Arch Coal Inc. (ACI) filed Quarterly Report for the period ended 2009-09-30.
ASHLAND COAL, INC. is engaged in the mining, processing and marketing of low-sulfur bituminous coal. The Company sells its coal primarily to electric utilities in the eastern United States. The Company also exports coal, primarily to European customers. Arch Coal Inc. has a market cap of $3.79 billion; its shares were traded at around $23.32 with a P/E ratio of 31.1 and P/S ratio of 1.3. The dividend yield of Arch Coal Inc. stocks is 1.5%.
Highlight of Business Operations:
During the third quarter of 2009 we sold 19.55 million shares of our common stock at a price of $17.50 per share and issued $600.0 million in aggregate principal amount, 8.75% senior unsecured notes due 2016 at an initial issue price of 97.464%. 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. See further discussion of these transactions in “Liquidity and Capital Resources”. We used the net proceeds from these transactions primarily to finance the purchase of the Jacobs Ranch mining complex, as discussed below.
Selling, general and administrative expenses. The increase in selling, general and administrative expenses from the third quarter of 2008 to the third quarter of 2009 is due primarily to the impact in the third quarter of 2008 of a decrease in our stock price of $42.14 per share on our deferred compensation plan obligation. Amounts recognized related to our deferred compensation plan are impacted by changes in the value of our common stock and changes in the value of the underlying investments. The dramatic drop in our stock price in 2008 caused our expense related to the plan to be lower in the third quarter of 2008 when compared with the third quarter of 2009 by $5.9 million, which was partially offset by a decrease in incentive compensation costs of $3.7 million.
Western Bituminous — In the Western Bituminous region, we sold fewer tons in the third quarter of 2009 than in the third quarter of 2008 due to weak market conditions, as well as quality issues at the West Elk mining complex. We have encountered sandstone intrusions at the West Elk mining complex that have resulted in a higher ash content in the coal produced, and declining coal demand has had an impact on our efforts to market this coal. As a result of the weak market demand for this coal, we have reduced our production levels at the mine. To address any ongoing quality issues, we plan to build a preparation plant at the mine by mid-2010, with estimated capital costs of $25 million to $30 million. The beneficial impact of the roll-off of lower-priced legacy contracts in 2008 on our per-ton realizations was partially offset by the detrimental impact of selling coal with a higher ash content. Lower per-ton operating margins in the third quarter of 2009 were the result of the West Elk quality issues and lower production levels.
The increase in net interest expense in the third quarter of 2009 compared to the third quarter of 2008 is primarily due to the issuance of the 8.75% senior notes as discussed in the “Overview” and a decrease in interest costs capitalized in the third quarter of 2009. Interest costs capitalized were $0.3 million during the third quarter of 2009, compared with $3.6 million during the third quarter of 2008.
Selling, general and administrative expenses. The decrease in selling, general and administrative expenses from the nine months ended September 30, 2008 to the nine months ended September 30, 2009 is due primarily to a decrease in incentive compensation costs of $8.9 million and a decrease of $4.4 million in costs associated with our deferred compensation plan, where amounts recognized are impacted by changes in the value of our common stock and changes in the value of the underlying investments. An increase in legal and other professional fees of $1.4 million and a $1.5 million contribution expense in 2009 to a company participating in the research and development of technologies for capturing carbon dioxide emissions partially offset the effect of the decrease in compensation-related costs.
ACI is in the portfolios of Arnold Schneider of Schneider Capital Management, David Dreman of Dreman Value Management, PRIMECAP Management.
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