SEC Filing | Arch Resources, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

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, 2022

☐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

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 ☒

At October 24, 2022 there were 18,082,800 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	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	45
Item 4. Controls and Procedures	46
Part II OTHER INFORMATION	46
Item 1. Legal Proceedings	46
Item 1A. Risk Factors	46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 4. Mine Safety Disclosures	47
Item 6. Exhibits	48
Signatures	54

Table of Contents

Part I

FINANCIAL INFORMATION

Item 1.Financial Statements.

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Income Statements

(in thousands, except per share data)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(Unaudited)				(Unaudited)
Revenues	$	863,835	$	594,412	$	2,865,129	$	1,402,345
Costs, expenses and other operating
Cost of sales (exclusive of items shown separately below)		610,027		423,826		1,758,012		1,089,061
Depreciation, depletion and amortization		33,958		30,760		98,948		84,441
Accretion on asset retirement obligations		4,430		5,437		13,290		16,311
Change in fair value of coal derivatives and coal trading activities, net		(12,252)		19,641		5,144		28,931
Selling, general and administrative expenses		26,107		21,081		79,271		66,679
Other operating expense (income), net		16,997		(1,731)		18,796		(11,344)
		679,267		499,014		1,973,461		1,274,079

Income from operations		184,568		95,398		891,668		128,266

Interest expense, net
Interest expense		(4,060)		(6,151)		(16,245)		(13,220)
Interest and investment income		2,224		—		2,776		474
		(1,836)		(6,151)		(13,469)		(12,746)

Income before nonoperating expenses		182,732		89,247		878,199		115,520

Nonoperating expenses
Non-service related pension and postretirement benefit costs		(857)		(1,186)		(2,189)		(3,252)
Net loss resulting from early retirement of debt		(394)		—		(14,143)		—
		(1,251)		(1,186)		(16,332)		(3,252)

Income before income taxes		181,481		88,061		861,867		112,268
Provision for (benefit from) income taxes		474		(1,082)		1,424		1,301
Net income	$	181,007	$	89,143	$	860,443	$	110,967

Net income per common share
Basic earnings per share	$	9.84	$	5.83	$	50.97	$	7.26
Diluted earnings per share	$	8.68	$	4.92	$	41.00	$	6.49
Weighted average shares outstanding
Basic weighted average shares outstanding		18,396		15,302		16,881		15,293
Diluted weighted average shares outstanding		20,908		18,105		21,210		17,101
Dividends declared per common share	$	6.00	$	—	$	14.36	$	—

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

Table of Contents

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(Unaudited)					(Unaudited)
Net income	$	181,007	$	89,143	$	860,443	$	110,967

Derivative instruments
Comprehensive income before tax		—		299		1,763		1,626
Income tax benefit (provision)		—		—		—		—
		—		299		1,763		1,626
Pension, postretirement and other post-employment benefits
Comprehensive income (loss) before tax		(1,473)		2,189		(10,896)		6,698
Income tax benefit (provision)		—		—		—		—
		(1,473)		2,189		(10,896)		6,698
Available-for-sale securities
Comprehensive income (loss) before tax		(4)		135		178		220
Income tax benefit (provision)		—		—		—		—
		(4)		135		178		220

Total other comprehensive income (loss)		(1,477)		2,623		(8,955)		8,544
Total comprehensive income	$	179,530	$	91,766	$	851,488	$	119,511

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

Table of Contents

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)


	September 30, 2022		December 31, 2021
Assets	(Unaudited)
Current assets
Cash and cash equivalents	$	490,321	$	325,194
Short-term investments		10,671		14,463
Restricted cash		1,100		1,101
Trade accounts receivable (net of $0 allowance at September 30, 2022 and December 31, 2021)		210,349		324,304
Other receivables		13,592		8,271
Inventories		215,172		156,734
Other current assets		49,869		52,804
Total current assets		991,074		882,871
Property, plant and equipment, net		1,116,550		1,120,043
Other assets
Equity investments		17,044		15,403
Fund for asset retirement obligations		130,000		20,000
Other noncurrent assets		65,194		78,843
Total other assets		212,238		114,246
Total assets	$	2,319,862	$	2,117,160

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	186,322	$	131,986
Accrued expenses and other current liabilities		160,247		167,304
Current maturities of debt		52,179		223,050
Total current liabilities		398,748		522,340
Long-term debt		121,914		337,623
Asset retirement obligations		195,655		192,672
Accrued pension benefits		493		1,300
Accrued postretirement benefits other than pension		72,890		73,565
Accrued workers’ compensation		222,648		224,105
Other noncurrent liabilities		121,453		81,689
Total liabilities		1,133,801		1,433,294
Stockholders' equity
Common stock, $0.01 par value, authorized 300,000 shares, issued 28,642 and 25,481 shares at September 30, 2022 and December 31, 2021, respectively		286		255
Paid-in capital		766,427		784,356
Retained earnings		1,299,024		712,478
Treasury stock, 10,517 and 10,088 shares at September 30, 2022 and December 31, 2021, respectively, at cost		(884,879)		(827,381)
Accumulated other comprehensive income		5,203		14,158
Total stockholders’ equity		1,186,061		683,866
Total liabilities and stockholders’ equity	$	2,319,862	$	2,117,160

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

Table of Contents

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine Months Ended September 30,
	2022		2021

Operating activities		(Unaudited)
Net income	$	860,443	$	110,967
Adjustments to reconcile to cash from operating activities:
Depreciation, depletion and amortization		98,948		84,441
Accretion on asset retirement obligations		13,290		16,311
Deferred income taxes		—		11
Employee stock-based compensation expense		20,837		12,841
Amortization relating to financing activities		1,958		4,801
Gain on disposals and divestitures, net		(1,012)		(857)
Reclamation work completed		(11,229)		(36,200)
Contribution to fund for asset retirement obligations		(110,000)		—
Changes in:
Receivables		108,635		(115,858)
Inventories		(58,438)		(29,862)
Accounts payable, accrued expenses and other current liabilities		58,791		12,827
Income taxes, net		826		1,247
Coal derivative assets and liabilities, including margin account		5,144		29,170
Other		27,038		1,743
Cash provided by operating activities		1,015,231		91,582
Investing activities
Capital expenditures		(94,517)		(212,046)
Minimum royalty payments		(1,069)		(1,186)
Proceeds from disposals and divestitures		1,963		1,135
Purchases of short-term investments		(10,675)		—
Proceeds from sales of short-term investments		14,450		81,986
Investments in and advances to affiliates, net		(6,692)		(2,723)
Cash used in investing activities		(96,540)		(132,834)
Financing activities
Payments on term loan due 2024		(273,038)		(2,250)
Proceeds from equipment financing		—		19,438
Proceeds from tax exempt bonds		—		44,985
Payments on convertible debt		(149,273)		—
Net payments on other debt		(23,942)		(20,208)
Debt financing costs		(690)		(2,057)
Dividends paid		(264,638)		—
Purchases of treasury stock		(56,498)		—
Payments for taxes related to net share settlement of equity awards		(4,908)		(1,293)
Proceeds from warrants exercised		19,422		—
Cash (used in) provided by financing activities		(753,565)		38,615
Increase (decrease) in cash and cash equivalents, including restricted cash		165,126		(2,637)
Cash and cash equivalents, including restricted cash, beginning of period	$	326,295	$	193,445
Cash and cash equivalents, including restricted cash, end of period	$	491,421	$	190,808
Cash and cash equivalents, including restricted cash, end of period
Cash and cash equivalents	$	490,321	$	189,707
Restricted Cash		1,100		1,101
	$	491,421	$	190,808

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

Table of Contents

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


							Treasury		Accumulated Other
	Common		Paid-In		Retained		Stock at		Comprehensive
	Stock		Capital		Earnings		Cost		Income		Total

	(In thousands)
Balances at January 1, 2022	$	255	$	784,356	$	712,478	$	(827,381)	$	14,158	$	683,866
Cumulative effect of accounting change on convertible debt		—		(39,239)		6,718		—		—		(32,521)
Dividends on common shares ($0.25/share)		—		—		(3,851)		—		—		(3,851)
Dividend Equivalents earned on RSU grants		—		—		(420)		—		—		(420)
Total comprehensive income		—		—		271,872		—		1,423		273,295
Employee stock-based compensation		—		8,203		—		—		—		8,203
Issuance of 71,338 shares of common stock under long-term incentive plan		1		—		—		—		—		1
Common stock withheld related to net share settlement of equity awards		—		(4,827)		—		—		—		(4,827)
Issuance of 13,239 shares of common stock for warrants exercised		—		506		—		—		—		506
Balances at March 31, 2022	$	256	$	748,999	$	986,797	$	(827,381)	$	15,581	$	924,252

Dividends on common shares ($8.11/share)		—		—		(150,716)		—		—		(150,716)
Dividend equivalents earned on RSU grants		—		—		(8,665)		—		—		(8,665)
Employee stock-based compensation		—		6,349		—		—		—		6,349
Common stock withheld related to net share settlement of equity awards		—		(81)		—		—		—		(81)
Total comprehensive income (loss)		—		—		407,563		—		(8,901)		398,662
Issuance of 2,630,272 shares of common stock for convertible debt exchanged		26		(29)		—		—		—		(3)
Issuance of 445,497 shares of common stock for warrants exercised		4		18,906		—		—		—		18,910
Balances at June 30, 2022	$	286	$	774,144	$	1,234,979	$	(827,381)	$	6,680	$	1,188,708

Dividends on common shares ($6.00/share)		—		—		(110,071)		—		—		(110,071)
Dividend equivalents earned on RSU grants		—		464		(6,891)		—		—		(6,427)
Purchase of 428,864 shares of common stock under share repurchase program		—		—		—		(57,498)				(57,498)
Employee stock-based compensation		—		6,285		—		—		—		6,285
Cash paid for convertible debt repurchased		—		(14,466)		—		—		—		(14,466)
Issuance of 273 shares of common stock for warrants exercised		—		—		—		—		—		—
Total comprehensive income (loss)		—		—		181,007		—		(1,477)		179,530
Balances at September 30, 2022	$	286	$	766,427	$	1,299,024	$	(884,879)	$	5,203	$	1,186,061

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

Table of Contents

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


							Treasury		Accumulated Other
	Common		Paid-In		Retained		Stock at		Comprehensive
	Stock		Capital		Earnings		Cost		(loss)		Total

	(In thousands)
Balances at 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		—		—		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.

Table of Contents

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, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022. 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, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission.

2. Accounting Policies

Recently Adopted Accounting Guidance

In August 2020, the FASB issued ASU 2020-06, Debt—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. Additionally, ASU 2020-06 amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The if-converted method assumes the conversion of convertible instruments occurs at the beginning of the reporting period and diluted weighted average shares outstanding includes the common shares issuable upon conversion of the convertible instruments. ASU 2020-06 is effective for public business entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU 2020-06 on January 1, 2022 under the modified retrospective approach.

Upon issuance of the Company's $155.3 million principal amount of 5.25 % convertible senior notes due 2025 (the "Convertible Notes" or “Convertible Debt”) in November 2020, the Company bifurcated the debt and equity components of the Convertible Notes to long-term debt and additional paid-in capital in its consolidated balance sheet. The amount recorded to additional paid-in capital represented a debt discount that was being amortized to interest expense over the life of the Convertible Notes. As part of the adoption of ASU 2020-06, the Company (i) reversed the equity component recorded to additional paid-in capital of $39.2 million, (ii) recorded a cumulative effect of the adoption of ASU 2020-06 of $6.7 million to retained earnings, representing a reversal of the debt discount that was amortized to interest expense, and (iii) an offsetting increase in debt. See Note 8, “Debt and Financing Arrangements” for additional information.

Additionally, upon adoption of ASU 2020-06, the treasury stock method utilized by the Company to calculate earnings per share through December 31, 2021 is no longer permitted. Accordingly, the Company has transitioned to the if-converted method utilizing the modified retrospective approach. For the three and nine months ended September 30, 2022, under the previous treasury stock method, the diluted earnings per share would have been approximately $8.74 and $42.05, respectively. As a result of the adoption of ASU 2020-06, diluted earnings per share decreased by $0.06 and $1.05 for the three and nine months ended September 30, 2022, respectively.

Table of Contents

Recent Accounting Guidance Issued Not Yet Effective

There are no new pronouncements issued but not yet effective expected to have a material impact on the Company’s financial position, results of operations, or liquidity.

Table of Contents

3. 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)
Balances at December 31, 2021	$	(1,763)	$	16,103	$	(182)	$	14,158
Unrealized gains (losses)		223		(8,626)		(4)		(8,407)
Amounts reclassified from accumulated other comprehensive income (loss)		1,540		(2,270)		182		(548)
Balances at September 30, 2022	$	—	$	5,207	$	(4)	$	5,203

The following amounts were reclassified out of AOCI:


	Three Months Ended September 30,				Nine Months Ended September 30,				Line Item in the Consolidated
Details About AOCI Components	2022		2021		2022		2021		Income Statements

	(In thousands)
Interest rate hedges		—		(336)		(112)		(1,591)	Interest expense
Interest rate hedges (ineffective portion)		—		—		(1,428)		—	Net loss resulting from early retirement of debt
		—		—		—