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Why Did Arch Coal’s 2Q15 Net Losses Rise Significantly?

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Sep. 9 2015, Updated 10:06 a.m. ET

Adjusted EBITDA

Arch Coal (ACI) reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $45.3 million in 2Q15 compared to $64.9 million in 2Q14. Higher adjusted EBITDA at the company’s Powder River Basin (or PRB) segment was more than offset by lower adjusted EBITDA in other segments. See the earlier parts of this series for the revenue and cost performance of each segment.

The company reported adjusted EBITDA of $127.1 million in 1H15 compared to $92.5 million in 1H14. The performance of the PRB segment, especially in 1Q15, was the key driver behind higher EBITDA in 1H15.

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Arch Coal’s 2Q15 net losses

ACI’s net losses came in at $168.1 million, or $0.79 per share, in 2Q15 compared to $96.9, or $0.46 per share, in 2Q14. Apart from lower adjusted EBITDA, higher impairment charges, expenses related to debt restructuring, and a lower income tax benefit contributed to the wider net losses.

Coal producers (KOL) including ACI and Peabody Energy (BTU) have reported millions of dollars of asset impairment charges over the last few quarters. Assets’ market values dropped below their book or carrying values amid a weak coal market. Cloud Peak Energy (CLD) and Consol Energy (CNX) refrained from expensive acquisitions of other coal producers in 2011, saving them from such large non-cash expenses.

For 1H15, ACI reported $281.3 million or $1.32 per share in net losses compared to $221.0 million or $1.04 per share in 1H14.

Cash flows

ACI’s cash from operations (or CFO) for 2Q15 came in at -$121.3 million—far less than its -$38 million in 2Q14. Overall, in 1H15, the company reported -$125.6 million in cash flows compared to -$78.3 million in 1H14.

After adjusting for capital expenditures of $76.5 million in 2Q15, free cash flows during the quarter stood at -$197.8 million. The company spent $99.4 million on capital expenditure in 1H15, resulting in a free cash outflow of $225 million.

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