ARCH RESOURCES, INC. Unless the context otherwise requires, all references in this report to "Arch,"
the"Company," "we," "us," or "our" are to
Cautionary Notice Regarding Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended - that is, statements related to future, not
past, events. In this context, forward-looking statements often address our
expected future business and financial performance, and often contain words such
as "should," "could," "appears," "estimates," "expects," "anticipates,"
"intends," "may," "plans," "predicts," "projects," "believes," "seeks," or
"will." Actual results may vary significantly from those anticipated due to many
factors, including: impacts of the COVID-19 pandemic; changes in coal prices,
which may be caused by numerous factors beyond our control, including changes in
the domestic and foreign supply of and demand for coal and the domestic and
foreign demand for steel and electricity; volatile economic and market
conditions; operating risks beyond our control, including risks related to
mining conditions, mining, processing and plant equipment failures or
maintenance problems, weather and natural disasters, the unavailability of raw
materials, equipment or other critical supplies, mining accidents, and other
inherent risks of coal mining that are beyond our control; loss of availability,
reliability and cost-effectiveness of transportation facilities and fluctuations
in transportation costs; inflationary pressures and availability and price of
mining and other industrial supplies; the effects of foreign and domestic trade
policies, actions or disputes on the level of trade among the countries and
regions in which we operate, the competitiveness of our exports, or our ability
to export; competition, both within our industry and with producers of competing
energy sources, including the effects from any current or future legislation or
regulations designed to support, promote or mandate renewable energy sources;
alternative steel production technologies that may reduce demand for our coal;
the loss of key personnel or the failure to attract additional qualified
personnel and the availability of skilled employees and other workforce factors;
our ability to secure new coal supply arrangements or to renew existing coal
supply arrangements; the loss of, or significant reduction in, purchases by our
largest customers; disruptions in the supply of coal from third parties; risks
related to our international growth; our relationships with, and other
conditions affecting our customers and our ability to collect payments from our
customers; the availability and cost of surety bonds; including potential
collateral requirements; additional demands for credit support by third parties
and decisions by banks, surety bond providers, or other counterparties to reduce
or eliminate their exposure to the coal industry; inaccuracies in our estimates
of our coal reserves; defects in title or the loss of a leasehold interest;
losses as a result of certain marketing and asset optimization strategies;
cyber-attacks or other security breaches that disrupt our operations, or that
result in the unauthorized release of proprietary, confidential or personally
identifiable information; our ability to acquire or develop coal reserves in an
economically feasible manner; our ability to comply with the restrictions
imposed by our Term Loan Debt Facility and other financing arrangements; our
ability to service our outstanding indebtedness and raise funds necessary to
repurchase Convertible Notes for cash following a fundamental change or to pay
any cash amounts due upon conversion; existing and future legislation and
regulations affecting both our coal mining operations and our customers' coal
usage, governmental policies and taxes, including those aimed at reducing
emissions of elements such as mercury, sulfur dioxides, nitrogen oxides,
particulate matter or greenhouse gases; increased pressure from political and
regulatory authorities, along with environmental and climate change activist
groups, and lending and investment policies adopted by financial institutions
and insurance companies to address concerns about the environmental impacts of
coal combustion; increased attention to environmental, social or governance
matters ("ESG"); our ability to obtain and renew various permits necessary for
our mining operations; risks related to regulatory agencies ordering certain of
our mines to be temporarily or permanently closed under certain circumstances;
risks related to extensive environmental regulations that impose significant
costs on our mining operations, and could result in litigation or material
liabilities; the accuracy of our estimates of reclamation and other mine closure
obligations; the existence of hazardous substances or other environmental
contamination on property owned or used by us; and risks related to tax
legislation and our ability to use net operating losses and certain tax credits;
and our ability to pay base or variable dividends in accordance with our
announced capital return program. All forward-looking statements in this report,
as well as all other written and oral forward-looking statements attributable to
us or persons acting on our behalf, are expressly qualified in their entirety by
the cautionary statements contained in this section and elsewhere in this
report. These factors are not necessarily all of the important factors that
could affect us. These risks and uncertainties, as well as other risks of which
we are not aware or which we currently do not believe to be material, may cause
our actual future results to be materially different than those expressed in our
forward-looking statements. These forward-looking
26
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statements speak only as of the date on which such statements were made, and we do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by the federal securities laws. For a description of some of the risks and uncertainties that may affect our future results, you should see the "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 and subsequent Form 10-Q filings.
COVID-19
In the first quarter of 2020, COVID-19 emerged as a global pandemic. The continuing responses to the COVID-19 outbreak include actions that have a significant impact on domestic and global economies, including travel restrictions, gathering bans, stay at home orders, and many other restrictive measures. All of our operations have been classified as essential in the states in which we operate. We instituted many policies and procedures, in alignment withCDC guidelines along with state and local mandates, to protect our employees during the COVID-19 outbreak. These policies and procedures included, but were not limited to, staggering shift times to limit the number of people in common areas at one time, limiting meetings and meeting sizes, continual cleaning and disinfecting of high touch and high traffic areas, including door handles, bathrooms, bathhouses, access elevators, mining equipment, and other areas, limiting contractor access to our properties, limiting business travel, and instituting work from home for administrative employees. We continue to encourage vaccination among our workforce and adjust our COVID-19 responses. We continually evaluate our policies and procedures, in accordance withCDC , state, and local guidelines, and make any necessary adjustments to respond to the particular circumstances in the areas in which we operate. We recognize that the COVID-19 outbreak and responses thereto also continue to impact both our customers and suppliers. We continue to communicate with them and closely monitor their developments to ensure we have access to the goods and services required to maintain our operations. In early 2022 increased case rates contributed to rail service issues that negatively impacted our export shipment volumes. We remain in close communication with our rail service providers, and work diligently with them to mitigate potential delays. Our current view of our customer demand and logistics situations are discussed in greater detail in
the "Overview" section below. Overview
Our results for the first quarter of 2022 benefited from continued improvement
in metallurgical and thermal coal markets. The first quarter of 2022 was
impacted by numerous events, particularly the Russian invasion of
OnFebruary 24, 2022 Russia invadedUkraine . Among the many humanitarian and economic impacts from the invasion, the significant disruption, and expectation for continued disruption, in global coal and energy supplies has had a significant upward impact on both coking and thermal coal indices.Russia is the third largest coal supplier to the international markets, and bans on the import of Russian coal by theEuropean Union ,Japan , and other nations will disrupt existing trading patterns, create logistical issues, and pressure the availability of supply to these markets for as long as the bans stay in place. Furthermore, financial sanctions againstRussia have made US dollar denominated transactions with Russian entities difficult and riskier to conduct for jurisdictions that have not banned the import of Russian coal. Notably,India andChina currently plan to continue the import of Russian coal, but there are barriers that are political, financial, and logistical, in nature to these plans. The Russian invasion ofUkraine does pose the threat of potential demand destruction to coal markets; however, to date, the evident supply disruption, far outweighs any potential demand destruction. 27
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As expected, theDecember 30, 2021 explosion at theCurtis Bay Terminal , one of twoUnited States East Coast terminals we utilize to export our coking coal product overseas, coupled with the increased COVID-19 case rates and general labor shortages our rail service providers experienced, negatively impacted our volume of coking coal shipments in the first quarter of 2022. While rail service in our Metallurgical Segment improved late in the first quarter, andCurtis Bay operated at reduced rates during the first quarter of 2022, continued improvement will be required to meet our annual shipment volume forecasts. We continue working diligently with our rail service provider, and work to secure alternative vessel loading opportunities to attain our shipment forecasts. At this time, we believe we will make up the first quarter of 2022 shipment shortfall over the course of the remainder of 2022; however, our ability to make up this shortfall will, at least in part, be based on factors that are outside of our direct control.China's ban on importation of Australian coal remains in place, and we believe the supply of previously impounded Australian coal that was released during the fourth quarter of 2021 has been effectively exhausted. North American coking coal supply remains constrained compared to pre-COVID-19 levels, despite historically high indices. Some new supplies have been added to the market, in particular, our new Leer South longwall operation. Still, some of the high cost coking coal mine idlings announced during 2020 remain in place, and production and logistical disruptions also constrain supply. The duration of specific supply disruptions is unknown. We believe that underinvestment in the sector in recent years underlies the current market situation. In the current environment, we expect coking coal prices to remain volatile. Longer term, we believe continued limited global capital investment in new coking coal production capacity, normal reserve depletion, and continuing economic growth will provide support to coking coal markets. Domestic thermal coal consumption was supported by continued high natural gas prices during the first quarter of 2022. Our thermal segment shipment volume increased significantly year-over-year, but was constrained by rail service capacity. Longer term, we continue to believe thermal coal demand will remain pressured by continuing increases in subsidized renewable generation sources, particularly wind and solar, and planned retirements of coal fueled generating facilities. Currently, however; the sustained increase in natural gas prices has led to a significant economic advantage for coal fired electricity generation. We believe coal generator stockpiles are likely below desired levels at many power stations. In the wake of the Russian invasion ofUkraine , international thermal coal market indices increased to historical highs. While we are effectively completely committed for 2022 Thermal Segment sales at currently planned production levels, we do have some export volume that remains open to pricing based on these indices. We continue to pursue other strategic alternatives for our thermal assets, including, among other things, potential divestiture. Currently, we will exercise our operational flexibility to maximize cash generation from our thermal operations, and we are currently setting aside significant funds in our thermal reclamation fund to be utilized in final mine reclamation. Longer term, we will maintain our focus on aligning our thermal production rates with the secular decline in domestic thermal coal demand, while adjusting our thermal operating plans to minimize future cash requirements and maintain flexibility to react to future short-term market fluctuations. 28 Table of Contents Results of Operations
Three Months Ended
Revenues. Our revenues include sales to customers of coal produced at our operations and coal purchased from third parties. Transportation costs are included in cost of coal sales and amounts billed by us to our customers for transportation are included in revenues.
Coal sales. The following table summarizes information about our coal sales
during the three months ended
Three Months Ended March 31,
2022 2021 (Decrease) / Increase
(In thousands)
Coal sales $ 867,936 $ 357,543 $ 510,393
Tons sold 19,738 14,042 5,696
On a consolidated basis, coal sales in the first quarter of 2022 were
approximately $510.4 million , or 142.8%, more than in the first quarter of 2021,
while tons sold increased approximately 5.7 million tons, or 40.6%. Coal sales
from Metallurgical operations increased approximately $293.4 million , primarily
due to higher realized pricing. Thermal coal sales increased approximately
$218.2 million due to increased pricing and volume. See the discussion in
"Operational Performance" for further information about segment results.
Costs, expenses and other. The following table summarizes costs, expenses and
other components of operating income during the three months ended March 31,
2022 and 2021:
Three Months Ended March 31,
Increase
(Decrease)
in Net
2022 2021 Income
(In thousands)
Cost of sales (exclusive of items shown
separately below) $ 508,225 $ 309,906 $ (198,319)
Depreciation, depletion and amortization 32,210 25,797(6,413)
Accretion on asset retirement obligations 4,430 5,437
1,007
Change in fair value of coal derivatives and coal trading activities, net 15,519 528
(14,991)
Selling, general and administrative expenses 26,648 21,480
(5,168)
Other operating income, net (3,439) (5,268)
(1,829)
Total costs, expenses and other$ 583,593 $ 357,880
Cost of sales. Our cost of sales for the first quarter of 2022 increased approximately$198.3 million , or 64.0%, versus the first quarter of 2021. The increase in cost of sales at ongoing operations is directly attributable to higher sales volumes and prices; which consists of increased repairs and supplies costs of approximately$75.5 million , increased transportation costs of approximately$71.2 million , and increased operating taxes and royalties resulting from higher sales prices of approximately$47.5 million . See discussion in "Operational Performance" for further information about segment results. Depreciation, depletion and amortization. The increase in depreciation, depletion and amortization in the first quarter of 2022 versus the first quarter of 2021 is primarily due to the increased depreciation of plant and equipment and amortization of development in our Metallurgical Segment, specifically at the Leer South mine, as development has been completed. Accretion on asset retirement obligations. The decrease in accretion expense in the first quarter of 2022 versus the first quarter of 2021 is primarily related to the timing of reclamation work completed at our Thermal operations, specifically at theCoal Creek mine. 29
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Change in fair value of coal derivatives and coal trading activities, net. The costs in both the first quarter of 2022 and 2021 are primarily related to mark-to-market losses on coal derivatives that we had entered to hedge our price risk for planned international thermal coal shipments. Selling, general and administrative expenses. Selling, general and administrative expenses in the first quarter of 2022 increased versus the first quarter of 2021 due to increased compensation costs of approximately$5.1 million , primarily related to higher incentive compensation accruals recorded in the first quarter of 2022, based on the projected strength of results for the year. Other operating income, net. The decrease in other operating income, net in the first quarter of 2022 versus the first quarter of 2021, consists primarily of the net unfavorable impact of certain coal derivative settlements of approximately$9.2 million , partially offset by the favorable impact of mark to market movements on heating oil positions of approximately$6.8 million .
Nonoperating expenses. The following table summarizes our nonoperating expenses
during the three months ended
Three Months Ended March 31,
Increase
(Decrease)
2022 2021 in Net Income
(In thousands)
Non-service related pension and
postretirement benefit costs $ (873) $ (1,527) $ 654
Net loss resulting from early retirement of
debt (4,120) - (4,120)
Total nonoperating expenses $ (4,993) $
(1,527)
Non-service related pension and postretirement benefit costs. The decrease in non-service related pension and postretirement benefit costs is primarily due to the postretirement benefit gain amortization recorded in the first quarter of 2022 versus the postretirement benefit loss amortization recorded in the first quarter of 2021. Net loss resulting from early retirement of debt. In the first quarter of 2022, we repaid$271.5 million of our Term Loan and recorded$4.1 million of early debt extinguishment; representing the write off of discount amortization, unamortized debt issuance costs, and the ineffective portion of the interest rate swap designated as a cash flow hedge that had been recorded in other comprehensive income.
Provision for income taxes. The following table summarizes our provision for
income taxes for the three months ended
Three Months Ended March 31,
Increase (Decrease)
2022 2021 in Net Income
(In thousands)
Provision for income taxes $ 455 $ 378 $ (77)
See Note 9, "Income Taxes" to the Condensed Consolidated Financial Statements
for a reconciliation of the federal income tax provision at the statutory rate
to the actual provision for income taxes.
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Operational Performance
Three Months Ended
Our mining operations are evaluated based on Adjusted EBITDA, per-ton cash operating costs (defined as including all mining costs except depreciation, depletion, amortization, accretion on asset retirements obligations, and pass-through transportation expenses, divided by segment tons sold), and on other non-financial measures, such as safety and environmental performance. Adjusted EBITDA is defined as net income (loss) attributable to us before the effect of net interest expense, income taxes, depreciation, depletion and amortization, the amortization of sales contracts, the accretion on asset retirement obligations and nonoperating expenses. Adjusted EBITDA may also be adjusted for items that may not reflect the trend of future results by excluding transactions that are not indicative of our core operating performance. Adjusted EBITDA is not a measure of financial performance in accordance with generally accepted accounting principles, and items excluded from Adjusted EBITDA are significant in understanding and assessing our financial condition. Therefore, Adjusted EBITDA should not be considered in isolation, nor as an alternative to net income (loss), income (loss) from operations, cash flows from operations or as a measure of our profitability, liquidity or performance under generally accepted accounting principles. Furthermore, analogous measures are used by industry analysts and investors to evaluate our operating performance. Investors should be aware that our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
The following table shows results by operating segment for the three months
ended
Three Months Ended March 31,
2022 2021 Variance
Metallurgical
Tons sold (in thousands) 1,543 1,719 (176)
Coal sales per ton sold $ 255.52 $ 83.76 $ 171.76
Cash cost per ton sold $ 88.04 $ 59.63 $ (28.41)
Cash margin per ton sold $ 167.48 $ 24.13 $ 143.35
Adjusted EBITDA (in thousands) $ 259,003 $ 41,597 $ 217,406
Thermal
Tons sold (in thousands) 18,195 12,292 5,903
Coal sales per ton sold $ 18.85 $ 13.16 $ 5.69
Cash cost per ton sold $ 13.43 $ 12.18 $ (1.25)
Cash margin per ton sold
This table reflects numbers reported under a basis that differs fromU.S. GAAP. See "Reconciliation of Non-GAAP measures" below for explanation and reconciliation of these amounts to the nearest GAAP measures. Other companies may calculate these per ton amounts differently, and our calculation may not be comparable to other similarly titled measures. Metallurgical - Adjusted EBITDA for the three months endedMarch 31, 2022 increased from the three months endedMarch 31, 2021 due to increased coal sales per ton sold, partially offset by decreased tons sold and increased cash cost per ton sold. The improvement in coal sales per ton sold over the prior year period is due to significantly higher coking coal indices. Already elevated indices increased further due to the supply disruption from the Russian invasion ofUkraine discussed previously in the Overview. As expected, our volume of tons sold in the first quarter of 2022 was negatively impacted by rail service issues, including those related to increased COVID-19 case rates and general labor shortages experienced by our rail service provider, and the disruption atCurtis Bay . Cash cost per ton sold increased due to the reduced volume, increased taxes and royalties that are based on a percentage of coal sales per ton sold, and general inflationary pressure on most goods and services. The ramp up of our Leer South longwall operation is nearly complete as we are currently approaching planned productivity levels. The addition of this second longwall operation to our Metallurgical Segment is expected to significantly increase our future volumes and strengthen our low average segment cost structure relative to our peers. 31
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Our Metallurgical Segment sold 1.5 million tons of coking coal and 0.1 million tons of associated thermal coal in the three months endedMarch 31, 2022 , compared to 1.5 million tons of coking coal and 0.2 million tons of associated thermal coal in the three months endedMarch 31, 2021 . Longwall operations accounted for approximately 74% of our shipment volume in the three months endedMarch 31, 2022 , compared to approximately 58% of our shipment volume in the three months endedMarch 31, 2021 , which was prior to the start up of our Leer South operation. Thermal - Adjusted EBITDA for the three months endedMarch 31, 2022 increased versus the three months endedMarch 31, 2021 , due to increased tons sold and coal sales per ton sold, partially offset by increased cash cost per ton sold. The improvement in coal sales per ton sold and tons sold in the current year period is due to the significant quantity of high-priced domestic business we were able to contract during the second half of 2021, when the prices of domestic thermal coal increased to historically high levels due to high natural gas prices. Coal sales per ton sold in the current period also benefitted from historically high international thermal coal indices upon which most of our export thermal sales are priced. In the near term, elevated natural gas pricing continues to support domestic coal based electricity generation and international thermal coal indices. Cash cost per ton sold increased due to increased taxes and royalties that are based on a percentage of coal sales per ton sold, and general inflationary pressure on most goods and services, particularly diesel fuel, partially offset by the increased sales volume. 32
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Reconciliation of Non-GAAP measures
Segment coal sales per ton sold
Non-GAAP Segment coal sales per ton sold is calculated as segment coal sales
revenues divided by segment tons sold. Segment coal sales revenues are adjusted
for transportation costs, and may be adjusted for other items that, due to
generally accepted accounting principles, are classified in "other income" on
the statement of operations, but relate to price protection on the sale of coal.
Segment coal sales per ton sold is not a measure of financial performance in
accordance with generally accepted accounting principles. We believe segment
coal sales per ton sold provides useful information to investors as it better
reflects our revenue for the quality of coal sold and our operating results by
including all income from coal sales. The adjustments made to arrive at these
measures are significant in understanding and assessing our financial condition.
Therefore, segment coal sales revenues should not be considered in isolation,
nor as an alternative to coal sales revenues under generally accepted accounting
principles.
Idle andThree Months Ended March 31, 2022 Metallurgical Thermal Other Consolidated (In thousands) GAAP Revenues in the Condensed Consolidated Statements of Operations$ 472,171 $ 395,765 $ -$ 867,936 Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue Coal risk management derivative settlements classified in "other income" - 9,074 - 9,074 Coal sales revenues from idled or otherwise disposed operations not included in segments - - (1) (1) Transportation costs 77,863 43,744 1 121,608 Non-GAAP Segment coal sales revenues$ 394,308 $ 342,947 $ -$ 737,255 Tons sold 1,543 18,195 Coal sales per ton sold$ 255.52 $ 18.85 Idle and
Three Months Ended March 31, 2021 Metallurgical Thermal Other Consolidated (In thousands) GAAP Revenues in the Condensed Consolidated Statements of Operations$ 178,781 $ 177,540 $ 1,222 $ 357,543 Less: Adjustments to reconcile to Non-GAAP Segment coal sales revenue Coal risk management derivative settlements classified in "other income" (690) 552 - (138) Coal sales revenues from idled or otherwise disposed operations not included in segments - - 1,217 1,217 Transportation costs 35,489 15,167 5 50,661 Non-GAAP Segment coal sales revenues$ 143,982 $ 161,821 $ -$ 305,803 Tons sold 1,719 12,292 Coal sales per ton sold $ 83.76$ 13.16 33 Table of Contents
Segment cash cost per ton sold
Non-GAAP Segment cash cost per ton sold is calculated as segment cash cost of
coal sales divided by segment tons sold. Segment cash cost of coal sales is
adjusted for transportation costs, and may be adjusted for other items that, due
to generally accepted accounting principles, are classified in "other income" on
the statement of operations, but relate directly to the costs incurred to
produce coal. Segment cash cost per ton sold is not a measure of financial
performance in accordance with generally accepted accounting principles. We
believe segment cash cost per ton sold better reflects our controllable costs
and our operating results by including all costs incurred to produce coal. The
adjustments made to arrive at these measures are significant in understanding
and assessing our financial condition. Therefore, segment cash cost of coal
sales should not be considered in isolation, nor as an alternative to cost of
sales under generally accepted accounting principles.
Idle and
Three Months Ended March 31, 2022 Metallurgical Thermal Other Consolidated
(In thousands)
GAAP Cost of sales in the Condensed
Consolidated Statements of Operations $ 213,728 $ 288,084 $ 6,413 $ 508,225
Less: Adjustments to reconcile to
Non-GAAP Segment cash cost of coal
sales
Diesel fuel risk management derivative
settlements classified in "other
income" - 27 - 27
Transportation costs 77,863 43,744 1 121,608
Cost of coal sales from idled or
otherwise disposed operations not
included in segments - - 3,704 3,704
Other (operating overhead, certain
actuarial, etc.) - - 2,708 2,708
Non-GAAP Segment cash cost of coal
sales $ 135,865 $ 244,313 $ - $ 380,178
Tons sold 1,543 18,195
Cash Cost Per Ton Sold $ 88.04 $ 13.43
Idle andThree Months Ended March 31, 2021 Metallurgical Thermal Other Consolidated (In thousands) GAAP Cost of sales in the Condensed Consolidated Statements of Operations$ 138,002 $ 164,941 $ 6,963 $ 309,906 Less: Adjustments to reconcile to Non-GAAP Segment cash cost of coal sales Diesel fuel risk management derivative settlements classified in "other income" - - - - Transportation costs 35,489 15,167 5 50,661 Cost of coal sales from idled or otherwise disposed operations not included in segments - - 5,218 5,218 Other (operating overhead, certain actuarial, etc.) - - 1,740 1,740 Non-GAAP Segment cash cost of coal sales$ 102,513 $ 149,774 $ -$ 252,287 Tons sold 1,719 12,292 Cash Cost Per Ton Sold $ 59.63$ 12.18 34 Table of Contents
Reconciliation of Segment Adjusted EBITDA to Net Income (Loss)
The discussion in "Results of Operations" above includes references to our
Adjusted EBITDA for each of our reportable segments. Adjusted EBITDA is defined
as net income (loss) attributable to us before the effect of net interest
expense, income taxes, depreciation, depletion and amortization, the accretion
on asset retirement obligations and nonoperating expenses. Adjusted EBITDA may
also be adjusted for items that may not reflect the trend of future results by
excluding transactions that are not indicative of our core operating
performance. We use Adjusted EBITDA to measure the operating performance of our
segments and allocate resources to our segments. Adjusted EBITDA is not a
measure of financial performance in accordance with generally accepted
accounting principles, and items excluded from Adjusted EBITDA are significant
in understanding and assessing our financial condition. Therefore, Adjusted
EBITDA should not be considered in isolation, nor as an alternative to net
income (loss), income (loss) from operations, cash flows from operations or as a
measure of our profitability, liquidity or performance under generally accepted
accounting principles. Investors should be aware that our presentation of
Adjusted EBITDA may not be comparable to similarly titled measures used by other
companies. The table below shows how we calculate Adjusted EBITDA.
Three Months Ended March 31,
2022 2021
Net income (loss) $ 271,872 $ (6,042)
Provision for income taxes 455 378
Interest expense, net 7,023 3,800Depreciation, depletion and amortization 32,210
25,797
Accretion on asset retirement obligations 4,430
5,437
Non-service related pension and postretirement benefit costs 873
1,527
Net loss resulting from early retirement of debt 4,120 - Adjusted EBITDA 320,983
30,897
EBITDA from idled or otherwise disposed operations 2,390
3,566
Selling, general and administrative expenses 26,648
21,480
Other 9,482
(1,265)
Segment Adjusted EBITDA from coal operations
Other includes primarily income from our equity investment, changes in fair value of derivatives we use to manage our exposure to diesel fuel pricing, changes in the fair value of coal derivatives and coal trading activities, EBITDA provided by our land company, and certain miscellaneous revenue.
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Liquidity and Capital Resources
Our primary sources of liquidity are proceeds from coal sales to customers and certain financing arrangements. Excluding significant investing activity, we intend to satisfy our working capital requirements and fund capital expenditures and debt-service obligations with cash generated from operations and cash on hand. We remain focused on prudently managing costs, including capital expenditures, maintaining a strong balance sheet, and ensuring adequate liquidity. Given the volatile nature of coal markets, and the significant challenges and uncertainty surrounding the COVID-19 pandemic, we believe it remains important to take a prudent approach to managing our balance sheet and liquidity. Additionally, banks and other lenders have become increasingly unwilling to provide financing to coal producers, especially those with significant thermal coal exposure. Due to the nature of our business, we may be limited in accessing debt capital markets or obtaining additional bank financing, or the cost of accessing this financing could become more expensive. In light of the reduced capital requirements and current favorable pricing environment, we generated significant cash flows in the first quarter of 2022 and expect cash flows to remain very strong for the remainder of 2022. During the quarter, capital expenditures were approximately$22.3 million , and we expect our capital spending to remain at maintenance levels for the foreseeable future. As evidenced throughout the quarter, our priority is to improve our financial position through enhancing liquidity and reducing our debt and other liabilities, while returning significant value to our stockholders. We plan to maintain a net debt neutral level on our balance sheet as we achieved during the current quarter. During the first quarter of 2022, we repaid$271.5 million of our Term Loans and contributed an additional$20.0 million into our thermal ARO fund to pay for future ARO costs at our legacy thermal operations. During the remainder of 2022, we plan to make additional contributions to the thermal ARO fund and expect total contributions for the remainder of the year to be at least$90 million , if market conditions remain favorable. We ended the first quarter with cash and cash equivalents of$318.7 million and total liquidity of$386.0 million . We believe our current liquidity level is sufficient to fund our business and meet both our short-term (the next twelve months) and reasonably foreseeable long-term requirements and obligations. As we expect our liquidity to grow in the near term, we have implemented our variable rate dividend policy in a manner that will target liquidity levels of at least$350 million . We believe we have significantly increased our future cash-generating capabilities, and as a result, in the second quarter of 2022, we launched an adjusted and more comprehensive capital return program. We will be returning to stockholders approximately 50% of the prior quarter's discretionary cash flow via a variable rate quarterly cash dividend that will complement our existing fixed rate cash dividend of$0.25 per share. The remaining 50% of our discretionary cash flow will be reserved for potential share buybacks, special dividends, the repurchase of potentially dilutive securities, and capital preservation. Any future dividends and all of these potential uses of capital are subject to board approval and declaration. Any shares acquired would be in the open market or through private transactions in accordance withSecurities and Exchange Commission requirements.
The combined fixed and variable dividend payment of
The table below summarizes our first quarter discretionary cash flow and total dividend payout:
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