UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-34547
Commission File Number: 333-168639
Cloud Peak Energy Inc.
Cloud Peak Energy Resources LLC
(Exact name of registrant as specified in its charter)
Delaware |
|
26-3088162 |
Delaware |
|
26-4073917 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
|
|
|
505 S. Gillette Ave., Gillette, Wyoming |
|
82716 |
(Address of principal executive offices) |
|
(Zip Code) |
(307) 687-6000
(Registrants telephone number, including area code)
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.
Cloud Peak Energy Inc. |
|
Yes x o No |
Cloud Peak Energy Resources LLC |
|
Yes x o No |
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 files).
Cloud Peak Energy Inc. |
|
Yes x o No |
Cloud Peak Energy Resources LLC |
|
Yes x o No |
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. (Check one):
|
|
Large |
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Accelerated |
|
Non-accelerated filer |
|
Smaller reporting |
Cloud Peak Energy Inc. |
|
x |
|
o |
|
o |
|
o |
Cloud Peak Energy Resources LLC |
|
o |
|
o |
|
x |
|
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Cloud Peak Energy Inc. |
|
o Yes No x |
Cloud Peak Energy Resources LLC |
|
o Yes No x |
Number of shares outstanding of Cloud Peak Energy Inc.s common stock, as of the latest practicable date: Common stock, $0.01 par value per share, 61,037,836 shares outstanding as of April 25, 2012. 100% of the common membership units of Cloud Peak Energy Resources LLC outstanding as of April 25, 2012 are held by Cloud Peak Energy Inc.
This combined Form 10-Q is separately filed by Cloud Peak Energy Inc. and Cloud Peak Energy Resources LLC. Cloud Peak Energy Resources LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Explanatory Note
This combined Form 10-Q is filed by Cloud Peak Energy Inc. and Cloud Peak Energy Resources LLC. Each Registrant hereto is filing on its own behalf all of the information contained in this report that relates to such Registrant. Each Registrant hereto is not filing any information that does not relate to such other Registrant, and therefore makes no representation as to any such information. Cloud Peak Energy Resources LLC is the sole direct subsidiary of Cloud Peak Energy Inc., providing 100% of Cloud Peak Energy Inc.s total consolidated revenue for the three months ended March 31, 2012 and constituting nearly 100% of Cloud Peak Energy Inc.s total consolidated assets as of March 31, 2012.
Unless the context indicates otherwise, the terms the Company, we, us, and our refer to both Cloud Peak Energy Inc. and Cloud Peak Energy Resources LLC and their subsidiaries. Discussions or areas of this report that either apply only to Cloud Peak Energy Inc. or Cloud Peak Energy Resources LLC are clearly noted in such sections.
PART I FINANCIAL INFORMATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Revenues |
|
$ |
372,903 |
|
$ |
356,545 |
|
Costs and expenses |
|
|
|
|
| ||
Cost of product sold (exclusive of depreciation, depletion, amortization and accretion, shown separately) |
|
282,945 |
|
261,181 |
| ||
Depreciation and depletion |
|
23,391 |
|
25,115 |
| ||
Accretion |
|
2,649 |
|
3,340 |
| ||
Selling, general and administrative expenses |
|
14,835 |
|
13,027 |
| ||
Total costs and expenses |
|
323,820 |
|
302,663 |
| ||
Operating income |
|
49,083 |
|
53,882 |
| ||
Other income (expense) |
|
|
|
|
| ||
Interest income |
|
446 |
|
135 |
| ||
Interest expense |
|
(5,850 |
) |
(12,218 |
) | ||
Other, net |
|
(1,998 |
) |
162 |
| ||
Total other expense |
|
(7,402 |
) |
(11,921 |
) | ||
Income before income tax provision and earnings from unconsolidated affiliates |
|
41,681 |
|
41,961 |
| ||
Income tax expense |
|
(15,101 |
) |
(15,293 |
) | ||
Earnings from unconsolidated affiliates, net of tax |
|
38 |
|
105 |
| ||
Net income |
|
26,618 |
|
26,773 |
| ||
Other comprehensive income |
|
|
|
|
| ||
Retiree medical plan amortization of prior service cost, net of tax |
|
310 |
|
209 |
| ||
Other comprehensive income |
|
310 |
|
209 |
| ||
Total comprehensive income |
|
$ |
26,928 |
|
$ |
26,982 |
|
|
|
|
|
|
| ||
Net income per common share: |
|
|
|
|
| ||
Basic |
|
$ |
0.44 |
|
$ |
0.45 |
|
Diluted |
|
$ |
0.44 |
|
$ |
0.44 |
|
Weighted-average shares outstanding - basic |
|
60,008 |
|
60,000 |
| ||
Weighted-average shares outstanding - diluted |
|
60,761 |
|
60,663 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CLOUD PEAK ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
(unaudited) |
|
(audited) |
| ||
ASSETS |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
488,040 |
|
$ |
404,240 |
|
Investments in marketable securities |
|
97,647 |
|
75,228 |
| ||
Restricted cash |
|
|
|
71,245 |
| ||
Accounts receivable |
|
93,421 |
|
95,247 |
| ||
Due from related parties |
|
703 |
|
471 |
| ||
Inventories |
|
75,455 |
|
71,648 |
| ||
Deferred income taxes |
|
33,897 |
|
37,528 |
| ||
Other assets |
|
27,414 |
|
15,294 |
| ||
Total current assets |
|
816,577 |
|
770,901 |
| ||
Noncurrent assets |
|
|
|
|
| ||
Property, plant and equipment, net |
|
1,348,236 |
|
1,350,135 |
| ||
Goodwill |
|
35,634 |
|
35,634 |
| ||
Deferred income taxes |
|
124,408 |
|
132,828 |
| ||
Other assets |
|
33,574 |
|
29,821 |
| ||
Total assets |
|
$ |
2,358,429 |
|
$ |
2,319,319 |
|
|
|
|
|
|
| ||
LIABILITIES AND EQUITY |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable |
|
$ |
59,682 |
|
$ |
71,427 |
|
Royalties and production taxes |
|
142,520 |
|
136,072 |
| ||
Accrued expenses |
|
76,248 |
|
65,928 |
| ||
Current portion of tax agreement liability |
|
19,113 |
|
19,113 |
| ||
Current portion of federal coal lease obligations |
|
102,198 |
|
102,198 |
| ||
Other liabilities |
|
4,973 |
|
4,971 |
| ||
Total current liabilities |
|
404,734 |
|
399,709 |
| ||
Noncurrent liabilities |
|
|
|
|
| ||
Tax agreement liability, net of current portion |
|
151,523 |
|
151,523 |
| ||
Senior notes |
|
596,182 |
|
596,077 |
| ||
Federal coal lease obligations, net of current portion |
|
186,119 |
|
186,119 |
| ||
Asset retirement obligations, net of current portion |
|
194,763 |
|
192,707 |
| ||
Other liabilities |
|
44,559 |
|
42,795 |
| ||
Total liabilities |
|
1,577,880 |
|
1,568,930 |
| ||
Commitments and Contingencies (Note 9) |
|
|
|
|
| ||
Equity |
|
|
|
|
| ||
Common stock ($0.01 par value; 200,000 shares authorized; 61,029 and 60,923 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively) |
|
610 |
|
609 |
| ||
Additional paid-in capital |
|
539,532 |
|
536,301 |
| ||
Retained earnings |
|
258,711 |
|
232,093 |
| ||
Accumulated other comprehensive loss |
|
(18,304 |
) |
(18,614 |
) | ||
Total equity |
|
780,549 |
|
750,389 |
| ||
Total liabilities and equity |
|
$ |
2,358,429 |
|
$ |
2,319,319 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CLOUD PEAK ENERGY INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net income |
|
$ |
26,618 |
|
$ |
26,773 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and depletion |
|
23,391 |
|
25,115 |
| ||
Accretion |
|
2,649 |
|
3,340 |
| ||
Earnings from unconsolidated affiliates |
|
(38 |
) |
(105 |
) | ||
Distributions of income from unconsolidated affiliates |
|
|
|
2,000 |
| ||
Deferred income taxes |
|
11,854 |
|
14,605 |
| ||
Stock compensation expense |
|
3,232 |
|
2,386 |
| ||
Unrealized derivative loss |
|
2,056 |
|
|
| ||
Other |
|
2,229 |
|
2,461 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable, net |
|
2,220 |
|
(4,956 |
) | ||
Inventories |
|
(3,731 |
) |
(8,293 |
) | ||
Due to or from related parties |
|
(232 |
) |
(618 |
) | ||
Other assets |
|
(14,201 |
) |
(17,441 |
) | ||
Accounts payable and accrued expenses |
|
(1,572 |
) |
36,218 |
| ||
Asset retirement obligations |
|
(1,466 |
) |
(1,334 |
) | ||
Net cash provided by operating activities |
|
53,009 |
|
80,151 |
| ||
|
|
|
|
|
| ||
Investing activities |
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
(14,338 |
) |
(46,328 |
) | ||
Investments in marketable securities |
|
(28,349 |
) |
|
| ||
Maturity and redemption of investments |
|
5,930 |
|
|
| ||
Return of restricted cash |
|
71,245 |
|
21,321 |
| ||
Partnership escrow deposit |
|
(4,470 |
) |
|
| ||
Other |
|
773 |
|
530 |
| ||
Net cash provided by (used in) investing activities |
|
30,791 |
|
(24,477 |
) | ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
|
83,800 |
|
55,674 |
| ||
Cash and cash equivalents at beginning of period |
|
404,240 |
|
340,101 |
| ||
Cash and cash equivalents at end of period |
|
$ |
488,040 |
|
$ |
395,775 |
|
|
|
|
|
|
| ||
Supplemental cash flow disclosures |
|
|
|
|
| ||
Interest paid |
|
$ |
653 |
|
$ |
744 |
|
Non-cash interest capitalized |
|
$ |
14,520 |
|
$ |
4,939 |
|
Income taxes paid |
|
$ |
12,638 |
|
$ |
95 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CLOUD PEAK ENERGY RESOURCES LLC
(SUBSIDIARY OF CLOUD PEAK ENERGY INC.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME
(in thousands)
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Revenues |
|
$ |
372,903 |
|
$ |
356,545 |
|
Costs and expenses |
|
|
|
|
| ||
Cost of product sold (exclusive of depreciation, depletion, amortization and accretion, shown separately) |
|
282,945 |
|
261,181 |
| ||
Depreciation and depletion |
|
23,391 |
|
25,115 |
| ||
Accretion |
|
2,649 |
|
3,340 |
| ||
Selling, general and administrative expenses |
|
14,835 |
|
13,027 |
| ||
Total costs and expenses |
|
323,820 |
|
302,663 |
| ||
Operating income |
|
49,083 |
|
53,882 |
| ||
Other income (expense) |
|
|
|
|
| ||
Interest income |
|
446 |
|
135 |
| ||
Interest expense |
|
(5,850 |
) |
(12,218 |
) | ||
Other, net |
|
(1,998 |
) |
162 |
| ||
Total other expense |
|
(7,402 |
) |
(11,921 |
) | ||
|
|
|
|
|
| ||
Income before income tax provision and earnings from unconsolidated affiliates |
|
41,681 |
|
41,961 |
| ||
Income tax expense |
|
(15,101 |
) |
(15,293 |
) | ||
Earnings from unconsolidated affiliates, net of tax |
|
38 |
|
105 |
| ||
Net income |
|
26,618 |
|
26,773 |
| ||
Other comprehensive income |
|
|
|
|
| ||
Retiree medical plan amortization of prior service cost, net of tax |
|
310 |
|
209 |
| ||
Other comprehensive income |
|
310 |
|
209 |
| ||
Total comprehensive income |
|
$ |
26,928 |
|
$ |
26,982 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CLOUD PEAK ENERGY RESOURCES LLC
(SUBSIDIARY OF CLOUD PEAK ENERGY INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
(unaudited) |
|
(audited) |
| ||
ASSETS |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
488,040 |
|
$ |
404,240 |
|
Investments in marketable securities |
|
97,647 |
|
75,228 |
| ||
Restricted cash |
|
|
|
71,245 |
| ||
Accounts receivable |
|
93,421 |
|
95,247 |
| ||
Inventories |
|
75,455 |
|
71,648 |
| ||
Deferred income taxes |
|
27,016 |
|
30,648 |
| ||
Other assets |
|
26,725 |
|
14,885 |
| ||
Total current assets |
|
808,304 |
|
763,141 |
| ||
|
|
|
|
|
| ||
Noncurrent assets |
|
|
|
|
| ||
Property, plant and equipment, net |
|
1,348,236 |
|
1,350,135 |
| ||
Goodwill |
|
35,634 |
|
35,634 |
| ||
Deferred income taxes |
|
69,860 |
|
78,280 |
| ||
Other assets |
|
33,526 |
|
29,773 |
| ||
Total assets |
|
$ |
2,295,560 |
|
$ |
2,256,963 |
|
|
|
|
|
|
| ||
LIABILITIES AND EQUITY |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable |
|
$ |
59,597 |
|
$ |
71,377 |
|
Royalties and production taxes |
|
142,520 |
|
136,072 |
| ||
Accrued expenses |
|
72,471 |
|
51,799 |
| ||
Due to related parties |
|
19,822 |
|
27,420 |
| ||
Current portion of federal coal lease obligations |
|
102,198 |
|
102,198 |
| ||
Other liabilities |
|
4,973 |
|
4,971 |
| ||
Total current liabilities |
|
401,581 |
|
393,837 |
| ||
|
|
|
|
|
| ||
Noncurrent liabilities |
|
|
|
|
| ||
Senior notes |
|
596,182 |
|
596,077 |
| ||
Federal coal lease obligations, net of current portion |
|
186,119 |
|
186,119 |
| ||
Asset retirement obligations, net of current portion |
|
194,763 |
|
192,707 |
| ||
Other liabilities |
|
44,559 |
|
42,795 |
| ||
Total liabilities |
|
1,423,204 |
|
1,411,535 |
| ||
Commitments and Contingencies (Note 9) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity |
|
|
|
|
| ||
Members equity |
|
890,660 |
|
864,042 |
| ||
Accumulated other comprehensive loss |
|
(18,304 |
) |
(18,614 |
) | ||
Total members equity |
|
872,356 |
|
845,428 |
| ||
Total liabilities and members equity |
|
$ |
2,295,560 |
|
$ |
2,256,963 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CLOUD PEAK ENERGY RESOURCES LLC
(SUBSIDIARY OF CLOUD PEAK ENERGY INC.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net income |
|
$ |
26,618 |
|
$ |
26,773 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and depletion |
|
23,391 |
|
25,115 |
| ||
Accretion |
|
2,649 |
|
3,340 |
| ||
Earnings from unconsolidated affiliates |
|
(38 |
) |
(105 |
) | ||
Distributions of income from unconsolidated affiliates |
|
|
|
2,000 |
| ||
Deferred income taxes |
|
11,854 |
|
14,605 |
| ||
Unrealized derivative loss |
|
2,056 |
|
|
| ||
Other, net |
|
2,230 |
|
2,461 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable, net |
|
2,220 |
|
(4,956 |
) | ||
Inventories |
|
(3,731 |
) |
(8,293 |
) | ||
Due to or from related parties |
|
(7,598 |
) |
(1,600 |
) | ||
Other assets |
|
(13,921 |
) |
(17,449 |
) | ||
Accounts payable and accrued expenses |
|
8,745 |
|
39,756 |
| ||
Asset retirement obligations |
|
(1,466 |
) |
(1,334 |
) | ||
Net cash provided by operating activities |
|
53,009 |
|
80,313 |
| ||
Investing activities |
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
(14,338 |
) |
(46,328 |
) | ||
Investments in marketable securities |
|
(28,349 |
) |
|
| ||
Maturity and redemption of investments |
|
5,930 |
|
|
| ||
Return of restricted cash |
|
71,245 |
|
21,321 |
| ||
Partnership escrow deposit |
|
(4,470 |
) |
|
| ||
Other |
|
773 |
|
530 |
| ||
Net cash provided by (used in) investing activities |
|
30,791 |
|
(24,477 |
) | ||
Financing activities |
|
|
|
|
| ||
Member distributions |
|
|
|
(162 |
) | ||
Net cash used in financing activities |
|
|
|
(162 |
) | ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
|
83,800 |
|
55,674 |
| ||
Cash and cash equivalents at beginning of period |
|
404,240 |
|
340,100 |
| ||
Cash and cash equivalents at end of period |
|
$ |
488,040 |
|
$ |
395,774 |
|
|
|
|
|
|
| ||
Supplemental cash flow disclosures for continuing operations: |
|
|
|
|
| ||
Interest paid |
|
$ |
653 |
|
$ |
744 |
|
Non-cash interest capitalized |
|
$ |
14,520 |
|
$ |
4,939 |
|
Income taxes paid |
|
$ |
12,638 |
|
$ |
95 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Business, Principles of Consolidation and Use of Estimates
We are one of the largest producers of coal in the U.S. and in the Powder River Basin (PRB) based on 2011 coal sales. We operate some of the safest mines in the coal industry. According to Mine Safety and Health Administration (MSHA) data, in 2011, we had one of the lowest employee all injury incident rates among the largest U.S. coal producing companies. We operate solely in the PRB, the lowest cost region of the major coal producing regions in the U.S., and operate two of the four largest coal mines in the U.S. Our operations include three wholly-owned surface coal mines, two of which, the Antelope mine and the Cordero Rojo mine, are in Wyoming and one of which, the Spring Creek mine, is in Montana. We also own a 50% non-operating interest in a fourth surface coal mine in Montana, the Decker mine. We produce sub-bituminous thermal coal with low sulfur content and sell our coal primarily to domestic and foreign electric utilities.
We consolidate the accounts of entities in which we have a controlling financial interest under the voting control model. We account for our 50% non-operating interest in Decker Coal Company (Decker) using the proportionate consolidation method, whereby our share of Deckers assets, liabilities, revenues and expenses are included in our consolidated financial statements. Investments in other entities that we do not control but have the ability to exercise significant influence over the investees operating and financial policies, are accounted for under the equity method. All intercompany balances and transactions have been eliminated in the consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (U.S. GAAP). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts. These estimates and assumptions are based on information available as of the date of the financial statements. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of results that can be expected for the full year. Please refer to the section entitled Critical Accounting Policies and Estimates of Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K) for a discussion of our critical accounting policies and estimates.
Cloud Peak Energy, we, us, our or the Company refer collectively to Cloud Peak Energy Inc. (CPE Inc.), Cloud Peak Energy Resources LLC (CPE Resources) and their consolidated subsidiaries. Unless separately stated, the notes herein relate to both CPE Inc. and CPE Resources.
Basis of Presentation
CPE Inc. conducts all of its business through CPE Resources and its subsidiaries. CPE Inc.s consolidated financial statements are substantially identical to CPE Resourcess financial statements, with the following exceptions:
· Tax Receivable Agreement (see Note 9) and deferred tax assets relating thereto (see Note 8)
· Earnings per share (see Note 11)
· Equity-based compensation (see Note 13)
· Supplemental guarantor information (see Note 14)
The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all footnote disclosures required by U.S. GAAP. In accordance with U.S. GAAP for interim financial statements, these unaudited condensed consolidated financial statements do not include certain information and note disclosures that are normally included in annual financial statements prepared in conformity with U.S. GAAP. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2011 and 2010, and for each of the three years ended December 31, 2011, included in our 2011 Form 10-K. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position as of March 31, 2012, and the results of operations and cash flows for the three months ended March 31, 2012 and 2011, in conformity with
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. GAAP. Interim results for the three months ended March 31, 2012, may not be indicative of results that will be realized for the full year ending December 31, 2012.
Due to the tabular presentation of rounded amounts, certain tables reflect insignificant rounding differences.
2. Accounting Policies and Standards Update
Recently Issued Accounting Pronouncements
From time to time, the Financial Accounting Standards Board (FASB) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (ASU). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to be material to our condensed consolidated financial statements upon adoption.
Other Comprehensive Income
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which amends current comprehensive income guidance. The update eliminates the option to present the components of other comprehensive income as part of the statement of stockholders equity. Instead, an entity is required to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is now effective for us. The guidance impacts our disclosures, but it does not impact our results of operations, financial condition, or cash flows.
3. Inventories
Inventories, net, consisted of the following (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Materials and supplies |
|
$ |
70,636 |
|
$ |
67,461 |
|
Less: Obsolescence allowance |
|
(684 |
) |
(643 |
) | ||
Material and supplies, net |
|
69,952 |
|
66,818 |
| ||
Coal inventory |
|
5,503 |
|
4,830 |
| ||
Inventories, net |
|
$ |
75,455 |
|
$ |
71,648 |
|
4. Derivatives
We are exposed to various types of risk in the normal course of business, including fluctuations in commodity prices. In most cases, commodity price risk related to the sale of coal is mitigated through the use of long-term, fixed-price contracts rather than financial instruments; however, during 2011, we commenced the use of derivative financial instruments consisting entirely of commodity contracts to manage certain exposures to international coal prices.
All of our derivative financial instruments are recognized in the balance sheet at fair value. We have not applied hedge accounting; therefore, changes in the fair value of the derivative financial instruments are recorded in Other income (expense) on the condensed consolidated statements of operations and comprehensive income each period using marked-to-market accounting.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We held derivative financial instruments for risk management purposes as follows (in thousands):
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||||||||||||
|
|
Notional |
|
|
|
|
|
Notional |
|
|
|
|
| ||||
Year of Settlement |
|
Amount |
|
Asset |
|
Liability |
|
Amount |
|
Asset |
|
Liability |
| ||||
|
|
(tons) |
|
|
|
|
|
(tons) |
|
|
|
|
| ||||
2012 |
|
281 |
|
$ |
114 |
|
$ |
(18 |
) |
215 |
|
$ |
1,090 |
|
$ |
|
|
2013 |
|
686 |
|
$ |
372 |
|
$ |
(191 |
) |
322 |
|
$ |
1,185 |
|
$ |
|
|
2014 |
|
198 |
|
$ |
|
|
$ |
(242 |
) |
|
|
$ |
|
|
$ |
|
|
2015 |
|
132 |
|
$ |
|
|
$ |
(339 |
) |
|
|
$ |
|
|
$ |
|
|
Total |
|
1,297 |
|
$ |
486 |
|
$ |
(790 |
) |
537 |
|
$ |
2,275 |
|
$ |
|
|
Unrealized and realized gains (losses) on derivative financial instruments consisted of the following (in thousands):
|
|
March 31, |
| |
|
|
2012 |
| |
Unrealized gains (losses) |
|
$ |
(2,056 |
) |
|
|
|
| |
Realized gains (losses) |
|
$ |
524 |
|
There were no derivative financial instruments as of March 31, 2011. See Note 5 for a discussion related to the fair value of derivative financial instruments.
5. Fair Value of Financial Instruments
Due to the short term nature of certain of our financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, amounts due from related parties, accounts payable, and certain current liabilities, we believe that their historical cost approximated fair value.
We also held investments in marketable securities and derivative financial instruments that we assessed and reported on our balance sheet at fair value as of March 31, 2012 and December 31, 2011. We use a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. 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.
· Level 1 is defined as observable inputs such as quoted prices in active markets for identical assets. Level 1 assets include investments in trading securities, primarily asset-backed securities.
· 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. Our Level 2 assets and liabilities include derivative financial instruments with fair values derived from quoted prices in over-the-counter markets or from prices received from direct broker quotes.
· Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. We have no Level 3 investments as of March 31, 2012 or December 31, 2011.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The tables below set forth, by level, our financial assets and liabilities that are recorded at fair value in the accompanying condensed consolidated balance sheets (in thousands):
|
|
Fair Value at March 31, 2012 |
| ||||||||||
Description |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Money market funds(1) |
|
$ |
360,250 |
|
$ |
|
|
$ |
|
|
$ |
360,250 |
|
Commercial paper and short term marketable securities(1) |
|
$ |
|
|
$ |
2,450 |
|
$ |
|
|
$ |
2,450 |
|
Derivative financial instruments |
|
$ |
|
|
$ |
486 |
|
$ |
|
|
$ |
486 |
|
Investments in marketable securities |
|
$ |
|
|
$ |
97,647 |
|
$ |
|
|
$ |
97,647 |
|
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Derivative financial instruments |
|
$ |
|
|
$ |
790 |
|
$ |
|
|
$ |
790 |
|
|
|
Fair Value at December 31, 2011 |
| ||||||||||
Description |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Money market funds(1) |
|
$ |
238,812 |
|
$ |
|
|
$ |
|
|
$ |
238,812 |
|
Commercial paper and short term marketable securities(1) |
|
$ |
|
|
$ |
45,897 |
|
$ |
|
|
$ |
45,897 |
|
Derivative financial instruments |
|
$ |
|
|
$ |
2,275 |
|
$ |
|
|
$ |
2,275 |
|
Investments in marketable securities |
|
$ |
|
|
$ |
75,228 |
|
$ |
|
|
$ |
75,228 |
|
(1) Included in cash and cash equivalents in the consolidated balance sheets along with $125 million and $119 million of demand deposits at March 31, 2012 and December 31, 2011, respectively.
We did not have any transfers between levels during the three months ended March 31, 2012. Our policy is to value all transfers between levels using the beginning of period valuation.
6. Long-Term Debt
Long-term debt consisted of the following (in thousands):
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||||||||||||||
|
|
Principal |
|
Carrying |
|
Fair |
|
Principal |
|
Carrying |
|
Fair |
| ||||||
8.25% Senior Notes due 2017, net of unamortized discount |
|
$ |
300,000 |
|
$ |
298,294 |
|
$ |
305,250 |
|
$ |
300,000 |
|
$ |
298,237 |
|
$ |
327,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
8.50% Senior Notes due 2019, net of unamortized discount |
|
300,000 |
|
297,888 |
|
310,500 |
|
300,000 |
|
297,841 |
|
327,750 |
| ||||||
Total long-term debt |
|
$ |
600,000 |
|
$ |
596,182 |
|
$ |
615,750 |
|
$ |
600,000 |
|
$ |
596,077 |
|
$ |
655,500 |
|
(1) The fair value of the senior notes was based on observable market inputs.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Other Long-Term Obligations
Federal Coal Lease Obligations
Federal coal lease obligations comprise (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Federal coal lease obligations, current |
|
$ |
102,198 |
|
$ |
102,198 |
|
Federal coal lease obligations, noncurrent |
|
186,119 |
|
186,119 |
| ||
Total federal coal lease obligations |
|
$ |
288,317 |
|
$ |
288,317 |
|
Our federal coal leases, as reflected in the consolidated balance sheets, consist of discounted obligations payable to the Bureau of Land Management of the U.S. Department of the Interior (the BLM). Imputed interest is included with accrued expenses.
We have federal coal lease payments, as follows (in thousands):
|
|
|
|
|
|
March 31, 2012 |
|
December 31, 2011 |
| |||||||||
|
|
Annual |
|
Imputed |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| |||||
Payment Dates |
|
Payment |
|
Interest Rate |
|
Value |
|
Value(1) |
|
Value |
|
Value(1) |
| |||||
August 1, 2008 2012 |
|
$ |
50,160 |
|
7.50 |
% |
$ |
46,661 |
|
$ |
49,623 |
|
$ |
46,661 |
|
$ |
48,867 |
|
May 1, 2009 2013 |
|
$ |
9,620 |
|
8.70 |
% |
16,998 |
|
18,885 |
|
16,998 |
|
18,517 |
| ||||
July 1, 2011 2015 |
|
$ |
59,545 |
|
8.50 |
% |
192,892 |
|
224,947 |
|
192,892 |
|
215,796 |
| ||||
September 1, 2011 2015 |
|
$ |
9,862 |
|
8.50 |
% |
31,766 |
|
36,394 |
|
31,766 |
|
35,293 |
| ||||
|
|
|
|
|
|
$ |
288,317 |
|
$ |
329,849 |
|
$ |
288,317 |
|
$ |
318,473 |
|
(1) The fair value of estimates for federal coal lease obligations were determined by discounting the remaining lease payments using a current estimate of the credit-adjusted, risk-free rate based on our current credit rating.
Future payments on federal coal leases are as follows (in thousands):
Year Ended December 31, |
|
|
| |
2012 |
|
$ |
129,187 |
|
2013 |
|
79,027 |
| |
2014 |
|
69,407 |
| |
2015 |
|
69,407 |
| |
Total |
|
347,028 |
| |
Less: imputed interest |
|
58,711 |
| |
Total principal payments |
|
288,317 |
| |
Less: current portion |
|
102,198 |
| |
Long-term federal coal leases payable |
|
$ |
186,119 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other
Other long-term obligations include liabilities incurred in connection with the acquisition of land and mineral rights. We had the following purchase obligations with parties other than the BLM (dollars in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Purchase obligations, total |
|
$ |
6,567 |
|
$ |
6,567 |
|
Interest rate |
|
6% - 8% |
|
6% - 8% |
| ||
The fair value of other long-term obligations approximated its carrying amount at March 31, 2012 and December 31, 2011.
8. Income Taxes
Our income from continuing operations before income tax provision and earnings (losses) from unconsolidated affiliates is earned solely in the U.S. The following table summarizes income taxes (dollars in thousands):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Income tax expense (CPE Inc.) |
|
$ |
15,101 |
|
$ |
15,293 |
|
Effective tax rate (CPE Inc.) |
|
36.2 |
% |
36.4 |
% | ||
Income tax expense (CPE Resources) |
|
$ |
15,101 |
|
$ |
15,293 |
|
Effective tax rate (CPE Resources) |
|
36.2 |
% |
36.4 |
% |
Our statutory income tax rate, including state income taxes, is 36%, which approximates our tax expense for the three months ended March 31, 2012 and 2011.
9. Commitments and Contingencies
Commitments
Purchase Commitments
As of March 31, 2012, we had outstanding capital purchase commitments which consisted of (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Capital commitments |
|
|
|
|
| ||
Equipment |
|
$ |
12,501 |
|
$ |
8,637 |
|
Land |
|
23,700 |
|
23,700 |
| ||
|
|
|
|
|
| ||
Supplies and services |
|
|
|
|
| ||
Coal purchase commitments |
|
$ |
14,254 |
|
$ |
5,652 |
|
Transportation agreements |
|
133,294 |
|
135,080 |
| ||
Materials and supplies |
|
27,384 |
|
29,641 |
|
Tax Receivable Agreement (CPE Inc. only)
During 2009, in connection with the initial public offering (IPO), CPE Inc. entered into a Tax Receivable Agreement with Rio Tinto, our former parent, and recognized a liability for the undiscounted amounts that CPE Inc. estimated will be paid to Rio Tinto under this agreement. The amounts to be paid will be determined based on a calculation of future income tax savings that CPE Inc. actually realizes as a result of the tax basis increase that resulted from the IPO and
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
secondary offering transactions. Generally, CPE Inc. retains 15% of the realized tax savings generated from the tax basis step-up and Rio Tinto is entitled to the remaining 85%. Periodically, CPE Inc. adjusts the estimated liability to reflect updated forecasts of future taxable income, and these adjustments, which could be significant, are reflected in CPE Inc.s operating results. The assumptions reflected in CPE Inc.s estimates involve significant judgment and are subject to substantial uncertainty about future business operations. As such, the actual amount and timing of payments that are required to be made under the Tax Receivable Agreement could differ materially from our estimates.
As of March 31, 2012, CPE Inc. recognized a total $170.6 million undiscounted liability for its estimated payments to Rio Tinto under the Tax Receivable Agreement, of which $19.1 million and $151.5 million were classified as current and noncurrent, respectively. The estimated liability was based on forecasts of future taxable income over the anticipated life of the mining operations and reclamation activities, assuming no additional coal reserves are acquired. The amounts to be paid will be determined based on a calculation of future income tax savings that CPE Inc. actually realizes as a result of the tax basis increase that resulted from the IPO and Secondary Offering transactions.
Based on our estimates as of March 31, 2012, CPE Inc. is expected to make payments of $19.1 million in 2012, payments averaging approximately $19 million each year during 2013 to 2016, and additional payments in subsequent years. CPE Inc. is obligated to make these payments and expects to obtain funding for these payments by causing CPE Resources to distribute cash to CPE Inc. CPE Inc.s payments under the Tax Receivable Agreement would be greater if CPE Resources generates taxable income significantly in excess of its current estimated future taxable income over the anticipated life of its mines, for example, if CPE Resources acquires additional coal leases beyond its existing coal leases and, as a result, CPE Inc. realizes the full tax benefit of such increased tax bases (or an increased portion thereof). Required payments under the Tax Receivable Agreement also may increase or become accelerated as a result of certain asset transfers outside the ordinary course of business, a change in control of CPE Resources, or a default by CPE Inc.
Contingencies
Litigation
Caballo Coal Company Litigation Spring Creek
On September 16, 2009, Caballo Coal Company (Caballo), a subsidiary of Peabody Energy Corporation, commenced an action in Wyoming state court against Spring Creek Coal Company (Spring Creek), our wholly-owned subsidiary, asserting that Spring Creek repudiated its allegedly remaining obligation under a 1987 agreement to purchase an additional approximately 1.6 million tons of coal and seeking unspecified damages. As disclosed in our 2011 Form 10-K, the parties to this lawsuit engaged in settlement negotiations. On February 21, 2012, the parties entered into a definitive settlement agreement, resolving this litigation with no material impact on our results of operations, in managements judgment. On February 29, 2012, the court dismissed the lawsuit with prejudice.
Other Legal Proceedings
We are involved in other legal proceedings arising in the ordinary course of business and may become involved in additional proceedings from time to time. We believe that there are no other legal proceedings pending that are likely to have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Nevertheless, we cannot predict the impact of future developments affecting our claims and lawsuits, and any resolution of a claim or lawsuit or an accrual within a particular fiscal period may adversely impact our results of operations for that period. In addition to claims and lawsuits against us, our leases by application (LBAs), permits and other industry regulatory processes and approvals may also be subject to legal challenges that may adversely impact our mining operations and results. For example, the leases we acquired for the West Antelope II LBAs are subject to pending legal challenges filed against the BLM and the Secretary of the Interior by environmental organizations.
Tax Contingencies
Our income tax calculations are based on application of the respective U.S. federal or state tax law. Our tax filings, however, are subject to audit by the respective tax authorities. Accordingly, we recognize tax benefits when it is more likely than not a position will be upheld by the tax authorities. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Several audits involving our non-income based taxes currently are in progress. We have provided our best estimate of taxes and related interest and penalties due for potential adjustments that may result from the resolution of such tax audits.
Concentrations of Risk and Major Customers
Approximately 87% of our revenues for the three months ended March 31, 2012 were under multi-year contracts that specify pricing terms compared to 85% for the three months ended March 31, 2011. While the majority of the contracts are fixed-price, certain contracts have adjustment provisions for determining periodic price changes. For the three months ended March 31, 2012 and 2011, there was no single customer that represented more than 10% of consolidated revenues. We generally do not require collateral or other security on accounts receivable because our customers are comprised primarily of investment grade electric utilities. The credit risk is controlled through credit approvals and monitoring procedures.
Guarantees and Off-Balance Sheet Risk
In the normal course of business, we are party to guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit, performance or surety bonds and indemnities, which are not reflected on the consolidated balance sheet. In our past experience, virtually no claims have been made against these financial instruments. Management does not expect any material losses to result from these guarantees or off-balance-sheet instruments.
U.S. federal and state laws require we secure certain of our obligations to reclaim lands used for mining and to secure coal lease obligations. The primary method we have used to meet these reclamation obligations and to secure coal lease obligations is to provide a third-party surety bond, typically through an insurance company, or provide a letter of credit, typically through a bank. Specific bond and/or letter of credit amounts may change over time, depending on the activity at the respective site and any specific requirements under federal or state laws. As of March 31, 2012, we had no standby letters of credit and $570.6 million of performance bonds outstanding (including our proportional share of the Decker mine) to secure certain of our obligations to reclaim lands used for mining and to secure coal lease obligations.
On June 3, 2011, CPE Resources entered into an Amended and Restated Credit Agreement (the Amended Credit Agreement) with Morgan Stanley Senior Funding, Inc., as administrative agent, and a syndicate of lenders. The Amended Credit Agreement establishes a commitment to provide us with a $500 million senior secured revolving credit facility, which can be used to borrow funds or issue letters of credit. Subject to the satisfaction of certain conditions, we may elect to increase the size of the revolving credit facility and/or request the addition of one or more new tranches of term loans in a combined amount of up to $200 million. The credit facility matures on June 3, 2016. The Amended Credit Agreement imposes limitations on the ability of CPE Resources and its subsidiaries to make distributions and/or extend loans to CPE Inc.
10. Related Party Transactions
Related party activity consists primarily of coal sales to our 50% owned coal marketing company, and equity method investment, Venture Fuels Partnership.
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Related party transactions: |
|
|
|
|
| ||
Sales of coal to Venture Fuels Partnership |
|
$ |
1,187 |
|
$ |
1,768 |
|
11. Earnings per Share (CPE Inc. only)
Dilutive potential shares of common stock may include restricted shares, options and performance units issued under our Long Term Incentive Plan (LTIP). We apply the treasury stock method to determine dilution from restricted stock and options.
186,000 and 36,000 outstanding options for the three months ended March 31, 2012 and 2011, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
140,000 restricted shares for the three months ended March 31, 2012 were excluded from the diluted earnings per share calculation because they were anti-dilutive.
The following table summarizes the calculation of diluted earnings per share (in thousands, except per share amounts):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Numerator for calculation of diluted earnings per share: |
|
|
|
|
| ||
Income (loss) attributable to controlling interest stockholders |
|
$ |
26,618 |
|
$ |
26,773 |
|
Numerator for diluted income per share |
|
$ |
26,618 |
|
$ |
26,773 |
|
Denominator for basic income per share weighted-average shares outstanding |
|
60,008 |
|
60,000 |
| ||
Dilutive effect of stock equivalents |
|
753 |
|
663 |
| ||
Denominator for diluted earnings per share |
|
60,761 |
|
60,663 |
| ||
Diluted earnings (loss) per share |
|
$ |
0.44 |
|
$ |
0.44 |
|
12. Segment Information
Our management reviews, manages, and operates our business as a single operating segment - the production of low sulfur, thermal coal from surface mines, located in the Western region of the U.S. within the PRB, which is sold to electric utilities and industrial customers.
The following table presents a summary of total revenues from external customers by geographic location (in thousands):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
United States |
|
$ |
304,029 |
|
$ |
306,202 |
|
Asia |
|
68,662 |
|
48,971 |
| ||
Other |
|
212 |
|
1,372 |
| ||
Total revenues from external customers |
|
$ |
372,903 |
|
$ |
356,545 |
|
All of our revenues originated in the U.S. We attribute revenue to individual countries based on the location of the customer. Our sales to customers located outside of the U.S. are made primarily to customers in Asia and Canada.
As of March 31, 2012 and December 31, 2011, all of our long-lived assets were located in the U.S.
13. Equity-Based Compensation (CPE Inc. only)
During the first quarter of each year, we grant restricted stock, restricted stock units, performance-based share units, and/or non-qualified stock options (shares) to eligible employees and directors. Generally, these shares fully vest on the third anniversary of the grant date. In addition, performance-based share units include a stock performance vesting criteria. However, they will pro-rata vest sooner if a grantee terminates employment or stops providing services because of death, disability, redundancy or retirement. Shares will fully vest if an employee is terminated without cause within two years after a change in control occurs, as such term is defined in the LTIP. Restricted stock units granted to our directors vest upon their resignation or retirement. All other shares will be forfeited if the grantee terminates employment for any other reason than those noted above and non-qualified stock options expire if not exercised within ten years of the date of grant.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock
Restricted stock activity for the three months ended March 31, 2012 is as follows (in thousands, except per share amounts):
|
|
|
|
Weighted |
| |
|
|
|
|
Average |
| |
|
|
|
|
Grant-Date |
| |
|
|
Number |
|
Fair Value |
| |
|
|
|
|
(per share) |
| |
Non-vested shares at January 1, 2012 |
|
936 |
|
$ |
15.75 |
|
Granted |
|
152 |
|
17.42 |
| |
Forfeited |
|
(4 |
) |
15.12 |
| |
Vested |
|
|
|
|
| |
Non-vested shares at March 31, 2012 |
|
1,083 |
|
$ |
15.99 |
|
Performance-Based Share Units
Performance-based share units granted represent the number of shares of common stock to be awarded based on the achievement of targeted performance levels related to pre-established total stockholder return goals over a three-year period and may range from 0% to 200% of the targeted amount. The grant date fair value of the awards is based upon a Monte Carlo simulation and is amortized over the performance period. We utilized U.S. Treasury yields as of the grant date for our risk-free interest rate assumption, matching the treasury yield terms to the expected life of the performance-based share units.
Performance-based share unit award activity for the three months ended March 31, 2012 is as follows (in thousands, except per share amounts):
|
|
|
|
Weighted |
| |
|
|
|
|
Average |
| |
|
|
|
|
Grant-Date |
| |
|
|
Number |
|
Fair Value |
| |
|
|
|
|
(per share) |
| |
Non-vested units at January 1, 2012 |
|
159 |
|
$ |
20.12 |
|
Granted |
|
220 |
|
17.61 |
| |
Forfeited |
|
|
|
|
| |
Vested |
|
|
|
|
| |
Non-vested units at March 31, 2012 |
|
379 |
|
$ |
18.66 |
|
The assumptions used to estimate the fair value of the performance-based share units are as follows:
Risk-free interest rate |
|
0.5 |
% | |
Expected volatility |
|
48.2 |
% | |
Term |
|
3 years |
| |
|
|
|
| |
Fair value |
|
$ |
17.61 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Non-Qualified Stock Options
Non-qualified stock option activity for the three months ended March 31, 2012 is as follows (in thousands, except per share amounts):
|
|
|
|
Weighted |
|
Weighted |
|
|
| ||
|
|
|
|
Average |
|
Average |
|
Aggregate |
| ||
|
|
|
|
Exercise |
|
Contractual |
|
Intrinsic |
| ||
|
|
Number |
|
Price |
|
Term |
|
Value(1) |
| ||
|
|
|
|
(per option) |
|
(years) |
|
|
| ||
Options outstanding at January 1, 2012 |
|
1,138 |
|
$ |
15.77 |
|
8.06 |
|
$ |
4,240 |
|
Granted |
|
207 |
|
17.00 |
|
10.00 |
|
|
| ||
Forfeited |
|
|
|
|
|
|
|
|
| ||
Options outstanding at March 31, 2012 |
|
1,345 |
|
$ |
15.95 |
|
8.14 |
|
$ |
879 |
|
Exercisable at March 31, 2012 |
|
|
|
|
|
|
|
|
|
(1) The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option at period-end.
We used the Black-Scholes-Merton option pricing model to determine the fair value of stock options. Determining the fair value of equity-based awards requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, and the associated volatility. As we have no historical exercise history, expected option life assumptions were developed using the simplified method as outlined in Topic 14, Share-Based Payment, of the Staff Accounting Bulletin Series. We utilized U.S. Treasury yields as of the grant date for our risk-free interest rate assumption, matching the treasury yield terms to the expected life of the option. We utilized a 6.5 year peer historical lookback, weighted with our own volatility since the IPO, to develop our expected volatility.
The assumptions used to estimate the fair value of options granted on March 15, 2012 are as follows:
Risk-free interest rate |
|
1.7 |
% | |
Expected option life |
|
6.5 years |
| |
Expected volatility |
|
53.6 |
% | |
|
|
|
| |
Fair value (per option) |
|
$ |
9.05 |
|
14. Supplemental Guarantor/Non-Guarantor Financial Information (CPE Resources only)
In accordance with the indentures governing the 8.25% Senior Notes due 2017 (2017 notes) and the 8.50% Senior Notes due 2019 (2019 notes), collectively the senior notes, certain wholly-owned U.S. subsidiaries of CPE Resources (the Guarantor Subsidiaries) have fully and unconditionally guaranteed these senior notes on a joint and several basis. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management believes that such information is not material to the senior note holders. The following historical financial statement information is provided for the Guarantor/Non-Guarantor Subsidiaries:
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Statement of Operations and Comprehensive Income
(in thousands)
|
|
Three Months Ended March 31, 2012 |
| |||||||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
Revenues |
|
$ |
|
|
$ |
369,228 |
|
$ |
3,675 |
|
$ |
|
|
$ |
372,903 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of product sold (exclusive of depreciation, depletion, amortization and accretion, shown separately) |
|
7 |
|
276,817 |
|
6,121 |
|
|
|
282,945 |
| |||||
Depreciation and depletion |
|
556 |
|
21,645 |
|
1,190 |
|
|
|
23,391 |
| |||||
Amortization and accretion |
|
|
|
2,330 |
|
319 |
|
|
|
2,649 |
| |||||
Selling, general and administrative expenses |
|
14,081 |
|
754 |
|
|
|
|
|
14,835 |
| |||||
Total costs and expenses |
|
14,644 |
|
301,546 |
|
7,630 |
|
|
|
323,820 |
| |||||
Operating income (loss) |
|
(14,644 |
) |
67,682 |
|
(3,955 |
) |
|
|
49,083 |
| |||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income and other, net |
|
446 |
|
|
|
|
|
|
|
446 |
| |||||
Interest expense |
|
(5,666 |
) |
(168 |
) |
(16 |
) |
|
|
(5,850 |
) | |||||
Other |
|
|
|
(1,998 |
) |
|
|
|
|
(1,998 |
) | |||||
Total other expense |
|
(5,220 |
) |
(2,166 |
) |
(16 |
) |
|
|
(7,402 |
) | |||||
Income from continuing operations before income tax provision and earnings (losses) from affiliates |
|
(19,864 |
) |
65,516 |
|
(3,971 |
) |
|
|
41,681 |
| |||||
Income tax provision |
|
7,151 |
|
(23,666 |
) |
1,414 |
|
|
|
(15,101 |
) | |||||
Earnings from unconsolidated affiliates, net of tax |
|
6 |
|
32 |
|
|
|
|
|
38 |
| |||||
Earnings (losses) from consolidated affiliates, net of tax |
|
39,325 |
|
(2,557 |
) |
|
|
(36,768 |
) |
|
| |||||
Net income (loss) |
|
26,618 |
|
39,325 |
|
(2,557 |
) |
(36,768 |
) |
26,618 |
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
| |||||
Retiree medical plan amortization of prior service cost, net of tax |
|
310 |
|
252 |
|
58 |
|
(310 |
) |
310 |
| |||||
Other comprehensive income |
|
310 |
|
252 |
|
58 |
|
(310 |
) |
310 |
| |||||
Total comprehensive income (loss) |
|
$ |
26,928 |
|
$ |
39,577 |
|
$ |
(2,499 |
) |
$ |
(37,078 |
) |
$ |
26,928 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Statement of Operations and Comprehensive Income
(in thousands)
|
|
Three Months Ended March 31, 2011 |
| |||||||||||||
|
|
Parent Company |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
Revenues |
|
$ |
|
|
$ |
353,330 |
|
$ |
3,215 |
|
$ |
|
|
$ |
356,545 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of product sold (exclusive of depreciation, depletion, amortization and accretion, shown separately) |
|
11 |
|
257,240 |
|
3,930 |
|
|
|
261,181 |
| |||||
Depreciation and depletion |
|
477 |
|
24,471 |
|
167 |
|
|
|
25,115 |
| |||||
Amortization and accretion |
|
|
|
2,351 |
|
989 |
|
|
|
3,340 |
| |||||
Selling, general and administrative expenses |
|
11,727 |
|
1,300 |
|
|
|
|
|
13,027 |
| |||||
Total costs and expenses |
|
12,215 |
|
285,362 |
|
5,086 |
|
|
|
302,663 |
| |||||
Operating income (loss) |
|
(12,215 |
) |
67,968 |
|
(1,871 |
) |
|
|
53,882 |
| |||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income and other, net |
|
134 |
|
|
|
1 |
|
|
|
135 |
| |||||
Interest expense |
|
(11,405 |
) |
(799 |
) |
(14 |
) |
|
|
(12,218 |
) | |||||
Other |
|
|
|
162 |
|
|
|
|
|
162 |
| |||||
Total other expense |
|
(11,271 |
) |
(637 |
) |
(13 |
) |
|
|
(11,921 |
) | |||||
Income from continuing operations before income tax provision and earnings (losses) from affiliates |
|
(23,486 |
) |
67,331 |
|
(1,884 |
) |
|
|
41,961 |
| |||||
Income tax provision |
|
8,073 |
|
(24,059 |
) |
693 |
|
|
|
(15,293 |
) | |||||
Earnings from unconsolidated affiliates, net of tax |
|
8 |
|
97 |
|
|
|
|
|
105 |
| |||||
Earnings (losses) from consolidated affiliates, net of tax |
|
42,178 |
|
(1,191 |
) |
|
|
(40,987 |
) |
|
| |||||
Net income (loss) |
|
26,773 |
|
42,178 |
|
(1,191 |
) |
(40,987 |
) |
26,773 |
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
| |||||
Retiree medical plan amortization of prior service cost, net of tax |
|
209 |
|
209 |
|
|
|
(209 |
) |
209 |
| |||||
Other comprehensive income |
|
209 |
|
209 |
|
|
|
(209 |
) |
209 |
| |||||
Total comprehensive income (loss) |
|
$ |
26,982 |
|
$ |
42,387 |
|
$ |
(1,191 |
) |
$ |
(41,196 |
) |
$ |
26,982 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Balance Sheet
(in thousands)
|
|
March 31, 2012 |
| |||||||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
483,522 |
|
$ |
2 |
|
$ |
4,516 |
|
$ |
|
|
$ |
488,040 |
|
Investments in marketable securities |
|
97,647 |
|
|
|
|
|
|
|
97,647 |
| |||||
Accounts receivable, net |
|
|
|
90,378 |
|
3,043 |
|
|
|
93,421 |
| |||||
Inventories, net |
|
5,905 |
|
65,125 |
|
4,425 |
|
|
|
75,455 |
| |||||
Due from related parties |
|
|
|
309,084 |
|
2,379 |
|
(311,463 |
) |
|
| |||||
Deferred income taxes and other assets |
|
|
|
53,665 |
|
76 |
|
|
|
53,741 |
| |||||
Total current assets |
|
587,074 |
|
518,254 |
|
14,439 |
|
(311,463 |
) |
808,304 |
| |||||
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Property, plant and equipment, net |
|
7,580 |
|
1,336,453 |
|
4,203 |
|
|
|
1,348,236 |
| |||||
Goodwill |
|
|
|
35,634 |
|
|
|
|
|
35,634 |
| |||||
Deferred income taxes |
|
24,408 |
|
32,627 |
|
12,825 |
|
|
|
69,860 |
| |||||
Investments and other assets |
|
1,198,234 |
|
|
|
4,470 |
|
(1,169,178 |
) |
33,526 |
| |||||
Total assets |
|
$ |
1,817,296 |
|
$ |
1,922,968 |
|
$ |
35,937 |
|
$ |
(1,480,641 |
) |
$ |
2,295,560 |
|
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable and accrued expenses |
|
$ |
17,322 |
|
$ |
105,951 |
|
$ |
8,795 |
|
$ |
|
|
$ |
132,068 |
|
Royalties and production taxes |
|
|
|
140,853 |
|
1,667 |
|
|
|
142,520 |
| |||||
Due to related parties |
|
331,285 |
|
|
|
|
|
(311,463 |
) |
19,822 |
| |||||
Current portion of federal coal lease obligations |
|
|
|
102,198 |
|
|
|
|
|
102,198 |
| |||||
Other liabilities |
|
45 |
|
3,962 |
|
966 |
|
|
|
4,973 |
| |||||
Total current liabilities |
|
348,652 |
|
352,964 |
|
11,428 |
|
(311,463 |
) |
401,581 |
| |||||
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Senior notes |
|
596,182 |
|
|
|
|
|
|
|
596,182 |
| |||||
Federal coal lease obligations, net of current portion |
|
|
|
186,119 |
|
|
|
|
|
186,119 |
| |||||
Asset retirement obligations, net of current portion |
|
|
|
128,084 |
|
66,679 |
|
|
|
194,763 |
| |||||
Other liabilities |
|
106 |
|
79,201 |
|
6,177 |
|
(40,925 |
) |
44,559 |
| |||||
Total liabilities |
|
944,940 |
|
746,368 |
|
84,284 |
|
(352,388 |
) |
1,423,204 |
| |||||
Commitments and Contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
| |||||
Total members equity |
|
872,356 |
|
1,176,600 |
|
(48,347 |
) |
(1,128,253 |
) |
872,356 |
| |||||
Total liabilities and members equity |
|
$ |
1,817,296 |
|
$ |
1,922,968 |
|
$ |
35,937 |
|
$ |
(1,480,641 |
) |
$ |
2,295,560 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Balance Sheet
(in thousands)
|
|
December 31, 2011 |
| |||||||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
401,087 |
|
$ |
2 |
|
$ |
3,151 |
|
$ |
|
|
$ |
404,240 |
|
Investments in marketable securities |
|
75,228 |
|
|
|
|
|
|
|
75,228 |
| |||||
Restricted cash |
|
71,245 |
|
|
|
|
|
|
|
71,245 |
| |||||
Accounts receivable, net |
|
130 |
|
92,936 |
|
2,181 |
|
|
|
95,247 |
| |||||
Inventories, net |
|
5,753 |
|
61,677 |
|
4,218 |
|
|
|
71,648 |
| |||||
Due from related parties |
|
|
|
256,460 |
|
|
|
(256,460 |
) |
|
| |||||
Deferred income taxes and other assets |
|
|
|
45,533 |
|
|
|
|
|
45,533 |
| |||||
Total current assets |
|
553,443 |
|
456,608 |
|
9,550 |
|
(256,460 |
) |
763,141 |
| |||||
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Property, plant and equipment, net |
|
6,684 |
|
1,338,839 |
|
4,612 |
|
|
|
1,350,135 |
| |||||
Goodwill |
|
|
|
35,634 |
|
|
|
|
|
35,634 |
| |||||
Deferred income taxes |
|
34,307 |
|
28,931 |
|
15,042 |
|
|
|
78,280 |
| |||||
Investments and other assets |
|
1,134,791 |
|
|
|
|
|
(1,105,018 |
) |
29,773 |
| |||||
Total assets |
|
$ |
1,729,225 |
|
$ |
1,860,012 |
|
$ |
29,204 |
|
$ |
(1,361,478 |
) |
$ |
2,256,963 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable and accrued expenses |
|
$ |
4,895 |
|
$ |
111,527 |
|
$ |
6,754 |
|
$ |
|
|
$ |
123,176 |
|
Royalties and production taxes |
|
|
|
133,349 |
|
2,723 |
|
|
|
136,072 |
| |||||
Due to related parties |
|
282,661 |
|
|
|
1,219 |
|
(256,460 |
) |
27,420 |
| |||||
Current portion of federal coal lease obligations |
|
|
|
102,198 |
|
|
|
|
|
102,198 |
| |||||
Other liabilities |
|
45 |
|
3,960 |
|
966 |
|
|
|
4,971 |
| |||||
Total current liabilities |
|
287,601 |
|
351,034 |
|
11,662 |
|
(256,460 |
) |
393,837 |
| |||||
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Senior notes |
|
596,077 |
|
|
|
|
|
|
|
596,077 |
| |||||
Federal coal lease obligations, net of |
|
|
|
|
|
|
|
|
|
|
| |||||
current portion |
|
|
|
186,119 |
|
|
|
|
|
186,119 |
| |||||
current portion |
|
|
|
126,267 |
|
66,440 |
|
|
|
192,707 |
| |||||
Other liabilities |
|
119 |
|
84,201 |
|
6,021 |
|
(47,546 |
) |
42,795 |
| |||||
Total liabilities |
|
883,797 |
|
747,621 |
|
84,123 |
|
(304,006 |
) |
1,411,535 |
| |||||
Commitments and Contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total members equity |
|
845,428 |
|
1,112,391 |
|
(54,919 |
) |
(1,057,472 |
) |
845,428 |
| |||||
Total liabilities and members equity |
|
$ |
1,729,225 |
|
$ |
1,860,012 |
|
$ |
29,204 |
|
$ |
(1,361,478 |
) |
$ |
2,256,963 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Statement of Cash Flows
(in thousands)
|
|
Three Months Ended March 31, 2012 | ||||||||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
Net cash provided by operating activities |
|
$ |
35,665 |
|
$ |
15,919 |
|
$ |
1,425 |
|
$ |
|
|
$ |
53,009 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Purchases of property, plant and equipment |
|
(2,056 |
) |
(12,222 |
) |
(60 |
) |
|
|
(14,338 |
) | |||||
Return of restricted cash |
|
71,245 |
|
|
|
|
|
|
|
71,245 |
| |||||
Partnership escrow deposit |
|
|
|
|
|
(4,470 |
) |
|
|
(4,470 |
) | |||||
Purchases of marketable securities |
|
(28,349 |
) |
|
|
|
|
|
|
(28,349 |
) | |||||
Maturity and redemption of investments |
|
5,930 |
|
|
|
|
|
|
|
5,930 |
| |||||
Contributions made to subsidiary |
|
|
|
(4,470 |
) |
|
|
4,470 |
|
|
| |||||
Other |
|
|
|
773 |
|
|
|
|
|
773 |
| |||||
Net cash provided by (used in) investing activities |
|
46,770 |
|
(15,919 |
) |
(4,530 |
) |
4,470 |
|
30,791 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Contributions received from parent |
|
|
|
|
|
4,470 |
|
(4,470 |
) |
|
| |||||
Net cash used in financing activities |
|
|
|
|
|
4,470 |
|
(4,470 |
) |
|
| |||||
Net increase in cash and cash equivalents |
|
82,435 |
|
|
|
1,365 |
|
|
|
83,800 |
| |||||
Cash and cash equivalents at beginning of year |
|
401,087 |
|
2 |
|
3,151 |
|
|
|
404,240 |
| |||||
Cash and cash equivalents at the end of year |
|
$ |
483,522 |
|
$ |
2 |
|
$ |
4,516 |
|
$ |
|
|
$ |
488,040 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Condensed Consolidating Statement of Cash Flows
(in thousands)
|
|
Three Months Ended March 31, 2011 |
| |||||||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
Net cash provided by (used in) operating activities |
|
$ |
39,446 |
|
$ |
44,681 |
|
$ |
(3,814 |
) |
$ |
|
|
$ |
80,313 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Purchases of property, plant and equipment |
|
(1,056 |
) |
(45,211 |
) |
(61 |
) |
|
|
(46,328 |
) | |||||
Return of restricted cash |
|
21,321 |
|
|
|
|
|
|
|
21,321 |
| |||||
Other |
|
|
|
530 |
|
|
|
|
|
530 |
| |||||
Net cash provided by (used in) investing activities |
|
20,265 |
|
(44,681 |
) |
(61 |
) |
|
|
(24,477 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Distributions |
|
(162 |
) |
|
|
|
|
|
|
(162 |
) | |||||
Net cash used in financing activities |
|
(162 |
) |
|
|
|
|
|
|
(162 |
) | |||||
Net increase (decrease) in cash and cash equivalents |
|
59,549 |
|
|
|
(3,875 |
) |
|
|
55,674 |
| |||||
Cash and cash equivalents at beginning of year |
|
322,010 |
|
4 |
|
18,086 |
|
|
|
340,100 |
| |||||
Cash and cash equivalents at the end of year |
|
$ |
381,559 |
|
$ |
4 |
|
$ |
14,211 |
|
$ |
|
|
$ |
395,774 |
|
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as anticipate, believe, could, estimate, expect, intend, may, plan, potential, should, will, would, or similar words. You should read statements that contain these words carefully because they discuss our current plans, strategies, prospects, and expectations concerning our business, operating results, financial condition, and other similar matters. While we believe that these forward-looking statements are reasonable as and when made, there may be events in the future that we are not able to predict accurately or control, and there can be no assurance that future developments affecting our business will be those that we anticipate. Additionally, all statements concerning our expectations regarding future operating results are based on current forecasts for our existing operations and do not include the potential impact of any future acquisitions. The factors listed under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011 (our 2011 Form 10-K), as well as any cautionary language in this report, describe the known material risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Additional factors or events 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. You are cautioned not to place undue reliance on the forward-looking statements contained herein. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. The following factors are among those that may cause actual results to differ materially and adversely from our forward-looking statements:
· the prices we receive for our coal;
· competition with other producers of coal;
· competition with natural gas and other non-coal energy resources, which may be increased as a result of energy policies, regulations and subsidies or other government incentives that encourage or mandate use of alternative energy sources;
· coal-fired power plant capacity, including the impact of environmental regulations, energy policies and other factors that may cause utilities to phase out or close existing coal-fired power plants or reduce construction of any new coal-fired power plants;
· market demand for domestic and foreign coal, electricity and steel;
· our ability to maintain and grow our export sales;
· domestic and international economic conditions;
· timing of reductions or increases in customer coal inventories;
· weather conditions or weather-related damage that impacts demand for coal, our mining operations, our customers or transportation infrastructure;
· risks inherent to surface coal mining;
· our ability to successfully acquire new coal reserves and surface rights at attractive prices and in a timely manner and our ability to effectively resolve issues with conflicting mineral development that may impact our mine plans;
· our ability to produce coal at existing and planned volumes and to effectively manage the costs of our operations;
· our plans and objectives for future operations and the development of additional coal reserves or acquisition opportunities, including risks associated with any acquisitions that we may pursue;
· the impact of current and future environmental, health, safety and other laws, regulations, treaties or governmental policies, or changes in interpretations thereof, and third-party regulatory challenges, including those affecting our coal mining operations or our customers coal usage, carbon and other gaseous emissions or ash handling, as well as related costs and liabilities;
· the impact of required regulatory processes and approvals to lease and obtain permits for coal mining operations or to transport coal to domestic and foreign customers, including third-party legal challenges;
· any increases in rates or changes in regulatory interpretations with respect to royalties or severance and production taxes;
· railroad, export terminal and other transportation performance, costs and availability, including development of additional terminal capacity;
· inaccurately estimating the costs or timing of our reclamation and mine closure obligations;
· disruptions in delivery or increases in pricing from third-party vendors of raw materials and other consumables which are necessary for our operations, such as explosives, petroleum-based fuel, tires, steel, and rubber;
· our assumptions concerning coal reserve estimates;
· our relationships with, and other conditions affecting, our customers and other counterparties, including economic conditions and the credit performance and credit risks associated with our customers and other counterparties, such as lenders under Cloud Peak Energy Resources LLCs credit agreement and financial institutions with whom we maintain accounts or enter hedging arrangements;
· the terms and restrictions of Cloud Peak Energy Resources LLCs indebtedness;
· liquidity constraints, including those resulting from the cost or unavailability of financing due to credit market conditions;
· our assumptions regarding payments arising under the Tax Receivable Agreement and other agreements related to the initial public offering of CPE Inc.;
· our ability to maintain effective internal controls and to meet the systems and resource demands that we must incur as a public company;
· our liquidity, results of operations, and financial condition generally, including amounts of working capital that are available; and
· other factors, including those discussed in Item 1A of our 2011 Form 10-K.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Explanatory Note
Cloud Peak Energy Resources LLC (CPE Resources) is the sole direct subsidiary of Cloud Peak Energy Inc. (CPE Inc.), providing 100% of CPE Inc.s total consolidated revenue for the three months ended March 31, 2012 and constituting nearly 100% of CPE Inc.s total consolidated assets as of March 31, 2012.
Unless the context indicates otherwise, the terms the Company, we, us, and our refer to both CPE Inc. and CPE Resources and their subsidiaries. Discussions or areas of this report that either apply only to CPE Inc. or CPE Resources are clearly noted in such sections.
This Item 2 may contain forward-looking statements that involve substantial risks and uncertainties. When considering these forward-looking statements you should keep in mind the cautionary statements in this report and our other Securities and Exchange Commission (SEC) filings, including Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K). Please see Cautionary Note Regarding Forward-Looking Statements elsewhere in this document.
This Item 2 is intended to help the reader understand our results of operations and financial condition. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements in Item 1 of this report and our other SEC filings, including our audited consolidated financial statements in Item 8 of our 2011 Form 10-K.
Overview
We are one of the largest producers of coal in the U.S. and in the Powder River Basin (PRB), based on 2011 coal sales. As of December 31, 2011, we controlled approximately 1.37 billion tons of proven and probable coal reserves. We operate some of the safest mines in the coal industry. According to Mine Safety and Health Administration (MSHA) data, in 2011, we had one of the lowest employee all injury incident rates among the largest U.S. coal producing companies. We operate solely in the PRB, the lowest cost region of the major coal producing regions in the U.S., and operate two of the four largest coal mines in the U.S. Our operations include three wholly-owned surface coal mines, two of which, the Antelope mine and the Cordero Rojo mine, are in Wyoming and one of which, the Spring Creek mine, is in Montana. We also own a 50% non-operating interest in a fourth surface coal mine in Montana, the Decker mine. We produce sub-bituminous thermal coal with low sulfur content and sell our coal primarily to domestic and foreign electric utilities.
Decker Mine
We hold a 50% non-operating interest in the Decker mine in Montana. The other 50% mine owner has responsibility for the day-to-day operations of the Decker mine. We account for our pro-rata share of assets and liabilities in our undivided interest in the joint venture using the proportionate consolidation method, whereby our share of assets, liabilities, revenues and expenses are included in the appropriate classification in our consolidated financial statements.
Core Business Operations
Our key business drivers include the following:
· the volume of coal sold domestically and internationally;
· the price for which we sell our coal;
· the costs of mining, including labor, repairs and maintenance, fuel, explosives, depreciation of capital equipment, and depletion of coal leases;
· the costs for logistic services and rail and port charges for coal sales on a delivered basis; and
· capital expenditures to acquire property, plant and equipment.
The volume of coal that we sell in any given year is driven by the amount of global and domestic demand for coal-generated electric power. Demand for coal-generated electric power may be affected by many factors including weather patterns, natural gas prices, coal-fired generating capacity and utilization, environmental and legal challenges, political and
regulatory factors, energy policies, international and domestic economic conditions, and other factors discussed in this Item 2 and in our 2011 Form 10-K.
The price at which we sell our coal is a function of the demand relative to the supply for coal, domestically and internationally. As the demand within a region increases, prices are also subject to increase. Significant increases in demand can allow our coal to compete in new markets. We typically enter into multi-year contracts with our customers which helps mitigate the risks associated with any short-term imbalance in supply and demand. In addition, international demand has increased, enabling us to increase exports of coal during the past few years. We entered into derivative financial instruments that are scheduled to settle at various dates between 2012 and 2015 to hedge a portion of our export coal sales.
We typically seek to enter each year with expected production effectively fully sold. This strategy helps us deliver our expected tonnages and run our mines at predictable production rates, which helps us control operating costs.
In line with the worldwide mining industry, we have experienced increased operating costs for mining equipment, diesel fuel and supplies, and employee wages and salaries. Changes in the cost of commodities related to our production process, such as diesel fuel, will result in changes in the cost of coal production. We have not entered into any hedging or other arrangements to reduce the volatility in the price of commodities used in our mining operations, although we may do so in the future. As is common in the PRB, coal seams at our existing mines naturally deepen, resulting in additional overburden to be removed at additional cost.
For some of our coal sales, including our sales to Asian customers, we arrange and pay for logistic services, rail and/or port charges. Our costs for transportation are affected by volume and negotiated freight rates.
We incur significant capital expenditures to update or expand our mining equipment, surface land holdings and coal reserves. In line with the worldwide mining industry, generally the cost of capital equipment and lead times are increasing. In addition, in recent years, the costs of acquiring federal coal leases and associated surface rights have increased. As we mine these more expensive leases in the future, our depletion costs will increase.
Current Considerations
Warmer-than-average temperatures since December led to the fourth warmest winter on record for the contiguous U.S., according to the U.S. Energy Information Administration. Heating degree days for the 2011/2012 winter season were down 16% from the 30-year norm and down nearly 20% from the 2010/2011 winter season. During the winter season for 2011/2012, electric generation was down 5% from the norm and down nearly 6.5% from the prior years winter season. The warm winter led to both reduced electricity and gas demand for commercial and residential heating. The reduced demand, together with increased supplies of natural gas, has depressed near-term gas prices significantly and has allowed some utilities to increase their generation from natural gas to take advantage of near-term low gas prices. During this short-term period, coal burn has been significantly reduced and utility coal stockpiles have increased rapidly. However, the level of coal-to-natural gas switching appears to currently be limited by infrastructure constraints. Consequently, we do not expect significantly more switching from PRB coal to gas even if gas prices continue to fall. Conversely, we expect to see switching from gas back to coal to start once gas prices exceed $2.50 per mmBtu. In March 2012, shipments of coal from our mines slowed as some utility stockpiles approached full capacity and utilities reduced their immediate shipment schedules.
Shipments are expected to continue to be slow in the second quarter which is traditionally the lowest shipment quarter of the year due to normal mild spring weather reducing electricity and gas demand combined with customary power plant maintenance outages. As a result of these conditions, a small number of our customers have contacted us to discuss potential options to reduce their 2012 tonnage commitments. At this early stage in the year, no deferrals have been agreed.
While the outlook for coal demand for the rest of the year will depend on summer temperatures, economic growth and the level of gas production and gas prices, the warm and dry conditions during the 2011/2012 winter season limited snowfall for many locations. Consequently hydro-electric generation is expected to be significantly reduced, which should support incremental demand for both natural gas and coal generated electricity in the coming months.
The current regulatory environment is making it increasingly difficult for coal burning utilities to operate existing, or invest in new, coal power plants. The regulations include the Cross State Air Pollution Rule, Utility MATS, coal ash regulation and the proposed carbon dioxide new source performance standard, the combined impacts of which are highly uncertain. It is possible some of the regulations will increase demand for low sulfur PRB coal, such as from our Antelope mine. However, we believe the cumulative effect will be to decrease U.S. demand for coal and significantly increase the cost of domestic electricity.
Adjusted EBITDA and Adjusted EPS (CPE Inc. only)
The discussion of our results of operations below includes the non-GAAP financial measures of (1) Adjusted EBITDA and (2) Adjusted Earnings Per Share (Adjusted EPS). Adjusted EBITDA and Adjusted EPS are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles in the U.S., or GAAP. A quantitative reconciliation of historical net income to Adjusted EBITDA and EPS (as defined below) to Adjusted EPS is found within this Item 2.
EBITDA represents net income before (1) interest income (expense) net, (2) income tax provision, (3) depreciation and depletion, (4) amortization, and (5) accretion. Adjusted EBITDA represents EBITDA as further adjusted for specifically identified items that management believes do not directly reflect our core operations. The specifically identified items are the impacts, as applicable, of: (1) the Tax Receivable Agreement including tax impacts of our 2009 initial public offering and 2010 secondary offering, (2) adjustments for derivative financial instruments including unrealized marked-to-market amounts and cash settlements realized, and (3) our significant broker contract that expired in the first quarter of 2010.
Adjusted EPS represents diluted earnings (loss) per common share (EPS) adjusted to exclude the estimated per share impact of the same specifically identified items used to calculate Adjusted EBITDA and described above, adjusted at the statutory tax rate of 36%.
Because not all companies use identical calculations, our presentations of Adjusted EBITDA and Adjusted EPS may not be comparable to other similarly titled measures of other companies. Moreover, our presentation of Adjusted EBITDA is different than EBITDA as defined in our debt financing agreements.
See Item 6 of our 2011 Form 10-K for additional information regarding Adjusted EBITDA and Adjusted EPS and their limitations compared to U.S. GAAP financial measures.
Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
Summary
The following table summarizes key results (in millions):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2012 |
|
2011 |
|
Amount |
|
Percent |
| |||
Total revenue |
|
$ |
372.9 |
|
$ |
356.5 |
|
$ |
16.4 |
|
4.6 |
|
Net income |
|
26.6 |
|
26.8 |
|
(0.2 |
) |
(0.7 |
) | |||
Adjusted EBITDA(1) |
|
75.7 |
|
82.6 |
|
(6.9 |
) |
(8.4 |
) | |||
Adjusted EPS(1) |
|
$ |
0.47 |
|
$ |
0.44 |
|
$ |
0.03 |
|
5.7 |
|
Asian export tons |
|
1.0 |
|
0.9 |
|
0.1 |
|
11.1 |
| |||
Total tons sold |
|
22.9 |
|
23.7 |
|
(0.8 |
) |
(3.4 |
) |
(1) Non-GAAP measure; please see definition above and reconciliation below.
Adjusted EBITDA and Adjusted EPS (CPE Inc. only)
The following tables present a reconciliation of net income to Adjusted EBITDA and diluted earnings (loss) per common share to Adjusted EPS (in millions, except per share amounts):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Net income |
|
$ |
26.6 |
|
$ |
26.8 |
|
Interest income |
|
(0.4 |
) |
(0.1 |
) | ||
Interest expense |
|
5.9 |
|
12.2 |
| ||
Income tax expense (benefit) |
|
15.1 |
|
15.3 |
| ||
Depreciation and depletion |
|
23.4 |
|
25.1 |
| ||
Accretion |
|
2.6 |
|
3.3 |
| ||
EBITDA |
|
$ |
73.2 |
|
$ |
82.6 |
|
Tax agreement expense(1) |
|
|
|
|
| ||
Derivative financial instruments(2) |
|
2.6 |
|
|
| ||
Expired significant broker contract |
|
|
|
|
| ||
Adjusted EBITDA |
|
$ |
75.7 |
|
$ |
82.6 |
|
(1) Changes to related deferred taxes are included in income tax expense.
(2) Derivative financial instruments including unrealized marked-to-market amounts and cash settlements realized.
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
Diluted earnings per common share |
|
$ |
0.44 |
|
$ |
0.44 |
|
Tax agreement expense including tax impacts of IPO and Secondary Offering |
|
|
|
|
| ||
Derivative financial instruments(1) |
|
0.03 |
|
|
| ||
Expired significant broker contract |
|
|
|
|
| ||
Adjusted EPS |
|
$ |
0.47 |
|
$ |
0.44 |
|
Weighted-average dilutive shares outstanding (in millions) |
|
60.8 |
|
60.7 |
|
(1) Derivative financial instruments including unrealized marked-to-market amounts and cash settlements realized.
Results of Operations
Owned and operated mines refers to our three surface coal mines and excludes our 50% non-operating interest in the Decker mine. We include our share of results from operations at the Decker mine along with broker coal sales and billings for transportation and delivery services as Other operations.
Revenues
The following table presents revenues (in millions except per ton amounts):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2012 |
|
2011 |
|
Amount |
|
Percent |
| |||
Owned and operated mines |
|
|
|
|
|
|
|
|
| |||
Revenue |
|
$ |
300.1 |
|
$ |
293.8 |
|
$ |
6.3 |
|
2.1 |
|
Realized price per ton sold |
|
$ |
13.31 |
|
$ |
12.73 |
|
$ |
0.58 |
|
4.5 |
|
Tons sold |
|
22.5 |
|
23.1 |
|
(0.6 |
) |
(2.6 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
Other operations |
|
|
|
|
|
|
|
|
| |||
Revenue |
|
$ |
72.8 |
|
$ |
62.7 |
|
$ |
10.1 |
|
16.1 |
|
The increase in revenue from our owned and operated mines was the result of an increase in the realized price per ton of coal sold in 2012 compared to 2011, reflecting the strong demand for PRB coal due to prevailing economic and industry conditions at the time we entered into the related coal supply contracts, partially offset by a decrease in coal sold in 2012 compared to 2011. The decrease in coal sold year-over-year was primarily due to reduced domestic demand for electricity caused by a warmer than average winter.
Revenues from other operations increased as a result of a higher volume of coal sold on a delivered basis, including export sales with delivered pricing terms that included logistic services and rail and port charges. We arranged and paid for the logistic services and rail and port charges and charged our customers for providing this service.
Cost of Product Sold
The following table presents cost of product sold (in millions except per ton amounts):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change | ||||||||
|
|
2012 |
|
2011 |
|
Amount |
|
Percent |
| |||
Owned and operated mines |
|
|
|
|
|
|
|
|
| |||
Cost of product sold |
|
$ |
220.5 |
|
$ |
206.3 |
|
$ |
14.2 |
|
6.9 |
|
Average cost per ton sold |
|
9.78 |
|
8.94 |
|
0.84 |
|
9.4 |
| |||
Other operations |
|
|
|
|
|
|
|
|
| |||
Cost of product sold |
|
$ |
62.4 |
|
$ |
54.9 |
|
$ |
7.5 |
|
13.7 |
|
The increase in the average cost per ton of coal sold is primarily the result of increases in royalties and taxes as a result of our higher realized price per ton sold, the price of diesel fuel and lubricants, and the impact of fixed costs on fewer tons sold.
Cost of product sold from other operations increased primarily due to increases in volumes and freight rates on our coal sold on a delivered basis, including Asian export sales.
Operating Income
The following table presents operating income (in millions):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2012 |
|
2011 |
|
Amount |
|
Percent |
| |||
Operating income |
|
$ |
49.1 |
|
$ |
53.9 |
|
$ |
(4.8 |
) |
(8.9 |
) |
In addition to those factors previously discussed, we incurred an increase in selling, general and administrative costs as a result of the aggregate impact of various factors including equity-based compensation, medical costs and a litigation settlement.
Other Expense
The following table presents other expense (in millions):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2012 |
|
2011 |
|
Amount |
|
Percent |
| |||
Other income (expense) |
|
$ |
(7.4 |
) |
$ |
(11.9 |
) |
$ |
4.5 |
|
(37.9 |
) |
The decrease in other expense is the result of lower interest expense due to additional interest capitalized on the West Antelope II mineral rights acquired during the second quarter of 2011 partially offset by unrealized losses on derivative financial instruments. We generally capitalize interest on mineral rights during the permitting process.
Income Tax Provision
The following table presents income tax provision (in millions):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2012 |
|
2011 |
|
Amount |
|
Percent |
| |||
Income tax expense (CPE Inc.) |
|
$ |
15.1 |
|
$ |
15.3 |
|
$ |
(0.2 |
) |
(1.3 |
) |
Effective tax rate (CPE Inc.) |
|
36.2 |
% |
36.4 |
% |
(0.2 |
) |
(0.5 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
Income tax expense (CPE Resources) |
|
$ |
15.1 |
|
$ |
15.3 |
|
$ |
(0.2 |
) |
(1.3 |
) |
Effective tax rate (CPE Resources) |
|
36.2 |
% |
36.4 |
% |
(0.2 |
) |
(0.5 |
) |
Our statutory income tax rate, including state income taxes, is 36%, which approximates our tax expense for the three months ended March 31, 2012 and 2011.
Liquidity and Capital Resources
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
(in millions) |
| ||||
Cash and cash equivalents |
|
$ |
488.0 |
|
$ |
404.2 |
|
Investments in marketable securities |
|
97.6 |
|
75.2 |
| ||
Total |
|
$ |
585.7 |
|
$ |
479.5 |
|
In addition to our cash and cash equivalents, our primary sources of liquidity are cash from our operations, investments in marketable securities and borrowing capacity under CPE Resourcess $500 million revolving credit facility. Cash from operations depends on a number of factors beyond our control, such as the market price for our coal, the quantity of coal required by our customers, coal-fired electricity demand, regulatory changes and energy policies impacting our business, our costs of operating including the market price we pay for diesel fuel and other input costs, as well as costs of logistics including rail and port charges, and other risks and uncertainties, including those discussed in Item 1A Risk Factors in our 2011 Form 10-K.
Investments in marketable securities include highly-liquid securities which are generally investment grade. Our investment policy has the objective of minimizing the potential risk of principal loss and is intended to limit our credit exposure to any single issuer. Individual securities have various maturity dates; however, it is our expectation that we could sell any individual security in the secondary market allowing for improved liquidity.
On June 3, 2011, CPE Resources entered into an Amended and Restated Credit Agreement (the Amended Credit Agreement) with Morgan Stanley Senior Funding, Inc., as administrative agent, and a syndicate of lenders. The Amended Credit Agreement establishes a commitment to provide us with a $500 million senior secured revolving credit facility, which can be used to borrow funds or issue letters of credit. Subject to the satisfaction of certain conditions, we may elect to increase the size of the revolving credit facility and/or request the addition of one or more new tranches of term loans in a combined amount of up to $200 million. The credit facility matures on June 3, 2016. The Amended Credit Agreement imposes limitations on the ability of CPE Resources and its subsidiaries to make distributions and/or extend loans to CPE Inc.
The indenture governing the senior notes also imposes limitations on the ability of CPE Resources and its subsidiaries to make distributions, and to extend loans and advances, to CPE Inc. Such limitations, taken as a whole, are less restrictive than those contained in the Amended Credit Agreement. CPE Resources is required to make semi-annual interest payments on its senior notes, which commenced on June 15, 2010.
The limitations in both the Amended Credit Agreement and the indenture have not had, nor are they expected to have, a negative impact upon our ability to fund cash obligations.
The borrowing capacity under the Amended Credit Agreement is reduced by the amount of letters of credit issued. As of March 31, 2012, our borrowing capacity under the Amended Credit Agreement was $500 million. Our ability to borrow under our revolving credit facility is subject to the terms and conditions of the facility, including our compliance with financial and non-financial covenants.
We believe these sources will be sufficient to fund our primary ordinary course uses of cash for the next twelve months, which include our costs of coal production, coal lease installment payments for LBAs and other coal tracts, capital expenditures, interest on our debt, and payments to Rio Tinto under our Tax Receivable Agreement.
We expect to make payments of $129.2 million in 2012 related to committed coal leases. We will continue to explore opportunities to increase our reserve base by acquiring additional coal and surface rights. If we are successful in future bids for coal rights and other growth strategies, our cash flows could be significantly impacted as we would be required to make associated payments.
Our anticipated capital expenditures (excluding capitalized interest and federal lease payments), which we expect will be between $60 million and $80 million in 2012, include our estimates of expenditures necessary to keep our current fleets updated to maintain our mining productivity and competitive position and the addition of new equipment as necessary.
In connection with the IPO, CPE Inc. entered into a Tax Receivable Agreement with Rio Tinto and recognized a liability for the undiscounted amounts that CPE Inc. estimated will be paid to Rio Tinto under this agreement. The amounts to be paid will be determined based on a calculation of future income tax savings that CPE Inc. actually realizes as a result of the tax basis increase that resulted from the IPO and Secondary Offering transactions. Generally, CPE Inc. retains 15% of the realized tax savings generated from the tax basis step-up and Rio Tinto is entitled to the remaining 85% which is remitted to Rio Tinto on an annual basis. Based on our estimates, we expect to make payments of $19.1 million in 2012, payments averaging approximately $19 million each year during 2013 to 2016, and additional payments in subsequent years.
If we do not have sufficient resources from ongoing operations to satisfy our obligations or the timing of payments on our obligations does not coincide with cash inflows from operations, we may need to use our cash on hand and marketable securities or borrow under our line of credit. If the obligation is in excess of these amounts, we may need to seek additional borrowing sources or take other actions. Depending upon existing circumstances at the time, we may not be able to obtain additional funding on acceptable terms or at all. In addition, our existing debt instruments contain restrictive covenants, which may prohibit us from borrowing under our revolving credit facility or pursuing certain alternatives to obtain additional funding.
Overview of Cash Transactions
We started 2012 with $479.5 million of unrestricted cash and cash equivalents and investments in marketable securities. After capital expenditures and generating cash from our operating activities, we ended the three months ended March 31, 2012 with cash and cash equivalents and investments in marketable securities of $585.7 million. In addition, we were able to negotiate lower collateral requirements with the remainder of our surety bond providers thereby releasing the remaining $71.2 million of restricted cash. During the quarter, we replaced our $10.5 million letter of credit that we used to secure our 50% share of additional reclamation obligations at the Decker mine with a $4.5 million deposit to a Decker reclamation trust.
Cash flows
CPE Inc.
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2012 |
|
2011 |
|
Amount |
|
Percent |
| |||
|
|
(dollars in millions) |
| |||||||||
Beginning balance - cash and cash equivalents |
|
$ |
404.2 |
|
$ |
340.1 |
|
$ |
64.1 |
|
18.8 |
|
Net cash provided by operating activities |
|
53.0 |
|
80.2 |
|
(27.2 |
) |
(33.9 |
) | |||
Net cash provided by (used in) investing activities |
|
30.8 |
|
(24.5 |
) |
55.3 |
|
(225.7 |
) | |||
Ending balance - cash and cash equivalents |
|
$ |
488.0 |
|
$ |
395.8 |
|
$ |
92.2 |
|
23.3 |
|
|
|
|
|
|
|
|
|
|
| |||
Beginning balance - marketable securities |
|
75.2 |
|
|
|
75.2 |
|
|
* | |||
Ending balance - marketable securities |
|
97.6 |
|
|
|
97.6 |
|
|
* |
* Not meaningful
CPE Resources
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2012 |
|
2011 |
|
Amount |
|
Percent |
| |||
|
|
(dollars in millions) |
| |||||||||
Beginning balance - cash and cash equivalents |
|
$ |
404.2 |
|
$ |
340.1 |
|
$ |
64.1 |
|
18.8 |
|
Net cash provided by operating activities |
|
53.0 |
|
80.3 |
|
(27.3 |
) |
(34.0 |
) | |||
Net cash provided by (used in) investing activities |
|
30.8 |
|
(24.5 |
) |
55.3 |
|
(225.7 |
) | |||
Net cash used in financing activities |
|
|
|
(0.2 |
) |
0.2 |
|
(100.0 |
) | |||
Ending balance - cash and cash equivalents |
|
$ |
488.0 |
|
$ |
395.7 |
|
$ |
92.3 |
|
23.3 |
|
|
|
|
|
|
|
|
|
|
| |||
Beginning balance - marketable securities |
|
75.2 |
|
|
|
75.2 |
|
|
* | |||
Ending balance - marketable securities |
|
97.6 |
|
|
|
97.6 |
|
|
* |
* Not meaningful
The decrease in cash provided by operating activities from March 31, 2011 to March 31, 2012 was due to a decrease in working capital changes, primarily caused by an increase in payments made for indirect and income taxes, and accounts payable. These increases were partially offset by a decrease in accounts receivable.
The increase in cash provided by investing activities from March 31, 2011 to March 31, 2012 was primarily related to our surety bond obligations. Net restricted cash releases of $21.3 million occurred in the three months ended March 31, 2011 compared to restricted cash releases of $71.2 million in the three months ended March 31, 2012 following a negotiated reduction of collateral required. This increase in cash provided by investing activities was also impacted by decreased purchases of property, plant and equipment and offset by investments made in marketable securities. Purchases during the three months ended March 31, 2011 for property, plant and equipment included payments for haul trucks received in 2010 and payments for surface land associated with federal and privately held mineral rights.
Global Climate Change
Enactment of laws or passage of regulations regarding emissions from the combustion of coal by the U.S. or some of its states or by other countries, or other actions to limit such emissions, could result in electricity generators switching from coal to other fuel sources. Additionally, the creation and issuance of subsidies designed to encourage use of alternative energy sources could decrease the demand of coal as an energy source. The potential financial impact on us of future laws, regulations, or subsidies will depend upon the degree to which electricity generators diminish their reliance on coal as a fuel source as a result of the laws, regulations or subsidies. That, in turn, will depend on a number of factors, including the appeal and design of the subsidies being offered, the specific requirements imposed by any such laws or regulations such as mandating use by utilities of renewable fuel sources, the time periods over which those laws or regulations would be phased in and the state of commercial development and deployment of carbon capture and storage technologies. In view of the
significant uncertainty surrounding each of these factors, it is not possible for us to reasonably predict the impact that any such laws or regulations may have on our results of operations, financial condition or cash flows. See Item 1, BusinessEnvironmental and Other Regulatory MattersGlobal Climate Change and Item 1A, Risk Factors in our 2011 Form 10-K for additional discussion regarding how climate change and other environmental regulatory matters may materially adversely impact our business.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts. These estimates and assumptions are based on information available as of the date of the financial statements. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of results that can be expected for the full year. Please refer to the section entitled Critical Accounting Policies and Estimates of Managements Discussion and Analysis of Financial Condition and Results of Operations in our 2011 Form 10-K for a discussion of our critical accounting policies and estimates.
Newly Adopted Accounting Standards and Recently Issued Accounting Pronouncements
See Note 2 to our notes to unaudited consolidated financial statements in Item 1 for a discussion of newly adopted accounting standards and recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We define market risk as the risk of economic loss as a consequence of the adverse movement of market rates and prices or credit standings. We believe our principal market risks are commodity price risk, interest rate risk and credit risk.
Commodity Price Risk
Market risk includes the potential for changes in the market value of our coal portfolio. Due to the lack of quoted market prices and the long-term nature of our forward sales position, we have not quantified the market risk related to our coal supply agreements. Historically, we have principally managed the commodity price risk for our coal contract portfolio through the use of long-term coal supply agreements of varying terms and durations. As of March 31, 2012, we had contracted to sell approximately 94 million tons during 2012, of which 90 million tons are under fixed-price contracts. A $1 change to the average coal sales price per ton for these 4 million unpriced tons would result in an approximate $4 million change to the coal sales revenue. In addition, during 2011, we entered into certain derivative financial instruments to help manage our exposure to variability in future international coal prices. As of March 31, 2012, these derivative financial instruments consisted of contracts for approximately 1.3 million tons which will settle between 2012 and 2015. A $1 change to the market index price per ton for these derivative financial instruments would result in an approximate $1.3 million change to other income (expense).
We also face price risk involving other commodities used in our production process, primarily diesel fuel. Based on our projections of our usage of diesel fuel for the next 12 months, and assuming that the average cost of diesel fuel increases by 10%, we would incur additional fuel costs of approximately $10.1 million over the next 12 months. Historically, we have not hedged commodities such as diesel fuel. We may enter into hedging arrangements with respect to these commodities in the future.
Interest Rate Risk
Our Amended Credit Agreement is subject to an adjustable interest rate. See Item 2 Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesSenior Secured Revolving Credit Facility in our 2011 Form 10-K. We had no outstanding borrowings under our credit facility as of March 31, 2012. If we borrow funds under the revolving credit facility, we may be subject to increased sensitivity to interest rate movements. Any future debt arrangements that we enter into may also have adjustable interest rates that may increase our sensitivity to interest rate movements.
Credit Risk
We are exposed to credit loss in the event of non-performance by our counterparties, which may include end-use customers, trading houses, brokers, and financial institutions that serve as counterparties to our derivative financial instruments and hold our investments. We attempt to manage this exposure by entering into agreements with counterparties
that meet our credit standards and that are expected to fully satisfy their obligations under the contracts. These steps may not always be effective in addressing counterparty credit risk.
When appropriate (as determined by our credit management function), we have taken steps to reduce our credit exposure to customers that do not meet our credit standards or whose credit has deteriorated. These steps include obtaining letters of credit and requiring prepayments for shipments.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
CPE Inc. and CPE Resources each maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports they file or submit under the Securities Exchange of 1934 (the Exchange Act) is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by CPE Inc. and CPE Resources in the reports they file or submit under the Exchange Act is accumulated and communicated to senior management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The management of each of CPE Inc. and CPE Resources, with the participation of the Chief Executive Officer and Chief Financial Officer of each entity, has evaluated the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) of each entity as of March 31, 2012, and has concluded that such disclosure controls and procedures are effective at the reasonable assurance level.
Internal Control over Financial Reporting
Additionally, during the most recent fiscal quarter, there have been no changes to the internal control over financial reporting of either CPE Inc. or CPE Resources that materially affected, or are reasonably likely to materially affect, either entitys internal control over financial reporting.
OTHER INFORMATION
See Note 9 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this report relating to certain legal proceedings, which information is incorporated by reference herein.
In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties described in Item 1A of our 2011 Form 10-K. The risks described in our 2011 Form 10-K are not the only risks we may face. If any of those risk factors, as well as other risks and uncertainties that are not currently known to us or that we currently believe are not material, actually occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In our judgment, there were no material changes in the risk factors as previously disclosed in Item 1A of our 2011 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
The information 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 95.1 to this Form 10-Q.
None.
See Exhibit Index at page 38 of this report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CLOUD PEAK ENERGY INC. | ||
|
|
| |
|
|
| |
|
By: |
/s/ MICHAEL BARRETT | |
Date: April 30, 2012 |
|
Michael Barrett | |
|
CLOUD PEAK ENERGY RESOURCES LLC | ||
|
|
| |
|
|
| |
|
By: |
/s/ MICHAEL BARRETT | |
Date: April 30, 2012 |
|
Michael Barrett | |
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
Exhibit |
|
Description of Documents |
|
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of Cloud Peak Energy Inc. effective as of November 25, 2009 (incorporated by reference to Exhibit 3.2 to Amendment No. 3 to Cloud Peak Energy Inc.s Form S-1 filed on November 2, 2009) |
|
|
|
3.2 |
|
Amended and Restated Bylaws of Cloud Peak Energy Inc. effective as of November 25, 2009 (incorporated by reference to Exhibit 3.1 of Cloud Peak Energy Inc.s Current Report on Form 8-K filed on December 2, 2009) |
|
|
|
3.3 |
|
Amended and Restated Certificate of Formation of Cloud Peak Energy Resources LLC (incorporated herein by reference to Exhibit 3.1 to Cloud Peak Energy Resources LLCs Registration Statement on Form S-4/A filed on August 17, 2010) |
|
|
|
3.4 |
|
Third Amended and Restated Limited Liability Company Agreement of Cloud Peak Energy Resources LLC, dated as of November 19, 2009, by and among Cloud Peak Energy Inc., Rio Tinto Energy America Inc. and Kennecott Management Services Company (incorporated herein by reference to Exhibit 10.5 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on November 25, 2009) |
|
|
|
4.1 |
|
Form of stock certificate of Cloud Peak Energy Inc. (incorporated by reference to Exhibit 4.1 of the Amendment No. 5 to Cloud Peak Energy Inc.s Form S-1 filed on November 16, 2009) |
|
|
|
4.2 |
|
Indenture, dated as of November 25, 2009, by and among Cloud Peak Energy Resources LLC (and its subsidiaries listed on the signature page), Cloud Peak Energy Finance Corp., Wilmington Trust Company and Citibank, N.A. (incorporated herein by reference to Exhibit 4.1 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on December 2, 2009) |
|
|
|
4.3 |
|
Form of Exchange Notes (included in Exhibit 4.2 hereto) |
|
|
|
10.1 |
|
Form of 2012 Performance Share Unit Award Agreement under the 2009 Cloud Peak Energy Inc. Long Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on March 16, 2012) |
|
|
|
10.2 |
|
Form of 2012 Nonqualified Stock Option Agreement under the 2009 Cloud Peak Energy Inc. Long Term Incentive Plan (incorporated herein by reference to Exhibit 10.2 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on March 16, 2012) |
|
|
|
10.3 |
|
Form of 2012 Restricted Stock Agreement under the 2009 Cloud Peak Energy Inc. Long Term Incentive Plan (incorporated herein by reference to Exhibit 10.3 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on March 16, 2012) |
|
|
|
10.4 |
|
Amendment No. 12, dated as of January 20, 2012, to the Agreement by and among Western Minerals, Inc., Wytana, Inc., Montana Royalty Company, Ltd. and Peter Kiewit Sons Inc. (incorporated herein by reference to Exhibit 10.1 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on January 24, 2012) |
|
|
|
12.1* |
|
Computation of Ratio of Earnings to Fixed Charges |
|
|
|
31.1* |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Cloud Peak Energy Inc. |
|
|
|
31.2* |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Cloud Peak Energy Inc. |
|
|
|
31.3* |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Cloud Peak Energy Resources LLC |
|
|
|
31.4* |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Cloud Peak Energy Resources LLC |
|
|
|
32.1* |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Cloud Peak Energy Inc. |
Exhibit |
|
Description of Documents |
|
|
|
32.2* |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Cloud Peak Energy Inc. |
|
|
|
32.3* |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Cloud Peak Energy Resources LLC |
|
|
|
32.4* |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Cloud Peak Energy Resources LLC |
|
|
|
95.1* |
|
Mine Safety Disclosure |
|
|
|
101.INS* |
|
XBRL Instance Document |
|
|
|
101.SCH* |
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XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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XBRL Taxonomy Calculation Linkbase Document |
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101.LAB* |
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XBRL Taxonomy Label Linkbase Document |
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101.PRE* |
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XBRL Taxonomy Presentation Linkbase Document |
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101.DEF* |
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XBRL Taxonomy Definition Document |
* Filed or furnished herewith, as applicable