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 March 31, 2023

☐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 April 24, 2023 there were 18,674,130 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	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk	38
Item 4. Controls and Procedures	38
Part II OTHER INFORMATION	39
Item 1. Legal Proceedings	39
Item 1A. Risk Factors	39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 4. Mine Safety Disclosures	39
Item 6. Exhibits	40
Signatures	46

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 March 31,
	2023		2022

	(Unaudited)
Revenues	$	869,931	$	867,936
Costs, expenses and other operating
Cost of sales (exclusive of items shown separately below)		571,737		508,225
Depreciation, depletion and amortization		35,479		32,210
Accretion on asset retirement obligations		5,292		4,430
Change in fair value of coal derivatives, net		(1,462)		15,519
Selling, general and administrative expenses		26,022		26,648
Other operating income, net		(3,707)		(3,439)
		633,361		583,593

Income from operations		236,570		284,343

Interest expense, net
Interest expense		(4,126)		(7,047)
Interest and investment income		3,336		24
		(790)		(7,023)

Income before nonoperating expenses		235,780		277,320

Nonoperating expense
Non-service related pension and postretirement benefit credits (costs)		592		(873)
Net loss resulting from early retirement of debt		(1,126)		(4,120)
		(534)		(4,993)

Income before income taxes		235,246		272,327
Provision for income taxes		37,138		455
Net income	$	198,108	$	271,872

Net income per common share
Basic earnings per share	$	11.05	$	17.60
Diluted earnings per share	$	10.02	$	12.89
Weighted average shares outstanding
Basic weighted average shares outstanding		17,924		15,448
Diluted weighted average shares outstanding		19,784		21,271
Dividends declared per common share	$	3.11	$	0.25

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 March 31,
	2023		2022

	(Unaudited)
Net income	$	198,108	$	271,872

Derivative instruments
Comprehensive income before tax		—		1,763
Provision for income taxes		—		—
		—		1,763
Pension, postretirement and other post-employment benefits
Comprehensive loss before tax		(2,895)		(522)
Provision for income taxes		636		—
		(2,259)		(522)
Available-for-sale securities
Comprehensive (loss) income before tax		(15)		182
Provision for income taxes		3		—
		(12)		182

Total other comprehensive (loss) income		(2,271)		1,423
Total comprehensive income	$	195,837	$	273,295

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)


	March 31, 2023		December 31, 2022
Assets		(Unaudited)
Current assets
Cash and cash equivalents	$	189,739	$	236,059
Short-term investments		32,116		36,993
Restricted cash		1,100		1,100
Trade accounts receivable (net of $0 allowance at March 31, 2023 and December 31, 2022)		295,157		236,999
Other receivables		18,560		18,301
Inventories		271,155		223,015
Other current assets		55,089		71,384
Total current assets		862,916		823,851
Property, plant and equipment, net		1,182,351		1,187,028
Other assets
Deferred income taxes		174,561		209,470
Equity investments		19,142		17,267
Fund for asset retirement obligations		137,134		135,993
Other noncurrent assets		56,555		59,499
Total other assets		387,392		422,229
Total assets	$	2,432,659	$	2,433,108

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	176,953	$	211,848
Accrued expenses and other current liabilities		120,180		157,043
Current maturities of debt		37,405		57,988
Total current liabilities		334,538		426,879
Long-term debt		110,899		116,288
Asset retirement obligations		237,142		235,736
Accrued pension benefits		1,089		1,101
Accrued postretirement benefits other than pension		51,770		49,674
Accrued workers’ compensation		153,870		155,756
Other noncurrent liabilities		79,357		82,094
Total liabilities		968,665		1,067,528
Stockholders' equity
Common stock, $0.01 par value, authorized 300,000 shares, issued 30,074 and 28,761 shares at March 31, 2023 and December 31, 2022, respectively		301		288
Paid-in capital		703,712		724,660
Retained earnings		1,705,988		1,565,374
Treasury stock, 11,338 and 11,207 shares at March 31, 2023 and December 31, 2022, respectively, at cost		(1,005,165)		(986,171)
Accumulated other comprehensive income		59,158		61,429
Total stockholders’ equity		1,463,994		1,365,580
Total liabilities and stockholders’ equity	$	2,432,659	$	2,433,108

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)


	Three Months Ended March 31,		Three Months Ended March 31,
	2023		2022

Operating activities		(Unaudited)
Net income	$	198,108	$	271,872
Adjustments to reconcile to cash from operating activities:
Depreciation, depletion and amortization		35,479		32,210
Accretion on asset retirement obligations		5,292		4,430
Deferred income taxes		35,548		—
Employee stock-based compensation expense		6,767		8,203
Amortization relating to financing activities		450		770
Gain on disposals and divestitures, net		(279)		(352)
Reclamation work completed		(3,887)		(4,278)
Contribution to fund for asset retirement obligations		(1,141)		(20,000)
Changes in:
Receivables		(57,968)		(399)
Inventories		(48,140)		(47,263)
Accounts payable, accrued expenses and other current liabilities		(63,508)		14,115
Income taxes, net		1,491		442
Coal derivative assets and liabilities, including margin account		(1,462)		15,833
Other		19,371		17,356
Cash provided by operating activities		126,121		292,939
Investing activities
Capital expenditures		(30,541)		(22,288)
Minimum royalty payments		(113)		—
Proceeds from disposals and divestitures		343		360
Purchases of short-term investments		(2,930)		—
Proceeds from sales of short-term investments		8,000		14,450
Investments in and advances to affiliates, net		(4,329)		(2,088)
Cash used in investing activities		(29,570)		(9,566)
Financing activities
Payments on term loan due 2024		(750)		(271,537)
Payments on convertible debt		(58,430)		—
Net payments on other debt		(12,647)		(10,134)
Dividends paid		(66,902)		(3,851)
Purchases of treasury stock		(20,806)		—
Payments for taxes related to net share settlement of equity awards		(27,055)		(4,827)
Proceeds from warrants exercised		43,719		506
Cash used in financing activities		(142,871)		(289,843)
Decrease in cash and cash equivalents, including restricted cash		(46,320)		(6,470)
Cash and cash equivalents, including restricted cash, beginning of period	$	237,159	$	326,295
Cash and cash equivalents, including restricted cash, end of period	$	190,839	$	319,825
Cash and cash equivalents, including restricted cash, end of period
Cash and cash equivalents	$	189,739	$	318,725
Restricted Cash		1,100		1,100
	$	190,839	$	319,825

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, except per share data)
Balances at January 1, 2023	$	288	$	724,660	$	1,565,374	$	(986,171)	$	61,429	$	1,365,580
Dividends on common shares		—		—		(55,140)		—		—		(55,140)
Dividend Equivalents earned on RSU grants		—		120		(2,354)		—		—		(2,234)
Purchase of 131,156 shares of common stock under share repurchase program		—		(13)		—		(18,994)		—		(19,007)
Employee stock-based compensation		—		6,767		—		—		—		6,767
Cash paid for convertible debt repurchased		—		(44,486)		—		—		—		(44,486)
Issuance of 275,053 shares of common stock under long-term incentive plan		3		—		—		—		—		3
Common stock withheld related to net share settlement of equity awards		—		(27,055)		—		—		—		(27,055)
Issuance of 1,037,679 shares of common stock for warrants exercised		10		43,719		—		—		—		43,729
Total comprehensive income		—		—		198,108		—		(2,271)		195,837
Balances at March 31, 2023	$	301	$	703,712	$	1,705,988	$	(1,005,165)	$	59,158	$	1,463,994


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

	(In thousands, except per share data)
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)		—		—		(4,271)		—		—		(4,271)
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

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 and controlled entities (“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 months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023. 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, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission.

2. Accounting Policies

Recently Adopted Accounting Guidance

There is no recently adopted accounting guidance effective expected to have a material impact on the Company’s financial position, results of operations, or liquidity.

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, 2022	$	—	$	61,485	$	(56)	$	61,429
Unrealized (losses)		—		—		(37)		(37)
Amounts reclassified from accumulated other comprehensive income (loss)		—		(2,895)		22		(2,873)
Tax effect		—		636		3		639
Balances at March 31, 2023	$	—	$	59,226	$	(68)	$	59,158

The following amounts were reclassified out of AOCI:


	Three Months Ended March 31,				Line Item in the Consolidated
Details About AOCI Components	2023		2022		Income Statements

	(In thousands)
Interest rate hedges		—		(112)	Interest expense
Interest rate hedges (ineffective portion)		—		(1,428)	Net loss resulting from early retirement of debt
		—		—	Provision for income taxes
	$	—	$	(1,540)	Net of tax

Pension, postretirement and other post-employment benefits
Amortization of actuarial gains, net ¹	$	2,858	$	627	Non-service related pension and postretirement benefit credits
Amortization of prior service credits (costs)		37		(105)	Non-service related pension and postretirement benefit credits (costs)
		2,895		522	Total before tax
		(636)		—	Provision for income taxes
	$	2,259	$	522	Net of tax

Available-for-sale securities ²	$	(22)	$	(182)	Interest and investment income
		5		—	Provision for income taxes
	$	(17)	$	(182)	Net of tax

¹ Production-related benefits and workers’ compensation costs are included in costs of sales.

² The gains and losses on sales of available-for-sale-securities are determined on a specific identification basis.

Table of Contents

4. Inventories

Inventories consist of the following:


	March 31,		December 31,
	2023		2022

	(In thousands)
Coal	$	128,919	$	96,954
Repair parts and supplies		142,236		126,061
	$	271,155	$	223,015

The repair parts and supplies are stated net of an allowance for slow-moving and obsolete inventories of $2.6 million at March 31, 2023 and $2.4 million at December 31, 2022.

5. Investments in Available-for-Sale Securities

The Company has invested in marketable debt securities, primarily highly liquid U.S. Treasury securities and investment grade corporate bonds. These investments are held in the custody of a major financial institution. These securities are classified as available-for-sale securities and, accordingly, the unrealized gains and losses are recorded through other comprehensive income.

The Company’s investments in available-for-sale marketable securities are as follows:


	March 31, 2023

			Gross					Allowance
			Unrealized					for - Credit	Fair
	Cost Basis		Gains		Losses			Losses	Value

	(In thousands)
Available-for-sale:
U.S. government and agency securities	$	25,408	$	—	$	(20)	$	—	$	25,388
Corporate notes and bonds		6,745		13		(30)		—		6,728
Total Investments	$	32,153	$	13	$	(50)	$	—	$	32,116


	December 31, 2022

			Gross					Allowance
			Unrealized					for - Credit	Fair
	Cost Basis		Gains			Losses		Losses	Value

	(In thousands)
Available-for-sale:
U.S. government and agency securities	$	28,325	$	1	$	(25)	$	—	$	28,301
Corporate notes and bonds		8,689		20		(17)		—		8,692
Total Investments	$	37,014	$	21	$	(42)	$	—	$	36,993

The aggregate fair value of investments with unrealized losses that had been owned for less than a year was $16.6 million and $22.6 million at March 31, 2023 and December 31, 2022, respectively. The aggregate fair value of investments with unrealized losses that were owned for over a year was $0.0 million at March 31, 2023 and December 31, 2022, respectively. The unrealized losses in the Company’s portfolio at March 31, 2023 are the result of normal market fluctuations. The Company does not intend to sell these investments before recovery of their amortized cost base.

The debt securities outstanding at March 31, 2023 have maturity dates ranging from the second quarter of 2023 through the first quarter of 2024.The Company classifies its investments as current based on the nature of the investments and their availability to provide cash for use in current operations if needed.

Table of Contents

6. Derivatives

Diesel fuel price risk management

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company anticipates purchasing approximately 30 to 35 million gallons of diesel fuel for use in its operations during 2023. To protect the Company’s cash flows from increases in the price of diesel fuel for its operations, the Company has purchased heating oil call options. At March 31, 2023, the Company had protected the price of expected diesel fuel purchases for the remainder of 2023 with approximately 18 million gallons of heating oil call options with an average strike price of $3.35 per gallon. These positions are not designated as hedges for accounting purposes, and therefore, changes in the fair value are recorded immediately to earnings.

Coal price risk management positions

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market or on an exchange in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted, index-priced sales or purchases of coal or to the risk of changes in the fair value of a fixed price physical sales contract. Certain derivative contracts may be designated as hedges of these risks.

At March 31, 2023, the Company held derivatives for risk management purposes that are expected to settle in the following years:


(Tons in thousands)		2023
Coal sales		26
Coal purchases		—

Tabular derivatives disclosures

The Company has master netting agreements with all of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the Condensed Consolidated Balance Sheets. The amounts shown in the table below represent the fair value position of individual contracts, and not the net position presented in the accompanying Condensed Consolidated Balance Sheets. The fair value and location of derivatives reflected in the accompanying Condensed Consolidated Balance Sheets are as follows:


	March 31, 2023						December 31, 2022
Fair Value of Derivatives	Asset		Liability				Asset		Liability
(In thousands)	Derivative		Derivative				Derivative		Derivative
Derivatives Not Designated as Hedging Instruments
Heating oil -- diesel purchases		1,101		—				1,300		—
Coal -- risk management		2,869		—				1,407		—
Total	$	3,970	$	—			$	2,707	$	—
Total derivatives	$	3,970	$	—			$	2,707	$	—
Effect of counterparty netting		—		—				—		—
Net derivatives as classified in the balance sheets	$	3,970	$	—	$	3,970	$	2,707	$	—	$	2,707

Table of Contents


Fair Value of Derivatives		March 31,		December 31,
(In thousands)		2023		2022
Net derivatives as reflected on the balance sheets (in thousands)
Heating Oil and coal	Other current assets	$	3,970	$	2,707
Coal	Accrued expenses and other current liabilities		—		—
		$	3,970	$	2,707

At March 31, 2023, the current open derivative positions are non-margined.

The effects of derivatives on measures of financial performance are as follows:

Derivatives Not Designated as Hedging Instruments (in thousands)

Three Months Ended March 31,


Gain (Loss) Recognized		Gain (Loss) Recognized
			2023		2022
Coal risk management — unrealized	⁽¹⁾	$	1,462	$	(15,519)

Coal risk management— realized	⁽²⁾	$	2,667	$	(9,074)
Heating oil — diesel purchases	⁽²⁾	$	(1,282)	$	6,801

Location in Condensed Consolidated Income Statements:

(1)	— Change in fair value of coal derivatives, net

(2)	— Other operating expense (income), net

At March 31, 2023 and December 31, 2022, the Company did not have any derivative contracts designated as hedging instruments.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


	March 31,		December 31,
	2023		2022

	(In thousands)
Payroll and employee benefits	$	31,014	$	61,836
Taxes other than income taxes		44,357		53,105
Interest		1,247		2,511
Workers’ compensation		19,187		17,584
Asset retirement obligations		8,632		8,632
Other		15,743		13,375
	$	120,180	$	157,043

Table of Contents

8. Debt and Financing Arrangements


	March 31,		December 31,
	2023		2022

	(In thousands)
Term loan due 2024 ($5.8 million face value)	$	5,752	$	6,502
Tax Exempt Bonds ($98.1 million face value)		98,075		98,075
Convertible Debt		—		13,156
Other		46,825		59,472
Debt issuance costs		(2,348)		(2,929)
		148,304		174,276
Less: current maturities of debt		37,405		57,988
Long-term debt	$	110,899	$	116,288

Term Loan Facility

In 2017, the Company entered into a senior secured term loan credit agreement in an aggregate principal amount of $300 million (the “Term Loan Debt Facility”) with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and the other financial institutions from time to time party thereto. The Term Loan Debt Facility was issued at 99.50% of the face amount and will mature on March 7, 2024. The term loan provided under the Term Loan Debt Facility (the “Term Loan”) are subject to quarterly principal amortization payments in an amount equal to $750,000. The interest rate on the Term Loan Debt Facility is, at the option of Arch Resources, either (i) LIBOR plus an applicable margin of 2.75%, subject to a 1.00% LIBOR floor, or (ii) a base rate plus an applicable margin of 1.75%.

The Term Loan Debt Facility is guaranteed by all existing and future wholly owned domestic subsidiaries of the Company (collectively, the “Subsidiary Guarantors” and, together with Arch Resources, the “Loan Parties”), subject to customary exceptions, and is secured by first priority security interests on substantially all assets of the Loan Parties, including 100% of the voting equity interests of directly owned domestic subsidiaries and 65% of the voting equity interests of directly owned foreign subsidiaries, subject to customary exceptions.

During the year ended December 31, 2022, the Company repaid $273.8 million of the Term Loan. The remaining balance of $5.8 million, as of March 31, 2023, was left as certain terms and conditions governing the Term Loan are incorporated into the Company’s outstanding indebtedness.

Accounts Receivable Securitization Facility

On August 3, 2022, the Company amended and extended its existing trade accounts receivable securitization facility provided to Arch Receivable Company, LLC, a special-purpose entity that is a wholly owned subsidiary of Arch Resources (“Arch Receivable”) (the “Securitization Facility”), which supports the issuance of letters of credit and requests for cash advances. The amendment to the Securitization Facility increased the size of the facility from $110 million to $150