Arch Resources(ARCH) - 2023 Q4 - Annual Report

PART I ITEM 1. Business Arch Resources is a major global metallurgical coal producer and significant U.S. thermal coal producer, prioritizing sustainability and operational excellence - Arch Resources is one of the world's largest coal producers, with a premier focus on metallurgical coal, selling approximately 75 million tons in 2023 from seven active mines in the U.S.[13] - The company is a leading U.S. producer of metallurgical products, particularly premium High-Vol A metallurgical coal, and is the only U.S. metallurgical coal producer to join Responsible Steel[14][16] - Arch manages the decline of its thermal coal operations in the Powder River Basin responsibly, aiming for self-funded closure obligations while its West Elk mine continues to serve seaborne and industrial markets[15] Safety and Environmental Performance (Past 5 Years) | Metric | Performance | Comparison to Industry Average | | :------------------------------ | :-------------------------------------------- | :----------------------------- | | Average Lost-Time Incident Rate | Nearly 2.5 times better | Industry Average | | Safety Awards | More than 40 national and state awards | N/A | | Notices of Violation (NOV) | Zero in 2023 and 2021, one in 2022 | Average of ~15 annually by peers | | Water Management Exceedances | Zero exceedances for 100% compliance (3 years) | N/A | Introduction This section provides an overview of Arch Resources, Inc., its business model, and its strategic positioning in the global coal market Business Strategy The company's business strategy focuses on maximizing value from its metallurgical coal assets while responsibly managing its thermal coal operations and prioritizing sustainability Coal Characteristics Coal is categorized as thermal or metallurgical, with characteristics like heat value, sulfur, ash, and moisture content determining its end-use and market value - Coal is classified into lignite, subbituminous, bituminous, and anthracite based on carbon content and heat value, ranging from 4,000 to nearly 15,000 Btus per pound[19] - Sulfur and ash content are critical due to environmental regulations and impacts on boiler performance/ash disposal, while metallurgical coal requires specific characteristics like fluidity and volatility for coke production[20][21][22] Industry Overview Global coal production recovered in 2023 to an estimated 8.9 billion metric tons, with U.S. production decreasing by approximately 2% to 528 million metric tons - World coal production increased by approximately 2% in 2023 to an estimated 8.9 billion metric tons, potentially an all-time high, following an 8% increase in 2022[23] - U.S. coal production decreased by approximately 2% to 528 million metric tons in 2023, marking a roughly 50% decline over the past decade[24] - Approximately 72% of global steel is produced via the Basic Oxygen Furnace (BOF) process, which relies on metallurgical coal, while U.S. BOF production accounts for about 31% of domestic steel[25] - Global steel production was flat in 2023 due to recessionary fears and the Ukraine-Russia war, but metallurgical coal trade flows improved slightly, with a full restoration to pre-pandemic levels expected in 2024[26][27] - The lifting of China's ban on Australian coal in 2023 opened markets for U.S. suppliers, but Australian metallurgical coal exports are expected to have fallen to an 11-year low[28] - Arch produced approximately 11% of total U.S. metallurgical coal supply in 2023, selling to 5 North American and 34 overseas customers[29] Sales, Marketing and Trading In 2023, thermal coal was 88% of volumes but 40% of revenue, while metallurgical coal, at 12% of volumes, contributed 60% of total sales revenue - In 2023, thermal coal accounted for 88% of volumes but only 40% of revenue, while metallurgical coal, at 12% of volumes, contributed approximately 60% of total sales revenue due to its higher value[32] - Coal prices are influenced by competitive coal supply/demand, transportation, weather, competing fuels (especially natural gas), governmental policies, and economic conditions[34] Seaborne Revenues by Coal Shipment Destination (2023) | Destination | Revenue (in thousands) | | :---------------------- | :--------------------- | | Europe | $696,975 | | Asia | $935,158 | | Central and South America | $136,423 | | Africa | $4,971 | | Total | $1,773,527 | - Approximately 75% of 2023 tonnage (46% of revenues) was sold under long-term supply arrangements, with an average volume-weighted remaining term of 2.5 years[71] - Arch holds a 35% interest in Dominion Terminal Associates LLP (DTA), a coal transloading facility, and expects to invest $20.0 million to $30.0 million in capital improvements in 2024[81][82] U.S. Coal Production The U.S. possesses over 250 billion short tons of recoverable coal reserves, with total production decreasing to approximately 582 million short tons in 2023 - The United States has over 250 billion short tons of recoverable coal reserves, sufficient for 500 years of current demand[35] - Total U.S. coal production decreased by an estimated 13 million short tons in 2023, reaching around 582 million short tons[35] - Appalachia, while still a major thermal coal producer, is shifting towards heavier reliance on metallurgical coal production due to the scarcity and high quality of this coal[39] Coal Mining Methods Arch employs both underground (longwall, room-and-pillar) and surface mining methods, processing Appalachian coal while shipping Powder River Basin coal raw - Underground mining methods include longwall mining (high recovery, >75%) and room-and-pillar mining (effective for smaller/thinner seams)[42][43][44] - Surface mining involves removing overburden with equipment like draglines and shovels, then extracting coal, with disturbed areas reclaimed as part of normal operations[49] - Coal from Powder River Basin is shipped raw, while Appalachian coal is processed through preparation plants to remove impurities and ensure consistent quality[46] Our Mining Operations As of December 31, 2023, Arch operated seven active mines across Metallurgical and Thermal segments, with Leer South's Technical Report Summary updated in 2023 - As of December 31, 2023, Arch operated seven active mines, reporting results through Metallurgical (West Virginia) and Thermal (Wyoming and Colorado) segments[51] Active Mining Complexes Summary (as of December 31, 2023) | Mining Complex | Mines | Mining Equipment | Railroad | 2021 Thousands of Tons Sold | 2022 Thousands of Tons Sold | 2023 Thousands of Tons Sold | Total Cost Property, Plant and Equipment (Millions of USD) | Total Recoverable Mineral Reserves (Million Tons) | | :-------------- | :---- | :--------------- | :------- | :-------------------------- | :-------------------------- | :-------------------------- | :--------------------------------------------------------- | :------------------------------------------------ | | Metallurgical: | | | | | | | | | | Leer | U | LW, CM | CSX | 4.6 | 3.9 | 4.3 | $363.2 | 36.1 | | Leer South | U | LW, CM | CSX | 0.8 | 2.2 | 2.7 | $713.9 | 62.7 | | Beckley | U | CM | CSX | 1.1 | 0.9 | 1.2 | $118.6 | 25.3 | | Mountain Laurel | U | CM | CSX | 1.0 | 0.8 | 1.1 | $92.6 | 16.6 | | Thermal: | | | | | | | | | | Black Thunder | S | D, S | UP/BN | 60.2 | 62.3 | 60.5 | $260.2 | 420.0 | | Coal Creek | S | D, S | UP/BN | 2.0 | 3.8 | 2.3 | $0.3 | — | | West Elk | U | LW, CM | UP | 3.0 | 4.3 | 2.9 | $31.2 | 38.2 | | Totals | | | | 72.7 | 78.2 | 75.0 | $1,580.0 | 598.9 | - The Leer South Technical Report Summary was updated in 2023 due to a material change in the mine plan, with Leer and Black Thunder not requiring updates[56] Competition The coal industry is highly competitive, facing internal and external competition from alternative energy sources, with natural gas prices significantly impacting thermal coal demand - The coal industry faces intense competition from other coal producers and alternative energy sources such as natural gas, nuclear, hydropower, and subsidized renewables[86][87] - Key competitive factors include coal quality, delivered costs to the customer, and reliability of supply[86] - Natural gas pricing historically dictates domestic thermal coal prices, and sustained low natural gas prices, coupled with social policies, have led to decreased demand and closure of coal-fired power plants[87] Suppliers Arch relies on principal supplies like fuels, explosives, and steel, and third-party services, with adequate substitute suppliers generally available despite some sole-source items - Principal supplies include petroleum-based fuels, explosives, tires, steel, and other raw materials, with third-party suppliers used for equipment rebuilds, repairs, drilling, and construction[88] - The company uses sole-source suppliers for certain parts (e.g., explosives, fuel) and preferred suppliers for others, but believes adequate substitutes are available[88] Environmental and Other Regulatory Matters The U.S. coal mining industry is heavily regulated by federal, state, and local authorities, facing significant and increasing compliance costs and ongoing challenges from climate change policies - Coal mining is one of the most regulated industrial activities in the U.S., with federal, state, and local authorities imposing extensive environmental and safety regulations[90] - Compliance with these regulations significantly increases production costs and requires obtaining numerous permits, which can be costly, time-consuming, and subject to challenges[91][92][93] - As of December 31, 2023, Arch posted approximately $456.3 million in surety bonds, cash, and letters of credit for reclamation purposes, and contributed $142.3 million to a fund for Black Thunder's asset retirement obligations[100][101] Black Lung Excise Tax Expense | Year | Expense (in millions) | | :--- | :-------------------- | | 2023 | $35.5 | | 2022 | $21.5 | | 2021 | $34.8 | - The OWCP proposed revisions in 2023 requiring self-insured operators to post security equal to 120% of projected black lung liabilities, a material deviation from prior guidance, which could require Arch to post additional collateral[104] Human Capital Resources Arch Resources employs over 3,400 non-unionized individuals, maintaining a strong culture with a 90% voluntary retention rate in 2023, prioritizing safety and employee development - As of December 31, 2023, Arch and its subsidiaries employ over 3,400 non-unionized people, with an average voluntary retention rate of 90% in 2023[166] - The company's lost-time incident rate was 0.55 per 200,000 employee-hours worked in 2023, nearly 2.5 times better than the national average of 2.13[167] - Arch invests in employee development through online education platforms, tuition reimbursement (over $1 million in past five years), and multi-day leadership workshops for high-potential employees[169][170] Information about our Executive Officers This section lists Arch Resources' executive officers, their ages, positions, and offices held over the past five years, detailing their extensive experience Executive Officers (as of February 15, 2024) | Name | Age | Position | | :------------------- | :-- | :------------------------------------------ | | Paul T. Demzik | 62 | Senior Vice President and Chief Commercial Officer | | John T. Drexler | 54 | Senior Vice President and Chief Operating Officer | | John W. Eaves | 66 | Executive Chairman of the Board of Directors | | Matthew C. Giljum | 52 | Senior Vice President and Chief Financial Officer | | Rosemary L. Klein | 56 | Senior Vice President - Law, General Counsel and Secretary | | Paul A. Lang | 63 | President and Chief Executive Officer | | Deck S. Slone | 60 | Senior Vice President-Strategy and Public Policy | | John A. Ziegler, Jr. | 57 | Senior Vice President & Chief Administrative Officer | Available Information Arch Resources files annual, quarterly, and current reports, proxy statements, and other information with the SEC, accessible on sec.gov and archrsc.com - Arch Resources files reports with the SEC, available on sec.gov and archrsc.com, and copies can be requested by phone or mail[175] GLOSSARY OF SELECTED MINING TERMS This section defines key mining terms used in the report, including various coal types, mining methods, and mineral resource/reserve classifications - The glossary defines terms such as Bituminous coal (10,500-15,500 Btus/pound), Coking coal (for steelmaking), Longwall mining (high recovery underground method), and various mineral resource/reserve classifications (Indicated, Inferred, Measured, Probable, Proven)[177][178][179][180] ITEM 1A. Risk Factors The company faces risks from operational disruptions, volatile coal prices, environmental regulations, climate change, ESG scrutiny, and income tax limitations - Key operational risks include transportation disruptions, volatile coal prices, inflationary pressures on supplies, and operating risks beyond control (e.g., mining conditions, equipment failures, natural disasters)[183][187][192][194][198] - Environmental regulations (Clean Air Act, Clean Water Act, SMCRA) and climate change initiatives (Paris Agreement, EPA regulations) pose significant risks, potentially reducing coal demand, increasing costs, and affecting permitting[184][252][264][267] - Increased attention to ESG matters, including climate change and social expectations, could lead to lower ESG scores, restricted access to capital, higher borrowing costs, and reputational damage[184][273][274][276] - Risks related to income taxes include limitations on the use of net operating losses (NOLs) due to ownership changes and potential adverse effects from new U.S. tax legislation like the Inflation Reduction Act[185][290][291][292] Summary Risk Factors This section provides a high-level overview of the primary risks that could materially affect Arch Resources' business, financial condition, and operating results Risks Related to Our Operations and Industry Operational and industry-specific risks include transportation disruptions, volatile coal prices, inflationary pressures, and challenges in mining conditions and equipment reliability Risks Related to Environmental Regulations, Other Regulations and Legislation This section details risks arising from extensive environmental regulations, climate change policies, and other legislative actions that could impact coal demand and operating costs Risks Related to Income Taxes Risks related to income taxes include potential limitations on the use of net operating losses (NOLs) and the impact of new U.S. tax legislation ITEM 1B. Unresolved Staff Comments No unresolved staff comments are reported - The company has no unresolved staff comments[294] ITEM 1C. Cybersecurity Arch implements a NIST-based cybersecurity risk management program, overseen by the Audit Committee, with no material impacts reported despite ongoing risks - Arch's cybersecurity risk management program is based on the NIST Cybersecurity Framework and integrated into its enterprise risk management[294][295] - The Audit Committee oversees cybersecurity risks, receiving periodic reports from management and updates on significant incidents[299][300] - The Computer Security Incident Response Team (CSIRT), including IT leadership with over 20 years of experience, is responsible for coordinating cybersecurity response procedures[301] - Key aspects include risk assessments, security controls, external service provider use, cybersecurity awareness training, and an incident response plan[297] ITEM 2. Properties Arch's mineral reserves and resources comply with SEC S-K 1300, reporting 0.9 billion tons of recoverable reserves and 1.2 billion tons of measurable and indicated resources - Arch's mineral reserves and resources are disclosed in accordance with SEC S-K 1300, with Leer, Leer South, and Black Thunder identified as material properties[304][305] - As of December 31, 2023, the company owned or controlled approximately 0.9 billion tons of recoverable mineral reserves and 1.2 billion tons of measurable and indicated resources[318] Total Mineral Reserves (as of December 31, 2023) | Product / Region / Mine | Proven (million tons) | Probable (million tons) | Total (million tons) | | :---------------------- | :-------------------- | :---------------------- | :------------------- | | Metallurgical Coal | 135.5 | 84.4 | 219.9 | | Central Appalachia | 31.6 | 10.7 | 42.3 | | Northern Appalachia | 103.9 | 73.7 | 177.6 | | Thermal Coal | 591.9 | 37.7 | 629.6 | | Colorado | 35.0 | 3.2 | 38.2 | | Illinois Basin, Royalty | 137.9 | 33.5 | 171.4 | | Wyoming | 419.0 | 1.0 | 420.0 | | Total Coal | 727.4 | 122.1 | 849.5 | Change in Coal Reserves (2022 to 2023, in millions of tons) | Mine / Product / Region | Year ended Dec 31, 2022 | Production | Change in Mine Plan | Other | Year ended Dec 31, 2023 | | :---------------------- | :---------------------- | :--------- | :------------------ | :---- | :---------------------- | | Total Metallurgical Coal | 224.6 | (9.5) | 5.5 | (0.8) | 219.9 | | Total Thermal Coal | 703.1 | (67.3) | (6.5) | 0.3 | 629.6 | | Total Coal | 927.7 | (76.8) | (1.0) | (0.5) | 849.5 | Change in Coal Resources (2022 to 2023, in millions of tons) | Mine / Product / Region | Year ended Dec 31, 2022 | Production | Change in Mine Plan | Other | Year ended Dec 31, 2023 | | :---------------------- | :---------------------- | :--------- | :------------------ | :---- | :---------------------- | | Total Metallurgical Coal | 285.2 | - | - | (10.0) | 275.2 | | Total Thermal Coal | 965.9 | (2.6) | - | 61.9 | 1,025.2 | | Total Coal | 1,251.1 | (2.6) | - | 51.9 | 1,300.4 | ITEM 3. Legal Proceedings Arch is involved in ordinary course legal claims, primarily employee injury, with management expecting no material impact on financial condition or liquidity - Arch is involved in various claims and legal actions, primarily employee injury claims, arising in the ordinary course of business[356] - Management believes the ultimate resolution of these claims will not materially affect the company's financial condition, results of operations, or liquidity, with adequate reserves already provided[356] ITEM 4. Mine Safety Disclosures Mine safety disclosures, as required by the Dodd-Frank Act and Regulation S-K, are provided in Exhibit 95 of this Annual Report - Mine safety disclosures, as required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K, are provided in Exhibit 95 of the Annual Report[357] PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Arch Resources' common stock trades on the NYSE under 'ARCH'. In 2023, the company paid $206.1 million in dividends and repurchased 989,792 shares for $123.5 million - Arch Resources' common stock is listed on the NYSE under the symbol 'ARCH'[359] - As of January 8, 2024, there were 5 stockholders of Class A common stock and 1 stockholder of Class B common stock on record[359] - In 2023, the company paid $206.1 million in dividends, equating to $10.66 per share[360] Cumulative Total Return (2018-2023) | Date | Arch Resources, Inc. | S&P Midcap 400 | S&P Metals and Mining Select Industry | | :------- | :------------------- | :------------- | :------------------------------------ | | 12/31/18 | 100.00 | 100.00 | 100.00 | | 12/31/19 | 88.37 | 126.20 | 114.83 | | 12/31/20 | 54.49 | 143.44 | 133.71 | | 12/31/21 | 114.04 | 178.95 | 181.14 | | 12/31/22 | 209.16 | 155.58 | 205.53 | | 12/31/23 | 263.32 | 181.15 | 250.59 | - In 2023, the company repurchased 989,792 shares for approximately $123.5 million, with $217.7 million remaining under the $500 million share repurchase authorization[366][367] ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Arch's 2023 results saw total coal sales decrease by 15.5% to $3,145.8 million, with net income falling to $464.0 million from $1,330.9 million in 2022, driven by lower realized pricing - 2023 results benefited from global metallurgical coal markets, which, despite retreating from 2022 highs, remained above long-term averages due to supply constraints[371][374] - Domestic thermal coal consumption declined significantly in 2023 due to lower natural gas prices and increased renewable generation, leading to decreased tons sold and increased cash costs for the thermal segment[375][395] Consolidated Coal Sales (2023 vs 2022) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (Decrease) / Increase | | :--------- | :------------------ | :------------------ | :--------------------------- | | Coal sales | $3,145,843 | $3,724,593 | $(578,750) | | Tons sold | 74,935 | 78,274 | (3,339) | Consolidated Net Income and EPS (2023 vs 2022) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (Decrease) / Increase | | :--------------------- | :------------------ | :------------------ | :--------------------------- | | Net income | $464,038 | $1,330,914 | $(866,876) | | Basic earnings per share | $25.45 | $77.67 | $(52.22) | | Diluted earnings per share | $24.20 | $63.88 | $(39.68) | Segment Operating Results (2023 vs 2022) | Segment | Metric | 2023 | 2022 | Variance | | :------------ | :-------------------- | :-------- | :-------- | :-------- | | Metallurgical | Tons sold (thousands) | 9,295 | 7,832 | 1,463 | | | Coal sales (per ton sold) | $166.11 | $223.91 | $(57.80) | | | Cash cost (per ton sold) | $89.08 | $93.61 | $4.53 | | | Adjusted EBITDA (thousands) | $717,834 | $1,021,932 | $(304,098) | | Thermal | Tons sold (thousands) | 65,640 | 70,442 | (4,802) | | | Coal sales (per ton sold) | $17.48 | $19.50 | $(2.02) | | | Cash cost (per ton sold) | $15.61 | $14.57 | $(1.04) | | | Adjusted EBITDA (thousands) | $125,469 | $353,884 | $(228,415) | Overview This overview summarizes Arch Resources' financial performance and market conditions for 2023, highlighting key drivers and challenges Results of Operations This section details the consolidated financial results, including revenues, costs, and net income, comparing 2023 performance against prior periods Operational Performance This section analyzes the operational performance of Arch's metallurgical and thermal segments, including production volumes, sales, and cash costs per ton Liquidity and Capital Resources Arch ended 2023 with $320.5 million in cash and equivalents, $444.4 million total liquidity, and $176.0 million in capital expenditures, returning significant value to stockholders - As of December 31, 2023, Arch had $320.5 million in cash, cash equivalents, and short-term investments, with total liquidity of $444.4 million[409] - Capital expenditures in 2023 were approximately $176.0 million[409] - In 2023, the company paid $206.1 million in dividends and spent $125.5 million to repurchase common stock[410] Q4 2023 Discretionary Cash Flow and Dividend Payout | Metric | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Cash flow from operating activities | $181,556 | | Less: Capital expenditures | $(55,007) | | Discretionary cash flow | $126,549 | | Variable dividend percentage | 25% | | Total dividend to be paid | $31,637 | | Total dividend per share (variable and fixed) | $1.65 | - A new $20.0 million senior secured term loan was entered into on February 8, 2024, to pay off the remaining $3.5 million balance of the existing term loan debt facility[415][700] Availability Under Credit Facilities (as of December 31, 2023) | Facility | Face Amount (in thousands) | Borrowing Base (in thousands) | Letters of Credit Outstanding (in thousands) | Availability (in thousands) | Contractual Expiration | | :------------------------ | :------------------------- | :---------------------------- | :------------------------------------------- | :-------------------------- | :--------------------- | | Securitization Facility | $150,000 | $150,000 | $50,194 | $99,806 | August 1, 2025 | | Inventory Facility | $50,000 | $50,000 | $26,200 | $23,800 | August 3, 2025 | | Total | $200,000 | $200,000 | $76,394 | $123,606 | | Contractual Obligations As of December 31, 2023, Arch's total contractual obligations, excluding ARO, pension, and workers' compensation, amounted to $435.7 million, with an ARO liability of $261.8 million Contractual Obligations (as of December 31, 2023, in thousands) | Obligation | 2024 | 2025-2026 | 2027-2028 | Period after 2028 | Total | | :------------------------------ | :-------- | :---------- | :-------- | :---------------- | :-------- | | Long-term debt, including interest | $40,778 | $108,093 | $— | $— | $148,871 | | Leases | $4,491 | $8,457 | $1,533 | $— | $14,481 | | Coal lease rights | $3,425 | $6,363 | $4,907 | $36,482 | $51,177 | | Unconditional purchase obligations | $221,176 | $— | $— | $— | $221,176 | | Total contractual obligations | $269,870 | $122,913 | $6,440 | $36,482 | $435,705 | - The asset retirement obligation liability was $261.8 million as of December 31, 2023, with an estimated aggregate uninflated and undiscounted cost of final mine closures of $454.4 million[425][442] - Through December 31, 2023, the company contributed $142.3 million to a fund to defease the long-term asset retirement obligation for its thermal asset base[425][442] Off-Balance Sheet Arrangements Arch utilizes off-balance sheet arrangements, including guarantees, indemnifications, and financial instruments like $552.5 million in surety bonds and $76.4 million in letters of credit as of December 31, 2023 - Arch uses off-balance sheet arrangements, such as guarantees, indemnifications, and financial instruments (bank letters of credit, surety bonds), to secure obligations[429] Surety Bonds and Letters of Credit Outstanding (as of December 31, 2023, in thousands) | Obligation Type | Surety bonds | Letters of credit | | :------------------------ | :----------- | :---------------- | | Reclamation Obligations | $455,698 | $— | | Lease Obligations | $40,411 | $— | | Workers' Compensation Obligations | $50,028 | $69,170 | | Other | $6,366 | $1,354 | | Total | $552,503 | $70,524 | - As of December 31, 2023, $5.6 million in cash collateral was posted related to various obligations, recorded in 'Other noncurrent assets'[695] Cash Flow Cash provided by operating activities decreased significantly in 2023 to $635.4 million from $1,209.5 million in 2022, primarily due to lower operating results and an unfavorable change in working capital Summary of Cash Flows (in thousands) | Activity | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :------------------- | :---------------------- | :---------------------- | | Operating activities | $635,374 | $1,209,540 | | Investing activities | $(185,622) | $(203,794) | | Financing activities | $(398,004) | $(1,094,882) | - Cash provided by operating activities declined in 2023 mainly due to decreased results from operations and a net unfavorable change in working capital of $180.3 million[431] - Cash used in financing activities declined by $696.9 million in 2023, driven by a $412 million reduction in debt payments, a $250 million reduction in dividends, and a $31 million decrease in share repurchases[432] Critical Accounting Estimates Arch's financial statements rely on critical accounting estimates for long-lived asset impairment, ARO, employee benefit plans, and income taxes, with an ARO liability of $261.8 million as of December 31, 2023 - Critical accounting estimates include impairment of long-lived assets, asset retirement obligations (ARO), employee benefit plans, and income taxes, requiring significant management judgment and assumptions[435] - AROs are initially recorded at fair value based on permit requirements, disturbed acreage, reclamation costs, and equipment productivity, discounted to present value[439] - As of December 31, 2023, the ARO liability was $261.8 million, with an estimated aggregate uninflated and undiscounted cost of final mine closures of $454.4 million[440][442] - A valuation allowance of $82.8 million is recorded against certain state NOLs and capital losses as of December 31, 2023[445] ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Arch manages thermal coal price risk through long-term agreements and derivatives, while metallurgical coal sales are more exposed to market fluctuations, with 52.8 million tons of priced thermal coal committed for 2024 - Arch manages thermal coal price risk via long-term contracts and derivatives, while metallurgical coal sales are more exposed to market fluctuations[446] 2024 Sales Commitments (as of December 31, 2023) | Product | Type | Tons (in millions) | $ per ton | | :------------ | :-------------------- | :----------------- | :-------- | | Metallurgical | | | | | | Committed, North America Priced Coking | 1.5 | $157.65 | | | Committed, Seaborne Priced Coking | 0.1 | $201.35 | | | Committed, Seaborne Unpriced Coking | 2.7 | | | Thermal | | | | | | Committed, Priced | 52.8 | $17.09 | | | Committed, Unpriced | 1.4 | | - The company uses heating oil call options to protect against diesel fuel price increases, covering approximately 24 million gallons for 2024 at an average strike price of $2.96 per gallon[448] ITEM 8. Financial Statements and Supplementary Data The Consolidated Financial Statements and supplementary data for Arch Resources, Inc. are included in this Annual Report on Form 10-K, starting on page F-1 - The Consolidated Financial Statements and supplementary data are included in this Annual Report on Form 10-K, beginning on page F-1[449] ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report - There are no changes in or disagreements with accountants on accounting and financial disclosure[449] ITEM 9A. Controls and Procedures Arch Resources' management concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[450] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended December 31, 2023[451] ITEM 9B. Other Information No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during Q4 2023, though a prior report contained an incorrect share number - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during Q4 2023[452] - A previous report incorrectly stated 'Total Shares to be Sold' for John W. Lorson as 'Up to 2,715'[452] ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Arch Resources, Inc - This disclosure item is not applicable[452] PART III ITEM 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Annual Meeting Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement, except for executive officer details in Part I[454] ITEM 11. Executive Compensation Information concerning executive compensation, director compensation, and compensation committee reports is incorporated by reference from the 2024 Annual Meeting Proxy Statement - Executive compensation details are incorporated by reference from the 2024 Proxy Statement[455] ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matter Information regarding security ownership of certain beneficial owners and management, and equity compensation plan information, is incorporated by reference from the 2024 Proxy Statement - Security ownership information is incorporated by reference from the 2024 Proxy Statement[456] ITEM 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships and related transactions, along with director independence, is incorporated by reference from the 2024 Annual Meeting Proxy Statement - Details on related transactions and director independence are incorporated by reference from the 2024 Proxy Statement[457] ITEM 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2024 Annual Meeting Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement[458] PART IV ITEM 15. Exhibits and Financial Statement Schedules This section references the index for Financial Statements and lists the exhibits to be included in the 10-K report, including various agreements, consents, and certifications - This section refers to the index for Financial Statements and lists various exhibits, including debt agreements, consents, and certifications[460][462][463][464][465][466] ITEM 16. Form 10-K Summary This item indicates the location of the Form 10-K Summary within the report - This item indicates the location of the Form 10-K Summary[461] FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reports of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on Arch Resources' consolidated financial statements and internal control over financial reporting for 2023, identifying ARO Liability as a critical audit matter - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2023, and on the effectiveness of internal control over financial reporting[478][479][486] - The critical audit matter identified was the Asset Retirement Obligation (ARO) Liability, due to the high degree of subjectivity and judgment required in estimating its fair value, particularly regarding disturbed acreage, reclamation costs, and equipment productivity[482][484] REPORT OF MANAGEMENT Management is responsible for preparing consolidated financial statements in accordance with U.S. GAAP and maintaining effective internal controls, with oversight from the independent Audit Committee - Management is responsible for the preparation of consolidated financial statements in accordance with U.S. GAAP, which includes informed estimates and judgments[493] - A system of internal accounting controls is maintained to ensure reliable financial records and asset safeguarding[494] - The Audit Committee, comprising independent directors, regularly meets with management and auditors to discuss financial reporting and internal controls[495] MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining effective internal control over financial reporting, concluding its effectiveness as of December 31, 2023, with an attestation report by Ernst & Young LLP - Management is responsible for establishing and maintaining effective internal control over financial reporting[496] - As of December 31, 2023, management concluded that the company's internal control over financial reporting is effective, based on COSO criteria[497] - Ernst & Young LLP issued an attestation report on the effectiveness of the company's internal control over financial reporting[498] Consolidated Income Statements Arch Resources' consolidated income statements show a significant decrease in net income for 2023 compared to 2022, with revenues declining by 15.5% due to lower realized pricing Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :---------------------------------------- | :---------------------- | :---------------------- | :---------------------- | | Revenues | $3,145,843 | $3,724,593 | $2,208,042 | | Cost of sales | $2,341,956 | $2,338,863 | $1,579,836 | | Depreciation, depletion and amortization | $146,418 | $133,300 | $120,327 | | Selling, general and administrative expenses | $98,871 | $105,355 | $92,342 | | Income from operations | $546,454 | $1,109,411 | $367,130 | | Net income | $464,038 | $1,330,914 | $337,573 | | Basic earnings per share | $25.45 | $77.67 | $22.04 | | Diluted earnings per share | $24.20 | $63.88 | $19.20 | - Revenues decreased by $578.8 million (15.5%) in 2023 compared to 2022, with metallurgical sales down $265.4 million and thermal sales down $313.4 million[380] - Net income decreased by $866.9 million from $1,330.9 million in 2022 to $464.0 million in 2023[500] Consolidated Statements of Comprehensive Income Arch Resources' total comprehensive income decreased significantly in 2023 to $441.4 million from $1,378.2 million in 2022, driven by reduced net income and a shift to comprehensive loss Consolidated Statements of Comprehensive Income (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :------------------------------------ | :---------------------- | :---------------------- | :---------------------- | | Net income | $464,038 | $1,330,914 | $337,573 | | Total other comprehensive (loss) income | $(22,647) | $47,271 | $49,859 | | Total comprehensive income | $441,391 | $1,378,185 | $387,432 | - Total comprehensive income decreased from $1,378.2 million in 2022 to $441.4 million in 2023[503] - The total other comprehensive income shifted to a loss of $22.6 million in 2023, primarily due to pension, postretirement, and other postemployment benefits[503] Consolidated Balance Sheets As of December 31, 2023, Arch reported total assets of $2,484.2 million, a slight increase, while total liabilities decreased to $1,004.7 million, and total stockholders' equity increased to $1,479.5 million Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2023 | December 31, 2022 | | :---------------------------- | :---------------- | :---------------- | | Total current assets | $917,767 | $823,851 | | Property, plant and equipment, net | $1,228,891 | $1,187,028 | | Total other assets | $337,515 | $422,229 | | Total assets | $2,484,173 | $2,433,108 | | Total current liabilities | $367,961 | $426,879 | | Long-term debt | $105,252 | $116,288 | | Asset retirement obligations | $255,740 | $235,736 | | Total liabilities | $1,004,717 | $1,067,528 | | Total stockholders' equity | $1,479,456 | $1,365,580 | - Total assets increased by $51.1 million from $2,433.1 million in 2022 to $2,484.2 million in 2023[506] - Total liabilities decreased by $62.8 million from $1,067.5 million in 2022 to $1,004.7 million in 2023[506] - Total stockholders' equity increased by $113.9 million from $1,365.6 million in 2022 to $1,479.5 million in 2023[506] Consolidated Statements of Cash Flows Cash provided by operating activities decreased significantly in 2023 to $635.4 million from $1,209.5 million in 2022, while cash used in financing activities substantially reduced to $398.0 million Consolidated Statements of Cash Flows (in thousands) | Activity | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :------------------- | :---------------------- | :---------------------- | :---------------------- | | Operating activities | $635,374 | $1,209,540 | $238,284 | | Investing activities | $(185,622) | $(203,794) | $(141,215) | | Financing activities | $(398,004) | $(1,094,882) | $35,781 | | Cash and cash equivalents, end of period | $288,907 | $237,159 | $326,295 | - Cash provided by operating activities decreased by $574.2 million (47.5%) in 2023 compared to 2022[508] - Cash used in financing activities decreased by $696.9 million (63.6%) in 2023 compared to 2022[508] Consolidated Statements of Stockholders' Equity Arch Resources' total stockholders' equity increased to $1,479.5 million at December 31, 2023, from $1,365.6 million in 2022, driven by net income, partially offset by dividends and share repurchases Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | December 31, 2023 | December 31, 2022 | December 31, 2021 | | :------------------------------------ | :---------------- | :---------------- | :---------------- | | Common Stock | $306 | $288 | $255 | | Paid-In Capital | $720,029 | $724,660 | $784,356 | | Retained Earnings | $1,830,018 | $1,565,374 | $712,478 | | Treasury Stock, at Cost | $(1,109,679) | $(986,171) | $(827,381) | | Accumulated Other Comprehensive Income | $38,782 | $61,429 | $14,158 | | Total Stockholders' Equity | $1,479,456 | $1,365,580 | $683,866 | - Total stockholders' equity increased by $113.9 million from $1,365.6 million in 2022 to $1,479.5 million in 2023[510] - In 2023, dividends paid totaled $206.1 million, and share repurchases amounted to $123.5 million[510] Notes to Consolidated Financial Statements The Notes provide detailed information on Arch Resources' accounting policies, financial instruments, debt, equity, and other significant financial matters, including asset retirement obligations and employee benefit plans - The notes detail accounting policies for cash, receivables, inventories, investments, property, plant & equipment, revenue recognition, and asset retirement obligations[512][513][514][515][516][517][518][519][520][521][522][523][524][525][526][527][528][529][531][532][533] - The company adopted ASU 2020-06 on January 1, 2022, impacting convertible debt accounting and diluted EPS calculation, and is assessing ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures)[543][544][545][546][547] - As of December 31, 2023, the fair value of the company's debt was $142.1 million, and it had $552.5 million in surety bonds and $76.4 million in letters of credit outstanding[574][626][695] - The company terminated its Cash Balance Pension Plan in February 2022, with the process completed in Q1 2023, resulting in an immaterial gain[539][651]