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Gauging Arch Coal’s Net Losses and EBITDA in 3Q15

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Rise in adjusted EBITDA

Arch Coal (ACI) reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $134.8 million in 3Q15 compared to $71.9 million in 3Q14 despite the pressure on pricing the company experienced during the same period. But while adjusted EBITDA for its Appalachian and Powder River Basin segments saw a substantial uptick, adjusted EBITDA for its “others” segment dropped. The company’s spectacular cost performance in 3Q15 was the key driver for this increase in adjusted EBITDA.

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Arch Coal’s net losses in 3Q15

On the other hand, Arch Coal’s net losses came in at a whopping $2.0 billion, or $93.9 per share, in 3Q15 compared to $97.2, or $4.58 per share, in 3Q14. The $2.1 billion the company faced in asset impairment charges during the quarter represents the biggest component driving these 3Q15 net losses. Arch Coal’s adjusted loss per share (excluding non-recurring items) came in at $3.38 in 3Q15 compared to $4.52 in 3Q14.

Other coal producers (KOL) including ACI and Peabody Energy (BTU) reported millions of dollars in asset impairment charges over the previous few quarters as well. Meanwhile, the market values of these companies’ assets dropped below their book or carrying values amid the weakening coal market.

By contrast, Cloud Peak Energy (CLD) and Westmoreland Coal (WLB) refrained from expensive acquisitions of other coal producers in 2011, saving them from such large non-cash expenses.

Cash flows in 3Q15

Arch Coal generated $45.9 million in operating cash during 3Q15 on the back of improved operating margins. The company spent $9.9 million in capital expenditures during the quarter, which resulted in a positive  cash flow of $36.0 million.

In the next and final part of this series, we’ll gather our findings and pinpoint why Arch Coal appears to be in line for bankruptcy following its 3Q15 earnings report.

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