Cloud Peak Energy Inc. (NYSE:CLD), one of the largest U.S. coal
producers and the only pure-play Powder River Basin (“PRB”) coal
company, today announced results for the third quarter and first
nine months of 2017.
Highlights and Recent Developments
Quarter Ended Year to Date (in
millions, except per ton amounts)
09/30/17
09/30/16 09/30/17
09/30/16 Net income (loss) $ 2.6 $ (1.6
) $ (24.5 ) $ (2.7 ) Adjusted EBITDA
(1) $ 36.0 $ 40.6 $ 86.0 $ 58.6 Shipments - owned and operated
mines (tons) 15.5 17.0 43.9 41.7 Realized price per ton sold $
12.32 $ 12.33 $ 12.23 $ 12.50 Average cost per ton sold $ 9.57 $
8.95 $ 9.68 $ 10.07 Cash margin per ton sold (2) $ 2.75 $ 3.38 $
2.55 $ 2.43 Shipments - Asian exports (tons)
1.3 — 3.1
0.2
(1)
Non-GAAP financial measure; see definition and
reconciliation in this release and the attached tables.
(2)
Calculated by subtracting the average cost per ton sold from the
realized price per ton sold.
- Net income of $2.6 million for the
third quarter of 2017 included a $3.1 million business interruption
insurance recovery from a 2016 claim, as compared to the net loss
of $1.6 million for the third quarter of 2016. Third quarter of
2017 had improved logistics volumes that offset lower domestic
volumes, as compared to the prior year third quarter results.
- Adjusted EBITDA of $36.0 million and
shipments of 15.5 million tons during the third quarter of 2017
compared to Adjusted EBITDA of $40.6 million and shipments of 17.0
million tons for the third quarter of 2016. The mild summer weather
led to few new purchases for delivery in the fourth quarter of
2017. Domestic shipments for the first and second halves of 2017
are expected to be similar, which is unusual, as shipments in the
second half of the year are typically greater.
- Year to date net loss of $24.5 million
for 2017 as compared to a net loss of $2.7 million for 2016. The
prior year net loss was positively impacted by Asset Retirement
Obligation liability adjustments that totaled $36.3 million and
reduced depreciation expense.
- Year to date 2017 Adjusted EBITDA was
$86.0 million, a 47 percent increase, compared with $58.6 million
for the year to date 2016. Higher volumes of both domestic and
export sales drove this year-over-year improvement.
- Exported 1.3 million tons during the
third quarter and 3.1 million tons year to date 2017, while
securing additional fourth quarter sales at improved prices.
- Reduced undrawn letters of credit by
$27.7 million from June 30, 2017. The improved Company and coal
industry conditions allowed for a reduction of collateral for the
Company’s reclamation bonding program. As of September 30, 2017,
Cloud Peak Energy had $22.9 million remaining in undrawn letters of
credit representing collateral of 5.5 percent.
- Ended the quarter with total available
liquidity of $523.0 million.
Colin Marshall, President and Chief Executive Officer,
commented, “Third quarter shipments improved compared with the
second quarter of 2017, as we exported 1.3 million tons and
domestic customers took their contracted coal ratably. Improving
volumes allowed us to deliver a solid operational and financial
performance in the third quarter.”
Health, Safety, and Environment
During the third quarter of 2017, among the Company’s
approximately 1,150 full-time mine site employees, there were no
reportable injuries. The year-to-date Mine Safety and Health
Administration (“MSHA”) All Injury Frequency Rate (“AIFR”) was
0.12, compared to a rate of 0.11 through the third quarter of 2016.
During the 51 MSHA inspector days at the mine sites in the quarter,
the Company received one significant and substantial citation with
a $420 assessment.
There were no reportable environmental incidents during the
quarter.
Operating Results
Owned and Operated Mines
The Owned and Operated Mines segment comprises the results of
mine site sales from the Company’s three mines primarily to its
domestic utility customers and also to the Logistics and Related
Activities segment.
Quarter Ended Year to Date (in
millions, except per ton amounts)
09/30/17
09/30/16 09/30/17
09/30/16 Tons sold 15.5 17.0
43.9 41.7 Revenue $ 198.0 $ 212.0 $ 550.2 $
531.3 Cost of product sold $ 151.4 $ 153.2 $ 431.2 $ 429.2 Realized
price per ton sold $ 12.32 $ 12.33 $ 12.23 $ 12.50 Average cost of
product sold per ton $ 9.57 $ 8.95 $ 9.68 $ 10.07 Cash margin per
ton sold (1) $ 2.75 $ 3.38 $ 2.55 $ 2.43 Segment operating income
(loss) $ 27.1 $ 33.1 $ 54.3 $ 76.8 Segment Adjusted EBITDA (2)
$ 45.6 $ 56.0 $ 116.1
$ 92.0
(1)
Calculated by subtracting the average cost per ton sold from
the realized price per ton sold.
(2)
Non-GAAP financial measure; see definition and reconciliation in
this release and the attached tables.
Shipments during the third quarter of 2017 were 9 percent lower
than the third quarter of 2016, primarily due to lower shipments at
the Company’s Antelope and Cordero Rojo mines, partially offset by
increased sales at Spring Creek due to higher export demand. With
natural gas prices averaging approximately $3.00 per MMBtu, utility
coal-fired power plants continued to run during the quarter and
drew down PRB coal inventories to approximately 70 million tons at
the end of September 2017, a decline of 9 million tons from the
September 2016 levels. This decline was less than anticipated due
to the mild summer.
Revenue from the Owned and Operated Mines segment decreased 7
percent in the third quarter of 2017 compared to the third quarter
of 2016 primarily due to lower shipments as well as a slightly
lower average realized price per ton. Shipments were lower in the
third quarter of 2017 compared to the 2016 quarter due to the
atypical shipping patterns currently being experienced. Domestic
shipments were higher in the first half of this year than 2016.
Cost per ton was $9.57 for the third quarter of 2017 compared with
$8.95 for the third quarter of 2016, driven primarily by lower
production rates as well as higher per ton repair, production
taxes, and fuel costs. Year to date costs per ton in 2017 of $9.68
are 4 percent lower than year to date 2016 costs per ton, primarily
due to higher shipments.
Operating income was lower in the third quarter and year to date
September 30, 2017 as compared to the same periods in 2016
primarily due to the absence of the 2016 non-cash accounting income
of $36.3 million for asset retirement obligation
remeasurements.
Logistics and Related Activities
The Logistics and Related Activities segment comprises the
results of the Company’s logistics and transportation services to
its domestic and international export customers.
Quarter Ended Year to Date (in
millions, except per ton amounts)
09/30/17
09/30/16 09/30/17
09/30/16 Total tons delivered 1.4 0.1
3.3 0.4 Asian exports (tons) 1.3 — 3.1
0.2 Domestic (tons) 0.1 0.1 0.2 0.2 Revenue $ 67.7 $ 3.4 $ 161.9 $
20.6 Total cost of product sold $ 69.6 $ 11.2 $ 174.7 $ 44.5
Realized gain on financial instruments $ — $ 1.8 $ — $ 5.3 Segment
operating income (loss) $ (1.9 ) $ (7.8 ) $ (12.8 ) $ (23.9 )
Segment Adjusted EBITDA (1) $ 3.2
$ (6.0 ) $ 2.2 $ (20.3 )
(1)
Non-GAAP financial measure; see definition and
reconciliation in this release and the attached tables.
The Company exported 1.3 million tons during the third quarter
of 2017 as Asian utility demand remains strong. Third quarter 2017
segment operating loss was $1.9 million, as compared to a loss of
$7.8 million for the third quarter of 2016. During the third
quarter of 2016, there were no export shipments and the net loss
primarily reflected the contracted take-or-pay expense. The 2017
quarter reflects the shipment of 1.3 million tons in nine
vessels.
Year to date Adjusted EBITDA includes certain minimum payments
pursuant to the Company’s rail and port agreements and unexpectedly
high demurrage charges caused by rail delays as shipments ramped up
during the first half of 2017. The Company has currently contracted
4.5 million tons to export during 2017 and expects to ship the
remaining volumes during the fourth quarter as the rail and port
systems are expected to continue operating as planned.
Cash, Liquidity, and Financial Position
Cash and cash equivalents as of September 30, 2017 were $120.9
million. During the third quarter, the cash provided by operations
totaled $44.5 million, while capital expenditures (excluding
capitalized interest) were $3.4 million.
During the quarter, the Company reduced the amount outstanding
on undrawn letters of credit used as collateral for reclamation
bonds by $27.7 million from the $50.6 million it reported as of
June 30, 2017, ending the quarter with $22.9 million in undrawn
letters of credit. In October, this amount was fully transitioned
to the Company’s A/R Securitization Program, leaving the Company’s
Credit Agreement now fully available.
At September 30, 2017, the available borrowing capacity under
the $400 million Credit Agreement was approximately $393.2 million,
which is net of the approximately $6.8 million in undrawn letters
of credit outstanding under the Credit Agreement as of that date.
Including cash on hand and the availability under the A/R
Securitization and Credit Agreement, the Company ended the quarter
with total available liquidity of $523.0 million.
Government Affairs
The Trump Administration has continued its efforts to promote
the use of America’s energy resources, alleviate unnecessary
regulatory burdens, and implement balanced, common-sense energy
policies. Recent highlights include:
- Environmental Protection Agency’s (EPA)
formal rulemaking announcement in early October that the previous
Administration’s Clean Power Plan regulating power plant CO2
emissions was unlawful and will be withdrawn.
- Department of Energy’s (DOE) grid
reliability study, which supports the importance of baseload power
provided by coal and contains policy recommendations to ensure the
reliability and resiliency of the nation’s electric grid.
- Office of Natural Resources Revenue’s
(ONRR) final rule to repeal the previous Administration’s coal
royalty valuation rule that was part of its anti-fossil fuel
regulatory agenda.
- Department of Interior’s (DOI)
re-establishment of the Royalty Policy Committee advisory group.
The Company is proud to serve on the Royalty Policy Committee and
looks forward to assisting the DOI in fulfilling its mission and
supporting the implementation of the Administration’s energy
policies.
- DOI and Council on Environmental
Quality measures to improve the National Environmental Policy Act
regulatory review process by seeking to ensure reviews are
conducted in a coordinated, consistent, predictable and timely
manner.
Cloud Peak Energy also remains hopeful that Congress and the
Trump Administration will implement longer-term energy policies, as
supported by the DOE’s grid reliability study, that recognize the
substantial benefits of safe, reliable, and affordable baseload
electricity generated from coal by providing utilities the
certainty and incentives to invest in the nation’s coal power plant
fleet. In particular, Cloud Peak Energy continues to advocate for
the development and commercialization of advanced fossil fuel
technologies, including carbon capture. It is encouraging to see
strong bi-partisan support for the Senate FUTURE Act and companion
House Carbon Capture Act that seek to amend the existing 45Q tax
credit to promote private sector commercialization and deployment
of carbon capture and utilization technology on a significant
scale.
Domestic Outlook
Mine shipments to domestic customers during the third quarter of
2017 were 14.2 million tons, as compared to 13.0 million tons
shipped to domestic customers in the second quarter of 2017.
Typically, the third quarter is one of the strongest quarters of
the year as customers operate their units to meet summer cooling
demand. Cloud Peak Energy experienced a decline in September
shipments as utilities reduced train sets in service due to the
mild August and September weather experienced over much of the
country, which reduced additional in-year purchasing.
Natural gas prices remained around $3.00 per MMBtu during most
of the summer, as supply stabilized and a ramp-up in liquefied
natural gas (LNG) exports increased demand. As of October 19, 2017,
the U.S. Energy Information Administration shows that natural gas
inventories have declined by about 4 percent, compared to 2016
levels. For the remainder of 2017, the Company expects its
customers to take their contracted volumes, albeit at a pace closer
to September’s reduced monthly rate.
Energy Ventures Analysis estimates there were 70 million tons of
PRB coal inventories at utilities at the end of
September 2017, a decline of 9 million tons from September
2016 levels. This current inventory level has caused many customers
to lower their forecast coal burn for the year and not seek
additional spot purchases for the fourth quarter. Cloud Peak Energy
continues to see customers layer in sales for 2018 but customers
remain uncertain about forecasted weather and natural gas prices.
Many utilities appear to be continuing to delay purchasing coal to
have flexibility to switch between coal and gas electricity
generation based on near-term pricing.
For 2017, the Company plans to ship between 57 and 59 million
tons, with current commitments to sell 58 million tons, which
includes 4.5 million tons contracted with export customers. Nearly
all of the 58 million tons are under fixed-price contracts with a
weighted-average price of $12.20 per ton. The approximately 2.0
million tons for 2017 that were priced during the third quarter of
2017 averaged $11.36 per ton, in line with prevailing prices at
that time for the qualities of coal contracted.
The Company is contracted to sell 36 million tons in 2018. Of
this committed production, 34 million tons are under fixed-price
contracts with a weighted-average price of $12.48 per ton. For
2018, there were 2.0 million tons contracted during the third
quarter of 2017 at an average of $12.32 per ton.
The Company is contracted to sell 18 million tons in 2019. Of
this committed production, 12 million tons are under fixed-price
contracts with a weighted-average price of $13.08 per ton.
International Outlook
International thermal coal prices gained strength during the
quarter due to import demand growth led by China, South Korea, and
other Southeast Asian countries. China has led the growth in
imports of thermal coal (includes bituminous, sub-bituminous, and
lignite) increasing its imports through August 2017 by 20 million
tonnes or 20 percent. Year to date, Chinese domestic production
continued to rebound through August 2017 with an increase of almost
127 million tonnes, or 6 percent. China’s strong domestic
production and imports were driven by a year-to-date increase in
electric generation of over 7 percent, which was mostly supplied by
coal-fired generation. In South Korea, the commissioning of several
new coal-fired units in 2016 and 2017 increased imports of thermal
coal by over 12 million tonnes, or 21 percent, through August
2017.
During the quarter, the Company sold remaining export volumes
for 2017 to 4.5 million tons, with 3.1 million tons shipped through
the third quarter. With the improved operation of the rail and port
system, the Company expects all remaining volumes for 2017 to be
delivered. Pricing remains favorable for the Company and export
sales are expected to continue at the current pace into 2018. The
Company has sold over 1.1 million tons for delivery in 2018.
2017 Guidance – Financial and Operational Estimates
“The third quarter showed a continuation of the pattern of
customers taking their contracted tonnages but remaining reluctant
to contract additional coal for 2018 due to reduced demand. Good
cost control allowed us to achieve a profitable quarter that places
us well for the full year. The improvement in export rail
performance, strong demand, and improved pricing positions our
exports well for the fourth quarter and into 2018. It is
encouraging to be able to increase the lower end of our guidance
based on our third quarter performance and expectations for the
fourth quarter,” commented Marshall.
The following table provides the current outlook and assumptions
for selected 2017 consolidated financial and operational
metrics:
Estimate or
Estimated Range Coal shipments for the three mines(1)
57 – 59 million tons Committed sales with fixed prices
Approximately 58 million tons Anticipated realized price of
produced coal with fixed prices Approximately $12.20 per ton
Adjusted EBITDA(2) $95 – $105 million Net interest expense
Approximately $40 million Cash interest paid Approximately $45
million Depreciation, depletion, amortization, and accretion $70 –
$80 million Capital expenditures $15 – $20 million
(1)
Inclusive of intersegment sales.
(2)
Non-GAAP financial measure; please see definition below in this
release. Management did not prepare estimates of reconciliation
with comparable GAAP measures, including net income, because
information necessary to provide such a forward-looking estimate is
not available without unreasonable effort.
Conference Call Details
A conference call with management is scheduled at 5:00 p.m. ET
on October 26, 2017 to review the results and current business
conditions. The call will be webcast live over the Internet from
www.cloudpeakenergy.com under “Investor Relations.” Participants
should follow the instructions provided on the website for
downloading and installing the audio applications necessary to join
the webcast. Interested individuals also can access the live
conference call via telephone at (855) 793-3260 (domestic) or (631)
485-4929 (international) and entering pass code 80554310.
Following the live webcast, a replay will be available at the
same URL on the website for seven days. A telephonic replay will
also be available approximately two hours after the call and can be
accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406
(international) and entering pass code 80554310. The telephonic
replay will be available for seven days.
About Cloud Peak Energy®
Cloud Peak Energy Inc. (NYSE:CLD) is headquartered in Wyoming
and is one of the largest U.S. coal producers and the only
pure-play Powder River Basin coal company. As one of the safest
coal producers in the nation, Cloud Peak Energy mines low sulfur,
subbituminous coal and provides logistics supply services. The
Company owns and operates three surface coal mines in the PRB, the
lowest cost major coal producing region in the nation. The Antelope
and Cordero Rojo mines are located in Wyoming and the Spring Creek
Mine is located in Montana. In 2016, Cloud Peak Energy shipped
approximately 59 million tons from its three mines to customers
located throughout the U.S. and around the world. Cloud Peak Energy
also owns rights to substantial undeveloped coal and complementary
surface assets in the Northern PRB, further building the Company’s
long-term position to serve Asian export and domestic customers.
With approximately 1,300 total employees, the Company is widely
recognized for its exemplary performance in its safety and
environmental programs. Cloud Peak Energy is a sustainable fuel
supplier for approximately 3 percent of the nation’s
electricity.
Cautionary Note Regarding Forward-Looking Statements
This release and our related quarterly investor presentation
contain “forward-looking statements” within the meaning of the safe
harbor provisions of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements are not statements of historical facts and often contain
words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “intend,” “may,” “plan,” “potential,” “seek,” “should,”
“will,” “would,” or words of similar meaning. Forward-looking
statements may include, for example: (1) our outlook for 2017 and
future periods for Cloud Peak Energy, the Powder River Basin
(“PRB”) and the industry in general; (2) our operational, financial
and shipment guidance, including export shipments; (3) estimated
thermal coal demand by domestic and Asian utilities; (4) coal
stockpile and natural gas storage levels and the impacts on future
demand and pricing; (5) our ability to sell additional tons in 2017
and future periods at improved, economic prices; (6) the impact of
the Trump administration energy policies, ongoing state, local and
international anti-coal regulatory and political developments, NGO
activities and global climate change initiatives; (7) potential
commercialization of carbon capture technologies for utilities; (8)
the impact of competition from other domestic and international
coal producers, natural gas supplies and other alternative sources
of energy used to generate electricity; (9) the timing and extent
of any sustained recovery for depressed coal industry conditions,
domestically and internationally; (10) the impact of industry
conditions on our financial performance, liquidity and compliance
with the financial covenants in our Credit Agreement; (11) our
ability to manage our take-or-pay exposure for currently committed
port and rail capacity; (12) our future liquidity and access to
sources of capital and credit to support our existing operations
and growth opportunities, including our ability to renew or replace
our credit facility before its early 2019 termination; (13) the
impact of our hedging programs; (14) our ability to renew or obtain
surety bonds to meet regulatory requirements; (15) our cost
management efforts; (16) operational plans for our mines; (17)
business development and growth initiatives; (18) our plans to
acquire or develop additional coal to maintain and extend our mine
lives; (19) our estimates of the quality and quantity of economic
coal associated with our development projects, the potential
development of our Youngs Creek and other Northern PRB assets, and
our potential exercise of options for Crow Tribal coal; (20)
potential development of additional export terminal capacity and
increased future access to existing or new capacity; (21) industry
estimates of the U.S. Energy Information Administration and other
third party sources; and (22) other statements regarding our
current plans, strategies, expectations, beliefs, assumptions,
estimates and prospects concerning our business, operating results,
financial condition, industry, economic conditions, government
regulations, energy policies and other matters that do not relate
strictly to historical facts.
These statements are subject to significant risks, uncertainties
and assumptions that are difficult to predict and could cause
actual results to differ materially and adversely from those
expressed or implied in the forward-looking statements. The
following factors are among those that may cause actual results to
differ materially and adversely from our forward-looking
statements: (1) the timing and extent of any sustained recovery of
the currently depressed coal industry, domestically and
internationally, and the impact of ongoing or further depressed
industry conditions on our financial performance, liquidity, and
financial covenant compliance; (2) the prices we receive for our
coal and logistics services, our ability to effectively execute our
forward sales strategy, and changes in utility purchasing patterns
resulting in decreased long-term purchases of coal; (3) the timing
of reductions or increases in customer coal inventories; (4) our
ability to obtain new coal sales agreements on favorable terms, to
resolve customer requests for reductions or deferrals, and to
respond to any cancellations of their committed volumes on terms
that preserve the amount and timing of our forecasted economic
value; (5) the impact of increasingly variable and less predictable
demand for thermal coal based on natural gas prices, summer cooling
demand, winter heating demand, economic growth rates and other
factors that impact overall demand for electricity; (6) our ability
to efficiently and safely conduct our mining operations and to
adjust our planned production levels to respond to market
conditions and effectively manage the costs of our operations; (7)
competition with other producers of coal and with traders and
re-sellers of coal, including the current oversupply of thermal
coal, the impacts of currency exchange rate fluctuations and the
strong U.S. dollar, and government environmental, energy and tax
policies and regulations that make foreign coal producers more
competitive for international transactions; (8) the impact of coal
industry bankruptcies on our competitive position relative to other
companies who have recently emerged from bankruptcy with reduced
leverage and potentially reduced operating costs; (9) competition
with natural gas, wind, solar and other non-coal energy resources,
which may continue to increase as a result of low domestic natural
gas prices, the declining cost of renewables, and due to
environmental, energy and tax policies, regulations, subsidies and
other government actions that encourage or mandate use of
alternative energy sources; (10) coal-fired power plant capacity
and utilization, including the impact of climate change and other
environmental regulations and initiatives, energy policies,
political pressures, NGO activities, international treaties or
agreements and other factors that may cause domestic and
international electric utilities to continue to phase out or close
existing coal-fired power plants, reduce or eliminate construction
of any new coal-fired power plants, or reduce consumption of coal
from the PRB; (11) the failure of economic, commercially available
carbon capture technology to be developed and adopted by utilities
in a timely manner; (12) the impact of “keep coal in the ground”
campaigns and other well-funded, anti-coal initiatives by
environmental activist groups and others targeting substantially
all aspects of our industry; (13) our ability to offset declining
U.S. demand for coal and achieve longer term growth in our business
through our logistics revenue and export sales, including the
significant impact of Chinese and Indian thermal coal import demand
and production levels from other countries and basins on overall
seaborne coal prices; (14) railroad, export terminal and other
transportation performance, costs and availability, including the
availability of sufficient and reliable rail capacity to transport
PRB coal, the development of future export terminal capacity and
our ability to access capacity on commercially reasonable terms;
(15) the impact of our rail and terminal take-or-pay commitments if
we do not meet our required export shipment obligations; (16)
weather conditions and weather-related damage that impact our
mining operations, our customers, or transportation infrastructure;
(17) operational, geological, equipment, permit, labor, and other
risks inherent in surface coal mining; (18) future development or
operating costs for our development projects exceeding our
expectations; (19) our ability to successfully acquire coal and
appropriate land access rights at economic prices and in a timely
manner and our ability to effectively resolve issues with
conflicting mineral development that may impact our mine plans;
(20) the impact of asset impairment charges if required as a result
of challenging industry conditions or other factors; (21) our plans
and objectives for future operations and the development of
additional coal reserves, including risks associated with
acquisitions; (22) the impact of current and future environmental,
health, safety, endangered species and other laws, regulations,
treaties, executive orders, court decisions or governmental
policies, or changes in interpretations thereof and third-party
regulatory challenges, including additional requirements,
uncertainties, costs, liabilities or restrictions adversely
affecting the use, demand or price for coal, our mining operations
or the logistics, transportation, or terminal industries; (23) the
impact of required regulatory processes and approvals to lease coal
and obtain permits for coal mining operations or to transport coal
to domestic and foreign customers, including third-party legal
challenges to regulatory approvals that are required for some or
all of our current or planned mining activities; (24) any increases
in rates or changes in regulatory interpretations or assessment
methodologies with respect to royalties or severance and production
taxes and the potential impact of associated interest and
penalties; (25) inaccurately estimating the costs or timing of our
reclamation and mine closure obligations and our assumptions
underlying reclamation and mine closure obligations; (26) our
ability to obtain required surety bonds and provide any associated
collateral on commercially reasonable terms; (27) the availability
of, disruptions in delivery or increases in pricing from
third-party vendors of raw materials, capital equipment and
consumables which are necessary for our operations, such as
explosives, petroleum-based fuel, tires, steel, and rubber; (28)
our assumptions concerning coal reserve estimates; (29) our
relationships with, and other conditions affecting, our customers
(including our largest customers who account for a significant
portion of our total revenue) and other counterparties, including
economic conditions and the credit performance and credit risks
associated with our customers and other counterparties, such as
traders, brokers, and lenders under our Credit Agreement and
financial institutions with whom we maintain accounts or enter
hedging arrangements; (30) the results of our hedging programs and
changes in the fair value of derivative financial instruments that
are not accounted for as hedges; (31) the terms and restrictions of
our indebtedness; (32) liquidity constraints, access to capital and
credit markets and availability and costs of credit, surety bonds,
letters of credit, and insurance, including risks resulting from
the cost or unavailability of financing due to debt and equity
capital and credit market conditions for the coal sector or in
general, changes in our credit rating, our compliance with the
covenants in our debt agreements, the increasing credit pressures
on our industry due to depressed conditions, or any demands for
increased collateral by our surety bond providers; (33) volatility
in the price of our common stock, including the impact of any
delisting of our stock from the New York Stock Exchange if we fail
to meet the minimum average closing price listing standard; (34)
our liquidity, results of operations, and financial condition
generally, including amounts of working capital that are available;
(35) litigation and other contingencies; (36) the authority of
federal and state regulatory authorities to order any of our mines
to be temporarily or permanently closed under certain
circumstances; and (37) other risk factors or cautionary language
described from time to time in the reports and registration
statements we file with the Securities and Exchange Commission,
including those in Item 1A - Risk Factors in our most recent Form
10-K and any updates thereto in our Forms 10-Q and current reports
on Form 8-K.
Additional factors, events or uncertainties that may emerge from
time to time, or those that we currently deem to be immaterial,
could cause our actual results to differ, and it is not possible
for us to predict all of them. We make forward-looking statements
based on currently available information, and we assume no
obligation to, and expressly disclaim any obligation to, update or
revise publicly any forward-looking statements made in this release
or our related quarterly investor presentation, whether as a result
of new information, future events or otherwise, except as required
by law.
Non-GAAP Financial Measures
This release and our related presentation include the non-GAAP
financial measure of Adjusted EBITDA (on a consolidated basis and
for our reporting segments). Adjusted EBITDA is intended to provide
additional information only and does not have any standard meaning
prescribed by generally accepted accounting principles in the
United States of America. (“U.S. GAAP”). A quantitative
reconciliation of historical net income (loss) to Adjusted EBITDA
is found in the tables accompanying this release. EBITDA represents
net income (loss) before: (1) interest income (expense), net,
(2) income tax provision, (3) depreciation and depletion,
and (4) amortization. Adjusted EBITDA represents EBITDA as
further adjusted for accretion, which represents non-cash increases
in asset retirement obligation liabilities resulting from the
passage of time, and specifically identified items that management
believes do not directly reflect our core operations. For the
periods presented herein, the specifically identified items
are: (1) adjustments to exclude non-cash impairment charges,
(2) adjustments for derivative financial instruments, excluding
fair value mark-to-market gains or losses and including cash
amounts received or paid, (3) adjustments to exclude debt
restructuring costs, and (4) non-cash throughput amortization
expense and contract termination payments made to amend the BNSF
and Westshore agreements. We enter into certain derivative
financial instruments such as put options that require the payment
of premiums at contract inception. The reduction in the premium
value over time is reflected in the mark-to-market gains or losses.
Our calculation of Adjusted EBITDA does not include premiums paid
for derivative financial instruments; either at contract inception,
as these payments pertain to future settlement periods, or in the
period of contract settlement, as the payment occurred in a
preceding period. In prior years the amortization of port and rail
contract termination payments were included as part of EBITDA and
Adjusted EBITDA because the cash payments approximated the amount
of amortization being taken during the year. During 2017,
management determined that the non-cash portion of amortization
arising from payments made in prior years as well as the
amortization of contract termination payments should be adjusted
out of Adjusted EBITDA because the ongoing cash payments are now
significantly smaller than the overall amortization of these
payments and no longer reflect the transactional results. Because
of the inherent uncertainty related to the items identified above,
management does not believe it is able to provide a meaningful
forecast of the comparable GAAP measures or reconciliation to any
forecasted GAAP measure.
Adjusted EBITDA is an additional tool intended to assist our
management in comparing our performance on a consistent basis
for purposes of business decision making by removing the impact of
certain items that management believes do not directly reflect our
core operations. Adjusted EBITDA is a metric intended to assist
management in evaluating operating performance, comparing
performance across periods, planning and forecasting future
business operations and helping determine levels of operating and
capital investments. Period-to-period comparisons of Adjusted
EBITDA are intended to help our management identify and assess
additional trends potentially impacting our company that may not be
shown solely by period-to-period comparisons of net income (loss).
Consolidated Adjusted EBITDA is also used as part of our incentive
compensation program for our executive officers and others.
We believe Adjusted EBITDA is also useful to investors, analysts
and other external users of our consolidated financial statements
in evaluating our operating performance from period to period and
comparing our performance to similar operating results of other
relevant companies. Adjusted EBITDA allows investors to measure a
company’s operating performance without regard to items such as
interest expense, taxes, depreciation and depletion, amortization
and accretion and other specifically identified items that are not
considered to directly reflect our core operations.
Our management recognizes that using Adjusted EBITDA as a
performance measure has inherent limitations as compared to net
income (loss) or other GAAP financial measures, as this non-GAAP
measure excludes certain items, including items that are recurring
in nature, which may be meaningful to investors. As a result of
these exclusions, Adjusted EBITDA should not be considered in
isolation and does not purport to be an alternative to net income
(loss) or other GAAP financial measures as a measure of our
operating performance. Because not all companies use identical
calculations, our presentation of Adjusted EBITDA may not be
comparable to other similarly titled measures of other
companies.
CLOUD PEAK
ENERGY INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OFOPERATIONS AND COMPREHENSIVE INCOME (LOSS)(in
thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30, 2017
2016 2017 2016 Revenue $ 248,884
$ 217,073 $ 673,813 $ 572,510
Costs and
expenses Cost of product sold (exclusive of depreciation,
depletion, and accretion) 204,301 164,287 567,610 469,938
Depreciation and depletion 18,789 23,460 56,683 23,052 Accretion
1,865 1,065 5,532 5,641 (Gain) loss on derivative financial
instruments (838 ) 1,068 3,102 (5,257 ) Selling, general and
administrative expenses 12,798 11,161 33,077 38,187 Impairments ―
312 ― 4,499 Debt restructuring costs ― 4,499 23 4,499 Other
operating costs 121 360 406
814 Total costs and expenses 237,036
206,212 666,433 541,373
Operating income (loss) 11,848 10,861
7,380 31,137
Other income
(expense) Interest income 147 46 304 116 Interest expense
(9,573 ) (13,032 ) (32,351 ) (35,371 ) Other, net (98 )
(165 ) (546 ) (760 ) Total other income
(expense) (9,524 ) (13,151 ) (32,593 )
(36,015 ) Income (loss) before income tax provision and earnings
from unconsolidated affiliates 2,324 (2,290 ) (25,213 ) (4,878 )
Income tax benefit (expense) 115 647 (36 ) 3,226 Income (loss) from
unconsolidated affiliates, net of tax 138 59
771 (1,018 ) Net income (loss)
2,577 (1,584 ) (24,478 ) (2,670 )
Other comprehensive income (loss) Postretirement medical
plan amortization of prior service costs (1,821 ) (1,872 ) (5,462 )
(3,381 ) Postretirement medical plan change ― ― ― 42,851 Income tax
on postretirement medical and pension changes ― (831
) ― (2,776 ) Other comprehensive income (loss)
(1,821 ) (2,703 ) (5,462 ) 36,694 Total
comprehensive income (loss) $ 756 $ (4,287 ) $ (29,940 ) $
34,024
Income (loss) per common share: Basic $ 0.03
$ (0.03 ) $ (0.34 ) $ (0.04 ) Diluted $ 0.03 $ (0.03
) $ (0.34 ) $ (0.04 ) Weighted-average shares outstanding - basic
75,139 61,365 72,152
61,285 Weighted-average shares outstanding - diluted
76,890 61,365 72,152
61,285
CLOUD PEAK ENERGY INC.UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)
September 30, December
31, ASSETS 2017 2016 Current assets
Cash and cash equivalents $ 120,942 $ 83,708 Accounts receivable
53,702 49,311 Due from related parties 1,169 — Inventories, net
69,780 68,683 Derivative financial instruments — 752 Income tax
receivable 1,145 1,601 Other prepaid and deferred charges 31,978
20,361 Other assets 1,762 741 Total
current assets 280,478 225,157
Noncurrent assets
Property, plant and equipment, net 1,394,056 1,432,361 Goodwill
2,280 2,280 Other assets 37,307 54,978
Total assets $ 1,714,121 $ 1,714,776
LIABILITIES AND EQUITY Current liabilities Accounts
payable $ 29,288 $ 27,678 Royalties and production taxes 59,251
63,018 Accrued expenses 39,892 35,857 Due to related parties — 71
Other liabilities 2,555 2,567 Total
current liabilities 130,986 129,191
Noncurrent
liabilities Senior notes 410,374 475,009 Asset retirement
obligations, net of current portion 111,211 97,048 Accumulated
postretirement medical benefit obligation, net of current portion
24,101 22,950 Royalties and production taxes 29,650 21,557 Other
liabilities 16,839 17,360 Total
liabilities 723,161 763,115
Equity Common stock ($0.01 par value; 200,000 shares
authorized; 75,619 and 61,942 shares issued and 75,142 and 61,465
outstanding as of September 30, 2017 and December 31, 2016,
respectively) 751 615 Treasury stock, at cost (477 shares as of
both September 30, 2017 and December 31, 2016) (6,498 ) (6,498 )
Additional paid-in capital 651,078 581,975 Retained earnings
329,207 353,685 Accumulated other comprehensive income (loss)
16,422 21,884 Total equity
990,960 951,661 Total liabilities and equity $
1,714,121 $ 1,714,776
CLOUD PEAK
ENERGY INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS(in thousands)
Nine Months Ended September
30, 2017 2016 Cash flows from operating
activities Net income (loss) $ (24,478 ) $ (2,670 ) Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating activities: Depreciation and depletion 56,683 23,052
Accretion 5,532 5,641 Impairments — 4,499 Loss (income) from
unconsolidated affiliates, net of tax (771 ) 1,018 Distributions of
income from unconsolidated affiliates 4,500 1,500 Deferred income
taxes — (2,775 ) Equity-based compensation expense 6,095 9,250
(Gain) loss on derivative financial instruments 3,102 (5,257 ) Cash
received (paid) on derivative financial instrument settlements
(1,968 ) (3,195 ) Non-cash interest expense related to early
retirement of debt and refinancings 702 1,254 Net periodic
postretirement benefit costs (4,103 ) (423 ) Payments for logistics
contracts (20,438 ) (15,000 ) Logistics throughput contract
amortization expense 27,419 24,500 Other 6,388 1,918 Changes in
operating assets and liabilities: Accounts receivable (4,391 )
(2,925 ) Inventories, net (1,212 ) 3,853 Due to or from related
parties (1,169 ) 81 Other assets (5,545 ) 16,774 Accounts payable
and accrued expenses 11,405 (23,717 ) Asset retirement obligations
(719 ) (1,048 ) Net cash provided by (used in)
operating activities 57,032 36,330
Investing activities Purchases of property, plant and
equipment (11,327 ) (30,148 ) Cash paid for capitalized interest —
(1,272 ) Investment in development projects (2,110 ) (1,500 )
Insurance proceeds — 2,826 Other 33 46
Net cash provided by (used in) investing activities (13,404
) (30,048 )
Financing activities Repayment of
senior notes (62,094 ) — Payment of debt refinancing costs (408 ) —
Payment of deferred financing costs — (3,581 ) Payment amortized to
deferred gain (6,294 ) — Proceeds from issuance of common stock
68,850 — Cash paid for equity offering (4,490 ) — Other
(1,958 ) (1,713 ) Net cash provided by (used in) financing
activities (6,394 ) (5,294 ) Net increase
(decrease) in cash and cash equivalents 37,234 988 Cash and cash
equivalents at beginning of period 83,708
89,313 Cash and cash equivalents at end of period $ 120,942
$ 90,301
Supplemental cash flow
disclosures: Interest paid $ 21,485 $ 28,287 Income taxes paid
(refunded) $ (538 ) $ (8,247 )
Supplemental non-cash investing
and financing activities: Capital expenditures included in
accounts payable $ 1,036 $ 1,794 Assets acquired under capital
leases $ — $ 115
CLOUD PEAK ENERGY INC. AND
SUBSIDIARIESRECONCILIATION OF NON-GAAP MEASURES(in
millions, except per share data)
Adjusted EBITDA
Three Months
Ended Nine Months Ended September 30,
September 30, 2017 2016 2017
2016 Net income (loss) $ 2.6 $ (1.6 ) $ (24.5 ) $
(2.7 ) Interest income (0.1 ) — (0.3 ) (0.1 ) Interest expense 9.6
13.0 32.4 35.4 Income tax (benefit) expense (0.1 ) (0.6 ) — (3.2 )
Depreciation and depletion 18.8 23.5
56.7 23.1 EBITDA 30.7 34.2 64.3 52.4
Accretion 1.9 1.1 5.5 5.6 Derivative financial instruments:
Exclusion of fair value mark-to-market losses (gains) (1) (0.8 )
1.1 3.1 (5.3 ) Inclusion of cash amounts received (paid) (2)
(0.8 ) (0.6 ) (2.0 ) (3.2 ) Total derivative
financial instruments (1.6 ) 0.5 1.1 (8.5 ) Impairments — 0.3 — 4.5
Debt restructuring costs — 4.5 — 4.5 Non-cash throughput
amortization expense and contract termination payments 5.1
— 15.0 — Adjusted
EBITDA $ 36.0 $ 40.6 $ 86.0 $ 58.6
_________________________
(1)
Fair value mark-to-market (gains) losses reflected on the
Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss).
(2)
Cash amounts received and paid reflected within operating cash
flows in the Unaudited Condensed Consolidated Statements of Cash
Flows. Adjusted EBITDA by Segment
Three Months Ended Nine Months
Ended September 30, September 30, 2017
2016 2017 2016 Net income (loss) $ 2.6
$ (1.6 ) $ (24.5 ) $ (2.7 ) Interest income (0.1 ) — (0.3 ) (0.1 )
Interest expense 9.6 13.0 32.4 35.4 Other, net 0.1 0.2 0.5 0.8
Income tax expense (benefit) (0.1 ) (0.6 ) — (3.2 ) (Income) loss
from unconsolidated affiliates, net of tax (0.1 )
(0.1 ) (0.8 ) 1.0 Consolidated operating
income (loss) $ 11.8 $ 10.9 $ 7.4 $ 31.1
Owned and Operated Mines Operating income
(loss) $ 27.1 $ 33.1 $ 54.3 $ 76.8 Depreciation and depletion 18.5
23.2 56.1 22.1 Accretion 1.7 0.9 5.1 5.2 Derivative financial
instruments: Exclusion of fair value mark-to-market (gains) losses
(0.8 ) 1.1 3.1 (5.2 ) Inclusion of cash amounts received (paid)
(0.8 ) (2.3 ) (2.0 ) (8.5 ) Total
derivative financial instruments (1.6 ) (1.2 ) 1.1 (13.7 )
Impairments — 0.3 — 2.5 Other (0.1 ) (0.3 )
(0.5 ) (0.9 ) Adjusted EBITDA $ 45.6 $ 56.0 $
116.1 $ 92.0
Logistics and Related
Activities Operating income (loss) $ (1.9 ) $ (7.8 ) $ (12.8 )
$ (23.9 ) Derivative financial instruments: Exclusion of fair value
mark-to-market (gains) losses — — — (0.1 ) Inclusion of cash
amounts received (paid) — 1.8 —
5.3 Total derivative financial instruments —
1.8 — 5.2 Non-cash throughput amortization expense and contract
termination payments 5.1 — 15.0 — Other 0.0 —
— (1.6 ) Adjusted EBITDA $ 3.2 $
(6.0 ) $ 2.2 $ (20.3 )
Other Operating income
(loss) $ (13.2 ) $ (14.4 ) $ (34.0 ) $ (21.6 ) Depreciation and
depletion 0.2 0.3 0.6 0.9 Accretion 0.2 0.2 0.5 0.5 Impairment — —
— 2.0 Debt restructuring costs — 4.5 — 4.5 Other 0.2
0.1 0.7 0.8 Adjusted
EBITDA(1) (2) $ (12.6 ) $ (9.3 ) $ (32.2 ) $ (12.9 )
Eliminations Operating income (loss) $ (0.2 ) $ — $
(0.2 ) $ (0.2 ) Adjusted EBITDA $ (0.2 ) $ — $ (0.2 ) $ (0.2
)
_________________________
(1)
Includes $0 and $1.6 of sales contract buyouts for the three
months ended September 30, 2017 and 2016, respectively.
(2)
Includes $0.1 and $24.3 of sales contract buyouts for the nine
months ended September 30, 2017 and 2016, respectively.
Tons Sold
(in thousands)
Q3 Q2 Q1 Q4
Q3 Year Year Year
Year Year 2017
2017 2017 2016
2016 2016 2015
2014 2013 2012 Mine Antelope
7,813 6,711 7,375 8,069 8,612 29,807 35,167 33,647 31,354 34,316
Cordero Rojo 3,770 4,227 4,441 5,562 5,492 18,332 22,872 34,809
36,670 39,205 Spring Creek 3,959 3,390 2,210 3,111 2,854 10,348
17,027 17,443 18,009 17,102 Decker (50% interest) - -
- - - - - 1,079 1,519
1,441 Total 15,542 14,328 14,026 16,743 16,958 58,488 75,066
86,978 87,552 92,064
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Cloud Peak Energy Inc.Lorri Owen, 720-566-2932Investor
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