Item 7. 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 years ended December 31, 2020 and 2019. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes and the risk factors included elsewhere in this Annual Report on Form 10-K.
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 our business, results of operations, financial condition and cash flows. A continued period of reduced demand for our products could have additional significant adverse consequences for us. 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 and spread of the outbreak, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which are still uncertain and cannot be fully predicted at this time.
Our current view of the impacts of COVID-19 to our customers and suppliers is discussed below in the Market Overview section. Additionally, refer to Note 1 for further discussion of the COVID-19 pandemic impacts to our business and Note 8 for discussion of certain strategic actions announced during the second quarter of 2020 with respect to two of our thermal coal mining complexes in an effort to strengthen our financial performance.
All of our coal mining operations have been classified as essential in the states in which we operate. Health and safety are core values of our company and are the foundation for how we manage every aspect of our business and we have therefore implemented policies, procedures and prevention measures to protect our employees during the COVID-19 pandemic. These policies, procedures and prevention measures include, but are not limited to, employee communications on COVID-19 monitoring and precautionary measures, enhanced cleaning and sterilization practices, limiting contractor access to our properties, limiting business travel, implementing social distancing measures by staggering shift times, limiting in-person meetings and meeting sizes, and remote work arrangements. We will continue to evaluate these policies, procedures and precautionary measures for further enhancements as necessary.
We have not experienced significant supply chain disruptions due the COVID-19 pandemic.
We will continue to monitor these developments closely.
Market Overview
After a challenging COVID-19-afflicted 2020, the Australian metallurgical coal market, despite the recent pullback, has shown meaningful improvement in 2021, with the Australian premium hard coking coal index increasing 22% to $125 per metric ton in February since the end of 2020 and up nearly 30% since the lows of mid-November. The Atlantic High-Vol A indices have also performed well after reaching a low of $105 in mid-August. The current February High-Vol A index of $153 per metric ton represents a 46% improvement over that period.
Global manufacturing and industrial production are continuing to show growth in all regions with the manufacturing Purchasing Managers’ Indices (“PMI”) above 50.0 in the U.S., Europe, Brazil, India, and China, which is showing the most moderate growth among the major producers at 50.9 in January.
According to the World Steel Association (“WSA”), December 2020 crude steel production increased compared to the same prior year period in most producing regions. The overall global growth of 5.8% was driven mainly by China and Europe, which grew 7.7% and 10.2% in December, respectively. For the full year 2020, the global crude steel production declined less than 1%, led by declines in North America and Europe. South America, driven by Brazil, exhibited the strongest growth of any
major region, growing 16.3% in December. Turkey posted one of the most impressive growth rates in December and for the full year 2020, with crude steel production growing 17.7% and 6.0%, respectively.
We concluded our 2021 domestic metallurgical contracts during the fourth quarter. In total, we expect to sell approximately 14 million tons from our Met reportable segment in 2021. Coking coal prices have risen from their recent multi-year lows. Trade tensions between Australia and China forced Australian coal producers to sell at weaker prices and encouraged them to divert and re-sell cargoes away from China into other markets. These actions have opened the door for some North American coking coal producers to ship coal to China at higher netbacks than could be achieved in Atlantic Basin markets. In addition, we see demand improving in other Atlantic Basin and global markets. At this time, we are also seeing increasing spot interest from both domestic and seaborne customers and prospective customers which has resulted in an increase in shipments. In connection with the company’s strategic focus on optimizing metallurgical coal production, we continue striving to match our available products and production with customer demand.
On the thermal side, as of the end of December, natural gas prices had not achieved the previously forecasted levels. Since that time, severe weather has resulted in high consumer electricity demand and lower production, causing stress to the energy system in parts of the U.S. Natural gas inventories are poised to drop to the five-year average for the first time since the end of 2019. Central Appalachian thermal coal burns for our customers have not yet been significantly impacted by the fluctuations in natural gas prices, but we have seen increased demand associated with the recent severe weather. Internationally, Europe and Asia have also experienced severe weather, supply disruptions, reductions in coal capacity, and high carbon prices limiting opportunities for US coal. Increased ESG pressures are forcing expedited closure of coal units, domestically and abroad. US thermal coal producers are continuing to reduce investment in thermal coal. At our thermal coal operations, we have significantly reduced inventories at all locations, and are matching our sales and production to make for an orderly transition to lower thermal coal production.
As Alpha enters 2021, we continue to evaluate market conditions for our metallurgical coal products amid residual uncertainty attributable to the continued concern around the COVID-19 pandemic. The impact the pandemic may have on demand continues to make customer demand forecasts challenging. Depending on the extent and timing of global and national economic stabilization and recovery, our ability to estimate future customer coal demand remains limited.
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 are a leading U.S. supplier of metallurgical products for the steel industry. We operate high-quality, cost-competitive coal mines across the CAPP coal basin. As of December 31, 2020, our operations consisted of twenty-three active mines and eight coal preparation and load-out facilities, with approximately 3,250 employees. We produce, process, and sell met coal and thermal coal from operations located in Virginia and West Virginia. 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, 2020, we had 623.5 million tons of reserves, including 445.0 million tons of proven reserves and 178.5 million tons of probable reserves.
We began operations on July 26, 2016, with mining operations in NAPP, CAPP, and the PRB. Through the Acquisition, we acquired a significant reserve base. We also acquired Alpha Natural Resources Inc.’s 40.6% interest in the DTA coal export terminal in eastern Virginia, and on March 31, 2017, we acquired a portion of another partner’s ownership stake and increased our interest to 65.0%. We merged with Alpha Natural Resources Holdings, Inc. and ANR, Inc. on November 9, 2018.
On December 8, 2017, the Company closed a transaction to sell the Eagle Butte and Belle Ayr mines located in the PRB, Wyoming, along with related coal reserves, equipment, infrastructure and other real properties. Refer to Note 3 for information related to Blackjewel’s subsequent bankruptcy filing and the related ESM Transaction. On December 10, 2020, we closed on a transaction with Iron Senergy Holdings, LLC, to sell our thermal coal mining operations located in Pennsylvania consisting primarily of our Cumberland mining complex and related property (our former NAPP operations). This transaction accelerated our strategic exit from thermal coal production to shift our focus toward met coal production. The former PRB and NAPP operations results of operations and financial position are reported as discontinued operations in the Consolidated Financial Statements. The historical information in the accompanying Notes to the Consolidated Financial Statements has been restated to reflect the effects of these former operations being reported as discontinued operations in the Consolidated Financial Statements. Refer to Note 3 for further information on discontinued operations.
For the years ended December 31, 2020 and 2019, sales of met coal were 12.3 million tons and 12.7 million tons, respectively, and accounted for approximately 80% and 74%, respectively, of our coal sales volume. Sales of thermal coal were
3.2 million tons and 4.5 million tons, respectively, and accounted for approximately 20% and 26%, 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 Europe, Asia and the Americas. Our sales of thermal coal were made primarily to large utilities and industrial customers throughout the United States. For the years ended December 31, 2020 and 2019 approximately 64% and 61%, respectively, of our 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 December 31, 2020, we have two reportable segments: Met and CAPP - Thermal. To conform to the current period reportable segments presentation, the prior periods have been restated to reflect the change in reportable segments. Refer to Note 25 for additional disclosures on reportable segments including export coal revenue information.
Other Business Developments
Effective February 1, 2021, we changed our corporate name from Contura Energy, Inc. to Alpha Metallurgical Resources, Inc. for rebranding to more accurately reflect our strategic focus on the production of met coal. Following the effectiveness of our name change, our ticker symbol on the New York Stock Exchange changed from “CTRA” to “AMR” effective on February 4, 2021.
During the third quarter of 2020, we joined three other regional coal producers to restructure and expand the Virginia Coal & Energy Alliance to now be named the Metallurgical Coal Producers Association (“MCPA”) focusing on issues specific to the U.S.’s metallurgical coal industry. Additionally, the MCPA will focus on our regional presence by combining forces to advance collective interests.
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 March 11, 2021, we have sales commitments as follows:
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2021
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Tons
|
|
% Priced
|
|
Average Realized Price per Ton
|
Met
|
14.0 million
|
|
56
|
%
|
|
$80.68
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|
CAPP - Thermal
|
1.5 million
|
|
100
|
%
|
|
$57.57
|
|
Due to the significant uncertainty in the worldwide coal markets due to COVID-19, there is risk of reduction in future shipments due to deferrals and utilization of force majeure clauses in customer contracts.
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.
•Coal Quality. The energy content or heat value of thermal coal is a significant factor influencing coal prices as higher energy coal is more desirable to consumers and typically commands a higher price in the market. The heat value of coal is commonly measured in British thermal units or the amount of heat needed to raise the temperature of one pound of water by one-degree Fahrenheit. Coal from the Eastern and Midwest regions of the United States tends to have a higher heat value than coal found in the western United States. Coal volatility is a significant factor influencing met coal pricing as coal with a lower volatility has historically been more highly valued and typically commands a higher price in the market. The volatility refers to the loss in mass, less moisture, when coal is heated in the absence of air. The volatility of met coal determines the percentage of feed coal that becomes coke, known as coke yield, with lower volatility producing a higher coke yield.
•Market Conventions. Coal sales contracts are priced according to conventions specific to the market into which such coal is to be sold. Our domestic sales contracts are typically priced free on board (“FOB”) at our mines and on a short ton basis. Our international sales contracts are typically priced FOB at the shipping port from which such coal is delivered and on a metric ton basis. Accordingly, for international sales contracts, we typically bear the cost of transportation from our mines to the applicable outbound shipping port, and our coal sales realization per ton calculation reflects the conversion of such tonnage from metric tons into short tons, as well as the elimination of the freight and handling fulfillment component of coal sales revenue. In addition, for domestic sales contracts, as customers typically bear the cost of transportation from our mines, our operations located further away from the end user of the coal may command lower prices.
•Regional Supply and Demand. Our realized price per ton is influenced by market forces of the regional market into which such coal is to be sold. Market pricing may vary according to region and lead to different discounts or premiums to the most directly comparable benchmark price for such coal product.
Costs. Our results of operations are dependent upon our ability to improve productivity and control costs. Our primary expenses are for operating supply costs, repair and maintenance expenditures, cost of purchased coal, royalties, current wages and benefits, post-employment 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 structure, 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 years ended December 31, 2020 and 2019 are discussed in these “Results of Operations” presented below.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Revenues
The following table summarizes information about our revenues during the years ended December 31, 2020 and 2019:
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Year Ended December 31,
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Increase (Decrease)
|
(In thousands, except for per ton data)
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2020
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|
2019
|
|
$ or Tons
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|
%
|
Coal revenues
|
$
|
1,413,124
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|
|
$
|
1,995,934
|
|
|
$
|
(582,810)
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|
|
(29.2)
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%
|
Other revenues
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3,063
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|
|
5,346
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|
|
(2,283)
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|
|
(42.7)
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%
|
Total revenues
|
$
|
1,416,187
|
|
|
$
|
2,001,280
|
|
|
$
|
(585,093)
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|
|
(29.2)
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%
|
|
|
|
|
|
|
|
|
Tons sold
|
15,513
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|
|
17,152
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|
|
(1,639)
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|
|
(9.6)
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%
|
Coal revenues. Coal revenues decreased $582.8 million, or 29.2%, for the year ended December 31, 2020 compared to the prior year period. The decrease was primarily due to lower total overall coal sales volume and lower coal sales realization within our Met operations as a result of a weaker pricing environment impacted by the COVID-19 pandemic. Refer to the Coal Operations section below for further detail on coal revenues for the year ended December 31, 2020 compared to the prior year period.
Cost and Expenses
The following table summarizes information about our costs and expenses during the years ended December 31, 2020 and 2019:
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|
Year Ended December 31,
|
|
Increase (Decrease)
|
(In thousands)
|
2020
|
|
2019
|
|
$
|
|
%
|
Cost of coal sales (exclusive of items shown separately below)
|
$
|
1,281,011
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|
|
$
|
1,667,768
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|
|
$
|
(386,757)
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|
|
(23.2)
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%
|
Depreciation, depletion and amortization
|
139,885
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|
|
215,757
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|
|
(75,872)
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|
|
(35.2)
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%
|
Accretion on asset retirement obligations
|
26,504
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|
|
23,865
|
|
|
2,639
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|
|
11.1
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%
|
Amortization of acquired intangibles, net
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9,214
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|
|
(3,189)
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|
|
12,403
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|
|
388.9
|
%
|
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)
|
57,356
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|
|
78,953
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|
|
(21,597)
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|
(27.4)
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%
|
Merger-related costs
|
—
|
|
|
1,090
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|
|
(1,090)
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|
|
(100.0)
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%
|
Asset impairment and restructuring
|
83,878
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|
|
66,324
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|
|
17,554
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|
|
26.5
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%
|
Goodwill impairment
|
—
|
|
|
124,353
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|
|
(124,353)
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|
|
(100.0)
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%
|
Total other operating income:
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|
|
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|
|
Mark-to-market adjustment for acquisition-related obligations
|
(8,750)
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|
|
(3,564)
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|
|
(5,186)
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|
|
(145.5)
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%
|
Other income
|
(2,223)
|
|
|
(974)
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|
|
(1,249)
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|
|
(128.2)
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%
|
Total costs and expenses
|
$
|
1,586,875
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|
|
$
|
2,170,383
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|
|
$
|
(583,508)
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|
|
(26.9)
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%
|
Cost of coal sales. Cost of coal sales decreased $386.8 million, or 23.2%, for the year ended December 31, 2020 compared to the prior year period. The decrease was primarily driven by a decrease in tons sold in the current period relative to the prior year period and decreased costs of purchased coal, salaries and wages expense, and supplies and maintenance expense as we continue to improve our cost management to achieve operational efficiencies, partially offset by inventory change during the current period.
Depreciation, depletion and amortization. Depreciation, depletion and amortization decreased $75.9 million, or 35.2%, for the year ended December 31, 2020 compared to the prior year period. The decrease in depreciation, depletion and amortization primarily related to asset impairments and revisions to asset retirement obligations during the current period.
Accretion on asset retirement obligations. Accretion on asset retirement obligations increased $2.6 million, or 11.1%, for the year ended December 31, 2020 compared to the prior year period. This increase was primarily driven by an increase in our credit-adjusted risk-free rate used to discount the obligations relative to the prior period.
Amortization of acquired intangibles, net. Amortization of acquired intangibles, net increased $12.4 million, or 388.9%, for the year ended December 31, 2020 compared to the prior year period. The increase was primarily driven by the lower current period amortization related to below-market acquired coal supply agreements.
Selling, general and administrative. Selling, general and administrative expenses decreased $21.6 million, or 27.4%, for the year ended December 31, 2020 compared to the prior year period. This decrease in expense was primarily related to decreases of $6.5 million in severance expense, $5.8 million in wages and benefits expense, $4.8 million in stock compensation expense, and $4.4 million in professional fees, partially offset by an increase of $2.8 million in incentive pay.
Asset impairment and restructuring. Asset impairment and restructuring increased $17.6 million, or 26.5%, for the year ended December 31, 2020 compared to the prior year period. Asset impairment and restructuring for the year ended December 31, 2020 includes long-lived asset impairments of $81.0 million related to asset groups recorded within the Met and CAPP - Thermal reporting segments and restructuring expense of $2.9 million recorded in CAPP - Thermal and All Other reporting segments. Asset impairment and restructuring for the year ended December 31, 2019 includes a long-lived asset impairment of $60.2 million related to asset groups recorded within the Met and CAPP - Thermal reporting segments and an asset impairment of $6.2 million primarily related to the write-off of prepaid purchased coal as a result of Blackjewel’s Chapter 11 bankruptcy filing on July 1, 2019. Refer to Note 8 for further information.
Mark-to-market adjustment for acquisition-related obligations. The mark-to-market adjustment for acquisition-related obligations resulted in an increase to income of $5.2 million for the year ended December 31, 2020 compared to the adjustment in the prior year period. This increase was related to changes in underlying fair value assumptions during the current period. Refer to Note 18 for Contingent Revenue Obligation fair value input assumptions.
Other (Expense) Income
The following table summarizes information about our other (expense) income during the year ended December 31, 2020 and 2019:
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|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Increase (Decrease)
|
(In thousands)
|
2020
|
|
2019
|
|
$
|
|
%
|
Other (expense) income:
|
|
|
|
|
|
|
|
Interest expense
|
$
|
(74,528)
|
|
|
$
|
(67,521)
|
|
|
$
|
(7,007)
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|
|
(10.4)
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%
|
Interest income
|
7,027
|
|
|
7,247
|
|
|
(220)
|
|
|
(3.0)
|
%
|
Loss on modification and extinguishment of debt
|
—
|
|
|
(26,459)
|
|
|
26,459
|
|
|
100.0
|
%
|
Equity loss in affiliates
|
(3,473)
|
|
|
(6,874)
|
|
|
3,401
|
|
|
49.5
|
%
|
Miscellaneous loss, net
|
(1,972)
|
|
|
(10,195)
|
|
|
8,223
|
|
|
80.7
|
%
|
Total other expense, net
|
$
|
(72,946)
|
|
|
$
|
(103,802)
|
|
|
$
|
30,856
|
|
|
29.7
|
%
|
Interest expense. Interest expense increased $7.0 million, or 10.4%, for the year ended December 31, 2020 compared to the prior year period, primarily due to an increase in debt outstanding and higher interest rates related to the debt facilities in place during the current period. Additionally, there were higher letters of credit fees due to higher letters of credit outstanding under the Amended and Restated Asset-Based Revolving Credit Agreement during the current period. Refer to Note 15 for additional information.
Loss on modification and extinguishment of debt. During the year ended December 31, 2019, we recorded a loss on modification of debt of $0.3 million, primarily related to modification fees paid under the refinance, and a loss on extinguishment of debt of $26.2 million, primarily related to the write-off of outstanding debt discounts and unamortized debt issuance costs under the Amended and Restated Credit Agreement dated November 9, 2018. Refer to Note 15 for additional information.
Miscellaneous loss, net. Miscellaneous loss, net decreased $8.2 million, or 80.7%, for the year ended December 31, 2020 compared to the prior year period, primarily due to the decrease in pension obligation net periodic benefit costs due to lower settlement charges and interest costs during the current period. Refer to Note 20 for additional information.
Income Tax Benefit
The following table summarizes information about our income tax benefit during the years ended December 31, 2020 and 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Increase (Decrease)
|
(In thousands)
|
2020
|
|
2019
|
|
$
|
|
%
|
Income tax benefit
|
$
|
2,164
|
|
|
$
|
53,287
|
|
|
$
|
(51,123)
|
|
|
(95.9)
|
%
|
Income taxes. Income tax benefit of $2.2 million was recorded for the year ended December 31, 2020 on a loss from continuing operations before income taxes of $243.6 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to the increase in the valuation allowance, partially offset by the permanent impact of percentage depletion deductions, the impact of state income taxes, net of federal tax impact, and a refund of previously sequestered AMT Credits.
Income tax benefit of $53.3 million was recorded for the year ended December 31, 2019 on a loss from continuing operations before income taxes of $272.9 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to the impact of state income taxes, net of federal impact, the net operating loss carryback benefit, and the permanent impact of the percentage depletion deduction, mostly offset by the impact of the non-deductible goodwill impairment and the increase in the valuation allowance. Refer to Note 19 for additional information.
Coal Operations
Our Met operations consist of high-quality met coal mines, including Deep Mine 41, Road Fork 52, Black Eagle, and Lynn Branch. The coal produced by Met operations is predominantly met coal with some amounts of thermal coal being produced as a byproduct of mining.
Our CAPP - Thermal operations consist of one underground thermal coal mine. The coal produced by CAPP - Thermal operations is predominantly thermal coal with some met coal byproduct.
Our All Other category is not included in our Coal Operations results of operations as it includes general corporate overhead and corporate assets and liabilities and the elimination of certain intercompany activity.
Refer to Item 1. Business and Notes 24 and 25 for additional financial information about reportable segments and geographic areas.
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,” 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. 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, idled and closed mine costs and coal inventory acquisition accounting impacts. 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 years ended December 31, 2020 and 2019:
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|
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|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
(In thousands, except for per ton data)
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Coal revenues
|
$
|
1,263,855
|
|
|
$
|
148,880
|
|
|
$
|
389
|
|
|
$
|
1,413,124
|
|
Less: Freight and handling fulfillment revenues
|
(206,509)
|
|
|
(12,940)
|
|
|
—
|
|
|
(219,449)
|
|
Non-GAAP Coal revenues
|
$
|
1,057,346
|
|
|
$
|
135,940
|
|
|
$
|
389
|
|
|
$
|
1,193,675
|
|
Tons sold
|
13,070
|
|
|
2,437
|
|
|
6
|
|
|
15,513
|
|
Non-GAAP Coal sales realization per ton
|
$
|
80.90
|
|
|
$
|
55.78
|
|
|
$
|
64.83
|
|
|
$
|
76.95
|
|
|
|
|
|
|
|
|
|
Cost of coal sales (exclusive of items shown separately below)
|
$
|
1,140,556
|
|
|
$
|
136,944
|
|
|
$
|
3,511
|
|
|
$
|
1,281,011
|
|
Depreciation, depletion and amortization - production (1)
|
124,060
|
|
|
20,453
|
|
|
(5,885)
|
|
|
138,628
|
|
Accretion on asset retirement obligations
|
14,214
|
|
|
9,285
|
|
|
3,005
|
|
|
26,504
|
|
Amortization of acquired intangibles, net
|
12,889
|
|
|
(3,775)
|
|
|
100
|
|
|
9,214
|
|
Total Cost of coal sales
|
$
|
1,291,719
|
|
|
$
|
162,907
|
|
|
$
|
731
|
|
|
$
|
1,455,357
|
|
Less: Freight and handling costs
|
(206,509)
|
|
|
(12,940)
|
|
|
—
|
|
|
(219,449)
|
|
Less: Depreciation, depletion and amortization - production (1)
|
(124,060)
|
|
|
(20,453)
|
|
|
5,885
|
|
|
(138,628)
|
|
Less: Accretion on asset retirement obligations
|
(14,214)
|
|
|
(9,285)
|
|
|
(3,005)
|
|
|
(26,504)
|
|
Less: Amortization of acquired intangibles, net
|
(12,889)
|
|
|
3,775
|
|
|
(100)
|
|
|
(9,214)
|
|
Less: Idled and closed mine costs
|
(16,640)
|
|
|
(8,973)
|
|
|
(3,267)
|
|
|
(28,880)
|
|
Non-GAAP Cost of coal sales
|
$
|
917,407
|
|
|
$
|
115,031
|
|
|
$
|
244
|
|
|
$
|
1,032,682
|
|
Tons sold
|
13,070
|
|
|
2,437
|
|
|
6
|
|
|
15,513
|
|
Non-GAAP Cost of coal sales per ton
|
$
|
70.19
|
|
|
$
|
47.20
|
|
|
$
|
40.67
|
|
|
$
|
66.57
|
|
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
(In thousands, except for per ton data)
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Coal revenues
|
$
|
1,263,855
|
|
|
$
|
148,880
|
|
|
$
|
389
|
|
|
$
|
1,413,124
|
|
Less: Total Cost of coal sales (per table above)
|
(1,291,719)
|
|
|
(162,907)
|
|
|
(731)
|
|
|
(1,455,357)
|
|
GAAP Coal margin
|
$
|
(27,864)
|
|
|
$
|
(14,027)
|
|
|
$
|
(342)
|
|
|
$
|
(42,233)
|
|
Tons sold
|
13,070
|
|
|
2,437
|
|
|
6
|
|
|
15,513
|
|
GAAP Coal margin per ton
|
$
|
(2.13)
|
|
|
$
|
(5.76)
|
|
|
$
|
(57.00)
|
|
|
$
|
(2.72)
|
|
|
|
|
|
|
|
|
|
GAAP Coal margin
|
$
|
(27,864)
|
|
|
$
|
(14,027)
|
|
|
$
|
(342)
|
|
|
$
|
(42,233)
|
|
Add: Depreciation, depletion and amortization - production (1)
|
124,060
|
|
|
20,453
|
|
|
(5,885)
|
|
|
138,628
|
|
Add: Accretion on asset retirement obligations
|
14,214
|
|
|
9,285
|
|
|
3,005
|
|
|
26,504
|
|
Add: Amortization of acquired intangibles, net
|
12,889
|
|
|
(3,775)
|
|
|
100
|
|
|
9,214
|
|
Add: Idled and closed mine costs
|
16,640
|
|
|
8,973
|
|
|
3,267
|
|
|
28,880
|
|
Non-GAAP Coal margin
|
$
|
139,939
|
|
|
$
|
20,909
|
|
|
$
|
145
|
|
|
$
|
160,993
|
|
Tons sold
|
13,070
|
|
|
2,437
|
|
|
6
|
|
|
15,513
|
|
Non-GAAP Coal margin per ton
|
$
|
10.71
|
|
|
$
|
8.58
|
|
|
$
|
24.17
|
|
|
$
|
10.38
|
|
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(In thousands, except for per ton data)
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Coal revenues
|
$
|
1,709,863
|
|
|
$
|
285,390
|
|
|
$
|
681
|
|
|
$
|
1,995,934
|
|
Less: Freight and handling fulfillment revenues
|
(242,049)
|
|
|
(34,133)
|
|
|
—
|
|
|
(276,182)
|
|
Non-GAAP Coal revenues
|
$
|
1,467,814
|
|
|
$
|
251,257
|
|
|
$
|
681
|
|
|
$
|
1,719,752
|
|
Tons sold
|
12,926
|
|
|
4,218
|
|
|
8
|
|
|
17,152
|
|
Non-GAAP Coal sales realization per ton
|
$
|
113.56
|
|
|
$
|
59.57
|
|
|
$
|
85.13
|
|
|
$
|
100.27
|
|
|
|
|
|
|
|
|
|
Cost of coal sales (exclusive of items shown separately below)
|
$
|
1,389,619
|
|
|
$
|
274,320
|
|
|
$
|
3,829
|
|
|
$
|
1,667,768
|
|
Depreciation, depletion and amortization - production (1)
|
152,835
|
|
|
57,483
|
|
|
4,025
|
|
|
214,343
|
|
Accretion on asset retirement obligations
|
9,599
|
|
|
10,929
|
|
|
3,337
|
|
|
23,865
|
|
Amortization of acquired intangibles, net
|
10,389
|
|
|
(13,578)
|
|
|
—
|
|
|
(3,189)
|
|
Total Cost of coal sales
|
$
|
1,562,442
|
|
|
$
|
329,154
|
|
|
$
|
11,191
|
|
|
$
|
1,902,787
|
|
Less: Freight and handling costs
|
(242,049)
|
|
|
(34,133)
|
|
|
—
|
|
|
(276,182)
|
|
Less: Depreciation, depletion and amortization - production (1)
|
(152,835)
|
|
|
(57,483)
|
|
|
(4,025)
|
|
|
(214,343)
|
|
Less: Accretion on asset retirement obligations
|
(9,599)
|
|
|
(10,929)
|
|
|
(3,337)
|
|
|
(23,865)
|
|
Less: Amortization of acquired intangibles, net
|
(10,389)
|
|
|
13,578
|
|
|
—
|
|
|
3,189
|
|
Less: Idled and closed mine costs
|
(8,699)
|
|
|
(2,702)
|
|
|
(3,164)
|
|
|
(14,565)
|
|
Less: Cost impact of coal inventory fair value adjustment (2)
|
(4,751)
|
|
|
(3,458)
|
|
|
—
|
|
|
(8,209)
|
|
Non-GAAP Cost of coal sales
|
$
|
1,134,120
|
|
|
$
|
234,027
|
|
|
$
|
665
|
|
|
$
|
1,368,812
|
|
Tons sold
|
12,926
|
|
|
4,218
|
|
|
8
|
|
|
17,152
|
|
Non-GAAP Cost of coal sales per ton
|
$
|
87.74
|
|
|
$
|
55.48
|
|
|
$
|
83.13
|
|
|
$
|
79.80
|
|
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
(2) The cost impact of the coal inventory fair value adjustment as a result of the Merger was completed during the three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(In thousands, except for per ton data)
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Coal revenues
|
$
|
1,709,863
|
|
|
$
|
285,390
|
|
|
$
|
681
|
|
|
$
|
1,995,934
|
|
Less: Total Cost of coal sales (per table above)
|
(1,562,442)
|
|
|
(329,154)
|
|
|
(11,191)
|
|
|
(1,902,787)
|
|
GAAP Coal margin
|
$
|
147,421
|
|
|
$
|
(43,764)
|
|
|
$
|
(10,510)
|
|
|
$
|
93,147
|
|
Tons sold
|
12,926
|
|
|
4,218
|
|
|
8
|
|
|
17,152
|
|
GAAP Coal margin per ton
|
$
|
11.40
|
|
|
$
|
(10.38)
|
|
|
$
|
(1,313.75)
|
|
|
$
|
5.43
|
|
|
|
|
|
|
|
|
|
GAAP Coal margin
|
$
|
147,421
|
|
|
$
|
(43,764)
|
|
|
$
|
(10,510)
|
|
|
$
|
93,147
|
|
Add: Depreciation, depletion and amortization - production (1)
|
152,835
|
|
|
57,483
|
|
|
4,025
|
|
|
214,343
|
|
Add: Accretion on asset retirement obligations
|
9,599
|
|
|
10,929
|
|
|
3,337
|
|
|
23,865
|
|
Add: Amortization of acquired intangibles, net
|
10,389
|
|
|
(13,578)
|
|
|
—
|
|
|
(3,189)
|
|
Add: Idled and closed mine costs
|
8,699
|
|
|
2,702
|
|
|
3,164
|
|
|
14,565
|
|
Add: Cost impact of coal inventory fair value adjustment (2)
|
4,751
|
|
|
3,458
|
|
|
—
|
|
|
8,209
|
|
Non-GAAP Coal margin
|
$
|
333,694
|
|
|
$
|
17,230
|
|
|
$
|
16
|
|
|
$
|
350,940
|
|
Tons sold
|
12,926
|
|
|
4,218
|
|
|
8
|
|
|
17,152
|
|
Non-GAAP Coal margin per ton
|
$
|
25.82
|
|
|
$
|
4.08
|
|
|
$
|
2.00
|
|
|
$
|
20.46
|
|
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
(2) The cost impact of the coal inventory fair value adjustment as a result of the Merger was completed during the three months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Increase (Decrease)
|
(In thousands, except for per ton data)
|
2020
|
|
2019
|
|
$
|
|
%
|
Tons sold:
|
|
|
|
|
|
|
|
Met operations
|
13,070
|
|
|
12,926
|
|
|
144
|
|
|
1.1
|
%
|
CAPP - Thermal operations
|
2,437
|
|
|
4,218
|
|
|
(1,781)
|
|
|
(42.2)
|
%
|
|
|
|
|
|
|
|
|
Non-GAAP Coal revenues:
|
|
|
|
|
|
|
|
Met operations
|
$
|
1,057,346
|
|
|
$
|
1,467,814
|
|
|
$
|
(410,468)
|
|
|
(28.0)
|
%
|
CAPP - Thermal operations
|
$
|
135,940
|
|
|
$
|
251,257
|
|
|
$
|
(115,317)
|
|
|
(45.9)
|
%
|
|
|
|
|
|
|
|
|
Non-GAAP Coal sales realization per ton:
|
|
|
|
|
|
|
|
Met operations
|
$
|
80.90
|
|
|
$
|
113.56
|
|
|
$
|
(32.66)
|
|
|
(28.8)
|
%
|
CAPP - Thermal operations
|
$
|
55.78
|
|
|
$
|
59.57
|
|
|
$
|
(3.79)
|
|
|
(6.4)
|
%
|
Average
|
$
|
76.95
|
|
|
$
|
100.27
|
|
|
$
|
(23.32)
|
|
|
(23.3)
|
%
|
Non-GAAP segment coal revenues. Met operations non-GAAP coal revenues decreased $410.5 million, or 28.0%, for the year ended December 31, 2020 compared to the prior year period. The decrease in Met operations non-GAAP coal revenues was primarily due to lower non-GAAP coal sales realization of $32.66 per ton as a result of a weaker pricing environment resulting from the impacts of the COVID-19 pandemic.
CAPP - Thermal operations non-GAAP coal revenues decreased $115.3 million, or 45.9%, for the year ended December 31, 2020 compared to the prior year period. The decrease in CAPP - Thermal operations non-GAAP coal revenues was due to lower coal sales volumes of 1.8 million tons and lower non-GAAP coal sales realization of $3.79 per ton as a result of a weaker pricing environment resulting from the impacts of the COVID-19 pandemic.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Increase (Decrease)
|
(In thousands, except for per ton data)
|
2020
|
|
2019
|
|
$
|
|
%
|
Non-GAAP Cost of coal sales:
|
|
|
|
|
|
|
|
Met operations
|
$
|
917,407
|
|
|
$
|
1,134,120
|
|
|
$
|
(216,713)
|
|
|
(19.1)
|
%
|
CAPP - Thermal operations
|
$
|
115,031
|
|
|
$
|
234,027
|
|
|
$
|
(118,996)
|
|
|
(50.8)
|
%
|
|
|
|
|
|
|
|
|
Non-GAAP Cost of coal sales per ton:
|
|
|
|
|
|
|
|
Met operations
|
$
|
70.19
|
|
|
$
|
87.74
|
|
|
$
|
(17.55)
|
|
|
(20.0)
|
%
|
CAPP - Thermal operations
|
$
|
47.20
|
|
|
$
|
55.48
|
|
|
$
|
(8.28)
|
|
|
(14.9)
|
%
|
|
|
|
|
|
|
|
|
Non-GAAP Coal margin per ton:
|
|
|
|
|
|
|
|
Met operations
|
$
|
10.71
|
|
|
$
|
25.82
|
|
|
$
|
(15.11)
|
|
|
(58.5)
|
%
|
CAPP - Thermal operations
|
$
|
8.58
|
|
|
$
|
4.08
|
|
|
$
|
4.50
|
|
|
110.3
|
%
|
Non-GAAP cost of coal sales. Met operations non-GAAP cost of coal sales decreased $216.7 million, or 19.1%, for the year ended December 31, 2020 compared to the prior year period. The decrease in Met operations non-GAAP cost of coal sales was primarily driven by decreased costs of purchased coal, salaries and wages expense, supplies and maintenance expense, and royalties and taxes, partially offset by inventory change during the current period.
CAPP - Thermal operations non-GAAP cost of coal sales decreased $119.0 million, or 50.8%, for the year ended December 31, 2020 compared to the prior year period. The decrease in CAPP - Thermal operations non-GAAP cost of coal sales was primarily due to a decrease in tons sold in the current period relative to the prior year period and decreased supplies and maintenance expense and salaries and wages expense, partially offset by inventory change during the current period.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
(In thousands, except for per ton data)
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Non-GAAP Cost of coal sales
|
$
|
917,407
|
|
|
$
|
115,031
|
|
|
$
|
244
|
|
|
$
|
1,032,682
|
|
Less: cost of purchased coal sold
|
(85,769)
|
|
|
(925)
|
|
|
—
|
|
|
(86,694)
|
|
Adjusted cost of produced coal sold
|
$
|
831,638
|
|
|
$
|
114,106
|
|
|
$
|
244
|
|
|
$
|
945,988
|
|
Produced tons sold
|
11,941
|
|
|
2,423
|
|
|
6
|
|
|
14,370
|
|
Adjusted cost of produced coal sold per ton (1)
|
$
|
69.65
|
|
|
$
|
47.09
|
|
|
$
|
40.67
|
|
|
$
|
65.83
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(In thousands, except for per ton data)
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Non-GAAP Cost of coal sales
|
$
|
1,134,120
|
|
|
$
|
234,027
|
|
|
$
|
665
|
|
|
$
|
1,368,812
|
|
Less: cost of purchased coal sold
|
(237,681)
|
|
|
(6,976)
|
|
|
—
|
|
|
(244,657)
|
|
Adjusted cost of produced coal sold
|
$
|
896,439
|
|
|
$
|
227,051
|
|
|
$
|
665
|
|
|
$
|
1,124,155
|
|
Produced tons sold
|
10,727
|
|
|
4,091
|
|
|
8
|
|
|
14,826
|
|
Adjusted cost of produced coal sold per ton (1)
|
$
|
83.57
|
|
|
$
|
55.50
|
|
|
$
|
83.13
|
|
|
$
|
75.82
|
|
(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.
Segment Adjusted EBITDA
Segment Adjusted EBITDA for our reportable segments is a financial measure. This non-GAAP financial measure is presented as a supplemental measure and is not intended to replace financial performance 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. Segment 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 years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
(In thousands)
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Net loss from continuing operations
|
$
|
(77,519)
|
|
|
$
|
(52,520)
|
|
|
$
|
(111,431)
|
|
|
$
|
(241,470)
|
|
Interest expense
|
(2,014)
|
|
|
6
|
|
|
76,536
|
|
|
74,528
|
|
Interest income
|
(63)
|
|
|
—
|
|
|
(6,964)
|
|
|
(7,027)
|
|
Income tax benefit
|
—
|
|
|
—
|
|
|
(2,164)
|
|
|
(2,164)
|
|
Depreciation, depletion and amortization
|
124,060
|
|
|
20,453
|
|
|
(4,628)
|
|
|
139,885
|
|
Non-cash stock compensation expense
|
289
|
|
|
8
|
|
|
4,600
|
|
|
4,897
|
|
Mark-to-market adjustment - acquisition-related obligations
|
—
|
|
|
—
|
|
|
(8,750)
|
|
|
(8,750)
|
|
Accretion on asset retirement obligations
|
14,214
|
|
|
9,285
|
|
|
3,005
|
|
|
26,504
|
|
Asset impairment and restructuring (1)
|
46,317
|
|
|
36,719
|
|
|
842
|
|
|
83,878
|
|
Management restructuring costs (2)
|
501
|
|
|
5
|
|
|
435
|
|
|
941
|
|
Loss on partial settlement of benefit obligations
|
1,607
|
|
|
(328)
|
|
|
1,687
|
|
|
2,966
|
|
Amortization of acquired intangibles, net
|
12,889
|
|
|
(3,775)
|
|
|
100
|
|
|
9,214
|
|
Adjusted EBITDA
|
$
|
120,281
|
|
|
$
|
9,853
|
|
|
$
|
(46,732)
|
|
|
$
|
83,402
|
|
(1) Asset impairment and restructuring for the year ended December 31, 2020 includes long-lived asset impairments of $81.0 million related to asset groups recorded within the Met and CAPP - Thermal reporting segments and restructuring expense of $2.9 million recorded in CAPP - Thermal and All Other reporting segments. Refer to Note 8 for further information.
(2) Management restructuring costs are related to severance expense associated with senior management changes during the three months ended March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(In thousands)
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Net income (loss) from continuing operations
|
$
|
7,944
|
|
|
$
|
(97,398)
|
|
|
$
|
(130,164)
|
|
|
$
|
(219,618)
|
|
Interest expense
|
(1,209)
|
|
|
23
|
|
|
68,707
|
|
|
67,521
|
|
Interest income
|
(100)
|
|
|
—
|
|
|
(7,147)
|
|
|
(7,247)
|
|
Income tax benefit
|
—
|
|
|
—
|
|
|
(53,287)
|
|
|
(53,287)
|
|
Depreciation, depletion and amortization
|
152,835
|
|
|
57,483
|
|
|
5,439
|
|
|
215,757
|
|
Merger-related costs
|
—
|
|
|
—
|
|
|
1,090
|
|
|
1,090
|
|
Non-cash stock compensation expense
|
1,494
|
|
|
71
|
|
|
10,783
|
|
|
12,348
|
|
Mark-to-market adjustment - acquisition-related obligations
|
—
|
|
|
—
|
|
|
(3,564)
|
|
|
(3,564)
|
|
Accretion on asset retirement obligations
|
9,599
|
|
|
10,929
|
|
|
3,337
|
|
|
23,865
|
|
Loss on modification and extinguishment of debt
|
—
|
|
|
—
|
|
|
26,459
|
|
|
26,459
|
|
Asset impairment (1)
|
15,034
|
|
|
50,993
|
|
|
297
|
|
|
66,324
|
|
Goodwill impairment (2)
|
124,353
|
|
|
—
|
|
|
—
|
|
|
124,353
|
|
Cost impact of coal inventory fair value adjustment (3)
|
4,751
|
|
|
3,458
|
|
|
—
|
|
|
8,209
|
|
Gain on assets acquired in an exchange transaction (4)
|
(9,083)
|
|
|
—
|
|
|
—
|
|
|
(9,083)
|
|
Management restructuring costs (5)
|
—
|
|
|
—
|
|
|
7,720
|
|
|
7,720
|
|
Loss on partial settlement of benefit obligations
|
(1)
|
|
|
—
|
|
|
6,447
|
|
|
6,446
|
|
Amortization of acquired intangibles, net
|
10,389
|
|
|
(13,578)
|
|
|
—
|
|
|
(3,189)
|
|
Adjusted EBITDA
|
$
|
316,006
|
|
|
$
|
11,981
|
|
|
$
|
(63,883)
|
|
|
$
|
264,104
|
|
(1) Asset impairment for the year ended December 31, 2019 includes a long-lived asset impairment of $60.2 million related to asset groups recorded within the Met and CAPP - Thermal reporting segments and an asset impairment of $6.2 million primarily related to the write-off of prepaid purchased coal as a result of Blackjewel’s Chapter 11 bankruptcy filing on July 1, 2019. Refer to Note 8 for further information.
(2) The goodwill impairment testing as of December 31, 2019 resulted in a goodwill impairment of $124.4 million to write down the full carrying value of goodwill. Refer to Note 2 for further information.
(3) The cost impact of the coal inventory fair value adjustment as a result of the Merger was completed during the three months ended June 30, 2019.
(4) During the year ended December 31, 2019, the Company entered into an exchange transaction which primarily included the release of the PRB overriding royalty interest owed to the Company in exchange for met coal reserves which resulted in a gain of $9.1 million.
(5) Management restructuring costs are related to severance expense associated with senior management changes in the year ended December 31, 2019.
The following table summarizes Adjusted EBITDA for our two reportable segments and All Other category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Increase (Decrease)
|
(In thousands)
|
2020
|
|
2019
|
|
$
|
|
%
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
Met operations
|
$
|
120,281
|
|
|
$
|
316,006
|
|
|
$
|
(195,725)
|
|
|
(61.9)
|
%
|
CAPP - Thermal operations
|
9,853
|
|
|
11,981
|
|
|
(2,128)
|
|
|
(17.8)
|
%
|
All Other
|
(46,732)
|
|
|
(63,883)
|
|
|
17,151
|
|
|
26.8
|
%
|
Total
|
$
|
83,402
|
|
|
$
|
264,104
|
|
|
$
|
(180,702)
|
|
|
(68.4)
|
%
|
Met operations. Adjusted EBITDA decreased $195.7 million, or 61.9%, for the year ended December 31, 2020 compared to the prior year period. The decrease in Adjusted EBITDA was primarily driven by decreased non-GAAP coal sales realization per ton of $32.66, or 28.8%, due to a weaker pricing environment resulting from the impact of the COVID-19 pandemic.
CAPP - Thermal operations. Adjusted EBITDA decreased $2.1 million, or 17.8%, for the year ended December 31, 2020. The decrease in Adjusted EBITDA was primarily driven by decreased coal sales volumes of 1.8 million tons, or 42.2%, and decreased non-GAAP coal sales realization per ton of $3.79, or 6.4%, due to a weaker pricing and demand environment resulting from the COVID-19 pandemic.
All Other category. Adjusted EBITDA increased $17.2 million, or 26.8%, for the year ended December 31, 2020 compared to the prior year period. The increase in Adjusted EBITDA was primarily driven by decreases in selling, general and administrative expenses and increased gain on sale of assets.
Discontinued Operations
The former PRB and NAPP operations results of operations and financial position are reported as discontinued operations in the Consolidated Financial Statements. Refer to Note 3 for further information on discontinued operations. The following tables summarize certain financial information relating to the PRB and NAPP discontinued operating results which are reported within the All Other reporting segment that have been derived from our consolidated financial statements for the years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands, except for per ton data)
|
2020
|
|
2019
|
Coal revenues
|
$
|
233,083
|
|
|
$
|
286,073
|
|
Less: Freight and handling fulfillment revenues
|
(11,135)
|
|
|
(8,827)
|
|
Non-GAAP Coal revenues
|
$
|
221,948
|
|
|
$
|
277,246
|
|
Tons sold
|
5,420
|
|
|
7,484
|
|
Non-GAAP Coal sales realization per ton
|
$
|
40.95
|
|
|
$
|
37.05
|
|
|
|
|
|
Cost of coal sales (exclusive of items shown separately below)
|
$
|
215,390
|
|
|
$
|
256,336
|
|
Depreciation, depletion and amortization - production (1)
|
11,570
|
|
|
99,405
|
|
Accretion on asset retirement obligations
|
4,154
|
|
|
9,894
|
|
Amortization of acquired intangibles, net
|
861
|
|
|
3,101
|
|
Total Cost of coal sales
|
$
|
231,975
|
|
|
$
|
368,736
|
|
Less: Freight and handling costs
|
(11,135)
|
|
|
(8,827)
|
|
Less: Depreciation, depletion and amortization - production (1)
|
(11,570)
|
|
|
(99,405)
|
|
Less: Accretion on asset retirement obligations
|
(4,154)
|
|
|
(9,894)
|
|
Less: Amortization of acquired intangibles, net
|
(861)
|
|
|
(3,101)
|
|
Less: Idled and closed mine costs
|
(3,102)
|
|
|
(4,005)
|
|
Non-GAAP Cost of coal sales
|
$
|
201,153
|
|
|
$
|
243,504
|
|
Tons sold
|
5,420
|
|
|
7,484
|
|
Non-GAAP Cost of coal sales per ton
|
$
|
37.11
|
|
|
$
|
32.54
|
|
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands, except for per ton data)
|
2020
|
|
2019
|
Coal revenues
|
$
|
233,083
|
|
|
$
|
286,073
|
|
Less: Total Cost of coal sales (per table above)
|
(231,975)
|
|
|
(368,736)
|
|
GAAP Coal margin
|
$
|
1,108
|
|
|
$
|
(82,663)
|
|
Tons sold
|
5,420
|
|
|
7,484
|
|
GAAP Coal margin per ton
|
$
|
0.20
|
|
|
$
|
(11.05)
|
|
|
|
|
|
GAAP Coal margin
|
$
|
1,108
|
|
|
$
|
(82,663)
|
|
Add: Depreciation, depletion and amortization - production (1)
|
11,570
|
|
|
99,405
|
|
Add: Accretion on asset retirement obligations
|
4,154
|
|
|
9,894
|
|
Add: Amortization of acquired intangibles, net
|
861
|
|
|
3,101
|
|
Add: Idled and closed mine costs
|
3,102
|
|
|
4,005
|
|
Non-GAAP Coal margin
|
$
|
20,795
|
|
|
$
|
33,742
|
|
Tons sold
|
5,420
|
|
|
7,484
|
|
Non-GAAP Coal margin per ton
|
$
|
3.84
|
|
|
$
|
4.51
|
|
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
Refer to Note 3 for disclosures on the Cumberland and PRB Back-to-Back Coal Supply Agreements.
Liquidity and Capital Resources
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, 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, cash generated from our operations, and expected tax refunds 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. 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, 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 more quickly if market conditions deteriorate, and we may not be able to do so in a timely fashion, 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. We may decide 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 and Cash Collateral
At December 31, 2020, we had cash and cash equivalents of $139.2 million and no remaining unused capacity under the Amended and Restated Asset-Based Revolving Credit Agreement (the “ABL Facility”). 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. Due to fluctuations of the Borrowing Base, we were required to post $25.0 million of cash collateral in January 2021 to remain in compliance with the terms of the ABL Facility as of December 31, 2020. In February 2021, a portion of the posted cash collateral was used to repay the remaining $3.4 million in borrowings under the ABL Facility. In March 2021, the remaining posted cash collateral was returned to unrestricted cash.
To secure our obligations under certain worker’s compensation, black lung, and reclamation obligations and financial guarantees, we are required to provide cash collateral. At December 31, 2020, we had cash collateral in the amounts of $96.0 million, $23.8 million, and $27.2 million classified as long-term restricted cash, long-term restricted investments, and long-term deposits, respectively, on our Consolidated Balance Sheets. 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 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). Additionally, as December 31, 2020, we had $9.3 million of short-term restricted cash held in escrow related to our contingent revenue obligation. Refer to Note 16 for further information regarding the contingent revenue obligation.
Business Updates
With respect to global economic events, there continues to be uncertainty and weakness in the coal industry. On December 14, 2020, S&P Global Ratings affirmed their June 2, 2020 downgrades on their issuer credit ratings on the Company and their issue-level rating on our senior secured debt. On June 2, 2020, S&P Global Ratings downgraded their issuer credit rating on the Company from “B-” to “CCC+” and their issue-level rating on our senior secured debt from “B” to “CCC+” amid weak market indicators. The rating outlook was noted as negative. On April 13, 2020, Moody’s Investors Service downgraded the Company’s Corporate Family Rating to Caa1 from B3, Senior Secured Bank Credit Facility to Caa2 from Caa1, and Probability of Default Rating to Caa1 from B3. The rating outlook was changed from stable to negative. These issues bring 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.
During the second quarter of 2020, as a result of the weakening coal market conditions due in part to the impact of the global COVID-19 pandemic, we announced that we would take certain strategic actions with respect to two of our thermal coal
mining complexes in an effort to strengthen our financial performance and improve forecasted liquidity. We announced that an underground mine and preparation plant located in West Virginia would be idled during the third quarter of 2020. In addition, we decided not to move forward with the construction of a new refuse impoundment at our Cumberland mine in Pennsylvania and would therefore no longer spend the significant capital required in connection with the project. On December 10, 2020, we announced the closing of our previously announced agreement to divest our Cumberland mining operations and related property to a third-party purchaser for total consideration of $50.0 million, comprised of approximately $20.0 million in cash and $30.0 million in surety bonding collateral, resulting in a loss on sale of $36.1 million. Refer to Note 3 for additional disclosure information on this transaction, the divestiture of our former PRB operations and the related ESM Transaction, and the related discontinued operations.
Weak market conditions and depressed coal prices have resulted in operating losses in recent quarters. If market conditions do not improve, we expect to continue to experience operating losses and cash outflows in the coming quarters, which would adversely affect our liquidity. In particular, we expect a decrease in cash and cash equivalents to the extent that capital expenditures and other cash obligations, including our debt service obligations, exceed cash generated from our operations.
The COVID-19 pandemic has had negative impacts on our business, results of operations, financial condition, and cash flows. A continued period of reduced demand for our products could have significant adverse consequences on our business. The full extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on various developments, including the duration and spread of the outbreak, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which are still uncertain and cannot be fully predicted at this time.
We have continued to take steps to enhance our capital structure and financial flexibility and reduce cash outflows from operations in the near term, including reductions in our operating, SG&A, and overhead costs, reductions in production volumes, and the amendment of our credit facility. We expect to engage in similar efforts in the future as opportunities arise through refinancing, repayment or repurchase of outstanding debt, amendment of our credit facilities, and other methods, and may consider the sale of other assets or businesses, and such other measures as 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 facility and indentures.
On March 27, 2020, the CARES Act was enacted into law. As a result of the CARES Act, AMT Credits of $66.1 million were received in the fourth quarter of 2020. As of December 31, 2020, the Company has recorded $64.2 million of current federal income tax receivable and associated interest receivable of $5.2 million related to an NOL carryback claim. Refer to Note 19.
Pension Plans
We sponsor three qualified non-contributory pension plans (“Pension Plans”) which cover certain salaried and non-union hourly employees. Participants accrued benefits either based on certain formulas, the participant’s compensation prior to retirement or plan specified amounts for each year of service. Benefits are frozen under these Pension Plans. Annual funding contributions to the Pension Plans are made as recommended by consulting actuaries based upon the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) funding standards. Funding decisions also consider certain funded status thresholds defined by the Pension Protection Act of 2006. We expected to contribute $25.5 million to the Pension Plans in 2021 based on our estimates prior to the recent funding relief granted under the American Rescue Plan Act. We now expect these amounts may be reduced, as a result of the relief, and are in the process of quantifying the impact. Refer to Note 20 for further disclosures related to this obligation.
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. 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 collateral. Either of these outcomes would significantly reduce our liquidity.
Cash Flows
Cash, cash equivalents, and restricted cash decreased by $103.1 million and $129.6 million over the years ended December 31, 2020 and 2019, respectively. The net change in cash, cash equivalents, and restricted cash was attributable to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Cash flows (in thousands):
|
|
|
|
Net cash provided by operating activities
|
$
|
129,236
|
|
|
$
|
131,880
|
|
Net cash used in investing activities
|
(209,969)
|
|
|
(191,752)
|
|
Net cash used in financing activities
|
(22,376)
|
|
|
(69,694)
|
|
Net decrease in cash and cash equivalents and restricted cash
|
$
|
(103,109)
|
|
|
$
|
(129,566)
|
|
Operating Activities
Net cash flows from operating activities consist of a net loss adjusted for non-cash items. Net cash provided by operating activities for the year ended December 31, 2020 was $129.2 million and was primarily attributable to net loss of $446.9 million adjusted for asset impairment and restructuring of $256.5 million, depreciation, depletion and amortization of $151.5 million, deferred income taxes of $33.1 million, loss on sale of business of $36.1 million, accretion on asset retirement obligations of $30.7 million, amortization of debt issuance costs and accretion of debt discount of $14.8 million. The change in our operating assets and liabilities of $34.4 million was primarily attributable to decreases in trade accounts receivable, net, of $91.2 million, decreases in inventories, net, of $48.7 million, and decreases in prepaid expenses and other current assets of $28.2 million, partially offset by decreases in other non-current liabilities of $43.8 million, decreases in acquisition-related obligations of $32.6 million, decreases in trade accounts payable of $28.6 million, and decreases in asset retirement obligations of $19.4 million.
Net cash provided by operating activities for the year ended December 31, 2019 was $131.9 million and was primarily attributable to net loss of $316.3 million adjusted for depreciation, depletion and amortization of $315.2 million, goodwill impairment of $124.4 million, asset impairment of $83.5 million, accretion on asset retirement obligations of $33.8 million, loss on modification and extinguishment of debt of $26.5 million, employee benefit plans, net, of $20.8 million. The change in our operating assets and liabilities of ($172.8) million was primarily attributable to decreases in asset retirement obligations of $111.6 million, increases in inventories, net, of $40.7 million, decreases in other non-current liabilities of $33.6 million, decreases in trade accounts payable of $28.1 million, decreases in acquisition-related obligations of $28.1 million, decreases in accrued expenses and other current liabilities of $25.5 million, and increases in other non-current assets of $24.5 million, partially offset by decreases in prepaid expenses and other current assets of $56.7 million, resulting primarily from income tax refunds of $72.2 million, and decreases in trade accounts receivable, net, of $47.4 million.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2020 was $210.0 million, primarily driven by capital expenditures of $154.0 million, cash paid on sale of business of $52.2 million, and purchases of investment securities of $21.1 million, partially offset by maturity of investment securities of $16.7 million.
Net cash used in investing activities for the year ended December 31, 2019 was $191.8 million, primarily driven by capital expenditures of $192.4 million, purchases of investment securities of $92.9 million, partially offset by maturity of investment securities of $100.3 million.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2020 was $22.4 million, primarily attributable to principal repayments of debt of $59.8 million and principal repayments of notes payable of $16.7 million, partially offset by proceeds from borrowings on debt of $57.5 million.
Net cash used in financing activities for the year ended December 31, 2019 was $69.7 million, primarily attributable to principal repayments of debt of $552.8 million, common stock repurchases and related expenses of $37.6 million, and principal repayments of notes payable of $14.8 million, partially offset by proceeds from borrowings on debt of $544.9 million.
Long-Term Debt
On November 9, 2018, we entered into a $225.0 million ABL Facility under the Amended and Restated Asset-Based Revolving Credit Agreement expiring on April 3, 2022. On June 14, 2019, we entered into a $561.8 million Term Loan Credit Facility under the Credit Agreement. Refer to Note 15 for additional disclosures on long-term debt.
Analysis of Material Debt Covenants
We are in compliance with all covenants under the Credit Agreement and the Amended and Restated Asset-Based Revolving Credit Agreement, as of December 31, 2020. A breach of the covenants in the Credit Agreement and the Amended and Restated Asset-Based Revolving Credit Agreement could result in a default under the terms of the agreement and the respective lenders could elect to declare all amounts borrowed due and payable.
Pursuant to the Amended and Restated Asset-Based Revolving Credit Agreement, during any Liquidity Period (capitalized terms as defined in the Amended and Restated Asset-Based Revolving Credit 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 December 31, 2020, we were not in a Liquidity Period.
Acquisition-Related Obligations
Refer to Note 16 for additional details and disclosures on acquisition-related obligations.
Off-Balance Sheet Arrangements
Refer to Note 23, part (c) for disclosures on off-balance sheet arrangements.
Other
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.
Contractual Obligations
The following is a summary of our significant contractual obligations as of December 31, 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
After 2025
|
|
Total
|
Long-term debt (1)
|
$
|
24,993
|
|
|
$
|
21,468
|
|
|
$
|
8,118
|
|
|
$
|
536,519
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
591,098
|
|
Other debt (2)
|
3,837
|
|
|
3,347
|
|
|
1,182
|
|
|
109
|
|
|
—
|
|
|
—
|
|
|
8,475
|
|
Acquisition-related obligations
|
8,144
|
|
|
4,247
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,391
|
|
Contingent revenue obligation (3)
|
11,395
|
|
|
13,209
|
|
|
13,702
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,306
|
|
Minimum equipment purchase commitments
|
5,008
|
|
|
—
|
|
|
170
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,178
|
|
Transportation commitments
|
29
|
|
|
338
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
367
|
|
Operating leases
|
1,210
|
|
|
1,076
|
|
|
1,101
|
|
|
982
|
|
|
897
|
|
|
4,018
|
|
|
9,284
|
|
Minimum royalties
|
15,708
|
|
|
14,525
|
|
|
13,633
|
|
|
11,560
|
|
|
10,815
|
|
|
43,603
|
|
|
109,844
|
|
Coal purchase commitments
|
44,707
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,707
|
|
Total
|
$
|
115,031
|
|
|
$
|
58,210
|
|
|
$
|
37,906
|
|
|
$
|
549,170
|
|
|
$
|
11,712
|
|
|
$
|
47,621
|
|
|
$
|
819,650
|
|
(1) Includes Term Loan Credit Facility principal amounts of $5.6 million in 2021, $5.6 million in 2022, $5.6 million in 2023, and $536.5 million in 2024. Cash interest payable on this obligation, with an interest rate of 9.00% as of December 31, 2020, would be approximately $53.4 million in 2021, $55.3 million in 2022, $54.8 million in 2023, and $24.7 million in 2024. Also includes Lexington Coal Company (“LCC”) Note Payable principal amounts of $17.5 million in 2021 and $10.0 million in 2022, LCC Water Treatment Stipulation principal amounts of $1.9 million in 2021, $2.5 million in 2022, and $2.5 million in 2023, and the senior secured asset-based revolving credit facility (“ABL Facility”) principal amount of $3.4 million in 2022. Refer to Note 15 for principal payment and interest rate terms.
(2) Includes financing lease obligation principal amounts of $2.0 million in 2021, $1.7 million in 2022, $0.3 million in 2023, and $6 thousand in 2024. Cash interest payable on these obligations with interest rates ranging between 2.49% and 27.39%, would be approximately $0.2 million in 2021, $0.1 million in 2022, and $15 thousand in 2023. Other debt includes principal amounts of $1.8 million in 2021, $1.6 million in 2022, $0.9 million in 2023, and $0.1 million in 2024.
(3) Refer to Note 16 for further disclosures related to this obligation.
Additionally, we have long-term liabilities relating to asset retirement obligations, pension, black lung benefits, life insurance benefits, and workers’ compensation benefits. The table below reflects the estimated undiscounted cash flows for these obligations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
After 2025
|
|
Total
|
Asset retirement obligation
|
$
|
25,490
|
|
|
$
|
34,180
|
|
|
$
|
28,330
|
|
|
$
|
35,725
|
|
|
$
|
42,622
|
|
|
$
|
330,075
|
|
|
$
|
496,422
|
|
Pension benefit obligation (1)
|
31,178
|
|
|
31,267
|
|
|
31,628
|
|
|
32,149
|
|
|
32,426
|
|
|
981,075
|
|
|
1,139,723
|
|
Black lung benefit obligation
|
6,810
|
|
|
6,929
|
|
|
7,038
|
|
|
7,112
|
|
|
7,244
|
|
|
177,472
|
|
|
212,605
|
|
Life insurance benefit obligation
|
628
|
|
|
588
|
|
|
586
|
|
|
586
|
|
|
587
|
|
|
14,909
|
|
|
17,884
|
|
Workers’ compensation benefit obligation
|
13,155
|
|
|
9,351
|
|
|
7,185
|
|
|
6,106
|
|
|
5,633
|
|
|
80,382
|
|
|
121,812
|
|
Total
|
$
|
77,261
|
|
|
$
|
82,315
|
|
|
$
|
74,767
|
|
|
$
|
81,678
|
|
|
$
|
88,512
|
|
|
$
|
1,583,913
|
|
|
$
|
1,988,446
|
|
(1) The estimated undiscounted cash flows will be paid from the defined benefit pension plan assets held within the defined benefit pension plan trust. Refer to Note 20 for further disclosures related to this obligation.
We expect to spend between $75 million and $95 million on capital expenditures during 2021.
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.
Business Combinations. We account for our business combinations under the acquisition method of accounting. The total cost of acquisitions is allocated to the underlying identifiable net tangible and intangible assets based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment, the utilization of independent valuation experts, and often involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items.
Reclamation. Our asset retirement obligations arise from the federal Surface Mining Control and Reclamation Act of 1977 and similar state statutes, which require that mine property be restored in accordance with specified standards and an approved reclamation plan. Significant reclamation activities include reclaiming refuse and slurry ponds, reclaiming the pit and support acreage at surface mines, sealing portals at deep mines, and the treatment of water. We determine the future cash flows necessary to satisfy our reclamation obligations on a permit-by-permit basis based upon current permit requirements and various estimates and assumptions, including estimates of disturbed acreage, cost estimates, and assumptions regarding productivity. We are also faced with increasingly stringent environmental regulation, much of which is beyond our control, which could increase our costs and materially increase our asset retirement obligations. Estimates of disturbed acreage are determined based on approved mining plans and related engineering data. Cost estimates are based upon third-party costs. Productivity assumptions are based on historical experience with the equipment that is expected to be utilized in the reclamation activities. Our asset retirement obligations are initially recorded at fair value. In order to determine fair value, we use assumptions including a discount rate and third-party margin. Each is discussed further below:
•Discount Rate. Asset retirement obligations are initially recorded at fair value. We utilize discounted cash flow techniques to estimate the fair value of our obligations. We base our discount rate on the rates of treasury bonds with maturities similar to expected mine lives and adjust for our credit standing as necessary after considering funding and assurance provisions. Changes in our credit standing could have a material impact on our asset retirement obligations.
•Third-Party Margin. The measurement of an obligation at fair value is based upon the amount a third party would demand to perform the obligation. Because we plan to perform a significant amount of the reclamation activities with internal resources, a third-party margin was added to the estimated costs of these activities. This margin was estimated based upon our historical experience with contractors performing similar types of reclamation activities. The inclusion of this margin will result in a recorded obligation that is greater than our estimates of our cost to perform the reclamation activities. If our cost estimates are accurate, the excess of the recorded obligation over the cost incurred to perform the work will be recorded within depreciation, depletion and amortization within our Consolidated Statements of Operations at the time that reclamation work is completed.
On at least an annual basis, we review our reclamation liabilities and make necessary adjustments for permit changes as granted by state authorities, additional costs resulting from accelerated mine closures, and revisions to cost estimates and productivity assumptions to reflect current experience and updated plans. At December 31, 2020, we had recorded asset retirement obligation liabilities of $165.1 million, including amounts reported as current. While the precise amount of these future costs cannot be determined with certainty, as of December 31, 2020, we estimate that the aggregate undiscounted cost of final mine closures is approximately $496.4 million.
Retirement Plans. We have three non-contributory defined benefit retirement plans (the “Pension Plans”) covering certain of our salaried and non-union hourly employees, all of which are frozen. Benefits are based on either the employee’s compensation prior to retirement or stated amounts for each year of service with us. Funding of the Pension Plans is in accordance with requirements of ERISA, and our contributions can be deducted for federal income tax purposes. We contributed $22.7 million to our Pension Plans for the year ended December 31, 2020. For the year ended December 31, 2020, we recorded a net periodic benefit credit of $4.7 million, which included a settlement of $1.6 million, for our Pension Plans and have recorded net obligations of $218.7 million.
The calculation of the net periodic benefit expense (credit) and projected benefit obligation associated with our Pension Plans requires the use of a number of assumptions, which are used by our independent actuaries to make the underlying calculations. Changes in these assumptions can result in different net periodic benefit expense and liability amounts, and actual experience can differ from the assumptions.
•The expected long-term rate of return on plan assets is an assumption of the rate of return on plan assets reflecting the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the
projected benefit obligation. We establish the expected long-term rate of return at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The Pension Plans investment targets are 60% equity securities and 40% fixed income funds. Investments are rebalanced on a periodic basis to stay within these targeted guidelines. The long-term rate of return assumption used to determine net periodic benefit expense was 5.90% for the year ended December 31, 2020. The long-term rate of return assumption to be used in 2021 is expected to be 5.80%. Any difference between the actual experience and the assumed experience is deferred as an unrecognized actuarial gain or loss and amortized into expense in future periods.
•The discount rate represents our estimate of the interest rate at which pension benefits could be effectively settled. Assumed discount rates are used in the measurement of the projected and accumulated benefit obligations and the interest cost component of the net periodic benefit expense. In estimating that rate, we use rates of return on high quality, fixed income investments. The weighted average discount rate used to determine pension expense was 2.92% for the year ended December 31, 2020. The differences resulting from actual versus assumed discount rates are amortized into pension expense (credit) over the remaining average life of the active plan participants. A one percentage-point increase in the discount rate would increase the net periodic pension cost for the year ended December 31, 2020 by approximately $3.8 million and decrease the projected benefit obligation as of December 31, 2020 by approximately $90.9 million. The corresponding effects of a one percentage-point decrease in discount rate would decrease the net periodic pension cost for the year ended December 31, 2020 by approximately $5.2 million and increase the projected benefit obligation as of December 31, 2020 by approximately $113.9 million.
Coal Workers’ Pneumoconiosis. We are required by federal and state statues to provide benefits to employees for awards related to coal workers’ pneumoconiosis disease (black lung). Certain of our subsidiaries are insured for black lung obligations by a third-party insurance provider and certain subsidiaries are self-insured for state black lung obligations. Certain other subsidiaries are self-insured for federal black lung benefits and may fund benefit payments through Section 501(c)(21) tax-exempt trust fund. Provisions are made for estimated benefits based on annual evaluations prepared by independent actuaries. Charges are made to operations for self-insured black lung claims, as determined by an independent actuary at the present value of the actuarially computed liability for such benefits over the employee’s applicable term of service. These actuarially determined liabilities use various actuarial assumptions, including the discount rate, future cost trends, demographic assumptions, and return on plan assets to estimate the costs and obligations for these items. The discount rate represents our estimate of the interest rate at which black lung obligations could be effectively settled. Assumed discount rates are used in the measurement of the black lung benefit obligations and the interest cost and service cost components of the net periodic benefit expense. In estimating that rate, we use rates of return on high quality, fixed income investments. Refer to Note 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for the weighted-average rate assumptions related to black lung obligations used to determine the benefit obligation. If our assumptions do not materialize as expected, actual cash expenditures and costs that we incur could differ materially from our current estimates. Moreover, regulatory changes could affect our obligation to satisfy these or additional obligations. As of December 31, 2020, we had estimated black lung obligations of approximately $124.8 million, including amounts reported as current and within discontinued operations, which are net of assets of $2.7 million that are held in a tax-exempt trust fund.
Income Taxes. We recognize deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating our ability to recover our deferred tax assets within the jurisdiction in which they arise, we consider all available positive and negative evidence, including the expected reversals of deferred tax liabilities, projected future taxable income, taxable income available via carryback to prior years, tax planning strategies, and results of recent operations. We assess the realizability of our deferred tax assets, including scheduling the reversal of our 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. We believe the deferred tax liabilities relied upon as future taxable income in our 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. At December 31, 2020, a valuation allowance of $263.4 million has been provided on federal and state net operating losses and other deferred tax assets not expected to provide future tax benefits.
Asset Impairment. U.S. GAAP requires that a long-lived asset group that is held and used should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable. Once indicators of potential impairment are identified, testing of a long-lived asset group for impairment is a two-step process. Step one evaluates the recoverability of an asset group by comparing its projected future net undiscounted cash flows to its carrying value. If the carrying value of an asset group exceeds its projected future net undiscounted cash flows, step two is performed whereby the fair value of the asset group is estimated and compared to its carrying amount. The amount of any potential impairment is equal to the excess of an asset group’s carrying value over its estimated fair value. The amount of
any potential impairment is allocated to the individual long-lived assets within the asset group on a pro-rata basis, except that the carrying value of individual long-lived assets are not reduced below their individual estimated fair values. Long-lived assets located in a close geographic area are grouped together for purposes of impairment testing when, after considering revenue and cost interdependencies, circumstances indicate the assets are used together to produce future cash flows. Our asset groups generally consist of the assets and applicable liabilities of one or more mines and preparation plants and associated coal reserves for which cash flows are largely independent of cash flows of other mines, preparation plants and associated reserves.
We performed long-lived asset impairment tests as of November 30, 2020, August 31, 2020, May 31, 2020, and February 29, 2020. In total, we determined that indicators of impairment with respect to five long-lived asset groups within our Met reporting segment, three long-lived asset groups within its CAPP - Thermal reporting segment, and one long-lived asset group within discontinued operations existed during the year ended December 31, 2020. At December 31, 2020, we determined that the carrying amounts of the asset groups exceeded both their undiscounted cash flows and their estimated fair values. As a result, the Company recorded a long-lived asset impairment of $228.6 million, including $147.6 million recorded within discontinued operations.
We estimate the fair value of an asset group generally using discounted cash flow analysis based on estimates of future sales volumes, coal prices, production costs, and a risk-adjusted cost of capital. Changes in any of these assumptions could materially impact the estimated undiscounted cash flows of our asset groups. Refer to Note 2 and Note 8 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Goodwill. Goodwill represents the excess of purchase price over the fair value of the identifiable net assets of acquired companies. Goodwill is not amortized; instead, it is tested for impairment annually as of October 31 of each year, or more frequently if indicators of impairment exist. Refer to Note 2 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Prior to performing a quantitative goodwill impairment test, the Company first has the option of performing a qualitative assessment of goodwill. If the Company determines based on its qualitative assessment that more likely than not that the fair value of a reporting unit containing goodwill exceeds its carrying amount, no further impairment testing is required. If a quantitative impairment test is required, the Company compares the fair value of a reporting unit including goodwill to its carrying value. If the fair value of the reporting unit is lower than its carrying amount, its goodwill is written down by the lesser of the amount by which the reporting units carrying amount exceeded its fair value or its carrying value of goodwill.
The valuation methodology utilized to estimate the fair value of the reporting units is based on both a market and income approach and is within the range of fair values yielded under each approach. The income approach is based on a discounted cash flow methodology based on estimates of future sales volumes, coal prices, production costs, and a risk-adjusted cost of capital. The market approach is based on a guideline company and similar transaction methodology. Under the guideline company approach, certain metrics from a selected group of publicly traded guideline companies that have similar operations to the Company’s reporting units are used to estimate the fair value of the reporting units. Under the similar transactions approach, recent merger and acquisition transactions for companies that have similar operations to the Company’s reporting units are used to estimate the fair value of the Company’s reporting units.
The income approach is dependent upon a number of significant management estimates about future performance. Changes in any of these assumptions could materially impact the estimated fair value of our reporting units. Our forecasts of coal prices generally reflect a long-term outlook of market prices expected to be received for our coal. However, coal prices are influenced by global market conditions beyond our control. If actual coal prices are less than our expectations, it could have a material impact on the fair value of our reporting units. Our forecasts of costs to produce coal are based on our operating forecasts and an assumed inflation rate for materials and supplies such as steel, diesel fuel and explosives. However, the costs of the materials and supplies used in our production process such as steel, diesel fuel and explosives are influenced by global market conditions beyond our control. If actual costs are higher or if inflation increases above our expectations, it could have a material impact on the fair value of our reporting units. We also are faced with increasingly stringent safety standards and governmental regulation, much of which is beyond our control, which could increase our costs and materially decrease the fair value of our reporting units. For a further discussion of the factors that could result in a change in our assumptions, see “Risk Factors” in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission.
As of December 31, 2019, our goodwill balance was fully impaired. Refer to Note 2 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Contingent Revenue Obligation. Our contingent revenue obligation was assumed in connection with the Merger. Determining the fair value of this obligation requires management’s judgment and the utilization of independent valuation
experts, and involves the use of significant estimates and assumptions with respect to forecasts of future revenues and discount rates. The Company forecasts future revenues for the duration of the obligation for the properties subject to the obligation. Discount rates are determined based on the risk associated with the projected cash flows. If our assumptions do not materialize as expected, actual payments made under the obligation could differ materially from our current estimates. For a further discussion of the factors that could result in a change in our assumptions, see “Risk Factors” in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission.
New Accounting Pronouncements. Refer to Note 2 for disclosures related to new accounting policies adopted.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Alpha Metallurgical Resources, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Alpha Metallurgical Resources, Inc. and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
As described in Notes 2 and 17 to the consolidated financial statements, the Company’s consolidated asset retirement obligation liability was $165.1 million at December 31, 2020. The Company records the asset retirement obligation liability at fair value in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. Changes to the liability at operations that are not currently being reclaimed are offset by increasing or decreasing the carrying amount of the related long-lived asset. Changes to the liability at operations that are currently being reclaimed are recorded to depreciation, depletion, and amortization. The Company annually reviews its estimated future cash flows for its asset retirement obligations.
We identified the valuation of the asset retirement obligation as a critical audit matter because the estimate involves a high degree of subjectivity and auditing the significant assumptions utilized by management in estimating the amount of the liability requires judgment. In particular, the obligation is determined using a discounted cash flow technique and is based upon mining permit requirements and various assumptions including discount rates, inflation rate, estimates of disturbed acreage, timing of reclamation activities, and third-party reclamation costs.
Our audit procedures related to the Company’s asset retirement obligation liability included the following, among others:
–We obtained an understanding of the relevant controls related to the Company’s accounting for the asset retirement obligation liability, and tested such controls for design and operating effectiveness, including controls over management’s review of the significant assumptions and data inputs described above.
–We compared significant valuation assumptions including the discount rates and inflation rate to market data, and utilized a valuation specialist to assist in testing the Company’s discounted cash flow model.
–We compared the estimates of disturbed acreage, timing of reclamation activities, and third-party reclamation costs to the prior year estimate, assessing consistency between timing of reclamation activities and projected mine life, evaluated the appropriateness of the estimated costs based on mine type, and compared anticipated costs to recent operating data.
–We utilized an external specialist to perform observations of mine site operations, conducted interviews of engineering personnel, assessed the completeness of the mine reclamation estimate with respect to meeting mine closure and post closure plan regulatory requirements, and evaluated the reasonableness of the engineering estimates and assumptions.
/s/ RSM US LLP
We have served as the Company's auditor since 2020.
Atlanta, Georgia
March 15, 2021
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Alpha Metallurgical Resources, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Alpha Metallurgical Resources, Inc. (formerly Contura Energy, Inc.) and subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 2016 to 2020.
Richmond, Virginia
March 18, 2020, except for the seventh paragraph in Note 1 and Note 3, as to which the date is March 15, 2021
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
Coal revenues
|
$
|
1,413,124
|
|
|
$
|
1,995,934
|
|
Other revenues
|
3,063
|
|
|
5,346
|
|
Total revenues
|
1,416,187
|
|
|
2,001,280
|
|
Costs and expenses:
|
|
|
|
Cost of coal sales (exclusive of items shown separately below)
|
1,281,011
|
|
|
1,667,768
|
|
Depreciation, depletion and amortization
|
139,885
|
|
|
215,757
|
|
Accretion on asset retirement obligations
|
26,504
|
|
|
23,865
|
|
Amortization of acquired intangibles, net
|
9,214
|
|
|
(3,189)
|
|
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above)
|
57,356
|
|
|
78,953
|
|
Merger-related costs
|
—
|
|
|
1,090
|
|
Asset impairment and restructuring
|
83,878
|
|
|
66,324
|
|
Goodwill impairment
|
—
|
|
|
124,353
|
|
Total other operating income:
|
|
|
|
Mark-to-market adjustment for acquisition-related obligations
|
(8,750)
|
|
|
(3,564)
|
|
Other income
|
(2,223)
|
|
|
(974)
|
|
Total costs and expenses
|
1,586,875
|
|
|
2,170,383
|
|
Loss from operations
|
(170,688)
|
|
|
(169,103)
|
|
Other (expense) income:
|
|
|
|
Interest expense
|
(74,528)
|
|
|
(67,521)
|
|
Interest income
|
7,027
|
|
|
7,247
|
|
Loss on modification and extinguishment of debt
|
—
|
|
|
(26,459)
|
|
Equity loss in affiliates
|
(3,473)
|
|
|
(6,874)
|
|
Miscellaneous loss, net
|
(1,972)
|
|
|
(10,195)
|
|
Total other expense, net
|
(72,946)
|
|
|
(103,802)
|
|
Loss from continuing operations before income taxes
|
(243,634)
|
|
|
(272,905)
|
|
Income tax benefit
|
2,164
|
|
|
53,287
|
|
Net loss from continuing operations
|
(241,470)
|
|
|
(219,618)
|
|
Discontinued operations:
|
|
|
|
Loss from discontinued operations before income taxes
|
(205,429)
|
|
|
(105,185)
|
|
Income tax benefit from discontinued operations
|
—
|
|
|
8,484
|
|
Loss from discontinued operations
|
(205,429)
|
|
|
(96,701)
|
|
Net loss
|
$
|
(446,899)
|
|
|
$
|
(316,319)
|
|
|
|
|
|
Basic loss per common share:
|
|
|
|
Loss from continuing operations
|
$
|
(13.20)
|
|
|
$
|
(11.68)
|
|
Loss from discontinued operations
|
(11.22)
|
|
|
(5.14)
|
|
Net loss
|
$
|
(24.42)
|
|
|
$
|
(16.82)
|
|
|
|
|
|
Diluted loss per common share:
|
|
|
|
Loss from continuing operations
|
$
|
(13.20)
|
|
|
$
|
(11.68)
|
|
Loss from discontinued operations
|
(11.22)
|
|
|
(5.14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(24.42)
|
|
|
$
|
(16.82)
|
|
|
|
|
|
Weighted average shares - basic
|
18,298,362
|
|
|
18,808,460
|
|
Weighted average shares - diluted
|
18,298,362
|
|
|
18,808,460
|
|
Refer to accompanying Notes to Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Net loss
|
$
|
(446,899)
|
|
|
$
|
(316,319)
|
|
Other comprehensive loss, net of tax:
|
|
|
|
Employee benefit plans:
|
|
|
|
Current period actuarial loss
|
$
|
(60,647)
|
|
|
$
|
(42,891)
|
|
Income tax
|
—
|
|
|
—
|
|
|
$
|
(60,647)
|
|
|
$
|
(42,891)
|
|
Less: reclassification adjustments for amounts reclassified to earnings due to amortization of net actuarial loss and settlements
|
7,278
|
|
|
7,405
|
|
Income tax
|
—
|
|
|
—
|
|
|
$
|
7,278
|
|
|
$
|
7,405
|
|
Total other comprehensive loss, net of tax
|
$
|
(53,369)
|
|
|
$
|
(35,486)
|
|
Total comprehensive loss
|
$
|
(500,268)
|
|
|
$
|
(351,805)
|
|
Refer to accompanying Notes to Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
139,227
|
|
|
$
|
212,803
|
|
Trade accounts receivable, net of allowance for doubtful accounts of $293 and $0 as of December 31, 2020 and 2019
|
145,670
|
|
|
224,173
|
|
Inventories, net
|
108,051
|
|
|
150,888
|
|
Prepaid expenses and other current assets
|
106,252
|
|
|
77,723
|
|
Current assets - discontinued operations
|
10,935
|
|
|
45,892
|
|
Total current assets
|
510,135
|
|
|
711,479
|
|
Property, plant, and equipment, net of accumulated depreciation and amortization of $382,423 and $256,378 as of December 31, 2020 and 2019
|
363,620
|
|
|
436,398
|
|
Owned and leased mineral rights, net of accumulated depletion and amortization of $35,143 and $27,548 as of December 31, 2020 and 2019
|
463,250
|
|
|
523,012
|
|
Other acquired intangibles, net of accumulated amortization of $25,700 and $26,806 as of December 31, 2020 and 2019
|
88,196
|
|
|
124,246
|
|
Long-term restricted cash
|
96,033
|
|
|
122,524
|
|
Deferred income taxes
|
—
|
|
|
33,065
|
|
Other non-current assets
|
149,382
|
|
|
189,475
|
|
Non-current assets - discontinued operations
|
9,473
|
|
|
162,624
|
|
Total assets
|
$
|
1,680,089
|
|
|
$
|
2,302,823
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Current portion of long-term debt
|
$
|
28,830
|
|
|
$
|
28,476
|
|
Trade accounts payable
|
58,413
|
|
|
82,725
|
|
Acquisition-related obligations - current
|
19,099
|
|
|
33,639
|
|
Accrued expenses and other current liabilities
|
140,406
|
|
|
139,479
|
|
Current liabilities - discontinued operations
|
12,306
|
|
|
30,833
|
|
Total current liabilities
|
259,054
|
|
|
315,152
|
|
Long-term debt
|
553,697
|
|
|
564,458
|
|
Acquisition-related obligations - long-term
|
20,768
|
|
|
46,259
|
|
Workers’ compensation and black lung obligations
|
230,081
|
|
|
228,850
|
|
Pension obligations
|
218,671
|
|
|
204,086
|
|
Asset retirement obligations
|
140,074
|
|
|
164,406
|
|
Deferred income taxes
|
480
|
|
|
422
|
|
Other non-current liabilities
|
28,072
|
|
|
26,822
|
|
Non-current liabilities - discontinued operations
|
29,090
|
|
|
56,246
|
|
Total liabilities
|
1,479,987
|
|
|
1,606,701
|
|
Commitments and Contingencies (Note 23)
|
|
|
|
Stockholders’ Equity
|
|
|
|
Preferred stock - par value $0.01, 5.0 million shares authorized, none issued
|
—
|
|
|
—
|
|
Common stock - par value $0.01, 50.0 million shares authorized, 20.6 million issued and 18.3 million outstanding at December 31, 2020 and 20.5 million issued and 18.2 million outstanding at December 31, 2019
|
206
|
|
|
205
|
|
Additional paid-in capital
|
779,424
|
|
|
775,707
|
|
Accumulated other comprehensive loss
|
(111,985)
|
|
|
(58,616)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost: 2.3 million shares at December 31, 2020 and 2019
|
(107,014)
|
|
|
(107,984)
|
|
(Accumulated deficit) retained earnings
|
(360,529)
|
|
|
86,810
|
|
Total stockholders’ equity
|
200,102
|
|
|
696,122
|
|
Total liabilities and stockholders’ equity
|
$
|
1,680,089
|
|
|
$
|
2,302,823
|
|
Refer to accompanying Notes to Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Operating activities:
|
|
|
|
Net loss
|
$
|
(446,899)
|
|
|
$
|
(316,319)
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
Depreciation, depletion and amortization
|
151,455
|
|
|
315,162
|
|
Amortization of acquired intangibles, net
|
10,075
|
|
|
(88)
|
|
Accretion of acquisition-related obligations discount
|
3,342
|
|
|
5,522
|
|
Amortization of debt issuance costs and accretion of debt discount
|
14,772
|
|
|
14,070
|
|
Mark-to-market adjustment for acquisition-related obligations
|
(8,750)
|
|
|
(3,564)
|
|
Loss on sale of business
|
36,113
|
|
|
—
|
|
(Gain) loss on disposal of assets
|
(2,401)
|
|
|
8,142
|
|
Gain on assets acquired in an exchange transaction
|
—
|
|
|
(9,083)
|
|
Accretion on asset retirement obligations
|
30,658
|
|
|
33,759
|
|
Employee benefit plans, net
|
14,439
|
|
|
20,846
|
|
Deferred income taxes
|
33,123
|
|
|
(12,098)
|
|
Goodwill impairment
|
—
|
|
|
124,353
|
|
Asset impairment and restructuring
|
256,518
|
|
|
83,485
|
|
Loss on modification and extinguishment of debt
|
—
|
|
|
26,459
|
|
Stock-based compensation
|
4,896
|
|
|
12,397
|
|
Equity in loss of affiliates
|
3,473
|
|
|
6,874
|
|
Other, net
|
(5,972)
|
|
|
(5,204)
|
|
Changes in operating assets and liabilities
|
|
|
|
Trade accounts receivable, net
|
91,190
|
|
|
47,424
|
|
Inventories, net
|
48,689
|
|
|
(40,694)
|
|
Prepaid expenses and other current assets
|
28,152
|
|
|
56,671
|
|
Deposits
|
(17,926)
|
|
|
15,170
|
|
Other non-current assets
|
(6,753)
|
|
|
(24,460)
|
|
Trade accounts payable
|
(28,620)
|
|
|
(28,148)
|
|
Accrued expenses and other current liabilities
|
15,428
|
|
|
(25,495)
|
|
Acquisition-related obligations
|
(32,560)
|
|
|
(28,128)
|
|
Asset retirement obligations
|
(19,375)
|
|
|
(111,616)
|
|
Other non-current liabilities
|
(43,831)
|
|
|
(33,557)
|
|
Net cash provided by operating activities
|
129,236
|
|
|
131,880
|
|
Investing activities:
|
|
|
|
Capital expenditures
|
(153,990)
|
|
|
(192,411)
|
|
Proceeds on disposal of assets
|
4,023
|
|
|
2,780
|
|
Cash paid on sale of business
|
(52,192)
|
|
|
—
|
|
Capital contributions to equity affiliates
|
(3,443)
|
|
|
(10,051)
|
|
Purchase of investment securities
|
(21,129)
|
|
|
(92,855)
|
|
Maturity of investment securities
|
16,685
|
|
|
100,250
|
|
Other, net
|
77
|
|
|
535
|
|
Net cash used in investing activities
|
(209,969)
|
|
|
(191,752)
|
|
Financing activities:
|
|
|
|
Proceeds from borrowings on debt
|
57,500
|
|
|
544,946
|
|
Principal repayments of debt
|
(59,768)
|
|
|
(552,809)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments of financing lease obligations
|
(3,176)
|
|
|
(3,654)
|
|
Debt issuance costs
|
—
|
|
|
(6,689)
|
|
Common stock repurchases and related expenses
|
(209)
|
|
|
(37,622)
|
|
Principal repayments of notes payable
|
(16,723)
|
|
|
(14,818)
|
|
Other, net
|
—
|
|
|
952
|
|
Net cash used in financing activities
|
(22,376)
|
|
|
(69,694)
|
|
Net decrease in cash and cash equivalents and restricted cash
|
(103,109)
|
|
|
(129,566)
|
|
Cash and cash equivalents and restricted cash at beginning of period
|
347,680
|
|
|
477,246
|
|
Cash and cash equivalents and restricted cash at end of period
|
$
|
244,571
|
|
|
$
|
347,680
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
Cash paid for interest
|
$
|
49,294
|
|
|
$
|
51,877
|
|
Cash paid for income taxes
|
$
|
5
|
|
|
$
|
3,039
|
|
Cash received for income tax refunds
|
$
|
68,801
|
|
|
$
|
72,236
|
|
Supplemental disclosure of noncash investing and financing activities:
|
|
|
|
Financing leases and capital financing - equipment
|
$
|
4,411
|
|
|
$
|
5,324
|
|
Accrued capital expenditures
|
$
|
7,493
|
|
|
$
|
4,110
|
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2020
|
|
2019
|
Cash and cash equivalents
|
$
|
139,227
|
|
|
$
|
212,793
|
|
Short-term restricted cash (included in Prepaid expenses and other current assets)
|
9,311
|
|
|
12,363
|
|
Long-term restricted cash
|
96,033
|
|
|
122,524
|
|
Total cash and cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows
|
$
|
244,571
|
|
|
$
|
347,680
|
|
Refer to accompanying Notes to Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Loss
|
|
Treasury Stock at Cost
|
|
Retained Earnings (Accumulated Deficit)
|
|
Total Stockholders’ Equity
|
Balances, December 31, 2018
|
$
|
202
|
|
|
$
|
761,301
|
|
|
$
|
(23,130)
|
|
|
$
|
(70,362)
|
|
|
$
|
403,129
|
|
|
1,071,140
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(316,319)
|
|
|
(316,319)
|
|
Other comprehensive loss, net
|
—
|
|
|
—
|
|
|
(35,486)
|
|
|
—
|
|
|
—
|
|
|
(35,486)
|
|
Stock-based compensation and net issuance of common stock for share vesting
|
1
|
|
|
13,455
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,456
|
|
Exercise of stock options
|
2
|
|
|
932
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
934
|
|
Common stock repurchases and related expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
(37,622)
|
|
|
—
|
|
|
(37,622)
|
|
Warrant exercises
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
Balances, December 31, 2019
|
$
|
205
|
|
|
$
|
775,707
|
|
|
$
|
(58,616)
|
|
|
$
|
(107,984)
|
|
|
$
|
86,810
|
|
|
$
|
696,122
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(446,899)
|
|
|
(446,899)
|
|
Credit losses cumulative-effect adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(440)
|
|
|
(440)
|
|
Other comprehensive loss, net
|
—
|
|
|
—
|
|
|
(53,369)
|
|
|
—
|
|
|
—
|
|
|
(53,369)
|
|
Stock-based compensation and net issuance of common stock for share vesting
|
1
|
|
|
3,717
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,718
|
|
Common stock repurchases and related expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
970
|
|
|
—
|
|
|
970
|
|
Balances, December 31, 2020
|
$
|
206
|
|
|
$
|
779,424
|
|
|
$
|
(111,985)
|
|
|
$
|
(107,014)
|
|
|
$
|
(360,529)
|
|
|
$
|
200,102
|
|
Refer to accompanying Notes to Consolidated Financial Statements.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
(1) Business and Basis of Presentation
Business
Alpha Metallurgical Resources, Inc. (“Alpha” or the “Company”), previously named Contura Energy, Inc., 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 products for the steel industry.
The Company was formed to acquire and operate certain of Alpha Natural Resources, Inc.’s core coal operations, as part of the Alpha Natural Resources, Inc. bankruptcy reorganization. The Company began operations on July 26, 2016 and currently operates mines in the Central Appalachia region.
A merger with ANR, Inc. and Alpha Natural Resources Holdings, Inc. (together, the "Merger Companies”) was completed on November 9, 2018 (the “Merger”) pursuant to terms of the definitive merger agreement (the “Merger Agreement”). Upon the consummation of the transactions contemplated by the Merger Agreement, the Company began trading on the New York Stock Exchange under the ticker “CTRA.”
Effective February 1, 2021, the Company changed its corporate name from Contura Energy, Inc. to Alpha Metallurgical Resources, Inc. to more accurately reflect its strategic focus on the production of metallurgical coal. Following the effectiveness of its name change, the Company’s ticker symbol on the New York Stock Exchange changed from “CTRA” to “AMR” effective on February 4, 2021.
Basis of Presentation
Together, the consolidated balance sheet and consolidated statements of operations, comprehensive loss, cash flows and stockholders’ equity for the Company are referred to as the “Financial Statements.” The Financial Statements are also referred to as “Consolidated” and references across periods are generally labeled “Balance Sheets,” “Statements of Operations,” and “Statements of Cash Flows.”
The Consolidated Financial Statements include all wholly owned subsidiaries’ results of operations for the years ended December 31, 2020 and 2019. All significant intercompany transactions have been eliminated in consolidation.
On December 10, 2020, the Company closed on a transaction with Iron Senergy Holdings, LLC, to sell its thermal coal mining operations located in Pennsylvania consisting primarily of our Cumberland mining complex and related property (the Company’s former Northern Appalachia (“NAPP”) operations). On December 8, 2017, the Company closed a transaction with Blackjewel L.L.C. to sell the Eagle Butte and Belle Ayr mines located in the Powder River Basin (“PRB”), Wyoming, along with related coal reserves, equipment, infrastructure and other real properties. Refer to Note 3 for information related to Blackjewel L.L.C.’s subsequent bankruptcy filing and the related ESM transaction. The Company’s former NAPP and PRB operations results of operations and financial position are reported as discontinued operations in the Consolidated Financial Statements. The historical information in the accompanying Notes 2, 3, 4, 6, 7, 9, 10, 11, 12, 14, 15, 17, 18, 19, 20, 23, 24, and 25 to the Consolidated Financial Statements has been restated to reflect the effects of the former NAPP and PRB operations being reported as discontinued operations in the Consolidated Financial Statements. Refer to Note 3 for further information on discontinued operations.
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Liquidity Risks and Uncertainties
Weak market conditions and depressed coal prices have resulted in operating losses. If market conditions do not improve, the Company may experience continued operating losses and cash outflows in the coming quarters, which would adversely affect its liquidity. The Company may need to raise additional funds more quickly if market conditions deteriorate and may not be able to do so in a timely fashion, or at all. The Company believes it will have sufficient liquidity to meet its working capital requirements, anticipated capital expenditures, debt service requirements, acquisition-related obligations, and reclamation obligations for the 12 months subsequent to the issuance of these financial statements. The Company relies
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
on a number of assumptions in budgeting for future activities. These include the costs for mine development to sustain capacity of its operating mines, 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, contingencies and risks, all of which are difficult to predict and many of which are beyond the Company’s control. Therefore, the cash on hand and from future operations will be subject to any significant changes in these assumptions.
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. A continued period of reduced demand for the Company’s products could have significant adverse consequences. 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 and spread of the outbreak, its impact on its customers and suppliers and the range of governmental and community reactions to the pandemic, which are still uncertain and cannot be fully predicted at this time.
As further described in Note 15, on March 20, 2020, the Company borrowed funds under a senior secured asset-based revolving credit facility. The funds were borrowed to augment the Company’s short-term operational flexibility in the face of uncertainty created by the current spread of the COVID-19 virus and its potential effects. In the first quarter of 2021, the Company repaid the remaining $3,350 of borrowed funds as of December 31, 2020.
In response to the COVID-19 pandemic, on March 27, 2020, the “Coronavirus Aid, Relief, and Economic Security
Act” (“CARES Act”) was enacted into law. As a result, the Company received $66,130 of accelerated refunds of previously generated alternative minimum tax (“AMT”) credits from the Internal Revenue Service (“IRS”) during the fourth quarter of 2020 as further described in Note 19 and deferred 2020 employer payroll taxes incurred after the date of enactment of $15,109, including discontinued operations, with two future payments of $7,554 each due by December 31, 2021 and 2022.
On April 3, 2020, the Company announced temporary operational changes in response to market conditions, existing coal inventory levels, and customer deferrals due to concern around the global economic impact of the COVID-19 pandemic. Beginning April 3, 2020, the majority of the Company’s operations were idled for a period of approximately 30 days, with some sites idling for shorter periods of time and a few continuing to operate at a near-normal rate of production. Location-specific schedules were implemented based on existing customer agreements, current inventory levels, and anticipated customer demand. Certain preparation plants, docks, and loadouts continued to operate to support business needs and customer shipments. As of May 4, 2020, all Company sites were back to nearly normal staffing levels and operating capacity with additional precautions in place to help reduce the risk of exposure to COVID-19. Refer to Note 8 for discussion of certain strategic actions announced during the second quarter of 2020 with respect to two thermal coal mining complexes in an effort to strengthen the Company’s financial performance. The Company will continue to evaluate market conditions amid the continuing uncertainty of the COVID-19 pandemic and expects to adjust its operations accordingly.
(2) Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Company’s Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include inventories; mineral reserves; asset impairments; goodwill impairment; reclamation obligations; post-employment and other employee benefit obligations; useful lives, depletion and amortization; reserves for workers’ compensation and black lung claims; deferred income taxes; income taxes refundable and receivable; reserves for contingencies and litigation; fair value of financial instruments; and fair value adjustments for acquisition accounting. Estimates are based on facts and circumstances believed to be reasonable at the time; however, actual results could differ from those estimates.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash held with reputable depository institutions and highly liquid, short-term investments with original maturities of three months or less. Cash and cash equivalents are stated at cost, which approximates fair value. As of December 31, 2020 and December 31, 2019, the Company’s cash equivalents of $139,227 and $212,803, respectively, consisted of highly-rated money market funds.
Restricted Cash
Amounts included in restricted cash represent cash deposits that are restricted as to withdrawal as required by certain agreements entered into by the Company and provide collateral in the amounts of $69,725, $8,445, and $17,863 as of December 31, 2020 to secure workers’ compensation and black lung obligations, reclamation-related obligations, and financial payments and other performance obligations, respectively, which have been written on the Company’s behalf. As of December 31, 2019, collateral was provided in the amounts of $51,650, $67,868, and $3,006 to secure workers’ compensation and black lung obligations, reclamation-related obligations, and financial payments and other performance obligations, respectively, which have been written on the Company’s behalf. The Company’s restricted cash is primarily invested in interest-bearing accounts. This restricted cash is classified as long-term on the Company’s Consolidated Balance Sheets. Additionally, as of December 31, 2020 and 2019, the Company had $9,311 and $12,363, respectively, of short-term restricted cash held in escrow related to the Company’s contingent revenue payment obligation. Refer to Note 16 for further information regarding the contingent payment revenue obligation.
Restricted Investments
Restricted investments consist of Federal Deposit Insurance Company (“FDIC”) insured certificates of deposit, mutual funds, and U.S. treasury bills classified as either trading securities or held-to-maturity securities. Trading securities are recorded initially at cost and are adjusted to fair value at each reporting period with unrealized gains and recorded in current period earnings or loss. Held-to-maturity securities are recorded at amortized cost with interest income recorded in current period earnings. As of December 31, 2020, $22,498 and $1,270 were classified as trading and held-to-maturity securities, respectively. As of December 31, 2019, $11,021 and $8,378 were classified as trading and held-to-maturity securities, respectively. Given the nature of the underlying investments, the Company does not expect any credit losses and has not recorded any credit losses with respect to its held-to-maturity portfolio.
Restricted investments are restricted as to withdrawal by certain agreements and provide collateral in the amounts of $51, $22,233, and $1,484 as of December 31, 2020 to secure workers’ compensation obligations, reclamation-related obligations, and financial payments and other performance obligations, respectively. As of December 31, 2019, collateral was provided in the amounts of $613 and $18,786 to secure workers’ compensation obligations and reclamation-related obligations, respectively. These restricted investments are classified as long-term on the Company’s Consolidated Balance Sheets.
Deposits
Deposits represent cash deposits held at third parties as required by certain agreements entered into by the Company to provide cash collateral. The Company had cash collateral in the form of deposits in the amounts of $25,633, $1,596, and $1,018 as of December 31, 2020 to secure reclamation-related obligations, financial payments and other performance obligations, and various other operating agreements, respectively. The Company had cash collateral in the form of deposits in the amounts of $8,887 and $1,423 as of December 31, 2019 to secure the Company’s obligations under reclamation-related obligations and various other operating agreements, respectively. These deposits are classified as both short-term and long-term on the Company’s Consolidated Balance Sheets.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at their invoiced amounts and do not bear interest. The Company markets its coal primarily to domestic and international steel producers and electric utilities in the United States. Credit is extended based on an evaluation of a customer’s financial condition, including a review of third-party credit score information. Collateral is generally not required. Accounts receivable balances are monitored against approved credit limits. Credit limits are monitored and adjusted as considered necessary based on changes to a customer’s credit profile. If a customer’s credit deteriorates, the Company may reduce credit risk exposure by reducing credit limits, obtaining letters of credit, obtaining credit insurance, or requiring pre-payment for shipments. Credit losses have historically not been material. Account balances are written-off against
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Refer to Note 24 for further information.
Inventories
Coal is reported as inventory at the point in time the coal is extracted from the mine. Raw coal represents coal stockpiles that may be sold in current condition or may be further processed prior to shipment to a customer. Saleable coal represents coal stockpiles that require no further processing prior to shipment to a customer.
Coal inventories are valued at the lower of average cost or net realizable value. The cost of coal inventories is determined based on the average cost of production, which includes labor, supplies, equipment costs, operating overhead, depreciation, and other related costs. Net realizable value considers the projected future sales price of the product, less estimated preparation and selling costs.
Material and supplies inventories are valued at average cost, less an allowance for obsolete and surplus items.
Discontinued Operations
In accordance with Accounting Standards Codification (“ASC”) 205-20-45, the Company treats a disposal transaction as a discontinued operation when the disposal of a component or group of components represents a strategic shift that will have a major effect on the Company’s operations and financial results. In the period in which the discontinued operations criteria are met, the assets and liabilities of the discontinued operations are separately presented on the Company's Consolidated Balance Sheets and the results of operations, including any gain or loss recognized, is reclassified to discontinued operations on the Company’s Consolidated Statement of Operations. Refer to Note 3 for further information on discontinued operations.
Deferred Longwall Move Expenses
The Company deferred the direct costs, including labor and supplies, associated with moving longwall equipment, the related equipment refurbishment costs, costs to drill vent holes and plug existing gas wells in advance of the longwall panel associated with its former NAPP operations included in discontinued operations of the Consolidated Balance Sheets as of December 31, 2020 and 2019. Refer to Note 3. These deferred costs were amortized on a units-of-production basis into cost of coal sales over the life of the related panel of coal mined by the longwall equipment.
Advanced Mining Royalties
Lease rights to coal reserves are often acquired in exchange for royalty payments. Advance mining royalties are advance payments made to lessors under terms of mineral lease agreements that are recoupable against future production royalties. These advance payments are deferred and charged to operations as the coal reserves are mined. The Company regularly reviews recoverability of advance mining royalties and establishes or adjusts the allowance for advance mining royalties as necessary using the specific identification method. Advance royalty balances are generally charged off against the allowance when they are no longer recoupable.
Property, Plant, and Equipment, Net
Costs for mine development incurred to expand capacity of operating mines or to develop new mines are capitalized and charged to operations on the units-of-production method over the estimated proven and probable reserve tons directly benefiting from the capital expenditures. Mine development costs include costs incurred for site preparation and development of the mines during the development stage less any incidental revenue generated during the development stage. Mining equipment, buildings and other fixed assets are stated at cost and depreciated on a straight-line basis over estimated useful lives ranging from one to 25 years. Leasehold improvements are amortized using the straight-line method, over the shorter of the estimated useful lives or term of the lease. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred. When equipment is retired or disposed, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposal is recognized in other (income) expense in the Company’s Consolidated Statements of Operations. Costs to obtain owned and leased mineral rights are capitalized and amortized to operations as depletion expense using the units-of-production method. Only proven and probable reserves are included in the depletion base. Refer to Note 10 for further detail on
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
property, plant and equipment, net.
Owned and Leased Mineral Rights
Owned and leased mineral rights, net of accumulated depletion, for the years ended December 31, 2020 and 2019 were $463,250 and $523,012, respectively, and are reported in assets in the Company’s Consolidated Balance Sheets. These amounts include $10,491 and $36,723 of asset retirement obligation assets, net of accumulated depletion, associated with active mining operations for the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2020 and 2019, the Company recorded a long-lived asset impairment which reduced the carrying value of owned and leased mineral rights, net, by $41,579 and $35,445, respectively. Refer to the asset impairment disclosure included in Note 8.
Costs to obtain owned and leased mineral rights are capitalized and amortized to operations as depletion expense using the units-of-production method. Only proven and probable reserves are included in the depletion base. Depletion expense is included in depreciation, depletion and amortization on the accompanying Consolidated Statements of Operations and was ($13,746) and $14,551 for the years ended December 31, 2020 and 2019, respectively.
Depletion expense for the years ended December 31, 2020 and 2019 includes a credit of ($34,377) and ($7,162), respectively, related to revisions to asset retirement obligations. Refer to Note 17 for further disclosures related to asset retirement obligations.
Leases
In accordance with ASC 842, the Company recognizes right of use assets and lease liabilities on the balance sheet for all leases with a term longer than 12 months. Some of these leases include both lease and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to combine these components for all leases. The discount rates used to determine the present value of the lease assets and liabilities are based on the Company’s incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. As the rates implicit in most of the Company’s leases are not readily determinable, the Company uses a collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The Company uses the portfolio approach and group leases by short-term and long-term categories, applying the corresponding incremental borrowing rates to these categories of leases. For leases with a term of 12 months or less, no right of use assets or liabilities are recognized on the balance sheet and the Company recognizes the lease expense on a straight-line basis over the lease term. Additionally, the Company recognizes variable lease payments as an expense in the period incurred.
Refer to Note 12 for disclosures related to leases and the Recently Adopted Accounting Guidance section below for further detail related to the initial adoption of the leases accounting standards.
Acquired Intangibles
The Company has recognized assets for acquired above market-priced coal supply agreements and acquired mine permits and liabilities for acquired below market-priced coal supply agreements. The coal supply agreements were valued based on the present value of the difference between the expected net contractual cash flows based on the stated contract terms, and the estimated net contractual cash flows derived from applying forward market prices at the Merger or acquisition date for new contracts of similar terms and conditions. The acquired mine permits were valued based on the replacement cost and lost profits method as of the Merger date. The balances and respective balance sheet classifications of such assets and liabilities as of December 31, 2020 and 2019, net of accumulated amortization, are set forth in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Assets (1)
|
|
Liabilities (2)
|
|
Net Total
|
Coal supply agreements, net
|
$
|
—
|
|
|
$
|
(327)
|
|
|
$
|
(327)
|
|
Acquired mine permits, net
|
88,196
|
|
|
—
|
|
|
88,196
|
|
Total
|
$
|
88,196
|
|
|
$
|
(327)
|
|
|
$
|
87,869
|
|
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Assets (1)
|
|
Liabilities (2)
|
|
Net Total
|
Coal supply agreements, net
|
$
|
18
|
|
|
$
|
(6,018)
|
|
|
$
|
(6,000)
|
|
Acquired mine permits, net
|
124,228
|
|
|
—
|
|
|
124,228
|
|
Total
|
$
|
124,246
|
|
|
$
|
(6,018)
|
|
|
$
|
118,228
|
|
(1) Included within other acquired intangibles, net of accumulated amortization, on the Company’s Consolidated Balance Sheets.
(2) Included within other non-current liabilities on the Company’s Consolidated Balance Sheets.
During the years ended December 31, 2020 and 2019, the Company recorded long-lived asset impairments which reduced the carrying value of acquired mine permits, net, by $21,144 and $5,997. Refer to Note 8 for further information.
The acquired mine permits are amortized over the estimated life of the associated mine. The coal supply agreement assets and liabilities are amortized over the actual number of tons shipped over the life of each contract. The following table details the amortization of mine permits acquired as a result of the Merger and the amortization of above-market and below-market coal supply agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Amortization of mine permits (1)
|
$
|
14,887
|
|
|
$
|
23,921
|
|
|
|
|
|
Amortization of above-market coal supply agreements
|
$
|
18
|
|
|
$
|
783
|
|
Amortization of below-market coal supply agreements
|
(5,691)
|
|
|
(27,893)
|
|
Net income (1)
|
$
|
(5,673)
|
|
|
$
|
(27,110)
|
|
(1) Included within amortization of acquired intangibles, net in the Consolidated Statements of Operations.
Future net amortization expense related to acquired intangibles is expected to be as follows:
|
|
|
|
|
|
2021
|
$
|
9,712
|
|
2022
|
10,039
|
|
2023
|
10,028
|
|
2024
|
8,677
|
|
2025
|
8,672
|
|
Thereafter
|
40,741
|
|
Total net future amortization expense
|
$
|
87,869
|
|
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets of acquired companies. In connection with the Merger in 2018, the Company recorded goodwill of $124,353 and allocated it to the Met reportable segment. Goodwill is not amortized; instead, it is tested for impairment annually as of October 31 of each year or more frequently if indicators of impairment exist.
The Company performed an interim goodwill impairment test as of August 31, 2019 due to a decline in the Company’s market capitalization to amounts below book value combined with a decline in global metallurgical coal pricing which indicated that the fair value of the Met segment reporting unit may have been below its carrying value. Following the quantitative testing, the Company concluded that the fair value of the reporting unit exceeded its carrying value and no amount of goodwill was impaired. As of October 31, 2019, the Company performed its annual goodwill impairment test and concluded that more likely than not the fair value of its Met reporting unit to which the Company’s goodwill is allocated exceeded its carrying value. As a result, no amount of goodwill was considered impaired as a result of impairment testing at October 31, 2019.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
However, due to the continued weakening in coal market pricing combined with a significant market price decline for the Company’s stock late in the fourth quarter of 2019, the Company performed an interim goodwill impairment test as of December 31, 2019. Following the quantitative testing, the Company concluded that the carrying value of the Met reporting unit exceeded its fair value and recorded a goodwill impairment of $124,353 to write down the full carrying amount of goodwill.
The Company early adopted Accounting Standards Update (“ASU”) 2017-04 for the period ended December 31, 2017, which eliminated Step 2 of the quantitative goodwill impairment test. The Company first assesses goodwill for impairment on a qualitative basis. If the Company determines that more likely than not the fair value of a reporting unit containing goodwill exceeds its carrying amount, no further impairment testing is required. If the qualitative assessment indicates that an impairment potentially exists, then the Company quantitatively tests goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit is lower than its carrying amount, its goodwill is written down by the lesser of the amount by which the reporting units carrying amount exceeded its fair value or its carrying amount of goodwill.
The valuation methodology utilized to estimate the fair value of the reporting units is based on both a market and income approach and is within the range of fair values yielded under each approach. The income approach is based on a discounted cash flow methodology based on estimates of future sales volumes, coal prices, production costs, and a risk-adjusted cost of capital. These estimates generally constitute unobservable Level 3 inputs under the fair value hierarchy. The market approach is based on a guideline company and similar transaction methodology. Under the guideline company approach, certain metrics from a selected group of publicly traded guideline companies that have similar operations to the Company’s reporting units are used to estimate the fair value of the reporting units. Under the similar transactions approach, recent merger and acquisition transactions for companies that have similar operations to the Company’s reporting units are used to estimate the fair value of the Company’s reporting units.
The following table summarizes the changes in goodwill for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
Measurement-Period Adjustments (2)
|
|
Impairments
|
|
Balance as of December 31, 2019
|
Goodwill (1)
|
$
|
95,624
|
|
|
$
|
28,729
|
|
|
$
|
(124,353)
|
|
|
$
|
—
|
|
(1) There was no goodwill activity during the year ended December 31, 2020.
(2) Prior to the finalization of the Merger purchase price allocation, the Company recorded measurement-period adjustments to the provisional opening balance sheet primarily to property, plant, and equipment, owned and leased mineral rights, asset retirement obligations, and certain actuarial liabilities.
Asset Impairment
Long-lived assets, such as property, plant, and equipment, mineral rights, and acquired intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset groups may not be recoverable. Recoverability of assets or asset groups to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. Long-lived assets located in a close geographic area are grouped together for purposes of impairment testing when, after considering revenue and cost interdependencies, circumstances indicate the assets are used together to produce future cash flows. The Company’s asset groups generally consist of the assets and applicable liabilities of one or more mines and preparation plants and associated coal reserves for which cash flows are largely independent of cash flows of other mines, preparation plants, and associated coal reserves. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, the potential impairment is equal to the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. The Company estimates the fair value of an asset group generally using discounted cash flow analysis based on estimates of future sales volumes, coal prices, production costs, and a risk-adjusted cost of capital. These estimates generally constitute unobservable Level 3 inputs under the fair value hierarchy. The amount of impairment, if any, is allocated to the long-lived assets on a pro-rata basis, except that the carrying value of the individual long-lived assets are not reduced below their estimated fair value. Refer to Note 8.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Asset Retirement Obligations
Minimum standards for mine reclamation have been established by various regulatory agencies and dictate the reclamation requirements at the Company’s operations. The Company’s asset retirement obligations consist principally of costs to reclaim acreage disturbed at surface operations and estimated costs to reclaim support acreage, treat mine water discharge, and perform other related functions at underground mines. The Company records these reclamation obligations at fair value in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. Changes to the liability at operations that are not currently being reclaimed are offset by increasing or decreasing the carrying amount of the related long-lived asset. Changes to the liability at operations that are currently being reclaimed are recorded to depreciation, depletion, and amortization. Over time, the liability is accreted and any capitalized cost is depreciated or depleted over the useful life of the related asset. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recorded. The Company annually reviews its estimated future cash flows for its asset retirement obligations. Refer to Note 17 for further disclosures related to asset retirement obligations.
During the year ended December 31, 2019, the Company recorded a long-lived asset impairment which reduced the carrying value of long-lived assets related to asset retirement obligations by $1,671. Refer to the asset impairment disclosure included in Note 8.
Income Taxes
The Company recognizes deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. In evaluating its ability to recover deferred tax assets within the jurisdiction in which they arise, the Company considers all available positive and negative evidence, including the expected reversals of taxable temporary differences, projected future taxable income, taxable income available via carryback to prior years, tax planning strategies, and results of recent operations. The Company assesses 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 that 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. Refer to Note 19 for further disclosures related to income taxes.
Deferred Financing Costs
The costs to obtain new debt financing or amend existing financing agreements are generally deferred and amortized to interest expense over the life of the related indebtedness or credit facility using the effective interest method. Unamortized deferred financing costs are presented in the Consolidated Balance Sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Unamortized deferred financing costs associated with undrawn credit facilities are included in the Consolidated Balance Sheets within other non-current assets.
Revenue Recognition
In accordance with ASC 606 Revenue from Contracts with Customers (“ASC 606”), the Company measures revenue based on the consideration specified in a contract with a customer and recognizes revenue as a result of satisfying its promise to transfer goods or services in a contract with a customer using the following general revenue recognition five-step model: (1) identify the contract; (2) identify performance obligations; (3) determine transaction price; (4) allocate transaction price; and (5) recognize revenue. Freight and handling costs paid to third-party carriers and invoiced to coal customers are recorded as freight and handling costs and freight and handling fulfillment revenues within cost of coal sales and coal revenues, respectively. Refer to Note 4 for further disclosures related to revenue.
Workers’ Compensation and Pneumoconiosis (Black Lung) Benefits
Workers’ Compensation
As of December 31, 2020, the Company’s subsidiaries generally utilize high-deductible insurance programs for workers’ compensation claims at its operations with the exception of certain subsidiaries in which the Company is a qualified self-insurer
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
for workers’ compensation obligations. The liabilities for workers’ compensation claims are estimates of the ultimate losses incurred based on the Company’s experience and include a provision for incurred but not reported losses. Adjustments to the probable ultimate liabilities are made annually based on an actuarial study and adjustments to the liability are recorded based on the results of this study. These short-term and long-term obligations are included in the Consolidated Balance Sheets within accrued expenses and other current liabilities and workers’ compensation and black lung obligations, respectively, with an offsetting insurance receivable within prepaid expenses and other current assets and other non-current assets. As of December 31, 2020 and 2019, the workers’ compensation liability was net of a discount of $24,061 and $24,680, respectively, related to fair value adjustments associated with acquisition accounting. Refer to Note 20 for further disclosures related to workers’ compensation.
Black Lung Benefits
The Company is required by federal and state statutes to provide benefits to employees for awards related to black lung. As of December 31, 2020, certain of the Company’s subsidiaries are insured for black lung obligations by a third-party insurance provider and certain subsidiaries are self-insured for state black lung obligations. Certain other subsidiaries are self-insured for federal black lung benefits and may fund benefit payments through a Section 501(c)(21) tax-exempt trust fund. Charges are made to operations for black lung claims, as determined by an independent actuary at the present value of the actuarially computed liability for such benefits over the employee’s applicable term of service. The Company recognizes in its balance sheet the amount of the Company’s unfunded Accumulated Benefit Obligation (“ABO”) at the end of the year. Amounts recognized in accumulated other comprehensive income (loss) are adjusted out of accumulated other comprehensive income (loss) when they are subsequently recognized as components of net periodic benefit cost. These short-term and long-term obligations are included in the Consolidated Balance Sheets within accrued expenses and other current liabilities and workers’ compensation and black lung obligations, respectively. Refer to Note 20 for further disclosures related to black lung benefits.
Pension
The Company is required to recognize the overfunded or underfunded status of a defined benefit pension plan as an asset or liability in its Consolidated Balance Sheets and to recognize changes in that funded status in the year in which the changes occur through other comprehensive (loss) income. The Company is required to measure plan assets and benefit obligations as of the date of the Company’s fiscal year-end Consolidated Balance Sheet and provide the required disclosures as of the end of each fiscal year. Refer to Note 20 for further disclosures related to pension.
Postretirement Life Insurance Benefits
As part of the Alpha Natural Resources, Inc. bankruptcy reorganization plan and the Retiree Committee Settlement Agreement, the Company assumed the liability for life insurance benefits for certain disabled and non-union retired employees. Provisions are made for estimated benefits based on annual evaluations prepared by independent actuaries. Adjustments to the probable ultimate liabilities are made annually based on an actuarial study and adjustments to the liability are recorded based on the results of this study. These obligations are included in the Consolidated Balance Sheet as accrued expenses and other current liabilities and other non-current liabilities. Refer to Note 20 for further disclosures related to postretirement life insurance benefits.
Net (Loss) Income per Share
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of outstanding common shares for the period. Diluted (loss) earnings per share reflects the potential dilution that could occur if instruments that may require the issuance of common shares in the future were settled and the underlying common shares were issued. Diluted (loss) earnings per share is computed by increasing the weighted-average number of outstanding common shares computed in basic (loss) earnings per share to include the additional common shares that would be outstanding after issuance and adjusting net (loss) income for changes that would result from the issuance. Only those securities that are dilutive are included in the calculation. In periods of loss, the number of shares used to calculate diluted earnings is the same as basic earnings per share. Refer to Note 6 for further disclosures related to net (loss) income per share.
Stock-Based Compensation
The Company recognizes expense for stock-based compensation awards based on their grant-date fair value. The expense
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
is recorded over the respective service period of the underlying award. Liability classified stock-based compensation awards are remeasured each reporting period at fair value until the award is settled. The Company recognizes forfeitures of stock-based compensation awards as they occur. Refer to Note 21 for further disclosures related to stock-based compensation arrangements.
Warrants
On July 26, 2016 (the “Initial Issue Date”), the Company issued 810,811 warrants, which are classified as equity instruments, each with an initial exercise price, as defined in the Series A Warrants Agreement (the “Warrants Agreement”), of $55.93 per share of common stock and exercisable for one share of the Alpha’s common stock, par value $0.01 per share. Pursuant to the Warrants Agreement, the warrants are exercisable for cash or on a cashless basis at any time from the Initial Issue Date until July 26, 2023, and no fractional shares shall be issued upon warrant exercises. The exercise price and the warrant share number will be adjusted in respect of certain dilutive events with respect to the common stock (namely, dividends or distributions on the common stock, share splits and combinations, above-market tender offers for common stock by the Company or a subsidiary thereof, and discounted issuances of common stock or rights or options to purchase common stock or securities convertible or exchangeable into common stock). Additionally, in the case of any reorganization (i.e., a consolidation, merger, or sale of all or substantially all of the consolidated assets of Alpha) pursuant to which the common stock is converted into cash, securities or other property, the warrants would become exercisable for such property. As of December 31, 2020 and 2019, the exercise price was $46.911 per share and the warrant share number was equal to 1.15, as adjusted in respect to certain diluted events with respect to the common stock during 2017 and 2018.
As of December 31, 2020 and 2019, of the 810,811 warrants that were originally issued, 801,370 remained outstanding, with a total of 921,576 shares underlying the un-exercised warrants. For the year ended December 31, 2020, there were no warrant exercises. For the year ended December 31, 2019, the Company issued 414 shares of common stock resulting from exercises of its Series A Warrants and, pursuant to the terms of the Warrants Agreement, withheld five of the issued shares in satisfaction of the warrant exercise price, which were subsequently reclassified as treasury stock.
Equity Method Investments
Investments in unconsolidated affiliates that the Company has the ability to exercise significant influence over, but not control, are accounted for under the equity method of accounting. Under the equity method of accounting, the Company records its proportionate share of the entity’s net income or loss at each reporting period in the Consolidated Statements of Operations in other (expense) income, with a corresponding entry to increase or decrease the carrying value of the investment. The carrying value of the Company’s equity method investments was $18,383 and $18,413 as of December 31, 2020 and 2019, respectively.
Recently Adopted Accounting Guidance
Leases: In February 2016, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update and subsequent amendments related to ASC 842, Leases, (“ASC 842”). ASC 842 requires a lessee to recognize a right-of-use asset and a lease liability on the balance sheet. The Company adopted ASC 842 effective January 1, 2019 and elected the option not to restate comparative periods in transition and also elected the hindsight practical expedient, which allows the Company to use hindsight when considering lessee options to extend or terminate leases when determining the lease term of lease arrangements for classification purposes, and the package of practical expedients for all leases within the standard, which permits the Company not to reassess its prior conclusions about lease identification, lease classification, and initial direct costs. Additionally, the Company elected the transition practical expedient to continue to account for existing and expired land easements at transition as executory contracts. Only land easements entered into or modified after the effective date of ASC 842 are accounted for as leases by the Company.
As a result of the adoption, the Company recorded operating lease right-of-use assets and lease liabilities on our Consolidated Balance Sheet. The following table summarizes the impact of the adoption of ASC 842 to the Company’s Consolidated Balance Sheet:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
Adjustments
|
|
Balance at January 1, 2019
|
Assets
|
Balance Sheet Classification
|
|
|
|
|
|
Operating lease right-of-use assets
|
Other non-current assets
|
$
|
—
|
|
|
$
|
10,136
|
|
|
$
|
10,136
|
|
Financing lease assets
|
Property, plant, and equipment, net
|
9,786
|
|
|
—
|
|
|
9,786
|
|
Total lease assets
|
|
$
|
9,786
|
|
|
$
|
10,136
|
|
|
$
|
19,922
|
|
|
|
|
|
|
|
|
Liabilities
|
Balance Sheet Classification
|
|
|
|
|
|
Operating lease liabilities - current
|
Accrued expenses and other current liabilities
|
$
|
—
|
|
|
$
|
3,232
|
|
|
$
|
3,232
|
|
Financing lease liabilities - current
|
Current portion of long-term debt
|
2,110
|
|
|
—
|
|
|
2,110
|
|
Operating lease liabilities - long-term
|
Other non-current liabilities
|
—
|
|
|
6,904
|
|
|
6,904
|
|
Financing lease liabilities - long-term
|
Long-term debt
|
4,313
|
|
|
—
|
|
|
4,313
|
|
Total lease liabilities
|
|
$
|
6,423
|
|
|
$
|
10,136
|
|
|
$
|
16,559
|
|
The adoption of ASC 842 did not have a material impact on our Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss, or Consolidated Statements of Cash Flows. Refer to Note 12 for further disclosure requirements under the new standard.
Credit Losses: In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Credit Losses (“ASU 2016-13”). ASU 2016-13, along with related amendments and improvements issued in 2018 and 2019, replaces the previous incurred loss impairment methodology in U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable supportable information to inform credit loss estimates for financial instruments that are in the scope of this update, including trade accounts receivable. The Company adopted ASU 2016-13 during the first quarter of 2020. The adoption of this ASU did not have a material impact on the Company's Consolidated Financial Statements and related disclosures and resulted in a cumulative-effect adjustment to retained earnings of $440 in the Consolidated Balance Sheet as of January 1, 2020.
Fair Value Measurement: In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this update modify the disclosure requirements for fair value measurements. The Company adopted ASU 2018-13 during the first quarter of 2020. The adoption of this ASU did not have a material impact on the Company's Consolidated Financial Statements and related disclosures.
Income Taxes: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted ASU 2019-12 during the first quarter of 2020. The adoption of this ASU did not have a material impact on the Company's Consolidated Financial Statements and related disclosures.
Reference Rate Reform: In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in this update provide optional expedients and exceptions, if certain criteria are met, for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company adopted ASU 2020-04, with respect to topics in Accounting Standards Codification (“ASC”) 310 Receivables, ASC 470 Debt, ASC 815 Derivatives and Hedging and ASC 842 Leases, during the first quarter of 2020. The adoption of this ASU did not have a material impact on the Company's Consolidated Financial Statements and related disclosures.
Defined Benefit Plans: In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Benefit Plans—General (Subtopic 715-20) Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. For public business entities, the standard is effective for fiscal years ending after December 15, 2020. The Company adopted ASU 2018-14 during the fourth quarter of 2020. The adoption of this ASU did not have a material impact on the Company's Consolidated Financial Statements and related disclosures.
Recent Accounting Guidance Issued Not Yet Effective
Convertible Debt and Contracts in Entity’s Own Equity: In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The amendments in this update simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity, such as the Company’s outstanding Series A warrants. For public business entities, the standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements and related disclosures.
(3) Discontinued Operations
Discontinued operations consisted of activity related to the Company’s former NAPP and PRB operations.
Former NAPP Operations
On November 11, 2020, the Company entered into an unit purchase agreement (the “UPA”) to sell its thermal coal mining operations located in Pennsylvania consisting primarily of its Cumberland mining complex and related property (“Cumberland Transaction”) to a third party purchaser Iron Senergy Holdings, LLC (“Iron Senergy”). The Cumberland Transaction closed on December 10, 2020. In accordance with terms of the UPA, the Company transferred its equity interests in certain subsidiaries (Cumberland Contura, LLC, Contura Coal Resources, LLC, Contura Pennsylvania Land, LLC, Emerald Contura, LLC, and Contura Pennsylvania Terminal, LLC) along with total consideration of $49,987 to Iron Senergy. Pursuant to the terms of the UPA, the Company also retained certain assets and liabilities associated with its former NAPP operations. The mining permits associated with the Cumberland mining operations were obtained by Iron Senergy at closing. Due to the administrative process, the Company expects the release of the Company’s existing surety bonds and the acceptance of Iron Senergy’s replacement bonds to be completed by March 30, 2021.
The following table presents the details of the Cumberland Transaction:
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
Cash
|
$
|
19,987
|
|
Surety bonding collateral
|
30,000
|
|
Total consideration
|
49,987
|
|
Transaction costs
|
2,205
|
|
Carrying value of assets and liabilities (1)
|
$
|
(16,079)
|
|
Loss on sale
|
$
|
36,113
|
|
(1) Assets and liabilities were primarily comprised of property, plant and equipment, net of $32,872, deferred longwall move expenses of $15,173, and coal and supplies inventory of $5,112 and asset retirement obligations of $39,573, severance of $17,143, black lung obligations of $8,290, and subsidence liability of $3,559.
In connection with the UPA, the Company entered into 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. As the Company does not control the purchased coal prior to customer delivery, the Company will record coal purchases and sales under the related agreements on a net basis. Per terms
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
of the Cumberland Back-to-Back Coal Supply Agreements, the Company is required to purchase and sell 2,681 and 2,615 tons of coal in 2021 and 2022 totaling $104,051 and $101,990, respectively. For the year ended December 31, 2020, the Company purchased and sold 104 tons, totaling $3,997 under the Cumberland Back-to-Back Coal Supply Agreements.
Former PRB operations
On December 8, 2017, the Company closed a transaction (“PRB Transaction”) with Blackjewel L.L.C. (“Blackjewel” or the “Buyer”) to sell its Eagle Butte and Belle Ayr mines located in Wyoming (the “Western Mines” or “Western Assets”). On July 1, 2019, prior to the transfer of the permits, Blackjewel announced that it and certain affiliated entities had filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of West Virginia (the “Bankruptcy Court”). As the mine permit transfer process relating to the Company’s sale of the Western Assets to Blackjewel had not been completed prior to Blackjewel’s filing for Chapter 11 bankruptcy protection, the Company remained the permit holder in good standing for both mines and maintained surety bonding to cover related reclamation and other obligations. The Company remeasured the asset retirement obligations based on the expectation that the mining permits would not transfer and that Blackjewel would not perform on its contractual obligation to reclaim the properties due to the bankruptcy filing. The increase in the asset retirement obligation of $145,913 was expensed within depreciation, depletion, and amortization within discontinued operations in the Consolidated Statements of Operations during the year ended December 31, 2019 as the Company no longer owned the underlying mining assets.
On October 4, 2019, the Bankruptcy Court entered an order approving the sale by Blackjewel of the Western Assets to Eagle Specialty Materials (“ESM”), an affiliate of FM Coal, LLC (“FM Coal”). The closing of the ESM acquisition occurred on October 18, 2019 (the “ESM Transaction”). In connection with the ESM Transaction, the Company and ESM finalized an agreement which provided, among other items, for the transfer of the Western Asset permits from the Company to ESM once certain approvals for their transfer have been obtained and for the assumption by ESM of the related reclamation obligations. Additionally, the surety bonding previously maintained by the Company for the benefit of the Wyoming Department of Environmental Quality (“DEQ”) was released and replaced with substitute surety bonds arranged for by ESM. Lastly, ESM agreed to indemnify the Company and its affiliates against all reclamation liabilities related to the Western Assets and against claims by the federal government, the State of Wyoming, or Campbell County, Wyoming for royalties, ad valorem taxes, and other amounts relating to the Western Assets for the period beginning on December 8, 2017.
The following table presents the details of the ESM Transaction:
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
Cash
|
$
|
90,000
|
|
DIP obligation (1)
|
3,008
|
|
Other
|
331
|
|
Total consideration
|
$
|
93,339
|
|
ARO liabilities transferred
|
(152,882)
|
|
Gain on sale (2)
|
$
|
(59,543)
|
|
(1) The Company paid certain Blackjewel debtor-in-possession lenders $3,008 of principal and interest pursuant to an existing agreement between the Company and those lenders.
(2) The Company recorded a $59,543 gain within depreciation, depletion, and amortization within discontinued operations in the Consolidated Statements of Operations during the year ended December 31, 2019 as a result of the reduction of the reclamation obligation partially offset by the consideration paid.
Additionally, in connection with the closing of the ESM Transaction, the Company paid $13,500 to Campbell County, Wyoming for accrued ad valorem back taxes for 2018 and was released from all claims related thereto. Pursuant to an agreement with ESM, the State of Wyoming Department of Revenue, and Blackjewel, the State of Wyoming Department of Revenue released the Company from any outstanding claims related to state tax obligations arising from or related to the Western Mines for any period through and including the closing date of the transaction.
On May 29, 2020, certain subsidiaries of the Company (Contura Coal West, LLC and Contura Wyoming Land, LLC), one of which held the mining permits for the Western Mines, were merged with certain subsidiaries of ESM to become wholly-owned subsidiaries of ESM and to complete the permit transfer process in connection with the ESM Transaction. Pursuant to terms of the transaction, the Company received from ESM approximately $625 in consideration for assets owned by Contura
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Coal West, LLC but not previously conveyed.
In connection with the PRB Transaction, the Company entered into certain agreements with Blackjewel under which Blackjewel would sell to the Company all of the coal that the Company was obligated to sell to customers under Western Mines coal supply agreements (“Western Mines CSAs”) which existed as of the transaction closing date but did not transfer to Blackjewel at closing (each, a “PRB Back-to-Back Coal Supply Agreement”). The original PRB Back-to-Back Coal Supply Agreements were not assumed in connection with the ESM Transaction. Instead, the Company entered into new back-to-back coal supply agreements with Bluegrass Commodities LP, the sales and marketing agent for ESM, whereby the Company agreed to purchase and pay for, all coal that the Company is obligated to supply, deliver and sell under the Company’s PRB coal supply agreements that were still in effect as of the closing date of the ESM Transaction. Each PRB Back-to-Back Coal Supply Agreement had economic terms identical to, but offsetting, the related Western Mines CSA. As the Company did not control the purchased coal prior to customer delivery, the Company recorded coal purchases and sales under the related agreements on a net basis. Per terms of the PRB Back-to-Back Coal Supply Agreements, the Company purchased and sold 1,149 tons of coal totaling $11,682 for the year ended December 31, 2020. For the year ended December 31, 2019, the Company purchased and sold 929 tons, totaling $9,941 under the PRB Back-to-Back Coal Supply Agreements. As of December 31, 2020, the PRB Back-to-Back Coal Supply Agreements were expired.
Major Financial Statement Components of Discontinued Operations
The major components of net loss from discontinued operations before income taxes in the Consolidated Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020 (1)
|
|
2019
|
Revenues:
|
|
|
|
Total revenues
|
$
|
235,509
|
|
|
$
|
289,206
|
|
Costs and expenses:
|
|
|
|
Cost of coal sales (exclusive of items shown separately below)
|
215,390
|
|
|
256,336
|
|
Depreciation, depletion and amortization (2)
|
11,570
|
|
|
99,405
|
|
Accretion on asset retirement obligations (3)
|
4,154
|
|
|
9,894
|
|
Asset impairment and restructuring (4)
|
172,640
|
|
|
17,161
|
|
Selling, general and administrative expenses (5)
|
1,623
|
|
|
4,349
|
|
Other (income) expenses
|
(926)
|
|
|
4,742
|
|
Other non-major expense items, net
|
374
|
|
|
2,504
|
|
Loss on sale
|
36,113
|
|
|
—
|
|
Loss from discontinued operations before income taxes
|
$
|
(205,429)
|
|
|
$
|
(105,185)
|
|
(1) For the year ended December 31, 2020, discontinued operations consisted entirely of activity related to the former NAPP operations.
(2) During the year ended December 31, 2019, depreciation, depletion and amortization includes $145,913 related to an increase in the Company’s estimate of its PRB asset retirement obligations which was partially offset by ($59,543) as a result of the ESM transaction. Refer to the disclosures above for details.
(3) For the year ended December 31, 2019, the former PRB operations’ accretion on asset retirement obligations of $5,961 related to the asset retirement obligations recorded as a result of the Blackjewel bankruptcy filing. Refer to the disclosures above for details.
(4) Refer to Note 8.
(5) Represents professional and legal fees.
Refer to Note 6 for net loss per share information related to discontinued operations.
The major components of assets and liabilities that are classified as discontinued operations in the Consolidated Balance Sheets are as follows:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Assets:
|
|
|
|
Trade accounts receivable, net of allowance for doubtful accounts
|
$
|
7,504
|
|
|
$
|
20,493
|
|
Inventory, net
|
$
|
—
|
|
|
$
|
11,771
|
|
Prepaid expenses and other current assets
|
$
|
3,431
|
|
|
$
|
13,628
|
|
Property, plant, and equipment, net of accumulated depreciation and amortization
|
$
|
—
|
|
|
$
|
146,864
|
|
Other non-current assets
|
$
|
9,473
|
|
|
$
|
15,760
|
|
|
|
|
|
Liabilities:
|
|
|
|
Trade accounts payable, accrued expenses and other current liabilities
|
$
|
7,433
|
|
|
$
|
24,769
|
|
Asset retirement obligations
|
$
|
—
|
|
|
$
|
21,568
|
|
Workers’ compensation and black lung obligations
|
$
|
32,672
|
|
|
$
|
36,149
|
|
Other non-current liabilities
|
$
|
1,291
|
|
|
$
|
4,593
|
|
The major components of cash flows related to discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Depreciation, depletion and amortization
|
$
|
11,570
|
|
|
$
|
99,405
|
|
Capital expenditures
|
$
|
34,411
|
|
|
$
|
31,964
|
|
Other significant operating non-cash items related to discontinued operations:
|
|
|
|
Accretion on asset retirement obligations
|
$
|
4,154
|
|
|
$
|
9,894
|
|
Asset impairment and restructuring
|
$
|
172,640
|
|
|
$
|
17,161
|
|
(4) Revenue
Disaggregation of Revenue from Contracts with Customers
ASC 606 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.) that depict how the nature, amount, timing, and uncertainty of revenue and cash flow are affected by economic factors. ASC 606 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
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 conducts mining operations only in the United States with mines in Central Appalachia. The Company has two reportable segments: Met and CAPP - Thermal. In addition to the two reportable segments, the All Other category includes general corporate overhead and corporate assets and liabilities, the elimination of certain intercompany activity, and the Company’s discontinued operations. Refer to Note 25 for further segment information.
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:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Met Coal
|
|
Thermal Coal
|
|
Total
|
Export coal revenues
|
$
|
870,121
|
|
|
$
|
27,904
|
|
|
$
|
898,025
|
|
Domestic coal revenues
|
362,654
|
|
|
152,445
|
|
|
515,099
|
|
Total coal revenues
|
$
|
1,232,775
|
|
|
$
|
180,349
|
|
|
$
|
1,413,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Met Coal
|
|
Thermal Coal
|
|
Total
|
Export coal revenues
|
$
|
1,174,942
|
|
|
$
|
48,166
|
|
|
$
|
1,223,108
|
|
Domestic coal revenues
|
551,806
|
|
|
221,020
|
|
|
772,826
|
|
Total coal revenues
|
$
|
1,726,748
|
|
|
$
|
269,186
|
|
|
$
|
1,995,934
|
|
Performance Obligations
The Company considers each individual transfer of coal on a per shipment basis to the customer a performance obligation. The pricing terms of the Company’s contracts with customers include fixed pricing, variable pricing, or a combination of both fixed and variable pricing. All the Company’s revenue derived from contracts with customers is recognized at a point in time. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Total
|
Estimated coal revenues (1)
|
$
|
113,676
|
|
|
$
|
28,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
141,676
|
|
(1) Amounts only include estimated coal revenues associated with contracts with customers with fixed pricing with original expected duration of more than one year. The Company has elected not to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for performance obligations with either of the following conditions: 1) the remaining performance obligation is part of a contract that has an original expected duration of one year or less; or 2) the remaining performance obligation has variable consideration that is allocated entirely to a wholly unsatisfied performance obligation.
(5) Accumulated Other Comprehensive Loss
The following tables summarize the changes to accumulated other comprehensive loss during the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2020
|
|
Other comprehensive loss before reclassifications
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
Balance December 31, 2020
|
Employee benefit costs
|
$
|
(58,616)
|
|
|
$
|
(60,647)
|
|
|
$
|
7,278
|
|
|
$
|
(111,985)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2019
|
|
Other comprehensive loss before reclassifications
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
Balance December 31, 2019
|
Employee benefit costs
|
$
|
(23,130)
|
|
|
$
|
(42,891)
|
|
|
$
|
7,405
|
|
|
$
|
(58,616)
|
|
The following table summarizes the amounts reclassified from accumulated other comprehensive loss and the Consolidated Statements of Operations line items affected by the reclassification during the years ended December 31, 2020 and 2019:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about accumulated other comprehensive loss components
|
Amounts reclassified from accumulated other comprehensive loss
|
|
Affected line item in the Consolidated Statements of Operations
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
Employee benefit costs:
|
|
|
|
|
|
Amortization of actuarial loss (1)
|
$
|
3,929
|
|
|
$
|
959
|
|
|
Miscellaneous loss, net
|
Settlement (1)
|
3,349
|
|
|
6,446
|
|
|
Miscellaneous loss, net
|
Total before income tax
|
$
|
7,278
|
|
|
$
|
7,405
|
|
|
|
Income tax
|
—
|
|
|
—
|
|
|
Income tax benefit
|
Total, net of income tax
|
$
|
7,278
|
|
|
$
|
7,405
|
|
|
|
(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 20.
(6) Net Loss per Share
The number of shares used to calculate basic net 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 loss per common share is based on the number of common shares used to calculate basic net 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 diluted effect of outstanding stock-based instruments is determined by application of the treasury stock method. The warrants become dilutive for diluted net loss per common share calculations when the market price of the Company’s common stock exceeds the exercise price. Dilutive securities are not included in the computation of diluted net loss per common share as the impact would be anti-dilutive. Refer to the Consolidated Statements of Operations for net loss per common share for the years ended December 31, 2020 and 2019.
For the years ended December 31, 2020 and 2019, 1,317,351 and 537,918 warrants, stock options, and other stock-based instruments, respectively, were excluded from the computation of dilutive net loss per 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 years ended December 31, 2020 and 2019, the weighted average share impact of warrants, 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 were 142,250 and 256,668, respectively.
(7) Inventories, net
Inventories, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Raw coal
|
$
|
15,084
|
|
|
$
|
26,584
|
|
Saleable coal
|
69,262
|
|
|
100,275
|
|
Materials, supplies and other, net (1)
|
23,705
|
|
|
24,029
|
|
Total inventories, net
|
$
|
108,051
|
|
|
$
|
150,888
|
|
(1) Includes an increase in allowance for obsolete material and supplies inventory of $807 recorded as restructuring expense during the year ended December 31, 2020 (refer to Note 8).
(8) Asset Impairment and Restructuring
Long-lived Asset Impairment for the Year Ended December 31, 2020
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
During the year ended December 31, 2020, weakening coal market conditions due in part to the impact of the global COVID-19 Pandemic, as well as the following events resulted in quarterly impairment testing:
•During the second quarter of 2020, the Company announced that it would take certain strategic actions with respect to two of its thermal coal mining complexes in an effort to strengthen its financial performance and improve forecasted liquidity. The Company announced that an underground mine and preparation plant located in West Virginia would be idled during the third quarter of 2020. In addition, the Company decided not to move forward with the construction of a new refuse impoundment at its Cumberland mine in Pennsylvania and would therefore no longer spend the significant capital required in connection with the project. As a result, the Cumberland mine was expected to cease production by the end of 2022. On December 10, 2020, the Company sold its Cumberland mining operations. Refer to Note 3 for further details.
•During the fourth quarter of 2020, changes in mine plans and the determination that certain mineral reserves previously forecasted to be mined were no longer considered economic due to poor geologic conditions reduced forecasted cash flows for one Met and one CAPP - Thermal asset group to amounts below those required for full recoverability.
The Company performed long-lived asset impairment tests as of November 30, 2020, August 31, 2020, May 31, 2020, and February 29, 2020. In total, the Company determined that indicators of impairment with respect to five long-lived asset groups within its Met reporting segment, three long-lived asset groups within its CAPP - Thermal reporting segment, and one long-lived asset group within discontinued operations existed during the year ended December 31, 2020.
The following tables present the details of the long-lived asset impairments during the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Year Ended
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
Met
|
$
|
32,951
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,366
|
|
|
$
|
46,317
|
|
CAPP - Thermal
|
758
|
|
|
17,385
|
|
|
219
|
|
|
16,270
|
|
|
34,632
|
|
All Other
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Total from continuing operations
|
$
|
33,709
|
|
|
$
|
17,390
|
|
|
$
|
219
|
|
|
$
|
29,636
|
|
|
$
|
80,954
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
$
|
—
|
|
|
$
|
144,348
|
|
|
$
|
3,297
|
|
|
$
|
—
|
|
|
$
|
147,645
|
|
Total long-lived asset impairment:
|
$
|
33,709
|
|
|
$
|
161,738
|
|
|
$
|
3,516
|
|
|
$
|
29,636
|
|
|
$
|
228,599
|
|
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Year Ended
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
Mineral rights, net
|
$
|
21,825
|
|
|
$
|
2,241
|
|
|
$
|
—
|
|
|
$
|
17,513
|
|
|
$
|
41,579
|
|
Property, plant, and equipment, net
|
6,066
|
|
|
6,496
|
|
|
219
|
|
|
5,450
|
|
|
$
|
18,231
|
|
Acquired mine permits, net
|
5,818
|
|
|
8,653
|
|
|
—
|
|
|
6,673
|
|
|
$
|
21,144
|
|
Total from continuing operations
|
$
|
33,709
|
|
|
$
|
17,390
|
|
|
$
|
219
|
|
|
$
|
29,636
|
|
|
$
|
80,954
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
Mineral rights, net
|
$
|
—
|
|
|
$
|
16,364
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,364
|
|
Property, plant, and equipment, net
|
—
|
|
|
127,984
|
|
|
3,297
|
|
|
—
|
|
|
$
|
131,281
|
|
Total from discontinued operations
|
$
|
—
|
|
|
$
|
144,348
|
|
|
$
|
3,297
|
|
|
$
|
—
|
|
|
$
|
147,645
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived asset impairment:
|
|
|
|
|
|
|
|
|
|
Mineral rights, net
|
$
|
21,825
|
|
|
$
|
18,605
|
|
|
$
|
—
|
|
|
$
|
17,513
|
|
|
$
|
57,943
|
|
Property, plant, and equipment, net
|
6,066
|
|
|
134,480
|
|
|
3,516
|
|
|
5,450
|
|
|
149,512
|
|
Acquired mine permits, net
|
5,818
|
|
|
8,653
|
|
|
—
|
|
|
6,673
|
|
|
21,144
|
|
Total long-lived asset impairment
|
$
|
33,709
|
|
|
$
|
161,738
|
|
|
$
|
3,516
|
|
|
$
|
29,636
|
|
|
$
|
228,599
|
|
Long-lived Asset Impairment for the Year Ended December 31, 2019
During the year ended December 31, 2019, the Company determined that indicators of impairment were present for three long-lived asset groups within each of its Met and CAPP - Thermal reporting segments and performed impairment testing as of December 31, 2019. At December 31, 2019, the Company determined that the carrying amounts of the asset groups exceeded both their undiscounted cash flows and their estimated fair values. As a result, after allocating the potential impairment to individual assets, the Company recorded a long-lived asset impairment of $60,169, of which $9,176 was recorded within Met and $50,993 was recorded within CAPP - Thermal within continuing operations of the Consolidated Statements of Operations. The long-lived asset impairment reduced the carrying values of mineral rights by $35,445, property, plant, and equipment, net, by $17,056, acquired mine permits, net, by $5,997, and long-lived assets related to asset retirement obligations by $1,671.
Additionally, during the year ended December 31, 2019, the Company recorded an asset impairment of $6,155 within continuing operations of the Consolidated Statements of Operations primarily related to the write-off of prepaid purchased coal as a result of Blackjewel’s Chapter 11 bankruptcy filing on July 1, 2019. During the year ended December 31, 2019, the Company also recorded an asset impairment of $17,161 within discontinued operations of the Consolidated Statements of Operations which was primarily related to the write-off of tax related indemnification receivables within the former PRB operations. The Company was considered to be the primary obligor for certain taxes that Blackjewel was contractually obligated to pay. During the year ended December 31, 2019, the Company recorded an impairment charge for the offsetting receivable form Blackjewel as a result of the Blackjewel bankruptcy filing. Refer to Note 3 for further information.
Restructuring
As a result of the strategic actions discussed above, the Company recorded restructuring expense during the year ended December 31, 2020 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Total Restructuring
|
|
Continuing Operations (3)
|
|
Discontinued Operations
|
Severance and employee-related benefits (1)
|
$
|
26,037
|
|
|
$
|
2,117
|
|
|
$
|
23,920
|
|
Other costs (2)
|
1,882
|
|
|
807
|
|
|
1,075
|
|
Total restructuring expense
|
$
|
27,919
|
|
|
$
|
2,924
|
|
|
$
|
24,995
|
|
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
(1) Severance and employee-related benefits were considered probable and estimable based on provisions of contractual agreements and existing employee benefit plans.
(2) The year ended December 31, 2020 includes accelerated amortization of deferred longwall move expenses of $668, allowance for advanced mining royalties of $407, and allowance for obsolete materials and supplies inventory of $807.
(3) During the year ended December 31, 2020, total restructuring expenses of $2,087 and $837 were recorded within the reportable segments CAPP - Thermal and All Other, respectively. The total restructuring expenses of $2,924 affected Accrued expenses and other current liabilities, Other non-current liabilities, inventories, net, and Other non-current assets.
There were no restructuring expenses recorded during the year ended December 31, 2019.
(9) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Prepaid freight
|
$
|
8,515
|
|
|
$
|
8,268
|
|
Notes and other receivables
|
13,245
|
|
|
8,447
|
|
Short-term restricted cash
|
9,311
|
|
|
12,363
|
|
Short-term deposits
|
47
|
|
|
689
|
|
Prepaid insurance
|
6,510
|
|
|
9,591
|
|
Refundable income taxes
|
64,565
|
|
|
33,915
|
|
Prepaid bond premium
|
2,576
|
|
|
2,454
|
|
Other prepaid expenses
|
1,483
|
|
|
1,996
|
|
Total prepaid expenses and other current assets
|
$
|
106,252
|
|
|
$
|
77,723
|
|
(10) Property, Plant, and Equipment, net
Property, plant, and equipment, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Plant and mining equipment
|
$
|
603,463
|
|
|
$
|
600,495
|
|
Mine development
|
96,008
|
|
|
36,721
|
|
Land
|
26,606
|
|
|
30,506
|
|
Office equipment, software and other
|
1,379
|
|
|
1,396
|
|
Construction in progress
|
18,587
|
|
|
23,658
|
|
Total property, equipment and mine development costs
|
746,043
|
|
|
692,776
|
|
Less accumulated depreciation, depletion and amortization
|
382,423
|
|
|
256,378
|
|
Total property, plant, and equipment, net
|
$
|
363,620
|
|
|
$
|
436,398
|
|
Included in plant and mining equipment are assets under financing leases totaling $7,907 and $14,328 with accumulated depreciation of $3,645 and $4,641 as of December 31, 2020 and December 31, 2019, respectively.
Depreciation and amortization expense associated with property, plant, equipment, and non-mineral asset retirement obligation assets, net, was $153,631 and $201,206 for the years ended December 31, 2020 and 2019, respectively.
Depreciation expense for the years ended December 31, 2020 and 2019 includes a credit of ($3,689) and ($1,522), respectively, related to revisions to asset retirement obligations. Refer to Note 17 for further disclosures related to asset retirement obligations.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
During the years ended December 31, 2020 and 2019, the Company recorded long-lived asset impairments which reduced the carrying value of property, plant, and equipment, net, by $18,231 and $17,056, respectively. Refer to Note 8 for further information.
As of December 31, 2020, the Company had commitments to purchase approximately $5,008 and $170 of new equipment, expected to be acquired at various dates in 2021 and 2023, respectively.
(11) Other Non-Current Assets
Other non-current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Operating lease right-of-use assets
|
$
|
5,671
|
|
|
$
|
7,298
|
|
Long-term deposits
|
28,200
|
|
|
9,621
|
|
Long-term restricted investments
|
23,768
|
|
|
19,399
|
|
Equity method investments
|
18,383
|
|
|
18,413
|
|
Federal income tax receivable
|
—
|
|
|
64,160
|
|
Workers’ compensation receivables
|
48,320
|
|
|
52,757
|
|
Other
|
25,040
|
|
|
17,827
|
|
Total other non-current assets
|
$
|
149,382
|
|
|
$
|
189,475
|
|
(12) Leases
The Company’s lease population consists primarily of vehicle and heavy equipment leases and leases for office equipment. The Company’s building and land leases relate to corporate office space and certain site offices. The Company determines whether a contract contains a lease based on whether the Company obtains the right to control the use of specifically identifiable property, plant, and equipment for a period of time in exchange for consideration. For the years ended December 31, 2020 and 2019, the Company identified no instances requiring significant judgment in determining whether any contracts entered into during the period were or were not leases. Additionally, the Company had no material sublease agreements within the scope of ASC 842 or lease agreements for which the Company was the lessor for the years ended December 31, 2020 and 2019.
Renewal options in the Company’s lease population primarily relate to month-to-month extensions on vehicle leases and are immaterial both individually and in the aggregate. The Company includes renewal options that are reasonably certain to be exercised in the measurement of lease liabilities. As of December 31, 2020, the Company does not intend to exercise any termination options on existing leases.
As of December 31, 2020 and 2019, the Company had the following right-of-use assets and lease liabilities within the Company’s Consolidated Balance Sheets:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Assets
|
Balance Sheet Classification
|
|
|
|
|
Financing lease assets
|
Property, plant, and equipment, net
|
|
$
|
4,262
|
|
|
$
|
9,687
|
|
Operating lease right-of-use assets
|
Other non-current assets
|
|
5,671
|
|
|
7,298
|
|
Total lease assets
|
|
|
$
|
9,933
|
|
|
$
|
16,985
|
|
|
|
|
|
|
|
Liabilities
|
Balance Sheet Classification
|
|
|
|
|
Financing lease liabilities - current
|
Current portion of long-term debt
|
|
$
|
2,014
|
|
|
$
|
3,266
|
|
Operating lease liabilities - current
|
Accrued expenses and other current liabilities
|
|
595
|
|
|
1,402
|
|
Financing lease liabilities - long-term
|
Long-term debt
|
|
1,996
|
|
|
4,651
|
|
Operating lease liabilities - long-term
|
Other non-current liabilities
|
|
5,076
|
|
|
5,896
|
|
Total lease liabilities
|
|
|
$
|
9,681
|
|
|
$
|
15,215
|
|
Total lease costs and other lease information for the years ended December 31, 2020 and 2019 included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Year Ended December 31, 2019
|
Lease cost (1)
|
|
|
|
Financing lease cost:
|
|
|
|
Amortization of leased assets
|
$
|
3,238
|
|
|
$
|
3,738
|
|
Interest on lease liabilities
|
358
|
|
|
477
|
|
Operating lease cost
|
2,105
|
|
|
2,389
|
|
Short-term lease cost
|
1,518
|
|
|
1,851
|
|
Total lease cost
|
$
|
7,219
|
|
|
$
|
8,455
|
|
(1) The Company had no variable lease costs or sublease income for the years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Year Ended December 31, 2019
|
Other information
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
7,157
|
|
|
$
|
8,349
|
|
Operating cash flows from financing leases
|
$
|
358
|
|
|
$
|
463
|
|
Operating cash flows from operating leases
|
$
|
3,623
|
|
|
$
|
4,240
|
|
Financing cash flows from financing leases
|
$
|
3,176
|
|
|
$
|
3,646
|
|
Right-of-use assets obtained in exchange for new financing lease liabilities
|
$
|
221
|
|
|
$
|
1,429
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
$
|
(12)
|
|
|
$
|
371
|
|
|
|
|
|
Lease Term and Discount Rate
|
|
|
|
Weighted-average remaining lease term in months - financing leases
|
23.3
|
|
33.7
|
Weighted-average remaining lease term in months - operating leases
|
101.4
|
|
105.1
|
Weighted-average discount rate - financing leases
|
6.1
|
%
|
|
5.4
|
%
|
Weighted-average discount rate - operating leases
|
11.5
|
%
|
|
11.4
|
%
|
The Company has elected to show net instead of gross amounts for right-of-use assets and liabilities within its Consolidated Statements of Cash Flows.
The following table summarizes the maturity of the Company’s lease liabilities on an undiscounted cash flow basis and a reconciliation to the lease liabilities recognized in the Company’s Consolidated Balance Sheet as of December 31, 2020:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Leases
|
|
Operating Leases
|
Lease cost
|
|
|
|
2021
|
$
|
2,210
|
|
|
$
|
1,210
|
|
2022
|
1,827
|
|
|
1,076
|
|
2023
|
269
|
|
|
1,101
|
|
2024
|
6
|
|
|
982
|
|
2025
|
—
|
|
|
897
|
|
Thereafter
|
—
|
|
|
4,018
|
|
Total future minimum lease payments
|
$
|
4,312
|
|
|
$
|
9,284
|
|
Imputed interest
|
(302)
|
|
|
(3,613)
|
|
Present value of future minimum lease payments
|
$
|
4,010
|
|
|
$
|
5,671
|
|
As of December 31, 2020, the Company had no leases with future commencement dates that will create significant rights or obligations for the Company.
(13) Stock Repurchases
In May 2019, the Company’s Board of Directors adopted a capital return program that permits the Company to return to stockholders up to an aggregate amount of $250,000 of capital. The capital return program does not have a fixed expiration date and returns of capital may take the form of share repurchases, dividends or a combination thereof. Any share repurchases may be made from time to time through open market transactions, block trades, privately negotiated transactions, tender offers, or otherwise. Any returns of capital under the program will be at the discretion of the Company’s Board of Directors and 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.
On August 29, 2019, the Company announced that its Board of Directors had approved a stock repurchase plan (the “Company Repurchase Plan”) to acquire up to $100,000 in the aggregate of the Company’s common stock at prices as set forth in such plan over a specified period. Through September 30, 2019, the Company had repurchased an aggregate of 529,303 shares of common stock under the Company Repurchase Plan for an aggregate purchase price of $15,969 (comprised of $15,953 of share repurchases and $16 of related fees) for an average price paid per share of $30.17. As of October 1, 2019, the Company suspended the Company Repurchase Plan.
Additionally, on September 12, 2019, the Company entered into a common stock repurchase agreement with Whitebox Multi-Strategy Partners, L.P., Whitebox Asymmetric Partners, L.P., Whitebox Credit Partners, L.P. and Whitebox Institutional Partners, L.P. (together, “Whitebox”). Pursuant to terms of the common stock repurchase agreement, the Company repurchased an aggregate of 500,000 shares of common stock from Whitebox at $32.99 per share for an aggregate purchase price of $16,495.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
(14) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Wages and benefits
|
$
|
40,330
|
|
|
$
|
37,983
|
|
Workers’ compensation
|
10,355
|
|
|
11,317
|
|
Black lung
|
6,784
|
|
|
7,409
|
|
Taxes other than income taxes
|
21,540
|
|
|
24,662
|
|
Current portion of asset retirement obligations
|
24,990
|
|
|
38,731
|
|
Accrued interest and fees
|
15,902
|
|
|
4,362
|
|
Deferred revenue
|
13,197
|
|
|
—
|
|
Freight accrual
|
2,610
|
|
|
5,851
|
|
Other
|
4,698
|
|
|
9,164
|
|
Total accrued expenses and other current liabilities
|
$
|
140,406
|
|
|
$
|
139,479
|
|
(15) Long-Term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Term Loan Credit Facility - due June 2024
|
$
|
553,373
|
|
|
$
|
558,991
|
|
ABL Facility - due April 2022
|
3,350
|
|
|
—
|
|
LCC Note Payable
|
27,500
|
|
|
45,000
|
|
LCC Water Treatment Obligation
|
6,875
|
|
|
9,375
|
|
Other (1)
|
8,475
|
|
|
9,263
|
|
Debt discount and issuance costs
|
(17,046)
|
|
|
(29,695)
|
|
Total long-term debt
|
582,527
|
|
|
592,934
|
|
Less current portion
|
(28,830)
|
|
|
(28,476)
|
|
Long-term debt, net of current portion
|
$
|
553,697
|
|
|
$
|
564,458
|
|
(1) Includes financing leases, refer to Note 12 for additional information.
Term Loan Credit Facility - due June 2024
On June 14, 2019, the Company entered into a Credit Agreement with Cantor Fitzgerald Securities, as administrative agent and collateral agent, and the other lenders party thereto (as defined therein) that provides for a senior secured term loan facility in the aggregate principal amount of $561,800 with a maturity date of June 14, 2024 (the “Term Loan Credit Facility”). Principal repayments equal to approximately $1,405 are due each March, June, September and December (commencing with September 30, 2019) with the final principal repayment installment repaid on the maturity date and in an amount equal to the aggregate principal amount outstanding on such date. The Term Loan Credit Facility bears an interest rate per annum based on the character of the loan (defined as either “Base Rate Loan” or “Eurocurrency Rate Loan”). Each loan type bears interest at a rate per annum comprised of a base rate (as defined) plus an applicable percentage (6.00% for Base Rate Loans and 7.00% for Eurocurrency Rate Loans on or prior to the second anniversary of the Closing Date and 7.00% or 8.00% thereafter (the “Applicable Rate”)). The Eurocurrency base rate is subject to a 2.00% floor. Interest accrued on each Base Rate Loan is payable in arrears on the last business day of each March, June, September and December and the maturity date. Interest accrued on each Eurocurrency Rate Loan is payable in arrears on the last day of each interest period as defined therein. As of December 31, 2020, the borrowings made under the Term Loan Credit Facility were comprised of Eurocurrency Rate Loans with an interest rate of 9.00%, calculated as the Eurocurrency rate during the period plus an applicable rate of 7.00%. As of December 31, 2020, the carrying value of the Term Loan Credit Facility was $540,643, with $5,618 classified as current, within the Consolidated
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Balance Sheets. As of December 31, 2019, the carrying value of the term loan credit facility was $538,765, with $5,618 classified as current, within the Consolidated Balance Sheets.
The Term Loan Credit Facility was provided primarily by certain of the Company’s existing shareholders (related parties) as of the agreement date. As such, the Company analyzed various factors of the transaction and concluded the Term Loan Credit Facility was issued at a reasonable market rate and therefore considered to be an arm’s length transaction.
The Company used the proceeds from the Term Loan Credit Facility to repay the outstanding principal balance of $543,125 under the Amended and Restated Credit Agreement dated November 9, 2018 and fees related to such refinancing. The Company recorded a loss on modification of debt of $255, primarily related to modification fees paid under the refinance, and a loss on extinguishment of debt of $26,204, primarily related to the write-off of outstanding debt discounts and unamortized debt issuance costs under the Amended and Restated Credit Agreement dated November 9, 2018, which are recorded in loss on modification and extinguishment of debt within the Consolidated Statements of Operations for the year ended December 31, 2019.
All obligations under the Term Loan Credit Facility are guaranteed by substantially all of Alpha’s direct and indirect subsidiaries. Certain obligations under 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 on the Amended and Restated Credit Agreement dated November 9, 2018. The Company was in compliance with all covenants under this agreement as of December 31, 2020.
Amended and Restated Asset-Based Revolving Credit Agreement
On November 9, 2018, the Company entered into the Amended and Restated Asset-Based Revolving Credit Agreement with Citibank N.A. as administrative agent, collateral agent, and swingline lender and the other lenders party thereto (the “Lenders”), and Citibank N.A., Barclays Bank PLC, BMO Harris Bank N.A. and Credit Suisse AG as letter of credit issuers (“LC Lenders”). The Amended and Restated Asset-Based Revolving Credit Agreement amended and restated the Asset-Based Revolving Credit Agreement dated April 3, 2017, in its entirety, and includes a senior secured asset-based revolving credit facility (the “ABL Facility”). Under the ABL Facility, the Company may borrow cash from the Lenders (as defined therein) or cause the L/C Issuers (as defined therein) to issue letters of credit, on a revolving basis, in an aggregate amount of up to $225,000, of which no more than $200,000 may be drawn through letters of credit. Any borrowings under the ABL Facility will have a maturity date of April 3, 2022 and will bear interest based on the character of the loan (defined as either “Base Rate Loan” or “Eurocurrency Rate Loan”) plus an applicable rate ranging from 1.00% to 1.50% for Base Rate Loans and 2.00% to 2.50% for Eurocurrency Rate Loans, depending on the amount of credit available. Pursuant to terms of the Amended and Restated Asset-Based Revolving Credit Agreement at each notice period, the Company elects the character of the loan, the interest period, and may provide notice of continuation or conversion of the borrowed principal amount with the ability to repay the borrowed principal amount in advance of the maturity date without penalty. The Amended and Restated Asset-Based Revolving Credit Agreement provides that a specified percentage of billed, unbilled and approved foreign 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. Due to fluctuations of the Borrowing Base, the Company was required to post $25,000 of collateral in January 2021 to remain in compliance with the terms of the ABL Facility as of December 31, 2020.
On March 20, 2020, the Company borrowed $57,500 principal amount under the ABL Facility. The funds were borrowed to augment the Company’s short-term operational flexibility in the face of uncertainty created by the current spread of the COVID-19 virus and its potential effects (see further discussion in Note 1). As of December 31, 2020, the borrowings made under the ABL Facility were comprised of Eurocurrency Rate Loans with an interest rate of 2.73%, calculated as the Eurocurrency rate during the period plus an applicable rate of 2.50%. The interest rate is subject to periodic adjustment and is subject to adjustment again on April 7, 2021. As of December 31, 2020, the carrying value of the ABL Facility was $3,350, all
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
of which was classified as long-term within the Consolidated Balance Sheets. As of December 31, 2019, the Company had no borrowings under the ABL Facility.
Any letters of credit issued under the ABL Facility will bear a commitment fee rate ranging from 0.25% to 0.375% depending on the amount of availability per terms of the agreement, and a fronting fee of 0.25% of the face amount under each letter of credit, payable to the ABL Facility’s administrative agent. As of December 31, 2020 and December 31, 2019, the Company had $123,108 and $99,876 letters of credit outstanding under the ABL Facility, respectively.
The ABL Facility is guaranteed by substantially all of Alpha’s direct and indirect subsidiaries (together with the Alpha, the “Loan Parties”) and secured by all or substantially all assets of the Loan Parties, including equity in its direct domestic subsidiaries and first-tier foreign 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. The Amended and Restated Asset-Based Revolving Credit 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 December 31, 2020.
LCC Note Payable
As a result of the Merger, the Company assumed a note payable to Lexington Coal Company (“LCC”) in the aggregate amount of $62,500 (the “LCC Note Payable”) and with a maturity date of July 26, 2022. The LCC Note Payable has no stated interest rate and an imputed interest rate of 12.45%. Principal repayments equal to $17,500 are due each July during 2019, 2020 and 2021, with the final principal payment of $10,000 due on the maturity date. The carrying value of the LCC Note Payable was $24,423 and $37,695, with $17,500 and $17,500 reported within the current portion of long-term debt as of December 31, 2020 and 2019, respectively.
LCC Water Treatment Stipulation
As a result of the Merger, the Company assumed an obligation to contribute $12,500 into Lexington Coal Company’s water treatment restricted cash accounts (the “LCC Water Treatment Stipulation”). Contributions equal to $625 are due each January, April, July and October from 2019 through 2023. The LCC Water Treatment Stipulation has no stated interest rate and an imputed interest rate of 13.12%. The carrying value of the LCC Water Treatment Stipulation was $5,636 and $7,211, with $1,875 and $1,875 reported within the current portion of long-term debt as of December 31, 2020 and 2019, respectively.
Future Maturities
Future maturities of long-term debt as of December 31, 2020 are as follows:
|
|
|
|
|
|
2021
|
$
|
28,830
|
|
2022
|
24,815
|
|
2023
|
9,300
|
|
2024
|
536,628
|
|
Total long-term debt
|
$
|
599,573
|
|
(16) Acquisition-Related Obligations
Acquisition-related obligations consisted of the following:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Contingent Revenue Obligation
|
$
|
28,967
|
|
|
$
|
52,427
|
|
Environmental Settlement Obligations
|
10,391
|
|
|
16,305
|
|
Reclamation Funding Liability
|
—
|
|
|
12,000
|
|
UMWA Funds Settlement Liability
|
2,000
|
|
|
4,000
|
|
Discount
|
(1,491)
|
|
|
(4,834)
|
|
Total acquisition-related obligations
|
39,867
|
|
|
79,898
|
|
Less current portion
|
(19,099)
|
|
|
(33,639)
|
|
Acquisition-related obligations, net of current portion
|
$
|
20,768
|
|
|
$
|
46,259
|
|
The Company entered into various settlement agreements with Alpha Natural Resources, Inc. and/or the Alpha Natural Resources, Inc. bankruptcy successor ANR, Inc. and third parties as part of the Alpha Natural Resources, Inc. bankruptcy reorganization process. The Company assumed acquisition-related obligations through those settlement agreements which became effective on July 26, 2016, the effective date of Alpha Natural Resources, Inc.’s plan of reorganization. Additionally, as a result of the Merger, the Company assumed certain acquisition-related obligations pursuant to the terms stipulated within the bankruptcy settlement previously entered into by the Merger Companies.
Contingent Revenue Obligation
As a result of the Merger, the Company assumed a contingent revenue payment obligation (the “Contingent Revenue Obligation”) to certain of the Merger Companies’ creditors pursuant to the terms stipulated within the bankruptcy settlement previously entered into by the Merger Companies. Pursuant to terms of the obligation, the annual obligation will be limited to revenues derived from legacy operations for the Merger Companies and will not include revenues related to legacy Alpha Metallurgical Resources, Inc. operations. The Contingent Revenue Obligation consists of a contingent revenue payment of 1.5% of annual gross revenues of the legacy operations for the Merger Companies up to $500,000 and 1.0% of annual gross revenue of the legacy operations for the Merger Companies in excess of $500,000 through the period ended December 31, 2022. As of December 31, 2020 and 2019, the carrying value of the Contingent Revenue Obligation was $28,967 and $52,427, with $11,393 and $14,646 classified as current, respectively, and classified as an acquisition-related obligation in the Consolidated Balance Sheets. Refer to Note 18 for further disclosures related to the fair value assignment and methods used.
During the second quarter of 2020, the Company paid $15,084, including $374 of unclaimed unsecured claims distributions, pursuant to terms of the Contingent Revenue Obligation. During the second quarter of 2019, the Company paid $9,627 pursuant to terms of the Contingent Revenue Obligation.
Environmental Settlement Obligations
As a result of the Merger, the Company assumed certain environmental settlement obligations (the “Environmental Settlement Obligations”) pursuant to the terms stipulated within the bankruptcy settlement previously entered into by the Merger Companies. These obligations include payments to a third-party environmental agency and the funding of certain reclamation related projects through 2022. As of December 31, 2020 and 2019, the carrying value of the Environmental Settlement Obligations was $9,237 and $13,594, net of discounts of $1,154 and $2,711, with $6,044 and $6,185 classified as current, respectively, all of which was classified as an acquisition-related obligation in the Consolidated Balance Sheets.
Reclamation Funding Agreement
Pursuant to the Reclamation Funding Agreement dated July 12, 2016, the Company paid the aggregate amount of $50,000 into the various Restricted Cash Reclamation Accounts as follows: $8,000 immediately upon the effective date of the agreement; $10,000 on the anniversary of the effective date in each of 2017, 2018, and 2019; and $12,000 on the anniversary of the effective date in 2020. As of December 31, 2020, the Company has no remaining payments for the Funding of Restricted Cash Reclamation liability. As of December 31, 2019 the carrying value of the Funding of Restricted Cash Reclamation liability was $10,808, net of discounts of $1,192, all of which was classified as a current acquisition-related obligation in the Consolidated Balance Sheets.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
(17) Asset Retirement Obligations
The following table summarizes the changes in asset retirement obligations for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
Total asset retirement obligations at December 31, 2018
|
$
|
192,038
|
|
Merger measurement-period adjustments
|
12,718
|
|
Accretion for the period (1)
|
23,852
|
|
Sites added during the period
|
5,112
|
|
Revisions in estimated cash flows (2)
|
(7,162)
|
|
Expenditures for the period
|
(23,421)
|
|
Total asset retirement obligations at December 31, 2019
|
$
|
203,137
|
|
Accretion for the period
|
26,504
|
|
Sites added during the period
|
621
|
|
Revisions in estimated cash flows (2)
|
(43,765)
|
|
Expenditures for the period
|
(21,433)
|
|
Total asset retirement obligations at December 31, 2020
|
165,064
|
|
Less current portion (3)
|
(24,990)
|
|
Long-term portion
|
$
|
140,074
|
|
(1) Amount does not include the accretion related to asset retirement obligations classified as liabilities held for sale.
(2) The revisions in estimated cash flows resulted primarily from discount rate adjustments and changes in mine plans.
(3) Included within accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheets. Refer to Note 14.
(18) 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 December 31, 2020 and 2019 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 December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
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
|
$
|
540,643
|
|
|
$
|
379,614
|
|
|
$
|
—
|
|
|
$
|
379,614
|
|
|
$
|
—
|
|
ABL Facility - due April 2022
|
3,350
|
|
|
3,057
|
|
|
—
|
|
|
—
|
|
|
3,057
|
|
LCC Note Payable
|
24,423
|
|
|
20,328
|
|
|
—
|
|
|
—
|
|
|
20,328
|
|
LCC Water Treatment Obligation
|
5,636
|
|
|
4,281
|
|
|
—
|
|
|
—
|
|
|
4,281
|
|
Total long-term debt
|
$
|
574,052
|
|
|
$
|
407,280
|
|
|
$
|
—
|
|
|
$
|
379,614
|
|
|
$
|
27,666
|
|
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
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
|
$
|
538,765
|
|
|
$
|
461,402
|
|
|
$
|
461,402
|
|
|
$
|
—
|
|
|
$
|
—
|
|
LCC Note Payable
|
37,695
|
|
|
33,884
|
|
|
—
|
|
|
—
|
|
|
33,884
|
|
LCC Water Treatment Obligation
|
7,211
|
|
|
6,280
|
|
|
—
|
|
|
—
|
|
|
6,280
|
|
Total long-term debt
|
$
|
583,671
|
|
|
$
|
501,566
|
|
|
$
|
461,402
|
|
|
$
|
—
|
|
|
$
|
40,164
|
|
(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 December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Carrying
Amount (1)
|
|
Total Fair Value
|
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
UMWA Funds Settlement Liability
|
$
|
1,662
|
|
|
$
|
1,426
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,426
|
|
Environmental Settlement Obligations
|
9,237
|
|
|
7,760
|
|
|
—
|
|
|
—
|
|
|
7,760
|
|
Total acquisition-related obligations
|
$
|
10,899
|
|
|
$
|
9,186
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Carrying
Amount (1)
|
|
Total Fair Value
|
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
UMWA Funds Settlement Liability
|
$
|
3,069
|
|
|
$
|
2,929
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,929
|
|
Reclamation Funding Liability
|
10,808
|
|
|
10,658
|
|
|
—
|
|
|
—
|
|
|
10,658
|
|
Environmental Settlement Obligations
|
13,594
|
|
|
12,197
|
|
|
—
|
|
|
—
|
|
|
12,197
|
|
Total acquisition-related obligations
|
$
|
27,471
|
|
|
$
|
25,784
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,784
|
|
(1) Net of discounts.
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 December 31, 2020 and 2019. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Total Fair Value
|
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Contingent Revenue Obligation
|
$
|
28,967
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,967
|
|
Trading securities
|
$
|
22,498
|
|
|
$
|
20,092
|
|
|
$
|
2,406
|
|
|
$
|
—
|
|
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Total Fair Value
|
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Contingent Revenue Obligation
|
$
|
52,427
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52,427
|
|
Trading securities
|
$
|
11,021
|
|
|
$
|
5,506
|
|
|
$
|
5,515
|
|
|
$
|
—
|
|
The following table is 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, 2019
|
|
Payments
|
|
Gain Recognized in Earnings
|
|
Transfer In (Out) of Level 3 Fair Value Hierarchy
|
|
December 31, 2020
|
Contingent Revenue Obligation
|
$
|
52,427
|
|
|
$
|
(14,710)
|
|
|
$
|
(8,750)
|
|
|
$
|
—
|
|
|
$
|
28,967
|
|
(1) The gain recognized in earnings resulted primarily from a change in the forecasted future revenue associated with this obligation and an increase in annualized volatility as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Payments
|
|
Measurement-Period Adjustments
|
|
Gain Recognized in Earnings
|
|
Transfer In (Out) of Level 3 Fair Value Hierarchy
|
|
December 31, 2019
|
Contingent Revenue Obligation
|
$
|
59,880
|
|
|
$
|
(9,627)
|
|
|
$
|
5,738
|
|
|
$
|
(3,564)
|
|
|
$
|
—
|
|
|
$
|
52,427
|
|
(1) The measurement-period adjustments are related to Merger recorded during the year ended December 31, 2019.
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
Term Loan Credit Facility - due June 2024 - As of December 31, 2019, the fair value is based on observable market data.
Trading Securities - 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 - As of December 31, 2020, the fair value is based on the average between bid and ask prices provided by a third-party. As the fair value is based on observable market inputs, the Company has classified the fair value within Level 2 of the fair value hierarchy. Due to limited trading volume in the Term Loan Credit Facility, the Company reclassified the fair value from Level 1 within the fair value hierarchy during the year ended December 31, 2020.
Trading Securities - 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
ABL Facility - due April 2022 - Observable transactions are not available to aid in determining the fair value of this item. 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 rate of approximately 9%) as of December 31, 2020.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
LCC Note Payable, LCC Water Treatment Obligation, UMWA Funds Settlement Liability, Environmental Settlement Obligations and Reclamation Funding Liability - 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 34% and 21% as of December 31, 2020 and December 31, 2019, 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 December 31, 2020 and December 31, 2019, are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Forecasted future revenue
|
$0.9 - $1.1 billion
|
|
$1.1 - $1.2 billion
|
Stated royalty rate
|
1.0% - 1.5%
|
|
1.0% - 1.5%
|
Annualized volatility
|
19.4% - 52.1% (28.0%)
|
|
9.4% - 28.1% (19.9%)
|
(19) Income Taxes
Total income tax benefit provided on loss before income taxes was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Continuing operations
|
$
|
(2,164)
|
|
|
$
|
(53,287)
|
|
Discontinued operations
|
—
|
|
|
(8,484)
|
|
Total
|
$
|
(2,164)
|
|
|
$
|
(61,771)
|
|
Significant components of income tax (benefit) expense from continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Current tax (benefit) expense:
|
|
|
|
Federal
|
$
|
(35,187)
|
|
|
$
|
(45,356)
|
|
State
|
(99)
|
|
|
1,891
|
|
Total current
|
$
|
(35,286)
|
|
|
$
|
(43,465)
|
|
|
|
|
|
Deferred tax (benefit) expense:
|
|
|
|
Federal
|
$
|
33,348
|
|
|
$
|
(747)
|
|
State
|
(226)
|
|
|
(9,075)
|
|
Total deferred
|
$
|
33,122
|
|
|
$
|
(9,822)
|
|
|
|
|
|
Total income tax benefit:
|
|
|
|
Federal
|
$
|
(1,839)
|
|
|
$
|
(46,103)
|
|
State
|
(325)
|
|
|
(7,184)
|
|
Total
|
$
|
(2,164)
|
|
|
$
|
(53,287)
|
|
A reconciliation of statutory federal income tax benefit on loss from continuing operations to the actual income tax benefit is as follows:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Federal statutory income tax benefit
|
$
|
(51,163)
|
|
|
$
|
(57,310)
|
|
Increase (reductions) in taxes due to:
|
|
|
|
Percentage depletion allowance
|
(2,039)
|
|
|
(6,270)
|
|
AMT sequestration refund
|
(2,123)
|
|
|
—
|
|
State taxes, net of federal tax impact
|
(9,640)
|
|
|
(10,255)
|
|
State tax rate and NOL change, net of federal tax impact
|
(1,235)
|
|
|
(4,172)
|
|
Change in valuation allowances
|
59,929
|
|
|
10,936
|
|
Net operating loss carryback
|
—
|
|
|
(14,234)
|
|
Amended return - capital loss impact
|
—
|
|
|
919
|
|
Non-deductible goodwill impairment
|
—
|
|
|
26,114
|
|
Stock-based compensation
|
1,739
|
|
|
(1,085)
|
|
Other, net
|
2,368
|
|
|
2,070
|
|
Income tax benefit
|
$
|
(2,164)
|
|
|
$
|
(53,287)
|
|
Deferred income taxes result from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes. The net deferred tax assets and liabilities included in the Consolidated Balance Sheets include the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Asset retirement obligations
|
$
|
41,268
|
|
|
$
|
51,114
|
|
Reserves and accruals not currently deductible
|
12,131
|
|
|
8,265
|
|
Workers’ compensation benefit obligations
|
59,478
|
|
|
54,128
|
|
Pension obligations
|
52,598
|
|
|
44,413
|
|
Equity method investments
|
2,050
|
|
|
2,509
|
|
Alternative minimum tax credit carryforwards
|
—
|
|
|
33,065
|
|
Loss carryforwards, net of Section 382 limitation
|
255,772
|
|
|
142,510
|
|
Acquisition-related obligations
|
10,002
|
|
|
17,902
|
|
Other
|
10,976
|
|
|
12,299
|
|
Gross deferred tax assets
|
444,275
|
|
|
366,205
|
|
Less valuation allowance
|
(263,387)
|
|
|
(133,020)
|
|
Deferred tax assets
|
$
|
180,888
|
|
|
$
|
233,185
|
|
Deferred tax liabilities:
|
|
|
|
Property, plant and mineral reserves
|
$
|
(141,549)
|
|
|
$
|
(145,487)
|
|
Acquired intangibles, net
|
(22,037)
|
|
|
(27,140)
|
|
Prepaid expenses
|
(6,211)
|
|
|
(6,780)
|
|
Restricted cash
|
(11,516)
|
|
|
(20,313)
|
|
Other
|
(55)
|
|
|
(822)
|
|
Total deferred tax liabilities
|
(181,368)
|
|
|
(200,542)
|
|
Net deferred tax assets
|
$
|
(480)
|
|
|
$
|
32,643
|
|
Changes in the valuation allowance were as follows:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Valuation allowance beginning of period
|
$
|
133,020
|
|
|
$
|
94,802
|
|
Increase in valuation allowance recorded to income tax benefit
|
117,829
|
|
|
29,950
|
|
Increase in valuation allowance not affecting income tax expense
|
12,538
|
|
|
8,268
|
|
Valuation allowance end of period
|
$
|
263,387
|
|
|
$
|
133,020
|
|
On December 22, 2017, President Trump signed into law legislation commonly referred to as the “Tax Cuts and Jobs Act” (“TCJA”). Among other provisions, the TCJA repealed the corporate AMT and provided a mechanism for corporations to monetize their alternative minimum tax credits (“AMT Credits”) as a refundable credit during the 2018 through 2021 tax years. On March 27, 2020, President Trump signed into law legislation referred to as the CARES Act. The CARES Act modified the AMT Credits provision such that a corporate taxpayer’s remaining AMT Credits would be refunded in the 2019 tax year rather than the 2019 through 2021 tax years. As of December 31, 2019, the Company recorded a current federal income tax receivable of $33,065 and a deferred tax asset of $33,065 in relation to its refundable AMT Credits. During the first quarter of 2020 and following enactment of the CARES Act, the Company reclassified the $33,065 deferred tax asset to a current federal income tax receivable. The Company received the $66,130 AMT Credit refund in the fourth quarter of 2020. In addition, the Company received $2,123 related to AMT Credits claimed in prior tax years under a different Internal Revenue Code section, which were previously and erroneously subjected to the budgetary sequestration provisions. As of December 31, 2020, the Company does not expect to receive any further benefits related to AMT Credits.
The Company acquired the core assets of Alpha Natural Resources, Inc. as part of the Alpha Natural Resources, Inc. bankruptcy reorganization in transactions intended to be treated as a tax-free reorganization for U.S. federal income tax purposes. As a result of these transactions, the Company inherited the tax basis of the core assets and the net operating loss and other carryforwards of Alpha Natural Resources, Inc. On December 31, 2016, the net operating loss carryforwards and other carryforwards were reduced under Internal Revenue Code Section 108 due to the cancellation of indebtedness resulting from the Alpha Natural Resources, Inc. bankruptcy reorganization. Due to the change in ownership, the net operating loss and other carryforwards inherited in the Alpha Natural Resources, Inc. bankruptcy reorganization are subjected to significant limitations on their use in future years.
Due to the Company’s formation through acquisition of certain core coal assets as part of the Alpha Natural Resources, Inc. bankruptcy reorganization, the Company does not have a long history of operating results. Additionally, significant ownership change limitations limit the ability of the Company to utilize its net operating loss and other carryforwards in future years. 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. The Company assesses the realizability of its deferred tax assets, including scheduling the reversal of its deferred tax 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 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. The Company has concluded that it is more likely than not that the remaining deferred tax assets, net of valuation allowances, are realizable.
At December 31, 2020, the Company has regular tax net operating loss carryforwards for federal income tax purposes of approximately $1,737,000. This includes $1,011,000 that are available to offset regular federal taxable income subject to an annual Internal Revenue Code Section 382 limitation of approximately $1,000, $56,000 that are subject to an annual Section 382 limitation of approximately $18,300, and $324,000 that are subject to an annual Section 382 limitation of approximately $17,500. These federal net operating loss carryforwards were generated before 2018 and will expire between years 2030 and 2037. The Company also has $346,000 of federal net operating loss carryforwards with an indefinite carryforward period that can be used to offset up to 80% of taxable income. The Company has capital loss carryforwards of approximately $339,000, of which $65,000 are subject to an annual Section 382 limitation of approximately $1,000 and $51,000 are subject to an annual Section 382 limitation of approximately $17,500. The capital loss carryforwards will expire between years 2021 and 2025. A full valuation allowance is recorded against the capital loss carryforwards.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
During the third quarter of the year ended December 31, 2020, the Company recorded a decrease in unrecognized tax benefits of approximately $20,788 as a result of the issuance of final regulatory guidance from the IRS. The decrease in unrecognized tax benefits did not impact the Company’s effective tax rate for the year ended December 31, 2020.
The Company’s policy is to classify interest and penalties related to uncertain tax positions as part of income tax expense. As of December 31, 2020 and 2019, the Company had no accrued interest and penalties.
The following reconciliation illustrates the Company’s liability for uncertain tax positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Unrecognized tax benefits - beginning of period
|
$
|
20,788
|
|
|
$
|
—
|
|
Additions for tax positions of prior years
|
—
|
|
|
5,740
|
|
Additions for tax positions of current year
|
—
|
|
|
15,048
|
|
Reductions for tax positions of prior years
|
(20,788)
|
|
|
—
|
|
Unrecognized tax benefits - end of period
|
$
|
—
|
|
|
$
|
20,788
|
|
As of December 31, 2020, tax years 2016 - 2020, which include the impact of net operating loss and other carryforwards and tax basis acquired from Alpha Natural Resources, Inc., remain open to federal and state examination. The IRS initiated a corporate income tax examination during the third quarter of 2020 for the Company’s 2016 tax year and related net operating loss carryback. This examination was open and in progress as of December 31, 2020.
(20) Employee Benefit Plans
The Company provides several types of benefits for its employees, including defined benefit and defined contribution pension plans, workers’ compensation and black lung benefits, and postretirement life insurance. The Company does not participate in any multi-employer plans. The components of net periodic (benefit) expense other than the service cost component for pension, black lung, and postretirement life insurance benefits are included in the line item miscellaneous loss, net, in the Consolidated Statements of Operations.
Company Administered Defined Benefit Pension Plans
In connection with the Merger, the Company assumed three qualified non-contributory defined benefit pension plans, which cover certain salaried and non-union hourly employees. The qualified non-contributory defined benefit pension plans are collectively referred to as the “Pension Plans.” Benefits are frozen under these plans. Participants accrued benefits either based on certain formulas, the participant’s compensation prior to retirement, or plan specified amounts for each year of service with the Company. One of the Company’s frozen qualified non-contributory defined benefit pension plans utilizes a cash balance formula for certain of its participants. The cash balance formula provides guaranteed rates of interest on accumulated balances of either 6% (for balances accumulated prior to 2004) and 4% (on balances accumulated thereafter).
Effective October 1, 2019, two of the qualified non-contributory defined benefit pension plans were amended to offer certain eligible participants the option to elect to receive lump sum benefits as of December 1, 2019, which resulted in a partial plan settlement and the accelerated recognition of a portion of the accumulated other comprehensive loss during the year ended December 31, 2020 and the three months ended December 31, 2019. Refer to the disclosures below for further information on the partial plan settlements.
Annual funding contributions to the Pension Plans are made as recommended by consulting actuaries based upon the ERISA funding standards. Plan assets consist of equity securities, fixed income funds, commingled short-term funds, private equity funds, and a guaranteed insurance contract.
The following tables set forth the plans’ accumulated benefit obligations, fair value of plan assets and funded status for the years ended December 31, 2020 and 2019.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Change in benefit obligations:
|
|
|
|
Accumulated benefit obligation at beginning of period:
|
$
|
674,439
|
|
|
$
|
675,482
|
|
Interest cost
|
18,730
|
|
|
26,564
|
|
Actuarial loss (1)
|
72,822
|
|
|
91,287
|
|
Benefits paid
|
(30,916)
|
|
|
(31,371)
|
|
Acquisition
|
—
|
|
|
1,910
|
|
Settlement
|
(11,627)
|
|
|
(89,433)
|
|
Accumulated benefit obligation at end of period
|
$
|
723,448
|
|
|
$
|
674,439
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
Fair value of plan assets at beginning of period
|
$
|
470,353
|
|
|
$
|
494,680
|
|
Actual return on plan assets
|
54,222
|
|
|
87,129
|
|
Employer contributions
|
22,745
|
|
|
9,348
|
|
Benefits paid
|
(30,916)
|
|
|
(31,371)
|
|
Settlement
|
(11,627)
|
|
|
(89,433)
|
|
Fair value of plan assets at end of period
|
$
|
504,777
|
|
|
$
|
470,353
|
|
Funded status
|
$
|
(218,671)
|
|
|
$
|
(204,086)
|
|
Accrued benefit cost at end of period (2)
|
$
|
(218,671)
|
|
|
$
|
(204,086)
|
|
(1) For the years ended December 31, 2020 and December 31, 2019, the actuarial loss was primarily attributed to the decrease in the weighted-average discount rate actuarial assumption used in determining the benefit obligations.
(2) Amounts are classified as long-term on the Consolidated Balance Sheets as there are sufficient plan assets to make expected benefit payments to plan participants in the succeeding twelve months.
Gross amounts related to pension obligations recognized in accumulated other comprehensive loss consisted of the following as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Net actuarial loss
|
$
|
88,583
|
|
|
$
|
46,568
|
|
The following table details the components of net periodic benefit (credit) cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Interest cost
|
$
|
18,730
|
|
|
$
|
26,564
|
|
Expected return on plan assets
|
(27,064)
|
|
|
(28,042)
|
|
Amortization of net losses
|
2,012
|
|
|
797
|
|
Settlement
|
1,636
|
|
|
6,224
|
|
Net periodic benefit (credit) cost
|
$
|
(4,686)
|
|
|
$
|
5,543
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Actuarial loss (1)
|
$
|
45,663
|
|
|
$
|
30,514
|
|
Amortization of net actuarial loss
|
(2,012)
|
|
|
(797)
|
|
Settlement
|
(1,636)
|
|
|
(6,224)
|
|
Total recognized in other comprehensive loss
|
$
|
42,015
|
|
|
$
|
23,493
|
|
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
(1) For the years ended December 31, 2020 and December 31, 2019, the actuarial loss was primarily attributed to the decrease in the weighted-average discount rate actuarial assumption used in determining the benefit obligations.
The following table presents information applicable to plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Projected benefit obligation
|
$
|
723,448
|
|
|
$
|
674,439
|
|
Accumulated benefit obligation
|
$
|
723,448
|
|
|
$
|
674,439
|
|
Fair value of plan assets
|
$
|
504,777
|
|
|
$
|
470,353
|
|
The weighted-average actuarial assumption used in determining the benefit obligations as of December 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Discount rate
|
2.62
|
%
|
|
3.36
|
%
|
The weighted-average actuarial assumptions used to determine net periodic benefit cost for the years ended December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Discount rate for benefit obligation
|
3.35
|
%
|
|
4.33
|
%
|
Discount rate for interest cost
|
2.92
|
%
|
|
4.01
|
%
|
Expected return on plan assets
|
5.90
|
%
|
|
5.80
|
%
|
The discount rate assumptions were determined from a high-quality corporate bond yield-curve timing of the Company’s projected cash out flows.
The expected long-term return on assets of the Pension Plans is established each year by the Company’s Benefits Committee in consultation with the plans’ actuaries and outside investment advisors. This rate is determined by taking into consideration the Pension Plans’ target asset allocation, expected long-term rates of return on each major asset class by reference to long-term historic ranges, inflation assumptions and the expected additional value from active management of the Pension Plans’ assets. For the determination of net periodic benefit cost in 2021, the Company will utilize an expected long-term return on plan assets of 5.80%.
Assets of the Pension Plans are held in trusts and are invested in accordance with investment guidelines that have been established by the Company’s Benefits Committee in consultation with outside investment advisors. The target allocation for 2021 and the actual asset allocation as reported at December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation Percentages 2021
|
|
Percentage of Plan Assets 2020
|
Equity securities
|
60.0
|
%
|
|
47.0
|
%
|
Fixed income funds
|
40.0
|
%
|
|
50.0
|
%
|
Other
|
—
|
%
|
|
3.0
|
%
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
The asset allocation targets have been set with the expectation that the Pension Plans’ assets will fund the expected liabilities within an appropriate level of risk. In determining the appropriate target asset allocations, the Benefits Committee considers the demographics of the Pension Plans’ participants, the funding status of each plan, the Company’s contribution philosophy, the Company’s business and financial profile, and other associated risk factors. The Pension Plans’ assets are periodically rebalanced among the major asset categories to maintain the asset allocation within a specified range of the target
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
allocation percentage. In September 2020, the target allocation was adjusted by the Company’s Benefits Committee to transition to 60.0% equity securities and 40.0% fixed income funds in approximate 2.0% increments over a 10-month period.
The Company expects to contribute $25,541 to the Pension Plans in 2021.
The following represents expected future pension benefit payments for the next ten years:
|
|
|
|
|
|
2021
|
$
|
31,178
|
|
2022
|
31,267
|
|
2023
|
31,628
|
|
2024
|
32,149
|
|
2025
|
32,426
|
|
2026-2030
|
162,622
|
|
|
$
|
321,270
|
|
The fair values of the Company’s Pension Plans’ assets as of December 31, 2020, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Quoted Market Prices in Active Market for Identical Assets (Level 1)
|
|
Significant Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Equity securities:
|
|
|
|
|
|
|
|
Multi-asset fund (1)
|
$
|
236,405
|
|
|
$
|
—
|
|
|
$
|
236,405
|
|
|
$
|
—
|
|
Fixed income funds:
|
|
|
|
|
|
|
|
Bond fund (2)
|
253,218
|
|
|
—
|
|
|
253,218
|
|
|
—
|
|
Commingled short-term fund (3)
|
1,405
|
|
|
—
|
|
|
1,405
|
|
|
—
|
|
Other types of investments:
|
|
|
|
|
|
|
|
Guaranteed insurance contract
|
11,454
|
|
|
—
|
|
|
—
|
|
|
11,454
|
|
Total
|
$
|
502,482
|
|
|
$
|
—
|
|
|
$
|
491,028
|
|
|
$
|
11,454
|
|
Receivable (4)
|
888
|
|
|
|
|
|
|
|
Total assets at fair value
|
503,370
|
|
|
|
|
|
|
|
Private equity funds measured at net asset value practical expedient (5)
|
1,407
|
|
|
|
|
|
|
|
Total plan assets
|
$
|
504,777
|
|
|
|
|
|
|
|
(1) This fund contains equities (domestic and international), real estate and bonds.
(2) This fund contains bonds representing a diversity of sectors and maturities. This fund also includes mortgage-backed securities and U.S. Treasuries.
(3) This fund contains cash and highly liquid short-term investments in a collective investment fund.
(4) Receivable for investments sold at December 31, 2020, which approximates fair value.
(5) In accordance with Accounting Standards Update 2015-07, investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of assets of the plans.
Changes in Level 3 plan assets for the period ended December 31, 2020 were as follows:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Guaranteed Insurance Contract
|
Beginning balance, December 31, 2019
|
$
|
11,155
|
|
Actual return on plan assets:
|
|
Relating to assets still held at the reporting date
|
659
|
|
Purchases, sales and settlements
|
(360)
|
|
Ending balance, December 31, 2020
|
$
|
11,454
|
|
The fair values of the Company’s Pension Plans’ assets as of December 31, 2019, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
Total
|
|
Quoted Market Prices in Active Market for Identical Assets (Level 1)
|
|
Significant Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Equity securities:
|
|
|
|
|
|
|
|
Multi-asset fund (1)
|
$
|
182,782
|
|
|
$
|
—
|
|
|
$
|
182,782
|
|
|
$
|
—
|
|
Fixed income funds:
|
|
|
|
|
|
|
|
Bond fund (2)
|
272,239
|
|
|
—
|
|
|
272,239
|
|
|
—
|
|
Commingled short-term fund (3)
|
1,572
|
|
|
—
|
|
|
1,572
|
|
|
—
|
|
Other types of investments:
|
|
|
|
|
|
|
|
Guaranteed insurance contract
|
11,155
|
|
|
—
|
|
|
—
|
|
|
11,155
|
|
Total
|
$
|
467,748
|
|
|
$
|
—
|
|
|
$
|
456,593
|
|
|
$
|
11,155
|
|
Receivable (4)
|
1,061
|
|
|
|
|
|
|
|
Total assets at fair value
|
468,809
|
|
|
|
|
|
|
|
Private equity funds measured at net asset value practical expedient (5)
|
1,544
|
|
|
|
|
|
|
|
Total plan assets
|
$
|
470,353
|
|
|
|
|
|
|
|
(1) This fund contains equities (domestic and international), real estate and bonds.
(2) This fund contains bonds representing a diversity of sectors and maturities. This fund also includes mortgage-backed securities and U.S. Treasuries.
(3) This fund contains cash and highly liquid short-term investments in a collective investment fund.
(4) Receivable for investments sold at December 31, 2019, which approximates fair value.
(5) In accordance with Accounting Standards Update 2015-07, investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of assets of the plans.
Changes in Level 3 plan assets for the period ended December 31, 2019 were as follows:
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
Guaranteed Insurance Contract
|
Beginning balance, December 31, 2018
|
$
|
10,886
|
|
Acquisition
|
—
|
|
Actual return on plan assets:
|
|
Relating to assets still held at the reporting date
|
644
|
|
Purchases, sales and settlements
|
(375)
|
|
Ending balance, December 31, 2019
|
$
|
11,155
|
|
The following is a description of the valuation methodologies used for assets measured at fair value:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Level 1 Plan Assets: Assets consist of individual security positions that are easily traded on recognized market exchanges. These securities are priced and traded daily, and therefore the fund is valued daily.
Level 2 Plan Assets: Funds consist of individual security positions that are mostly securities easily traded on recognized market exchanges. These securities are priced and traded daily, and therefore the fund is valued daily.
Level 3 Plan Assets: Assets are valued monthly or quarterly based on the Market Value provided by managers of the underlying fund investments. The Market Value provided typically reflects the fair value of each underlying fund investment, including unrealized gains and losses.
Workers’ Compensation and Pneumoconiosis (Black Lung)
The Company is required by federal and state statutes to provide benefits to employees for awards related to workers’ compensation and black lung.
The Company’s subsidiaries utilize high-deductible third-party insurance for worker’s compensation and black lung obligations with the exception of certain subsidiaries in which the Company is a qualified self-insurer for workers’ compensation and/or black lung obligations. The Company’s subsidiaries that are self-insured for black lung benefits may fund benefit payments through a Section 501(c) (21) tax-exempt trust fund.
Pursuant to the Merger Agreement, the Company assumed a reinsurance contract with a third party. In 2017, the Merger Companies made a lump sum payment in exchange for a reinsurance company’s agreement to administer and pay certain future workers’ compensation and state black lung obligations in the state of Kentucky. Pursuant to the Merger Agreement, the Company assumed the estimated liability for these future claims. As the liabilities are paid by the insurance company, the prepaid insurance amounts will be reduced by a corresponding amount.
The Company accrues for workers’ compensation liability by recognizing costs when it is probable that a covered liability has been incurred and the cost can be reasonably estimated. The Company’s estimates of these costs are adjusted based upon actuarial studies and include a provision for incurred but not reported losses. Actual losses may differ from these estimates, which could increase or decrease the Company’s costs. Additionally, the liability for black lung benefits is estimated by an independent actuary by prorating the accrual of actuarially projected benefits over the employee’s applicable term of service. Adjustments to the probable ultimate liability for workers’ compensation and black lung are made annually based on actuarial valuations.
At December 31, 2020, the Company had $124,260 of workers’ compensation liability, including a current portion of $10,355 recorded in accrued expenses and other current liabilities, offset by $2,368 and $48,320 of expected insurance receivable recorded in prepaid expenses and other current assets and other non-current assets, respectively, in the Consolidated Balance Sheets. At December 31, 2019, the Company had $136,540 of workers’ compensation liability, including a current portion of $11,317 recorded in accrued expenses and other current liabilities, offset by $2,375 and $52,757 of expected insurance receivable recorded in prepaid expenses and other current assets and other non-current assets, respectively, in the Consolidated Balance Sheets.
For the Company’s subsidiaries that are insured with a high-deductible insurance plan for workers’ compensation and black lung claims, the insurance premium expense for the years ended December 31, 2020 and 2019 was $7,000 and $10,684, respectively.
Workers’ compensation expense for high-deductible insurance plans for the years ended December 31, 2020 and 2019 was $1,275 and $2,333, respectively.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
The divestiture of the Company’s former NAPP operations during the fourth quarter of 2020 (refer to Note 3) resulted in a partial plan settlement of $8,290 and the accelerated recognition of a portion of the accumulated other comprehensive loss of $1,563 during the three months ended December 31, 2020. Refer to the disclosures below for further information on the partial plan settlement.
As a result of the strategic actions impacting certain mines during the three months ended June 30, 2020 (refer to Note 8), black lung obligations were revalued for curtailment and remeasured with an updated discount rate as of May 31, 2020, which resulted in an increase in the liability for black lung obligations of approximately $7,400 with the offset to accumulated other comprehensive loss and a slight increase in net periodic expense to be recognized subsequent to the remeasurement date. Refer to the disclosures below for further information.
The following tables set forth the accumulated black lung benefit obligations, fair value of plan assets and funded status for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Change in benefit obligation:
|
|
|
|
Accumulated benefit obligation at beginning of period
|
$
|
122,788
|
|
|
$
|
94,805
|
|
Service cost
|
2,361
|
|
|
2,057
|
|
Interest cost
|
3,240
|
|
|
4,474
|
|
Actuarial loss (1)
|
14,736
|
|
|
11,166
|
|
Benefits paid
|
(7,166)
|
|
|
(6,543)
|
|
Acquisition
|
—
|
|
|
16,829
|
|
Curtailment gain
|
(163)
|
|
|
—
|
|
Settlement
|
(8,290)
|
|
|
—
|
|
Accumulated benefit obligation at end of period
|
$
|
127,506
|
|
|
$
|
122,788
|
|
Change in fair value of plan assets:
|
|
|
|
Fair value of plan assets at beginning of period
|
$
|
2,660
|
|
|
$
|
2,597
|
|
Actual return on plan assets
|
60
|
|
|
63
|
|
Benefits paid
|
(7,166)
|
|
|
(6,543)
|
|
Employer contributions
|
7,166
|
|
|
6,543
|
|
Fair value of plan assets at end of period (2)
|
2,720
|
|
|
2,660
|
|
Funded status
|
$
|
(124,786)
|
|
|
$
|
(120,128)
|
|
Accrued benefit cost at end of period
|
$
|
(124,786)
|
|
|
$
|
(120,128)
|
|
Summary of accrued benefit cost at end of period:
|
|
|
|
Continuing operations
|
(122,961)
|
|
|
(111,036)
|
|
Discontinued operations (3)
|
(1,825)
|
|
|
(9,092)
|
|
Total accrued benefit cost at end of period
|
$
|
(124,786)
|
|
|
$
|
(120,128)
|
|
(1) For the years ended December 31, 2020 and December 31, 2019, the actuarial loss was primarily attributed to the decrease in the weighted-average discount rate actuarial assumption used in determining the benefit obligations and the annual updates to demographic information.
(2) Assets of the plan are held in a Section 501(c)(21) tax-exempt trust fund and consist primarily of government debt securities. All assets are classified as Level 1 and valued based on quoted market prices.
(3) The discontinued operations consisted of activity related to the Company’s former NAPP operations. Refer to Note 3.
The table below presents amounts recognized in the Balance Sheets:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Current liabilities
|
$
|
6,784
|
|
|
$
|
7,409
|
|
Current liabilities - discontinued operations
|
26
|
|
|
63
|
|
Long-term liabilities
|
116,177
|
|
|
103,627
|
|
Long-term liabilities - discontinued operations
|
1,799
|
|
|
9,029
|
|
|
$
|
124,786
|
|
|
$
|
120,128
|
|
Gross amounts related to the black lung obligations recognized in accumulated other comprehensive loss consisted of the following as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Net actuarial loss
|
$
|
24,042
|
|
|
$
|
12,980
|
|
The following table details the components of the net periodic benefit cost for black lung obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Service cost
|
$
|
2,361
|
|
|
$
|
2,057
|
|
Interest cost
|
3,240
|
|
|
4,474
|
|
Expected return on plan assets
|
(54)
|
|
|
(65)
|
|
Amortization of net actuarial loss
|
1,942
|
|
|
216
|
|
Settlement
|
1,563
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
9,052
|
|
|
$
|
6,682
|
|
Summary net periodic benefit cost:
|
|
|
|
Continuing operations
|
$
|
7,670
|
|
|
$
|
6,394
|
|
Discontinued operations (1)
|
1,382
|
|
|
288
|
|
Total net periodic benefit cost
|
$
|
9,052
|
|
|
$
|
6,682
|
|
(1) The discontinued operations consisted of activity related to the Company’s former NAPP operations. Refer to Note 3.
Other changes in the black lung plan assets and benefit obligations recognized in other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Actuarial loss (1)
|
$
|
14,567
|
|
|
$
|
11,512
|
|
Amortization of net actuarial loss
|
(1,942)
|
|
|
(216)
|
|
Settlement
|
(1,563)
|
|
|
—
|
|
Total recognized in other comprehensive loss
|
$
|
11,062
|
|
|
$
|
11,296
|
|
(1) For the years ended December 31, 2020 and December 31, 2019, the actuarial loss was primarily attributed to the decrease in the weighted-average discount rate actuarial assumption used in determining the benefit obligations and the annual updates to demographic information.
The weighted-average assumptions related to black lung obligations used to determine the benefit obligation as of December 31, 2020 and 2019 were as follows:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Discount rate
|
2.75
|
%
|
|
3.47
|
%
|
Federal black lung benefit trend rate
|
2.00
|
%
|
|
2.00
|
%
|
Black lung medical benefit trend rate
|
5.00
|
%
|
|
5.00
|
%
|
Black lung benefit expense inflation rate
|
2.00
|
%
|
|
2.00
|
%
|
The weighted-average assumptions related to black lung obligations used to determine net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Discount rate for benefit obligation
|
3.47
|
%
|
|
4.36
|
%
|
Discount rate for service cost
|
3.56
|
%
|
|
4.54
|
%
|
Discount rate for interest cost
|
2.61
|
%
|
|
3.99
|
%
|
Federal black lung benefit trend rate
|
2.50
|
%
|
|
2.50
|
%
|
Black lung medical benefit trend rate
|
5.00
|
%
|
|
5.00
|
%
|
Black lung benefit expense inflation rate
|
2.00
|
%
|
|
2.50
|
%
|
Expected return on plan assets
|
2.00
|
%
|
|
2.50
|
%
|
Estimated future cash payments related to black lung obligations for the next 10 years ending after December 31, 2020 are as follows:
|
|
|
|
|
|
Year ending December 31:
|
|
2021
|
$
|
6,810
|
|
2022
|
6,929
|
|
2023
|
7,038
|
|
2024
|
7,112
|
|
2025
|
7,244
|
|
2026-2030
|
20,004
|
|
|
$
|
55,137
|
|
Postretirement Life Insurance Benefits
As part of the Alpha Natural Resources, Inc. bankruptcy reorganization process and the Retiree Committee Settlement Agreement, the Company assumed the liability for life insurance benefits for certain disabled and non-union retired employees. Provisions are made for estimated benefits and adjustments to the probable ultimate liabilities are made annually based on an actuarial study prepared by independent actuaries. These obligations are included in the Consolidated Balance Sheet as accrued expenses and other current liabilities and other non-current liabilities.
The following tables set forth the accumulated postretirement life insurance benefit obligations, fair value of plan assets and funded status for the years ended December 31, 2020 and 2019:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Change in benefit obligation:
|
|
|
|
Accumulated benefit obligation at beginning of period
|
$
|
12,341
|
|
|
$
|
11,368
|
|
Interest cost
|
337
|
|
|
426
|
|
Actuarial loss
|
420
|
|
|
1,002
|
|
Benefits paid
|
(463)
|
|
|
(455)
|
|
Accumulated benefit obligation at end of period
|
$
|
12,635
|
|
|
$
|
12,341
|
|
Change in fair value of plan assets:
|
|
|
|
Benefits paid (1)
|
(463)
|
|
|
(455)
|
|
Employer contributions (1)
|
463
|
|
|
455
|
|
Fair value of plan assets at end of period
|
$
|
—
|
|
|
$
|
—
|
|
Funded status
|
(12,635)
|
|
|
(12,341)
|
|
Accrued benefit cost at end of year
|
$
|
(12,635)
|
|
|
$
|
(12,341)
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
Current liabilities
|
$
|
628
|
|
|
$
|
719
|
|
Long-term liabilities
|
12,007
|
|
|
11,622
|
|
|
$
|
12,635
|
|
|
$
|
12,341
|
|
(1) Amount is comprised of premium payments to commercial life insurance provider.
Gross amounts related to the postretirement life insurance benefit obligations recognized in accumulated other comprehensive income consisted of the following as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Net actuarial gain
|
$
|
(390)
|
|
|
$
|
(872)
|
|
The following table details the components of the net periodic benefit cost for postretirement life insurance benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Interest cost
|
$
|
337
|
|
|
$
|
426
|
|
Amortization of net actuarial gain
|
(48)
|
|
|
(105)
|
|
Settlement
|
(14)
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
275
|
|
|
$
|
321
|
|
Other changes in the postretirement life insurance plan assets and benefit obligations recognized in other comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Actuarial loss
|
$
|
420
|
|
|
$
|
1,002
|
|
Amortization of net actuarial gain
|
48
|
|
|
105
|
|
Settlement
|
14
|
|
|
—
|
|
Total recognized in other comprehensive income
|
$
|
482
|
|
|
$
|
1,107
|
|
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
The weighted-average assumptions related to postretirement life insurance benefit obligations used to determine the benefit obligation as of December 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Discount rate
|
2.43
|
%
|
|
3.22
|
%
|
The weighted-average assumptions related to postretirement life insurance benefit obligations used to determine net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Discount rate for benefit obligations
|
3.22
|
%
|
|
4.21
|
%
|
Discount rate for interest cost
|
2.83
|
%
|
|
3.9
|
%
|
Estimated future cash payments related to postretirement life insurance benefit obligations for the next 10 years ending after December 31, 2020 are as follows:
|
|
|
|
|
|
Year ending December 31:
|
|
2021
|
$
|
628
|
|
2022
|
588
|
|
2023
|
586
|
|
2024
|
586
|
|
2025
|
587
|
|
2026-2030
|
2,941
|
|
|
$
|
5,916
|
|
Defined Contribution and Profit-Sharing Plans
The Company sponsors defined contribution plans to assist its eligible employees in providing for retirement. Generally, under the terms of these plans, employees make voluntary contributions through payroll deductions and the Company makes matching and/or discretionary contributions, as defined by each plan. The Company’s total contributions to these plans for the years ended December 31, 2020 and 2019 were $3,613 and $22,102, respectively.
During the second quarter of 2020, the Company’s matching contributions under the Contura Energy 401(k) Retirement Savings Plan were suspended due to current market conditions.
Self-insured Medical Plan
The Company is self-insured for health benefit coverage for all of its active employees. Estimated liabilities for health and medical claims are recorded based on the Company’s historical experience and include a component for incurred but not paid claims. During the years ended December 31, 2020 and 2019, the Company incurred total expenses of $52,517 and $64,430, respectively, which primarily include claims processed and an estimate for claims incurred but not paid.
(21) Stock-Based Compensation Awards
The MIP is currently authorized for the issuance of awards of up to 1,201,202 shares of common stock, and as of December 31, 2020, there were 89,780 shares of common stock available for grant under the MIP. The Long-Term Incentive Plan (the “LTIP”) is currently authorized for the issuance of awards of up to 1,000,000 shares of common stock, and as of December 31, 2020, there were 349,373 shares of common stock available for grant under the LTIP. Pursuant to the Merger Agreement, the Company assumed the ANR Inc. 2017 Equity Incentive Plan (the “ANR EIP”), which had underlying ANR shares that were converted to 89,766 Contura Energy, Inc. shares. The ANR EIP is not authorized for additional issuance of
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
awards of shares of common stock, and as of December 31, 2020, there were no shares of common stock available for grant under the ANR EIP.
As of December 31, 2020, the Company had four types of stock-based awards outstanding: time-based restricted stock units, performance-based restricted stock units, stock options, and performance-based cash awards. Stock-based compensation expense totaled $5,540 and $12,397 for the years ended December 31, 2020 and 2019, respectively. For the years ended December 31, 2020 and 2019, approximately 83% and 76%, respectively, of stock-based compensation expense was reported as selling, general and administrative expenses, and the remainder was recorded as cost of coal sales.
The Company is authorized to repurchase common shares from employees (upon the election by the employee) 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. During the year ended December 31, 2020, the Company repurchased 43,559 shares of its common stock issued pursuant to awards under the MIP, LTIP and ANR EIP for a total purchase amount of $209, or $4.79 average price paid per share. During the year ended December 31, 2019, the Company repurchased 118,935 shares of its common stock issued pursuant to awards under the MIP, LTIP and ANR EIP for a total purchase amount of $5,159, or $43.37 average price paid per share.
2020 Awards Granted
During the year ended December 31, 2020, the Company granted certain key employees and non-employee directors 402,620 time-based restricted stock units under the MIP and LTIP with a weighted average grant date fair value of $6.17 based on the Company’s closing stock price at the trading day before the date of the grant. The awards granted to key employees will vest ratably over a three-year period from date of grant in accordance with the vesting schedule, subject to the participant’s continuous service with the Company through each applicable vesting date. The awards granted to non-employee directors will vest on the first to occur of (i) April 30, 2021, (ii) the director’s separation from service due to the director’s death or physical or mental incapacity to perform his or her usual duties, such condition likely to remain continuously and permanently, as determined by the Company, (iii) a change in control, and (iv) the director's service as a member of the board of directors is terminated as of a date that is after October 31, 2021 but prior to May 1, 2022 for any reason other than removal for cause. Upon vesting and settlement of time-based restricted stock units, the Company issues authorized and unissued shares of the Company’s common stock to the recipient.
Additionally, during the year ended December 31, 2020, the Company granted the Chief Executive Officer (“CEO”) 302,795 performance-based restricted stock units granted under the LTIP which represent the number of shares of common stock that may be issued based on the achievement of targeted performance levels related to pre-established relative total shareholder return goals and annually determined operational goals over a three year period. This award was scheduled to cliff vest on the third anniversary of the date of the grant, subject to the participant’s continuous service with the Company through the applicable vesting date and the satisfaction of the performance criteria. These performance-based restricted stock units had the potential to be earned from 0% to 200% of target depending on actual results. Upon vesting of these awards, the Company would issue authorized and previously unissued shares of the Company’s common stock to the recipient. The 151,398 operational performance-based restricted stock units were valued based on the Company’s closing stock price at the trading day before the date of the grant and had a weighted average grant date fair value of $6.36. For the awards with operational performance conditions, the Company reassessed at each reporting date whether achievement of each of the performance conditions was probable and adjusted the accrual of stock-based compensation expense as needed. The 151,397 relative total shareholder return performance-based restricted stock units were valued relative to the stock price performance of a comparator
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
group and had a weighted average grant date fair value of $8.53 based on a Monte Carlo simulation. The Monte Carlo simulation incorporated the assumptions as presented in the following table:
|
|
|
|
|
|
Relative performance-based restricted stock units
|
|
Start price (1)
|
$
|
7.59
|
|
Valuation date stock price (2)
|
$
|
6.33
|
|
Expected volatility (3)
|
55.27
|
%
|
Risk-free interest rate (4)
|
1.37
|
%
|
Expected dividend yield (5)
|
—
|
%
|
(1) The start price for the Company represented the average closing stock price over the twenty trading days ending on December 31, 2019, assuming dividends distributed during this period were reinvested in additional shares of the Company’s stock on the ex-dividend date.
(2) The valuation date stock price represented the closing price on the grant date.
(3) The expected volatility assumption was based on the historical volatility of the price of the Company’s stock.
(4) The annual risk-free interest rate equaled the yield on the semi-annual zero coupon U.S. Treasury rates converted to continuously compounded rates that had a term equal to the length of the remaining performance measurement period as of the valuation date.
(5) The expected dividend yield represented the investments return to a share of the Company’s stock that is not available to the holder of the performance-based restricted stock unit.
During the first quarter of 2021, the 302,795 performance-based restricted stock units granted under the LTIP were voluntarily forfeited by the CEO in conjunction with an amendment to his employment agreement and the shares were allocated back to the LTIP for future issuance. The amendment also included an amendment to the participant’s time-based restricted stock granted under the MIP, such that the ratable vesting initially scheduled to occur on the second and third anniversaries of the award shall instead both occur on the second anniversary of the award.
Additionally, the Company granted certain key employees performance-based cash incentive awards granted under the LTIP with a target award amount of $2,755. The cash to be awarded is based on the achievement of pre-established relative total shareholder return goals over a three-year period. These awards are scheduled to cliff vest on the third anniversary of the date of the grant, subject to the participant’s continuous service with the Company through the applicable vesting date and the satisfaction of the performance criteria. These awards have the potential to be distributed from 0% to 200% of target depending on actual performance. Upon vesting of these awards, the Company issues cash to the recipient. These awards are classified as a liability, and the Company reassesses at each reporting date the fair value of the award and adjusts the accruals of stock-based compensation expense as appropriate based on a Monte Carlo simulation. As of December 31, 2020, the liability for these awards totaled $643. The performance-based cash incentive awards were valued relative to the stock price performance of a comparator group and had a weighted average grant date fair value as a percent of target dollar value of 82.45% based on a Monte Carlo simulation. The Monte Carlo simulation incorporates the assumptions as presented in the following table:
|
|
|
|
|
|
Performance-based cash incentive awards
|
|
Start price (1)
|
$
|
7.59
|
|
Valuation date stock price (2)
|
$
|
6.33
|
|
Expected volatility (3)
|
55.27
|
%
|
Risk-free interest rate (4)
|
1.37
|
%
|
Expected dividend yield (5)
|
—
|
%
|
(1) The start price for the Company represents the average closing stock price over the twenty trading days ending on December 31, 2019, assuming dividends distributed during this period were reinvested in additional shares of the Company’s stock on the ex-dividend date.
(2) The valuation date stock price represents the closing price at each reporting date.
(3) The expected volatility assumption is based on the historical volatility of the price of the Company’s stock.
(4) The annual risk-free interest rate equals the yield on the semi-annual zero coupon U.S. Treasury rates converted to continuously compounded rates that have a term equal to the length of the remaining performance measurement period as of the valuation date.
(5) The expected dividend yield represents the investments return to a share of the Company’s stock that is not available to the holder of the performance-based restricted stock unit.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
2019 Awards Granted
During the year ended December 31, 2019, the Company granted certain key employees and non-employee directors 79,474 time-based restricted stock units under the LTIP with a weighted average grant date fair value of $49.47 based on the Company’s closing stock price at the trading day before the date of the grant. The awards granted to key employees will either vest ratably over a three-year period or cliff vest in one year from date of grant in accordance with the vesting schedule, subject to the participant’s continuous service with the Company through each applicable vesting date. The awards granted to non-employee directors will vest on the first to occur of (i) April 30, 2020, (ii) the director’s separation from service due to the director’s death or physical or mental incapacity to perform his or her usual duties, such condition likely to remain continuously and permanently, as determined by the Company, and (iii) a change in control. Upon vesting and settlement of time-based restricted stock units, the Company issues authorized and unissued shares of the Company’s common stock to the recipient.
Additionally, during the year ended December 31, 2019, the Company granted certain key employees 81,065 relative total shareholder return performance-based restricted stock units under the LTIP that are valued relative to the median stock price performance of a comparator group and had a weighted average grant date fair value of $65.70 based on a Monte Carlo simulation, and 27,042 absolute total shareholder return performance-based restricted stock units under the LTIP that are valued based on the Company’s stock price performance with a weighted average grant date fair value of $50.60 based on a Monte Carlo simulation. These awards cliff vest on the third anniversary of the date of the grant, subject to continued employment and the satisfaction of the performance criteria. These awards have the potential to be distributed from 0% to 400% of target for the relative total shareholder return units, and 0% to 200% of target for the absolute total shareholder return units depending on actual results versus the pre-established performance criteria over the three-year period. The Monte Carlo simulations incorporate the assumptions as presented in the following tables:
|
|
|
|
|
|
Relative performance-based restricted stock units
|
|
Start price (1)
|
$
|
66.06
|
|
Dividend adjusted stock price (2)
|
$
|
61.27
|
|
Expected volatility (3)
|
29.98
|
%
|
Risk-free interest rate (4)
|
2.42
|
%
|
Expected dividend yield (5)
|
—
|
%
|
(1) The start price for the Company represents the average closing stock price over the ten trading days ending on December 31, 2018, assuming dividends distributed during this period were reinvested in additional shares of the Company’s stock on the ex-dividend date.
(2) The dividend adjusted stock price represents the closing price on the grant date assuming dividends distributed during the period since December 17, 2018, were reinvested in additional shares of the Company’s stock on the ex-dividend date.
(3) The expected volatility assumption is based on the historical volatility of the price of the Company’s stock.
(4) The annual risk-free interest rate equals the yield on zero coupon U.S. Treasury Separate Trading of Registered Interest and Principal of Securities (“STRIPS”) that have a term equal to the length of the remaining performance measurement period as of the valuation date.
(5) The expected dividend yield represents the investments return to a share of the Company’s stock that is not available to the holder of an absolute performance-based restricted stock unit.
|
|
|
|
|
|
Absolute performance-based restricted stock units
|
|
Valuation date stock price
|
$
|
61.27
|
|
Expected volatility (1)
|
29.98
|
%
|
Risk-free interest rate (2)
|
2.42
|
%
|
Expected dividend yield (3)
|
—
|
%
|
(1) The expected volatility assumption is based on the historical volatility of the price of the Company’s stock.
(2) The annual risk-free interest rate equals the yield on zero coupon U.S. Treasury STRIPS that have a term equal to the length of the remaining performance measurement period as of the valuation date.
(3) The expected dividend yield represents the investments return to a share of the Company’s stock that is not available to the holder of an absolute performance-based restricted stock unit.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Restricted Stock
Restricted stock activity for the year ended December 31, 2020 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock activity:
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested shares outstanding at December 31, 2019
|
23,598
|
|
|
$
|
65.55
|
|
Granted
|
—
|
|
|
$
|
—
|
|
Vested
|
(23,598)
|
|
|
$
|
65.55
|
|
Forfeited or Expired
|
—
|
|
|
$
|
—
|
|
Non-vested shares outstanding at December 31, 2020
|
—
|
|
|
$
|
—
|
|
As of December 31, 2020, there was no unrecognized compensation cost related to non-vested restricted stock units.
Restricted Stock Units
Time-Based Restricted Stock Units
Time-based restricted stock unit activity for the year ended December 31, 2020 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Time-based restricted stock unit activity:
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested shares outstanding at December 31, 2019
|
158,082
|
|
|
$
|
64.84
|
|
Granted
|
402,620
|
|
|
$
|
6.17
|
|
Vested (1)
|
(149,829)
|
|
|
$
|
45.22
|
|
Forfeited or Cancelled
|
(43,320)
|
|
|
$
|
21.10
|
|
Non-vested shares outstanding at December 31, 2020
|
367,553
|
|
|
$
|
13.72
|
|
(1) Includes 33,508 shares with deferred settlement pursuant to the award agreement.
As of December 31, 2020, there was $1,707 of unrecognized compensation cost related to non-vested time-based restricted stock units which is expected to be recognized as expense over a weighted-average period of 1.30 years.
Performance-Based Restricted Stock Units
Relative performance-based restricted stock unit activity for the year ended December 31, 2020 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Relative performance-based restricted stock unit activity:
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested shares outstanding at December 31, 2019
|
31,599
|
|
|
$
|
65.70
|
|
Granted
|
151,397
|
|
|
$
|
8.53
|
|
Vested (1)
|
(3,864)
|
|
|
$
|
65.70
|
|
Forfeited
|
(4,929)
|
|
|
$
|
65.70
|
|
Non-vested shares outstanding at December 31, 2020
|
174,203
|
|
|
$
|
16.01
|
|
(1) Includes 3,042 of vested shares due to the employment criteria being satisfied during the period. Until the performance criteria is satisfied, these shares will remain unsettled.
As of December 31, 2020, there was $1,471 of unrecognized compensation cost related to non-vested relative performance-based restricted stock units which is expected to be recognized as expense over a weighted-average period of 1.75 years.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Absolute performance-based restricted stock unit activity for the year ended December 31, 2020 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Absolute performance-based restricted stock unit activity:
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value
|
Non-vested shares outstanding at December 31, 2019
|
10,549
|
|
|
$
|
50.60
|
|
Granted
|
—
|
|
|
$
|
—
|
|
Vested (1)
|
(1,290)
|
|
|
$
|
50.60
|
|
Forfeited
|
(1,645)
|
|
|
$
|
50.60
|
|
Non-vested shares outstanding at December 31, 2020
|
7,614
|
|
|
$
|
50.60
|
|
(1) Includes 1,016 of vested shares due to the employment criteria being satisfied during the period. Until the performance criteria is satisfied, these shares will remain unsettled.
As of December 31, 2020, there was $142 of unrecognized compensation cost related to non-vested absolute performance-based restricted stock units which is expected to be recognized as expense over a weighted-average period of 1.11 years.
Operational performance-based restricted stock unit activity for the year ended December 31, 2020 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Operational performance-based restricted stock unit activity:
|
Number of Shares
|
|
Weighted-Average Fair Value
|
Non-vested shares outstanding at December 31, 2019
|
—
|
|
|
$
|
—
|
|
Granted
|
151,398
|
|
|
$
|
6.36
|
|
Vested
|
—
|
|
|
$
|
—
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Non-vested shares outstanding at December 31, 2020
|
151,398
|
|
|
$
|
6.36
|
|
As of December 31, 2020, there was $260 of unrecognized compensation cost related to non-vested operational performance-based restricted stock units which is expected to be recognized as expense over a weighted-average period of 2.13 years.
Stock Options
30-Day Volume-Weighted Average Price (“VWAP”) Stock Options
30-day VWAP stock option activity for the year ended December 31, 2020 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average Exercise Price Per Share
|
|
Weighted-Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value (1)
|
Outstanding at December 31, 2019
|
51,359
|
|
|
$
|
63.45
|
|
|
7.15
|
|
$
|
(2,794)
|
|
Exercisable at December 31, 2019
|
44,356
|
|
|
$
|
63.03
|
|
|
7.15
|
|
$
|
(2,394)
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
Forfeited or Expired
|
(28,134)
|
|
|
$
|
66.13
|
|
|
|
|
|
Outstanding at December 31, 2020
|
23,225
|
|
|
$
|
60.20
|
|
|
6.12
|
|
$
|
(1,134)
|
|
Exercisable at December 31, 2020
|
23,225
|
|
|
$
|
60.20
|
|
|
6.12
|
|
$
|
(1,134)
|
|
(1) The aggregate intrinsic value of outstanding and exercisable options is calculated as the difference between the exercise price and the Company’s stock price at each reporting period end. The aggregate intrinsic value of exercised options is calculated as the difference between the exercise price and the Company’s stock price on the exercise date. During the year ended December 31, 2019, the aggregate intrinsic value of options exercised was $6,305.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
As of December 31, 2020, there was $0 of unrecognized compensation cost related to the 30-day VWAP stock options.
Fixed Price Stock Options
As December 31, 2020 and 2019, there were no fixed price stock options outstanding or exercisable. During the year ended December 31, 2019, the aggregate intrinsic value of options exercised was $6,879. As of December 31, 2020, there was no unrecognized compensation cost related to the fixed price stock options.
Performance-Based Cash Incentive Awards
Performance-based cash incentive award activity for the year ended December 31, 2020 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based cash incentive award activity:
|
Target Dollar Value
|
|
Weighted-Average Fair Value as a % of Target Dollar Value
|
Non-vested awards outstanding at December 31, 2019
|
$
|
—
|
|
|
—
|
%
|
Granted
|
2,755
|
|
|
82.45
|
%
|
Vested (1)
|
(42)
|
|
|
100.00
|
%
|
Forfeited
|
(507)
|
|
|
70.70
|
%
|
Non-vested awards outstanding at December 31, 2020
|
$
|
2,206
|
|
|
94.21
|
%
|
(1) Vested awards were paid at target dollar value due to the employment criteria being satisfied during the period.
As of December 31, 2020, there was $1,447 of unrecognized compensation cost related to non-vested performance-based cash incentive awards which is expected to be recognized as expense over a weighted-average period of 2.13 years.
(22) Related Party Transactions
There were no material related party transactions for the year ended December 31, 2020.
On June 14, 2019, the Company entered into a Credit Agreement which provides for the Term Loan Credit Facility as provided by a group of existing shareholders as of the agreement date. Refer to Note 15 for additional disclosures.
On July 19, 2019, in association with the Blackjewel Chapter 11 bankruptcy filing, the U.S. Bankruptcy Court approved debtor-in-possession (“DIP”) financing of $2,900 with DIP lenders, Highbridge Capital Management, LLC and Whitebox Advisors LLC, shareholders of the Company. The Company entered into an arrangement on July 19, 2019 to purchase the obligations under the DIP financing at the request of the lenders thereunder pursuant to certain terms and conditions.
On September 12, 2019, the Company entered into a common stock repurchase agreement with Whitebox, shareholders of the Company. Refer to Note 13 for additional disclosures.
There were no other material related party transactions for the year ended December 31, 2019.
(23) 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 Consolidated Financial Statements when it is at least reasonably possible that a loss may be incurred and that the loss could be material.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
(b) Commitments and Contingencies
Commitments
The Company leases coal mining and other equipment under long-term financing and operating leases with varying terms. Refer to Note 12 for further information on leases. In addition, the Company leases mineral interests and surface rights from landowners under various terms and royalty rates.
Coal royalty expense was $67,992 and $91,879 for the years ended December 31, 2020 and 2019, respectively.
Minimum royalty obligations under coal leases total $15,708, $14,525, $13,633, $11,560, $10,815, and $43,603 for 2021, 2022, 2023, 2024, 2025, and after 2025, respectively.
Other Commitments
The Company has obligations under certain coal purchase agreements that contain minimum quantities to be purchased in 2021 totaling an estimated $44,707. The Company has obligations under certain coal transportation agreements that contain minimum quantities to be shipped during contract periods from 2020 through 2022 with estimated obligations based on remaining tons to be shipped totaling $29 and $338 in 2021 and 2022, respectively. The Company also has obligations under certain equipment purchase agreements that contain minimum quantities to be purchased in 2021 and 2023 totaling $5,008 and $170, 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.
Refer to Note 3 for disclosures on the Cumberland and PRB Back-to-Back Coal Supply Agreements.
Future Federal Income Tax Refunds
As of December 31, 2020, the Company has recorded $64,160 of current federal income tax receivable and associated interest receivable of $5,213 related to a net operating loss (“NOL”) carryback claim. Because the federal government was a creditor in the Alpha Natural Resources, Inc. bankruptcy proceedings, it is possible that the federal government could withhold some or all of the tax refund attributable to the NOL carryback claim and assert a right to set off the tax refund and associated interest receivable against its prepetition bankruptcy claims.
(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 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 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 Consolidated Financial Statements
(Amounts in thousands except share and per share data)
As of December 31, 2020, the Company had $123,108 in letters of credit outstanding under the Amended and Restated Asset-Based Revolving Credit Agreement. Additionally, as of December 31, 2020, the Company had $14,242 in letters of credit outstanding under the Amended and Restated Letter of Credit Agreement dated November 9, 2018 between ANR, Inc. and Citibank, N.A. and $613 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 December 31, 2020, the Company had outstanding surety bonds with a total face amount of $351,596 to secure various obligations and commitments, including $134,162 attributable to discontinued operations. To secure the Company’s reclamation-related obligations, the Company currently has $56,311 of collateral supporting these obligations.
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 represent cash deposits primarily invested in interest bearing accounts that are restricted as to withdrawal as required by certain agreements entered into by the Company and provide collateral to secure the following obligations which have been written on the Company’s behalf:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Workers’ compensation and black lung obligations
|
$
|
69,725
|
|
|
$
|
51,650
|
|
Reclamation-related obligations
|
8,445
|
|
|
67,868
|
|
Financial payments and other performance obligations
|
17,863
|
|
|
3,006
|
|
Contingent revenue obligation escrow
|
9,311
|
|
|
12,363
|
|
Total restricted cash
|
105,344
|
|
|
134,887
|
|
Less current portion (1)
|
(9,311)
|
|
|
(12,363)
|
|
Restricted cash, net of current portion
|
$
|
96,033
|
|
|
$
|
122,524
|
|
(1) Included within prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets.
Restricted investments consist of FDIC insured certificates of deposit, mutual funds, and U.S. treasury bills that are restricted as to withdrawal as required by certain agreements entered into by the Company and provide collateral to secure the following obligations which have been written on the Company’s behalf:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Workers’ compensation obligations
|
$
|
51
|
|
|
$
|
613
|
|
Reclamation-related obligations
|
22,233
|
|
|
18,786
|
|
Financial payments and other performance obligations
|
1,484
|
|
|
—
|
|
Total restricted investments (1), (2)
|
$
|
23,768
|
|
|
$
|
19,399
|
|
(1) Included within other non-current assets on the Company’s Consolidated Balance Sheets.
(2) As of December 31, 2020 and 2019, respectively, $22,498 and $11,021 are classified as trading securities and $1,270 and $8,378 are classified as held-to-maturity securities.
Deposits represent cash deposits held at third parties as required by certain agreements entered into by the Company to provide cash collateral to secure the following obligations which have been written on the Company’s behalf:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
Reclamation-related obligations
|
$
|
25,633
|
|
|
$
|
8,887
|
|
Financial payments and other performance obligations
|
1,596
|
|
|
—
|
|
Other operating agreements
|
1,018
|
|
|
1,423
|
|
Total deposits (1)
|
$
|
28,247
|
|
|
$
|
10,310
|
|
(1) Included within prepaid expenses and other current assets and other non-current assets on the Company’s 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. 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 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.
(24) Concentration of Credit Risk and Major Customers
The Company markets produced, processed, and purchased coal to customers in the United States and in international markets, primarily India, Brazil, Turkey, the Netherlands, and Italy. The following table presents additional information on our total revenues and top customers:
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Total revenue
|
$
|
1,416,187
|
|
|
$
|
2,001,280
|
|
Top customer as % of total revenue
|
16
|
%
|
|
13
|
%
|
Top 10 customers as % of total revenue
|
63
|
%
|
|
59
|
%
|
Number of customers exceeding 10% of total revenue
|
2
|
|
|
2
|
|
Number of customers exceeding 10% of total trade accounts receivable, net
|
3
|
|
|
3
|
|
Domestic revenue as % of coal revenue
|
36
|
%
|
|
39
|
%
|
Export revenue as % of coal revenue
|
64
|
%
|
|
61
|
%
|
Countries with export revenue exceeding 10% of total revenue
|
India, Brazil
|
|
India
|
Met coal as % of coal sales volume
|
80
|
%
|
|
74
|
%
|
Thermal coal as % of coal sales volume
|
20
|
%
|
|
26
|
%
|
(25) 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. As of December 31, 2020, the Company has two reportable segments: Met and CAPP - Thermal. Met consists of five active mines and two preparation plants in Virginia, seventeen active mines and five preparation plants in West Virginia, as well as expenses associated with certain idled/closed mines. CAPP - Thermal consists of one active mine and one preparation plant in West Virginia, as well as expenses associated with certain idled/closed mines. Prior to the fourth quarter of 2020, the Company had three reportable segments: CAPP - Met, CAPP - Thermal, and NAPP. As a result of the divestiture of the Cumberland mining operations (refer to Note 3), the Company re-evaluated its previous conclusions with respect to its segment reporting during the period. To conform to the current period reportable segments presentation, the prior periods have been restated to reflect the change in reportable segments.
In addition to the two reportable segments, the All Other category includes general corporate overhead and corporate assets and liabilities, idle and closed mine costs, and the elimination of certain intercompany activity.
The operating results of these reportable segments are regularly reviewed by the “CODM,” who is the Chief Executive Officer of the Company.
Segment operating results and capital expenditures from continuing operations for the year ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Total revenues
|
$
|
1,264,496
|
|
|
$
|
149,037
|
|
|
$
|
2,654
|
|
|
$
|
1,416,187
|
|
Depreciation, depletion, and amortization
|
$
|
124,060
|
|
|
$
|
20,453
|
|
|
$
|
(4,628)
|
|
|
$
|
139,885
|
|
Amortization of acquired intangibles, net
|
$
|
12,889
|
|
|
$
|
(3,775)
|
|
|
$
|
100
|
|
|
$
|
9,214
|
|
Adjusted EBITDA
|
$
|
120,281
|
|
|
$
|
9,853
|
|
|
$
|
(46,732)
|
|
|
$
|
83,402
|
|
Capital expenditures
|
$
|
111,745
|
|
|
$
|
7,106
|
|
|
$
|
728
|
|
|
$
|
119,579
|
|
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
Segment operating results and capital expenditures from continuing operations for the year ended December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Total revenues
|
$
|
1,711,260
|
|
|
$
|
286,486
|
|
|
$
|
3,534
|
|
|
$
|
2,001,280
|
|
Depreciation, depletion, and amortization
|
$
|
152,835
|
|
|
$
|
57,483
|
|
|
$
|
5,439
|
|
|
$
|
215,757
|
|
Amortization of acquired intangibles, net
|
$
|
10,389
|
|
|
$
|
(13,578)
|
|
|
$
|
—
|
|
|
$
|
(3,189)
|
|
Adjusted EBITDA
|
$
|
316,006
|
|
|
$
|
11,981
|
|
|
$
|
(63,883)
|
|
|
$
|
264,104
|
|
Capital expenditures
|
$
|
140,250
|
|
|
$
|
17,545
|
|
|
$
|
2,652
|
|
|
$
|
160,447
|
|
The following table presents a reconciliation of net loss from continuing operations to Adjusted EBITDA for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Net loss from continuing operations
|
$
|
(77,519)
|
|
|
$
|
(52,520)
|
|
|
$
|
(111,431)
|
|
|
$
|
(241,470)
|
|
Interest expense
|
(2,014)
|
|
|
6
|
|
|
76,536
|
|
|
74,528
|
|
Interest income
|
(63)
|
|
|
—
|
|
|
(6,964)
|
|
|
(7,027)
|
|
Income tax benefit
|
—
|
|
|
—
|
|
|
(2,164)
|
|
|
(2,164)
|
|
Depreciation, depletion and amortization
|
124,060
|
|
|
20,453
|
|
|
(4,628)
|
|
|
139,885
|
|
Non-cash stock compensation expense
|
289
|
|
|
8
|
|
|
4,600
|
|
|
4,897
|
|
Mark-to-market adjustment - acquisition-related obligations
|
—
|
|
|
—
|
|
|
(8,750)
|
|
|
(8,750)
|
|
Accretion on asset retirement obligations
|
14,214
|
|
|
9,285
|
|
|
3,005
|
|
|
26,504
|
|
Asset impairment and restructuring (1)
|
46,317
|
|
|
36,719
|
|
|
842
|
|
|
83,878
|
|
Management restructuring costs (2)
|
501
|
|
|
5
|
|
|
435
|
|
|
941
|
|
Loss on partial settlement of benefit obligations
|
1,607
|
|
|
(328)
|
|
|
1,687
|
|
|
2,966
|
|
Amortization of acquired intangibles, net
|
12,889
|
|
|
(3,775)
|
|
|
100
|
|
|
9,214
|
|
Adjusted EBITDA
|
$
|
120,281
|
|
|
$
|
9,853
|
|
|
$
|
(46,732)
|
|
|
$
|
83,402
|
|
(1) Asset impairment and restructuring for the year ended December 31, 2020 includes long-lived asset impairments of $80,954 and restructuring expense of $2,924. Refer to Note 8 for further information.
(2) Management restructuring costs are related to severance expense associated with senior management changes during the three months ended March 31, 2020.
ALPHA METALLURGICAL RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
The following table presents a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Met
|
|
CAPP - Thermal
|
|
All Other
|
|
Consolidated
|
Net income (loss) from continuing operations
|
$
|
7,944
|
|
|
$
|
(97,398)
|
|
|
$
|
(130,164)
|
|
|
$
|
(219,618)
|
|
Interest expense
|
(1,209)
|
|
|
23
|
|
|
68,707
|
|
|
67,521
|
|
Interest income
|
(100)
|
|
|
—
|
|
|
(7,147)
|
|
|
(7,247)
|
|
Income tax benefit
|
—
|
|
|
—
|
|
|
(53,287)
|
|
|
(53,287)
|
|
Depreciation, depletion and amortization
|
152,835
|
|
|
57,483
|
|
|
5,439
|
|
|
215,757
|
|
Merger-related costs
|
—
|
|
|
—
|
|
|
1,090
|
|
|
1,090
|
|
Non-cash stock compensation expense
|
1,494
|
|
|
71
|
|
|
10,783
|
|
|
12,348
|
|
Mark-to-market adjustment - acquisition-related obligations
|
—
|
|
|
—
|
|
|
(3,564)
|
|
|
(3,564)
|
|
Accretion on asset retirement obligations
|
9,599
|
|
|
10,929
|
|
|
3,337
|
|
|
23,865
|
|
Loss on modification and extinguishment of debt
|
—
|
|
|
—
|
|
|
26,459
|
|
|
26,459
|
|
Asset impairment (1)
|
15,034
|
|
|
50,993
|
|
|
297
|
|
|
66,324
|
|
Goodwill impairment (2)
|
124,353
|
|
|
—
|
|
|
—
|
|
|
124,353
|
|
Cost impact of coal inventory fair value adjustment (3)
|
4,751
|
|
|
3,458
|
|
|
—
|
|
|
8,209
|
|
Gain on assets acquired in an exchange transaction (4)
|
(9,083)
|
|
|
—
|
|
|
—
|
|
|
(9,083)
|
|
Management restructuring costs (5)
|
—
|
|
|
—
|
|
|
7,720
|
|
|
7,720
|
|
Loss on partial settlement of benefit obligations
|
(1)
|
|
|
—
|
|
|
6,447
|
|
|
6,446
|
|
Amortization of acquired intangibles, net
|
10,389
|
|
|
(13,578)
|
|
|
—
|
|
|
(3,189)
|
|
Adjusted EBITDA
|
$
|
316,006
|
|
|
$
|
11,981
|
|
|
$
|
(63,883)
|
|
|
$
|
264,104
|
|
(1) Asset impairment for the year ended December 31, 2019 includes a long-lived asset impairment of $60,169 related to asset groups recorded within the Met and CAPP - Thermal reporting segments and an asset impairment of $6,155 primarily related to the write-off of prepaid purchased coal as a result of Blackjewel’s Chapter 11 bankruptcy filing on July 1, 2019. Refer to Note 8 for further information.
(2) The goodwill impairment testing as of December 31, 2019 resulted in a goodwill impairment of $124,353 to write down the full carrying value of goodwill. Refer to Note 2 for further information.
(3) The cost impact of the coal inventory fair value adjustment as a result of the Merger was completed during the three months ended June 30, 2019.
(4) During the year ended December 31, 2019, the Company entered into an exchange transaction which primarily included the release of the PRB overriding royalty interest owed to the Company in exchange for met coal reserves which resulted in a gain of $9,083.
(5) Management restructuring costs are related to severance expense associated with senior management changes in the year ended December 31, 2019.
No asset information has been provided for these reportable segments as the CODM does not regularly review asset information by reportable segment.