UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

or

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

For the transition period from                      to                      .

Commission file number: 1-13105

Arch Resources, Inc.

(Exact name of registrant as specified in its charter)

Delaware	43-0921172
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification Number)

One CityPlace Drive
Suite 300
St. Louis
Missouri	63141
(Address of principal executive offices)	(Zip code)
Registrant’s telephone number, including area code: (314) 994-2700 Arch Coal, Inc. (Former name, former address and former fiscal year, if changed since last report)

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

Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, $.01 par value	ARCH	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

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

At July 24, 2020 there were 15,146,224 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS

	Page
Part I FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	46
Item 4. Controls and Procedures	47
Part II OTHER INFORMATION	48
Item 1. Legal Proceedings	48
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 4. Mine Safety Disclosures	50
Item 6. Exhibits	51
Signatures	55

2

Part I

FINANCIAL INFORMATION

Item 1.Financial Statements.

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations

(in thousands, except per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
Revenues	$	319,521	$	570,222	$	724,753	$	1,125,405
Costs, expenses and other operating
Cost of sales (exclusive of items shown separately below)		316,348		451,088		691,347		889,559
Depreciation, depletion and amortization		30,167		26,535		61,475		51,873
Accretion on asset retirement obligations		4,986		5,137		9,992		10,274
Change in fair value of coal derivatives and coal trading activities, net		(129)		(8,400)		614		(21,381)
Selling, general and administrative expenses		19,738		25,209		42,483		49,298
Costs related to proposed joint venture with Peabody Energy		7,851		3,018		11,515		3,018
Severance costs related to voluntary separation plan		7,437		—		13,265		—
Gain on property insurance recovery related to Mountain Laurel longwall		(14,518)		—		(23,518)		—
(Gain) loss on divestitures		(1,369)		4,304		(1,369)		4,304
Other operating income, net		(5,704)		(3,239)		(11,874)		(4,889)
		364,807		503,652		793,930		982,056
Income (loss) from operations		(45,286)		66,570		(69,177)		143,349
Interest expense, net
Interest expense		(3,523)		(4,375)		(6,911)		(8,807)
Interest and investment income		1,793		2,088		3,052		4,231
		(1,730)		(2,287)		(3,859)		(4,576)
Income (loss) before nonoperating expenses		(47,016)		64,283		(73,036)		138,773
Nonoperating (expenses) income
Non-service related pension and postretirement benefit costs		(1,102)		(1,336)		(2,198)		(3,102)
Reorganization items, net		—		(16)		26		71
		(1,102)		(1,352)		(2,172)		(3,031)
Income (loss) before income taxes		(48,118)		62,931		(75,208)		135,742
Provision for (benefit from) income taxes		1,206		91		(585)		161
Net income (loss)	$	(49,324)	$	62,840	$	(74,623)	$	135,581
Net income (loss) per common share
Basic earnings per common share	$	(3.26)	$	3.80	$	(4.93)	$	7.97
Diluted earnings per common share	$	(3.26)	$	3.53	$	(4.93)	$	7.45
Weighted average shares outstanding
Basic weighted average shares outstanding		15,145		16,543		15,142		17,018
Diluted weighted average shares outstanding		15,145		17,781		15,142		18,190
Dividends declared per common share	$	—	$	0.45	$	0.50	$	0.90

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

3

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)					(Unaudited)
Net income (loss)	$	(49,324)	$	62,840	$	(74,623)	$	135,581
Derivative instruments
Comprehensive income (loss) before tax		363		(2,778)		(2,306)		(61)
Income tax benefit (provision)		—		—		—		—
		363		(2,778)		(2,306)		(61)
Pension, postretirement and other post-employment benefits
Comprehensive income (loss) before tax		(2,336)		2,902		(16,603)		2,902
Income tax benefit (provision)		—		—		—		—
		(2,336)		2,902		(16,603)		2,902
Available-for-sale securities
Comprehensive income (loss) before tax		533		274		66		651
Income tax benefit (provision)		—		—		—		—
		533		274		66		651
Total other comprehensive income (loss)		(1,440)		398		(18,843)		3,492
Total comprehensive income (loss)	$	(50,764)	$	63,238	$	(93,466)	$	139,073

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

4

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

	June 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	150,022	$	153,020
Short-term investments		67,237		135,667
Trade accounts receivable (net of $718 allowance at June 30, 2020)		118,835		168,125
Other receivables		2,960		21,143
Inventories		154,690		130,898
Other current assets		70,758		97,894
Total current assets		564,502		706,747
Property, plant and equipment, net		1,066,614		984,509
Other assets
Equity investments		106,125		105,588
Other noncurrent assets		65,148		70,912
Total other assets		171,273		176,500
Total assets	$	1,802,389	$	1,867,756
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	104,464	$	133,060
Accrued expenses and other current liabilities		143,304		157,167
Current maturities of debt		25,702		20,753
Total current liabilities		273,470		310,980
Long-term debt		323,854		290,066
Asset retirement obligations		238,883		242,432
Accrued pension benefits		13,875		5,476
Accrued postretirement benefits other than pension		86,772		80,567
Accrued workers’ compensation		219,095		215,599
Other noncurrent liabilities		98,658		82,100
Total liabilities		1,254,607		1,227,220
Stockholders' equity
Common stock, $0.01 par value, authorized 300,000 shares, issued 25,235 and 25,220 shares at June 30, 2020 and December 31, 2019, respectively		252		252
Paid-in capital		739,156		730,551
Retained earnings		648,909		731,425
Treasury stock, 10,088 shares at June 30, 2020 and December 31, 2019, respectively, at cost		(827,381)		(827,381)
Accumulated other comprehensive income (loss)		(13,154)		5,689
Total stockholders’ equity		547,782		640,536
Total liabilities and stockholders’ equity	$	1,802,389	$	1,867,756

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

5

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six Months Ended June 30,
	2020		2019
		(Unaudited)
Operating activities
Net income (loss)	$	(74,623)	$	135,581
Adjustments to reconcile to cash from operating activities:
Depreciation, depletion and amortization		61,475		51,873
Accretion on asset retirement obligations		9,992		10,274
Deferred income taxes		13,880		13,385
Employee stock-based compensation expense		8,936		11,473
Gains on disposals and divestitures, net		(3,180)		(1,415)
Amortization relating to financing activities		1,946		1,826
Gain on property insurance recovery related to Mountain Laurel longwall		(23,518)		—
Changes in:
Receivables		55,817		17,871
Inventories		(23,792)		(47,370)
Accounts payable, accrued expenses and other current liabilities		(42,889)		4,497
Income taxes, net		22,918		24,575
Other		18,960		3,336
Cash provided by operating activities		25,922		225,906
Investing activities
Capital expenditures		(148,561)		(87,854)
Minimum royalty payments		(1,124)		(1,125)
Proceeds from disposals and divestitures		562		1,591
Purchases of short term investments		(17,707)		(89,454)
Proceeds from sales of short term investments		86,079		90,424
Investments in and advances to affiliates, net		(1,059)		(3,275)
Proceeds from property insurance recovery related to Mountain Laurel longwall		23,518		—
Cash used in investing activities		(58,292)		(89,693)
Financing activities
Payments on term loan due 2024		(1,500)		(1,500)
Proceeds from equipment financing		53,611		—
Net payments on other debt		(13,592)		(8,845)
Debt financing costs		(1,171)		—
Dividends paid		(7,645)		(15,264)
Purchases of treasury stock		—		(143,142)
Payments for taxes related to net share settlement of equity awards		(331)		—
Other		—		30
Cash provided by (used in) financing activities		29,372		(168,721)
Decrease in cash and cash equivalents, including restricted cash		(2,998)		(32,508)
Cash and cash equivalents, including restricted cash, beginning of period		153,020		264,937
Cash and cash equivalents, including restricted cash, end of period	$	150,022	$	232,429
Cash and cash equivalents, including restricted cash, end of period
Cash and cash equivalents	$	150,022	$	232,429
Restricted cash		—		—
	$	150,022	$	232,429

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

6

Arch Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

							Treasury		Accumulated Other
	Common		Paid-In				Stock at		Comprehensive
	Stock		Capital		Retained Earnings		Cost		Income (loss)		Total
	(In thousands)
Balances, January 1, 2020	$	252	$	730,551	$	731,425	$	(827,381)	$	5,689	$	640,536
Dividends on common shares ($0.50/share)		—		—		(7,834)		—		—		(7,834)
Total comprehensive income (loss)		—		—		(25,299)		—		(17,403)		(42,702)
Employee stock-based compensation		—		3,962		—		—		—		3,962
Common stock withheld related to net share settlement of equity awards		—		(198)		—		—		—		(198)
Balances at March 31, 2020	$	252	$	734,315	$	698,292	$	(827,381)	$	(11,714)	$	593,764
Total comprehensive income		—		—		(49,324)		—		(1,440)		(50,764)
Employee stock-based compensation		—		4,891		—		—		—		4,891
Common stock withheld related to net share settlement of equity awards		—		(50)		—		—		—		(50)
Dividend Equivalents earned on RSU grants		—		—		(59)		—		—		(59)
Balances at June 30, 2020	$	252	$	739,156	$	648,909	$	(827,381)	$	(13,154)	$	547,782

Balances, January 1, 2019	$	250	$	717,492	$	527,666	$	(583,883)	$	43,296	$	704,821
Dividends on common shares ($0.45/share)		—		—		(8,111)		—		—		(8,111)
Total comprehensive income		—		—		72,741		—		3,094		75,835
Employee stock-based compensation		—		5,651		—		—		—		5,651
Purchase of 872,317 shares of common stock under share repurchase program		—		—		—		(78,249)		—		(78,249)
Balances at March 31, 2019	$	250	$	723,143	$	592,296	$	(662,132)	$	46,390	$	699,947
Dividends on common shares ($0.45/share)		—		—		(7,696)		—		—		(7,696)
Total comprehensive income		—		—		62,840		—		398		63,238
Employee stock-based compensation		—		5,822		—		—		—		5,822
Purchase of 697,255 shares of common stock under share repurchase program		—		—		—		(63,392)		—		(63,392)
Warrants exercised		—		31		—		—		—		31
Balances at June 30, 2019	$	250	$	728,996	$	647,440	$	(725,524)	$	46,788	$	697,950

7

Arch Resources, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and U.S. Securities and Exchange Commission regulations. In the opinion of management, all adjustments, consisting of normal, recurring accruals considered necessary for a fair presentation, have been included. Results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020. These financial statements should be read in conjunction with the audited financial statements and related notes as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission.

Effective May 15, 2020, Arch Coal, Inc. announced that its name changed to Arch Resources, Inc.

2. Accounting Policies

Recently Adopted Accounting Guidance

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05. The standard modifies the measurement approach for credit losses on financial instruments, including trade receivables, from an incurred loss method to a current expected credit loss method, otherwise known as “CECL.” The standard requires the measurement of expected credit losses to be based on relevant information, including historical experience, current conditions and a forecast that is supportable. The Company adopted the standard in the first quarter of 2020, with minimal impact to the Company’s financial results.

As part of the adoption, the Company reviewed its’ portfolio of available-for-sale debt securities in an unrealized loss position, and assessed whether it intends to sell, or it is more likely than not that it will be required to sell before recovery of its’ amortized cost basis. The Company determined that is currently does not intend to sell these securities before recovery of their amortized cost basis. Additionally, the Company evaluated whether the decline in fair value has resulted from credit losses or other factors by considering the extent to which the fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the Company compares the present value of the cash flows expected to be collected against the amortized cost basis. A credit loss is recorded if the present value of the cash flows is less than the amortized cost basis, limited by the amount that the fair value is less than the amortized cost basis. Upon adoption, the Company did not record an allowance for credit losses on its available-for-sale debt securities.

Additionally, the Company reviewed its open trade receivables arising from contractual coal sales. As part of its analysis, the Company performs periodic credit reviews of all active customers, reviews all trade receivables greater than 90 days past due, calculates historical loss rates and reviews current payment trends of all customers.

8

Recent Accounting Guidance Issued Not Yet Effective

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.” ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU is effective for public companies for fiscal years beginning after December 15, 2020, and interim periods therein with early adoption permitted. The Company is reviewing the provisions of the standard but does not expect a significant impact to the Company's financial statements.

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

3. Joint Venture with Peabody Energy

On June 18, 2019, Arch Coal, Inc. (now Arch Resources) entered into a definitive implementation agreement (the “Implementation Agreement”) with Peabody Energy Corporation (“Peabody”), to establish a joint venture that will combine the respective Powder River Basin and Colorado mining operations of Arch Resources and Peabody. Pursuant to the terms of the Implementation Agreement, Arch Resources will hold a 33.5% economic interest, and Peabody will hold a 66.5% economic interest in the joint venture. At the closing of the joint venture transaction, certain of the respective subsidiaries of Arch Resources and Peabody will enter into an Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”). Under the terms of the LLC Agreement, the governance of the joint venture will be overseen by the joint venture’s board of managers, which will initially be comprised of three representatives appointed by Peabody and two representatives appointed by Arch. Decisions of the board of managers will be determined by a majority vote subject to certain specified matters set forth in the LLC Agreement that will require a supermajority vote. Peabody, or one of its affiliates, will initially be appointed as the operator of the joint venture and will manage the day-to-day operations of the joint venture, subject to the supervision of the joint venture’s board of managers.

Formation of the joint venture is subject to customary closing conditions, including the termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the receipt of certain other required regulatory approvals and the absence of injunctions or other legal restraints preventing the formation of the joint venture. Formation of the joint venture does not require approval of the respective stockholders of either Arch or Peabody.

On February 26, 2020, the Federal Trade Commission (“FTC”) filed an administrative complaint challenging the proposed joint venture alleging the transaction will eliminate competition between Arch Resources and Peabody, the two major competitors in the market for thermal coal in the Southern Powder River Basin and the two largest coal-mining companies in the United States. The FTC filed a temporary restraining order and preliminary injunction in the U.S. District Court for the Eastern District of Missouri, to maintain the status quo pending an administrative trial on the merits.

Between July 14 and July 23, 2020, the federal court in St. Louis conducted an evidentiary hearing, during which both sides further presented their evidence and arguments. Closing arguments are scheduled to take place on August 10, 2020 and a ruling on the FTC’s motion for preliminary injunction is expected by the end of the third quarter 2020.

The Company has incurred expenses of $7.9 million and $11.5 million for the three and six months ended June 30, 2020, respectively, associated with the regulatory approval process related to the joint venture. Costs of $3.0 million were incurred for both the three and six months ended June 30, 2019.

9

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

The Company recorded a $14.5 million and $23.5 million gain related to a property insurance recovery on the longwall shields at its Mountain Laurel operation during the three and six months ended June 30, 2020, respectively. As a result of geologic conditions in the final longwall panel, Mountain Laurel was unable to recover 123 of the longwall system’s 176 hydraulic shields. All of the cash associated with the insurance recovery was received by the end of the quarter.

5. Severance Costs Related To Voluntary Separation Plan

The Company recorded $7.4 million and $13.3 million of employee severance expense related to a voluntary separation plan during the three and six months ended June 30, 2020, respectively. During the first and second quarters of 2020, 53 members of the corporate staff and 201 employees from the Company’s thermal operations accepted the voluntary separation package.

6. Divestitures

During the quarter, various Dal-Tex and Briar Branch properties in West Virginia were sold to Condor Holdings, LLC. No consideration was received for the sale and a gain of $1.4 million was recorded representing the net liabilities sold.

On September 14, 2017, the Company sold Lone Mountain Processing, LLC and two idled mining companies, Cumberland River Coal LLC and Powell Mountain Energy LLC to Revelation Energy LLC, and recorded a gain on the transaction in that year of $21.3 million. Under the terms of the purchase agreement, Revelation assumed certain traumatic workers compensation claims and pneumoconiosis (occupational disease) benefits. On July 1, 2019, Blackjewel LLC and four affiliates, including Revelation Energy LLC filed for Chapter 11 bankruptcy. As a result of the bankruptcy, the Company recorded a $4.3 million charge for these claims as of June 30, 2019.

10

7. Accumulated Other Comprehensive Income (Loss)

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

			Pension,
			Postretirement				Accumulated
			and Other Post-				Other
	Derivative		Employment		Available-for-		Comprehensive
	Instruments		Benefits		Sale Securities		Income (loss)
	(In thousands)
Balance at December 31, 2019	$	(2,564)	$	8,273	$	(20)	$	5,689
Unrealized losses		(2,974)		(15,953)		206		(18,721)
Amounts reclassified from AOCI		668		(650)		(140)		(122)
Balance at June 30, 2020	$	(4,870)	$	(8,330)	$	46	$	(13,154)

The following amounts were reclassified out of AOCI:

	Three Months Ended June 30,				Six Months Ended June 30,				Line Item in the Condensed Consolidated
Details About AOCI Components	2020		2019		2020		2019		Statement of Operations
	(In thousands)
Coal hedges	$	196	$	1,743	$	196	$	2,104	Revenues
Interest rate hedges		(648)		514		(864)		1,029	Interest expense
		—		—		—		—	Provision for (benefit from) income taxes
	$	(452)	$	2,257	$	(668)	$	3,133	Net of tax
Pension, postretirement and other post-employment benefits
Amortization of actuarial gains (losses), net	$	232	$	—	$	466	$	—	Non-service related pension and postretirement benefit (costs) credits
Amortization of prior service credits		27		—		54		—	Non-service related pension and postretirement benefit (costs) credits
Pension settlement		134		429		130		429	Non-service related pension and postretirement benefit (costs) credits
		—		—		—		—	Provision for (benefit from) income taxes
	$	393	$	429	$	650	$	429	Net of tax
Available-for-sale securities	$	141	$	15	$	140	$	15	Interest and investment income
		—		—		—		—	Provision for (benefit from) income taxes
	$	141	$	15	$	140	$	15	Net of tax

11

8. Inventories

Inventories consist of the following:

	June 30,		December 31,
	2020		2019
	(In thousands)
Coal	$	67,702	$