hcc-20230930

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 September 30, 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 October 30, 2023: 52,018,923

TABLE OF CONTENTS


Forward-Looking Statements		1

Part I. Financial Information		3
Item 1.	Financial Statements	3
	Condensed Statements of Operations for the three and nine months ended September 30, 2023 (Unaudited) and September 30, 2022 (Unaudited)	4
	Condensed Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	5
	Condensed Statements of Changes in Stockholders' Equity for the three and nine months ended September 30, 2023 (Unaudited) and September 30, 2022 (Unaudited)	6
	Condensed Statements of Cash Flows for the nine months ended September 30, 2023 (Unaudited) and September 30, 2022 (Unaudited)	7
	Notes to Condensed Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

Part II. Other Information		36
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults on Senior Securities	38
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	39

Signatures		40

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 the impact of any such pandemic 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);

•our ability to maintain 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 New 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 ongoing conflict in the Middle East; 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 September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Revenues:
Sales	$	416,888	$	371,944	$	1,288,412	$	1,377,665
Other revenues	6,599		18,236		24,409		16,323
Total revenues	423,487		390,180		1,312,821		1,393,988
Costs and expenses:
Cost of sales (exclusive of items shown separately below)	260,376		203,441		723,458		529,869
Cost of other revenues (exclusive of items shown separately below)	9,855		8,417		32,803		26,120
Depreciation and depletion	34,020		30,805		101,783		86,973
Selling, general and administrative	11,138		10,557		38,826		36,985
Business interruption	347		7,106		8,101		20,084
Idle mine	—		5,418		—		10,141
Total costs and expenses	315,736		265,744		904,971		710,172
Operating income	107,751		124,436		407,850		683,816
Interest income (expense), net	7,273		(5,701)		14,922		(20,706)
Loss on early extinguishment of debt	(11,699)		—		(11,699)		—
Other (expense) income	(1,102)		—		(881)		675
Income before income tax expense	102,223		118,735		410,192		663,785
Income tax expense	16,841		20,332		60,439		122,141
Net income	$	85,382	$	98,403	$	349,753	$	541,644
Basic and diluted net income per share:
Net income per share—basic	$	1.64	$	1.91	$	6.73	$	10.49
Net income per share—diluted	$	1.64	$	1.90	$	6.72	$	10.48
Weighted average number of shares outstanding—basic	52,019		51,654		51,958		51,612
Weighted average number of shares outstanding—diluted	52,111		51,744		52,028		51,699
Dividends per share:	$	0.07	$	0.86	$	1.09	$	1.48

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)


	September 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	686,811	$	829,480
Short-term investments	8,913		8,608
Trade accounts receivable	268,124		151,826

Inventories, net	108,757		154,039
Prepaid expenses and other receivables	31,600		29,156
Total current assets	1,104,205		1,173,109
Mineral interests, net	82,636		88,636
Property, plant and equipment, net	1,006,859		738,947

Deferred income taxes	7,004		7,572
Other long-term assets	18,544		19,831
Total assets	$	2,219,248	$	2,028,095
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	44,019	$	39,026
Accrued expenses	72,235		77,435
Asset retirement obligations	3,927		3,900
Short-term financing lease liabilities	13,690		24,089
Other current liabilities	10,090		8,674

Total current liabilities	143,961		153,124
Long-term debt	152,883		302,588
Asset retirement obligations	64,331		64,581

Long-term financing lease liabilities	9,829		9,002
Deferred income taxes	75,174		23,378
Other long-term liabilities	27,858		27,907
Total liabilities	474,036		580,580

Stockholders’ Equity:
Common stock, $0.01 par value, (140,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 54,239,955 issued and 52,018,114 outstanding as of September 30, 2023; 53,875,409 issued and 51,653,568 outstanding as of December 31, 2022)	542		539

Treasury stock, at cost (2,221,841 shares as of September 30, 2023 and December 31, 2022)	(50,576)		(50,576)
Additional paid in capital	275,287		269,956
Retained earnings	1,519,959		1,227,596
Total stockholders’ equity	1,745,212		1,447,515
Total liabilities and stockholders’ equity	$	2,219,248	$	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 September 30,				For the nine months ended September 30,
	2023		2022		2023		2022

Common Stock
Balance, beginning of period	$	539	$	537	$	539	$	537
Issuance of shares	3		2		3		2
Balance, end of period	542		539		542		539
Preferred Stock
Balance, beginning of period	—		—		—		—
Balance, end of period	—		—		—		—
Treasury Stock
Balance, beginning of period	(50,576)		(50,576)		(50,576)		(50,576)

Balance, end of period	(50,576)		(50,576)		(50,576)		(50,576)
Additional Paid in Capital
Balance, beginning of period	273,068		263,991		269,956		256,059
Stock based compensation expense	2,223		2,599		14,533		14,250

Other	(4)		(5)		(9,202)		(3,724)
Balance, end of period	275,287		266,585		275,287		266,585
Retained Earnings
Balance, beginning of period	1,438,264		1,077,105		1,227,596		665,963
Net income	85,382		98,403		349,753		541,644
Dividends paid	(3,687)		(44,423)		(57,390)		(76,522)

Balance, end of period	1,519,959		1,131,085		1,519,959		1,131,085
Total Stockholders' Equity	$	1,745,212	$	1,347,633	$	1,745,212	$	1,347,633

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 nine months ended September 30,
		2023		2022

OPERATING ACTIVITIES
Net income		$	349,753	$	541,644
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and depletion		101,783		86,973
Deferred income tax expense		52,363		122,208
Stock based compensation expense		14,473		14,250
Amortization of debt issuance costs and debt discount, net		1,704		2,869
Accretion of asset retirement obligations		2,886		2,666
Loss on early extinguishment of debt		11,699		—
Mark-to-market (gain) loss on gas hedges		—		4,043
Changes in operating assets and liabilities:
Trade accounts receivable		(116,298)		(93,022)

Inventories		35,624		(73,258)
Prepaid expenses and other receivables		(515)		8,879
Accounts payable		7,065		6,609
Accrued expenses and other current liabilities		(10,505)		20,044
Other		5,986		3,005
Net cash provided by operating activities		456,018		646,910
INVESTING ACTIVITIES
Purchase of property, plant and equipment		(310,820)		(120,022)
Deferred mine development costs		(31,511)		(35,690)
Acquisition of leased mineral rights		—		(3,500)
Acquisitions, net of cash acquired		(2,421)		2,533





Net cash used in investing activities		(344,752)		(156,679)
FINANCING ACTIVITIES
Dividends paid		(57,390)		(76,522)


Retirements of debt, including related fees and expenses		(162,358)		(37,758)
Principal repayments of finance lease obligations		(24,989)		(22,400)


Other		(9,198)		(3,724)
Net cash used in financing activities		(253,935)		(140,404)
Net (decrease) increase in cash and cash equivalents		(142,669)		349,827
Cash and cash equivalents at beginning of period		829,480		395,839
Cash and cash equivalents at end of period		$	686,811	$	745,666

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

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 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 and nine months ended September 30, 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 $5.4 million and $10.1 million for the three and nine months ended September 30, 2022. The Company incurred no idle mine expenses for the three and nine months ended September 30, 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 $0.3 million and $8.1 million for the three and nine months ended September 30, 2023, which represent ongoing legal expenses associated with ongoing labor negotiations. The Company incurred $7.1 million and $20.1 million for the three and nine months ended September 30, 2022, which represent non-recurring expenses that were 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 return-to-work process for eligible employees who wished to return to work which began in February and has been completed. The Company continues to engage in good faith efforts with the labor union to reach an agreement on a new contract.

Acquisitions

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 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.

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

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

NINE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

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.

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 September 30, 2023 and December 31, 2022, short-term investments consisted of $8.9 million and $8.6 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 typically to the Asian region. 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 and nine months ended September 30, 2023 and 2022, XCoal accounted for approximately $36.7 million, or 7.3% and $126.8 million or 9.8% of total sales, and $69.8 million, or 20.6% and $281.3 million or 20.7% 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 September 30, 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)

NINE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

Note 3. Inventories, net

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


	September 30, 2023		December 31, 2022
Coal	$	57,923	$	109,822
Raw materials, parts, supplies and other, net	50,834		44,217
Total inventories, net	$	108,757	$	154,039

Note 4. Income Taxes

For the three and nine months ended September 30, 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 and nine months ended September 30, 2023, the Company had income tax expense of $16.8 million and $60.4 million, respectively.

The $16.8 million and $60.4 million income tax expense for the three and nine months ended September 30, 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):


	September 30, 2023		December 31, 2022		Weighted Average Interest Rate	Final Maturity
Senior Secured Notes	$	156,517	$	310,618	7.875%	December 2028
ABL Borrowings	—		—		Varies(1)	December 2026
Debt discount	(3,634)		(8,030)
Total debt	152,883		302,588
Less: current debt	—		—
Total long-term debt	$	152,883	$	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)

NINE MONTHS ENDED SEPTEMBER 30, 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 nine months ended September 30, 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.

Offers to Purchase the Notes

On August 9, 2023, the Company commenced an offer to purchase (the “Restricted Payment Offer”), in cash, up to $150,000,000 principal amount of its outstanding Notes, at a repurchase price of 103% of the aggregate principal amount of such Notes, plus accrued and unpaid interest with respect to such Notes to, but not including, the date of repurchase (the “Restricted Payment Repurchase Price”). Concurrently with, but separate from, the Restricted Payment Offer, the Company commenced a cash tender offer (the “Tender Offer” and, together with the Restricted Payment Offer, the “Offers”) to purchase up to $150,000,000 principal amount of the Notes at a repurchase price of 104.25% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to, but not including, the date of repurchase (the “TO Repurchase Price”). The Offers expired on September 7, 2023 (the “Expiration Date”).

Restricted Payment Offer

As of the Expiration Date, $200,000 aggregate principal amount of the Notes were validly tendered and not validly withdrawn pursuant to the Restricted Payment Offer. Pursuant to the terms of the Restricted Payment Offer:

(1) an automatic pro ration factor of 49.5674% was applied to the $200,000 aggregate principal amount of the Notes that were validly tendered and not validly withdrawn in the Restricted Payment Offer (rounded down to avoid the purchase of Notes in a principal amount other than in integrals of $1,000), which resulted in $99,000 aggregate principal amount of the Notes (the “RP Pro-Rated Tendered Notes”);

(2) the Company accepted all $99,000 aggregate principal amount of the RP Pro-Rated Tendered Notes for payment of the Restricted Payment Repurchase Price in cash; and

(3) the remaining balance of $101,000 aggregate principal amount of the Notes tendered that were not RP Pro-Rated Tendered Notes were not accepted for payment and were returned to the tendering holder of the Notes.

The Company consummated the Restricted Payment Offer on September 8, 2023.

Accordingly, pursuant to the terms of the Indenture, the Company will have the ability from time to time in the future to make one or more restricted payments (the "Proposed Restricted Payment") in the form of special dividends to holders of the Company’s common stock and/or repurchases of the Company’s common stock in the aggregate amount of up to $299,901,000 consistent with the terms of the Capital Allocation Policy adopted by the Company's board of directors (the "Board"). Any future Proposed Restricted Payments will be at the discretion of the Board and subject to a number of factors and there can be no assurance that the Company will make any Proposed Restricted Payments in the future.

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

NINE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

Tender Offer

As of the Expiration Date, $294,770,000 aggregate principal amount of the Notes were validly tendered and not validly withdrawn pursuant to the Tender Offer. Pursuant to the terms of the Tender Offer:

(1) an automatic pro ration factor of 49.5674% was applied to the $294,770,000 aggregate principal amount of the Notes that were validly tendered and not validly withdrawn in the Tender Offer (rounded down to avoid the purchase of Notes in a principal amount other than in integrals of $1,000), which resulted in $146,002,000 aggregate principal amount of the Notes (the “TO Pro-Rated Tendered Notes”);

(2) the Company accepted all $146,002,000 aggregate principal amount of the TO Pro-Rated Tendered Notes for payment of the TO Repurchase Price in cash; and

(3) the remaining balance of $148,768,000 aggregate principal amount of the Notes tendered that were not TO Pro-Rated Tendered Notes were not accepted for payment and were returned to the tendering holder of the Notes.

The Company consummated the Tender Offer on September 11, 2023.

In connection with the payments for the RP Pro-Rated Tendered Notes and the TO Pro-Rated Tendered Notes, the Company recognized a loss on early extinguishment of debt of $11.7 million during the three and nine months ended September 30, 2023.

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 September 30, 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 September 30, 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):


	September 30, 2023		December 31, 2022
Black lung obligations	$	27,358	$	27,407
Other	500		500
Total other long-term liabilities	$	27,858	$	27,907

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

NINE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

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.

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


	September 30, 2023			December 31, 2022
Finance lease right-of-use assets, net(1)	$	68,670		$	69,596
Finance lease liabilities
Current	13,690			24,089
Noncurrent	9,829			9,002
Total finance lease liabilities	$	23,519		$	33,091

Weighted average remaining lease term - finance leases (in months)	22.7			27.2
Weighted average discount rate - finance leases(2)	7.01		%	6.96		%

(1) Finance lease right-of-use assets are recorded net of accumulated amortization of $35.5 million and $28.0 million and are included in property, plant and equipment, net in the Condensed Balance Sheets as of September 30, 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 September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Operating lease cost(1):	$	6,278	$	11,187	$	19,203	$	29,759
Finance lease cost:
Amortization of leased assets	3,746		5,426		14,375		12,737
Interest on lease liabilities	452		764		1,744		2,557
Net lease cost	$	10,476	$	17,377	$	35,322	$	45,053

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

Maturities of lease liabilities for the Company's finance leases as of September 30, 2023 were as follows (in thousands):


	Finance Leases(1)
2023	$	6,067
2024	13,097
2025	4,741
2026	923


Total	24,828
Less: amount representing interest	(1,309)
Present value of lease liabilities	$	23,519

(1) Finance lease payments include $3.0 million of future payments required under signed lease agreements that have not yet commenced.

WARRIOR MET COAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

NINE MONTHS ENDED SEPTEMBER 30, 2023 (UNAUDITED)

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


	For the nine months ended September 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	1,744	$	2,557
Financing cash flows from finance leases	$	24,989	$	22,400
Non-cash right-of-use assets obtained in exchange for lease obligations:
Finance leases	$	8,315	$	2,011

As of September 30, 2023, the Company had additional commitments for finance leases, primarily for mining equipment, that have not yet commenced of $3.0 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 September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Numerator:
Net income	$	85,382	$	98,403	$	349,753	$	541,644
Denominator:
Weighted-average shares used to compute net income per share—basic	52,019		51,654		51,958		51,612
Dilutive restrictive stock awards	92		90		70		87
Weighted-average shares used to compute net income per share—diluted	52,111		51,744		52,028		51,699
Net income per share—basic

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