hcc-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023


☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________

Commission File Number: 001-38061

Warrior Met Coal, Inc.

(Exact name of registrant as specified in its charter)


Delaware		81-0706839
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

16243 Highway 216
Brookwood	Alabama	35444
(Address of Principal Executive Offices)		(Zip Code)

(205) 554-6150

(Registrant's telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	HCC	New York Stock Exchange
Rights to Purchase Series A Junior Participating Preferred Stock, par value $0.01 per share	--	New York Stock Exchange

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

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

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

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Number of shares of common stock outstanding as of May 2, 2023: 51,988,886

TABLE OF CONTENTS


Forward-Looking Statements		1

Part I. Financial Information		3
Item 1.	Financial Statements	3
	Condensed Statements of Operations for the three months ended March 31, 2023 (Unaudited) and March 31, 2022 (Unaudited)	4
	Condensed Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022	5
	Condensed Statements of Changes in Stockholders' Equity for the three months ended March 31, 2023 (Unaudited) and March 31, 2022 (Unaudited)	6
	Condensed Statements of Cash Flows for the three months ended March 31, 2023 (Unaudited) and March 31, 2022 (Unaudited)	7
	Notes to Condensed Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31

Part II. Other Information		31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults on Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	35

Signatures		36

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Form 10-Q" or "this report") includes statements of our expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable and may also relate to our future prospects, developments and business strategies, including any potential changes to our production and sales volumes as a result of our negotiations with the labor union representing certain of our hourly employees. We have used the words “anticipate,” “approximately,” “assume,” “believe,” “could,” “contemplate,” “continue,” “estimate,” “expect,” “target,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should” and similar terms and phrases, including in references to assumptions, in this report to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to:

•the impact of global pandemics, such as the novel coronavirus (“COVID-19”) pandemic, including its impact on our business, employees, suppliers and customers, the metallurgical ("met") coal and steel industries, and global economic markets;

•the impacts of inflation on our business, including on our costs and our profitability;

•our relationships with, and other conditions affecting, our customers;

•successful implementation of our business strategies;

•unavailability of, or price increases in, the transportation of our met coal;

•significant cost increases and fluctuations, and delay in the delivery of raw materials, mining equipment and purchased components;

•work stoppages, negotiation of labor contracts, employee relations and workforce availability;

•competition and foreign currency fluctuations;

•litigation, including claims not yet asserted;

•terrorist attacks or security threats, including cybersecurity threats;

•global steel demand and the downstream impact on met coal prices;

•impact of weather and natural disasters on demand and production;

•a substantial or extended decline in pricing or demand for met coal;

•inherent difficulties and challenges in the coal mining industry that are beyond our control;

•our ability to develop or acquire met coal reserves in an economically feasible manner;

•geologic, equipment, permitting, site access, operational risks and new technologies related to mining;

•inaccuracies in our estimates of our met coal reserves;

•costs associated with our workers’ compensation benefits;

•challenges to our licenses, permits and other authorizations;

•challenges associated with environmental, health and safety laws and regulations;

•regulatory requirements associated with federal, state and local regulatory agencies, and such agencies’ authority to order temporary or permanent closure of our mines;

•climate change concerns and our operations’ impact on the environment;

•failure to obtain or renew surety bonds on acceptable terms, which could affect our ability to secure reclamation and coal lease obligations;

•our obligations surrounding reclamation and mine closure;

•our substantial indebtedness and debt service requirements;

•our ability to comply with covenants in our ABL Facility (as defined below) and the Indenture (as defined below);

•adequate liquidity and the cost, availability and access to capital and financial markets;

•our expectations regarding our future cash tax rate as well as our ability to effectively utilize our net operating loss carry forwards (“NOLs”);

•our ability to continue paying our quarterly dividend or pay any special dividend;

•the timing and amount of any stock repurchases we make under our Stock Repurchase Program (as defined below) or otherwise;

•any consequences related to our transfer restrictions under our certificate of incorporation and our NOL rights agreement;

•geopolitical events, including the effects of the Russia-Ukraine war; and

•the inability to transport our products to customers due to rail performance issues or the impact of weather and mechanical failures at the McDuffie Terminal at the Port of Mobile in Alabama.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under “Part II, Item 1A. Risk Factors,” “Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q, and those set forth from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). These documents are available through our website at www.warriormetcoal.com or through the SEC's Electronic Data Gathering and Analysis Retrieval system at http://www.sec.gov. In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements.

When considering forward-looking statements made by us in this Form 10-Q, or elsewhere, such statements speak only as of the date on which we make them. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this Form 10-Q after the date of this Form 10-Q, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this Form 10-Q or elsewhere might not occur.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WARRIOR MET COAL, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per-share amounts)

(Unaudited)


	For the three months ended March 31,
	2023		2022
Revenues:
Sales	$	500,491	$	382,433
Other revenues	9,183		(3,781)
Total revenues	509,674		378,652
Costs and expenses:
Cost of sales (exclusive of items shown separately below)	232,630		135,341
Cost of other revenues (exclusive of items shown separately below)	11,438		7,040
Depreciation and depletion	37,213		25,797
Selling, general and administrative	14,516		13,929
Business interruption	4,217		6,688
Idle mine	—		3,008
Total costs and expenses	300,014		191,803
Operating income	209,660		186,849
Interest income (expense), net	1,460		(7,822)

Other income	221		675
Income before income tax expense	211,341		179,702
Income tax expense	29,064		33,453
Net income	$	182,277	$	146,249
Basic and diluted net income per share:
Net income per share—basic	$	3.52	$	2.84
Net income per share—diluted	$	3.51	$	2.83
Weighted average number of shares outstanding—basic	51,842		51,532
Weighted average number of shares outstanding—diluted	51,956		51,634
Dividends per share:	$	0.95	$	0.06

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

WARRIOR MET COAL, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per-share data)


	March 31, 2023 (Unaudited)		December 31, 2022

ASSETS
Current assets:
Cash and cash equivalents	$	862,548	$	829,480
Short-term investments	8,697		8,608
Trade accounts receivable	208,629		151,826

Inventories, net	129,406		154,039
Prepaid expenses and other receivables	34,296		29,156
Total current assets	1,243,576		1,173,109
Mineral interests, net	86,692		88,636
Property, plant and equipment, net	793,866		738,947

Deferred income taxes	7,090		7,572
Other long-term assets	19,765		19,831
Total assets	$	2,150,989	$	2,028,095
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	29,746	$	39,026
Accrued expenses	62,928		77,435
Asset retirement obligations	3,927		3,900
Short-term financing lease liabilities	26,535		24,089
Other current liabilities	4,584		$	8,674

Total current liabilities	127,720		153,124
Long-term debt	295,051		302,588
Asset retirement obligations	66,126		64,581

Long-term financing lease liabilities	4,026		9,002
Deferred income taxes	51,959		23,378
Other long-term liabilities	27,816		27,907
Total liabilities	572,698		580,580

Stockholders’ Equity:
Common stock, $0.01 par value, (140,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 54,210,727 issued and 51,988,886 outstanding as of March 31, 2023; 53,875,409 issued and 51,653,568 outstanding as of December 31, 2022)	539		539

Treasury stock, at cost (2,221,841 shares as of March 31, 2023 and December 31, 2022)	(50,576)		(50,576)
Additional paid in capital	268,471		269,956
Retained earnings	1,359,857		1,227,596
Total stockholders’ equity	1,578,291		1,447,515
Total liabilities and stockholders’ equity	$	2,150,989	$	2,028,095

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

WARRIOR MET COAL, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	For the three months ended March 31,
		2023		2022

Common Stock
Balance, beginning of period		$	539	$	537
Issuance of shares		—		—
Balance, end of period		539		537
Preferred Stock
Balance, beginning of period		—		—
Balance, end of period		—		—
Treasury Stock
Balance, beginning of period		(50,576)		(50,576)

Balance, end of period		(50,576)		(50,576)
Additional Paid in Capital
Balance, beginning of period		269,956		256,059
Stock based compensation expense		7,713		7,218

Other		(9,198)		(3,716)
Balance, end of period		268,471		259,561
Retained Earnings
Balance, beginning of period		1,227,596		665,963
Net income		182,277		146,249
Dividends paid		(50,016)		(3,126)

Balance, end of period		1,359,857		809,086
Total Stockholders' Equity		$	1,578,291	$	1,018,608

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

WARRIOR MET COAL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	For the three months ended March 31,
	2023		2022

OPERATING ACTIVITIES
Net income	$	182,277	$	146,249
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and depletion	37,213		25,797
Deferred income tax expense	29,064		33,382
Stock based compensation expense	7,702		7,218
Amortization of debt issuance costs and debt discount, net	713		522
Accretion of asset retirement obligations	906		867

Mark-to-market (gain) loss on gas hedges	(500)		11,681
Changes in operating assets and liabilities:
Trade accounts receivable	(56,804)		(138,328)

Inventories	17,406		(39,446)
Prepaid expenses and other receivables	(3,140)		7,148
Accounts payable	(8,463)		13,090
Accrued expenses and other current liabilities	(18,032)		(1,500)
Other	4,592		3,461
Net cash provided by operating activities	192,934		70,141
INVESTING ACTIVITIES
Purchase of property, plant and equipment	(68,179)		(10,528)
Deferred mine development costs	(14,458)		(9,893)

Acquisitions, net of cash acquired	(2,381)		2,533





Net cash used in investing activities	(85,018)		(17,888)
FINANCING ACTIVITIES
Dividends paid	(50,016)		(3,126)


Extinguishment of debt	(8,000)		—
Principal repayments of finance lease obligations	(7,634)		(7,203)


Other	(9,198)		(3,716)
Net cash used in financing activities	(74,848)		(14,045)
Net increase in cash and cash equivalents	33,068		38,208
Cash and cash equivalents at beginning of period	829,480		$	395,839
Cash and cash equivalents at end of period	$	862,548	$	434,047

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

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

Note 1. Business and Basis of Presentation

Description of the Business

Warrior Met Coal, Inc. (the "Company") is a U.S.-based environmentally and socially minded supplier to the global steel industry. The Company is dedicated entirely to mining non-thermal met coal used as a critical component of steel production by metal manufacturers in Europe, South America and Asia. The Company is a large-scale, low-cost producer and exporter of premium met coal, also known as hard-coking coal ("HCC"), operating highly efficient longwall operations in its underground mines based in Alabama. The HCC that the Company produces from the Blue Creek coal seam contains very low sulfur, has strong coking properties and is of a similar quality to coal referred to as premium HCC produced in Australia. The Company also generates ancillary revenues from the sale of natural gas extracted as a byproduct from the underground coal mines and royalty revenues from leased properties.

Basis of Presentation

The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. For further information, refer to the financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report"). Operating results for the three months ended March 31, 2023 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2023. The balance sheet at December 31, 2022 has been derived from the audited financial statements for the year ended December 31, 2022 included in the 2022 Annual Report.

Collective Bargaining Agreement

The Company's Collective Bargaining Agreement ("CBA") with the labor union representing certain of the Company's hourly employees expired on April 1, 2021 and the labor union initiated a strike after an agreement on a new contract was not reached. As a result of the strike, the Company initially idled Mine No. 4 and scaled back operations at Mine No. 7. In the first quarter of 2022, the Company restarted operations at Mine No. 4. Due to the reduced operations at Mine No. 4 and Mine No. 7, the Company incurred idle mine expenses of $3.0 million for the three months ended March 31, 2022. The Company incurred no idle mine expenses for the three months ended March 31, 2023. These expenses are reported separately in the Condensed Statements of Operations and represent expenses incurred, such as electricity, insurance and maintenance labor. The Company incurred business interruption expenses of approximately $4.2 million for the three months ended March 31, 2023 and $6.7 million for the three months ended March 31, 2022, which represent non-recurring expenses that are directly attributable to the labor strike for incremental safety and security, labor negotiations and other expenses. These expenses are also presented separately in the Condensed Statements of Operations. On February 16, 2023, the labor union representing certain of the Company's hourly employees announced that they were ending the strike and made an unconditional offer to return to work. The Company is currently working to complete the onboarding process with the eligible employees that wish to return to work and continues to engage in good faith negotiations with the labor union representing certain of our hourly employees to reach an agreement on a new contract.

Acquisitions

On March 1, 2022, the Company acquired the remaining 50% interest in Black Warrior Methane ("BWM") and Black Warrior Transmission ("BWT") for $0.3 million. The purchase consideration has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The acquisition is not deemed to be material to the condensed financial statements.

On March 31, 2023, the Company acquired the remaining ownership interest in gas wells owned by an independent third party for $2.4 million. The purchase consideration has been preliminarily allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. A full and detailed valuation of the assets and liabilities is being completed. Accordingly, the allocation is preliminary and may change as additional information becomes available and is assessed by the Company. The final allocation of the consideration transferred may include adjustments to the

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

fair value estimates of identifiable assets and liabilities after a full review has been completed. The acquisition is not deemed to be material to the condensed financial statements.

Note 2. Summary of Significant Accounting Policies

The Company's significant accounting policies are consistent with those disclosed in Note 2 to its audited financial statements included in the 2022 Annual Report.

Cash and Cash Equivalents

Cash and cash equivalents include short-term deposits and highly liquid investments that have original maturities of three months or less when purchased and are stated at cost, which approximates fair value.

Short-Term Investments

Instruments with maturities greater than three months, but less than twelve months, are included in short-term investments. The Company also purchases fixed income securities and certificates of deposits with varying maturities that are classified as available for sale and are carried at fair value. Securities classified as held to maturity are those securities that management has the intent and ability to hold to maturity.

As of March 31, 2023 and December 31, 2022, short-term investments consisted of $8.7 million in cash and fixed income securities. The short-term investments are posted as collateral for the self-insured black lung related claims asserted by or on behalf of former employees of Walter Energy, Inc. ("Walter Energy") and its subsidiaries, which were assumed by the Company and relate to periods prior to March 31, 2016.

Revenue Recognition

Revenue is recognized when performance obligations under the terms of a contract with the Company's customers are satisfied; for all contracts this occurs when control of the promised goods has been transferred to its customers. For coal shipments to domestic customers via rail, control is transferred when the railcar is loaded. For coal shipments to international customers via ocean vessel, control is transferred when the vessel is loaded at the Port of Mobile, Alabama. For natural gas sales, control is transferred when the gas has been transferred to the pipeline. Revenue is disaggregated between coal sales within the Company's mining segment and natural gas sales which is included in all other revenues, as disclosed in Note 13.

Since February 2017, the Company has had an arrangement with XCoal Energy & Resources ("XCoal") to serve as XCoal's strategic partner for exports of low-volatility HCC. Under this arrangement, XCoal takes title to and markets coal that the Company would historically have sold on the spot market, in an amount of the greater of (i) 10% of the Company's total production during the applicable term of the arrangement or (ii) 250,000 metric tons. During the three months ended March 31, 2023 and 2022, XCoal accounted for approximately $30.9 million, or 6.1% of total sales, and $83.5 million, or 21.6% of total sales, respectively.

Trade Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable represent customer obligations that are derived from revenue recognized from contracts with customers. Credit is extended based on an evaluation of the individual customer's financial condition. The Company maintains trade credit insurance on the majority of its customers and the geographic regions of coal shipments to these customers. In some instances, the Company requires letters of credit, cash collateral or prepayments from its customers on or before shipment to mitigate the risk of loss. These efforts have consistently resulted in the Company recognizing no historical credit losses. The Company also has never had to have a claim against its trade credit insurance policy.

In order to estimate the allowance for credit losses on trade accounts receivable, the Company utilizes an aging approach in which potential impairment is calculated based on how long a receivable has been outstanding (e.g., current, 1-31 days, 31-60 days, etc.). The Company calculates an expected credit loss rate based on the Company’s historical credit loss rate, the risk characteristics of our customers, and the current met coal and steel market environments. As of March 31, 2023 and December 31, 2022, the estimated allowance for credit losses was immaterial and did not have a material impact on the Company's financial statements.

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

New Accounting Pronouncements

There were no new accounting standards that had a material impact on the Company's condensed financial statements during the three months ended March 31, 2023, and there were no other new accounting standards that were issued but not yet effective as of March 31, 2023 and that the Company expects to have a material impact on its condensed financial statements.

Note 3. Inventories, net

Inventories, net are summarized as follows (in thousands):


	March 31, 2023		December 31, 2022
Coal	$	82,909	$	109,822
Raw materials, parts, supplies and other, net	46,497		44,217
Total inventories, net	$	129,406	$	154,039

Note 4. Income Taxes

For the three months ended March 31, 2023 and 2022, the Company estimated its annual effective tax rate and applied this effective tax rate to its year-to-date pretax income at the end of the interim reporting period. The tax effect of unusual or infrequently occurring items, including the effects of changes in tax laws or rates and changes in judgment about the realizability of deferred tax assets, are reported in the interim period in which they occur. For the three months ended March 31, 2023 and 2022, the Company had an income tax expense of $29.1 million and $33.5 million, respectively.

The $29.1 million income tax expense for the three months ended March 31, 2023, includes a benefit related to depletion and Internal Revenue Code ("IRC") Section 250 Deduction: Foreign-Derived Intangible Income ("FDII"). The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017 and enacted IRC Section 250 Deduction: FDII, which provides for, among other things, a deduction of 37.5% with respect to foreign-derived intangible income, which reduces the statutory tax rate from 21% to 13.125%. Beginning in 2026, the deduction is reduced from 37.5% to 22.5% of foreign-derived intangible income. The Company has historically not been eligible to claim the deduction due to the deduction being limited to taxable income and the Company's ability to utilize its net operating losses to offset taxable income.

Note 5. Debt

The Company's debt consisted of the following (in thousands):


	March 31, 2023		December 31, 2022		Weighted Average Interest Rate	Final Maturity
Senior Secured Notes	$	302,618	$	310,618	7.875%	December 2028
ABL Borrowings	—		—		Varies(1)	December 2026
Debt discount	(7,567)		(8,030)
Total debt	295,051		302,588
Less: current debt	—		—
Total long-term debt	$	295,051	$	302,588

(1) Borrowings under the ABL Facility bear interest at a rate equal to Secured Overnight Financing Rate ("SOFR") ranging from 1.5% to 2.0%, plus a credit adjustment spread, ranging currently from 0.11448% to 0.42826%, or an alternate base rate plus an applicable margin, which is determined based on the average availability of the commitments under the ABL Facility, ranging from 0.5% to 1.0%.

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

Senior Secured Notes

On December 6, 2021, the Company issued $350.0 million in aggregate principal amount of 7.875% senior secured notes due 2028 (the “Notes”) at an initial price of 99.343% of their face amount. The Notes were issued to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in accordance with Regulation S under the Securities Act. The Company used the net proceeds of the offering of the Notes, together with cash on hand, to fund the redemption of all of the Company’s outstanding 8.00% senior secured notes due 2024 (the “Existing Notes”), including payment of the redemption premium in connection with such redemption. The Notes will mature on December 1, 2028.

During the three months ended March 31, 2023, the Company repurchased in the open market and extinguished approximately $8.0 million principal amount of our Notes. In connection with the extinguishment of our Notes, we recognized a loss on early extinguishment of debt of $0.1 million which is included in interest income (expense), net in the Condensed Statements of Operations.

ABL Facility

On December 6, 2021, the Company entered into the Second Amended and Restated Asset-Based Revolving Credit Agreement (the “Second Amended and Restated Credit Agreement”), by and among the Company and certain of its subsidiaries, as borrowers, the guarantors party thereto, the lenders from time to time party thereto and Citibank, as administrative agent (in such capacity, the "Agent"), which amends and restates in its entirety the then existing Amended and Restated Asset-Based Revolving Credit Agreement (as amended, the “ABL Facility”). The Second Amended and Restated Credit Agreement, among other things, (i) extended the maturity date of the ABL Facility to December 6, 2026; (ii) changed the calculation of the interest rate payable on borrowings from being based on a London Inter-Bank Offered Rate to be based on a SOFR, with corresponding changes to the applicable interest rate margins with respect to such borrowings, (iii) amended certain definitions related to the calculation of the borrowing base; (iv) increased the commitments that may be used to issue letters of credit to $65.0 million; and (v) amended certain baskets contained in the covenants to conform to the baskets contained in the indenture governing the Notes (the "Indenture"). The Second Amended and Restated Credit Agreement also allows the Company to borrow up to $132.0 million through October 13, 2023, decreasing to $116.0 million through November 2026, subject to availability under the borrowing base and other conditions.

As of March 31, 2023, no loans were outstanding under the ABL Facility and there were $8.7 million of letters of credit issued and outstanding under the ABL Facility. At March 31, 2023, the Company had $123.3 million of availability under the ABL Facility (calculated net of $8.7 million of letters of credit outstanding at such time).

Note 6. Other Long-Term Liabilities

Other long-term liabilities are summarized as follows (in thousands):


	March 31, 2023		December 31, 2022
Black lung obligations	27,316		27,407
Other	500		500
Total other long-term liabilities	$	27,816	$	27,907

Note 7. Leases

The Company primarily enters into rental agreements for certain mining equipment that are for periods of 12 months or less, some of which include options to extend the leases. Leases that are for periods of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense on these agreements on a straight-line basis over the lease term. Additionally, the Company has certain finance leases for mining equipment that expire over various contractual periods. These leases have remaining lease terms of one to five years and do not include an option to renew. Amortization expense for finance leases is included in depreciation and depletion expense.

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

Supplemental balance sheet information related to leases was as follows (in thousands):


	March 31, 2023			December 31, 2022
Finance lease right-of-use assets, net(1)	$	69,494		69,596
Finance lease liabilities
Current	26,535			24,089
Noncurrent	4,026			9,002
Total finance lease liabilities	$	30,561		$	33,091

Weighted average remaining lease term - finance leases (in months)	25.6			27.2
Weighted average discount rate - finance leases(2)	6.39		%	6.96		%

(1) Finance lease right-of-use assets are recorded net of accumulated amortization of $29.0 million and $28.0 million and are included in property, plant and equipment, net in the Condensed Balance Sheets as of March 31, 2023 and the Balance Sheets as of December 31, 2022, respectively.

(2) When an implicit discount rate is not readily available in a lease, the Company uses its incremental borrowing rate based on information available at the commencement date when determining the present value of lease payments.

The components of lease expense were as follows (in thousands):


	For the three months ended March 31,
	2023		2022
Operating lease cost(1):	$	6,430	$	5,990
Finance lease cost:
Amortization of leased assets	5,280		4,621
Interest on lease liabilities	638		880
Net lease cost	$	12,348	$	11,491

(1) Includes leases that are for periods of 12 months or less.

Maturities of lease liabilities for the Company's finance leases as of March 31, 2023 were as follows (in thousands):


	Finance Leases(1)
2023	$	23,451
2024	5,489
2025	3,094
2026	458
2027	—
Thereafter	—
Total	32,492
Less: amount representing interest	(1,931)
Present value of lease liabilities	$	30,561

(1) Finance lease payments include $2.2 million of future payments required under signed lease agreements that have not yet commenced.

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

Supplemental cash flow information related to the Company's leases was as follows (in thousands):


	For the three months ended March 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	638	$	880
Financing cash flows from finance leases	$	7,634	$	7,203
Non-cash right-of-use assets obtained in exchange for lease obligations:
Finance leases	$	2,158	$	1,911

As of March 31, 2023, the Company had additional commitments for finance leases, primarily for mining equipment, that have not yet commenced of $2.2 million. These finance leases will commence during the fiscal years 2023 and 2024 with lease terms of one to two years.

Note 8. Net Income per Share

Basic and diluted net income per share was calculated as follows (in thousands, except per share data):


	For the three months ended March 31,
	2023		2022
Numerator:
Net income	$	182,277	$	146,249
Denominator:
Weighted-average shares used to compute net income per share—basic	51,842		51,532
Dilutive restrictive stock awards	114		102
Weighted-average shares used to compute net income per share—diluted	51,956		51,634
Net income per share—basic	$	3.52	$	2.84
Net income per share—diluted	$	3.51	$	2.83

Note 9. Commitments and Contingencies

Environmental Matters

The Company is subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the construction and operation of its plants, mines and other facilities and with respect to remediating environmental conditions that may exist at its own and other properties.

The Company believes it is in compliance with federal, state and local environmental laws and regulations. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and can be reasonably estimated. As of March 31, 2023 and December 31, 2022, there were no accruals for environmental matters other than asset retirement obligations for mine reclamation.

Miscellaneous Litigation

From time to time, the Company is party to lawsuits arising in the ordinary course of its businesses. The Company records costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on the Company’s future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. As of March 31, 2023 and December 31, 2022, there were no items accrued for miscellaneous litigation.

On July 15, 2015, Walter Energy and certain of its wholly owned U.S. subsidiaries, including Jim Walter Resources, Inc. (“JWR”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code (the “Chapter 11

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

Cases”) in the Northern District of Alabama, Southern Division. On December 7, 2015, Walter Energy Canada Holdings, Inc., Walter Canadian Coal Partnership and their Canadian affiliates (collectively “Walter Canada”) applied for and were granted protection under the Companies’ Creditors Arrangement Act (the “CCAA”) pursuant to an Initial Order of the Supreme Court of British Columbia. As a result of the Company’s acquisition of certain core operating assets of Walter Energy during the Chapter 11 Cases, in the first quarter of 2023 and 2022 the Company received $0.2 million and $0.7 million, respectively, from the Chapter 11 Cases which is reflected as other income in the Condensed Statement of Operations for the three months ended March 31, 2023.

Other Commitments and Contingencies

The Company is party to various transportation and throughput agreements with rail and barge transportation providers and the Alabama State Port Authority. These agreements contain annual minimum tonnage guarantees with respect to coal transported from the mine sites to the Port of Mobile, Alabama, the unloading of rail cars or barges, and the loading of vessels. If the Company does not meet its minimum throughput obligations, which are based on annual minimum amounts, it is required to pay the transportation providers or the Alabama State Port Authority a contractually specified amount per metric ton for the difference between the actual throughput and the minimum throughput requirement. At March 31, 2023 and December 31, 2022, the Company had no liability recorded for minimum throughput requirements.

Royalty Obligations

A substantial amount of the coal that the Company mines is produced from mineral reserves leased from third-party landowners. These leases convey mining rights to the Company in exchange for royalties to be paid to the landowner as either a fixed amount per ton or as a percentage of the sales price. Although coal leases have varying renewal terms and conditions, they generally last for the economic life of the reserves. Coal royalty expense was $33.2 million and $25.2 million for the three months ended March 31, 2023 and 2022, respectively.

Note 10. Stockholders' Equity

Common Shares

The Company is authorized to issue up to 140,000,000 common shares, $0.01 par value per share. Holders of common shares are entitled to receive dividends when authorized by the Company's Board of Directors (the "Board").

Stock Repurchase Program

On March 26, 2019, the Board approved the Company's second stock repurchase program (the “New Stock Repurchase Program”) that authorizes repurchases of up to an aggregate of $70.0 million of the Company's outstanding common stock. The Company fully exhausted its previous stock repurchase program (the "First Stock Repurchase Program") of $40.0 million of its outstanding common stock. The New Stock Repurchase Program does not require the Company to repurchase a specific number of shares or have an expiration date. The New Stock Repurchase Program may be suspended or discontinued by the Board at any time without prior notice.

Under the New Stock Repurchase Program, the Company may repurchase shares of its common stock from time to time, in amounts, at prices and at such times as the Company deems appropriate, subject to market and industry conditions, share price, regulatory requirements and other considerations as determined from time to time by the Company. The Company’s repurchases may be executed using open market purchases or privately negotiated transactions in accordance with applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act and repurchases may be executed pursuant to Rule 10b5-1 under the Exchange Act. Repurchases will be subject to limitations in the ABL Facility and the Indenture. The Company intends to fund repurchases under the New Stock Repurchase Program from cash on hand and/or other sources of liquidity. Any future repurchases of shares of the Company's common stock will be subject to the 1% excise tax under the Inflation Reduction Act of 2022 (“IRA”).

As of March 31, 2023 and December 31, 2022, the Company has repurchased 500,000 shares under the New Stock Repurchase Program for approximately $10.6 million, leaving approximately $59.4 million of share repurchases authorized under the New Stock Repurchase Program.

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED)

Dividends

The Company has declared the following dividends on common shares as of the filing date of this Form 10-Q:

Dividend per Share

Dividends Paid

Dividend Type

Declaration Date

Record Date

Payable Date

(in millions)

0.06

3.1

Quarterly

February 18, 2022

March 03, 2022

0.06

SEC Form 10-Q filed by Warrior Met Coal Inc.