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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2021

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                      .

Commission file number: 1-13105

Graphic

Arch Resources, Inc.

(Exact name of registrant as specified in its charter)

Delaware

    

43-0921172

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification Number)

One CityPlace Drive

    

Suite 300

St. Louis

Missouri

63141

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (314) 994-2700

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, $.01 par value

ARCH

New York Stock Exchange

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. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes   No 

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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   No 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes   No 

At October 18, 2021 there were 15,316,069 shares of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS

Page

Part I FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

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

30

Item 3. Quantitative and Qualitative Disclosures About Market Risk

48

Item 4. Controls and Procedures

48

Part II OTHER INFORMATION

49

Item 1. Legal Proceedings

49

Item 1A. Risk Factors

49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 4. Mine Safety Disclosures

49

Item 6. Exhibits

50

Signatures

55

2

Table of Contents

Part I

FINANCIAL INFORMATION

Item 1.Financial Statements.

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

    

    

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

(Unaudited)

(Unaudited)

Revenues

$

594,412

$

382,261

$

1,402,345

$

1,107,014

Costs, expenses and other operating

 

 

 

 

 

Cost of sales (exclusive of items shown separately below)

 

423,826

 

345,539

 

1,089,061

 

1,036,886

 

Depreciation, depletion and amortization

 

30,760

 

32,630

 

84,441

 

94,105

 

Accretion on asset retirement obligations

 

5,437

 

4,947

 

16,311

 

14,939

 

Change in fair value of coal derivatives and coal trading activities, net

 

19,641

 

2,649

 

28,931

 

3,263

 

Selling, general and administrative expenses

 

21,081

 

21,541

 

66,679

 

64,024

 

Costs related to proposed joint venture with Peabody Energy

 

 

4,423

 

 

15,938

 

Asset impairment and restructuring

163,106

176,371

Gain on property insurance recovery related to Mountain Laurel longwall

 

 

 

 

(23,518)

 

Gain on divestitures

 

 

 

 

(1,369)

 

Other operating income, net

 

(1,731)

 

(4,894)

 

(11,344)

 

(16,768)

 

 

499,014

 

569,941

 

1,274,079

 

1,363,871

 

Income (loss) from operations

 

95,398

 

(187,680)

 

128,266

 

(256,857)

 

Interest expense, net

 

  

 

  

 

  

 

  

 

Interest expense

 

(6,151)

 

(2,989)

 

(13,220)

 

(9,900)

 

Interest and investment income

 

 

459

 

474

 

3,511

 

 

(6,151)

 

(2,530)

 

(12,746)

 

(6,389)

 

Income (loss) before nonoperating expenses

 

89,247

 

(190,210)

 

115,520

 

(263,246)

 

Nonoperating (expenses) income

 

  

 

  

 

  

 

  

 

Non-service related pension and postretirement benefit costs

 

(1,186)

 

(878)

 

(3,252)

 

(3,076)

 

Reorganization items, net

 

 

 

 

26

 

 

(1,186)

 

(878)

 

(3,252)

 

(3,050)

 

Income (loss) before income taxes

 

88,061

 

(191,088)

 

112,268

 

(266,296)

 

Provision for (benefit from) income taxes

 

(1,082)

 

379

 

1,301

 

(206)

 

Net income (loss)

$

89,143

$

(191,467)

$

110,967

$

(266,090)

Net income (loss) per common share

 

  

 

  

 

  

 

  

Basic earnings (loss) per share

$

5.83

$

(12.64)

$

7.26

$

(17.57)

Diluted earnings (loss) per share

$

4.92

$

(12.64)

$

6.49

$

(17.57)

Weighted average shares outstanding

 

  

 

  

 

  

 

  

Basic weighted average shares outstanding

 

15,302

 

15,147

 

15,293

 

15,144

Diluted weighted average shares outstanding

 

18,105

 

15,147

 

17,101

 

15,144

Dividends declared per common share

$

$

$

$

0.50

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

Table of Contents

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

    

    

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

(Unaudited)

(Unaudited)

Net income (loss)

$

89,143

$

(191,467)

$

110,967

$

(266,090)

Derivative instruments

 

  

 

  

 

  

 

  

 

Comprehensive income (loss) before tax

 

299

 

476

 

1,626

 

(1,830)

 

Income tax benefit (provision)

 

 

 

 

 

 

299

 

476

 

1,626

 

(1,830)

 

Pension, postretirement and other post-employment benefits

 

  

 

  

 

  

 

  

Comprehensive income (loss) before tax

 

2,189

 

4,164

 

6,698

 

(12,439)

 

Income tax benefit (provision)

 

 

 

 

 

 

2,189

 

4,164

 

6,698

 

(12,439)

 

Available-for-sale securities

 

  

 

  

 

  

 

  

 

Comprehensive income (loss) before tax

 

135

 

(255)

 

220

 

(189)

 

Income tax benefit (provision)

 

 

 

 

 

 

135

 

(255)

 

220

 

(189)

 

Total other comprehensive income (loss)

 

2,623

 

4,385

 

8,544

 

(14,458)

 

Total comprehensive income (loss)

$

91,766

$

(187,082)

$

119,511

$

(280,548)

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

Table of Contents

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

    

September 30, 2021

    

December 31, 2020

Assets

(Unaudited)

Current assets

 

  

 

  

Cash and cash equivalents

$

189,707

$

187,492

Short-term investments

 

20,084

 

96,765

Restricted cash

 

1,101

 

5,953

Trade accounts receivable (net of $0 allowance at September 30, 2021 and December 31, 2020)

 

226,206

 

110,869

Other receivables

 

3,573

 

3,053

Inventories

 

155,870

 

126,008

Other current assets

 

52,098

 

58,000

Total current assets

 

648,639

 

588,140

Property, plant and equipment, net

 

1,135,399

 

1,007,303

Other assets

 

  

 

  

Equity investments

 

80,016

 

71,783

Other noncurrent assets

 

66,895

 

55,246

Total other assets

 

146,911

 

127,029

Total assets

$

1,930,949

$

1,722,472

Liabilities and Stockholders' Equity

 

  

 

  

Current Liabilities

 

  

 

  

Accounts payable

$

102,025

$

103,743

Accrued expenses and other current liabilities

 

198,268

 

155,256

Current maturities of debt

 

138,587

 

31,097

Total current liabilities

 

438,880

 

290,096

Long-term debt

 

416,446

 

477,215

Asset retirement obligations

 

210,843

 

230,732

Accrued pension benefits

 

1,527

 

2,879

Accrued postretirement benefits other than pension

 

93,317

 

94,388

Accrued workers’ compensation

 

249,594

 

244,695

Other noncurrent liabilities

 

105,699

 

98,906

Total liabilities

 

1,516,306

 

1,438,911

Stockholders' equity

 

  

 

  

Common stock, $0.01 par value, authorized 300,000 shares, issued 25,394 and 25,323 shares at September 30, 2021 and December 31, 2020, respectively

 

254

 

253

Paid-in capital

 

779,013

 

767,484

Retained earnings

 

489,914

 

378,906

Treasury stock, 10,088 shares at September 30, 2021 and December 31, 2020, respectively, at cost

 

(827,381)

 

(827,381)

Accumulated other comprehensive loss

 

(27,157)

 

(35,701)

Total stockholders’ equity

 

414,643

 

283,561

Total liabilities and stockholders’ equity

$

1,930,949

$

1,722,472

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended September 30, 

    

2021

    

2020

Operating activities

 

(Unaudited)

Net income (loss)

$

110,967

$

(266,090)

Adjustments to reconcile to cash from operating activities:

 

  

 

  

Depreciation, depletion and amortization

 

84,441

 

94,105

Accretion on asset retirement obligations

 

16,311

 

14,939

Deferred income taxes

 

11

 

14,227

Employee stock-based compensation expense

 

12,841

 

13,907

Amortization relating to financing activities

 

4,801

 

3,189

Gain on property insurance recovery related to Mountain Laurel longwall

 

 

(23,518)

Gain on disposals and divestitures, net

 

(857)

 

(3,460)

Reclamation work completed

 

(36,200)

 

(10,423)

Non-cash asset impairment and restructuring

163,088

Changes in:

 

 

Receivables

 

(115,858)

 

47,416

Inventories

 

(29,862)

 

(12,499)

Accounts payable, accrued expenses and other current liabilities

 

12,827

 

(50,474)

Income taxes, net

 

1,247

 

22,855

Other

 

30,913

 

48,652

Cash provided by operating activities

 

91,582

 

55,914

Investing activities

 

  

 

  

Capital expenditures

 

(212,046)

 

(205,661)

Minimum royalty payments

 

(1,186)

 

(1,186)

Proceeds from disposals and divestitures

 

1,135

 

856

Purchases of short-term investments

 

 

(76,593)

Proceeds from sales of short-term investments

 

81,986

 

148,670

Investments in and advances to affiliates, net

 

(2,723)

 

(1,549)

Proceeds from property insurance recovery related to Mountain Laurel longwall

23,518

Cash used in investing activities

 

(132,834)

 

(111,945)

Financing activities

 

  

 

  

Payments on term loan

 

(2,250)

 

(2,250)

Proceeds from equipment financing

19,438

53,611

Proceeds from tax exempt bonds

44,985

53,090

Net payments on other debt

 

(20,208)

 

(19,347)

Debt financing costs

 

(2,057)

 

(3,528)

Dividends paid

 

 

(7,645)

Payments for taxes related to net share settlement of equity awards

 

(1,293)

 

(346)

Cash provided by financing activities

 

38,615

 

73,585

(Decrease) increase in cash and cash equivalents, including restricted cash

 

(2,637)

 

17,554

Cash and cash equivalents, including restricted cash, beginning of period

$

193,445

$

153,020

Cash and cash equivalents, including restricted cash, end of period

$

190,808

$

170,574

Cash and cash equivalents, including restricted cash, end of period

Cash and cash equivalents

$

189,707

$

156,655

Restricted Cash

1,101

13,919

$

190,808

$

170,574

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

    

    

    

    

    

Treasury

    

Accumulated Other

    

Common

Paid-In

Stock at

Comprehensive

Stock

Capital

Retained Earnings

Cost

Income (loss)

Total

(In thousands)

Balances, January 1, 2021

 

$

253

 

$

767,484

$

378,906

$

(827,381)

$

(35,701)

$

283,561

Total comprehensive income (loss)

 

 

 

(6,042)

 

 

1,337

 

(4,705)

Employee stock-based compensation

3,885

18

3,903

Issuance of 59,166 shares of common stock under long-term incentive plan

1

1

Common stock withheld related to net share settlement of equity awards

(1,317)

(1,317)

Balances at March 31, 2021

$

254

$

770,052

$

372,882

$

(827,381)

$

(34,364)

$

281,443

Total comprehensive income (loss)

 

 

 

27,866

 

 

4,584

 

32,450

Employee stock-based compensation

 

 

4,613

 

23

 

 

 

4,636

Balances at June 30, 2021

$

254

$

774,665

$

400,771

$

(827,381)

$

(29,780)

$

318,529

Total comprehensive income (loss)

 

 

 

89,143

 

 

2,623

91,766

Employee stock-based compensation

 

 

4,343

 

 

 

4,343

Warrants exercised

 

 

5

 

 

 

5

Balances at September 30, 2021

$

254

$

779,013

$

489,914

$

(827,381)

$

(27,157)

$

414,643

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

    

    

    

    

    

Treasury

    

Accumulated Other

    

Common

Paid-In

Stock at

Comprehensive

Stock

Capital

Retained Earnings

Cost

Income (loss)

Total

(In thousands)

Balances, January 1, 2020

    

$

252

    

$

730,551

    

$

731,425

    

$

(827,381)

    

$

5,689

    

$

640,536

Dividends on common shares ($0.50/share)

 

 

 

(7,834)

 

 

 

(7,834)

Total comprehensive income (loss)

 

 

 

(25,299)

 

 

(17,403)

 

(42,702)

Employee stock-based compensation

3,962

3,962

Common stock withheld related to net share settlement of equity awards

 

 

(198)

 

 

 

 

(198)

Balances at March 31, 2020

$

252

$

734,315

$

698,292

$

(827,381)

$

(11,714)

$

593,764

           

                            

                         

Total comprehensive income (loss)

 

 

 

(49,324)

 

 

(1,440)

 

(50,764)

Employee stock-based compensation

 

 

4,891

 

 

 

 

4,891

Common stock withheld related to net share settlement of equity awards

 

 

(50)

 

 

 

 

(50)

Dividend Equivalents earned on RSU grants

 

 

 

(59)

 

 

 

(59)

Balances at June 30, 2020

$

252

$

739,156

$

648,909

$

(827,381)

$

(13,154)

$

547,782

Total comprehensive income (loss)

 

 

 

(191,467)

 

 

4,385

(187,082)

Employee stock-based compensation

 

 

4,971

 

 

 

4,971

Common stock withheld related to net share settlement of equity awards

 

 

(15)

 

 

 

 

(15)

Dividend Equivalents earned on RSU grants

 

 

 

(10)

 

 

 

(10)

Balances at September 30, 2020

$

252

$

744,112

$

457,432

$

(827,381)

$

(8,769)

$

365,646

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Arch Resources, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Arch Resources, Inc. (“Arch Resources”) and its subsidiaries (“Arch” or the “Company”). Unless the context indicates otherwise, the terms “Arch” and the “Company” are used interchangeably in this Quarterly Report on Form 10-Q. The Company’s primary business is the production of metallurgical and thermal coal from underground and surface mines located throughout the United States, for sale to steel producers, utility companies, and industrial accounts both in the United States and around the world. The Company currently operates mining complexes in West Virginia, Wyoming and Colorado. All subsidiaries are wholly owned. Intercompany transactions and accounts have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and U.S. Securities and Exchange Commission regulations. In the opinion of management, all adjustments, consisting of normal, recurring accruals considered necessary for a fair presentation, have been included. Results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021. 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, 2020 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

2. Accounting Policies

Recently Adopted Accounting Guidance

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the optional expedients provided by the new standard.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.” ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU is effective for public companies for fiscal years beginning after December 15, 2020, and interim periods therein with early adoption permitted. The Company adopted this ASU with minimal impact to the Company’s financial statements.

Recent Accounting Guidance Issued Not Yet Effective

In August 2020, the FASB issued ASU 2020-06Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.  ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from

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the host contract.  ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40.  In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in entity’s own equity.  ASU 2020-06 is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year.  The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

3. Joint Venture with Peabody Energy

The Company incurred expenses of $4.4 million and $15.9 million for the three and nine months ended September 30, 2020, respectively, associated with the regulatory approval process related to the proposed joint venture with Peabody that was terminated jointly by the parties due to the Federal Trade Commission blocking the joint venture during the third quarter of 2020. No amounts related to the joint venture were incurred for the three and nine months ended September 30, 2021.

4. Gain on Property Insurance Recovery Related to Mountain Laurel Longwall

The Company recorded a gain of $23.5 million related to a property insurance recovery at its Mountain Laurel operation during the nine months ended September 30, 2020. As a result of geologic conditions in the final longwall panel, Mountain Laurel was unable to recover 123 of the longwall system’s 176 hydraulic shields. No amounts related to the property insurance recovery were incurred for the three and nine months ended September 30, 2021.

5. Asset Impairment and Restructuring

During the third quarter of 2020, the Company determined that indicators of impairment existed with respect to certain of its thermal long-lived assets. As a result, the Company recorded impairment charges during both the three and nine months ended September 30, 2020 of $51.8 million related to the Coal Creek Mine, $33.5 million related to the Viper Mine, $41.6 million related to the West Elk Mine, and $36.2 million related to the Company’s equity method investment in Knight Hawk Holdings, LLC. No amounts related to asset impairment were incurred for the three and nine months ended September 30, 2021.

The Company recorded $13.3 million of employee severance expense related to a voluntary separation plan that was accepted by 53 members of the corporate staff and 201 employees from the Company’s thermal operations during the three and nine months ended September 30, 2020. No amounts related to the employee severance expense were incurred for the three and nine months ended September 30, 2021.

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6. Accumulated Other Comprehensive Income (Loss)

The following items are included in accumulated other comprehensive income (loss) (“AOCI”), net of tax:

    

    

Pension,

    

 

Postretirement

Accumulated

and Other Post-

Other

Derivative

Employment

Available-for-

Comprehensive

Instruments

Benefits

Sale Securities

Income (loss)

 

(In thousands)

Balance at December 31, 2020

$

(3,891)

$

(31,459)

$

(351)

 

$

(35,701)

Unrealized losses

 

35

 

6,429

 

245

 

 

6,709

Amounts reclassified from accumulated other comprehensive income (loss)

 

1,591

 

269

 

(25)

 

 

1,835

Balances at September 30, 2021

$

(2,265)

$

(24,761)

$

(131)

 

$

(27,157)

The following amounts were reclassified out of AOCI:

Three Months Ended September 30, 

Nine Months Ended September 30, 

 

 

Line Item in the
Condensed Consolidated

Details About AOCI Components

    

2021

    

2020

    

2021

    

2020

  

  

Statements of Operations

(In thousands)

Coal hedges

$

$

98

$

$

294

Revenues

Interest rate hedges

 

(336)

 

(638)

 

(1,591)

 

(1,502)

 

Interest expense