apply to certain new and renewed Clean Water Act permit applications for Appalachian
surface coal mining operations. Under the EPA’s guidance, applicants seeking to obtain state and federal Clean
Water Act permits for surface coal mining in Appalachia must perform an evaluation to determine if a reasonable
potential exists that the proposed mining would cause a violation of water quality standards. According to the EPA
Administrator, the water quality standards set forth in the EPA’s guidance may be difficult for most surface mining
operations to meet. Additionally, the EPA’s guidance contains requirements for the avoidance and minimization of
environmental and mining impacts, consideration of the full range of potential impacts on the environment, human
health and local communities, including low-income or minority populations, and provision of meaningful
opportunities for public participation in the permit process. The EPA’s guidance is subject to several pending legal
challenges related to its legal effect and sufficiency including consolidated challenges pending in the United States
Court of Appeals for the District of Columbia Circuit led by the National Mining Association. We may be required
to meet these requirements in the future in order to obtain and maintain permits that are important to our
Appalachian operations. We cannot give any assurance that we will be able to meet these or any other new
standards.
In response to the April 2010 explosion at Massey Energy Company’s Upper Big Branch Mine and the
ensuing tragedy, we expect that safety matters pertaining to underground coal mining operations will continue to
be the topic of new legislation and regulation, as well as the subject of heightened enforcement efforts. For
example, federal and West Virginia state authorities have announced special inspections of coal mines to evaluate
several safety concerns, including the accumulation of coal dust and the proper ventilation of gases such as methane.
In addition, both federal and West Virginia state authorities have announced that they are considering changes to
mine safety rules and regulations which could potentially result in additional or enhanced required safety
equipment, more frequent mine inspections, stricter and more thorough enforcement practices and enhanced
reporting requirements. Any new environmental, health and safety requirements may increase the costs associated
with obtaining or maintain permits necessary to perform our mining operations or otherwise may prevent, delay or
reduce our planned production, any of which could adversely affect our financial condition, results of operations and
cash flows.
45
Further, mining companies are entitled a tax deduction for percentage depletion, which may allow for
depletion deductions in excess of the basis in the mineral reserves. The deduction is currently being reviewed by the
federal government for repeal. If repealed, the inability to take a tax deduction for percentage depletion could have
a material impact on our financial condition, results of operations, cash flows and future tax payments.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Our Properties
General
At December 31, 2013, we owned or controlled, primarily through long-term leases, approximately 32,135
acres of coal land in Ohio, 22,417 acres of coal land in Maryland, 46,532 acres of coal land in Virginia, 425,038
acres of coal land in West Virginia, 107,668 acres of coal land in Wyoming, 267,024 acres of coal land in Illinois,
242,773 acres of coal land in Kentucky, 19,428 acres of coal land in Montana, 21,802 acres of coal land in New
Mexico, and 20,166 acres of coal land in Colorado. In addition, we also owned or controlled through long-term
leases smaller parcels of property in Alabama, Indiana, Washington, Arkansas, California, Utah and Texas. We lease
approximately 88,045 acres of our coal land from the federal government and approximately 24,957 acres of our
coal land from various state governments. Certain of our preparation plants or loadout facilities are located on
properties held under leases which expire at varying dates over the next 30 years. Most of the leases contain options
to renew. Our remaining preparation plants and loadout facilities are located on property owned by us or for which
we have a special use permit.
Our executive headquarters occupy leased office space at One CityPlace Drive, in St. Louis, Missouri. Our
subsidiaries currently own or lease the equipment utilized in their mining operations. You should see ‘‘Our Mining
Operations’’ for more information about our mining operations, mining complexes and transportation facilities.
Our Coal Reserves
We estimate that we owned or controlled approximately 5.3 billion tons of proven and probable recoverable
reserves at December 31, 2013. Our coal reserve estimates at December 31, 2013 were prepared by our engineers
and geologists and reviewed by Weir International, Inc., a mining and geological consultant. Our coal reserve
estimates are based on data obtained from our drilling activities and other available geologic data. Our coal reserve
estimates are periodically updated to reflect past coal production and other geologic and mining data. Acquisitions
or sales of coal properties will also change these estimates. Changes in mining methods or the utilization of new
technologies may increase or decrease the recovery basis for a coal seam.
Our coal reserve estimates include reserves that can be economically and legally extracted or produced at the
time of their determination. In determining whether our reserves meet this standard, we take into account, among
other things, our potential inability to obtain a mining permit, the possible necessity of revising a mining plan,
changes in estimated future costs, changes in future cash flows caused by changes in costs required to be incurred
to meet regulatory requirements and obtaining mining permits, variations in quantity and quality of coal, and
varying levels of demand and their effects on selling prices. We use various assumptions in preparing our estimates
of our coal reserves. You should see ‘‘Inaccuracies in our estimates of our coal reserves could result in decreased
profitability from lower than expected revenues or higher than expected costs’’ contained under the heading ‘‘Risk
Factors.’’
46
The following tables present our estimated assigned and unassigned recoverable coal reserves at December 31,
2013:
Total Assigned Reserves
(Tons in millions)
Total
Assigned
Recoverable
Reserves
Wyoming . . . . . .
Montana . . . . . . .
Utah . . . . . . . . .
Colorado . . . . . . .
. . . .
Central App.
Northern App.
. .
. . . . . . . .
Illinois
Total
. . . . . . . . .
1,526
—
—
84
169
58
21
1,858
Sulfur Content
(lbs. per million Btus)
Reserve
Control
Mining Method
Proven Probable <1.2
Under-
1.2 - 2.5 >2.5 Btus per lb.(1) Leased Owned Surface ground
As Received
Past Reserve
Estimates
2011
2012
1,497
29
— —
— —
15
69
14
155
11
47
8
13
1,448
78 —
— — —
— — —
84 — —
120 —
49
— 41
17
— — 21
8,869
—
—
11,335
12,920
12,928
10,797
1,526 — 1,526 — 1,474 1,636
—
74
80
213
231
18
— —
— —
84 —
6
163
35
23
2
19
— —
— —
— 84
91
78
54
4
— 21
79
88
308
238
30
1,781
77
1,581
239
38
9,497
1,815
43
1,608
250
2,217 2,252
(1) As received Btus per lb. includes the weight of moisture in the coal on an as sold basis.
Total Unassigned Reserves
(Tons in millions)
Sulfur Content
(lbs. per million Btus)
Total
Unassigned
Recoverable
Reserves
Proven Probable <1.2
1.2 - 2.5 >2.5 Btus per lb.(1) Leased Owned Surface
As Received
Reserve Control
Mining Method
Under-
ground
175
—
—
26
353
374
694
Wyoming . . . . . . . . . . . .
480
397
Montana . . . . . . . . . . . . .
Utah . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . .
Central App. . . . . . . . . . .
Northern App.
. . . . . . . .
Illinois . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . .
1,387
—
26
446
385
696
3,420
1,129
—
18
297
199
345
83
258
—
8
149
186
351
428
52
—
9,653
370
110
305
1,387 —
— —
26 —
226
128
273
3
51
1
8,603
—
—
—
— 11,024
12,966
92
12,914
109
10,971
644
1,387
—
26
367
62
82
— 1,387
—
—
—
—
93
79
11
323
2
614
2,385
1,035
1,973
602
845
10,305
2,294 1,126 1,798
1,622
(1) As received Btus per lb. includes the weight of moisture in the coal on an as sold basis.
Federal and state legislation controlling air pollution affects the demand for certain types of coal by limiting
the amount of sulfur dioxide which may be emitted as a result of fuel combustion and encourages a greater demand
for low-sulfur coal. All of our identified coal reserves have been subject to preliminary coal seam analysis to test
sulfur content. Of these reserves, approximately 67% consist of compliance coal, or coal which emits 1.2 pounds or
less of sulfur dioxide per million Btus upon combustion, while an additional approximately 6% could be sold as
low-sulfur coal. The balance is classified as high-sulfur coal. Most of our reserves are suitable for the domestic steam
coal markets. A substantial portion of the low-sulfur and compliance coal reserves at a number of our Appalachian
mining complexes may also be used as metallurgical coal.
The carrying cost of our coal reserves at December 31, 2013 was $4.9 billion, consisting of $95.7 million of
prepaid royalties and a net book value of coal lands and mineral rights of $4.8 billion.
47
Reserve Acquisition Process
We acquire a significant portion of the coal we control in the western United States through the
lease-by-application (LBA) process. Under this process, before a mining company can obtain new coal reserves, the
coal tract must be nominated for lease, and the company must win the lease through a competitive bidding process.
The LBA process can last anywhere from two to five years from the time the coal tract is nominated to the time a
final bid is accepted by the BLM. After the LBA is awarded, the company then conducts the necessary testing to
determine what amount can be classified as reserves.
To initiate the LBA process, companies wanting to acquire additional coal must file an application with the
BLM’s state office indicating interest in a specific coal tract. The BLM reviews the initial application to determine
whether the application conforms to existing land-use plans for that particular tract of land and that the application
would provide for maximum coal recovery. The application is further reviewed by a regional coal team at a public
meeting. Based on a review of the available information and public comment, the regional coal team will make a
recommendation to the BLM whether to continue, modify or reject the application.
If the BLM determines to continue the application, the company that submitted the application will pay for a
BLM-directed environmental analysis or an environmental impact statement to be completed. This analysis or
impact statement is subject to publication and public comment. The BLM may consult with other governmental
agencies during this process, including state and federal agencies, surface management agencies, Native American
tribes or bands, the U.S. Department of Justice or others as needed. The public comment period for an analysis or
impact statement typically occurs over a 60-day period.
After the environmental analysis or environmental impact statement has been issued and a recommendation
has been published that supports the lease sale of the LBA tract, the BLM schedules a public competitive lease sale.
The BLM prepares an internal estimate of the fair market value of the coal that is based on its economic analysis
and comparable sales analysis. Prior to the lease sale, companies interested in acquiring the lease must send sealed
bids to the BLM. The bid amounts for the lease are payable in five annual installments, with the first 20%
installment due when the mining operator submits its initial bid for an LBA. Before the lease is approved by the
BLM, the company must first furnish to the BLM an initial rental payment for the first year of rent along with
either a bond for the next 20% annual installment payment for the bid amount, or an application for history of
timely payment, in which case the BLM may waive the bond requirement if the company successfully meets all the
qualifications of a timely payor. The bids are opened at the lease sale. If the BLM decides to grant a lease, the lease
is awarded to the company that submitted the highest total bid meeting or exceeding the BLM’s fair market value
estimate, which is not published. The BLM, however, is not required to grant a lease even if it determines that a
bid meeting or exceeding the fair market value of the coal has been submitted. The winning bidder must also
submit a report setting forth the nature and extent of its coal holdings to the U.S. Department of Justice for a
30-day antitrust review of the lease. If the successful bidder was not the initial applicant, the BLM will refund the
initial applicant certain fees it paid in connection with the application process, for example the fees associated with
the environmental analysis or environmental impact statement, and the winning bidder will bear those costs. Coal
won through the LBA process and subject to federal leases are administered by the U.S. Department of Interior
under the Federal Coal Leasing Amendment Act of 1976. In addition, we occasionally add small coal tracts adjacent
to our existing LBAs through an agreed upon lease modification with the BLM. Once the BLM has issued a lease,
the company must also complete the permitting process before it can mine the coal. You should see the section
entitled ‘‘Environmental and Other Regulatory Matters.’’
Most of our federal coal leases have an initial term of 20 years and are renewable for subsequent 10-year
periods and for so long thereafter as coal is produced in commercial quantities. These leases require diligent
development within the first ten years of the lease award with a required coal extraction of 1.0% of the total coal
under the lease by the end of that 10-year period. At the end of the 10-year development period, the lessee is
required to maintain continuous operations, as defined in the applicable leasing regulations. In certain cases a lessee
48
may combine contiguous leases into a logical mining unit, which we refer to as an LMU. This allows the production
of coal from any of the leases within the LMU to be used to meet the continuous operation requirements for the
entire LMU. Some of our mines are also subject to coal leases with applicable state regulatory agencies and have
different terms and conditions that we must adhere to in a similar way to our federal leases. Under these federal
and state leases, if the leased coal is not diligently developed during the initial 10-year development period or if
certain other terms of the leases are not complied with, including the requirement to produce a minimum quantity
of coal or pay a minimum production royalty, if applicable, the BLM or the applicable state regulatory agency can
terminate the lease prior to the expiration of its term.
Title to Coal Property
Title to coal properties held by lessors or grantors to us and our subsidiaries and the boundaries of properties
are normally verified at the time of leasing or acquisition. However, in cases involving less significant properties and
consistent with industry practices, title and boundaries are not completely verified until such time as our
independent operating subsidiaries prepare to mine such reserves. If defects in title or boundaries of undeveloped
reserves are discovered in the future, control of and the right to mine such reserves could be adversely affected. You
should see ‘‘A defect in title or the loss of a leasehold interest in certain property could limit our ability to mine
our coal reserves or result in significant unanticipated costs’’ contained under the heading ‘‘Risk Factors’’ for more
information.
At December 31, 2013, approximately 22% of our coal reserves were held in fee, with the balance controlled
by leases, most of which do not expire until the exhaustion of mineable and merchantable coal. Under current
mining plans, substantially all reported leased reserves will be mined out within the period of existing leases or
within the time period of assured lease renewals. Royalties are paid to lessors either as a fixed price per ton or as a
percentage of the gross sales price of the mined coal. The majority of the significant leases are on a percentage
royalty basis. In some cases, a payment is required, payable either at the time of execution of the lease or in annual
installments. In most cases, the prepaid royalty amount is applied to reduce future production royalties.
From time to time, lessors or sublessors of land leased by our subsidiaries have sought to terminate such leases
on the basis that such subsidiaries have failed to comply with the financial terms of the leases or that the mining
and related operations conducted by such subsidiaries are not authorized by the leases. Some of these allegations
relate to leases upon which we conduct operations material to our consolidated financial position, results of
operations and liquidity, but we do not believe any pending claims by such lessors or sublessors have merit or will
result in the termination of any material lease or sublease.
We leased approximately 38,184 acres of property to other coal operators in 2013. We received royalty income
of $9.5 million in 2013 from the mining of approximately 2.8 million tons, $10.0 million in 2012 from the mining
of approximately 3.1 million tons and $8.2 million in 2011 from the mining of approximately 2.9 million tons on
those properties. We have included reserves at properties leased by us to other coal operators in the reserve figures
set forth in this report.
ITEM 3. LEGAL PROCEEDINGS.
In addition to the following matters, we are involved in various claims and legal actions arising in the ordinary
course of business, including employee injury claims. 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 our consolidated financial condition, results of operations or liquidity.
Permit Litigation Matters
Surface mines at our Mingo Logan and Coal-Mac mining operations were identified in an existing lawsuit
brought by the Ohio Valley Environmental Coalition (OVEC) in the U.S. District Court for the Southern District of
49
West Virginia as having been granted Clean Water Act § 404 permits by the Army Corps of Engineers (Corps),
allegedly in violation of the Clean Water Act and the National Environmental Policy Act. The lawsuit, brought by
OVEC in September 2005, originally was filed against the Corps for permits it had issued to four subsidiaries of a
company unrelated to us or our operating subsidiaries. The suit claimed that the Corps had issued permits to the
subsidiaries of the unrelated company that did not comply with the National Environmental Policy Act and violated
the Clean Water Act.
The court ruled on the claims associated with those four permits in orders of March 23 and June 13, 2007. In
the first of those orders, the court rescinded the four permits, finding that the Corps had inadequately assessed the
likely impact of valley fills on headwater streams and had relied on inadequate or unproven mitigation to offset
those impacts. In the second order, the court entered a declaratory judgment that discharges of sediment from the
valley fills into sediment control ponds constructed in-stream to control that sediment must themselves be
permitted under a different provision of the Clean Water Act, § 402, and meet the effluent limits imposed on
discharges from these ponds. Both of the district court rulings were appealed to the U.S. Court of Appeals for the
Fourth Circuit.
Before the court entered its first order, the plaintiffs were permitted to amend their complaint to challenge the
Coal-Mac and Mingo Logan permits. Plaintiffs sought preliminary injunctions against both operations, but later
reached agreements with our operating subsidiaries that have allowed mining to progress in limited areas while the
district court’s rulings were on appeal. The claims against Coal-Mac were thereafter dismissed.
In February 2009, the Fourth Circuit reversed the District Court. The Fourth Circuit held that the Corps’
jurisdiction under Section 404 of the Clean Water Act is limited to the narrow issue of the filling of jurisdictional
waters. The court also held that the Corps’ findings of no significant impact under the National Environmental
Policy Act and no significant degradation under the Clean Water Act are entitled to deference. Such findings entitle
the Corps to avoid preparing an environmental impact statement, the absence of which was one issue on appeal.
These holdings also validated the type of mitigation projects proposed by our operations to minimize impacts and
comply with the relevant statutes. Finally, the Fourth Circuit found that stream segments, together with the
sediment ponds to which they connect, are unitary ‘‘waste treatment systems,’’ not ‘‘waters of the United States,’’
and that the Corps had not exceeded its authority in permitting them.
OVEC sought rehearing before the entire appellate court, which was denied in May 2009, and the decision
was given legal effect in June 2009. An appeal to the U.S. Supreme Court was then filed in August 2009. On
August 3, 2010 OVEC withdrew its appeal.
Mingo Logan filed a motion for summary judgment with the district court in July 2009, asking that judgment
be entered in its favor because no outstanding legal issues remained for decision as a result of the Fourth Circuit’s
February 2009 decision. By a series of motions, the United States obtained extensions and stays of the obligation to
respond to the motion in the wake of its letters to the Corps dated September 3 and October 16, 2009 (discussed
below). By order dated April 22, 2010, the District Court stayed the case as to Mingo Logan for the shorter of
either six months or the completion of the U.S. Environmental Protection Agency’s (EPA) proposed action to deny
Mingo Logan the right to use its Corps’ permit (as discussed below).
On October 15, 2010, the United States moved to extend the existing stay for an additional 120 days (until
February 22, 2011) while the EPA Administrator reviewed the ‘‘Recommended Determination’’ issued by the EPA
Region 3. By Memorandum Opinion and Order dated November 2, 2010, the court granted the United States’
motion. On January 13, 2011, the EPA issued its ‘‘Final Determination’’ to withdraw the specification of two of the
three watersheds as a disposal site for dredged or fill material approved under the current Section 404 permit. The
court was notified of the Final Determination and by order dated March 21, 2011 stayed further proceedings in the
case until further order of the court, in light of the challenge to the EPA’s ‘‘Final Determination’’ then pending in
federal court in Washington, DC. In a Memorandum and Opinion and separate Order, each dated March 23, 2012,
50
the federal court granted Mingo Logan’s motion for summary judgment, vacated EPA’s Final Determination and
found valid and in full force Mingo Logan’s Section 404 permit. As described more fully below, EPA appealed that
order to the United States Court of Appeals for the DC circuit and by Opinion of the Court dated April 23, 2013,
the court reversed the lower court’s order and remanded the matter to the district court for further proceedings.
On April 5, 2012, Mingo Logan moved to lift the stay referenced above. On June 5, 2012, the Court entered
an order lifting the stay and allowing the case to proceed on Mingo Logan’s Motion for Summary Judgment.
Shortly thereafter, OVEC filed a motion for leave to file a seventh amended and supplemental complaint seeking to
update existing counts and raising two new claims (one, to enforce EPA’s ‘‘Final Determination’’ and, the other,
that the Corps’ refusal to prepare a Supplemental Environmental Impact Statement violates the APA and NEPA).
By Memorandum, Opinion and Order dated July 25, 2012, the Court granted OVEC’s motion and directed the
Clerk to file OVEC’s Seventh Amended and Supplemental Complaint. Mingo Logan filed its Motion for Summary
Judgment on August 31, 2012, along with its Answer to the Seventh Amended and Supplemental Complaint and
the matter remains pending before the Court.
EPA Actions Related to Water Discharges from the Spruce Permit
By letter of September 3, 2009, the EPA asked the Corps of Engineers to suspend, revoke or modify the
existing permit it issued in January 2007 to Mingo Logan under Section 404 of the Clean Water Act, claiming that
‘‘new information and circumstances have arisen which justify reconsideration of the permit.’’ By letter of
September 30, 2009, the Corps of Engineers advised the EPA that it would not reconsider its decision to issue the
permit. By letter of October 16, 2009, the EPA advised the Corps that it has ‘‘reason to believe’’ that the Mingo
Logan mine will have ‘‘unacceptable adverse impacts to fish and wildlife resources’’ and that it intends to issue a
public notice of a proposed determination to restrict or prohibit discharges of fill material that already are approved
by the Corps’ permit. By federal register publication dated April 2, 2010, the EPA issued its ‘‘Proposed
Determination to Prohibit, Restrict or Deny the Specification, or the Use for Specification of an Area as a Disposal
Site: Spruce No. 1 Surface Mine, Logan County, WV’’ pursuant to Section 404(c) of the Clean Water Act, the EPA
accepted written comments on its proposed action (sometimes known as a ‘‘veto proceeding’’), through June 4,
2010 and conducted a public hearing, as well, on May 18, 2010. We submitted comments on the action during
this period. On September 24, 2010, the EPA Region 3 issued a ‘‘Recommended Determination’’ to the EPA
Administrator recommending that the EPA prohibit the placement of fill material in two of the three watersheds for
which filling is approved under the current Section 404 permit. Mingo Logan, along with the Corps, West Virginia
DEP and the mineral owner, engaged in a consultation with the EPA as required by the regulations, to discuss
‘‘corrective action’’ to address the ‘‘unacceptable adverse effects’’ identified. On January 13, 2011, the EPA issued its
‘‘Final Determination’’ pursuant to Section 404(c) of the Clean Water Act to withdraw the specification of two of
the three watersheds approved in the current Section 404 permit as a disposal site for dredged or fill material. By
separate action, Mingo Logan sued the EPA on April 2, 2010 in federal court in Washington, D.C. seeking a ruling
that the EPA has no authority under the Clean Water Act to veto a previously issued permit (Mingo Logan Coal
Company, Inc. v. USEPA, No. 1:10-cv-00541(D.D.C.)). The EPA moved to dismiss that action, and we responded
to that motion.
Pursuant to a scheduling order for summary disposition of the case, motions and cross-motions for summary
judgment by both parties were filed. On November 30, 2011, the court heard arguments from the parties limited
only to the threshold issue of whether the EPA had the authority under Section 404(c) of the Clean Water Act to
withdraw the specification of the disposal site after the Corps had already issued a permit under Section 404(a). The
court deferred consideration of the remaining issue (i.e. whether the EPA’s ‘‘Final Determination’’ is otherwise
lawful) until after consideration of the threshold issue. On March 23, 2012, the court entered an Order and a
Memorandum Opinion granting Mingo Logan’s motion for summary judgment, denying the EPA’s cross-motion for
summary judgment, vacating the Final Determination and ordering that Mingo Logan’s Section 404 permit remains
valid and in full force.
51
On May 11, 2012, the EPA filed a notice of appeal to the United States Court of Appeals for the District of
Columbia Circuit. The court heard oral arguments on March 14, 2013. By opinion of the court filed on April 23,
2013, the court reversed the district court on the threshold issue and remanded the matter to the district court to
address the merits of our APA challenge to the Final Determination. On June 6, 2013, Mingo Logan filed a
Petition for Rehearing En Banc and by Order filed July 25, 2013, the court denied the petition.
On November 13, 2013, Mingo Logan filed a Petition for Writ of Certiorari with the Supreme Court of the
United States seeking review of the DC Circuit’s decision. The EPA has filed their response and Mingo Logan’s
reply is due on March 4, 2014 after which the Petition will be pending for consideration.
Allegheny Energy Contract Matter
Allegheny Energy Supply (‘‘Allegheny’’), the sole customer of coal produced at our subsidiary Wolf Run
Mining Company’s (‘‘Wolf Run’’) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter Ridge
Holdings, Inc. (‘‘Hunter Ridge’’), and ICG in state court in Allegheny County, Pennsylvania on December 28,
2006, and amended its complaint on April 23, 2007. Allegheny claimed that Wolf Run breached a coal supply
contract when it declared force majeure under the contract upon idling the Sycamore No. 2 mine in the third
quarter of 2006, and that Wolf Run continued to breach the contract by failing to ship in volumes referenced in
the contract. The Sycamore No. 2 mine was idled after encountering adverse geologic conditions and abandoned gas
wells that were previously unidentified and unmapped.
After extensive searching for gas wells and rehabilitation of the mine, it was re-opened in 2007, but with
notice to Allegheny that it would necessarily operate at reduced volumes in order to safely and effectively avoid the
many gas wells within the reserve. The amended complaint also alleged that the production stoppages constitute a
breach of the guarantee agreement by Hunter Ridge and breach of certain representations made upon entering into
the contract in early 2005. Allegheny voluntarily dropped the breach of representation claims later. Allegheny
claimed that it would incur costs in excess of $100 million to purchase replacement coal over the life of the
contract. ICG, Wolf Run and Hunter Ridge answered the amended complaint on August 13, 2007, disputing all of
the remaining claims.
On November 3, 2008, ICG, Wolf Run and Hunter Ridge filed an amended answer and counterclaim against
the plaintiffs seeking to void the coal supply agreement due to, among other things, fraudulent inducement and
conspiracy. On September 23, 2009, Allegheny filed a second amended complaint alleging several alternative
theories of liability in its effort to extend contractual liability to ICG, which was not a party to the original contract
and did not exist at the time Wolf Run and Allegheny entered into the contract. No new substantive claims were
asserted. ICG answered the second amended complaint on October 13, 2009, denying all of the new claims. The
Company’s counterclaim was dismissed on motion for summary judgment entered on May 11, 2010. Allegheny’s
claims against ICG were also dismissed by summary judgment, but the claims against Wolf Run and Hunter Ridge
were not. The court conducted a non-jury trial of this matter beginning on January 10, 2011 and concluding on
February 1, 2011.
At the trial, Allegheny presented its evidence for breach of contract and claimed that it is entitled to past and
future damages in the aggregate of between $228 million and $377 million. Wolf Run and Hunter Ridge presented
their defense of the claims, including evidence with respect to the existence of force majeure conditions and excuse
under the contract and applicable law. Wolf Run and Hunter Ridge presented evidence that Allegheny’s damages
calculations were significantly inflated because it did not seek to determine damages as of the time of the breach
and in some instances artificially assumed future nondelivery or did not take into account the apparent requirement
to supply coal in the future. On May 2, 2011, the trial court entered a Memorandum and Verdict determining that
Wolf Run had breached the coal supply contract and that the performance shortfall was not excused by force
majeure. The trial court awarded total damages and interest in the amount of $104.1 million, which consisted of
$13.8 million for past damages, and $90.3 million for future damages. ICG and Allegheny filed post-verdict
52
motions in the trial court and on August 23, 2011, the court denied the parties’ motions. The court entered a final
judgment on August 25, 2011, in the amount of $104.1 million, which included pre-judgment interest.
The parties appealed the lower court’s decision to the Superior Court of Pennsylvania. On August 13, 2012,
the Superior Court of Pennsylvania affirmed the award of past damages, but ruled that the lower court should have
calculated future damages as of the date of breach, and remanded the matter back to the lower court with
instructions to recalculate that portion of the award. On November 19, 2012, Allegheny filed a Petition for
Allowance of Appeal with the Supreme Court of Pennsylvania and Wolf Run and Hunter Ridge filed an Answer.
On July 2, 2013, the Supreme Court of Pennsylvania denied the Petition of Allowance. As this action finalized the
past damage award, Wolf Run paid $15.6 million for the past damage amount, including interest, to Allegheny in
July 2013. The future damage award is now back before the lower court, and a new trial has been scheduled to
start May 13, 2014.
ICG Hazard
The Sierra Club, on December 3, 2010, filed a Notice of Intent (‘‘NOI’’) to sue ICG Hazard, LLC (‘‘Hazard’’),
alleging violations of the Clean Water Act and the Surface Mining Control and Reclamation Act of 1977 at
Hazard’s Thunder Ridge surface mine. The NOI, which was supplemented by a revised filing on February 24,
2011, claims that Hazard is discharging selenium and contributing to conductivity levels in the receiving streams in
violation of state and federal regulations. On May 24, 2011, the Sierra Club sued Hazard in U.S. District Court for
the Eastern District of Kentucky under the Citizens Suit provisions of the Clean Water Act and the Surface Mining
Control and Reclamation Act seeking civil penalties, injunctive relief and attorneys’ fees. On February 17, 2012,
ICG Hazard filed a motion for summary judgment. Also on February 17, 2012, the Sierra Club filed a competing
motion for summary judgment.
On September 28, 2012, the court entered a Memorandum Opinion and Order granting Hazard summary
judgment on both Clean Water Act (‘‘CWA’’) and Surface Mining Control and Reclamation Act (‘‘SMCRA’’) claims
finding that the CWA permit ‘‘shield’’ applies and that the SMCRA cannot be used to circumvent the CWA permit
shield with respect to ‘‘point source’’ discharges. The court denied summary judgment to the extent the facts
showed there were ‘‘non-point source’’ discharges from areas disturbed by surface mining activities. On October 4,
2012, the Sierra Club filed a Motion to Clarify Claims and Request Final Judgment Order notifying the court that
all of its claims in the matter involved discharges from discrete ‘‘point sources’’ and that there remain no issues of
law or fact that require court resolution. The court entered a final judgment on January 11, 2013. On January 22,
2013, the Sierra Club filed a notice of appeal to the United States Court of Appeals for the Sixth Circuit. The court
heard oral arguments from the parties on October 8, 2013 and the matter is pending a decision by the court.
Patriot Coal Corporation Bankruptcy
On December 31, 2005, we entered into a purchase and sale agreement with Magnum Coal Company
(‘‘Magnum’’) to sell certain assets to Magnum. On July 23, 2008, Patriot Coal Corporation acquired Magnum. On
July 9, 2012, Patriot Coal Corporation and certain of its wholly owned subsidiaries, including Magnum (collectively,
‘‘Patriot’’), filed voluntary petitions for reorganization under Chapter 11 of the U.S. Code in the U.S. Bankruptcy
Court for the Southern District of New York.
On September 20, 2012, Patriot filed a motion with the U.S. Bankruptcy Court for the Southern District of
New York to reject a master coal sales agreement entered into on December 31, 2005 between us and Magnum,
which was established in order to meet obligations under a coal sales agreement with a customer who did not
consent to the assignment of their contract to Magnum. On December 18, 2012, the court accepted Patriot’s
motion to reject the master coal sales agreement. As a result of the court’s decision, Arch accrued $58.3 million,
representing the discounted value of the remaining monthly buyout amounts under the underlying coal sales
agreement.
53
On October 4, 2013, we entered into a term sheet that set forth the principle terms of a settlement with
Patriot, and the U.S. Bankruptcy Court entered an order approving the settlement terms on November 7, 2013,
resolving all pending and potential legal claims arising out of the December 31, 2005 sale of assets to Magnum.
We agreed to pay $5.0 million to Patriot upon its exit from bankruptcy as part of the settlement agreement.
Additionally, the settlement includes the release of a $16.7 million letter of credit posted by Patriot in the
Company’s favor for surety bonds related to the companies sold to Magnum. The Company also purchased Patriot’s
Guffey reserves (which are included in the unassigned reserves totals as of December 31, 2013) for $16.0 million in
cash upon their exit from bankruptcy.
ITEM 4. MINE SAFETY DISCLOSURES.
The statement concerning mine safety violations or other regulatory matters required by Section 1503(a) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in
Exhibit 95 to this Annual Report on Form 10-K for the period ended December 31, 2013.
54
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market for Registrant’s Common Equity and Related Stockholder Matters
Our common stock is listed and traded on the New York Stock Exchange under the symbol ‘‘ACI’’. On
February 13, 2014, our common stock closed at $3.95 on the New York Stock Exchange. On that date, there were
approximately 5,900 holders of record of our common stock.
Holders of our common stock are entitled to receive dividends when they are declared by our board of
directors. When dividends are declared on common stock, they have historically been paid in mid-March, June,
September and December. In 2014 we have announced a payment of an annual dividend in March. We paid
dividends on our common stock totaling $25.5 million, or $0.12 per share, in 2013, and $42.4 million, or $0.20
per share, in 2012. There is no assurance as to the amount or payment of dividends in the future because they are
dependent on our future earnings, capital requirements, financial condition, any limitations imposed by our debt
instruments and other factors deemed relevant by our Board of Directors. You should see Note 13, Debt and
Financing Arrangements, beginning on Page F-27 for more information about restrictions on our ability to declare
dividends.
The following table sets forth for each period indicated the dividends paid per common share, the high and
low sale prices of our common stock for each of the quarterly periods indicated.
March 31
June 30
September 30 December 31
2013
Dividends per common share . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.03
7.95
4.89
$0.03
5.82
3.47
$0.03
5.25
3.6
$0.03
4.77
3.75
Dividends per common share . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.11
15.99
10.44
$ 0.03
11.06
5.41
$0.03
8.05
5.16
$0.03
8.86
6.15
March 31
June 30
September 30 December 31
2012
Stock Price Performance Graph
The following performance graph compares the cumulative total return to stockholders on our common stock
with the cumulative total return on two indices: a peer group, consisting of CONSOL Energy, Inc., Alpha Natural
Resources, Inc. and Peabody Energy Corp., and the Standard & Poor’s (S&P) 400 (Midcap) Index. The graph
assumes that:
(cid:127) you invested $100 in Arch Coal common stock and in each index at the closing price on December 31,
2008;
(cid:127) all dividends were reinvested;
(cid:127) annual reweighting of the peer groups; and
(cid:127) you continued to hold your investment through December 31, 2013.
You are cautioned against drawing any conclusions from the data contained in this graph, as past results are
not necessarily indicative of future performance. The indices used are included for comparative purposes only and do
55
not indicate an opinion of management that such indices are necessarily an appropriate measure of the relative
performance of our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Arch Coal, Inc., the S&P Midcap 400 Index
and an Industry Peer Group
$300
$250
$200
$150
$100
$50
$0
249
223
174
196
137
139
171
139
94
202
108
49
269
101
30
12/08
12/09
12/10
12/11
12/12
12/13
Arch Coal, Inc.
S&P Midcap 400
25FEB201416582821
Industry Peer Group
$100 invested on 12/31/08 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
*
Copyright(cid:3) 2014 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Arch Coal, Inc.
. . . . . . . . . . . . . .
S&P Midcap 400 . . . . . . . . . . . . . .
Industry Peer Group . . . . . . . . . . .
100.00
100.00
100.00
139.45
137.38
196.45
223.42
173.98
248.94
94.30
170.96
139.00
48.62
201.53
107.54
30.31
269.04
101.49
12/08
12/09
12/10
12/11
12/12
12/13
Issuer Purchases of Equity Securities
In September 2006, our board of directors authorized a share repurchase program for the purchase of up to
14,000,000 shares of our common stock. There is no expiration date on the current authorization, and we have not
made any decisions to suspend or cancel purchases under the program. We did not purchase any shares of our
common stock under this program during the fiscal year ended December 31, 2013. As of December 31, 2013, we
have purchased 3,074,200 shares of our common stock under this program since the board of directors authorized
the program. Based on the closing price of our common stock as reported on the New York Stock Exchange on
February 13, 2014, there is approximately $43.2 million of our common stock that may yet be purchased under
this program.
56
ITEM 6.
SELECTED FINANCIAL DATA.
(In thousands, except per share data)
Statement of Operations Data:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine closure and asset impairment costs . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . .
Acquisition and transition costs . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . .
Non-operating expenses . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations
. . . . . . . .
Diluted earnings (loss) from continuing operations
per common share . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Arch Coal . . . . . . .
Basic earnings (loss) per common share . . . . . . . . . .
Diluted earnings (loss) per common share . . . . . . . .
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
Long-term debt, less current maturities
Other long-term obligations . . . . . . . . . . . . . . . . .
Noncurrent deferred income tax liability . . . . . . . . .
Arch Coal stockholders’ equity . . . . . . . . . . . . . . .
Common Stock Data:
Dividends per share . . . . . . . . . . . . . . . . . . . . . .
Shares outstanding at year-end . . . . . . . . . . . . . . .
Cash Flow Data:
Cash provided by operating activities . . . . . . . . . . .
Depreciation, depletion and amortization, including
amortization of acquired sales contracts, net . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . .
. .
Net proceeds from the issuance of long term debt
Net proceeds from the sale of common stock . . . . . .
Payments to retire debt, including redemption
2013(1)
2012(2)
Year Ended December 31
2011(3)
2010(4)(5)
2009(6)
$3,014,357
220,879
265,423
—
(663,141)
(42,921)
(745,228)
$ 3,768,126
539,182
330,680
—
(757,012)
(23,668)
(738,915)
$ 3,883,039
7,316
—
47,360
343,061
(51,448)
89,015
$2,817,441
—
—
291,782
(6,776)
131,364
$2,177,424
—
—
—
78,291
—
5,025
(3.52) $
$
(3.50) $
$ (641,832) $ (683,955) $
(3.24) $
$
(3.24) $
$
(3.03) $
(3.03) $
0.47
141,683
0.75
0.74
$
0.62
$ 158,857
0.98
$
0.97
$
$
$
$
$
0.03
42,169
0.28
0.28
$8,990,193
1,293,849
5,118,002
717,174
413,546
2,253,249
$10,006,777
1,337,035
5,085,879
825,080
664,182
2,854,567
$10,213,959
162,106
3,762,297
864,667
976,753
3,578,040
$4,880,769
207,568
1,538,744
566,728
—
2,237,507
$4,840,596
55,055
1,540,223
544,578
—
2,115,106
$
0.12
212,280
$
0.20
212,247
$
0.43
211,671
$
0.39
162,605
$
0.36
162,441
55,742
332,804
642,242
697,147
382,980
438,247
296,984
—
618,525
—
500,319
395,225
—
1,942,685
—
444,518
540,936
2,894,339
1,906,306
1,267,933
400,672
314,657
—
500,000
—
321,231
323,150
768,819
570,322
326,452
premium . . . . . . . . . . . . . . . . . . . . . . . . . . . .
629,172
452,934
605,178
505,627
—
Net increase (decrease) in borrowings under lines of
credit and commercial paper program . . . . . . . . .
Dividend payments . . . . . . . . . . . . . . . . . . . . . . .
Operating Data:
Tons sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tons produced . . . . . . . . . . . . . . . . . . . . . . . . . .
Tons purchased from third parties . . . . . . . . . . . . .
—
25,475
139,607
136,613
2,925
(481,300)
42,440
140,820
135,934
4,327
424,396
80,748
156,897
151,829
5,557
(196,549)
63,373
(85,815)
54,969
162,763
156,282
6,825
126,116
119,568
7,477
(1) As part of a strategy to divest non-core thermal coal assets, on August 16, 2013, we sold Canyon Fuel Company, LLC
(‘‘Canyon Fuel’’) to Bowie Resources, LLC for $423 million. Canyon Fuel operated the Sufco and Skyline longwall mining
complexes and the Dugout Canyon continuous miner operation in Utah. We recognized a gain on the sale of Canyon
Fuel, net of tax, of $77.0 million during the third quarter of 2013. See Note 3 to the consolidated financial statements,
‘‘Discontinued Operations,’’ for further information.
57
(2) Our results in 2012 were impacted by challenging market conditions. In response to these conditions, we idled 10 mines
in Appalachia and curtailed production at other thermal mines. We incurred $523.6 million of closure and impairment
costs relating to the closures. We also recognized goodwill impairment charges due to the weak markets totaling
$330.7 million. In addition, we refinanced our debt, increasing our average borrowing level to build cash and highly
liquid investments on the balance sheet as well as to decrease near-term maturities of debt.
(3) On June 15, 2011, we completed our acquisition of ICG, a leading coal producer, adding 12 mining complexes in
Appalachia, one complex in the Illinois Basin and one mine under development in Appalachia, along with other coal
reserves not currently in development. To finance the acquisition, we sold 48.7 million shares of our common stock and
issued $2.0 billion in aggregate principal amount of senior unsecured notes. We directly expensed costs related to the
financing and acquisition of $104.2 million.
(4)
In the second quarter of 2010, we exchanged 68.4 million tons of coal reserves in the Illinois Basin for an additional 9%
ownership interest in Knight Hawk Holdings, LLC (Knight Hawk), increasing our ownership to 42%. We recognized a
pre-tax gain of $41.6 million on the transaction, representing the difference between the fair value and net book value of
the coal reserves, adjusted for our retained ownership interest in the reserves through the investment in Knight Hawk.
(5) On August 9, 2010, we issued $500.0 million in aggregate principal amount of 7.25% senior unsecured notes due in
2020 at par. We used the net proceeds from the offering and cash on hand to fund the redemption on September 8,
2010 of $500.0 million aggregate principal amount of our outstanding 6.75% senior notes due in 2013 at a redemption
price of 101.125%. We recognized a loss on the redemption of $6.8 million.
(6) On October 1, 2009, we purchased the Jacobs Ranch mining complex in the Powder River Basin from Rio Tinto Energy
America for a purchase price of $768.8 million. To finance the acquisition, we sold 19.55 million shares of our common
stock and $600.0 million in aggregate principal amount of senior unsecured notes. The net proceeds received from the
issuance of common stock were $326.5 million and the net proceeds received from the issuance of the 8.75% senior
unsecured notes were $570.3 million.
58
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
The weakness in global coal markets continued throughout 2013, impacting our results primarily due to lower
metallurgical coal pricing and lower metallurgical coal sales volumes in our Appalachian segment. Both
metallurgical coal and international thermal coal markets remain oversupplied, which will continue to impact our
operations in 2014. We exported 11.4 million tons in 2013, compared to approximately 13.6 million tons in 2012.
We expect our export shipments to decline in 2014. We expect that international demand for metallurgical and
thermal coal will continue to grow in 2014. As global coal growth projects cease and reserves deplete, we expect
that excess supply will be absorbed by growing international demand for coal, ultimately leading to more balanced
markets over time.
At the same time, trends relating to the domestic thermal coal markets are improving. According to internal
estimates, U.S. coal consumption for power generation rose by more than 35 million tons in 2013, while U.S. coal
production of 984 million tons reached its lowest level since the early 1990’s. As a result, U.S. power generator coal
stockpiles built during 2012 fell meaningfully over the course of the year. The cold weather across much of the
country in the winter of 2013/2014 should contribute further to the liquidation of these stockpiles. In addition,
natural gas prices have increased compared with prior year, which we believe ensures that most domestic coal is
competitively priced for power generation. Thermal coal market recovery has not been even amongst the coal
basins, primarily due to a higher-cost Appalachian coal basin. We recorded fixed asset impairment charges related to
certain mining and other operations in the Appalachia region of approximately $126.4 million and goodwill
impairment charges of $265.4 million during 2013. See ‘‘Results of operations’’ for further discussion.
Management has continued to focus on capital spending reductions, cost containment and efficiency efforts and
working capital and liquidity management to improve cash flows and prepare the company to capitalize on
opportunities when coal markets recover.
As part of a strategy to divest non-core thermal coal assets, on August 16, 2013, we sold Canyon Fuel
Company, LLC (‘‘Canyon Fuel’’) to Bowie Resources, LLC for $422.7 million. Canyon Fuel operated the Sufco and
Skyline longwall mining complexes and the Dugout Canyon continuous miner operation in Utah. We recognized a
gain on the sale of Canyon Fuel, net of tax, of $77.0 million. See Note 3 to the consolidated financial statements,
‘‘Discontinued Operations,’’ for further information.
59
Operational Performance
The following table shows operating results of continuing coal operations for the years ended December 31,
2013, 2012, and 2011. The ‘‘other’’ category includes the results of our other bituminous thermal operations, our
West Elk mining complex in Colorado and our Viper mining complex in Illinois.
Year Ended December 31,
2013
2012
2011
Powder River Basin
Tons sold (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coal sales realization per ton sold(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost per ton sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin per ton sold(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(3) (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appalachia
Tons sold (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coal sales realization per ton sold(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost per ton sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin (loss) per ton sold(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(3) (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Tons sold (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coal sales realization per ton sold(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost per ton sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating margin per ton sold(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(3) (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111,654
$
12.44
$ 12.16
0.28
$
$209,211
104,394
13.61
$
12.77
$
0.84
$
$265,231
14,224
73.07
$
$ 80.54
$
$ 84,201
$
$
(7.47) $
18,717
85.42
83.17
2.25
$395,806
8,422
$
32.63
$ 27.49
$
5.14
$ 97,489
8,820
34.39
$
26.99
$
$
7.40
$121,396
117,846
13.62
$
12.11
$
1.51
$
$370,423
20,874
84.52
$
70.88
$
$
13.64
$468,806
6,952
36.11
$
28.98
$
$
7.13
$ 89,844
(1) These per-ton measurements reflect classification adjustments to numbers reported under U.S. GAAP to reflect
the results we achieved within our operating segments. Since other companies may calculate these per ton
amounts differently, our calculation may not be comparable to similarly titled measures used by those
companies.
(2) Operating margin per ton sold is calculated as coal sales revenues less cost of coal sales, depreciation, depletion
and amortization and sales contract amortization divided by tons sold.
(3) Adjusted EBITDA is defined as net income or loss attributable to the segment before the effect of net interest
expense, income taxes, depreciation, depletion and amortization and the amortization of acquired sales
contracts. Adjusted EBITDA may also be adjusted for items that may not reflect the trend of future results.
60
Segment Adjusted EBITDA is reconciled to net income (loss) at the end of this ‘‘Results of Operations’’
section.
Reconciliation to amounts reported in statement of operations
Transportation costs netted against per-ton realizations to reflect
netback price to the region
Powder River Basin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appalachia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
API-2 risk management position settlements included in per-ton
realizations not classified as coal sales revenues in statement of
operations
Appalachia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Diesel risk management position settlements not classified as cost of
coal sales in statement of operations
Powder River Basin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appalachia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
2012
2011
$ 0.84
$ 8.22
$14.13
$ 1.00
$11.18
$17.00
$0.36
$7.22
$9.30
$ 0.74
$ 2.61
$ 0.78
$ 2.64
$ —
$ —
$ 0.10
$ 0.25
$ 0.09
$ 0.10
$ —
$ —
Powder River Basin—Segment Adjusted EBITDA decreased in 2013 when compared to 2012 due to continued
weak coal market conditions, which resulted in lower per-ton realizations. The increase in coal consumption by
electric generation facilities contributed to an increase of 7% in sales volumes. Per-ton costs decreased 5% in 2013
when compared with 2012 as a result of cost control efforts and the increase in sales volumes, as well as a decrease
in production taxes and royalties that fluctuate with selling prices ($0.24 per ton).
Segment Adjusted EBITDA decreased in 2012 when compared to 2011, due to the lower sales volumes from
the production curtailments in response to market conditions, and the resulting higher per-ton cash costs.
Appalachia—Segment Adjusted EBITDA decreased significantly in 2013 when compared to 2012 due to the
weaker coal market conditions, which resulted in lower coal sales volumes and also lower average coal pricing. The
decrease in pricing was particularly pronounced on metallurgical coal shipments. We sold 6.8 million tons of
metallurgical-quality coal in 2013 compared to 7.5 million tons in 2012. Part of the volume differential in
Appalachia was due to geologic issues at the Mountain Laurel mine, which we expect to continue through the first
quarter of 2014. Per-ton costs have decreased, despite the significant decrease in sales volumes, as we closed
higher-cost coal operations in 2012 in response to the challenging market conditions, which contributed
approximately $5 to cost per ton in 2012. In addition, our cost containment and efficiency efforts contributed to
lower costs in 2013, as did a decrease in production taxes and royalties that fluctuate with selling prices, which
decreased $1.07 per ton in 2013 when compared with 2012.
Operating margins decreased in 2012 when compared with 2011 due to the impacts of lower production levels
as a result of mine closures and other production rationalization, including an extended longwall move at the
Mountain Laurel complex. The extended longwall move at the Mountain Laurel complex reflected our move to the
current seam. We sold 7.5 million tons of metallurgical-quality coal in 2012 compared to 7.4 million tons in 2011.
Reduced operating margins were offset by a benefit in Adjusted EBITDA from the $79.5 million decrease in a legal
contingent liability acquired with ICG.
Other—EBITDA and margins were higher in 2012 as a result of lower production costs stemming from
improved cost control, higher sales volumes from lower costs mines and and reductions to accruals for sales-sensitive
costs. In 2013, margins and EBITDA were impacted by lower price realizations due to the weak thermal coal
markets.
61
Results of Operations
The following tables reflect the amounts as presented in our consolidated statements of operations. Individual
line items exclude the results of Canyon Fuel, including the gain on the sale, as those amounts are presented as one
line item, ‘‘Income from discontinued operations, including gain on sale—net of tax’’, in the consolidated
statements of operations.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Summary. Our results during the year ended December 31, 2013, when compared to the year ended
December 31, 2012, were impacted by weak market conditions and related impairment charges in both 2013 and
2012, in part offset by the gain on the sale of Canyon Fuel in 2013.
Revenues. Our revenues consist of coal sales and revenues from our ADDCAR subsidiary.
Coal sales. The following table compares information about coal sales during the year ended December 31,
2013 with the information for the year ended December 31, 2012:
Year Ended December 31,
2013
2012
Increase (Decrease)
(In thousands)
Coal sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tons sold . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,000,476
134,300
$3,747,971
131,931
$(747,495)
2,369
Coal sales decreased approximately 20% in 2013 compared with 2012 due to lower realized prices. Lower
average realizations per ton sold, the result of the weak coal markets, including a decrease in export sales, and a
lower percentage of higher-priced coal sales out of Appalachia, resulted in a decrease in coal sales revenues of
approximately $456 million. The increase in sales volumes in our Powder River Basin segment ($99 million) was
offset by the impact of lower volumes from Appalachia and other segments ($390 million).
Costs, expenses and other. The following table compares costs, expenses and other components of operating
income for the year ended December 31, 2013 with the information for the year ended December 31, 2012:
Year Ended December 31,
2013
2012
(Increase) Decrease
in Net Loss
(Amounts in thousands)
Cost of sales (exclusive of items shown separately below) . . . . . . . . . .
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . . . . .
Amortization of acquired sales contracts, net . . . . . . . . . . . . . . . . . .
Change in fair value of coal derivatives and coal trading activities, net
Coal derivative settlements, non-hedging . . . . . . . . . . . . . . . . . . . .
Asset impairment and mine closure costs . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract settlement resulting from Patriot Coal bankruptcy . . . . . . .
Reduction in accrual related to acquired litigation . . . . . . . . . . . . . .
Selling, general and administrative expenses
. . . . . . . . . . . . . . . . . .
Other operating expense (income), net . . . . . . . . . . . . . . . . . . . . . .
Total costs, expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,663,136
426,442
(9,457)
7,845
(32,534)
220,879
265,423
—
—
133,448
2,316
$3,677,498
$3,155,099
492,211
(25,189)
(16,590)
(43,990)
539,182
330,680
58,335
(79,532)
134,299
(19,367)
$4,525,138
$491,963
65,769
(15,732)
(24,435)
(11,456)
318,303
65,257
58,335
(79,532)
851
(21,683)
$847,640
Cost of sales. Our cost of sales decreased in 2013 from 2012 primarily due to lower average per-ton
production costs ($409 million), the result of a change in regional mix that reflects lower sales volumes from the
Appalachia segment. In addition, transportation costs decreased $133 million in 2013 from 2012 due to a decrease
62
in export shipments. The increase in sales volumes resulted in an increase of $42 million in cost of sales. These
factors are discussed in detail in the ‘‘Operational performance’’ section.
Depreciation, depletion and amortization. When compared with 2012, depreciation, depletion and amortization
costs decreased in 2013 due to asset impairments and the decreases in production in the Appalachia and other
segments for the respective periods, including the impact of mine closures in 2012.
Change in fair value of coal derivatives and coal trading activities, net. The gains reflected in 2012 relate primarily
to positions taken in 2012 in the API-2 market, the derivatives market for coal delivered into Europe. We entered
into these positions taken in 2012 to manage price risk on physical export sales into Europe. As these positions are
not accounted for as hedges, changes in the positions’ fair value prior to settlement are recognized in this line on
the consolidated statement of operations. When the positions settle, the realized gains and losses are reclassified to
‘‘Coal derivative settlements, non-hedging’’. The decrease from gains in 2012 to losses in 2013 is the result of a
decrease in positions outstanding, due to settlements during the year.
Coal derivative settlements, non-hedging. These gains reflect the realized settlement income reclassified from the
line ‘‘Change in fair value of coal derivatives and coal trading activities, net’’, and consist primarily of the realized
gains on API-2 positions.
Asset impairment and mine closure costs.
In response to market conditions, we recorded impairment charges in
2013 related to a Kentucky coal operation and our highwall mining equipment subsidiary. In addition, we recorded
other-than-temporary impairment charges related to equity method investees. In 2012, we closed or idled five
mining operations in response to market conditions. See further discussion in Note 5 ,’’Impairment Charges and
Mine Closure Costs’’, and Note 9, ‘‘Equity Method Investments and Membership Interests in Joint Ventures’’, to
the consolidated financial statements.
Goodwill impairment.
In 2012, we recognized an impairment charge of $115.8 million, the entire balance of
goodwill allocated to our Black Thunder mining complex, due to expectations of lower thermal coal demand and its
impact on near-term sales volumes and pricing, and $214.9 million related to two of four operating units that were
allocated goodwill in the acquisition of ICG, due to a drop in near-term metallurgical coal prices. The remaining
$265.4 million of goodwill from the ICG acquisition was impaired in the fourth quarter of 2013, as a result of
continuing weakness in the metallurgical coal markets. See further discussion in ‘‘Critical Accounting Policies’’.
Contract settlement resulting from Patriot Coal bankruptcy.
In the fourth quarter of 2012, Patriot Coal’s rejection of
their supply agreement with us was approved by the bankruptcy court. We then agreed to a settlement of a
contract that had been supplied by Patriot Coal. We will make annual payments through 2017 under this
obligation.
Reduction in accrual related to acquired litigation. As a result of a 2012 legal ruling in a lawsuit against former
ICG subsidiaries, we changed our assessment of the probable loss related to the lawsuit. The suit is discussed in
detail in Note 25 to the consolidated financial statements.
Selling, general and administrative expenses.
Selling, general and administrative expenses in 2013 decreased
slightly when compared with 2012, due to lower discretionary spending levels in 2013, which were partially offset
by the impact of lower bonus and incentive plan costs in 2012 as certain performance targets were not achieved in
2012. Cost reductions in 2013 were achieved primarily through a decrease in industry group dues and fees of
$6.4 million, and decreases in legal and other professional fees.
Other operating expense (income), net. When compared with 2012, liquidated damages on throughput
commitments increased $9.4 million in 2013, commercial-related income decreased by $17.9 million, and gains on
asset sales decreased from $11.8 million in 2012 to $4.6 million in 2013. These items were partially offset by a
63
decrease in 2013 in unrealized losses relating to our diesel purchase and fuel surcharge risk management programs
of $11.3 million.
Net interest expense. The following table summarizes our net interest expense for the year ended December 31,
2013 and compares it with the information for the year ended December 31, 2012:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . .
Year Ended December 31,
2013
2012
(In thousands)
$(381,267) $(317,615)
5,473
$(374,664) $(312,142)
6,603
(Increase)
Decrease
in Net Loss
$(63,652)
1,130
$(62,522)
The increase in interest expense is due to an increase in our outstanding debt in 2013 when compared with
2012, primarily as a result of financing transactions completed during 2012, which resulted in a net increase in
debt outstanding of over $1 billion.
Non-operating expense. The following table summarizes non-operating expense for the year ended December 31,
2013 and compares it with the information for the year ended December 31, 2012:
Year Ended
December 31,
2013
2012
Increase
$
(Amounts in thousands)
Net loss resulting from early retirement and refinancing
of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(42,921) $(23,668)
$(19,253)
Amounts reported as nonoperating consist of expenses resulting from financing activities, other than interest
costs. In the fourth quarter of 2013, we retired our 8.75% senior notes due in 2016 and reduced the capacity of
our revolving credit facility, in conjunction with a refinancing discussed in the ‘‘Liquidity’’ section. As a result, we
paid a tender premium and wrote off unamortized discount and fees. During 2012, nonoperating expense consists
primarily of the write-off of financing fees relating to decreases in our revolving credit facility capacity.
Income taxes. Our effective income tax rate is sensitive to changes in and the relationship between annual
profitability and the deduction for percentage depletion.
Year Ended
December 31,
2013
2012
Decrease
Benefit from income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
(335,498)
(In thousands)
(353,907)
(18,409)
In 2013 and 2012, our benefit was impacted by $70.3 million and $56.9 million, respectively, of
non-deductible goodwill adjustments and $8.7 million and $31.8 million, respectively, to increase our valuation
allowance against state and foreign tax carryforwards.
Income from discontinued operations, net of tax. Canyon Fuel’s results and the $77.0 million gain from its sale in
2013, net of the related income tax impacts, are segregated from continuing operations.
Income from discontinued operations, net of tax . . . . . . . . . . . .
64
Year Ended
December 31,
2013
2012
Increase
103,396
(In thousands)
55,228
48,168
See Note 3 ‘‘Discontinued Operations’’, to the consolidated financial statements for further information.
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Summary. Our results during 2012 when compared to 2011 were impacted substantially by weak market
conditions which led us to rationalize supply through mine closures, idlings and production curtailments.
Revenues. Our revenues consist of coal sales and revenues from our ADDCAR subsidiary acquired with ICG.
The following table summarizes information about coal sales during the year ended December 31, 2012 and
compares it with the information for the year ended December 31, 2011:
Year Ended December 31,
2012
2011
Increase (Decrease)
(Amounts in thousands)
Coal sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tons sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,747,971
131,931
3,877,749
145,672
(129,778)
(13,741)
Coal sales decreased 3% in 2012 from 2011, as we reduced production and closed mines in response to the
weak market conditions. The impact of lower volumes (a decrease in coal sales of $342 million) was partially offset
by higher coal sales realizations per ton (an increase of $212 million), as increased export activity resulted in higher
selling prices. We have provided more information about the tons sold and the coal sales realizations per ton by
operating segment under the heading ‘‘Operating segment results’’.
Costs, expenses and other. The following table summarizes costs, expenses and other components of operating
income during the year ended December 31, 2012 and compares it with the information for the year ended
December 31, 2011:
Year Ended December 31,
2012
2011
Increase (Decrease)
in Net Income
(Amounts in thousands)
Cost of sales (exclusive of items shown separately below) . . . . . . . . . .
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . . . . .
Amortization of acquired sales contracts, net . . . . . . . . . . . . . . . . . .
Change in fair value of coal derivatives and coal trading activities, net
Coal derivative settlements, non-hedging . . . . . . . . . . . . . . . . . . . .
Asset impairment and mine closure costs . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract settlement resulting from Patriot Coal bankruptcy . . . . . . .
Reduction in accrual related to acquired litigation . . . . . . . . . . . . . .
Acquisition and transition costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses
. . . . . . . . . . . . . . . . . .
Other operating income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs, expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,155,099
492,211
(25,189)
(16,590)
(43,990)
539,182
330,680
58,335
(79,532)
—
134,299
(19,367)
$4,525,138
$2,980,354
420,980
(22,069)
(2,907)
7
7,316
—
—
—
47,360
119,056
(10,119)
$3,539,978
$(174,745)
(71,231)
3,120
13,683
43,997
(531,866)
(330,680)
(58,335)
79,532
47,360
(15,243)
9,248
$(985,160)
Cost of coal sales. Our cost of sales increased in 2012 from 2011 primarily from the impact of the acquisition
of the ICG operations ($237.8 million) and an increase in transportation costs as a result of the increase in export
shipments ($206.0 million). These factors were partially offset by the impact of lower thermal coal demand in all
operating segments which resulted in our decision to close or idle mining operations and curtail production
($269.0 million).
Depreciation, depletion and amortization. When compared with 2011, higher depreciation, depletion and
amortization costs in 2012 resulted primarily from the acquired ICG operations, partially offset by the impact of
65
lower depreciation and amortization on assets amortized or depleted on the basis of tons produced, processed, or
sold.
Amortization of acquired sales contracts, net. The fair values of acquired sales contracts are amortized over the
tons of coal shipped during the term of the contracts. In 2011, amortization income of $41.5 million related to the
contracts we acquired with the ICG operations was higher than what we recognized in 2012 due to the
amortization of contracts whose term ended in 2011. Offsetting the amortization of the ICG contracts in 2011 was
expense of $19.5 million related to contracts acquired with the Jacobs Ranch operations in the Powder River Basin
in 2009.
Change in fair value of coal derivatives and coal trading activities, net.
See the explanation in the comparison of
2013 to 2012 results.
Coal derivative settlements, non-hedging.
See the explanation in the comparison of 2013 to 2012 results.
Asset impairment and mine closure costs.
In 2012, we closed or idled five of our mining operations, in addition to
curtailing production at other locations, in response to market conditions. As a result, we recognized impairment
charges to write down property, plant, and equipment, and incurred other costs, primary labor and contract
termination, related to the closures. See further detail in Note 5 to the consolidated financial statements,
‘‘Impairment Charges and Mine Closure Costs.’’
Goodwill impairment.
See the explanation in the comparison of 2013 to 2012 results.
Contract settlement resulting from Patriot Coal bankruptcy.
See the explanation in the comparison of 2013 to 2012
results.
Reduction in accrual related to acquired litigation.
See the explanation in the comparison of 2013 to 2012 results.
Acquisition and transition costs. These costs relate to the acquisition of ICG.
Selling, general and administrative expenses.
Selling, general and administrative expenses in 2012 increased when
compared with 2011 primarily due to an increase in employee compensation costs and an increase in fees for
professional and legal services of approximately $5.0 million. Costs increased due to the ICG acquisition in 2011,
the staffing of our sales offices in Singapore and London, higher sales and marketing headcount to handle increased
export activity, and an increase in costs under our long-term incentive plan in 2012. Additionally, the impact in
2011 of a decrease in our deferred compensation liability in 2011 due to the drop in our stock price caused selling
general and administrative expenses to increase in 2012, when compared with 2011. These costs were in part offset
by a decrease in annual management incentive compensation.
Net interest expense. The following table summarizes our net interest expense for the year ended December 31,
2012 and compares it with the information for the year ended December 31, 2011:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
Increase (Decrease)
in Net Income
2012
2011
$
(Amounts in thousands)
$(317,615) $(230,186)
3,309
$(312,142) $(226,877)
5,473
$(87,429)
2,164
$(85,265)
The increase in interest expense is due to an increase in our outstanding debt in 2012 when compared with
2011, primarily as a result of financing transactions completed during 2012, which resulted in a net increase in
debt outstanding of over $1 billion.
66
Non-operating expense. The following table summarizes non-operating expense for the year ended December 31,
2012 and compares it with the information for the year ended December 31, 2011:
Net loss resulting from early retirement and
refinancing of debt . . . . . . . . . . . . . . . . . . . . . . .
Acquisition bridge financing costs . . . . . . . . . . . . . . .
Year Ended
December 31,
Increase (Decrease)
in Net Income
2012
2011
$
(Amounts in thousands)
$(23,668) $ (1,958)
— (49,490)
$(23,668) $(51,448)
$(21,710)
49,490
$ 27,780
Amounts reported as nonoperating consist of expenses resulting from financing activities, other than interest
costs. During 2012, nonoperating expense consists primarily of the write-off of financing fees relating to decreases
in our revolving credit facility capacity. During 2011, nonoperating expense represents financing related costs of the
ICG acquisition, including the cost to maintain a bridge financing facility, which was not utilized.
Income taxes. Our effective income tax rate is sensitive to changes in and the relationship between annual
profitability and the deduction for percentage depletion.
Year Ended
December 31,
2012
2011
Increase
(In thousands)
Benefit from income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
(353,907)
(24,279) 329,628
The income tax benefit in 2012 reflects our pretax loss combined with percentage depletion deductions, offset
by a $56.9 million non-deductible goodwill adjustment and $31.8 million to increase our valuation allowance
against state tax carryforwards.
Income from discontinued operations, net of tax. Canyon Fuel’s results and the gain from its sale, net of the related
income tax impacts, are segregated from continuing operations. See Note 3 to the consolidated financial statements,
‘‘Discontinued Operations’’ for further information.
Year Ended
December 31,
2012
2011
Increase
Income from discontinued operations, net of tax . . . . . . . . . . . . .
55,228
(In thousands)
53,825
1,403
Reconciliation of Segment Adjusted EBITDA to Net Income
The discussion in ‘‘Results of Operations’’ includes references to our Adjusted EBITDA. Adjusted EBITDA is
defined as net income attributable to the Company before the effect of net interest expense, income taxes,
depreciation, depletion and amortization and the amortization of acquired sales contracts. Adjusted EBITDA may
also be adjusted for items that may not reflect the trend of future results. We believe that Adjusted EBITDA
presents a useful measure of our ability to service and incur debt based on ongoing operations. Investors should be
67
aware that our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other
companies. The table below shows how we calculate Adjusted EBITDA.
Year Ended December 31,
2013
2012
2011
Reported Segment Adjusted EBITDA . . . . . . . . . . . . . .
EBITDA from discontinued operations . . . . . . . . . . . . .
Corporate and other(1) . . . . . . . . . . . . . . . . . . . . . . . . .
$ 390,901
173,776
(138,755)
$ 782,433
108,850
(202,829)
$ 929,073
116,122
(124,057)
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, depletion and amortization . . . . . . . . . . .
Amortization of acquired sales contracts, net . . . . . . . . .
Asset impairment and mine closure costs
. . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement of UMWA legal claims . . . . . . . . . . . . . . . .
Acquisition and transition costs . . . . . . . . . . . . . . . . . .
Other nonoperating expenses . . . . . . . . . . . . . . . . . . . .
Interest, taxes, and depreciation, depletion and
425,922
335,498
(374,664)
(426,442)
9,457
(220,879)
(265,423)
(12,000)
—
(42,921)
688,454
353,907
(312,142)
(492,211)
25,189
(539,182)
(330,680)
—
—
(23,668)
921,138
24,279
(226,877)
(420,980)
22,069
(7,316)
—
—
(56,885)
(51,448)
amortization classified as discontinued operations . . . .
(70,380)
(53,622)
(62,297)
Net income (loss) attributable to Arch Coal
. . . . . . . . .
$(641,832) $(683,955) $ 141,683
(1) Corporate and other Adjusted EBITDA includes primarily selling, general and administrative
expenses, income from our equity investments and certain changes in the fair value of coal
derivatives and coal trading activities.
Liquidity and Capital Resources
Our primary sources of cash are coal sales to customers, borrowings under our credit facilities and other
financing arrangements, and debt and equity offerings related to significant transactions or refinancing activity.
Excluding any significant mineral reserve acquisitions, we generally satisfy our working capital requirements and
fund capital expenditures and debt-service obligations with cash generated from operations, cash on hand or
borrowings under our lines of credit. Such plans are subject to change based on our cash needs.
As described below, we took actions during the fourth quarter of 2013 to further bolster our liquidity and
extend debt maturities. These proactive steps will help us navigate the current market cycle by providing us greater
flexibility. We now have more than $1.4 billion of liquidity, with $1.2 billion of that in cash or highly liquid
investments. We have no meaningful maturities of debt until 2018, after successfully refinancing our 2016 notes
without increasing our interest costs; and significantly relaxed financial maintenance covenants. We have suspended
or eliminated most financial maintenance covenants that pertain to our $250 million revolver until June of 2015,
when a relaxed, senior secured leverage ratio covenant steps back in. Until then, only a minimum liquidity covenant
remains in place. With these transactions, we have implemented a flexible capital structure, with a high levels of
pre-payable debt, which should allow us to de-lever our balance sheet, should markets and our cash flows improve.
We will maintain our focus on capital spending and cost reductions, operating efficiencies, and divestiture of
non-core assets until coal markets improve to help preserve our liquidity.
68
Financing activities
On December 17, 2013, we entered into an amendment of the credit agreement governing our term loan and
revolving credit facility whereby our term loan facility was increased to accommodate an incremental $300.0 million
aggregate principal loan at 98% of the face amount and commitments under the revolving credit facility were
reduced to $250.0 million from $350.0 million. Also on December 17, 2013, we issued $350.0 million aggregate
principal amount of 8.00% senior secured second lien notes due 2019 (the ‘‘2019 Secured Notes’’) at par. The 2019
Secured Notes are secured by the same assets that secure indebtedness under the senior secured credit facility, but
on a second priority basis, subject to certain exceptions and permitted liens. With the proceeds from these
transactions, we retired the remaining $600 million in aggregate principal amount of 8.75% senior unsecured notes
due 2016 (‘‘2016 Notes’’) for $628.7 million.
Long-Term Debt
Our indebtedness consisted of the following:
Term loan due 2018 ($1.93 billion and $1.65 billion face value,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.75% senior notes ($600.0 million face value) due 2016 . . . . . . .
7.00% senior notes due 2019 at par . . . . . . . . . . . . . . . . . . . . . .
9.875% senior notes ($375.0 million face value) due 2019 . . . . . . .
8.00% senior secured notes due 2019 at par . . . . . . . . . . . . . . . .
7.25% senior notes due 2020 at par . . . . . . . . . . . . . . . . . . . . . .
7.25% senior notes due 2021 at par . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current maturities of debt . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
(In thousands)
$1,906,975
—
1,000,000
362,358
350,000
500,000
1,000,000
32,162
$1,627,384
590,999
1,000,000
360,042
—
500,000
1,000,000
40,350
5,151,495
33,493
5,118,775
32,896
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,118,002
$5,085,879
There were no borrowings under lines of credit during the year ended December 31, 2013. Our average
borrowing level under lines of credit was approximately $200.0 million for the year ended December 31, 2012.
The following is a summary of cash provided by or used in each of the indicated types of activities during the
year ended December 31, 2013, 2012, and 2011:
Year Ended December 31,
2013
2012
2011
(In thousands)
Cash provided by (used in):
Operating activities
. . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 55,742
125,445
(54,710)
$ 332,804
(649,166)
962,835
$
642,242
(3,496,916)
2,899,230
Cash provided by operating activities decreased in 2013 compared to 2012, and in 2012 compared to 2011,
driven by the impacts on our operating profitability of weak coal market conditions.
We generated cash from investing activities of $125.4 million in 2013, including $422.7 million from the sale
of Canyon Fuel, compared to cash used in investing activities of $649.2 million in 2012. In order to preserve
69
liquidity, we reduced capital expenditures by $98 million in 2013 when compared with 2012. We focused our
spending on expanding our metallurgical coal production capacity, and in 2013, 2012 and 2011 we spent
approximately $109 million, net of proceeds from the sale and leaseback of longwall shields, $195 million and
$73 million on the development of the Leer mining complex. With the Leer mining complex reaching its
production stage in January 2014, we expect capital expenditures to be lower in 2014. With the proceeds from our
2012 financing activities discussed below, we purchased short term investments, and gross purchases totaled
$213.7 million and $236.9 million in 2013 and 2012, respectively, and we received proceeds from the sales of short
term investments of $194.5 million in 2013. In 2012, we purchased the noncontrolling interest in Arch Western for
$17.5 million. Cash used in investing activities in 2011 reflects the ICG acquisition ($2.9 billion) and also higher
royalty payments and investments in equity method subsidiaries.
Cash used in financing activities was approximately $54.7 million in 2013, compared to cash provided by
financing activities of approximately $962.8 million in 2012 and $2.9 billion in 2011. In 2012, the proceeds from
the $1.4 billion term loan in conjunction with the refinancing of our revolving credit facility were used, in part, to
retire the remaining outstanding senior secured notes due in 2013 and the outstanding borrowings under our lines
of credit. In 2011, the proceeds from the issuance of $2.0 billion in senior notes and shares issued in 2011 were
used to finance the ICG acquisition.We paid dividends of $25.5 million, $42.4 million, and $80.7 million during
2013, 2012, and 2011, reflecting a decrease in the dividend rate in the second quarter of 2012 from $0.11 to
$0.03. Financial covenants associated with our term loan facility restrict the payment of dividends to $0.01 per
year, and our board of directors has approved such dividend, payable in March.
Ratio of Earnings to Fixed Charges
The following table sets forth our ratios of earnings to combined fixed charges and preference dividends for the
periods indicated:
Ratio of earnings to fixed charges(1)
2012
. . . . . . . . . . . . . . . . . . . . . . . . . N/A(2) N/A(2)
2013
2011
2010
2009
1.25x
1.92x
0.75x
Year Ended December 31,
(1) Earnings consist of income from continuing operations before income taxes and are adjusted to include only
distributed income from affiliates accounted for on the equity method and fixed charges (excluding capitalized
interest). Fixed charges consist of interest incurred on indebtedness, the portion of operating lease rentals
deemed representative of the interest factor and the amortization of debt expense.
(2) Total losses for the ratio calculation were $638.3 million and total fixed charges were $450.7 million for the
year ended December 31, 2013. Total losses for the ratio calculation were $711.2 million and total fixed
charges were $367.2 million for the year ended December 31, 2012.
Contractual Obligations
2014
2015 - 2016
2017 - 2018
After 2018
Total
Payments Due by Period
Long-term debt, including related interest . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . .
Coal lease rights . . . . . . . . . . . . . . . . . . . . . .
Coal purchase obligations . . . . . . . . . . . . . . . .
Unconditional purchase obligations . . . . . . . . .
$387,029
31,532
77,831
24,548
268,427
$ 774,322
41,317
176,474
30,381
226,740
(Dollars in thousands)
$2,518,731
18,248
43,497
10,686
175,802
$3,564,945
1,195
83,708
—
407,737
$7,245,027
92,292
381,510
65,615
1,078,706
Total contractual obligations . . . . . . . . . . . . . .
$789,367
$1,249,234
$2,766,964
$4,057,585
$8,863,150
70
The related interest on long-term debt was calculated using rates in effect at December 31, 2013 for the
remaining term of outstanding borrowings.
Coal lease rights represent non-cancelable royalty lease agreements, as well as lease bonus payments due.
Our coal purchase obligations include purchase obligations in the over-the-counter market, as well as
unconditional purchase obligations with coal suppliers.
Unconditional purchase obligations include open purchase orders and other purchase commitments, which have
not been recognized as a liability. The commitments in the table above relate to contractual commitments for the
purchase of materials and supplies, payments for services and capital expenditures.
The table above excludes our asset retirement obligations. Our consolidated balance sheet reflects a liability of
$427.7 million for asset retirement obligations that arise from SMCRA and similar state statutes, which require that
mine property be restored in accordance with specified standards and an approved reclamation plan. Asset
retirement obligations are recorded at fair value when incurred and accretion expense is recognized through the
expected date of settlement. Determining the fair value of asset retirement obligations involves a number of
estimates, as discussed in the section entitled ‘‘Critical Accounting Policies’’, including the timing of payments to
satisfy the obligations. The timing of payments to satisfy asset retirement obligations is based on numerous factors,
including mine closure dates. You should see the notes to our consolidated financial statements for more information
about our asset retirement obligations.
The table above also excludes certain other obligations reflected in our consolidated balance sheet, including
estimated funding for pension and postretirement benefit plans and worker’s compensation obligations. The timing
of contributions to our pension plans varies based on a number of factors, including changes in the fair value of
plan assets and actuarial assumptions. You should see the section entitled ‘‘Critical Accounting Policies’’ for more
information about these assumptions. We expect to make contributions of $4.0 million to our pension plans in
2014, which is impacted by the Moving Ahead for Progress in the 21st Century Act (MAP-21) enacted July 6,
2012. MAP-21 does not reduce our obligations under the plan, but redistributes the timing of required payments
by providing near term funding relief for sponsors under the Pension Protection Act.
You should see the notes to our consolidated financial statements for more information about the amounts we
have recorded for workers’ compensation and pension and postretirement benefit obligations.
The table above excludes future contingent payments of up to $58.5 million related to development financing
for certain of our equity investees. Our obligation to make these payments, as well as the timing of any payments
required, is contingent upon a number of factors, including project development progress, receipt of permits and the
obtaining of construction financing.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements
include guarantees, indemnifications, financial instruments with off-balance sheet risk, such as bank letters of credit
and performance or surety bonds. Liabilities related to these arrangements are not reflected in our consolidated
balance sheets, and we do not expect any material adverse effects on our financial condition, results of operations or
cash flows to result from these off-balance sheet arrangements.
71
We use a combination of surety bonds, corporate guarantees (e.g., self bonds) and letters of credit to secure
our financial obligations for reclamation, workers’ compensation, coal lease obligations and other obligations as
follows as of December 31, 2013:
Reclamation
Obligations
Lease
Obligations
Workers’
Compensation
Obligations
Other
Total
(Dollars in thousands)
Self bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surety bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$417,618
247,284
18,141
$ — $ — $ — $417,618
340,552
55,437
98,802
—
28,784
70,041
9,047
10,620
In addition, we have agreed to continue to provide surety bonds for certain Magnum obligations, primarily
reclamation. The surety bonding amounts are mandated by the state and are not directly related to the estimated
cost to reclaim the properties. At December 31, 2013, we had $33.9 million of surety bonds remaining related to
Magnum properties.
Critical Accounting Policies
We prepare our financial statements in accordance with accounting principles that are generally accepted in the
United States. The preparation of these financial statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent
assets and liabilities. Management bases our estimates and judgments on historical experience and other factors that
are believed to be reasonable under the circumstances. Additionally, these estimates and judgments are discussed
with our audit committee on a periodic basis. Actual results may differ from the estimates used under different
assumptions or conditions. We have provided a description of all significant accounting policies in the notes to our
consolidated financial statements. We believe that of these significant accounting policies, the following may involve
a higher degree of judgment or complexity:
Derivative Financial Instruments
We utilize derivative instruments to manage exposures to commodity prices. Additionally, we may hold certain
coal derivative instruments for trading purposes. Derivative financial instruments are recognized in the balance sheet
at fair value. Certain coal contracts may meet the definition of a derivative instrument, but because they provide for
the physical purchase or sale of coal in quantities expected to be used or sold by us over a reasonable period in the
normal course of business, they are not recognized on the balance sheet.
Certain derivative instruments are designated as the hedge instrument in a hedging relationship. In a fair value
hedge, we hedge the risk of changes in the fair value of a firm commitment, typically a fixed-price coal sales
contract. Changes in both the hedged firm commitment and the fair value of a derivative used as a hedge
instrument in a fair value hedge are recorded in earnings. In a cash flow hedge, we hedge the risk of changes in
future cash flows related to a forecasted purchase or sale. Changes in the fair value of the derivative instrument
used as a hedge instrument in a cash flow hedge are recorded in other comprehensive income. Amounts in other
comprehensive income are reclassified to earnings when the hedged transaction affects earnings and are classified in
a manner consistent with the transaction being hedged.
Any ineffective portion of a hedge is recognized immediately in earnings. Ineffectiveness was insignificant for
the years ended December 31, 2013, 2012 and 2011.
We formally document all relationships between hedging instruments and hedged items, as well as our risk
management objectives for undertaking various hedge transactions. We evaluate the effectiveness of our hedging
relationships both at the hedge inception and on an ongoing basis.
72
Asset Retirement Obligations
Our asset retirement obligations arise from SMCRA and similar state statutes, which require that mine
property be restored in accordance with specified standards and an approved reclamation plan. Significant
reclamation activities include reclaiming refuse and slurry ponds, reclaiming the pit and support acreage at surface
mines, and sealing portals at deep mines. Our asset retirement obligations are initially recorded at fair value, or the
amount at which the obligations could be settled in a current transaction between willing parties. This involves
determining the present value of estimated future cash flows on a mine-by-mine basis based upon current permit
requirements and various estimates and assumptions, including estimates of disturbed acreage, reclamation costs and
assumptions regarding equipment productivity. We estimate disturbed acreage based on approved mining plans and
related engineering data. Since we plan to use internal resources to perform the majority of our reclamation
activities, our estimate of reclamation costs involves estimating third-party profit margins, which we base on our
historical experience with contractors that perform certain types of reclamation activities. We base productivity
assumptions on historical experience with the equipment that we expect to utilize in the reclamation activities. In
order to determine fair value, we discount our estimates of cash flows to their present value. We base our discount
rate on the rates of treasury bonds with maturities similar to expected mine lives, adjusted for our credit standing.
Accretion expense is recognized on the obligation through the expected settlement date. On at least an annual
basis, we review our entire reclamation liability and make necessary adjustments for permit changes as granted by
state authorities, changes in the timing and extent of reclamation activities, and revisions to cost estimates and
productivity assumptions, to reflect current experience. Any difference between the recorded amount of the liability
and the actual cost of reclamation will be recognized as a gain or loss when the obligation is settled. We expect our
actual cost to reclaim our properties will be less than the expected cash flows used to determine the asset retirement
obligation. At December 31, 2013, our balance sheet reflected asset retirement obligation liabilities of
$427.7 million, including amounts classified as a current liability. As of December 31, 2013, we estimate the
aggregate undiscounted cost of final mine closures to be approximately $1.0 billion.
See the rollforward of the asset retirement obligation liability in Note 15 to the consolidated financial
statements, ‘‘Asset Retirement Obligations’’.
Goodwill
In a business combination, goodwill represents the excess of the purchase price over the fair value assigned to
the net tangible and identifiable intangible assets acquired. We test goodwill for impairment annually as of the
beginning of the fourth quarter, or when circumstances indicate a possible impairment may exist. If the results of
the testing indicate that the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the
fair value of goodwill must be calculated. An impairment loss generally would be recognized when the carrying
amount of goodwill exceeds the implied fair value of goodwill, determined by subtracting the fair value of the other
assets and liabilities associated with the reporting unit from the total fair value of the reporting unit. The fair value
of a reporting unit is determined using a discounted cash flow (‘‘DCF’’) technique. A number of significant
assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows,
including the discount rate and projections of sales volumes and prices and costs to produce. We apply a probability
weighting to different scenarios that are developed in this estimation process. This income approach is compared to
a market approach for reasonableness of the estimates used.
Our estimates of selling prices at the valuation date reflect assumptions about coal consumption and supply for
the respective coal market. These prices are compared to market pricing information from third party forecasts for
reasonableness, taking into account the impact of coal quality on pricing. Our estimates of sales and production
volumes are also based on the assumptions about coal consumption and supply discussed previously.
73
We performed our annual impairment testing as of October 1, 2013 on the two Appalachia reporting units
with remaining goodwill balances, the Leer mining complex and an undeveloped property adjacent to it. The fair
values of these two reporting units are sensitive to the volatility in metallurgical coal demand. Continuing weakness
in the metallurgical coal markets caused the Company to reassess key marketing and operating assumptions during
the Company’s annual budgeting process, which is the source of the projected cash flows for the goodwill
impairment review. First, weakness in the metallurgical coal markets has continued longer than previously expected.
After a slight improvement in the third quarter of 2013, metallurgical coal oversupply expectations weakened prices
further in the fourth quarter of 2013, a situation expected to continue through 2014. Our long-term projections of
market prices are based on internal estimates, which consider the trend expectations of third party sources, but are
adjusted to reflect the assumptions of actual marketplace participants. Secondly, our expected product mix out of
the Leer mine in the near term has changed compared to our previous assumptions to reflect more thermal coal
commitments, due to the continuing oversupply in the metallurgical coal markets. Thirdly, the timing of
development on the remaining property has been delayed, such that no development is expected to begin for five
years. In addition to these changes resulting from the annual budgeting process, the fair values of the of the
reporting units were also impacted by a higher base discount rates, due to higher costs of capital. The base rate was
adjusted for each unit to reflect the risks inherent in the cash flow forecasts (other than coal pricing), like timing,
production volumes and quality, and cost inflation.
As a result, the book values of the reporting units exceeded their fair values after the first step of the goodwill
impairment tests. It was also determined that the fair value of goodwill had no value, and we recognized an
impairment loss for the remaining reporting units totaling $265.4 million.
Employee Benefit Plans
We have non-contributory defined benefit pension plans covering certain of our salaried and hourly employees.
Benefits are generally based on the employee’s age and compensation. The actuarially-determined funded status of
the defined benefit plans is reflected in the balance sheet.
The calculation of our net periodic benefit costs (pension expense) and benefit obligation (pension liability)
associated with our defined benefit pension plans requires the use of a number of assumptions. Changes in these
assumptions can result in different pension expense and liability amounts, and actual experience can differ from the
assumptions.
(cid:127) The expected long-term rate of return on plan assets is an assumption reflecting the average rate of earnings
expected on the funds invested or to be invested to provide for the benefits included in the projected benefit
obligation. We establish the expected long-term rate of return at the beginning of each fiscal year based
upon historical returns and projected returns on the underlying mix of invested assets. The pension plan’s
investment targets are 65% equity and 35% fixed income securities. Investments are rebalanced on a
periodic basis to approximate these targeted guidelines. The long-term rate of return assumption used to
determine pension expense was 7.75% for 2013 and 2012, respectively. The long-term rate of return
assumptions are less than the plan’s actual life-to-date returns. Any difference between the actual experience
and the assumed experience is recorded in other comprehensive income and amortized into earnings in the
future. The impact of lowering the expected long-term rate of return on plan assets 0.5% for 2013 would
have been an increase in expense of approximately $1.5 million.
(cid:127) The discount rate represents our estimate of the interest rate at which pension benefits could be effectively
settled. Assumed discount rates are used in the measurement of the projected, accumulated and vested
benefit obligations and the service and interest cost components of the net periodic pension cost. In
estimating that rate, rates of return on high-quality fixed-income debt instruments are required. We utilize a
bond portfolio model that includes bonds that are rated ‘‘AA’’ or higher with maturities that match the
expected benefit payments under the plan. The discount rate used to determine pension expense was
74
3.64%/4.58% (before/after Canyon Fuel sale) for 2013 and 4.91% for 2012. The impact of lowering the
discount rate 0.5% for 2013 would have been an increase in expense of approximately $5.1 million.
The differences generated from changes in assumed discount rates and returns on plan assets are amortized
into earnings over a five-year period, which represents the average amount of time before participants vest in their
benefits.
For the measurement of our 2013 year-end pension obligation and pension expense for 2014, we used a
discount rate of 5.08%.
We also currently provide certain postretirement medical and life insurance coverage for eligible employees.
Generally, covered employees who terminate employment after meeting eligibility requirements are eligible for
postretirement coverage for themselves and their dependents. The salaried employee postretirement benefit plans are
contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features such as
deductibles and coinsurance.
Actuarial assumptions are required to determine the amounts reported as obligations and costs related to the
postretirement benefit plan. The discount rate assumption reflects the rates available on high-quality fixed-income
debt instruments at year-end and is calculated in the same manner as discussed above for the pension plan. The
discount rate used to calculate the postretirement benefit expense was 3.64%/4.58% (before/after Canyon Fuel sale)
for 2013 and 4.52% for 2012, respectively. A change of 0.5% in these assumptions would not have a significant
impact on the benefit costs in 2013.
For the measurement of our 2013 year-end other postretirement benefits obligation and postretirement expense
for 2014, we used a discount rate of 4.58%.
Income Taxes
We provide for deferred income taxes for temporary differences arising from differences between the financial
statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates expected
to be in effect when the related taxes are expected to be paid or recovered. We initially recognize the effects of a
tax position when it is more than 50 percent likely, based on the technical merits, that the position will be
sustained upon examination, including resolution of the related appeals or litigation processes, if any. Our
determination of whether or not a tax position has met the recognition threshold considers the facts, circumstances,
and information available at the reporting date. A valuation allowance may be recorded to reflect the amount of
future tax benefits that management believes are not likely to be realized. We reassess our ability to realize our
deferred tax assets annually in the fourth quarter or when circumstances indicate that the ability to realize deferred
tax assets has changed. In determining the appropriate valuation allowance, we take into account expected future
taxable income, available tax planning strategies and the reversal of temporary differences. If future taxable income
is lower than expected or if expected tax planning strategies are not available as anticipated, we may record
additional valuation allowance through income tax expense in the period such determination is made.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We manage our commodity price risk for our non-trading, thermal coal sales through the use of long-term
coal supply agreements, and to a limited extent, through the use of derivative instruments. Sales commitments in
the metallurgical coal market are typically not long-term in nature, and we are therefore subject to fluctuations
market pricing.
75
Our sales commitments are as follows:
Powder River Basin
Committed, Priced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committed, Unpriced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appalachia
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committed, Priced Thermal
Committed, Unpriced Thermal
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committed, Priced Metallurgical . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committed, Unpriced Metallurgical . . . . . . . . . . . . . . . . . . . . . . . . .
Other Bituminous
Committed, Priced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committed, Unpriced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
2015
Tons
$ per ton
Tons
$ per ton
(in millions)
(in millions)
91.2
8.0
5.0
0.3
3.5
0.7
3.9
0.6
$13.18
$57.07
$84.84
$36.20
52.4
8.6
1.9
—
1.4
0.2
2.5
—
$13.78
$57.75
$87.01
$38.95
We are also exposed to commodity price risk in our coal trading activities, which represents the potential
future loss that could be caused by an adverse change in the market value of coal. Our coal trading portfolio
included forward, swap and put and call option contracts at December 31, 2013. The estimated future realization
of the value of the trading portfolio is $9.6 million of gains in 2014.
We monitor and manage market price risk for our trading activities with a variety of tools, including Value at
Risk (VaR), position limits, management alerts for mark to market monitoring and loss limits, scenario analysis,
sensitivity analysis and review of daily changes in market dynamics. Management believes that presenting high, low,
end of year and average VaR is the best available method to give investors insight into the level of commodity risk
of our trading positions. Illiquid positions, such as long-dated trades that are not quoted by brokers or exchanges,
are not included in VaR.
VaR is a statistical one-tail confidence interval and down side risk estimate that relies on recent history to
estimate how the value of the portfolio of positions will change if markets behave in the same way as they have in
the recent past. While presenting VaR will provide a similar framework for discussing risk across companies, VaR
estimates from two independent sources are rarely calculated in the same way. Without a thorough understanding
of how each VaR model was calculated, it would be difficult to compare two different VaR calculations from
different sources. The level of confidence is 95%. The time across which these possible value changes are being
estimated is through the end of the next business day. A closed-form delta-neutral method used throughout the
finance and energy sectors is employed to calculate this VaR. VaR is back tested to verify usefulness.
On average, portfolio value should not fall more than VaR on 95 out of 100 business days. Conversely,
portfolio value declines of more than VaR should be expected, on average, 5 out of 100 business days. When more
value than VaR is lost due to market price changes, VaR is not representative of how much value beyond VaR will
be lost.
During the year ended December 31, 2013, VaR for our coal trading positions that are recorded at fair value
through earnings ranged from under $0.1 million to $1.0 million. The linear mean of each daily VaR was
$0.3 million. The final VaR at December 31, 2013 was $0.1 million.
We are exposed to fluctuations in the fair value of coal derivatives that we enter into to manage the price risk
related to future coal sales, but for which we do not elect hedge accounting. Any gains or losses on these derivative
instruments would be offset in the pricing of the physical coal sale. During the year ended December 31, 2013 VaR
for our risk management positions that are recorded at fair value through earnings ranged from $0.3 million to
76
$1.9 million. The linear mean of each daily VaR was $1.0 million. The final VaR at December 31, 2013 was
$0.3 million.
We are also exposed to the risk of fluctuations in cash flows related to our purchase of diesel fuel. We expect
to use approximately 57 to 67 million gallons of diesel fuel for use in our operations during 2013. We enter into
forward physical purchase contracts, as well as purchased heating oil options, to reduce volatility in the price of
diesel fuel for our operations. At December 31, 2013, we had protected the price of approximately 91% of our
expected purchases for the remainder of 2013 and 10% of our 2014 purchases. At December 31, 2013, we had
purchased heating oil call options for approximately 63 million gallons for the purpose of managing the price risk
associated with future diesel purchases. We also purchase heating oil call options manage the price risk associated
with fuel surcharges on barge and rail shipments, which cover increases in diesel fuel prices. At December 31, 2013,
we held purchased call options for approximately 5.1 million gallons for the purpose of managing the fluctuations
in cash flows associated with fuel surcharges on future shipments. These positions reduce our risk of cash flow
fluctuations related to these surcharges but the positions are not accounted for as hedges. A $0.25 per gallon
decrease in the price of heating oil would not result in an increase in our expense related to the heating oil
derivatives.
We are exposed to market risk associated with interest rates due to our existing level of indebtedness. At
December 31, 2013, of our $5.2 billion principal amount of debt outstanding, approximately $1.9 billion of
outstanding borrowings have interest rates that fluctuate based on changes in the market rates. An increase in the
interest rates related to these borrowings of 25 basis points would not result in an annualized increase in interest
expense based on interest rates in effect at December 31, 2013, because our term loan has a minimum interest rate
that exceeds the current market rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and consolidated financial statement schedule of Arch Coal, Inc. and
subsidiaries are included in this Annual Report on Form 10-K beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
We performed an evaluation under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2013. Based on that evaluation, our management, including our chief
executive officer and chief financial officer, concluded that the disclosure controls and procedures were effective as of
such date. There were no changes in our internal control over financial reporting during the fiscal quarter to which
this report relates that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
We incorporate by reference the report of independent registered public accounting firm and management’s
report on internal control over financial reporting included on pages F-3 and F-4, respectively, of this Annual
Report on Form 10-K.
ITEM 9B. OTHER INFORMATION.
None.
77
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 401 of Regulation S-K is included under the caption ‘‘Director
Qualifications, Diversity and Biographies’’ in our 2014 Proxy Statement and in Part I of this report under the
caption ‘‘Executive Officers.’’ The information required by Items 405, 406 and 407(c)(3), (d)(4) and (d)(5) of
Regulation S-K is included under the captions ‘‘Section 16(a) Beneficial Ownership Reporting Compliance,’’
‘‘Corporate Governance Guidelines and Code of Business Conduct,’’ ‘‘Nominating Process for Election of Directors’’
and ‘‘Board Meetings and Committees’’ in our 2014 Proxy Statement. Such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K is included under the
captions ‘‘Executive Compensation,’’ ‘‘Director Compensation,’’ ‘‘Compensation Committee Interlocks and Insider
Participation’’ and ‘‘Personnel and Compensation Committee Report’’ (which is furnished) in our 2014 Proxy
Statement and is incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by Items 201(d) and 403 of Regulation S-K is included under the captions ‘‘Equity
Compensation Plan Information,’’ ‘‘Security Ownership of Directors and Executive Officers’’ and ‘‘Security
Ownership of Certain Beneficial Owners’’ in our 2014 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required by Items 404 and 407(a) of Regulation S-K is included under the caption ‘‘Directors
and Corporate Governance Practices’’ in our 2014 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by Item 9(e) of Schedule 14A is included under the caption ‘‘Fees Paid to Auditors’’
in our 2014 Proxy Statement and is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Financial Statements
Reference is made to the index set forth on page F-1 of this report.
PART IV
Financial Statement Schedules
The following financial statement schedule of Arch Coal, Inc. is at the page indicated:
Schedule
Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-62
All other financial statement schedules listed under SEC rules but not included in this report are omitted
because they are not applicable or the required information is provided in the notes to our consolidated financial
statements.
Exhibits
Reference is made to the Exhibit Index beginning on page 81 of this report.
78
Pursuant to the requirements of Section 13 or 15(d) 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.
Signatures
Arch Coal, Inc.
/s/ JOHN W. EAVES
John W. Eaves
President and Chief Executive Officer
February 28, 2014
Signatures
Capacity
Date
/s/ JOHN W. EAVES
John W. Eaves
/s/ JOHN T. DREXLER
John T. Drexler
/s/ JOHN W. LORSON
John W. Lorson
*
Steven F. Leer
*
David D. Freudenthal
*
Patricia F. Godley
*
Paul T. Hanrahan
*
Douglas H. Hunt
President and Chief Executive Officer,
Director (Principal Executive Officer)
February 28, 2014
Senior Vice President and Chief Financial
Officer (Principal Financial Officer)
February 28, 2014
Vice President and Chief Accounting
Officer (Principal Accounting Officer)
February 28, 2014
Chairman of the Board of Directors
February 28, 2014
Director
February 28, 2014
Director
February 28, 2014
Director
February 28, 2014
Director
February 28, 2014
79
Signatures
Capacity
Date
*
J. Thomas Jones
*
Paul A. Lang
*
George C. Morris III
*
Theodore D. Sands
*
Wesley M. Taylor
*
Peter I. Wold
*By
/s/ ROBERT G. JONES
Robert G. Jones,
Attorney-in-Fact
Director
February 28, 2014
Director
February 28, 2014
Director
February 28, 2014
Director
February 28, 2014
Director
February 28, 2014
Director
February 28, 2014
80
Exhibit
Exhibit Index
Description
2.1 Purchase and Sale Agreement, dated as of December 31, 2005, by and between Arch Coal, Inc. and
Magnum Coal Company (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K filed on January 6, 2006).
2.2 Amendment No. 1 to the Purchase and Sale Agreement, dated as of February 7, 2006, by and between
Arch Coal, Inc. and Magnum Coal Company (incorporated by reference to Exhibit 2.1 to the registrant’s
Annual Report on Form 10-K for the year ended December 31, 2005).
2.3 Amendment No. 2 to the Purchase and Sale Agreement, dated as of April 27, 2006, by and between Arch
Coal, Inc. and Magnum Coal Company (incorporated herein by reference to Exhibit 2.1 to the registrant’s
Quarterly Report on Form 10-Q for the period ended June 30, 2006).
2.4 Amendment No. 3 to the Purchase and Sale Agreement, dated as of August 29, 2007, by and between
Arch Coal, Inc. and Magnum Coal Company (incorporated herein by reference to Exhibit 2.1 to the
registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2007).
2.5 Agreement, dated as of March 27, 2008, by and between Arch Coal, Inc. and Magnum Coal Company
(incorporated herein by reference to Exhibit 2.1 to the registrant’s Quarterly Report on Form 10-Q for the
period ended March 31, 2008).
2.6 Amendment No. 1 to Agreement, dated as of February 5, 2009, by and between Arch Coal, Inc. and
Magnum Coal Company (incorporated herein by reference to Exhibit 2.6 to the registrant’s Annual Report
on Form 10-K for the year ended December 31, 2008).
2.7 Agreement and Plan of Merger, dated as of May 2, 2011, by and among Arch Coal, Inc., Atlas Acquisition
Corp. and International Coal Group, Inc. (incorporated herein by reference to Exhibit 2.1 to the registrant’s
Current Report on Form 8-K filed on May 3, 2011).
2.8 Amendment to Agreement and Plan of Merger, dated as of May 26, 2011 among Arch Coal, Inc., Atlas
Acquisition Corp. and International Coal Group, Inc. (incorporated herein by reference to Exhibit 2.8 to
the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).
2.9 Unit Purchase Agreement by and among Arch Coal, Inc. and Bowie Resources, LLC dated as of June 27,
2013 (incorporated herein by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed
on July 2, 2013).
3.1 Restated Certificate of Incorporation of Arch Coal, Inc. (incorporated herein by reference to Exhibit 3.1 to
the registrant’s Current Report on Form 8-K filed on May 5, 2006).
3.2 Arch Coal, Inc. Bylaws, as amended effective as of December 5, 2008 (incorporated herein by reference to
Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on December 10, 2008).
4.1
4.2
Indenture, dated as of July 31, 2009 by and among Arch Coal, Inc., the subsidiary guarantors named
therein and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to
the registrant’s Current Report on Form 8-K filed on July 31, 2009).
First Supplemental Indenture, dated as of February 8, 2010, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2010).
81
Exhibit
4.3
Second Supplemental Indenture, dated as of March 12, 2010, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.5 to the registrant’s Registration Statement on Form S-4 filed on April 7, 2010)
Description
4.4 Third Supplemental Indenture, dated as of May 7, 2010, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.3 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2010)
4.5
4.6
4.7
4.8
Fourth Supplemental Indenture, dated December 16, 2010, by and among Arch Coal West, LLC, Arch
Coal, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee
(incorporated by reference to Exhibit 4.7 to the registrant’s Annual Report on Form 10-K for the period
ended December 31, 2010).
Fifth Supplemental Indenture, dated as of June 24, 2011, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.8 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).
Sixth Supplemental Indenture, dated as of October 7, 2011, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated by reference to
Exhibit 4.9 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).
Seventh Supplemental Indenture, dated as of July 2, 2012, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).
4.9 Eighth Supplemental Indenture, dated as of July 31, 2012, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.4 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).
4.10 Ninth Supplemental Indenture, dated as of July 26, 2013, by and among Arch Flint Ridge, LLC, Arch
Coal, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee
(incorporated herein by reference to Exhibit 4.1 to the registrant’s Quarterly Report on Form 10-Q for the
period ended June 30, 2013).
4.11 Tenth Supplemental Indenture, dated as of December 2, 2013, by and among Arch Coal, Inc., the
subsidiary guarantors named therein and U.S. Bank National Association, as trustee.
4.12 Eleventh Supplemental Indenture, dated December 13, 2013, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed on December 16, 2013).
4.13
4.14
4.15
Indenture, dated as of August 9, 2010, by and between Arch Coal, Inc. and U.S. Bank National
Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on
Form 8-K filed on August 9, 2010)
First Supplemental Indenture, dated as of August 9, 2010, by and among Arch Coal, Inc., the subsidiary
guarantors named therein, and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed on August 9, 2010)
Second Supplemental Indenture, dated as of December 16, 2010, by and among Arch Coal West, LLC,
Arch Coal, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee
(incorporated herein by reference to Exhibit 4.7 to the registrant’s Annual Report on Form 10-K for the
period ended December 31, 2010).
82
Exhibit
Description
4.16 Third Supplemental Indenture, dated as of June 24, 2011, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.13 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).
4.17
4.18
4.19
4.20
Fourth Supplemental Indenture, dated as of October 7, 2011, by and among Arch Coal, Inc., the
subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by
reference to Exhibit 4.14 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2011).
Fifth Supplemental Indenture, dated as of July 2, 2012, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).
Sixth Supplemental Indenture, dated as of July 31, 2012, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.5 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).
Seventh Supplemental Indenture, dated as of July 26, 2013, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2013).
4.21 Eighth Supplemental Indenture, dated December 2, 2013, by and among Arch Coal, Inc. the subsidiary
guarantors named therein and U.S. Bank National Association, as trustee.
4.22
4.23
4.24
Indenture, dated as of June 14, 2011, by and among Arch Coal, Inc., the subsidiary guarantors named
therein and UMB Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to
the registrant’s Current Report on Form 8-K filed on June 14, 2011).
First Supplemental Indenture, dated as of July 5, 2011, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.16 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).
Second Supplemental Indenture, dated as of October 7, 2011, by and among Arch Coal, Inc., the
subsidiary guarantors named therein and UMB Bank National Association, as trustee (incorporated herein
by reference to Exhibit 4.17 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2011).
4.25 Third Supplemental Indenture, dated as of July 2, 2012, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.3 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).
4.26
4.27
Fourth Supplemental Indenture, dated as of July 31, 2012, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.6 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2012).
Fifth Supplemental Indenture, dated as of July 26, 2013, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.3 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2013).
4.28
Sixth Supplemental Indenture, dated as of December 2, 2013, by and among Arch Coal, Inc., the
subsidiary guarantors named therein and UMB Bank National Association.
83
Exhibit
4.29
4.30
Description
Indenture, dated as of November 21, 2012, among Arch Coal, Inc., the subsidiary guarantors named
therein and UMB Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to
the registrant’s Current Report on Form 8-K filed on November 26, 2012).
First Supplemental Indenture, dated as of July 26, 2013, by and among Arch Coal, Inc., the subsidiary
guarantors named therein and UMB Bank National Association, as trustee (incorporated herein by reference
to Exhibit 4.4 to the registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2013).
4.31
Second Supplemental Indenture, dated as of December 2, 2013, by and among Arch Coal, Inc., the
subsidiary guarantors named therein and UMB Bank National Association, as trustee.
4.32 Registration Rights Agreement, dated as of November 21, 2012, by and among Arch Coal, Inc., the
guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the
initial purchasers named therein (incorporated herein by reference to Exhibit 4.3 to the registrant’s Current
Report on Form 8-K filed on November 26, 2012).
4.33
Indenture, dated as of December 17, 2013, by and among Arch Coal, Inc., the subsidiary guarantors
named therein and UMB Bank National Association, as trustee and collateral agent (incorporated herein by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed on December 17, 2013).
10.1 Amended and Restated Credit Agreement, dated as of June 14, 2011, by and among the Company, the
lenders party thereto, PNC Bank, National Association, as administrative agent and Bank of America,
N.A., The Royal Bank of Scotland PLC and Citibank, N.A., as co-documentation agents (incorporated
herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the registrant on June 17,
2011).
10.2
10.3
10.4
Incremental Amendment, dated as of November 21, 2012, by and among Arch Coal, Inc., as Borrower,
the guarantors party thereto, the incremental term loan lenders party thereto, Bank of America, N.A., as
Term Loan Administrative Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, PNC Capital
Markets LLC, Morgan Stanley Senior Funding, Inc., Citigroup Global Markets Inc., Credit Suisse Securities
(USA) LLC, BBVA Securities Inc., RBS Securities Inc. and Union Bank, N.A., as Lead Arrangers, as Lead
Arrangers (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
filed on November 26, 2012).
First Amendment to Amended and Restated Credit Agreement, dated as of May 16, 2012, by and among
Arch Coal, Inc., as Borrower, the guarantors party thereto, the lenders party thereto, and PNC Bank,
National Association, as Revolver Administrative Agent (incorporated herein by reference to Exhibit 10.1 to
the registrant’s Current Report on Form 8-K filed on May 17, 2012).
Second Amendment to Amended and Restated Credit Agreement, dated as of November 21, 2012, by and
among Arch Coal, Inc., as Borrower, the guarantors party thereto, the lenders party thereto, Bank of
America, N.A., as Term Loan Administrative Agent, and PNC Bank, National Association, as Revolver
Administrative Agent (incorporated herein by reference to Exhibit 10.2 to the registrant’s Current Report
on Form 8-K filed on November 26, 2012).
10.5 Third Amendment to Amended and Restated Credit Agreement, dated as of November 21, 2012, by and
among Arch Coal, Inc., as Borrower, the guarantors party thereto, the revolver lenders party thereto and
PNC Bank, National Association, as Revolver Administrative Agent (incorporated herein by reference to
Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on November 26, 2012).
84
Exhibit
Description
10.6 Amendment Number Four to Amended and Restated Credit Agreement, dated as of December 17, 2013,
by and among Arch Coal, Inc., as Borrower, the guarantors party thereto, the lenders party thereto, Bank
of America, N.A., as term loan administrative agent, and PNC Bank, National Association, as Revolver
Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report
on Form 8-K filed on December 17, 2013).
10.7* Form of Employment Agreement for Chairman and Executive Officers of Arch Coal, Inc. (incorporated
herein by reference to Exhibit 10.4 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2011).
10.8 Coal Lease Agreement dated as of March 31, 1992, among Allegheny Land Company, as lessee, and UAC
and Phoenix Coal Corporation, as lessors, and related guarantee (incorporated herein by reference to the
Current Report on Form 8-K filed by Ashland Coal, Inc. on April 6, 1992).
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Federal Coal Lease dated as of June 24, 1993 between the U.S. Department of the Interior and Southern
Utah Fuel Company (incorporated herein by reference to Exhibit 10.17 to the registrant’s Annual Report
on Form 10-K for the year ended December 31, 1998).
Federal Coal Lease between the U.S. Department of the Interior and Utah Fuel Company (incorporated
herein by reference to Exhibit 10.18 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 1998).
Federal Coal Lease dated as of July 19, 1997 between the U.S. Department of the Interior and Canyon
Fuel Company, LLC (incorporated herein by reference to Exhibit 10.19 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 1998).
Federal Coal Lease dated as of January 24, 1996 between the U.S. Department of the Interior and the
Thunder Basin Coal Company (incorporated herein by reference to Exhibit 10.20 to the registrant’s Annual
Report on Form 10-K for the year ended December 31, 1998).
Federal Coal Lease Readjustment dated as of November 1, 1967 between the U.S. Department of the
Interior and the Thunder Basin Coal Company (incorporated herein by reference to Exhibit 10.21 to the
registrant’s Annual Report on Form 10-K for the year ended December 31, 1998).
Federal Coal Lease effective as of May 1, 1995 between the U.S. Department of the Interior and Mountain
Coal Company (incorporated herein by reference to Exhibit 10.22 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 1998).
Federal Coal Lease dated as of January 1, 1999 between the Department of the Interior and Ark Land
Company (incorporated herein by reference to Exhibit 10.23 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 1998).
Federal Coal Lease dated as of October 1, 1999 between the U.S. Department of the Interior and Canyon
Fuel Company, LLC (incorporated herein by reference to Exhibit 10 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
Federal Coal Lease effective as of March 1, 2005 by and between the United States of America and Ark
Land LT, Inc. covering the tract of land known as ‘‘Little Thunder’’ in Campbell County, Wyoming
(incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by the registrant on
February 10, 2005).
85
Exhibit
Description
10.18 Modified Coal Lease (WYW71692) executed January 1, 2003 by and between the United States of
America, through the Bureau of Land Management, as lessor, and Triton Coal Company, LLC, as lessee,
covering a tract of land known as ‘‘North Rochelle’’ in Campbell County, Wyoming (incorporated by
reference to Exhibit 10.24 to the registrant’s Annual Report on Form 10-K for the year ended
December 31, 2004).
10.19 Coal Lease (WYW127221) executed January 1, 1998 by and between the United States of America,
through the Bureau of Land Management, as lessor, and Triton Coal Company, LLC, as lessee, covering a
tract of land known as ‘‘North Roundup’’ in Campbell County, Wyoming (incorporated by reference to
Exhibit 10.24 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2004).
10.20
10.21
10.22
10.23
State Coal Lease executed October 1, 2004 by and between The State of Utah, Thru School & Institutional
Trust Lands Admin, as lessor, and Ark Land Company and Arch Coal, Inc., as lessees, covering a tract of
land located in Seiever County, Utah (incorporated by reference to Exhibit 10.20 to the registrant’s Annual
Report on Form 10-K for the year ended December 31, 2006).
State Coal Lease executed September 1, 2000 by and between The State of Utah, Thru School &
Institutional Trust Lands Admin, as lessor, and Canyon Fuel Company, LLC, as lessee, for lands located in
Carbon County, Utah (incorporated by reference to Exhibit 10.21 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 2006).
Federal Coal Lease executed September 1, 1996 by and between the Bureau of Land Management, as
lessor, and Canyon Fuel Company, LLC, as lessee, covering a tract of land known as ‘‘The North Lease’’ in
Carbon County, Utah (incorporated by reference to Exhibit 10.22 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 2006).
State Coal Lease executed January 18, 2008 by and between The State of Utah, Thru School &
Institutional Trust Lands Admin, as lessor, and Ark Land Company, as lessee, for lands located in Emery
County, Utah (incorporated by reference to Exhibit 10.21 to the registrant’s Annual Report on Form 10-K
for the year ended December 31, 2008).
10.24
Form of Indemnity Agreement between Arch Coal, Inc. and Indemnitee (as defined therein) (incorporated
herein by reference to Exhibit 10.15 to the Registration Statement on Form S-4 (Registration
No. 333-28149) filed by the registrant on May 30, 1997).
10.25* Arch Coal, Inc. Incentive Compensation Plan For Executive Officers (incorporated herein by reference to
Appendix B to the proxy statement on Schedule 14A filed by the registrant on March 22, 2010).
10.26* Arch Coal, Inc. Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.3 to the
registrant’s Current Report on Form 8-K filed on December 11, 2008).
10.27* Arch Coal, Inc. Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the
registrant’s Quarterly Report on Form 10-Q filed on May 8, 2013).
10.28* Arch Mineral Corporation 1996 ERISA Forfeiture Plan (incorporated herein by reference to Exhibit 10.20
to the Registration Statement on Form S-4 (Registration No. 333-28149) filed by the registrant on
May 30, 1997).
10.29* Arch Coal, Inc. Outside Directors’ Deferred Compensation Plan (incorporated herein by reference to
Exhibit 10.4 of the registrant’s Current Report on Form 8-K filed on December 11, 2008).
10.30* Arch Coal, Inc. Supplemental Retirement Plan (as amended on December 5, 2008) (incorporated herein by
reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on December 11, 2008).
86
Exhibit
Description
10.31* Form of Restricted Stock Unit Contract (incorporated herein by reference to Exhibit 10.5 to the registrant’s
Current Report on Form 8-K filed on February 24, 2006).
10.32* Form of Non-Qualified Stock Option Agreement (for stock options granted prior to February 21, 2008)
(incorporated herein by reference to Exhibit 10.35 to the registrant’s Annual Report on Form 10-K for the
year ended December 31, 2006).
10.33* Form of 2008 Restricted Stock Unit Contract for Messrs. Leer and Eaves (incorporated herein by reference
to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on February 27, 2008).
10.34* Form of 2008 Non-Qualified Stock Option Agreement for Messrs. Leer and Eaves (incorporated herein by
reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed on February 27, 2008).
10.35* Form of Non-Qualified Stock Option Agreement (for stock options granted on or after February 21, 2008)
(incorporated herein by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed on
February 27, 2008).
10.36* Form of Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.3 to the
registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2013).
10.37* Form of Performance Unit Contract (incorporated herein by reference to Exhibit 10.2 to the registrant’s
Quarterly Report on Form 10-Q for the period ended March 31, 2013).
10.38* Form of 2011 Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.1 to
the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).
10.39* Form of 2011 Restricted Stock Unit Contract (incorporated herein by reference to Exhibit 10.2 to the
registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).
10.40* Form of 2011 Restricted Stock Unit Contract for Non-Employee Directors (incorporated herein by reference
to Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).
10.41* Form of 2011 Performance Unit Contract (incorporated herein by reference to Exhibit 10.4 to the
registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).
10.42* Form of Restricted Stock Unit Contract (incorporated herein by reference to Exhibit 10.4 to the registrant’s
Quarterly Report on Form 10-Q for the period ended March 31, 2013).
10.43* Form of Restricted Stock Unit Contract for Non-Employee Directors (incorporated herein by reference to
Exhibit 10.5 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2013).
10.44* Form of Director Indemnity Agreement (incorporated herein by reference to Exhibit 10.40 to the
registrant’s Annual Report on Form 10-K for the period ended December 31, 2010).
10.45 Amended and Restated Receivables Purchase Agreement, dated as of February 24, 2020, among Arch
Receivable Company, LLC, Arch Coal Sales Company, Inc., Market Street Funding LLC, as issuer, the
financial institutions from time to time party thereto, as LC Participants, and PNC Bank, National
Association, as Administrator on behalf of the Purchasers and as LC Bank (incorporated herein by reference
to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2010).
10.46
First Amendment to Amended and Restated Receivables Purchase Agreement, dated January 31, 2011,
among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto
(incorporated by reference to Exhibit 10.41 to the registrant’s Annual Report on Form 10-K for the period
ended December 31, 2010).
87
Exhibit
10.47
Second Amendment to Amended and Restated Receivables Purchase Agreement dated June 15, 2011
(incorporated by reference to Exhibit 10.5 to the registrant’s Quarterly Report on Form 10-Q for the
period ended June 30, 2011).
Description
10.48 Third Amendment to Amended and Restated Receivables Purchase Agreement dated November 21, 2011,
among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto
(incorporated herein by reference to Exhibit 10.38 to the registrant’s Annual Report on Form 10-K for the
year ended December 31, 2011).
10.49
10.50
10.51
10.52
Fourth Amendment to Amended and Restated Receivables Purchase Agreement dated December 13, 2011,
among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto
(incorporated herein by reference to Exhibit 10.39 to the registrant’s Annual Report on Form 10-K for the
year ended December 31, 2011).
Fifth Amendment to Amended and Restated Receivables Purchase Agreement dated December 11, 2012,
among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc. and the other parties thereto
(incorporated herein by reference to Exhibit 10.45 to the registrant’s Annual Report on Form 10-K for the
period ended December 31, 2012).
Sixth Amendment to Amended and Restated Receivables Purchase Agreement dated October 4, 2013,
among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc., and the other parties thereto.
Seventh Amendment to Amended and Restated Receiveables Purchase Agreement dated December 10,
2013, among Arch Receivable Company, LLC, Arch Coal Sales Company, Inc., and the other parties
thereto.
12.1 Computation of ratio of earnings to combined fixed charges and preference dividends.
21.1
Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Weir International, Inc.
24.1 Power of Attorney.
31.1 Rule 13a-14(a)/15d-14(a) Certification of John W. Eaves.
31.2 Rule 13a-14(a)/15d-14(a) Certification of John T. Drexler.
32.1
Section 1350 Certification of John W. Eaves.
32.2
Section 1350 Certification of John T. Drexler.
95 Mine Safety Disclosure Exhibit.
101
Interactive Data File (Form 10-K for the year ended December 31, 2013 filed in XBRL). The financial
information contained in the XBRL-related documents is ‘‘unaudited’’ and ‘‘unreviewed.’’
*
Denotes management contract or compensatory plan arrangements.
88
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Arch Coal, Inc. and subsidiaries and reports of independent registered
public accounting firm follow.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Management and Management’s Report on Internal Control over Financial Reporting . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011 . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2013, 2012, 2011 . . . . . .
Consolidated Balance Sheets at December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011 . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013, 2012 and 2011 . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-10
F-62
F-1
The Board of Directors and Shareholders of Arch Coal, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Arch Coal, Inc. and subsidiaries (the
Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations,
comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Arch Coal, Inc. and subsidiaries at December 31, 2013 and 2012, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2013, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Arch Coal, Inc.’s internal control over financial reporting as of December 31, 2013, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) and our report dated February 28, 2014, expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
St. Louis, Missouri
February 28, 2014
F-2
The Board of Directors and Shareholders of Arch Coal, Inc.
Report of Independent Registered Public Accounting Firm
We audited Arch Coal, Inc. and subsidiaries’ (the Company’s) internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Arch Coal, Inc.
and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Arch Coal, Inc. and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Arch Coal, Inc. and subsidiaries as of December 31, 2013 and
2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2013, and our report dated February 28,
2014, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
St. Louis, Missouri
February 28, 2014
F-3
REPORT OF MANAGEMENT
The management of Arch Coal, Inc. (the ‘‘Company’’) is responsible for the preparation of the consolidated
financial statements and related financial information in this annual report. The financial statements are prepared in
accordance with accounting principles generally accepted in the United States and necessarily include some amounts
that are based on management’s informed estimates and judgments, with appropriate consideration given to
materiality.
The Company maintains a system of internal accounting controls designed to provide reasonable assurance that
financial records are reliable for purposes of preparing financial statements and that assets are properly accounted for
and safeguarded. The concept of reasonable assurance is based on the recognition that the cost of a system of
internal accounting controls should not exceed the value of the benefits derived. The Company has a professional
staff of internal auditors who monitor compliance with and assess the effectiveness of the system of internal
accounting controls.
The Audit Committee of the Board of Directors, comprised of independent directors, meets regularly with
management, the internal auditors, and the independent auditors to discuss matters relating to financial reporting,
internal accounting control, and the nature, extent and results of the audit effort. The independent auditors and
internal auditors have full and free access to the Audit Committee, with and without management present.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Arch Coal, Inc. (the ‘‘Company’’) is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f). Under the supervision
and with the participation of the Company’s management, including its principal executive officer and principal
financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial
reporting as of December 31, 2013 based on the criteria set forth in Internal Control—Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation,
management concluded that the Company’s internal control over financial reporting is effective as of December 31,
2013.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an audit report
on the Company’s internal control over financial reporting.
/s/ JOHN W. EAVES
John W. Eaves
Chairman and Chief Executive Officer
/s/ JOHN T. DREXLER
John T. Drexler
Senior Vice President and Chief Financial Officer
F-4
Arch Coal, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs, expenses and other operating
Cost of sales (exclusive of items shown separately below) . . . . . . . . . . . . . . . . . . . .
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired sales contracts, net
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of coal derivatives and coal trading activities, net . . . . . . . . . . .
Coal derivative settlements, non-hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment and mine closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract settlement resulting from Patriot Coal bankruptcy . . . . . . . . . . . . . . . . . .
Reduction in accrual related to acquired litigation . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and transition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
2012
2011
$ 3,014,357
$ 3,768,126
$3,883,039
2,663,136
426,442
(9,457)
7,845
(32,534)
220,879
265,423
—
—
—
133,448
2,316
3,155,099
492,211
(25,189)
(16,590)
(43,990)
539,182
330,680
58,335
(79,532)
—
134,299
(19,367)
2,980,354
420,980
(22,069)
(2,907)
7
7,316
—
—
—
47,360
119,056
(10,119)
3,677,498
4,525,138
3,539,978
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(663,141)
(757,012)
343,061
Interest expense, net
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonoperating expense
Net loss resulting from early retirement and refinancing of debt
. . . . . . . . . . . . . . . .
Acquisition bridge financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(381,267)
6,603
(374,664)
(42,921)
—
(42,921)
(317,615)
5,473
(230,186)
3,309
(312,142)
(226,877)
(23,668)
—
(23,668)
Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . .
Benefit from income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,080,726)
(335,498)
(1,092,822)
(353,907)
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, including gain on sale—net of tax . . . . . . .
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . .
(745,228)
103,396
(641,832)
—
(738,915)
55,228
(683,687)
(268)
Net income (loss) attributable to Arch Coal, Inc. . . . . . . . . . . . . . . . . . . . . . .
$ (641,832) $ (683,955) $ 141,683
Earnings (loss) per common share
Income (loss) from continuing operations
Basic earnings (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Arch Coal, Inc.
Basic earnings (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings (loss) per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
(3.52) $
(3.50) $
(3.52) $
(3.50) $
(3.03) $
(3.24) $
(3.03) $
(3.24) $
0.47
0.47
0.75
0.74
Weighted average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
212,098
212,098
211,381
211,381
190,086
190,905
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.12
$
0.20
$
0.43
The accompanying notes are an integral part of the consolidated financial statements.
F-5
(1,958)
(49,490)
(51,448)
64,736
(24,279)
89,015
53,825
142,840
(1,157)
Arch Coal, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Net income (loss)
Derivative instruments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension, postretirement and other post-employment benefits
Comprehensive income (loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities
Comprehensive income (loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
2012
2011
$(641,832) $(683,687) $142,840
(2,626)
947
(1,679)
77,201
(27,803)
49,398
10,190
(3,710)
6,480
54,199
10,894
(3,921)
6,973
(21,291)
7,686
(13,605)
(3,000)
1,080
(1,920)
(8,552)
(11,953)
4,303
(7,650)
9,376
(3,440)
5,936
114
—
114
(1,600)
Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(587,633) $(692,239) $141,240
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Arch Coal, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)
Assets
Current assets
Cash and cash equivalents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coal derivative assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
911,099
—
248,414
198,020
31,553
264,161
8,083
49,144
14,851
56,746
$
784,622
3,453
234,305
247,539
84,541
365,424
11,416
67,360
22,975
92,469
December 31,
2013
2012
Total current assets
Property, plant and equipment
Coal lands and mineral rights
Plant and equipment
Deferred mine development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation, depletion and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,782,071
1,914,104
5,991,719
2,882,486
979,270
6,218,776
3,391,265
1,079,856
9,853,475
(3,119,189)
10,689,897
(3,352,799)
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,734,286
7,337,098
Other assets
Prepaid royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Equity investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87,577
—
221,456
164,803
473,836
87,773
265,423
242,215
160,164
755,575
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,990,193
$10,006,777
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
Coal derivative liabilities
Accrued expenses and other current liabilities
Current maturities of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations
Accrued pension benefits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued postretirement benefits other than pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
176,142
12
278,575
33,493
488,222
5,118,002
402,713
7,111
39,255
78,062
413,546
190,033
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,736,944
$
224,418
1,737
318,018
32,896
577,069
5,085,879
409,705
67,630
45,086
81,629
664,182
221,030
7,152,210
Stockholders’ equity
Common stock, $0.01 par value, authorized 260,000 shares, issued 213,792 and 213,759 shares at December 31, 2013
and December 31, 2012, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss)
2,141
3,038,613
(53,848)
(771,349)
37,692
2,141
3,026,823
(53,848)
(104,042)
(16,507)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,253,249
2,854,567
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,990,193
$10,006,777
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Arch Coal, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired sales contracts, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization relating to financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid royalties expensed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss resulting from early retirement of debt and financing activities . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premiums on debt securities held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of Canyon Fuel
Asset impairment and noncash mine closure costs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment
Changes in:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coal derivative assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Year Ended December 31,
2013
2012
2011
$(641,832)
$ (683,687)
$
142,840
447,704
(9,457)
24,789
13,706
11,790
42,921
3,680
(120,321)
220,879
265,423
62,881
44,635
3,606
(77,521)
(4,520)
(263,099)
17,432
13,046
525,508
(25,189)
20,238
22,650
11,822
23,668
—
—
531,234
330,680
113,531
9,468
(13,158)
(171,580)
27,545
(336,036)
(42,531)
(11,359)
466,587
(22,069)
14,067
34,842
10,882
51,448
—
—
7,316
—
(74,914)
(50,900)
6,079
52,191
(21,759)
10,519
3,868
11,245
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,742
332,804
642,242
Investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to prepaid royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from dispositions of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale-leaseback transactions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of Canyon Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of short term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of short term investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in and advances to affiliates
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration paid related to prior business acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(296,984)
—
(14,947)
10,790
34,919
422,663
(213,726)
194,537
(15,260)
—
3,453
—
(395,225)
(540,936)
— (2,894,339)
(29,957)
25,887
—
—
—
—
(61,909)
—
5,167
(829)
(13,269)
22,825
—
—
(236,862)
1,754
(17,758)
(17,500)
6,869
—
Cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,445
(649,166)
(3,496,916)
Financing activities
Proceeds from term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the issuance of common stock, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to retire debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in borrowings under lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net payments on other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of options under incentive plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
294,000
350,000
—
(629,172)
(17,250)
—
(6,324)
(20,489)
(25,475)
—
Cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(54,710)
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,477
784,622
1,633,500
359,753
—
(452,934)
(7,625)
(481,300)
(682)
(50,568)
(42,440)
5,131
962,835
646,473
138,149
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 911,099
$ 784,622
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 380,389
$ 310,241
Cash paid (refunded) during the year for income taxes, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (18,741)
$ (28,057)
—
2,000,000
1,267,933
(605,178)
—
424,396
5,334
(114,823)
(80,748)
2,316
2,899,230
44,556
93,593
138,149
213,697
7,094
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
F-8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Years Ended December 31, 2013
BALANCE AT JANUARY 1, 2011 . . . . . . . .
Total comprehensive income (loss) . . . . . . . . .
Dividends on common shares ($0.43 per share)
Issuance of 48,705 common shares . . . . . . . .
Issuance of 162 shares of common stock under
the stock incentive plan—restricted stock
and restricted stock units, net of forfeitures .
Issuance of 199 shares of common stock under
the stock incentive plan—stock options
including income tax benefits . . . . . . . . . .
Employee stock-based compensation expense . .
BALANCE AT DECEMBER 31, 2011 . . . . . .
Total comprehensive (loss) . . . . . . . . . . . . . .
Dividends on common shares ($0.20 per share)
Redemption of noncontrolling interest . . . . . .
Issuance of 49 shares of common stock under
the stock incentive plan—restricted stock
and restricted stock units, net of forfeitures .
Issuance of 526 shares of common stock under
the stock incentive plan—stock options
including income tax benefits . . . . . . . . . .
Employee stock-based compensation expense . .
BALANCE AT DECEMBER 31, 2012 . . . . . .
Total comprehensive income (loss) . . . . . . . . .
Dividends on common shares ($0.12 per share)
Issuance of 39 shares of common stock under
the stock incentive plan—restricted stock
and restricted stock units, net of forfeitures .
Employee stock-based compensation expense . .
Common
Stock
Paid-In
Capital
$1,645
$1,734,709
487
1,267,446
Treasury
Stock, at
Cost
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
(In thousands, except per share data)
$(53,848) $ 561,418
141,683
(80,748)
$ (6,417)
(1,533)
2
2
(2)
2,314
10,882
2,136
3,015,349
(53,848)
622,353
(683,955)
(42,440)
(7,950)
(8,557)
(5,474)
0
5,126
11,822
0
5
2,141
$3,026,823
$(53,848) $(104,042)
(641,832)
(25,475)
$(16,507)
$ 54,199
0
0
11,790
Total
$2,237,507
140,150
(80,748)
1,267,933
—
2,316
10,882
3,578,040
(692,512)
(42,440)
(5,474)
0
5,131
11,822
$2,854,567
(587,633)
(25,475)
0
11,790
BALANCE AT DECEMBER 31, 2013 . . . . . .
$2,141
$3,038,613
$(53,848) $(771,349)
$ 37,692
$2,253,249
F-9
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of Arch Coal, Inc. and its subsidiaries
and controlled entities (the ‘‘Company’’). The Company’s primary business is the production of thermal and
metallurgical coal from surface and underground mines located throughout the United States, for sale to utility,
industrial and steel producers both in the United States and around the world. The Company currently operates
mining complexes in West Virginia, Kentucky, Maryland, Virginia, Illinois, Wyoming and Colorado. All subsidiaries
are wholly-owned. Intercompany transactions and accounts have been eliminated in consolidation.
The Company completed the sale of Canyon Fuel Company, LLC (Canyon Fuel) on August 16, 2013. The
results of these mining complexes have been segregated from continuing operations and are reflected, net of tax, as
discontinued operations in the consolidated statements of operations for all periods presented. See further discussion
in Note 3, ‘‘Discontinued Operations’’.
In response to decreasing demand for thermal coal in Appalachia, the Company closed four mining complexes,
temporarily idled a fifth complex, and curtailed production at other mines in the Appalachia region in the second
quarter of 2012. The results for the closed and idled complexes are reflected in income from continuing operations
in the consolidated statements of operations. See further discussion in Note 5, ‘‘Impairment Charges and Mine
Closure Costs’’.
The Company’s subsidiary Arch Western Resources, LLC (‘‘Arch Western’’) operates thermal coal mines in the
western U.S. On April 9, 2012, Delta Housing, Inc., a subsidiary of BP p.l.c. and a joint venture partner in Arch
Western, exercised their contractual right to require the Company to purchase their common and preferred
membership interests in Arch Western. With the payment of the negotiated purchase amount of $17.5 million on
July 2, 2012, Arch Western became a wholly-owned subsidiary.
2. Accounting Policies
The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for financial reporting and U.S. Securities and Exchange
Commission regulations.
Accounting Pronouncements
There are no accounting pronouncements whose adoption had, or is expected to have, a material impact on
the Company’s consolidated financial statements.
Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and revenues and expenses in the accompanying consolidated financial statements and the disclosure
of contingent assets and liabilities. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost. Cash equivalents consist of highly-liquid investments with an
original maturity of three months or less when purchased.
F-10
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Allowance for Uncollectible Receivables
The Company establishes an allowance for uncollectible receivables for the amounts of trade accounts
receivable and other receivables that are not expected to be collected, based on past collection history, the economic
environment and specified risks identified in the receivables portfolio. Receivables are considered past due if the full
payment is not received by the contractual due date. At December 31, 2013 and 2012, the allowance for
uncollectible receivables was insignificant.
Inventories
Coal and supplies inventories are valued at the lower of average cost or market. Coal inventory costs include
labor, supplies, equipment costs, transportation costs incurred prior to the transfer of title to customers and
operating overhead. The costs of removing overburden, called stripping costs, incurred during the production phase
of the mine are considered variable production costs and are included in the cost of the coal extracted during the
period the stripping costs are incurred.
Investments and Membership Interests in Joint Ventures
Investments and membership interests in joint ventures are accounted for under the equity method of
accounting if the Company has the ability to exercise significant influence, but not control, over the entity. The
Company’s share of the entity’s income or loss is reflected in ‘‘Other operating expense (income), net’’ in the
consolidated statements of operations. Information about investment activity is provided in Note 9, ‘‘Equity Method
Investments and Membership Interests in Joint Ventures’’.
Investments in debt securities and marketable equity securities that do not qualify for equity method
accounting are classified as available-for-sale and are recorded at their fair values. Unrealized gains and losses on
these investments are recorded in other comprehensive income or loss. A decline in the value of an investment that
is considered other-than-temporary would be recognized in operating expenses.
Prepaid Royalties
Leased mineral rights are often acquired through royalty payments. When royalty payments represent
prepayments recoupable against future production, they are recorded as a prepaid asset, with amounts expected to
be recouped within one year classified as current. When the coal is mined under these leases the royalties are
recouped and the prepayment is charged to cost of sales.
Acquired Sales Contracts
Coal supply agreements (sales contracts) acquired in a business combination are capitalized at their fair value
and amortized over the tons of coal shipped during the term of the contract. The fair value of a sales contract is
determined by discounting the cash flows attributable to the difference between the contract price and the
prevailing forward prices for the tons under contract at the date of acquisition. See Note 10, ‘‘Acquired Sales
Contracts’’ for further information related to the Company’s acquired sales contracts.
Exploration Costs
Costs to acquire permits for exploration activities are capitalized. Drilling and other costs related to locating
coal deposits and evaluating the economic viability of such deposits are expensed as incurred.
F-11
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Property, Plant and Equipment
Plant and Equipment
Plant and equipment are recorded at cost. Interest costs incurred during the construction period for major
asset additions are capitalized. We capitalized $15.9 million, $15.6 million, and $1.9 million of interest costs during
the years ended December 31, 2013, 2012, and 2011, respectively. Expenditures that extend the useful lives of
existing plant and equipment or increase the productivity of the asset are capitalized. The cost of maintenance and
repairs that do not extend the useful life or increase the productivity of the asset are expensed as incurred.
Preparation plants and loadouts are depreciated using the units-of-production method over the estimated
recoverable reserves, subject to a minimum level of depreciation. Other plant and equipment are depreciated
principally using the straight-line method over the estimated useful lives of the assets, limited by the remaining life
of the mine. The useful lives of mining equipment, including longwalls, draglines and shovels, range from 5 to
32 years. The useful lives of buildings and leasehold improvements generally range from 10 to 30 years.
Deferred Mine Development
Costs of developing new mines or significantly expanding the capacity of existing mines are capitalized and
amortized using the units-of-production method over the estimated recoverable reserves that are associated with the
property being benefited. Costs may include construction permits and licenses; mine design; construction of access
roads, shafts, slopes and main entries; and removing overburden to access reserves in a new pit. Additionally,
deferred mine development includes the asset cost associated with asset retirement obligations.
Coal Lands and Mineral Rights
Rights to coal reserves may be acquired directly through governmental or private entities. A significant portion
of the Company’s coal reserves are controlled through leasing arrangements. Lease agreements are generally
long-term in nature (original terms range from 10 to 50 years), and substantially all of the leases contain provisions
that allow for automatic extension of the lease term providing certain requirements are met.
The net book value of the Company’s coal interests was $4.8 billion and $5.1 billion at December 31, 2013
and 2012. Payments to acquire royalty lease agreements and lease bonus payments are capitalized as a cost of the
underlying mineral reserves and depleted over the life of proven and probable reserves. Coal lease rights are
depleted using the units-of-production method, and the rights are assumed to have no residual value.
Future lease bonus payments total $60.4 million in 2014, $75.8 million in 2015, $60.4 million in 2016, and
$0.4 million in 2017.
Depreciation, depletion and amortization.
The depreciation, depletion and amortization related to long-lived assets is reflected in the statement of
operations as a separate line item. No depreciation, depletion or amortization is included in any other operating cost
categories.
Impairment
If facts and circumstances suggest that the carrying value of a long-lived asset or asset group may not be
recoverable, the asset or asset group is reviewed for potential impairment. If this review indicates that the carrying
amount of the asset will not be recoverable through projected undiscounted cash flows generated by the asset and
F-12
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
its related asset group over its remaining life, then an impairment loss is recognized by reducing the carrying value
of the asset to its fair value. The Company may, under certain circumstances, idle mining operations in response to
market conditions or other factors. Because an idling is not a permanent closure, it is not considered an automatic
indicator of impairment. See additional discussion in Note 5, ‘‘Impairment Charges and Mine Closure Costs’’.
Goodwill
In a business combination, goodwill represents the excess of the purchase price over the fair value assigned to
the net tangible and identifiable intangible assets acquired. The Company tests goodwill for impairment annually as
of the beginning of the fourth quarter, or when circumstances indicate a possible impairment may exist. If the
results of the testing indicate that the carrying amount of a reporting unit exceeds the fair value of the reporting
unit, the fair value of goodwill must be calculated. An impairment loss generally would be recognized when the
carrying amount of goodwill exceeds the implied fair value of goodwill, determined by subtracting the fair value of
the other assets and liabilities associated with the reporting unit from the total fair value of the reporting unit. The
fair value of a reporting unit is determined using a discounted cash flow (‘‘DCF’’) technique. A number of
significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash
flows, including the discount rate, projections of production volumes, quality and costs to produce; projections of
sales volumes by market (e.g., thermal versus metallurgical); and projections of market prices. See additional
discussion in Note 6, ‘‘Goodwill.’’
Deferred Financing Costs
The Company capitalizes costs incurred in connection with new borrowings, the establishment or enhancement
of credit facilities and the issuance of debt securities. These costs are amortized as an adjustment to interest expense
over the life of the borrowing or term of the credit facility using the interest method. The unamortized balance of
deferred financing costs was $99.2 million and $101.5 million at December 31, 2013 and 2012, respectively.
Amounts classified as current were $19.7 million and $17.3 million at December 31, 2013 and 2012, respectively.
Current amounts are recorded in ‘‘Other current assets’’ and noncurrent amounts are recorded in ‘‘Other noncurrent
assets’’ in the accompanying consolidated balance sheets.
Revenue Recognition
Revenues include sales to customers of coal produced at Company operations and coal purchased from third
parties. The Company recognizes revenue at the time risk of loss passes to the customer at contracted amounts.
Transportation costs are included in cost of sales and amounts billed by the Company to its customers for
transportation are included in revenues.
Other Operating Expense (Income), Net
Other operating expense (income), net in the accompanying consolidated statements of operations reflects
income and expense from sources other than physical coal sales, including: bookouts, the practice of offsetting
purchase and sale contracts for shipping convenience purposes, and contract settlements; royalties earned from
properties leased to third parties; income from equity investments; gains and losses from dispositions of assets; and
realized gains and losses on heating oil derivatives that do not qualify for hedge accounting and are not held for
trading purposes.
F-13
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Asset Retirement Obligations
The Company’s legal obligations associated with the retirement of long-lived assets are recognized at fair value
at the time the obligations are incurred. Accretion expense is recognized through the expected settlement date of
the obligation. Obligations are incurred at the time development of a mine commences for underground and surface
mines or construction begins for support facilities, refuse areas and slurry ponds. The obligation’s fair value is
determined using a DCF technique and is based upon permit requirements and various estimates and assumptions
that would be used by market participants, including estimates of disturbed acreage, reclamation costs and
assumptions regarding equipment productivity. Upon initial recognition of a liability, a corresponding amount is
capitalized as part of the carrying value of the related long-lived asset.
The Company reviews its asset retirement obligation at least annually and makes necessary adjustments for
permit changes as granted by state authorities and for revisions of estimates of the amount and timing of costs. For
ongoing operations, adjustments to the liability result in an adjustment to the corresponding asset. For idle
operations, adjustments to the liability are recognized as income or expense in the period the adjustment is
recorded. Any difference between the recorded obligation and the actual cost of reclamation is recorded in profit or
loss in the period the obligation is settled. See additional discussion in Note 15, ‘‘Asset Retirement Obligations.’’
Loss Contingencies
The Company accrues for cost related to contingencies when a loss is probable and the amount is reasonably
determinable. Disclosure of contingencies is included in the financial statements when it is at least reasonably
possible that a material loss or an additional material loss in excess of amounts already accrued may be incurred.
The amount accrued represents the Company’s best estimate of the loss, or, if no best estimate within a range of
outcomes exists, the minimum amount in the range.
Derivative Instruments
The Company generally utilizes derivative instruments to manage exposures to commodity prices. Additionally,
the Company may hold certain coal derivative instruments for trading purposes. Derivative financial instruments are
recognized in the balance sheet at fair value. Certain coal contracts may meet the definition of a derivative
instrument, but because they provide for the physical purchase or sale of coal in quantities expected to be used or
sold by the Company over a reasonable period in the normal course of business, they are not recognized on the
balance sheet.
Certain derivative instruments are designated as the hedge instrument in a hedging relationship. In a fair value
hedge, the Company hedges the risk of changes in the fair value of a firm commitment, typically a fixed-price coal
sales contract. Changes in both the hedged firm commitment and the fair value of a derivative used as a hedge
instrument in a fair value hedge are recorded in earnings. In a cash flow hedge, the Company hedges the risk of
changes in future cash flows related to a forecasted purchase or sale. Changes in the fair value of the derivative
instrument used as a hedge instrument in a cash flow hedge are recorded in other comprehensive income or loss.
Amounts in other comprehensive income or loss are reclassified to earnings when the hedged transaction affects
earnings and are classified in a manner consistent with the transaction being hedged. The Company formally
documents the relationships between hedging instruments and the respective hedged items, as well as its risk
management objectives for hedge transactions.
The Company evaluates the effectiveness of its hedging relationships both at the hedge’s inception and on an
ongoing basis. Any ineffective portion of the change in fair value of a derivative instrument used as a hedge
instrument in a fair value or cash flow hedge is recognized immediately in earnings. The ineffective portion is based
F-14
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
on the extent to which exact offset is not achieved between the change in fair value of the hedge instrument and
the cumulative change in expected future cash flows on the hedged transaction from inception of the hedge in a
cash flow hedge or the change in the fair value. Ineffectiveness was insignificant for the years ended December 31,
2013, 2012 and 2011. See Note 11, ‘‘Derivatives’’ for further disclosures related to the Company’s derivative
instruments.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly hypothetical transaction between market participants at a given measurement date. Valuation techniques
used must maximize the use of observable inputs and minimize the use of unobservable inputs. See Note 16, ‘‘Fair
Values Measurements’’ for further disclosures related to the Company’s recurring fair value estimates.
Income Taxes
Deferred income taxes are provided for temporary differences arising from differences between the financial
statement amount and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates
anticipated to be in effect when the related taxes are expected to be paid or recovered. A valuation allowance is
established if it is more likely than not that a deferred tax asset will not be realized. In determining the need for a
valuation allowance, the Company considers projected realization of tax benefits based on expected levels of future
taxable income, available tax planning strategies and the reversal of temporary differences.
Benefits from tax positions that are uncertain are not recognized unless the Company concludes that it is more
likely than not that the position would be sustained in a dispute with taxing authorities, should the dispute be
taken to the court of last resort. The Company would measure any such benefit at the largest amount of benefit
that is greater than 50 percent likely of being realized upon settlement with taxing authorities.
See Note 14, ‘‘Taxes’’ for further disclosures about income taxes.
Benefit Plans
The Company has non-contributory defined benefit pension plans covering most of its salaried and hourly
employees. Benefits are generally based on the employee’s age and compensation. The Company also currently
provides certain postretirement medical and life insurance coverage for eligible employees. The cost of providing
these benefits are determined on an actuarial basis and accrued over the employee’s period of active service.
The Company recognizes the overfunded or underfunded status of these plans as determined on an actuarial
basis on the balance sheet and the changes in the funded status are recognized in other comprehensive income. See
Note 20, ‘‘Employee Benefit Plans’’ for additional disclosures relating to these obligations.
Stock-Based Compensation
The compensation cost of all stock-based awards is determined based on the grant-date fair value of the award,
and is recognized over the requisite service period. The grant-date fair value of option awards is determined using a
Black-Scholes option pricing model. Compensation cost for an award with performance conditions is accrued if it is
probable that the conditions will be met. See further discussion in Note 18, ‘‘Stock-Based Compensation and Other
Incentive Plans.’’
F-15
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
3. Discontinued Operations
As part of a strategy to divest its non-core thermal coal assets, the Company entered into a definitive
agreement on June 27, 2013 to sell Canyon Fuel, to Bowie Resources, LLC. Canyon Fuel operated two longwall
mining complexes and a continuous miner operation in Utah. The sale was completed on August 16, 2013, for
$422.7 million in cash, including adjustments to working capital estimates.
The following table summarizes the results of discontinued operations through the date of disposition:
Year Ended December 31,
2013
2012
2011
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$219,002
(In thousands)
$390,912
$402,856
Income from discontinued operations before income taxes
Less:
.
$ 32,167
$ 75,418
$ 70,515
Gain on sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . .
120,321
49,092
—
20,190
—
16,690
Income from discontinued operations, including gain on
sale—net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
$103,396
$ 55,228
$ 53,825
Basic earnings per common share from discontinued
operations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share from discontinued
operations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.49
0.49
$
$
0.26
0.26
$
$
0.28
0.28
The following table summarizes the assets and liabilities of the discontinued operations reflected in the
December 31, 2012 consolidated balance sheet:
Inventories
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,543
10,763
280,109
5,334
27,419
9,892
4. Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes transactions recorded in stockholders’ equity during the year,
excluding net income and transactions with stockholders. In February 2013, the FASB issued ASU 2013-02,
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The standard requires that companies
present, either parenthetically on the face of the financial statements or in a single note, the effect of significant
amounts reclassified from each component of accumulated other comprehensive income and the income statement
line items affected by the reclassification. The Company adopted the provisions of the new guidance in the first
quarter of 2013.
F-16
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following items are included in accumulated other comprehensive income (loss):
Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . .
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive
Pension,
Postretirement
and Other
Post-
Employment
Benefits
Derivative
Instruments
Available-for-
Sale Securities
Accumulated
Other
Comprehensive
Income (Loss)
(In thousands)
$(4,729)
4,320
$ (4,676)
(14,528)
$ 1,455
(1,924)
$ (7,950)
(12,132)
2,653
2,244
168
918
(18,286)
48,482
4
(465)
5,935
3,575
(16,507)
54,585
income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,847)
916
545
(386)
Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . .
$
565
$ 31,112
$ 6,015
$ 37,692
The following amounts were reclassified out of accumulated other comprehensive income (loss) during the year
ended December 31, 2013:
Details about accumulated other
comprehensive income components
Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension, postretirement and other post-employment benefits
Amortization of prior service credits . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial gains (losses), net . . . . . . . . . . . . . . .
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications
(in thousands)
Line Item in the Consolidated
Statement of Operations
$
$
$
$
$
$
2,886
(1,039) Benefit from income taxes
Revenues
1,847 Net of tax
13,705(1)
(15,136)(1)
(1,431) Total before tax
515
Benefit from income taxes
(916) Net of tax
(852)(2) Interest and investment income
307
Benefit from income taxes
(545) Net of tax
(1) Production-related benefits and workers’ compensation costs are included in costs to produce coal. See
Note 19, ‘‘Workers’ Compensation Expense’’ and Note 20 ‘‘Employee Benefit Plans’’ for more information
about pension, postretirement and postemployment benefit costs.
(2) The gains and losses on sales of available-for-sale-securities are determined on a specific identification basis.
F-17
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
5.
Impairment Charges and Mine Closure Costs
Due to ongoing weakness in the thermal coal markets in Appalachia, the Company assessed in the third
quarter of 2013 whether the carrying values of certain assets were recoverable through future cash flows. The
Company determined that the carrying amounts of certain assets associated with the Hazard mining complex in
Kentucky and the Company’s ADDCAR subsidiary, which manufactures and sells its patented highwall mining
system, could not be recovered through future cash flows expected to be generated from use of the assets and their
ultimate disposal.
The assets’ fair values were determined based on projections of cash flows to be generated from use of the
assets and their ultimate disposal including estimates relating to market demand, coal prices, production costs and
mine plans, and recovery value of the assets. An impairment charge of $142.8 million was recognized to adjust the
carrying value of the assets to their fair value of $71.3 million. These losses are reflected on the line ‘‘Asset
impairment and mine closure costs’’ in the consolidated statements of operations.
During 2013, the Company also recognized other-than-temporary impairment charges related to equity
method investments. See further discussion in Note 9, ‘‘Equity Method Investments and Membership Interests in
Joint Ventures.’’
In 2012, the closure and idling of mines in Appalachia discussed in Note 1, ‘‘Basis of Presentation’’ resulted in
closure costs and related impairment charges that are reflected on the line ‘‘Asset impairment and mine closures
costs’’ in the consolidated statements of operations.
Parts and supplies inventory writedown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of coal properties and deferred development costs . . . . . . . . . . . . . . . .
Royalty obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee termination benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension, postretirement and occupational disease curtailment gain, net . . . . . . . . . .
In millions
$
2.6
95.6
403.3
11.5
12.3
(1.8)
$523.5
In 2012, the value of an acquired sales contract was also determined to be impaired, see further discussion in
Note 10, ‘‘Acquired Sales Contracts’’ for further discussion.
The $7.3 million in asset impairment costs for the year ended December 31, 2011 related to a preparation
plant and loadout of an acquired ICG mining operation that would not be used in ongoing operations.
F-18
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. Goodwill
Changes in the carrying value of goodwill for the three years ended December 31, 2013 are as follows:
Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration paid related to prior business acquisitions . . . . . . . . . . . . . . . . . .
Acquisition of ICG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In thousands)
$ 114,963
829
480,311
596,103
(330,680)
265,423
(265,423)
Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
The Company performed its annual impairment testing as of October 1, 2013 on the two Appalachia
reporting units with goodwill balances, the Leer mining complex and an undeveloped property adjacent to it. These
two reporting units are sensitive to the volatility in the demand for and pricing of metallurgical coal. Continuing
weakness in the metallurgical coal markets caused the Company to reassess key marketing and operating
assumptions during the Company’s annual budgeting process, which is the source of the projected cash flows for the
goodwill impairment review. As a result, the book values of the reporting units exceeded their fair values after the
first step of the goodwill impairment tests. It was also determined that the goodwill had no fair value, and the
Company recognized an impairment loss for the remaining reporting units totaling $265.4 million.
During the second quarter of 2012, a significant drop in the Company’s stock price, combined with continuing
weak demand for thermal coal during the quarter and the Company’s resulting production cuts, indicated that the
fair value of the Company’s goodwill could be less than its carrying value. Accordingly, the Company performed the
first step of the two-step goodwill impairment test as of June 30, 2012. The value of the Company’s Black
Thunder reporting unit in the Powder River Basin, where $115.8 million of goodwill had been allocated, was
sensitive to market demand for thermal coal. The further weakening in thermal coal markets had significantly
impacted the projected demand for and pricing of coal produced at Black Thunder. In step one of the goodwill
impairment testing, the fair value of the Black Thunder reporting unit did not exceed its carrying value, primarily
due to the impact of lower demand on near term sales volumes and pricing. The Company recorded an impairment
charge for the entire $115.8 million carrying value of Black Thunder’s goodwill in 2012.
During 2012, metallurgical prices fell substantially from the peaks reached during 2011, when the reporting
units were acquired with the Company’s purchase of ICG. Because the goodwill amounts allocated to certain
reporting units in the Company’s Appalachia segment acquired with the ICG acquisition were sensitive to volatility
in the demand for metallurgical coal, the fair values of two of these reporting units fell below their carrying value.
The allocated goodwill of $214.9 million for those reporting units was determined to be fully impaired, based on
the discounted cash flows used in the ICG acquisition valuation, adjusted for current market conditions and
estimates of production levels.
F-19
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7.
Inventories
Inventories consist of the following:
December 31
2013
2012
(In thousands)
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repair parts and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$117,531
137,497
9,133
$180,917
172,139
12,368
$264,161
$365,424
The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of
$8.4 million at December 31, 2013 and $12.6 million at December 31, 2012.
8.
Investments in Available-for-Sale Securities
The Company has invested in marketable debt securities, primarily highly liquid AA—rated corporate bonds
and U.S. government and government agency securities. These investments are held in the custody of a major
financial institution. These securities, along with the Company’s investments in marketable equity securities, are
classified as available-for-sale securities and, accordingly, the unrealized gains and losses are recorded through other
comprehensive income.
The Company’s investments in available-for-sale marketable securities are as follows:
December 31, 2013
Gross
Gross
Unrealized Unrealized
Cost Basis
Gains
Losses
Balance Sheet
Classification
Fair
Value
Short-Term
Investments
Other
Assets
(In thousands)
Available-for-sale:
U.S. government and agency securities . . . . . . . . . .
Corporate notes and bonds . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,002
184,773
5,271
$
12
6
13,660
$
(75)
(1,304)
(2,902)
$ 64,938
183,476
16,029
$ 64,938
183,476
$ —
—
— 16,029
Total Investments . . . . . . . . . . . . . . . . . . . . . . . .
$255,046
$13,678
$(4,281)
$264,443
$248,414
$16,029
December 31, 2012
Gross
Gross
Unrealized Unrealized
Cost Basis
Gains
Losses
Balance Sheet
Classification
Fair
Value
Short-Term
Investments
Other
Assets
(In thousands)
Available-for-sale:
U.S. government and agency securities . . . . . . . . . . .
Corporate notes and bonds . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
$146,993
88,118
5,271
Total Investments . . . . . . . . . . . . . . . . . . . . . . . . .
$240,382
$
2
—
2,704
$2,706
$ (412)
(396)
(2,628)
$146,583
87,722
5,347
$146,583
87,722
$ —
—
— 5,347
$(3,436)
$239,652
$234,305
$5,347
F-20
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The aggregate fair value of investments with unrealized losses that have been owned for less than a year was
$164.3 million and $223.3 million at December 31, 2013 and December 31, 2012, respectively. The aggregate fair
value of investments with unrealized losses that have been owned for over a year was $48.7 million and
$0.4 million at December 31, 2013 and December 31, 2012, respectively.
The debt securities outstanding at December 31, 2013 have maturity dates ranging from the first quarter of
2014 through the first quarter of 2015. The Company classifies its investments as current based on the nature of
the investments and their availability to provide cash for use in current operations.
9. Equity Method Investments and Membership Interests in Joint Ventures
The Company accounts for its investments and membership interests in joint ventures under the equity
method of accounting if the Company has the ability to exercise significant influence, but not control, over the
entity. Equity method investments are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the investments may not be recoverable. Certain of the Company’s investments
are in development stage companies whose success depends on factors including receipt of permits and other
regulatory environment issues, the ability of the investee companies to raise additional funds in financial markets
that can be volatile, and other key business factors.
Below are the equity method investments reflected in the consolidated balance sheets:
Investee
Knight
Hawk
DKRW
DTA
Tenaska Millennium
Tongue
River
Other
Total
Balance at December 31, 2010 . . . . . . . . . . . $131,250 $ 21,961 $14,472 $ 9,768 $ — $ — $ — $177,451
12,989 — 43,489
Investments in affiliates . . . . . . . . . . . . . . . .
— — (6,646)
Advances to (distributions from) affiliates, net . .
— — 11,311
Equity in comprehensive income (loss) . . . . . . .
25,000
— 3,477
(2,153)
(2)
—
— 6,498
(4,884)
—
(16,621)
20,596
— 5,500
(2,246)
Balance at December 31, 2011 . . . . . . . . . . .
Investments in affiliates . . . . . . . . . . . . . . . .
Advances to (distributions from) affiliates, net . .
Equity in comprehensive income (loss) . . . . . . .
135,225
—
(7,151)
20,989
16,086
19,715
—
—
— 4,335
(4,959)
(4,200)
26,324
15,266
—
—
— 8,798
(2,908)
(2)
12,989 — 225,605
—
7,690
8,920
— —
1,708 —
— —
Balance at December 31, 2012 . . . . . . . . . . .
Advances to (distributions from) affiliates, net . .
Equity in comprehensive income (loss) . . . . . . .
Impairment of equity investment . . . . . . . . . .
149,063
(13,536)
17,279
15,515
15,462
— 3,644
(4,969)
(1,832)
— (13,683)
15,264
32,214
— 6,476
— (2,796)
—
14,697 — 242,215
788
4,004
200
7,400
(282) —
— — (28,947)
— (15,264)
Balance at December 31, 2013 . . . . . . . . . . . $152,806 $ — $14,137 $ — $35,894 $18,419 $200 $221,456
The Company holds a 49% equity interest in Knight Hawk Holdings, LLC (‘‘Knight Hawk’’), a coal producer
in the Illinois Basin.
The Company holds a 24% equity interest in DKRW Advanced Fuels LLC (‘‘DKRW’’), a company engaged in
developing coal-to-liquids facilities. DKRW has borrowed funds from the Company under a convertible secured
promissory note. Amounts borrowed are due and payable in cash or in additional equity interests upon the closing
of DKRW’s next financing, bear interest at the rate of 15% per annum, and are secured by DKRW’s equity
interests in Medicine Bow Fuel & Power LLC. The note balance was $38.7 million at December 31, 2012. DKRW
Advanced Fuels, LLC (‘‘DKRW’’) had previously entered into an Engineering, Procurement and Construction
Agreement with a Chinese company to construct and commission the Medicine Bow coal-to-liquids facility.
However, as the project did not progress to the next stage of development, the Company recorded an
F-21
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
other-than-temporary impairment charge of $57.7 million in the third quarter of 2013, which includes the
Company’s 24% equity investment of $13.7 million and the outstanding $44.0 million loan receivable balance. The
impairment charges are included on the line ‘‘Asset impairment and mine closure costs’’ in the consolidated
statement of operations.
The Company holds a general partnership interest of 21.875% in Dominion Terminal Associates (‘‘DTA’’),
which is accounted for under the equity method. DTA operates a ground storage-to-vessel coal transloading facility
in Newport News, Virginia for use by the partners. Under the terms of a throughput and handling agreement with
DTA, each partner is charged its share of cash operating and debt-service costs in exchange for the right to use the
facility’s loading capacity and is required to make periodic cash advances to DTA to fund such costs.
The Company holds a 35% ownership interest in Tenaska Trailblazer Partners, LLC (‘‘Tenaska’’), the developer
of the Trailblazer Energy Center, a proposed fossil-fuel-based electric power plant near Sweetwater, Texas. During
the second quarter of 2013, Tenaska announced that it was discontinuing its development plans for the Trailblazer
Energy Center in Texas. As a result, the Company recorded a $20.5 million impairment charge, which consisted of
its 35% equity investment of $15.3 million and a $5.2 million receivable balance related to advances for
development work. The impairment charges are included on the line ‘‘Asset impairment and mine closure costs’’ in
the consolidated statement of operations.
In January 2011, the Company purchased a 38% ownership interest in Millennium Bulk Terminals-
Longview, LLC (‘‘Millennium’’), the owner of a brownfield bulk commodity terminal on the Columbia River near
Longview, Washington, for $25.0 million, plus additional future consideration upon the completion of certain
project milestones. Millennium continues to work on obtaining the required approvals and necessary permits to
complete dredging and other upgrades to enable coal, alumina and cementitious material shipments through the
terminal. The Company will control 38% of the terminal’s throughput and storage capacity, in order to facilitate
export shipments of coal off the west coast of the United States.
In July 2011, the Company purchased a 35% membership interest in the Tongue River Holding
Company, LLC (‘‘Tongue River’’) joint venture. Tongue River will develop and construct a railway line near Miles
City, Montana and the Company’s Otter Creek reserves. The Company has the right, upon the receipt of permits
and approval for construction or under other prescribed circumstances, to require the other investors to purchase all
of the Company’s units in the venture at an amount equal to the capital contributions made by the Company at
that time, less any distributions received.
F-22
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Summarized financial information of the Company’s equity method investees follows:
Condensed combined income statement information:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Condensed combined balance sheet information:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31
2013
2012
2011
(In thousands)
$208,289
10,234
6,574
(397)
$190,661
15,308
8,898
641
$184,358
19,495
13,180
6,788
$ 52,413
398,495
$ 78,961
387,884
Total assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$450,908
$466,845
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31,243
131,445
287,903
317
$ 57,403
128,489
280,690
263
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . .
$450,908
$466,845
The Company may be required to make future contingent payments of up to $58.5 million related to
development financing for certain of its equity investees. The Company’s obligation to make these payments, as
well as the timing of any payments required, is contingent upon the achievement of project development
milestones, which can be affected by the factors named above.
10. Acquired Sales Contracts
The acquired sales contracts reflected in the consolidated balance sheets are as follows:
December 31, 2013
December 31, 2012
Assets
Liabilities
Assets
Liabilities
(In thousands)
(In thousands)
Acquired fair value . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . .
$ 131,819
(129,449)
$ 166,697
(120,367)
$ 131,819
(123,776)
$ 166,697
(105,237)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,370
$ 46,330
$
8,043
$ 61,460
Net total
. . . . . . . . . . . . . . . . . . . . . . . .
$ (43,960)
$ (53,417)
Balance Sheet classification:
Other current . . . . . . . . . . . . . . . . . . . . .
Other noncurrent . . . . . . . . . . . . . . . . . . .
$
$
1,324
1,046
$ 14,373
$ 31,957
$
$
5,651
2,392
$ 14,038
$ 47,422
In 2012, the Company recognized an impairment loss of $15.7 million to write off a contract acquired with
the ICG acquisition with an original acquired fair value of $17.5 million.
F-23
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company anticipates amortization of acquired sales contracts, based upon expected shipments in the next
five years, to be income of approximately $21.5 million in 2014, $6.7 million in 2015, $2.8 million in 2016, and
$3.3 million in 2017 and $3.1 million in 2018.
11. Derivatives
Diesel fuel price risk management
The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The
Company anticipates purchasing approximately 57 to 67 million gallons of diesel fuel for use in its operations
during 2014. To protect the Company’s cash flows from increases in the price of diesel fuel for its operations, the
Company uses forward physical diesel purchase contracts and purchased heating oil call options. At December 31,
2013, the Company had protected the price of approximately 91% of its expected purchases for 2014 and 10% of
its expected 2015 purchases. At December 31, 2013, the Company had purchased heating oil call options for
approximately 63 million gallons for the purpose of managing the price risk associated with future diesel purchases.
The Company has also purchased heating oil call options to manage the price risk associated with fuel
surcharges on its barge and rail shipments, which cover increases in diesel fuel prices for the respective carriers. At
December 31, 2013, the Company held heating oil call options for 5.1 million gallons that will settle ratably in
2014 for the purpose of managing the fluctuations in cash flows associated with fuel surcharges on future
shipments.
These positions reduce the Company’s risk of cash flow fluctuations related to these surcharges but the
positions are not accounted for as hedges.
Coal risk management positions
The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market
in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices
related to forecasted sales or purchases of coal or to the risk of changes in the fair value of a fixed price physical
sales contract. Certain derivative contracts may be designated as hedges of these risks.
At December 31, 2013, the Company held derivatives for risk management purposes that are expected to
settle in the following years:
(Tons in thousands)
2014
2015
Total
Coal sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coal purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,845
5,745
900
1,561 — 1,561
Coal trading positions
The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market
for trading purposes. The Company is exposed to the risk of changes in coal prices on the value of its coal trading
portfolio. The unrecognized gains of $9.6 million in the trading portfolio are expected to be realized in 2014.
Tabular derivatives disclosures
The Company has master netting agreements with all of its counterparties which allow for the settlement of
contracts in an asset position with contracts in a liability position in the event of default or termination. Such
netting arrangements reduce the Company’s credit exposure related to these counterparties. For classification
F-24
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or
liability in the consolidated balance sheets. The amounts shown in the table below represent the fair value position
of individual contracts, and not the net position presented in the accompanying consolidated balance sheets. The
fair value and location of derivatives reflected in the accompanying consolidated balance sheets are as follows:
Fair Value of Derivatives
(In thousands)
Derivatives Designated as Hedging
Instruments
Coal
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives Not Designated as Hedging
Instruments
Heating oil—diesel purchases . . . . . . . . . . .
Heating oil—fuel surcharges . . . . . . . . . . . .
Coal—held for trading purposes . . . . . . . . .
Coal—risk management . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total derivatives . . . . . . . . . . . . . . . . . . . . . .
Effect of counterparty netting . . . . . . . . . . . . .
67,681
(47,727)
Net derivatives as classified in the balance
December 31, 2013
Asset
Derivative
Liability
Derivative
December 31, 2012
Asset
Derivative
Liability
Derivative
$
909
$
(26)
$ 3,277
$
(10)
4,681
422
55,327
6,342
66,772
—
—
(45,763)
(1,950)
(47,713)
(47,739)
47,727
7,379
1,961
17,403
24,843
51,586
54,863
(22,548)
—
—
(16,933)
(7,342)
(24,275)
(24,285)
22,548
sheets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,954
$
(12) $19,942
$ 32,315
$ (1,737) $30,578
Net derivatives as reflected on the balance sheets
Heating oil . . . . . . . . . . . . . Other current assets
Coal . . . . . . . . . . . . . . . . . . Coal derivative assets
Coal derivative liabilities
December 31, December 31,
2013
2012
$ 5,103
14,851
(12)
$ 9,340
22,975
(1,737)
$19,942
$30,578
The Company had a current asset for the right to reclaim cash collateral of $2.2 million and $16.2 million at
December 31, 2013 and 2012, respectively. These amounts are not included with the derivatives presented in the
table above and are included in ‘‘other current assets’’ in the accompanying consolidated balance sheets.
F-25
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The effects of derivatives on measures of financial performance are as follows:
Derivatives used in Cash Flow Hedging Relationships (in thousands)
For the year ended December 31
Coal sales(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coal purchases(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (Loss)
Recognized in Other
Comprehensive
Income(Effective
Portion)
Gains (Losses)
Reclassified from
Other
Comprehensive
Income into Income
(Effective Portion)
2013
2012
2011
2013
2012
2011
$(338) $ 7,690
(2,440)
526
$ 4,923
(2,009)
$3,664
(683)
$2,675
—
$1,572
—
$ 188
$ 5,250
$ 2,914
$2,981
$2,675
$1,572
No ineffectiveness or amounts excluded from effectiveness testing relating to the Company’s cash flow hedging
relationships were recognized in the results of operations in the year ended December 31, 2013 and 2012.
Derivatives Not Designated as Hedging Instruments (in thousands)
For the year ended December 31
Coal—unrealized(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (Loss) Recognized
2013
2012
2011
$(12,700) $ 8,272
$ 6,438
Coal—realized(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 32,534
$ 43,990
(7)
Heating oil—diesel purchases(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (9,791) $(22,281)
(2,906)
Heating oil—fuel surcharges(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(947) $ (2,209)
—
Location in statement of operations:
(1)—Revenues
(2)—Cost of sales
(3)—Change in fair value of coal derivatives and coal trading activities, net
(4)—Other operating income, net
During the first quarter of 2012, the Company determined that the effectiveness of heating oil options as a
hedge for diesel fuel purchases could not be established as of December 31, 2011. As a result, the amount
remaining in accumulated other comprehensive income of $8.2 million was recorded in the ‘‘Other operating
income, net’’ line in the consolidated statement of operations, or $5.2 million, net of income taxes. In 2011,
unrealized gains of $1.3 million were recognized in other comprehensive income and gains of $14.9 million were
reclassified from other comprehensive income into earnings relating to heating oil positions.
The Company recognized net unrealized and realized gains of $4.9 million and $8.3 million during the year
ended December 31, 2013 and 2012, respectively, related to its trading portfolio, which are included in the caption
‘‘Change in fair value of coal derivatives and coal trading activities, net’’ in the accompanying consolidated
statements of operations, and are not included in the previous tables reflecting the effects of derivatives on measures
of financial performance.
F-26
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Based on fair values at December 31, 2013, gains on derivative contracts designated as hedge instruments in
cash flow hedges of approximately $0.8 million are expected to be reclassified from other comprehensive income
into earnings during the next twelve months.
12. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
Payroll and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes other than income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
Acquired sales contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
(In thousands)
$ 67,621
114,664
18,528
14,373
12,434
24,940
26,015
$ 72,405
121,029
42,413
14,038
10,371
38,920
18,842
$278,575
$318,018
13. Debt and Financing Arrangements
Term loan due 2018 ($1.93 billion and $1.65 billion face value,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.75% senior notes ($600.0 million face value) due 2016 . . . . . . .
7.00% senior notes due 2019 at par . . . . . . . . . . . . . . . . . . . . . .
8.00% senior secured notes due 2019 at par . . . . . . . . . . . . . . . .
9.875% senior notes ($375.0 million face value) due 2019 . . . . . . .
7.25% senior notes due 2020 at par . . . . . . . . . . . . . . . . . . . . . .
7.25% senior notes due 2021 at par . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current maturities of debt . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
(In thousands)
$1,906,975
—
1,000,000
350,000
362,358
500,000
1,000,000
32,162
$1,627,384
590,999
1,000,000
—
360,042
500,000
1,000,000
40,350
5,151,495
33,493
5,118,775
32,896
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,118,002
$5,085,879
On December 17, 2013, the Company entered into an amendment of the credit agreement governing its term
loan and revolving credit facility whereby the term loan facility was increased to accommodate an incremental
$300.0 million aggregate principal loan at 98% of the face amount and commitments under the revolving credit
facility were reduced to $250.0 million from $350.0 million. Also on December 17, 2013, the Company issued
$350.0 million aggregate principal amount of 8.00% senior secured second lien notes due 2019 (the ‘‘2019 Secured
Notes’’) at par. Interest on the 2019 Secured Notes is payable on January 15 and July 15 of each year, beginning
on July 15, 2014. The 2019 Secured Notes are secured by the same assets that secure indebtedness under the
senior secured credit facility, but on a second priority basis, subject to certain exceptions and permitted liens.With
F-27
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
the proceeds from these transactions, the Company retired the outstanding $600 million in aggregate principal
amount of 8.75% senior unsecured notes due 2016 (‘‘2016 Notes’’) for $628.7 million.
Credit Facilities
Borrowings under the Company’s senior secured revolving credit facility bear interest at a floating rate based
on LIBOR determined by reference to the Company’s leverage ratio, as calculated in accordance with the underlying
amended credit agreement. The credit facility’s term expires on June 14, 2016 and is secured by substantially all of
the Company’s assets as well as its ownership interests in substantially all of its subsidiaries. Commitment fees of
0.50% to 0.75% per annum are payable on the average unused daily balance of the revolving credit facility.
The Company maintains an accounts receivable securitization program under which eligible trade receivables
are sold, without recourse, to a multi-seller, asset-backed commercial paper conduit. The entity through which these
receivables are sold is consolidated into the Company’s financial statements. The Company may borrow and draw
letters of credit against the facility, and pays facility fees, program fees and letter of credit fees (based on amounts
of outstanding letters of credit). The total aggregate borrowings and letters of credit are limited by eligible accounts
receivable, as defined under the terms of the agreement. The credit facility supporting the borrowings under the
program is subject to renewal annually, and expires on December 9, 2014.
Financial covenant requirements may restrict the amount of unused capacity available to the Company for
borrowings and letters of credit. The amendments on December 17, 2013 relaxed financial maintenance covenants,
with only a minimum liquidity test and beginning June, 2015, a maximum secured leverage ratio test. The
amendment also limits dividends to one cent per share per fiscal year.
At December 31, 2013, the available borrowing capacity under the Company’s lines of credit was
approximately $253.4 million.
Term Loan
On May 16, 2012, the Company borrowed $1.4 billion under a secured term loan facility, issued at a 1%
discount. The proceeds from the term loan were used to retire all outstanding borrowings under the revolving credit
facility and the outstanding $450.0 million principal amount of 6.75% Senior Notes due 2013 issued by Arch
Western Finance, LLC (‘‘Arch Western Finance’’), the Company’s indirect subsidiary. On November 21, 2012, the
Company borrowed an incremental $250.0 million on the term loan facility at a 1% discount at the same rate as
the initial borrowing.
The term loan contains no financial maintenance covenants, is prepayable and is secured by the same assets as
borrowings under the revolving credit facility. Quarterly principal payments of $3.5 million began in September
2012, increased to $4.125 million per quarter as a result of the incremental borrowing in November, 2012, and
increased further to $4.875 million with the December 17, 2013 borrowing. A balloon payment of $1.85 billion is
due in May, 2018. Interest is payable at a rate of the greater of a LIBOR-based rate or 1.25%, plus 500 basis
points.
2019 9.875% Notes
On November 21, 2012, the Company issued $375.0 million aggregate principal amount of 9.875% senior
unsecured notes due 2019 (the ‘‘2019 9.875% Notes’’) at an issue price of 95.934% of the face amount. Interest is
payable on the 2019 9.875% Notes annually on June 15 and December 15. At any time on or after December 15,
2016, the Company may redeem some or all of the notes. The redemption price, reflected as a percentage of the
F-28
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
principal amount, is: 104.938%for notes redeemed between December 15, 2016 and December 14, 2017;
102.469% for notes redeemed between December 15, 2017 and December 14, 2018; and 100% for notes
redeemed on or after December 15, 2018. In addition, at any time and on one or more occasions prior to
December 15, 2015, the Company may redeem an aggregate principal amount of senior notes not to exceed 35%
of the original aggregate principal amount of the senior notes outstanding with the proceeds of one or more public
equity offerings, at a redemption price equal to 109.875%.
The unsecured senior notes are guaranteed by substantially all of the Company’s subsidiaries, except for Arch
Receivable Company, LLC, which is the conduit for the accounts receivable securitization program, and the
Company’s subsidiaries outside the U.S.
2019 Secured Notes
Interest is payable on the 2019 Secured Notes on January 15 and July 15 of each year, commencing July 15,
2014. The Company may redeem some or all of the notes during the noted 12 month periods at prices that are
reflected as a percentage of the principal amount, as follows: 104.0% commencing January 15, 2016, 102.0%
commencing January 15, 2017, and 100% thereafter.
2020 Notes
The Company has outstanding $500.0 million in aggregate principal amount of 7.25% senior unsecured notes
due in 2020 (‘‘2020 Notes’’) at par. Interest is payable on the 2020 Notes on April 1 and October 1 of each year.
The Company may redeem some or all of the notes during the respective 12 month periods at prices that are
reflected as a percentage of the principal amount, as follows: 103.625% commencing October 1, 2015; 102.417%
commencing October 1, 2016; 101.208% commencing October 1, 2017; and 100% thereafter.
2019 7% and 2021 Notes
On June 14, 2011, the Company issued $1.0 billion of 7.00% unsecured senior notes due 2019 (‘‘2019 7%
Notes’’) and $1.0 billion of 7.25% unsecured senior notes due 2021 (‘‘2021 Notes’’) at their face amount. These
notes were used to finance, along with an issuance of common stock discussed in Note 15, ‘‘Capital Stock’’, the
acquisition of ICG. Interest is payable on the 2019 7% Notes and 2021 Notes on June 15 and December 15 of
each year.
At any time prior to June 15, 2014, the Company may redeem up to 35% of the original aggregate principal
amount of each of the 2019 7% Notes and 2021 Notes, plus accrued and unpaid interest, with the net proceeds
from certain equity offerings, at a redemption price, reflected as a percentage of the principal amount, equal to
107.0% and 107.25%, respectively. The Company may redeem the 2019 7% Notes prior to June 15, 2015 and the
2021 Notes prior to June 15, 2016 at the respective make-whole prices set forth in the indenture. The Company
may redeem some or all of the 2019 7% Notes during the noted 12 month periods at prices that are reflected as a
percentage of the principal amount, as follows: 103.5% commencing June 15, 2015; 101.75% commencing
June 15, 2016; and 100% thereafter. The Company may redeem some or all of the 2021 Notes during the noted
12 month periods at prices that are reflected as a percentage of the principal amount, as follows: 103.625%
commencing June 15, 2016; 102.417% commencing June 15, 2017; 101.208% commencing June 15, 2018 and
100% after June 15, 2019. In each case, accrued and unpaid interest at the redemption date is due upon
redemption.
F-29
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Other Debt Retirements
On May 16, 2012, Arch Western Finance accepted for purchase an aggregate of approximately $304.0 million
principal amount of its 6.75% Senior Notes due 2013 in an initial settlement pursuant to the terms of its tender
offer and consent solicitation, which commenced on May 1, 2012; and called for the redemption of the remaining
outstanding 6.75% Senior Notes due 2013 after the completion of the tender offer. The consideration for each
$1,000 of principal purchased under the tender offer and consent solicitation was $1,002.50, for a total purchase
consideration of $308.0 million. On May 30, 2012, the remaining notes with an outstanding principal amount of
$146.0 million were redeemed at par value.
Upon ICG’s acquisition, the Company gave a 30-day redemption notice to the Trustee of ICG’s 9.125% senior
notes and legally discharged its obligation under the 9.125% senior notes by depositing the required funds with the
Trustee to redeem the debt. On July 14, 2011, all of the outstanding 9.125% senior notes were redeemed at an
aggregate price of $251.4 million, including the required make-whole premium, plus accrued interest of
$5.2 million.
At its acquisition date, ICG’s 4.00% convertible senior notes with a fair value of $298.5 million and 9.00%
convertible senior notes with a fair value of $1.7 million (‘‘convertible notes’’) became convertible into cash,
pursuant to the amended indentures governing the convertible notes, at a calculated conversion rate of $2,614.6848
for each $1,000 in principal amount surrendered for conversion for the 4.00% convertible notes and $2,392.734 for
the 9.00% convertible notes for conversions occurring prior to August 17, 2011.
At the acquisition date, other ICG debt had a fair value of approximately $54.0 million and consisted mainly
of equipment notes and insurance notes payable.
Any remaining amounts outstanding under the convertible notes and other ICG debt is included in ‘‘other’’ in
the debt table above.
Debt Maturities
Expected aggregate maturities of debt for the next five years are $33.5 million in 2014, $24.0 million in
2015, $24.0 million in 2016, $23.7 million in 2017 and $1.9 billion in 2018.
Debt Covenants
Terms of the Company’s credit facilities and leases contain financial and other covenants that limit the ability
of the Company to, among other things, acquire, dispose, merge or consolidate assets; incur additional debt; pay
dividends and make distributions or repurchase stock; make investments; create liens; issue and sell capital stock of
subsidiaries; enter into restrictions affecting the ability of restricted subsidiaries to make distributions, loans or
advances to the Company; engage in transactions with affiliates and enter into sale and leaseback transactions. In
addition, the covenants require the Company to pledge assets to collateralize the revolving credit and term loan
facilities. The assets pledged include equity interests in wholly-owned subsidiaries, certain real property interests,
accounts receivable and inventory of the Company. 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.
Financing Costs
The Company paid financing costs of $20.5 million, $50.6 million and $114.8 million in conjunction with its
financing activities during the year ended December 31, 2013, 2012 and 2011, respectively. The Company’s
F-30
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
financing fees are generally deferred, however, the Company incurred a fee of $49.5 million in 2011 in conjunction
with the acquisition of ICG that was expensed, as the related bridge financing facility was not used.
During the year ended December 31, 2013 and 2012, the Company wrote off deferred financing costs of
$5.4 million and $1.1 million, respectively, and $6.9 million of unamortized discount and $0.8 million of
unamortized issue premium, respectively, related to the redemption of senior notes. In addition, the Company wrote
off $1.9 million and $23.4 million of deferred financing costs relating to the reduction in capacity of the senior
secured revolving credit facility during the year ended December 31, 2013 and 2012 respectively. The Company
recognized a net loss of $2.0 million during the year ended December 31, 2011 on the early extinguishment of
ICG’s debt, including the conversions of the 4.00% and 9.00% convertible notes. The write-off of deferred
financing fees, along with other transaction fees associated with these transactions, is reflected in line ‘‘Net loss
resulting from early retirement and refinancing of debt’’ in the consolidated statements of operations.
14. Taxes
The Company is subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The
tax years 2002 through 2013 remain open to examination for U.S. federal income tax matters and 1998 through
2013 remain open to examination for various state income tax matters.
Significant components of the provision for (benefit from) income taxes are as follows:
Year Ended December 31
2013
2012
2011
(In thousands)
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $ (20,022) $(24,449)
1,072
575
(647)
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(647)
(19,447)
(23,377)
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(318,956)
(15,895)
(341,486)
7,026
1,544
(2,446)
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(334,851)
(334,460)
(902)
$(335,498) $(353,907) $(24,279)
F-31
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
A reconciliation of the statutory federal income tax provision (benefit) at the statutory rate to the actual
provision for (benefit from) income taxes follows:
Year Ended December 31
2013
2012
2011
Income tax provision (benefit) at statutory rate . . . . . . . .
Percentage depletion allowance . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of effect of federal taxes . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
(In thousands)
$(378,463) $(382,581) $ 22,253
(53,156)
—
(3,790)
2,416
7,998
(33,654)
56,916
(24,231)
31,832
(2,189)
(15,796)
70,301
(25,265)
8,659
5,066
In 2013, 2012 and 2011, compensatory stock options and other equity based compensation awards were
exercised resulting in a tax expense (benefit) of $1.5 million, $0.3 million and $(0.4) million, respectively. The tax
benefit will be recorded in paid-in capital at such point in time when a cash tax benefit is recognized.
$(335,498) $(353,907) $(24,279)
F-32
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Significant components of the Company’s deferred tax assets and liabilities that result from carryforwards and
temporary differences between the financial statement basis and tax basis of assets and liabilities are summarized as
follows:
December 31,
2013
2012
(In thousands)
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . .
Alternative minimum tax credit carryforwards . . . . . . . . . . . . . .
Reclamation and mine closure . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired sales contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retiree benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, primarily accrued liabilities . . . . . . . . . . . . . . . . . . . . . .
$ 660,916
126,755
113,843
52,636
33,392
31,641
20,527
28,494
19,327
68,969
$ 496,330
150,014
104,570
43,839
38,735
32,241
32,087
25,440
21,798
66,777
Gross deferred tax assets
. . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,156,500
(43,322)
1,011,831
(34,663)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,113,178
977,168
Deferred tax liabilities:
Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in tax partnerships . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,364,382
91,126
8,170
13,902
1,411,446
77,013
72,513
13,018
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
1,477,580
1,573,990
Net deferred liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 364,402
$ 596,822
Current asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
49,144
$
67,360
Non-current deferred tax liability . . . . . . . . . . . . . . . . . . . .
$ 413,546
$ 664,182
The Company has federal net operating loss carryforwards for regular income tax purposes of $1.8 billion at
December 31, 2013 that will expire between 2022 and 2033. The Company has an alternative minimum tax credit
carryforward of $126.7 million at December 31, 2013, which has no expiration date and can be used to offset
future regular tax in excess of the alternative minimum tax.
The Company has recorded a valuation allowance for a portion of its deferred tax assets that management
believes, more likely than not, will not be realized. Management reassesses the ability to realize its deferred tax
assets annually in the fourth quarter or when circumstances indicate that the ability to realize deferred tax assets
has changed. This review resulted in increases (decreases) in the valuation allowance of $8.7 million, $31.8 million
and $2.1 million in 2013, 2012 and 2011, respectively. The valuation allowance relates to certain state and foreign
net operating loss benefits.
F-33
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
(In thousands)
Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions as a result of lapses in the statute of limitations . . . . . . . . . . . . . .
$ 4,418
1,626
2,754
8,798
409
21,943
31,150
1,199
688
(1,248)
Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,789
If recognized, the entire amount of the gross unrecognized tax benefits at December 31, 2013 would affect the
effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The
Company had accrued interest and penalties of $1.3 million and $1.0 million at December 31, 2013 and 2012,
respectively, of which $0.3 million, $0.2 million and $0.2 million was recognized as expense during 2013, 2012,
and 2011. In the next 12 months, no gross unrecognized tax benefits are expected to be reduced due to the
expiration of the statute of limitations.
During 2008, the Company reached a settlement with the IRS regarding the Company’s treatment of acquired
coal operations and their simultaneous combination with the Company’s Wyoming operations into the Arch Western
joint venture. The settlement involved a re-characterization of deferred tax assets, including an increase in net
operating loss carryforwards of $145.1 million and other amortizable assets that provided additional tax deductions
through 2013. A portion of these cash tax benefits accrued to ARCO pursuant to the original purchase agreement,
including $0.8 million paid in 2011 that was recorded as an addition to goodwill.
15. Asset Retirement Obligations
The Company’s asset retirement obligations arise from the Federal Surface Mining Control and Reclamation
Act of 1977 and similar state statutes, which require that mine property be restored in accordance with specified
standards and an approved reclamation plan. The required reclamation activities to be performed are outlined in the
Company’s mining permits. These activities include reclaiming the pit and support acreage at surface mines, sealing
portals at underground mines, and reclaiming refuse areas and slurry ponds.
F-34
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table describes the changes to the Company’s asset retirement obligation liability:
Balance at January 1 (including current portion) . . . . . . . . . . . . . . . .
Accretion expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations of divested operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to the liability from changes in estimates . . . . . . . . . . . .
Liabilities settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2013
2012
(In thousands)
$448,625
35,727
(8,440)
(26,578)
(21,681)
$473,903
39,020
—
4,400
(68,698)
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Current portion included in accrued expenses
$427,653
(24,940)
$448,625
(38,920)
Noncurrent liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$402,713
$409,705
During the year ended December 31, 2012, reclamation activities were accelerated, primarily at the Black
Thunder mining complex, as employees and equipment impacted by market- related mine production cutbacks were
redirected to reclamation activities.
As of December 31, 2013, the Company had $247.3 million in surety bonds outstanding, $417.6 million in
self-bonding, and $18.1 million in letters of credit to secure reclamation bonding obligations.
16. Fair Value Measurements
The hierarchy of fair value measurements assigns a level to fair value measurements based on the inputs used
in the respective valuation techniques. The levels of the hierarchy, as defined below, give the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs.
(cid:127) Level 1 is defined as observable inputs such as quoted prices in active markets for identical assets. Level 1
assets include available-for-sale equity securities, U.S. Treasury securities, and coal futures that are submitted
for clearing on the New York Mercantile Exchange.
(cid:127) Level 2 is defined as observable inputs other than Level 1 prices. These include quoted prices for similar
assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are
not active, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities. The Company’s level 2 assets and liabilities include U.S.
government agency securities and commodity contracts (coal and heating oil) with fair values derived from
quoted prices in over-the-counter markets or from prices received from direct broker quotes.
(cid:127) Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an
entity to develop its own assumptions. These include the Company’s commodity option contracts (coal and
heating oil) valued using modeling techniques, such as Black-Scholes, that require the use of inputs,
particularly volatility, that are rarely observable. Changes in the unobservable inputs would not have a
significant impact on the reported Level 3 fair values at December 31, 2013.
F-35
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The table below sets forth, by level, the Company’s financial assets and liabilities that are recorded at fair
value in the accompanying consolidated balance sheet:
Fair Value at December 31, 2013
Total
Level 1
Level 2
Level 3
(In thousands)
Assets:
Investments in marketable securities
. . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . .
$264,443
19,954
$77,967
14,847
$186,476
$ —
— 5,107
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
$284,397
$92,814
$186,476
$5,107
Liabilities:
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12
$ — $
(149) $ 161
The Company’s contracts with its counterparties allow for the settlement of contracts in an asset position with
contracts in a liability position in the event of default or termination. For classification purposes, the Company
records the net fair value of all the positions with these counterparties as a net asset or liability. Each level in the
table above displays the underlying contracts according to their classification in the accompanying consolidated
balance sheet, based on this counterparty netting.
The following table summarizes the change in the fair values of financial instruments categorized as level 3.
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized and unrealized losses recognized in earnings, net . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuances
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2013
2012
(In thousands)
$ 8,174
(10,253)
8,654
(25)
(1,604)
$ 6,211
(13,399)
—
17,312
(1,950)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,946
$ 8,174
Net unrealized losses of $2.5 million were recognized during the year ended December 31, 2013 related to
level 3 financial instruments held on December 31, 2013.
Cash and Cash Equivalents
At December 31, 2013 and 2012, the carrying amounts of cash and cash equivalents approximate their fair
value.
Fair Value of Long-Term Debt
At December 31, 2013 and December 31, 2012, the fair value of the Company’s debt, including amounts
classified as current, was $4.6 billion and $5.0 billion, respectively. Fair values are based upon observed prices in an
active market, when available, or from valuation models using market information, which fall into Level 2 in the
fair value hierarchy.
F-36
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
17. Capital Stock
On March 1, 2012, the Company filed a registration statement on Form S-3 with the SEC. The registration
statement allows the Company to offer, from time to time, an unlimited amount of debt securities, preferred stock,
depositary shares, purchase contracts, purchase units, common stock and related rights and warrants.
Common Stock
On June 8, 2011, the Company sold 48 million shares of its common stock at a public offering price of
$27.00 per share. The $1.25 billion in net proceeds from the issuance were used to finance the acquisition of ICG.
On July 8, 2011, the Company issued an additional 0.7 million shares of its common stock under the same terms
and conditions to cover underwriters’ over-allotments for net proceeds of $18.4 million.
Stock Repurchase Plan
The Company’s share repurchase program allows for the purchase of up to 14,000,000 shares of the
Company’s common stock. At December 31, 2013, 10,925,800 shares of common stock were available for
repurchase under the plan. There were no purchases made under the plan during the years ended December 31,
2013, 2012 and 2011. There is no expiration date on the program. Any future repurchases under the plan will be
made at management’s discretion and will depend on market conditions and other factors.
18.
Stock-Based Compensation and Other Incentive Plans
Under the Company’s Stock Incentive Plan (the ‘‘Incentive Plan’’), 30.9 million shares of the Company’s
common stock were reserved for awards to officers and other selected key management employees of the Company.
The Incentive Plan provides the Board of Directors with the flexibility to grant stock options, stock appreciation
rights, restricted stock awards, restricted stock units, performance stock or units, merit awards, phantom stock
awards and rights to acquire stock through purchase under a stock purchase program (‘‘Awards’’). Awards the
Board of Directors elects to pay out in cash do not impact the shares authorized in the Incentive Plan. Shares
available for award under the plan were 10.3 million at December 31, 2013.
Stock Options
Stock options are granted at a strike price equal to the closing market price of the Company’s common stock
on the date of grant and are generally subject to vesting provisions of at least one year from the date of grant.
Information regarding stock option activity under the Incentive Plan follows for the year ended December 31,
2013:
Common
Shares
Weighted Average
Exercise
Price
Aggregate
Intrinsic
Value
Average
Contract
Life
Options outstanding at January 1 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,215
1,998
(138)
(136)
Options outstanding at December 31 . . . . . . . . .
6,939
Options exercisable at December 31 . . . . . . . . .
3,724
(In thousands)
$25.89
5.23
29.01
31.57
19.86
28.14
$ 3
—
6.7
5.3
F-37
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The aggregate intrinsic value of options exercised during the years ended December 31, 2012 and 2011 was
$1.8 million and $2.6 million, respectively.
Information regarding changes in stock options outstanding and not yet vested and the related grant-date fair
value under the Incentive Plan follows for the year ended December 31, 2013:
Common
Shares
Weighted Average
Grant-Date Fair Value
Unvested options at January 1 . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In thousands)
2,369
1,998
(1,098)
(53)
Unvested options at December 31 . . . . . . . . . . . . . . . . . . .
3,216
$7.72
$2.37
$8.11
$3.97
$4.38
Compensation expense related to stock options for the years ended December 31, 2013, 2012 and 2011 was
$6.7 million, $8.0 million and $8.8 million, respectively. As of December 31, 2013, unrecognized compensation cost
related to the unvested stock options totaled $4.9 million. The total grant-date fair value of options vested during
the years ended December 31, 2013, 2012 and 2011 was $8.9 million, $8.0 million and $9.9 million, respectively.
The options provide for the continuation of vesting for retirement-eligible recipients that meet certain criteria. The
expense for these options is recognized through the date that the employee first becomes eligible to retire and is no
longer required to provide service to earn part or all of the award. The majority of the cost relating to the stock-
based compensation plans is included in ‘‘Selling, general and administrative expenses’’ in the accompanying
consolidated statements of operations.
Weighted average assumptions used in the Black-Scholes option pricing model for granted options follow:
Year Ended December 31,
2013
2012
2011
Weighted average grant-date fair value per share of options granted .
$2.37
$5.27
$14.18
Assumptions (weighted average):
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.65% 0.76% 1.92%
2.30% 2.92% 1.25%
66.7% 60.7% 57.4%
4.5
4.5
4.5
Expected volatilities are based on historical stock price movement and implied volatility from traded options on
the Company’s stock. The expected life of options is determined based on historical exercise activity. Most options
granted vest over a period of three to four years.
Restricted Stock and Restricted Stock Unit Awards
The Company may issue restricted stock and restricted stock units, which require no payment from the
employee. Restricted stock cliff-vests at various dates and restricted stock units ether vest ratably over or vest at the
end of three years. Compensation expense is based on the fair value on the grant date and is recorded ratably over
the vesting period. The employee receives cash compensation equal to the amount of dividends that would have
been paid on the underlying shares.
F-38
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Information regarding restricted stock and restricted stock unit activity and weighted average grant-date fair
value follows for the year ended December 31, 2013:
Restricted Stock
Restricted Stock Units
Outstanding at January 1 . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . .
Common
Shares
(In thousands)
188
—
(44)
—
Outstanding at December 31 . . .
144
Weighted Average
Grant-Date
Fair Value
$25.14
17.30
—
27.55
Common
Shares
(In thousands)
511
969
(39)
(19)
1,422
Weighted Average
Grant-Date
Fair Value
$13.26
5.20
9.19
7.21
7.96
Long-Term Incentive Compensation
The Company has a long-term incentive program that allows for the award of performance units. The total
number of units earned by a participant is based on financial and operational performance measures, and may be
paid out in cash or in shares of the Company’s common stock. The Company recognizes compensation expense over
the three year term of the grant. The liabilities are remeasured quarterly. The Company recognized $9.1 million,
$8.1 million and $2.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. The expense is
included primarily in ‘‘Selling, general and administrative expenses’’ in the accompanying consolidated statements of
operations. Amounts accrued and unpaid for all grants under the plan totaled $17.2 million and $13.1 million as of
December 31, 2013 and 2012, respectively.
Deferred Compensation Plan
The Company maintains a deferred compensation plan that allows eligible employees to defer receipt of
compensation until the dates elected by the participant. Participants in the plan may defer up to 85% of their base
salaries and up to 100% of their annual incentive awards. The plan also allows participants to defer receipt of up to
100% of the shares under any restricted stock unit or performance-contingent stock awards. The amounts deferred
are invested in accounts that mirror the gains and losses of a number of different investment funds, including a
hypothetical investment in shares of the Company’s common stock. Participants are always vested in their deferrals
to the plan and any related earnings. The Company has established a grantor trust to fund the obligations under
the plan. The trust has purchased corporate-owned life insurance to offset these obligations. The net cash surrender
values of the policies of $39.4 million and $35.4 million at December 31, 2013 and 2012, respectively, are included
in ‘‘Other noncurrent assets’’ in the accompanying consolidated balance sheets. The participants have an unsecured
contractual commitment by the Company to pay the amounts due under the plan. Any assets placed in trust by
the Company to fund future obligations of the plan are subject to the claims of creditors in the event of insolvency
or bankruptcy, and participants are general creditors of the company as to their deferred compensation in the plans.
Under the plan, the Company credits each participant’s account with the number of units equal to the number
of shares or units that the participant could purchase or receive with the amount of compensation deferred, based
upon the fair market value of the underlying investment on that date. The amount the employee will receive from
the plan will be based on the number of units credited to each participant’s account, valued on the basis of the fair
market value of an equivalent number of shares or units of the underlying investment on that date. The liability
under the plan was $37.0 million and $31.3 million at December 31, 2013 and 2012.
F-39
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company’s net income related to the deferred compensation plan for the years ended December 31, 2013,
2012 and 2011 was $2.6 million, $3.3 million and $6.2 million, respectively, most of which is included in ‘‘Selling,
general and administrative expenses in the accompanying consolidated statements of operations.
19. Workers’ Compensation Expense
The following table details the components of workers’ compensation expense:
Total occupational disease . . . . . . . . . . . . . . . . . . . . . . . . . .
Traumatic injury claims and assessments . . . . . . . . . . . . . . . .
6,137
21,089
(In thousands)
6,962
26,565
3,365
16,979
Total workers’ compensation expense . . . . . . . . . . . . . . . . . .
$27,226
$33,527
$20,344
Year Ended December 31,
2013
2012
2011
At December 31, 2013, accumulated gains of $0.9 million were not yet recognized in occupational disease cost
and were recorded in accumulated other comprehensive income. Adjustments to the liability for curtailments of plan
benefits were $0.8 in 2013 and $7.1 million in 2012.
Summarized below is information about the amounts recognized in the accompanying consolidated balance
sheets for workers’ compensation benefits:
December 31,
2013
2012
(In thousands)
Occupational disease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Traumatic and other workers’ compensation claims . . . . . . . . . . . . . . . .
$55,228
35,268
$58,431
33,569
Total obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Less amount included in accrued expenses
90,496
12,434
92,000
10,371
Noncurrent obligations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$78,062
$81,629
As of December 31, 2013, the Company had $98.8 million in surety bonds and letters of credit outstanding
to secure workers’ compensation obligations.
20. Employee Benefit Plans
Defined Benefit Pension and Other Postretirement Benefit Plans
The Company provides funded and unfunded non-contributory defined benefit pension plans covering certain
of its salaried and hourly employees. Benefits are generally based on the employee’s age and compensation. The
Company funds the plans in an amount not less than the minimum statutory funding requirements or more than
the maximum amount that can be deducted for U.S. federal income tax purposes.
The Company also currently provides certain postretirement medical and life insurance coverage for eligible
employees. Generally, covered employees who terminate employment after meeting eligibility requirements are
eligible for postretirement coverage for themselves and their dependents. The salaried employee postretirement
benefit plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features
F-40
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
such as deductibles and coinsurance. The Company’s current funding policy is to fund the cost of all postretirement
benefits as they are paid.
Obligations and Funded Status.
Summaries of the changes in the benefit obligations, plan assets and funded status of the plans are as follows:
Pension Benefits
Other Postretirement
Benefits
2013
2012
2013
2012
(In thousands)
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at January 1 . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-primarily actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . .
$390,894
27,065
16,207
—
(41,562)
(3,027)
(34,109)
$333,951
27,466
15,668
—
(23,624)
(687)
38,120
$ 49,326
2,027
1,739
—
(3,276)
(2,519)
(4,766)
$ 45,129
2,142
2,020
2,183
(4,244)
(708)
2,804
Benefit obligations at December 31 . . . . . . . . . . . . . . . . . . . . .
$355,468
$390,894
$ 42,531
$ 49,326
CHANGE IN PLAN ASSETS
Value of plan assets at January 1 . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$322,874
52,247
14,393
(41,562)
$285,074
42,396
19,028
(23,624)
$ — $ —
—
4,244
(4,244)
—
3,276
(3,276)
Value of plan assets at December 31 . . . . . . . . . . . . . . . . . . . . .
$347,952
$322,874
$ — $ —
Accrued benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (7,516) $ (68,020) $(42,531) $(49,326)
ITEMS NOT YET RECOGNIZED AS A COMPONENT OF NET
PERIODIC BENEFIT COST
Prior service credit (cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated gain (loss)
$ 1,732
10,096
$
1,890
(68,915)
$ 31,925
3,394
$ 45,938
(1,531)
$ 11,828
$ (67,025) $ 35,319
$ 44,407
BALANCE SHEET AMOUNTS
Current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(405) $
$
(390) $ (3,276) $ (4,240)
$ (7,111) $ (67,630) $(39,255) $(45,086)
$ (7,516) $ (68,020) $(42,531) $(49,326)
Pension Benefits
The accumulated benefit obligation for all pension plans was $341.1 million and $366.1 million at
December 31, 2013 and 2012, respectively. The accumulated benefit obligation differs from the benefit obligation
in that it includes no assumptions about future compensation levels.
The benefit obligation and the accumulated benefit obligation for the Company’s unfunded pension plan were
$10.1 million and $8.8 million, respectively, at December 31, 2013.
F-41
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Prior service credit and net actuarial loss of $0.2 million and $3.8 million, respectively, will be amortized from
accumulated other comprehensive income into net periodic benefit cost in 2014.
Other Postretirement Benefits
Prior service credit and net actuarial gain of $10.0 million and $0.7 million, respectively, will be amortized
from accumulated other comprehensive income into net periodic benefit cost in 2014.
Components of Net Periodic Benefit Cost. The following table details the components of pension and
postretirement benefit costs (credits):
Pension Benefits
Other Postretirement Benefits
Year Ended December 31,
Year Ended December 31,
2013
2012
2011
2013
2012
2011
(In thousands)
Service cost . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailments . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . .
Amortization of prior service credits . . . . . . . .
. .
Amortization of other actuarial losses (gains)
$ 27,065
16,207
47
(23,761)
(204)
14,616
$ 27,466
15,668
324
(22,030)
259
14,666
$ 16,490
16,253
—
(21,812)
(189)
8,748
$ 2,027
1,739
(5,444)
—
(10,621)
(252)
$ 2,142
2,020
(4,049)
—
(11,458)
(522)
$ 3,917
3,279
—
—
(2,364)
(3,100)
Net benefit cost (credit)
. . . . . . . . . . . . . . . .
$ 33,970
$ 36,353
$ 19,490
$(12,551) $(11,867) $ 1,732
A curtailment was triggered in the third quarter of 2013 by reductions in employees’ expected years of future
service resulting primarily from the sale of Canyon Fuel. Curtailments include the recognition of unamortized prior
service costs and actuarial adjustments to the respective projected benefit obligations for the cash balance pension
and medical plans and pneumoconiosis benefits.
The differences generated from changes in assumed discount rates and returns on plan assets are amortized
into earnings over a five-year period.
Assumptions. The following table provides the assumptions used to determine the actuarial present value of
projected benefit obligations at December 31.
Weighted average assumptions:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . .
5.08% 4.13% 4.58% 3.64%
3.39% 3.39% N/A N/A
Pension
Benefits
Other
Postretirement
Benefits
2013
2012
2013
2012
F-42
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table provides the assumptions used to determine net periodic benefit cost for years ended
December 31.
Pension Benefits
Other Postretirement Benefits
2013
2012
2011
2013
2012
2011
Weighted average assumptions:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
4.13%/5.05% 4.91% 5.71% 3.64%/4.58% 4.52% 5.23%
3.39%
7.75%
3.39% 3.39%
7.75% 8.50%
N/A
N/A
N/A N/A
N/A N/A
The Company establishes the expected long-term rate of return at the beginning of each fiscal year based upon
historical returns and projected returns on the underlying mix of invested assets. The Company utilizes modern
portfolio theory modeling techniques in the development of its return assumptions. This technique projects rates of
return that can be generated through various asset allocations that lie within the risk tolerance set forth by
members of the Company’s pension committee (the ‘‘Pension Committee’’). The risk assessment provides a link
between a pension’s risk capacity, management’s willingness to accept investment risk and the asset allocation
process, which ultimately leads to the return generated by the invested assets.
The health care cost trend rate assumed for 2014 is 7.3% and is expected to reach an ultimate trend rate of
4.5% by 2028. A one-percentage-point increase in the health care cost trend rate would have increased the
postretirement benefit obligation at December 31, 2013 by $0.6 million. A one-percentage-point decrease in the
health care cost trend rate would have decreased the postretirement benefit obligation at December 31, 2013 by
$0.6 million. The effect of these changes would have had an insignificant impact on the net periodic postretirement
benefit costs.
Plan Assets
The Pension Committee is responsible for overseeing the investment of pension plan assets. The Pension
Committee is responsible for determining and monitoring appropriate asset allocations and for selecting or replacing
investment managers, trustees and custodians. The pension plan’s current investment targets are 65% equity and
35% fixed income securities. The Pension Committee reviews the actual asset allocation in light of these targets on
a periodic basis and rebalances among investments as necessary. The Pension Committee evaluates the performance
of investment managers as compared to the performance of specified benchmarks and peers and monitors the
investment managers to ensure adherence to their stated investment style and to the plan’s investment guidelines.
F-43
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company’s pension plan assets at December 31, 2013 and 2012, respectively, are categorized below
according to the fair value hierarchy as defined in Note 16, ‘‘Fair Value Measurements’’:
Equity Securities:(A)
Total
Level 1
Level 2
Level 3
2013
2012
2013
2012
2013
2012
2013
2012
(In thousands)
U.S. small-cap . . . . . . . . . . . . . . . $ 14,901 $ 13,099 $ 14,901 $13,099 $
U.S. mid-cap . . . . . . . . . . . . . . . .
U.S. large-cap . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . .
62,271
110,947
29,165
43,946
102,922
27,251
28,654
53,708
—
12,717
48,536
33,617
57,239
— 29,165
— $
— $ — $—
— —
— —
— —
31,229
54,386
27,251
Fixed income securities:
U.S. government securities(B) . . . . .
Non-U.S. government securities(C)
.
U.S. government asset and
mortgage backed securities(D) . . .
Corporate fixed income(E)
State and local government
. . . . . . .
securities(F)
. . . . . . . . . . . . . . .
Other fixed income(G) . . . . . . . . . .
. . . . . . .
. . . . . . . . . . .
Short-term investments(H)
Other investments(I)
18,545
2,143
24,202
3,681
17,714
—
23,483
—
831
2,143
719
3,681
600
781
9,902
14,016
8,301
58,093
14,663
18,421
9,903
61,765
20,894
414
—
—
—
—
—
—
—
—
600
781
9,902
14,016
—
8,301
— 58,093
— 14,663
1,404
—
9,903
61,765
20,894
414
— —
— —
— —
17,017 —
— —
— —
— —
— —
Total . . . . . . . . . . . . . . . . . . . . . . . $347,952 $322,874 $114,977 $97,835 $215,958 $225,039 $17,017 $—
(A) Equity securities includes investments in 1) common stock, 2) preferred stock and 3) mutual funds.
Investments in common and preferred stocks are valued using quoted market prices multiplied by the number
of shares owned. Investments in mutual funds are valued at the net asset value per share multiplied by the
number of shares held as of the measurement date and are traded on listed exchanges.
(B) U.S. government securities includes agency and treasury debt. These investments are valued using dealer
quotes in an active market.
(C) Non-U.S. government securities includes debt securities issued by foreign governments and are valued utilizing
a price spread basis valuation technique with observable sources from investment dealers and research vendors.
(D) U.S. government asset and mortgage backed securities includes government-backed mortgage funds which are
valued utilizing an income approach that includes various valuation techniques and sources such as discounted
cash flows models, benchmark yields and securities, reported trades, issuer trades and/or other applicable data.
(E) Corporate fixed income is primarily comprised of corporate bonds and certain corporate asset-backed securities
that are denominated in the U.S. dollar and are investment-grade securities. These investments are valued
using dealer quotes.
(F)
State and local government securities include different U.S. state and local municipal bonds and asset backed
securities, these investments are valued utilizing a market approach that includes various valuation techniques
and sources such as value generation models, broker quotes, benchmark yields and securities, reported trades,
issuer trades and/or other applicable data.
F-44
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(G) Other fixed income investments are actively managed fixed income vehicles that are valued at the net asset
value per share multiplied by the number of shares held as of the measurement date.
(H) Short-term investments include governmental agency funds, government repurchase agreements, commingled
funds, and pooled funds and mutual funds. Governmental agency funds are valued utilizing an option adjusted
spread valuation technique and sources such as interest rate generation processes, benchmark yields and broker
quotes. Investments in governmental repurchase agreements, commingled funds and pooled funds and mutual
funds are valued at the net asset value per share multiplied by the number of shares held as of the
measurement date.
(I) Other investments includes cash, forward contracts, derivative instruments, credit default swaps, interest rate
swaps and mutual funds. Investments in interest rate swaps are valued utilizing a market approach that
includes various valuation techniques and sources such as value generation models, broker quotes in active and
non-active markets, benchmark yields and securities, reported trades, issuer trades and/or other applicable data.
Forward contracts and derivative instruments are valued at their exchange listed price or broker quote in an
active market. The mutual funds are valued at the net asset value per share multiplied by the number of
shares held as of the measurement date and are traded on listed exchanges.
During 2013, the plan invested $16.0 million in Level 3 investments. Net unrealized gains from Level
investments were $1.0 million during 2013.
Cash Flows. The Company expects to make contributions of $4.0 million to the pension plans in 2014, which
is impacted by the Moving Ahead for Progress in the 21st Century Act (MAP-21) enacted July 6, 2012. MAP-21
does not reduce the Company’s obligations under the plan, but redistributes the timing of required payments by
providing near term funding relief for sponsors under the Pension Protection Act.
The following represents expected future benefit payments from the plan, which reflect expected future service,
as appropriate:
Pension
Benefits
Other
Postretirement
Benefits
(In thousands)
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years 2019-2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 21,844
21,666
27,689
29,999
33,488
190,030
$ 4,020
4,226
4,415
4,523
4,602
22,028
$324,716
$43,814
F-45
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Other Plans
The Company sponsors savings plans which were established to assist eligible employees provide for their
future retirement needs. The Company’s expense, representing its contributions to the plans, was $25.1 million,
$27.2 million and $25.9 million for the years ended December 31, 2013, 2012 and 2011, respectively.
21. Earnings (Loss) Per Common Share
In the year ended December 31, 2011, the dilutive impact of common stock equivalents under incentive plans
was 0.8 million shares. The dilutive effects of 7.5 million, 4.9 million, and 2.6 million shares of common stock
issuable under incentive plans were excluded from the calculation of diluted weighted average shares outstanding for
the years ended December 31, 2013, 2012 and 2011, respectively, because the exercise price or grant price of the
securities exceeded the average market price of the Company’s common stock for these periods. The weighted
average share impacts of options, restricted stock and restricted stock units that were excluded from the calculation
of weighted average shares due to the Company’s incurring a net loss for the years ended December 31, 2013 and
2012 were not significant.
22. Leases
The Company leases equipment, land and various other properties under non-cancelable long-term leases,
expiring at various dates. Certain leases contain options that would allow the Company to extend the lease or
purchase the leased asset at the end of the base lease term. In addition, the Company enters into various
non-cancelable royalty lease agreements under which future minimum payments are due.
Minimum payments due in future years under these agreements in effect at December 31, 2013 are as follows:
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating
Leases
Royalties
(In thousands)
$31,532
24,466
16,851
14,509
3,739
1,195
$ 17,394
19,143
21,070
20,806
22,255
83,708
$92,292
$184,376
Rental expense, including amounts related to these operating leases and other shorter-term arrangements,
amounted to $42.2 million in 2013, $41.2 million in 2012 and $43.9 million in 2011.
Royalties are paid to lessors either as a fixed price per ton or as a percentage of the gross selling price of the
mined coal. Royalties under the majority of the Company’s significant leases are paid on the percentage of gross
selling price basis. Royalty expense, including production royalties, was $261.1 million in 2013, $302.0 million in
2012 and $349.0 million in 2011.
As of December 31, 2013, certain of the Company’s lease obligations were secured by outstanding surety
bonds totaling $55.4 million.
F-46
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
23. Risk Concentrations
Credit Risk and Major Customers
The Company has a formal written credit policy that establishes procedures to determine creditworthiness and
credit limits for trade customers and counterparties in the over-the-counter coal market. Generally, credit is
extended based on an evaluation of the customer’s financial condition. Collateral is not generally required, unless
credit cannot be established. Credit losses are provided for in the financial statements and historically have been
minimal.
The Company markets its steam coal principally to domestic and foreign electric utilities and its metallurgical
coal to domestic and foreign steel producers. Revenues from export sales were $0.8 billion, $1.2 billion and
$0.9 billion for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013 and
2012, accounts receivable from electric utilities totaled $125.7 million and $159.5 million, respectively, or 64% and
65% of total trade receivables, respectively. As of December 31, 2013 and 2012, accounts receivable from sales of
metallurgical-quality coal totaled $70.5 million and $86.6 million, respectively, or 36% and 35%, of total trade
receivables, respectively.
The Company uses shipping destination as the basis for attributing revenue to individual countries. The
Company’s foreign revenues by geographical location are as follows:
Europe (includes Morocco) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central and South America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokered Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31, 2013
(In thousands)
$371,363
160,404
80,322
55,493
154,442
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$822,024
The Company is committed under long-term contracts to supply steam coal that meets certain quality
requirements at specified prices. These prices are generally adjusted based on market indices. Quantities sold under
some of these contracts may vary from year to year within certain limits at the option of the customer. The
Company sold approximately 139.6 million tons of coal in 2013. Approximately 59% of this tonnage (representing
approximately 49% of the Company’s revenue) was sold under long-term contracts (contracts having a term of
greater than one year). Long-term contracts range in remaining life from one to 7 years.
Third-party sources of coal
The Company uses independent contractors to mine coal at certain mining complexes. The Company also
purchases coal from third parties that it sells to customers. Factors beyond the Company’s control could affect the
availability of coal produced for or purchased by the Company. Disruptions in the quantities of coal produced for or
purchased by the Company could impair its ability to fill customer orders or require it to purchase coal from other
sources at prevailing market prices in order to satisfy those orders.
F-47
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Transportation
The Company depends upon barge, rail, truck and belt transportation systems to deliver coal to its customers.
Disruption of these transportation services due to weather-related problems, mechanical difficulties, strikes, lockouts,
bottlenecks, and other events could temporarily impair the Company’s ability to supply coal to its customers,
resulting in decreased shipments. In the past, disruptions in rail service have resulted in missed shipments and
production interruptions.
24.
Settlement with Patriot Coal
On December 31, 2005, Arch entered into a purchase and sale agreement to sell mining complexes to
Magnum Coal Company (‘‘Magnum’’). On July 23, 2008, Patriot Coal Corporation acquired Magnum from Arc
Light Capital Partners. On July 9, 2012, Patriot Coal Corporation and certain of its wholly owned subsidiaries,
including Magnum, (collectively, ‘‘Patriot’’) filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Code in the U.S. Bankruptcy Court for the Southern District of New York.
On October 4, 2013, we entered into a term sheet that was approved by the U.S. Bankruptcy Court on
November 7, 2013, that resolves all pending and potential legal claims with Patriot stemming from the Company’s
sale of mining complexes to Magnum and the subsequent purchase of those companies by Patriot in 2008.
The Company paid $5.0 million in cash to Patriot upon its exit from bankruptcy, which is reflected in ‘‘Other
operating expense (income), net’’ in the consolidated statement of operations for the year ended December 31,
2013. Additionally, the settlement includes the release of a $16.7 million letter of credit posted by Patriot in the
Company’s favor for surety bonds related to the companies sold to Magnum. The Company also purchased Patriot’s
Guffey reserves for $16.0 million in cash upon their exit from bankruptcy. The Guffey reserves border the
Company’s Leer metallurgical coal complex.
25. Commitments and Contingencies
The Company accrues for cost related to contingencies when a loss is probable and the amount is reasonably
determinable. Disclosure of contingencies is included in the financial statements when it is at least reasonably
possible that a material loss or an additional material loss in excess of amounts already accrued may be incurred.
Allegheny Energy Supply (‘‘Allegheny’’), the sole customer of coal produced at the Company’s subsidiary Wolf
Run Mining Company’s (‘‘Wolf Run’’) Sycamore No. 2 mine, filed a lawsuit against Wolf Run, Hunter Ridge
Holdings, Inc. (‘‘Hunter Ridge’’), and ICG in state court in Allegheny County, Pennsylvania on December 28,
2006, and amended its complaint on April 23, 2007. Allegheny claimed that Wolf Run breached a coal supply
contract when it declared force majeure under the contract upon idling the Sycamore No. 2 mine in the third
quarter of 2006, and that Wolf Run continued to breach the contract by failing to ship in volumes referenced in
the contract. The Sycamore No. 2 mine was idled after encountering adverse geologic conditions and abandoned gas
wells that were previously unidentified and unmapped.
After extensive searching for gas wells and rehabilitation of the mine, it was re-opened in 2007, but with
notice to Allegheny that it would necessarily operate at reduced volumes in order to safely and effectively avoid the
many gas wells within the reserve. The amended complaint also alleged that the production stoppages constitute a
breach of the guarantee agreement by Hunter Ridge and breach of certain representations made upon entering into
the contract in early 2005. Allegheny voluntarily dropped the breach of representation claims later. Allegheny
claimed that it would incur costs in excess of $100 million to purchase replacement coal over the life of the
F-48
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
contract. ICG, Wolf Run and Hunter Ridge answered the amended complaint on August 13, 2007, disputing all of
the remaining claims.
On November 3, 2008, ICG, Wolf Run and Hunter Ridge filed an amended answer and counterclaim against
the plaintiffs seeking to void the coal supply agreement due to, among other things, fraudulent inducement and
conspiracy. On September 23, 2009, Allegheny filed a second amended complaint alleging several alternative
theories of liability in its effort to extend contractual liability to ICG, which was not a party to the original contract
and did not exist at the time Wolf Run and Allegheny entered into the contract. No new substantive claims were
asserted. ICG answered the second amended complaint on October 13, 2009, denying all of the new claims. The
Company’s counterclaim was dismissed on motion for summary judgment entered on May 11, 2010. Allegheny’s
claims against ICG were also dismissed by summary judgment, but the claims against Wolf Run and Hunter Ridge
were not. The court conducted a non-jury trial of this matter beginning on January 10, 2011 and concluding on
February 1, 2011.
At the trial, Allegheny presented its evidence for breach of contract and claimed that it is entitled to past and
future damages in the aggregate of between $228 million and $377 million. Wolf Run and Hunter Ridge presented
their defense of the claims, including evidence with respect to the existence of force majeure conditions and excuse
under the contract and applicable law. Wolf Run and Hunter Ridge presented evidence that Allegheny’s damages
calculations were significantly inflated because it did not seek to determine damages as of the time of the breach
and in some instances artificially assumed future nondelivery or did not take into account the apparent requirement
to supply coal in the future. On May 2, 2011, the trial court entered a Memorandum and Verdict determining that
Wolf Run had breached the coal supply contract and that the performance shortfall was not excused by force
majeure. The trial court awarded total damages and interest in the amount of $104.1 million, which consisted of
$13.8 million for past damages, and $90.3 million for future damages. ICG and Allegheny filed post-verdict
motions in the trial court and on August 23, 2011, the court denied the parties’ motions. The court entered a final
judgment on August 25, 2011, in the amount of $104.1 million, which included pre-judgment interest.
The parties appealed the lower court’s decision to the Superior Court of Pennsylvania. On August 13, 2012,
the Superior Court of Pennsylvania affirmed the award of past damages, but ruled that the lower court should have
calculated future damages as of the date of breach, and remanded the matter back to the lower court with
instructions to recalculate that portion of the award. On November 19, 2012, Allegheny filed a Petition for
Allowance of Appeal with the Supreme Court of Pennsylvania and Wolf Run and Hunter Ridge filed an Answer.
On July 2, 2013, the Supreme Court of Pennsylvania denied the Petition of Allowance. As this action finalized the
past damage award, Wolf Run paid $15.6 million for the past damage amount, including interest, to Allegheny in
July 2013. The future damage award is now back before the lower court, and a new trial has been scheduled to
start May 13, 2014.
In addition, the Company is a party to numerous claims and lawsuits with respect to various matters. As of
December 31, 2013 and December 31, 2012, the Company had accrued $30.4 million and $32.8 million,
respectively, for all legal matters, including $11.7 million and $4.4 million, respectively, classified as current. The
ultimate resolution of any such legal matter could result in outcomes which may be materially different from
amounts the Company has accrued for such matters.
The Company has unconditional purchase obligations relating to purchases of coal, materials and supplies and
capital commitments, other than reserve acquisitions, and is also a party to transportation capacity commitments.
The future commitments under these agreements total $293.0 million in 2014, $145.8 million in 2015,
$111.3 million in 2016, $105.7 million in 2017, $80.8 million in 2018 and $407.7 million thereafter. During the
F-49
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
years ended December 31, 2013, 2012 and 2011, the Company fulfilled its commitments under agreements
containing unconditional obligations.
26.
Segment Information
The Company’s reportable business segments are based on the major coal producing basins in which the
Company operates and may include a number of mine complexes. The Company manages its coal sales by coal
basin, not by individual mining complex. Geology, coal transportation routes to customers, regulatory environments
and coal quality or type are characteristic to a basin, and, accordingly, market and contract pricing have developed
by coal basin. Mining operations are evaluated based on their per-ton operating costs (defined as including all
mining costs but excluding pass-through transportation expenses), as well as on other non-financial measures, such
as safety and environmental performance. The Company’s reportable segments are the Powder River Basin (PRB)
segment, with operations in Wyoming; and the Appalachia (APP) segment, with operations in West Virginia,
Kentucky, Maryland and Virginia. The ‘‘Other’’ category includes the Company’s coal mining operations in Colorado
and Illinois and our ADDCAR subsidiary.
Operating segment results for the years ended December 31, 2013, 2012 and 2011 are presented below.
Results for the reportable segments include all direct costs of mining, including all depreciation, depletion and
amortization related to the mining operations, even if the assets are not recorded at the operating segment level.
These reportable segments results do not reflect the mine closure or impairment costs, since those are not reflected
in the operating income reviewed by management. Corporate, Other and Eliminations includes these charges, as
well as the change in fair value of coal derivatives and coal trading activities, net; corporate overhead; land
management; other support functions; and the elimination of intercompany transactions. The operating segment
results reflect only those from continuing operations, and exclude the results of Canyon Fuel, since they are
classified as discontinued operations in the consolidated statements of operations.
The asset amounts below represent an allocation of assets consistent with the basis used for the Company’s
incentive compensation plans. The amounts in Corporate, Other and Eliminations represent primarily corporate
assets (cash, receivables, investments, plant, property and equipment) as well as unassigned coal reserves, above-
market acquired sales contracts and other unassigned assets. Goodwill is allocated to the respective reporting units,
even though it may not be reflected in the subsidiaries’ financial statements. Asset balances as of December 31,
F-50
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2012 and 2011 include the assets of Canyon Fuel. Prior year asset amounts have been restated to reflect a change
in how certain unassigned coal reserves and goodwill amounts are presented.
PRB
APP
Other
Operating
Segments
(in thousands)
Corporate,
Other and
Eliminations
Consolidated
Year Ended December 31,2013
Revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . .
Depreciation, depletion and amortization . . .
Amortization of acquired sales contracts, net
Total assets . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . .
Year Ended December 31,2012
Revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . .
Depreciation, depletion and amortization . . .
Amortization of acquired sales contracts, net
Total assets . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . .
Year Ended December 31,2011
Revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . .
Depreciation, depletion and amortization . . .
Amortization of acquired sales contracts, net
Total assets . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . .
$1,482,813
41,543
171,324
(3,656)
1,841,835
9,784
$1,145,800
(108,387)
202,952
(10,364)
3,971,764
167,759
$ 385,744
64,943
45,741
4,563
402,922
23,122
$1,524,536
100,679
166,539
(1,987)
1,972,522
23,410
$1,793,576
(606,235)
271,220
(23,926)
3,875,105
275,476
$ 450,014
74,142
49,911
724
834,287
68,220
$1,646,947
180,730
171,693
19,458
2,307,783
110,999
$1,915,090
283,404
203,759
(39,988)
4,740,723
217,435
$ 321,002
44,465
43,504
(1,539)
1,262,433
94,599
$
— $ 3,014,357
(663,141)
426,442
(9,457)
8,990,193
296,984
(661,240)
6,425
—
2,773,672
96,319
$
— $ 3,768,126
(757,012)
492,211
(25,189)
10,006,777
395,225
(325,598)
4,541
—
3,324,863
28,119
$
— $ 3,883,039
343,061
420,980
(22,069)
10,213,959
540,936
(165,538)
2,024
—
1,903,020
117,903
A reconciliation of segment income (loss) from operations to consolidated loss before income taxes follows:
Year Ended December 31,
2013
2012
2011
Income (Loss) from operations . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . .
Nonoperating expense . . . . . . . . . . . . . . . . . . . . . .
$ (663,141) $ (757,012) $ 343,061
(230,186)
3,309
(51,448)
(381,267)
6,603
(42,921)
(317,615)
5,473
(23,668)
Loss from continuing operations before income taxes .
$(1,080,726) $(1,092,822) $ 64,736
F-51
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
28. Quarterly Selected Financial Data (Unaudited)
Quarterly selected financial data for the years ended December 31, 2013 and 2012 is summarized below:
March 31
June 30
September 30 December 31
(b)
(a)
(a)(b)
(a)(b)
(In thousands, except per share data)
2013:
Revenues . . . . . . . . . . . . . . . . . . . . . . .
Gross profit (loss) . . . . . . . . . . . . . . . . .
Asset impairment and mine closure costs .
Goodwill impairment . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . .
Loss from continuing operations . . . . . . .
Income from discontinued operations, net
of tax . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . .
Diluted loss per common share
$ 791,269
$
90
$ 200,397
$766,332
2,505
— $ 20,482
— $
$737,370
$ (18,560) $
$
$
$ (51,431) $ (36,279) $(234,753)
$ (84,316) $ (80,351) $(207,767)
$ 719,386
$ (44,801)
—
$
— $ 265,423
$(340,678)
$(372,794)
— $
$ 14,267
$ 79,404
8,145
$ (70,049) $ (72,206) $(128,363)
$
$
1,580
$(371,214)
Loss from continuing operations
Net loss attributable to Arch
. . . . .
Coal, Inc. . . . . . . . . . . . . . . . . . . .
$
$
(0.40) $
(0.38) $
(0.98)
(0.33) $
(0.34) $
(0.61)
$
$
(1.76)
(1.75)
2012:
Revenues . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Gross profit
Asset impairment and mine closure costs . .
Goodwill impairment . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . .
Income (loss) from continuing operations . .
Income from discontinued operations, net
of tax . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Net income (loss)
Diluted income (loss) per common share
March 31
June 30
September 30 December 31
(b)
(a)
(a)
(a)
(In thousands, except per share data)
$ 965,685
$960,237
$ 47,163
$ 37,715
— $ 525,583
$
— $ 115,791
$
$ 27,797
$(596,893)
$ (14,099) $(442,456)
$975,170
$ 53,017
$ (2,144)
$
$119,242
$ 24,673
$ 867,034
$ 12,516
$ 15,743
— $ 214,889
$(307,158)
$(307,033)
$ 15,508
1,409
$
$
7,032
$(435,424)
$ 21,078
$ 45,751
$ 11,610
$(295,423)
Income (loss) from continuing operations .
Net income (loss) attributable to Arch
Coal, Inc.
. . . . . . . . . . . . . . . . . . . .
$
$
(0.07) $
(2.09)
0.01
$
(2.05)
$
$
0.12
0.22
$
$
(1.45)
(1.39)
(a)
In response to challenging market conditions, the Company made the decision to close or idle 10
mines in Appalachia and curtailed production at other thermal mines in the second quarter of 2012.
Challenging markets also resulted in impairment charges relating to mining and other operations,
investments in equity method subsidiaries and goodwill in both 2013 and 2012. See further
discussion in Note 5, ‘‘Impairment Charges and Mine Closure Costs’’ and Note 6, ‘‘Goodwill’’.
(b) The Company entered into a definitive agreement on June 27, 2013 to sell Canyon Fuel and the
sale was completed on August 16, 2013. Beginning in the second quarter of 2013, all quarterly
filings with the Securities and Exchange Commission reflected Canyon Fuel as a discontinued
operation in the consolidated statements of operations. The first quarter of 2013 and 2012 results
reflect this presentation. See further information in Note 3, ‘‘Discontinued Operations’’.
F-52
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
29.
Supplemental Consolidating Financial Information
Pursuant to the indentures governing Arch Coal, Inc.’s senior notes, certain wholly-owned subsidiaries of the
Company have fully and unconditionally guaranteed the senior notes on a joint and several basis. The following
tables present consolidating financial information for (i) the Company, (ii) the issuer of the senior notes, (iii) the
guarantors under the senior notes, and (iv) the entities which are not guarantors under the senior notes (Arch
Receivable Company, LLC and the Company’s subsidiaries outside the United States):
F-53
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Operations and Comprehensive Income
Year Ended December 31, 2013
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs, expenses and other
. . .
Cost of sales (exclusive of items shown separately below)
Depreciation, depletion and amortization . . . . . . . . . . . . . .
Amortization of acquired sales contracts, net . . . . . . . . . . .
Change in fair value of coal derivatives and coal trading
activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment and mine closure costs . . . . . . . . . . . . . .
Goodwill impairment
. . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . .
Other operating expense (income), net . . . . . . . . . . . . . . .
Loss from investment in subsidiaries . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . . . . .
Parent/Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
(In thousands)
Eliminations
Consolidated
$
— $3,014,357
$ — $
— $ 3,014,357
9,117
5,949
—
—
78,150
—
88,820
4,209
2,657,583
420,458
(9,457)
7,845
142,729
265,423
39,825
(34,856)
186,245
(328,889)
3,489,550
—
—
35
—
—
—
—
7,038
(5,370)
1,703
—
(3,564)
—
—
—
—
—
(2,235)
5,799
2,663,136
426,442
(9,457)
7,845
220,879
265,423
133,448
(30,218)
— 3,677,498
—
328,889
(515,134)
(475,193)
(1,703)
328,889
(663,141)
(449,614)
30,285
(419,329)
(24,747)
68,248
43,501
(4,214)
5,378
1,164
97,308
(97,308)
—
—
328,889
—
328,889
(381,267)
6,603
(374,664)
(42,921)
(1,080,726)
(335,498)
(745,228)
Net loss resulting from early retirement and refinancing of
debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(42,921)
—
Loss from continuing operations before income taxes . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . .
(977,384)
(335,552)
(431,692)
—
Loss from continuing operations . . . . . . . . . . . . . . . . . .
(641,832)
(431,692)
Income from discontinued operations, including gain on
—
(539)
54
(593)
sale—net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
103,396
—
—
103,396
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(641,832) $ (328,296)
$ (593)
$328,889
$ (641,832)
Total comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . .
$(587,633) $ (304,278)
$ (593)
$304,871
$ (587,633)
F-54
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Operations and Comprehensive Income
Year Ended December 31, 2012
Parent/Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
(In thousands)
Eliminations
Consolidated
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Costs, expenses and other . . . . . . . . . . . . . . . . . . . . .
Cost of sales (exclusive of items shown separately below) . . .
Depreciation, depletion and amortization . . . . . . . . . . . . .
Amortization of acquired sales contracts, net . . . . . . . . . . .
Change in fair value of coal derivatives and coal trading
activities, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment and mine closure costs . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract settlement resulting from Patriot Bankruptcy . . . .
Reduction in accrual related to acquired litigation . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . .
Other operating income, net . . . . . . . . . . . . . . . . . . . . .
Loss from investment in subsidiaries . . . . . . . . . . . . . . . .
Income (loss) from operations
Interest expense, net
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
— $3,768,126
$ — $
10,921
5,392
—
3,144,178
486,786
(25,189)
—
33
—
—
—
—
—
—
84,199
(13,392)
(16,590)
539,182
330,680
58,335
(79,532)
44,363
(39,209)
87,120
(589,665)
4,443,004
—
—
—
—
—
—
8,785
(13,804)
(4,986)
(366,584)
27,750
(338,834)
(34,849)
57,268
22,419
(3,221)
7,494
4,273
Net loss resulting from early retirement of debt
. . . . . . . .
(21,975)
(1,693)
—
Income (loss) from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . .
(1,037,594)
(353,907)
Income (loss) from continuing operations . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . .
Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interest . . .
(683,687)
—
(683,687)
(268)
(654,152)
—
(654,152)
55,228
(598,924)
—
9,259
—
9,259
—
9,259
—
— $ 3,768,126
—
— 3,155,099
492,211
—
(25,189)
—
—
—
—
—
—
(3,048)
3,048
(16,590)
539,182
330,680
58,335
(79,532)
134,299
(63,357)
87,039
(87,039)
—
—
589,665
—
589,665
—
589,665
—
(317,615)
5,473
(312,142)
(23,668)
(1,092,822)
(353,907)
(738,915)
55,228
(683,687)
(268)
— 589,665
— 4,525,138
—
(676,785)
(674,878)
4,986
589,665
(757,012)
Net Income (loss) attributable to Arch Coal, Inc.
. . . . . . . $ (683,955) $ (598,924) $ 9,259
$589,665
$ (683,955)
Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . $ (692,239) $ (604,903) $ 9,259
$595,644
$ (692,239)
F-55
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Operations and Comprehensive Income
Year Ended December 31, 2011
Parent/Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
(In thousands)
Eliminations Consolidated
$
— $3,883,039
$ — $
— $3,883,039
—
— 2,980,354
420,980
—
(22,069)
—
—
—
—
(2,634)
2,634
(2,907)
7,316
47,360
119,056
(10,112)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs, expenses and other . . . . . . . . . . . . . . . . . . . . . .
Cost of sales (exclusive of items shown separately below) . . . .
Depreciation, depletion and amortization . . . . . . . . . . . . . .
Amortization of acquired sales contracts, net . . . . . . . . . . . .
Change in fair value of coal derivatives and coal trading
activities, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment and mine closure costs . . . . . . . . . . . . . .
Acquisition and transition costs . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . .
Other operating expense (income), net . . . . . . . . . . . . . . . .
Loss from investment in subsidiaries . . . . . . . . . . . . . . . . .
Income (loss) from operations
Interest expense, net
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
22,929
2,876
—
2,957,425
418,104
(22,069)
—
—
—
—
—
—
3,527
(251)
3,276
(2,907)
7,316
—
43,572
10,811
3,412,252
—
—
—
47,360
74,591
(23,306)
124,450
532,757
408,307
(256,191)
15,935
(240,256)
Nonoperating expense . . . . . . . . . . . . . . . . . . . . . . . . . .
(49,490)
Income (loss) from continuing operations before income taxes .
Provision for (benefit from) income taxes . . . . . . . . . . . . . .
Income (loss) from continuing operations
. . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . . .
Net Income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interest . . . .
118,561
(24,279)
142,840
—
142,840
(1,157)
— (532,757)
— 3,539,978
—
470,787
(3,276)
(532,757)
343,061
(46,218)
55,041
8,823
(1,958)
477,652
—
477,652
53,825
531,477
—
(2,224)
6,780
4,556
—
1,280
—
1,280
—
1,280
—
74,447
(74,447)
(230,186)
3,309
— (226,877)
—
(532,757)
—
(532,757)
—
(532,757)
—
(51,448)
64,736
(24,279)
89,015
53,825
142,840
(1,157)
Net Income (loss) attributable to Arch Coal, Inc.
. . . . . . . .
$ 141,683
$ 531,477
$ 1,280
$(532,757) $ 141,683
Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . .
$ 141,240
$ 537,561
$ 1,280
$(538,841) $ 141,240
F-56
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Balance Sheets
December 31, 2013
Parent/Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
(In thousands)
Eliminations
Consolidated
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 799,333 $ 100,418 $ 11,348 $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short term investments . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
23,018
264,161
43,617
—
—
197,015
—
806
—
248,414
14,177
—
84,401
— $ 911,099
—
—
248,414
—
229,573
(4,637)
264,161
—
128,824
—
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . .
1,146,325
431,214
209,169
(4,637)
1,782,071
Property, plant and equipment, net . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Intercompany receivables
Note receivable from Arch Western . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,851
7,741,589
675,000
162,287
6,709,398
—
1,953,719
—
311,463
37
— (7,741,589)
(1,772,624)
(675,000)
—
— 6,734,286
—
—
—
473,836
(181,095)
—
86
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . .
8,578,876
2,265,182
(181,009)
(10,189,213)
473,836
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,750,052 $9,405,794 $ 28,197 $(10,193,850) $8,990,193
Liabilities and Stockholders’ Equity
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued expenses and other current liabilities . . . . . . . . .
Current maturities of debt . . . . . . . . . . . . . . . . . . . . . .
17,781 $ 158,224 $
53,779
28,882
228,664
4,611
137 $
781
—
— $ 176,142
278,587
33,493
(4,637)
—
Total current liabilities
. . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany payables . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Note payable to Arch Coal
Asset retirement obligations . . . . . . . . . . . . . . . . . . . . .
Accrued pension benefits . . . . . . . . . . . . . . . . . . . . . . .
Accrued postretirement benefits other than pension . . . . .
Accrued workers’ compensation . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .
100,442
5,099,833
1,772,624
—
1,095
7,797
12,079
21,546
413,546
67,841
7,496,803
2,253,249
391,499
18,169
—
675,000
401,618
(686)
27,176
56,516
—
121,794
(4,637)
918
—
— (1,772,624)
(675,000)
—
—
—
—
—
—
—
—
—
—
—
—
398
1,691,086
7,714,708
1,316
26,881
(2,452,261)
(7,741,589)
488,222
5,118,002
—
—
402,713
7,111
39,255
78,062
413,546
190,033
6,736,944
2,253,249
Total liabilities and stockholders’ equity . . . . . . . . . . . $9,750,052 $9,405,794 $ 28,197 $(10,193,850) $8,990,193
F-57
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Balance Sheets
December 31, 2012
Parent/Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
(In thousands)
Eliminations
Consolidated
Assets
Cash and cash equivalents . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . .
Short term investments . . . . . . . . . . . . .
Receivables
. . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . .
$
$
671,313
3,453
234,305
49,281
—
106,786
1,065,138
$
100,468
—
—
40,452
365,424
86,877
593,221
$ 12,841
—
—
247,171
—
557
260,569
— $
—
—
(4,824)
—
—
(4,824)
784,622
3,453
234,305
332,080
365,424
194,220
1,914,104
Property, plant and equipment, net . . . . .
27,476
7,309,550
72
—
7,337,098
Investment in subsidiaries . . . . . . . . . . .
Intercompany receivables . . . . . . . . . . . .
Note receivable from Arch Western . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Total other assets
Total assets . . . . . . . . . . . . . . . . . . . .
8,254,508
—
675,000
187,171
9,116,679
$10,209,293
—
1,600,311
—
568,314
2,168,625
$10,071,396
—
—
—
90
90
$260,731
(8,254,508)
—
(1,600,311)
—
(675,000)
—
—
755,575
755,575
(10,529,819)
$(10,534,643) $10,006,777
Liabilities and Stockholders’ Equity
Accounts payable . . . . . . . . . . . . . . . . .
Accrued expenses and other current
liabilities . . . . . . . . . . . . . . . . . . . . .
Current maturities of debt . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . .
Intercompany payables . . . . . . . . . . . . .
. . . . . . . . . .
Note payable to Arch Coal
Asset retirement obligations . . . . . . . . . .
Accrued pension benefits . . . . . . . . . . . .
Accrued postretirement benefits other
than pension . . . . . . . . . . . . . . . . . .
Accrued workers’ compensation . . . . . . .
Deferred income taxes . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity
$
19,859
$
204,370
$
189
$
— $
224,418
65,293
32,054
117,206
5,061,925
1,367,739
—
1,646
33,456
259,162
842
464,374
23,954
675,000
408,059
34,174
124
—
313
—
— 232,572
—
—
—
(4,824)
—
(4,824)
—
(1,600,311)
(675,000)
—
—
319,755
32,896
577,069
5,085,879
—
—
409,705
67,630
13,953
25,323
664,182
69,296
7,354,726
2,854,567
$10,209,293
31,133
56,306
—
151,360
1,844,360
8,227,036
$10,071,396
—
—
—
374
233,259
27,472
$260,731
—
—
—
—
(2,280,135)
(8,254,508)
45,086
81,629
664,182
221,030
7,152,210
2,854,567
$(10,534,643) $10,006,777
F-58
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2013
Parent/Issuer
Guarantor
Subsidiaries
$(632,060) $ 637,193
Non-
Guarantor
Subsidiaries
(In thousands)
$ 50,609
Eliminations
Consolidated
$ — $ 55,742
Cash provided by (used in) operating activities . .
Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . .
Additions to prepaid royalties
. . . . . . . . . . . . . . . .
Proceeds from dispositions of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales-leaseback transactions . . . . . . . .
Proceeds from sale of Canyon Fuel . . . . . . . . . . . . .
Purchases of short term investments . . . . . . . . . . . .
Proceeds from sales of short term investments . . . . .
Investments in and advances to affiliates . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . .
(3,320)
—
(293,664)
(14,947)
—
10,790
34,919
—
— 422,663
—
—
(10,321)
—
(213,726)
194,537
(5,451)
3,453
Cash provided by (used in) investing activities .
(24,507)
149,440
Financing Activities
Contributions from parent . . . . . . . . . . . . . . . . . . .
Proceeds from term loan and senior notes . . . . . . . .
Payments to retire debt . . . . . . . . . . . . . . . . . . . . .
Payments on term loan . . . . . . . . . . . . . . . . . . . . .
Net payments on other debt . . . . . . . . . . . . . . . . .
Debt financing costs . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transactions with affiliates, net . . . . . . . . . . . . . . . .
—
644,000
(628,660)
(17,250)
(6,324)
(19,864)
(25,475)
838,160
512
—
(512)
—
—
—
—
(786,683)
—
—
—
—
—
(625)
—
(51,477)
Cash provided by (used in) financing activities
784,587
(786,683)
(52,102)
Increase (decrease) in cash and cash equivalents . . . .
Cash and cash equivalents, beginning of period . . . .
128,020
671,313
(50)
100,468
(1,493)
12,841
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
512
—
512
(512)
—
—
—
—
—
—
—
(512)
—
—
(296,984)
(14,947)
10,790
34,919
422,663
(213,726)
194,537
(15,260)
3,453
125,445
—
644,000
(629,172)
(17,250)
(6,324)
(20,489)
(25,475)
—
(54,710)
126,477
784,622
Cash and cash equivalents, end of period . . . . . . . . .
$ 799,333
$ 100,418
$ 11,348
$ — $ 911,099
F-59
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2012
Parent/Issuer
Guarantor
Subsidiaries
$ (571,576) $ 781,551
Non-
Guarantor
Subsidiaries
(In thousands)
$ 122,829
Eliminations
Consolidated
$ — $ 332,804
6,869
(4,424)
—
(390,801)
—
—
Cash provided by (used in) operating activities . . .
Investing Activities
Change in restricted cash . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .
Proceeds from dispositions of property, plant and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,328
21,497
Investments in and advances to affiliates . . . . . . .
Purchases of short term investments . . . . . . . . . .
Proceeds from sales of short term investments . . .
Purchase of noncontrolling interest . . . . . . . . . . .
Additions to prepaid royalties . . . . . . . . . . . . . .
(6,287)
(236,862)
1,754
(17,500)
—
(13,134)
—
—
—
(13,269)
—
—
—
—
—
Cash provided by (used in) investing activities .
(256,450)
(415,876)
21,497
—
—
—
1,663
—
—
—
—
1,663
6,869
(395,225)
22,825
(17,758)
(236,862)
1,754
(17,500)
(13,269)
(649,166)
Financing Activities
. . . . . . . . . . . . . . . .
Contributions from parent
Proceeds from term loan and senior notes . . . . . .
Payments to retire debt . . . . . . . . . . . . . . . . . .
Net decrease in borrowings under lines of credit
and commercial paper program . . . . . . . . . . .
Payments on term note . . . . . . . . . . . . . . . . . .
Net payments on other debt . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Debt financing costs
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock under incentive plans .
Transactions with affiliates, net . . . . . . . . . . . . .
—
1,993,253
1,663
—
— (452,934)
— (1,663)
—
—
—
— 1,993,253
(452,934)
—
(375,000)
(7,625)
(682)
(50,022)
(42,440)
5,131
(84,651)
— (106,300)
—
—
—
—
(546)
—
—
—
—
—
(25,988)
110,639
—
—
—
—
—
—
—
Cash provided by (used in) financing activities .
1,437,964
(340,632)
(132,834)
(1,663)
Increase in cash and cash equivalents . . . . . . . . .
Cash and cash equivalents, beginning of period . .
609,938
61,375
25,043
75,425
11,492
1,349
—
—
Cash and cash equivalents, end of period . . . . . .
$ 671,313
$ 100,468
$ 12,841
$ — $ 784,622
F-60
(481,300)
(7,625)
(682)
(50,568)
(42,440)
5,131
—
962,835
646,473
138,149
— (2,894,339)
—
—
—
5,167
(540,936)
25,887
(61,909)
(29,957)
Arch Coal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2011
Cash provided by (used in) operating activities .
Investing Activities
Parent/Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
$ (187,039) $ 998,082
(In thousands)
$(168,801) $
— $
642,242
Acquisition of ICG, net of cash acquired . . . . .
(2,894,339)
—
Change in restricted cash . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . .
Proceeds from dispositions of property, plant
and equipment . . . . . . . . . . . . . . . . . . . . .
5,167
(12,809)
—
(528,021)
—
25,887
—
—
(106)
—
Investments in and advances to affiliates . . . . .
Additions to prepaid royalties . . . . . . . . . . . . .
Consideration paid related to prior business
(633,534)
—
(33,553)
(29,957)
— 605,178
—
—
acquisition . . . . . . . . . . . . . . . . . . . . . . . .
(829)
—
—
—
(829)
Cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . . . . . .
(3,536,344)
(565,644)
(106)
605,178
(3,496,916)
Financing Activities
Contributions from parent . . . . . . . . . . . . . . .
Proceeds from the issuance of senior notes . . . .
Proceeds from the issuance of common stock,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to retire debt . . . . . . . . . . . . . . . . .
Net decrease in borrowings under lines of credit
and commercial paper program . . . . . . . . . .
— 605,178
—
2,000,000
— (605,178)
—
—
— 2,000,000
1,267,933
—
— (605,178)
—
—
— 1,267,933
(605,178)
—
375,000
(56,904)
106,300
Net proceeds from other debt . . . . . . . . . . . . .
Debt financing costs . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock under incentive plans
5,334
(114,799)
(80,748)
2,316
—
(16)
—
—
—
(8)
—
—
Transactions with affiliates, net . . . . . . . . . . . .
316,009
(379,973)
63,964
—
—
—
—
—
—
424,396
5,334
(114,823)
(80,748)
2,316
—
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . .
3,771,045
(436,893)
170,256
(605,178)
2,899,230
Increase (decrease) in cash and cash equivalents .
Cash and cash equivalents, beginning of period .
47,662
13,713
(4,455)
79,880
1,349
—
—
—
44,556
93,593
Cash and cash equivalents, end of period . . . . .
$
61,375
$ 75,425
$
1,349
$
— $
138,149
F-61
Arch Coal, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Schedule II
Balance at
Beginning of
Year
Additions
(Reductions)
Charged to
Costs and
Expenses
Charged to
Other
Accounts
(In thousands)
Deductions(a)
Balance at
End of
Year
Year ended December 31, 2013
Reserves deducted from asset accounts:
Other assets—other notes and accounts receivable
Current assets—supplies and inventory . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
$ 1,043
12,589
34,663
$
346
503
8,659
$ — $ 614
2,372
(2,274)
—
—
$
775
8,446
43,322
Year ended December 31, 2012
Reserves deducted from asset accounts:
Other assets—other notes and accounts receivable
Current assets—supplies and inventory . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
$
17
13,107
2,831
$ 1,039
1,961
31,832
$ — $
—
—
13
2,479
—
$ 1,043
12,589
34,663
$ — $ — $
—
—
1,349
322
17
13,107
2,831
Year ended December 31, 2011
Reserves deducted from asset accounts:
Other assets—other notes and accounts receivable
Current assets—supplies and inventory . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
$ — $
12,701
737
17
1,755
2,416
(a) Reserves utilized, unless otherwise indicated.
(b) Disposition of subsidiaries
F-62
(This page has been left blank intentionally.)
Arch Coal, Inc. and Subsidiaries
Reconciliation of Non-GAAP Measures
(In millions, except per share data)
This annual report contains non-GAAP financial measures as defined under Regulation G of the
Securities Exchange Act of 1934, as amended. The reconciliation of these non-GAAP financial measures to
the most comparable GAAP financial measures is presented below.
Adjusted EBITDA
Adjusted EBITDA is defined as net income attributable to the Company before the effect of net interest
expense, income taxes, depreciation, depletion and amortization, and the amortization of acquired sales
contracts. Adjusted EBITDA may also be adjusted for items that may not reflect the trend of future results.
Adjusted EBITDA is not a measure of financial performance in accordance with generally accepted
accounting principles, and condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor
as an alternative to net income, income items excluded from Adjusted EBITDA are significant in
understanding and assessing our financial from operations, cash flows from operations or as a measure of our
profitability, liquidity or performance under generally accepted accounting principles. We believe that Adjusted
EBITDA presents a useful measure of our ability to incur and service debt based on ongoing operations.
Furthermore, analogous measures are used by industry analysts to evaluate our operating performance. In
addition, acquisition related expenses are excluded to make results more comparable between periods.
Investors should be aware that our presentation of Adjusted EBITDA may not be comparable to similarly
titled measures used by other companies. The table below shows how we calculate Adjusted EBITDA.
2013
2012
2011
Year Ended December 31,
Net income (loss)
Income tax (benefit)
. . .
expense . . . . . . . .
Interest expense, net . .
Depreciation, depletion
and amortization . . .
Amortization of
acquired sales
contracts, net . . . . .
Earnings before
Interest, Taxes and
DD&A (EBITDA) .
Asset impairment and
mine closure costs . .
Goodwill impairment . .
Acquisition and
220.9
265.4
transition costs . . . .
—
Settlement of UMWA
legal claims . . . . . .
12.0
Other nonoperating
expenses . . . . . . . .
42.9
Net income
attributable to
noncontrolling
interest . . . . . . . . .
—
Continuing Discontinued
Operations Operations Company Operations Operations Company Operations Operations Company
Continuing Discontinued
Continuing Discontinued
Total
Total
Total
(unaudited)
(unaudited)
(unaudited)
(745.2)
103.4
(641.8)
(738.9)
(335.5)
374.7
426.4
49.1
—
21.3
(286.4)
374.7
(353.9)
312.2
447.7
492.2
55.2
20.2
—
33.3
(683.7)
89.0
(333.7)
312.2
(24.3)
226.9
525.5
421.0
53.8
16.7
—
45.6
142.8
(7.6)
226.9
466.6
(9.5)
—
(9.5)
(25.2)
—
(25.2)
(22.1)
—
(22.1)
(289.1)
173.8
(115.3)
(313.6)
108.7
(204.9)
690.5
116.1
806.6
—
—
—
—
—
—
220.9
265.4
539.2
330.7
—
12.0
42.9
—
—
23.7
0.1
—
—
—
—
539.3
330.7
—
—
7.3
—
56.9
—
23.7
51.5
—
—
—
—
—
7.3
—
56.9
—
51.5
—
(0.3)
—
(0.3)
(1.2)
—
(1.2)
Adjusted EBITDA . . . .
$252.1
$173.8
$425.9
$579.7
$108.8
$688.5
$805.0
$116.1
$921.1
Adjusted net income (loss) and adjusted diluted income (loss) per share
Adjusted net loss and adjusted diluted loss per common share are adjusted for the after-tax impact of
acquisition related costs and are not measures of financial performance in accordance with generally accepted
accounting principles. We believe that adjusted net loss and adjusted diluted loss per common share better
reflect the trend of our future results by excluding items relating to significant transactions. The adjustments
made to arrive at these measures are significant in understanding and assessing our financial condition.
Therefore, adjusted net loss and adjusted diluted loss per share should not be considered in isolation, nor as
an alternative to net loss or diluted loss per common share under generally share should not be considered
in isolation, nor as an alternative to net loss or diluted loss per common share under generally
Year Ended December 31,
2013
2012
2011
(unaudited)
Net income (loss) attributable to Arch Coal
Sales contract amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustment items listed above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . $(641.80) $(684.00) $141.60
(22.1)
115.8
(30.1)
(25.2)
893.7
(261.2)
(9.5)
893.7
(119.1)
Adjusted net income (loss) attributable to Arch Coal . . . . . . . . . . . . . . . . . . . $ 123.3 $ (76.7) $ 205.2
Diluted weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted income (loss) per share attributable to Arch Coal
Sales contract amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
190.2
. . . . . . . . . . . . . . . $ (3.03) $ (3.24) $ 0.74
(0.12)
0.61
(0.16)
(0.04)
2.55
(0.56)
(0.12)
4.23
(1.23)
212.1
211.4
Adjusted diluted income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.08) $ (0.36) $ 1.07
Adjusted Revenues
We use adjusted revenues to reflect the total sales to customers, by adding revenues from discontinued
operations, which are segregated from the continuing operations on one line in the statement of operations,
to amounts reported.
Year Ended December 31,
2013
2012
2011
(unaudited)
Revenues as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,014.4 $3,768.1 $3,883.0
402.9
Revenues from Canyon Fuel classified as discontinued operations . . . . . . . . . .
219.0
390.9
$3,233.4 $4,159.0 $4,285.9
As of March 3, 2014
Board of Directors
John W. Eaves (c) (e)
President and Chief Executive Officer,
Arch Coal, Inc.
David D. Freudenthal (d) (e*)
Senior Counsel, Crowell & Moring, LLC; former Governor,
State of Wyoming
Patricia F Godley (a) (b*)
Senior Counsel, Van Ness Feldman
Paul T. Hanrahan (a*) (b)
Chief Executive Officer, American Capital Infrastructure
Management, LLC; former President and Chief Executive
Officer, The AES Corporation
Douglas H. Hunt (d) (e)
Director of Acquisitions, Petro-Hunt, LLC
J. Thomas Jones (c) (d)
Former Chief Executive Officer, West Virginia United
Health System
Paul A. Lang (c) (e)
Executive Vice President and Chief Operating Officer,
Arch Coal, Inc.
Steven F. Leer (c) (e)
Chairman of the Board, Arch Coal, Inc.; former Chief
Executive Officer, Arch Coal, Inc.
George C. Morris III (a) (c)
President, Morris Energy Advisors, Inc.; former Managing
Director, Merrill Lynch & Co.
Theodore D. Sands (b) (c*) (d)
President, HAAS Capital, LLC; former Managing Director,
Investment Banking for Global Metals/Mining Group, Merrill
Lynch & Co.
Wesley M. Taylor (b) (d*)
Former President, TXU Generation
Peter I. Wold (a) (e)
President, Wold Oil Properties, Inc.; Director,
Oppenheimer Funds, Inc. New York Board
Finance Committee
(a) Audit Committee
(b) Nominating and Corporate Governance Committee
(c)
(d) Personnel and Compensation Committee
(e)
*
Energy and Environmental Policy Committee
Committee Chair
Senior Officers
John W. Eaves
President and Chief Executive Officer
Robert G. Jones
Senior Vice President – Law, General Counsel and Secretary
Paul A. Lang
Executive Vice President and Chief Operating Officer
Deck S. Slone
Senior Vice President, Strategy and Public Policy
John T. Drexler
Senior Vice President and Chief Financial Officer
Kenneth D. Cochran
Senior Vice President, Operations
Allen R. Kelley
Vice President, Human Resources
Jeffrey W. Strobel
Vice President, Business Development and Strategy
John A. Ziegler, Jr.
Chief Commercial Officer
A R C H C O A L , I N C . S H A R E H O L D E R I N F O R M AT I O N
C O M M O N S T O C K
Our common stock is listed and traded on
the New York Stock Exchange under the
ticker symbol ACI. On February 13, 2014,
our common stock closed at $3.95 and we
had approximately 5,900 holders of record
of our common stock on that date.
CORPORATE GOVERNANCE GUIDELINES
Our board of directors has adopted corporate
governance guidelines that address various
matters pertaining to director selection and
duties. The guidelines are published under
“Corporate Governance” at
http://investor.archcoal.com.
D I V I D E N D S
Arch paid dividends on our common stock
totaling $0.12 per share in 2013. In 2014,
we have announced a payment of an annual
dividend of $0.01 per share, payable in
March. There is no assurance as to the
amount or payment of dividends in future
periods because they are dependent on our
future earnings, capital requirements and
financial condition.
C O D E O F B U S I N E S S C O N D U C T
We operate under a code of business conduct
that applies to all of our salaried employees,
including our chief executive officer, chief
financial officer and chief accounting officer.
The code is published under “Corporate
Governance” at http://investor.archcoal.com.
INDEPENDENT PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
190 Carondelet Plaza, Suite 1300
St. Louis, Missouri 63105
F I N A N C I A L I N F O R M AT I O N
Please direct any inquiries or requests
for documents to:
Investor Relations
Arch Coal, Inc.
One CityPlace Drive, Suite 300
St. Louis, Missouri 63141
(314) 994-2917
www.archcoal.com
T R A N S F E R A G E N T
Questions regarding shareholder records,
stock transfers, stock certificates, dividends,
the Dividend Reinvestment and Direct Stock
Purchase Plan, or other stock inquiries
should be directed to:
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, New York 11219
(877) 390-3073
www.amstock.com
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A R C H C O A L . C O M
A R C H C O A L , I N C .
One CityPlace Drive, Suite 300
St. Louis, MO 63141
314.994.2700