Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Upon the consummation of the transactions contemplated by the Merger Agreement, we began trading on the New York Stock Exchange under the ticker “CTRA” on November 9, 2018. Following the effectiveness of our name change on February 1, 2021, our ticker symbol on the New York Stock Exchange changed from “CTRA” to “AMR” effective on February 4, 2021.
As of December 31, 2023, there were 86 registered holders of record of our common stock. The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. Our common stock is registered by book-entry only.
The section of our Proxy Statement entitled “Stock Performance Graph” is incorporated herein by reference. For information on securities authorized for issuance under our equity compensation plans, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Dividend Policy
Pursuant to the dividend policy adopted by the Board on May 3, 2022, the Board declared quarterly cash dividends on the Company’s common stock during the years ended December 31, 2023 and 2022. The holders of the Company’s common stock are entitled to receive such dividends, if any, when they are declared by the Board. The decision to declare and pay cash dividends will be made by the Board and will depend on the Company’s earnings, financial condition and other relevant factors. On August 2, 2023, the Board determined to end the Company’s fixed dividend program following the quarterly dividend declared and paid in the fourth quarter of 2023. Refer to Note 7 for further information related to the Company’s dividend program.
Repurchase of Common Stock
The following table summarizes information about shares of common stock that were repurchased during the fourth quarter of 2023.
Total Number of Shares Purchased (1)
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In thousands) (2)(3)(4)
October 1, 2023 through October 31, 2023 132,460 $ 232.02 132,460 $ 626,717
November 1, 2023 through November 30, 2023 264,425 $ 253.67 264,425 $ 559,639
December 1, 2023 through December 31, 2023 124,118 $ 318.41 101,989 $ 527,619
521,003 498,874
(1) Includes 22,129 common shares repurchased from employees to satisfy the employees’ statutory tax withholdings upon the vesting of stock grants. Shares that are repurchased to satisfy the employees’ statutory tax withholdings are recorded in treasury stock at cost.
(2) On February 21, 2023 and October 31, 2023, the Board approved increases to the existing common share repurchase program adopted March 4, 2022, bringing the total authorization to repurchase the Company’s stock to $1.2 billion and $1.5 billion, respectively. Refer to Note 7 for additional information.
(3) The Company adopted a capital return program in 2019, including a stock repurchase plan with no expiration date that permitted the Company to repurchase up to an aggregate amount of $100 million of the Company’s common stock. The Company suspended this stock repurchase plan on October 1, 2019 and does not currently intend to make further repurchases under it.
(4) We cannot estimate the number of shares that will be repurchased because decisions to purchase are subject to market and business conditions, levels of available liquidity, our cash needs, restrictions under agreements or obligations, legal or regulatory requirements or restrictions, and other relevant factors. This amount does not include stock repurchase related fees and excise taxes.
Item 6. [Reserved]
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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, 2023 and 2022. 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. For discussion on results of operations and financial condition pertaining to 2021 and year-over-year comparisons between 2022 and 2021, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.
The following discussion includes forward-looking statements about our business, financial condition and results of operations, including discussions about management’s expectations for our business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and in light of recent events and trends, and you should not construe these statements either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. See “Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A. Risk Factors.”
Market Overview
Throughout 2023, metallurgical coal markets generally showed strength with periods of volatility in the face of economic pressures, geopolitical uncertainty, and global recessionary fears.
Macroeconomic conditions around the world remain inconsistent, with some economies, like the United States, exhibiting continued resilience to these external pressures, while others, like the European Union, having experienced a significant downturn. While central bankers in the United States and Europe are expected to lower interest rates within the 2024 calendar year in response to easing inflation, uncertainty remains regarding when those actions may be taken and how quickly they may impact overall economic conditions. Organizations such as the International Monetary Fund and The World Bank have issued muted expectations about global growth prospects for 2024-2025, citing a slower-than-historical-average pace of expansion and downside risks related to geopolitical shocks, supply disruptions, or prolonged tight monetary conditions.
Geopolitical strife—namely the Russian war in Ukraine and the violence in the Middle East—has impacted coal markets by upending natural trade flows and, at times, causing shipping delays due to violence stemming from these conflicts. Continued volatility in metallurgical markets is possible as these macroeconomic and geopolitical circumstances evolve.
Metallurgical coal indices ended the fourth quarter within a few percentage points of where they started in October 2023, with the U.S. East Coast High Volatile B index representing the largest move, an increase of 6%, of the four indices Alpha closely monitors. The Australian Premium Low Volatile index decreased from $333.00 per metric ton at the start of the fourth quarter to $323.75 metric ton at the end of December. The U.S. East Coast Low Volatile index increased from $258.00 per metric ton at the beginning of October to $268.00 per metric ton at the end of December. The U.S. East Coast High Volatile A index moved from $288.00 per metric ton at the start of the fourth quarter to $281.00 per metric ton at quarter close, and the U.S. East Coast High Volatile B index increased from $238.00 per metric ton to $252.00 per metric ton at the end of the year. Since then, all four indices have softened. The Australian Premium Low Volatile declined from its quarter-close level to $315.00 per metric ton on February 15, 2024. The U.S. East Coast indices of Low Volatile, High Volatile A and High Volatile B measured $265.00, $262.00, and $221.00 per ton, respectively, as of the same date.
The world manufacturing Purchasing Managers’ Index (“PMI”) increased to 50.0 in January 2024, up from 49.0 in December 2023 and breaking a 16-month stretch of below-50.0 contractionary levels. India, an important market for Alpha, recorded January 2024 PMI of 56.5, up from 54.9 in December 2023. PMI data for the United States rose to 50.7 in January 2024, up from a December 2023 level of 47.9, marking the strongest improvement in operating conditions since September 2022. Brazilian PMI also progressed from its December 2023 level of 48.4, with the January 2024 PMI of 52.8 representing an 18-month high for the country’s manufacturing economy. China’s headline PMI was unchanged from December 2023 to January 2024, coming in at 50.8. While still firmly in contractionary territory, Europe’s PMI data show positive momentum, with the January 2024 manufacturing PMI hitting a 10-month high of 46.6, up significantly from 44.4 in December 2023.
As compiled by the World Steel Association (“WSA”), December 2023 global crude steel production of 135.7 million metric tons from 71 countries represented a decrease of 5.3% in comparison to the year-ago period. The largest steel-producing country, China, produced 67.4 million metric tons in December 2023, 14.9% less than it produced in December 2022. The next largest producer, India, posted an increased December 2023 production level of 12.1 million metric tons, up 9.5% from its December 2022 level. Crude steel production in the United States of 6.8 million metric tons in December 2023 represented an
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increase of 7.6% from the year-ago period. South Korea produced 5.4 million metrics tons of steel in December 2023, an increase of 2.7% over production from December 2022. Turkey and Iran produced 3.2 million metric tons and 2.9 million metric tons in December 2023, which represented the two largest year-over-year percentage increases (21.2% and 12.1%, respectively) among the top ten steel-producing countries. In terms of regional analysis, December 2023 crude steel production represented an increase against the year-ago period for all reporting regions but the Asia and Oceania region, which contains both India and China, and South America. Asia and Oceania produced 96.4 million metric tons of crude steel for the month, a 9.7% decrease from December 2022, while South America’s 3.2 million metric tons was a 3.2% decrease from December 2022.
The American Iron and Steel Institute’s capacity utilization rate for U.S. steel mills was 77.0% for the week ending February 10, 2024. This is lower than the year-ago period when the capacity utilization rate was 80.5%.
In the seaborne thermal market, the API2 index started the fourth quarter at $124.85 per metric ton and decreased to $103.85 per metric ton at the end of December 2023.
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 supplier of metallurgical coal products to the steel industry. We operate high-quality, cost-competitive coal mines across the CAPP coal basin. As of December 31, 2023, our operations consisted of twenty-two active mines and nine coal preparation and load-out facilities, with approximately 4,160 employees. We produce, process, and sell met coal and thermal coal. We also sell coal produced by others, some of which is processed and/or blended with coal produced from our mines prior to resale, with the remainder purchased for resale. As of December 31, 2023, we had 316.0 million tons of reserves, which included 303.0 million tons of proven and probable metallurgical reserves and 12.9 million tons of proven and probable thermal 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 Newport News, 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, we closed a transaction with Blackjewel to sell our Western Mines located in the PRB, Wyoming, along with related coal reserves, equipment, infrastructure and other real properties (our former PRB operations). On October 4, 2019, we closed on the ESM Transaction in connection with Blackjewel’s subsequent bankruptcy filing. On May 29, 2020, certain of our subsidiaries (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.
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). The disposition of our former NAPP operations accelerated our strategic exit from thermal coal production to shift our focus toward met coal production.
For the years ended December 31, 2023 and 2022, sales of met coal were 15.3 million tons and 14.2 million tons, respectively, and accounted for approximately 90% and 87%, respectively, of our coal sales volume. Sales of thermal coal were 1.8 million tons and 2.2 million tons, respectively, and accounted for approximately 10% and 13%, respectively, of our coal sales volume.
Our sales of met coal were made primarily to steel companies in the northeastern and midwestern regions of the United States and in several countries in Asia, Europe, and the Americas. Our sales of thermal coal were made primarily to large utilities and industrial customers both in the United States and across the world. For the years ended December 31, 2023 and 2022 approximately 74% and 81%, 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.
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As of December 31, 2023, we have one reportable segment: Met. Our Met segment operations consist of high-quality met coal mines, including Deep Mine 41, Road Fork 52, Black Eagle, and Lynn Branch. The coal produced by our Met segment operations is predominantly met coal with some amounts of thermal coal being produced as a byproduct of mining. In addition to the one reportable segment, our All Other category includes general corporate overhead and corporate assets and liabilities, our former CAPP - Thermal operations consisting of one preparation plant in West Virginia, and the elimination of certain intercompany activity, as well as expenses associated with certain idled/closed mines. Refer to Notes 22 and 23 for additional disclosures on our reportable segment, geographic areas, and export coal revenue information.
As discussed in the “Market Overview” presented above, monetary tightening in the United States and Europe, weak economic conditions across the globe, and geopolitical unrest from the ongoing war between Russia and Ukraine and violence in the Middle East influenced metallurgical coal markets in 2023. Our year ended December 31, 2023 results of operations were impacted by volatility in coal indices stemming from these factors.
Other Business Development s
During 2023, development was completed and production began at our Rolling Thunder and Checkmate Powellton mines within our Power Mountain and Elk Run mining complexes, respectively, which produce High-Vol. B quality met coal from the Powellton coal seam.
In August 2023, we completed our transition to a pure-play metallurgical producer with the closure of Slabcamp, which was our last remaining thermal mine.
In the first quarter of 2023, we completed a series of transactions to acquire a number of coal trucks and related equipment and facilities to secure trucking services for our operations. In December 2022, we purchased substantially all of the assets of a mining equipment component manufacturing and rebuild business to help secure the supply of certain underground mining equipment parts needed for our operations. Refer to Note 2 for additional information.
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 February 14, 2024, we had sales commitments for 2024 as follows:
Tons % Priced Average Realized Price per Ton
Met - Domestic $161.63
Met - Export $196.05
Met Total 16.0 million 35 % $171.33
Thermal 1.1 million 100 % $77.14
Met Segment 17.1 million 40 % $154.68
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
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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 maximize productivity and control costs. Our primary expenses are for operating supply costs, repair and maintenance expenditures, cost of purchased coal, royalties, wages and benefits, freight and handling costs and taxes incurred in selling our coal. The 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, 2023 and 2022 are discussed in these “Results of Operations” presented below.
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
Revenues
The following table summarizes information about our revenues during the years ended December 31, 2023 and 2022:
Year Ended December 31, Increase (Decrease)
(In thousands, except for per ton data) 2023 2022 $ or Tons %
Coal revenues $ 3,456,630 $ 4,092,987 $ (636,357) (15.5) %
Other revenues 14,787 8,605 6,182 71.8 %
Total revenues $ 3,471,417 $ 4,101,592 $ (630,175) (15.4) %
Tons sold 17,072 16,378 694 4.2 %
Coal revenues. Coal revenues decreased $636.4 million, or 15.5%, for the year ended December 31, 2023 compared to the prior year period. The decrease was primarily due to a 20.7% reduction in average coal sales realization within our Met segment as pricing moderated from the higher levels experienced during the prior year, partially offset by a 6.9% increase in coal sales volumes. The elevated coal sales pricing environment in the prior year period was driven by increased coal demand, resulting from improved economic activity, coupled with limited supply response. Coal revenues within our All Other category also declined due to the closure of Slabcamp, which was our last remaining thermal mine, in August of 2023. Refer to the “Non-GAAP Coal revenues” section below for further detail on coal revenues for the year ended December 31, 2023 compared to the prior year period.
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Cost and Expenses
The following table summarizes information about our costs and expenses during the years ended December 31, 2023 and 2022:
Year Ended December 31, Increase (Decrease)
(In thousands) 2023 2022 $ %
Cost of coal sales (exclusive of items shown separately below) $ 2,356,138 $ 2,285,969 $ 70,169 3.1 %
Depreciation, depletion and amortization 136,869 107,620 29,249 27.2 %
Accretion on asset retirement obligations 25,500 23,765 1,735 7.3 %
Amortization of acquired intangibles, net 8,523 19,498 (10,975) (56.3) %
Selling, general and administrative expenses (exclusive of depreciation, depletion and amortization shown separately above) 82,390 71,618 10,772 15.0 %
Total other operating loss (income):
Mark-to-market adjustment for acquisition-related obligations — 8,880 (8,880) (100.0) %
Other (income) expense (1,088) 3,363 (4,451) (132.4) %
Total costs and expenses $ 2,608,332 $ 2,520,713 $ 87,619 3.5 %
Cost of coal sales. Cost of coal sales increased $70.2 million, or 3.1%, for the year ended December 31, 2023 compared to the prior year period as a result of increased costs due to inflationary pressure and increased levels of coal purchases partially offset by lower royalties, taxes, and freight and handling costs due to the lower coal pricing environment.
Depreciation, depletion and amortization. Depreciation, depletion and amortization increased $29.2 million, or 27.2%, for the year ended December 31, 2023 compared to the prior year period. The increase was primarily due to an increase in capital expenditures.
Amortization of acquired intangibles, net. Amortization of acquired intangibles, net decreased $11.0 million, or 56.3%, for the year ended December 31, 2023 compared to the prior year period. The decrease was primarily driven by accelerated prior period amortization of certain acquired mine permits as a result of an update to the estimated life of the associated mines.
Selling, general and administrative. Selling, general and administrative expenses increased $10.8 million, or 15.0%, for the year ended December 31, 2023 compared to the prior year period. This increase was primarily related to increases of $10.8 million in stock compensation expense and $1.7 million in wages and benefits expense, partially offset by decreases of $2.0 million in professional services fees and $0.7 million in incentive pay.
Mark-to-market adjustment for acquisition-related obligations. The mark-to-market adjustment for acquisition-related obligations was $8.9 million for the year ended December 31, 2022. As the royalty period for our Contingent Revenue Obligation ended on December 31, 2022, there was no mark-to-market adjustment recorded during the year ended December 31, 2023. Refer to Notes 14 and 16 for additional information on the Contingent Revenue Obligation.
Other (income) expense . Other income increased $4.5 million, or 132.4%, for the year ended December 31, 2023 compared to the prior year period, primarily due to an increase in income on sale of assets in the current period.
Total Other Expense, Net
The following table summarizes information about our total other expense, net during the years ended December 31, 2023 and 2022:
Year Ended December 31, Increase (Decrease)
(In thousands) 2023 2022 $ %
Total other expense, net $ (17,626) $ (26,129) $ 8,503 32.5 %
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Total other expense, net decreased $8.5 million, or 32.5%, for the year ended December 31, 2023 compared to the prior year period, primarily related to decreased interest expense due to a reduction in outstanding debt and increased interest income due to rising interest rates, partially offset by an increase in net periodic benefit costs for pension obligations.
Income Tax Expense
The following table summarizes information about our income tax expense during the years ended December 31, 2023 and 2022:
Year Ended December 31, Increase (Decrease)
(In thousands) 2023 2022 $ %
Income tax expense $ (123,503) $ (106,205) $ (17,298) (16.3) %
Income taxes. Income tax expense of $123.5 million was recorded for the year ended December 31, 2023 on income before income taxes of $845.5 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to favorable permanent differences for the percentage depletion allowance and the foreign-derived intangible income deduction.
Income tax expense of $106.2 million was recorded for the year ended December 31, 2022 on income before income taxes of $1,554.8 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to the decrease in the valuation allowance and favorable permanent differences for the percentage depletion allowance and the foreign-derived intangible income deduction. Refer to Note 17 for additional information.
Non-GAAP Financial Measures
The discussion below contains “non-GAAP financial measures.” These are financial measures that 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 “non-GAAP coal margin.” We use Adjusted EBITDA to measure the operating performance of our segments and allocate resources to the segments. Adjusted EBITDA does not purport to be an alternative to net income (loss) as a measure of operating performance or any other measure of operating results, financial performance, or liquidity presented in accordance with GAAP. Moreover, this measure is not calculated identically by all companies and therefore may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is presented because management believes it is a useful indicator of the financial performance of our coal operations. We use non-GAAP coal revenues to present coal revenues generated, excluding freight and handling fulfillment revenues. Non-GAAP coal sales realization per ton for our operations is calculated as non-GAAP coal revenues divided by tons sold. We use non-GAAP cost of coal sales to adjust cost of coal sales to remove freight and handling costs, depreciation, depletion and amortization - production (excluding the depreciation, depletion and amortization related to selling, general and administrative functions), accretion on asset retirement obligations, amortization of acquired intangibles, net, and idled and closed mine costs. Non-GAAP cost of coal sales per ton for our operations is calculated as non-GAAP cost of coal sales divided by tons sold. Non-GAAP coal margin per ton for our coal operations is calculated as non-GAAP coal sales realization per ton for our coal operations less non-GAAP cost of coal sales per ton for our coal operations. 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, capital investments and other factors.
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, 2023 and 2022:
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Year Ended December 31, 2023
(In thousands, except for per ton data) Met All Other Consolidated
Coal revenues $ 3,406,643 $ 49,987 $ 3,456,630
Less: Freight and handling fulfillment revenues (438,783) (227) (439,010)
Non-GAAP Coal revenues $ 2,967,860 $ 49,760 $ 3,017,620
Tons sold 16,543 529 17,072
Non-GAAP Coal sales realization per ton $ 179.40 $ 94.06 $ 176.76
Cost of coal sales (exclusive of items shown separately below) $ 2,303,129 $ 53,009 $ 2,356,138
Depreciation, depletion and amortization - production (1)
125,716 9,952 135,668
Accretion on asset retirement obligations 14,886 10,614 25,500
Amortization of acquired intangibles, net 8,523 — 8,523
Total Cost of coal sales $ 2,452,254 $ 73,575 $ 2,525,829
Less: Freight and handling costs (438,783) (227) (439,010)
Less: Depreciation, depletion and amortization - production (1)
(125,716) (9,952) (135,668)
Less: Accretion on asset retirement obligations (14,886) (10,614) (25,500)
Less: Amortization of acquired intangibles, net (8,523) — (8,523)
Less: Idled and closed mine costs (16,983) (10,015) (26,998)
Non-GAAP Cost of coal sales $ 1,847,363 $ 42,767 $ 1,890,130
Tons sold 16,543 529 17,072
Non-GAAP Cost of coal sales per ton $ 111.67 $ 80.84 $ 110.72
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
Year Ended December 31, 2023
(In thousands, except for per ton data) Met All Other Consolidated
Coal revenues $ 3,406,643 $ 49,987 $ 3,456,630
Less: Total Cost of coal sales (per table above) (2,452,254) (73,575) (2,525,829)
GAAP Coal margin $ 954,389 $ (23,588) $ 930,801
Tons sold 16,543 529 17,072
GAAP Coal margin per ton $ 57.69 $ (44.59) $ 54.52
GAAP Coal margin $ 954,389 $ (23,588) $ 930,801
Add: Depreciation, depletion and amortization - production (1)
125,716 9,952 135,668
Add: Accretion on asset retirement obligations 14,886 10,614 25,500
Add: Amortization of acquired intangibles, net 8,523 — 8,523
Add: Idled and closed mine costs 16,983 10,015 26,998
Non-GAAP Coal margin $ 1,120,497 $ 6,993 $ 1,127,490
Tons sold 16,543 529 17,072
Non-GAAP Coal margin per ton $ 67.73 $ 13.22 $ 66.04
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
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Year Ended December 31, 2022
(In thousands, except for per ton data) Met All Other Consolidated
Coal revenues $ 4,018,515 $ 74,472 $ 4,092,987
Less: Freight and handling fulfillment revenues (529,043) (20) (529,063)
Non-GAAP Coal revenues $ 3,489,472 $ 74,452 $ 3,563,924
Tons sold 15,478 900 16,378
Non-GAAP Coal sales realization per ton $ 225.45 $ 82.72 $ 217.60
Cost of coal sales (exclusive of items shown separately below) $ 2,225,771 $ 60,198 $ 2,285,969
Depreciation, depletion and amortization - production (1)
100,584 6,036 106,620
Accretion on asset retirement obligations 13,590 10,175 23,765
Amortization of acquired intangibles, net 15,699 3,799 19,498
Total Cost of coal sales $ 2,355,644 $ 80,208 $ 2,435,852
Less: Freight and handling costs (529,043) (20) (529,063)
Less: Depreciation, depletion and amortization - production (1)
(100,584) (6,036) (106,620)
Less: Accretion on asset retirement obligations (13,590) (10,175) (23,765)
Less: Amortization of acquired intangibles, net (15,699) (3,799) (19,498)
Less: Idled and closed mine costs (21,646) (6,911) (28,557)
Non-GAAP Cost of coal sales $ 1,675,082 $ 53,267 $ 1,728,349
Tons sold 15,478 900 16,378
Non-GAAP Cost of coal sales per ton $ 108.22 $ 59.19 $ 105.53
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
Year Ended December 31, 2022
(In thousands, except for per ton data) Met All Other Consolidated
Coal revenues $ 4,018,515 $ 74,472 $ 4,092,987
Less: Total Cost of coal sales (per table above) (2,355,644) (80,208) (2,435,852)
GAAP Coal margin $ 1,662,871 $ (5,736) $ 1,657,135
Tons sold 15,478 900 16,378
GAAP Coal margin per ton $ 107.43 $ (6.37) $ 101.18
GAAP Coal margin $ 1,662,871 $ (5,736) $ 1,657,135
Add: Depreciation, depletion and amortization - production (1)
100,584 6,036 106,620
Add: Accretion on asset retirement obligations 13,590 10,175 23,765
Add: Amortization of acquired intangibles, net 15,699 3,799 19,498
Add: Idled and closed mine costs 21,646 6,911 28,557
Non-GAAP Coal margin $ 1,814,390 $ 21,185 $ 1,835,575
Tons sold 15,478 900 16,378
Non-GAAP Coal margin per ton $ 117.22 $ 23.54 $ 112.08
(1) Depreciation, depletion and amortization - production excludes the depreciation, depletion and amortization related to selling, general and administrative functions.
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Year Ended December 31, Increase (Decrease)
(In thousands, except for per ton data) 2023 2022 $ or Tons %
Met segment operations:
Tons sold 16,543 15,478 1,065 6.9 %
Non-GAAP Coal revenues $ 2,967,860 $ 3,489,472 $ (521,612) (14.9) %
Non-GAAP Coal sales realization per ton $ 179.40 $ 225.45 $ (46.05) (20.4) %
All Other category:
Tons sold 529 900 (371) (41.2) %
Non-GAAP Coal revenues $ 49,760 $ 74,452 $ (24,692) (33.2) %
Non-GAAP Coal sales realization per ton $ 94.06 $ 82.72 $ 11.34 13.7 %
Non-GAAP Coal revenues. Met segment operations non-GAAP coal revenues decreased $521.6 million, or 14.9%, for the year ended December 31, 2023 compared to the prior year period. The decrease was primarily due to a $46.05, or 20.4%, reduction in average non-GAAP coal sales realization as prices moderated from the higher levels experienced during the prior year period, partially offset by a 6.9% increase in Met coal sales volumes. The elevated coal sales pricing environment in the prior year period was driven by increased coal demand, resulting from improved economic activity, coupled with limited supply response.
All Other category non-GAAP coal revenues decreased $24.7 million, or 33.2%, for the year ended December 31, 2023 compared to the prior year period primarily due to a decline in coal sales volumes with the closure of Slabcamp, which was our last remaining thermal mine, in August of 2023.
Year Ended December 31, Increase (Decrease)
(In thousands, except for per ton data) 2023 2022 $ %
Met segment operations:
Non-GAAP Cost of coal sales $ 1,847,363 $ 1,675,082 $ 172,281 10.3 %
Non-GAAP Cost of coal sales per ton $ 111.67 $ 108.22 $ 3.45 3.2 %
Non-GAAP Coal margin per ton $ 67.73 $ 117.22 $ (49.49) (42.2) %
All Other category:
Non-GAAP Cost of coal sales $ 42,767 $ 53,267 $ (10,500) (19.7) %
Non-GAAP Cost of coal sales per ton $ 80.84 $ 59.19 $ 21.65 36.6 %
Non-GAAP Coal margin per ton $ 13.22 $ 23.54 $ (10.32) (43.8) %
Non-GAAP cost of coal sales. Met segment operations non-GAAP cost of coal sales increased $172.3 million, or 10.3%, for the year ended December 31, 2023 compared to the prior year period. The increase was primarily driven by a 6.9% increase in Met coal sales volumes combined with a 3.2% increase in average non-GAAP cost of coal sales per ton. The increase in average non-GAAP cost of coal sales per ton was primarily driven by inflationary pressures and increased levels of coal purchases, partially offset by lower royalties and taxes as a result of a lower coal pricing environment.
All Other category non-GAAP cost of coal sales decreased $10.5 million, or 19.7%, for the year ended December 31, 2023 compared to the prior year period primarily due to the closure of Slabcamp, which was our last remaining thermal mine, in August of 2023.
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Adjusted EBITDA
The following tables present a reconciliation of net income (loss) to Adjusted EBITDA for the years ended December 31, 2023 and 2022:
Year Ended December 31, 2023
(In thousands) Met All Other Consolidated
Net income (loss) $ 938,495 $ (216,539) $ 721,956
Interest expense 731 6,192 6,923
Interest income (644) (11,289) (11,933)
Income tax expense — 123,503 123,503
Depreciation, depletion and amortization 125,716 11,153 136,869
Non-cash stock compensation expense 96 18,921 19,017
Loss on extinguishment of debt — 2,753 2,753
Accretion on asset retirement obligations 14,886 10,614 25,500
Amortization of acquired intangibles, net 8,523 — 8,523
Adjusted EBITDA $ 1,087,803 $ (54,692) $ 1,033,111
Year Ended December 31, 2022
(In thousands) Met All Other Consolidated
Net income (loss) $ 1,647,104 $ (198,559) $ 1,448,545
Interest expense 202 21,600 21,802
Interest income (541) (2,646) (3,187)
Income tax expense — 106,205 106,205
Depreciation, depletion and amortization 100,584 7,036 107,620
Non-cash stock compensation expense 4 7,480 7,484
Mark-to-market adjustment - acquisition-related obligations — 8,880 8,880
Accretion on asset retirement obligations 13,590 10,175 23,765
Amortization of acquired intangibles, net 15,699 3,799 19,498
Adjusted EBITDA $ 1,776,642 $ (36,030) $ 1,740,612
The following table summarizes Adjusted EBITDA for our Met segment operations and All Other category:
Year Ended December 31, Increase (Decrease)
(In thousands) 2023 2022 $ %
Adjusted EBITDA
Met operations $ 1,087,803 $ 1,776,642 $ (688,839) (38.8) %
All Other (54,692) (36,030) (18,662) (51.8) %
Total $ 1,033,111 $ 1,740,612 $ (707,501) (40.6) %
Met segment operations. Adjusted EBITDA decreased $688.8 million, or 38.8%, for the year ended December 31, 2023 compared to the prior year period. The decrease in Adjusted EBITDA was primarily driven by decreased coal margin and lower non-GAAP coal sales realization per ton in the current period.
All Other category. Adjusted EBITDA decreased $18.7 million, or 51.8%, for the year ended December 31, 2023 compared to the prior year period. The decrease in Adjusted EBITDA was primarily driven by a decrease in tons sold and decreased coal margin, partially offset by higher non-GAAP coal sales realization per ton in the current period.
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Liquidity and Capital Resources
Overview
Our primary sources of liquidity are derived from existing unrestricted cash balances, proceeds from future coal sales, and amounts available under our revolving credit agreement. Our primary capital resource requirements stem from the cost of our coal production and purchases, selling and administrative expenses, taxes, capital expenditures, debt service obligations, reclamation obligations, and collateral requirements.
We believe that cash on hand and cash generated from our operations will be sufficient to meet our working capital, anticipated capital expenditure, income tax, debt service, collateral and reclamation obligations requirements for the next 12 months and the reasonably foreseeable future. We may also use cash in accordance with our share repurchase program. We rely on a number of assumptions in budgeting for our future activities. These include the costs for mine development to sustain capacity of our operating mines, our cash flows from operations, effects of regulation and taxes by governmental agencies, mining technology improvements and reclamation costs. These assumptions are inherently subject to significant business, political, economic, regulatory, environmental and competitive uncertainties, pending and existing climate-related initiatives, contingencies and risks, all of which are difficult to predict and many of which are beyond our control. For example, if the new authorization process for all self-insured coal mine operators is adopted, it would substantially increase the collateral required to secure our self-insured federal black lung obligations. Refer to the DCMWC Reauthorization Process section below for more information. Increased scrutiny of ESG matters specific to the coal sector could negatively influence our ability to raise capital in the future and result in a reduced number of surety and insurance providers. We may need to raise additional funds if market conditions deteriorate, if one or more of our assumptions prove to be incorrect or if we choose to expand our acquisition or development efforts or any other activity more rapidly than we presently anticipate and we may not be able to do so in a timely fashion, on terms acceptable to us, or at all. Additionally, we may elect to raise additional funds before we need them if the conditions for raising capital are favorable. We may seek to sell equity or debt securities or obtain additional bank credit facilities. The sale of equity securities could result in dilution to our stockholders. The incurrence of additional indebtedness could result in increased fixed obligations and additional covenants that could restrict our operations.
Liquidity
The following table summarizes our total liquidity as of December 31, 2023:
(in thousands )
December 31, 2023
Cash and cash equivalents $ 268,207
Credit facility availability (1)
94,104
Minimum liquidity requirement (75,000)
Total liquidity $ 287,311
(1) Comprised of our unused commitments available under our New ABL Agreement after considering $60.9 million of outstanding LCs, subject to limitations described therein.
Cash Collateral
We are required to provide cash collateral to secure our obligations under certain worker’s compensation, black lung, reclamation-related obligations, financial payments and other performance obligations, and other operating agreements. Future regulatory changes relating to these obligations could result in increased obligations, additional costs, or additional collateral requirements which could require greater use of alternative sources of funding for this purpose, which would reduce our liquidity. Refer to the DCMWC Reauthorization Process section below for information related to the new authorization process for self-insured coal mine operators being implemented by the U.S. Department of Labor (Division of Coal Mine Workers’ Compensation). As of December 31, 2023, we had the following cash collateral on our Consolidated Balance Sheets:
(in thousands )
December 31, 2023
Long-term restricted cash $ 115,918
Long-term restricted investments 40,597
Short-term and long-term deposits 5,382
Total cash collateral $ 161,897
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Off-Balance Sheet Arrangements
We are required to provide financial assurance in order to perform the post-mining reclamation required by our mining permits, pay workers’ compensation claims under workers’ compensation laws in various states, pay federal black lung benefits, and perform certain other obligations. In order to provide the required financial assurance, we generally use surety bonds for post-mining reclamation and workers’ compensation obligations. We also use bank LCs to collateralize certain obligations. As of December 31, 2023, we had the following outstanding surety bonds and LCs:
(in thousands )
December 31, 2023
Surety bonds $ 177,109
Letters of credit (1)
$ 60,896
(1) The LCs outstanding are under the New ABL Agreement dated October 27, 2023.
Refer to Note 21, part (c) for further disclosures on off-balance sheet arrangements.
Debt Financing and Related Transactions
On October 27, 2023, we terminated our existing ABL Agreement and entered into a New ABL Agreement. Under the New ABL Facility, we may borrow cash or obtain LCs, on a revolving basis, in an aggregate amount of up to $155.0 million. We may request an increase to the capacity of the facility of up to $75.0 million provided that $25.0 million may be solely for the purpose of providing additional availability to obtain cash collateralized LCs. Availability under the New ABL Facility is calculated monthly and fluctuates based on qualifying amounts of coal inventory and trade accounts receivable (the “Borrowing Base”). Generally, under the terms of the New ABL Facility, to the extent outstanding borrowings and LC’s exceed the Borrowing Base, the specified amount of cash would be restricted and used to collateralize any excess outstanding amounts. The New ABL Facility matures on October 27, 2027.
Refer to Note 13 for additional disclosures on long-term debt.
Acquisition-Related Obligations
During the first quarter of 2023, we paid the final calculated payment pursuant to terms of the Contingent Revenue Obligation. At December 31, 2023, we had no acquisition-related obligations outstanding. Refer to Note 14 for additional disclosures on acquisition-related obligations.
Capital Requirements
Our capital expenditures for the year ended December 31, 2023 were $245.4 million. We expect to spend between $210.0 million and $240.0 million on capital expenditures during 2024. At the midpoint of guidance, this total includes approximately $171 million in sustaining maintenance capital, approximately $33 million in planned projects to invest in mine development, and approximately $21 million in carryover from 2023 due to timing and availability of supplies and contract labor.
Contractual Obligations
The following is a summary of our significant contractual obligations as of December 31, 2023:
(in thousands )
2024 2025 2026 2027 2028 After 2028 Total
Minimum royalties $ 14,357 $ 14,394 $ 13,160 $ 11,901 $ 11,851 $ 89,025 $ 154,688
Coal purchase commitments 236,848 — — — — — 236,848
Unconditional purchase obligations (1)
251,038 66,675 — — — — 317,713
Total $ 502,243 $ 81,069 $ 13,160 $ 11,901 $ 11,851 $ 89,025 $ 709,249
(1) Includes contractual commitments related to the purchase of equipment, diesel fuel, and electricity as well as for rail freight and export terminal costs, including approximately $48.4 million in 2024 for expected DTA funding. See below for further discussion.
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Additionally, we have long-term liabilities relating to asset retirement obligations, pension benefits, black lung benefits, postretirement life insurance benefits, and workers’ compensation benefits. The table below reflects the estimated undiscounted cash flows for these obligations:
(in thousands) 2024 2025 2026 2027 2028 After 2028 Total
Asset retirement obligation $ 39,888 $ 36,295 $ 28,783 $ 37,462 $ 39,623 $ 304,521 $ 486,572
Pension benefit obligation (1)
31,491 31,496 31,392 31,333 31,180 852,913 1,009,805
Black lung benefit obligation 10,687 10,301 10,082 9,937 9,857 177,711 228,575
Postretirement life insurance benefit obligation 613 607 602 601 603 12,922 15,948
Workers’ compensation benefit obligation 8,661 5,990 5,162 4,632 4,363 56,898 85,706
Total $ 91,340 $ 84,689 $ 76,021 $ 83,965 $ 85,626 $ 1,404,965 $ 1,826,606
(1) The estimated undiscounted cash flows are expected to be paid from the defined benefit pension plan assets held within the defined benefit pension plan trust. Refer to Note 18 for further disclosures related to this obligation.
Business Updates
On August 3, 2023, S&P Global Ratings upgraded its issuer credit rating on the Company to B+ from B based on the strength of our balance sheet. The rating outlook was noted as stable. On November 6, 2023, S&P Global Ratings affirmed our B+ issuer credit rating and stable rating outlook on the New ABL Facility. On July 18, 2023, Moody’s Investors Service upgraded our Corporate Family Rating to B1 from B2, upgraded our Probability of Default Rating to B1-PD from B2-PD, and affirmed our B1 rating on the ABL Facility. Our Speculative Grade Liquidity Rating remained unchanged at SGL-2. The rating outlook was revised to stable from positive. On November 3, 2023, Moody’s Investors Service maintained our B1 Corporate Family Rating, B1-PD Probability of Default Rating, and SGL-2 Speculative Grade Liquidity Rating, and affirmed our B1 rating on the New ABL Facility. Should we receive any negative outlook ratings in the future, such negative outlook ratings would result in potential liquidity risks for us, including the risks of declines in our stock value, declines in our cash and cash equivalents, less availability and higher costs of additional credit, and requests for additional collateral by surety providers.
We own a 65.0% interest in DTA, a coal export terminal in Newport News, Virginia. DTA provides us with the ability to fulfill a broad range of customer coal quality requirements through coal blending, while also providing storage capacity and transportation flexibility. DTA is in need of capital investment to maximize functionality and minimize downtime due to mechanical issues. Under the terms of our partnership related agreements with respect to our investment in DTA, we are required to fund our proportionate share of DTA’s ongoing operating and capital costs. Beyond our share of routine operating costs, we expect we will invest up to an incremental $25.0 million per year for infrastructure and equipment upgrades at DTA over the next 6 years. Our 2024 funding of DTA (including routine operating and capital costs and infrastructure and equipment upgrades) is expected to total approximately $48.4 million.
We continually strive to enhance our capital structure and financial flexibility. As opportunities arise, we will continue to consider the possibility of refinancing or repayment of any outstanding debt and amendment of our credit facility, and may consider the sale of other assets or businesses, and such other measures as we believe circumstances warrant. We may decide to pursue or not pursue these opportunities at any time. Access to additional funds from liquidity-generating transactions or other sources of external financing is subject to market conditions and certain limitations, including our credit rating and covenant restrictions in our credit facilities.
As a regular part of our business, we review opportunities for, and engage in discussions and negotiations concerning, the acquisition or disposition of coal mining and related infrastructure assets and interests in coal mining companies, and acquisitions or dispositions of, or combinations or other strategic transactions involving companies with coal mining or other energy assets. When we believe that these opportunities are consistent with our strategic plans and our acquisition or disposition criteria, we will make bids or proposals and/or enter into letters of intent and other similar agreements. These bids or proposals, which may be binding or non-binding, are customarily subject to a variety of conditions and usually permit us to terminate the discussions and any related agreement if, among other things, we are not satisfied with the results of due diligence. Any acquisition opportunities we pursue could materially affect our liquidity and capital resources and may require us to incur indebtedness, seek equity capital or both. There can be no assurance that additional financing will be available on terms acceptable to us, or at all.
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Income Taxes
During the year ended December 31, 2023, we paid federal and state income taxes of $79.2 million. Refer to Note 17 for further income tax disclosures.
Pension Plan
We sponsored three qualified non-contributory pension plans (“Pension Plans”) which covered certain salaried and non-union hourly employees. Effective as of December 31, 2023, the assets and liabilities of the Pension Plans were merged into one qualified non-contributory defined benefit pension plan (“Pension Plan”). 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 the Pension Plan. Annual funding contributions to the Pension Plan 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 contributed $25.0 million to the Pension Plan in 2023 and expect to contribute $25.0 million in 2024, including amounts above the estimated minimum required contributions for the respective plan years. Refer to Note 18 for further disclosures related to the Pension Plan and the related 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 was 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, would have been an increase of approximately 2,400% from the approximately $2.6 million in collateral which we (previously by Alpha Natural Resources Inc. prior to the Merger) have provided since 2016 to secure these self-insured black lung obligations. Future liability has not previously been estimated by the DCMWC in connection with the reauthorization process but is now being considered as part of its new collateral-setting methodology.
The reauthorization process provided us with the right to appeal the security determination in writing within 30 days of the date of the notification, which appeal period the DCMWC agreed to extend to May 22, 2020, and we exercised this right of appeal. We strongly disagree with the DCMWC’s substantially higher collateral determination and the methodology through which the calculation was derived. In February 2021, the U.S. Department of Labor (“DOL”) withdrew its Federal Register notice seeking comments on its bulletin describing its new method of calculating collateral requirements. The DOL removed the bulletin from its website in May 2021. On February 10, 2022, a telephone conference was held with DCMWC and DOL decision makers wherein we presented facts and arguments in support of our appeal. No ruling has been made on the appeal, but during the call we indicated that we would be willing to allocate an additional $10.0 million in collateral. If our appeal is unsuccessful, we may be required to provide additional LCs in order to receive self-insurance reauthorization from the DCMWC or insure these black lung obligations through a third-party provider, which would likely also require us to provide additional collateral. In January 2023, the DOL proposed for public comment new regulations which, if adopted, would substantially increase the collateral required to secure self-insured federal black lung obligations. Under the proposed 120% minimum collateral requirement, we estimate we could be required to provide approximately $80.0 million to $100.0 million of collateral to secure certain of our black lung obligations. The DOL has indicated that it expects that some form of these new regulations could go into effect in the first quarter or early second quarter of 2024. A significant increase in these collateral obligations could have a materially adverse effect on our liquidity.
Share Repurchase Program
Refer to Note 7 and “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for information on the share repurchase program and the shares repurchased during the current period.
Dividend Program
Refer to Note 7 for information related to our dividend program.
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Cash Flows
Cash, cash equivalents, and restricted cash increased by $28.7 million and $172.8 million and decreased by $62.0 million over the years ended December 31, 2023, 2022, and 2021, respectively. The net change in cash, cash equivalents, and restricted cash was attributable to the following:
Year Ended December 31,
2023 2022 2021
Cash flows (in thousands):
Net cash provided by operating activities $ 851,159 $ 1,484,005 $ 174,943
Net cash used in investing activities (166,000) (329,357) (89,855)
Net cash used in financing activities (656,428) (981,868) (147,045)
Net increase (decrease) in cash and cash equivalents and restricted cash $ 28,731 $ 172,780 $ (61,957)
Operating Activities. The decrease in net cash provided by operating activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily attributable to lower coal sale realizations, increased operating costs due to inflationary pressures, and increased levels of coal purchases, partially offset by lower royalties and taxes as a result of the lower coal pricing environment.
The increase in net cash provided by operating activities for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily attributable to the improvement in our results from operations as discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, primarily offset by an increase in deposits related to our January 2023 dividend payment and payments on operating liabilities.
Investing Activities. The decrease in net cash used in investing activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by increased cash flows from net sales and maturities of investment securities, partially offset by increased capital expenditures.
The increase in net cash used in investing activities for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily driven by increases in net purchases of investment securities and capital expenditures. In addition, we purchased substantially all of the assets of a mining equipment component manufacturing and rebuilding business (refer to Note 2 for further information).
Financing Activities. The decrease in net cash used in financing activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by decreases in principal repayments of long-term debt as a result of the payoff of the Term Loan Credit Facility in the prior year period, partially offset by increases in dividend and dividend equivalents paid which included the payment of a one time dividend of $5.00 per share in 2023 and common stock repurchases under our share repurchase program during the current period.
The increase in net cash used in financing activities for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily driven by the voluntary prepayments of our remaining outstanding principal borrowings under the Term Loan Credit Facility and the common stock repurchases under our share repurchase program during 2022.
Analysis of Material Debt Covenants
We are in compliance with all covenants under the New ABL Agreement, as of December 31, 2023, including the requirement that we maintain minimum liquidity, as defined in the New ABL Agreement, of $75.0 million. A breach of the covenants in the New ABL Agreement could result in a default under the terms of such agreement, and the respective lenders could then elect to declare any amounts borrowed due and payable and require outstanding LCs to be cash collateralized. In addition, a default under the terms of would inhibit our ability to make certain restricted payments, as defined in the New ABL Agreement, including the Company’s ability to repurchase shares of the Company’s common stock.
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
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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.
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 as a reduction to 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, 2023, we had recorded asset retirement obligation liabilities of $205.4 million, including amounts reported as current. While the precise amount of these future costs cannot be determined with certainty, as of December 31, 2023, we estimate that the aggregate undiscounted cost of final mine closures is approximately $486.6 million. Refer to Note 15 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for reclamation disclosures including a table summarizing the changes in asset retirement obligations for the years ended December 31, 2023 and 2022.
Retirement Plans. We had three non-contributory defined benefit retirement Pension Plans covering certain of our salaried and non-union hourly employees, all of which were frozen. Effective as of December 31, 2023, the assets and liabilities of the Pension Plans were merged into one qualified non-contributory defined benefit Pension Plan. 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 Plan is in accordance with requirements of ERISA, and our contributions can be deducted for federal income tax purposes. We contributed $25.0 million to our Pension Plan for the year ended December 31, 2023. For the year ended December 31, 2023, we recorded a net periodic benefit cost of $2.7 million for our Pension Plan and have recorded a net obligation of $101.9 million which is net of assets of $376.5 million. Refer to Note 18 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for disclosures summarizing the changes in this projected benefit obligation for the years ended December 31, 2023 and 2022.
The calculation of the net periodic benefit expense (credit) and projected benefit obligation associated with our Pension Plan requires the use of a number of assumptions, which are used by our independent actuaries to make the underlying calculations. Refer to Note 18 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-
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K for a summary of these assumptions and additional disclosures related to our Pension Plan. 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 on plan assets at the beginning of each fiscal year based upon historical returns and projected returns on the underlying mix of invested assets. The Pension Plan investment targets are 58% equity securities and 42% fixed income funds (refer to Note 18 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional disclosures on this assumption). Investments are rebalanced on a periodic basis to stay within these targeted guidelines. The expected long-term rate of return on plan assets assumption used to determine net periodic benefit expense was 6.20% for the year ended December 31, 2023. The expected long-term rate of return on plan assets assumption to be used in 2024 is expected to be 6.20%. 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 the pension benefit obligation was 5.10% for the year ended December 31, 2023. The differences resulting from actual versus assumed discount rates are amortized into pension net periodic benefit 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, 2023 by approximately $1.7 million and decrease the projected benefit obligation as of December 31, 2023 by approximately $48.7 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, 2023 by approximately $2.2 million and increase the projected benefit obligation as of December 31, 2023 by approximately $59.1 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 benefit obligations by a third-party insurance provider and certain subsidiaries are self-insured for black lung benefit obligations and may fund certain benefit payments through a 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 benefit 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. The weighted average discount rate used to determine black lung benefit obligations was 5.13% for the year ended December 31, 2023. The differences resulting from actual versus assumed discount rates are amortized into black lung net periodic benefit cost over the remaining average life of the active plan participants. A one percentage-point increase in the discount rate would increase the net periodic black lung benefit cost for the year ended December 31, 2023 by approximately $0.4 million and decrease the projected benefit obligation as of December 31, 2023 by approximately $10.3 million. The corresponding effects of a one percentage-point decrease in discount rate would decrease the net periodic black lung benefit cost for the year ended December 31, 2023 by approximately $0.5 million and increase the projected benefit obligation as of December 31, 2023 by approximately $12.6 million.
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, 2023, we had estimated black lung benefit obligations of approximately $107.3 million, including amounts reported as current, which are net of assets of $2.6 million that are held in a tax-exempt trust fund. For the year ended December 31, 2023, we recorded a net periodic benefit cost of $3.8 million for our black lung benefit obligations. Refer to Note 18 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for disclosures summarizing these underlying assumptions and the changes in these projected benefit obligations for the years ended December 31, 2023 and 2022.
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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, 2023, a valuation allowance of $48.1 million has been provided on deferred tax assets not expected to provide future tax benefits. Refer to Note 17 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional disclosures on income taxes.
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 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 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
For a further discussion of the factors that could result in a change in our assumptions, see “Item 1A. 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 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for disclosures related to new accounting policies adopted.