UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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,June 30, 2022
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 001-38735
ALPHA METALLURGICAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 81-3015061 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | |
| 340 Martin Luther King Jr. Blvd. |
| Bristol, Tennessee 37620 |
| (Address of principal executive offices, zip code) |
| (423) 573-0300 |
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x 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 (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x 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 x No
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | AMR | New York Stock Exchange |
Number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of April 30,July 31, 2022: 18,712,64417,324,096
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements.” These statements, which involve risks and uncertainties, relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable and may also relate to our future prospects, developments and business strategies. We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should” and similar terms and phrases, including references to assumptions, in this report to identify forward-looking statements, but these terms and phrases are not the exclusive means of identifying such statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those expressed in or implied by these forward-looking statements.
The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
•the financial performance of the company;
•our liquidity, results of operations and financial condition;
•our ability to generate sufficient cash or obtain financing to fund our business operations;
•our indebtedness and potential future indebtedness;
•depressed levels or declines in coal prices;
•the effects of the COVID-19 pandemic on our operations and the world economy;
•changes in domestic or international environmental laws and regulations, and court decisions, including those directly affecting our coal mining and production, and those affecting our customers’ coal usage, including potential climate change initiatives;
•worldwide market demand for coal steel, and electricity,steel, including demand for U.S. coal exports, and competition in coal markets;
•our ability to consummate financing or refinancing transactions,pay dividends on our common stock and other services, and the form and degree of these services available to us, which may be significantly limited by the lending, investment and similar policies of financial institutions and insurance companies regarding carbon energy producers and the environmental impacts of coal combustion;execute our share repurchase program;
•our ability to obtain or renew surety bonds on acceptable terms or maintain our current bonding status;
•inflationary pressures on supplies and labor and significant or rapid increases in commodity prices;
•our indebtedness and potential future indebtedness;
•our ability to meet collateral requirements;
•the effects of the COVID-19 pandemic on our operations and the world economy;
•the imposition or continuation of barriers to trade, such as tariffs;
•increased market volatility and uncertainty on worldwide markets and our customers as a result of developments in and around Ukraine and the consequent export controls and financial and economic sanctions;
•railroad, barge, truck and other transportation availability, performance and costs;
•reductions or increases in customer coal inventories and the timing of those changes;
•our production capabilities and costs;
•attracting and retaining key personnel and other employee workforce factors, such as labor relations;
•disruptions in delivery or changes in pricing from third-party vendors of key equipment and materials that are necessary for our operations, such as diesel fuel, steel products, explosives, tires and purchased coal;
•inflationary pressures on supplies and labor and significant or rapid increases in commodity prices;
•railroad, barge, truck and other transportation availability, performance and costs;
•inherent risks of coal mining, including those that are beyond our control;
•changes in the ownership of our equity, which may significantly further reduce the annual amount of the net operating loss and other carryforwards available to be utilized;
•changes in, interpretations of, or implementations of domestic or international tax or other laws and regulations, including the Tax Cuts and Jobs Act and its related regulations;
•our ability to consummate financing or refinancing transactions, and other services, and the form and degree of these services available to us, which may be significantly limited by the lending, investment and similar policies of financial institutions and insurance companies regarding carbon energy producers and the environmental impacts of coal combustion;
•our ability to self-insure certain of our black lung obligations without a significant increase in required collateral;
•our relationships with, and other conditions affecting, our customers, including the inability to collect payments from our customers if their creditworthiness declines;
•changes in, renewal or acquisition of, terms of and performance of customers under coal supply arrangements and the refusal by our customers to receive coal under agreed-upon contract terms;
•our ability to obtain, maintain or renew any necessary permits or rights, and our ability to mine properties due to defects in title on leasehold interests;
•attracting and retaining key personnel and other employee workforce factors, such as labor relations;
•funding for and changes in employee benefit obligations;
•cybersecurity attacks or failures, threats to physical security, extreme weather conditions or other natural disasters;
•reclamation and mine closure obligations;
•utilities switching to alternative energy sources such as natural gas, renewables and coal from basins where we do not operate;
•our assumptions concerning economically recoverable coal reserve estimates;
•failures in performance, or non-performance, of services by third-party contractors, including contract mining and reclamation contractors;
•disruption in third-party coal supplies; and
The list of factors identified above areis not exhaustive. We caution readers not to place undue reliance on any forward-looking statements, which are based on information currently available to us and speak only as of the dates on which they are made. When considering these forward-looking statements, you should keep in mind the cautionary statements in this report. We do not undertake any responsibility to publicly revise these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, except as expressly required by federal securities laws, we do not undertake any responsibility to update you on the occurrence of any unanticipated events, which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this report.
Part I - Financial Information
Item 1. Financial Statements
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except share and per share data)
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2022 | | 2021 | | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues: | Revenues: | | | | | Revenues: | | | | | | | |
| Coal revenues | Coal revenues | $ | 1,069,738 | | | $ | 385,452 | | | Coal revenues | $ | 1,334,258 | | | $ | 393,458 | | | $ | 2,403,996 | | | $ | 778,910 | |
| Other revenues | Other revenues | 2,226 | | | 801 | | | Other revenues | 2,154 | | | 1,817 | | | 4,380 | | | 2,618 | |
| Total revenues | Total revenues | 1,071,964 | | | 386,253 | | | Total revenues | 1,336,412 | | | 395,275 | | | 2,408,376 | | | 781,528 | |
| Costs and expenses: | Costs and expenses: | | | | | Costs and expenses: | | | | | | | |
| Cost of coal sales (exclusive of items shown separately below) | Cost of coal sales (exclusive of items shown separately below) | 555,317 | | | 347,428 | | | Cost of coal sales (exclusive of items shown separately below) | 625,892 | | | 346,763 | | | 1,181,209 | | | 694,191 | |
| Depreciation, depletion and amortization | Depreciation, depletion and amortization | 28,035 | | | 28,438 | | | Depreciation, depletion and amortization | 27,730 | | | 27,304 | | | 55,765 | | | 55,742 | |
| Accretion on asset retirement obligations | Accretion on asset retirement obligations | 5,954 | | | 6,648 | | | Accretion on asset retirement obligations | 5,947 | | | 6,648 | | | 11,901 | | | 13,296 | |
| Amortization of acquired intangibles, net | Amortization of acquired intangibles, net | 5,748 | | | 3,869 | | | Amortization of acquired intangibles, net | 5,747 | | | 2,553 | | | 11,495 | | | 6,422 | |
| Asset impairment and restructuring | Asset impairment and restructuring | — | | | (561) | | | Asset impairment and restructuring | — | | | — | | | — | | | (561) | |
| Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above) | Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above) | 15,086 | | | 14,982 | | | Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above) | 18,158 | | | 14,645 | | | 33,244 | | | 29,627 | |
| Total other operating loss (income): | Total other operating loss (income): | | | Total other operating loss (income): | |
| Mark-to-market adjustment for acquisition-related obligations | Mark-to-market adjustment for acquisition-related obligations | 9,361 | | | 3,176 | | | Mark-to-market adjustment for acquisition-related obligations | 4,208 | | | 3,157 | | | 13,569 | | | 6,333 | |
| Other income | Other income | (628) | | | (1,225) | | | Other income | (1,516) | | | (3,608) | | | (2,144) | | | (4,833) | |
| Total costs and expenses | Total costs and expenses | 618,873 | | | 402,755 | | | Total costs and expenses | 686,166 | | | 397,462 | | | 1,305,039 | | | 800,217 | |
| Income (loss) from operations | Income (loss) from operations | 453,091 | | | (16,502) | | | Income (loss) from operations | 650,246 | | | (2,187) | | | 1,103,337 | | | (18,689) | |
| Other (expense) income: | Other (expense) income: | | | | | Other (expense) income: | | | | | | | |
| Interest expense | Interest expense | (13,083) | | | (17,990) | | | Interest expense | (5,218) | | | (17,962) | | | (18,301) | | | (35,952) | |
| Interest income | Interest income | 184 | | | 164 | | | Interest income | 164 | | | 104 | | | 348 | | | 268 | |
| Equity loss in affiliates | Equity loss in affiliates | (1,361) | | | (134) | | | Equity loss in affiliates | (2,136) | | | (384) | | | (3,497) | | | (518) | |
| Miscellaneous income, net | Miscellaneous income, net | 1,797 | | | 1,766 | | | Miscellaneous income, net | 1,385 | | | 1,847 | | | 3,182 | | | 3,613 | |
| Total other expense, net | Total other expense, net | (12,463) | | | (16,194) | | | Total other expense, net | (5,805) | | | (16,395) | | | (18,268) | | | (32,589) | |
| Income (loss) from continuing operations before income taxes | Income (loss) from continuing operations before income taxes | 440,628 | | | (32,696) | | | Income (loss) from continuing operations before income taxes | 644,441 | | | (18,582) | | | 1,085,069 | | | (51,278) | |
| Income tax (expense) benefit | (39,624) | | | 5 | | | |
| Income tax expense | | Income tax expense | (69,012) | | | (8) | | | (108,636) | | | (3) | |
| Net income (loss) from continuing operations | Net income (loss) from continuing operations | 401,004 | | | (32,691) | | | Net income (loss) from continuing operations | 575,429 | | | (18,590) | | | 976,433 | | | (51,281) | |
| Discontinued operations: | Discontinued operations: | | | Discontinued operations: | |
| Loss from discontinued operations before income taxes | Loss from discontinued operations before income taxes | (146) | | | (237) | | | Loss from discontinued operations before income taxes | (1,652) | | | (401) | | | (1,798) | | | (638) | |
| Income tax benefit from discontinued operations | Income tax benefit from discontinued operations | 33 | | | — | | | Income tax benefit from discontinued operations | 380 | | | — | | | 413 | | | — | |
| Loss from discontinued operations | Loss from discontinued operations | (113) | | | (237) | | | Loss from discontinued operations | (1,272) | | | (401) | | | (1,385) | | | (638) | |
| Net income (loss) | Net income (loss) | $ | 400,891 | | | $ | (32,928) | | | Net income (loss) | $ | 574,157 | | | $ | (18,991) | | | $ | 975,048 | | | $ | (51,919) | |
| | Basic income (loss) per common share: | Basic income (loss) per common share: | | | Basic income (loss) per common share: | |
| Income (loss) from continuing operations | Income (loss) from continuing operations | $ | 21.59 | | | $ | (1.78) | | | Income (loss) from continuing operations | $ | 31.31 | | | $ | (1.01) | | | $ | 52.85 | | | $ | (2.78) | |
| Loss from discontinued operations | Loss from discontinued operations | (0.01) | | | (0.01) | | | Loss from discontinued operations | (0.07) | | | (0.02) | | | (0.08) | | | (0.04) | |
| Net income (loss) | $ | 21.58 | | | $ | (1.79) | | | |
| | Diluted income (loss) per common share: | | | |
| Income (loss) from continuing operations | $ | 20.52 | | | $ | (1.78) | | | |
| | Net income (loss) | | Net income (loss) | $ | 31.24 | | | $ | (1.03) | | | $ | 52.77 | | | $ | (2.82) | |
| | Diluted income (loss) per common share: | | Diluted income (loss) per common share: | |
| Income (loss) from continuing operations | | Income (loss) from continuing operations | $ | 30.03 | | | $ | (1.01) | | | $ | 50.46 | | | $ | (2.78) | |
| Loss from discontinued operations | Loss from discontinued operations | — | | | (0.01) | | | Loss from discontinued operations | (0.06) | | | (0.02) | | | (0.07) | | | (0.04) | |
| Net income (loss) | Net income (loss) | $ | 20.52 | | | $ | (1.79) | | | Net income (loss) | $ | 29.97 | | | $ | (1.03) | | | $ | 50.39 | | | $ | (2.82) | |
| | Weighted average shares – basic | Weighted average shares – basic | 18,574,026 | | | 18,361,444 | | | Weighted average shares – basic | 18,380,114 | | | 18,438,699 | | | 18,476,534 | | | 18,416,946 | |
| Weighted average shares – diluted | Weighted average shares – diluted | 19,540,642 | | | 18,361,444 | | | Weighted average shares – diluted | 19,158,848 | | | 18,438,699 | | | 19,349,209 | | | 18,416,946 | |
Refer to accompanying Notes to Condensed Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(Amounts in thousands)
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) | Net income (loss) | $ | 400,891 | | | $ | (32,928) | | | Net income (loss) | $ | 574,157 | | | $ | (18,991) | | | $ | 975,048 | | | $ | (51,919) | |
| Other comprehensive income, net of tax: | | | |
| Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | |
| Employee benefit plans: | Employee benefit plans: | | | Employee benefit plans: | |
| Amortization of and adjustments to employee benefit costs | Amortization of and adjustments to employee benefit costs | $ | 775 | | | $ | 1,484 | | | Amortization of and adjustments to employee benefit costs | $ | (3,976) | | | $ | 10,180 | | | $ | (3,201) | | | $ | 11,664 | |
| Income tax expense | Income tax expense | — | | | — | | | Income tax expense | — | | | — | | | — | | | — | |
| Total other comprehensive income, net of tax | $ | 775 | | | $ | 1,484 | | | |
| Total other comprehensive (loss) income, net of tax | | Total other comprehensive (loss) income, net of tax | $ | (3,976) | | | $ | 10,180 | | | $ | (3,201) | | | $ | 11,664 | |
| Total comprehensive income (loss) | Total comprehensive income (loss) | $ | 401,666 | | | $ | (31,444) | | | Total comprehensive income (loss) | $ | 570,181 | | | $ | (8,811) | | | $ | 971,847 | | | $ | (40,255) | |
Refer to accompanying Notes to Condensed Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands, except share and per share data)
| | | March 31, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
| Assets | Assets | | | | Assets | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 159,455 | | | $ | 81,211 | | Cash and cash equivalents | $ | 161,732 | | | $ | 81,211 | |
| Trade accounts receivable, net of allowance for doubtful accounts of $519 and $393 as of March 31, 2022 and December 31, 2021, respectively | 636,152 | | | 489,241 | | |
| Trade accounts receivable, net of allowance for doubtful accounts of $473 and $393 as of June 30, 2022 and December 31, 2021, respectively | | Trade accounts receivable, net of allowance for doubtful accounts of $473 and $393 as of June 30, 2022 and December 31, 2021, respectively | 721,830 | | | 489,241 | |
| Inventories, net | Inventories, net | 161,753 | | | 129,382 | | Inventories, net | 167,192 | | | 129,382 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 57,144 | | | 47,690 | | Prepaid expenses and other current assets | 57,853 | | | 47,690 | |
| Current assets - discontinued operations | Current assets - discontinued operations | 69 | | | 462 | | Current assets - discontinued operations | 70 | | | 462 | |
| Total current assets | Total current assets | 1,014,573 | | | 747,986 | | Total current assets | 1,108,677 | | | 747,986 | |
| Property, plant, and equipment, net of accumulated depreciation and amortization of $462,920 and $443,856 as of March 31, 2022 and December 31, 2021, respectively | 369,449 | | | 362,218 | | |
| Owned and leased mineral rights, net of accumulated depletion and amortization of $59,894 and $52,444 as of March 31, 2022 and December 31, 2021, respectively | 436,852 | | | 444,302 | | |
| Other acquired intangibles, net of accumulated amortization of $39,968 and $34,221 as of March 31, 2022 and December 31, 2021, respectively | 68,450 | | | 74,197 | | |
| Property, plant, and equipment, net of accumulated depreciation and amortization of $478,210 and $443,856 as of June 30, 2022 and December 31, 2021, respectively | | Property, plant, and equipment, net of accumulated depreciation and amortization of $478,210 and $443,856 as of June 30, 2022 and December 31, 2021, respectively | 392,074 | | | 362,218 | |
| Owned and leased mineral rights, net of accumulated depletion and amortization of $66,891 and $52,444 as of June 30, 2022 and December 31, 2021, respectively | | Owned and leased mineral rights, net of accumulated depletion and amortization of $66,891 and $52,444 as of June 30, 2022 and December 31, 2021, respectively | 429,854 | | | 444,302 | |
| Other acquired intangibles, net of accumulated amortization of $45,716 and $34,221 as of June 30, 2022 and December 31, 2021, respectively | | Other acquired intangibles, net of accumulated amortization of $45,716 and $34,221 as of June 30, 2022 and December 31, 2021, respectively | 62,702 | | | 74,197 | |
| Long-term restricted investments | | Long-term restricted investments | 94,794 | | | 28,443 | |
| Long-term restricted cash | Long-term restricted cash | 118,476 | | | 89,426 | | Long-term restricted cash | 24,920 | | | 89,426 | |
| | Other non-current assets | Other non-current assets | 96,673 | | | 131,057 | | Other non-current assets | 94,617 | | | 102,614 | |
| Non-current assets - discontinued operations | Non-current assets - discontinued operations | 8,526 | | | 8,526 | | Non-current assets - discontinued operations | 8,508 | | | 8,526 | |
| Total assets | Total assets | $ | 2,112,999 | | | $ | 1,857,712 | | Total assets | $ | 2,216,146 | | | $ | 1,857,712 | |
| Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | Liabilities and Stockholders’ Equity | | | |
| Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
| Current portion of long-term debt | Current portion of long-term debt | $ | 2,434 | | | $ | 2,989 | | Current portion of long-term debt | $ | 1,927 | | | $ | 2,989 | |
| Trade accounts payable | Trade accounts payable | 109,413 | | | 90,090 | | Trade accounts payable | 100,957 | | | 90,090 | |
Acquisition-related obligations – current | Acquisition-related obligations – current | 21,281 | | | 22,405 | | Acquisition-related obligations – current | 36,211 | | | 22,405 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 223,222 | | | 174,607 | | Accrued expenses and other current liabilities | 200,268 | | | 174,607 | |
| Current liabilities - discontinued operations | Current liabilities - discontinued operations | 4,576 | | | 5,838 | | Current liabilities - discontinued operations | 6,104 | | | 5,838 | |
| Total current liabilities | Total current liabilities | 360,926 | | | 295,929 | | Total current liabilities | 345,467 | | | 295,929 | |
| Long-term debt | Long-term debt | 248,936 | | | 445,562 | | Long-term debt | 2,762 | | | 445,562 | |
| Acquisition-related obligations - long-term | Acquisition-related obligations - long-term | 28,199 | | | 19,000 | | Acquisition-related obligations - long-term | — | | | 19,000 | |
| Workers’ compensation and black lung obligations | Workers’ compensation and black lung obligations | 204,470 | | | 208,193 | | Workers’ compensation and black lung obligations | 202,402 | | | 208,193 | |
| Pension obligations | Pension obligations | 155,895 | | | 159,930 | | Pension obligations | 155,467 | | | 159,930 | |
| Asset retirement obligations | Asset retirement obligations | 133,719 | | | 132,013 | | Asset retirement obligations | 133,946 | | | 132,013 | |
| Deferred income taxes | Deferred income taxes | 4,993 | | | 317 | | Deferred income taxes | 12,934 | | | 317 | |
| Other non-current liabilities | Other non-current liabilities | 22,624 | | | 26,176 | | Other non-current liabilities | 20,274 | | | 26,176 | |
| Non-current liabilities - discontinued operations | Non-current liabilities - discontinued operations | 23,390 | | | 23,683 | | Non-current liabilities - discontinued operations | 23,321 | | | 23,683 | |
| Total liabilities | Total liabilities | 1,183,152 | | | 1,310,803 | | Total liabilities | 896,573 | | | 1,310,803 | |
| Commitments and Contingencies (Note 15) | 0 | | 0 | |
| Commitments and Contingencies (Note 16) | | Commitments and Contingencies (Note 16) | 0 | | 0 |
| Stockholders’ Equity | Stockholders’ Equity | | Stockholders’ Equity | |
| Preferred stock - par value $0.01, 5.0 million shares authorized, none issued | Preferred stock - par value $0.01, 5.0 million shares authorized, none issued | — | | | — | | Preferred stock - par value $0.01, 5.0 million shares authorized, none issued | — | | | — | |
| Common stock - par value $0.01, 50.0 million shares authorized, 21.0 million issued and 18.5 million outstanding at March 31, 2022 and 20.8 million issued and 18.4 million outstanding at December 31, 2021 | 210 | | | 208 | | |
| Common stock - par value $0.01, 50.0 million shares authorized, 21.6 million issued and 17.7 million outstanding at June 30, 2022 and 20.8 million issued and 18.4 million outstanding at December 31, 2021 | | Common stock - par value $0.01, 50.0 million shares authorized, 21.6 million issued and 17.7 million outstanding at June 30, 2022 and 20.8 million issued and 18.4 million outstanding at December 31, 2021 | 216 | | | 208 | |
| Additional paid-in capital | Additional paid-in capital | 788,281 | | | 784,743 | | Additional paid-in capital | 807,603 | | | 784,743 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (57,728) | | | (58,503) | | Accumulated other comprehensive loss | (61,704) | | | (58,503) | |
| Treasury stock, at cost: 2.5 million shares at March 31, 2022 and 2.4 million shares at December 31, 2021 | (130,068) | | | (107,800) | | |
| | Treasury stock, at cost: 3.9 million shares at June 30, 2022 and 2.4 million shares at December 31, 2021 | | Treasury stock, at cost: 3.9 million shares at June 30, 2022 and 2.4 million shares at December 31, 2021 | (322,874) | | | (107,800) | |
| Retained earnings (accumulated deficit) | Retained earnings (accumulated deficit) | 329,152 | | | (71,739) | | Retained earnings (accumulated deficit) | 896,332 | | | (71,739) | |
| Total stockholders’ equity | Total stockholders’ equity | 929,847 | | | 546,909 | | Total stockholders’ equity | 1,319,573 | | | 546,909 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 2,112,999 | | | $ | 1,857,712 | | Total liabilities and stockholders’ equity | $ | 2,216,146 | | | $ | 1,857,712 | |
Refer to accompanying Notes to Condensed Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
| | | Three Months Ended March 31, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Operating activities: | Operating activities: | | | | Operating activities: | | | |
| Net income (loss) | Net income (loss) | $ | 400,891 | | | $ | (32,928) | | Net income (loss) | $ | 975,048 | | | $ | (51,919) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
| Depreciation, depletion and amortization | Depreciation, depletion and amortization | 28,035 | | | 28,438 | | Depreciation, depletion and amortization | 55,765 | | | 55,742 | |
| Amortization of acquired intangibles, net | Amortization of acquired intangibles, net | 5,748 | | | 3,869 | | Amortization of acquired intangibles, net | 11,495 | | | 6,422 | |
| Accretion of acquisition-related obligations discount | 109 | | | 371 | | |
| Amortization of debt issuance costs and accretion of debt discount | Amortization of debt issuance costs and accretion of debt discount | 3,679 | | | 3,316 | | Amortization of debt issuance costs and accretion of debt discount | 7,231 | | | 6,480 | |
| Mark-to-market adjustment for acquisition-related obligations | Mark-to-market adjustment for acquisition-related obligations | 9,361 | | | 3,176 | | Mark-to-market adjustment for acquisition-related obligations | 13,569 | | | 6,333 | |
| Gain on disposal of assets | Gain on disposal of assets | (636) | | | (1,258) | | Gain on disposal of assets | (2,172) | | | (4,878) | |
| Asset impairment and restructuring | — | | | (561) | | |
| Accretion on asset retirement obligations | Accretion on asset retirement obligations | 5,954 | | | 6,648 | | Accretion on asset retirement obligations | 11,901 | | | 13,296 | |
| Employee benefit plans, net | Employee benefit plans, net | (174) | | | 2,147 | | Employee benefit plans, net | 232 | | | 5,744 | |
| Deferred income taxes | Deferred income taxes | 4,676 | | | (6) | | Deferred income taxes | 12,617 | | | 3 | |
| Stock-based compensation | Stock-based compensation | 1,182 | | | 2,183 | | Stock-based compensation | 2,583 | | | 3,162 | |
| Equity loss in affiliates | Equity loss in affiliates | 1,361 | | | 134 | | Equity loss in affiliates | 3,497 | | | 518 | |
| Other, net | Other, net | 135 | | | 826 | | Other, net | 567 | | | (58) | |
| Changes in operating assets and liabilities | Changes in operating assets and liabilities | (124,196) | | | (35,470) | | Changes in operating assets and liabilities | (290,277) | | | (66,296) | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 336,125 | | | (19,115) | | Net cash provided by (used in) operating activities | 802,056 | | | (25,451) | |
| Investing activities: | Investing activities: | | | | Investing activities: | | | |
| Capital expenditures | Capital expenditures | (28,146) | | | (20,395) | | Capital expenditures | (70,012) | | | (38,039) | |
| Proceeds on disposal of assets | Proceeds on disposal of assets | 917 | | | 2,652 | | Proceeds on disposal of assets | 2,511 | | | 6,801 | |
| Purchases of investment securities | Purchases of investment securities | (50) | | | (12,959) | | Purchases of investment securities | (127,831) | | | (15,470) | |
| Maturity of investment securities | Maturity of investment securities | 28,438 | | | 1,376 | | Maturity of investment securities | 60,945 | | | 7,766 | |
| Capital contributions to equity affiliates | Capital contributions to equity affiliates | (3,468) | | | (441) | | Capital contributions to equity affiliates | (8,525) | | | (1,895) | |
| Other, net | Other, net | (1,243) | | | 18 | | Other, net | (4,237) | | | 35 | |
| Net cash used in investing activities | Net cash used in investing activities | (3,552) | | | (29,749) | | Net cash used in investing activities | (147,149) | | | (40,802) | |
| Financing activities: | Financing activities: | | | | Financing activities: | | | |
| | Principal repayments of long-term debt | Principal repayments of long-term debt | (200,461) | | | (5,223) | | Principal repayments of long-term debt | (450,362) | | | (7,521) | |
| Principal repayments of financing lease obligations | Principal repayments of financing lease obligations | (543) | | | (501) | | Principal repayments of financing lease obligations | (1,098) | | | (1,002) | |
| | Debt issuance costs | | Debt issuance costs | — | | | (226) | |
| Common stock repurchases and related expenses | Common stock repurchases and related expenses | (21,844) | | | (680) | | Common stock repurchases and related expenses | (194,950) | | | (680) | |
| | Proceeds from exercise of stock options | Proceeds from exercise of stock options | 891 | | | — | | Proceeds from exercise of stock options | 903 | | | — | |
| Proceeds from exercise of warrants | Proceeds from exercise of warrants | 2,257 | | | — | | Proceeds from exercise of warrants | 4,486 | | | — | |
| Net cash used in financing activities | Net cash used in financing activities | (219,700) | | | (6,404) | | Net cash used in financing activities | (641,021) | | | (9,429) | |
| Net increase (decrease) in cash and cash equivalents and restricted cash | Net increase (decrease) in cash and cash equivalents and restricted cash | 112,873 | | | (55,268) | | Net increase (decrease) in cash and cash equivalents and restricted cash | 13,886 | | | (75,682) | |
| Cash and cash equivalents and restricted cash at beginning of period | Cash and cash equivalents and restricted cash at beginning of period | 182,614 | | | 244,571 | | Cash and cash equivalents and restricted cash at beginning of period | 182,614 | | | 244,571 | |
| Cash and cash equivalents and restricted cash at end of period | Cash and cash equivalents and restricted cash at end of period | $ | 295,487 | | | $ | 189,303 | | Cash and cash equivalents and restricted cash at end of period | $ | 196,500 | | | $ | 168,889 | |
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows.
| | | As of March 31, | | As of June 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 159,455 | | | $ | 92,236 | | Cash and cash equivalents | $ | 161,732 | | | $ | 72,337 | |
| Short-term restricted cash (included in prepaid expenses and other current assets) | 17,556 | | | 11,427 | | |
| Short-term restricted cash (included in Prepaid expenses and other current assets) | | Short-term restricted cash (included in Prepaid expenses and other current assets) | 9,848 | | | 3,794 | |
| Long-term restricted cash | Long-term restricted cash | 118,476 | | | 85,640 | | Long-term restricted cash | 24,920 | | | 92,758 | |
| Total cash and cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | Total cash and cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 295,487 | | | $ | 189,303 | | Total cash and cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | $ | 196,500 | | | $ | 168,889 | |
Refer to accompanying Notes to Condensed Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Amounts in thousands)
| | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Treasury Stock at Cost | | (Accumulated Deficit) Retained Earnings | | Total Stockholders’ Equity | | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Treasury Stock at Cost | | (Accumulated Deficit) Retained Earnings | | Total Stockholders’ Equity |
| Balances, December 31, 2020 | Balances, December 31, 2020 | $ | 206 | | | $ | 779,424 | | | $ | (111,985) | | | $ | (107,014) | | | $ | (360,529) | | | $ | 200,102 | | Balances, December 31, 2020 | $ | 206 | | | $ | 779,424 | | | $ | (111,985) | | | $ | (107,014) | | | $ | (360,529) | | | $ | 200,102 | |
| Net loss | Net loss | — | | | — | | | — | | | — | | | (32,928) | | | (32,928) | | Net loss | — | | | — | | | — | | | — | | | (32,928) | | | (32,928) | |
| Other comprehensive income, net | Other comprehensive income, net | — | | | — | | | 1,484 | | | — | | | — | | | 1,484 | | Other comprehensive income, net | — | | | — | | | 1,484 | | | — | | | — | | | 1,484 | |
| Stock-based compensation and issuance of common stock for share vesting | Stock-based compensation and issuance of common stock for share vesting | 1 | | | 2,182 | | | — | | | — | | | — | | | 2,183 | | Stock-based compensation and issuance of common stock for share vesting | 1 | | | 2,182 | | | — | | | — | | | — | | | 2,183 | |
| Common stock repurchases and related expenses | Common stock repurchases and related expenses | — | | | — | | | — | | | (680) | | | — | | | (680) | | Common stock repurchases and related expenses | — | | | — | | | — | | | (680) | | | — | | | (680) | |
| Balances, March 31, 2021 | Balances, March 31, 2021 | $ | 207 | | | $ | 781,606 | | | $ | (110,501) | | | $ | (107,694) | | | $ | (393,457) | | | $ | 170,161 | | Balances, March 31, 2021 | $ | 207 | | | $ | 781,606 | | | $ | (110,501) | | | $ | (107,694) | | | $ | (393,457) | | | $ | 170,161 | |
| | Net loss | | Net loss | — | | | — | | | — | | | — | | | (18,991) | | | (18,991) | |
| Other comprehensive income, net | | Other comprehensive income, net | — | | | — | | | 10,180 | | | — | | | — | | | 10,180 | |
| Stock-based compensation and issuance of common stock for share vesting | | Stock-based compensation and issuance of common stock for share vesting | 1 | | | 980 | | | — | | | — | | | — | | | 981 | |
| Balances, June 30, 2021 | | Balances, June 30, 2021 | $ | 208 | | | $ | 782,586 | | | $ | (100,321) | | | $ | (107,694) | | | $ | (412,448) | | | $ | 162,331 | |
| | | Balances, December 31, 2021 | Balances, December 31, 2021 | $ | 208 | | | $ | 784,743 | | | $ | (58,503) | | | $ | (107,800) | | | $ | (71,739) | | | $ | 546,909 | | Balances, December 31, 2021 | $ | 208 | | | $ | 784,743 | | | $ | (58,503) | | | $ | (107,800) | | | $ | (71,739) | | | $ | 546,909 | |
| Net income | Net income | — | | | — | | | — | | | — | | | 400,891 | | | 400,891 | | Net income | — | | | — | | | — | | | — | | | 400,891 | | | 400,891 | |
| Other comprehensive income, net | Other comprehensive income, net | — | | | — | | | 775 | | | — | | | — | | | 775 | | Other comprehensive income, net | — | | | — | | | 775 | | | — | | | — | | | 775 | |
| Stock-based compensation, issuance of common stock for share vesting, and common stock reissuances | Stock-based compensation, issuance of common stock for share vesting, and common stock reissuances | 1 | | | (391) | | | — | | | 1,572 | | | — | | | 1,182 | | Stock-based compensation, issuance of common stock for share vesting, and common stock reissuances | 1 | | | (391) | | | — | | | 1,572 | | | — | | | 1,182 | |
| Exercise of stock options | Exercise of stock options | — | | | 891 | | | — | | | — | | | — | | | 891 | | Exercise of stock options | — | | | 891 | | | — | | | — | | | — | | | 891 | |
| Warrants exercises | Warrants exercises | 1 | | | 3,038 | | | — | | | — | | | — | | | 3,039 | | Warrants exercises | 1 | | | 3,038 | | | — | | | — | | | — | | | 3,039 | |
| Common stock repurchases and related expenses | Common stock repurchases and related expenses | — | | | — | | | — | | | (23,840) | | | — | | | (23,840) | | Common stock repurchases and related expenses | — | | | — | | | — | | | (23,840) | | | — | | | (23,840) | |
| Balances, March 31, 2022 | Balances, March 31, 2022 | $ | 210 | | | $ | 788,281 | | | $ | (57,728) | | | $ | (130,068) | | | $ | 329,152 | | | $ | 929,847 | | Balances, March 31, 2022 | $ | 210 | | | $ | 788,281 | | | $ | (57,728) | | | $ | (130,068) | | | $ | 329,152 | | | $ | 929,847 | |
| Net income | | Net income | — | | | — | | | — | | | — | | | 574,157 | | | 574,157 | |
| Other comprehensive loss, net | | Other comprehensive loss, net | — | | | — | | | (3,976) | | | — | | | — | | | (3,976) | |
| Stock-based compensation, issuance of common stock for share vesting, and common stock reissuances | | Stock-based compensation, issuance of common stock for share vesting, and common stock reissuances | — | | | 1,249 | | | — | | | 152 | | | — | | | 1,401 | |
| Exercise of stock options | | Exercise of stock options | — | | | 11 | | | — | | | — | | | — | | | 11 | |
| Warrants exercises | | Warrants exercises | 6 | | | 18,062 | | | — | | | — | | | — | | | 18,068 | |
| Common stock repurchases and related expenses | | Common stock repurchases and related expenses | — | | | — | | | — | | | (192,958) | | | — | | | (192,958) | |
| Cash dividend and dividend equivalents declared ($0.375 per share) | | Cash dividend and dividend equivalents declared ($0.375 per share) | — | | | — | | | — | | | — | | | (6,977) | | | (6,977) | |
| Balances, June 30, 2022 | | Balances, June 30, 2022 | $ | 216 | | | $ | 807,603 | | | $ | (61,704) | | | $ | (322,874) | | | $ | 896,332 | | | $ | 1,319,573 | |
|
Refer to accompanying Notes to Condensed Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
(1) Business and Basis of Presentation
Business
Alpha Metallurgical Resources, Inc. (“Alpha” or the “Company”) is a Tennessee-based mining company with operations across Virginia and West Virginia. With customers across the globe, high-quality reserves and significant port capacity, Alpha is a leading U.S. supplier of metallurgical coal products for the steel industry.
Basis of Presentation
Together, the condensed consolidated statements of operations, comprehensive income (loss), balance sheets, cash flows and stockholders’ equity for the Company are referred to as the “Condensed Consolidated Financial Statements.” The Condensed Consolidated Financial Statements are also referenced across periods as “Condensed Consolidated Statements of Operations,” “Condensed Consolidated Statements of Comprehensive Income (Loss),” “Condensed Consolidated Balance Sheets,” “Condensed Consolidated Statements of Cash Flows,” and “Condensed Consolidated Statements of Stockholders’ Equity.” The Company’s former Northern Appalachia (“NAPP”) operations results of operations and financial position are reported as discontinued operations in the Condensed Consolidated Financial Statements. Refer to Note 2 for further information on discontinued operations.
The Condensed Consolidated Financial Statements include all wholly-owned subsidiaries’ results of operations for the three and six months ended March 31,June 30, 2022 and 2021. All significant intercompany transactions have been eliminated in consolidation.
The accompanying interim Condensed Consolidated Financial Statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for Form 10-Q. Such rules and regulations allow the omission of certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP as long as the financial statements are not misleading. In the opinion of management, these interim Condensed Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair presentation of the results for the periods presented. Results of operations for the three and six months ended March 31,June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or any other period. These interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Reclassifications
Certain amounts in the prior year Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current year presentation.
COVID-19 Pandemic
In the first quarter of 2020, the COVID-19 virus was declared a pandemic by the World Health Organization. The COVID-19 pandemic has had negative impacts on the Company’s business, results of operations, financial condition and cash flows. The Company experienced an increase in employee absences due to COVID-19. Indirectly, through some of the Company’s third-party vendors, the Company and the Company’s customers have experienced some supply chain disruptions due to the COVID-19 pandemic. The full extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on certain developments, including the duration of the virus, its impact on the Company’s customers and suppliers, and the range of governmental and community reactions to the pandemic, which cannot be fully predicted. Health and safety are core values of the Company and are the foundation for how the Company manages every aspect of its business. The Company continues to monitor developments closely and adjust as necessary, including with respect to the Company’s implemented policies, procedures, and prevention measures to protect the safety and health of its employees.
Recently Adopted Accounting Guidance
Financial Instruments:Fair Value Measurement: In MarchJune 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). This update clarifies how the fair value of equity securities subject to contractual sale restrictions is determined. Per the update, a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and is not considered in measuring fair value. Additionally, the update requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities. The amendments are effective for fiscal years beginning after December 15, 2023, with early application permitted. The Company adopted ASU 2022-03 during the second quarter of 2022. The adoption of this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements and related disclosures.
Financial Instruments: In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). This update eliminates the troubled debt restructuring model for creditors that have adopted Topic 326. All loan modifications will now be accounted for under general loan modification guidance and, on a prospective basis, entities will be subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. In addition, entities will be required to prospectively disclose current-period gross write-off information by year of origination. The amendments are effective for fiscal years beginning after December 15, 2022, with early application permitted. The Company adopted ASU 2022-02 during the first quarter of 2022. The adoption of this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements and related disclosures.
(2) Discontinued Operations
Discontinued operations consist of activity related to the Company’s former NAPP operations.
Major Financial Statement Components of Discontinued Operations
The loss from discontinued operations before income taxes for the three months ended March 31,June 30, 2022 and 2021 was $146$1,652 and $237,$401, respectively. The loss from discontinued operations before income taxes for the six months ended June 30, 2022 and 2021 was $1,798 and $638, respectively. Refer to the Condensed Consolidated Statements of Operations and Note 5 for loss per share information related to discontinued operations.
The major components of assets and liabilities that are classified as discontinued operations in the Condensed Consolidated Balance Sheets are as follows:
| | | March 31, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
| Assets: | Assets: | | | | Assets: | | | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | $ | 69 | | | $ | 462 | | Prepaid expenses and other current assets | $ | 70 | | | $ | 462 | |
Other non-current assets (1) | Other non-current assets (1) | $ | 8,526 | | | $ | 8,526 | | Other non-current assets (1) | $ | 8,508 | | | $ | 8,526 | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Trade accounts payable, accrued expenses and other current liabilities | Trade accounts payable, accrued expenses and other current liabilities | $ | 4,576 | | | $ | 5,838 | | Trade accounts payable, accrued expenses and other current liabilities | $ | 6,104 | | | $ | 5,838 | |
| Workers’ compensation and black lung obligations, non-current | Workers’ compensation and black lung obligations, non-current | $ | 23,390 | | | $ | 23,683 | | Workers’ compensation and black lung obligations, non-current | $ | 23,321 | | | $ | 23,683 | |
(1) Comprised of workers’ compensation insurance receivable and long-term restricted investments collateralizing workers’ compensation obligations.
(3) Revenue
Disaggregation of Revenue from Contracts with Customers
The Company earns revenues primarily through the sale of coal produced at Company operations and coal purchased from third parties. The Company extracts, processes and markets met and thermal coal from deep and surface mines for sale to steel and coke producers, industrial customers, and electric utilities.
The Company has disaggregated revenue between met coal and thermal coal and export and domestic revenues which depicts the pricing and contract differences between the two. Export revenue generally is derived by spot or short term contracts
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
with pricing determined at the time of shipment or based on a market index; whereas domestic revenue is characterized by contracts that typically have a term of one year or longer and typically the pricing is fixed. The following tables disaggregate the Company’s coal revenues by product category and by market to depict how the nature, amount, timing, and uncertainty of the Company’s coal revenues and cash flows are affected by economic factors:
| | | Three Months Ended March 31, 2022 | | Three Months Ended June 30, 2022 |
| | Met Coal | | Thermal Coal | | Total | | Met Coal | | Thermal Coal | | Total |
| Export coal revenues | Export coal revenues | $ | 888,006 | | | $ | 6,519 | | | $ | 894,525 | | Export coal revenues | $ | 1,135,757 | | | $ | 10,246 | | | $ | 1,146,003 | |
| Domestic coal revenues | Domestic coal revenues | 159,987 | | | 15,226 | | | 175,213 | | Domestic coal revenues | 162,483 | | | 25,772 | | | 188,255 | |
| Total coal revenues | Total coal revenues | $ | 1,047,993 | | | $ | 21,745 | | | $ | 1,069,738 | | Total coal revenues | $ | 1,298,240 | | | $ | 36,018 | | | $ | 1,334,258 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Met Coal | | Thermal Coal | | Total |
| Export coal revenues | $ | 250,324 | | | $ | 5,693 | | | $ | 256,017 | |
| Domestic coal revenues | 105,235 | | | 32,206 | | | 137,441 | |
| Total coal revenues | $ | 355,559 | | | $ | 37,899 | | | $ | 393,458 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Met Coal | | Thermal Coal | | Total |
| Export coal revenues | $ | 2,023,763 | | | $ | 16,765 | | | $ | 2,040,528 | |
| Domestic coal revenues | 322,470 | | | 40,998 | | | 363,468 | |
| Total coal revenues | $ | 2,346,233 | | | $ | 57,763 | | | $ | 2,403,996 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Met Coal | | Thermal Coal | | Total |
| Export coal revenues | $ | 493,076 | | | $ | 6,724 | | | $ | 499,800 | |
| Domestic coal revenues | 205,477 | | | 73,633 | | | 279,110 | |
| Total coal revenues | $ | 698,553 | | | $ | 80,357 | | | $ | 778,910 | |
Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied as of June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Total |
| Estimated coal revenues | $ | 23,281 | | | $ | 32,919 | | | $ | 37,250 | | | $ | — | | | $ | — | | | $ | 93,450 | |
(4) Accumulated Other Comprehensive Loss
The following tables summarize the changes to accumulated other comprehensive loss during the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance January 1, 2022 | | Other comprehensive income (loss) before reclassifications | | Amounts reclassified from accumulated other comprehensive loss | | Balance June 30, 2022 |
| Employee benefit costs | $ | (58,503) | | | $ | (4,837) | | | $ | 1,636 | | | $ | (61,704) | |
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Met Coal | | Thermal Coal | | Total |
| Export coal revenues | $ | 242,752 | | | $ | 1,031 | | | $ | 243,783 | |
| Domestic coal revenues | 100,242 | | | 41,427 | | | 141,669 | |
| Total coal revenues | $ | 342,994 | | | $ | 42,458 | | | $ | 385,452 | |
Performance Obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied as of March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Total |
| Estimated coal revenues | $ | 41,980 | | | $ | 32,919 | | | $ | 37,250 | | | $ | — | | | $ | — | | | $ | 112,149 | |
(4) Accumulated Other Comprehensive Loss
The following tables summarize the changes to accumulated other comprehensive loss during the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance January 1, 2022 | | Other comprehensive income (loss) before reclassifications | | Amounts reclassified from accumulated other comprehensive loss | | Balance March 31, 2022 |
| Employee benefit costs | $ | (58,503) | | | $ | — | | | $ | 775 | | | $ | (57,728) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance January 1, 2021 | | Other comprehensive income (loss) before reclassifications | | Amounts reclassified from accumulated other comprehensive loss | | Balance March 31, 2021 |
| Employee benefit costs | $ | (111,985) | | | $ | — | | | $ | 1,484 | | | $ | (110,501) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance January 1, 2021 | | Other comprehensive income (loss) before reclassifications | | Amounts reclassified from accumulated other comprehensive loss | | Balance June 30, 2021 |
| Employee benefit costs | $ | (111,985) | | | $ | 8,838 | | | $ | 2,826 | | | $ | (100,321) | |
The following table summarizes the amounts reclassified from accumulated other comprehensive loss and the Condensed Consolidated Statements of Operations line items affected by the reclassification during the three and six months ended March 31,June 30, 2022 and 2021:
| | Details about accumulated other comprehensive loss components | Details about accumulated other comprehensive loss components | Amounts reclassified from accumulated other comprehensive loss | Affected line item in the Condensed Consolidated Statements of Operations | Details about accumulated other comprehensive loss components | Amounts reclassified from accumulated other comprehensive loss | Affected line item in the Condensed Consolidated Statements of Operations |
| Three Months Ended March 31, | | Details about accumulated other comprehensive loss components | Three Months Ended June 30, | | Six Months Ended June 30, | Affected line item in the Condensed Consolidated Statements of Operations | |
| 2022 | | 2021 | | Details about accumulated other comprehensive loss components | 2022 | | 2021 | 2022 | 2021 | Affected line item in the Condensed Consolidated Statements of Operations | |
| Employee benefit costs: | Employee benefit costs: | | | | | | | | | | | | |
Amortization of net actuarial loss (1) | Amortization of net actuarial loss (1) | $ | 784 | | | $ | 1,484 | | | Miscellaneous income, net | $ | 871 | | | $ | 1,342 | | | $ | 1,655 | | | $ | 2,826 | | | Miscellaneous income, net |
Settlement (1) | Settlement (1) | (9) | | | — | | | Miscellaneous income, net | Settlement (1) | (10) | | | — | | | (19) | | | — | | | Miscellaneous income, net |
| Total before income tax | Total before income tax | $ | 775 | | | $ | 1,484 | | | | Total before income tax | $ | 861 | | | $ | 1,342 | | | $ | 1,636 | | | $ | 2,826 | | | |
| Income tax | Income tax | — | | | — | | | Income tax (expense) benefit | Income tax | — | | | — | | | — | | | — | | | Income tax expense |
| Total, net of income tax | Total, net of income tax | $ | 775 | | | $ | 1,484 | | | | Total, net of income tax | $ | 861 | | | $ | 1,342 | | | $ | 1,636 | | | $ | 2,826 | | | |
(1) These accumulated other comprehensive loss components are included in the computation of net periodic benefit costs for certain employee benefit plans. Refer to Note 13.14.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
(5) Net Income (Loss) Per Share
The number of shares used to calculate basic net income (loss) per common share is based on the weighted average number of the Company’s outstanding common shares during the respective period. The number of shares used to calculate diluted net income (loss) per common share is based on the number of common shares used to calculate basic net income (loss) per common share plus the dilutive effect of stock options and other stock-based instruments held by the Company’s employees and directors during the period, and the Company’s outstanding Series A warrants. The dilutive effect of outstanding stock-based instruments is determined by application of the treasury stock method. The stock options and warrants become dilutive for diluted net income (loss) per common share calculations when the market price of the Company’s common stock exceeds the exercise price. As discussed below, dilutive securities are not included in the computation of diluted net loss per common share for the three and six months ended March 31,June 30, 2021 as the impact would be anti-dilutive.
For the three months ended March 31,June 30, 2022 and 2021, 0 and 954,248942,549 warrants and stock options, respectively, were excluded from the computation of dilutive net income (loss) per common share because they would have been anti-dilutive. For six months ended June 30, 2022 and 2021, 0 and 948,398 warrants, stock options, and other stock-based instruments, respectively, were excluded from the computation of dilutive net income (loss)loss per common share because they would have been anti-dilutive. When applying the treasury stock method, anti-dilution generally occurs when the exercise prices or unrecognized compensation cost per share are higher than the Company’s average stock price during an applicable period.
Anti-dilution also occurs in periods of a net loss, and the dilutive impact of all share-based compensation awards are excluded. For the three months ended March 31,June 30, 2021 the weighted average share impact of stock options and other stock-based instruments that were excluded from the calculation of diluted shares due to the Company incurring a net loss for the period was 323,236.313,640. For the six months ended June 30, 2021, the weighted average share impact of stock options and other-stock-based instruments that were excluded from the calculation of diluted shares due to the Company incurring a net loss for the period was 301,684.
The following table presents the net income (loss) per common share for the three and six months ended March 31,June 30, 2022 and 2021:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2022 | | 2021 | | | 2022 | | 2021 | | 2022 | | 2021 | |
| Net income (loss) | Net income (loss) | | | | | Net income (loss) | | | | | | | | |
| Income (loss) from continuing operations | Income (loss) from continuing operations | $ | 401,004 | | | $ | (32,691) | | | Income (loss) from continuing operations | $ | 575,429 | | | $ | (18,590) | | | $ | 976,433 | | | $ | (51,281) | | |
| Loss from discontinued operations | Loss from discontinued operations | (113) | | | (237) | | | Loss from discontinued operations | (1,272) | | | (401) | | | (1,385) | | | (638) | | |
| Net income (loss) | Net income (loss) | $ | 400,891 | | | $ | (32,928) | | | Net income (loss) | $ | 574,157 | | | $ | (18,991) | | | $ | 975,048 | | | $ | (51,919) | | |
| | Basic | Basic | | | Basic | | |
| Weighted average common shares outstanding - basic | Weighted average common shares outstanding - basic | 18,574,026 | | | 18,361,444 | | | Weighted average common shares outstanding - basic | 18,380,114 | | | 18,438,699 | | | 18,476,534 | | | 18,416,946 | | |
| | Basic income (loss) per common share: | Basic income (loss) per common share: | | | Basic income (loss) per common share: | | |
| Income (loss) from continuing operations | Income (loss) from continuing operations | $ | 21.59 | | | $ | (1.78) | | | Income (loss) from continuing operations | $ | 31.31 | | | $ | (1.01) | | | $ | 52.85 | | | $ | (2.78) | | |
| Loss from discontinued operations | Loss from discontinued operations | (0.01) | | | (0.01) | | | Loss from discontinued operations | (0.07) | | | (0.02) | | | (0.08) | | | (0.04) | | |
| Net income (loss) | Net income (loss) | $ | 21.58 | | | $ | (1.79) | | | Net income (loss) | $ | 31.24 | | | $ | (1.03) | | | $ | 52.77 | | | $ | (2.82) | | |
| | Diluted | Diluted | | | Diluted | | |
| Weighted average common shares outstanding - basic | Weighted average common shares outstanding - basic | 18,574,026 | | | 18,361,444 | | | Weighted average common shares outstanding - basic | 18,380,114 | | | 18,438,699 | | | 18,476,534 | | | 18,416,946 | | |
| Diluted effect of warrants | Diluted effect of warrants | 443,273 | | | — | | | Diluted effect of warrants | 323,087 | | | — | | | 383,180 | | | — | | |
| Diluted effect of stock options | Diluted effect of stock options | 7,119 | | | — | | | Diluted effect of stock options | 5,544 | | | — | | | 6,331 | | | — | | |
| Diluted effect of other stock-based instruments | Diluted effect of other stock-based instruments | 516,224 | | | — | | | Diluted effect of other stock-based instruments | 450,103 | | | — | | | 483,164 | | | — | | |
| Weighted average common shares outstanding - diluted | Weighted average common shares outstanding - diluted | 19,540,642 | | | 18,361,444 | | | Weighted average common shares outstanding - diluted | 19,158,848 | | | 18,438,699 | | | 19,349,209 | | | 18,416,946 | | |
| | Diluted income (loss) per common share: | Diluted income (loss) per common share: | | | Diluted income (loss) per common share: | | |
| Income (loss) from continuing operations | Income (loss) from continuing operations | $ | 20.52 | | | $ | (1.78) | | | Income (loss) from continuing operations | $ | 30.03 | | | $ | (1.01) | | | $ | 50.46 | | | $ | (2.78) | | |
| Loss from discontinued operations | Loss from discontinued operations | — | | | (0.01) | | | Loss from discontinued operations | (0.06) | | | (0.02) | | | (0.07) | | | (0.04) | | |
| Net income (loss) | Net income (loss) | $ | 20.52 | | | $ | (1.79) | | | Net income (loss) | $ | 29.97 | | | $ | (1.03) | | | $ | 50.39 | | | $ | (2.82) | | |
(6) Inventories, net
Inventories, net consisted of the following:
| | | | March 31, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
| Raw coal | Raw coal | $ | 29,637 | | | $ | 20,347 | | Raw coal | $ | 35,078 | | | $ | 20,347 | |
| Saleable coal | Saleable coal | 99,040 | | | 81,240 | | Saleable coal | 96,009 | | | 81,240 | |
Materials, supplies and other, net | Materials, supplies and other, net | 33,076 | | | 27,795 | | Materials, supplies and other, net | 36,105 | | | 27,795 | |
| Total inventories, net | Total inventories, net | $ | 161,753 | | | $ | 129,382 | | Total inventories, net | $ | 167,192 | | | $ | 129,382 | |
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
(7) Capital Stock
Share Repurchase Program
On March 4, 2022, the Company’s boardBoard of directorsDirectors (the “Board”) adopted a share repurchase program that permitspermitted the Company to repurchase up to an aggregate amount of $150,000 of the Company's common stock. On May 3, 2022, the Company’s Board amended the share repurchase program to increase the aggregate amount the Company is permitted to repurchase to an aggregate amount of up to $600,000 of the Company's common stock. Share repurchases may be made from time to time through open market transactions, block trades, tender offers, or otherwise, and has no expiration date. The share repurchase program does not obligate the Company to acquire any particular amount of common stock or to acquire shares on any particular timetable, and the program may be suspended at any time at the Company’s discretion. Repurchases under the program are subject to market and business conditions, levels of available liquidity, the Company’s cash needs, restrictions under agreements or obligations, legal or regulatory requirements or restrictions and other relevant factors. As of March 31,June 30, 2022, the Company had repurchased an aggregate of 133,5011,309,362 shares under the plan for an aggregate purchase price of approximately $16,547$192,859 (comprised of $16,543$192,820 of share repurchases and $4$39 of related fees).
Dividend Program
On May 3, 2022, the Company‘s Board adopted a dividend policy. Pursuant to this policy, the Board initially intended to pay aggregate cash dividends of $1.50 per share of common stock per year, with $0.375 per share paid each quarter. Refer to Note 1718 for subsequent event disclosures related to the Company’s dividend program including an increase to the declared cash dividend per share repurchase program.for the subsequent quarter. The first quarterly dividend payment became payable on July 1, 2022 for holders of record as of June 15, 2022. In addition, pursuant to the terms of certain stock-based compensation awards under the Company’s Management Incentive Plan and Long-Term Incentive Plan, dividend equivalent amounts will become payable at various vesting dates with respect to each share underlying outstanding award.
As of June 30, 2022, the Company recorded a $6,977 dividend payable for the first quarterly dividend declaration, including dividend equivalents, with a reduction to the Company’s retained earnings. Of this dividend payable amount, $6,836 and $141 were included within Accrued expenses and other current liabilities and Other non-current liabilities, respectively, on the Company’s Condensed Consolidated Balance Sheets. We expect any future dividend payments will be targeted to be paid in the first month of each calendar quarter. Any decision to pay future cash dividends will, however, be made by the Board and depend on Alpha’s future earnings and financial condition and other relevant factors.
Warrants
On July 26, 2016, the Company issued 810,811 warrants, which are classified as equity instruments. Pursuant to the underlying warrants agreement, the warrants are exercisable for cash or on a cashless basis at any time until July 26, 2023, and no fractional shares shall be issued upon warrant exercises. As of March 31, 2022 and March 31, 2021,Pursuant to the underlying warrants agreement, the exercise price was adjusted as a result of the occurrence of the dividend declaration during the three months ended June 30, 2022. The exercise price was adjusted from $46.911 per share andto $46.804 per share as of the June 15, 2022 dividend record date. The warrant share number was equalremained unchanged, at 1.15. Refer to 1.15.Note 18 for subsequent event disclosures related to the Company’s dividend program which could result in an adjustment to the warrants exercise price and warrants share number.
As of March 31,June 30, 2022, 744,845263,718 warrants remained outstanding, with a total of 856,572303,276 shares underlying the un-exercised warrants. For the three and six months ended March 31,June 30, 2022, the Company issued 64,861553,296 and 618,157 shares of common stock, respectively, resulting from exercises of its warrants and, pursuant to the terms of the underlying warrants agreement, withheld 91168,155 and 168,246 of the issued shares, respectively, in satisfaction of the warrant exercise price and in lieu of fractional shares, which were subsequently reclassified as treasury stock. stock in the amounts of $16,644 and $16,651, respectively.
As of March 31,June 30, 2021, 801,370 warrants remainedwere outstanding, with a total of 921,576 shares underlying the un-exercised warrants. For the three and six months ended March 31,June 30, 2021, there were no warrants exercises.exercised.
Dividend Program
Refer to Note 17 for subsequent event disclosures related to the Company’s dividend program announcement.
(8) Long-Term Debt
Long-term debt consisted of the following:
| | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| Term Loan Credit Facility - due June 2024 | $ | 249,435 | | | $ | 449,435 | |
| | | |
Other (1) | 5,029 | | | 5,311 | |
| Debt discount and issuance costs | (3,094) | | | (6,195) | |
| Total long-term debt | $ | 251,370 | | | $ | 448,551 | |
| Less current portion | (2,434) | | | (2,989) | |
| Long-term debt, net of current portion | $ | 248,936 | | | $ | 445,562 | |
(1) Includes financing leases.
Term Loan Credit Facility - due June 2024
As of March 31, 2022, the borrowings made under the senior secured term loan facility under the Company’s Credit Agreement with a maturity date of June 14, 2024 (the “Term Loan Credit Facility”) were comprised of Eurocurrency Rate Loans (as defined therein) with an interest rate of 10.00%, calculated as the Eurocurrency rate during the period plus an applicable rate of 8.00%. As of March 31, 2022 and December 31, 2021, the carrying value of the Term Loan Credit Facility was $246,341 and $443,241, respectively, all of which was classified as long-term within the Condensed Consolidated Balance Sheets.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
(8) Accrued Expenses and Other Current Liabilities
DuringAccrued expenses and other current liabilities consisted of the first quarterfollowing:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Wages and benefits | $ | 73,083 | | | $ | 52,310 | |
| Workers’ compensation | 10,582 | | | 10,582 | |
| Black lung | 7,235 | | | 7,235 | |
| Taxes other than income taxes | 32,876 | | | 30,734 | |
| Asset retirement obligations | 32,668 | | | 32,159 | |
| Accrued interest and fees | 1,412 | | | 14,489 | |
| Freight accrual | 20,911 | | | 15,085 | |
| Dividend payable | 6,836 | | | — | |
| Other | 14,665 | | | 12,013 | |
| Total accrued expenses and other current liabilities | $ | 200,268 | | | $ | 174,607 | |
(9) Long-Term Debt
Long-term debt consisted of 2022,the following:
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| Term Loan Credit Facility - due June 2024 | $ | — | | | $ | 449,435 | |
| | | |
Other (1) | 4,689 | | | 5,311 | |
| Debt discount and issuance costs | — | | | (6,195) | |
| Total long-term debt | $ | 4,689 | | | $ | 448,551 | |
| Less current portion | (1,927) | | | (2,989) | |
| Long-term debt, net of current portion | $ | 2,762 | | | $ | 445,562 | |
(1) Includes financing leases.
Term Loan Credit Facility - due June 2024
On June 14, 2019, the Company madeentered into a voluntary prepaymentCredit Agreement that provided for a senior secured term loan facility with a maturity date of $200,000June 14, 2024 (the “Term Loan Credit Facility”). As of June 30, 2022, there were 0 outstanding principal borrowings under the Term Loan Credit facility. AsFacility as a result of the Company’s voluntary prepayments inof $449,435 of outstanding principal borrowings during the prior yearfirst and current period, no further amortization payments undersecond quarters of 2022. Effective with the final voluntary prepayment on June 3, 2022, the Credit Agreement was terminated, and the Company was released of all underlying obligations including the Credit Agreement covenants. As December 31, 2021, the carrying value of the Term Loan Credit Facility are required prior to maturity. Additionally, refer to Note 17 for related subsequent event disclosures.
All obligations under the Term Loan Credit Facility are guaranteed by substantiallywas $443,241, all of Alpha’s direct and indirect subsidiaries. Certain obligations underwhich was classified as long-term within the Term Loan Facility are secured by a senior lien, subject to certain exceptions (including the ABL Priority Collateral described below), by substantially all of Alpha’s assets and the assets of Alpha’s subsidiary guarantors (“Term Loan Priority Collateral”), in each case subject to exceptions. The obligations under the Term Loan Credit Facility are also secured by a junior lien, again subject to certain exceptions, against the ABL Priority Collateral. The Term Loan Facility contains negative and affirmative covenants including certain financial covenants that are more flexible than the covenants in the Second Amended and Restated Credit Agreement dated December 6, 2021. The Company was in compliance with all covenants under this agreement as of March 31, 2022.Condensed Consolidated Balance Sheets.
Second Amended and Restated Asset-Based Revolving Credit Agreement
The Second Amended and Restated Asset-Based Revolving Credit Agreement (“ABL Agreement”) includes a senior secured asset-based revolving credit facility (the “ABL Facility”). Under the ABL Facility, the Company may borrow cash or obtain letters of credit, on a revolving basis, in an aggregate amount of up to $155,000, of which no more than $150,000 may represent outstanding letters of credit ($125,000 on a committed basis and another $25,000 on an uncommitted cash collateralized basis) with any borrowings having a maturity date of December 6, 2024. As of March 31,June 30, 2022 and December 31, 2021, there were no outstanding borrowings under the ABL Facility. As of March 31,June 30, 2022 and December 31, 2021, the Company had $63,898 and $121,037 letters of credit outstanding under the ABL Facility.Facility, respectively.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
The ABL Agreement provides that a specified percentage of billed and unbilled receivables and raw and clean inventory meeting certain criteria are eligible to be counted for purposes of collateralizing the amount of financing available, subject to certain terms and conditions. Availability under the ABL Facility is calculated on a monthly basis and fluctuates based on qualifying amounts of coal inventory and trade accounts receivable (the “Borrowing Base”) and the facility's covenant limitations related to the Fixed Charge Coverage Ratio (as defined in therein). In accordance with terms of the ABL Facility, the Company may be required to collateralize the ABL Facility to the extent outstanding borrowings and letters of credit under the ABL Facility exceed the Borrowing Base after considering covenant limitations.
The ABL Facility is guaranteed by substantially all of Alpha’s direct and indirect subsidiaries (together with Alpha, the “Loan Parties”) and secured by all or substantially all assets of the Loan Parties, including equity in Alpha’s direct domestic subsidiaries, as collateral for the obligations under the ABL Facility. The ABL Facility has a first lien on ABL priority collateral and a second lien on Term Loan Priority Collateral. As noted above, the Term Loan Credit Facility was voluntarily prepaid in full on June 3, 2022, and in connection therewith, the Term Loan Priority Collateral has been released in connection therewith, and the ABL Facility’s lien on the Term Loan Priority Collateral is no longer second. The ABL Agreement, as amended, and related documents contain negative and affirmative covenants including certain financial covenants. The Company is in compliance with all covenants under these agreements as of March 31,June 30, 2022.
(9)(10) Acquisition-Related Obligations
Acquisition-related obligations consisted of the following:
| | | March 31, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
| Contingent Revenue Obligation | Contingent Revenue Obligation | $ | 44,366 | | | $ | 35,005 | | Contingent Revenue Obligation | $ | 32,408 | | | $ | 35,005 | |
| Environmental Settlement Obligations | Environmental Settlement Obligations | 5,238 | | | 6,633 | | Environmental Settlement Obligations | 3,849 | | | 6,633 | |
| Discount | Discount | (124) | | | (233) | | Discount | (46) | | | (233) | |
| Total acquisition-related obligations | Total acquisition-related obligations | $ | 49,480 | | | $ | 41,405 | | Total acquisition-related obligations | $ | 36,211 | | | $ | 41,405 | |
| Less current portion | Less current portion | (21,281) | | | (22,405) | | Less current portion | (36,211) | | | (22,405) | |
| Acquisition-related obligations, net of current portion | Acquisition-related obligations, net of current portion | $ | 28,199 | | | $ | 19,000 | | Acquisition-related obligations, net of current portion | $ | — | | | $ | 19,000 | |
Contingent Revenue Obligation
As of March 31,June 30, 2022 and December 31, 2021, the carrying value of the Contingent Revenue Obligation was $44,366$32,408 and $35,005, with $16,166$32,408 and $16,005 classified as current, respectively, classified as an acquisition-related obligation in the
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
Condensed Consolidated Balance Sheets. Refer to Note 1112 for further disclosures related to the fair value assignment and methods used.
(10)(11) Asset Retirement Obligations
The following table summarizes the changes in asset retirement obligations for the threesix months ended March 31,June 30, 2022:
| | | | | |
| Total asset retirement obligations at December 31, 2021 | $ | 164,172 | |
| Accretion for the period | 5,95411,901 | |
| |
| Revisions in estimated cash flows | (337)(881) | |
| Expenditures for the period | (3,695)(8,578) | |
Total asset retirement obligations at March 31,June 30, 2022 | 166,094166,614 | |
Less current portion (1) | (32,375)(32,668) | |
| Long-term portion | $ | 133,719133,946 | |
(1) Included within Accrued expenses and other current liabilities on the Company’s Condensed Consolidated Balance Sheets. Refer to Note 8.
(11)(12) Fair Value of Financial Instruments and Fair Value Measurements
The estimated fair values of financial instruments are determined based on relevant market information. These estimates involve uncertainty and cannot be determined with precision.
The carrying amounts for cash and cash equivalents, trade accounts receivable, net, prepaid expenses and other current assets, short-term and long-term restricted cash, short-term and long-term deposits, trade accounts payable, and accrued expenses and other current liabilities approximate fair value as of March 31, 2022 and December 31, 2021 due to the short maturity of these instruments.
The following tables set forth by level, within the fair value hierarchy, the Company’s long-term debt at fair value as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Carrying Amount (1) | | Total Fair Value | | Quoted Prices in Active Markets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Term Loan Credit Facility - due June 2024 | $ | 246,341 | | | $ | 249,955 | | | $ | — | | | $ | 249,955 | | | $ | — | |
| Total long-term debt | $ | 246,341 | | | $ | 249,955 | | | $ | — | | | $ | 249,955 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Carrying Amount (1) | | Total Fair Value | | Quoted Prices in Active Markets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Term Loan Credit Facility - due June 2024 | $ | 443,241 | | | $ | 447,561 | | | $ | — | | | $ | 447,561 | | | $ | — | |
| Total long-term debt | $ | 443,241 | | | $ | 447,561 | | | $ | — | | | $ | 447,561 | | | $ | — | |
(1) Net of debt discounts and debt issuance costs.
The following tables set forth by level, within the fair value hierarchy, the Company’s acquisition-related obligations at fair value as of March 31, 2022 and December 31, 2021:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| Carrying Amount (1) | | Total Fair Value | | Quoted Prices in Active Markets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Environmental Settlement Obligations | $ | 5,114 | | | $ | 5,046 | | | $ | — | | | $ | — | | | $ | 5,046 | |
| Total acquisition-related obligations | $ | 5,114 | | | $ | 5,046 | | | $ | — | | | $ | — | | | $ | 5,046 | |
The following tables set forth by level, within the fair value hierarchy, the Company’s long-term debt and acquisition-related obligations at fair value as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Carrying Amount (1) | | Total Fair Value | | Quoted Prices in Active Markets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Environmental Settlement Obligations | $ | 3,803 | | | $ | 3,757 | | | $ | — | | | $ | — | | | $ | 3,757 | |
| | | | December 31, 2021 | | December 31, 2021 |
| | Carrying Amount (1) | | Total Fair Value | | Quoted Prices in Active Markets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) | | Carrying Amount (1) | | Total Fair Value | | Quoted Prices in Active Markets
(Level 1) | | Significant Other Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Term Loan Credit Facility - due June 2024 | | Term Loan Credit Facility - due June 2024 | $ | 443,241 | | | $ | 447,561 | | | $ | — | | | $ | 447,561 | | | $ | — | |
| Environmental Settlement Obligations | Environmental Settlement Obligations | $ | 6,400 | | | $ | 6,270 | | | $ | — | | | $ | — | | | $ | 6,270 | | Environmental Settlement Obligations | $ | 6,400 | | | $ | 6,270 | | | $ | — | | | $ | — | | | $ | 6,270 | |
| Total acquisition-related obligations | $ | 6,400 | | | $ | 6,270 | | | $ | — | | | $ | — | | | $ | 6,270 | | |
(1) Net of discounts.debt discounts and debt issuance costs.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial and non-financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31,June 30, 2022 and December 31, 2021. Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the determination of fair value for assets and liabilities and their placement within the fair value hierarchy levels.
| | | | March 31, 2022 | | June 30, 2022 |
| | Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Contingent Revenue Obligation | Contingent Revenue Obligation | $ | 44,366 | | | $ | — | | | $ | — | | | $ | 44,366 | | Contingent Revenue Obligation | $ | 32,408 | | | $ | — | | | $ | — | | | $ | 32,408 | |
| Trading securities | Trading securities | $ | 50 | | | $ | — | | | $ | 50 | | | $ | — | | Trading securities | $ | 94,794 | | | $ | — | | | $ | 94,794 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Contingent Revenue Obligation | $ | 35,005 | | | $ | — | | | $ | — | | | $ | 35,005 | |
| Trading securities | $ | 28,443 | | | $ | 27,075 | | | $ | 1,368 | | | $ | — | |
The following tables present a reconciliation of the financial and non-financial assets and liabilities that were accounted for at fair value on a recurring basis and that were categorized within Level 3 of the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | Payments | | Loss (Gain) Recognized in Earnings (1) | | Transfer In (Out) of Level 3 Fair Value Hierarchy | | March 31, 2022 |
| Contingent Revenue Obligation | $ | 35,005 | | | $ | — | | | $ | 9,361 | | | $ | — | | | $ | 44,366 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | Payments | | Loss (Gain) Recognized in Earnings (1) | | Transfer In (Out) of Level 3 Fair Value Hierarchy | | June 30, 2022 |
| Contingent Revenue Obligation | $ | 35,005 | | | $ | (16,166) | | | $ | 13,569 | | | $ | — | | | $ | 32,408 | |
(1) The loss recognized in earnings resulted primarily from an increase in forecasted future revenue as of March 31,June 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
December 31, 2020 | | Payments | | Loss (Gain) Recognized in Earnings (1) | | Transfer In (Out) of Level 3 Fair Value Hierarchy | | March 31, 2021 |
| Contingent Revenue Obligation | $ | 28,967 | | | $ | — | | | $ | 3,176 | | | $ | — | | | $ | 32,143 | |
(1) The loss recognized in earnings resulted primarily from a decrease in the annual risk-free interest rate as of March 31, 2021.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
December 31, 2020 | | Payments | | Loss (Gain) Recognized in Earnings (1) | | Transfer In (Out) of Level 3 Fair Value Hierarchy | | June 30, 2021 |
| Contingent Revenue Obligation | $ | 28,967 | | | $ | (11,396) | | | $ | 6,333 | | | $ | — | | | $ | 23,904 | |
(1) The loss recognized in earnings resulted primarily from a decrease in the annual risk-free interest rate as of June 30, 2021.
The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the tables above:
Level 1 Fair Value Measurements
Trading Securities - Typically includes money market funds and other cash equivalents. The fair value is based on observable market data.
Level 2 Fair Value Measurements
Term Loan Credit Facility - due June 2024 - The fair value iswas based on the average between bid and ask prices provided by a third-party. As the fair value iswas based on observable market inputs and due to limited trading volume in the Term Loan Credit Facility, the Company hashad classified the fair value within Level 2 of the fair value hierarchy. Effective June 3, 2022, the Term Loan Credit Facility was terminated. Refer to Note 9 for additional information.
Trading Securities - Typically includes certificates of deposit, mutual funds, corporate debt securities, and U.S. treasury and agency securities. The fair values of the Company’s trading securities are obtained from a third-party pricing service provider. The fair values provided by the pricing service provider are based on observable market inputs including credit spreads and broker-dealer quotes, among other inputs. The Company classifies the prices obtained from the pricing services within Level 2 of the fair value hierarchy because the underlying inputs are directly observable from active markets. However, the pricing models used entail a certain amount of subjectivity and therefore differing judgments in how the underlying inputs are modeled could result in different estimates of fair value.
Level 3 Fair Value Measurements
Environmental Settlement Obligations - Observable transactions are not available to aid in determining the fair value of these items. Therefore, the fair value was derived by using the expected present value approach in which estimated cash flows are discounted using a risk-free interest rate adjusted for credit risk (discount rates of approximately 12%14% and 13% as of March 31,June 30, 2022 and December 31, 2021, respectively).
Contingent Revenue Obligation - The fair value of the contingent revenue obligation was estimated using a Black-Scholes pricing model and is marked to market at each reporting period with changes in value reflected in earnings. The inputs included in the Black-Scholes pricing model are the Company's forecasted future revenue, the stated royalty rate, the remaining periods in the obligation, annual risk-free interest rate based on the U.S. Constant Maturity Treasury Curve and annualized volatility. The annualized volatility was calculated by observing volatilities for comparable companies with adjustments for the Company's size and leverage. The range of significant unobservable inputs used to value the Contingent Revenue Obligation as of March 31,June 30, 2022 and December 31, 2021, are set forth in the following table:
| | | | | | | | | | | |
| | March 31,June 30, 2022 | | December 31, 2021 |
| Forecasted future revenue | $1.5 - $3.13.5 billion | | $1.5 - $2.0 billion |
| Stated royalty rate | 1.0% - 1.5% | | 1.0% - 1.5% |
| Annualized volatility | 20.7%22.1% - 39.3% (37.0%42.2% (34.9%) | | 18.4% - 39.3% (29.9%) |
(12)(13) Income Taxes
For the threesix months ended March 31,June 30, 2022, the Company recorded income tax expense of $39,624$108,636 on income from continuing operations before income taxes of $440,628.$1,085,069. The income tax expense differs from the expected statutory amount primarily due to the decrease in the valuation allowance and the permanent impact of percentage depletion and foreign-derived intangible income deductions, partially offset by the impact of state income taxes, net of federal impact. For the three months ended March 31, 2021, the Company recorded income tax benefit of $5 on a loss from continuing operations before income taxes of $32,696. The income tax benefit differs from the expected statutory amount primarily due to the increase in the valuation allowance, partially offset by the permanent impact of percentage depletion deductions and the impact of state income taxes, net of federal tax impact.
As a result of generating income before income taxes during the three months ended March 31, 2022, the Company recorded a decrease of $23,453 to its deferred tax asset valuation allowance recorded as of December 31, 2021. The decrease in
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
intangible income deductions, partially offset by the impact of state income taxes, net of federal impact. For the six months ended June 30, 2021, the Company recorded income tax expense of $3 on a loss from continuing operations before income taxes of $51,278. The income tax expense differs from the expected statutory amount primarily due to the increase in the valuation allowance and the impact of state income taxes, net of federal impact, partially offset by the permanent impact of percentage depletion deductions.
As a result of generating income before income taxes during the six months ended June 30, 2022, the Company recorded a decrease of $47,365 to its deferred tax asset valuation allowance recorded as of December 31, 2021. The decrease in the valuation allowance results in part from a decrease in deferred tax assets since the prior reporting date of December 31, 2021. The Company currently is relying primarily on the reversal of taxable temporary differences, along with consideration of taxable income via carryback to prior years and tax planning strategies, to support the realization of deferred tax assets. For each reporting period, the Company updates its assessment regarding the realizability of its deferred tax assets, including scheduling the reversal of its deferred tax assets and liabilities, to determine the amount of valuation allowance needed. Scheduling the reversal of deferred tax asset and liability balances requires judgment and estimation. The Company believes the deferred tax liabilities relied upon as future taxable income in its assessment will reverse in the same period and jurisdiction and are of the same character as the temporary differences giving rise to the deferred tax assets that will be realized. The valuation allowance recorded represents the portion of deferred tax assets for which the Company is unable to support realization through the methods described above.
During the six months ended June 30, 2022, the Company paid estimated federal and state income taxes of $109,074. As of March 31,June 30, 2022, the Company has recorded a current federal and state income taxes payablereceivable of $38,249,$12,064, classified as AccruedPrepaid expenses and other current liabilitiesassets in the Condensed Consolidated Balance Sheets.
(13)(14) Employee Benefit Plans
The components of net periodic benefit (credit) cost other than the service cost component for black lung are included in the line item miscellaneous income, net in the Condensed Consolidated Statements of Operations.
Pension
The following table details the components of the net periodic benefit credit for pension obligations:
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2022 | | 2021 | | | 2022 | | 2021 | | 2022 | | 2021 | |
| Interest cost | Interest cost | $ | 3,984 | | | $ | 3,422 | | | Interest cost | $ | 4,006 | | | $ | 3,362 | | | $ | 7,990 | | | $ | 6,784 | | |
| Expected return on plan assets | Expected return on plan assets | (7,185) | | | (7,247) | | | Expected return on plan assets | (7,181) | | | (7,119) | | | (14,366) | | | (14,366) | | |
| Amortization of net actuarial loss | Amortization of net actuarial loss | 484 | | | 875 | | | Amortization of net actuarial loss | 571 | | | 734 | | | 1,055 | | | 1,609 | | |
| | Net periodic benefit credit | Net periodic benefit credit | $ | (2,717) | | | $ | (2,950) | | | Net periodic benefit credit | $ | (2,604) | | | $ | (3,023) | | | $ | (5,321) | | | $ | (5,973) | | |
During the three months ended June 30, 2022, an annual census data actuarial revaluation of pension obligations was performed, which resulted in an increase in the liability for pension obligations of approximately $4,837 with the offset to accumulated other comprehensive gain and a slight decrease in net periodic benefit to be recognized subsequent to the revaluation date. An annual census data actuarial revaluation of pension obligations was also performed during the three months ended June 30, 2021, which resulted in a decrease in the liability for pension obligations of approximately $8,838 with the offset to accumulated other comprehensive gain and a slight increase in net periodic benefit to be recognized subsequent to the revaluation date.
Black Lung
The following table details the components of the net periodic benefit cost for black lung obligations:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
| Service cost | $ | 654 | | | $ | 739 | | | | | |
| Interest cost | 665 | | | 607 | | | | | |
| Expected return on plan assets | (13) | | | (14) | | | | | |
| Amortization of net actuarial loss | 209 | | | 522 | | | | | |
| Net periodic benefit cost | $ | 1,515 | | | $ | 1,854 | | | | | |
(14) Related Party Transactions
There were no material related party transactions for the three months ended March 31, 2022 or 2021.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | | | |
| Service cost | $ | 654 | | | $ | 739 | | | $ | 1,308 | | | $ | 1,478 | | | | | |
| Interest cost | 665 | | | 607 | | | 1,330 | | | 1,214 | | | | | |
| Expected return on plan assets | (13) | | | (14) | | | (26) | | | (28) | | | | | |
| Amortization of net actuarial loss | 209 | | | 522 | | | 418 | | | 1,044 | | | | | |
| Net periodic benefit cost | $ | 1,515 | | | $ | 1,854 | | | $ | 3,030 | | | $ | 3,708 | | | | | |
(15) Related Party Transactions
There were no material related party transactions for the six months ended June 30, 2022 or 2021.
(16) Commitments and Contingencies
(a) General
Estimated losses from loss contingencies are accrued by a charge to income when information available indicates that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated.
If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the Condensed Consolidated Financial Statements when it is at least reasonably possible that a loss may be incurred and that the loss could be material.
(b) Commitments and Contingencies
Commitments
The Company leases coal mining and other equipment under long-term financing and operating leases with varying terms. In addition, the Company leases mineral interests and surface rights from landowners under various terms and royalty rates.
Coal royalty expense was $57,343$72,627 and $18,758$21,281 for the three months ended March 31,June 30, 2022 and 2021, respectively. Coal royalty expense was $129,970 and $40,039 for the six months ended June 30, 2022 and 2021, respectively.
Other Commitments
As of March 31,June 30, 2022, the Company has obligations under certain coal purchase agreements that contain minimum quantities to be purchased in the remainder of 2022 and 2023 totaling an estimated $71,226.$82,185 and $12,099, respectively. The Company also has obligations under certain unconditional purchase obligations totaling $62,095, $59,319, and $86,850 in the remainder of 2022, 2023, and 2024, respectively.
Contingencies
Extensive regulation of the impacts of mining on the environment and of maintaining workplace safety has had, and is expected to continue to have, a significant effect on the Company’s costs of production and results of operations. Further regulations, legislation or litigation in these areas may also cause the Company’s sales or profitability to decline by increasing costs or by hindering the Company’s ability to continue mining at existing operations or to permit new operations.
During the normal course of business, contract-related matters arise between the Company and its customers. When a loss related to such matters is considered probable and can reasonably be estimated, the Company records a liability.
As of March 31,June 30, 2022, per terms of the Cumberland Back-to-Back Coal Supply Agreements, the Company is required to purchase and sell 1,6001,342 tons of coal in the remainder of 2022 totaling $61,853.$51,860. For the three months ended March 31,June 30, 2022 and 2021, the Company purchased and sold 419258 and 700760 tons, respectively, totaling $16,185$9,936 and $27,066,$29,487, respectively, under the Cumberland Back-to-Back Coal Supply Agreements. For the six months ended June 30, 2022 and 2021, the Company
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
purchased and sold 677 and 1,460 tons, respectively, totaling $26,121 and $56,553, respectively, under the Cumberland Back-to-Back Coal Supply Agreements. As of March 31,June 30, 2022, the Cumberland Back-to-Back Coal Supply Agreements are scheduled to be fully performed by December 31, 2022.
(c) Guarantees and Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company is a party to certain guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit, performance or surety bonds, and other guarantees and indemnities related to the obligations of affiliated entities which are not reflected in the Company’s Condensed Consolidated Balance Sheets. However, the underlying liabilities that they secure, such as asset retirement obligations, workers’ compensation liabilities, and royalty obligations, are reflected in the Company’s Condensed Consolidated Balance Sheets.
The Company is required to provide financial assurance in order to perform the post-mining reclamation required by its mining permits, pay workers’ compensation claims under workers’ compensation laws in various states, pay federal black lung benefits, and perform certain other obligations. In order to provide the required financial assurance, the Company generally uses surety bonds for post-mining reclamation and workers’ compensation obligations. The Company can also use bank letters of credit to collateralize certain obligations.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
As of March 31,June 30, 2022, the Company had $121,037$63,898 letters of credit outstanding under the Second Amended and Restated Asset-Based Revolving Credit Agreement. Additionally, as of March 31,June 30, 2022, the Company had $50 in letters of credit outstanding under the Credit and Security Agreement dated June 30, 2017, and related amendments, between ANR, Inc. and First Tennessee Bank National Association.
As of March 31,June 30, 2022, the Company had outstanding surety bonds with a total face amount of $174,198$162,339 to secure various obligations and commitments. To secure the Company’s reclamation-related obligations, the Company has $36,774$34,678 of collateral in the form of restricted cash, restricted investments, and deposits and $15,548 of letters of credit outstanding supporting these obligations as of March 31,June 30, 2022.
The Company meets frequently with its surety providers and has discussions with certain providers regarding the extent of and the terms of their participation in the program. These discussions may cause the Company to shift surety bonds between providers or to alter the terms of their participation in our program. To the extent that surety bonds become unavailable or the Company’s surety bond providers require additional collateral, the Company would seek to secure its obligations with letters of credit, cash deposits or other suitable forms of collateral. The Company’s failure to maintain, or inability to acquire, surety bonds or to provide a suitable alternative would have a material adverse effect on its liquidity. These failures could result from a variety of factors including lack of availability, higher cost or unfavorable market terms of new surety bonds, and the exercise by third-party surety bond issuers of their right to refuse to renew the surety.
Amounts included in restricted cash provide collateral to secure the following obligations which have been written on the Company’s behalf:obligations:
| | | | March 31, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
| Workers’ compensation and black lung obligations | Workers’ compensation and black lung obligations | $ | 72,252 | | | $ | 70,637 | | Workers’ compensation and black lung obligations | $ | 15,755 | | | $ | 70,637 | |
| Reclamation-related obligations | Reclamation-related obligations | 36,665 | | | 10,449 | | Reclamation-related obligations | 929 | | | 10,449 | |
| Financial payments and other performance obligations | Financial payments and other performance obligations | 9,559 | | | 8,340 | | Financial payments and other performance obligations | 8,236 | | | 8,340 | |
| Contingent Revenue Obligation escrow | Contingent Revenue Obligation escrow | 17,556 | | | 11,977 | | Contingent Revenue Obligation escrow | 9,848 | | | 11,977 | |
| Total restricted cash | Total restricted cash | 136,032 | | | 101,403 | | Total restricted cash | 34,768 | | | 101,403 | |
Less current portion (1) | Less current portion (1) | (17,556) | | | (11,977) | | Less current portion (1) | (9,848) | | | (11,977) | |
| Restricted cash, net of current portion | Restricted cash, net of current portion | $ | 118,476 | | | $ | 89,426 | | Restricted cash, net of current portion | $ | 24,920 | | | $ | 89,426 | |
(1) Included within Prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheets.
Amounts included in restricted investments provide collateral to secure the following obligations which have been written on the Company’s behalf:
| | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| Workers’ compensation obligations | $ | 50 | | | $ | 210 | |
| Reclamation-related obligations | — | | | 26,225 | |
| Financial payments and other performance obligations | — | | | 2,008 | |
Total restricted investments (1), (2) | $ | 50 | | | $ | 28,443 | |
(1) Included within Other non-current assets on the Company’s Condensed Consolidated Balance Sheets.
(2) Classified as trading securities as of March 31, 2022 and December 31, 2021.
Amounts included in deposits provide collateral to secure the following obligations which have been written on the Company’s behalf:
| | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | | |
| Reclamation-related obligations | $ | 109 | | | $ | 118 | |
| Financial payments and other performance obligations | 411 | | | 403 | |
| Other operating agreements | 866 | | | 873 | |
Total deposits (1) | $ | 1,386 | | | $ | 1,394 | |
(1) Included within Prepaid expenses and other current assets and Other non-current assets on the Company’s Condensed Consolidated Balance Sheets.obligations:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| Workers’ compensation obligations | $ | 59,195 | | | $ | 210 | |
| Reclamation-related obligations | 33,639 | | | 26,225 | |
| Financial payments and other performance obligations | 1,960 | | | 2,008 | |
Total restricted investments (1) | $ | 94,794 | | | $ | 28,443 | |
(1) Classified as trading securities as of June 30, 2022 and December 31, 2021.
Amounts included in deposits provide collateral to secure the following obligations:
| | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | | |
| Reclamation-related obligations | $ | 110 | | | $ | 118 | |
| Financial payments and other performance obligations | 391 | | | 403 | |
| Other operating agreements | 865 | | | 873 | |
Total deposits (1) | $ | 1,366 | | | $ | 1,394 | |
(1) Included within Prepaid expenses and other current assets and Other non-current assets on the Company’s Condensed Consolidated Balance Sheets.
DCMWC Reauthorization Process
In July 2019, the U.S. Department of Labor (Division of Coal Mine Workers’ Compensation or “DCMWC”) began implementing a new authorization process for all self-insured coal mine operators. As requested by the DCMWC, the Company filed an application and supporting documentation for reauthorization to self-insure certain of its black lung obligations in October 2019. As a result of this application, the DCMWC notified the Company in a letter dated February 21, 2020 that the Company was reauthorized to self-insure certain of its black lung obligations for a period of one-year from February 21, 2020. The DCMWC reauthorization is contingent, however, upon the Company’s providing collateral of $65,700 to secure certain of its black lung obligations. This proposed collateral requirement is an increase from the approximate $2,600 in collateral that the Company currently provides to secure these self-insured black lung obligations. The reauthorization process provided the Company with the right to appeal the security determination in writing within 30 days of the date of the notification, which appeal period the DCMWC agreed to extend to May 22, 2020. The Company exercised this right of appeal in connection with the substantial increase in the amount of required collateral. In February 2021, the U.S. Department of Labor (“DOL”) withdrew its Federal Register notice seeking comments on its bulletin describing its new method of calculating collateral requirements. The Department removed the bulletin from its website in May 2021. On February 10, 2022, a telephone conference was held with DCMWC and DOL decision makers wherein the Company presented facts and arguments in support of its appeal. No ruling has been made on the appeal, but during the call the Company indicated that it would be willing to allocate an additional $10,000 in collateral. If the Company’s appeal is unsuccessful, the Company may be required to provide additional letters of credit to receive the self-insurance reauthorization from the DCMWC or alternatively insure these black lung obligations through a third party provider that would likely also require the Company to provide additional collateral. Either of these outcomes could potentially reduce the Company’s liquidity.
(d) Legal Proceedings
The Company is party to legal proceedings from time to time. These proceedings, as well as governmental examinations, could involve various business units and a variety of claims including, but not limited to, contract disputes, personal injury claims, property damage claims (including those resulting from blasting, trucking and flooding), environmental and safety issues, securities-related matters and employment matters. While some legal matters may specify the damages claimed by the plaintiffs, many seek an unquantified amount of damages. Even when the amount of damages claimed against the Company or its subsidiaries is stated, (i) the claimed amount may be exaggerated or unsupported; (ii) the claim may be based on a novel legal theory or involve a large number of parties; (iii) there may be uncertainty as to the likelihood of a class being certified or the ultimate size of the class; (iv) there may be uncertainty as to the outcome of pending appeals or motions; and/or (v) there may be significant factual issues to be resolved. As a result, if such legal matters arise in the future, the Company may be unable to estimate a range of possible loss for matters that have not yet progressed sufficiently through discovery and development of important factual information and legal issues. The Company records accruals based on an estimate of the ultimate outcome of these matters, but these estimates can be difficult to determine and involve significant judgment.
(16)
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
(17) Segment Information
The Company extracts, processes and markets met and thermal coal from deep and surface mines for sale to steel and coke producers, industrial customers, and electric utilities. The Company conducts mining operations only in the United States with mines in Central Appalachia (“CAPP”). The Company has 1 reportable segment: Met, which consists of 5 active mines and 2 preparation plants in Virginia, 14 active mines and 5 preparation plants in West Virginia, as well as expenses associated with certain idled/closed mines.
In addition to the 1 reportable segment, the All Other category includes general corporate overhead and corporate assets and liabilities, the former CAPP - Thermal operations consisting of 1 active mine and 1 preparation plant in West Virginia, and the elimination of certain intercompany activity, as well as expenses associated with certain idled/closed mines.
Reportable segment operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is the Chief Executive Officer of the Company.
Segment operating results and capital expenditures for the three months ended March 31,June 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| Met | | All Other | | Consolidated |
| Total revenues | $ | 1,319,941 | | | $ | 16,471 | | | $ | 1,336,412 | |
| Depreciation, depletion, and amortization | $ | 27,203 | | | $ | 527 | | | $ | 27,730 | |
| Amortization of acquired intangibles, net | $ | 4,795 | | | $ | 952 | | | $ | 5,747 | |
| Adjusted EBITDA | $ | 706,232 | | | $ | (11,704) | | | $ | 694,528 | |
| Capital expenditures | $ | 40,059 | | | $ | 1,807 | | | $ | 41,866 | |
Table of ContentsALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Met | | All Other | | Consolidated |
| Total revenues | $ | 1,055,689 | | | $ | 16,275 | | | $ | 1,071,964 | |
| Depreciation, depletion, and amortization | $ | 27,060 | | | $ | 975 | | | $ | 28,035 | |
| Amortization of acquired intangibles, net | $ | 4,796 | | | $ | 952 | | | $ | 5,748 | |
| Adjusted EBITDA | $ | 513,301 | | | $ | (9,494) | | | $ | 503,807 | |
| Capital expenditures | $ | 27,297 | | | $ | 849 | | | $ | 28,146 | |
| | | Three Months Ended March 31, 2021 | | Three Months Ended June 30, 2021 |
| | Met | | All Other | | Consolidated | | Met | | All Other | | Consolidated |
| Total revenues | Total revenues | $ | 359,878 | | | $ | 26,375 | | | $ | 386,253 | | Total revenues | $ | 377,937 | | | $ | 17,338 | | | $ | 395,275 | |
| Depreciation, depletion, and amortization | Depreciation, depletion, and amortization | $ | 26,536 | | | $ | 1,902 | | | $ | 28,438 | | Depreciation, depletion, and amortization | $ | 25,686 | | | $ | 1,618 | | | $ | 27,304 | |
| Amortization of acquired intangibles, net | Amortization of acquired intangibles, net | $ | 4,051 | | | $ | (182) | | | $ | 3,869 | | Amortization of acquired intangibles, net | $ | 2,635 | | | $ | (82) | | | $ | 2,553 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 32,582 | | | $ | (3,699) | | | $ | 28,883 | | Adjusted EBITDA | $ | 46,786 | | | $ | (6,869) | | | $ | 39,917 | |
| Capital expenditures | Capital expenditures | $ | 20,323 | | | $ | 72 | | | $ | 20,395 | | Capital expenditures | $ | 17,203 | | | $ | 441 | | | $ | 17,644 | |
The following tables present a reconciliation of net income (loss) to Adjusted EBITDASegment operating results and capital expenditures for the threesix months ended March 31,June 30, 2022 and 2021:2021 were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 478,167 | | | $ | (77,163) | | | $ | 401,004 | |
| Interest expense | 49 | | | 13,034 | | | 13,083 | |
| Interest income | (172) | | | (12) | | | (184) | |
| Income tax expense | — | | | 39,624 | | | 39,624 | |
| Depreciation, depletion and amortization | 27,060 | | | 975 | | | 28,035 | |
| Non-cash stock compensation expense | 3 | | | 1,179 | | | 1,182 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 9,361 | | | 9,361 | |
| Accretion on asset retirement obligations | 3,398 | | | 2,556 | | | 5,954 | |
| Amortization of acquired intangibles, net | 4,796 | | | 952 | | | 5,748 | |
| Adjusted EBITDA | $ | 513,301 | | | $ | (9,494) | | | $ | 503,807 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Met | | All Other | | Consolidated |
| Total revenues | $ | 2,375,630 | | | $ | 32,746 | | | $ | 2,408,376 | |
| Depreciation, depletion, and amortization | $ | 54,263 | | | $ | 1,502 | | | $ | 55,765 | |
| Amortization of acquired intangibles, net | $ | 9,591 | | | $ | 1,904 | | | $ | 11,495 | |
| Adjusted EBITDA | $ | 1,219,533 | | | $ | (21,198) | | | $ | 1,198,335 | |
| Capital expenditures | $ | 67,356 | | | $ | 2,656 | | | $ | 70,012 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Met | | All Other | | Consolidated |
| Net loss from continuing operations | $ | (1,438) | | | $ | (31,253) | | | $ | (32,691) | |
| Interest expense | 43 | | | 17,947 | | | 17,990 | |
| Interest income | (5) | | | (159) | | | (164) | |
| Income tax benefit | — | | | (5) | | | (5) | |
| Depreciation, depletion and amortization | 26,536 | | | 1,902 | | | 28,438 | |
| Non-cash stock compensation expense | 10 | | | 2,173 | | | 2,183 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 3,176 | | | 3,176 | |
| Accretion on asset retirement obligations | 3,385 | | | 3,263 | | | 6,648 | |
Asset impairment and restructuring | — | | | (561) | | | (561) | |
| Amortization of acquired intangibles, net | 4,051 | | | (182) | | | 3,869 | |
| Adjusted EBITDA | $ | 32,582 | | | $ | (3,699) | | | $ | 28,883 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Met | | All Other | | Consolidated |
| Total revenues | $ | 737,815 | | | $ | 43,713 | | | $ | 781,528 | |
| Depreciation, depletion, and amortization | $ | 52,222 | | | $ | 3,520 | | | $ | 55,742 | |
| Amortization of acquired intangibles, net | $ | 6,686 | | | $ | (264) | | | $ | 6,422 | |
| Adjusted EBITDA | $ | 79,368 | | | $ | (10,568) | | | $ | 68,800 | |
| Capital expenditures | $ | 37,526 | | | $ | 513 | | | $ | 38,039 | |
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
The following tables present a reconciliation of net income (loss) to Adjusted EBITDA for the three months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 670,801 | | | $ | (95,372) | | | $ | 575,429 | |
| Interest expense | 43 | | | 5,175 | | | 5,218 | |
| Interest income | — | | | (164) | | | (164) | |
| Income tax expense | — | | | 69,012 | | | 69,012 | |
| Depreciation, depletion and amortization | 27,203 | | | 527 | | | 27,730 | |
| Non-cash stock compensation expense | — | | | 1,401 | | | 1,401 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 4,208 | | | 4,208 | |
| Accretion on asset retirement obligations | 3,390 | | | 2,557 | | | 5,947 | |
| Amortization of acquired intangibles, net | 4,795 | | | 952 | | | 5,747 | |
| Adjusted EBITDA | $ | 706,232 | | | $ | (11,704) | | | $ | 694,528 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 15,042 | | | $ | (33,632) | | | $ | (18,590) | |
| Interest expense | 40 | | | 17,922 | | | 17,962 | |
| Interest income | — | | | (104) | | | (104) | |
| Income tax expense | — | | | 8 | | | 8 | |
| Depreciation, depletion and amortization | 25,686 | | | 1,618 | | | 27,304 | |
| Non-cash stock compensation expense | 6 | | | 973 | | | 979 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 3,157 | | | 3,157 | |
| Accretion on asset retirement obligations | 3,377 | | | 3,271 | | | 6,648 | |
| Amortization of acquired intangibles, net | 2,635 | | | (82) | | | 2,553 | |
| Adjusted EBITDA | $ | 46,786 | | | $ | (6,869) | | | $ | 39,917 | |
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
The following tables present a reconciliation of net income (loss) to Adjusted EBITDA for the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 1,148,968 | | | $ | (172,535) | | | $ | 976,433 | |
| Interest expense | 92 | | | 18,209 | | | 18,301 | |
| Interest income | (172) | | | (176) | | | (348) | |
| Income tax expense | — | | | 108,636 | | | 108,636 | |
| Depreciation, depletion and amortization | 54,263 | | | 1,502 | | | 55,765 | |
| Non-cash stock compensation expense | 3 | | | 2,580 | | | 2,583 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 13,569 | | | 13,569 | |
| Accretion on asset retirement obligations | 6,788 | | | 5,113 | | | 11,901 | |
| Amortization of acquired intangibles, net | 9,591 | | | 1,904 | | | 11,495 | |
| Adjusted EBITDA | $ | 1,219,533 | | | $ | (21,198) | | | $ | 1,198,335 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 13,604 | | | $ | (64,885) | | | $ | (51,281) | |
| Interest expense | 83 | | | 35,869 | | | 35,952 | |
| Interest income | (5) | | | (263) | | | (268) | |
| Income tax expense | — | | | 3 | | | 3 | |
| Depreciation, depletion and amortization | 52,222 | | | 3,520 | | | 55,742 | |
| Non-cash stock compensation expense | 16 | | | 3,146 | | | 3,162 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 6,333 | | | 6,333 | |
| Accretion on asset retirement obligations | 6,762 | | | 6,534 | | | 13,296 | |
Asset impairment and restructuring | — | | | (561) | | | (561) | |
| Amortization of acquired intangibles, net | 6,686 | | | (264) | | | 6,422 | |
| Adjusted EBITDA | $ | 79,368 | | | $ | (10,568) | | | $ | 68,800 | |
No asset information has been disclosed as the CODM does not regularly review asset information by reportable segment.
The Company markets produced, processed and purchased coal to customers in the United States and in international markets. Revenue is tracked within the Company’s accounting records based on the product destination. The following table presentstables present additional information on our revenues and top customers:
| | | Three Months Ended March 31, | | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | | 2022 | | 2021 | | | 2022 | | 2021 | | 2022 | | 2021 | |
| Total coal revenues | Total coal revenues | $ | 1,069,738 | | | $ | 385,452 | | | Total coal revenues | $ | 1,334,258 | | | $ | 393,458 | | | $ | 2,403,996 | | | $ | 778,910 | | |
| Export coal revenues | Export coal revenues | $ | 894,525 | | | $ | 243,783 | | | Export coal revenues | $ | 1,146,003 | | | $ | 256,017 | | | $ | 2,040,528 | | | $ | 499,800 | | |
| Export coal revenues as % of total coal revenues | Export coal revenues as % of total coal revenues | 84 | % | | 63 | % | | Export coal revenues as % of total coal revenues | 86 | % | | 65 | % | | 85 | % | | 64 | % | |
| Countries with export coal revenue exceeding 10% of total revenue | Countries with export coal revenue exceeding 10% of total revenue | India | | India, Brazil | | Countries with export coal revenue exceeding 10% of total revenue | India | | India | | India | | India, Brazil | |
| Top customer as % of total revenue | Top customer as % of total revenue | 29 | % | | 13 | % | | Top customer as % of total revenue | 33 | % | | 13 | % | | 31 | % | | 12 | % | |
| Top 10 customers as % of total revenue | Top 10 customers as % of total revenue | 73 | % | | 63 | % | | Top 10 customers as % of total revenue | 77 | % | | 69 | % | | 74 | % | | 64 | % | |
| Number of customers exceeding 10% of total revenue | Number of customers exceeding 10% of total revenue | 1 | | 1 | | Number of customers exceeding 10% of total revenue | 1 | | 1 | | 1 | | 2 | |
| Number of customers exceeding 10% of total trade accounts receivable, net | 1 | | 3 | | |
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands except share and per share data)
| | | | | | | | | | | |
| As of June 30, |
| | 2022 | | 2021 |
| Number of customers exceeding 10% of total trade accounts receivable, net | 2 | | 2 |
(17)(18) Subsequent Events
During the second quarter of 2022, the Company made a voluntary prepayment of $150,000 of outstanding principal borrowings under the Term Loan Credit facility. Refer to Note 8 for further information related to long-term debt.
On May 3,August 4, 2022, the Company’s boardBoard declared a quarterly cash dividend payment of directors amended$0.392 per share which will become payable on October 3, 2022 for holders of record as of September 15, 2022. The quarterly cash dividend payment was increased to $0.392 from the share repurchase program adopted on March 4, 2022 to increase the aggregate amount the Company is permitted to repurchase from an aggregate amountpreviously announced estimate of up to $150,000 to an aggregate amount of up to $600,000 of the Company's common stock.$0.375. Refer to Note 7 for information regarding the Company’s share repurchasedividend program.
Additionally on May 3, 2022, the Company‘s board of directors adopted a dividend policy. Pursuant to this policy, the board intends to pay aggregate cash dividends of $1.50 per share of common stock per year, with $0.375 per share paid each quarter. The board has declared that the first quarterly dividend payment will become payable on July 1, 2022 for holders of record as of June 15, 2022. Future dividend payments will be targeted to be paid in the first month of each calendar quarter. Any decision to pay future cash dividends will, however, be made by the board and depend on Alpha’s future earnings and financial condition and other relevant factors.
GLOSSARY
Alpha. Alpha Metallurgical Resources, Inc. (the “Company”) (previously named Contura Energy, Inc.).
Ash. Impurities consisting of iron, alumina and other incombustible matter that are contained in coal. Since ash increases the weight of coal, it adds to the cost of handling and can affect the burning characteristics of coal.
Bituminous coal. Coal used primarily to generate electricity and to make coke for the steel industry with a heat value ranging between 10,500 and 15,500 BTU’s per pound.
British Thermal Unit or BTU. A measure of the thermal energy required to raise the temperature of one pound of pure liquid water one degree Fahrenheit at the temperature at which water has its greatest density (39 degrees Fahrenheit).
Central Appalachia or CAPP. Coal producing area in eastern Kentucky, Virginia, southern West Virginia and a portion of eastern Tennessee.
Coal reserves. The economically mineable part of a measured or indicated coal resource, which includes diluting materials and allowances for losses that may occur when coal is mined or extracted.
Coal resources. Coal deposits in such form, quality, and quantity that there are reasonable prospects for economic extraction.
Coal seam. Coal deposits occur in layers. Each layer is called a “seam.”
Coke. A hard, dry carbon substance produced by heating coal to a very high temperature in the absence of air. Coke is used in the manufacture of iron and steel. Its production results in a number of useful byproducts.
Cumberland Back-to-Back Coal Supply Agreement. Certain agreements with Iron Senergy under which Iron Senergy will sell to the Company all of the coal that the Company is obligated to sell to customers under Cumberland coal supply agreements (“Cumberland CSAs”) which existed as of the transaction closing date but did not transfer to Iron Senergy at closing (each, a “Cumberland Back-to-Back Coal Supply Agreement”). Each Cumberland Back-to-Back Coal Supply Agreement has economic terms identical to, but offsetting, the related Cumberland CSA. If a Cumberland customer subsequently consents to assign a Cumberland CSA to Iron Senergy after closing, the related Cumberland CSA will immediately and automatically transfer to Iron Senergy and the related Cumberland Back-to-Back Coal Supply Agreements executed by the parties shall thereupon terminate as set forth therein.
ESG. Environmental, social and governance sustainability criteria.
Indicated coal resource. That part of a coal resource for which quantity and quality are estimated on the basis of adequate geological evidence and sampling sufficient to establish geological and quality continuity with reasonable certainty.
In situ coal resources. Coal resources stated on an in-seam dry basis (excluding surface and inherent moisture) with no consideration for dilution or losses that may occur when coal is mined or extracted.
Measured coal resource. That part of a coal resource for which quantity and quality are estimated on the basis of conclusive geological evidence and sampling sufficient to test and confirm geological and quality continuity.
Merger. Merger with ANR, Inc. and Alpha Natural Resources Holdings, Inc. completed on November 9, 2018.
Metallurgical coal. The various grades of coal suitable for carbonization to make coke for steel manufacture. Also known as “met” coal, its quality is primarily differentiated based on volatility or its percent of volatile matter. Met coal typically has a particularly high BTU but low ash and sulfur content.
Northern Appalachia or NAPP. Coal producing area in Maryland, Ohio, Pennsylvania and northern West Virginia.
Operating Margin. Coal revenues less cost of coal sales.
Preparation plant. A preparation plant is a facility for crushing, sizing and washing coal to remove impurities and prepare it for use by a particular customer. The washing process has the added benefit of removing some of the coal’s sulfur content. A preparation plant is usually located on a mine site, although one plant may serve several mines.
Probable mineral reserve. The economically mineable part of an indicated and, in some cases, a measured coal resource.
Productivity. As used in this report, refers to clean metric tons of coal produced per underground man hour worked, as published by the MSHA.
Proven mineral reserve. The economically mineable part of a measured coal resource.
Reclamation. The process of restoring land and the environment to their original state following mining activities. The process commonly includes “recontouring” or reshaping the land to its approximate original appearance, restoring topsoil and planting native grass and ground covers. Reclamation operations are usually underway before the mining of a particular site is completed. Reclamation is closely regulated by both state and federal law.
Roof. The stratum of rock or other mineral above a coal seam; the overhead surface of a coal working place.
Sulfur. One of the elements present in varying quantities in coal that contributes to environmental degradation when coal is burned. Sulfur dioxide is produced as a gaseous by-product of coal combustion.
Surface mine. A mine in which the coal lies near the surface and can be extracted by removing the covering layer of soil.
Thermal coal. Coal used by power plants and industrial steam boilers to produce electricity, steam or both. It generally is lower in BTU heat content and higher in volatile matter than metallurgical coal.
Tons. A “short” or net ton is equal to 2,000 pounds. A “long” or British ton is equal to 2,240 pounds; a “metric” ton (or “tonne”) is approximately 2,205 pounds. Tonnage amounts in this report are stated in short tons, unless otherwise indicated.
Underground mine. Also known as a “deep” mine. Usually located several hundred feet below the earth’s surface, an underground mine’s coal is removed mechanically and transferred by shuttle car and conveyor to the surface.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides a narrative of our results of operations and financial condition for the three and six months ended March 31,June 30, 2022 and 2021. The following discussion and analysis contains forward-looking statements and should be read in conjunction with our Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our Consolidated Financial Statements and related notes and risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2021. See “Cautionary Note Regarding Forward-Looking Statements” included elsewhere herein.
COVID-19 Pandemic
The COVID-19 pandemic has had negative impacts on our business, results of operations, financial condition and cash flows. Our Company experienced an increase in employee absences due to COVID-19. Indirectly, through some of our third-party vendors, we and our customers have experienced some supply chain disruptions due to the COVID-19 pandemic. The full extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration of the virus, its impact on our customers and suppliers, and the range of governmental and community reactions to the pandemic, which cannot be fully predicted. Health and safety are core values of our Company and are the foundation for how we manage every aspect of our business. We continue to monitor developments closely and adjust as necessary, including with respect to our implemented policies, procedures, and prevention measures to protect the safety and health of our employees.
Market Overview
Several macroeconomic factors influencedConcern regarding global steel demand has caused metallurgical coal markets to soften. Indices have retreated from their record highs down to levels that are still considered strong relative to historical averages. Overall weakening of the global economy, the ongoing war between Russia and Ukraine, inflation concerns, and recession fears have all influenced the pricing and movement of coal across the globe. Trade irregularities resulting from the Russian war have created inefficiencies in trade flows as well as an imbalance in the first quarter of 2022. Pandemic-related labor and supply-chain challenges persisted in many areas, alongside rising inflationary pressure. Supply tightness from prior quarters continued into the early months of 2022. In late February, Russia invaded Ukraine, which created far-reaching, global geopolitical implications.typical pricing hierarchy for coal qualities. The war has created an energy crisis in Europe, which has caused certain thermal coals to command a higher price than premium coking coals in some markets, further constrained availability of metallurgicalchallenging pre-pandemic coal and the various sanctions imposed as a result of the conflict have had additional impacts on market dynamics and index pricing, which experienced significant volatility within the quarter.norms.
The U.S. East Coast High Volatile A index started the quarter at $340 per metric ton and increased to $479 per metric ton at quarter close on March 31, 2022. The U.S. East Coast Low Volatile index rose from $320 per metric ton at the start of the quarter to $535 per metric ton on March 31, 2022. The Australian Premium Low Volatile index also increaseddropped from $357$480 per metric ton at the start of the quarteron April 1, 2022, to $515$302 per metric ton at the end of the firstsecond quarter. The U.S. East Coast indices followed a similar downward trajectory, with the High Volatile A index starting the quarter at $480 per metric ton and declining to $330 per metric ton at quarter close on June 30, 2022. U.S. East Coast High Volatile B fell from $455 per metric ton to $320 over the course of the second quarter. Lastly, among the U.S. East Coast indices, the Low Volatile index represented the largest decline of the quarter from $485 per metric ton at the start to $317.50 per metric ton at the end of June. As of late July, all four indices have continued to decrease from their levels at second quarter close.
EconomicGlobal economic indicators acrossreveal slowing growth patterns and demonstrate the globe continue to showeffects of the Russian war on certain regions of the world and specific industries. While still in positive yet meaningfully slowing growth. The world manufacturingterritory, Purchasing Managers’ Index (“PMI”) dipped from 53.7rates for the world, the United States and Europe all ended the quarter at their lowest levels in February22 months or more. The world manufacturing PMI dropped to 53.052.2 in March 2022, which represents theJune, its lowest level in an 18-month period22 months. The United States PMI index registered its lowest level since July 2020, dropping significantly to 52.7 in June 2022 from a May level of 57.0. Europe’s PMI decreased from 54.6 in May to 52.1 in June, the bottom in a 22-month span. In contrast to the U.S., Europe, and the weakest growth rate since September of 2020. However,world average, certain of Alpha’s key markets have posted stronger growth metrics than the world averages. The United Statesremained stable or shown steadier growth. India’s June PMI index strengthenedof 53.9 is down from a February level of 57.354.6 in May but roughly flat as compared to 58.8 in March. While still robust, Europe’s PMI decreased from 58.2 in February to 56.5 in March. India’s PMI held relatively steady in recent months at March’s level of 54.0, while Brazil’s PMI reboundedits first quarter levels. After rebounding from contractionary territory at the start of the year, Brazil’s PMI continued to a positive March levelimprove in recent months to 54.2 in May and held virtually the same at 54.1 in June. China’s easing of 52.3. Continued challenges in China, including governmental restrictions imposed in connection with the Olympics and COVID-19 lockdowns resulted in a dropsharp increase from 50.4 in February to a contractionary PMI of 48.1 in March.May to 51.7 in June.
The World Steel Association’s (“WSA”) global crude steel production was 161.0158.1 million metric tons in MarchJune 2022, a 5.8%5.9% decrease as compared to the year-ago period of MarchJune 2021. All regions represented in the analysis posted a decline against their June 2021 levels. Among Alpha’s key markets, the European Union’s June 2022 crude steel production of 11.8 million metric tons represented the largest percentage decline (12.2%) in comparison to its year-ago levels. South American production of 3.7 million metric tons was the only region showing an increasedown 4.9% against June 2021. Steel production in MarchNorth America of 2022 with a 1.7% increase as compared to March of 2021. North American crude steel production of 9.79.6 million metric tons for the month represented a 2.8%2.4% decrease as compared to the year-ago period. Steel production in the European Union of 12.8China produced 90.7 million metric tons was down 8.5% year over year. China’s Marchin June 2022, production level of 88.3 million metric tons was down 6.4%a 3.3% decline as compared to MarchJune 2021.
Additionally,The American Iron and Steel Institute’s capacity utilization rate for U.S. steel mills was 81.7%78.4% for the week ending April 23,July 30, 2022. This is down in comparison to the year-ago period of July 30, 2021 when the capacity utilization rate was 84.4%.
In theThe seaborne thermal coal market has experienced significant volatility since Russia invaded Ukraine in February. The war has affected energy trade flows, especially related to Europe, as many countries have imposed sanctions to ban or curtail imports of Russian oil and coal. As a result, the price of thermal coal has increased substantially above historical averages. The API2 index pricingstarted the second quarter at $260 per metric ton on April 1, 2022 and rose to $370.35 per metric ton as of quarter close on June 30, 2022. In addition to our existing thermal coal contracts, Alpha sold some incremental domestic thermal shipments in the first quarterquarter.
Our realizations and overall financial results depend upon the market prices of our products. As discussed above, prices for metallurgical coal, while still robust, have declined from historic highs in recent months. We therefore expect a commensurate decrease in our coal revenues and margins in the second half of 2022 was very volatile as well, with several thermalcompared to the first half. If coal indices, including API2, reaching multi-year highs within the quarter. While many factors contributedprices were to thermal coal price spikes, Russia’s war on Ukraine prompted additional uncertainty about the already-tight energy supply chain globally, causingdecline further, our future results would be additionally affected.
COVID-19 Pandemic
pricingThe COVID-19 pandemic has had negative impacts on our business, results of operations, financial condition and cash flows. Our Company experienced an increase in employee absences due to increase. Alpha continuesCOVID-19. Indirectly, through some of our third-party vendors, we and our customers have experienced some supply chain disruptions due to ship thermal coal in accordance with existing contracts,the COVID-19 pandemic. The full extent of the impact of the COVID-19 pandemic on our operational and Alpha’s last remaining thermal operation,financial performance will depend on certain developments, including the Slabcamp mine, isduration of the virus, its impact on paceour customers and suppliers, and the range of governmental and community reactions to mine outthe pandemic, which cannot be fully predicted. Health and cease operation before year end 2022.
safety are core values of our Company and are the foundation for how we manage every aspect of our business. We continue to monitor developments in Ukraineclosely and adjust as well asnecessary, including with respect to our implemented policies, procedures, and prevention measures to protect the related export controlssafety and financial and economic sanctions imposed on certain industry sectors and parties in Russia by the U.S., the U.K., the European Union and others. Aside from increased market volatility and uncertainty, we do not foresee direct material adverse effects uponhealth of our business, financial condition or results of operations as a result of developments in Ukraine and the consequent controls and sanctions.employees.
Business Overview
We are a Tennessee-based mining company with operations across Virginia and West Virginia. With customers across the globe, high-quality reserves and significant port capacity, we reliably supply metallurgical coal products to the steel industry. We operate high-quality, cost-competitive coal mines across the CAPP coal basin. As of March 31,June 30, 2022, our operations consisted of twenty active mines and eight coal preparation and load-out facilities, with approximately 3,560 employees. We produce, process, and sell met coal and thermal coal. We also sell coal produced by others, some of which is processed and/or blended with coal produced from our mines prior to resale, with the remainder purchased for resale. As of December 31, 2021, we had 351.1 million tons of reserves, including 335.8 million tons of proven and probable metallurgical reserves and 15.3 million tons of proven and probable thermal reserves. Additionally, we had approximately 381.7 million tons of in situ bituminous coal resources.
For the three months ended March 31,June 30, 2022 and 2021, sales of met coal were 3.53.8 million tons and 3.43.3 million tons, respectively, and accounted for approximately 88%87% and 82%83%, respectively, of our coal sales volume. Sales of thermal coal were 0.5 million tons and 0.7 million tons, respectively, and accounted for approximately 13% and 17%, respectively, of our coal sales volume. For the six months ended June 30, 2022 and 2021, sales of met coal were 7.3 million tons and 6.7 million tons, respectively, and accounted for approximately 88% and 83%, respectively, of our coal sales volume. Sales of thermal coal were 1.0 million tons and 1.4 million tons, respectively, and accounted for approximately 12% and 18%17%, respectively, of our coal sales volume.
Our sales of met coal were made primarily to steel companies in the northeastern and midwestern regions of the United States and in several countries in Asia, Europe, and the Americas. Our sales of thermal coal were made primarily to large utilities and industrial customers throughout the United States. For the three months ended March 31,June 30, 2022 and 2021 approximately 84%86% and 63%65%, respectively, of our coal revenues were derived from coal sales made to customers outside the United States. For the six months ended June 30, 2022 and 2021 approximately 85% and 64%, respectively, of our total coal revenues were derived from coal sales made to customers outside the United States.
In addition, we generate other revenues from equipment sales, rentals, terminal and processing fees, coal and environmental analysis fees, royalties and the sale of natural gas. We also record freight and handling fulfillment revenue within coal revenues for freight and handling services provided in delivering coal to certain customers, which are a component of the contractual selling price.
As of March 31,June 30, 2022, we have one reportable segment: Met. Our Met segment operations consist of high-quality met coal mines, including Deep Mine 41, Road Fork 52, Black Eagle, and Lynn Branch. The coal produced by our Met segment operations is predominantly met coal with some amounts of thermal coal being produced as a byproduct of mining. In addition to the one reportable segment, our All Other category includes general corporate overhead and corporate assets and liabilities, our former CAPP - Thermal operations consisting of one active mine and one preparation plant in West Virginia, and the elimination of certain intercompany activity, as well as expenses associated with certain idled/closed mines. Refer to Note 1617 to our Condensed Consolidated Financial Statements for additional disclosures on reportable segments, geographic areas, and export coal revenue information.
The disposition of our former NAPP operations during the fourth quarter of 2020 accelerated our strategic exit from thermal coal production to shift our focus toward met coal production. The former NAPP operations results of operations and financial position are reported as discontinued operations in the Condensed Consolidated Financial Statements. Refer to Note 2 for further information on discontinued operations.
Factors Affecting Our Results of Operations
Sales Agreements. We manage our commodity price risk for coal sales through the use of coal supply agreements. As of April 20,July 22, 2022, we had sales commitments for 2022 as follows:
| | | Tons | | % Priced | | Average Realized Price per Ton | | Tons | | % Priced | | Average Realized Price per Ton |
| Met - Domestic | Met - Domestic | | | | | $189.22 | | Met - Domestic | | | | | $189.87 | |
| Met - Export | Met - Export | | $297.01 | | Met - Export | | $303.51 | |
| Met Total | Met Total | 14.5 million | | 53 | % | | $243.88 | | Met Total | 14.5 million | | 69 | % | | $260.69 | |
| Thermal | Thermal | 1.0 million | | 96 | % | | $53.26 | | Thermal | 1.2 million | | 100 | % | | $89.91 | |
| Met Segment | Met Segment | 15.5 million | | 56 | % | | $222.63 | | Met Segment | 15.7 million | | 73 | % | | $240.42 | |
| All Other | All Other | 0.7 million | | 100 | % | | $57.70 | | All Other | 0.7 million | | 100 | % | | $83.38 | |
Realized Pricing. Our realized price per ton of coal is influenced by many factors that vary by region, including (i) coal quality, which includes energy (heat content), sulfur, ash, volatile matter and moisture content; (ii) differences in market conventions concerning transportation costs and volume measurement; and (iii) regional supply and demand.
Costs. Our results of operations are dependent upon our ability to maximize productivity and control costs. Our primary expenses are for operating supply costs, repair and maintenance expenditures, cost of purchased coal, royalties, wages and benefits, freight and handling costs and taxes incurred in selling our coal. Principal goods and services we use in our operations include maintenance and repair parts and services, electricity, fuel, roof control and support items, explosives, tires, conveyance structures, ventilation supplies and lubricants. Our management strives to aggressively control costs and improve operating performance to mitigate external cost pressures. We experience volatility in operating costs related to fuel, explosives, steel, tires, contract services and healthcare, among others, and take measures to mitigate the increases in these costs at all operations. We have a centralized sourcing group for major supplier contract negotiation and administration, for the negotiation and purchase of major capital goods, and to support the business units. We promote competition between suppliers and seek to develop relationships with suppliers that focus on lowering our costs. We seek suppliers who identify and concentrate on implementing continuous improvement opportunities within their area of expertise. To the extent upward pressure on costs exceeds our ability to realize sales increases, or if we experience unanticipated operating or transportation difficulties, our operating margins would be negatively impacted. We may also experience difficult geologic conditions, delays in obtaining permits, labor shortages, unforeseen equipment problems, and unexpected shortages of critical materials such as tires, fuel and explosives that may result in adverse cost increases and limit our ability to produce at forecasted levels.
Results of Operations
Our results of operations for the three months ended March 31,June 30, 2022 and 2021 are discussed in these “Results of Operations” presented below.
Three Months Ended March 31,June 30, 2022 Compared to the Three Months Ended March 31,June 30, 2021
Revenues
The following table summarizes information about our revenues during the three months ended March 31,June 30, 2022 and 2021:
| | | Three Months Ended March 31, | | Increase (Decrease) | | Three Months Ended June 30, | | Increase (Decrease) |
| (In thousands, except for per ton data) | (In thousands, except for per ton data) | 2022 | | 2021 | | $ or Tons | | % | (In thousands, except for per ton data) | 2022 | | 2021 | | $ or Tons | | % |
| Coal revenues | Coal revenues | $ | 1,069,738 | | | $ | 385,452 | | | $ | 684,286 | | | 177.5 | % | Coal revenues | $ | 1,334,258 | | | $ | 393,458 | | | $ | 940,800 | | | 239.1 | % |
| Other revenues | Other revenues | 2,226 | | | 801 | | | 1,425 | | | 177.9 | % | Other revenues | 2,154 | | | 1,817 | | | 337 | | | 18.5 | % |
| Total revenues | Total revenues | $ | 1,071,964 | | | $ | 386,253 | | | $ | 685,711 | | | 177.5 | % | Total revenues | $ | 1,336,412 | | | $ | 395,275 | | | $ | 941,137 | | | 238.1 | % |
| | Tons sold | Tons sold | 4,048 | | | 4,066 | | | (18) | | | (0.4) | % | Tons sold | 4,304 | | | 4,021 | | | 283 | | | 7.0 | % |
Coal revenues. Coal revenues increased $684.3$940.8 million, or 177.5%239.1%, for the three months ended March 31,June 30, 2022 compared to the prior year period. The increase was primarily due to higher coal sales realization within our Met segment operations as a
result of an improved pricing environment during the current period. Increasing coal demand, resulting from improved
economic activity, coupled with a limited supply response contributed to a rise in coal prices. Refer to the “Non-GAAP Coal revenues” section below for further detail on coal revenues for the three months ended March 31,June 30, 2022 compared to the prior year period.
Cost and Expenses
The following table summarizes information about our costs and expenses during the three months ended March 31,June 30, 2022 and 2021:
| | | Three Months Ended March 31, | | Increase (Decrease) | | Three Months Ended June 30, | | Increase (Decrease) |
| (In thousands) | (In thousands) | 2022 | | 2021 | | $ | | % | (In thousands) | 2022 | | 2021 | | $ | | % |
| Cost of coal sales (exclusive of items shown separately below) | Cost of coal sales (exclusive of items shown separately below) | $ | 555,317 | | | $ | 347,428 | | | $ | 207,889 | | | 59.8 | % | Cost of coal sales (exclusive of items shown separately below) | $ | 625,892 | | | $ | 346,763 | | | $ | 279,129 | | | 80.5 | % |
| Depreciation, depletion and amortization | Depreciation, depletion and amortization | 28,035 | | | 28,438 | | | (403) | | | (1.4) | % | Depreciation, depletion and amortization | 27,730 | | | 27,304 | | | 426 | | | 1.6 | % |
| Accretion on asset retirement obligations | Accretion on asset retirement obligations | 5,954 | | | 6,648 | | | (694) | | | (10.4) | % | Accretion on asset retirement obligations | 5,947 | | | 6,648 | | | (701) | | | (10.5) | % |
| Amortization of acquired intangibles, net | Amortization of acquired intangibles, net | 5,748 | | | 3,869 | | | 1,879 | | | 48.6 | % | Amortization of acquired intangibles, net | 5,747 | | | 2,553 | | | 3,194 | | | 125.1 | % |
| Asset impairment and restructuring | — | | | (561) | | | 561 | | | 100.0 | % | |
| Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above) | Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above) | 15,086 | | | 14,982 | | | 104 | | | 0.7 | % | Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above) | 18,158 | | | 14,645 | | | 3,513 | | | 24.0 | % |
| Total other operating loss (income): | Total other operating loss (income): | | Total other operating loss (income): | |
| Mark-to-market adjustment for acquisition-related obligations | Mark-to-market adjustment for acquisition-related obligations | 9,361 | | | 3,176 | | | 6,185 | | | 194.7 | % | Mark-to-market adjustment for acquisition-related obligations | 4,208 | | | 3,157 | | | 1,051 | | | 33.3 | % |
| Other income | Other income | (628) | | | (1,225) | | | 597 | | | 48.7 | % | Other income | (1,516) | | | (3,608) | | | 2,092 | | | 58.0 | % |
| Total costs and expenses | Total costs and expenses | $ | 618,873 | | | $ | 402,755 | | | $ | 216,118 | | | 53.7 | % | Total costs and expenses | $ | 686,166 | | | $ | 397,462 | | | $ | 288,704 | | | 72.6 | % |
Cost of coal sales. Cost of coal sales increased $207.9$279.1 million, or 59.8%80.5%, for the three months ended March 31,June 30, 2022 compared to the prior year period. The increase was primarily driven by increased rail freight costs, royalties and taxes, supplies and maintenance expense, and salaries and wages expense, partially offset by inventory change during the current period.and supplies and maintenance expense.
Amortization of acquired intangibles, net. Amortization of acquired intangibles, net increased $1.9$3.2 million, or 48.6%125.1%, for the three months ended March 31,June 30, 2022 compared to the prior year period. The increase was primarily driven by accelerated current period amortization of certain acquired mine permits as a result of an update to the estimated life of the associated mines.
Selling, general and administrative. Selling, general and administrative expenses increased $3.5 million, or 24.0%, for the three months ended June 30, 2022 compared to the prior year period. This increase in expense was primarily related to increases of $2.0 million in incentive pay, $0.9 million in wages and benefits expense, and $0.6 million in stock compensation expense, partially offset by decreases of $0.5 million in professional fees and $0.4 million in severance pay.
Mark-to-market adjustment for acquisition-related obligations. The mark-to-market adjustment for acquisition-related obligations resulted in a decrease to income of $6.2$1.1 million for the three months ended March 31,June 30, 2022 compared to the prior year period. This decrease was related to the $9.4$4.2 million Contingent Revenue Obligation mark-to-market adjustment recorded during the three months ended March 31,June 30, 2022 due to changes in underlying fair value assumptions during the current period. Refer to Note 1112 for Contingent Revenue Obligation fair value input assumptions.
Other income. Other income decreased $2.1 million, or 58.0%, for the three months ended June 30, 2022 compared to the prior year period, primarily due to a decrease in income on sale of assets in the current period.
Other (Expense) Income
The following table summarizes information about our other (expense) income during the three months ended March 31,June 30, 2022 and 2021:
| | | Three Months Ended March 31, | | Increase (Decrease) | | Three Months Ended June 30, | | Increase (Decrease) |
| (In thousands) | (In thousands) | 2022 | | 2021 | | $ | | % | (In thousands) | 2022 | | 2021 | | $ | | % |
| Other (expense) income: | Other (expense) income: | | | | | | | | Other (expense) income: | | | | | | | |
| Interest expense | Interest expense | $ | (13,083) | | | $ | (17,990) | | | $ | 4,907 | | | 27.3 | % | Interest expense | $ | (5,218) | | | $ | (17,962) | | | $ | 12,744 | | | 70.9 | % |
| Interest income | Interest income | 184 | | | 164 | | | 20 | | | 12.2 | % | Interest income | 164 | | | 104 | | | 60 | | | 57.7 | % |
| Equity loss in affiliates | Equity loss in affiliates | (1,361) | | | (134) | | | (1,227) | | | (915.7) | % | Equity loss in affiliates | (2,136) | | | (384) | | | (1,752) | | | (456.3) | % |
| Miscellaneous income, net | Miscellaneous income, net | 1,797 | | | 1,766 | | | 31 | | | 1.8 | % | Miscellaneous income, net | 1,385 | | | 1,847 | | | (462) | | | (25.0) | % |
| Total other expense, net | Total other expense, net | $ | (12,463) | | | $ | (16,194) | | | $ | 3,731 | | | 23.0 | % | Total other expense, net | $ | (5,805) | | | $ | (16,395) | | | $ | 10,590 | | | 64.6 | % |
Interest expense. Interest expense decreased $4.9$12.7 million, or 27.3%70.9%, for the three months ended March 31,June 30, 2022 compared to the prior year period, primarily due to a decrease in debt outstanding. Refer to Note 89 for additional information.
Income Tax (Expense) BenefitExpense
The following table summarizes information about our income tax (expense) benefitexpense during the three months ended March 31,June 30, 2022 and 2021:
| | | Three Months Ended March 31, | | Increase (Decrease) | | Three Months Ended June 30, | | Increase (Decrease) |
| (In thousands) | (In thousands) | 2022 | | 2021 | | $ | | % | (In thousands) | 2022 | | 2021 | | $ | | % |
| Income tax (expense) benefit | $ | (39,624) | | | $ | 5 | | | $ | (39,629) | | | (792,580.0) | % | |
| Income tax expense | | Income tax expense | $ | (69,012) | | | $ | (8) | | | $ | (69,004) | | | (862,550.0) | % |
Income taxes. Income tax expense of $39.6$69.0 million was recorded for the three months ended March 31,June 30, 2022 on income from continuing operations before income taxes of $440.6$644.4 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to the decrease in the valuation allowance and the permanent impact of percentage depletion and foreign-derived intangible income deductions.
Income tax benefitexpense of $5$8 thousand was recorded for the three months ended March 31,June 30, 2021 on a loss from continuing operations before income taxes of $32.7$18.6 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to the increase in the valuation allowance. Refer to Note 1213 for additional information.
Non-GAAP Financial Measures
The discussion below contains “non-GAAP financial measures.” These are financial measures which either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP” or “GAAP”). Specifically, we make use of the non-GAAP financial measures “Adjusted EBITDA,” “non-GAAP coal revenues,” “non-GAAP cost of coal sales,” “non-GAAP coal margin,” and “Adjusted cost of produced coal sold.” We use Adjusted EBITDA to measure the operating performance of our segments and allocate resources to the segments. Adjusted EBITDA does not purport to be an alternative to net income (loss) as a measure of operating performance or any other measure of operating results or liquidity presented in accordance with GAAP. We use non-GAAP coal revenues to present coal revenues generated, excluding freight and handling fulfillment revenues. Non-GAAP coal sales realization per ton for our operations is calculated as non-GAAP coal revenues divided by tons sold. We use non-GAAP cost of coal sales to adjust cost of coal sales to remove freight and handling costs, depreciation, depletion and amortization - production (excluding the depreciation, depletion and amortization related to selling, general and administrative functions), accretion on asset retirement obligations, amortization of acquired intangibles, net, and idled and closed mine costs. Non-GAAP cost of coal sales per ton for our operations is calculated as non-GAAP cost of coal sales divided by tons sold. Non-GAAP coal margin per ton for our coal operations is calculated as non-GAAP coal sales realization per ton for our coal operations less non-GAAP cost of coal sales per ton for our coal operations. We also use Adjusted cost of produced coal sold to distinguish the cost of captive produced coal from the effects of purchased coal. The presentation of these measures should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.
Management uses non-GAAP financial measures to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. The definition of these non-GAAP measures may be changed periodically by management to adjust for significant items important to an understanding of operating trends and to adjust for items that may not reflect the trend of future results by excluding transactions that are not indicative of our core operating performance. Furthermore, analogous measures are used by industry analysts to evaluate the Company’s operating performance. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments.
Included below are reconciliations of non-GAAP financial measures to GAAP financial measures.
The following tables summarize certain financial information relating to our coal operations for the three months ended March 31,June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 1,054,340 | | | $ | 15,398 | | | $ | 1,069,738 | |
| Less: Freight and handling fulfillment revenues | (144,025) | | | (18) | | | (144,043) | |
| Non-GAAP Coal revenues | $ | 910,315 | | | $ | 15,380 | | | $ | 925,695 | |
| Tons sold | 3,780 | | | 268 | | | 4,048 | |
| Non-GAAP Coal sales realization per ton | $ | 240.82 | | | $ | 57.39 | | | $ | 228.68 | |
| | | | | |
| Cost of coal sales (exclusive of items shown separately below) | $ | 539,282 | | | $ | 16,035 | | | $ | 555,317 | |
Depreciation, depletion and amortization - production (1) | 27,060 | | | 797 | | | 27,857 | |
| Accretion on asset retirement obligations | 3,398 | | | 2,556 | | | 5,954 | |
| Amortization of acquired intangibles, net | 4,796 | | | 952 | | | 5,748 | |
| Total Cost of coal sales | $ | 574,536 | | | $ | 20,340 | | | $ | 594,876 | |
| Less: Freight and handling costs | (144,025) | | | (18) | | | (144,043) | |
Less: Depreciation, depletion and amortization - production (1) | (27,060) | | | (797) | | | (27,857) | |
| Less: Accretion on asset retirement obligations | (3,398) | | | (2,556) | | | (5,954) | |
| Less: Amortization of acquired intangibles, net | (4,796) | | | (952) | | | (5,748) | |
| Less: Idled and closed mine costs | (3,604) | | | (2,646) | | | (6,250) | |
| Non-GAAP Cost of coal sales | $ | 391,653 | | | $ | 13,371 | | | $ | 405,024 | |
| Tons sold | 3,780 | | | 268 | | | 4,048 | |
| Non-GAAP Cost of coal sales per ton | $ | 103.61 | | | $ | 49.89 | | | $ | 100.06 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 1,054,340 | | | $ | 15,398 | | | $ | 1,069,738 | |
| Less: Total Cost of coal sales (per table above) | (574,536) | | | (20,340) | | | (594,876) | |
| GAAP Coal margin | $ | 479,804 | | | $ | (4,942) | | | $ | 474,862 | |
| Tons sold | 3,780 | | | 268 | | | 4,048 | |
| GAAP Coal margin per ton | $ | 126.93 | | | $ | (18.44) | | | $ | 117.31 | |
| | | | | |
| GAAP Coal margin | $ | 479,804 | | | $ | (4,942) | | | $ | 474,862 | |
Add: Depreciation, depletion and amortization - production (1) | 27,060 | | | 797 | | | 27,857 | |
| Add: Accretion on asset retirement obligations | 3,398 | | | 2,556 | | | 5,954 | |
| Add: Amortization of acquired intangibles, net | 4,796 | | | 952 | | | 5,748 | |
| Add: Idled and closed mine costs | 3,604 | | | 2,646 | | | 6,250 | |
| Non-GAAP Coal margin | $ | 518,662 | | | $ | 2,009 | | | $ | 520,671 | |
| Tons sold | 3,780 | | | 268 | | | 4,048 | |
| Non-GAAP Coal margin per ton | $ | 137.21 | | | $ | 7.50 | | | $ | 128.62 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 1,318,661 | | | $ | 15,597 | | | $ | 1,334,258 | |
| Less: Freight and handling fulfillment revenues | (156,522) | | | — | | | (156,522) | |
| Non-GAAP Coal revenues | $ | 1,162,139 | | | $ | 15,597 | | | $ | 1,177,736 | |
| Tons sold | 4,050 | | | 254 | | | 4,304 | |
| Non-GAAP Coal sales realization per ton | $ | 286.95 | | | $ | 61.41 | | | $ | 273.64 | |
| | | | | |
| Cost of coal sales (exclusive of items shown separately below) | $ | 610,224 | | | $ | 15,668 | | | $ | 625,892 | |
Depreciation, depletion and amortization - production (1) | 27,202 | | | 250 | | | 27,452 | |
| Accretion on asset retirement obligations | 3,390 | | | 2,557 | | | 5,947 | |
| Amortization of acquired intangibles, net | 4,795 | | | 952 | | | 5,747 | |
| Total Cost of coal sales | $ | 645,611 | | | $ | 19,427 | | | $ | 665,038 | |
| Less: Freight and handling costs | (156,522) | | | — | | | (156,522) | |
Less: Depreciation, depletion and amortization - production (1) | (27,202) | | | (250) | | | (27,452) | |
| Less: Accretion on asset retirement obligations | (3,390) | | | (2,557) | | | (5,947) | |
| Less: Amortization of acquired intangibles, net | (4,795) | | | (952) | | | (5,747) | |
| Less: Idled and closed mine costs | (2,708) | | | (2,993) | | | (5,701) | |
| Non-GAAP Cost of coal sales | $ | 450,994 | | | $ | 12,675 | | | $ | 463,669 | |
| Tons sold | 4,050 | | | 254 | | | 4,304 | |
| Non-GAAP Cost of coal sales per ton | $ | 111.36 | | | $ | 49.90 | | | $ | 107.73 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 359,893 | | | $ | 25,559 | | | $ | 385,452 | |
| Less: Freight and handling fulfillment revenues | (60,011) | | | (369) | | | (60,380) | |
| Non-GAAP Coal revenues | $ | 299,882 | | | $ | 25,190 | | | $ | 325,072 | |
| Tons sold | 3,657 | | | 409 | | | 4,066 | |
| Non-GAAP Coal sales realization per ton | $ | 82.00 | | | $ | 61.59 | | | $ | 79.95 | |
| | | | | |
| Cost of coal sales (exclusive of items shown separately below) | $ | 325,895 | | | $ | 21,533 | | | $ | 347,428 | |
Depreciation, depletion and amortization - production (1) | 26,536 | | | 1,723 | | | 28,259 | |
| Accretion on asset retirement obligations | 3,385 | | | 3,263 | | | 6,648 | |
| Amortization of acquired intangibles, net | 4,051 | | | (182) | | | 3,869 | |
| Total Cost of coal sales | $ | 359,867 | | | $ | 26,337 | | | $ | 386,204 | |
| Less: Freight and handling costs | (60,011) | | | (369) | | | (60,380) | |
Less: Depreciation, depletion and amortization - production (1) | (26,536) | | | (1,723) | | | (28,259) | |
| Less: Accretion on asset retirement obligations | (3,385) | | | (3,263) | | | (6,648) | |
| Less: Amortization of acquired intangibles, net | (4,051) | | | 182 | | | (3,869) | |
| Less: Idled and closed mine costs | (3,603) | | | (3,556) | | | (7,159) | |
| Non-GAAP Cost of coal sales | $ | 262,281 | | | $ | 17,608 | | | $ | 279,889 | |
| Tons sold | 3,657 | | | 409 | | | 4,066 | |
| Non-GAAP Cost of coal sales per ton | $ | 71.72 | | | $ | 43.05 | | | $ | 68.84 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 1,318,661 | | | $ | 15,597 | | | $ | 1,334,258 | |
| Less: Total Cost of coal sales (per table above) | (645,611) | | | (19,427) | | | (665,038) | |
| GAAP Coal margin | $ | 673,050 | | | $ | (3,830) | | | $ | 669,220 | |
| Tons sold | 4,050 | | | 254 | | | 4,304 | |
| GAAP Coal margin per ton | $ | 166.19 | | | $ | (15.08) | | | $ | 155.49 | |
| | | | | |
| GAAP Coal margin | $ | 673,050 | | | $ | (3,830) | | | $ | 669,220 | |
Add: Depreciation, depletion and amortization - production (1) | 27,202 | | | 250 | | | 27,452 | |
| Add: Accretion on asset retirement obligations | 3,390 | | | 2,557 | | | 5,947 | |
| Add: Amortization of acquired intangibles, net | 4,795 | | | 952 | | | 5,747 | |
| Add: Idled and closed mine costs | 2,708 | | | 2,993 | | | 5,701 | |
| Non-GAAP Coal margin | $ | 711,145 | | | $ | 2,922 | | | $ | 714,067 | |
| Tons sold | 4,050 | | | 254 | | | 4,304 | |
| Non-GAAP Coal margin per ton | $ | 175.59 | | | $ | 11.50 | | | $ | 165.91 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 376,839 | | | $ | 16,619 | | | $ | 393,458 | |
| Less: Freight and handling fulfillment revenues | (64,329) | | | (117) | | | (64,446) | |
| Non-GAAP Coal revenues | $ | 312,510 | | | $ | 16,502 | | | $ | 329,012 | |
| Tons sold | 3,748 | | | 273 | | | 4,021 | |
| Non-GAAP Coal sales realization per ton | $ | 83.38 | | | $ | 60.45 | | | $ | 81.82 | |
| | | | | |
| Cost of coal sales (exclusive of items shown separately below) | $ | 331,239 | | | $ | 15,524 | | | $ | 346,763 | |
Depreciation, depletion and amortization - production (1) | 25,686 | | | 1,438 | | | 27,124 | |
| Accretion on asset retirement obligations | 3,377 | | | 3,271 | | | 6,648 | |
| Amortization of acquired intangibles, net | 2,635 | | | (82) | | | 2,553 | |
| Total Cost of coal sales | $ | 362,937 | | | $ | 20,151 | | | $ | 383,088 | |
| Less: Freight and handling costs | (64,329) | | | (117) | | | (64,446) | |
Less: Depreciation, depletion and amortization - production (1) | (25,686) | | | (1,438) | | | (27,124) | |
| Less: Accretion on asset retirement obligations | (3,377) | | | (3,271) | | | (6,648) | |
| Less: Amortization of acquired intangibles, net | (2,635) | | | 82 | | | (2,553) | |
| Less: Idled and closed mine costs | (4,790) | | | (3,732) | | | (8,522) | |
| Non-GAAP Cost of coal sales | $ | 262,120 | | | $ | 11,675 | | | $ | 273,795 | |
| Tons sold | 3,748 | | | 273 | | | 4,021 | |
| Non-GAAP Cost of coal sales per ton | $ | 69.94 | | | $ | 42.77 | | | $ | 68.09 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 359,893 | | | $ | 25,559 | | | $ | 385,452 | |
| Less: Total Cost of coal sales (per table above) | (359,867) | | | (26,337) | | | (386,204) | |
| GAAP Coal margin | $ | 26 | | | $ | (778) | | | $ | (752) | |
| Tons sold | 3,657 | | | 409 | | | 4,066 | |
| GAAP Coal margin per ton | $ | 0.01 | | | $ | (1.90) | | | $ | (0.18) | |
| | | | | |
| GAAP Coal margin | $ | 26 | | | $ | (778) | | | $ | (752) | |
Add: Depreciation, depletion and amortization - production (1) | 26,536 | | | 1,723 | | | 28,259 | |
| Add: Accretion on asset retirement obligations | 3,385 | | | 3,263 | | | 6,648 | |
| Add: Amortization of acquired intangibles, net | 4,051 | | | (182) | | | 3,869 | |
| Add: Idled and closed mine costs | 3,603 | | | 3,556 | | | 7,159 | |
| Non-GAAP Coal margin | $ | 37,601 | | | $ | 7,582 | | | $ | 45,183 | |
| Tons sold | 3,657 | | | 409 | | | 4,066 | |
| Non-GAAP Coal margin per ton | $ | 10.28 | | | $ | 18.54 | | | $ | 11.11 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 376,839 | | | $ | 16,619 | | | $ | 393,458 | |
| Less: Total Cost of coal sales (per table above) | (362,937) | | | (20,151) | | | (383,088) | |
| GAAP Coal margin | $ | 13,902 | | | $ | (3,532) | | | $ | 10,370 | |
| Tons sold | 3,748 | | | 273 | | | 4,021 | |
| GAAP Coal margin per ton | $ | 3.71 | | | $ | (12.94) | | | $ | 2.58 | |
| | | | | |
| GAAP Coal margin | $ | 13,902 | | | $ | (3,532) | | | $ | 10,370 | |
Add: Depreciation, depletion and amortization - production (1) | 25,686 | | | 1,438 | | | 27,124 | |
| Add: Accretion on asset retirement obligations | 3,377 | | | 3,271 | | | 6,648 | |
| Add: Amortization of acquired intangibles, net | 2,635 | | | (82) | | | 2,553 | |
| Add: Idled and closed mine costs | 4,790 | | | 3,732 | | | 8,522 | |
| Non-GAAP Coal margin | $ | 50,390 | | | $ | 4,827 | | | $ | 55,217 | |
| Tons sold | 3,748 | | | 273 | | | 4,021 | |
| Non-GAAP Coal margin per ton | $ | 13.44 | | | $ | 17.68 | | | $ | 13.73 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | Three Months Ended March 31, | | Increase (Decrease) | | Three Months Ended June 30, | | Increase (Decrease) |
| (In thousands, except for per ton data) | (In thousands, except for per ton data) | 2022 | | 2021 | | $ or Tons | | % | (In thousands, except for per ton data) | 2022 | | 2021 | | $ or Tons | | % |
| Met segment operations: | Met segment operations: | | | | | | | | Met segment operations: | | | | | | | |
| Tons sold | Tons sold | 3,780 | | | 3,657 | | | 123 | | | 3.4 | % | Tons sold | 4,050 | | | 3,748 | | | 302 | | | 8.1 | % |
| Non-GAAP Coal revenues | Non-GAAP Coal revenues | $ | 910,315 | | | $ | 299,882 | | | $ | 610,433 | | | 203.6 | % | Non-GAAP Coal revenues | $ | 1,162,139 | | | $ | 312,510 | | | $ | 849,629 | | | 271.9 | % |
| Non-GAAP Coal sales realization per ton | Non-GAAP Coal sales realization per ton | $ | 240.82 | | | $ | 82.00 | | | $ | 158.82 | | | 193.7 | % | Non-GAAP Coal sales realization per ton | $ | 286.95 | | | $ | 83.38 | | | $ | 203.57 | | | 244.1 | % |
| | All Other category: | All Other category: | | All Other category: | |
| Tons sold | Tons sold | 268 | | | 409 | | | (141) | | | (34.5) | % | Tons sold | 254 | | | 273 | | | (19) | | | (7.0) | % |
| Non-GAAP Coal revenues | Non-GAAP Coal revenues | $ | 15,380 | | | $ | 25,190 | | | $ | (9,810) | | | (38.9) | % | Non-GAAP Coal revenues | $ | 15,597 | | | $ | 16,502 | | | $ | (905) | | | (5.5) | % |
| Non-GAAP Coal sales realization per ton | Non-GAAP Coal sales realization per ton | $ | 57.39 | | | $ | 61.59 | | | $ | (4.20) | | | (6.8) | % | Non-GAAP Coal sales realization per ton | $ | 61.41 | | | $ | 60.45 | | | $ | 0.96 | | | 1.6 | % |
Non-GAAP Coal revenues. Met segment operations non-GAAP coal revenues increased $610.4$849.6 million, or 203.6%271.9%, for the three months ended March 31,June 30, 2022 compared to the prior year period. The increase was primarily due to higher average non-GAAP coal sales realization of 193.7%244.1% per ton resulting from an improved pricing environment and a slightan increase in tons sold compared to the prior year period.
All Other category non-GAAP coal revenues decreased $9.8$0.9 million, or 38.9%5.5%, for the three months ended March 31,June 30, 2022 compared to the prior year period primarily due to a slight decrease in thermal tons sold and a decrease in realization per ton.sold.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Increase (Decrease) |
| (In thousands, except for per ton data) | 2022 | | 2021 | | $ | | % |
| Met segment operations: | | | | | | | |
| Non-GAAP Cost of coal sales | $ | 391,653 | | | $ | 262,281 | | | $ | 129,372 | | | 49.3 | % |
| Non-GAAP Cost of coal sales per ton | $ | 103.61 | | | $ | 71.72 | | | $ | 31.89 | | | 44.5 | % |
| Non-GAAP Coal margin per ton | $ | 137.21 | | | $ | 10.28 | | | $ | 126.93 | | | 1,234.7 | % |
| | | | | | | |
| All Other category: | | | | | | | |
| Non-GAAP Cost of coal sales | $ | 13,371 | | | $ | 17,608 | | | $ | (4,237) | | | (24.1) | % |
| Non-GAAP Cost of coal sales per ton | $ | 49.89 | | | $ | 43.05 | | | $ | 6.84 | | | 15.9 | % |
| Non-GAAP Coal margin per ton | $ | 7.50 | | | $ | 18.54 | | | $ | (11.04) | | | (59.5) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Increase (Decrease) |
| (In thousands, except for per ton data) | 2022 | | 2021 | | $ | | % |
| Met segment operations: | | | | | | | |
| Non-GAAP Cost of coal sales | $ | 450,994 | | | $ | 262,120 | | | $ | 188,874 | | | 72.1 | % |
| Non-GAAP Cost of coal sales per ton | $ | 111.36 | | | $ | 69.94 | | | $ | 41.42 | | | 59.2 | % |
| Non-GAAP Coal margin per ton | $ | 175.59 | | | $ | 13.44 | | | $ | 162.15 | | | 1,206.5 | % |
| | | | | | | |
| All Other category: | | | | | | | |
| Non-GAAP Cost of coal sales | $ | 12,675 | | | $ | 11,675 | | | $ | 1,000 | | | 8.6 | % |
| Non-GAAP Cost of coal sales per ton | $ | 49.90 | | | $ | 42.77 | | | $ | 7.13 | | | 16.7 | % |
| Non-GAAP Coal margin per ton | $ | 11.50 | | | $ | 17.68 | | | $ | (6.18) | | | (35.0) | % |
Non-GAAP Cost of coal sales. Met segment operations non-GAAP cost of coal sales increased $129.4$188.9 million, or 49.3%72.1%, for the three months ended March 31,June 30, 2022 compared to the prior year period. The increase was primarily driven by increased rail freight costs, royalties and taxes, supplies and maintenance expense, salaries and wages expense, and a slightan increase in tons sold, partially offset by inventory change during the current period.sold.
All Other category non-GAAP cost of coal sales decreased $4.2increased $1.0 million, or 24.1%8.6%, for the three months ended March 31,June 30, 2022 compared to the prior year period. The decreaseincrease was primarily driven by a decreaseincreases in thermal tons sold, inventory change during the current period, and decreased royalties and taxes, partially offset by increased salaries and wages expense and supplies and maintenance expense.expense, partially offset by decreased royalties and taxes and a slight decrease in tons sold.
Our non-GAAP cost of coal sales includes purchased coal costs. In the following tables, we calculate Adjusted cost of produced coal sold as non-GAAP cost of coal sales less purchased coal costs.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Non-GAAP Cost of coal sales | $ | 391,653 | | | $ | 13,371 | | | $ | 405,024 | |
| Less: cost of purchased coal sold | (27,842) | | | (37) | | | (27,879) | |
| Adjusted cost of produced coal sold | $ | 363,811 | | | $ | 13,334 | | | $ | 377,145 | |
| Produced tons sold | 3,653 | | | 267 | | | 3,920 | |
Adjusted cost of produced coal sold per ton (1) | $ | 99.59 | | | $ | 49.94 | | | $ | 96.21 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Non-GAAP Cost of coal sales | $ | 450,994 | | | $ | 12,675 | | | $ | 463,669 | |
| Less: cost of purchased coal sold | (33,171) | | | — | | | (33,171) | |
| Adjusted cost of produced coal sold | $ | 417,823 | | | $ | 12,675 | | | $ | 430,498 | |
| Produced tons sold | 3,929 | | | 254 | | | 4,183 | |
Adjusted cost of produced coal sold per ton (1) | $ | 106.34 | | | $ | 49.90 | | | $ | 102.92 | |
(1) Cost of produced coal sold per ton for our operations is calculated as non-GAAP cost of produced coal sold divided by produced tons sold.
| | | Three Months Ended March 31, 2021 | | Three Months Ended June 30, 2021 |
| (In thousands, except for per ton data) | (In thousands, except for per ton data) | Met | | All Other | | Consolidated | (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Non-GAAP Cost of coal sales | Non-GAAP Cost of coal sales | $ | 262,281 | | | $ | 17,608 | | | $ | 279,889 | | Non-GAAP Cost of coal sales | $ | 262,120 | | | $ | 11,675 | | | $ | 273,795 | |
| Less: cost of purchased coal sold | Less: cost of purchased coal sold | (18,264) | | | — | | | (18,264) | | Less: cost of purchased coal sold | (24,642) | | | — | | | (24,642) | |
| Adjusted cost of produced coal sold | Adjusted cost of produced coal sold | $ | 244,017 | | | $ | 17,608 | | | $ | 261,625 | | Adjusted cost of produced coal sold | $ | 237,478 | | | $ | 11,675 | | | $ | 249,153 | |
| Produced tons sold | Produced tons sold | 3,424 | | | 409 | | | 3,833 | | Produced tons sold | 3,497 | | | 273 | | | 3,770 | |
Adjusted cost of produced coal sold per ton (1) | Adjusted cost of produced coal sold per ton (1) | $ | 71.27 | | | $ | 43.05 | | | $ | 68.26 | | Adjusted cost of produced coal sold per ton (1) | $ | 67.91 | | | $ | 42.77 | | | $ | 66.09 | |
(1) Cost of produced coal sold per ton for our operations is calculated as non-GAAP cost of produced coal sold divided by produced tons sold.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that is presented as a supplemental measure and is not intended to replace financial performance or liquidity measures determined in accordance with GAAP. Moreover, this measure is not calculated identically by all companies and therefore may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is presented because management believes it is a useful indicator of the financial performance of our coal operations. The following tables present a reconciliation of net income (loss) to Adjusted EBITDA for the three months ended March 31,June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| (In thousands) | Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 478,167 | | | $ | (77,163) | | | $ | 401,004 | |
| Interest expense | 49 | | | 13,034 | | | 13,083 | |
| Interest income | (172) | | | (12) | | | (184) | |
| Income tax expense | — | | | 39,624 | | | 39,624 | |
| Depreciation, depletion and amortization | 27,060 | | | 975 | | | 28,035 | |
| Non-cash stock compensation expense | 3 | | | 1,179 | | | 1,182 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 9,361 | | | 9,361 | |
| Accretion on asset retirement obligations | 3,398 | | | 2,556 | | | 5,954 | |
| Amortization of acquired intangibles, net | 4,796 | | | 952 | | | 5,748 | |
| Adjusted EBITDA | $ | 513,301 | | | $ | (9,494) | | | $ | 503,807 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| (In thousands) | Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 670,801 | | | $ | (95,372) | | | $ | 575,429 | |
| Interest expense | 43 | | | 5,175 | | | 5,218 | |
| Interest income | — | | | (164) | | | (164) | |
| Income tax expense | — | | | 69,012 | | | 69,012 | |
| Depreciation, depletion and amortization | 27,203 | | | 527 | | | 27,730 | |
| Non-cash stock compensation expense | — | | | 1,401 | | | 1,401 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 4,208 | | | 4,208 | |
| Accretion on asset retirement obligations | 3,390 | | | 2,557 | | | 5,947 | |
| Amortization of acquired intangibles, net | 4,795 | | | 952 | | | 5,747 | |
| Adjusted EBITDA | $ | 706,232 | | | $ | (11,704) | | | $ | 694,528 | |
| | | Three Months Ended March 31, 2021 | | Three Months Ended June 30, 2021 |
| (In thousands) | (In thousands) | Met | | All Other | | Consolidated | (In thousands) | Met | | All Other | | Consolidated |
| Net loss from continuing operations | $ | (1,438) | | | $ | (31,253) | | | $ | (32,691) | | |
| Net income (loss) from continuing operations | | Net income (loss) from continuing operations | $ | 15,042 | | | $ | (33,632) | | | $ | (18,590) | |
| Interest expense | Interest expense | 43 | | | 17,947 | | | 17,990 | | Interest expense | 40 | | | 17,922 | | | 17,962 | |
| Interest income | Interest income | (5) | | | (159) | | | (164) | | Interest income | — | | | (104) | | | (104) | |
| Income tax benefit | — | | | (5) | | | (5) | | |
| Income tax expense | | Income tax expense | — | | | 8 | | | 8 | |
| Depreciation, depletion and amortization | Depreciation, depletion and amortization | 26,536 | | | 1,902 | | | 28,438 | | Depreciation, depletion and amortization | 25,686 | | | 1,618 | | | 27,304 | |
| Non-cash stock compensation expense | Non-cash stock compensation expense | 10 | | | 2,173 | | | 2,183 | | Non-cash stock compensation expense | 6 | | | 973 | | | 979 | |
| Mark-to-market adjustment - acquisition-related obligations | Mark-to-market adjustment - acquisition-related obligations | — | | | 3,176 | | | 3,176 | | Mark-to-market adjustment - acquisition-related obligations | — | | | 3,157 | | | 3,157 | |
| Accretion on asset retirement obligations | Accretion on asset retirement obligations | 3,385 | | | 3,263 | | | 6,648 | | Accretion on asset retirement obligations | 3,377 | | | 3,271 | | | 6,648 | |
Asset impairment and restructuring | — | | | (561) | | | (561) | | |
| Amortization of acquired intangibles, net | Amortization of acquired intangibles, net | 4,051 | | | (182) | | | 3,869 | | Amortization of acquired intangibles, net | 2,635 | | | (82) | | | 2,553 | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 32,582 | | | $ | (3,699) | | | $ | 28,883 | | Adjusted EBITDA | $ | 46,786 | | | $ | (6,869) | | | $ | 39,917 | |
The following table summarizes Adjusted EBITDA for our Met segment operations and All Other category:
| | | Three Months Ended March 31, | | Increase (Decrease) | | Three Months Ended June 30, | | Increase (Decrease) |
| (In thousands) | (In thousands) | 2022 | | 2021 | | $ | | % | (In thousands) | 2022 | | 2021 | | $ | | % |
| Adjusted EBITDA | Adjusted EBITDA | | | | | | | | Adjusted EBITDA | | | | | | | |
| Met segment operations | Met segment operations | $ | 513,301 | | | $ | 32,582 | | | $ | 480,719 | | | 1,475.4 | % | Met segment operations | $ | 706,232 | | | $ | 46,786 | | | $ | 659,446 | | | 1,409.5 | % |
| All Other category | All Other category | (9,494) | | | (3,699) | | | (5,795) | | | (156.7) | % | All Other category | (11,704) | | | (6,869) | | | (4,835) | | | (70.4) | % |
| Total | Total | $ | 503,807 | | | $ | 28,883 | | | $ | 474,924 | | | 1,644.3 | % | Total | $ | 694,528 | | | $ | 39,917 | | | $ | 654,611 | | | 1,639.9 | % |
Met segment operations. Adjusted EBITDA increased $480.7$659.4 million, or 1,475.4%1,409.5%, for the three months ended March 31,June 30, 2022 compared to the prior year period. The increase in Adjusted EBITDA was primarily driven by increased coal margin and a slightan increase in coal sales volumes.
All Other category. Adjusted EBITDA decreased $5.8$4.8 million, or 156.7%70.4%, for the three months ended March 31,June 30, 2022 compared to the prior year period. The decrease in Adjusted EBITDA was primarily driven by decreased coal margin and a slight decrease in thermal tons sold.
Discontinued Operations
The former NAPP operations results of operations and financial position are reported as discontinued operations in the Condensed Consolidated Financial Statements. Refer to Note 2 for further information on discontinued operations. Refer to Note 1516 for disclosures on the Cumberland Back-to-Back Coal Supply Agreements.
Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
Revenues
The following table summarizes information about our revenues during the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| (In thousands, except for per ton data) | 2022 | | 2021 | | $ or Tons | | % |
| Coal revenues | $ | 2,403,996 | | | $ | 778,910 | | | $ | 1,625,086 | | | 208.6 | % |
| Other revenues | 4,380 | | | 2,618 | | | 1,762 | | | 67.3 | % |
| Total revenues | $ | 2,408,376 | | | $ | 781,528 | | | $ | 1,626,848 | | | 208.2 | % |
| | | | | | | |
| Tons sold | 8,352 | | | 8,087 | | | 265 | | | 3.3 | % |
Coal revenues. Coal revenues increased $1,625.1 million, or 208.6%, for the six months ended June 30, 2022 compared to the prior year period. The increase was primarily due to higher coal sales realization within our Met segment operations as a result of an improved pricing environment during the current period. Increasing coal demand, resulting from improved economic activity, coupled with a limited supply response contributed to a rise in coal prices. Refer to the “Non-GAAP Coal revenues” section below for further detail on coal revenues for the six months ended June 30, 2022 compared to the prior year
period.
Cost and Expenses
The following table summarizes information about our costs and expenses during the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | $ | | % |
| Cost of coal sales (exclusive of items shown separately below) | $ | 1,181,209 | | | $ | 694,191 | | | $ | 487,018 | | | 70.2 | % |
| Depreciation, depletion and amortization | 55,765 | | | 55,742 | | | 23 | | | — | % |
| Accretion on asset retirement obligations | 11,901 | | | 13,296 | | | (1,395) | | | (10.5) | % |
| Amortization of acquired intangibles, net | 11,495 | | | 6,422 | | | 5,073 | | | 79.0 | % |
| Asset impairment and restructuring | — | | | (561) | | | 561 | | | 100.0 | % |
| Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above) | 33,244 | | | 29,627 | | | 3,617 | | | 12.2 | % |
| Total other operating loss (income): | | | | | | | |
| Mark-to-market adjustment for acquisition-related obligations | 13,569 | | | 6,333 | | | 7,236 | | | 114.3 | % |
| Other income | (2,144) | | | (4,833) | | | 2,689 | | | 55.6 | % |
| Total costs and expenses | $ | 1,305,039 | | | $ | 800,217 | | | $ | 504,822 | | | 63.1 | % |
Cost of coal sales. Cost of coal sales increased $487.0 million, or 70.2%, for the six months ended June 30, 2022 compared to the prior year period. The increase was primarily driven by increased rail freight costs, royalties and taxes, salaries and wages expense, supplies and maintenance expense, and an increase in tons sold, partially offset by inventory change during the current period.
Amortization of acquired intangibles, net. Amortization of acquired intangibles, net increased $5.1 million, or 79.0%, for the six months ended June 30, 2022 compared to the prior year period. The increase was primarily driven by accelerated current period amortization of certain acquired mine permits as a result of an update to the estimated life of the associated mines.
Selling, general and administrative. Selling, general and administrative expenses increased $3.6 million, or 12.2%, for the six months ended June 30, 2022 compared to the prior year period. This increase in expense was primarily related to increases of $2.1 million in wages and benefits expense and $2.0 million in incentive pay, partially offset by decreases of $0.5 million in professional fees and $0.4 million in severance pay.
Mark-to-market adjustment for acquisition-related obligations. The mark-to-market adjustment for acquisition-related obligations resulted in a decrease to income of $7.2 million for the six months ended June 30, 2022 compared to the prior year period. This decrease was related to the $13.6 million Contingent Revenue Obligation mark-to-market adjustment recorded during the six months ended June 30, 2022 due to changes in underlying fair value assumptions during the current period. Refer to Note 12for Contingent Revenue Obligation fair value input assumptions.
Other income. Other income decreased $2.7 million, or 55.6%, for the six months ended June 30, 2022 compared to the prior year period, primarily due to a decrease in income on sale of assets in the current period.
Other (Expense) Income
The following table summarizes information about our other (expense) income during the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | $ | | % |
| Other (expense) income: | | | | | | | |
| Interest expense | $ | (18,301) | | | $ | (35,952) | | | $ | 17,651 | | | 49.1 | % |
| Interest income | 348 | | | 268 | | | 80 | | | 29.9 | % |
| Equity loss in affiliates | (3,497) | | | (518) | | | (2,979) | | | (575.1) | % |
| Miscellaneous income, net | 3,182 | | | 3,613 | | | (431) | | | (11.9) | % |
| Total other expense, net | $ | (18,268) | | | $ | (32,589) | | | $ | 14,321 | | | 43.9 | % |
Interest expense. Interest expense decreased $17.7 million, or 49.1%, for the six months ended June 30, 2022 compared to the prior year period, primarily due to a decrease in debt outstanding. Refer to Note 9 for additional information.
Income Tax Expense
The following table summarizes information about our income tax expense during the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | $ | | % |
| Income tax expense | $ | (108,636) | | | $ | (3) | | | $ | (108,633) | | | (3,621,100.0) | % |
Income taxes. Income tax expense of $108.6 million was recorded for the six months ended June 30, 2022 on income from continuing operations before income taxes of $1,085.1 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to the decrease in the valuation allowance and the permanent impact of percentage depletion and foreign-derived intangible income deductions.
Income tax expense of $3 thousand was recorded for the six months ended June 30, 2021 on a loss from continuing operations before income taxes of $51.3 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to the increase in the valuation allowance. Refer to Note 13 for additional information.
Non-GAAP Financial Measures
Included below are reconciliations of non-GAAP financial measures to GAAP financial measures.
The following tables summarize certain financial information relating to our coal operations for the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 2,373,001 | | | $ | 30,995 | | | $ | 2,403,996 | |
| Less: Freight and handling fulfillment revenues | (300,547) | | | (18) | | | (300,565) | |
| Non-GAAP Coal revenues | $ | 2,072,454 | | | $ | 30,977 | | | $ | 2,103,431 | |
| Tons sold | 7,830 | | | 522 | | | 8,352 | |
| Non-GAAP Coal sales realization per ton | $ | 264.68 | | | $ | 59.34 | | | $ | 251.85 | |
| | | | | |
| Cost of coal sales (exclusive of items shown separately below) | $ | 1,149,506 | | | $ | 31,703 | | | $ | 1,181,209 | |
Depreciation, depletion and amortization - production (1) | 54,262 | | | 1,047 | | | 55,309 | |
| Accretion on asset retirement obligations | 6,788 | | | 5,113 | | | 11,901 | |
| Amortization of acquired intangibles, net | 9,591 | | | 1,904 | | | 11,495 | |
| Total Cost of coal sales | $ | 1,220,147 | | | $ | 39,767 | | | $ | 1,259,914 | |
| Less: Freight and handling costs | (300,547) | | | (18) | | | (300,565) | |
Less: Depreciation, depletion and amortization - production (1) | (54,262) | | | (1,047) | | | (55,309) | |
| Less: Accretion on asset retirement obligations | (6,788) | | | (5,113) | | | (11,901) | |
| Less: Amortization of acquired intangibles, net | (9,591) | | | (1,904) | | | (11,495) | |
| Less: Idled and closed mine costs | (6,312) | | | (5,639) | | | (11,951) | |
| Non-GAAP Cost of coal sales | $ | 842,647 | | | $ | 26,046 | | | $ | 868,693 | |
| Tons sold | 7,830 | | | 522 | | | 8,352 | |
| Non-GAAP Cost of coal sales per ton | $ | 107.62 | | | $ | 49.90 | | | $ | 104.01 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 2,373,001 | | | $ | 30,995 | | | $ | 2,403,996 | |
| Less: Total Cost of coal sales (per table above) | (1,220,147) | | | (39,767) | | | (1,259,914) | |
| GAAP Coal margin | $ | 1,152,854 | | | $ | (8,772) | | | $ | 1,144,082 | |
| Tons sold | 7,830 | | | 522 | | | 8,352 | |
| GAAP Coal margin per ton | $ | 147.24 | | | $ | (16.80) | | | $ | 136.98 | |
| | | | | |
| GAAP Coal margin | $ | 1,152,854 | | | $ | (8,772) | | | $ | 1,144,082 | |
Add: Depreciation, depletion and amortization - production (1) | 54,262 | | | 1,047 | | | 55,309 | |
| Add: Accretion on asset retirement obligations | 6,788 | | | 5,113 | | | 11,901 | |
| Add: Amortization of acquired intangibles, net | 9,591 | | | 1,904 | | | 11,495 | |
| Add: Idled and closed mine costs | 6,312 | | | 5,639 | | | 11,951 | |
| Non-GAAP Coal margin | $ | 1,229,807 | | | $ | 4,931 | | | $ | 1,234,738 | |
| Tons sold | 7,830 | | | 522 | | | 8,352 | |
| Non-GAAP Coal margin per ton | $ | 157.06 | | | $ | 9.45 | | | $ | 147.84 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 736,732 | | | $ | 42,178 | | | $ | 778,910 | |
| Less: Freight and handling fulfillment revenues | (124,340) | | | (486) | | | (124,826) | |
| Non-GAAP Coal revenues | $ | 612,392 | | | $ | 41,692 | | | $ | 654,084 | |
| Tons sold | 7,405 | | | 682 | | | 8,087 | |
| Non-GAAP Coal sales realization per ton | $ | 82.70 | | | $ | 61.13 | | | $ | 80.88 | |
| | | | | |
| Cost of coal sales (exclusive of items shown separately below) | $ | 657,134 | | | $ | 37,057 | | | $ | 694,191 | |
Depreciation, depletion and amortization - production (1) | 52,222 | | | 3,161 | | | 55,383 | |
| Accretion on asset retirement obligations | 6,762 | | | 6,534 | | | 13,296 | |
| Amortization of acquired intangibles, net | 6,686 | | | (264) | | | 6,422 | |
| Total Cost of coal sales | $ | 722,804 | | | $ | 46,488 | | | $ | 769,292 | |
| Less: Freight and handling costs | (124,340) | | | (486) | | | (124,826) | |
Less: Depreciation, depletion and amortization - production (1) | (52,222) | | | (3,161) | | | (55,383) | |
| Less: Accretion on asset retirement obligations | (6,762) | | | (6,534) | | | (13,296) | |
| Less: Amortization of acquired intangibles, net | (6,686) | | | 264 | | | (6,422) | |
| Less: Idled and closed mine costs | (8,393) | | | (7,288) | | | (15,681) | |
| Non-GAAP Cost of coal sales | $ | 524,401 | | | $ | 29,283 | | | $ | 553,684 | |
| Tons sold | 7,405 | | | 682 | | | 8,087 | |
| Non-GAAP Cost of coal sales per ton | $ | 70.82 | | | $ | 42.94 | | | $ | 68.47 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Coal revenues | $ | 736,732 | | | $ | 42,178 | | | $ | 778,910 | |
| Less: Total Cost of coal sales (per table above) | (722,804) | | | (46,488) | | | (769,292) | |
| GAAP Coal margin | $ | 13,928 | | | $ | (4,310) | | | $ | 9,618 | |
| Tons sold | 7,405 | | | 682 | | | 8,087 | |
| GAAP Coal margin per ton | $ | 1.88 | | | $ | (6.32) | | | $ | 1.19 | |
| | | | | |
| GAAP Coal margin | $ | 13,928 | | | $ | (4,310) | | | $ | 9,618 | |
Add: Depreciation, depletion and amortization - production (1) | 52,222 | | | 3,161 | | | 55,383 | |
| Add: Accretion on asset retirement obligations | 6,762 | | | 6,534 | | | 13,296 | |
| Add: Amortization of acquired intangibles, net | 6,686 | | | (264) | | | 6,422 | |
| Add: Idled and closed mine costs | 8,393 | | | 7,288 | | | 15,681 | |
| Non-GAAP Coal margin | $ | 87,991 | | | $ | 12,409 | | | $ | 100,400 | |
| Tons sold | 7,405 | | | 682 | | | 8,087 | |
| Non-GAAP Coal margin per ton | $ | 11.88 | | | $ | 18.20 | | | $ | 12.41 | |
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| (In thousands, except for per ton data) | 2022 | | 2021 | | $ | | % |
| Met segment operations: | | | | | | | |
| Tons sold | 7,830 | | | 7,405 | | | 425 | | | 5.7 | % |
| Non-GAAP Coal revenues | $ | 2,072,454 | | | $ | 612,392 | | | $ | 1,460,062 | | | 238.4 | % |
| Non-GAAP Coal sales realization per ton | $ | 264.68 | | | $ | 82.70 | | | $ | 181.98 | | | 220.0 | % |
| | | | | | | |
| All Other category: | | | | | | | |
| Tons sold | 522 | | | 682 | | | (160) | | | (23.5) | % |
| Non-GAAP Coal revenues | $ | 30,977 | | | $ | 41,692 | | | $ | (10,715) | | | (25.7) | % |
| Non-GAAP Coal sales realization per ton | $ | 59.34 | | | $ | 61.13 | | | $ | (1.79) | | | (2.9) | % |
Non-GAAP Coal revenues. Met segment operations non-GAAP coal revenues increased $1,460.1 million, or 238.4%, for the six months ended June 30, 2022 compared to the prior year period. The increase was primarily due to higher average non-GAAP coal sales realization of 220.0% per ton resulting from an improved pricing environment and an increase in tons sold compared to the prior year period.
All Other category non-GAAP coal revenues decreased $10.7 million, or 25.7%, for the six months ended June 30, 2022 compared to the prior year period primarily due to a decrease in tons sold and a decrease in realization per ton.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| (In thousands, except for per ton data) | 2022 | | 2021 | | $ | | % |
| Met segment operations: | | | | | | | |
| Non-GAAP Cost of coal sales | $ | 842,647 | | | $ | 524,401 | | | $ | 318,246 | | | 60.7 | % |
| Non-GAAP Cost of coal sales per ton | $ | 107.62 | | | $ | 70.82 | | | $ | 36.80 | | | 52.0 | % |
| Non-GAAP Coal margin per ton | $ | 157.06 | | | $ | 11.88 | | | $ | 145.18 | | | 1,222.1 | % |
| | | | | | | |
| All Other category: | | | | | | | |
| Non-GAAP Cost of coal sales | $ | 26,046 | | | $ | 29,283 | | | $ | (3,237) | | | (11.1) | % |
| Non-GAAP Cost of coal sales per ton | $ | 49.90 | | | $ | 42.94 | | | $ | 6.96 | | | 16.2 | % |
| Non-GAAP Coal margin per ton | $ | 9.45 | | | $ | 18.20 | | | $ | (8.75) | | | (48.1) | % |
Non-GAAP Cost of coal sales. Met segment operations non-GAAP cost of coal sales increased $318.2 million, or 60.7%, for the six months ended June 30, 2022 compared to the prior year period. The increase was primarily driven by increased rail freight costs, royalties and taxes, supplies and maintenance expense, salaries and wages expense, and an increase in tons sold, partially offset by inventory change during the current period.
All Other category non-GAAP cost of coal sales decreased $3.2 million, or 11.1%, for the six months ended June 30, 2022 compared to the prior year period. The decrease was primarily driven by a decrease in tons sold, inventory change during the current period, and decreased royalties and taxes, partially offset by increased salaries and wages expense and supplies and maintenance expense.
Our non-GAAP cost of coal sales includes purchased coal costs. In the following tables, we calculate Adjusted cost of produced coal sold as non-GAAP cost of coal sales less purchased coal costs.
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Non-GAAP Cost of coal sales | $ | 842,647 | | | $ | 26,046 | | | $ | 868,693 | |
| Less: cost of purchased coal sold | (61,013) | | | (37) | | | (61,050) | |
| Adjusted cost of produced coal sold | $ | 781,634 | | | $ | 26,009 | | | $ | 807,643 | |
| Produced tons sold | 7,582 | | | 521 | | | 8,103 | |
Adjusted cost of produced coal sold per ton (1) | $ | 103.09 | | | $ | 49.92 | | | $ | 99.67 | |
(1) Cost of produced coal sold per ton for our operations is calculated as non-GAAP cost of produced coal sold divided by produced tons sold.
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| (In thousands, except for per ton data) | Met | | All Other | | Consolidated |
| Non-GAAP Cost of coal sales | $ | 524,401 | | | $ | 29,283 | | | $ | 553,684 | |
| Less: cost of purchased coal sold | (42,906) | | | — | | | (42,906) | |
| Adjusted cost of produced coal sold | $ | 481,495 | | | $ | 29,283 | | | $ | 510,778 | |
| Produced tons sold | 6,921 | | | 682 | | | 7,603 | |
Adjusted cost of produced coal sold per ton (1) | $ | 69.57 | | | $ | 42.94 | | | $ | 67.18 | |
(1) Cost of produced coal sold per ton for our operations is calculated as non-GAAP cost of produced coal sold divided by produced tons sold.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that is presented as a supplemental measure and is not intended to replace financial performance or liquidity measures determined in accordance with GAAP. Moreover, this measure is not calculated identically by all companies and therefore may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is presented because management believes it is a useful indicator of the financial performance of our coal operations. The following tables present a reconciliation of net income (loss) to Adjusted EBITDA for the six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 1,148,968 | | | $ | (172,535) | | | $ | 976,433 | |
| Interest expense | 92 | | | 18,209 | | | 18,301 | |
| Interest income | (172) | | | (176) | | | (348) | |
| Income tax expense | — | | | 108,636 | | | 108,636 | |
| Depreciation, depletion and amortization | 54,263 | | | 1,502 | | | 55,765 | |
| Non-cash stock compensation expense | 3 | | | 2,580 | | | 2,583 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 13,569 | | | 13,569 | |
| Accretion on asset retirement obligations | 6,788 | | | 5,113 | | | 11,901 | |
| Amortization of acquired intangibles, net | 9,591 | | | 1,904 | | | 11,495 | |
| Adjusted EBITDA | $ | 1,219,533 | | | $ | (21,198) | | | $ | 1,198,335 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Met | | All Other | | Consolidated |
| Net income (loss) from continuing operations | $ | 13,604 | | | $ | (64,885) | | | $ | (51,281) | |
| Interest expense | 83 | | | 35,869 | | | 35,952 | |
| Interest income | (5) | | | (263) | | | (268) | |
| Income tax expense | — | | | 3 | | | 3 | |
| Depreciation, depletion and amortization | 52,222 | | | 3,520 | | | 55,742 | |
| Non-cash stock compensation expense | 16 | | | 3,146 | | | 3,162 | |
| Mark-to-market adjustment - acquisition-related obligations | — | | | 6,333 | | | 6,333 | |
| Accretion on asset retirement obligations | 6,762 | | | 6,534 | | | 13,296 | |
Asset impairment and restructuring | — | | | (561) | | | (561) | |
| Amortization of acquired intangibles, net | 6,686 | | | (264) | | | 6,422 | |
| Adjusted EBITDA | $ | 79,368 | | | $ | (10,568) | | | $ | 68,800 | |
The following table summarizes Adjusted EBITDA for our Met segment operations and All Other category:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| (In thousands) | 2022 | | 2021 | | $ | | % |
| Adjusted EBITDA | | | | | | | |
| Met segment operations | $ | 1,219,533 | | | $ | 79,368 | | | $ | 1,140,165 | | | 1,436.6 | % |
| All Other category | (21,198) | | | (10,568) | | | (10,630) | | | (100.6) | % |
| Total | $ | 1,198,335 | | | $ | 68,800 | | | $ | 1,129,535 | | | 1,641.8 | % |
Met segment operations. Adjusted EBITDA increased $1,140.2 million, or 1,436.6%, for the six months ended June 30, 2022 compared to the prior year period. The increase in Adjusted EBITDA was primarily driven by increased coal margin and an increase in coal sales volumes.
All Other category. Adjusted EBITDA decreased $10.6 million, or 100.6%, for the six months ended June 30, 2022 compared to the prior year period. The decrease in Adjusted EBITDA was primarily driven by decreased coal margin and a decrease in tons sold.
Discontinued Operations
The former NAPP operations results of operations and financial position are reported as discontinued operations in the Condensed Consolidated Financial Statements. Refer to Note 2 for further information on discontinued operations. Refer to Note 16 for disclosures on the Cumberland Back-to-Back Coal Supply Agreements.
Liquidity and Capital Resources
Overview
Our primary liquidity and capital resource requirements stem from the cost of our coal production and purchases, our capital expenditures, our debt service, our reclamation obligations, taxes, our regulatory costs and settlements and associated costs. Our primary sources of liquidity are derived from sales of coal, our debt financing, and miscellaneous revenues.
We believe that cash on hand and cash generated from our operations will be sufficient to meet our working capital requirements, anticipated capital expenditures, debt service requirements, acquisition-related obligations, and reclamation obligations for the next 12 months and the reasonably foreseeable future. The Company may also use cash in accordance with its share repurchase program and dividend program. We rely on a number of assumptions in budgeting for our future activities. These include the costs for mine development to sustain capacity of our operating mines, our cash flows from operations, effects of regulation and taxes by governmental agencies, mining technology improvements and reclamation costs. These assumptions are inherently subject to significant business, political, economic, regulatory, environmental and competitive uncertainties, pending and existing climate-related initiatives, contingencies and risks, all of which are difficult to predict and many of which are beyond our control. Increased scrutiny of ESG matters specific to the coal sector could negatively influence our ability to raise capital in the future and result in a reduced number of surety and insurance providers. We may need to raise additional funds if market conditions deteriorate, and we may not be able to do so in a timely fashion, on terms acceptable to us, or at all; or one or more of our assumptions prove to be incorrect or if we choose to expand our acquisition, exploration, appraisal, or development efforts or any other activity more rapidly than we presently anticipate. Additionally, we may elect to raise additional funds before we need them if the conditions for raising capital are favorable. We may seek to sell equity or debt securities or obtain additional bank credit facilities. The sale of equity securities could result in dilution to our stockholders. The incurrence of additional indebtedness could result in increased fixed obligations and additional covenants that could restrict our operations.
Liquidity
The following table summarizes our total liquidity as of March 31,June 30, 2022:
| | | | | |
| (in thousands) | March 31,June 30, 2022 |
| Cash and cash equivalents | $ | 159,455161,732 | |
Credit facility availability (1) | 33,96391,102 | |
| Total liquidity | $ | 193,418252,834 | |
(1) Comprised of our unused commitments available under the Second Amended and Restated Asset-Based Revolving Credit
Agreement (“ABL Agreement”), subject to limitations described therein.
Cash Collateral
We are required to provide cash collateral to secure our obligations under certain worker’s compensation, black lung, reclamation-related obligations, financial payments and other performance obligations, and other operating agreements. Additionally, we have short-term restricted cash held in escrow related to our Contingent Revenue Obligation (refer to Note 9)10). Future regulatory changes relating to these obligations could result in increased obligations, additional costs, or additional collateral requirements which could require greater use of alternative sources of funding for this purpose, which would reduce our liquidity. Refer to the DCMWC Reauthorization Process section below for information related to the new authorization process for self-insured coal mine operators being implemented by the U.S. Department of Labor (Division of Coal Mine Workers’ Compensation). As of March 31,June 30, 2022, we had the following cash collateral on our Condensed Consolidated Balance Sheets:
| | | | | |
| (in thousands) | March 31,June 30, 2022 |
| Short-term and long-term restricted cash | $ | 136,03234,768 | |
| Long-term restricted investments | 5094,794 | |
| Short-term and long-term deposits | 1,3861,366 | |
| Total cash collateral | $ | 137,468130,928 | |
Off-Balance Sheet Arrangements
We are required to provide financial assurance in order to perform the post-mining reclamation required by our mining permits, pay workers’ compensation claims under workers’ compensation laws in various states, pay federal black lung benefits, and perform certain other obligations. In order to provide the required financial assurance, we generally use surety bonds for post-mining reclamation and workers’ compensation obligations. We also use bank letters of credit to collateralize certain obligations. As of March 31,June 30, 2022, we had the following outstanding surety bonds and letters of credit:
| | | | | |
| (in thousands) | March 31,June 30, 2022 |
| Surety bonds | $ | 174,198162,339 | |
Letters of credit (1) | $ | 121,08763,948 | |
(1) The letters of credit outstanding are under the Second Amended and Restated Asset-Based Revolving Credit Agreement dated December 6, 2021 and the Credit and Security Agreement dated June 30, 2017, and related amendments, between ANR, Inc. and First Tennessee Bank National Association.
Refer to Note 15,16, part (c) for further disclosures on off-balance sheet arrangements.
Debt Financing and Related Transactions
At March 31,As of June 30, 2022, we had $254.5$4.7 million of indebtedness outstanding before debt discount and issuance costs. Our indebtedness is primarily comprised of ourfinancing leases and other financing obligations. Our Credit Agreement entered into on June 14, 2019 that providesprovided for a senior secured term loan facility in the aggregate principal amount of $561.8 million with a maturity date of June 14, 2024 (the “Term Loan Credit Facility”). TheAs of June 30, 2022, we had no outstanding borrowings under the Term Loan Credit Facility permits us, subject to approvalas a result of voluntary prepayments of $449.4 million of outstanding principal borrowings during the administrative agentfirst and the lenders providing the financing, to request incremental term loans up to an aggregate amountsecond quarters of $50.0 million subject to certain conditions2022 in the Credit Agreement, in increments not less than $25.0 million or the remaining availability.
In aour continued strategic effort to reduce our outstanding debt and strengthen our balance sheet,sheet. Effective with the final voluntary prepayment on June 3, 2022, the Credit Agreement was terminated, and we made voluntary prepaymentswere released of $200.0 million and $150.0 million of outstanding principal borrowings underall underlying obligations including the Term Loan Credit Facility during the first and second quarters of 2022, respectively. Subject to continued coal market strength and available liquidity, we are planning to continue our efforts to substantially deleverage the balance sheet in coming quarters.Agreement covenants.
The ABL Agreement includes a senior secured asset-based revolving credit facility (the “ABL Facility”). Under the ABL Facility, the Company may borrow cash or obtain letters of credit, on a revolving basis, in an aggregate amount of up to $155.0 million, of which no more than $150.0 million may represent outstanding letters of credit ($125.0 million on a committed basis and another $25.0 million on an uncommitted cash collateralized basis) with any borrowings having a maturity date of December 6, 2024. Availability under the ABL Facility is calculated on a monthly basis and fluctuates based on qualifying amounts of coal inventory and trade accounts receivable (the “Borrowing Base”) and the facility's covenant limitations related to our Fixed Charge Coverage Ratio (refer to “Analysis of Material Debt Covenants” below). In accordance with terms of the
ABL Facility, we may be required to cash collateralize the ABL Facility to the extent outstanding borrowings and letters of credit under the ABL Facility exceed the Borrowing Base after considering covenant limitations.
During the second quarter of 2022, in connection with our improved financial position, we received a reduction of $40.1 million in collateral requirements under the ABL Facility related to our self-insured workers compensation at certain locations in West Virginia. Additionally, during the second quarter of 2022 and as part of routine surety program review and negotiation, we received a $16.5 million reduction in surety collateral requirements under the ABL Facility, while securing multi-year visibility on surety program terms and conditions. These collateral releases increased our availability under the ABL Facility and thus our financial liquidity.
Refer to Note 89 for additional disclosures on long-term debt.
Acquisition-Related Obligations
At March 31,June 30, 2022, we had $49.6$36.3 million of acquisition-related obligations outstanding before discount. Our acquisition-related obligations are primarily comprised of the Contingent Revenue Obligation which has an offsetting short-term restricted cash amount held in escrow (refer to Note 910 and Note 15)16). During the second quarter of 2022, we paid $16.2 million pursuant to the terms of the Contingent Revenue Obligation.
Capital Requirements
We expect to spend between $160.0 million and $190.0 million on capital expenditures during 2022.
Contractual Obligations
Our contractual obligations are discussed in the “Liquidity and Capital Resources—Contractual Obligations” section contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
Our contractual obligations relating to the Term Loan Credit Facility decreasedwere eliminated during the threesix months ended March 31,June 30, 2022 due to the final voluntary prepayments we made during the period.period terminating our Credit Agreement. Our contractual obligations relating to the Contingent Revenue Obligation increaseddecreased during the threesix months ended March 31,June 30, 2022 primarily as a result of increased coal pricing andpayments made during the period, partially offset by an increase in forecasted future revenue. Additionally, ourOur contractual obligations relating to coal purchase commitments increased during the threesix months ended March 31,June 30, 2022 primarily as a result of new agreements during the period. Additionally, our contractual obligations relating to unconditional purchase obligations decreased during the six months ended June 30, 2022 primarily as a result of expected fulfillment of commitments during the current period, partially offset by new agreements. The table below reflects these obligations as of March 31,June 30, 2022:
| | (in thousands) | (in thousands) | Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | After 2026 | | Total | (in thousands) | Remainder of 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | After 2026 | | Total |
Term Loan Credit Facility (1) | Term Loan Credit Facility (1) | $ | 18,708 | | | $ | 24,943 | | | $ | 260,937 | | | $ | — | | | $ | — | | | $ | — | | | $ | 304,588 | | Term Loan Credit Facility (1) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Contingent Revenue Obligation | Contingent Revenue Obligation | $ | 16,166 | | | $ | 30,344 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 46,510 | | Contingent Revenue Obligation | $ | — | | | $ | 34,159 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 34,159 | |
| Coal purchase commitments | Coal purchase commitments | $ | 71,226 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 71,226 | | Coal purchase commitments | $ | 82,185 | | | $ | 12,099 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 94,284 | |
Unconditional purchase obligations (2) | | Unconditional purchase obligations (2) | $ | 62,095 | | | $ | 59,319 | | | $ | 86,850 | | | $ | — | | | $ | — | | | $ | — | | | $ | 208,264 | |
(1) On June 3, 2022, the remaining outstanding principal and interest on the Term Loan Credit Facility were eliminated and the underlying Credit Agreement was terminated.
(2) Includes cash interest payable on this obligation, with an interest rate of 10.00% as of March 31, 2022.transportation commitments, minimum equipment purchase commitments, and diesel fuel purchase commitments.
Refer to Note 8,9, Note 9,10, and Note 1516 for additional disclosures on long-term debt, acquisition-related obligations, and other commitments, respectively.
Business Updates
On June 3, 2022, in a significant step in further strengthening our balance sheet, we voluntarily prepaid in full the remaining outstanding principal borrowings of the Term Loan Credit Facility two years ahead of maturity.
On July 28, 2022, S&P Global Ratings upgraded its issuer credit rating on the Company to B from B- following our full repayment of the Term Loan Credit Facility and amid improving credit metrics. The rating outlook was noted as stable. On July 21, 2022, Moody’s Investors Service upgraded our Corporate Family Rating to B2 from B3, upgraded our Probability of Default Rating to B2-PD from B3-PD, assigned a B1 rating to our ABL Facility, and withdrew the B3 rating on our Term Loan Credit Facility following our full repayment. Our Speculative Grade Liquidity Rating remained unchanged at SGL-2. The rating outlook was revised to positive from stable. On March 30, 2022, S&P Global Ratings affirmed its B- issuer credit rating on the Company and upgraded its issuer-level rating on our
senior secured debt to B from B- amid favorable market indicators and credit metrics. The rating outlook was revised to positive from stable. Should we receive any negative outlook ratings in the future, such negative outlook ratings would result in potential liquidity risks for us, including the risks of declines in our stock value, declines in our cash and cash equivalents, less availability and higher costs of additional credit, and requests for additional collateral by surety providers.
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID-19 Pandemic” for information on the impact of the COVID-19 pandemic on our business.
We continually strive to enhance our capital structure and financial flexibility and reduce cash outflows from operations. As future opportunities arise, we will continue to consider the possibility of refinancing, repayment or repurchase of any outstanding debt and amendment of our credit facilities,facility, and may consider the sale of other assets or businesses, and such other measures as we believe circumstances warrant. We may decide to pursue or not pursue these opportunities at any time. Access to additional funds from liquidity-generating transactions or other sources of external financing is subject to market conditions and certain limitations, including our credit rating and covenant restrictions in our credit facilities.
As a regular part of our business, we review opportunities for, and engage in discussions and negotiations concerning, the acquisition or disposition of coal mining and related infrastructure assets and interests in coal mining companies, and acquisitions or dispositions of, or combinations or other strategic transactions involving companies with coal mining or other
energy assets. When we believe that these opportunities are consistent with our strategic plans and our acquisition or disposition criteria, we will make bids or proposals and/or enter into letters of intent and other similar agreements. These bids or proposals, which may be binding or non-binding, are customarily subject to a variety of conditions and usually permit us to terminate the discussions and any related agreement if, among other things, we are not satisfied with the results of due diligence. Any acquisition opportunities we pursue could materially affect our liquidity and capital resources and may require us to incur indebtedness, seek equity capital or both. There can be no assurance that additional financing will be available on terms acceptable to us, or at all.
Income Taxes
During the six months ended June 30, 2022, we paid estimated income taxes of $109.1 million. Refer to Note 13 for further disclosures related to income taxes.
Pension Plans
We expect our minimum required contributions to the pension plans to be $3.6$0.5 million in the remainder of 2022. Refer to Note 1314 for further disclosures related to this obligation.
Discontinued Operations
Refer to Note 2 for disclosure information on discontinued operations.
DCMWC Reauthorization Process
In July 2019, the U.S. Department of Labor (Division of Coal Mine Workers’ Compensation or “DCMWC”) began implementing a new authorization process for all self-insured coal mine operators. As requested by DCMWC, we filed an application and supporting documentation for reauthorization to self-insure certain of our black lung obligations in October 2019. As a result of this application, the DCMWC notified us in a letter dated February 21, 2020 that we were reauthorized to self-insure certain of our black lung obligations for a period of one-year from February 21, 2020. The DCMWC reauthorization is contingent, however, upon us providing collateral of $65.7 million to secure certain of our black lung obligations. This collateral requirement, which the DCMWC advises represents 70% of our estimated future liability according to the DCMWC’s estimation methodology, is an increase of approximately 2,400% from the approximately $2.6 million in collateral which we (previously by Alpha Natural Resources Inc. prior to the Merger) have provided since 2016 to secure these self-insured black lung obligations. Future liability has not previously been estimated by the DCMWC in connection with the reauthorization process but is now being considered as part of its new collateral-setting methodology.
The reauthorization process provided us with the right to appeal the security determination in writing within 30 days of the date of the notification, which appeal period the DCMWC agreed to extend to May 22, 2020, and we exercised this right of appeal. We strongly disagree with the DCMWC’s substantially higher collateral determination and the methodology through which the calculation was derived. In February 2021, the U.S. Department of Labor (“DOL”) withdrew its Federal Register notice seeking comments on its bulletin describing its new method of calculating collateral requirements. The Department
removed the bulletin from its website in May 2021. On February 10, 2022, a telephone conference was held with DCMWC and DOL decision makers wherein we presented facts and arguments in support of our appeal. No ruling has been made on the appeal, but during the call we indicated that we would be willing to allocate an additional $10.0 million in collateral. If our appeal is unsuccessful, we may be required to provide additional letters of credit in order to receive self-insurance reauthorization from the DCMWC or insure these black lung obligations through a third party provider, which would likely also require us to provide additional collateral. Either of these outcomes would significantly reduce our liquidity.
Share Repurchase Program
Refer to Note 7 and “Unregistered Sales of Equity Securities and Use of Proceeds” for further information on the share repurchase program and the shares repurchased during the current period.
Refer to Note 17 for subsequent event disclosures related to our share repurchase program.
Dividend Program
Refer to Note 177 and Note 18 for subsequent event disclosuresinformation related to our dividend program, announcement.the cash dividends declared during the current period, and the related subsequent event disclosures.
Cash Flows
Cash, cash equivalents, and restricted cash increased by $112.9$13.9 million and decreased by $55.3$75.7 million over the threesix months ended March 31, 2022andJune 30, 2022 and 2021, respectively. The net change in cash, cash equivalents, and restricted cash was attributable to the following:
| | | Three Months Ended March 31, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Cash flows (in thousands): | Cash flows (in thousands): | | | | Cash flows (in thousands): | | | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | $ | 336,125 | | | $ | (19,115) | | Net cash provided by (used in) operating activities | $ | 802,056 | | | $ | (25,451) | |
| Net cash used in investing activities | Net cash used in investing activities | (3,552) | | | (29,749) | | Net cash used in investing activities | (147,149) | | | (40,802) | |
| Net cash used in financing activities | Net cash used in financing activities | (219,700) | | | (6,404) | | Net cash used in financing activities | (641,021) | | | (9,429) | |
| Net increase (decrease) in cash and cash equivalents and restricted cash | Net increase (decrease) in cash and cash equivalents and restricted cash | $ | 112,873 | | | $ | (55,268) | | Net increase (decrease) in cash and cash equivalents and restricted cash | $ | 13,886 | | | $ | (75,682) | |
Operating Activities. The increase in net cash provided by operating activities for the threesix months ended March 31,June 30, 2022 compared to the prior year period was primarily attributable to the improvement in our results from operations as discussed above in “Results of Operations,” partially offset by changes in operating assets and liabilities, primarily attributable to an increase in our working capital. Our working capital increase was primarily driven by an increase in our trade accounts receivable, net, partially offset by an increase in our current federal and state income tax payable (refer to Note 12).net.
Investing Activities. The decreaseincrease in net cash used in investing activities for the threesix months ended March 31,June 30, 2022 compared to the prior year period was primarily driven by theincreases in our purchases of investment securities and capital expenditures, partially offset by an increase in the maturity of investment securities and decrease in our purchases of investment securities.
Financing Activities. The increase in net cash used in financing activities for the threesix months ended March 31,June 30, 2022 compared to the prior year period was primarily driven by the voluntary prepayments of our remaining outstanding principal borrowings under the Term Loan Credit Facility and the common stock repurchases under our share repurchase program during the current period (refer to Note 7 and Note 89 for further information).
Analysis of Material Debt Covenants
We are in compliance with all covenants under the Credit Agreement’s Term Loan Credit Facility and the ABL Agreement, as of March 31,June 30, 2022. A breach of the covenants in the Credit Agreement’s Term Loan Credit Facility or the ABL Agreement could result in a default under the terms of such agreement, and the respective lenders could then elect to declare all amounts borrowed due and payable.
Pursuant to the ABL Agreement, during any Liquidity Period (capitalized terms as defined in the ABL Agreement), our Fixed Charge Coverage Ratio cannot be less than 1.0 as of the last day of any Test Period, commencing with the Test Period ended immediately preceding the commencement of such Liquidity Period. The Fixed Charge Coverage Ratio is calculated as (a) Consolidated EBITDA of the Company and its Restricted Subsidiaries for such period, minus non-financed Capital Expenditures (including Capital Expenditures financed with the proceeds of any Loans) paid or payable currently in cash by the
Company or any of its Subsidiaries for such period to (b) the Fixed Charges of the Company and its Restricted Subsidiaries during such period. As of March 31,June 30, 2022, we were not in a Liquidity Period.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other factors and assumptions, including the current economic environment, that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis and adjust such estimates and assumptions as facts and circumstances require. Foreign currency and energy markets, and fluctuations in demand for steel products have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results may differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Our critical accounting policies are discussed in the“Critical Accounting Policies and Estimates” section contained in our Annual Report on Form 10-K for the year ended December 31, 2021. Our critical accounting policies remain unchanged at March 31,June 30, 2022. Refer to Note 1 for disclosures related to new accounting policies adopted.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
We manage our commodity price risk for coal sales through the use of coal supply agreements. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations” for information on our sales commitments for 2022.
We have exposure to commodity price risk for supplies that are used directly or indirectly in the normal course of production such as diesel fuel, steel and other items such as explosives. We manage our risk for these items through strategic sourcing contracts in normal quantities with our suppliers.
The market price of diesel fuel fluctuates due to changes in production, seasonality, and other market factors generally outside of our control. Increased fuel costs may have a negative impact on our results of operations and financial condition. Based upon our 2021 diesel fuel consumption (approximately 23.0 million gallons), a 10% increase in the average annual price per gallon of diesel fuel would have increased our annual diesel fuel expense by approximately $5.4 million. As of March 31,June 30, 2022, we had diesel fuel purchase commitments for 2022 as follows:
| | | | | | | | | | | | | | | | | |
| Budgeted Usage in Gallons (1) | | % Priced | | Average Realized Price per Gallon |
| Diesel fuel | 22.6 million | | 67.0 | % | | $2.81 | |
| | | | | | | | | | | | | | | | | |
| Budgeted Usage in Gallons (1) | | % Priced | | Average Realized Price per Gallon |
| Diesel fuel | 24.3 million | | 74.2 | % | | $2.99 | |
(1) Includes fixed price purchase agreements covering approximately 13.1 million gallons (57.9%(53.8% of expected 2022 usage).
Interest Rate Risk
WeAs of June 30, 2022, we do not have any outstanding variable rate borrowings with market risk exposure with respect to interest rates on variable rate borrowings. As of March 31, 2022, outstanding borrowings under our Term Loan Credit Facility have interest rates which may fluctuate based on changes in the market rates of interest.As of March 31, 2022, a 50 basis point increase or decrease in interest rates would not have impacted our annual interest expense as the LIBOR rate was well below the 2% floor established per terms in our Term Loan Credit Facility.rates. Refer to Note 89 for additional information. Also refer to the“Financial Statements and Supplementary Data—Note 14” section contained in our Annual Report on Form 10-K for the year ended December 31, 2021 for discussion on the terms of our long-term debt.
Foreign Currency Risk
Our transactions are denominated in U.S. dollars, and, as a result, we do not have material exposure to currency exchange-rate risks. However, our coal is sold internationally in U.S. dollars and, as a result, general economic conditions in foreign markets and changes in foreign currency exchange rates may provide our foreign competitors with a competitive advantage. If our competitors’ currencies decline against the U.S. dollar or against our foreign customers’ local currencies, those competitors may be able to offer lower prices for coal to customers. Furthermore, if the currencies of our overseas customers were to significantly decline in value in comparison to the U.S. dollar, those customers may seek decreased prices for the coal we sell to
them. Consequently, currency fluctuations could adversely affect the competitiveness of our coal in international markets, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision of our CEO and our CFO, the effectiveness of disclosure controls and procedures as of March 31,June 30, 2022. Based on this evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of March 31,June 30, 2022.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Disclosure Controls and Procedures
Our CEO, our CFO and other members of management do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Part II - Other Information
Item 1. Legal Proceedings
For a description of the Company’s legal proceedings, refer to Note 15,16, part (d), to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” section contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, together with the cautionary statement under the caption “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q. These described risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Dividends on our common stock are only payable if declared by the boardCompany’s Board of Directors (the “Board”) and permitted by Delaware law.
Dividends on our common stock will be paid only if declared by the board of directors.Board. The boardBoard is not legally obligated or required to declare dividends on our common stock even if we have funds available for that purpose. In addition, even if the boardBoard wishes to declare a dividend, we cannot make payments of cash in respect of dividends to the extent such payments are not permitted under Delaware law. If we do not declare and pay dividends on our common stock as expected, the market price of our common stock is likely to be adversely affected.
If our earnings and cash flow decline materially, we may be unable to continue to pay dividends on our common stock and/or execute our stockshare repurchase program as intended.
Our ability to pay dividends on our common stock and repurchase shares of common stock depends upon on our earnings and cash flows. If our earnings and cash flows were to decline materially, we may be unable to continue to pay dividends in the amounts previously paid, or at all. In addition, in such a circumstance, we may be unable to execute our stockshare repurchase program in part or as a whole.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Dividend Policy
$1.50 per share of common stock per year, with $0.375 per share paid each quarter. Refer to Note 1718 for subsequent event disclosures related to the Company’s dividend program announcement.including an increase to the declared cash dividend per share for the subsequent quarter. The holders of the Company’s common stock are entitled to receive such dividends, if any, when they are declared by the Company’s Board. Future dividends are subject to declaration by the Company’s Board and depend on Alpha’s future earnings and financial condition and other relevant factors. Refer to Note 7 for further information related to the Company’s dividend program.
Repurchase of Common Stock
The following table summarizes information about shares of common stock that were repurchased during the firstsecond quarter of 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In thousands) (2),(3),(4) |
| January 1, 2022 through January 31, 2022 | 24,574 | | | $ | 64.62 | | | — | | | $ | 67,552 | |
| February 1, 2022 through February 28, 2022 | 65,596 | | | $ | 86.88 | | | — | | | $ | 67,552 | |
| March 1, 2022 through March 31, 2022 | 133,501 | | | $ | 123.94 | | | 133,501 | | | $ | 201,009 | |
| 223,671 | | | | | 133,501 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In thousands) (1),(2),(3) |
| April 1, 2022 through April 30, 2022 | 149,483 | | | $ | 139.52 | | | 149,483 | | | $ | 180,154 | |
| May 1, 2022 through May 31, 2022 | 549,709 | | | $ | 152.94 | | | 549,709 | | | $ | 546,082 | |
| June 1, 2022 through June 30, 2022 | 476,669 | | | $ | 149.68 | | | 476,669 | | | $ | 474,732 | |
| 1,175,861 | | | | | 1,175,861 | | | |
(1) Includes 90,170 common shares repurchased from employees to satisfy the employees’ statutory tax withholdings upon the vesting of stock grants. Shares that are repurchased to satisfy the employees’ statutory tax withholdings are recorded in treasury stock at cost.
(2) On March 4, 2022, the Company’s board of directorsBoard adopted a share repurchase program with no expiration date that permits the Company to repurchase up to an aggregate amount of $150 million of the Company's common stock. On May 3, 2022, the Company’s Board amended the share repurchase program to increase the aggregate amount the Company is permitted to repurchase to an aggregate amount of up to $600 million of the Company's common stock. Refer to Note 7 for additional information. Refer to Note 17 for subsequent event disclosures related to the Company’s share repurchase program.
(3)(2) The Company adopted a capital return program in 2019, including a stock repurchase plan with no expiration date that permitted the Company to repurchase up to an aggregate amount of $100 million of the Company's common stock. The Company suspended this stock repurchase plan on October 1, 2019 and does not currently intend to make further repurchases under it.
(4)(3) We cannot estimate the number of shares that will be repurchased because decisions to purchase are subject to market and business conditions, levels of available liquidity, our cash needs, restrictions under agreements or obligations, legal or regulatory requirements or restrictions, and other relevant factors. This amount does not include $20$55 thousand of stock repurchase related fees.
Refer to Note 7 for information about repurchases related to warrants during the current quarter.
Item 4. Mine Safety Disclosures
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
Item 6. Exhibits
Refer to the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | ALPHA METALLURGICAL RESOURCES, INC. |
Date: May 5,August 8, 2022 | By: | /s/ Charles Andrew Eidson |
| | Name: | Charles Andrew Eidson |
| | Title: | President and Chief Financial Officer |
| | (Principal Financial Officer and Principal Accounting Officer) |
Exhibit Index
| | | | | |
| Exhibit No. | Description of Exhibit |
| 3.1 | |
| 3.2 | |
| 31* | |
| 32** | |
| 95* | |
| 101* | The following financial information from Alpha Metallurgical Resources, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31,June 30, 2022 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to the Condensed Consolidated Financial Statements. |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith
** Furnished herewith
