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, 2013
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 Delaware |
|
26-3088162 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 oNo |
Cloud Peak Energy Resources LLC |
Yes x oNo |
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 oNo |
Cloud Peak Energy Resources LLC |
Yes x oNo |
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 |
|
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, 60,827,144 shares outstanding as of April 23, 2013. 100% of the common membership units of Cloud Peak Energy Resources LLC outstanding as of April 23, 2013 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
|
|
|
|
|
Page |
| ||
|
| |
|
1 | |
|
2 | |
|
3 | |
|
|
|
|
| |
|
4 | |
|
5 | |
|
6 | |
|
7 | |
|
|
|
|
30 | |
|
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
32 | |
44 | ||
45 | ||
|
|
|
46 | ||
46 | ||
46 | ||
46 | ||
46 | ||
46 | ||
46 |
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 relates 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, 2013 and constituting nearly 100% of Cloud Peak Energy Inc.s total consolidated assets as of March 31, 2013.
Unless the context indicates otherwise, the terms Cloud Peak Energy, 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 |
| ||||
|
|
2013 |
|
2012 |
| ||
Revenue |
|
$ |
338,052 |
|
$ |
372,903 |
|
Costs and expenses |
|
|
|
|
| ||
Cost of product sold (exclusive of depreciation, depletion, and accretion, shown separately) |
|
276,029 |
|
282,945 |
| ||
Depreciation and depletion |
|
23,212 |
|
23,391 |
| ||
Accretion |
|
4,127 |
|
2,649 |
| ||
Derivative mark-to-market (gains) losses |
|
(13,652 |
) |
2,056 |
| ||
Selling, general and administrative expenses |
|
13,607 |
|
14,742 |
| ||
Other operating costs |
|
110 |
|
93 |
| ||
Total costs and expenses |
|
303,433 |
|
325,876 |
| ||
Operating income |
|
34,619 |
|
47,027 |
| ||
Other income (expense) |
|
|
|
|
| ||
Interest income |
|
125 |
|
446 |
| ||
Interest expense |
|
(10,483 |
) |
(5,850 |
) | ||
Other, net |
|
(241 |
) |
58 |
| ||
Total other expense |
|
(10,599 |
) |
(5,346 |
) | ||
Income before income tax provision and earnings from unconsolidated affiliates |
|
24,020 |
|
41,681 |
| ||
Income tax expense |
|
(8,836 |
) |
(15,101 |
) | ||
Earnings from unconsolidated affiliates, net of tax |
|
211 |
|
38 |
| ||
Net income |
|
15,395 |
|
26,618 |
| ||
Other comprehensive income |
|
|
|
|
| ||
Retiree medical plan amortization of prior service costs |
|
444 |
|
394 |
| ||
Other postretirement plan adjustments |
|
30 |
|
90 |
| ||
Income tax on retiree medical plan and pension adjustments |
|
(171 |
) |
(174 |
) | ||
Other comprehensive income |
|
303 |
|
310 |
| ||
Total comprehensive income |
|
$ |
15,698 |
|
$ |
26,928 |
|
|
|
|
|
|
| ||
Income (loss) per common share: |
|
|
|
|
| ||
Basic |
|
$ |
0.25 |
|
$ |
0.44 |
|
Diluted |
|
$ |
0.25 |
|
$ |
0.44 |
|
Weighted-average shares outstanding - basic |
|
60,609 |
|
60,008 |
| ||
Weighted-average shares outstanding - diluted |
|
61,093 |
|
60,761 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(unaudited) |
|
(audited) |
| ||
ASSETS |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
218,604 |
|
$ |
197,691 |
|
Investments in marketable securities |
|
80,473 |
|
80,341 |
| ||
Accounts receivable |
|
98,713 |
|
76,117 |
| ||
Due from related parties |
|
|
|
1,561 |
| ||
Inventories, net |
|
81,034 |
|
81,675 |
| ||
Deferred income taxes |
|
26,653 |
|
28,112 |
| ||
Derivative financial instruments |
|
27,461 |
|
13,785 |
| ||
Other assets |
|
22,510 |
|
16,513 |
| ||
Total current assets |
|
555,448 |
|
495,795 |
| ||
Noncurrent assets |
|
|
|
|
| ||
Property, plant and equipment, net |
|
1,675,611 |
|
1,678,294 |
| ||
Goodwill |
|
35,634 |
|
35,634 |
| ||
Deferred income taxes |
|
94,300 |
|
101,075 |
| ||
Other assets |
|
43,562 |
|
40,525 |
| ||
Total assets |
|
$ |
2,404,555 |
|
$ |
2,351,323 |
|
|
|
|
|
|
| ||
LIABILITIES AND EQUITY |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable |
|
$ |
64,650 |
|
$ |
49,589 |
|
Royalties and production taxes |
|
135,391 |
|
129,351 |
| ||
Accrued expenses |
|
61,835 |
|
50,364 |
| ||
Due to related parties |
|
59 |
|
|
| ||
Current portion of tax agreement liability |
|
19,485 |
|
19,485 |
| ||
Current portion of federal coal lease obligations |
|
63,191 |
|
63,191 |
| ||
Other liabilities |
|
2,772 |
|
2,770 |
| ||
Total current liabilities |
|
347,383 |
|
314,750 |
| ||
Noncurrent liabilities |
|
|
|
|
| ||
Tax agreement liability, net of current portion |
|
97,053 |
|
97,053 |
| ||
Senior notes |
|
596,621 |
|
596,506 |
| ||
Federal coal lease obligations, net of current portion |
|
122,928 |
|
122,928 |
| ||
Asset retirement obligations, net of current portion |
|
238,684 |
|
238,991 |
| ||
Other liabilities |
|
53,749 |
|
50,073 |
| ||
Total liabilities |
|
1,456,418 |
|
1,420,301 |
| ||
Commitments and Contingencies (Note 9) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity |
|
|
|
|
| ||
Common stock ($0.01 par value; 200,000 shares authorized; 61,113 and 61,114 shares issued and 60,822 and 60,839 outstanding at March 31, 2013 and December 31, 2012, respectively) |
|
608 |
|
608 |
| ||
Treasury stock (291 shares and 276 shares at March 31, 2013 and December 31, 2012, respectively) |
|
(5,650 |
) |
(5,390 |
) | ||
Additional paid-in capital |
|
552,128 |
|
550,452 |
| ||
Retained earnings |
|
421,209 |
|
405,813 |
| ||
Accumulated other comprehensive loss |
|
(20,158 |
) |
(20,461 |
) | ||
Total equity |
|
948,137 |
|
931,022 |
| ||
Total liabilities and equity |
|
$ |
2,404,555 |
|
$ |
2,351,323 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Three Months Ended |
| ||||
|
|
2013 |
|
2012 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net income |
|
$ |
15,395 |
|
$ |
26,618 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and depletion |
|
23,212 |
|
23,391 |
| ||
Accretion |
|
4,127 |
|
2,649 |
| ||
Earnings from unconsolidated affiliates |
|
(211 |
) |
(38 |
) | ||
Deferred income taxes |
|
7,945 |
|
11,854 |
| ||
Stock compensation expense |
|
1,676 |
|
3,232 |
| ||
Derivative mark-to-market (gains) losses |
|
(13,652 |
) |
2,056 |
| ||
Other |
|
3,318 |
|
2,229 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
(22,574 |
) |
2,220 |
| ||
Inventories, net |
|
630 |
|
(3,731 |
) | ||
Due to or from related parties |
|
1,620 |
|
(232 |
) | ||
Other assets |
|
(6,369 |
) |
(14,725 |
) | ||
Accounts payable and accrued expenses |
|
22,577 |
|
(1,572 |
) | ||
Asset retirement obligations |
|
(327 |
) |
(1,466 |
) | ||
Cash (paid) received for financial derivative instruments |
|
(24 |
) |
524 |
| ||
Net cash provided by operating activities |
|
37,343 |
|
53,009 |
| ||
|
|
|
|
|
| ||
Investing activities |
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
(13,030 |
) |
(14,338 |
) | ||
Investments in marketable securities |
|
(13,051 |
) |
(28,349 |
) | ||
Maturity and redemption of investments |
|
12,920 |
|
5,930 |
| ||
Investment in project development |
|
(2,429 |
) |
|
| ||
Return of restricted cash |
|
|
|
71,245 |
| ||
Partnership escrow deposit |
|
|
|
(4,470 |
) | ||
Other |
|
23 |
|
773 |
| ||
Net cash provided by (used in) investing activities |
|
(15,567 |
) |
30,791 |
| ||
|
|
|
|
|
| ||
Financing activities |
|
|
|
|
| ||
Payment of deferred financing fees |
|
(863 |
) |
|
| ||
Net cash used in financing activities |
|
(863 |
) |
|
| ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
|
20,913 |
|
83,800 |
| ||
Cash and cash equivalents at beginning of period |
|
197,691 |
|
404,240 |
| ||
Cash and cash equivalents at end of period |
|
$ |
218,604 |
|
$ |
488,040 |
|
|
|
|
|
|
| ||
Supplemental cash flow disclosures: |
|
|
|
|
| ||
Interest paid |
|
$ |
640 |
|
$ |
653 |
|
Income taxes paid |
|
$ |
5,377 |
|
$ |
12,638 |
|
Supplemental noncash investing and financing activities: |
|
|
|
|
| ||
Non-cash interest capitalized |
|
$ |
7,828 |
|
$ |
14,520 |
|
Capital expenditures included in accounts payable |
|
$ |
4,655 |
|
$ |
3,416 |
|
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 |
| ||||
|
|
2013 |
|
2012 |
| ||
Revenue |
|
$ |
338,052 |
|
$ |
372,903 |
|
Costs and expenses |
|
|
|
|
| ||
Cost of product sold (exclusive of depreciation, depletion, and accretion, shown separately) |
|
276,029 |
|
282,945 |
| ||
Depreciation and depletion |
|
23,212 |
|
23,391 |
| ||
Accretion |
|
4,127 |
|
2,649 |
| ||
Derivative mark-to-market (gains) losses |
|
(13,652 |
) |
2,056 |
| ||
Selling, general and administrative expenses |
|
13,607 |
|
14,742 |
| ||
Other operating costs |
|
110 |
|
93 |
| ||
Total costs and expenses |
|
303,433 |
|
325,876 |
| ||
Operating income |
|
34,619 |
|
47,027 |
| ||
Other income (expense) |
|
|
|
|
| ||
Interest income |
|
125 |
|
446 |
| ||
Interest expense |
|
(10,483 |
) |
(5,850 |
) | ||
Other, net |
|
(241 |
) |
58 |
| ||
Total other expense |
|
(10,599 |
) |
(5,346 |
) | ||
Income before income tax provision and earnings from unconsolidated affiliates |
|
24,020 |
|
41,681 |
| ||
Income tax expense |
|
(8,836 |
) |
(15,101 |
) | ||
Earnings from unconsolidated affiliates, net of tax |
|
211 |
|
38 |
| ||
Net income |
|
15,395 |
|
26,618 |
| ||
Other comprehensive income |
|
|
|
|
| ||
Retiree medical plan amortization of prior service costs |
|
444 |
|
394 |
| ||
Other postretirement plan adjustments |
|
30 |
|
90 |
| ||
Income tax on retiree medical plan and pension adjustments |
|
(171 |
) |
(174 |
) | ||
Other comprehensive income |
|
303 |
|
310 |
| ||
Total comprehensive income |
|
$ |
15,698 |
|
$ |
26,928 |
|
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, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(unaudited) |
|
(audited) |
| ||
ASSETS |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
218,604 |
|
$ |
197,691 |
|
Investments in marketable securities |
|
80,473 |
|
80,341 |
| ||
Accounts receivable |
|
98,713 |
|
76,117 |
| ||
Inventories, net |
|
81,034 |
|
81,675 |
| ||
Deferred income taxes |
|
19,638 |
|
21,096 |
| ||
Derivative financial instruments |
|
27,461 |
|
13,785 |
| ||
Other assets |
|
22,175 |
|
16,224 |
| ||
Total current assets |
|
548,098 |
|
486,929 |
| ||
|
|
|
|
|
| ||
Noncurrent assets |
|
|
|
|
| ||
Property, plant and equipment, net |
|
1,675,611 |
|
1,678,294 |
| ||
Goodwill |
|
35,634 |
|
35,634 |
| ||
Deferred income taxes |
|
59,361 |
|
66,136 |
| ||
Other assets |
|
43,514 |
|
40,478 |
| ||
Total assets |
|
$ |
2,362,218 |
|
$ |
2,307,471 |
|
|
|
|
|
|
| ||
LIABILITIES AND EQUITY |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable |
|
$ |
64,587 |
|
$ |
49,571 |
|
Royalties and production taxes |
|
135,391 |
|
129,351 |
| ||
Accrued expenses |
|
60,443 |
|
43,908 |
| ||
Due to related parties |
|
8,963 |
|
10,993 |
| ||
Current portion of federal coal lease obligations |
|
63,191 |
|
63,191 |
| ||
Other liabilities |
|
2,772 |
|
2,769 |
| ||
Total current liabilities |
|
335,347 |
|
299,783 |
| ||
|
|
|
|
|
| ||
Noncurrent liabilities |
|
|
|
|
| ||
Senior notes |
|
596,621 |
|
596,506 |
| ||
Federal coal lease obligations, net of current portion |
|
122,928 |
|
122,928 |
| ||
Asset retirement obligations, net of current portion |
|
238,684 |
|
238,991 |
| ||
Other liabilities |
|
53,748 |
|
50,073 |
| ||
Total liabilities |
|
1,347,328 |
|
1,308,281 |
| ||
Commitments and Contingencies (Note 9) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity |
|
|
|
|
| ||
Members equity |
|
1,035,048 |
|
1,019,651 |
| ||
Accumulated other comprehensive loss |
|
(20,158 |
) |
(20,461 |
) | ||
Total members equity |
|
1,014,890 |
|
999,190 |
| ||
Total liabilities and members equity |
|
$ |
2,362,218 |
|
$ |
2,307,471 |
|
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 |
| ||||
|
|
2013 |
|
2012 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net income |
|
$ |
15,395 |
|
$ |
26,618 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and depletion |
|
23,212 |
|
23,391 |
| ||
Accretion |
|
4,127 |
|
2,649 |
| ||
Earnings from unconsolidated affiliates |
|
(211 |
) |
(38 |
) | ||
Deferred income taxes |
|
7,945 |
|
11,854 |
| ||
Derivative mark-to-market gains (losses) |
|
(13,652 |
) |
2,056 |
| ||
Other |
|
3,318 |
|
2,230 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
(22,574 |
) |
2,220 |
| ||
Inventories, net |
|
630 |
|
(3,731 |
) | ||
Due to or from related parties |
|
(2,029 |
) |
(7,598 |
) | ||
Other assets |
|
(6,324 |
) |
(14,445 |
) | ||
Accounts payable and accrued expenses |
|
27,857 |
|
8,745 |
| ||
Asset retirement obligations |
|
(327 |
) |
(1,466 |
) | ||
Cash (paid) received for financial derivative instruments |
|
(24 |
) |
524 |
| ||
Net cash provided by operating activities |
|
37,343 |
|
53,009 |
| ||
|
|
|
|
|
| ||
Investing activities |
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
(13,030 |
) |
(14,338 |
) | ||
Investments in marketable securities |
|
(13,051 |
) |
(28,349 |
) | ||
Maturity and redemption of investments |
|
12,920 |
|
5,930 |
| ||
Investment in project development |
|
(2,429 |
) |
|
| ||
Return of restricted cash |
|
|
|
71,245 |
| ||
Partnership escrow deposit |
|
|
|
(4,470 |
) | ||
Other |
|
23 |
|
773 |
| ||
Net cash provided by (used in) investing activities |
|
(15,567 |
) |
30,791 |
| ||
|
|
|
|
|
| ||
Financing activities |
|
|
|
|
| ||
Payment of deferred financing fees |
|
(863 |
) |
|
| ||
Net cash used in financing activities |
|
(863 |
) |
|
| ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
|
20,913 |
|
83,800 |
| ||
Cash and cash equivalents at beginning of period |
|
197,691 |
|
404,240 |
| ||
Cash and cash equivalents at end of period |
|
$ |
218,604 |
|
$ |
488,040 |
|
|
|
|
|
|
| ||
Supplemental cash flow disclosures: |
|
|
|
|
| ||
Interest paid |
|
$ |
640 |
|
$ |
653 |
|
Income taxes paid |
|
$ |
5,377 |
|
$ |
12,638 |
|
|
|
|
|
|
| ||
Supplemental noncash investing and financing activities: |
|
|
|
|
| ||
Non-cash interest capitalized |
|
$ |
7,828 |
|
$ |
14,520 |
|
Capital expenditures included in accounts payable |
|
$ |
4,655 |
|
$ |
3,416 |
|
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. Organization and Business
CPE Inc. is one of the largest producers of coal in the United States of America (U.S.) and the Powder River Basin (PRB), based on our 2012 coal sales. We operate some of the safest mines in the coal industry. According to MSHA data, in 2012, we had one of the lowest employee all injury incident rates among the largest U.S. coal producing companies.
We currently operate solely in the PRB, the lowest cost region of the major coal producing regions in the U.S., where we operate three wholly-owned surface coal mines, the Antelope mine, the Cordero Rojo mine and the Spring Creek mine. We also have two major development projects, the Youngs Creek project and the potential Crow project.
Our Antelope and Cordero Rojo mines are located in Wyoming and are two of the four largest coal mines in the U.S. Our Spring Creek mine is located in Montana. Our logistics business is the largest U.S. exporter of thermal coal into South Korea. Our mines produce subbituminous thermal coal with low sulfur content, and we sell our coal primarily to domestic and foreign electric utilities. We do not produce any metallurgical coal. Thermal coal is primarily consumed by electric utilities and industrial consumers as fuel for electricity generation and steam output. In 2012, the coal we produced generated approximately 4% of the electricity produced in the U.S. As of December 31, 2012, we controlled approximately 1.3 billion tons of proven and probable reserves. For information regarding our revenue and long-lived assets by geographic area, as well as revenue from external customers, Adjusted EBITDA and total assets by segment, please see Note 14.
During 2012, we acquired rights to substantial undeveloped coal and complementary surface assets in the Northern PRB (Youngs Creek project). In January 2013, we executed an option to lease agreement (Option Agreement) and a corresponding exploration agreement (Exploration Agreement) with the Crow Tribe of Indians, which are subject to approval by the Department of the Interior. This potential coal project (Crow project) is located on the Crow Indian Reservation in southeast Montana, near our Spring Creek mine and Youngs Creek project. We are in the process of evaluating the development options for the Youngs Creek project and the potential Crow project, but believe that their proximity to the Spring Creek mine represents an opportunity to optimize our mine developments in the Northern PRB.
For purposes of this report, the term Northern PRB refers to the area within the PRB that lies within Montana and the northern part of Sheridan County, Wyoming. Our Spring Creek mine, the Decker mine, the Youngs Creek project and the potential Crow project are located in the Northern PRB.
We continue to seek ways to increase our future export capacity through existing and proposed new Pacific Northwest export terminals, including our option agreement with SSA Marine. This throughput option agreement with SSA Marine provides us with an option for up to 16 million tonnes of capacity per year through the planned dry bulk cargo Gateway Pacific Terminal at Cherry Point in the State of Washington. Our potential share of capacity will depend upon the ultimate capacity of the terminal. The terminal would accommodate cape size vessels. Our option is exercisable following future permit completion for the terminal, the timing of which is uncertain.
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 consolidated financial statements, with the following exceptions:
· Tax agreement liability and deferred tax assets relating thereto
· Earnings per share (see Note 13)
· Equity-based compensation (see Note 15)
· Supplemental guarantor information (see Note 16)
Principles of Consolidation
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, revenue and expenses are included in our consolidated financial statements. Investments in other entities that we do not control but have the ability to exercise
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 interim period unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (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. The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all footnote disclosures required to be included in annual financial statements by 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, 2012 and 2011, and for each of the three years ended December 31, 2012, included in our Annual Report on Form 10-K for the year ended December 31, 2012 (2012 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, 2013, the results of operations and comprehensive income for the three months ended March 31, 2013 and 2012, and the cash flows for the three months ended March 31, 2013 and 2012, in conformity with 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, 2013 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 2012 Form 10-K for a discussion of our critical accounting policies and estimates.
Certain amounts have been reclassified to conform to current period presentation. 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 consolidated financial statements upon adoption.
Offsetting Assets and Liabilities
In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, as clarified by ASU 2013-01, requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under International Financial Reporting Standards (IFRS). The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. As this accounting standard only requires enhanced disclosure, which is included in Note 4, the adoption of this standard did not impact our financial position or results of operations.
Other Comprehensive Income
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This guidance requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This guidance is effective prospectively for annual and interim periods beginning January 1, 2013. As this accounting standard only requires enhanced disclosure, which is included in Note 12, the adoption of this standard did not impact our financial position or results of operations.
3. Inventories
Inventories, net, consisted of the following (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Materials and supplies |
|
$ |
78,014 |
|
$ |
76,989 |
|
Less: Obsolescence allowance |
|
(837 |
) |
(834 |
) | ||
Material and supplies, net |
|
77,177 |
|
76,155 |
| ||
Coal inventory |
|
3,858 |
|
5,519 |
| ||
Inventories, net |
|
$ |
81,034 |
|
$ |
81,675 |
|
4. Derivatives
We are exposed to various types of risk in the normal course of business, including fluctuations in commodity prices and particularly the prices we receive for our coal sales, both domestically and internationally, and the prices we pay for our consumption of certain raw materials such as diesel fuel. We seek to manage some of the volatility of these fluctuations by using derivative financial instruments.
All of our derivative financial instruments are recognized in the balance sheet at fair value. As mark-to-market accounting is applied, changes in the fair value of the derivative financial instruments are included in Operating income on the consolidated statements of operations and comprehensive income each period. Amounts shown below represent the fair value position of individual contracts, but are presented on a net basis in the accompanying consolidated balance sheets, where right of offset by counterparty is allowed.
We held derivative financial instruments as follows (in thousands except per barrel amounts):
International Coal Forward Contracts
We use international coal forward contracts linked to Newcastle coal prices to help manage our exposure to variability in future international coal prices.
|
|
March 31, 2013 |
| |||||||||
Year of |
|
Notional |
|
Gross |
|
Gross Amounts |
|
Net Amounts |
| |||
|
|
(tons) |
|
|
|
|
|
|
| |||
2013 |
|
646 |
|
$ |
12,964 |
|
$ |
(848 |
) |
$ |
12,116 |
|
2014 |
|
1,124 |
|
9,831 |
|
|
|
9,831 |
| |||
2015 |
|
344 |
|
4,268 |
|
|
|
4,268 |
| |||
2016 |
|
132 |
|
1,215 |
|
|
|
1,215 |
| |||
Total |
|
2,246 |
|
$ |
28,278 |
|
$ |
(848 |
) |
$ |
27,430 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
December 31, 2012 |
| |||||||||
Year of |
|
Notional |
|
Gross |
|
Gross Amounts |
|
Net Amounts |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
516 |
|
$ |
9,288 |
|
$ |
|
|
$ |
9,288 |
|
2014 |
|
198 |
|
2,776 |
|
|
|
2,776 |
| |||
2015 |
|
212 |
|
1,598 |
|
|
|
1,598 |
| |||
2016 |
|
132 |
|
15 |
|
(30 |
) |
(15 |
) | |||
Total |
|
1,058 |
|
$ |
13,677 |
|
$ |
(30 |
) |
$ |
13,647 |
|
There were no cash collateral requirements at March 31, 2013 or December 31, 2012.
WTI Collars
We use costless collars to help manage our exposure to market changes in diesel fuel prices. The collars are indexed to the West Texas Intermediate (WTI) crude oil price as quoted on the New York Mercantile Exchange. As such, the nature of the collar does not directly offset market changes to our diesel costs. Under a collar agreement, we pay the difference between the index price and a floor price if the index price is below the floor, and we receive the difference between the ceiling price and the index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and ceiling prices. While we would not receive the full benefit of extreme price decreases, the collars mitigate the risk of extreme crude oil price increases and thereby increased diesel costs that would otherwise have a negative impact on our cash flow.
|
|
March 31, 2013 |
| |||||||||||||||
|
|
Notional |
|
Weighted-Average |
|
Gross |
|
Gross Amounts |
|
Net Amounts |
| |||||||
Settlement Period |
|
Amount |
|
Floor |
|
Ceiling |
|
Assets |
|
Balance Sheet |
|
Balance Sheet |
| |||||
|
|
(barrels) |
|
|
|
|
|
|
|
|
|
|
| |||||
April 2013 to June 2013 |
|
126 |
|
$ |
70.30 |
|
$ |
110.43 |
|
$ |
5 |
|
$ |
|
|
$ |
5 |
|
July 2013 to September 2013 |
|
126 |
|
70.00 |
|
110.00 |
|
41 |
|
|
|
41 |
| |||||
October 2013 to December 2013 |
|
138 |
|
73.78 |
|
113.85 |
|
14 |
|
|
|
14 |
| |||||
January 2014 to March 2014 |
|
144 |
|
73.00 |
|
115.10 |
|
|
|
(29 |
) |
(29 |
) | |||||
Total |
|
534 |
|
$ |
71.86 |
|
$ |
112.47 |
|
$ |
60 |
|
$ |
(29 |
) |
$ |
31 |
|
|
|
December 31, 2012 |
| |||||||||||||||
|
|
Notional |
|
Weighted-Average |
|
Gross |
|
Gross Amounts |
|
Net Amounts |
| |||||||
Settlement Period |
|
Amount |
|
Floor |
|
Ceiling |
|
Assets |
|
Balance Sheet |
|
Balance Sheet |
| |||||
|
|
(barrels) |
|
|
|
|
|
|
|
|
|
|
| |||||
January 2013 to March 2013 |
|
129 |
|
$ |
66.24 |
|
$ |
105.47 |
|
$ |
13 |
|
$ |
|
|
$ |
13 |
|
April 2013 to June 2013 |
|
126 |
|
70.30 |
|
110.43 |
|
34 |
|
|
|
34 |
| |||||
July 2013 to September 2013 |
|
126 |
|
70.00 |
|
110.00 |
|
91 |
|
|
|
91 |
| |||||
Total |
|
381 |
|
$ |
68.83 |
|
$ |
108.61 |
|
$ |
138 |
|
$ |
|
|
$ |
138 |
|
There were no cash collateral requirements at March 31, 2013 or December 31, 2012.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Domestic Coal Futures Contracts
During the first quarter of 2013, we commenced the use of futures contracts to help manage our exposure to market changes in domestic coal prices. The contracts are referenced to the 8800 Btu coal price, sold from the PRB, as quoted on the Chicago Mercantile Exchange. Amounts due to us or to the exchange as a result of changes in the market price of our open contracts and to fulfill margin requirements are received or paid through our brokerage bank on a daily basis; therefore, there is no asset or liability on the balance sheet.
|
|
March 31, 2013 |
| ||||||
|
|
Notional |
|
|
|
|
| ||
Year of Settlement |
|
Amount |
|
Gain |
|
Loss |
| ||
|
|
(tons) |
|
|
|
|
| ||
2014 |
|
420 |
|
$ |
67 |
|
$ |
91 |
|
Total |
|
420 |
|
$ |
67 |
|
$ |
91 |
|
There were no domestic coal futures contracts as of December 31, 2012.
Total Derivative Activity
For all derivative financial instruments, we had the following activity (in thousands):
|
|
2013 |
|
2012 |
| ||
Derivative financial instruments net asset at January 1, |
|
$ |
13,785 |
|
$ |
2,275 |
|
Total derivative mark-to-market gains (losses) for the three months ended March 31, |
|
13,652 |
|
(2,056 |
) | ||
Total derivative cash settlements paid (received) for the three months ended March 31, |
|
24 |
|
(524 |
) | ||
Derivative financial instruments net asset (liability) at March 31, |
|
$ |
27,461 |
|
$ |
(305 |
) |
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, 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, 2013 and December 31, 2012. 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 had no Level 3 investments as of March 31, 2013 or December 31, 2012.
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). As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
Fair Value at March 31, 2013 |
| |||||||
Description |
|
Level 1 |
|
Level 2 |
|
Total |
| |||
Assets |
|
|
|
|
|
|
| |||
Money market funds(1) |
|
$ |
145,400 |
|
$ |
|
|
$ |
145,400 |
|
Derivative financial instruments |
|
$ |
|
|
$ |
27,461 |
|
$ |
27,461 |
|
Investments in marketable securities |
|
$ |
|
|
$ |
80,473 |
|
$ |
80,473 |
|
|
|
Fair Value at December 31, 2012 |
| |||||||
Description |
|
Level 1 |
|
Level 2 |
|
Total |
| |||
Assets |
|
|
|
|
|
|
| |||
Money market funds(1) |
|
$ |
145,422 |
|
$ |
|
|
$ |
145,422 |
|
Derivative financial instruments |
|
$ |
|
|
$ |
13,785 |
|
$ |
13,785 |
|
Investments in marketable securities |
|
$ |
|
|
$ |
80,341 |
|
$ |
80,341 |
|
(1) Included in cash and cash equivalents in the consolidated balance sheets along with $73.2 million and $52.3 million of demand deposits at March 31, 2013 and December 31, 2012, respectively.
We did not have any transfers between levels during the three months ended March 31, 2013. 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, 2013 |
|
December 31, 2012 |
| ||||||||||||||
|
|
Principal |
|
Carrying |
|
Fair |
|
Principal |
|
Carrying |
|
Fair |
| ||||||
8.25% Senior Notes due 2017, net of unamortized discount |
|
$ |
300,000 |
|
$ |
298,534 |
|
$ |
320,250 |
|
$ |
300,000 |
|
$ |
298,471 |
|
$ |
329,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
8.50% Senior Notes due 2019, net of unamortized discount |
|
300,000 |
|
298,087 |
|
312,000 |
|
300,000 |
|
298,035 |
|
332,700 |
| ||||||
Total long-term debt |
|
$ |
600,000 |
|
$ |
596,621 |
|
$ |
632,250 |
|
$ |
600,000 |
|
$ |
596,506 |
|
$ |
662,118 |
|
(1) The fair value of the senior notes was based on observable market inputs, which are considered Level 2 in the fair value hierarchy.
7. Other Short-Term and Long-Term Obligations
Federal Coal Lease Obligations
Federal coal lease obligations consisted of (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Federal coal lease obligations, current |
|
$ |
63,191 |
|
$ |
63,191 |
|
Federal coal lease obligations, noncurrent |
|
122,928 |
|
122,928 |
| ||
Total federal coal lease obligations |
|
$ |
186,119 |
|
$ |
186,119 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our federal coal lease obligations, as reflected in the consolidated balance sheets, consist of obligations payable to the Bureau of Land Management of the U.S. Department of the Interior (the BLM) discounted at an imputed interest rate. Imputed interest is included in accrued expenses.
We have federal coal lease payments, as follows (dollars in thousands):
|
|
|
|
|
|
March 31, 2013 |
|
December 31, 2012 |
| |||||||||
|
|
Annual |
|
Imputed |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| |||||
Payment Dates |
|
Payment |
|
Interest Rate |
|
Value |
|
Value(1) |
|
Value |
|
Value(1) |
| |||||
May 1, 2009 2013 |
|
$ |
9,620 |
|
8.70 |
% |
$ |
8,852 |
|
$ |
9,602 |
|
$ |
8,852 |
|
$ |
9,532 |
|
July 1, 2011 2015 |
|
$ |
59,545 |
|
8.50 |
% |
152,078 |
|
173,407 |
|
152,078 |
|
171,075 |
| ||||
September 1, 2011 2015 |
|
$ |
9,862 |
|
8.50 |
% |
25,189 |
|
28,437 |
|
25,189 |
|
28,196 |
| ||||
|
|
|
|
|
|
$ |
186,119 |
|
$ |
211,446 |
|
$ |
186,119 |
|
$ |
208,803 |
|
(1) The fair value of estimates for federal coal lease obligations were determined by discounting the remaining lease payments using the then current estimate of the credit-adjusted, risk-free rate based on our then current credit rating, which are considered Level 2 in the fair value hierarchy.
Future payments on federal coal leases are as follows (in thousands):
Year Ended December 31, |
|
|
| |
2013 |
|
$ |
79,027 |
|
2014 |
|
69,407 |
| |
2015 |
|
69,407 |
| |
Total |
|
217,841 |
| |
Less: imputed interest |
|
31,722 |
| |
Total principal payments |
|
186,119 |
| |
Less: current portion |
|
63,191 |
| |
Long-term federal coal leases payable |
|
$ |
122,928 |
|
Accounts Receivable Securitization
On February 11, 2013, we executed an Accounts Receivable Securitization Facility (A/R Securitization Program) with capacity of up to $75 million. CPE Resources and certain of our subsidiaries are parties to the A/R Securitization Program. In January 2013, we formed CPE Receivables LLC (the SPE), a special purpose, bankruptcy-remote wholly-owned subsidiary to purchase, subject to certain exclusions, in a true sale, trade receivables generated by certain of our subsidiaries without recourse (other than customary indemnification obligations for breaches of specific representations and warranties), and then transfer undivided interests in up to $75 million of those accounts receivable to a financial institution for cash borrowings for our ultimate benefit. The total aggregate borrowings and letters of credit are limited by eligible accounts receivable, as defined under the terms of the A/R Securitization Program. At March 31, 2013, the A/R Securitization Program would have allowed for $51.8 million of borrowing capacity. There were no borrowings from the A/R Securitization Program at March 31, 2013. The SPE is consolidated into our financial statements.
Amended Credit Agreement
On January 18, 2013, CPE Resources entered into Amendment No. 2 to the Amended Credit Agreement and Amendment No. 1 to the Security Agreement, which provides for amendments to allow for the release of certain types of liens, among other things.
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. The financial covenants in the Amended Credit Agreement are based on EBITDA (which is defined in the Amended Credit Agreement and is not the same as EBITDA or Adjusted EBITDA otherwise presented), requiring us to maintain defined minimum levels of interest coverage and providing for a limitation on our leverage ratio. If our EBITDA were to decline and we were unable to negotiate an
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
amendment with the bank group, our actual borrowing capacity under the Amended Credit Agreement may be reduced. 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. Our obligations under the credit facility are secured by substantially all of CPE Resourcess assets and substantially all of the assets of certain of CPE Resourcess subsidiaries, subject to certain permitted liens and customary exceptions for similar coal financings. Our obligations under the credit facility are also supported by a guarantee by CPE Resourcess domestic restricted subsidiaries. The credit facility matures on June 3, 2016. As of March 31, 2013, no cash borrowings were outstanding under the credit facility.
8. Asset Retirement Obligations
Changes in the carrying amount of our AROs were as follows (in thousands):
|
|
2013 |
| |
Balance at January 1, |
|
$ |
240,634 |
|
Accretion expense |
|
4,127 |
| |
Revisions to estimated cash flows |
|
(2,057 |
) | |
Payments |
|
(327 |
) | |
Balance at March 31, |
|
242,377 |
| |
Less: current portion |
|
(3,693 |
) | |
Asset retirement obligation, net of current portion |
|
$ |
238,684 |
|
Revisions to estimated cash flows pertain to revisions in the estimated amount and timing of legally required reclamation activities throughout the lives of the respective mines and reflect changes in estimates of closure volumes, disturbed acreages, and third-party unit costs as of March 31, 2013.
9. Commitments and Contingencies
Commitments
Purchase Commitments
We had outstanding purchase commitments consisting of (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Capital commitments |
|
|
|
|
| ||
Equipment |
|
$ |
21,294 |
|
$ |
20,317 |
|
Land |
|
23,700 |
|
23,700 |
| ||
|
|
|
|
|
| ||
Supplies and services |
|
|
|
|
| ||
Coal purchase commitments |
|
$ |
31,685 |
|
$ |
28,633 |
|
Transportation agreements |
|
241,285 |
|
159,398 |
| ||
Materials and supplies |
|
21,698 |
|
24,552 |
|
Contingencies
Litigation
Decker Litigation
On July 9, 2012, our wholly-owned indirect subsidiary, Western Minerals LLC (Western Minerals), filed a lawsuit in the U.S. District Court for the District of Montana (Billings Division), against KCP Inc. (KCP), its 50% joint-venture partner in the Decker mine in Montana. Western Minerals also named as defendants KCPs parent companies, Ambre
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Energy North America, Inc. (Ambre N.A.) and Ambre Energy Limited (Ambre Limited and together with Ambre N.A. Ambre). In its complaint, Western Minerals alleges that KCP and Ambre are engaging in self-dealing and other wrongful conduct in breach of the Decker joint venture agreement and other legal duties owed to the joint venture and its 50/50 owners. Western Minerals asserts claims for breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, civil conspiracy, and a request for an accounting of, among other things, unauthorized Decker expenditures and Ambres proposed self-dealing transactions concerning sales of Decker coal to Ambre and its affiliates. Western Minerals seeks both unspecified monetary damages and injunctive relief.
On August 23, 2012, KCP and Ambre N.A., filed an amended answer to Western Minerals complaint, replacing the original answer they filed on July 30, 2012. In their amended answer, KCP and Ambre N.A. deny the principal allegations of Western Minerals. Additionally, KCP asserted six counterclaims against Western Minerals: breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, dissolution of the joint venture, civil conspiracy and a request for declaratory judgment. KCP also asserted two third-party claims against CPE Inc. for tortious interference of economic relations and civil conspiracy involving unnamed John Doe defendants. In general, KCP alleges that Western Minerals is frustrating the operation of the Decker mine to benefit Cloud Peak Energys Spring Creek mine and export opportunities. Aside from the request that the court disassociate and expel Western Minerals from the Decker mine joint venture, KCP also seeks unspecified monetary damages in its counterclaims. Western Minerals and Cloud Peak Energy believe KCPs claims are without merit and intend to vigorously defend them. On September 14, 2012, Ambre Limited filed a motion to dismiss arguing that it was not subject to the jurisdiction of the Montana federal court. Western Minerals has filed a response to that motion and the court has not yet issued a ruling.
On December 5, 2012, we and Ambre Limited announced that our respective companies have entered into agreements for Ambre Limited to purchase our 50% interest in the Decker mine and related assets and assume all reclamation liabilities. The agreements will also provide for the joint resolution and dismissal of the pending Decker litigation upon closing of the transaction. Closing is expected to occur in the first half of 2013, subject to various closing conditions.
West Antelope II LBA Challenges
Challenges Against the BLMs Leasing Process; Intervention by Cloud Peak Energy and Others On May 3, 2010, WildEarth Guardians, Defenders of Wildlife and Sierra Club (collectively, WildEarth) and the Powder River Basin Resource Council (PRBRC) filed appeals with the Interior Board of Land Appeals (IBLA) regarding the U.S. Bureau of Land Managements (BLM) decision to offer the West Antelope II (WAII) coal tracts for lease. On June 29, 2010, WildEarth voluntarily dismissed its appeal. On July 13, 2010, WildEarth filed a complaint in the United States District Court for the District of Columbia (D.C. District Court) challenging the BLMs decision. On November 2, 2010, the IBLA issued a decision in PRBRCs appeal, rejecting all of PRBRCs arguments and affirming the BLMs decision in all respects. On January 3, 2011, PRBRC filed a complaint in the D.C. District Court appealing the IBLA decision. On May 8, 2011, the D.C. District Court consolidated the WildEarth and PRBRC challenges. Antelope Coal LLC, a wholly-owned subsidiary of CPE Resources, (along with the National Mining Association and the State of Wyoming) intervened in the consolidated action on the side of the BLM. In the consolidated action, WildEarth and PRBRC requested that the court vacate the BLMs authorization, sale and issuance of the WAII leases and enjoin any coal mining activity on the leases until the BLM and the U.S. Fish and Wildlife Service had undertaken additional environmental analysis requested by the plaintiff organizations.
Award of LBAs to Cloud Peak Energy On May 11, 2011, the BLM held a competitive sale for the WAII North Tract. On June 15, 2011, the BLM held a competitive sale for the WAII South Tract. Antelope Coal LLC was the successful high bidder in both sales, and the BLM issued leases to Antelope Coal LLC for the North Tract effective July 1, 2011 and for South Tract effective September 1, 2011.
District Court Rejection of Challenges; Appeal by Plaintiffs On July 30, 2012, the D.C. District Court rejected WildEarths and PRBRCs consolidated challenge to the IBLA decision and denied their request that the court vacate the WAII leases as well as their requested injunction against coal mining activity on the leases. On September 25, 2012 and September 26, 2012, PRBRC and WildEarth, respectively, filed notices of appeal in the United States Circuit Court of Appeals for the District of Columbia. On March 12, 2013, PRBRC and WildEarth filed their joint opening brief in the D.C. Circuit. Although both groups are appealing the decision issued by the D.C. District Court, neither group has specified what relief they are seeking from the appellate court other than for the appellate court to reverse the decision of the D.C. District Court. Antelope Coal LLC is a respondent-intervenor in the consolidated appeal. Any adverse outcome of the appeal could adversely impact or delay our ability to mine the coal subject to the leases.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 LBAs, permits, and other industry regulatory processes and approvals may also be subject to legal challenges that could adversely impact our mining operations and results, as discussed above.
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 or benefit.
Several audits involving our income and 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. From time to time, we may engage in settlement discussions with applicable tax authorities, which may result in adjustments to our estimates of taxes and related interest and penalties.
Concentrations of Risk and Major Customers
Approximately 86% of our revenue for the three months ended March 31, 2013 was under multi-year contracts compared to 87% for the three months ended March 31, 2012. 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, 2013 and 2012, there was no single customer that represented more than 10% of consolidated revenue. We generally do not require collateral or other security on accounts receivable because our customers are comprised primarily of investment grade electric utilities. We seek to mitigate credit risk 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, 2013, we had no standby letters of credit and $610.3 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.
10. Postretirement Medical Plan
We maintain an unfunded postretirement medical plan to provide certain postretirement medical benefits to eligible employees. Net periodic postretirement benefit costs included the following components (in thousands):
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Service Cost |
|
$ |
1,238 |
|
$ |
1,053 |
|
Interest Cost |
|
418 |
|
356 |
| ||
Amortization of prior service cost |
|
444 |
|
394 |
| ||
Net periodic benefit cost |
|
$ |
2,100 |
|
$ |
1,803 |
|
11. Related Party Transactions
Related party activity consists of coal sales to our 50% owned coal marketing company and equity method investment, Venture Fuels Partnership (in thousands):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Sales of coal to Venture Fuels Partnership |
|
$ |
171 |
|
$ |
1,187 |
|
12. Accumulated Other Comprehensive Income (Loss)
The changes in Accumulated Other Comprehensive Income (Loss) (AOCI) by component, net of tax, for the three months ended March 31, are as follows (in thousands):
|
|
2013 |
|
2012 |
| ||||||||||||||
|
|
Post- |
|
Decker |
|
Total |
|
Post- |
|
Decker |
|
Total |
| ||||||
Beginning balance, January 1 |
|
$ |
(14,684 |
) |
$ |
(5,777 |
) |
$ |
(20,461 |
) |
$ |
(12,707 |
) |
$ |
(5,907 |
) |
$ |
(18,614 |
) |
Other comprehensive income before reclassifications |
|
19 |
|
|
|
19 |
|
|
|
58 |
|
58 |
| ||||||
Amounts reclassified from accumulated other comprehensive income |
|
284 |
|
|
|
284 |
|
252 |
|
|
|
252 |
| ||||||
Net current period other comprehensive income |
|
303 |
|
|
|
303 |
|
252 |
|
58 |
|
310 |
| ||||||
Ending balance, March 31 |
|
$ |
(14,381 |
) |
$ |
(5,777 |
) |
$ |
(20,158 |
) |
$ |
(12,455 |
) |
$ |
(5,849 |
) |
$ |
(18,304 |
) |
The reclassifications out of AOCI for the three months ended March 31, are as follows (in thousands):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Postretirement Medical Plan(1) |
|
|
|
|
| ||
Amortization of prior service costs included in cost of product sold(2) |
|
$ |
371 |
|
$ |
331 |
|
Amortization of prior service costs included in selling, general and administrative expenses(2) |
|
73 |
|
63 |
| ||
Total before tax |
|
444 |
|
394 |
| ||
Tax benefit |
|
(160 |
) |
(142 |
) | ||
Amounts reclassified from accumulated other comprehensive income |
|
$ |
284 |
|
$ |
252 |
|
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Earnings per Share (CPE Inc. only)
Dilutive potential shares of common stock may include restricted stock and units, 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 units, options, and performance units.
The following table summarizes the calculation of diluted earnings per share (in thousands, except per share amounts):
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Numerator for calculation of diluted earnings per share: |
|
|
|
|
| ||
Net income |
|
$ |
15,395 |
|
$ |
26,618 |
|
Denominator for basic income per share weighted-average shares outstanding |
|
60,609 |
|
60,008 |
| ||
Dilutive effect of stock equivalents |
|
484 |
|
753 |
| ||
Denominator for diluted earnings per share |
|
61,093 |
|
60,761 |
| ||
Diluted earnings per share |
|
$ |
0.25 |
|
$ |
0.44 |
|
For the periods presented, the following items were excluded from the diluted earnings per share calculation because they were anti-dilutive (in thousands):
|
|
Three Months Ended |
| ||
|
|
March 31, |
| ||
|
|
2013 |
|
2012 |
|
Restricted stock and units |
|
200 |
|
140 |
|
Options outstanding |
|
131 |
|
186 |
|
Employee stock purchase plan |
|
5 |
|
|
|
14. Segment Information
We have reportable segments of Owned and Operated Mines, Logistics and Related Activities, and Corporate and Other.
Our Owned and Operated Mines segment is characterized by the predominant focus on thermal coal production where the sale occurs at the mine site and where title and risk of loss pass to the customer at that point. This segment includes our Antelope mine, Cordero Rojo mine, and Spring Creek mine. Sales in this segment are primarily to domestic electric utilities; although a portion is made to our Logistics and Related Activities segment. Our mines utilize surface mining extraction processes and are all located in the PRB. The gains and losses resulting from our domestic coal futures contracts and WTI collar derivative financial instruments are reported within this segment.
Our Logistics and Related Activities segment is characterized by the services we provide to our international and domestic customers where we deliver coal to them. Services provided typically include: delivered sales contract negotiations; purchase of coal from third parties or from our owned and operated mines; coordination of the transportation and delivery of purchased coal; and sales contract administration activities. Title and risk of loss are retained by the Logistics and Related Activities segment through the transportation and delivery process. Title and risk of loss pass to the customer in accordance with the contract and typically occurs at either a vessel loading terminal, a vessel unloading terminal or an end use facility. Risk associated with rail and terminal take-or-pay agreements is also borne by the Logistics and Related
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Activities segment. The gains and losses resulting from our international coal forward derivative financial instruments are reported within this segment.
Our Corporate and Other segment includes results relating to broker activity, our share of the Decker mine operations, and unallocated corporate costs and assets. All corporate costs, except Board of Directors related expenses, are allocated to the segments based upon their relative percentage of certain financial metrics.
Eliminations represent the purchase and sale of coal between reportable segments and the associated elimination of intercompany profit or loss in inventory. Sales between reportable segments are priced based on prevailing market prices, as determined by us with reference to independent third-party publications.
Our chief operating decision maker uses Adjusted EBITDA as the primary measure of segment reporting performance. 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. For the periods presented herein, the specifically identified items are: (1) adjustments to exclude the updates to the tax agreement liability, including tax impacts of the IPO and Secondary Offering, (2) adjustments for derivative financial instruments, excluding fair value mark-to-market gains or losses and including cash amounts received or paid, and (3) adjustments to exclude a significant broker contract that expired in the first quarter of 2010.
Revenue
The following table presents revenue for the three months ended March 31, (in thousands):
|
|
2013 |
|
2012 |
| ||
Owned and Operated Mines |
|
$ |
278,774 |
|
$ |
302,572 |
|
Logistics and Related Activities |
|
65,870 |
|
79,553 |
| ||
Corporate and Other |
|
5,828 |
|
5,698 |
| ||
Eliminations of intersegment sales |
|
(12,421 |
) |
(14,920 |
) | ||
Consolidated revenue |
|
$ |
338,052 |
|
$ |
372,903 |
|
The following table presents revenue from external customers by geographic region for the three months ended March 31, (in thousands):
|
|
2013 |
|
2012 |
| ||
United States |
|
$ |
280,481 |
|
$ |
304,029 |
|
Asia |
|
57,571 |
|
68,662 |
| ||
Other |
|
|
|
212 |
| ||
Total revenue from external customers |
|
$ |
338,052 |
|
$ |
372,903 |
|
We attribute revenue to individual countries based on the location of the physical delivery of the coal. All of our revenue for the three months ended March 31, 2013 and 2012 originated in the U.S.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Adjusted EBITDA
The following table reconciles segment Adjusted EBITDA to net income for the three months ended March 31, (in thousands):
|
|
2013 |
|
2012 |
| ||||||||
Adjusted EBITDA |
|
|
|
|
|
|
|
|
| ||||
Owned and Operated Mines |
|
|
|
$ |
45,662 |
|
|
|
$ |
67,240 |
| ||
Logistics and Related Activities |
|
|
|
1,365 |
|
|
|
10,369 |
| ||||
Corporate and Other |
|
|
|
1,492 |
|
|
|
(1,727 |
) | ||||
Eliminations |
|
|
|
(268 |
) |
|
|
(140 |
) | ||||
Consolidated Adjusted EBITDA |
|
|
|
48,251 |
|
|
|
75,742 |
| ||||
Interest expense, net |
|
|
|
(10,358 |
) |
|
|
(5,404 |
) | ||||
Depreciation, depletion and accretion |
|
|
|
(27,339 |
) |
|
|
(26,040 |
) | ||||
Income tax |
|
|
|
(8,836 |
) |
|
|
(15,101 |
) | ||||
Tax agreement expense(1) |
|
|
|
|
|
|
|
|
| ||||
Derivative financial instruments: |
|
|
|
|
|
|
|
|
| ||||
Exclusion of fair value mark-to-market gains (losses)(2) |
|
$ |
13,652 |
|
|
|
$ |
(2,056 |
) |
|
| ||
Inclusion of cash amounts (received) paid(3) |
|
24 |
|
|
|
(524 |
) |
|
| ||||
Total derivative financial instruments |
|
|
|
13,676 |
|
|
|
(2,580 |
) | ||||
Expired significant broker contract |
|
|
|
|
|
|
|
|
| ||||
Net income |
|
|
|
$ |
15,395 |
|
|
|
$ |
26,618 |
| ||
(1) Changes to related deferred taxes are included in income tax expense.
(2) Derivative fair value mark-to-market (gains) losses reflected on the statement of operations.
(3) Derivative cash gains and losses reflected within operating cash flows.
Total Assets
The following table presents total assets (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Owned and Operated Mines |
|
$ |
1,784,968 |
|
$ |
1,826,165 |
|
Logistics and Related Activities |
|
64,422 |
|
46,426 |
| ||
Corporate and Other |
|
555,077 |
|
478,536 |
| ||
Eliminations |
|
88 |
|
196 |
| ||
Consolidated assets |
|
$ |
2,404,555 |
|
$ |
2,351,323 |
|
As of March 31, 2013 and December 31, 2012, all of our long-lived assets were located in the U.S.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Capital Expenditures
The following table presents total capital expenditures, including investments in project development, for the three months ended March 31, (in thousands):
|
|
2013 |
|
2012 |
| ||
Owned and Operated Mines |
|
$ |
14,196 |
|
$ |
12,222 |
|
Logistics and Related Activities |
|
179 |
|
|
| ||
Corporate and Other |
|
1,085 |
|
2,116 |
| ||
Eliminations |
|
|
|
|
| ||
Consolidated |
|
$ |
15,460 |
|
$ |
14,338 |
|
15. Equity-Based Compensation (CPE Inc. only)
The Cloud Peak Energy Inc. 2009 Long Term Incentive Plan (LTIP) permits awards to our employees and eligible non-employee directors. The LTIP allows for the issuance of equity-based compensation in the form of restricted stock, restricted stock units, options, stock appreciation rights, dividend equivalent rights, performance awards, and share awards. Equity-based compensation expense is charged to CPE Resources through a management fee and is recorded primarily within selling, general, and administrative expenses in our consolidated statements of operations. As of March 31, 2013, unrecognized compensation cost related equity-based compensation was $15.5 million, which will be recognized over a weighted-average period of 2.3 years prior to vesting.
Restricted Stock and Restricted Stock Units
We granted restricted stock and restricted stock units under the LTIP to eligible employees and directors. Generally, the related agreements provide that full vesting will occur on the third anniversary of the grant date. However, pro-rata vesting will be sooner if a grantee terminates employment with or stops providing services to us because of death, disability, redundancy or retirement. Full vesting will occur 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 are granted to our directors and generally vest upon their resignation or retirement. They will pro-rata vest if a director resigns or retires within one year of the date of grant.
A summary of restricted stock and restricted stock unit award activity is as follows (in thousands, except per share data):
|
|
|
|
Weighted |
| |
|
|
|
|
Average |
| |
|
|
|
|
Grant-Date |
| |
|
|
Number |
|
Fair Value |
| |
|
|
|
|
(per share) |
| |
Non-vested shares at January 1, 2013 |
|
304 |
|
$ |
18.46 |
|
Granted |
|
146 |
|
17.77 |
| |
Forfeited |
|
(1 |
) |
18.76 |
| |
Vested |
|
(55 |
) |
16.22 |
| |
Non-vested shares at March 31, 2013 |
|
394 |
|
$ |
18.52 |
|
Performance-Based Share Units
The LTIP allows for the award of performance share units which cliff vest after three years, subject to continued employment (with accelerated vesting upon a change in control). 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.
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of performance-based share unit award activity is as follows (in thousands, except per share data):
|
|
|
|
Weighted |
| |
|
|
|
|
Average |
| |
|
|
|
|
Grant-Date |
| |
|
|
Number |
|
Fair Value |
| |
|
|
|
|
(per share) |
| |
Non-vested units at January 1, 2013 |
|
376 |
|
$ |
18.66 |
|
Granted |
|
228 |
|
20.24 |
| |
Forfeited |
|
(1 |
) |
18.71 |
| |
Vested |
|
|
|
|
| |
Non-vested units at March 31, 2013 |
|
603 |
|
$ |
19.26 |
|
The assumptions used to estimate the fair value of the performance-based share units are as follows:
Risk-free interest rate |
|
0.4 |
% | |
Expected volatility |
|
42.54 |
% | |
Term |
|
3 years |
| |
|
|
|
| |
Fair value (per share) |
|
$ |
20.24 |
|
Non-Qualified Stock Options
Annually, we grant non-qualified stock options under the LTIP to certain employees. Generally, the agreements provide that any option awarded will become exercisable in three years. However, the option will become pro-rata exercisable sooner if a grantee terminates employment because of death, disability, redundancy or retirement. The option award 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). No option can be exercised more than ten years after the date of grant. Each award will be forfeited if the grantee terminates employment with or stops providing services to us for any reason other than those reasons noted above.
A summary of non-qualified stock option activity is as follows (in thousands, except per option and year amounts):
|
|
|
|
|
|
Weighted- |
|
|
| ||
|
|
|
|
Weighted- |
|
Average |
|
|
| ||
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
| ||
|
|
|
|
Exercise |
|
Contractual |
|
Intrinsic |
| ||
|
|
Number |
|
Price |
|
Term |
|
Value (1) |
| ||
|
|
|
|
(per option) |
|
(years) |
|
|
| ||
Options outstanding at January 1, 2013 |
|
1,332 |
|
$ |
15.95 |
|
7.38 |
|
$ |
4,720 |
|
Granted |
|
229 |
|
17.50 |
|
10.00 |
|
|
| ||
Exercised |
|
|
|
|
|
|
|
|
| ||
Forfeited |
|
(3 |
) |
16.35 |
|
|
|
|
| ||
Options outstanding at March 31, 2013 |
|
1,558 |
|
$ |
16.18 |
|
7.55 |
|
$ |
4,344 |
|
Exercisable at March 31, 2013 |
|
992 |
|
$ |
15.06 |
|
6.65 |
|
$ |
3,687 |
|
Vested and expected to vest at March 31, 2013 |
|
1,534 |
|
$ |
16.16 |
|
7.52 |
|
$ |
4,309 |
|
(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 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
CLOUD PEAK ENERGY INC. AND
CLOUD PEAK ENERGY RESOURCES LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 to develop our expected volatility.
The assumptions used to estimate the fair value of options granted on March 11, 2013 are as follows:
Risk-free interest rate |
|
1.4 |
% | |
Expected option life |
|
6.5 years |
| |
Expected volatility |
|
49.7 |
% | |
|
|
|
| |
Fair value (per option) |
|
$ |
8.72 |
|
16. Supplemental Guarantor/Non-Guarantor Financial Information (CPE Resources only)
In accordance with the indenture governing 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. These guarantees of either series of senior notes are subject to release in the following customary circumstances:
· a sale or other disposition (including by way of consolidation or merger or otherwise) of the Guarantor Subsidiary or the sale or disposition of all or substantially all the assets of the Guarantor Subsidiary (other than to the CPE Resources or a Restricted Subsidiary (as defined in the indenture) of CPE Resources) otherwise permitted by the indenture,
· a sale of the majority of the capital stock of a Guarantor Subsidiary to a third person otherwise permitted by the indenture, after which the applicable Guarantor Subsidiary is no longer a Restricted Subsidiary,
· upon a liquidation or dissolution of a Guarantor Subsidiary so long as no default under the indenture occurs as a result thereof,
· the designation by CPE Resources in accordance with the indenture of the Guarantor Subsidiary as an Unrestricted Subsidiary or the Guarantor Subsidiary otherwise ceases to be a Restricted Subsidiary of CPE Resources in accordance with the indenture,
· defeasance or discharge of such series of senior notes or
· the release, other than the discharge through payment by the Guarantor Subsidiary, of all other guarantees by such Restricted Subsidiary of Debt (as defined in the indenture) of CPE Resources or the co-issuer of the senior notes.
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, 2013 |
| |||||||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
Revenues |
|
$ |
1 |
|
$ |
335,565 |
|
$ |
2,486 |
|
$ |
|
|
338,052 |
| |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of product sold (exclusive of depreciation, depletion, amortization and accretion, shown separately) |
|
8 |
|
272,455 |
|
3,566 |
|
|
|
276,029 |
| |||||
Depreciation and depletion |
|
652 |
|
23,249 |
|
(689 |
) |
|
|
23,212 |
| |||||
Accretion |
|
|
|
2,938 |
|
1,189 |
|
|
|
4,127 |
| |||||
Derivative mark-to-market gains |
|
|
|
(13,652 |
) |
|
|
|
|
(13,652 |
) | |||||
Selling, general and administrative expenses |
|
265 |
|
13,342 |
|
|
|
|
|
13,607 |
| |||||
Other operating costs |
|
|
|
110 |
|
|
|
|
|
110 |
| |||||
Total costs and expenses |
|
925 |
|
298,442 |
|
4,066 |
|
|
|
303,433 |
| |||||
Operating income (loss) |
|
(924 |
) |
37,123 |
|
(1,580 |
) |
|
|
34,619 |
| |||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
|
125 |
|
|
|
|
|
|
|
125 |
| |||||
Interest expense |
|
(10,147 |
) |
(276 |
) |
(60 |
) |
|
|
(10,483 |
) | |||||
Other, net |
|
(158 |
) |
(283 |
) |
200 |
|
|
|
(241 |
) | |||||
Total other (expense) income |
|
(10,180 |
) |
(559 |
) |
140 |
|
|
|
(10,599 |
) | |||||
Income (loss) before income tax provision and earnings (losses) from unconsolidated affiliates |
|
(11,105 |
) |
36,564 |
|
(1,439 |
) |
|
|
24,020 |
| |||||
Income tax benefit (expense) |
|
1,000 |
|
(10,317 |
) |
482 |
|
|
|
(8,836 |
) | |||||
Earnings from unconsolidated affiliates, net of tax |
|
4 |
|
207 |
|
|
|
|
|
211 |
| |||||
Earnings (losses) from consolidated affiliates, net of tax |
|
25,496 |
|
(958 |
) |
|
|
(24,538 |
) |
|
| |||||
Net income (loss) |
|
15,395 |
|
25,496 |
|
(958 |
) |
(24,538 |
) |
15,395 |
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
| |||||
Retiree medical plan amortization of prior service cost |
|
444 |
|
444 |
|
|
|
(444 |
) |
444 |
| |||||
Other postretirement plan adjustments |
|
30 |
|
30 |
|
|
|
(30 |
) |
30 |
| |||||
Income tax on retiree medical plan adjustments |
|
(171 |
) |
(171 |
) |
|
|
171 |
|
(171 |
) | |||||
Other comprehensive income |
|
303 |
|
303 |
|
|
|
(303 |
) |
303 |
| |||||
Total comprehensive income (loss) |
|
$ |
15,698 |
|
$ |
25,799 |
|
$ |
(958 |
) |
$ |
(24,841 |
) |
$ |
15,698 |
|
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 |
| |||||
Accretion |
|
|
|
2,330 |
|
319 |
|
|
|
2,649 |
| |||||
Derivative mark-to-market gains |
|
|
|
2,056 |
|
|
|
|
|
2,056 |
| |||||
Selling, general and administrative expenses |
|
214 |
|
14,529 |
|
|
|
|
|
14,742 |
| |||||
Other operating costs |
|
|
|
93 |
|
|
|
|
|
93 |
| |||||
Total costs and expenses |
|
777 |
|
317,469 |
|
7,630 |
|
|
|
325,876 |
| |||||
Operating income (loss) |
|
(777 |
) |
51,759 |
|
(3,955 |
) |
|
|
47,027 |
| |||||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
|
446 |
|
|
|
|
|
|
|
446 |
| |||||
Interest expense |
|
(5,666 |
) |
(168 |
) |
(16 |
) |
|
|
(5,850 |
) | |||||
Other, net |
|
|
|
58 |
|
|
|
|
|
58 |
| |||||
Total other expense |
|
(5,220 |
) |
(110 |
) |
(16 |
) |
|
|
(5,346 |
) | |||||
Income (loss) before income tax provision and earnings (losses) from unconsolidated affiliates |
|
(5,996 |
) |
51,648 |
|
(3,971 |
) |
|
|
41,681 |
| |||||
Income tax benefit (expense) |
|
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 |
|
25,457 |
|
(2,557 |
) |
|
|
(22,900 |
) |
|
| |||||
Net income (loss) |
|
26,618 |
|
25,457 |
|
(2,557 |
) |
(22,900 |
) |
26,618 |
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
| |||||
Retiree medical plan amortization of prior service cost |
|
394 |
|
394 |
|
|
|
(394 |
) |
394 |
| |||||
Other postretirement plan adjustment |
|
90 |
|
90 |
|
90 |
|
(180 |
) |
90 |
| |||||
Income tax on retiree medical plan adjustments |
|
(174 |
) |
(174 |
) |
(32 |
) |
206 |
|
(174 |
) | |||||
Other comprehensive income |
|
310 |
|
310 |
|
58 |
|
(368 |
) |
310 |
| |||||
Total comprehensive income (loss) |
|
$ |
26,928 |
|
$ |
25,767 |
|
$ |
(2,499 |
) |
$ |
(23,268 |
) |
$ |
26,928 |
|
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, 2013 |
| |||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |
Current assets |
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
|
$ |
217,514 |
|
319 |
|
771 |
|
|
|
218,604 |
|
Investments in marketable securities |
|
80,473 |
|
|
|
|
|
|
|
80,473 |
| |
Accounts receivable |
|
|
|
24,257 |
|
74,456 |
|
|
|
98,713 |
| |
Due from related parties |
|
|
|
482,522 |
|
|
|
(482,522 |
) |
|
| |
Inventories, net |
|
5,501 |
|
71,295 |
|
4,239 |
|
|
|
81,034 |
| |
Deferred income taxes |
|
|
|
19,665 |
|
|
|
(27 |
) |
19,638 |
| |
Derivative financial instruments |
|
|
|
27,461 |
|
|
|
|
|
27,461 |
| |
Other assets |
|
61 |
|
21,994 |
|
120 |
|
|
|
22,175 |
| |
Total current assets |
|
303,548 |
|
647,513 |
|
79,586 |
|
(482,549 |
) |
548,098 |
| |
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
| |
Property, plant and equipment, net |
|
9,489 |
|
1,662,410 |
|
3,712 |
|
|
|
1,675,611 |
| |
Goodwill |
|
|
|
35,634 |
|
|
|
|
|
35,634 |
| |
Deferred income taxes |
|
23,869 |
|
18,211 |
|
17,280 |
|
|
|
59,361 |
| |
Other assets |
|
1,718,877 |
|
|
|
4,470 |
|
(1,679,833 |
) |
43,514 |
| |
Total assets |
|
$ |
2,055,783 |
|
2,363,768 |
|
105,048 |
|
(2,162,382 |
) |
2,362,218 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| |
Current liabilities |
|
|
|
|
|
|
|
|
|
|
| |
Accounts payable |
|
$ |
2,357 |
|
60,189 |
|
2,041 |
|
|
|
64,587 |
|
Royalties and production taxes |
|
|
|
134,101 |
|
1,290 |
|
|
|
135,391 |
| |
Accrued expenses |
|
14,670 |
|
43,536 |
|
2,237 |
|
|
|
60,443 |
| |
Due to related parties |
|
427,123 |
|
|
|
64,363 |
|
(482,522 |
) |
8,963 |
| |
Current deferred income taxes |
|
27 |
|
|
|
|
|
(27 |
) |
|
| |
Current portion of federal coal lease obligations |
|
|
|
63,191 |
|
|
|
|
|
63,191 |
| |
Other liabilities |
|
50 |
|
1,756 |
|
966 |
|
|
|
2,772 |
| |
Total current liabilities |
|
444,227 |
|
302,773 |
|
70,896 |
|
(482,549 |
) |
335,347 |
| |
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
| |
Senior notes |
|
596,621 |
|
|
|
|
|
|
|
596,621 |
| |
Federal coal lease obligations, net of current portion |
|
|
|
122,928 |
|
|
|
|
|
122,928 |
| |
Asset retirement obligations, net of current portion |
|
|
|
165,180 |
|
73,504 |
|
|
|
238,684 |
| |
Other liabilities |
|
45 |
|
72,087 |
|
6,090 |
|
(24,475 |
) |
53,748 |
| |
Total liabilities |
|
1,040,893 |
|
662,968 |
|
150,489 |
|
(507,024 |
) |
1,347,328 |
| |
Commitments and Contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
| |
Total members equity |
|
1,014,890 |
|
1,700,800 |
|
(45,441 |
) |
(1,655,358 |
) |
1,014,890 |
| |
Total liabilities and members equity |
|
$ |
2,055,783 |
|
2,363,768 |
|
105,048 |
|
(2,162,382 |
) |
2,362,218 |
|
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, 2012 |
| |||||||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
195,076 |
|
$ |
|
|
$ |
2,615 |
|
$ |
|
|
$ |
197,691 |
|
Investments in marketable securities |
|
80,341 |
|
|
|
|
|
|
|
80,341 |
| |||||
Accounts receivable |
|
|
|
74,008 |
|
2,108 |
|
|
|
76,117 |
| |||||
Due from related parties |
|
|
|
385,102 |
|
42 |
|
(385,144 |
) |
|
| |||||
Inventories, net |
|
6,741 |
|
71,312 |
|
3,622 |
|
|
|
81,675 |
| |||||
Deferred income taxes |
|
|
|
21,124 |
|
|
|
(28 |
) |
21,096 |
| |||||
Derivative financial instruments |
|
138 |
|
13,647 |
|
|
|
|
|
13,785 |
| |||||
Other assets |
|
7 |
|
16,100 |
|
117 |
|
|
|
16,224 |
| |||||
Total current assets |
|
282,303 |
|
581,293 |
|
8,504 |
|
(385,172 |
) |
486,929 |
| |||||
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Property, plant and equipment, net |
|
9,239 |
|
1,666,020 |
|
3,035 |
|
|
|
1,678,294 |
| |||||
Goodwill |
|
|
|
35,634 |
|
|
|
|
|
35,634 |
| |||||
Deferred income taxes |
|
22,807 |
|
24,650 |
|
18,679 |
|
|
|
66,136 |
| |||||
Other assets |
|
1,682,267 |
|
|
|
4,470 |
|
(1,646,259 |
) |
40,478 |
| |||||
Total assets |
|
$ |
1,996,616 |
|
$ |
2,307,597 |
|
$ |
34,688 |
|
$ |
(2,031,430 |
) |
$ |
2,307,471 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
$ |
2,558 |
|
$ |
45,896 |
|
$ |
1,117 |
|
$ |
|
|
$ |
49,571 |
|
Royalties and production taxes |
|
|
|
126,726 |
|
2,625 |
|
|
|
129,351 |
| |||||
Accrued expenses |
|
2,087 |
|
41,529 |
|
292 |
|
|
|
43,908 |
| |||||
Due to related parties |
|
396,137 |
|
|
|
|
|
(385,144 |
) |
10,993 |
| |||||
Current deferred income taxes |
|
27 |
|
|
|
|
|
(27 |
) |
|
| |||||
Current portion of federal coal lease obligations |
|
|
|
63,191 |
|
|
|
|
|
63,191 |
| |||||
Other liabilities |
|
49 |
|
1,754 |
|
966 |
|
|
|
2,769 |
| |||||
Total current liabilities |
|
400,858 |
|
279,096 |
|
5,001 |
|
(385,172 |
) |
299,783 |
| |||||
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Senior notes |
|
596,506 |
|
|
|
|
|
|
|
596,506 |
| |||||
Federal coal lease obligations, net of current portion |
|
|
|
122,928 |
|
|
|
|
|
122,928 |
| |||||
Asset retirement obligations, net of current portion |
|
|
|
164,626 |
|
74,365 |
|
|
|
238,991 |
| |||||
Other liabilities |
|
61 |
|
77,655 |
|
5,806 |
|
(33,449 |
) |
50,073 |
| |||||
Total liabilities |
|
997,425 |
|
644,305 |
|
85,172 |
|
(418,621 |
) |
1,308,281 |
| |||||
Commitments and Contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
| |||||
Total members equity |
|
999,190 |
|
1,663,293 |
|
(50,484 |
) |
(1,612,809 |
) |
999,190 |
| |||||
Total liabilities and members equity |
|
$ |
1,996,615 |
|
$ |
2,307,598 |
|
$ |
34,688 |
|
$ |
(2,031,430 |
) |
$ |
2,307,471 |
|
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, 2013 |
| |||||||||||||
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
Net cash provided by (used in) operating activities |
|
$ |
23,654 |
|
$ |
21,533 |
|
$ |
(7,844 |
) |
$ |
|
|
$ |
37,343 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Purchases of property, plant and equipment |
|
(1,085 |
) |
(11,946 |
) |
|
|
|
|
(13,030 |
) | |||||
Investments in marketable securities |
|
(13,051 |
) |
|
|
|
|
|
|
(13,051 |
) | |||||
Maturity and redemption of investments |
|
12,920 |
|
|
|
|
|
|
|
12,920 |
| |||||
Investment in project development |
|
|
|
(2,429 |
) |
|
|
|
|
(2,429 |
) | |||||
Contributions made to subsidiary |
|
|
|
(6,000 |
) |
|
|
6,000 |
|
|
| |||||
Other |
|
|
|
23 |
|
|
|
|
|
23 |
| |||||
Net cash provided by (used in) investing activities |
|
(1,216 |
) |
(20,352 |
) |
|
|
6,000 |
|
(15,567 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Payment of debt issuance costs |
|
|
|
(863 |
) |
|
|
|
|
(863 |
) | |||||
Contributions received from parent |
|
|
|
|
|
6,000 |
|
(6,000 |
) |
|
| |||||
Net cash provided by (used in) financing activities |
|
|
|
(863 |
) |
6,000 |
|
(6,000 |
) |
(863 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net increase (decrease) in cash and cash equivalents |
|
22,438 |
|
318 |
|
(1,844 |
) |
|
|
20,913 |
| |||||
Cash and cash equivalents at beginning of year |
|
195,076 |
|
|
|
2,615 |
|
|
|
197,691 |
| |||||
Cash and cash equivalents at the end of year |
|
$ |
217,514 |
|
318 |
|
771 |
|
|
|
218,604 |
| ||||
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 |
) | |||||
Cash paid for capitalized interest |
|
|
|
|
|
|
|
|
|
|
| |||||
Investments in marketable securities |
|
(28,349 |
) |
|
|
|
|
|
|
(28,349 |
) | |||||
Maturity and redemption of investments |
|
5,930 |
|
|
|
|
|
|
|
5,930 |
| |||||
Return of restricted cash |
|
71,245 |
|
|
|
|
|
|
|
71,245 |
| |||||
Partnership escrow deposit |
|
|
|
|
|
(4,470 |
) |
|
|
(4,470 |
) | |||||
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 |
) |
|
| |||||
activities |
|
|
|
|
|
4,470 |
|
(4,470 |
) |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net increase (decrease) 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 |
|
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, 2012 (our 2012 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 and our ability to effectively execute our forward sales strategy;
· 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;
· railroad, export terminal and other transportation performance, costs and availability, including development of additional export terminal capacity and our ability to access additional capacity on commercially reasonable terms;
· 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 coal and appropriate land access 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, including risks associated with acquisitions;
· 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 or the logistics, transportation, or terminal industries 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 or assessment methodologies with respect to royalties or severance and production taxes;
· 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 our credit agreement and financial institutions with whom we maintain accounts or enter hedging arrangements;
· the results of our hedging strategies for commodities, including our current hedging programs for coal sales and diesel fuel costs;
· the terms and restrictions of our 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 Cloud Peak Energy Inc.;
· 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 2012 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, 2013 and constituting nearly 100% of CPE Inc.s total consolidated assets as of March 31, 2013.
Unless the context indicates otherwise, the terms Cloud Peak Energy, 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, 2012 (2012 Form 10-K). Please see Cautionary Notice 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 2012 Form 10-K.
Overview
CPE Inc. is one of the largest producers of coal in the U.S. and the Powder River Basin (PRB), based on our 2012 coal sales. We operate some of the safest mines in the coal industry. According to MSHA data, in 2012, we had one of the lowest employee all injury incident rates among the largest U.S. coal producing companies.
We currently operate solely in the PRB, the lowest cost region of the major coal producing regions in the U.S, where we operate three wholly-owned surface coal mines, the Antelope mine, the Cordero Rojo mine and the Spring Creek mine. We also have two major development projects, the Youngs Creek project and the potential Crow project.
Our Antelope and Cordero Rojo mines are located in Wyoming and are two of the four largest coal mines in the U.S. Our Spring Creek mine is located in Montana. Our logistics business is the largest U.S. exporter of thermal coal into South Korea. Our mines produce subbituminous thermal coal with low sulfur content, and we sell our coal primarily to domestic and foreign electric utilities. We do not produce any metallurgical coal. Thermal coal is primarily consumed by electric utilities and industrial consumers as fuel for electricity generation and steam output. In 2012, the coal we produced generated approximately 4% of the electricity produced in the U.S. As of December 31, 2012, we controlled approximately 1.3 billion tons of proven and probable reserves. For information regarding our revenue and long-lived assets by geographic area, as well as revenue from external customers, Adjusted EBITDA and total assets by segment, please see Note 14 to our notes to unaudited condensed consolidated financial statements in Item 1.
During 2012, we acquired rights to substantial undeveloped coal and complementary surface assets in the Northern PRB (Youngs Creek project). In January 2013, we executed an option to lease agreement (Option Agreement) and a corresponding exploration agreement (Exploration Agreement) with the Crow Tribe of Indians, which are subject to approval by the Department of the Interior. This potential coal project (Crow project) is located on the Crow Indian Reservation in southeast Montana, near our Spring Creek mine and Youngs Creek project. We are in the process of evaluating the development options for the Youngs Creek project and the potential Crow project, but believe that their proximity to the Spring Creek mine represents an opportunity to optimize our mine developments in the Northern PRB.
For purposes of this report, the term Northern PRB refers to the area within the PRB that lies within Montana and the northern part of Sheridan County, Wyoming. Our Spring Creek mine, the Decker mine, the Youngs Creek project and the potential Crow project are located in the Northern PRB.
We continue to seek ways to increase our future export capacity through existing and proposed new Pacific Northwest export terminals, including our option agreement with SSA Marine. This throughput option agreement with SSA Marine provides us with an option for up to 16 million tonnes of capacity per year through the planned dry bulk cargo Gateway Pacific Terminal at Cherry Point in the State of Washington. Our potential share of capacity will depend upon the ultimate capacity of the terminal. The terminal would accommodate cape size vessels. Our option is exercisable following future permit completion for the terminal, the timing of which is uncertain.
Segment Information
We have reportable segments of Owned and Operated Mines, Logistics and Related Activities, and Corporate and Other.
Our Owned and Operated Mines segment is characterized by the predominant focus on thermal coal production where the sale occurs at the mine site and where title and risk of loss pass to the customer at that point. This segment includes our Antelope mine, Cordero Rojo mine, and Spring Creek mine. Sales in this segment are primarily to domestic electric utilities; although a portion is made to our Logistics and Related Activities segment. Our mines utilize surface mining extraction processes and are all located in the PRB. The gains and losses resulting from our domestic coal futures contracts and WTI collar derivative financial instruments are reported within this segment.
Our Logistics and Related Activities segment is characterized by the services we provide to our international and domestic customers where we deliver coal to them. Services provided typically include: delivered sales contract negotiations; purchase of coal from third parties or from our owned and operated mines; coordination of the transportation and delivery of purchased coal; and sales contract administration activities. Title and risk of loss are retained by the Logistics and Related Activities segment through the transportation and delivery process. Title and risk of loss pass to the customer in accordance with the contract and typically occur at either a vessel loading terminal, a vessel unloading terminal or an end use facility. Risk associated with rail and terminal take-or-pay agreements is also borne by the Logistics and Related Activities segment. The gains and losses resulting from our international coal forward derivative financial instruments are reported within this segment.
Our Corporate and Other segment includes results relating to broker activity, our share of the Decker mine operations, and unallocated corporate costs and assets. All corporate costs, except Board of Directors related expenses, are allocated to the segments based upon their relative percentage of certain financial metrics.
Eliminations represent the purchase and sale of coal between reportable segments and the associated elimination of intercompany profit or loss in inventory. Sales between reportable segments are priced based on prevailing market prices, as determined by us with reference to independent third-party publications.
Core Business Operations
Our key business drivers include the following:
· the volume of coal sold from our owned and operated mines;
· 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;
· capital expenditures to acquire property, plant and equipment;
· the volume of deliveries coordinated by our Logistics and Related Activities segment to customer contracted destinations;
· the costs for logistics services, rail, and port charges for coal sales made on a delivered basis; and
· the results of our coal forward and futures contracts.
The volume of coal that we sell in any given year is driven by international 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, other factors discussed in this Item 2 and in our 2012 Form 10-K.
The price at which we sell our coal is a function of the demand relative to the supply for coal. 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. We typically seek to enter each year with expected production effectively fully sold. This strategy helps us run our mines at predictable production rates, which helps us control operating costs.
As is common in the PRB, coal seams at our existing mines naturally deepen, resulting in additional overburden to be removed at additional cost. 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. We use costless collars to help manage certain exposures to diesel fuel prices.
We incur significant capital expenditures to maintain, update and expand our mining equipment, surface land holdings and coal reserves. In line with the worldwide mining industry trends, the cost of capital equipment is generally increasing. In addition, as the costs of acquiring federal coal leases and associated surface rights increase, our depletion costs also increase.
The volume of coal sold on a delivered basis is influenced by international and domestic market conditions. Domestic demand for coal sold on a delivered basis is currently flat while international demand has increased, enabling us to compete for international coal sales during the past few years.
Coal sold on a delivered basis to customer contracted destinations, including sales to Asian customers, involves us arranging and paying for logistics services, which can include rail, rail car hire, and port charges including any demurrage incurred and other costs. These logistics costs are affected by volume, various scheduling considerations, and negotiated rates for rail and port services. We are also incurring costs to investigate and pursue development of additional port opportunities.
We entered into coal forward and futures contracts that are scheduled to settle at various dates between 2013 and 2016 to manage a portion of our export and domestic coal sales prices.
Current Considerations
Owned and Operated Mines Segment
The Owned and Operated Mines segment is expected to experience relatively flat revenue compared to 2012 as volumes and realized prices are not expected to change significantly. Costs at the mines are expected to increase as the mines naturally progress and the increased strip ratio requires additional labor, consumables, and equipment. Even with the operations focused on controlling variable costs, the combination of these factors will reduce 2013 earnings compared to 2012.
For the second quarter, shipments are expected to be up over last year but potentially hindered due to the extended winter and the risk of possible flooding in the Midwest. Assuming normal summer weather, shipments are anticipated to continue to pick up in the second half of 2013 benefiting our cost per ton and Adjusted EBITDA.
While the external environment has several positive trends, there is typically a lag before this is reflected in improved PRB pricing. Natural gas prices are essentially double from this time last year. Season-to-date, heating degree days are up 14% compared to last year. Electric generation is up over 3% from 2012 levels and stockpiles of PRB coal are estimated at 83 million tons at the end of March 2013. Historically, we have seen price support for PRB coal at stockpile levels of around 80 million tons.
Logistics and Related Activities Segment
As anticipated, the lower international benchmark prices for seaborne traded thermal coal negatively affected the revenue and profitability of the Logistics and Related Activities segment.
During the quarter, the berth outage at the Westshore terminal was resolved, and we were able to return to normal levels of export tonnage throughput.
Federal, state and local authorities regulate the U.S. coal mining industry with respect to various matters, including air quality standards, water pollution, plant and wildlife protection, the discharge of materials into the environment and the effects of mining on surface and groundwater quality and availability. These laws and regulations have had, and will continue to have, a significant effect on our production costs and our competitive position. Future laws, regulations or orders, including those relating to global climate change, may cause coal to become a less attractive fuel source, thereby reducing coals share of the market for fuels and other energy sources used to generate electricity. See Part IItem I. Business Environmental and Other Regulatory Matters in our 2012 Form 10-K.
Adjusted EBITDA and Adjusted EPS (CPE Inc. only)
EBITDA, 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. (U.S. GAAP). A quantitative reconciliation of Adjusted EBITDA to income from continuing operations, or net income, as applicable, and Adjusted EPS to EPS (as defined below) is found in the tables below.
EBITDA represents income from continuing operations, or net income, as applicable, 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. For the periods presented herein, the specifically identified items are: (1) adjustments to exclude the updates to the tax agreement liability, including tax impacts of the IPO and Secondary Offering, (2) adjustments for derivative financial instruments, excluding fair value mark-to-market gains or losses and including cash amounts received or paid, and (3) adjustments to exclude a significant broker contract that expired in the first quarter of 2010.
Adjusted EPS represents diluted earnings (loss) per common share or diluted earnings (loss) per share attributable to controlling interest from continuing operations, as applicable (EPS), adjusted to exclude the estimated per share impact of the same specifically identified items used to calculate Adjusted EBITDA as described above, adjusted at the statutory rate of 36%.
Adjusted EBITDA is an additional tool intended to assist our management in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our core operations. Adjusted EBITDA is a metric intended to assist management in evaluating operating performance, comparing performance across periods, planning and forecasting future business operations and helping determine levels of operating and capital investments. Period-to-period comparisons of Adjusted EBITDA are intended to help our management identify and assess additional trends potentially impacting our company that may not be shown solely by period-to-period comparisons of income from continuing operations. Adjusted EBITDA is also used as part of our incentive compensation program for our executive officers and others.
We believe Adjusted EBITDA and Adjusted EPS are also useful to investors, analysts and other external users of our consolidated financial statements in evaluating our operating performance from period to period and comparing our performance to similar operating results of other relevant companies. Adjusted EBITDA allows investors to measure a companys operating performance without regard to items such as interest expense, taxes, depreciation and depletion, amortization and accretion and other specifically identified items that are not considered to directly reflect our core operations. Similarly, we believe Adjusted EPS provides an appropriate measure to use in assessing our performance across periods given that this measure provides an adjustment for certain specifically identified significant items that are not considered to directly reflect our core operations, the magnitude of which may vary significantly from period to period and, thereby, have a disproportionate effect on the earnings per share reported for a given period.
Our management recognizes that using Adjusted EBITDA and Adjusted EPS as performance measures has inherent limitations as compared to income from continuing operations, net income, EPS or other U.S. GAAP financial measures, as these non-GAAP measures exclude certain items, including items that are recurring in nature, which may be meaningful to investors. Adjusted EBITDA excludes interest expense and interest income; however, as we have historically borrowed money in order to finance transactions and operations, and have invested available cash to generate interest income, interest expense and interest income are elements of our cost structure and influence our ability to generate revenue and returns for stockholders. Adjusted EBITDA excludes depreciation and depletion and amortization; however, as we use capital and intangible assets to generate revenue, depreciation, depletion and amortization are necessary elements of our costs and ability to generate revenue. Adjusted EBITDA also excludes accretion expense; however, as we are legally obligated to pay for costs associated with the reclamation and closure of our mine sites, the periodic accretion expense relating to these reclamation costs is a necessary element of our costs and ability to generate revenue. Adjusted EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. Adjusted EBITDA and Adjusted EPS exclude the tax impacts of the IPO and Secondary Offering; however, this represents our current estimate of payments on the tax agreement liability that we will be required to make to Rio Tinto and changes to the realizability of our deferred tax assets based on changes in our estimated future taxable income. Adjusted EBITDA and Adjusted EPS exclude fair value mark-to-market gains or losses for derivative financial instruments; however, Adjusted EBITDA and Adjusted EPS include cash amounts received or paid on derivative financial instruments. Finally, Adjusted EBITDA and Adjusted EPS exclude income statement amounts attributable to our significant broker contract that expired in the first quarter of 2010; however, this historically represented a positive contribution to our operating results.
As a result of these exclusions, Adjusted EBITDA and Adjusted EPS should not be considered in isolation and do not purport to be alternatives to income from continuing operations, net income, EPS or other U.S. GAAP financial measures as a measure of our operating performance.
When using Adjusted EBITDA as a performance measure, management intends to compensate for these limitations by comparing it to income from continuing operations or net income in each period, so as to allow for the comparison of the performance of the underlying core operations with the overall performance of the company on a full-cost, after-tax basis. Using Adjusted EBITDA and income from continuing operations or net income to evaluate the business assists management and investors in (a) assessing our relative performance against our competitors and (b) ultimately monitoring our capacity to generate returns for stockholders.
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.
A quantitative reconciliation for each of the periods presented of net income to Adjusted EBITDA and EPS to Adjusted EPS is found within this Item 2.
Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
Summary
The following table summarizes key results (in millions):
|
|
Three Months Ended |
|
Change |
| |||||||
|
|
2013 |
|
2012 |
|
Amount |
|
Percent |
| |||
Total revenue |
|
$ |
338.1 |
|
$ |
372.9 |
|
$ |
(34.8 |
) |
(9.3 |
) |
Net income |
|
15.4 |
|
26.6 |
|
(11.2 |
) |
(42.1 |
) | |||
Adjusted EBITDA(1) |
|
48.3 |
|
75.7 |
|
(27.4 |
) |
(36.2 |
) | |||
Adjusted EPS(1) |
|
$ |
0.11 |
|
$ |
0.47 |
|
$ |
(0.36 |
) |
(76.6 |
) |
Asian export tons - Logistics and |
|
|
|
|
|
|
|
|
| |||
Related Activities |
|
1.1 |
|
1.0 |
|
0.1 |
|
|
| |||
Total tons sold |
|
21.3 |
|
22.9 |
|
(1.6 |
) |
(7.1 |
) |
(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, diluted earnings per common share to Adjusted EPS, and segment Adjusted EBITDA to net income (in millions, except per share amounts):
Adjusted EBITDA
|
|
March 31, |
| ||||||||||
|
|
2013 |
|
2012 |
| ||||||||
Net income |
|
|
|
$ |
15.4 |
|
|
|
$ |
26.6 |
| ||
Interest income |
|
|
|
(0.1 |
) |
|
|
(0.4 |
) | ||||
Interest expense |
|
|
|
10.5 |
|
|
|
5.9 |
| ||||
Income tax expense |
|
|
|
8.8 |
|
|
|
15.1 |
| ||||
Depreciation and depletion |
|
|
|
23.2 |
|
|
|
23.4 |
| ||||
Amortization |
|
|
|
|
|
|
|
|
| ||||
Accretion |
|
|
|
4.1 |
|
|
|
2.6 |
| ||||
EBITDA |
|
|
|
61.9 |
|
|
|
73.2 |
| ||||
Tax agreement benefit(1) |
|
|
|
|
|
|
|
|
| ||||
Derivative financial instruments: |
|
|
|
|
|
|
|
|
| ||||
Exclusion of fair value mark-to-market (gains) losses(2) |
|
$ |
(13.7 |
) |
|
|
$ |
2.1 |
|
|
| ||
Inclusion of cash amounts received (paid)(3) |
|
|
|
|
|
0.5 |
|
|
| ||||
Total derivative financial instruments |
|
|
|
(13.7 |
) |
|
|
2.6 |
| ||||
Expired significant broker contract |
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
|
|
|
$ |
48.3 |
|
|
|
$ |
75.7 |
| ||
(1) Changes to related deferred taxes are included in income tax expense.
(2) Derivative fair value mark-to-market (gains) losses reflected on the statement of operations.
(3) Derivative cash gains and losses reflected within operating cash flows.
Adjusted EPS
|
|
Three Months Ended |
| ||||||||||
|
|
March 31, |
| ||||||||||
|
|
2013 |
|
2012 |
| ||||||||
Diluted earnings per common share |
|
|
|
$ |
0.25 |
|
|
|
$ |
0.44 |
| ||
Tax agreement expense including tax impacts of IPO and Secondary Offering |
|
|
|
|
|
|
|
|
| ||||
Derivative financial instruments: |
|
|
|
|
|
|
|
|
| ||||
Exclusion of fair value mark-to-market (gains) losses |
|
$ |
(0.14 |
) |
|
|
$ |
0.02 |
|
|
| ||
Inclusion of cash amounts received (paid) |
|
(0.00 |
) |
|
|
0.01 |
|
|
| ||||
Total derivative financial instruments |
|
|
|
(0.14 |
) |
|
|
0.03 |
| ||||
Expired significant broker contract |
|
|
|
|
|
|
|
|
| ||||
Adjusted EPS |
|
|
|
$ |
0.11 |
|
|
|
$ |
0.47 |
| ||
Weighted-average dilutive shares outstanding (in millions) |
|
|
|
61.1 |
|
|
|
60.8 |
| ||||
Adjusted EBITDA by Segment
|
|
Three Months Ended |
| ||||||||||
|
|
March 31, |
| ||||||||||
|
|
2013 |
|
2012 |
| ||||||||
Owned and Operated Mines |
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
|
$ |
|
|
45.7 |
|
|
|
$ |
67.2 |
| ||
Depreciation and depletion |
|
|
|
(23.2 |
) |
|
|
(21.6 |
) | ||||
Accretion |
|
|
|
(2.9 |
) |
|
|
(2.2 |
) | ||||
Derivative financial instruments: |
|
|
|
|
|
|
|
|
| ||||
Exclusion of fair value mark-to-market gains (losses) |
|
$ |
(0.1 |
) |
|
|
$ |
|
|
|
| ||
Inclusion of cash amounts (received) paid |
|
|
|
|
|
|
|
|
| ||||
Total derivative financial instruments |
|
|
|
(0.1 |
) |
|
|
|
| ||||
Other |
|
|
|
0.2 |
|
|
|
(0.1 |
) | ||||
Operating income |
|
|
|
19.7 |
|
|
|
43.3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Logistics and Related Activities |
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
|
|
|
1.4 |
|
|
|
10.4 |
| ||||
Derivative financial instruments: |
|
|
|
|
|
|
|
|
| ||||
Exclusion of fair value mark-to-market gains (losses) |
|
13.8 |
|
|
|
(2.1 |
) |
|
| ||||
Inclusion of cash amounts (received) paid |
|
|
|
|
|
(0.5 |
) |
|
| ||||
Total derivative financial instruments |
|
|
|
13.8 |
|
|
|
(2.6 |
) | ||||
Operating income |
|
|
|
15.1 |
|
|
|
7.8 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Corporate and Other |
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
|
|
|
1.5 |
|
|
|
(1.7 |
) | ||||
Depreciation and depletion |
|
|
|
|
|
|
|
(1.8 |
) | ||||
Accretion |
|
|
|
(1.3 |
) |
|
|
(0.4 |
) | ||||
Earnings from unconsolidated affiliates, net of tax |
|
|
|
(0.2 |
) |
|
|
|
| ||||
Operating income |
|
|
|
|
|
|
|
(4.0 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Eliminations |
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDA |
|
|
|
(0.3 |
) |
|
|
(0.1 |
) | ||||
Operating income |
|
|
|
(0.3 |
) |
|
|
(0.1 |
) | ||||
Consolidated operating income |
|
|
|
34.6 |
|
|
|
47.0 |
| ||||
Interest income |
|
|
|
0.1 |
|
|
|
0.4 |
| ||||
Interest expense |
|
|
|
(10.5 |
) |
|
|
(5.9 |
) | ||||
Other, net |
|
|
|
(0.2 |
) |
|
|
0.1 |
| ||||
Income tax expense |
|
|
|
(8.8 |
) |
|
|
(15.1 |
) | ||||
Earnings from unconsolidated affiliates, net of tax |
|
|
|
0.2 |
|
|
|
|
| ||||
Net income |
|
|
|
$ |
15.4 |
|
|
|
$ |
26.6 |
| ||
Results of Operations
Revenues
The following table presents revenues (in millions except per ton amounts):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2013 |
|
2012 |
|
Amount |
|
Percent |
| |||
Owned and Operated Mines |
|
|
|
|
|
|
|
|
| |||
Realized price per ton sold |
|
$ |
13.09 |
|
$ |
13.31 |
|
$ |
(0.22 |
) |
(1.7 |
) |
Tons sold |
|
21.1 |
|
22.5 |
|
(1.4 |
) |
(6.2 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
Coal revenue |
|
$ |
275.6 |
|
$ |
300.1 |
|
$ |
(24.5 |
) |
(8.2 |
) |
Other revenue |
|
$ |
3.1 |
|
$ |
2.5 |
|
$ |
0.6 |
|
24.0 |
|
Logistics and Related Activities |
|
|
|
|
|
|
|
|
| |||
Tons delivered |
|
1.4 |
|
1.3 |
|
0.1 |
|
7.7 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenue |
|
$ |
65.9 |
|
$ |
79.6 |
|
$ |
(13.7 |
) |
(17.2 |
) |
Corporate and Other |
|
|
|
|
|
|
|
|
| |||
Revenue |
|
$ |
5.8 |
|
$ |
5.7 |
|
$ |
0.1 |
|
1.8 |
|
Eliminations of intersegment sales |
|
|
|
|
|
|
|
|
| |||
Revenue |
|
$ |
(12.4 |
) |
$ |
(14.9 |
) |
$ |
2.5 |
|
(16.8 |
) |
Total Consolidated |
|
|
|
|
|
|
|
|
| |||
Revenue |
|
$ |
338.1 |
|
$ |
372.9 |
|
$ |
(34.8 |
) |
(9.3 |
) |
The decrease in revenue from our Owned and Operated Mines segment was primarily the result of 1.4 million fewer tons of coal sold in the three months ended March 31, 2013 compared to 2012, reflecting the lower demand for PRB coal as domestic utility customers continue to work through high stockpiles. In addition, our realized price per ton sold in the three months ended March 31, 2013 compared to 2012 decreased, reflecting the lower spot price for indexed tons sold and also due to a higher proportion of 8400 Btu coal sold. Other revenue consists primarily of dust suppressant additives billed to our customers.
Revenue from our Logistics and Related Activities segment decreased primarily as a result of lower prices on our Asian deliveries through the port. Our Asian delivered sales are priced broadly in line with a number of relevant international coal indices adjusted for energy content and other quality and delivery criteria. These indices include the Newcastle benchmark price, which is an established index for high Btu Australian thermal coal available to be loaded on a vessel at a coal terminal near Newcastle, north of Sydney. Based on the comparative quality and transport costs, our delivered sales are generally priced at approximately 60% to 70% of the forward Newcastle price.
Revenue from our Corporate and Other segment was not significantly different between the respective periods.
Cost of Product Sold
The following table presents cost of product sold (in millions, except per ton amounts):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2013 |
|
2012 |
|
Amount |
|
Percent |
| |||
Owned and Operated Mines |
|
|
|
|
|
|
|
|
| |||
Average cost per ton sold |
|
$ |
10.37 |
|
$ |
9.78 |
|
$ |
0.59 |
|
6.1 |
|
|
|
|
|
|
|
|
|
|
| |||
Cost of product sold (produced coal) |
|
$ |
218.4 |
|
$ |
220.5 |
|
$ |
(2.1 |
) |
(1.0 |
) |
Other cost of product sold |
|
2.5 |
|
2.9 |
|
(0.4 |
) |
(13.8 |
) | |||
Logistics and Related Activities |
|
|
|
|
|
|
|
|
| |||
Cost of product sold |
|
62.9 |
|
67.1 |
|
(4.2 |
) |
(6.3 |
) | |||
Corporate and Other |
|
|
|
|
|
|
|
|
| |||
Cost of product sold |
|
4.4 |
|
7.2 |
|
(2.8 |
) |
(38.9 |
) | |||
Eliminations of Intersegment Sales |
|
|
|
|
|
|
|
|
| |||
Cost of product sold |
|
(12.2 |
) |
(14.8 |
) |
2.6 |
|
17.6 |
| |||
Total Consolidated |
|
|
|
|
|
|
|
|
| |||
Cost of product sold |
|
$ |
276.0 |
|
$ |
282.9 |
|
$ |
(6.9 |
) |
(2.4 |
) |
The cost of product sold for our Owned and Operated Mines segment decreased primarily as a result of 1.4 million fewer tons of coal sold in the three months ended March 31, 2013 compared to 2012 and the directly related lower variable costs, including non-income based taxes and royalties. These lower costs were partially offset by higher direct operating cash costs related to the increasing strip ratio and haul distances at our mines. The increase in the average cost per ton sold is primarily the result of costs attributed to fewer tons sold.
Cost of product sold for our Logistics and Related Activities segment decreased primarily due to a reduction in the volume of domestic deliveries coordinated. The Asian delivered tons that were coordinated during the first quarter of 2013 were delivered through the lower cost Westshore port.
Cost of product sold for our Corporate and Other segment decreased primarily due to fewer tons sold at the Decker mine.
Operating Income
The following table presents operating income (in millions):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2013 |
|
2012 |
|
Amount |
|
Percent |
| |||
Owned and Operated Mines |
|
|
|
|
|
|
|
|
| |||
Operating income |
|
$ |
19.7 |
|
$ |
43.3 |
|
$ |
(23.6 |
) |
(54.5 |
) |
Logistics and Related Activities |
|
|
|
|
|
|
|
|
| |||
Operating income |
|
$ |
15.1 |
|
$ |
7.8 |
|
$ |
7.3 |
|
93.6 |
|
Corporate and Other |
|
|
|
|
|
|
|
|
| |||
Operating income |
|
$ |
|
|
$ |
(4.0 |
) |
$ |
4.0 |
|
100.0 |
|
Eliminations of Intersegment Sales |
|
|
|
|
|
|
|
|
| |||
Operating income |
|
$ |
(0.3 |
) |
$ |
(0.1 |
) |
$ |
(0.2 |
) |
(200.0 |
) |
Total Consolidated |
|
|
|
|
|
|
|
|
| |||
Operating income |
|
$ |
34.6 |
|
$ |
47.0 |
|
$ |
(12.4 |
) |
(26.4 |
) |
Operating income for our Owned and Operated Mines segment decreased primarily due to the revenue and cost of product sold factors previously discussed.
In addition to the revenue and cost of product sold factors previously discussed, operating income for our Logistics and Related Activities segment increased due to the favorable mark-to-market impact from our international coal forward
contracts of $13.6 million in the three months ended March 31, 2013 as compared to a $2.1 million unfavorable impact in 2012 as a result of declining international coal market prices.
Operating income for our Corporate and Other segment increased primarily due to the reduction in Decker costs previously discussed plus a reduction in depletion expense caused by fewer tons mined.
Other Expense
The following table presents other expense (in millions):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2013 |
|
2012 |
|
Amount |
|
Percent |
| |||
Other expense |
|
$ |
10.6 |
|
$ |
5.3 |
|
$ |
5.3 |
|
100.0 |
|
Other expense increased for the three months ended March 31, 2013 compared to 2012 as a result of higher interest expense due to a reduction in the amount of interest capitalized in the current period.
Income Tax Provision
The following table presents income tax provision (in millions):
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2013 |
|
2012 |
|
Amount |
|
Percent |
| |||
Income tax expense |
|
$ |
8.8 |
|
$ |
15.1 |
|
$ |
(6.3 |
) |
(41.7 |
) |
Effective tax rate |
|
36.8 |
% |
36.2 |
% |
0.6 |
|
1.5 |
| |||
Our statutory income tax rate, including state income taxes, is 36%.
Liquidity and Capital Resources
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(in millions) |
| ||||
Cash and cash equivalents |
|
$ |
218.6 |
|
$ |
197.7 |
|
Investments in marketable securities |
|
80.5 |
|
80.3 |
| ||
Total |
|
$ |
299.1 |
|
$ |
278.0 |
|
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 and $75 million Accounts Receivable Securitization Facility (A/R Securitization Program). In addition, we organized a capital leasing program that could grow over time up to $150 million for some of our future capital equipment purchases. These programs provide flexibility and liquidity into our capital structure. For further details on the A/R Securitization Program, see below. 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 2012 Form 10-K.
Investments in marketable securities include highly-liquid securities which are 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 at short notice allowing for improved liquidity.
On June 3, 2011, CPE Resources entered into an Amended and Restated Credit Agreement (the Amended Credit Agreement) which establishes a commitment to provide us with a $500 million senior secured revolving credit facility that can be used to borrow funds or issue letters of credit. The Amended Credit Agreement matures on June 3, 2016. We may
request incremental term loans or increase the revolving commitments in an aggregate amount of up to $200 million subject to compliance with certain conditions. 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 borrowing capacity under the Amended Credit Agreement is reduced by the amount of letters of credit issued. As of March 31, 2013, 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. The financial covenants in the Amended Credit Agreement are based on EBITDA (which is defined in the Amended Credit Agreement and is not the same as EBITDA or Adjusted EBITDA otherwise presented), requiring us to maintain defined minimum levels of interest coverage and providing for a limitation on our leverage ratio. If our EBITDA were to decline and we were unable to negotiate an amendment with the bank group, our actual borrowing capacity under the Amended Credit Agreement may be reduced.
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.
CPE Resources and certain of our subsidiaries are parties to the A/R Securitization Program. In January 2013, we formed CPE Receivables LLC (the SPE), a special purpose, bankruptcy-remote wholly-owned subsidiary to purchase, subject to certain exclusions, in a true sale, trade receivables generated by certain of our subsidiaries without recourse (other than customary indemnification obligations for breaches of specific representations and warranties), and then transfer undivided interests in up to $75 million of those accounts receivable to a financial institution for cash borrowings for our ultimate benefit. The total aggregate borrowings and letters of credit are limited by eligible accounts receivable, as defined under the terms of the A/R Securitization Program. At March 31, 2013, the A/R Securitization Program would have allowed for $51.8 million of borrowing capacity. There were no borrowings from the A/R Securitization Program at March 31, 2013.
We believe these sources will be sufficient to fund our primary ordinary course uses of cash for the next 12 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 on the tax agreement liability.
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. For existing LBAs, we will make payments of $79 million in 2013.
Our anticipated capital expenditures (excluding capitalized interest and federal lease payments), which we expect will be between $70 million and $90 million in 2013, include our estimates of expenditures necessary to keep our equipment fleets updated to maintain our mining productivity and competitive position and the addition of new equipment as necessary.
Based on our estimates, we expect to make payments on the tax agreement liability of $19.5 million in 2013, payments averaging approximately $12.6 million each year during 2014 to 2017, 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 2013 with $278.0 million of unrestricted cash and cash equivalents and investments in marketable securities. After capital expenditures and generating cash from our operating activities, we concluded the three months ended March 31, 2013 with cash and cash equivalents and investments in marketable securities of $299.1 million.
Cash Flows
|
|
Three Months Ended |
|
|
|
|
| |||||
|
|
March 31, |
|
Change |
| |||||||
|
|
2013 |
|
2012 |
|
Amount |
|
Percent |
| |||
|
|
(dollars in millions) |
|
|
| |||||||
Beginning balance - cash and cash equivalents |
|
$ |
197.7 |
|
$ |
404.2 |
|
$ |
(206.5 |
) |
(51.1 |
) |
Net cash provided by operating activities |
|
37.3 |
|
53.0 |
|
(15.7 |
) |
(29.6 |
) | |||
Net cash provided by (used in) investing activities |
|
(15.6 |
) |
30.8 |
|
(46.4 |
) |
(150.6 |
) | |||
Net cash used in financing activities |
|
(0.9 |
) |
|
|
(0.9 |
) |
* |
| |||
Ending balance - cash and cash equivalents |
|
$ |
218.6 |
|
$ |
488.0 |
|
$ |
(269.4 |
) |
(55.2 |
) |
|
|
|
|
|
|
|
|
|
| |||
Beginning balance - marketable securities |
|
$ |
80.3 |
|
$ |
75.2 |
|
$ |
5.1 |
|
6.8 |
|
Ending balance - marketable securities |
|
$ |
80.5 |
|
$ |
97.6 |
|
$ |
(17.1 |
) |
(17.5 |
) |
* Not meaningful
Cash flows of CPE Inc. and CPE Resources are not significantly different.
The decrease in cash provided by operating activities for the three months ended March 31, 2013 as compared to the same period in 2012 was primarily due to a $30.2 million decrease in net income adjusted for noncash items, specifically unrealized derivative income in 2013. This difference was offset by a smaller decrease in working capital of $14.5 million in 2013 as compared to 2012, primarily caused by the timing of payments on accounts payable and accrued expenses offset by the timing of receipts of accounts receivable.
The increase in cash used in investing activities for the three months ended March 31, 2013 as compared to the same period in 2012 was primarily related to the release of the remaining $71.2 million of restricted cash in the three months ended March 31, 2012 offset by a $22.3 million increase in investments in marketable securities in the same period.
The increase in cash used in financing activities for the three months ended March 31, 2013 as compared to the same period in 2012 was due to the payment of deferred financing costs in association with the A/R Securitization Program, amendment to the Amended Credit Agreement and the capital leasing program.
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, like the creation of mandatory use requirements for renewable fuel sources, 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 2012 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, 2013 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 2012 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 condensed 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. 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, 2013, we had committed to sell approximately 90.0 million tons during 2013, of which 82.5 million tons are under fixed-price contracts. A $1 change to the average coal sales price per ton for these 7.5 million unpriced tons would result in an approximate $7.5 million change to the coal sales revenue. In addition, we entered into certain forward financial contracts linked to Newcastle coal prices to help manage our exposure to variability in future international coal prices. As of March 31, 2013, we held coal forward contracts for approximately 2.2 million tons which will settle between 2013 and 2016. A $1 change to the market index price per ton for these coal forward contracts would result in an approximate $2.0 million change to operating income (expense). During the first quarter of 2013, we commenced the use of futures contracts to help manage our exposure to market changes in domestic coal prices. As of March 31, 2013, we held domestic coal futures contracts for approximately 420,000 tons, which will settle in 2014. A $1 change to the market index price per ton for these futures contracts would result in an approximate $420,000 change to operating 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 $11.0 million over the next 12 months. In addition, we use costless collars to manage certain exposures to diesel fuel prices. As the band of the costless collar is greater than 10%, it had no impact on this calculation. The terms of the program are disclosed in Note 4 to our notes to unaudited condensed consolidated financial statements in Item 1. While we would not receive the full benefit of extreme price decreases, the collars mitigate the risk of extreme crude oil price increases and thereby increased diesel costs that would otherwise have a negative impact on cash flow.
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 Resources. We had no outstanding borrowings under our credit facility as of March 31, 2013. 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. See Item 1A Risk FactorsRisks Related to Our Business and IndustryWe are exposed to counterparty risk with our customers, trading partners, financial institutions, and other parties with whom we conduct business. in our 2012 Form 10-K.
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 Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions 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, 2013, and has concluded that such disclosure controls and procedures are effective at the reasonable assurance level.
Internal Control over Financial Reporting
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.
PART II
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 2012 Form 10-K. The risks described in our 2012 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 2012 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The table below represents information pursuant to Item 703 of Regulation S-K regarding all share repurchases for the three months ended March 31, 2013:
|
|
Total Number |
|
Average |
| |
January 1 through January 31, 2013 |
|
|
|
$ |
|
|
February 1 through February 28, 2013 |
|
|
|
|
| |
March 1 through March 31, 2013 |
|
15,288 |
|
17.04 |
| |
Total |
|
15,288 |
|
$ |
17.04 |
|
(1) Represents shares withheld to cover withholding taxes upon the vesting of restricted stock.
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 48 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 their behalf by the undersigned, thereunto duly authorized.
|
CLOUD PEAK ENERGY INC. | ||
|
|
| |
|
|
| |
|
|
By: |
/s/ MICHAEL BARRETT |
Date: April 30, 2013 |
|
|
Michael Barrett |
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
CLOUD PEAK ENERGY RESOURCES LLC | ||
|
|
|
|
|
|
|
|
|
|
By: |
/s/ MICHAEL BARRETT |
Date: April 30, 2013 |
|
|
Michael Barrett |
|
|
|
Executive Vice President and Chief Financial Officer |
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
Exhibit |
|
Description of Documents |
2.1 |
|
Purchase and Sale Agreement, dated as of June 29, 2012, among Arrowhead I LLC, Chevron USA Inc., CONSOL Energy Inc., Consolidation Coal Company and Reserve Coal Properties Company (incorporated by reference to Exhibit 2.1 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on July 2, 2012 (File No. 001-34547)) |
|
|
|
2.2 |
|
Purchase and Sale Agreement, dated as of June 29, 2012, among Chevron USA Inc. and Arrowhead I LLC (incorporated by reference to Exhibit 2.2 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on July 2, 2012 (File No. 001-34547)) |
|
|
|
2.3 |
|
Purchase and Sale Agreement, dated as of June 29, 2012, among CONSOL Energy Inc., Consolidation Coal Company, Reserve Coal Properties Company and Arrowhead I LLC (incorporated by reference to Exhibit 2.3 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on July 2, 2012 (File No. 001-34547)) |
|
|
|
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 (File No. 333-161293)) |
|
|
|
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 (File No. 001-34547)) |
|
|
|
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 (File No. 333-168639)) |
|
|
|
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 (File No. 001-34547)) |
|
|
|
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 (File No. 333-161293)) |
|
|
|
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 (File No. 001-34547)) |
|
|
|
4.3 |
|
Form of Exchange Notes (included in Exhibit 4.2 hereto) |
|
|
|
10.1 |
|
Form of 2013 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 11, 2013 (File No. 001-34547)) |
|
|
|
10.2 |
|
Form of 2013 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 11, 2013 (File No. 001-34547)) |
|
|
|
10.3 |
|
Form of 2013 Restricted Stock Unit 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 11, 2013 (File No. 001-34547)) |
|
|
|
10.4 |
|
Receivables Purchase Agreement, dated as of February 11, 2013, by and between Cloud Peak Energy Receivables LLC, CPER LLC, PNC Bank, National Association, as administrator, and various conduit purchasers (incorporated herein by reference to Exhibit 10.1 to Cloud Peak Energy Inc.s Current Report on Form 8-K filed on February 13, 2013 (File No. 001-34547)) |
Exhibit |
|
Description of Documents |
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. |
|
|
|
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* |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
|
XBRL Taxonomy Calculation Linkbase Document |
|
|
|
101.LAB* |
|
XBRL Taxonomy Label Linkbase Document |
|
|
|
101.PRE* |
|
XBRL Taxonomy Presentation Linkbase Document |
|
|
|
101.DEF* |
|
XBRL Taxonomy Definition Document |
* Filed or furnished herewith, as applicable