Armstrong Energy, Inc. - FORM 10-Q

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EX-31.1 - EXHIBIT 31.1 - Armstrong Energy, Inc.	arms-093015exhibit311.htm
EX-32.1 - EXHIBIT 32.1 - Armstrong Energy, Inc.	arms-093015exhibit321.htm
EX-10.1 - EXHIBIT 10.1 - Armstrong Energy, Inc.	arms-093015exhibit101.htm
EX-95.1 - EXHIBIT 95.1 - Armstrong Energy, Inc.	arms-093015exhibit951.htm
EX-32.2 - EXHIBIT 32.2 - Armstrong Energy, Inc.	arms-093015exhibit322.htm
EX-31.2 - EXHIBIT 31.2 - Armstrong Energy, Inc.	arms-093015exhibit312.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-191182

Armstrong Energy, Inc.

(Exact name of registrant as specified in its charter)



Delaware		20-8015664
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

7733 Forsyth Boulevard, Suite 1625 St. Louis, Missouri		63105
(Address of principal executive offices)		(Zip code)

(314) 721 – 8202

(Registrant’s 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. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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). ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No

As of November 1, 2015, there were 21,853,224 shares of Armstrong Energy, Inc.’s Common Stock outstanding.

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TABLE OF CONTENTS



		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	33

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Signatures		35

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Armstrong Energy, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



	September 30, 2015			December 31, 2014
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	72,561		$	59,518
Accounts receivable	21,314			21,799
Inventories	12,784			10,552
Prepaid and other assets	2,064			2,962
Deferred income taxes	1,246			735
Total current assets	109,969			95,566
Property, plant, equipment, and mine development, net	255,791			408,740
Investments	3,488			3,372
Other non-current assets	24,019			24,769
Total assets	$	393,267		$	532,447
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT)
Current liabilities:
Accounts payable	$	24,294		$	27,593
Accrued and other liabilities	27,135			17,117
Current portion of capital lease obligations	2,420			2,426
Current maturities of long-term debt	5,679			4,929
Total current liabilities	59,528			52,065
Long-term debt, less current maturities	200,697			198,960
Long-term obligation to related party	129,508			110,713
Related party payables, net	12,518			18,172
Asset retirement obligations	14,344			17,379
Long-term portion of capital lease obligations	775			1,358
Deferred income taxes	1,246			735
Other non-current liabilities	9,402			8,208
Total liabilities	428,018			407,590
Stockholders’ equity/(deficit):
Common stock, $0.01 par value, 70,000,000 shares authorized, 21,853,224 and 21,936,844 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	218			219
Preferred stock, $0.01 par value, 1,000,000 shares authorized, zero shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	—			—
Additional paid-in-capital	238,774			238,549
Accumulated deficit	(270,339		)	(110,193		)
Accumulated other comprehensive loss	(3,427		)	(3,741		)
Armstrong Energy, Inc.’s equity/(deficit)	(34,774		)	124,834
Non-controlling interest	23			23
Total stockholders’ equity/(deficit)	(34,751		)	124,857
Total liabilities and stockholders’ equity/(deficit)	$	393,267		$	532,447

See accompanying notes to unaudited condensed consolidated financial statements.

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Armstrong Energy, Inc. and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenue	$	89,206		$	108,935		$	278,680		$	336,088
Costs and Expenses:
Cost of coal sales, exclusive of items shown separately below	69,843			88,068			218,826			273,353
Production royalty to related party	1,980			2,049			6,034			6,313
Depreciation, depletion, and amortization	10,990			13,240			38,399			33,178
Asset retirement obligation expenses	756			560			2,340			1,568
Asset impairment and restructuring charges	138,679			—			138,679			—
General and administrative expenses	3,641			4,850			12,563			14,839
Operating (loss) income	(136,683		)	168			(138,161		)	6,837
Other income (expense):
Interest expense, net	(9,203		)	(8,025		)	(26,450		)	(24,559		)
Other, net	154			59			4,778			486
Loss before income taxes	(145,732		)	(7,798		)	(159,833		)	(17,236		)
Income tax provision	54			—			313			—
Net loss	(145,786		)	(7,798		)	(160,146		)	(17,236		)
Income attributable to non-controlling interest	—			—			—			—
Net loss attributable to common stockholders	$	(145,786	)	$	(7,798	)	$	(160,146	)	$	(17,236	)

See accompanying notes to unaudited condensed consolidated financial statements.

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Armstrong Energy, Inc. and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net loss	$	(145,786	)	$	(7,798	)	$	(160,146	)	$	(17,236	)
Other comprehensive income:
Postretirement benefit plan and other employee benefit obligations, net of tax of zero	105			26			314			78
Other comprehensive income	105			26			314			78
Comprehensive loss	(145,681		)	(7,772		)	(159,832		)	(17,158		)
Less: Comprehensive income (loss) attributable to non-controlling interest	—			—			—			—
Comprehensive loss attributable to common stockholders	$	(145,681	)	$	(7,772	)	$	(159,832	)	$	(17,158	)

See accompanying notes to unaudited condensed consolidated financial statements.

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Armstrong Energy, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)

Nine Months Ended September 30, 2015

(Amounts in thousands)



	Common Stock					Preferred Stock			Additional Paid-in- Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Non-Controlling Interest		Total Stockholders’ Equity/(Deficit)
	Number of Shares		Amount			Number of Shares	Amount		Additional Paid-in- Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Non-Controlling Interest		Total Stockholders’ Equity/(Deficit)
Balance at December 31, 2014	21,937		$	219		—	$	—	$	238,549	$	(110,193	)	$	(3,741	)	$	23	$	124,857
Net loss	—		—			—	—		—		(160,146		)	—			—		(160,146		)
Stock based compensation	—		—			—	—		224		—			—			—		224
Postretirement benefit plan and other employee benefit obligations, net of tax of zero	—		—			—	—		—		—			314			—		314
Repurchase of common stock	(84	)	(1		)	—	—		1		—			—			—		—
Balance at September 30, 2015	21,853		$	218		—	$	—	$	238,774	$	(270,339	)	$	(3,427	)	$	23	$	(34,751	)

See accompanying notes to unaudited condensed consolidated financial statements.

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Armstrong Energy, Inc. and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)



	Nine Months Ended September 30,
	2015			2014
Cash Flows from Operating Activities:
Net loss	$	(160,146	)	$	(17,236	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Non-cash stock compensation expense (income)	224			(61		)
Income from equity affiliate	(116		)	(113		)
Loss on disposal of property, plant and equipment	72			80
Amortization of original issue discount	630			558
Amortization of debt issuance costs	1,143			909
Depreciation, depletion and amortization	38,399			33,178
Asset retirement obligation expenses	2,340			1,568
Asset impairment	137,678			—
Non-cash activity with related party, net	13,141			10,665
Non-cash interest on long-term obligations	5,867			5,865
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable	485			(2,149		)
Increase in inventories	(2,231		)	(207		)
Decrease in prepaid and other assets	899			973
Increase in other non-current assets	(455		)	(2,263		)
(Decrease) increase in accounts payable and accrued and other liabilities	(3,187		)	4,306
Increase in other non-current liabilities	1,193			748
Net cash provided by operating activities:	35,936			36,821
Cash Flows from Investing Activities:
Investment in property, plant, equipment, and mine development	(16,881		)	(14,961		)
Proceeds from disposal of fixed assets	475			5
Net cash used in investing activities	(16,406		)	(14,956		)
Cash Flows from Financing Activities:
Payments on capital lease obligations	(2,017		)	(2,008		)
Payments of long-term debt	(4,470		)	(4,684		)
Proceeds from sale-leaseback	—			986
Payment of financing costs and fees	—			(1,000		)
Repurchase of employee stock relinquished for tax withholdings	—			(87		)
Net cash used in financing activities	(6,487		)	(6,793		)
Net change in cash and cash equivalents	13,043			15,072
Cash and cash equivalents, at the beginning of the period	59,518			51,632
Cash and cash equivalents, at the end of the period	$	72,561		$	66,704

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	Nine Months Ended September 30,
	2015		2014
Supplemental cash flow information:
Non-Cash Transactions:
Assets acquired with long-term debt	$	7,756	$	7,464
Non-cash portion of land and reserve sale/financing with related party	$	18,172	$	—

See accompanying notes to unaudited condensed consolidated financial statements.

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Armstrong Energy, Inc. and Subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

1. DESCRIPTION OF BUSINESS AND ENTITY STRUCTURE

Business

The accompanying unaudited condensed consolidated financial statements include the accounts of Armstrong Energy, Inc. and its subsidiaries and controlled entities (collectively, the Company or AE). The Company’s primary business is the production of thermal coal from surface and underground mines located in western Kentucky, for sale to utility and industrial markets. Intercompany transactions and accounts have been eliminated in consolidation.

The Company’s wholly-owned subsidiary, Elk Creek GP, LLC (ECGP), is the sole general partner of and has an approximate 0.2% ownership in Thoroughbred Resources, L.P. (Thoroughbred) (formerly Armstrong Resource Partners, L.P.). The various limited partners of Thoroughbred are related parties, as the entity is majority owned by investment funds managed by Yorktown Partners LLC (Yorktown), which has a majority ownership in the Company. The Company does not consolidate the financial results of Thoroughbred and accounts for its ownership in Thoroughbred under the equity method.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting and U.S. Securities and Exchange Commission (SEC) regulations. In the opinion of management, all adjustments consisting of normal, recurring accruals considered necessary for a fair presentation have been included. Balance sheet information presented herein as of December 31, 2014 has been derived from the Company’s audited consolidated balance sheet at that date. Results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of results to be expected for the year ending December 31, 2015. Certain prior year amounts have been reclassified to conform with the 2015 presentation. These financial statements should be read in conjunction with the audited financial statements and related notes as of and for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K filed with the SEC.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (FASB) issued guidance requiring an entity to present debt issuance costs on the balance sheet as a direct deduction from the related debt liability as opposed to an asset. Amortization of the costs will continue to be reported as interest expense. The update is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued, and the new guidance would be applied retrospectively to all prior periods presented. The adoption of this standard update is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued guidance on management’s responsibility in evaluating, at each annual and interim reporting period, whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter with early adoption permitted.

In May 2014, the FASB issued a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard requires revenue to be recognized when promised goods or services are transferred to a customer in an amount that reflects the consideration expected in exchange for those goods or services. The standard permits the use of either the full retrospective or modified retrospective transition method. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted to the original effective date of December 15, 2016. The Company is currently evaluating the impact of this new pronouncement on its financial statements.

2. ASSET IMPAIRMENT AND RESTRUCTURING CHARGES

Due to the significant decline in thermal coal pricing experienced during the nine months ended September 30, 2015 and the continuation of other adverse market conditions, the Company concluded indicators of impairment existed as of September 30, 2015. As such, the Company performed a comprehensive review of its long-lived assets for recoverability through future cash flows as of September 30, 2015. Based on that review, it was determined the carrying value was not recoverable, and the Company correspondingly recognized a non-cash asset impairment of $137,678 to reduce the carrying value of its long-lived assets to their estimated fair value. The inputs used to measure the fair value of the Company’s long-

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lived assets were largely unobservable, and accordingly, this measure was classified as Level 3. The fair value, which was determined through the use of a third-party specialist, was estimated primarily based on the income approach, with the significant inputs including future cash flow projections and discount rate assumptions.

In addition, the Company initiated certain restructuring activities during the three months ended September 30, 2015 to better align its cost structure with current industry conditions. Costs associated with these restructuring activities primarily include voluntary and involuntary workforce rationalization. For the three and nine months ended September 30, 2015, the Company recognized restructuring charges of $1,001.

The above noted charges are included within “Asset impairment and restructuring charges” in the condensed consolidated statements of operations.

3. INVENTORIES

Inventories consist of the following amounts:



	September 30, 2015		December 31, 2014
Materials and supplies	$	9,353	$	10,378
Coal—raw and saleable	3,431		174
Total	$	12,784	$	10,552

4. ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities consist of the following amounts:



	September 30, 2015		December 31, 2014
Payroll and related benefits	$	8,887	$	7,661
Taxes other than income taxes	5,863		4,588
Interest	6,858		991
Asset retirement obligations	2,473		342
Royalties	863		691
Other	2,191		2,844
Total	$	27,135	$	17,117

5. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT

Property, plant, equipment and mine development at September 30, 2015 and December 31, 2014 consist of the following:



	September 30, 2015		December 31, 2014
Land	$	41,909	$	41,892
Mineral rights	96,264		150,667
Machinery and equipment	168,165		194,958
Buildings and facilities	63,148		83,561
Office equipment, software and other	17,298		20,878
Mine development costs	67,878		64,453
ARO assets	11,336		11,336
Construction-in-progress	9,154		20,676
	475,152		588,421
Less: accumulated depreciation, depletion and amortization	219,361		179,681
Total	$	255,791	$	408,740

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6. OTHER NON-CURRENT ASSETS

Other non-current assets consist of the following amounts:



	September 30, 2015		December 31, 2014
Escrows and deposits	$	5,217	$	4,649
Restricted surety and cash bonds	6,115		6,379
Advanced royalties	4,992		4,842
Deferred financing costs, net	7,622		8,765
Intangible assets, net	73		134
Total	$	24,019	$	24,769

7. RELATED PARTY TRANSACTIONS

Merger of Related Parties

On February 1, 2014, Armstrong Resource Partners, L.P. merged with and into Thoroughbred Resources, LLC, with Armstrong Resource Partners, L.P. as the surviving entity (the Merger). Effective with the Merger, Armstrong Resource Partners, L.P. changed its name to Thoroughbred. The Company’s wholly-owned subsidiary, ECGP, remained the general partner of the surviving entity, under the terms of the amended and restated limited partnership agreement, which is substantially the same as the limited partnership agreement in effect immediately prior to the Merger. As a result of the Merger, ECGP’s equity interest in the combined company was reduced to approximately 0.2%.

In January 2014, the Company’s investment in Ram Terminals, LLC (RAM), an entity majority owned by Yorktown, was converted into an equal ownership percentage of Terminal Holdings, LLC, a holding company which is the sole member of both RAM and MG Midstreaming, LLC. Subsequent to the Merger, but also on February 1, 2014, Terminal Holdings, LLC merged with and into a merger subsidiary of Thoroughbred created for the purpose of the transaction, with Terminal Holdings, LLC as the surviving entity. Terminal Holdings, LLC was owned by the Company and Yorktown in the same percentage as their prior interests in RAM, and by virtue of the merger, the Company’s equity interest in Terminal Holdings, LLC was converted into an equal number of common units representing limited partnership interests in Thoroughbred. Because of the Company’s ownership interest in Thoroughbred through ECGP, the newly converted interest, which equals an additional 0.9%, is accounted for under the equity method.

As of September 30, 2015, the Company’s total ownership in Thoroughbred equaled 1.1%. Income from the equity interest in Thoroughbred for the three months ended September 30, 2015 and 2014 totaled $40, and $98, respectively, and for the nine months ended September 30, 2015 and 2014 totaled $116 and $113, respectively.

Sale of Coal Reserves

The Company has executed the sale of an undivided interest in certain land and mineral reserves in Ohio and Muhlenberg counties of Kentucky to Thoroughbred, through a series of transactions beginning in February 2011. Subsequently, the Company entered into lease agreements with Thoroughbred pursuant to which Thoroughbred granted the Company leases to its undivided interests in the mining properties acquired and licenses to mine and sell coal from those properties in exchange for a production royalty. Due to the Company’s continuing involvement in the land and mineral reserves transferred, these transactions have been accounted for as financing arrangements. A long-term obligation has been established that is being amortized over the anticipated life of the mineral reserves, at an annual rate of 7% of the estimated gross revenue generated from the sale of the coal originating from the leased mineral reserves. In addition, effective February 2011, the Company and Thoroughbred entered into a Royalty Deferment and Option Agreement, whereby the Company has been granted an option to defer payment of any royalties earned by Thoroughbred on coal mined from these properties. Compensation for the aforementioned transactions has consisted of a combination of cash payments and the forgiveness of amounts owed by the Company, which primarily consisted of deferred royalties.

On October 1, 2014, the Company transferred to Thoroughbred a portion of its interest in certain land and mineral reserves the Company controls in Muhlenberg county, which had been excluded from the various prior sales transactions, in exchange for Thoroughbred conveying to the Company a 7.97% undivided interest in the land and mineral reserves previously transferred by the Company to Thoroughbred.

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The Company sold a 3.85% undivided interest in certain leased and owned land and mineral reserves to Thoroughbred on October 1, 2014 in exchange for Thoroughbred forgiving amounts owed by the Company of $8,202. On May 1, 2015, the Company sold an additional 12.10% undivided interest in certain leased and owned land and mineral reserves to Thoroughbred in exchange for Thoroughbred forgiving amounts owed by the Company of $18,172. The amounts forgiven by Thoroughbred consisted primarily of deferred production royalties. The newly acquired interests in the mineral reserves were leased and/or subleased by Thoroughbred to the Company in exchange for a production royalty. These transactions were accounted for as financing arrangements and additional long-term obligations to Thoroughbred of $8,202 and $18,172 were recognized on October 1, 2014 and May 1, 2015, respectively.

The percentage interests in the land and mineral reserves sold to Thoroughbred in the above transactions were based on fair values determined by a third-party specialist. In addition, these transactions were approved by the conflicts committee of the board of directors of the Company, a committee comprised of only independent directors. As a result of the above, Thoroughbred’s undivided interest in certain of the Company’s leased and owned land and mineral reserves in Muhlenberg and Ohio counties as of September 30, 2015 and December 31, 2014 was 61.38% and 49.28%, respectively.

As of September 30, 2015 and December 31, 2014, the outstanding long-term obligation to related party totaled $129,508 and $110,713, respectively. Interest expense recognized for the three months ended September 30, 2015 and 2014 associated with the long-term obligation to related party was $2,675 and $1,848, respectively, and for the nine months ended September 30, 2015 and 2014 was $8,311 and $5,512, respectively. The effective interest rate of the long-term obligation to related party, which is adjusted based on significant mine plan changes and the completion of the periodic reserve transfers, was 9.2% as of September 30, 2015.

Lease of Coal Reserves

In February 2011, Thoroughbred entered into a lease and sublease agreement with the Company relating to its Elk Creek reserves and granted the Company a license to mine coal on those properties. The terms of this agreement mirror those of the lease agreements associated with the jointly owned reserves between the Company and Thoroughbred. Total production royalties owed from mining of the Elk Creek reserves, where the Company’s Kronos underground mine resides, for the three months ended September 30, 2015 and 2014 totaled $1,980 and $2,049, respectively, and for the nine months ended September 30, 2015 and 2014 totaled $6,034 and $6,313, respectively.

In February 2014, the Company entered into an additional lease and/or sublease with Thoroughbred for certain mineral reserves located in Muhlenberg and McLean Counties of Kentucky, contiguous to its existing reserves, in exchange for a production royalty. Total proven and probable mineral reserves included as part of the transaction was approximately 198 million tons. The initial term of the lease is 10 years, with an automatic extension of up to 10 years. No mining of this reserve had commenced as of September 30, 2015.

Administrative Services Agreements

The Company entered into an administrative services agreement with Thoroughbred and its general partner, ECGP, pursuant to which the Company agreed to provide Thoroughbred with general administrative and management services, including, but not limited to, human resources, information technology, financial and accounting services and legal services. The administrative service fee, which is adjusted annually, is approved by the conflicts committee of the board of directors. As consideration for the use of the Company’s employees and services, and for certain shared fixed costs, Thoroughbred paid the Company $300 and $253 for the three months ended September 30, 2015 and 2014, respectively, and $900 and $761 for the nine months ended September 30, 2015 and 2014, respectively.

Other

In 2006 and 2007, the Company entered into overriding royalty agreements with a current and a former executive employee to compensate them $0.05/ton of coal mined and sold from properties owned by certain subsidiaries of the Company. The agreements remain in effect for the later of 20 years from the date of the agreement or until all salable coal has been extracted. Both royalty agreements transfer with the property regardless of ownership or lease status. The royalties are payable the month following the sale of coal mined from the specified properties. The Company accounts for these royalty arrangements as expense in the period in which the coal is sold. Expense recorded in the three months ended September 30, 2015 and 2014, was $150 and $202, respectively, and $488 and $615 in the nine months ended September 30, 2015 and 2014, respectively.

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8. LONG-TERM DEBT

The Company’s total indebtedness consisted of the following:



Type	September 30, 2015		December 31, 2014
11.75% Senior Secured Notes due 2019	$	195,199	$	194,570
Senior Secured Credit Facility	—		—
Other	11,177		9,319
	206,376		203,889
Less: current maturities	5,679		4,929
Total long-term debt	$	200,697	$	198,960

Senior Secured Notes due 2019

On December 21, 2012, the Company completed a $200,000 offering of 11.75% Senior Secured Notes due 2019 (the Notes). The Notes were issued at an original issue discount (OID) of 96.567%. The OID was recorded on the Company’s balance sheet as a component of long-term debt, and is being amortized to interest expense over the life of the Notes. As of September 30, 2015 and December 31, 2014, the unamortized OID was $4,801 and $5,430, respectively. Interest on the Notes is due semiannually on June 15 and December 15 of each year. The Company used $123,698 of the proceeds from this issuance to prepay and terminate its previous senior secured credit facility, including accrued and unpaid interest. In addition, the Company used the proceeds to pay fees and expenses of $8,358 related to the Notes offering, which are being amortized to interest expense over the life of the Notes.

2012 Credit Facility

Concurrently with the closing of the Notes offering on December 21, 2012, the Company entered into a new asset-based revolving credit facility (the 2012 Credit Facility). The 2012 Credit Facility provides for a five year, $50,000 revolving credit facility that will expire on December 21, 2017. Borrowings under the 2012 Credit Facility may not exceed a borrowing base, as defined within the 2012 Credit Facility agreement. In addition, the 2012 Credit Facility includes a $10,000 letter of credit sub-facility and a $5,000 swingline loan sub-facility. As of September 30, 2015 and December 31, 2014, there were no borrowings outstanding under the 2012 Credit Facility, and the Company had $21,075 available for borrowing under the 2012 Credit Facility at September 30, 2015. The Company incurred $1,198 of deferred financing fees related to the 2012 Credit Facility that have been capitalized and are being amortized to interest expense over the life of the 2012 Credit Facility.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures the fair value of assets and liabilities using a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1—observable inputs such as quoted prices in active markets; Level 2—inputs, other than quoted market prices in active markets, which are observable, either directly or indirectly; and Level 3—valuations derived from valuation techniques in which one or more significant inputs are unobservable. In addition, the Company may use various valuation techniques including the market approach, using comparable market prices; the income approach, using the present value of future income or cash flow; and the cost approach, using the replacement cost of assets.

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The Company’s financial instruments consist of cash equivalents, accounts receivable, long-term debt, and other long-term obligations. For cash equivalents, accounts receivable and other long-term obligations, the carrying amounts approximate fair value due to the short maturity and financial nature of the balances. The estimated fair market values of the Company’s Notes, which was determined using Level 2 inputs, and long-term obligation to related party, which was determined using Level 3 inputs, are as follows:



	September 30, 2015				December 31, 2014
	Fair Value		Carrying Value		Fair Value		Carrying Value
11.75% Senior Secured Notes due 2019⁽¹⁾	$	121,000	$	195,199	$	206,000	$	194,570
Long-term obligation to related party	98,635		129,508		115,731		110,713
Total	$	219,635	$	324,707	$	321,731	$	305,283


(1)	The carrying value of the Notes is net of the unamortized OID as of September 30, 2015 and December 31, 2014, respectively.

The fair value of the Notes is based on quoted market prices, while the fair value of the long-term obligation to related party was based on estimated cash flows discounted to their present value.

10. INCOME TAXES

The Company has not recognized certain income tax benefits, as it does not believe it is more likely than not it will be able to realize its net deferred tax assets. The Company has, therefore, established a valuation allowance against its net deferred tax assets as of September 30, 2015 and December 31, 2014. Based on the anticipated reversals of its deferred tax assets and deferred tax liabilities, the Company has concluded a valuation allowance is necessary only for the excess of deferred tax assets over deferred tax liabilities.

11. EMPLOYEE BENEFIT PLANS

Effective January 1, 2013, the Company began providing certain health care benefits, including the reimbursement of a portion of out-of-pocket costs associated with insurance coverage, to qualifying salaried and hourly retirees and their dependents. Plan coverage for reimbursements will be provided to future hourly and salaried retirees in accordance with the plan document. The Company’s funding policy with respect to the plan is to fund the cost of all postretirement benefits as they are paid.

Net periodic postretirement benefit cost included the following components:



	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Service cost for benefits earned	$	304	$	259	$	912	$	776
Interest cost on accumulated postretirement benefit obligation	30		22		91		65
Amortization of prior service cost	26		26		78		78
Net periodic postretirement cost	$	360	$	307	$	1,081	$	919

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12. ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2015 consisted of the following:



	Postretirement Benefit Plan and Other Employee Benefit Obligations			Accumulated Other Comprehensive Loss
Balance as of December 31, 2014	$	(3,741	)	$	(3,741	)
Other comprehensive loss before reclassifications	—			—
Amounts reclassified from accumulated other comprehensive loss	314			314
Balance as of September 30, 2015	$	(3,427	)	$	(3,427	)

The following is a summary of reclassifications out of accumulated other comprehensive loss for the three and nine months ended September 30, 2015 and 2014:



Details about Accumulated Other Comprehensive Income (Loss) Components	Affected Line Item in the Condensed Consolidated Statement of Operations	Amounts Reclassified from Accumulated Other Comprehensive Loss For the Three Months Ended September 30,
		2015			2014
Amortization of prior service cost associated with postretirement benefit plan and other employee benefit obligations	Cost of coal sales	$	(105	)	$	(26	)
		(105		)	(26		)
Income taxes		—			—
Total reclassifications		$	(105	)	$	(26	)



Details about Accumulated Other Comprehensive Income (Loss) Components	Affected Line Item in the Condensed Consolidated Statement of Operations	Amounts Reclassified from Accumulated Other Comprehensive Loss For the Nine Months Ended September 30,
		2015			2014
Amortization of prior service cost associated with postretirement benefit plan and other employee benefit obligations	Cost of coal sales	$	(314	)	$	(78	)
		(314		)	(78		)
Income taxes		—			—
Total reclassifications		$	(314	)	$	(78	)

13. CLOSURE OF LEWIS CREEK UNDERGROUND MINE

The Company’s Lewis Creek underground mine, which produced coal from the West Kentucky #9 seam, experienced significant operating inefficiencies due to the geological conditions of the portion of the reserve being mined. As a result of the ongoing mining difficulties, a final decision was made in August 2014 not to continue advancing under the existing mine plan, but rather to retreat and mine only in the eastern portion of the reserve.

The Company completed mining of the Lewis Creek underground mine in March 2015 and has extracted the equipment, which will be utilized at its other mining operations in the future. As a result of the closure, the Company accelerated depreciation of the remaining net book value of the capitalized costs associated with the original development of the mine. Total expense recognized during the first quarter of 2015 to write-off the remaining asset was approximately $6,318, which is included as a component of "depreciation, depletion, and amortization" in the condensed consolidated statement of operations for the nine months ended September 30, 2015.

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14. COMMITMENTS AND CONTINGENCIES

The Company is subject to various market, operational, financial, regulatory, and legislative risks. Numerous federal, state, and local governmental permits and approvals are required for mining operations. Federal and state regulations require regular monitoring of mines and other facilities to document compliance. Monetary penalties of $843 and $1,747 related to Mine Safety and Health Administration fines were accrued as of September 30, 2015 and December 31, 2014, respectively.

The Company is involved from time to time in various legal matters arising in the ordinary course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s consolidated cash flows, results of operations or financial condition.

Coal Sales Contracts

The Company has historically sold the majority of its coal under multi-year supply agreements of varying duration. These contracts typically have specific volume and pricing arrangements for each year of the agreement, which allows customers to secure a supply for their future needs and provides the Company with greater predictability of sales volume and sales prices. Quantities sold under some of these contracts may vary from year to year within certain limits at the option of the customer or the Company. The remaining terms of the Company’s long-term contracts range from one to five years. The Company, via contractual agreements, has committed volumes of sales in 2015 of approximately 8.4 million tons.

15. OTHER, NET

During the second quarter of 2015, the Company received a refund for a portion of the Kentucky sales and use taxes paid on the purchase of certain energy and energy producing fuels for the period of 2008 through 2013. The refund, including interest, totaled $4,482, which is included in "other, net" in the condensed consolidated statement of operations for the nine months ended September 30, 2015.

16. SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION

In accordance with the indenture governing the Notes, the Guarantor Subsidiaries have fully and unconditionally guaranteed the Notes, on a joint and several basis, subject to certain customary release provisions. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management believes that such information is not material to the holders of the Notes. The following historical financial statement information is provided for the Guarantor Subsidiaries. The non-guarantor subsidiaries are considered to be “minor” as the term is defined in Rule 3-10 of Regulation S-X promulgated by the SEC, and the financial position, results of operations, and cash flows of the non-guarantor subsidiaries are, therefore, included in the condensed financial data of the Guarantor Subsidiaries.

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Supplemental Condensed Consolidating Balance Sheets



	September 30, 2015
	Parent / Issuer			Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	72,561		$	—		$	72,561
Accounts receivable	—			21,314			—			21,314
Inventories	—			12,784			—			12,784
Prepaid and other assets	197			1,867			—			2,064
Deferred income taxes	—			1,246			—			1,246
Total current assets	197			109,772			—			109,969
Property, plant, equipment, and mine development, net	10,493			245,298			—			255,791
Investments	—			3,488			—			3,488
Investments in subsidiaries	64,135			—			(64,135		)	—
Intercompany receivables	80,921			(80,921		)	—			—
Other non-current assets	7,837			16,182			—			24,019
Total assets	$	163,583		$	293,819		$	(64,135	)	$	393,267
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT)
Current liabilities:
Accounts payable	$	100		$	24,194		$	—		$	24,294
Accrued and other liabilities	7,018			20,117			—			27,135
Current portion of capital lease obligations	—			2,420			—			2,420
Current maturities of long-term debt	—			5,679			—			5,679
Total current liabilities	7,118			52,410			—			59,528
Long-term debt, less current maturities	195,199			5,498			—			200,697
Long-term obligation to related party	—			129,508			—			129,508
Related party payables, net	(4,111		)	16,629			—			12,518
Asset retirement obligations	—			14,344			—			14,344
Long-term portion of capital lease obligations	—			775			—			775
Deferred income taxes	—			1,246			—			1,246
Other non-current liabilities	151			9,251			—			9,402
Total liabilities	198,357			229,661			—			428,018
Stockholders’ equity/(deficit):
Armstrong Energy, Inc.’s equity/(deficit)	(34,774		)	64,135			(64,135		)	(34,774		)
Non-controlling interest	—			23			—			23
Total stockholders’ equity/(deficit)	(34,774		)	64,158			(64,135		)	(34,751		)
Total liabilities and stockholders’ equity/(deficit)	$	163,583		$	293,819		$	(64,135	)	$	393,267

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Supplemental Condensed Consolidating Balance Sheets



	December 31, 2014
	Parent / Issuer			Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	59,518		$	—		$	59,518
Accounts receivable	—			21,799			—			21,799
Inventories	—			10,552			—			10,552
Prepaid and other assets	62			2,900			—			2,962
Deferred income taxes	735			—			—			735
Total current assets	797			94,769			—			95,566
Property, plant, equipment, and mine development, net	14,648			394,092			—			408,740
Investments	—			3,372			—			3,372
Investments in subsidiaries	199,435			—			(199,435		)	—
Intercompany receivables	96,755			(96,755		)	—			—
Other non-current assets	8,980			15,789			—			24,769
Total assets	$	320,615		$	411,267		$	(199,435	)	$	532,447
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	100		$	27,493		$	—		$	27,593
Accrued and other liabilities	3,456			13,661			—			17,117
Current portion of capital lease obligations	—			2,426			—			2,426
Current maturities of long-term debt	—			4,929			—			4,929
Total current liabilities	3,556			48,509			—			52,065
Long-term debt, less current maturities	194,570			4,390			—			198,960
Long-term obligation to related party	—			110,713			—			110,713
Related party payables, net	(3,211		)	21,383			—			18,172
Asset retirement obligations	—			17,379			—			17,379
Long-term portion of capital lease obligations	—			1,358			—			1,358
Deferred income taxes	735			—			—			735
Other non-current liabilities	131			8,077			—			8,208
Total liabilities	195,781			211,809			—			407,590
Stockholders’ equity:
Armstrong Energy, Inc.’s equity	124,834			199,435			(199,435		)	124,834
Non-controlling interest	—			23			—			23
Total stockholders’ equity	124,834			199,458			(199,435		)	124,857
Total liabilities and stockholders’ equity	$	320,615		$	411,267		$	(199,435	)	$	532,447

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Supplemental Condensed Consolidated Statements of Operations



	Three Months Ended September 30, 2015
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Revenue	$	—		$	89,206		$	—	$	89,206
Costs and Expenses:
Cost of coal sales, exclusive of items shown separately below	—			69,843			—		69,843
Production royalty to related party	—			1,980			—		1,980
Depreciation, depletion, and amortization	518			10,472			—		10,990
Asset retirement obligation expenses	—			756			—		756
Asset impairment and restructuring charges	4,490			134,189			—		138,679
General and administrative expenses	424			3,217			—		3,641
Operating loss	(5,432		)	(131,251		)	—		(136,683		)
Other income (expense):
Interest expense, net	(6,343		)	(2,860		)	—		(9,203		)
Other, net	—			154			—		154
Income from investment in subsidiaries	(134,011		)	—			134,011		—
Loss before income taxes	(145,786		)	(133,957		)	134,011		(145,732		)
Income tax provision	—			54			—		54
Net loss	(145,786		)	(134,011		)	134,011		(145,786		)
Less: income attributable to non-controlling interest	—			—			—		—
Net loss attributable to common stockholders	$	(145,786	)	$	(134,011	)	$	134,011	$	(145,786	)



	Three Months Ended September 30, 2014
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Revenue	$	—		$	108,935		$	—	$	108,935
Costs and Expenses:
Cost of coal sales, exclusive of items shown separately below	—			88,068			—		88,068
Production royalty to related party	—			2,049			—		2,049
Depreciation, depletion, and amortization	474			12,766			—		13,240
Asset retirement obligation expenses	—			560			—		560
General and administrative expenses	1,035			3,815			—		4,850
Operating (loss) income	(1,509		)	1,677			—		168
Other income (expense):
Interest expense, net	(6,087		)	(1,938		)	—		(8,025		)
Other, net	—			59			—		59
Income from investment in subsidiaries	(202		)	—			202		—
Loss before income taxes	(7,798		)	(202		)	202		(7,798		)
Income tax provision	—			—			—		—
Net loss	(7,798		)	(202		)	202		(7,798		)
Less: income attributable to non-controlling interest	—			—			—		—
Net loss attributable to common stockholders	$	(7,798	)	$	(202	)	$	202	$	(7,798	)

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Supplemental Condensed Consolidated Statements of Operations



	Nine Months Ended September 30, 2015
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Revenue	$	—		$	278,680		$	—	$	278,680
Costs and Expenses:
Cost of coal sales, exclusive of items shown separately below	—			218,826			—		218,826
Production royalty to related party	—			6,034			—		6,034
Depreciation, depletion, and amortization	1,530			36,869			—		38,399
Asset retirement obligation expenses	—			2,340			—		2,340
Asset impairment and restructuring charges	4,490			134,189			—		138,679
General and administrative expenses	1,206			11,357			—		12,563
Operating loss	(7,226		)	(130,935		)	—		(138,161		)
Other income (expense):
Interest expense, net	(17,620		)	(8,830		)	—		(26,450		)
Other, net	—			4,778			—		4,778
Loss from investment in subsidiaries	(135,300		)	—			135,300		—
Loss before income taxes	(160,146		)	(134,987		)	135,300		(159,833		)
Income tax provision	—			313			—		313
Net loss	(160,146		)	(135,300		)	135,300		(160,146		)
Less: income attributable to non-controlling interest	—			—			—		—
Net loss attributable to common stockholders	$	(160,146	)	$	(135,300	)	$	135,300	$	(160,146	)



	Nine Months Ended September 30, 2014
	Parent / Issuer			Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	336,088		$	—		$	336,088
Costs and Expenses:
Cost of coal sales, exclusive of items shown separately below	—			273,353			—			273,353
Production royalty to related party	—			6,313			—			6,313
Depreciation, depletion, and amortization	1,421			31,757			—			33,178
Asset retirement obligation expenses	—			1,568			—			1,568
General and administrative expenses	2,864			11,975			—			14,839
Operating (loss) income	(4,285		)	11,122			—			6,837
Other income (expense):
Interest expense, net	(18,572		)	(5,987		)	—			(24,559		)
Other, net	—			486			—			486
Income from investment in subsidiaries	5,621			—			(5,621		)	—
(Loss) income before income taxes	(17,236		)	5,621			(5,621		)	(17,236		)
Income tax provision	—			—			—			—
Net (loss) income	(17,236		)	5,621			(5,621		)	(17,236		)
Less: income attributable to non-controlling interest	—			—			—			—
Net (loss) income attributable to common stockholders	$	(17,236	)	$	5,621		$	(5,621	)	$	(17,236	)

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Supplemental Condensed Consolidated Statements of Comprehensive Income (Loss)



	Three Months Ended September 30, 2015
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Net loss	$	(145,786	)	$	(134,011	)	$	134,011	$	(145,786	)
Other comprehensive income:
Postretirement benefit plan and other employee benefit obligation	—			105			—		105
Other comprehensive income	—			105			—		105
Comprehensive loss	(145,786		)	(133,906		)	134,011		(145,681		)
Less: comprehensive income (loss) attributable to non-controlling interest	—			—			—		—
Comprehensive loss attributable to common stockholders	$	(145,786	)	$	(133,906	)	$	134,011	$	(145,681	)



	Three Months Ended September 30, 2014
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Net loss	$	(7,798	)	$	(202	)	$	202	$	(7,798	)
Other comprehensive income:
Postretirement benefit plan and other employee benefit obligation	—			26			—		26
Other comprehensive income	—			26			—		26
Comprehensive loss	(7,798		)	(176		)	202		(7,772		)
Less: comprehensive income (loss) attributable to non-controlling interest	—			—			—		—
Comprehensive loss attributable to common stockholders	$	(7,798	)	$	(176	)	$	202	$	(7,772	)

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Supplemental Condensed Consolidated Statements of Comprehensive Income (Loss)



	Nine Months Ended September 30, 2015
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Net loss	$	(160,146	)	$	(135,300	)	$	135,300	$	(160,146	)
Other comprehensive income:
Postretirement benefit plan and other employee benefit obligation	—			314			—		314
Other comprehensive income	—			314			—		314
Comprehensive loss	(160,146		)	(134,986		)	135,300		(159,832		)
Less: comprehensive income (loss) attributable to non-controlling interest	—			—			—		—
Comprehensive loss attributable to common stockholders	$	(160,146	)	$	(134,986	)	$	135,300	$	(159,832	)



	Nine Months Ended September 30, 2014
	Parent / Issuer			Guarantor Subsidiaries		Eliminations			Consolidated
Net (loss) income	$	(17,236	)	$	5,621	$	(5,621	)	$	(17,236	)
Other comprehensive income:
Postretirement benefit plan and other employee benefit obligation	—			78		—			78
Other comprehensive income	—			78		—			78
Comprehensive (loss) income	(17,236		)	5,699		(5,621		)	(17,158		)
Less: comprehensive income (loss) attributable to non-controlling interest	—			—		—			—
Comprehensive (loss) income attributable to common stockholders	$	(17,236	)	$	5,699	$	(5,621	)	$	(17,158	)

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Supplemental Condensed Consolidating Statements of Cash Flows



	Nine Months Ended September 30, 2015
	Parent / Issuer			Guarantor Subsidiaries			Consolidated
Cash Flows from Operating Activities:
Net cash (used in) provided by operating activities:	$	(13,972	)	$	49,908		$	35,936
Cash Flows from Investing Activities:
Investment in property, plant, equipment, and mine development	(1,864		)	(15,017		)	(16,881		)
Proceeds from disposal of fixed assets	—			475			475
Net cash used in investing activities	(1,864		)	(14,542		)	(16,406		)
Cash Flows from Financing Activities:
Payment on capital lease obligations	—			(2,017		)	(2,017		)
Payment of long-term debt	—			(4,470		)	(4,470		)
Transactions with affiliates, net	15,836			(15,836		)	—
Net cash provided by (used in) financing activities	15,836			(22,323		)	(6,487		)
Net change in cash and cash equivalents	—			13,043			13,043
Cash and cash equivalents, at the beginning of the period	—			59,518			59,518
Cash and cash equivalents, at the end of the period	$	—		$	72,561		$	72,561



	Nine Months Ended September 30, 2014
	Parent / Issuer			Guarantor Subsidiaries			Consolidated
Cash Flows from Operating Activities:
Net cash (used in) provided by operating activities:	$	(14,632	)	$	51,453		$	36,821
Cash Flows from Investing Activities:
Investment in property, plant, equipment, and mine development	(955		)	(14,006		)	(14,961		)
Proceeds from disposal of fixed assets	—			5			5
Net cash used in investing activities	(955		)	(14,001		)	(14,956		)
Cash Flows from Financing Activities:
Payment on capital lease obligations	—			(2,008		)	(2,008		)
Payment of long-term debt	—			(4,684		)	(4,684		)
Proceeds from sale-leaseback	—			986			986
Payment of financing costs and fees	(1,000		)	—			(1,000		)
Repurchase of employee stock relinquished for tax withholdings	(87		)	—			(87		)
Transactions with affiliates, net	16,674			(16,674		)	—
Net cash provided by (used in) financing activities	15,587			(22,380		)	(6,793		)
Net change in cash and cash equivalents	—			15,072			15,072
Cash and cash equivalents, at the beginning of the period	—			51,632			51,632
Cash and cash equivalents, at the end of the period	$	—		$	66,704		$	66,704

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the SEC) on March 26, 2015.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Various statements contained in this quarterly report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this quarterly report speak only as of the date of this quarterly report; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, contingencies and uncertainties include, but are not limited to, the following:


•	market demand for coal and electricity;


•	geologic conditions, weather and other inherent risks of coal mining that are beyond our control;


•	competition within our industry and with producers of competing energy sources;


•	excess production and production capacity;


•	our ability to acquire or develop coal reserves in an economically feasible manner;


•	inaccuracies in our estimates of our coal reserves;


•	availability and price of mining and other industrial supplies, including steel-based supplies, diesel fuel, rubber tires and explosives;


•	the continued weakness in global economic conditions or in any industry in which our customers operate, or sustained uncertainty in financial markets, which may cause conditions we cannot predict;


•	coal users switching to other fuels in order to comply with various environmental standards related to coal combustion;


•	volatility in the capital and credit markets;


•	availability of skilled employees and other workforce factors;


•	our ability to collect payments from our customers;


•	defects in title or the loss of a leasehold interest;


•	railroad, barge, truck and other transportation performance costs;


•	our ability to secure new coal supply arrangements or to renew existing coal supply arrangements;


•	the deferral of contracted shipments of coal by our customers;

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•	liquidity constraints and our ability to service our outstanding indebtedness;


•	our ability to comply with the restrictions imposed by our revolving credit facility, the indenture governing our notes and other financing arrangements;


•	the availability and cost of surety bonds;


•	our ability to obtain and renew various permits, including permits authorizing the disposition of certain mining waste;


•	existing and future legislation and regulations affecting both our coal mining operations and our customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxide, nitrogen oxides, or toxic gases, such as hydrogen chloride, particulate matter or greenhouse gases;


•	the accuracy of our estimates of reclamation and other mine closure obligations;


•	our ability to attract and retain key management personnel; and


•	efforts to organize our workforce for representation under a collective bargaining agreement.

When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in our other SEC filings, including the more detailed discussion of these factors and other factors that could affect our results included in “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 26, 2015, as may be updated in subsequent filings with the SEC.

Overview

Armstrong Energy, Inc. (together with its subsidiaries, we or the Company) is a producer of low chlorine, high sulfur thermal coal from the Illinois Basin, with both surface and underground mines. We market our coal primarily to proximate and investment grade electric utility companies as fuel for their steam-powered generators. Based on 2014 production, we are the sixth largest producer in the Illinois Basin and the second largest in Western Kentucky. We were formed in 2006 to acquire and develop a large coal reserve holding. We commenced production in the second quarter of 2008 and currently operate seven mines, including four surface and three underground. We control approximately 563 million tons of proven and probable coal reserves. We also own and operate three coal processing plants, which support our mining operations. From our reserves, we mine coal from multiple seams that, in combination with our coal processing facilities, enhance our ability to meet customer requirements for blends of coal with different characteristics. The locations of our coal reserves and operations, adjacent to the Green River, together with our river dock coal handling and rail loadout facilities, allow us to optimize coal blending and handling, and provide our customers with rail, barge and truck transportation options.

We market our coal primarily to large utilities with coal-fired, base-load, scrubbed power plants under multi-year coal supply agreements. Our multi-year coal supply agreements usually have specific volume and pricing arrangements for each year of the agreement. These agreements allow customers to secure a supply for their future needs and provide us with greater predictability of sales volume and sales prices. At September 30, 2015, we had coal supply agreements with terms ranging from one to five years. As of September 30, 2015, we are contractually committed to sell approximately 8.4 million tons of coal in 2015. We expect our average realized price per ton for 2015 to be $46.29.

Recent Developments

Asset Impairment and Restructuring Charges

Due to the prolonged weakness in the U.S. thermal coal markets, in the third quarter of 2015, we performed a comprehensive review of our long-lived assets, including our current coal mining operations as well as potential future development projects, to ascertain any potential impairment losses. We determined the carrying value of our long-lived assets was not recoverable based upon changes in our strategic plans, market conditions or other factors. As a result, we recorded a non-cash asset impairment of approximately $137.7 million during the three months ended September 30, 2015.

In addition, we initiated certain restructuring activities during the third quarter of 2015 to better align our cost structure with current industry conditions. Costs associated with these restructuring activities primarily include voluntary and

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involuntary workforce rationalization. During the three months ended September 30, 2015, we recognized restructuring charges of approximately $1.0 million.

The above noted charges are included within “Asset impairment and restructuring charges” in the condensed consolidated statements of operations.

Revisions to Mine Plans

Our Lewis Creek underground mine, which produced coal from the West Kentucky #9 seam, experienced significant operating inefficiencies due to the geological conditions of the portion of the reserve being mined. As a result of the ongoing mining difficulties, a final decision was made in August 2014 not to continue advancing under the current mine plan, but rather to retreat and mine only in the eastern portion of the reserve.

We completed mining of the Lewis Creek underground mine in March 2015 and have extracted the equipment, which will be utilized at our other mining operations in the future. As a result of the closure, we accelerated depreciation of the remaining net book value of the capitalized costs associated with the original development of the mine. Total expense recognized during the first quarter of 2015 to write-off the remaining asset was approximately $6.3 million, which is included as a component of "depreciation, depletion, and amortization" (DD&A) in the condensed consolidated statement of operations for the nine months ended September 30, 2015.

In addition to the above, we periodically adjust our mine plans based on changes in current market conditions, the regulatory environment, and the anticipated cost structure at each of our mines. During the first quarter of 2015, we reevaluated the mine plans for certain of our surface operations and, as a result, determined the estimated useful lives of a portion of the machinery and equipment had been reduced based on the expected future utilization of these assets. As such, we have reduced the depreciable lives of the identified machinery and equipment which increased depreciation expense by approximately $0.6 million and $1.8 million for the three and nine months ended September 30, 2015, respectively, and will continue to increase depreciation expense on a prospective basis.

Sale of Coal Reserves

On May 1, 2015, we sold a 12.10% undivided interest in certain leased and owned land and mineral reserves to our affiliate, Thoroughbred Resources, L.P. (Thoroughbred), in exchange for Thoroughbred forgiving amounts owed by the Company of $18.2 million, which consisted primarily of deferred production royalties. The newly acquired interests in the mineral reserves were leased and/or subleased by Thoroughbred to us in exchange for a production royalty. Similar to previous reserve transfers, this transaction was accounted for as a financing arrangement, and an additional long-term obligation to Thoroughbred of $18.2 million was recognized in the second quarter of 2015.

The percentage interest in the land and mineral reserves sold was based on a fair value determined by a third-party specialist. As a result of this transaction, Thoroughbred’s undivided interest in certain of the Company’s leased and owned land and mineral reserves in Muhlenberg and Ohio counties increased to 61.38%. See Note 7, “Related Party Transactions,” to the unaudited condensed consolidated financial statements included in this report and “Item 13—Certain Relationships and Related Party Transactions, and Director Independence” in our Annual Report on Form 10-K filed with the SEC on March 26, 2015 for additional information concerning our leases with related parties.

Results of Operations

Non-GAAP Financial Information

Adjusted EBITDA, as presented in this Quarterly Report on Form 10-Q, is a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. generally accepted accounting (GAAP). It is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income (loss) or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as measures of our liquidity.

We define “Adjusted EBITDA” as net income (loss) before deducting net interest expense, income taxes, depreciation, depletion and amortization, asset retirement obligation expense, non-cash production royalty to related party, loss on settlement of interest rate swap, loss on deferment of equity offering, gain on settlement of asset retirement obligations, non-cash stock compensation expense, non-cash employee benefit expense, asset impairment and restructuring charges, non-cash charges related to non-recourse notes, gain on deconsolidation, and (gain) loss on extinguishment of debt. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers and analysts calculate Adjusted EBITDA in the same manner. We present

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Adjusted EBITDA because we consider it an important supplemental measure of our performance and believe it is useful to an investor in evaluating our Company. We also include a quantitative reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net income (loss), in the sections that follow.

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Summary



	Three Months Ended September 30,						Change
	2015			2014			Amount			Percentage
	(In thousands, except per ton amounts)
Tons of coal sold	1,930			2,312			(382		)	(16.5	)%
Total revenue	$	89,206		$	108,935		$	(19,729	)	(18.1	)%
Average sales price per ton	$	46.22		$	47.12		$	(0.90	)	(1.9	)%
Cost of coal sales¹	$	69,843		$	88,068		$	18,225		20.7	%
Average cost of sales per ton¹	$	36.19		$	38.09		$	1.90		5.0	%
Net loss	$	(145,786	)	$	(7,798	)	$	(137,988	)	(1,769.5	)%
Adjusted EBITDA²	$	16,126		$	16,131		$	(5	)	—	%


¹	Includes revenue-based production taxes and royalties; excludes depreciation, depletion, and amortization, asset retirement obligation expenses, and general and administrative costs.


²	Non-GAAP measure; please see definition above and reconciliation below.

Revenue

Our coal sales revenue for the three months ended September 30, 2015 decreased by $19.7 million, or 18.1%, to $89.2 million, as compared to $108.9 million for the three months ended September 30, 2014. This decrease is attributable to an unfavorable volume variance of approximately $18.0 million year-over-year due to a decline in customer demand resulting in the delay of shipments and an unfavorable price variance of approximately $1.7 million due to unfavorable customer mix as well as unfavorable transportation adjustments included as a component of the price in certain of our long-term coal supply agreements as a result of declining diesel prices, as compared to the three months ended September 30, 2014.

Cost of Coal Sales

Cost of coal sales decreased 20.7% to $69.8 million in the three months ended September 30, 2015, from $88.1 million in the same period of 2014. The decline is attributable to selling 0.4 million tons less and a reduction in the operating cost per ton in the third quarter of 2015, as compared to the same period of 2014. On a per ton basis, our cost of coal sales decreased during the three months ended September 30, 2015, compared to the same period of 2014, from $38.09 per ton to $36.19 per ton. This decrease in the per ton amounts is due to the closure of our Lewis Creek underground mine in the first quarter of 2015, as this was a high cost operation due to the poor geological conditions of the mine, lower repair and maintenance costs at our underground mines, lower diesel fuel costs and better mining conditions experienced in the current year.

Production Royalty to Related Party

Production royalty to related party declined $0.1 million, or 3.4%, to $2.0 million during the three months ended September 30, 2015, as compared to the same period of 2014. This amount relates to production royalties earned by our affiliate, Thoroughbred, from sales originating from our Kronos underground mine (where the mineral reserves are leased directly from Thoroughbred). The reduction is due to sales volume declines experienced at our Kronos underground mine during the current quarter, along with lower average prices in the current quarter, as compared to the same period of 2014.

Depreciation, Depletion and Amortization

DD&A expense decreased by $2.3 million, or 17.0%, to $11.0 million during the three months ended September 30, 2015, as compared to the same period of 2014. The decrease is due to the accelerated depreciation of the capitalized mine development costs associated with the Lewis Creek underground mine that began during the three months ended September 30, 2014 and was completed by March 31, 2015. This was partially offset by the impact of the revision to the useful lives of a portion of the machinery and equipment associated with certain of our surface mines during the three months ended September 30, 2015.

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Asset Retirement Obligation Expenses

Asset retirement obligation expenses increased by $0.2 million, or 35.0%, to $0.8 million in the three months ended September 30, 2015, as compared to the same period of 2014. The increase is primarily attributable to changes in asset retirement cost estimates based on revisions to discount rates, reserve valuations and projected mine lives.

Asset Impairment and Restructuring Charges

During the three months ended September 30, 2015 and 2014, we recognized asset impairment and restructuring charges of $138.7 million and zero, respectively. The current quarter charges are attributable to the continuing adverse market conditions experienced during the current year. See Note 2 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of our asset impairment and restructuring charges.

General and Administrative Expenses

General and administrative (G&A) expenses were $3.6 million for the three months ended September 30, 2015, which was $1.2 million, or 24.9%, lower than the three months ended September 30, 2014. The decrease in the three months ended September 30, 2015, as compared to the same period of 2014, is due primarily to lower expenses for labor and benefits ($0.7 million) and professional services ($0.3 million).

Interest Expense, Net

Interest expense, net is derived from the following components:



	Three Months Ended September 30,
	2015			2014
	(In thousands)
11.75% Senior Secured Notes due 2019	$	5,875		$	5,875
Senior Secured Credit Facility	—			—
Long-term obligation to related party	2,675			1,848
Other, net	794			572
Capitalized interest	(141		)	(270		)
Total	$	9,203		$	8,025

Interest expense, net was $9.2 million for the three months ended September 30, 2015, as compared to $8.0 million for the three months ended September 30, 2014. The increase is principally attributable to an increase in the effective interest rate on the long-term obligation to related party due to revisions in the mine plan at December 31, 2014 and the increase in the principal balance of the long-term obligation to related party from the completion of the reserve transfers to Thoroughbred in October 2014 and May 2015, which increased the principal balance on the obligation by $6.1 million and $18.2 million, respectively.

Net Loss

Net loss for the three months ended September 30, 2015 was $145.8 million, as compared to a net loss of $7.8 million for the same period of 2014. The increase in net loss is driven by the asset impairment and restructuring charges of $138.7 million, lower gross margin of $1.5 million and higher interest expense of $1.2 million, partially offset by a decrease in DD&A and G&A expenses of $2.3 million and $1.2 million, respectively.

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Adjusted EBITDA

The following table reconciles Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure:



	Three Months Ended September 30,
	2015			2014
	(In thousands)
Net loss	$	(145,786	)	$	(7,798	)
Depreciation, depletion, and amortization	10,990			13,240
Asset retirement obligation expenses	756			560
Non-cash production royalty to related party	1,980			2,049
Interest expense, net	9,203			8,025
Income tax provision	54			—
Asset impairment and restructuring charges	138,679			—
Non-cash employee benefit expense	167			—
Non-cash stock compensation expense	83			55
Adjusted EBITDA	$	16,126		$	16,131

Our Adjusted EBITDA for the three months ended September 30, 2015 and 2014 remained consistent at $16.1 million. The decline in gross margin of $1.5 million in the three months ended September 30, 2015, as compared to the same period of 2014, was substantially offset by the decrease in G&A expenses.

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Summary



	Nine Months Ended September 30,						Change
	2015			2014			Amount			Percentage
	(In thousands, except per ton amounts)
Tons of coal sold	5,935			7,143			(1,208		)	(16.9	)%
Total revenue	$	278,680		$	336,088		$	(57,408	)	(17.1	)%
Average sales price per ton	$	46.96		$	47.05		$	(0.09	)	(0.2	)%
Cost of coal sales¹	$	218,826		$	273,353		$	54,527		19.9	%
Average cost of sales per ton¹	$	36.87		$	38.27		$	1.40		3.7	%
Net loss	$	(160,146	)	$	(17,236	)	$	(142,910	)	(829.1	)%
Adjusted EBITDA²	$	52,794		$	48,321		$	4,473		9.3	%


¹	Includes revenue-based production taxes and royalties; excludes depreciation, depletion, and amortization, asset retirement obligation expenses, and general and administrative costs.


²	Non-GAAP measure; please see definition above and reconciliation below.

Revenue

Our coal sales revenue for the nine months ended September 30, 2015 decreased by $57.4 million, or 17.1%, to $278.7 million, as compared to $336.1 million for the nine months ended September 30, 2014. This decrease is primarily attributable to an unfavorable volume variance of approximately $56.8 million year-over-year due to production and delivery issues during the first quarter of 2015 resulting from the inclement weather experienced in western Kentucky and a decline in customer demand resulting in the delay of shipments during the second quarter. In addition, we experienced an unfavorable price variance of approximately $0.6 million driven by customer mix.

Cost of Coal Sales

Cost of coal sales decreased 19.9% to $218.8 million in the nine months ended September 30, 2015, from $273.4 million in the same period of 2014. The decline is primarily attributable to selling 1.2 million tons less coal in the first nine months of 2015, as compared to the same period of 2014. On a per ton basis, our cost of coal sales decreased during the nine months ended September 30, 2015, as compared to the same period of 2014, from $38.27 per ton to $36.87 per ton. This decrease in the

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per ton amounts is due to favorable repair and maintenance costs experienced at our underground mines, lower blasting costs incurred by our surface mines, lower fuel costs and better mining conditions experienced in the first nine months of 2015, partially offset by the impacts of adverse weather conditions that occurred in the first quarter of 2015.

Production Royalty to Related Party

Production royalty to related party was $6.0 million and $6.3 million, respectively, for the nine months ended September 30, 2015 and 2014, respectively. This amount relates to production royalties earned by our affiliate, Thoroughbred, from sales originating from our Kronos underground mine (where the mineral reserves are leased directly from Thoroughbred). Sales volume declines experienced at our Kronos underground mine during the nine months ended September 30, 2015, along with slightly lower average prices in the current year, resulted in the decline in the production royalty earned by Thoroughbred in the nine months ended September 30, 2015, as compared to the same period of 2014.

Depreciation, Depletion and Amortization

DD&A expense increased by $5.2 million, or 15.7%, to $38.4 million during the nine months ended September 30, 2015, as compared to the same period of 2014. The increase is primarily due to the accelerated depreciation of the capitalized mine development costs associated with the Lewis Creek underground mine resulting from the closure of the mine in the first quarter of 2015 and the impact of the revision during the first quarter of 2015 to the useful lives of a portion of the machinery and equipment associated with certain of our surface mines.

Asset Retirement Obligation Expenses

Asset retirement obligation expenses increased by $0.8 million, or 49.2%, to $2.3 million in the nine months ended September 30, 2015, as compared to the same period of 2014. The increase is primarily attributable to changes in asset retirement cost estimates based on revisions to discount rates, reserve valuations and projected mine lives.

Asset Impairment and Restructuring Charges

During the nine months ended September 30, 2015 and 2014, we recognized asset impairment and restructuring charges of $138.7 million and zero, respectively. The current year charges are attributable to the continuing adverse market conditions experienced during the current year. See Note 2 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of our asset impairment and restructuring charges.

General and Administrative Expenses

G&A expenses were $12.6 million for the nine months ended September 30, 2015, which was $2.3 million, or 15.3%, lower than the nine months ended September 30, 2014. The decrease in the nine months ended September 30, 2015, as compared to the same period of 2014, is due primarily to lower labor and benefits expense.

Interest Expense, Net

Interest expense, net is derived from the following components:



	Nine Months Ended September 30,
	2015			2014
	(In thousands)
11.75% Senior Secured Notes due 2019	$	17,625		$	17,625
Senior Secured Credit Facility	—			—
Long-term obligation to related party	8,311			5,512
Other, net	2,291			1,942
Capitalized interest	(1,777		)	(520		)
Total	$	26,450		$	24,559

Interest expense, net was $26.5 million for the nine months ended September 30, 2015, as compared to $24.6 million for the nine months ended September 30, 2014. The increase is principally attributable to an increase in the effective interest rate on the long-term obligation to related party due to revisions in the mine plan at December 31, 2014 and the increase in the principal balance of the long-term obligation to related party from the completion of the reserve transfers to Thoroughbred in

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October 2014 and May 2015, which increased the principal balance on the obligation by $6.1 million and $18.2 million, respectively. The year-over-year increase in interest expense was partially offset by a higher amount of capitalized interest during the first three quarters of 2015, as compared to the same period of 2014.

Other, Net

Other, net for the nine months ended September 30, 2015 and 2014 was $4.8 million and $0.5 million, respectively. The increase is due to a $4.5 million refund during the second quarter of 2015 for a portion of Kentucky sales and use taxes paid on the purchase of certain energy and energy producing fuels for the period of 2008 through 2013.

Net Loss

Net loss for the nine months ended September 30, 2015 was $160.1 million, as compared to $17.2 million for the same period of 2014. The increase in net loss is largely due to the asset impairment and restructuring charges of $138.7 million, as well as the the decline in gross margin ($2.9 million) and increase in DD&A expense ($5.2 million), partially offset by the refund of certain previously paid Kentucky sales and use taxes during the second quarter of 2015.

Adjusted EBITDA

The following table reconciles Adjusted EBITDA to net loss, the most directly comparable GAAP measure:



	Nine Months Ended September 30,
	2015			2014
	(In thousands)
Net loss	$	(160,146	)	$	(17,236	)
Depreciation, depletion, and amortization	38,399			33,178
Asset retirement obligation expenses	2,340			1,568
Non-cash production royalty to related party	6,034			6,313
Interest expense, net	26,450			24,559
Income tax provision	313			—
Asset impairment and restructuring charges	138,679			—
Non-cash employee benefit expense	501			—
Non-cash stock compensation expense (income)	224			(61		)
Adjusted EBITDA	$	52,794		$	48,321

Our Adjusted EBITDA for the nine months ended September 30, 2015 was $52.8 million, as compared to $48.3 million for the nine months ended September 30, 2014. The increase in Adjusted EBITDA resulted primarily from the $4.5 million Kentucky sales and use tax refund during the second quarter of 2015 and lower G&A costs in the first nine months of 2015, exclusive of stock compensation expense, partially offset by a decline in the current year gross margin as a result of the decline in sales volume in the nine months ended September 30, 2015, as compared to the same period of 2014.

Liquidity and Capital Resources

Liquidity

Our business is capital intensive and requires substantial capital expenditures for purchasing, upgrading and maintaining equipment used in mining our reserves, as well as complying with applicable environmental laws and regulations. Our principal liquidity requirements are to finance current operations, fund capital expenditures, including acquisitions from time to time, and to service our debt. Historically, our primary sources of liquidity to meet these needs have been cash generated by our operations, borrowings under our credit facilities and contributions from our equity holders.

On December 21, 2012, we completed a $200.0 million offering of 11.75% senior secured notes due 2019 (the Notes) and received proceeds of $193.1 million, as the Notes were issued at an original issue discount of 96.567%. Interest on the Notes is due semiannually on June 15 and December 15 of each year. In connection with the offering, we prepaid and terminated our then existing senior secured credit facility. In addition, we entered into a new asset based revolving credit facility, which provides for revolving borrowings of up to $50.0 million (the 2012 Credit Facility).

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The principal indicators of our liquidity are our cash on hand and availability under the 2012 Credit Facility. As of September 30, 2015, our available liquidity was $93.6 million, comprised of cash on hand of $72.6 million and $21.0 million available under the 2012 Credit Facility.

We believe that existing cash balances, cash generated from operations and borrowings under the 2012 Credit Facility will be sufficient to meet working capital requirements, anticipated capital expenditures and debt service requirements for the remainder of 2015 and 2016. As a result of the weak market conditions and depressed coal prices, we have undertaken steps to adequately maintain liquidity and manage operating costs, including efficiently controlling capital expenditures. If market conditions do not improve, we expect to take further action, which could include additional reductions in production volumes and capital expenditures.

We manage our exposure to changing commodity prices for our long-term coal contract portfolio through the use of multi-year coal supply agreements. We generally enter into fixed price, fixed volume supply contracts with terms greater than one year with customers with whom we have historically had limited collection issues. Our ability to satisfy debt service obligations, to fund planned capital expenditures, and to make acquisitions, will depend upon our future operating performance, which will be affected by prevailing economic conditions in the coal industry and financial, business and other factors, some of which are beyond our control.

Cash Flows

The following table reflects cash flows for the applicable periods:



	Nine Months Ended September 30,
	2015			2014
	(In thousands)
Net cash provided by (used in):
Operating activities	$	35,936		$	36,821
Investing activities	$	(16,406	)	$	(14,956	)
Financing activities	$	(6,487	)	$	(6,793	)

Nine Months Ended September 30, 2015 Compared to nine Months Ended September 30, 2014

Net cash provided by operating activities was $35.9 million for the nine months ended September 30, 2015, a decrease of $0.9 million from net cash provided by operating activities of $36.8 million for the same period of 2014. Operating results were negatively impacted during the first nine months of 2015 due to a decline in gross margin resulting primarily from lower shipments during this period, as compared to the same period of 2014. Substantially offsetting this decline is a reduction in G&A expenses from lower labor and benefits expense. In addition, operating results were favorably impacted from the receipt of a Kentucky sales and use tax refund totaling approximately $4.5 million during the second quarter of 2015, which is included as a component of other, net. Positively impacting cash flows from operations for the nine months ended September 30, 2015 was an increase in the net related party liabilities of $13.1 million due to the deferment of amounts owed to our affiliate, Thoroughbred, including interest and royalties earned on leased reserves. Negatively impacting operating cash flows was an increase in inventory due of the timing of shipments and a decrease in accounts payable and accrued and other liabilities due to the timing of payments. Cash flows from operations for the nine months ended September 30, 2014 were positively impacted by an increase in accounts payable and accrued and other liabilities of $4.3 million and net related party liabilities of $10.7 million due to the deferment of amounts owed to Thoroughbred. Negatively impacting operating cash flows was an increase in other non-current assets during the nine months ended September 30, 2014 due to an increase in collateral posted against outstanding surety bonds, which are used to secure the performance of our reclamation obligations, as well as an increase in accounts receivable related to the increase in revenue and the timing of cash receipts.

Net cash used in investing activities increased $1.5 million to $16.4 million for the nine months ended September 30, 2015, compared to $15.0 million for the same period of 2014. The current year investment is primarily attributable to capital expenditures for equipment and mine development associated with a new underground mine at our Parkway complex, whereas the prior year investment is largely attributable to capital expenditures to maintain our existing fixed assets.

Net cash used in financing activities was $6.5 million for the nine months ended September 30, 2015, as compared to net cash used in financing activities of $6.8 million for the nine months ended September 30, 2014. The current year and prior year activity relates primarily to scheduled capital lease and other long-term debt payments.

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Contractual Obligations

Our contractual obligations have not changed materially from the disclosures in our Annual Report on Form 10-K filed with the SEC on March 26, 2015.

Capital Expenditures

Our mining operations require investments to expand, upgrade or enhance existing operations and to comply with environmental and safety regulations. Our anticipated total capital expenditures for 2015 are estimated to be within a range of $20.0 million to $23.0 million. Management anticipates funding capital requirements with current cash balances and cash flows provided by operations. We will continue to have significant capital requirements over the long-term, which may require us to incur debt or seek additional equity capital. The availability and cost of additional capital will depend upon our financial condition and results of operations, as well as prevailing market conditions and several other factors over which we have limited control.

Mine Development Costs

Mine development costs are capitalized until production commences, other than production incidental to the mine development process, and are amortized on a units-of-production method based on the estimated proven and probable reserves. Mine development costs represent costs incurred in establishing access to mineral reserves and include costs associated with sinking or driving shafts and underground drifts, permanent excavations, roads and tunnels. The end of the development phase and the beginning of the production phase takes place when construction of the mine for economic extraction is substantially complete. Our estimate of when construction of the mine for economic extraction is substantially complete is based upon a number of assumptions, such as expectations regarding the economic recoverability of reserves, the type of mine under development, and the completion of certain mine requirements, such as ventilation. Coal extracted during the development phase is incidental to the mine’s production capacity and is not considered to shift the mine into the production phase.

During the third quarter of 2015, we completed development of an additional underground mine at our Parkway complex to extract coal from the West Kentucky #8 seam. Annual production capacity at the mine is eventually expected to be expanded to approximately 2.4 million tons. Capitalized development costs for the new mine totaled approximately $25.2 million.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements include guarantees and financial instruments with off-balance sheet risk, such as surety bonds and performance bonds. No liabilities related to these arrangements are reflected in our consolidated balance sheet, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.

Federal and state laws require us to secure certain long-term obligations such as mine closure and reclamation costs and other obligations. We typically secure these obligations by using surety bonds, an off-balance sheet instrument. The use of surety bonds is less expensive for us than the alternative of posting a 100% cash bond. To the extent that surety bonds become unavailable, we would seek to secure our reclamation obligations with letters of credit, cash deposits or other suitable forms of collateral. We also post performance bonds to secure our performance of various contractual obligations.

As of September 30, 2015, we had approximately $34.3 million in surety bonds outstanding to secure the performance of our reclamation obligations, which were supported by approximately $6.0 million of cash posted as collateral.

Related Party Transactions

In the normal course of business, we engage in certain related party transactions with Thoroughbred, as well as other affiliated parties. These transactions generally include production and overriding royalties, administrative service agreements, reserve leases, and certain financing arrangements. For more information regarding our related party transactions, see Note 7, “Related Party Transactions,” to the unaudited condensed consolidated financial statements included in this report and “Item 13—Certain Relationships and Related Party Transactions, and Director Independence” in our Annual Report on Form 10-K filed with the SEC on March 26, 2015.

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

The most significant areas requiring the use of management estimates and assumptions relate to units-of-production amortization calculations, asset retirement obligations, useful lives for depreciation of fixed assets, and the accounting for the long-term obligation to related party. For a full discussion of our accounting estimates and assumptions that we have identified as critical in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K filed with the SEC on March 26, 2015.

Recent Accounting Pronouncements

In May 2014, the FASB issued a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard requires revenue to be recognized when promised goods or services are transferred to a customer in an amount that reflects the consideration expected in exchange for those goods or services. The standard permits the use of either the full retrospective or modified retrospective transition method. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted to the original effective date of December 15, 2016. We are currently evaluating the impact of this new pronouncement on its financial statements.

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. We believe our principal market risks are commodity price risk and credit risk.

Commodity Price Risk

We sell most of the coal we produce under multi-year coal supply agreements. Historically, we have principally managed the commodity price risks from our coal sales by entering into multi-year coal supply agreements of varying terms and durations, rather than through the use of derivative instruments.

Some of the products used in our mining activities, such as diesel fuel, explosives and steel products for roof support used in our underground mining, are subject to price volatility. Through our suppliers, we utilize forward purchases to manage a portion of our exposure related to diesel fuel volatility. A hypothetical increase of $0.10 per gallon for diesel fuel would have negatively impacted our results of operations by $0.2 million and $0.5 million for the three and nine months ended September 30, 2015, respectively. A hypothetical increase of 10% in steel prices would have negatively impacted our results of operations by $0.4 million and $1.3 million for the three and nine months ended September 30, 2015, respectively. A hypothetical increase of 10% in explosives prices would have negatively impacted our results of operations by $0.3 million and $1.0 million for the three and nine months ended September 30, 2015, respectively.

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Credit Risk

Most of our coal sales are made to electric utilities. Therefore, our credit risk is primarily with domestic electric power generators. Our policy is to independently evaluate each customer’s creditworthiness prior to entering into a transaction with the customer and to constantly monitor outstanding accounts receivable against established credit limits. When deemed appropriate, we will take steps to reduce credit exposure to customers that do not meet our credit standards or whose credit has deteriorated. Credit losses are provided for in the financial statements and have historically been minimal.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2015. Based upon such review and evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the date of such evaluation to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the third quarter of 2015, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are involved from time to time in various lawsuits and claims arising in the ordinary course of business. Although the outcomes of these lawsuits and claims are uncertain, we do not believe any of them will have a material adverse effect on our business, financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” sections in the Annual Report on Form 10-K for the year ended December 31, 2014, together with the cautionary statement under the caption “Cautionary Statement Regarding Forward-Looking Statements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report. Except as set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K filed with the SEC on March 26, 2015.

We may not recover our investments in our mining and other related assets, which may require us to recognize non-cash impairment charges related to those assets.

The value of our assets may be adversely affected by numerous uncertain factors, some of which are beyond our control, including:


•	unfavorable changes in the economic environments in which we operate;


•	lower-than-expected demand and coal pricing;


•	unfavorable regulatory or legal developments impacting our industry;


•	technical and geological operating difficulties;


•	an inability to economically extract our coal reserves; and


•	unanticipated increases in operating costs.

These may cause us to fail to recover all or a portion of our investments in those assets and may trigger the recognition of non-cash impairment charges in the future, which could have a substantial adverse impact on our results of operations. Because of the volatile nature of U.S. coal markets, it is reasonably possible that our current estimates of projected future cash flows from our mining assets may change in the near term, which may result in the need for adjustments to the carrying value of mineral rights and other mining assets.

Item 4. Mine Safety Disclosures

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 Quarterly Report on Form 10-Q.

Item 5. Other Information

(a) None

(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the fiscal quarter ended September 30, 2015.

Item 6. Exhibits



		Incorporated by Reference				Filed or Furnished Herewith
Exhibit Number	Description	Form	File Number	Exhibit	Filing Date	Filed or Furnished Herewith

10.1	Employment Agreement by and between Armstrong Energy, Inc. and Jeffrey F. Winnick, dated as of September 1, 2015					X

31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

32.1#	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X

32.2#	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X

95.1	Federal Mine Safety and Health Act Information.					X

101.INS	XBRL Instance Document					X

101.SCH	XBRL Taxonomy Extension Scheme Document					X

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X

101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X



#	This certification is deemed not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	ARMSTRONG ENERGY, INC.

Date: November 12, 2015	By:	/s/ Jeffrey F. Winnick
		Jeffrey F. Winnick
		Vice President and Chief Financial Officer
		(On behalf of the registrant and as Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company