2 0 1 9 A N N UA L R E P O R T
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WMC 2019 Annual Report Cover Approved.indd 1
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ADJUSTED EBITDA1
($ IN MILLIONS)
$601
$479
REVENUE
($ IN MILLIONS)
$1,378
$1,268
$1400
$1380
$1360
$1340
$1320
$1300
$1280
$1260
$1240
$1220
$1200
$700
$600
$500
$400
$300
$200
$100
$0
7.25
7.20
7.15
7.10
7.05
7.00
6.95
6.90
6.85
6.80
6.75
SALES VOLUME
(MMT)
7.2
FREE CASH FLOW
($ IN MILLIONS)
FCF Conv.2 84%
76%
$458
6.9
$402
2019
2018
2019
2018
2019
2018
2019
2018
CASH COST OF SALES3
SALES VOLUME
($ PER METRIC TON)
(MMT)
REVENUE
($ IN MILLIONS)
$103.35
$104
7.25
$103
$1400
7.20
$1380
7.15
$102
$1360
7.10
$101
$1340
7.05
$100
$1320
7.00
$1300
6.95
$99
$1280
6.90
$98
$1260
6.85
$1240
6.80
$97
$1220
6.75
$1200
7.2
$1,378
$99.15
$1,268
2019
2019
2019
6.9
2018
2018
2018
$108
CAPEX
($ IN MILLIONS)
FREE CASH FLOW
ADJUSTED EBITDA1
($ IN MILLIONS)
$107
($ IN MILLIONS)
FCF Conv.2 84%
76%
$37
$700
$107
$470
$106
$460
$600
$105
$450
$104
$500
$440
$458
$601
$430
$103
$400
$420
$102
$410
$300
$101
$400
$100
$200
$390
$380
$99
$100
$370
$0
$479
$36.6
$402
2019
2019
2019
$102
2018
2018
2018
RETURN OF CAPITAL
CASH COST OF SALES3
TO SHAREHOLDERS4
($ PER METRIC TON)
($ IN MILLIONS)
SALES VOLUME
(MMT)
TOTAL REPORTABLE
CAPEX
INCIDENT RATE
($ IN MILLIONS)
FREE CASH FLOW
($ IN MILLIONS)
4.0
$108
RETURN OF CAPITAL
TO SHAREHOLDERS4
SALES VOLUME
($ IN MILLIONS)
$500
7.25
7.20
$400
7.15
$300
7.10
7.05
$200
7.00
6.95
$100
6.90
6.85
$0
6.80
6.75
TOTAL REPORTABLE
INCIDENT RATE
FREE CASH FLOW
($ IN MILLIONS)
FCF Conv.2 84%
76%
3.2
$458
2018
2.3
$402
2019
2019
2018
2019
2018
RETURN OF CAPITAL
TO SHAREHOLDERS4
($ IN MILLIONS)
TOTAL REPORTABLE
INCIDENT RATE
$470
$460
$450
$440
$430
$420
$410
$400
$390
$380
$370
4.0
3.5
$470
3.0
$460
2.5
$450
2.0
$440
$430
1.5
$420
1.0
$410
0.5
$400
$390
0.0
$380
$370
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(MMT)
7.2
$399
$253
2019
$253
6.9
2018
$399
3.5
$107
FCF Conv.2 84%
$37
$107
3.0
$106
$470
$460
2.5
$105
$450
2.0
$104
$440
1.5
$103
$430
$420
$102
1.0
$410
$101
0.5
$400
$100
0.0
$390
$99
$380
$370
2.3
$402
2019
2019
76%
3.2
$458
$36.6
$102
2018
2018
$500
$400
$300
$200
$100
$0
3.2
2.3
2019
2018
2019
2018
$104
$500
7.25
$103
7.20
$400
$102
7.15
$300
7.10
$101
7.05
$200
$100
7.00
6.95
$99
$100
6.90
$98
6.85
$0
6.80
$97
6.75
7.2
$253
$99.15
2019
2019
2019
$103.35
$399
6.9
2018
2018
2018
RETURN OF CAPITAL
TO SHAREHOLDERS4
($ IN MILLIONS)
$500
$400
$300
$200
$100
$0
$399
$253
2019
2018
TOTAL REPORTABLE
INCIDENT RATE
3.2
2.3
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2 0 1 9 A N N U A L R E P O R T
2019 HIGHLIGHTS
$1400
$1380
$1360
$1340
$1320
$1300
$1280
$1260
$1240
$1220
$1200
REVENUE
($ IN MILLIONS)
ADJUSTED EBITDA1
($ IN MILLIONS)
$700
$500
$600
$400
$601
$479
$1,378
Warrior Met Coal is a U.S.-based, environmentally
and socially minded supplier to the global steel industry.
It is dedicated entirely to mining non-thermal
metallurgical coal used as a critical component of steel
production by metal manufacturers in Europe, South
America and Asia. Warrior is a large-scale, low-cost
producer and exporter of premium metallurgical coal,
also known as hard-coking coal (HCC), operating
highly-efficient longwall operations in its underground
mines based in Alabama. The HCC that Warrior produces
from the Blue Creek coal seam contains very low sulfur,
has strong coking properties and is of a similar quality
to coal referred to as the premium HCC produced in
CASH COST OF SALES3
CAPEX
Australia. The premium nature of Warrior’s HCC makes
($ IN MILLIONS)
($ PER METRIC TON)
it ideally suited as a base feed coal for steel makers and
ADJUSTED EBITDA1
($ IN MILLIONS)
results in price realizations near the Platts Index price.
$37
$107
REVENUE
($ IN MILLIONS)
$103.35
$1,268
2019
2019
2018
2018
$200
$300
$100
$108
$107
$0
$104
$103
$1400
$102
$1380
$1360
$101
$1340
$100
$1320
$1300
$99
$1280
$98
$1260
$1240
$97
$1220
$1200
$700
$106
$105
$600
$103
$400
$102
For more information, please visit
$1,378
www.warriormetcoal.com.
$104
$500
$479
$99.15
$1,268
2019
$300
$101
$100
$200
SUMMARY STATISTICS
(U.S. Dollars)
$99
$100
2019
2018
$0
$601
$36.6
$102
2018
2019
2018
Revenue:
$1.3 Billion
2019
2018
Net Income:
CASH COST OF SALES3
($ PER METRIC TON)
Net Income Per Share:
$104
Adjusted EBITDA(1):
$103.35
Metallurgical (Met)
Coal Sales:
Employees:
$99.15
$103
$102
$101
$100
$99
$98
$97
$301.7 Million
CAPEX
($ IN MILLIONS)
$5.87
$108
$107
$478.7 Million
$37
$107
$106
$105
7.2 Million Metric Tons
$104
(MMT)
$103
$36.6
$102
1,417
$101
$100
$99
$102
2019
2018
2019
2018
2019
2018
2019
2018
(1) Adjusted EBITDA is a non-GAAP financial measure and is defined and reconciled on page 64 of the Annual Report on Form 10-K for the year ended
December 31, 2019.
(2) Free Cash Flow (FCF) is defined as net cash provided by operating activities less purchases of property, plant, equipment and mine development costs.
FCF Conversion is defined as FCF/Adj. EBITDA. FCF is a non-GAAP financial measure and is defined and reconciled on page A-4 of this document.
(3) Cash cost of sales per metric ton is a non-GAAP financial measure and is defined and reconciled on page 64 of the Annual Report on Form 10-K for
the year ended December 31, 2019.
(4) Return of capital to stockholders includes special dividends, regular quarterly dividends and stock repurchases.
WMC 19 Annual Report Inside Front Cover.indd 1
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Dear Fellow Shareholders,
Warrior Met Coal had another record-setting year in 2019. Driven by our highly focused strategy
as a premium “pure-play” metallurgical (met) coal producer, we continued to post strong
operational and financial results. Despite a turbulent macroeconomic backdrop and a reduction
in pricing, we met or exceeded all of our guidance metrics and capitalized on opportunities to
further invest prudently in our operations.
We are proud of Warrior’s many achievements this year, including:
An industry-leading safety rate that is 33% better than our peers and an incident severity
measure that is consistently less than half the national average;
Strong operational performance that included record high production volume of 7.7
million metric tons, while achieving a record low safety incident rate in our mines;
Record high sales volume of 7.2 million metric tons and our lowest annual cash cost of
sales (free on board port) per metric ton of $99.15;
The return of significant capital to shareholders with $252.9 million distributed through
dividends and stock repurchases;
The implementation of an additional $70.0 million stock repurchase program following
the successful completion of a previous $40.0 million stock repurchase program;
Debt reduction of $140.3 million, strengthening our already strong balance sheet; and
A proactive approach to environmental, social and governance (“ESG”) matters, which is
highlighted by our 99.86% compliance rate with environmental water regulations, our
safety record, and our collaborative partnerships to improve local education and
workforce development. We also published our inaugural Corporate Responsibility
Report in 2019.
Warrior continues to benefit from significant competitive advantages as the only “pure-play” met
coal producer in the U.S. with one of the world’s highest quality met coal portfolios. Given our
flexible operations, strong balance sheet, and global customer base, we remain well positioned
for sustained outperformance across market cycles.
We recently announced our decision to commence development of our Blue Creek reserves in
Alabama, which is expected to further enhance our world-class hard coking coal (HCC)
portfolio. Blue Creek is one of the last remaining large-scale untapped premium High Vol A
met coal reserves in the U.S. Once fully developed, this transformational investment will
greatly expand production capacity and our HCC product portfolio, reinforcing Warrior’s position
as a premier met coal provider.
Delivering Strong Results
We are pleased to report another year of strong results.
Adjusted EBITDA of $478.7 million and Adjusted EBITDA margins (calculated as
Adjusted EBITDA divided by total revenues) of 37.7%, which we believe are some of the
highest in the industry
Full-year 2019 free cash flow of $402.1 million, resulting from cash flows from operating
activities of $532.8 million less $130.7 million of cash used for capital expenditures and
mine development costs
Free cash flow conversion, defined as free cash flow divided by Adjusted EBITDA, of
84% for 2019, 7.8% higher than 2018
Full-year 2019 revenues of $1.3 billion on record annual sales volume of 7.2 million
metric tons at an average net selling price of $170.72 per metric ton
Setting the Highest Standard
At Warrior, the safety of our employees is our top priority. We have worked hard over the years
to implement robust safety controls and ensure that all our people come to work and return
home every day safely. We are proud of our safety record, which includes a safety incident rate
that is 33% better than the U.S. industry rate and an incident severity measure that is
consistently less than half the national average.
To achieve such results, we have established a culture of awareness and incident prevention.
Through the “Stop and Correct Authority” that we have granted all employees, contractors, and
visitors, we encourage anyone who observes unsafe acts or conditions to take corrective
actions. Further, all employees participate in our Safety ACTion training program, with monthly
trainings scheduled specific to the tasks that each individual is asked to perform.
We are committed to responsible corporate citizenship – focused not just on what we do, but
how we do it. After several years as a newly public enterprise, we are pleased that our efforts
are being reflected in positive sustainability ratings.
To that end, we have worked to collectively lower energy usage, reduce greenhouse gas
emissions (“GHG emissions”), and ensure land reclamation. We have a 99.86% compliance
rate with environmental water regulations and an almost perfect record with the EPA’s National
Pollutant Discharge Elimination System, and we are actively engaged in the EPA’s voluntary
programs to reduce GHG emissions. We continue to improve our land reclamation efforts,
having successfully bond released or transferred 1,036 acres from reclamation since 2017 at
minimal annual cost.
Our inaugural Corporate Responsibility Report describes our initiatives in greater detail, and we
encourage you to read it in its entirety.
Strategically Managing Capital and Safeguarding Tax Assets
Warrior continues to generate robust free cash flow, and we apply a disciplined approach to
capital allocation – returning excess cash to shareholders while maintaining flexibility to pursue
strategic growth opportunities. Our investments into our mines have paid off nicely over the past
three years, with Mine 7 reaching milestone production of 5.7 million metric tons this year. In
2019, our capital expenditures were $107.3 million, including $23.4 million on 4 North mine
development which we expect to begin longwall mining in approximately 4 to 5 years.
We distributed $252.9 million to shareholders in 2019 through strategic share repurchases and
dividends. Following the success of our $40.0 million share repurchase program, we
implemented an additional $70.0 million share repurchase program, under which we have
already repurchased $10.6 million of common stock. We are also committed to ensuring the
continued strength of our balance sheet. To that end, we reduced long-term debt by $140.3
million this year, bringing our leverage ratio to 0.38 times Adjusted EBITDA. We maintain ample
liquidity through cash and cash equivalents as well as our ABL facility.
As of year-end 2019, Warrior had federal and state net operating losses (“NOLs”) totaling
approximately $785.6 million and $860.3 million, respectively. We expect to continue using
these NOLs prior to expiration, significantly enhancing free cash flow by reducing our cash tax
burden to zero over the next several years. In early 2020, we announced that our Board of
Directors has adopted an NOL rights plan to preserve the availability of NOLs for the benefit of
all stakeholders. This rights plan is consistent with similar plans adopted by other companies
with significant NOLs, and it offers critical protection of meaningful value creation opportunities.
Looking Ahead
Our results from this past year demonstrate the enduring quality of our premier products, as well
as our ability to successfully manage through market cycles. With Warrior’s proven business
model, strong balance sheet, and highly talented workforce, we expect to continue delivering
value to shareholders in 2020 and beyond.
In light of continued global macroeconomic uncertainty, we remain cautious heading into the
year. Under our current guidance for 2020, we expect approximately $125 to $145 million of
capital expenditures, including sustaining capital spending of approximately $75 to $85 million
and discretionary capital spending of $50 to $60 million. Discretionary capital spending primarily
consists of operational improvements, 4 North portal construction, and the development of the
Blue Creek project.
I want to thank our employees for their dedication and hard work over the last year. In addition, I
would like to express my appreciation to the Board for its continued guidance and support.
Finally, I want to sincerely thank you, our shareholders, for your continued belief in Warrior Met
Coal as we build on our 2019 success and pursue additional exciting growth opportunities for
many years to come.
Sincerely,
Walter J. Scheller, III
Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2019
or
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
(State or other jurisdiction of incorporation or
organization)
16243 Highway 216
Brookwood
(Address of Principal Executive Offices)
Alabama
81-0706839
(I.R.S. Employer Identification No.)
35444
(Zip Code)
(205) 554-6150
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.01 per share
Trading Symbol(s)
HCC
Name of each exchange on which registered
New York Stock Exchange
Rights to Purchase Series A Junior Participating
Preferred Stock, par value $0.01 per share
--
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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
No
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
No
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price of the common stock on June 30, 2019, the
No
registrant’s most recently completed second fiscal quarter, as reported by the New York Stock Exchange, was approximately $1.3 billion.
Number of shares of common stock outstanding as of February 17, 2020: 51,091,185
Documents Incorporated By Reference
Portions of the registrant’s definitive proxy statement for its 2020 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days of December 31, 2019, are incorporated by reference into Part III of this report for the year ended December 31, 2019.
TABLE OF CONTENTS
Forward-Looking Statements
Glossary of Selected Terms
Explanatory Note
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Part III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Part IV
Index to Financial Statements
1
3
6
7
21
49
50
56
56
57
58
61
82
82
83
83
83
84
84
84
84
84
85
89
F-1
i
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual 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. 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 Annual 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
successful implementation of our business strategies;
a substantial or extended decline in pricing or demand for met coal;
global steel demand and the downstream impact on met coal prices;
inherent difficulties and challenges in the coal mining industry that are beyond our control;
geologic, equipment, permitting, site access, operational risks and new technologies related to mining;
impact of weather and natural disasters on demand and production;
our relationships with, and other conditions affecting, our customers;
unavailability of, or price increases in, the transportation of our met coal;
competition and foreign currency fluctuations;
new tariffs and other trade measures;
our ability to comply with covenants in our asset-based revolving credit facility (as amended and restated, the “ABL
Facility”) and our Indenture (as defined below);
our substantial indebtedness and debt service requirements;
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;
•
•
•
•
•
•
adequate liquidity and the cost, availability and access to capital and financial markets;
any consequences related to our transfer restrictions under our certificate of incorporation and the Rights Agreement
(as defined below);
our obligations surrounding reclamation and mine closure;
inaccuracies in our estimates of our met coal reserves;
our ability to develop or acquire met coal reserves in an economically feasible manner;
our ability to develop our mine at Blue Creek ("Blue Creek"), including our ability to secure financing for this project,
any projections or estimates regarding Blue Creek and any possible returns from this project;
1
•
•
•
•
•
•
•
•
•
•
our expectations regarding our future cash tax rate as well as our ability to effectively utilize our net operating loss
carryforwards (“NOLs”);
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;
costs associated with our workers’ compensation benefits;
litigation, including claims not yet asserted;
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; and
•
terrorist attacks or security threats, including cybersecurity threats.
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 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” “Part I, Item IA. Risk Factors” and elsewhere in this Annual Report, 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 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 Annual Report 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 Annual Report after the date of this Annual Report, 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 Annual Report or elsewhere might
not occur.
2
GLOSSARY OF SELECTED TERMS
The following is a glossary of selected terms used in the Annual Report:
Ash. Impurities consisting of silica, iron, alumina and other incombustible matter that are contained in coal. Since ash
increases the weight of coal, it adds to the cost of handling and can affect the burning characteristics of coal.
Assigned reserves. Coal that is planned to be mined at an operation that is currently operating, currently idled or for
which permits have been submitted and plans are eventually to develop the mine and begin mining operations.
Bituminous coal. A common type of coal with moisture content less than 20% by weight. It is dense and black and
often has well-defined bands of bright and dull material.
British thermal unit (“Btu”). A measure of the thermal energy required to raise the temperature of one pound of pure
liquid water one degree Fahrenheit at the temperature at which water has its greatest density (39 degrees Fahrenheit).
Coal seam. Coal deposits occur in layers. Each layer is called a “seam.”
Coke. A hard, dry carbon substance produced by heating coal to a very high temperature in the absence of air. Coke is
used in the manufacture of iron and steel. Its production results in a number of useful by-products.
Continuous miner. A machine used in underground mining to cut coal from the seam and load onto conveyers or
shuttle cars in a continuous operation. In contrast, a conventional mining unit must stop extracting in order to begin loading.
Continuous mining. A form of underground mining that cuts the coal from the seam and loads the coal on to a
conveyor system continuously, thus eliminating the separate cycles of cutting, drilling, shooting and loading.
CSX. CSX Corporation.
EPA. Environmental Protection Agency.
Hard coking coal (“HCC”). Hard coking coal is a type of met coal that is a necessary ingredient in the production of
strong coke. It is evaluated based on the strength, yield and size distribution of coke produced from such coal, which is
dependent on the rank and plastic properties of the coal. Hard coking coals trade at a premium to other coals due to their
importance in producing strong coke and because they are a limited resource.
Longwall mining. A form of underground mining that employs a shearer with two rotating drums pulled mechanically
back and forth across a long exposed coal face. A hydraulic system supports the roof of the mine while the drums are mining
the coal. Conveyors move the loosened coal to an underground mine conveyor that transports coal to the surface. Longwall
mining is the most efficient underground mining method.
Metallurgical (“met”) coal. The various grades of coal with suitable carbonization properties to make coke or to be
used as a pulverized injection ingredient for steel manufacture, including hard coking coal (see definition above), semi-soft
coking coal and PCI coal. Met coal quality depends on four important criteria: (1) volatility, which affects coke yield; (2) the
level of impurities, including sulfur and ash, which affect coke quality; (3) composition, which affects coke strength; and
(4) other basic characteristics that affect coke oven safety. Met coal typically has particularly high Btu characteristics but low
ash and sulfur content.
Metric ton. Equal to approximately 2,205 pounds. The international standard for quoting price per ton is based in U.S.
dollars per metric ton. Unless otherwise indicated, the metric ton is the unit of measure referred to in this Annual Report and
any reference to “ton(s)” or “tonnage” in this Annual Report refers to metric ton(s). One metric ton is equivalent to 1.10231
short tons.
Mineable Coal. That portion of the coal reserve base which is commercially mineable and excludes all coal that will
be left, such as in pillars, fenders or property barriers.
MSHA. Mine Safety and Health Administration.
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Overburden. Layers of earth and rock covering a coal seam. In surface mining operations, overburden must be
removed prior to coal extraction.
PCI coal. Coal used by steelmakers for pulverized coal injection (PCI) into blast furnaces to use in combination with
the coke used to produce steel. The use of PCI allows a steel maker to reduce the amount of coke needed in the steel making
process.
Preparation plant. Preparation plants are usually located on a mine site, although one plant may serve several mines.
A preparation plant is a facility for crushing, sizing and washing coal to remove impurities and prepare it for use by a particular
customer. The washing process has the added benefit of removing some of the coal’s sulfur content.
Probable reserves. Reserves for which quantity and grade and/or quality are computed from information similar to
that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity
between points of observation.
Productivity. As used in this Annual Report, refers to clean metric tons of coal produced per underground man hour
worked, as published by the MSHA.
Proven reserves. Reserves for which: (a) quantity is computed from dimensions revealed in outcrops (part of a rock
formation that appears at the surface of the ground), trenches, workings or drill holes; (b) grade and/or quality are computed
from the results of detailed sampling; and (c) the sites for inspection, sampling and measurement are spaced so closely and the
geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.
Reclamation. The process of restoring land and the environment to their original or otherwise rehabilitated state
following mining activities. The process commonly includes “recontouring” or reshaping the land to its approximate original
appearance, restoring topsoil and planting native grass and ground covers. Reclamation operations are usually underway before
the mining of a particular site is completed. Reclamation is closely regulated by both state and federal law.
Recoverable reserves. Metric tons of mineable coal that can be extracted and marketed after deduction for coal to be
left behind within the seam (i.e. pillars left to hold up the ceiling, coal not economical to recover within the mine, etc.) and
adjusted for reasonable preparation and handling losses
Reserve. That part of a mineral deposit that could be economically and legally extracted or produced at the time of
the reserve determination.
Roof. The stratum of rock or other mineral above a coal seam; the overhead surface of a coal working place.
SEC. Securities and Exchange Commission.
Slurry Impoundment. The entire structure used for coal slurry waste disposal, including the embankment, basin,
beach, pool, and slurry. During the process of mining and cleaning coal, waste is created and must be permanently disposed of
in an impoundment. Slurry, a combination of silt, dust, water, bits of coal and clay particles is the most commonly disposed of
material held in an impoundment.
Subsidence. Lateral or vertical movement of surface land that occurs when the roof of an underground mine
collapses. Longwall mining causes planned subsidence by the mining out of coal that supports the overlying strata.
Sulfur. One of the elements present in varying quantities in coal that contributes to environmental degradation when
coal is burned. Sulfur dioxide is produced as a gaseous by-product of coal combustion.
Surface mine. A mine in which the coal lies at or near the surface and can be extracted by removing the covering
layer of soil (see “Overburden”) without tunneling underground.
Ton or tonnage. See “metric ton” above.
Thermal coal. Coal used by power plants and industrial steam boilers to produce electricity, steam or both. It
generally is lower in Btu heat content and higher in volatile matter than met coal.
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Underground mine. Also known as a “deep” mine, it is usually located several hundred feet or more below the earth’s
surface. An underground mine’s coal is typically removed mechanically and transferred by shuttle car, conveyor and hoist to
the surface.
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EXPLANATORY NOTE
On April 12, 2017, Warrior Met Coal, LLC, a Delaware limited liability company, converted into Warrior Met Coal, Inc.,
a Delaware corporation, as described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations-Basis of Presentation-Factors Affecting the Comparability of our Financial Statements-Corporate
Conversion and IPO.” We refer to this transaction herein as the “corporate conversion.” As used in this Annual Report, unless
the context otherwise requires, references to the “Company,” “Warrior,” “we,” “us,” “our” or “Successor” refer to Warrior
Met Coal, LLC, a Delaware limited liability company, and its subsidiaries for periods beginning as of April 1, 2016 and ending
immediately before the completion of our corporate conversion, and to Warrior Met Coal, Inc., a Delaware corporation and its
subsidiaries for periods beginning with the completion of our corporate conversion and thereafter. In the corporate conversion,
3,832,139 units of Warrior Met Coal, LLC converted into 53,442,532 shares of common stock of Warrior Met Coal, Inc. using
an approximate 13.9459-to-one conversion ratio. References in this Annual Report to the "Predecessor" refer to the assets
acquired and liabilities assumed by Warrior Met Coal, LLC from Walter Energy, Inc., a Delaware corporation ("Walter
Energy"), in the Asset Acquisition on March 31, 2016, as further described in "Part I, Item 1. Business—Our History." The
Predecessor periods included in this Annual Report begin as of January 1, 2016 and end as of March 31, 2016.
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Item 1. Business
Overview
Part I
We are a U.S.-based, environmentally and socially minded supplier to the global steel industry. We are 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. We are 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 our underground mines based in Alabama, Mine No. 4
and Mine No. 7.
As of December 31, 2019, based on a reserve report prepared by Marshall Miller & Associates, Inc. ("Marshall
Miller"), our two operating mines had approximately 105.3 million metric tons of recoverable reserves and, based on a reserve
report prepared by Stantec Consulting Services, Inc. ("Stantec"), our undeveloped Blue Creek mine contained 103.0 million
metric tons of recoverable reserves. We strive to produce premium met coal in an efficient, safe and responsible manner, and
environmental responsibility and sustainability are key principles in our business strategy.
Our HCC, mined from the Southern Appalachian region of the United States, is characterized by low-to-medium
volatile matter (“VM”) and high coke strength after reaction (“CSR”). These qualities make our coal ideally suited as a coking
coal for the manufacture of steel. As a result of our high quality coal, our realized price has historically approximated the Platts
Premium Low Volatility (“LV”) Free-On-Board (“FOB”) Australia Index price (the “Platts Index”). In contrast, coal produced
in the Central Appalachian region of the United States is typically characterized by medium-to-high VM and a CSR that is
below the requirements of the Australian Index price.
Our operations utilize longwall mining techniques, which is the most productive coal mining method available, and
allows mining at the lowest cost per ton. We are able to utilize longwall mining as a result of the medium to thick coal seams of
Mine No. 4 and Mine No. 7. Additionally, our operations benefit from a highly competitive initial Collective Bargaining
Agreement (“CBA”) with the United Mine Workers of America (“UMWA”), which has enabled us to structurally reduce our
cash costs.
Our two operating mines and Blue Creek are located approximately 300 miles from our export terminal at the Port of
Mobile, Alabama, which we believe to be the shortest mine-to-port distance of any U.S.-based met coal producer. Our low and
variable cost structure, flexible and efficient rail and barge network underpins our cost advantage and dependable access to the
seaborne markets. We sell our coal to a diversified customer base of blast furnace steel producers, primarily located in Europe,
South America and Asia. We enjoy a shipping time and distance advantage serving our customers throughout the Atlantic Basin
relative to competitors located in Australia and Western Canada.
We operate as a single reportable segment. See the financial statements beginning on page F-1 of this Annual Report for
our consolidated revenues, profit/loss and total assets.
Our History
Warrior Met Coal, LLC was formed on September 3, 2015 by certain Walter Energy, Inc. ("Walter Energy") lenders
under the 2011 Credit Agreement, dated as of April 1, 2011 and the noteholders under the 9.50% Senior Secured Notes due
2019 in connection with the acquisition by the Company of certain core operating assets of Walter Energy under section 363 of
Chapter 11 of Title 11 of the U.S. Bankruptcy Code in the Northern District of Alabama, Southern Division. (the "Asset
Acquisition"). On January 8, 2016, the Bankruptcy Court approved the Asset Acquisition which closed on March 31, 2016.
Corporate Conversion and IPO
On April 12, 2017, we completed the corporate conversion pursuant to which Warrior Met Coal, LLC was converted
into a Delaware corporation and renamed Warrior Met Coal, Inc.
On April 19, 2017, we completed our initial public offering (“IPO”) of 16,666,667 shares of common stock at a price to
the public of $19.00 per share. All of the shares were offered and sold by selling stockholders. We did not receive any of the net
proceeds from the IPO.
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Our Competitive Strengths
We believe that we have the following competitive strengths:
Leading pure-play met coal producer focused on premium met coal products. Unlike other publicly-listed U.S.
coal companies, substantially all of our revenue is derived from the sale of premium met coal in the global seaborne markets.
All of our resources are primarily allocated to the mining, transportation and marketing of met coal. The premium HCC we
produce at Mine No. 4 and Mine No. 7 is of a similar quality to the HCC produced in Australia. The premium nature of our
HCC makes it ideally suited as a base feed coal for steel makers and results in price realizations near or above the Platts Index.
Coal from Mine No. 7 is classified as a premium LV HCC and coal from Mine No. 4 is classified as premium LV to mid-
volatility ("MV") HCC. The combination of low sulfur, low-to-medium ash, LV to MV, and other characteristics of our coal, as
well as our ability to blend them, makes our HCC product an important component within our customers’ overall coking coal
requirements. As a result, our realized price has historically been slightly above, in line with or at a slight discount to the Platts
Index. Other publicly-listed U.S. coal companies sell a higher proportion of lower rank met coals, including high-volatility,
semi-soft coking coal (“SSCC”), and pulverized coal injection (“PCI”) coal. These lower rank coals typically have lower
realized prices compared to LV and MV met coals due to their relative availability and lower quality characteristics. For
example, the premium LV HCC that we produce has sold at a premium of 1%, 9%, 26% and 31% of the prices realized for MV,
high-volatility, PCI and SSCC coals, respectively, based on five-year average prices reported by Wood Mackenzie.
Additionally, these companies typically have significant thermal coal production that further reduces their realized price and
operating margin per metric ton. As a result of our premium met coal, we are able to achieve higher realized prices and
operating margins relative to other U.S. met coal producers.
World-class Blue Creek provides us with a high-return growth project. Blue Creek represents one of the last
remaining large scale untapped premium quality, high volatility ("High Vol") A coal reserves in the U.S. with 103.0 million
metric tons of recoverable reserves and we have the ability to acquire adjacent reserves that would increase the total reserves to
over 154 million metric tons with a mine life of approximately 50 years assuming a single longwall operation. High Vol A has
traditionally priced at a slight discount to the Australian premium LV and the U.S. LV coals; however, in the last eighteen
months, it has been priced at or slightly above these coals. We expect High Vol A coals will continue to become increasingly
scarce as a result of Central Appalachian producers mining thinner and deeper reserves, which is expected to continue to
support prices. We believe this creates an opportunity for Blue Creek to take advantage of favorable pricing dynamics driven
by the declining supply of premium High Vol A coals.
Highly flexible cost structure protects through-the-cycle profitability. We have “variabilized” our cost structure in
our labor, royalties and logistics contracts, increasing the proportion of our cost structure that varies in response to changes in
HCC prices based on a variety of indices. Our initial CBA, combined with our flexible rail, port and barge logistics and our
royalty structure, results in a highly variable operating cost profile that allows our cash cost of sales to move with changes in
the price we realize for our coal. Approximately two-thirds of our cash cost of sales relate to the cost of production at our
mines, while the remaining one-third relates to our logistics costs from mine to port as well as royalties. Our logistics costs are
structured to reduce cash requirements in lower HCC price environments and to increase cash requirements within a range with
higher HCC prices. Our royalties are calculated as a percentage of the price we realize and therefore increase or decrease with
changes in HCC prices. Our initial CBA includes variable elements that tie compensation to HCC prices. In addition, we can
adjust our usage of continuous miner units in response to HCC pricing. Our variable cost structure dramatically lowers our cash
cost of sales if our realized price falls, while being effectively capped in higher price environments allowing us to generate
significant operating cash flow. Our highly flexible cost structure provides us with a key competitive advantage relative to our
competitors and which we expect should allow us to remain profitable in all coal market conditions.
Significant logistical cost advantage to the seaborne market. Our two operating mines and Blue Creek are located
approximately 300 miles from our export terminal capacity in Mobile, Alabama and have alternative transportation routes to
move our coal to port. These alternatives include direct rail access at the mine sites and a wholly-owned barge load-out facility,
enabling us to utilize the lowest cost option between the two at any given point in time. We believe our logistics costs are
highly competitive following negotiations in 2016 that led to a reduction in rail, barge and port costs. In addition, we have a
contract with the Port of Mobile, Alabama, that provides us up to 8.0 million metric tons of annual port capacity through July
2026 for our coal at very competitive rates. The total annual throughput capacity of the McDuffie Coal Terminal at the Port of
Mobile, Alabama is approximately 27.2 million metric tons and this coal terminal is presently utilized for all of our coal
exports. We believe, and representatives of the McDuffie Coal Terminal have informed us that they believe, that there is ample
capacity to support the full production rates of Blue Creek, and we are working with the McDuffie Coal Terminal to achieve the
needed capacity. Our proximity to port contrasts with the approximately 400-mile distances for major Central Appalachian met
coal producers to access their nearest port, the Port of Hampton Roads, Virginia. Our proximity to port and the flexibility of our
logistics networks underpin our logistical cost advantage compared to other U.S. met coal producers.
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We sell our coal to a diversified customer base of blast furnace steel producers, primarily located in Europe, South
America and Asia. We enjoy a shipping time and distance advantage serving customers throughout the Atlantic Basin relative to
competitors located in Australia and Western Canada. This advantage results in a higher margin for our met coal. Our strategic
location is enhanced by our long-tenured, well-established customer portfolio, which includes significant recurring sales to
multiple customers in excess of 10 years.
High realized prices and low variable cost structure drive industry leading margins. The coal from our mines is
competitive in quality with the premium HCC produced in Australia, which is used to set pricing for the industry. The
combination of low sulfur, low-to-medium ash, LV to MV and high coking strength drives our consistently high price
realization relative to other U.S. met coal producers who typically focus on lower rank met coals. We believe Mine No. 4 and
Mine No. 7 are two of the lowest cost met coal mines in North America. Our low cost position is derived from our operations’
favorable geology, automated long-wall mining methods, and significant flexibility allowed under our initial CBA.
Additionally, given our highly flexible cost structure, we believe we will be able to maintain our industry leading margins in all
coal market conditions, which we expect should allow us to continue to outperform our competitors.
Clean balance sheet and tax asset to drive robust cash flow generation. Unlike other U.S. coal producers in our peer
group, we have no pension or OPEB legacy liabilities with manageable surety bond requirements. With minimal legacy
liabilities, we are not burdened by the annual fixed obligations that are typically associated with these types of liabilities. Our
clean balance sheet and its low sustaining capital expenditure requirements position us to generate strong cash flows across a
range of met coal price environments. Additionally, we expect our cash flows to benefit from a low cash tax rate as a result of
our significant NOLs. As a result of these tax assets, and the repeal of the corporate alternative minimum tax (“AMT”)
beginning after December 31, 2017 (see Note 7 to our consolidated financial statements included elsewhere in this Annual
Report), we believe our effective cash tax rate will be approximately 0%, exclusive of the AMT credit refunds, until our NOLs
generated prior to 2018 are fully utilized or expire, which will enable strong cash conversion from our operating profits. We
also expect to receive approximately $24.3 million in 2020 to 2022 as a result of the refunding of the AMT credits acquired
from the Predecessor.
Disciplined financial policies to ensure stable performance. We believe maintaining financial discipline will provide
us with the ability to manage the volatility in our business resulting from changes in met coal prices. We intend to preserve a
strong and conservative balance sheet, with sufficient liquidity and financial flexibility to support our operations. As such, we
will seek to maintain a conservative financial leverage target of 1.50 - 2.00x based on normalized EBITDA and seek to
maintain minimum liquidity of $100 million. We plan to continually evaluate our liquidity needs based on our estimated capital
needs. As of December 31, 2019, we had approximately $309.5 million of available liquidity consisting of $116.1 million of
borrowing capacity under the ABL Facility (calculated net of $8.95 million of letters of credit outstanding at such time) and
$193.4 million of cash and cash equivalents. In the event we generate cash flow in excess of the needs of our business, we plan
to take a holistic approach to capital allocation and will evaluate a range of options, including debt repayment. We will seek to
preserve our capital structure with low financial leverage that is largely free from legacy liabilities in order to ensure maximum
free cash flow generation.
Highly experienced leadership team with deep industry expertise. Our Chief Executive Officer (“CEO”), Walter J.
Scheller, III, is the former CEO of Walter Energy and has eight years of direct experience managing Mine No. 4 and Mine
No. 7, and over 30 years of experience in longwall coal mining. Furthermore, following the Asset Acquisition, we hired several
key personnel with extensive direct operational experience in met coal longwall mining, including our Chief Operating Officer,
Jack Richardson, and our Chairman, Stephen D. Williams. We have a strong record of operating safe mines and are committed
to environmental excellence. Our dedication to safety is at the core of all of our overall operations as we work to further reduce
workplace incidents by focusing on policy awareness and accident prevention. Our continued emphasis on enhancing our safety
performance has resulted in zero fatal incidents as compared to the national fatal incidence rate for underground coal mines in
the United States of 0.02 for the nine months ended September 30, 2019 as well as total reportable incidence rates of 2.43 at
Mine No. 4 and 2.23 at Mine No. 7 for the year ended December 31, 2019, which was a record low for the Company and is
considerably lower than the national total reportable incidence rate for all underground coal mines in the United States of 4.69
for the nine months ended September 30, 2019, which represents the latest data available.
Strong focus on reducing greenhouse gas emissions. Investors and other third parties are increasingly focused on
sustainability matters, and we are committed to reducing the release of greenhouse gases (“GHG”). GHG emissions are
produced as a by-product of mining activities, as operations in underground metallurgical coal mines produce coal bed
methane. With a view towards being an industry leader in environmental performance, we are actively engaged in several
initiatives that occur before, during and after mining to reduce GHG emissions, including the capture of coalbed methane.
Currently, the Company is able to capture approximately 62% of the methane that is produced as part of our mining operations
through direct pipelines as well as our low-quality gas plant. Much of this methane is sold into the natural gas market. The
9
remainder of the methane is released through our mines’ ventilation systems as coal mine methane (“CMM”) emissions. These
emissions that are released into the environment are extremely diluted. We have also partnered with a third-party to build a
demonstrator plant that destroys CMM at our fan sites, as discussed under “Our Business Strategies - Capitalize on
opportunities for technological innovation to continue to reduce our impact on the environment.”
From its inception, the Company has participated in the EPA’s voluntary program aimed at CMM emission reductions.
We are also proud to participate in the EPA’s voluntary GHG reporting program which the EPA is using to improve its estimates
of national GHG emissions. The Company’s focus on reducing GHG emissions has proven effective, as the Company’s annual
Toxic Release Inventory, which is required annually by the EPA, demonstrates that we do not have any reportable air
emissions.
Our Business Strategies
Our objective is to increase stockholder value through our continued focus on asset optimization and cost management
to drive profitability and cash flow generation. Our key strategies to achieve this objective are described below:
Maximize profitable production. In the year ended December 31, 2019, we produced a record 7.7 million metric tons
of met coal from Mine No. 7 and Mine No. 4. We have the flexibility in our new initial CBA that allows us to increase annual
production with minimal incremental capital expenditures. Based on our management’s operational experience, we are
confident in our ability to continue to produce at or close to this capacity in a safe and efficient manner, and with a comparable
cost profile to our current costs, should market conditions warrant.
Maximize organic growth. We recently announced the commencement of the development of Blue Creek into a new,
world-class longwall mine located in Alabama near our existing mines. The new single longwall mine at Blue Creek is
expected to have the capacity to produce an average of 3.9 million metric tons per annum of premium High-Vol A met coal
over the first ten years of production. Once fully developed, we expect Blue Creek to be a transformational investment that
will increase annual production capacity by 54% and expand our product portfolio to our global customers, offering three
premium hard coking coals that are expected to achieve the highest premium met coal prices in the seaborne markets. We
control approximately 103.0 million metric tons of recoverable reserves at Blue Creek and have the ability to acquire adjacent
reserves that would increase total recoverable reserves to over 154 million metric tons at Blue Creek. Blue Creek is expected
to have a mine life of approximately 50 years assuming a single longwall operation.
We expect Blue Creek’s estimated production cost per short ton to be in the first quartile of the U.S. and global
seaborne hard coking coal cost curve and to be approximately 25 to 30% lower than our existing mines today. We believe the
combination of a low production cost and the high quality of the High Vol A product, if we achieve the expected price
realizations, will generate some of the highest met coal margins in the U.S., generate strong investment returns and achieve a
rapid payback across a range of met coal price environments.
We expect to invest approximately $550 to $600 million over the next five years to develop Blue Creek. Based on the
current schedule, we expect first development tons from continuous miner units to occur in the third quarter of 2023 with the
longwall scheduled to start up in the second quarter of 2025. Our strong cash flow generation and current available liquidity, as
well as the ability to finance $110 - $120 million of capital expenditures through equipment leases, allows us to be
opportunistic as we evaluate funding options for Blue Creek.
Maintain and further improve our low and variable cost structure. While we have already achieved significant
structural cost reductions at our two operating mines, we see further opportunities to reduce our costs over time. Our initial
CBA with the UMWA allows for these ongoing cost optimization initiatives. For example, in our initial CBA, we have
additional flexibility in our operating days and alternative work schedules as compared to certain optional and more expensive
provisions under the Walter Energy collective bargaining agreement. We have variable elements that tie compensation to HCC
prices. Additionally, our CBA enables us to contract out work under certain circumstances. We believe these types of structural
incentive provisions and workforce flexibility in the initial CBA are helpful to further align our organization with operational
excellence and to increase the proportion of our costs that vary in response to changes in the HCC price.
Broaden our marketing reach and maintain strong correlation between realized coal prices and the Platts Index.
We have implemented a strategy to improve both our sales and marketing focus, with a goal of achieving better pricing relative
to the Platts Index, which includes: (i) opportunistic selling into the spot met coal market and (ii) selected instances of entering
into fixed price contracts. Each of these elements is intended to further embed our coal product among a broader group of steel
customers. Traditionally, we have predominantly marketed our coal to European and South American buyers. For the year
ended December 31, 2019, our sales geographic customer mix was 56% in Europe, 22% in South America and 22% in Asia.
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Since February 2017, we have had an arrangement with Xcoal Energy & Resource (“Xcoal”) to serve as Xcoal’s strategic
partner for exports of LV HCC. Under this arrangement, Xcoal takes title to and markets coal that we would historically have
sold on the spot market, in an amount of the greater of (i) 10% of our total production during the applicable term of the
arrangement or (ii) 250,000 metric tons. While the volumes being sold through this arrangement with Xcoal are relatively
limited, we are positioned to potentially benefit from Xcoal’s expertise and relationships across all coal that we sell. To that
end, we also have an incentive-based arrangement with Xcoal to cover other tonnage, in the event Xcoal is able to offer us a
higher realized price relative to the Platts Index than we have previously achieved.
Capitalize on opportunities for technological innovation to continue to reduce our impact on the environment.
As described above, the Company currently captures approximately 62% of the coalbed methane that is produced during our
mining activities as part of our commitment to reduce the Company’s GHG emissions. We are then able to sell this gas into the
natural gas market. In addition to capturing pipeline quality gas, the Company also operates a low-quality gas plant, which is
able to improve the quality of ordinarily unsaleable gas that would otherwise escape to the atmosphere. The improved gas is
then sold and used by consumers. This plant operates using a complex system that concentrates the methane by removing other
gases such as nitrogen and oxygen. We are also exploring technologies with a third party for destroying CMM. To prove one
such technology, the Company built a pilot or demonstrator plant. This plant ran for a period of time sufficient to prove the
technology was successful, and a larger scale operation is currently planned to be in service by the year ended December 31,
2020. The Company’s management and board of directors (the "Board") are increasingly focused on these and other
opportunities for technical innovation.
Description of Our Business
Our mining operations consist of two active underground met coal mines in Southern Appalachia’s coal seam (Mines
No. 7 and No. 4) and other surface met and thermal coal mines, five of which are currently under lease to third parties and four
of which are not operating and are not currently planned to be operated in the future. For a comprehensive summary of all of
our coal properties and of our coal reserves and production levels as of December 31, 2019, see the tables summarizing our
coal reserves and production in “Part I, Item 2. Properties-Estimated Recoverable Coal Reserves.” Our met coal production
totaled 7.7 million metric tons in 2019. Our natural gas operations remove and sell natural gas from the coal seams owned or
leased by us and others as a byproduct of coal production. Our degasification operations improve mining operations and safety
by reducing natural gas levels in our mines.
Our underground mining operations are headquartered in Brookwood, Alabama and as of December 31, 2019, based on
a reserve report prepared by Marshall Miller, were estimated to have approximately 105.3 million metric tons of recoverable
reserves located in west central Alabama between the cities of Birmingham and Tuscaloosa. Operating at approximately 2,000
feet below the surface, the Mines No. 4 and No. 7 are two of the deepest underground coal mines in North America. The met
coal is mined using longwall extraction technology with development support from continuous miners. We extract met coal
primarily from Alabama’s Blue Creek coal seam, which contains high-quality bituminous coal. Blue Creek coal offers high
coking strength with low coking pressure, low sulfur and low-to-medium ash content.
The met coal from our Mines No. 4 and No. 7 is sold as a high quality LV and MV met coal. Mines No. 4 and No. 7 are
located near Brookwood, Alabama, and are serviced by CSX railroad. A coal producer is typically responsible for transporting
the coal from the mine to an export coal-loading facility. Exported coal is usually sold at the loading port, with the buyer
responsible for further transportation from the port to their location. Both mines also have access to our barge load-out facility
on the Black Warrior River. Service via both rail and barge culminates in delivery to the Port of Mobile in Mobile, Alabama,
where shipments are exported to our international customers via ocean vessels. Substantially all of our met coal sales consist of
sales to international customers.
We also own mineral rights for approximately 103.0 million additional metric tons of recoverable reserves at Blue
Creek located to the northwest of Mine No. 4, based on a reserve report prepared by Stantec. We have the ability to acquire
adjacent reserves that would increase total reserves to over 154 million metric tons at Blue Creek. According to our third party
reserve report, the met coal reserve base of Blue Creek is a high quality High Vol A coal that is characterized by low-sulfur and
high CSR.
Coal Preparation and Blending
Our met coal mines have preparation and blending facilities convenient to each mine. The met coal preparation and
blending facilities receive, blend, process and ship met coal that is produced from the mines. Using these facilities, we are able
to ensure a consistent quality and efficiently blend our met coal to meet our customers’ specifications.
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Marketing, Sales and Customers
Met coal prices can differ substantially by region and are impacted by many factors, including the overall economy,
demand for steel, location, market, quality and type of met coal, mine operation costs and the cost of customer alternatives. The
major factors influencing our business are the global economy and demand for steel. Our operations’ high quality met coal is
considered among the highest quality met coals in the world and is preferred as a base met coal in our customers’ blends. Our
marketing strategy is to focus on international markets mostly in Europe and South America where we have a shipping time
and distance advantage and where our met coal is in demand.
We focus on long-term customer relationships where we have a competitive advantage. We sell most of our met coal
under fixed supply contracts primarily with indexed pricing terms and volume terms of one to three years. Some of our sales of
met coal can, however, occur in the spot market as dictated by available supply and market demand. Our business is not
substantially dependent on any contract, such as a contract to sell the major part of our products or other agreement to use a
patent, formula, trade secret, process or trade name upon which our business depends to a material extent. For more
information regarding our customers, see Note 2 to our consolidated financial statements included elsewhere in this Annual
Report.
We have an arrangement with Xcoal to serve as Xcoal’s strategic partner for exports of LV HCC. Xcoal has specialized
marketing capabilities and deep technical expertise as the largest met coal marketer in the United States. Our arrangement with
Xcoal is expected to expand the geographic reach of our customers through Xcoal’s global presence. Xcoal has 20 offices
worldwide, including in Brussels, the UAE, Singapore, Beijing, Shanghai, Seoul, Mumbai, and Rio de Janeiro. We expect to be
able to leverage Xcoal’s more than 30 year history selling coal to key European and Asian steel customers to further improve
the selling prices of our met coal relative to the global Platts Index.
Trade Names, Trademarks and Patents
As part of the Asset Acquisition, we acquired all intellectual property, including copyrights, patents, trademarks, trade
names and trade secrets, owned by Walter Energy and its subsidiaries and used or held for use in the business or our assets.
Promptly following the closing of the Asset Acquisition, Walter Energy, was required to discontinue the use of its name (and
any other trade names or “d/b/a” names utilized by its subsidiaries) and may not subsequently change its name to or otherwise
use or employ any name which includes the words “Walter.” We do not believe that any one such trademark is material to our
individual segments or to the business as a whole.
Competition
Substantially all of our met coal sales are exported. Our major competitors are businesses that sell into our core
business areas of Europe, South America and Asia. We primarily compete with producers of premium met coal from Australia,
Canada, Russia, Mozambique and the United States. The principal factors on which we compete are met coal prices at the port
of delivery, coal quality and characteristics, customer relationships and the reliability of supply. The demand for our met coal is
significantly dependent on the general global economy and the worldwide demand for steel. Although there are significant
challenges in the current economy, we believe that we have competitive strengths in our business areas that provide us with
distinct advantages.
Suppliers
Supplies used in our business include petroleum-based fuels, explosives, tires, conveyance structure, ventilation
supplies, lubricants and other raw materials as well as spare parts and other consumables used in the mining process. We use
third-party suppliers for a significant portion of our equipment rebuilds and repairs, drilling services and construction. We
believe adequate substitute suppliers are available and we are not dependent on any one supplier; however, we procure some
equipment from a concentrated group of suppliers, and obtaining this equipment often involves long lead times. Occasionally,
demand for such equipment by mining companies can be high and some types of equipment may be in short supply. We
continually seek to develop relationships with suppliers that focus on reducing our costs while improving quality and service.
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Environmental Responsibility and Sustainability
The Company takes pride in its environmental record and strives to be an industry leader in environmental stewardship.
The Company recently released its inaugural environmental, social and governance sustainability report that was prepared in
accordance with the Global Reporting Initiative ("GRI") Standards -- Core Option and highlights the Company's strong
environmental record.
We continually invest in new technologies to lessen our environmental impact and to improve our efficiencies and
productivity. Our executive leadership team is focused on establishing qualitative and quantitative goals that hold us
accountable to our investors, employees, customers, community, as well as other stakeholders. As noted above, we are actively
engaged in the EPA’s voluntary programs to reduce and report GHG emissions and to improve estimates of national GHG
emissions. With regard to the Company’s water management efforts, we have a strong environmental compliance record with
the EPA’s National Pollutant Discharge Elimination System (NPDES) program, which addresses water pollution by regulating
point sources that discharge pollutants into the waters of the United States. We also monitor adjacent streams and groundwater
wells quarterly in order to determine if these water supplies could potentially have been affected by mining operations. Waste
water, or water used for mining or processing of coal, is stored in locations such as impoundment structures or clarifying or
settling ponds. Additionally, the Company performs a minimum of at least one complete inspection of all tailing impoundments
at intervals not to exceed seven calendar days as required by federal regulation, and all of the Company’s tailing impoundments
are classified as “low-hazard” structures. We continue to improve our land reclamation efforts, which has yielded success
across all of our sites and facilities. We received approval from Alabama Surface Mining Commission (ASMC) in 2018 for the
final release of 667 reclaimed acres. Finally, the Company is highly proactive in planning all ongoing and future activities to
minimize negative impacts to wildlife and their habitats by mining activities. All of the Company’s permit applications are
reviewed by the regional U.S. Fish and Wildlife office for potential negative impacts to any protected species or habitat within
the area.
The Company has dedicated employees that oversee the Company’s efforts with respect to various environmental
issues, including our efforts with respect to the programs discussed above. Through their efforts, as well as oversight by our
senior management and the Board, we continue to make significant progress in improving our environmental stewardship. The
Environmental, Health & Safety Committee of the Board is tasked with assessing the effectiveness of the Company’s
environmental, health and safety policies, programs and initiatives, as well as reviewing and monitoring the Company’s
compliance with applicable environmental, health and safety laws, rules and regulations. This committee receives quarterly
reports from Company management, during which the committee reviews and discusses the Company’s various environmental,
health and safety initiatives and any issues related to these areas.
The safety of our employees is a core value for us. Our health and safety policies and programs are the cornerstone of
our operating philosophy and are integrated into all of our daily operations and activities. Our continued emphasis on
enhancing our safety performance has resulted in total reportable incident rates at Mine No. 4 and Mine No. 7, based on Mine,
Safety and Health Administration (“MSHA”) criteria, which are lower than the national total reportable incidence rate for all
underground coal mines in the United States. This record reflects our effectiveness in protecting our employees. In 2018, the
Company hired a new Vice President of Safety, who is responsible for developing and overseeing health and safety programs at
the Company’s mines, and he regularly reports to the Environmental, Health & Safety Committee so that the Board is apprised
of the Company’s safety-related efforts and challenges.
Environmental and Regulatory Matters
Our businesses are subject to numerous federal, state and local laws and regulations with respect to matters such as
permitting and licensing, employee health and safety, reclamation and restoration of property and protection of the
environment. In the U.S., environmental laws and regulations include, but are not limited to, the federal Clean Air Act and its
state and local counterparts with respect to air emissions; the Clean Water Act and its state counterparts with respect to water
discharges and dredge and fill operations; the Resource Conservation and Recovery Act and its state counterparts with respect
to solid and hazardous waste generation, treatment, storage and disposal, as well as the regulation of underground storage
tanks; the Comprehensive Environmental Response, Compensation and Liability Act and its state counterparts with respect to
releases, threatened releases and remediation of hazardous substances; the Endangered Species Act with respect to protection of
threatened and endangered species; the National Environmental Policy Act with respect to the impacts of federal actions such
as the issuance of permits and licenses; and the Surface Mining Control and Reclamation Act of 1977 and its state counterparts
with respect to environmental protection and reclamation standards for mining activities. Compliance with these laws and
regulations may be costly and time-consuming and may delay commencement, continuation or expansion of exploration or
production at our operations. These laws are constantly evolving and may become increasingly stringent. The ultimate impact
of complying with existing laws and regulations is not always clearly known or determinable due in part to the fact that certain
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implementing regulations for these environmental laws have not yet been promulgated and in certain instances are undergoing
revision or judicial review. These laws and regulations, particularly new legislative or administrative proposals (or judicial
interpretations of existing laws and regulations) related to the protection of the environment, could result in substantially
increased capital, operating and compliance costs and could have a material adverse effect on our operations and/or, along with
analogous foreign laws and regulations, our customers’ ability to use our products.
Due in part to the extensive and comprehensive regulatory requirements, along with changing interpretations of these
requirements, violations occur from time to time in our industry and at our operations. Expenditures relating to environmental
compliance are a major cost consideration for our operations and environmental compliance is a significant factor in mine
design, both to meet regulatory requirements and to minimize long-term environmental liabilities. To the extent that these
expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, operating results will be
reduced. We believe that our major North American competitors are confronted by substantially similar conditions and thus do
not believe that our relative position with regard to such competitors is materially affected by the impact of environmental laws
and regulations. However, the costs and operating restrictions necessary for compliance with environmental laws and
regulations may have an adverse effect on our competitive position with regard to foreign producers and operators who may not
be required to undertake equivalent costs in their operations. In addition, the specific impact on each competitor may vary
depending on a number of factors, including the age and location of its operating facilities, applicable legislation and its
production methods.
Permitting and Approvals
Numerous governmental permits and approvals are required for mining and natural gas operations. We are required to
prepare and present to federal, state and local authorities data pertaining to the effect or impact that any proposed exploration
project for production of coal or gas may have on the environment, the public and our employees. In addition, we must also
submit a comprehensive plan for mining and reclamation upon the completion of mining operations. The requirements are
costly and time-consuming and may delay commencement or continuation of exploration, production or expansion at our
operations. Typically, we submit necessary mining permit applications several months, or even years, before we anticipate
mining a new area.
Applications for permits and permit renewals at our mining and gas operations are subject to public comment and may
be subject to litigation from third parties seeking to deny issuance of a permit or to overturn the applicable agency’s grant of the
permit application, which may also delay commencement, continuation or expansion of our mining and gas operations. Further,
regulations provide that applications for certain permits or permit modifications in the U.S. can be delayed, refused or revoked
if an officer, director or a stockholder with a 10% or greater interest in the entity is affiliated with or is in a position to control
another entity that has outstanding permit violations or has had a permit revoked. Significant delays in obtaining, or denial of,
permits could have a material adverse effect on our business.
Mine Safety and Health
The MSHA, under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) and the Mine Improvement and
New Emergency Response Act of 2006 (the “MINER Act”), as well as regulations adopted under these federal laws impose
rigorous safety and health standards on mining operations. Such standards are comprehensive and affect numerous aspects of
mining operations, including, but not limited to: training of mine personnel, mining procedures, ventilation, blasting, use of
mining equipment, dust and noise control, communications and emergency response procedures. For instance, MSHA
implemented a rule in August 2014 to reduce miners’ exposure to respirable coal dust, which reduced respirable dust standards
for certain occupants and miners and required certain monitoring of shift dust levels. In August 2016, Phase III of MSHA’s
respirable dust rule went into effect, further lowering the respirable dust standards. Separately, MSHA has implemented a rule
imposing a requirement on certain continuous mining machines, requiring operators to provide proximity detection systems.
MSHA monitors compliance with these laws and standards by regularly inspecting mining operations and taking enforcement
actions where MSHA believes there to be non-compliance. These federal mine safety and health laws and regulations have a
significant effect on our operating costs.
Workers’ Compensation and Black Lung
We are insured for workers’ compensation benefits for work related injuries that occur within our operations. Workers’
compensation liabilities, including those related to claims incurred but not reported, are recorded principally using annual
valuations based on discounted future expected payments using historical data of the operating subsidiary or combined
insurance industry data when historical data is limited. Beginning on June 1, 2018, the Company has a deductible policy where
the Company is responsible for the first $0.5 million for each workers compensation related claim from any of our employees.
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In addition, certain of our subsidiaries are responsible for medical and disability benefits for black lung disease under
the Federal Coal Mine Health and Safety Act of 1969, the Mine Act and the Black Lung Benefits Revenue Act of 1977 and the
Black Lung Benefits Reform Act of 1977 (together, the “Black Lung Benefits Act”), each as amended, and are insured under a
guaranteed cost insurance policy beginning on April 1, 2016 through May 31, 2018 for black lung claims of any of our
employees. Since June 1, 2018, the Company has had a deductible policy where the Company is responsible for the first $0.5
million for each black lung claim from any of our employees.
We also assumed all of the black lung liabilities of Walter Energy and its U.S. subsidiaries. We are self-insured for
these black lung liabilities and have posted certain collateral with Department of Labor as described below. Changes in the
estimated claims to be paid or changes in the amount of collateral required by the Department of Labor may have a greater
impact on our profitability and cash flows in the future.” Under the Black Lung Benefits Act, as amended, each coal mine
operator must make payments to a trust fund for the payment of benefits and medical expenses to claimants who last worked in
the coal industry prior to January 1, 1970. The trust fund is funded by an excise tax on production; however, this excise tax
does not apply to coal shipped outside the United States. Based on our limited sales of coal in the United States, we do not
expect to incur a material expense related to this excise tax. However, the excise tax may result in a material expense to us in
the future if our coal sales in the United States significantly increase. The Patient Protection and Affordable Care Act includes
significant changes to the federal black lung program, including an automatic survivor benefit paid upon the death of a miner
with an awarded black lung claim and the establishment of a rebuttable presumption with regard to pneumoconiosis among
miners with 15 or more years of coal mine employment that are totally disabled by a respiratory condition. These changes
could have a material impact on our costs expended in association with the federal black lung program. In addition to possibly
incurring liability under federal statutes we may also be liable under state laws for black lung claims. For additional
information, please see “Part I, Item 1A. Risk Factors—Risks Related to Our Business—We are responsible for medical and
disability benefits for black lung disease under federal law."
Surface Mining Control and Reclamation Act
The Surface Mining Control and Reclamation Act of 1977 (“SMCRA”) requires that comprehensive environmental
protection and reclamation standards be met during the course of and following completion of mining activities. Permits for all
mining operations must be obtained from the Federal Office of Surface Mining Reclamation and Enforcement (“OSM”) or,
where state regulatory agencies have adopted federally approved state programs under the SMCRA, the appropriate state
regulatory authority. The Alabama Surface Mining Commission reviews and approves SMCRA permits in Alabama.
SMCRA permit provisions include requirements for coal prospecting, mine plan development, topsoil removal, storage
and replacement, selective handling of overburden materials, mine pit backfilling and grading, subsidence control for
underground mines, surface drainage control, mine drainage and mine discharge control, treatment and revegetation. These
requirements seek to limit the adverse impacts of coal mining and more restrictive requirements may be adopted from time to
time.
Before a SMCRA permit is issued, a mine operator must submit a bond or otherwise secure the performance of
reclamation obligations. The Abandoned Mine Land Fund, which is part of SMCRA, imposes a general funding fee on all coal
produced. The proceeds are used to reclaim mine lands closed or abandoned prior to 1977. On December 7, 2006, the
Abandoned Mine Land Program was extended for another 15 years.
We maintain extensive coal refuse areas and slurry impoundments at our mining complexes. Such areas and
impoundments are subject to comprehensive regulation. Structural failure of an impoundment can result in damage to the
environment and natural resources, such as bodies of water that the coal slurry reaches, as well as create liability for related
personal injuries, property damages and injuries to wildlife. Some of our impoundments overlie mined out areas, which can
pose a heightened risk of failure and the assessment of damages arising out of such failure. If one of our impoundments were to
fail, we could be subject to substantial claims for the resulting environmental contamination and associated liability, as well as
for related fines and penalties.
On December 12, 2008, the OSM finalized rulemaking regarding the interpretation of the stream buffer zone provisions
of SMCRA, which confirmed that excess spoil from mining and refuse from coal preparation could be placed in permitted
areas of a mine site that constitute waters of the U.S. The rule was subsequently vacated based, in part, upon the fact that the
U.S. Fish & Wildlife Service was not consulted with respect to possible effects on endangered species under terms of the
Endangered Species Act. At present, an earlier 1983 rule is in place, which requires coal companies to keep operations 100 feet
from streams or otherwise minimize any damage. On December 20, 2016, the OSM published a new, finalized “Stream
Protection Rule,” setting standards for “material damage to the hydrologic balance outside the permit area” that are applicable
to surface and underground mining operations. However, on February 16, 2017, President Trump signed a joint congressional
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resolution disapproving the Stream Protection Rule pursuant to the Congressional Review Act. Accordingly, the regulations in
effect prior to the Stream Protection Rule apply, including OSM’s 1983 rule. It remains unclear whether and how additional
actions by the Trump Administration could further impact regulatory or enforcement activities pursuant to the SMCRA.
Drainage flowing from or caused by mining activities can be acidic with elevated levels of dissolved metals, a
condition referred to as “acid mine drainage” (“AMD”). Treatment of AMD can be costly. Although we do not currently face
material costs associated with AMD, there can be no assurance that we will not incur significant costs in the future.
Surety Bonds/Financial Assurance
We use surety bonds and letters of credit to provide financial assurance for certain transactions and business activities.
Federal and state laws require us to obtain surety bonds or other acceptable security to secure payment of certain long-term
obligations including mine closure or reclamation costs and other miscellaneous obligations. The amount of security required to
be obtained can change as the result of new federal or state laws, as well as changes to the factors used to calculate the bonding
or security amounts.
Surety bond rates have increased in recent years and the market terms of such bonds have generally become less
favorable. In addition, the number of companies willing to issue surety bonds has decreased. Bonding companies may also
require posting of collateral, typically in the form of letters of credit to secure the surety bonds. Moreover, the changes in the
market for coal used to generate electricity in recent years have led to bankruptcies involving prominent coal producers.
Several of these companies relied on self-bonding to guarantee their responsibilities. In response to these bankruptcies, the
OSM issued a Policy Advisory in August 2016 to state agencies that are authorized under the SMCRA to implement the act in
their states, notifying those state agencies that the OSM would more closely review self-bonding arrangements. Certain states
had previously announced that they would no longer accept self-bonding to secure reclamation obligations under the state
mining laws. Although the Policy Advisory was rescinded in October 2017, some states may be reluctant to approve self-
bonding arrangements. This may lead to increased demand for other forms of financial assurance, which may strain capacity
for those instruments and increase our costs of obtaining and maintaining the amounts of financial assurance needed for our
operations. Individually and collectively, these revised various financial assurance requirements may increase the amount of
financial assurance needed and limit the types of acceptable instruments, straining the capacity of the surety markets to meet
demand. This may increase the time required to obtain, and increase the cost of obtaining, the required financial assurances.
Although Alabama’s regulatory framework technically allows for self-bonding, as a practical matter, due to the onerous
regulatory requirements for self-bonding, mining companies in Alabama utilize surety bonds, collateral bonds, or letters of
credit to meet their financial assurance requirements. As of December 31, 2019, we had outstanding surety bonds with parties
for post-mining reclamation at all of our mining operations totaling $40.6 million, and $2.2 million for miscellaneous purposes.
Climate Change
Global climate change continues to attract considerable public and scientific attention, with widespread concern about
the impacts of human activity, especially the emission of greenhouse gas (“GHG”), such as carbon dioxide and methane. Some
of our operations, such as methane release resulting from met coal mining, directly emit GHGs. Further, the products that we
produce result in the release of carbon dioxide into the atmosphere by end-users. Laws and regulations governing emissions of
GHGs have been adopted by foreign governments, including the European Union and member countries, U.S. regulatory
agencies, individual states in the U.S. and regional governmental authorities. While Congress has from time to time considered
legislation to reduce emissions of GHGs, there has not been significant activity in the form of adopted legislation to reduce
GHG emissions at the federal level in recent years. In the absence of such federal climate legislation, almost one-half of the
states have taken legal measures to reduce emissions of GHGs primarily through the planned development of GHG emission
inventories and/or regional GHG cap and trade programs. Further, numerous proposals have been made and are likely to
continue to be made at the international, national, regional and state levels of government that are intended to limit emissions of
GHGs by enforceable requirements and voluntary measures.
In December 2009, the EPA published findings that GHG emissions present an endangerment to public health and
welfare because, according to the EPA, emissions of such gases contribute to warming of the earth’s atmosphere and other
climatic changes. The EPA’s findings focus on six GHGs, including carbon dioxide and nitrous oxide (which are emitted from
coal combustion) and methane (which is emitted from coal beds). The findings by the EPA allowed the agency to proceed with
the adoption and implementation of regulations to restrict emissions of GHGs under existing provisions of the federal Clean Air
Act, including rules that regulate emissions of GHGs from motor vehicles and certain large stationary sources of emissions
such as power plants or industrial facilities. In May 2010, the EPA adopted regulations that, among other things, established
Prevention of Significant Deterioration (“PSD”) and Title V permit reviews for certain large stationary sources, such as coal-
fueled power plants, that are potential major sources of GHG emissions. The so-called Tailoring Rule established new GHG
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emissions thresholds that determine when stationary sources must obtain permits under the PSD and Title V programs of the
Clean Air Act. On June 23, 2014, the Supreme Court held that stationary sources could not become subject to PSD or Title V
permitting solely by reason of their GHG emissions. The Court ruled, however, that the EPA may require installation of best
available control technology for GHG emissions at sources otherwise subject to the PSD or Title V programs. On August 26,
2016, the EPA proposed changes needed to bring EPA’s air permitting regulations in line with Supreme Court and D.C. Circuit
decisions on greenhouse gas permitting. The proposed rule was published in the Federal Register on October 3, 2016 and the
public comment period closed on December 16, 2016. It is unclear when a final rule will be issued and/or whether and how
additional actions by the Trump Administration could impact further regulatory developments in this area.
In June 2010, Earthjustice petitioned the EPA to make a finding that emissions from coal mines may reasonably be
anticipated to endanger public health and welfare, and to list them as a stationary source subject to further regulation of
emissions. On April 30, 2013, the EPA denied the petition. Judicial challenges seeking to force the EPA to list coal mines as
stationary sources have likewise been unsuccessful to date. If the EPA were to make an endangerment finding in the future, we
may have to further reduce our methane emissions, install additional air pollution controls, pay certain taxes or fees for our
emissions, incur costs to purchase credits that permit us to continue operations as they now exist at our underground coal mines
or perhaps curtail coal production.
In addition, in August 2015, the EPA announced three separate, but related, actions to address carbon dioxide pollution
from power plants, including final Carbon Pollution Standards for new, modified and reconstructed power plants, a final Clean
Power Plan to cut carbon dioxide pollution from existing power plants, and a proposed federal plan to implement the Clean
Power Plan emission guidelines. Upon publication of the Clean Power Plan on October 23, 2015, more than two dozen states as
well as industry and labor groups challenged the Clean Power Plan in the D.C. Circuit Court of Appeals. In addition, on
March 28, 2017, President Trump signed an executive order directing the EPA to review all three actions and, if appropriate,
initiate a rulemaking to rescind or revise the rules consistent with the stated policy of promoting clean and safe development of
the nation’s energy resources, while at the same time avoiding regulatory burdens that unnecessarily encumber energy
production. Accordingly, on July 8, 2019, the EPA published a final replacement rule that would "reduce the compliance
burden" of the Clean Power Plan. Several state and environmental groups have challenged the replacement rule. Also, on
December 20, 2018, the EPA published a proposed rule to amend the standards for new, modified and reconstructed stationary
power plants. If the EPA's actions to repeal the Clean Power Plan are not upheld, and if it ultimately is retained in its current
form, it could have a material adverse impact on the demand for thermal coal nationally. While the Clean Power Plan does not
affect our marketing of met coal, the continued regulatory focus could lead to future GHG regulations for the mining industry
and its steelmaking customers, which ultimately could make it more difficult or costly for us to conduct our operations or
adversely affect demand for our products.
Furthermore, on January 15, 2016, the Secretary of Interior directed the Bureau of Land Management to prepare an
environmental study analyzing potential leasing and management reforms to the current federal coal program, including how
best to address the climate impacts of the federal program to meet both the nation’s energy needs and its climate goals. Pending
this review, the Secretary placed a moratorium on new applications for thermal (steam) coal leases or lease modification on
federal land, subject to certain exceptions. However, pursuant to President Trump’s March 28, 2017 executive order, on
March 29, 2017, the Secretary of Interior reversed these actions, halting the environmental study, lifting the moratorium, and
directing the Bureau of Land Management to expeditiously process coal lease applications. Several states and environmental
groups challenged these actions, resulting in a court order mandating additional environmental review. In May 2019, the
Bureau of Land Management prepared an environmental assessment addressing the impacts of restarting coal leasing. While
the moratorium did not affect our operations, any renewed regulatory focus could lead to future GHG regulations for the
mining industry and its steelmaking customers, which could ultimately make it more difficult or costly for us to conduct our
operations or adversely affect demand for our products.
Demand for met coal and natural gas also may be impacted by international efforts to reduce GHG emissions. In
December 2015, the United States joined the international community at the 21st Conference of the Parties of the United
Nations Framework Convention on Climate Change in Paris, France. The text of the Paris Agreement calls for nations to
undertake “ambitious efforts” to hold the increase in the global average temperature to well below 2º C above pre-industrial
levels and pursue efforts to limit the temperature increase to 1.5º C above pre-industrial levels; reach global peaking of GHG
emissions as soon as possible; and take action to conserve and enhance sinks and reservoirs of GHGs, among other
requirements. The Paris Agreement went into effect on November 4, 2016. The Paris Agreement establishes a framework for
the parties to cooperate and report actions to reduce GHG emissions. However, on June 1, 2017, President Trump announced
that the United States would withdraw from the Paris Agreement, and begin negotiations to either re-enter or negotiate an
entirely new agreement with more favorable terms for the United States. The Paris Agreement sets forth a specific exit process,
whereby a party may not provide notice of its withdrawal until three years from the effective date, with such withdrawal taking
effect one year from such notice. On November 4, 2019, the Trump Administration submitted its formal notification of
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withdrawal to the United Nations. It is not clear what steps, if any, will be taken to negotiate a new agreement, or what terms
would be included in such an agreement. In response to the withdrawal announcement, many state and local leaders have
stated their intent to intensify efforts to uphold the commitments set forth in the international accord. It is possible that the Paris
Agreement and subsequent domestic and international regulations will have adverse effects on the market for met coal, natural
gas, and other fossil fuel products.
Methane must be expelled from our underground coal mines for mining safety reasons. Our gas operations extract
methane from our underground met coal mines prior to mining. With the exception of some methane that is vented into the
atmosphere when the met coal is mined, much of the methane is captured and sold into the natural gas market and used as fuel.
If regulation of GHG emissions does not exempt the release of methane, we may have to curtail met coal production, pay
certain taxes or fees for our emissions or incur costs to purchase credits that allow us to continue operations as they now exist at
our underground met coal mines.
The existing laws and regulations or other current and future efforts to stabilize or reduce GHG emissions could
adversely impact the demand for, price of and value of our products and reserves. As our operations also emit GHGs directly,
current or future laws or regulations limiting GHG emissions could increase our own costs. Although the potential impacts on
us of additional climate change regulation are difficult to reliably quantify, they could be material.
Finally, climate change may cause more extreme weather conditions such as more intense hurricanes, thunderstorms,
tornadoes and snow or ice storms, as well as rising sea levels and increased volatility in seasonal temperatures. Extreme
weather conditions can interfere with our services and increase our costs, and damage resulting from extreme weather may not
be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased
storm or weather hazards affecting our operations.
Clean Air Act
The federal Clean Air Act and comparable state laws that regulate air emissions affect coal mining operations both
directly and indirectly. Direct impacts on coal mining may occur through permitting requirements and/or emission control
requirements relating to particulate matter, such as fugitive dust, or fine particulate matter measuring 2.5 micrometers in
diameter or smaller. The Clean Air Act indirectly affects our mining operations by extensively regulating the air emissions of
sulfur dioxide, nitrogen oxides, mercury, ozone and other compounds emitted by steel manufacturers, coke ovens and coal-fired
utilities. As described above, existing and proposed regulations also subject GHG emissions to regulation under the Clean Air
Act.
Clean Water Act
The federal CWA and corresponding state and local laws and regulations affect our operations by restricting the
discharge of pollutants, including dredged and fill materials, into waters of the United States. CWA requirements that may
directly or indirectly affect our operations include the following:
• Water Discharge. The CWA and corresponding state laws affect our operations by imposing restrictions on discharges
of wastewater into creeks and streams. These restrictions, more often than not, require us to pre-treat the wastewater
prior to discharging it. Permits requiring regular monitoring and compliance with effluent limitations and reporting
requirements govern the discharge of pollutants into regulated waters. Our mining operations maintain water discharge
permits as required under the National Pollutant Discharge Elimination System program of the CWA. We believe that
we have obtained all permits required under the CWA and corresponding state laws and are in substantial compliance
with such permits. However, new requirements under the CWA and corresponding state laws may cause us to incur
significant additional costs that could adversely affect our operating results. For instance, stringent water quality
standards for materials such as selenium have recently been issued. We have begun to incorporate these new
requirements into our current permit applications; however, there can be no guarantee that we will be able to meet
these or any other new standards with respect to our permit applications.
• Dredge and Fill Permits. Many mining activities, such as the development of refuse impoundments, fresh water
impoundments, refuse fills, and other similar structures, may result in impacts to waters of the United States, including
wetlands, streams and, in certain instances, man-made conveyances that have a hydrologic connection to such streams
or wetlands. Under the CWA, coal companies are required to obtain a Section 404 permit from the U.S. Army Corps of
Engineers (“USACE”) prior to conducting such mining activities. The USACE is authorized to issue general
“nationwide” permits for specific categories of activities that are similar in nature and that are determined to have
minimal adverse effects on the environment. Permits issued pursuant to Nationwide Permit 21 generally authorize the
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disposal of dredged and fill material from surface coal mining activities into waters of the United States, subject to
certain restrictions. The USACE may also issue individual permits for mining activities that do not qualify for
Nationwide Permit 21.
Recent regulatory actions and court decisions have created some uncertainty over the scope of CWA jurisdiction. On
June 29, 2015, the EPA and the USACE jointly promulgated final rules redefining the scope of waters protected under the
CWA, revising regulations that had been in place for more than 25 years. The new rules may expand the scope of CWA
jurisdiction, making more waters subject to the CWA’s permitting and other requirements in the case of discharges. The rules
are subject to ongoing litigation and have been stayed in more than half the States, including Alabama. Also, on December 11,
2018, the EPA and the USACE released a proposed rule that would replace the 2015 rule, and significantly reduce the waters
subject to federal regulation under the Clean Water Act. Such proposal is currently subject to public review and comment, after
which additional legal challenges are anticipated. It remains unclear whether and how the rules will be implemented, what
litigation may result, and whether changes proposed by the Trump Administration could further impact regulatory
developments in this area.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act (“RCRA”) and corresponding state laws establish standards for the
management of solid and hazardous wastes generated at our various facilities. Besides affecting current waste disposal
practices, RCRA also addresses the environmental effects of certain past hazardous waste treatment, storage and disposal
practices. In addition, RCRA also requires certain of our facilities to evaluate and respond to any past release, or threatened
release, of hazardous waste that may pose a risk to human health or the environment.
RCRA may affect coal mining operations by establishing requirements for the proper management, handling,
transportation and disposal of solid and hazardous wastes. Currently, certain coal mine wastes, such as earth and rock covering
a mineral deposit (commonly referred to as overburden) and coal cleaning wastes, are exempted from hazardous waste
management under RCRA. Any change or reclassification of this exemption could significantly increase our coal mining costs.
Comprehensive Environmental Response, Compensation and Liability Act
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) and
similar state laws affect our met coal mining operations by, among other things, imposing investigation and cleanup
requirements for threatened or actual releases of hazardous substances. Under CERCLA, joint and several liability may be
imposed on operators, generators, site owners, lessees and others regardless of fault or the legality of the original activity that
caused or resulted in the release of the hazardous substances. Although the EPA excludes most wastes generated by coal mining
and processing operations from the hazardous waste laws, the universe of materials and substances governed by CERCLA is
broader than “hazardous waste” and as such even non-hazardous wastes can, in certain circumstances, contain hazardous
substances, which if released into the environment are governed by CERCLA. Alabama’s version of CERCLA mirrors the
federal version with the important difference that there is no joint and several liability. Liability is consistent with one’s
contribution to the contamination. In addition, the disposal, release or spilling of some products used by coal companies in
operation, such as chemicals, could trigger the liability provisions of CERCLA or similar state laws. Thus, we may be subject
to liability under CERCLA and similar state laws for properties that (1) we currently own, lease or operate, (2) we, our
predecessors, or former subsidiaries have previously owned, leased or operated, (3) sites to which we, our predecessors or
former subsidiaries, sent waste materials, and (4) sites at which hazardous substances from our facilities’ operations have
otherwise come to be located.
Endangered Species Act and Similar Laws
The federal Endangered Species Act and other related federal and state statutes, such as the federal Bald and Golden
Eagle Protection Act, protect species threatened or endangered with possible extinction. Protection of threatened, endangered
and other special status species may have the effect of prohibiting or delaying us from obtaining mining permits and may
include restrictions on our activities in areas containing the affected species. Also, the designation of previously unidentified
threatened, endangered or special status species in areas where we operate could cause us to incur additional costs or become
subject to operating delays, restrictions or bans.
Seasonality
Our primary business is not materially impacted by seasonal fluctuations. Demand for met coal is generally more
heavily influenced by other factors such as the global economy, demand for steel, interest rates and commodity prices.
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Employees and Labor
As of December 31, 2019, we had 1,417 employees, of whom 994 were hourly employees and 423 were salaried
employees, and of whom approximately 68.17% were covered by the UMWA CBA, which expires on March 31, 2021. We
have not had any union-organized work stoppages since our inception. We believe that we have good relationships with our
employees and with the unions representing our employees.
Available Information
We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Our
filings with the SEC are also available to the public from commercial document retrieval services and at the SEC’s website at
http://www.sec.gov.
Our common stock is listed and traded on the New York Stock Exchange under the symbol “HCC.” Our reports, proxy
statements and other information filed with the SEC can also be inspected and copied at the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
We also make available on our website (http://www.warriormetcoal.com) all of the documents (including any
amendments thereto) that we file or furnish with the SEC, free of charge, as soon as reasonably practicable after we
electronically file such material with the SEC. Our Code of Business Conduct and Ethics, Corporate Governance Guidelines
and the charters of our audit committee, compensation committee, nominating and corporate governance committee and
environmental, health & safety committee are also available on our website and in print free of charge to any stockholder who
requests them. Requests should be sent by mail to our corporate secretary at our executive office at 16243 Highway 216,
Brookwood, Alabama 35444. Information contained on our website is not incorporated by reference into this Annual Report.
We intend to disclose on our website any amendments or waivers to our Code of Business Conduct and Ethics that are required
to be disclosed pursuant to Item 5.05 of Form 8-K.
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Item 1A. Risk Factors
Our business involves substantial risks. Any of the risk factors described below or elsewhere in this Annual Report
could significantly and adversely affect our business prospects, financial condition and results of operations. The risks
described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we
currently deem to be immaterial may also adversely affect us.
Risks Related to Our Business
Deterioration in global economic conditions as they relate to the steelmaking industry, as well as generally unfavorable
global economic, financial and business conditions, may adversely affect our business, results of operations and cash flows.
Demand for met coal depends on domestic and foreign steel demand. As a result, if economic conditions in the global
steelmaking industry deteriorate as they have in past years, the demand for met coal may decrease. In addition, the global
financial markets have been experiencing volatility and disruption over the last several years. These markets have experienced,
among other things, volatility in security prices, commodities and currencies, diminished liquidity and credit availability, rating
downgrades and declining valuations of certain investments. Weaknesses in global economic conditions have had an adverse
effect and could have a material adverse effect on the demand for our met coal and, in turn, on our sales, pricing and
profitability.
In addition, future governmental policy changes in foreign countries may be detrimental to the global coal market. For
example, the Chinese government has from time to time implemented regulations and promulgated new laws or restrictions on
their domestic coal industry, sometimes with little advance notice, which has impacted worldwide coal demand, supply and
prices. During the past several years, the Chinese government has initiated a number of anti-smog measures aimed at reducing
hazardous air emissions through temporary production capacity restrictions with the steel, coal and coal-fired power sectors. It
is possible that policy changes from foreign countries may be detrimental to the global coal markets and, thus, impact our
business, financial condition or results of operations.
If met coal prices drop to or below levels experienced in 2015 and the first half of 2016 for a prolonged period or if
there are further downturns in economic conditions, particularly in developing countries such as China and India, our business,
financial condition or results of operations could be adversely affected. While we are focused on cost control and operational
efficiencies, there can be no assurance that these actions, or any others we may take, will be sufficient in response to
challenging economic and financial conditions. In addition, the current level of met coal prices may not be sustainable.
Our business may suffer as a result of a substantial or extended decline in met coal pricing or the failure of any recovery or
stabilization of met coal prices to endure, as well as any substantial or extended decline in the demand for met coal and
other factors beyond our control, which could negatively affect our operating results and cash flows.
Our profitability depends on the prices at which we sell our met coal, which are largely dependent on prevailing market
prices. A substantial or extended decrease in met coal pricing or the failure of a price recovery or stabilization following such
decrease will negatively affect our operating cash flows. We have experienced significant price fluctuations in our met coal
business, and we expect that such fluctuations will continue. For example, in the first quarter of 2016, the Australian HCC
Benchmark settlement price fell to $81 per metric ton, while in late 2016 spot market prices passed $300 per metric ton with a
first quarter 2017 Australian HCC Benchmark settlement price of $285 per metric ton. In 2019, the average Platts Index price
for the first half of 2019 was $204.53 compared to an average price of $150.83 in the second half of 2019. In November 2019,
the Platts Index price hit a three year low of approximately $132.00 per metric ton. Demand for, and therefore the price of, met
coal is driven by a variety of factors, including, but not limited to, the following:
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the domestic and foreign supply and demand for met coal;
the quantity and quality of met coal available from competitors;
the demand for and price of steel;
adverse weather, climatic and other natural conditions, including natural disasters;
domestic and foreign economic conditions, including slowdowns in domestic and foreign economies and financial
markets;
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•
•
•
global and regional political events;
domestic and foreign legislative, regulatory and judicial developments, environmental regulatory changes and changes
in energy policy and energy conservation measures that could adversely affect the met coal industry; and
capacity, reliability, availability and cost of transportation and port facilities, and the proximity of available met coal to
such transportation and port facilities.
The met coal industry also faces concerns with respect to oversupply from time to time, which could materially
adversely affect our financial condition and results of operations. In addition, reductions in the demand for met coal caused by
reduced steel production by our customers, increases in the use of substitutes for steel (such as aluminum, composites or
plastics) or less expensive substitutes for met coal and the use of steelmaking technologies that use less or no met coal can
significantly adversely affect our financial results and impede growth. Our natural gas business is also subject to adverse
changes in pricing due to, among other factors, changes in demand and competition from alternative energy sources.
Our customers are continually evaluating alternative steel production technologies which may reduce demand for our
product.
Our product is primarily used as HCC for blast furnace steel producers. High-quality HCC commands a significant
price premium over other forms of coal because of its value in use in blast furnaces for steel production. High-quality HCC is a
scarce commodity and has specific physical and chemical properties which are necessary for efficient blast furnace operation.
Alternative technologies are continually being investigated and developed with a view to reducing production costs or for other
reasons, such as minimizing environmental or social impact. If competitive technologies emerge or are increasingly utilized
that use other materials in place of our product or that diminish the required amount of our product, such as electric arc
furnaces or pulverized coal injection processes, demand and price for our met coal might fall. Many of these alternative
technologies are designed to use lower quality coals or other sources of carbon instead of higher cost high-quality HCC. While
conventional blast furnace technology has been the most economic large-scale steel production technology for a number of
years, and while emergent technologies typically take many years to commercialize, there can be no assurance that over the
longer term competitive technologies not reliant on HCC could emerge which could reduce demand and price premiums for
HCC.
We sell most of our met coal under fixed supply contracts primarily with indexed pricing terms that vary and volume terms
of one to three years and are therefore exposed to commodity price risk on our sales.
Sales commitments in the met coal market are typically not long-term in nature and are generally no longer than one to
three years in duration. Globally the market is evolving to shorter term pricing. Many of our met coal supply agreements are
priced on the basis of a variety of indices, where prices are determined on or before shipment by averaging the leading spot
indexes reported in the market. As a result, our sales are subject to fluctuations in market pricing and we are not protected from
oversupply or market conditions where we cannot sell our coal at economic prices. To limit this exposure, and where we can,
we have, and will continue to, incorporate economic hardship clauses in our sales contracts. However, there can be no
assurances we will be able to mitigate such conditions as they arise. Met coal has been an extremely volatile commodity over
the past ten years and prices may become volatile again in the future given the rapid increase of the last few years and the sharp
decline in the second half of 2019. Any sustained failure to be able to market our coal during such periods would have a
material adverse effect on our business, results of operations, cash flows and ability to pay dividends to our stockholders.
The failure of our customers to honor or renew contracts could adversely affect our business.
A significant portion of the sales of our met coal is to customers with whom we have had a relationship for a long
period of time. Typically, our customer contracts are for terms of one to three years or are evergreen with respect to contracted
volumes. The success of our business depends on our ability to retain our current customers, renew our existing customer
contracts and solicit new customers. Our ability to do so generally depends on a variety of factors, including the quality and
price of our products, our ability to market these products effectively, our ability to deliver on a timely basis and the level of
competition that we face. If our customers do not honor contract commitments, or if they terminate agreements or exercise
force majeure provisions allowing for the temporary suspension of performance during specified events beyond the parties’
control and we are unable to replace the contract, our revenues will be materially and adversely affected. Changes in the met
coal industry may cause some of our customers not to renew, extend or enter into new met coal supply agreements or to enter
into agreements to purchase fewer metric tons of met coal or on different terms than in the past.
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Our ability to collect payments from our customers could be impaired and, as a result, our financial position could be
materially and adversely affected if their creditworthiness deteriorates, if they declare bankruptcy, or if they fail to honor
their contracts with us.
Our ability to receive payment for met coal sold and delivered depends on the continued creditworthiness and financial
stability of our customers. If we determine that a customer is not creditworthy or if a customer declares bankruptcy, we may not
be required to deliver met coal sold under the customer’s sales contract. If this occurs, we may decide to sell the customer’s met
coal on the spot market, which may be at prices lower than the contracted price, or we may be unable to sell the met coal at all.
In addition, if customers refuse to accept shipments of our met coal for which they have an existing contractual obligation, our
revenues will decrease and we may have to reduce production at our mines until our customers’ contractual obligations are
honored. Further, competition with other met coal suppliers could cause us to extend credit to customers on terms that could
increase the risk of payment default. Our inability to collect payment from counterparties to our sales contracts may materially
adversely affect our business, financial condition, results of operations and cash flows.
A significant reduction of, or loss of, purchases by our largest customers could materially adversely affect our profitability.
For the year ended December 31, 2019, we derived approximately 64.5% of our total sales revenues from our five
largest customers. There are inherent risks whenever a significant percentage of total revenues are concentrated with a limited
number of customers, and it is not possible for us to predict the future level of demand for our met coal that will be generated
by our largest customers. We expect to renew, extend or enter into new supply agreements with these and other customers;
however, we may be unsuccessful in obtaining such agreements with these customers and these customers may discontinue
purchasing met coal from us, reduce the quantity of met coal that they have historically purchased from us or pressure us to
reduce the prices that we charge for our met coal due to market, economic or competitive conditions. If any of our major
customers were to significantly reduce the quantities of met coal they purchase from us and we are unable to replace these
customers with new customers (or we fail to obtain new, additional customers), or if we are otherwise unable to sell met coal to
those customers on terms as favorable to us as the terms under our current agreements, our profitability could suffer
significantly.
Substantially all of our revenues are derived from the sale of met coal. This lack of diversification of our business could
adversely affect our financial condition, results of operations and cash flows.
We rely on the met coal production from our two active met coal mines for substantially all of our revenues. For the
year ended December 31, 2019, revenues from the sale of met coal accounted for approximately 97.5% of our total revenues.
As noted above, demand for met coal depends on domestic and foreign steel demand. At times, the pricing and availability of
steel can be volatile due to numerous factors beyond our control. When steel prices are lower, the prices that we charge
steelmaking customers for our met coal may decline, which could adversely affect our financial condition, results of operations
and cash flows. Since we are heavily dependent on the steelmaking industry, adverse economic conditions in this industry, even
in the presence of otherwise favorable economic conditions in the broader coal industry, could have a significantly greater
impact on our financial condition and results of operations than if our business were more diversified. In addition, our lack of
diversification may make us more susceptible to such adverse economic conditions than our competitors with more diversified
operations and/or asset portfolios, such as those that produce thermal coal in addition to met coal.
All of our mining operations are located in Alabama, making us vulnerable to risks associated with having our production
concentrated in one geographic area.
All of our mining operations are geographically concentrated in Alabama. As a result of this concentration, we may be
disproportionately exposed to the impact of delays or interruptions in production caused by significant governmental
regulation, transportation capacity constraints, constraints on the availability of required equipment, facilities, personnel or
services, curtailment of production, extreme weather conditions, natural disasters or interruption of transportation or other
events that impact Alabama or its surrounding areas. If any of these factors were to impact Alabama more than other met coal
producing regions, our business, financial condition, results of operations and cash flows will be adversely affected relative to
other mining companies with operations in unaffected regions or that have a more geographically diversified asset portfolio.
Met coal mining involves many hazards and operating risks, and is dependent upon many factors and conditions beyond
our control, which may cause our profitability and financial position to decline.
Our mining operations, including our preparation and transportation infrastructure, are subject to inherent hazards and
operating risks that could disrupt operations, decrease production and increase the cost of mining for varying lengths of time.
Specifically, underground mining and related processing activities present risks of injury to persons and damage to property and
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equipment. In addition, met coal mining is dependent upon a number of conditions beyond our control that can disrupt
operations and/or affect our costs and production schedules at particular mines. These risks, hazards and conditions include, but
are not limited to:
•
variations in geological conditions, such as the thickness of the met coal seam and amount of rock embedded in the
met coal deposit and variations in rock and other natural materials overlying the met coal deposit, that could affect the
stability of the roof and the side walls of the mine;
• mining, process and equipment or mechanical failures, unexpected maintenance problems and delays in moving
longwall equipment;
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the unavailability of raw materials, equipment (including heavy mobile equipment) or other critical supplies such as
tires, explosives, fuel, lubricants and other consumables of the type, quantity and/or size needed to meet production
expectations;
adverse weather and natural disasters, such as heavy rains or snow, forest fires, flooding and other natural events,
including seismic activities, ground failures, rock bursts or structural cave-ins or slides, affecting our operations or
transportation to our customers;
railroad delays or derailments;
environmental hazards, such as subsidence and excess water ingress;
delays and difficulties in acquiring, maintaining or renewing necessary permits or mining rights;
availability of adequate skilled employees and other labor relations matters;
security breaches or terroristic acts;
unexpected mine accidents, including rock-falls and explosions caused by the ignition of met coal dust, natural gas or
other explosive sources at our mine sites or fires caused by the spontaneous combustion of met coal or similar mining
accidents;
competition and/or conflicts with other natural resource extraction activities and production within our operating
areas, such as natural gas extraction or oil and gas development; and
•
other hazards that could also result in personal injury and loss of life, pollution and suspension of operations.
These risks and conditions could result in damage to or the destruction of our mineral properties, equipment or
production facilities, personal injury or death, environmental damage, delays in mining, regulatory investigations, actions and
penalties, repair and remediation costs, monetary losses and legal liability. In addition, a significant mine accident could
potentially cause a suspension of operations or a complete mine shutdown. Our insurance coverage may not be available or
sufficient to fully cover claims that may arise from these risks and conditions.
We have also seen adverse geological conditions in the mines, such as variations in met coal seam thickness, variations
in the competency and make-up of the roof strata, fault-related discontinuities in the met coal seam and the potential for ingress
of excessive amounts of natural gas or water. Such adverse conditions may increase our cost of sales and reduce our
profitability, and may cause us to decide to close a mine. Any of these risks or conditions could have a negative impact on our
financial condition, results of operations and cash flows.
In addition, if any of the foregoing changes, conditions or events occurs and is not excusable as a force majeure event,
any resulting failure on our part to deliver met coal to the purchaser under our contracts could result in economic penalties,
suspension or cancellation of shipments or ultimately termination of the agreement, any of which could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
If we fail to implement our business strategies successfully, our financial performance could be harmed.
Our future financial performance and success are dependent in large part upon our ability to successfully implement our
business strategies. We may not be able to implement our business strategies successfully or achieve the anticipated benefits. If
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we are unable to do so, our long-term growth, profitability and ability to service any debt we incur in the future may be
materially adversely affected. Even if we are able to implement some or all of the key elements of our business plan
successfully, our operating results may not improve to the extent we anticipate, or at all. Implementation of our business
strategies, including the development of Blue Creek, could also be affected by a number of factors beyond our control, such as
global economic conditions, met coal prices, domestic and foreign steel demand, and environmental, health and safety laws and
regulations.
A key element of our business strategy involves increasing production at our existing mines and developing Blue Creek
recoverable reserves in a cost efficient manner. As we expand our business activities, there will be additional demands on our
financial, technical, operational and management resources. These aspects of our strategy are subject to numerous risks and
uncertainties, including:
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•
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an inability to retain or hire experienced crews and other personnel and other labor relations matters;
a lack of customer demand for our mined met coal;
an inability to secure necessary equipment, raw materials or engineering in a timely manner to successfully execute
our expansion plans;
unanticipated delays that could limit or defer the production or expansion of our mining activities and jeopardize our
long term relationships with our existing customers and adversely affect our ability to obtain new customers for our
mined met coal; and
•
a lack of available cash or access to sufficient debt or equity financing for investment in our expansion.
We may be unsuccessful or delayed in developing Blue Creek, which could significantly affect our operations and/or limit
our long-term growth.
The development of Blue Creek will require substantial capital expenditures that we may not recover. In addition,
during our development of Blue Creek we will face numerous financial, regulatory, environmental, political and legal
uncertainties that are beyond our control and that may cause unforeseen delays in, or unexpectedly increase the costs associated
with, the completion of Blue Creek. Accordingly, we may not be able to complete the development of Blue Creek on schedule,
at the budgeted cost or at all, and any such delays or increased costs could have a material adverse effect on our financial
condition, results of operations or cash flows. Our planned development of Blue Creek involves numerous risks, including, but
not limited to, the following:
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uncertainties in the national and worldwide economy and the price of met coal;
our ability to obtain additional debt and/or equity financing to fund the development, permitting, construction and
mining activities of Blue Creek on terms that are acceptable to us, or at all;
the diversion of management’s attention from our existing mining operations;
our ability to obtain favorable tax or other incentives;
potential opposition from non-governmental organizations, local groups, or local residents;
the fact that our development, construction, ramp-up and operating costs may be higher than our estimates and further
increase our planned capital expenditure and liquidity requirements;
shortages of construction materials and equipment or delays in the delivery of such materials and equipment;
unanticipated facility or equipment malfunctions or breakdowns;
delays from unexpected adverse geological and/or weather conditions and from accidents;
failure to obtain, or delays in obtaining, all necessary governmental and third-party rights-of-way, easements, permits,
licenses and approvals;
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•
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local infrastructure conditions and other logistical challenges;
the possibility that we may have insufficient expertise to engage in such development activity profitably or without
incurring inappropriate amounts of risks;
the fact that the coal reserves at Blue Creek may not be as economically recoverable as planned;
difficulties in integrating Blue Creek with our existing mining operations and failure to achieve any estimated
economies of scale; and
•
our ability to hire qualified construction and other personnel.
We cannot assure you that we will be able to overcome these risks or successfully develop Blue Creek. If we are
unable to complete, or are substantially delayed in completing, the development of Blue Creek, our business, financial
condition, results of operations, cash flows and ability to pay dividends to our stockholders could be adversely affected.
Furthermore, even if Blue Creek is successfully developed, constructed, and placed into operation, we cannot assure you that it
will operate at a profit sufficient to recover our total investment. In addition, if its development is successful, the operation of
Blue Creek would exacerbate our existing mining and operation risks discussed elsewhere in this Report, including, but not
limited to, risks related to increasing the concentration of our mining operations in Alabama, hazards and operating risks,
transportation risks, liability risks and regulatory risks. See “-Risks Related to Our Business-All of our mining operations are
located in Alabama, making us vulnerable to risks associated with having our production concentrated in one geographic area”,
“-Met coal mining involves many hazards and operating risks, and is dependent upon many factors and conditions beyond our
control, which may cause our profitability and financial position to decline”, “-If transportation for our met coal is disrupted,
unavailable or more expensive for our customers, our ability to sell met coal could suffer”, “-Our business is subject to inherent
risks, some for which we maintain third party insurance. We may incur losses and be subject to liability claims that could have
a material adverse effect on our financial condition, results of operations or cash flows” and “-Our mines are subject to
stringent federal and state safety regulations that increase our cost of doing business at active operations and may place
restrictions on our methods of operation. In addition, federal, state or local regulatory agencies have the authority to order
certain of our mines to be temporarily or permanently closed under certain circumstances, which could materially and
adversely affect our ability to meet our customers’ demands.”
Our business is subject to inherent risks, some for which we maintain third party insurance. We may incur losses and be
subject to liability claims that could have a material adverse effect on our financial condition, results of operations or cash
flows.
We maintain insurance policies that provide limited coverage for some, but not all, potential risks and liabilities
associated with our business. The insurance that we maintain may contain certain deductible amounts and cover risks and
liabilities typical for a coal mining business including, but not limited to, property, general liability and business interruption.
Although we maintain insurance for a number of risks and hazards, we may not be insured or fully insured against the losses or
liabilities that could arise from a significant accident in our coal operations. We may elect not to obtain insurance for any or all
of these risks if we believe that the cost of available insurance is excessive relative to the risks presented. Moreover, a
significant mine accident could potentially cause a mine shutdown. The occurrence of an event that is not fully covered by
insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows.
As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and
in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. As a result,
we may not be able to renew our existing insurance policies or procure other desirable insurance on commercially reasonable
terms, if at all. In addition, certain environmental, contamination and pollution risks generally are not fully insurable. Even
where insurance coverage applies, insurers may contest their obligations to make payments. Our financial condition, results of
operations and cash flows could be materially and adversely affected by losses and liabilities from uninsured or under-insured
events, as well as by delays in the payment of insurance proceeds, or the failure by insurers to make payments.
We also may incur costs and liabilities resulting from claims for damages to property or injury to persons arising from
our operations. We must compensate employees for work-related injuries. If we do not make adequate provision for our
workers’ compensation and black lung liabilities, or we are pursued for applicable sanctions, costs and liabilities, our operations
and profitability could be adversely affected. Certain of our subsidiaries are responsible for medical and disability benefits for
black lung disease under federal law and are insured beginning April 1, 2016 for claims made by or on behalf of any of our
employees. As a result of our limited operating history as a stand-alone company, the Department of Labor required us to
provide insurance coverage rather than be self-insured for these obligations.
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We are responsible for medical and disability benefits for black lung disease under federal law. We assumed certain
historical self-insured black lung liabilities of Walter Energy and its subsidiaries incurred prior to April 1, 2016 in
connection with the Asset Acquisition. We are self-insured for these black lung liabilities and have posted certain collateral
with Department of Labor as described below. Changes in the estimated claims to be paid or changes in the amount of
collateral required by the Department of Labor may have a greater impact on our profitability and cash flows in the future.
We are responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and
Safety Act of 1969, the Mine Act and the Black Lung Benefits Act, each as amended, and are self-insured for black lung related
claims asserted by or on behalf of former employees of Walter Energy and its subsidiaries as assumed in the Asset Acquisition
for the period prior to April 1, 2016. We perform an annual actuarial evaluation of the overall black lung liabilities as of each
December 31st. The calculation is performed using assumptions regarding rates of successful claims, discount factors, benefit
increases and mortality rates, among others. If the number of or severity of successful claims increases, or we are required to
accrue or pay additional amounts because the successful claims prove to be more severe than our original assessment, our
operating results and cash flows could be negatively impacted. Our self-insurance program for these legacy liabilities is unique
to the industry and was specifically negotiated with the Department of Labor requiring us to post $17.0 million in surety bonds
or Treasury bills as collateral in addition to maintaining a black lung trust of $3.3 million that was acquired in the Asset
Acquisition. For additional information see “Part I, Item 1. Business-Environmental and Regulatory Matters-Workers’
Compensation and Black Lung.” Our estimated total black lung liabilities as of December 31, 2019 were $32.5 million (net of
the black lung trust). In future years, the Department of Labor could require us to increase the amount of the collateral which
could negatively impact our cash flows.
Defects in title of any real property or leasehold interests in our properties or associated met coal reserves could limit our
ability to mine or develop these properties or result in significant unanticipated costs.
All of our mining operations are conducted on properties owned or leased by us. Our right to mine our met coal
reserves may be materially adversely affected by defects in title or boundaries or if our property interests are subject to superior
property rights of third parties. We do not have title insurance for any of our real property or leasehold interests and, title to
most of our owned or leased properties and mineral rights is not usually verified until we make a commitment to mine a
property, which may not occur until after we have obtained necessary permits and completed exploration of the property. Any
challenge to our title or leasehold interests could delay the mining of the property, result in the loss of some or all of our interest
in the property or met coal reserves and increase our costs. In order to conduct our mining operations on properties where these
defects exist, we may incur unanticipated costs perfecting title. In addition, if we mine or conduct our operations on property
that we do not own or lease, we could incur civil damages or liabilities for such mining operations and be subject to conversion,
negligence, trespass, regulatory sanction and penalties. Some leases have minimum production requirements or require us to
commence mining operations in a specified term to retain the lease. Failure to meet those requirements could result in losses of
prepaid royalties and, in some rare cases, could result in a loss of the lease itself.
We face uncertainties in estimating our proven and probable met coal reserves, and inaccuracies in our estimates of our met
coal reserves could result in decreased profitability from lower than expected revenues or higher than expected costs.
Our future performance depends on, among other things, the accuracy of our estimates of our proven and probable met
coal reserves. Reserve estimates are based on a number of sources of information, including engineering, geological, mining
and property control maps and data, our operational experience of historical production from similar areas with similar
conditions and assumptions governing future pricing and operational costs. We update our estimates of the quantity and quality
of proven and probable met coal reserves at least annually to reflect the production of met coal from the reserves, updated
geological models and mining recovery data, the tonnage contained in new lease areas acquired and estimated costs of
production and sales prices. There are numerous factors and assumptions inherent in estimating met coal quantities, qualities
and costs to mine, including many factors beyond our control, such as the following:
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•
•
•
•
geological and mining conditions, including faults in the met coal seam;
historical production from the area compared with production from other producing areas;
the percentage of met coal ultimately recoverable;
the assumed effects of regulations and taxes and other payments to governmental agencies;
our ability to obtain, maintain and renew all required permits;
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•
•
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future improvements in mining technology;
assumptions concerning the timing of the development of the reserves; and
assumptions concerning equipment and operational productivity, future met coal prices, operating costs, including
those for critical supplies such as fuel, tires and explosives, capital expenditures and development and reclamation
costs.
Each of these factors may vary considerably from the assumptions used in estimating the reserves. As a result, estimates
of the quantities and qualities of economically recoverable met coal attributable to any particular group of properties,
classifications of reserves based on risk of recovery, estimated cost of production, and estimates of future net cash flows
expected from these properties as prepared by different engineers or by the same engineers at different times may vary
materially due to changes in the above factors and assumptions. Actual production recovered from identified reserve areas and
properties, and revenues and expenditures associated with our mining operations may vary materially from estimates. Any
inaccuracy in our estimates related to our reserves could result in decreased profitability from lower than expected revenues
and/or higher than expected costs.
Our inability to develop met coal reserves in an economically feasible manner or our inability to acquire additional met coal
reserves that are economically recoverable may adversely affect our business.
Our long-term profitability depends in part on our ability to cost-effectively mine and process met coal reserves that
possess the quality characteristics desired by our customers. As we mine, our met coal reserves decline. As a result, our future
success depends upon our ability to develop or acquire additional met coal reserves that are economically recoverable to
replace the reserves that we produce. Coal is economically recoverable when the price at which our met coal can be sold
exceeds the costs and expenses of mining and selling such met coal. We may not be able to obtain adequate economically
recoverable replacement reserves when we require them and, even if available, such reserves may not be at favorable prices or
we may not be capable of mining those reserves at costs that are comparable to our existing met coal reserves. Our ability to
develop or acquire met coal reserves in the future may also be limited by the availability of cash from our operations or
financing under our existing or future financing arrangements, as well as certain restrictions under such arrangements. If we are
unable to develop or acquire replacement reserves, our future production may decrease significantly as existing reserves are
depleted and this may have a material adverse impact on our cash flows, financial position and results of operations.
We may be unsuccessful in integrating the operations of any future acquisitions, including acquisitions involving new lines
of business, with our existing operations, and in realizing all or any part of the anticipated benefits of any such acquisitions.
From time to time, we may evaluate and acquire assets and businesses that we believe complement our existing assets
and business. The assets and businesses we acquire may be dissimilar from our existing lines of business. Acquisitions may
require substantial capital or the incurrence of substantial indebtedness. Our capitalization and results of operations may change
significantly as a result of future acquisitions. Acquisitions and business expansions involve numerous risks, including the
following:
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•
•
difficulties in the integration of the assets and operations of the acquired businesses;
inefficiencies and difficulties that arise because of unfamiliarity with new assets and the businesses associated with
them and new geographic areas;
the possibility that we have insufficient expertise to engage in such activities profitably or without incurring
inappropriate amounts of risk; and
•
the diversion of management’s attention from other operations.
Further, unexpected costs and challenges may arise whenever businesses with different operations or management are
combined, and we may experience unanticipated delays in realizing the benefits of an acquisition. Entry into certain lines of
business may subject us to new laws and regulations with which we are not familiar, and may lead to increased litigation and
regulatory risk. Also, following an acquisition, we may discover previously unknown liabilities associated with the acquired
business or assets for which we have no recourse under applicable indemnification provisions. If a new business generates
insufficient revenue or if we are unable to efficiently manage our expanded operations, our results of operations may be
adversely affected.
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Our failure to obtain and renew permits necessary for our mining operations could negatively affect our business.
Mining companies must obtain numerous permits that impose strict regulations on various environmental and
operational matters in connection with met coal mining. These include permits issued by various federal, state and local
agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change frequently and
are often subject to discretionary interpretations by the regulators, all of which may make compliance more difficult or
impractical, and may possibly preclude the continuance of ongoing operations or the development of future mining operations.
The public, including non-governmental organizations, anti-mining groups and individuals, have certain statutory rights to
comment upon and submit objections to requested permits and environmental impact statements prepared in connection with
applicable regulatory processes, and otherwise engage in the permitting process, including bringing citizens’ lawsuits to
challenge the issuance of permits, the validity of environmental impact statements or performance of mining activities.
Accordingly, required permits may not be issued or renewed in a timely fashion or at all, or permits issued or renewed may be
conditioned in a manner that may restrict our ability to efficiently and economically conduct our mining activities, any of which
would materially reduce our production, cash flow and profitability.
If transportation for our met coal is disrupted, unavailable or more expensive for our customers, our ability to sell met coal
could suffer.
Transportation costs represent a significant portion of the total cost of met coal to be delivered to our customers and, as
a result, the cost of delivery is a factor in a customer’s purchasing decision. Overall price increases in our transportation costs
could make our met coal less competitive with the same or alternative products from competitors with lower transportation
costs. We typically depend upon overland conveyor, trucks, rail or barges to transport our products. Disruption or delays of any
of these transportation services due to weather related problems, which are variable and unpredictable, strikes or lock-outs,
accidents, infrastructure damage, governmental regulation, third-party actions, lack of capacity or other events beyond our
control could impair our ability to supply our products to our customers and result in lost sales and reduced profitability. In
addition, increases in transportation costs resulting from emission control requirements and fluctuations in the price of gasoline
and diesel fuel, could make met coal produced in one region of the United States less competitive than met coal produced in
other regions of the United States or abroad.
All of our met coal mines are served by only one rail carrier, which increases our vulnerability to these risks, although
our access to barge transportation partially mitigates that risk. In addition, the majority of the met coal produced by our
underground mining operations is sold to met coal customers who typically arrange and pay for transportation from the state-
run docks at the Port of Mobile, Alabama to the point of use. As a result, disruption at the docks, port congestion and delayed
met coal shipments may result in demurrage fees to us. If this disruption were to persist over an extended period of time,
demurrage costs could significantly impact our profits. In addition, there are limited cost effective alternatives to the port. The
cost of securing additional facilities and services of this nature could significantly increase transportation and other costs. An
interruption of rail or port services could significantly limit our ability to operate and, to the extent that alternate sources of port
and rail services are unavailable or not available on commercially reasonable terms, could increase transportation and port costs
significantly. Further, delays of ocean vessels could affect our revenues, costs and relative competitiveness compared to the
supply of met coal and other products from our competitors.
Any significant downtime of our major pieces of mining equipment could impair our ability to supply met coal to our
customers and materially and adversely affect our results of operations and cash flows.
We depend on several major pieces of mining equipment to produce and transport our met coal, including, but not
limited to, longwall mining systems, continuous mining units, our preparation plant and blending facilities, and conveyors.
Obtaining or repairing these major pieces of mining equipment often involves long lead times. If any of these pieces of
equipment or facilities suffer major damage or are destroyed by fire, abnormal wear, flooding, incorrect operation or otherwise,
we may be unable to replace or repair them in a timely manner or at a reasonable cost, which would impact our ability to
produce and transport met coal and materially and adversely affect our business, results of operations, financial condition and
cash flows. Moreover, MSHA and other regulatory agencies sometimes make changes with regards to requirements for pieces
of equipment. For example, in 2015, MSHA promulgated a new regulation requiring the implementation of proximity detection
devices on all continuous mining machines. Such changes could cause delays if manufacturers and suppliers are unable to make
the required changes in compliance with mandated deadlines.
If either our preparation plant or river barge load-out facilities, or those of a third party processing or loading our met
coal, suffer extended downtime, including major damage, or are destroyed, our ability to process and deliver met coal to
prospective customers would be materially impacted, which would materially adversely affect our business, results of
operations, financial condition and cash flows.
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Our business is subject to the risk of increases or fluctuations in the cost, and delay in the delivery, of raw materials, mining
equipment and purchased components.
Met coal mining consumes large quantities of commodities including steel, copper, rubber products, diesel and other
liquid fuels, and requires the use of capital equipment. Some commodities, such as steel, are needed to comply with roof
control plans required by regulation. The cost of roof bolts we use in our mining operations depends on the price of scrap steel.
The prices we pay for commodities and capital equipment are strongly impacted by the global market. A rapid or significant
increase in the costs of commodities or capital equipment we use in our operations could impact our mining operations costs
because we may have a limited ability to negotiate lower prices and, in some cases, may not have a ready substitute.
We use equipment in our met coal mining and transportation operations such as continuous mining units, conveyors,
shuttle cars, rail cars, locomotives, roof bolters, shearers and shields. Some equipment and materials are needed to comply with
regulations, such as proximity detection devices on continuous mining machines. We procure some of this equipment from a
concentrated group of suppliers, and obtaining this equipment often involves long lead times. Occasionally, demand for such
equipment by mining companies can be high and some types of equipment may be in short supply. Delays in receiving or
shortages of this equipment, as well as the raw materials used in the manufacturing of supplies and mining equipment, which,
in some cases, do not have ready substitutes, or the cancellation of our supply contracts under which we obtain equipment and
other consumables, could limit our ability to obtain these supplies or equipment. In addition, there continues to be consolidation
in the supplier base providing mining materials and equipment, which has resulted in a limited number of suppliers for certain
types of equipment and supplies. If any of our suppliers experiences an adverse event, decides to cease producing products
used by the mining industry, or decides to no longer do business with us, we may be unable to obtain sufficient equipment and
raw materials in a timely manner or at a reasonable price to allow us to meet our production goals and our revenues may be
materially adversely impacted.
We use considerable quantities of steel in the mining process. If the price of steel or other materials increases
substantially or if the value of the U.S. dollar declines relative to foreign currencies with respect to certain imported supplies or
other products, our operating expenses could increase. Any of the foregoing events could materially and adversely impact our
business, financial condition, results of operations and cash flows.
Our business may require substantial ongoing capital expenditures, and we may not have access to the capital required to
reach full productive capacity at our mines.
Maintaining and expanding mines and related infrastructure is capital intensive. Specifically, the exploration, permitting
and development of met coal reserves, mining costs, the maintenance of machinery, facilities and equipment and compliance
with applicable laws and regulations require ongoing capital expenditures. While a significant amount of the capital
expenditures required at our mines has been spent, we must continue to invest capital to maintain our production. In addition,
any decisions to increase production at our existing mines or the development of the high-quality met coal recoverable reserves
at Blue Creek could also affect our capital needs or cause future capital expenditures to be higher than in the past and/or higher
than our estimates. We cannot assure you that we will be able to maintain our production levels or generate sufficient cash flow,
or that we will have access to sufficient financing to continue our production, exploration, permitting and development
activities at or above our present levels and on our current or projected timelines, and we may be required to defer all or a
portion of our capital expenditures. Our results of operations, business and financial condition may be materially adversely
affected if we cannot make such capital expenditures.
To fund our capital expenditures, we will be required to use cash from our operations, incur debt or sell equity
securities. Using cash from operations will reduce cash available for maintaining or increasing our operations activities. Our
ability to obtain bank financing or our ability to access the capital markets for future equity or debt offerings, on the other hand,
may be limited by our financial condition at the time of any such financing or offering and the covenants in our existing debt
agreements, as well as by general economic conditions, contingencies and uncertainties that are beyond our control. If cash
flow generated by our operations or available borrowings under our bank financing arrangements are insufficient to meet our
capital requirements and we are unable to access the capital markets on acceptable terms or at all, we could be forced to curtail
the expansion of our existing mines and the development of our properties, which, in turn, could lead to a decline in our
production and could materially and adversely affect our business, financial condition and results of operations.
Work stoppages, labor shortages and other labor relations matters may harm our business. Union-represented labor creates
an increased risk of work stoppages and higher labor costs.
If we fail to maintain satisfactory labor relations, disputes with the unionized portion of our workforce could affect us
adversely. Union-represented labor creates an increased risk of work stoppages and higher labor costs. As of December 31,
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2019, 68.17% of our employees were represented by the UMWA. In connection with the Asset Acquisition, we negotiated a
new initial CBA with the UMWA (the “UMWA CBA”), which was ratified by UMWA’s members on February 16, 2016 and
has a five-year term. If we are unable to negotiate the renewal of the UMWA CBA before its expiration date, our operations and
our profitability could be adversely affected. Future work stoppages, labor union issues or labor disruptions at our mining
operations, as well as at the operations of key customers or service providers, could impede our ability to produce and deliver
our products, to receive critical equipment and supplies or to collect payment. This may increase our costs or impede our ability
to operate one or more of our operations.
We require a skilled workforce to run our business. If we cannot hire qualified people to meet replacement or expansion
needs, we may not be able to achieve planned results.
Efficient met coal mining using modern techniques and equipment requires skilled laborers with mining experience and
proficiency as well as qualified managers and supervisors. The demand for skilled employees sometimes causes a significant
constriction of the labor supply resulting in higher labor costs. When met coal producers compete for skilled miners, recruiting
challenges can occur and employee turnover rates can increase, which negatively affect operating efficiency and costs. If a
shortage of skilled workers exists and we are unable to train or retain the necessary number of miners, it could adversely affect
our productivity, costs and ability to expand production.
Our executive officers and other key personnel are important to our success and the loss of one or more of these individuals
could harm our business.
Our executive officers and other key personnel have significant experience in the met coal or other commodity
businesses and the loss of certain of these individuals could harm our business. Moreover, there may be a limited number of
persons with the requisite experience and skills to serve in our senior management positions. Although we have been successful
in attracting qualified individuals for key management and corporate positions in the past, there can be no assurance that we
will continue to be successful in attracting and retaining a sufficient number of qualified personnel in the future or that we will
be able to do so on acceptable terms. The loss of key management personnel could harm our ability to successfully manage our
business functions, prevent us from executing our business strategy and have a material adverse effect on our results of
operations and cash flows.
Significant competition, as well as changes in foreign markets or economies, could harm our sales, profitability and cash
flows.
We compete with other producers primarily on the basis of price, met coal quality, transportation costs and reliability of
delivery. The consolidation of the global met coal industry over the last several years has contributed to increased competition
among met coal producers and we cannot assure you that the result of current or further consolidation will not adversely affect
us. In addition, some of our global competitors have significantly greater financial resources and/or a broader portfolio of coals
than we do, and in recent periods a number of our competitors idled production in light of lower met coal prices in 2015 and the
first half of 2016. The production that was idled by our competitors may restart, and in some instances has already restarted,
and may affect domestic and foreign met coal supply into the seaborne market and associated prices and impact our ability to
retain or attract met coal customers.
Further, potential changes to international trade agreements, trade concessions, foreign currency fluctuations or other
political and economic arrangements may benefit met coal producers operating in countries other than the United States. We
may be adversely impacted on the basis of price or other factors with companies that in the future may benefit from favorable
foreign trade policies or other arrangements. In addition, increases in met coal prices could encourage existing producers to
expand capacity or could encourage new producers to enter the market. Overcapacity and increased production within the met
coal industry, both domestically and internationally, could materially reduce met coal demand and prices and therefore
materially reduce our revenues and profitability. In addition, our ability to ship our met coal to international customers depends
on port and transportation capacity. Increased competition within the domestic met coal industry for international sales could
result in us not being able to obtain throughput capacity at port facilities, as well as transport capacity, could cause the rates for
such services to increase to a point where it is not economically feasible to export our met coal.
The general economic conditions in foreign markets and changes in currency exchange rates are factors outside of our
control that may affect international met coal prices. If our competitors’ currencies decline against the U.S. dollar or against our
customers’ currencies, those competitors may be able to offer lower prices to our customers. Furthermore, if the currencies of
our overseas customers were to significantly decline in value in comparison to the U.S. dollar, on which our sales contracts are
based, those customers may seek decreased prices for the met coal that we sell to them. These factors, in addition to adversely
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affecting the competitiveness of our met coal in international markets, may also negatively impact our collection of trade
receivables from our customers and could reduce our profitability or result in lower met coal sales.
Our sales in foreign jurisdictions are subject to risks and uncertainties that may have a negative impact on our profitability.
Substantially all of our met coal sales consist of sales to international customers and we expect that international sales
will continue to account for a substantial portion of our revenue. A number of foreign countries in which we sell our met coal
implicate additional risks and uncertainties due to the different economic, cultural and political environments. Such risks and
uncertainties include, but are not limited to:
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longer sales-cycles and time to collection;
tariffs and international trade barriers and export license requirements, including any that might result from the current
global trade uncertainties;
fewer or less certain legal protections for contract rights;
different and changing legal and regulatory requirements;
potential liability under the U.S. Foreign Corrupt Practices Act of 1977, as amended, or comparable foreign
regulations;
government currency controls;
fluctuations in foreign currency exchange and interest rates; and
political and economic instability, changes, hostilities and other disruptions, as well as unexpected changes in
diplomatic and trade relationships.
Negative developments in any of these factors in the foreign markets into which we sell our met coal could result in a
reduction in demand for met coal, the cancellation or delay of orders already placed, difficulty in collecting receivables, higher
costs of doing business and/or non-compliance with legal and regulatory requirements, each or any of which could materially
adversely impact our cash flows, results of operations and profitability.
New tariffs and other trade measures could adversely affect our results of operations, financial position and cash flows.
New tariffs and other trade measures could adversely affect our results of operations, financial position and cash
flows. On March 8, 2018, President Trump signed proclamations imposing a 25 percent tariff on imports of certain steel mill
products and aluminum products. The U.S. has also imposed tariffs of 7.5 percent and 25.0 percent on certain Chinese-origin
products. In response to the tariffs imposed by the U.S., other countries, including China and European Union member
countries have announced tariffs on U.S. goods and services. The new tariffs, along with any additional tariffs or trade
restrictions that may be implemented by the U.S. or retaliatory trade measures or tariffs implemented by other countries, could
result in reduced economic activity, increased costs in operating our business, reduced demand and changes in purchasing
behaviors for met coal, limits on trade with the United States or other potentially adverse economic outcomes. In addition,
trade conflicts between the U.S. and other nations that result in imposition of barriers to trade, such as import tariffs, could
materially and adversely affect the international demand and pricing for our coal. While, the imposition of these trade barriers
by other nations have not yet had a significant impact on our business or results of operations, we cannot predict further
developments, and such existing or future tariffs could have a material adverse effect on our results of operations, financial
position and cash flows. If these barriers endure, or are enhanced, our coal exports may decline, and increased domestic supply
could cause competition among coal producers in the U.S. to intensify, potentially resulting in additional downward pressure on
domestic coal prices and our business, financial condition and results of operations. A "phase one" trade deal signed between
the U.S. and China on January 15, 2020 accompanied a U.S. decision to cancel a plan to increase tariffs on an additional list of
Chinese products and to reduce the tariffs previously imposed on one list of Chinese products. While the signing of the
agreement signals a cooling of tensions between the U.S. and China over trade, concerns over the stability of bilateral trade
relations remain, particularly given the limited scope of the phase one agreement.
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Extensive environmental, health and safety laws and regulations impose significant costs on our operations and future
regulations could increase those costs, limit our ability to produce or adversely affect the demand for our products.
Our businesses are subject to numerous federal, state and local laws and regulations with respect to matters such as:
•
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permitting and licensing requirements;
employee health and safety, including occupational and mine health and safety;
• workers’ compensation;
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black lung disease;
reclamation and restoration of property; and
environmental laws and regulations, including those related to greenhouse gases and climate change, air quality, water
quality, stream and surface water quality and protection, management of materials generated by mining operations, the
storage, treatment and disposal of wastes, protection of plant and wildlife such as endangered species, protection of
wetlands and remediation of contaminated soil and groundwater.
In addition, the coal industry in the U.S. is affected by significant legislation mandating certain benefits for current and
retired coal miners. Compliance with these requirements imposes significant costs on us and can result in reduced productivity.
Moreover, the possibility exists that new health and safety legislation and/or regulations may be adopted and/or orders may be
entered that may materially and adversely affect our mining operations. We must compensate employees for work-related
injuries. If we do not make adequate provisions for our workers’ compensation liabilities, it could harm our future operating
results. In addition, the erosion through tort liability of the protections we are currently provided by workers’ compensation
laws could increase our liability for work-related injuries and materially and adversely affect our operating results.
Compliance with applicable federal, state and local laws and regulations may be costly and time-consuming and may
delay commencement or interrupt continuation of exploration or production at one or more of our operations. These laws are
constantly evolving and may become increasingly stringent. The ultimate impact of complying with existing laws and
regulations is not always clearly known or determinable due in part to the fact that certain implementing regulations for these
laws have not yet been promulgated and in certain instances are undergoing revision. These laws and regulations, particularly
new legislative or administrative proposals (or judicial interpretations of existing laws and regulations), could result in
substantially increased capital, operating and compliance costs and could have a material adverse effect on our operations and/
or, along with analogous foreign laws and regulations, our customers’ ability to use our products.
Due in part to the extensive and comprehensive regulatory requirements, along with changing interpretations of these
requirements, violations of applicable federal, state and local laws and regulations occur from time to time in our industry and
at our operations. Changes in the law may require an unprecedented compliance effort on our part, could divert management’s
attention, and may require significant expenditures. To the extent that these expenditures, as with all costs, are not ultimately
reflected in the prices of our products and services, operating results will be detrimentally impacted. We believe that our major
North American competitors are confronted by substantially similar conditions and thus do not believe that our relative position
with regard to such competitors is materially affected by the impact of safety and environmental laws and regulations.
However, the costs and operating restrictions necessary for compliance with safety and environmental laws and regulations,
which is a major cost consideration for our operations, may have an adverse effect on our competitive position with regard to
foreign producers and operators who may not be required to undertake equivalent costs in their operations. In addition, the
specific impact on each competitor may vary depending on a number of factors, including the age and location of its operating
facilities, applicable state legislation and its production methods.
Our mines are subject to stringent federal and state safety regulations that increase our cost of doing business at active
operations and may place restrictions on our methods of operation. In addition, federal, state or local regulatory agencies
have the authority to order certain of our mines to be temporarily or permanently closed under certain circumstances, which
could materially and adversely affect our ability to meet our customers’ demands.
The Mine Act and the MINER Act impose stringent health and safety standards on mining operations. Regulations that
have been adopted under the Mine Act and MINER Act are comprehensive and affect numerous aspects of mining operations,
including training of mining personnel, mining procedure, the equipment used in emergency procedures, and other matters.
Alabama has a similar program for mine safety and health regulation and enforcement. The various requirements mandated by
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law or regulation can place restrictions on our methods of operations, and potentially lead to fees and civil penalties for the
violation of such requirements, creating a significant effect on operating costs and productivity.
In addition, federal, state or local regulatory agencies have the authority under certain circumstances following
significant health and safety incidents, such as fatalities, to order a mine to be temporarily or permanently closed. If this
occurred, we may be required to incur capital expenditures to re-open the mine. In the event that these agencies order the
closing of our mines, our met coal sales contracts generally permit us to issue force majeure notices, which suspend our
obligations to deliver met coal under these contracts; however, our customers may challenge our issuances of force majeure
notices. If these challenges are successful, we may have to purchase met coal from third-party sources, if available, to fulfill
these obligations or incur capital expenditures to re-open the mines and/or negotiate settlements with the customers, which may
include price reductions, the reduction of commitments, and the extension of time for delivery or terminate customers’
contracts. Any of these actions could have a material adverse effect on our business and results of operations.
Increased focus by regulatory authorities on the effects of coal mining on the environment and recent regulatory
developments related to coal mining operations could make it more difficult or increase our costs to receive new permits or
to comply with our existing permits to mine met coal or otherwise adversely affect us.
Regulatory agencies are increasingly focused on the effects of coal mining on the environment, particularly relating to
water quality, which has resulted in more rigorous permitting requirements and enforcement efforts. See “Part I, Item 1.
Business-Environmental and Regulatory Matters” for a detailed discussion of these regulations and programs.
The SMCRA requires that comprehensive environmental protection and reclamation standards be met during the course
of and following completion of mining activities. Among other requirements, the SMCRA provides that the applicable
regulatory authority may not issue a permit unless the operation has been designed to prevent material damage to the
hydrologic balance outside the permit area. In 1983, the OSM issued rules providing that no land within 100 feet of a stream
shall be disturbed by surface mining activities, unless specifically authorized by the regulatory authority. On December 20,
2016, the OSM published a new, finalized “Stream Protection Rule,” setting standards for “material damage to the hydrologic
balance outside the permit area” that are applicable to surface and underground mining operations. However, on February 16,
2017, President Trump signed a joint congressional resolution disapproving the Stream Protection Rule pursuant to the
Congressional Review Act. Accordingly, the regulations in effect prior to the Stream Protection Rule now apply, including
OSM’s 1983 rule. It remains unclear whether and how additional actions by the Trump Administration could further impact
regulatory or enforcement activities pursuant to the SMCRA.
Section 404 of the Clean Water Act (“CWA”) requires mining companies to obtain USACE permits to place material in
streams for the purpose of creating slurry ponds, water impoundments, refuse areas, valley fills or other mining activities. As is
the case with other met coal mining companies, our construction and mining activities require Section 404 permits. The
issuance of permits to construct valley fills and refuse impoundments under Section 404 of the CWA has been the subject of
many court cases and increased regulatory oversight, resulting in additional permitting requirements that are expected to delay
or even prevent the opening of new mines. Stringent water quality standards for materials such as selenium have recently been
issued. We have begun to incorporate these new requirements into our current permit applications; however, there can be no
guarantee that we will be able to meet these or any other new standards with respect to our permit applications.
Additionally, in January 2011, the EPA rescinded a federal CWA permit held by another coal mining company for a
surface mine in Appalachia citing associated environmental damage and degradation. On April 23, 2013, the D.C. Circuit ruled
that the EPA has the power under the CWA to retroactively veto a Section 404 dredge and fill permit “whenever” it makes a
determination about certain adverse effects, even years after the USACE has granted the permit to an applicant. On March 24,
2014, the U.S. Supreme Court denied petitions for review. Subsequently, on July 19, 2016, the D.C. Circuit affirmed the district
court’s further ruling that the EPA’s decision to withdraw approval for disposal sites satisfied administrative requirements. The
D.C. Circuit held that the EPA’s ex post withdrawal was a product of its broad veto authority under the CWA, not a procedural
defect. While our operations are not directly impacted by this ruling, it could be an indication that other surface mining water
permits could be subject to more substantial review in the future.
Recent regulatory actions and court decisions have created some uncertainty over the scope of CWA jurisdiction. On
June 29, 2015, in response to a 2006 Supreme Court decision discussing the scope of CWA jurisdiction, the EPA and the
USACE jointly promulgated final rules redefining the scope of waters protected under the CWA, revising regulations that had
been in place for more than 25 years. The new rules may expand the scope of CWA jurisdiction, making more waters subject to
the CWA's permitting and other requirements in the case of discharges. The rules are subject to ongoing litigation and have
been stayed in more than half the States, including Alabama. Also, on December 11, 2018, the EPA and the USACE released a
proposed rule that would replace the 2015 rule, and significantly reduce the waters subject to federal regulation under the Clean
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Water Act. Such proposal is currently subject to public review and comment, after which additional legal challenges are
anticipated. It remains unclear whether and how the rules will be implemented, what litigation may result, and whether changes
proposed by the Trump Administration could further impact regulatory developments in this area.
It is unknown what future changes will be implemented to the permitting review and issuance process or to other
aspects of mining operations, but increased regulatory focus, future laws and judicial decisions could materially and adversely
affect all coal mining companies. In addition, the public, including non-governmental organizations, anti-mining groups and
individuals, have certain statutory rights to comment upon and submit objections to requested permits and environmental
impact statements prepared in connection with applicable regulatory processes, and otherwise engage in the permitting process,
including bringing citizens’ lawsuits to challenge the issuance of permits, the validity of environmental impact statements or
performance of mining activities.
In each jurisdiction in which we operate, we could incur additional permitting and operating costs, may be unable to
obtain new permits or maintain existing permits and could incur fines, penalties and other costs, any of which could materially
adversely affect our business. If met coal mining methods are limited or prohibited, it could significantly increase our
operational costs and make it more difficult to economically recover a significant portion of our reserves. In the event that we
cannot increase the price we charge for met coal to cover the higher production costs without reducing customer demand for
our met coal, there could be a material adverse effect on our financial condition and results of operations. In addition, increased
public focus on the environmental, health and aesthetic impacts of coal mining could harm our reputation and reduce demand
for met coal.
Regulation of greenhouse gas emissions could increase our operating costs and impact the demand for, price of and value
of our products.
Climate change continues to attract public and scientific attention, and increasing attention by government as well as
private businesses is being paid to reducing GHG emissions. There are three primary sources of GHGs associated with the met
coal industry. First, the end use of our met coal by our customers in steelmaking is a source of GHGs. Second, combustion of
fuel by equipment used in met coal production and to transport our met coal to our customers is a source of GHGs. Third, met
coal mining itself can release methane, which is considered to be a more potent GHG than CO2, directly into the atmosphere.
These emissions from met coal consumption, transportation and production are subject to pending and proposed regulation as
part of initiatives to address global climate.
There are many legal and regulatory approaches currently in effect or being considered to address GHGs, including
international treaty commitments, new foreign, federal and state legislation that may impose a carbon emissions tax or establish
a “cap and trade” program, and regulation by the EPA. See “Part I, Item 1. Business—Environmental and Regulatory Matters—
Climate Change” for a detailed discussion of these regulations and programs.
The existing laws and regulations or other current and future efforts to stabilize or reduce GHG emissions could
adversely impact the demand for, price of and value of our products and reserves. As our operations also emit GHGs directly,
current or future laws or regulations limiting GHG emissions could increase our own costs. For example, methane must be
expelled from our underground met coal mines for mining safety reasons. Methane has a greater GHG effect than carbon
dioxide. Although our natural gas operations capture methane from our underground met coal mines, some methane is vented
into the atmosphere when the met coal is mined. In June 2010, Earthjustice petitioned the EPA to make a finding that emissions
from coal mines may reasonably be anticipated to endanger public health and welfare, and to list them as a stationary source
subject to further regulation of emissions. On April 30, 2013, the EPA denied the petition. Judicial challenges seeking to force
the EPA to list coal mines as stationary sources have likewise been unsuccessful to date. If the EPA were to make an
endangerment finding in the future, we may have to further reduce our methane emissions, install additional air pollution
controls, pay certain taxes or fees for our emissions, incur costs to purchase credits that permit us to continue operations as they
now exist at our underground met coal mines or perhaps curtail met coal production. Although the potential impacts on us of
additional climate change regulation are difficult to reliably quantify, they could be material. Also, while President Trump
signed an executive order on March 28, 2017 directing the EPA and other executive agencies to review their existing
regulations, orders, guidance documents and policies that unnecessarily obstruct, delay, curtail or otherwise impose significant
costs on the development of energy resources, it remains unclear how and to what extent these executive actions and
subsequent agency actions will impact the regulation of GHG emissions at the federal level.
In addition, there have also been efforts in recent years to influence the investment community, including investment
advisors and certain sovereign wealth, pension and endowment funds promoting divestment of fossil fuel equities and
pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves. Such environmental activism
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and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities,
operations and ability to access capital.
In addition, claims have been made against certain companies alleging that GHG emissions constitute a public nuisance
under federal and/or state common law. Private individuals or public entities may seek to enforce environmental laws and
regulations against us and could allege personal injury, property damages or other liabilities. While we are not a party to any
such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could
significantly impact our operations and could have an adverse impact on our financial condition.
Further, climate change may cause more extreme weather conditions such as more intense hurricanes, thunderstorms,
tornadoes and snow or ice storms, as well as rising sea levels and increased volatility in seasonal temperatures. Extreme
weather conditions can interfere with our services and increase our costs, and damage resulting from extreme weather may not
be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased
storm or weather hazards affecting our operations.
Our operations may impact the environment or cause exposure to hazardous substances and our properties may have
environmental contamination, which could result in material liabilities to us.
Our operations currently use hazardous materials from time to time. We could become subject to claims for toxic torts,
natural resource damages and other damages as well as for the investigation and cleanup of soil, surface water, groundwater
and other media. Such claims may arise, for example, out of conditions at sites that we currently own or operate, as well as at
sites that we previously owned or operated, or may acquire. Our liability for such claims may be joint and several, so that we
may be held responsible for more than our share of the contamination or other damages, or even for the entire amount of
damages assessed.
We maintain extensive met coal refuse areas and slurry impoundments at our mining complexes. Such areas and
impoundments are subject to comprehensive regulation. Slurry impoundments have been known to fail, releasing large volumes
of met coal slurry into the surrounding environment. Structural failure of an impoundment can result in extensive damage to the
environment and natural resources, such as bodies of water that the met coal slurry reaches, as well as create liability for related
personal injuries, property damages and injuries to wildlife. Some of our impoundments overlie mined out areas, which can
pose a heightened risk of failure and the assessment of damages arising out of such failure. If one of our impoundments were to
fail, we could be subject to substantial claims for the resulting environmental contamination and associated liability, as well as
for related fines and penalties.
Drainage flowing from or caused by mining activities can be acidic with elevated levels of dissolved metals, a
condition referred to as AMD. Treatment of AMD can be costly. Although we do not currently face material costs associated
with AMD, it is possible that we could incur significant costs in the future.
These and other similar unforeseen impacts that our operations may have on the environment, as well as exposures to
hazardous substances or wastes associated with our operations, could result in costs and liabilities that could materially and
adversely affect us. See also “Part I, Item 1. Business—Environmental and Regulatory Matters.”
Failure to obtain or renew surety bonds on acceptable terms could affect our ability to secure reclamation and coal lease
obligations and, therefore, our ability to mine or lease met coal.
Federal and state laws require us to obtain surety bonds or post other financial security to secure performance or
payment of certain long-term obligations, such as mine closure or reclamation costs, federal and state workers’ compensation
and black lung benefits costs, coal leases and other obligations. The amount of security required to be obtained can change as
the result of new federal or state laws, as well as changes to the factors used to calculate the bonding or security amounts. We
may have difficulty procuring or maintaining our surety bonds. Our bond issuers may demand higher fees or additional
collateral, including letters of credit or other terms less favorable to us upon those renewals. Because we are required by state
and federal law to have these bonds or other acceptable security in place before mining can commence or continue, our failure
to maintain surety bonds, letters of credit or other guarantees or security arrangements would materially and adversely affect
our ability to mine or lease met coal. That failure could result from a variety of factors, including lack of availability, higher
expense or unfavorable market terms, the exercise by third-party surety bond issuers of their right to refuse to renew the surety
and restrictions on availability of collateral for current and future third-party surety bond issuers under the terms of our
financing arrangements.
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We have reclamation and mine closing obligations. If the assumptions underlying our accruals are inaccurate, we could be
required to expend greater amounts than anticipated.
The SMCRA establishes operational, reclamation and closure standards for our mining operations. Alabama has a state
law counterpart to SMCRA. We accrue for the costs of current mine disturbance and of final mine closure, including the cost of
treating mine water discharge where necessary. The amounts recorded are dependent upon a number of variables, including the
estimated future closure costs, estimated proven reserves, assumptions involving profit margins, inflation rates and the assumed
credit-adjusted risk-free interest rates. If these accruals are insufficient or our liability in a particular year is greater than
currently anticipated, our future operating results could be materially affected. We are also required to post bonds for the cost of
coal mine reclamation.
We and our owners and controllers are subject to the Applicant Violator System.
Under SMCRA and its state law counterparts, all coal mining applications must include mandatory “ownership and
control” information, which generally includes listing the names of our officers and directors, and our principal stockholders
owning 10% or more of our voting shares, among others. Ownership and control reporting requirements are designed to allow
regulatory review of any entities or persons deemed to have ownership or control of a coal mine, and bars the granting of a coal
mining permit to any applicant who, or whose owner or controller, has unabated or uncorrected violations.
A federal database, known as the Applicant Violator System, is maintained for this purpose. Certain relationships are
presumed to constitute ownership or control, including the following: being an officer or director of an entity; being the
operator of the coal mining operation; having the ability to commit the financial or real property assets or working resources of
the permittee or operator; based on the instruments of ownership or the voting securities of a corporate entity, owning of record
10% or more of the mining operator, among others. This presumption, in most cases, can be rebutted where the person or entity
can demonstrate that it in fact does not or did not have authority directly or indirectly to determine the manner in which the
relevant coal mining operation is conducted. An ownership and control notice must be filed by us each time an entity obtains a
10% or greater interest in us. If we have unabated violations of SMCRA or its state law counterparts, have a coal mining permit
suspended or revoked, or forfeit a reclamation bond, we and our “owners and controllers,” as discussed above, may be
prohibited from obtaining new coal mining permits, or amendments to existing permits, until such violations of law are
corrected. This is known as being “permit-blocked.” Additionally, if an “owner or controller” of us is an “owner or controller”
of another mining company, then, as such, we could be permit-blocked based upon the violations of or permit-blocked status of
such an “owner or controller” of us.
We may be subject to litigation, the disposition of which could negatively affect our profitability and cash flow in a
particular period, or have a material adverse effect on our business, financial condition and results of operations.
Our profitability or cash flow in a particular period could be affected by an adverse ruling in any litigation that may be
filed against us in the future. In addition, such litigation could have a material adverse effect on our business, financial
condition and results of operations. See “Part I, Item 3. Legal Proceedings.”
We are a holding company and rely on dividends and other payments, advances and transfers of funds from our subsidiaries
to meet any dividend and other obligations.
We are a holding company with no direct operations and no material assets other than our direct ownership of 100% of
the equity interests of Warrior Met Coal Intermediate Holdco, LLC, our wholly-owned holding company, through which we
indirectly hold our operating subsidiaries. As a result of this structure, our cash flow and ability to meet our obligations or to
pay any dividends on our common stock depend significantly on the cash flows of our subsidiaries and the payment of funds by
our subsidiaries to us in the form of dividends, loans and other payments. The ability of our subsidiaries to make such payments
or loans to us, however, depends on their earnings and available assets, the terms of our ABL Facility, the indenture governing
our 8.00% Senior Secured Notes due 2024 (the "Notes") and of any future agreements that may govern the indebtedness of our
subsidiaries, and legal restrictions applicable to our subsidiaries, and could be affected by a claim or other action by a third
party, including a creditor. To the extent we need funds and any of our subsidiaries are restricted from making such
distributions under applicable law or regulation or under the terms of their financing arrangements, or they are otherwise unable
to provide such funds, our liquidity and financial condition could be materially adversely affected.
We have a substantial amount of indebtedness. Our substantial indebtedness could adversely affect our ability to raise
additional capital to fund our operations and dividend policy, limit our ability to react to changes in the economy or our
industry and prevent us from making debt service payments on the Notes.
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As of December 31, 2019, we had approximately $374.9 million of outstanding indebtedness (consisting of $343.4
million of Notes, net of $4.2 million in unamortized debt discount, net, and $35.7 million of capital lease obligations), all of
which are secured, and $116.1 million of availability under our ABL Facility (subject to meeting the borrowing base and other
conditions therein).
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•
•
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Our substantial indebtedness could have important consequences for us. For example, it could:
restrict us from making strategic acquisitions, engaging in development activities, introducing new technologies or
exploiting business opportunities;
cause us to make non-strategic divestitures;
require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness,
thereby reducing funds available to us for other purposes, including the payment of quarterly dividends or any special
dividends, as well as engaging in any stock repurchases;
limit our flexibility in planning for, or reacting to, changes in our operations or business;
limit our ability to raise additional capital for working capital, capital expenditures, operations, debt service
requirements, strategic initiatives or other purposes;
limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to
borrow additional funds or dispose of assets;
prevent us from raising the funds necessary to repurchase all of the Notes tendered to us upon the occurrence of
certain changes of control, which failure to repurchase would constitute a default under the indenture governing the
Notes;
• make it more difficult for us to satisfy our obligations with respect to our indebtedness, including the Notes, and any
failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing
conditions could result in an event of default under the indenture governing the Notes and the agreements governing
other indebtedness;
• make us more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
• make us more vulnerable to downturns in our business or the economy; or
•
expose us to the risk of increased interest rates, as certain of our borrowings, including borrowings under the ABL
Facility, are at variable rates of interest and are based upon benchmarks that are subject to potential change or
elimination, including as a result of the FCA Announcement (as defined below).
In addition, our ABL Facility and the indenture governing the Notes contain restrictive covenants that limit our ability
to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants could result in an
event of default which, if not cured or waived, could result in the acceleration of substantially all of our indebtedness.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to
satisfy our obligations under our indebtedness that may not be successful.
Our ability to pay principal and interest on the Notes and to satisfy our other debt obligations will depend upon, among
other things:
•
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our future financial and operating performance (including the realization of any cost savings described herein), which
will be affected by prevailing economic, industry and competitive conditions and financial, business, legislative,
regulatory and other factors, many of which are beyond our control; and
our future ability to borrow under the ABL Facility, the availability of which depends on, among other things, our
complying with the covenants in the ABL Facility.
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We cannot assure you that our business will generate cash flow from operations, or that we will be able to draw under
the ABL Facility or otherwise, in an amount sufficient to fund our liquidity needs, including the payment of principal and
interest on the Notes.
If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay
capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness, including the Notes. These
alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to
restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time.
Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which
could further restrict our business operations. In addition, the terms of existing or future debt agreements, including the ABL
Facility and the indenture governing the Notes, may restrict us from adopting some of these alternatives. In the absence of such
operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets
or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair
market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet
our debt service obligations then due. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to
refinance our indebtedness on commercially reasonable terms or at all, could result in a material adverse effect on our business,
results of operations and financial condition and could negatively impact our ability to satisfy our obligations under the Notes.
If we cannot make scheduled payments on our indebtedness, we will be in default, and holders of the Notes could
declare all outstanding principal and interest to be due and payable, the lenders under the ABL Facility could terminate their
commitments to loan money, our secured lenders (including the lenders under the ABL Facility and the holders of the Notes)
could foreclose against the assets securing their loans and the Notes and we could be forced into bankruptcy or liquidation.
Despite our current indebtedness levels, we may still be able to incur substantially more debt, including secured
indebtedness.
As of December 31, 2019, we had approximately $374.9 million of total debt outstanding (consisting of $343.4 million
of Notes, net of $4.2 million in unamortized debt discount, net, and $35.7 million of capital lease obligations). Despite our
current indebtedness, we may be able to incur substantial additional debt in the future, including secured indebtedness. As of
December 31, 2019, we had $116.1 million of availability under our ABL Facility (calculated net of $8.95 million of letters of
credit outstanding at such time). Although covenants under the indenture governing the Notes and the ABL Facility will limit
our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and,
under certain circumstances, debt incurred in compliance with these restrictions could be substantial. Further, subsidiaries that
we designate as unrestricted subsidiaries can incur unlimited additional indebtedness that is structurally senior to the Notes. In
addition, the indenture governing the Notes and the ABL Facility will not limit us from incurring obligations that do not
constitute indebtedness as defined therein.
If we incur any additional indebtedness secured by liens that rank equally with those securing the Notes, including any
additional notes or term loan facilities, the holders of that indebtedness will be entitled to share ratably with the holders in any
proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of our
company. If new debt is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.
Additionally, we may recapitalize, incur additional indebtedness and take a number of other actions that could have the effect
of diminishing our ability to make payments on the Notes when due.
Our debt agreements contain restrictions that will limit our flexibility in operating our business.
The ABL Facility and the indenture governing the Notes contain, and any other existing or future indebtedness of ours
would likely contain, a number of covenants that will impose significant operating and financial restrictions on us, including
restrictions on our and our subsidiaries ability to, among other things:
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incur additional debt, guarantee indebtedness or issue certain preferred shares;
pay dividends on or make distributions in respect of, or repurchase or redeem, our capital stock or make other
restricted payments;
•
prepay, redeem or repurchase subordinated debt;
• make loans or certain investments;
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sell certain assets;
grant or assume liens;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into certain transactions with our affiliates;
alter the businesses we conduct;
enter into agreements restricting our subsidiaries’ ability to pay dividends; and
designate our subsidiaries as unrestricted subsidiaries.
As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be
unable to engage in favorable business activities or finance future operations or capital needs.
In addition, our ABL Facility requires us to maintain a minimum fixed charge coverage ratio at any time when the
average availability is less than a certain amount at such time. In that event, we must satisfy a minimum fixed charge ratio of
1.0 to 1.0.
A failure to comply with the covenants under the ABL Facility or any of our other future indebtedness could result in an
event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and
results of operations. In the event of any such event of default, the lenders thereunder:
• will not be required to lend any additional amounts to us;
•
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could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and
payable and terminate all commitments to extend further credit;
could require us to apply all of our available cash to repay these borrowings; or
could effectively prevent us from making debt service payments on the Notes (due to a cash sweep feature).
Such actions by the lenders under the ABL Facility could also cause cross defaults under our other indebtedness. If we
were unable to repay those amounts, the lenders under the ABL Facility could proceed against the collateral granted to them to
secure the ABL Facility. If any of our outstanding indebtedness under the ABL Facility or our other indebtedness, including the
Notes, were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.
Borrowings under our ABL Facility are at variable rates of interest and are based upon benchmarks that are subject to
potential change or elimination, including as a result of the FCA Announcement (as defined below), and therefore expose us to
interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even
though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our
indebtedness, will correspondingly decrease.
We may be unable to generate sufficient taxable income from future operations, or other circumstances could arise, which
may limit or eliminate our ability to utilize our significant tax NOLs or our deferred tax assets.
In connection with the Asset Acquisition consummated on March 31, 2016, we acquired deferred tax assets primarily
associated with NOLs attributable to Walter Energy's write-off of its investment in Walter Energy Canada Holdings, Inc. A
valuation allowance was established on our opening balance sheet at April 1, 2016 because it was more likely than not that a
portion of the acquired deferred tax assets would not be realized in the future. At December 31, 2017, we had a $312.5 million
valuation allowance established against our deferred income tax assets, which represented a full valuation allowance against
our net deferred income tax assets. For 2017, we recorded a pre-tax profit of $416.5 million; however, we remained in a three-
year cumulative loss position, had limited operating results as a new Company and given the industry's recent history of
significant losses concluded as of December 31, 2017 that another year of significant profitability was needed to support a
release of the valuation allowance.
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During 2018, we continued our trend of sustained profitability, recording a pre-tax profit of $471.0 million for the year.
During the fourth quarter of 2018, after considering all relevant factors, we concluded that our deferred income tax assets are
more likely than not to be realized. In evaluating the likelihood of utilizing our net deferred tax assets, the significant relevant
factors that we considered are: (1) our recent history of profitability; (2) growth in the U.S. and global economies; (3) estimate
of future HCC prices; (4) we moved from a three-year cumulative loss position to a cumulative income position for the first
time since we established the full valuation allowance; and (5) future impact of taxable temporary differences. Based on this
evaluation, at December 31, 2018, we released our valuation allowance against our net deferred income tax assets, primarily
resulting in the $225.8 million benefit in our provision for income taxes. As of December 31, 2019, after considering all
relevant factors, we concluded that our deferred income tax assets remain more likely than not to be realized and a valuation
allowance is not required.
Certain factors could change or circumstances could arise that could further limit or eliminate the amount of the
available NOLs to the Company, such as an ownership change or an adjustment by a tax authority. Also, certain circumstances,
including our failing to generate sufficient future taxable income from operations, could limit our ability to fully utilize our
deferred tax assets. Under the Internal Revenue Code of 1986, as amended (the "Code"), a company is generally allowed a
deduction for NOLs against its federal taxable income. At December 31, 2019, we had federal and state NOLs of
approximately $785.6 million and $860.3 million, respectively. These NOLs and income tax credit carryforwards collectively
represent a deferred tax asset of approximately $215.8 million.
Our NOLs are subject to adjustment on audit by the Internal Revenue Service (the “IRS”) and state authorities. The IRS
has not audited any of the tax returns for any of the years in which the losses giving rise to the NOLs were generated. Were the
IRS to challenge the size or availability of our NOLs and prevail in such challenge, all or a portion of our NOLs, or our ability
to utilize our NOLs to offset any future taxable income, may be impaired, which could have a significant negative impact on
our financial condition, results of operations and cash flows.
A company’s ability to deduct its NOLs and utilize certain other available tax attributes can be substantially constrained
under the general annual limitation rules of Section 382 of the Code if it undergoes an “ownership change” as defined in
Section 382 or if similar provisions of state law apply. We experienced an ownership change in connection with the Asset
Acquisition and as such, the limitations under Section 382 would generally apply unless an exception to such rule applies. An
exception to the limitation rules of Section 382 is applicable to certain companies under the jurisdiction of a bankruptcy court.
Due to certain uncertainties as to whether such exception applies to us, we filed a request for a private letter ruling from the
IRS on these points.
On September 18, 2017, the IRS issued to us a private letter ruling, which favorably resolved these uncertainties. Based
on such private letter ruling, we believe that there is no current limitation under Section 382 on the utilization of our NOLs to
shield our income from federal taxation. The private letter ruling was issued based on, among other things, certain facts and
assumptions, as well as certain representations, statements and undertakings provided to the IRS by us. If any of these material
facts, assumptions, representations, statements or undertakings are, or become, incorrect, inaccurate or incomplete, the private
letter ruling may be invalidated and our ability to rely on the conclusions reached therein could be jeopardized.
While we do not believe an ownership change has occurred since April 1, 2016, because the rules under Section 382 are
highly complex and actions of our stockholders which are beyond our control or knowledge could impact whether an
ownership change has occurred, we cannot give you any assurance that another Section 382 ownership change has not occurred
or will not occur in the future. As a result of our qualifying for the aforementioned exception, were we to have undergone a
subsequent ownership change prior to April 1, 2018, our NOLs would effectively be reduced to zero. An ownership change
after such date would severely limit our ability to utilize our NOLs and other tax attributes.
Certain transactions, including public offerings by us or our stockholders and redemptions may cause us to undergo an
“owner shift” which by itself or when aggregated with other owner shifts that we have undergone or will undergo could cause
us to experience an ownership change. Our certificate of incorporation contains transfer restrictions (the “382 Transfer
Restrictions”) to minimize the likelihood of an ownership change. See “-Risks Related to the Ownership of Our Common
Stock-Our common stock is subject to the 382 Transfer Restrictions under our certificate of incorporation and the Rights
Agreement which are intended to prevent a Section 382 “ownership change,” which if not complied with, could result in the
forfeiture of such stock and related distributions or substantial dilution of the stock ownership, respectively. Accordingly, this
may impact the market price of our common stock and discourage third parties from seeking strategic transactions with us that
could be beneficial to our stockholders.” The 382 Transfer Restrictions were originally set to expire in April 2020. Pursuant to
the amendment to the certificate of incorporation approved by the Company’s stockholders at the Company’s Annual Meeting
of Stockholders held on April 23, 2019, the Company will effect a three-year extension of the Transfer Restrictions, which will
become effective upon the filing of a certificate of amendment setting forth such amendment with the Secretary of State of the
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State of Delaware. In addition, on February 14, 2020, we adopted a NOLs rights agreement (the “Rights Agreement”) to
supplement the 382 Transfer Restrictions. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations-Recent Development-Rights Agreement.” We may engage in transactions or approve waivers of the
382 Transfer Restrictions or the Rights Agreement that may cause an ownership shift. In doing so, we expect to first perform
the calculations necessary to confirm that our ability to use our NOLs and other federal income tax attributes will not be
affected or otherwise determine that such transactions or waivers are in our best interests. For example, under certain
circumstances, the Board may determine it is in our best interest to exempt certain transactions from the operation of the 382
Transfer Restrictions and the Rights Agreement, if such transaction is determined not to be detrimental to the utilization of our
NOLs or otherwise in our best interests. These calculations are complex and reflect certain necessary assumptions.
Accordingly, it is possible that we could approve or engage in a transaction involving our common stock that causes an
ownership change and impairs the use of our NOLs and other federal income tax attributes. For more information, see “-Risks
Related to the Ownership of Our Common Stock-We could engage in or approve transactions involving our common stock that
adversely affect significant stockholders and our other stockholders.”
Terrorist attacks and cyber-attacks or other security breaches may negatively affect our business, financial condition and
results of operations and cash flows.
Our business is affected by general economic conditions, fluctuations in consumer confidence and spending, and
market liquidity, all of which can decline as a result of numerous factors outside of our control, such as terrorist attacks and acts
of war. Future terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the United States or its
allies, or military or trade disruptions affecting our customers could cause delays or losses in transportation and deliveries of
met coal to our customers, decreased sales of our met coal and extension of time for payment of accounts receivable from our
customers. Strategic targets such as energy-related assets may be at greater risk of future terrorist attacks than other targets in
the United States. It is possible that any, or a combination, of these occurrences could have a material adverse effect on our
business, financial condition and results of operations.
In addition, we have become increasingly dependent upon digital technologies, including information systems,
infrastructure and cloud applications and services, to operate our businesses, process and record financial and operating data,
communicate with our employees and business partners, analyze seismic and drilling information, estimate quantities of met
coal reserves, as well as other activities related to our businesses. As our dependence on digital technologies has increased, the
risk of cyber incidents, including both deliberate attacks and unintentional events, also has increased. A cyber-attack may
involve persons gaining unauthorized access to our digital systems for purposes of gathering, monitoring, releasing,
misappropriating or corrupting proprietary or confidential information, or causing operational disruption.
To that end, we have implemented security protocols and systems with the intent of maintaining the physical security of
our operations and protecting our and our counterparties’ confidential information and information related to identifiable
individuals against unauthorized access. Despite such efforts, we may be subject to security breaches, which could result in
unauthorized access to our facilities or the information that we are trying to protect. Unauthorized physical access to one of our
facilities or electronic access to our information systems could result in, among other things, unfavorable publicity, litigation by
affected parties, damage to sources of competitive advantage, disruptions to our operations, loss of customers, financial
obligations for damages related to the theft or misuse of such information and costs to remediate such security vulnerabilities,
any of which could have a substantial impact on our results of operations, financial condition or cash flows. Our insurance may
not protect us against such occurrences. While to date we have not experienced any material losses relating to cyber incidents,
as cyber incidents continue to evolve, we may be required to expend additional resources to continue to modify or enhance our
protective measures or to investigate and remediate any vulnerability to cyber incidents.
We may not recover our investments in our mining, exploration and other assets, which may require us to recognize
impairment charges related to those assets.
The value of our assets may be adversely affected by numerous uncertain factors, some of which are beyond our
control, including unfavorable changes in the economic environments in which we operate, lower-than-expected coal pricing,
technical and geological operating difficulties, an inability to economically extract our coal reserves and unanticipated
increases in operating costs. These may cause us to fail to recover all or a portion of our investments in those assets and may
trigger the recognition of impairment charges in the future, which could have a substantial impact on our results of operations.
Because of the volatile and cyclical nature of the U.S. and international coal markets, it is reasonably possible that our
current estimates of projected future cash flows from our mining assets may change in the near term, which may result in the
need for adjustments to the carrying value of our assets.
42
Changes in the method pursuant to which LIBOR rates are determined and potential phasing out of LIBOR after 2021 may
affect our financial results.
The United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, has recently announced that the
FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 (the “FCA Announcement”).
The FCA Announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after
2021. Following the implementation of any reforms to LIBOR or the methods pursuant to which LIBOR rates are determined,
or other benchmark rates that may be enacted in the United Kingdom or elsewhere, the manner of administration of such
benchmarks may change, with the result that such benchmarks may perform differently than in the past, such benchmarks could
be eliminated entirely, or there could be other consequences which cannot be predicted. If the Agent under our ABL Facility
determines, or the lenders holding more than a majority of the outstanding loans and commitments under the ABL Facility
notify the Agent, that (i) adequate and reasonable means do not exist for ascertaining LIBOR for any requested interest period,
or (ii) the FCA or any governmental authority having jurisdiction over the Agent has made a public statement identifying a
specific date after which LIBOR shall no longer be made available, or used for determining the interest rate of loans, then the
Agent and Company may mutually agree to amend the ABL Facility to replace LIBOR with an alternate benchmark rate that
has been broadly accepted by the syndicated loan market in the United States in lieu of LIBOR (any such proposed rate, a
“LIBOR Successor Rate”). We can give no assurance that we and the Agent will be able to agree on a LIBOR Successor Rate.
If the Agent and the Company cannot mutually agree on a LIBOR Successor Rate, the obligation of the Lenders to make or
maintain LIBOR loans shall be suspended and LIBOR loans incurred under the ABL Facility will be deemed to have converted
to loans that bear interest based on the base rate.
Risks Related to the Ownership of our Common Stock
The market price of our common stock may fluctuate significantly and investors in our common stock could incur
substantial losses.
The market price of our common stock could fluctuate significantly due to a number of factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our quarterly or annual earnings, or those of other companies in our industry;
actual or anticipated fluctuations in our operating and financial results, including reserve estimates;
changes in accounting standards, policies, guidance, interpretations or principles;
the public reaction to our press releases, our other public announcements and our filings with the SEC;
announcements by us or our competitors of significant acquisitions, dispositions or innovations;
changes in financial estimates and recommendations by securities analysts following our stock, or the failure of
securities analysts to cover our common stock;
changes in earnings estimates by securities analysts or our ability to meet those estimates;
the operating and stock price performance of other comparable companies;
declaration of bankruptcy by any of our customers or competitors;
general economic conditions and overall market fluctuations, including changes in the price of met coal, steel or other
commodities;
additions or departures of key management personnel;
actions by our stockholders;
the trading volume of our common stock;
sales of our common stock by us or the perception that such sales may occur; and
43
•
changes in business, legal or regulatory conditions, or other developments affecting participants in, and publicity
regarding, the met coal mining business, the domestic steel industry or any of our significant customers.
In particular, the realization of any of the risks described in these “Risk Factors” could have a material and adverse
impact on the market price of our common stock in the future and cause the price of our stock to decline. In addition, the stock
market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our
actual performance. In the past, following periods of volatility in the market price of a company’s securities, stockholders have
often instituted securities class action litigation against the company. If we were to be involved in a class action lawsuit, it
could divert the attention of senior management, and, if adversely determined, have a material adverse effect on our business,
results of operations and financial condition.
If securities or industry analysts adversely change their recommendations regarding our stock or if our operating results do
not meet their expectations, our stock price could decline.
The trading market for our common stock could be influenced by the research and reports that industry or securities
analysts may publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish
reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading
volume to decline. Moreover, if one or more of the analysts who cover our company downgrade our stock or if our operating
results do not meet their expectations, our stock price could decline.
Any declaration and payment of future dividends to holders of our common stock may be limited by restrictive covenants of
our ABL Facility and the indenture governing the Notes, and will be at the sole discretion of the Board and will also depend
on many factors.
Any declaration and payment of future dividends to holders of our common stock may be limited by restrictive
covenants of our ABL Facility and the indenture governing the Notes, and will be at the sole discretion of the Board and will
depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, borrowing
availability under our ABL Facility, statutory and contractual restrictions applying to the payment of dividends and other
considerations that the Board deems relevant. The terms of our ABL Facility and the indenture governing the Notes may restrict
our ability to pay cash dividends on our common stock. We are prohibited from paying any cash dividend on our common stock
unless we satisfy certain conditions. Furthermore, we are permitted under the terms of our ABL Facility and the indenture
governing the Notes to incur additional indebtedness, the terms of which may severely restrict or prohibit the payment of
dividends and the associated debt service may impact our ability to satisfy the conditions for paying dividends under our ABL
Facility and the indenture governing the Notes. The agreements governing our current and future indebtedness may not permit
us to pay dividends on our common stock.
The requirements of being a public company may strain our resources, increase our costs and divert management’s
attention from our business, and we may be unable to comply with these requirements in a timely or cost-effective manner.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that
we did not incur as a private company. We incur costs associated with our public company reporting requirements pursuant to
the Exchange Act. We are required to ensure that we have the ability to prepare financial statements that comply with SEC
reporting requirements on a timely basis. We are also subject to other reporting and corporate governance requirements,
including the listing standards of the New York Stock Exchange (“NYSE”) and certain provisions of The Sarbanes-Oxley Act
of 2002 (the “Sarbanes-Oxley Act”) and the regulations promulgated thereunder, which impose significant compliance
obligations upon us.
Specifically, since the IPO, we have been required to:
prepare and distribute periodic reports and other stockholder communications in compliance with our obligations
under the federal securities laws and NYSE rules;
create or expand the roles and duties of the Board and committees of the board;
institute compliance and internal audit functions that are more comprehensive;
•
•
•
44
•
•
•
evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment
thereof, in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and
regulations of the SEC and the Public Company Accounting Oversight Board;
enhance our investor relations function;
establish or amend internal policies, including those relating to disclosure controls and procedures as well as insider
trading; and
•
involve and retain outside legal counsel and accountants in connection with the activities listed above.
As a public company, we are required to commit significant resources and board and management oversight to the
above-listed requirements, which cause us to incur significant costs and which place a strain on our systems and resources. As a
result, the attention of the Board and management might be diverted from other business concerns. In addition, we might not be
successful in implementing these requirements. In addition, we also expect these rules and regulations may make it more
difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified individuals to serve on the Board or as executive officers.
We are subject to the requirements of Section 404 of the Sarbanes-Oxley Act. The ongoing costs related to developing and
maintaining internal controls over financial reporting could be significant and our profitability, stock price, results of
operations and financial condition could be materially adversely affected.
We are required to comply with the provisions of Section 404 of the Sarbanes-Oxley Act. Section 404 requires that
we include management's assessment of our internal control over financial reporting in our annual reports. In addition, Section
404 requires that our independent registered public accounting firm attest to our internal controls in such annual report. During
the course of our ongoing evaluation of internal control over financial reporting, we may identify areas requiring improvement,
and we may have to design enhanced processes and controls to address issues identified through this review. We believe that
the out-of-pocket costs, the diversion of management's attention from running the day-to-day operations and operational
changes caused by the need to comply with the requirements of Section 404 of the Sarbanes-Oxley Act could be significant.
If we fail to comply with the requirements of Section 404, or if at any time we or our auditors identify and report any
material weaknesses in internal control over financial reporting, the accuracy and timeliness of the filing of our annual and
quarterly reports may be materially and adversely affected (which, in some cases, could result in a restatement of our financial
statements) and could cause investors to lose confidence in the accuracy and completeness of our reported financial
information, which could have a negative effect on the trading price of our common stock. In addition, a material weakness in
the effectiveness of our internal control over financial reporting could result in an increased chance of fraud, reputational harm
and the loss of customers, reduce our ability to obtain financing, subject us to investigations by the NYSE, the SEC or other
regulatory authorities and require additional expenditures and management attention to address these matters, each of which
could have a material adverse effect on our business, results of operations, financial condition and the trading price of our
common stock.
The market price of our common stock could decline as a result of the sale or distribution of a large number of shares of
our common stock in the market or the perception that a sale or distribution could occur. These factors also could make it
more difficult for us to raise funds through future offerings of our common stock.
Sales of substantial amounts of our common stock in the public market, or the perception that those sales might occur,
could materially affect the market price of our common stock.
In the future, we may issue common stock for a number of reasons, including to finance our operations and business
strategy, to adjust our ratio of debt to equity, or to provide incentives pursuant to certain executive compensation arrangements.
Such future issuances of equity securities, or the expectation that they will occur, could cause the market price for our common
stock to decline. The price of our common stock also could be affected by hedging or arbitrage trading activity that may exist or
develop involving our common stock.
Further, we filed a registration statement with the SEC on Form S-8 providing for the registration of shares of our
common stock issued or reserved for issuance under our 2017 Equity Incentive Plan. Subject to the satisfaction of vesting
45
conditions, shares registered under the registration statement on Form S-8 will be available for resale immediately in the public
market without restriction, subject to Rule 144 limitations with respect to affiliates.
An investor’s percentage ownership in us may be diluted by future issuances of capital stock or securities or instruments
that are convertible into our capital stock, which could reduce its influence over matters on which stockholders vote.
The Board has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but
unissued shares of common stock, including shares issuable upon the exercise of options, shares that may be issued to satisfy
our obligations under our incentive plans, shares of our authorized but unissued preferred stock and securities and instruments
that are convertible into our common stock. Issuances of common stock or voting preferred stock would reduce an investor’s
influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, likely would result in its
interest in us being subject to the prior rights of holders of that preferred stock.
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or
series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our
common stock respecting dividends and distributions, as the Board may determine. The terms of one or more classes or series
of preferred stock could adversely impact the voting power or value of our common stock. In addition, the issuance of such
preferred stock could make it more difficult for a third party to acquire us. For example, we might grant holders of preferred
stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto
specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of
preferred stock could affect the residual value of the common stock. On February 14, 2020, the Company entered into the
Rights Agreement. In connection with the adoption of the Rights Agreement, the Board approved a certificate of designations
of Series A Junior Participating Preferred Stock designating 140,000 shares of preferred stock, which was filed on February 14,
2020 with the Secretary of State of the State of Delaware and became effective on such date. See “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations-Recent Development-Designation of
Series A Junior Participating Preferred Stock.”
Our common stock is subject to the 382 Transfer Restrictions under our certificate of incorporation and the Rights
Agreement which are intended to prevent a Section 382 “ownership change,” which if not complied with, could result in the
forfeiture of such stock and related dividends or substantial dilution of the stock ownership, respectively. Accordingly, this
may impact the market price of our common stock and discourage third parties from seeking strategic transactions with us
that could be beneficial to our stockholders.
Our certificate of incorporation contains certain transfer restrictions on our shares, which we refer to as the “382
Transfer Restrictions.” The 382 Transfer Restrictions are intended to prevent the likelihood that we will be deemed to have an
“ownership change” within the meaning of Section 382 of the Code that could limit or eliminate our ability to utilize significant
NOLs and other federal income tax attributes under and in accordance with the Code and regulations promulgated by the IRS.
In particular, without the approval of the Board, no person or group of persons treated as a single entity under Treasury
Regulation Section 1.382-3 will be permitted to acquire, whether directly, indirectly or constructively, and whether in one
transaction or a series of related transactions, any of our common stock or any other instrument treated as stock for purposes of
Section 382, to the extent that after giving effect to such purported acquisition (a) the purported acquirer, or any other person by
reason of the purported acquirer’s acquisition, would become a Substantial Holder (as defined below), or (b) the percentage of
ownership of our common stock by a person that, prior to giving effect to the purported acquisition, is already a Substantial
Holder would be increased. A “Substantial Holder” is a person that owns (as determined for purposes of Section 382 of the
Code) at least 4.99% of the total value of our common stock, including any instrument treated as stock for purposes of Section
382 of the Code.
Furthermore, under our certificate of incorporation, the Board has the sole power to determine compliance with the 382
Transfer Restrictions and we cannot assure you that the Board will concur with any conclusions reached by any holder of our
securities or their respective advisors, and/or approve or ratify any proposed acquisitions of our securities. If the Board
determines that a Prohibited Transfer (as defined in our certificate of incorporation) has occurred, such Prohibited Transfer
shall, to the fullest extent permitted by law, be void ab initio and have no legal effect, and upon written demand by us, the
Purported Transferee (as defined in the certificate of incorporation) shall disgorge or cause to be disgorged our securities,
together with any dividends or distributions received, with respect to such securities.
46
On February 14, 2020, we adopted the Rights Agreement to supplement the 382 Transfer Restrictions. In general terms,
the Rights Agreement works by imposing a significant penalty upon any person or group that acquires 4.99% or more of the
outstanding common stock or any existing stockholder who currently owns 5.00% or more of the common stock that acquires
any additional shares of common stock (such person, group or existing stockholder, an "Acquiring Person") without the
approval of the Board. Under the Rights Agreement, from and after February 28, 2020, each share of our common stock carries
with it one preferred share purchase right until the earlier of the date when the preferred share purchase rights become
exercisable or expire. The Rights Agreement also gives discretion to the Board to determine that someone is an Acquiring
Person even if they do not own 4.99% or more of the outstanding common stock but do own 4.99% or more in value of the
Company’s outstanding stock, as determined pursuant to Section 382 of the Code and the regulations promulgated thereunder.
In addition, the Board has established procedures to consider requests to exempt certain acquisitions of the Company’s
securities from the Rights Agreement if the Board determines that doing so would not limit or impair the availability of the
NOLs or is otherwise in the best interests of the Company. See “Part II, Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations-Recent Development-Rights Agreement.
The 382 Transfer Restrictions and the Rights Agreement may make our stock less attractive to large institutional
holders and limit the price that investors might be willing to pay for shares of our common stock and otherwise have an adverse
impact on the market for our common stock. In addition, these restrictions could discourage a third party from proposing a
change of control or other strategic transaction concerning the Company or otherwise have the effect of delaying or preventing
a change of control of the Company that other stockholders may view as beneficial. Because of the complexity of applying
Section 382, and because the determination of ownership for purposes of Section 382 does not correspond to SEC beneficial
ownership reporting on Schedules 13D and 13G, stockholders and potential acquirers of our securities should consult with their
legal and tax advisors prior to making any acquisition of our securities that could implicate the 382 Transfer Restrictions.
We could engage in or approve transactions involving our common stock that adversely affect significant stockholders and
our other stockholders.
Under the 382 Transfer Restrictions that are contained in our certificate of incorporation and the Rights Agreement, our
4.99% stockholders will effectively be required to seek the approval of, or a determination by, the Board before they engage in
certain transactions involving our common stock. Furthermore, we could engage in or approve transactions involving our
common stock that limit our ability to approve future transactions involving our common stock by our 4.99% stockholders
without impairing the use of our federal income tax attributes. In addition, we could engage in or approve transactions
involving our common stock that cause stockholders owning less than 4.99% to become 4.99% stockholders, resulting in those
stockholders’ having to either disgorge our securities, and any dividends or distributions related to such securities, in
accordance with the 382 Transfer Restrictions or seek the approval of, or a determination by, the Board before they could
engage in certain future transactions involving our common stock.
Provisions in our certificate of incorporation and bylaws and Delaware law, as well as the Rights Agreement, make it more
difficult to effect a change in control of the Company, which could adversely affect the price of our common stock.
The existence of some provisions in our certificate of incorporation and bylaws and Delaware corporate law, as well as
the Rights Agreement, could delay or prevent a change in control of our company, even if that change would be beneficial to
our stockholders. Our certificate of incorporation and bylaws contain provisions that may make acquiring control of our
company difficult, including:
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•
•
•
the Board's ability to issue, from time to time, one or more series of preferred stock and, with respect to each such
series, to fix the terms thereof by resolution;
provisions relating to the appointment of directors upon an increase in the number of directors or vacancy on the
Board;
provisions requiring stockholders to hold at least a majority of our outstanding common stock in the aggregate to
request special meetings;
provisions that restrict transfers of our stock (including any other instruments treated as stock for purposes of Section
382) that could limit our ability to utilize NOLs;
provisions that provide that the doctrine of “corporate opportunity” will not apply with respect to the Company, to any
of our stockholders or directors, other than any stockholder or director that is an employee, consultant or officer of
ours; and
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•
provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals for
consideration at meetings of stockholders.
In addition, we have elected to opt out of Section 203 of the Delaware General Corporation Law ("DGCL"), which,
subject to some exceptions, prohibits business combinations between a Delaware corporation and an interested stockholder,
which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s
voting stock for a three-year period following the date that the stockholder became an interested stockholder.
These provisions also could discourage proxy contests and make it more difficult for you and other stockholders to
elect directors and take other corporate actions. As a result, these provisions could make it more difficult for a third party to
acquire us, even if doing so would benefit our stockholders, which may limit the price that investors are willing to pay in the
future for shares of our common stock.
Our certificate of incorporation designates courts in the State of Delaware as the sole and exclusive forum for certain types
of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers or other employees.
Our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of
Delaware will be the sole and exclusive forum for:
•
•
•
any derivative action or proceeding brought on our behalf;
any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us
or our stockholders;
any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation
or bylaws; or
•
any other action asserting a claim against us that is governed by the internal affairs doctrine.
In addition, our certificate of incorporation provides that if any action specified above (each is referred to herein as a
“covered proceeding”), is filed in a court other than the specified Delaware courts without the approval of the Board (each is
referred to herein as a foreign action), the claiming party will be deemed to have consented to (i) the personal jurisdiction of the
specified Delaware courts in connection with any action brought in any such courts to enforce the exclusive forum provision
described above and (ii) having service of process made upon such claiming party in any such enforcement action by service
upon such claiming party’s counsel in the foreign action as agent for such claiming party.
These provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers
and employees. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or
unenforceable in respect of, one or more of the covered proceedings, we may incur additional costs associated with resolving
such matters in other jurisdictions, which could adversely affect our business and financial condition.
The related party transactions and corporate opportunities provisions in our certificate of incorporation permit us to enter
into transactions in which one or more of our directors or officers may be a party to or may be interested in and could
enable our non-employee directors or stockholders and their affiliates to benefit from corporate opportunities that might
otherwise be available to us.
Subject to the limitations of applicable law, our certificate of incorporation, among other things:
•
•
permits us to enter into contracts and transactions in which one or more of our officers or directors may be a party to
or may be financially or otherwise interested in so long as such contract or transaction is approved by the Board in
accordance with the DGCL;
permits any of our stockholders or non-employee directors and their affiliates to engage in a corporate opportunity in
the same or similar business activities or lines of business in which we engage or propose to engage, compete with us
and to make investments in any kind of property in which we may make investments and will not be deemed to have
(i) acted in a manner inconsistent with his or her fiduciary or other duties to us regarding the opportunity, (ii) acted in
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bad faith or in a manner inconsistent with our best interests or (iii) be liable to us or our stockholders for breach of any
fiduciary duty by reason of the fact that they have engaged in such activities; and
•
provides that if any of our stockholders, non-employee directors or their affiliates acquire knowledge of a potential
business opportunity, transaction or other matter (other than one expressly offered to any non-employee director in
writing solely in his or her capacity as our director ), such stockholder, non-employee director or affiliate will have no
duty to communicate or offer that opportunity to us, and will be permitted to pursue or acquire such opportunity or
offer that opportunity to another person and will not be deemed to have (i) acted in a manner inconsistent with his or
her fiduciary or other duties to us regarding the opportunity, (ii) acted in bad faith or in a manner inconsistent with our
best interests or (iii) be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that they
have pursued or acquired such opportunity or offered the opportunity to another person.
Our stockholders or their affiliates, or our non-employee directors, may become aware, from time to time, of certain
business opportunities (such as acquisition opportunities) and may direct such opportunities to other businesses in which they
have invested, in which case we may not become aware of or otherwise have the ability to pursue such opportunity. Further,
such businesses may choose to compete with us for these opportunities, possibly causing these opportunities to not be available
to us or causing them to be more expensive for us to pursue. As a result, our renouncing our interest and expectancy in any
business opportunity that may be from time to time presented to our stockholders and their affiliates, or our non-employee
directors, could adversely impact our business or prospects if attractive business opportunities are procured by such parties for
their own benefit rather than for ours.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
The following map shows the major locations of our mining operations.
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Our administrative headquarters and production facilities as of December 31, 2019 were as follows:
Business Unit/Location
(State/County/Town)
Warrior Met Coal Mining, LLC
Principal Operations
Administrative headquarters & mine
support facilities
Coal mines, mine support facilities, land
holdings & barge loadout
Alabama/Tuscaloosa/
Brookwood
Alabama/Jefferson &
Tuscaloosa/Adger &
Brookwood
Alabama/Mobile/Mobile
Warrior Met Coal BCE, LLC
Alabama/Jefferson/Adger
Alabama/Tuscaloosa/Whitson
Warrior Met Coal Gas, LLC
Administrative headquarters, mine support
facilities & real estate
—
—
1,471
Real estate
Coal mines & land holdings
—
26,194
223
2,112
—
—
—
2,360
Land Acreage
Building Square
Footage
Leased Owned
Leased Owned
—
—
— 673,084
20,487
46,910
—
—
—
Alabama/Tuscaloosa/Tuscaloosa Administrative headquarters & mine support
facilities
Natural gas fields-developed
Alabama/Tuscaloosa & Fayette /
Various
10
87,442
28
—
— 15,425
—
—
Real estate
Real estate-mineral interest only
— 21,008
— 170,061
400
—
12,430
—
Warrior Met Coal Land, LLC
Alabama/Various/Various
Alabama/Various/Various
Warrior Met Coal TRI, LLC
Alabama/Tuscaloosa/
Brookwood
Warrior Met Coal LA, LLC
Louisiana/Terrebonne/Houma
Warrior Met Coal WV, LLC
Real estate
Real estate
West Virginia/Various/Various
West Virginia/Various/Various
Real estate
Real estate-mineral interest only
—
—
—
—
187
1,304
2,510
3,740
—
—
—
—
—
—
—
—
Estimated Recoverable Coal Reserves
The estimates of our proven and probable reserves as of December 31, 2019 included in this Annual Report (i) for our
Mine No. 4 and Mine No. 7 were prepared by Marshall Miller, (ii) for our Blue Creek mine were prepared by Stantec, and (iii)
for our other mining properties described in this Annual Report were prepared by McGehee Engineering Corp. ("McGehee").
Within Marshall Miller, the technical person primarily responsible for preparing the estimates of our proven and probable
reserves for our Mine No. 4 and Mine No. 7 is K. Scott Keim. Within Stantec, the technical person primarily responsible for
preparing the estimates of our proven and probable reserves for our Blue Creek mine is Kevin Whipkey. Within McGehee, the
technical person primarily responsible for preparing the estimates of our proven and probable reserves for our mining
properties owned by Warrior Met Coal TRI, LLC and Warrior Met Coal Land, LLC is Sanford M. Hendon.
We maintain an internal staff of engineers and geoscience professionals who worked closely with our independent
reserve engineers to ensure the integrity, accuracy and timeliness of the data used to calculate our estimated reserves. Our
internal technical team members meet with our independent reserve engineers periodically to discuss the assumptions and
methods used in the proved reserve estimation process. We provide historical information to the independent reserve engineers
for our properties, such as ownership interest, production, test data, commodity prices and operating and development costs.
These estimates are based on engineering, economic and geologic data, coal ownership information and current and
proposed mine plans. Our proven and probable coal reserves are reported as “recoverable coal reserves,” which is the portion of
the coal that could be economically and legally extracted or produced at the time of the reserve determination, taking into
51
account mining recovery and preparation plant yield. These estimates are periodically updated to reflect past coal production,
new drilling information and other geologic or mining data. Acquisitions or dispositions of coal properties will also change
these estimates. Changes in mining methods may increase or decrease the recovery basis for a coal seam, as will changes in
preparation plant processes.
“Reserves” are defined by the SEC Industry Guide 7 as that part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination. Industry Guide 7 divides reserves between “proven
(measured) reserves” and “probable (indicated) reserves,” which are defined as follows:
•
•
“Proven (Measured) Reserves.” Reserves for which (a) quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the
sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that
size, shape, depth and mineral content of reserves are well-established.
“Probable (Indicated) Reserves.” Reserves for which quantity and grade and/or quality are computed from information
similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther
apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven
(measured) reserves, is high enough to assume continuity between points of observation.
As of December 31, 2019, we had estimated reserves totaling 218.8 million metric tons, of which 111.8 million metric
tons, or 51.1%, were “assigned” recoverable reserves that were either being mined, were controlled and accessible from a then
active mine, or located at idled facilities where limited capital expenditures would be required to initiate operations when
conditions warrant. The remaining 107.0 million metric tons were classified as “unassigned,” representing coal at currently
non-producing locations that we anticipate mining in the future, but which would require significant additional development
capital before operations could begin.
Our reserve estimates are predicated on engineering, economic, and geological data assembled and analyzed by
internal engineers, geologists and finance associates, as well as third-party consultants. We update our reserve estimates
annually to reflect past coal production, new drilling information and other geological or mining data, and acquisitions or sales
of coal properties.
52
The following table provides the location and coal reserves associated with each mine or potential mine as of
December 31, 2019:
As of December 31, 2019
(in thousands of metric tons)(1)
Type(7)
Status of
Operation(6)
Coal Bed
Assigned/
Unassigned(4)
Reserves(2)
Proven(3)
Probable(3)
Owned
Leased
Recoverable Reserves(2)
Reserve Control(5)
Location/Mine
Alabama:
Warrior Met Coal Mining,
LLC
No. 4
U
Production
Blue Creek/
Mary Lee
Blue Creek/
Mary Lee
Assigned
44,894
44,807
87
— 44,894
Assigned
60,360
43,182
17,178
440
59,920
Production
No. 7
U
Warrior Met Coal BCE, LLC
U
Blue Creek
Warrior Met Coal TRI, LLC
Carter/Swann’s Crossing(8)
S
Warrior Met Coal Land, LLC
S
S
S
S
S
S
S
U
Beltona East
Bull Gap Mine
Carter West
Howton
Kimberly
Morris(8)
Searles 8 & 10(8)
Searles BW-UG
Exploration
Mary Lee
Unassigned
103,042
64,309
38,733
2,624
100,418
Idled
Brookwood Assigned
2,866
2,866
—
2,866
Development Black Creek Unassigned
Unassigned
Development
Unassigned
Development
Idled
Brookwood Unassigned
Development Black Creek Assigned
Mary Lee
Production
Assigned
Brookwood Assigned
Production
Exploration
Unassigned
1,013
1,013
624
8
271
128
3,615
17
1,944
624
8
271
128
3,615
17
1,944
—
—
—
—
—
—
—
—
1,013
624
8
271
128
3,615
17
1,944
—
—
—
—
—
—
—
—
—
Total Alabama
Total Warrior Met Coal
218,782
162,784
55,998
13,550
205,232
218,782
162,784
55,998
13,550
205,232
(1) 1 metric ton is equivalent to 1.102311 short tons.
(2) Reserves are that part of a mineral deposit which can be economically and legally extracted or produced at the time of the reserve
determination. Recoverable reserves represent the amount of proven and probable reserves that can actually be recovered taking into
account all mining and preparation losses involved in producing a saleable product using existing methods under current law.
Recoverable reserve estimates incorporate losses for dilution and mining recovery based upon a 95% longwall recovery, 35% to 40%
continuous miner recovery and a 95% preparation plant efficiency. The ranges of met coal sales prices used to assess our reserves were
$103 and $93 per metric ton (which represents a 3-year average between 2014 and 2016) at Mine No. 4 and Mine No. 7, respectively,
and $117 per metric ton at Blue Creek. We believe that the ranges of met coal sales prices used to assess our reserves exclude favorable
changes in met coal prices since such time. For example, our average net selling price per metric ton realized for Mine No. 4 and Mine
No. 7 for the year ended December 31, 2019 was $170.72 per metric ton and at the time of the Blue Creek reserve study was $195 per
metric ton. Our mineral reserves were also assessed using a historical three year average met coal sales price to determine the reserves
were economical. Mine No. 4 and Mine No. 7 proven reserves were estimated within a 3/4 mile radius from point of measurement with
thickness and representative coal quality and probable reserves were estimated within a 3/4 mile radius from a point of measurement
with thickness but no representative coal quality. Mine No. 4 and Mine No. 7 mineral reserves were estimated within an accuracy
threshold of plus or minus 15 percent which represents the margin of error of a standard final feasibility study. Blue Creek and our
surface mines proven reserves were estimated within a 3/4 mile radius from point of measurement. Blue Creek mineral reserves were
estimated within an accuracy threshold of plus or minus 25 percent which represents the margin of error of a standard pre-feasibility
study. Blue Creek is an adjacent property to our existing operating Mines No. 7 and No. 4 and could allow for either a continuation of
current production levels or allow for additional tons to be brought to market. This property has similar mining conditions, measured
geology and the ability to utilize equipment and infrastructure from our current operations.
(3) Reserves are further categorized as Proven (Measured) and Probable (Indicated) as defined by SEC Industry Guide 7 as follows: Proven
(Measured) Reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill
holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites of inspection, sampling and measurement
are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-
established. Probable (Indicated) Reserves are reserves for which quantity and grade and/or quality are computed from information
similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are
53
otherwise less adequately spaced. The degree of assurance, although lower than for proven (measured) reserves, is high enough to
assume continuity between points of observation.
(4) “Assigned” reserves represent recoverable reserves that are either currently being mined, reserves that are controlled and accessible from
a currently active mine or reserves at idled facilities where limited capital expenditures would be required to initiate operations.
“Unassigned” reserves represent coal at currently non-producing locations that would require significant additional capital spending
before operations begin.
(5) “Reserve Control” of recoverable reserves is either through direct ownership of the property or through third-party leases. Third-party
leases have initial terms extending up to 30 years and generally provide for terms or renewals through the anticipated life of the
associated mine. These renewals are conditioned upon the payment of minimum royalties. Under current mining plans, assigned reserves
reported will be mined out within the period of existing leases or within the time period of probable lease renewal periods. All
recoverable reserves reported are either 100% owned or controlled through lease agreements.
(6) The “Status of Operation” for each mine is classified as follows: Exploration-mines where exploration has been conducted sufficient to
define recoverable reserves, but the mine is not yet in development or production stage; Development-an established commercially
minable deposit (reserves) is being prepared for extraction but that is not yet in production; Production-the mine is actively operating;
Idled -previously active mines that have been idled until such time as reinitiating operations are considered feasible. If conditions
warrant, the mines could be re-opened with less capital investment than would be required to develop a new mine.
(7) Type of Mine: U = Underground; S = Surface
(8) Reserve is leased to a third party, royalty is collected by us from the third party and we have first right of refusal to purchase mined
product if we elect to exercise the right.
The following table provides a summary of the quality of our reserves as of December 31, 2019:
Estimated Recoverable Coal Reserves (Continued)
As of December 31, 2019
(in thousands of metric tons)(1)
Location/Mine
Reserves
Type(2)
% Ash
% Sulfur
BTU/lb.
(in Feet)
Quality
Average
Coal
Seam
Thickness
Date Mine:
Acquired/
Opened
Ceased/
Idled
Alabama:
Warrior Met Coal Mining, LLC
No. 4 (3)
No. 7
Warrior Met Coal BCE, LLC
44,894 LVM/MVM 10.06
9.58
LVM
60,360
0.68
0.62
N/A
N/A
6.50
5.40
1976
1978
N/A
N/A
Blue Creek
103,042
HVM
9.10
0.70
N/A
5.20
N/A
N/A
Warrior Met Coal TRI, LLC
Carter/Swann’s Crossing
2,866
M/T
11.34
1.23
12,557
10.43
2011
2013
Warrior Met Coal Land, LLC
Beltona East
Bull Gap Mine
Carter West
Howton
Kimberly
Morris
Searles 8
Searles BW-UG
Total Alabama
Total Warrior Met Coal
1,013
624
8
271
128
3,615
17
1,944
218,782
218,782
M/T
M/T
M/T
M/T
M/T
T
M/T
T
7.79
4.07
6.57
12.80
6.47
20.44
12.40
15.89
2.58
1.54
1.58
1.27
2.32
1.19
1.17
0.95
14,162
14,013
13,937
12,619
13,748
11,262
12,450
11,857
4.88
4.98
1.10
7.52
5.58
5.21
5.62
3.54
N/A
N/A
N/A
2006
N/A
2014
2013
N/A
N/A
N/A
N/A
2009
N/A
N/A
N/A
N/A
1 metric ton is equivalent to 1.102311 short tons.
(1)
(2) Coal Type: M=Metallurgical Coal; T=Thermal; LVM = LV Metallurgical Coal; MVM = MV Metallurgical Coal; HVM =
High Volatility Metallurgical Coal
54
(3) Current pricing for Mine No. 4 reflects a combination of both LV and MV markets. It is anticipated that the pricing of
coal produced at Mine No. 4 for at least the next six years will be priced relative to the LV and MV markets. Beyond this
period, the volatile contents in the area are anticipated to increase and the coal may be priced relative to the MV and HV
markets.
The following table provides a summary of information regarding our mining operations as of December 31, 2019:
Location/Mine
Alabama:
Warrior Met Coal Mining, LLC
No. 4
No. 5*
No. 7
Warrior Met Coal BCE, LLC
Blue Creek
Warrior Met Coal TRI, LLC
Carter/Swann’s Crossing
Warrior Met Coal Land, LLC
Beltona East
Bull Gap Mine
Carter West
Howton
Kimberly
Morris
Searles 8
Searles BW-UG
Total Alabama
Total Warrior Met Coal
Transportation
Preparation Plant
Reserves
(thousands of
metric tons)(1)
Type(2)
Mining
Equipment(3)
Rail
Other(4)
Capacity
(metric tons
per hr)
Utilization
%
Source of
Power(5)
LW,CM CSX
N/A
LW,CM CSX
N/A
T,B
N/A
T,B
1,180
907
1,270
82%
87%
89%
ALPCO
ALPCO
ALPCO
In exploration or development
S,T
N/A
T,B
N/A
N/A
ALPCO
In exploration or development
In exploration or development
In exploration or development
S,T
S,T
S,T
N/A
T
N/A
N/A
ALPCO
In exploration or development
N/A
N/A
T
T
N/A
N/A
N/A
N/A
ALPCO
ALPCO
In exploration or development
44,894
U
N/A N/A
U
U
S
S
S
S
S
S
S
S
U
60,360
103,042
2,866
1,013
624
8
271
128
3,615
17
1,944
218,782
218,782
1 metric ton is equivalent to 1.102311 short tons.
(1)
(2) Type of Mine: S = Surface; U = Underground
(3) Mining Equipment: D = Dragline; S = Shovel/Excavator/Loader; T = Trucks; LW = Longwall; CM = Continuous Miner;
H=Highwall Miner
(4) Transportation: Other T = Trucks; B = Barge Loadout availability
(5) Source of Power: ALPCO = Alabama Power Company
*
Represents a preparation plant
55
The following table provides the production (in thousands) and average coal selling price per metric ton for our operating
mines for each of the three years ended December 31, 2019, 2018 and 2017:
Location/Mine
Alabama:
Warrior Met Coal Mining, LLC
No. 4
No. 7
Total Alabama
Production(1) / Average Coal Selling Price Per Metric Ton
2019
2018
2017
$ 161.78
$ 173.91
2,015
5,669
7,684
$182.20
$198.06
1,939
5,078
7,017
1,678
4,413
6,091
$188.68
$190.40
(1) There were no purchases of coal from third parties during the periods presented. All metric tons produced were on leased
property.
Information provided within the previous tables concerning our properties has been prepared in accordance with
applicable U.S. federal securities laws. All mineral reserve estimates have been prepared in accordance with SEC Industry
Guide 7.
Item 3. Legal Proceedings
We are involved in various legal proceedings occurring in the ordinary course of business. It is the opinion of
management, after consultation with legal counsel, that these matters will not materially affect our consolidated financial
position, results of operations or cash flows.
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. See “Part I, Item 1. Business—Environmental and
Regulatory Matters” for additional information. The Company believes that it is in substantial 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.
Item 4. Mine Safety Disclosures
The information concerning mine safety violations and other regulatory matters is filed as Exhibit 95 to this Annual
Report pursuant to the requirements of Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act
and Item 104 of Regulation S-K (17 CFR 229.104).
56
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Part II
Market Information
Our common stock began trading on the NYSE under the symbol “HCC” on April 13, 2017. Before then, there was no
public market for our common stock.
Capital Allocation
On May 17, 2017, the Board adopted a policy (the “Capital Allocation Policy”) of paying a quarterly cash dividend of
$0.05 per share. The Capital Allocation Policy states the following: In addition to the regular quarterly dividend and to the
extent that the Company generates excess cash that is beyond the then current requirements of the business, the Board may
consider returning all or a portion of such excess cash to stockholders through a special dividend or implementation of a stock
repurchase program. Any future dividends or stock repurchases will be at the discretion of the Board and subject to
consideration of a number of factors, including business and market conditions, future financial performance and other strategic
investment opportunities. We will also seek to optimize our capital structure to improve returns to stockholders while allowing
flexibility for us to pursue very selective strategic growth opportunities that can provide compelling stockholder returns. Our
ability to pay dividends on our common stock is limited by covenants in the ABL Facility and the indenture governing the
Notes and may be further restricted by the terms of any future debt or preferred securities. See “Part I, Item 1A. Risk Factors—
Risks Related to the Ownership of our Common Stock—Any declaration and payment of future dividends to holders of our
common stock may be limited by restrictive covenants of our ABL Facility and the indenture governing the Notes, and will be
at the sole discretion of the Board and will also depend on many factors” and “Part II, Item 7. Management’s Discussion and
Analysis of Financial Conditions and Results of Operation—Liquidity and Capital Resources—ABL Facility” and “—Senior
Secured Notes.”
Holders
As of February 17, 2020, we had approximately 405 holders of record of our common stock.
Equity Compensation Plans
The following table sets forth certain information relating to our equity compensation plans as of December 31, 2019:
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants, and Rights
Weighted Average
Exercise Price of
Outstanding Options,
Warrants, and Rights(1)
Number of
Securities
Remaining
Available for
Future Issuance
Equity compensation plans approved
by security holders:
2017 Equity Incentive Plan
2016 Equity Incentive Plan
538,218(2)
43,580(3)
$
$
—
—
5,381,997
— (4)
(1) The weighted-average exercise price does not take into account restricted stock units or phantom units, which do not have
an exercise price.
(2) The number of securities to be issued under our 2017 Equity Incentive Plan represents 503,892 unvested restricted stock
units and 34,326 shares of common stock issuable upon settlement of vested restricted stock unit awards.
(3) The number of securities to be issued under our 2016 Equity Incentive Plan represents 43,580 shares of common stock
issuable upon settlement of a vested phantom unit award.
(4) While our 2016 Equity Incentive Plan remains in effect with respect to awards granted prior to the effectiveness of our 2017
Equity Incentive Plan, no further awards will be granted under the 2016 Equity Plan.
57
Stock Repurchases
There were no share repurchases of our common stock made during the quarter ended December 31, 2019.
Stock Performance Graph
The performance graph and the information contained in this section is not “soliciting material”, is being “furnished”
not “filed” with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act or the
Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language contained in
such filing.
The following graph shows a comparison from April 13, 2017 (the date our common stock commenced trading on the
NYSE) through December 31, 2019 of the cumulative total return for our common stock, the Russell 3000 Stock Index and the
Dow Jones U.S. Coal Index. The graph assumes that $100 was invested on April 13, 2017 in our common stock and each index
and that all dividends were reinvested.
Note that historical stock price performance is not necessarily indicative of future stock price performance.
Item 6. Selected Historical Financial Data
The following tables set forth our selected historical financial data as of and for each of the periods indicated. The
selected consolidated historical financial data as of December 31, 2019, 2018 and 2017, for the years ended December 31,
2019, December 31, 2018, and December 31, 2017 is derived from the audited consolidated financial statements of the
Successor included elsewhere in this Annual Report. The selected consolidated historical financial data for the nine months
ended December 31, 2016 is derived from the audited consolidated financial statements of the Successor included in our
Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”) and the selected combined
historical financial data for the three months ended March 31, 2016 is derived from the audited combined historical financial
statements of our Predecessor included in the 2018 Annual Report. The term “Successor” refers to (1) Warrior Met Coal, LLC
and its subsidiaries for periods beginning as of April 1, 2016 and ending immediately before the completion of our corporate
conversion and (2) Warrior Met Coal, Inc. and its subsidiaries for periods beginning with the completion of our corporate
conversion and thereafter. The term “Predecessor” refers to the assets acquired and liabilities assumed by Warrior Met Coal,
LLC from Walter Energy in the Asset Acquisition on March 31, 2016. The Predecessor periods included in the 2018 Annual
Report begin as of January 1, 2016 and end as of March 31, 2016
You should read this selected consolidated and combined historical financial data together with “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and
related notes thereto included elsewhere in this Annual Report or the 2018 Annual Report, as applicable. Our historical results
are not necessarily indicative of our future results of operations, financial position and cash flows.
58
Statements of Operations Data :
Revenues:
Sales
Other revenues
Total revenues
Costs and expenses:
Cost of sales (exclusive of items shown
separately below)
Cost of other revenues (exclusive of items
shown separately below)
Depreciation and depletion
Selling, general and administrative
Other postretirement benefits
Restructuring costs
Transaction and other costs
Total costs and expenses
Operating income (loss)
Interest expense, net
Loss on early extinguishment of debt
Other income
Income (loss) before income taxes
Income tax expense (benefit) (1)
Net income (loss)
Basic and diluted net income per share:
Net income per share—basic
Net income per share—diluted
Weighted average number of shares
outstanding—basic
Weighted average number of shares
outstanding— diluted
Dividends per share:
Statements of Cash Flow Data:
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Successor
Predecessor
For the years ended December 31,
For the nine
months ended
December 31,
For the three
months ended
March 31,
2019
2018
2017
2016
2016
(in thousands except per share data)
$ 1,235,998
$ 1,342,683
$ 1,124,645
$
276,560
$
65,154
32,311
35,324
44,447
1,268,309
1,378,007
1,169,092
21,074
297,634
6,229
71,383
720,745
716,645
592,530
244,723
72,297
19,367
47,413
20,507
—
—
13,568
345,578
(47,944)
(1,711)
—
—
(49,655)
18
(49,637)
$
4,698
28,958
9,008
6,160
3,418
—
124,539
(53,156)
(16,562)
7,920
—
(61,798)
18
(61,816)
29,828
97,330
37,014
—
—
—
884,917
383,392
(29,335)
(9,756)
22,815
367,116
65,417
301,699
5.87
5.86
$
$
$
10,172
97,209
36,626
—
—
9,068
869,720
508,287
(37,314)
—
—
470,973
(225,814)
696,787
13.19
13.17
$
$
$
28,422
75,413
36,453
—
—
12,873
745,691
423,401
(6,947)
—
—
416,454
(38,592)
455,046
8.62
8.62
$
$
$
$
51,363
52,812
52,800
51,493
52,918
$
4.61
$
6.73
$
52,806
14.92
559,396
532,814
434,512
$
$
$
$
$ (134,213) $ (107,629) $
(92,625) $
$ (411,623) $ (281,626) $ (458,279) $
(9,187)
(30,884)
192,727
$
$
$
(40,698)
(5,422)
(6,240)
__________________
(1) The income tax benefit recorded for the year ended December 31, 2018 is primarily due to the NOL valuation allowance release (see
Note 7 to our consolidated financial statements included elsewhere in this Annual Report).
59
Balance Sheet Data:
Cash and cash equivalents
Working capital(1)
Mineral interests, net
Property, plant and equipment, net
Total assets
Long-term debt
Total liabilities
Total stockholders’ equity
__________________
Successor
Predecessor
December 31,
2019
December 31,
2018
December 31,
2017
December 31,
2016
(in thousands)
205,577
$
345,497
$
120,427
$
$
540,315
$ 1,395,040
468,231
$
682,428
$
712,612
$
193,383
$
315,094
$
110,130
$
$
606,200
$ 1,344,264
339,189
$
578,682
$
765,582
$
$
$
$
$
$
$
$
$
35,470
163,614
130,004
536,745
993,315
342,948
580,292
413,023
$
$
$
$
$
$
$
$
150,045
228,986
143,231
496,959
947,631
3,725
194,664
752,967
(1) Working capital consists of current assets less current liabilities, excluding current portion of long-term debt.
60
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides a narrative of our results of operations and financial condition for the
years ended December 31, 2019, December 31, 2018, and December 31, 2017. You should read the following discussion and
analysis of our financial condition and results of operations together with our audited financial statements and related notes
appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related
financing, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those
factors set forth in “Part I, Item 1A. Risk Factors,” our actual results could differ materially from the results described in, or
implied by, the forward looking statements contained in the following discussion and analysis. Please see “Forward-Looking
Statements.”
Overview
We are a U.S.-based, environmentally and socially minded supplier to the global steel industry. We are 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. We are 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 our underground mines based in Alabama, Mine No. 4
and Mine No. 7.
As of December 31, 2019, Mine No. 4 and Mine No. 7, our two operating mines, had approximately 105.3 million
metric tons of recoverable reserves and our undeveloped Blue Creek mine contained 103.0 million metric tons of recoverable
reserves. As a result of our high quality coal, our realized price has historically been in line with, or at a slight discount to, the
Platts Index. Our HCC, mined from the Southern Appalachian portion of the Blue Creek coal seam, is characterized by low
sulfur, low-to-medium ash, and LV to MV. These qualities make our coal ideally suited as a coking coal for the manufacture of
steel.
We sell substantially all of our met coal production to steel producers. Met coal, which is converted to coke, is a
critical input in the steel production process. Met coal is both consumed domestically in the countries where it is produced and
exported by several of the largest producing countries, such as China, Australia, the United States, Canada and Russia.
Therefore, demand for our coal will be highly correlated to conditions in the global steelmaking industry. The steelmaking
industry’s demand for met coal is affected by a number of factors, including the cyclical nature of that industry’s business,
technological developments in the steelmaking process and the availability of substitutes for steel such as aluminum,
composites and plastics. A significant reduction in the demand for steel products would reduce the demand for met coal, which
would have a material adverse effect upon our business. Similarly, if alternative ingredients are used in substitution for met coal
in the integrated steel mill process, the demand for met coal would materially decrease, which could also materially adversely
affect demand for our met coal.
Basis of Presentation
The consolidated financial statements included elsewhere in this Annual Report and the other financial information
presented and discussed in this management's discussion and analysis includes the accounts of Warrior Met Coal, Inc. and its
subsidiaries (the "Company").
Factors Affecting the Comparability of our Financial Statements
Corporate Conversion and IPO
On April 12, 2017, in connection with the IPO, Warrior Met Coal, LLC filed a certificate of conversion, whereby
Warrior Met Coal, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation
and changed its name to Warrior Met Coal, Inc. In connection with this corporate conversion, the Company filed a certificate
of incorporation. Pursuant to the Company’s certificate of incorporation, the Company is authorized to issue up to 140,000,000
shares of common stock, $0.01 par value per share, and 10,000,000 shares of preferred stock, $0.01 par value per share.
On April 19, 2017, the Company completed its IPO, whereby certain selling stockholders sold 16,666,667 shares of
common stock at a price to the public of $19.00 per share. The Company did not receive any proceeds from the sale of common
stock in the IPO. All of the net proceeds from the IPO were received by the selling stockholders. The aggregate net proceeds to
the selling stockholders in the IPO were $296.9 million, net of underwriting discounts and commissions of $19.8 million. The
Company paid the offering expenses of $15.9 million on behalf of the selling stockholders. Following the closing of the IPO,
61
53,442,532 shares of common stock were outstanding. On April 13, 2017, our common stock began trading on the NYSE under
the ticker symbol “HCC” and on April 19, 2017, we closed our IPO.
How We Evaluate Our Operations
Our primary business, the mining and exporting of met coal for the steel industry, is conducted in one business
segment: Mining. All other operations and results are reported under the “All Other” category as a reconciling item to
consolidated amounts, which includes the business results from our sale of natural gas extracted as a byproduct from our
underground coal mines and royalties from our leased properties. Our natural gas and royalty businesses do not meet the
criteria in ASC 280, Segment Reporting, to be considered as operating or reportable segments.
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are
significant factors in assessing our operating results and profitability and include: (i) Segment Adjusted EBITDA; (ii) sales
volumes and average selling price, which drive coal sales revenue; (iii) cash cost of sales, a non-GAAP financial measure; and
(iv) Adjusted EBITDA, a non-GAAP financial measure.
(in thousands)
Segment Adjusted EBITDA
Metric tons sold
Metric tons produced
Gross price realization (1)
Average net selling price per metric ton
Cash cost of sales per metric ton
Adjusted EBITDA
For the years ended December 31,
2019
2018
2017
$ 515,253
$ 626,038
$ 532,115
7,240
7,683
6,931
7,017
5,921
6,091
98%
97%
96%
$
$
170.72
99.15
$
$
193.72
103.35
$
$
189.94
99.86
$ 478,651
$ 601,027
$ 517,702
(1) Gross price realization represents gross sales, excluding demurrage and other charges, divided by tons sold as a percentage of
the Platts Index or the Australian LV Index depending on the time period. The gross price realization for the year ended
December 31, 2019 and December 31, 2018 is based on a volume weighted-average Platts Index price, the year December 31,
2017 is based on a volume weighted average of the three-month average of the Platts Index, the Steel Index ("TSI") premium
coking coal index and the Argus Index on a one month lag during each quarter (the "Australian LV Index").
Segment Adjusted EBITDA
We define Segment Adjusted EBITDA as net income adjusted for other revenues, cost of other revenues, depreciation
and depletion, selling, general and administrative, and certain transactions or adjustments that the CEO, our Chief Operating
Decision Maker does not consider for the purposes of making decisions to allocate resources among segments or assessing
segment performance. Segment Adjusted EBITDA is used as a supplemental financial measure by management and by external
users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:
•
•
•
•
our operating performance as compared to the operating performance of other companies in the coal industry, without
regard to financing methods, historical cost basis or capital structure;
the ability of our assets to generate sufficient cash flow to pay distributions;
our ability to incur and service debt and fund capital expenditures; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment
opportunities, such as Blue Creek.
62
Sales Volumes, Gross Price Realization and Average Net Selling Price
We evaluate our operations based on the volume of coal we can safely produce and sell in compliance with regulatory
standards, and the prices we receive for our coal. Our sales volume and sales prices are largely dependent upon the terms of our
coal sales contracts, for which prices generally are set on daily index averages or a quarterly basis. The volume of coal we sell
is also a function of the pricing environment in the international met coal markets and the amounts of LV and MV coal that we
sell. We evaluate the price we receive for our coal on two primary metrics: first, our gross price realization and second, our
average net selling price per metric ton.
In the first quarter of 2018, we changed our gross price realization calculation to no longer be based on the quarterly
Australian LV Index average due to this index being on a one-month lag basis and not closely correlating with the timing of our
shipments. Our gross price realization now represents a volume weighted-average calculation of our daily realized price per
ton based on the blended gross sales of our LV and MV coal, excluding demurrage and quality specification adjustments, as a
percentage of the Platts Index daily price. Our gross price realizations reflect the premiums and discounts we achieve on our
LV and MV coal versus the Platts Index price because of the high quality premium products we sell into the export markets. In
addition, the premiums and discounts in a quarter or year can be impacted by a rising or falling price environment.
On a quarterly basis, our blended gross selling price per metric ton may differ from the Platts Index price per metric
ton, primarily due to our gross sales price per ton being based on a blended average of gross sales price on our LV and MV
coals as compared to the Platts Index price and due to the fact that many of our met coal supply agreements are based on a
variety of indices.
Our average net selling price per metric ton represents our coal net sales revenue divided by total metric tons of coal
sold. In addition, our average net selling price per metric ton is net of the previously mentioned demurrage and quality
specification adjustments.
Cash Cost of Sales
We evaluate our cash cost of sales on a cost per metric ton basis. Cash cost of sales is based on reported cost of sales
and includes items such as freight, royalties, manpower, fuel and other similar production and sales cost items, and may be
adjusted for other items that, pursuant to GAAP, are classified in the Statements of Operations as costs other than cost of sales,
but relate directly to the costs incurred to produce met coal and sell it free-on-board at the Port of Mobile. Our cash cost of
sales per metric ton is calculated as cash cost of sales divided by the metric tons sold. Cash cost of sales is used as a
supplemental financial measure by management and by external users of our financial statements, such as investors, industry
analysts, lenders and ratings agencies, to assess:
•
•
our operating performance as compared to the operating performance of other companies in the coal industry, without
regard to financing methods, historical cost basis or capital structure; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment
opportunities, such as Blue Creek.
We believe that this non-GAAP financial measure provides additional insight into our operating performance, and
reflects how management analyzes our operating performance and compares that performance against other companies on a
consistent basis for purposes of business decision making by excluding the impact of certain items that management does not
believe are indicative of our core operating performance. We believe that cash costs of sales presents a useful measure of our
controllable costs and our operational results by including all costs incurred to produce met coal and sell it free-on-board at the
Port of Mobile. Period-to-period comparisons of cash cost of sales are intended to help management identify and assess
additional trends potentially impacting our Company that may not be shown solely by period-to-period comparisons of cost of
sales. Cash cost of sales should not be considered an alternative to cost of sales or any other measure of financial performance
or liquidity presented in accordance with GAAP. Cash cost of sales excludes some, but not all, items that affect cost of sales,
and our presentation may vary from the presentations of other companies. As a result, cash cost of sales as presented below
may not be comparable to similarly titled measures of other companies.
63
The following table presents a reconciliation of cash cost of sales to total cost of sales, the most directly comparable
GAAP financial measure, on a historical basis for each of the periods indicated.
(in thousands)
Cost of sales
Asset retirement obligation accretion and valuation
adjustment
Stock compensation expense
Cash cost of sales
Adjusted EBITDA
For the years ended December 31,
2019
2018
2017
$
720,745
$
716,645
$
592,530
(1,519)
(1,405)
717,821
$
875
(1,214)
716,306
$
(621)
(667)
591,242
$
We define Adjusted EBITDA as net income before net interest expense, income tax expense (benefit), depreciation
and depletion, non-cash asset retirement obligation accretion, non-cash stock compensation expense, transaction and other
costs, loss on early extinguishment of debt and other income. Adjusted EBITDA is used as a supplemental financial measure by
management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings
agencies, to assess:
•
•
our operating performance as compared to the operating performance of other companies in the coal industry, without
regard to financing methods, historical cost basis or capital structure; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment
opportunities, such as Blue Creek.
We believe that the presentation of Adjusted EBITDA in this Annual Report provides information useful to investors
in assessing our financial condition and results of operations. The GAAP measure most directly comparable to Adjusted
EBITDA is net income. Adjusted EBITDA should not be considered an alternative to net income or loss or any other measure
of financial performance or liquidity presented in accordance with GAAP. Adjustments excludes some, but not all, items that
affect net loss and our presentation of Adjusted EBITDA may vary from that presented by other companies.
The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable
GAAP financial measure, on a historical basis for each of the periods indicated.
(in thousands)
Net income
Interest expense, net
Income tax expense (benefit)
Depreciation and depletion
Asset retirement obligation accretion and valuation adjustment (1)
Stock compensation expense (2)
Transaction and other costs (3)
Loss on early extinguishment of debt (4)
Other income (5)
Adjusted EBITDA
For the years ended December 31,
2019
2018
2017
$
301,699
$
696,787
$
455,046
29,335
65,417
97,330
(7,891)
5,820
—
9,756
(22,815)
478,651
$
$
37,314
(225,814)
97,209
(19,942)
6,405
9,068
—
6,947
(38,592)
75,413
1,834
4,181
12,873
—
—
601,027
$
—
517,702
(1) Represents non-cash accretion expense and valuation adjustment associated with our asset retirement obligations (see
Note 8 to our consolidated financial statements).
(2) Represents non-cash stock compensation expense associated with equity awards.
64
(3) Represents non-recurring costs incurred by the Company in connection with the offering of the Notes (see Note 13 to
our consolidated financial statements), the Secondary Equity Offerings (as defined in Note 17), and our IPO (see Note
1).
(4) Represents a loss incurred in connection with the early extinguishment of debt (see Note 13 to our consolidated
financial statements)
(5) Represents settlement proceeds received for the Shared Services Claim and Hybrid Debt Claim associated with the
Walter Canada CCAA (each discussed below).
Results of Operations
Year Ended December 31, 2019 and 2018
The following table summarizes certain financial information relating to our operating results that have been derived
from our audited financial statements for the year ended December 31, 2019, 2018, and 2017.
(in thousands)
Revenues:
Sales
Other revenues
Total revenues
Costs and expenses:
For the years ended December 31,
% of
Total
Revenues
2019
% of
Total
Revenues
2018
$1,235,998
32,311
97.5 % $1,342,683
35,324
2.5 %
97.4 %
2.6 %
1,268,309
100.0 % 1,378,007
100.0 %
Cost of sales (exclusive of items shown separately below)
720,745
56.8 %
716,645
52.0 %
Cost of other revenues (exclusive of items shown separately
below)
Depreciation and depletion
Selling, general and administrative
Transaction and other costs
Total costs and expenses
Operating income
Interest expense, net
Loss on early extinguishment of debt
Other income
Income before income tax expense (benefit)
Income tax expense (benefit)
Net income
29,828
97,330
37,014
—
884,917
383,392
(29,335)
(9,756)
22,815
367,116
65,417
$ 301,699
2.4 %
7.7 %
2.9 %
— %
69.8 %
30.2 %
(2.3)%
(0.8)%
1.8 %
28.9 %
5.2 %
23.8 %
10,172
97,209
36,626
9,068
869,720
508,287
(37,314)
—
—
470,973
(225,814)
696,787
0.7 %
7.1 %
2.7 %
0.7 %
63.1 %
36.9 %
(2.7)%
— %
— %
34.2 %
(16.4)%
50.6 %
Sales, production and cost of sales components on a per unit basis for the year ended December 31, 2019 and 2018
were as follows:
Met Coal (metric tons in thousands)
Metric tons sold
Metric tons produced
Gross price realization
Average net selling price per metric ton
Cash cost of sales per metric ton
65
For the years ended December 31,
2019
2018
7,240
7,683
98%
6,931
7,017
97%
$
$
170.72
99.15
$
$
193.72
103.35
The year ended December 31, 2019 was an outstanding year, as reflected in our record high operational performance and
strong financial performance. For the full year of 2019, we produced 7.7 million metric tons of coal and sold 7.2 million metric
tons, both of which were record highs for us. We are pleased with our performance in 2019, even in the face of challenging market
conditions in the second half of the year. Even with a slowdown in steel production in the latter half of 2019, as well as additional
macroeconomic issues in the global economy which significantly impacted pricing, we were still able to execute another year of
strong sales volume along with a significant increase in production volume.
The following list highlights our key accomplishments for the year ended December 31, 2019:
•
through strong operational and financial performance, we were able to increase our guidance targets for 2019 and produced
and sold record high volumes;
• we achieved a record annual sales volume of 7.2 million metric tons and lowest annual cash cost of sales per metric ton
of $99.15;
• we recorded our best ever annual production volume of 7.7 million metric tons, while achieving a record low safety
incident rate at the mines of 2.30;
• we successfully retired $131.6 million aggregate principal amount of our Notes through the Restricted Payment Offer
(as defined below) and Tender Offer (as defined below) to permit up to $299.0 million in stockholder returns;
• we demonstrated an ongoing commitment to returning capital to our stockholders, including $240.4 million of special
dividends and our regular $0.05 per share quarterly dividends;
• we implemented the New Stock Repurchase Program (as defined below) of $70.0 million after fully exhausting the First
Stock Repurchase Program (as defined below) of $40.0 million and repurchased 0.6 million shares of the Company’s
common stock, totaling $12.5 million;
• we amended our ABL Facility to generally conform certain definitions with the corresponding definitions of these terms
in our indenture governing the Notes; and
• we successfully completed five longwall operation moves during 2019.
Sales were $1.2 billion for the year ended December 31, 2019, compared to $1.3 billion for the year ended
December 31, 2018. The $106.7 million decrease in revenues was primarily driven by a $166.5 million decrease in revenue
related to a $23.00 decrease in the average selling price per metric ton of met coal offset partially by a $59.9 million increase in
revenue due to a 0.3 million metric ton increase in met coal sales volume.
Other revenues for the year ended December 31, 2019 were $32.3 million compared to $35.3 million for the year
ended December 31, 2018. Other revenues are comprised of revenue derived from our natural gas operations, as well as earned
royalty revenue. The $3.0 million decrease in other revenues is primarily due to an 18% decrease in gas sales driven by a
decrease in natural gas prices and production during 2019.
Cost of sales (exclusive of items shown separately below) was $720.7 million, or 56.8% of total revenues for the year
ended December 31, 2019, compared to $716.6 million, or 52.0% of total revenues for the year ended December 31, 2018. The
$4.1 million increase in cost of sales was primarily driven by a $31.9 million increase due to a 0.3 million metric ton increase
in met coal sales volumes offset partially by a $30.4 million decrease due to a $4.20 per metric ton decrease in the average cash
cost of sales per metric ton. The decrease in average cash cost of sales per metric ton is primarily due to our variable cost
structure in our labor, royalties and logistics contracts that vary in response to changes in met coal prices.
Cost of other revenues was $29.8 million for the year ended December 31, 2019, compared to $10.2 million for the
year ended December 31, 2018. The $19.7 million increase is primarily due to the change in our asset retirement obligation
adjustment attributable to the net impact of changes in current estimates of the costs and scope of remaining reclamation work,
changes in discount rates and fluctuations in projected mine life estimates. This increase is partially offset by an 18% decrease
in gas sales driven by natural gas prices and production during 2019.
Depreciation and depletion was $97.3 million, or 7.7% of total revenues, for the year ended December 31, 2019,
compared to $97.2 million, or 7.1% of total revenues for the year ended December 31, 2018. The year ended December 31,
2018, included $4.0 million of accelerated depreciation on equipment beyond its economic repair. This was offset by an
66
increase of $4.1 million in capital expenditures combined with an increase in depletion due to an increase in metric tons
produced.
Selling, general and administrative expenses were $37.0 million, or 2.9% of total revenues, for the year ended
December 31, 2019, and remained consistent compared to $36.6 million, or 2.7% of total revenues for the year ended
December 31, 2018.
Transaction and other costs were $9.1 million, or 0.7% for the year ended December 31, 2018 which was comprised
primarily of professional fees incurred in connection with the issuance of the New Notes and the Secondary Equity Offerings
(as defined in Notes 13 and 17 to our consolidated financial statements).
Interest expense, net was $29.3 million, or 2.3% of total revenues, for the year ended December 31, 2019, compared to
$37.3 million, or 2.7% of total revenues, for the year ended December 31, 2018. The $8.0 million decrease was primarily
driven by the retirement of debt of $131.6 million in the first quarter of 2019. Interest expense, net is comprised of interest on
our senior secured notes and amortization of our ABL Facility and senior secured notes debt issuance costs offset partially by
earned interest income.
For the year ended December 31, 2019, we recognized a loss on early extinguishment of debt of $9.8 million upon the
extinguishment of $131.6 million of our Notes (as defined below). The loss on early extinguishment of debt represents a
premium paid to retire the debt, accelerated amortization of debt discount, net, and fees incurred in connection with the
transactions.
Other income was $22.8 million, or 1.8% of total revenues, for the year ended December 31, 2019.
In connection with our acquisition of certain core operating assets of Walter Energy, we acquired a receivable owed to
Walter Energy by Walter Canada for certain shared services provided by Walter Energy to Walter Canada (the “Shared Services
Claim”) and a receivable for unpaid interest owed to Walter Energy from Walter Canada in respect of a promissory note (the
“Hybrid Debt Claim”). Each of these claims were asserted by us in the Walter Canada CCAA proceedings. Walter Energy
deemed these receivables to be uncollectable for the year ended December 31, 2015 and we did not assign any value to these
receivables in acquisition accounting as collectability was deemed remote. In 2019, we received $22.8 million in settlement
proceeds for the Shared Services Claim and Hybrid Debt Claim which is reflected as other income in the Statements of
Operations. The collectability of additional amounts, if any, related to the Shared Services Claim and Hybrid Debt Claim
depends on the outcome of, and the timing of any resolution of, the Walter Canada CCAA proceedings and cannot be predicted
with certainty.
For the year ended December 31, 2019, we recognized income tax expense of $65.4 million or an effective tax rate of
17.8% which was principally offset by the utilization of our NOLs for cash tax purposes. In the fourth quarter of 2019, an
adjustment of $6.7 million was recorded to recognize additional alternative minimum tax credits, general business credits and
net operating losses available to the Company in connection with a settlement agreement between Walter Energy and the
Internal Revenue Service.
At December 31, 2019, we had federal and state NOLs of approximately $785.6 million and $860.3 million,
respectively. Accordingly, we expect to continue to utilize our NOLs and we believe we will not pay any cash federal income
taxes for the next six to eight years based on our long-term forecast of met coal prices, sales volumes and performance. Our
U.S. federal pre-tax net operating loss carryforwards do not begin to expire until 2034. See Note 7 of the Notes to the
Consolidated Financial Statements for more information.
For the year ended December 31, 2018 we recognized an income tax benefit of $225.8 million or an effective tax rate
of (47.9)%.
During the fourth quarter of 2018, we concluded that our deferred income tax assets are more likely than not to be
realized. In making such determination, we considered all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income and our continued strong financial performance which
contributed to a cumulative three-year income position. Accordingly, at December 31, 2018, we released all of our valuation
allowance against our deferred income tax assets. The release of the valuation allowance primarily resulted in a net income tax
benefit of $225.8 million that was recorded in income tax benefit (expense) in our Statements of Operations.
On January 14, 2019, the IRS issued a statement that AMT refunds for taxable years beginning after December 31,
2017 will not be subject to sequestration which reversed an earlier IRS announcement that refundable AMT credits would be
67
subject to sequestration. As a result, we completed our accounting for the income tax effects of the Tax Cuts and Jobs Act and
recorded a measurement period adjustment recognizing an income tax receivable and related income tax benefit of $2.8
million. As of December 31, 2019, we have a current income tax receivable of $12.9 million and a non-current income tax
receivable of $11.3 million which represents our total AMT credits expected to be received in 2020 to 2022.
Year Ended December 31, 2018 and 2017
The following table summarizes certain financial information relating to our operating results that have been derived
from our audited financial statements for the year ended December 31, 2018 and 2017.
(in thousands)
Revenues:
Sales
Other revenues
Total revenues
Costs and expenses:
For the years ended December 31,
2018
% of
Total
Revenues
% of
Total
Revenues
2017
$ 1,342,683
35,324
97.4 %
2.6 %
1,124,645
96.2 %
44,447
3.8 %
1,378,007
100.0 %
1,169,092
100.0 %
Cost of sales (exclusive of items shown separately below)
716,645
52.0 %
592,530
50.7 %
Cost of other revenues (exclusive of items shown
separately below)
Depreciation and depletion
Selling, general and administrative
Transaction and other costs
Total costs and expenses
Operating income
Interest expense, net
Income before income tax benefit
Income tax benefit
Net income
10,172
97,209
36,626
9,068
869,720
508,287
(37,314)
470,973
(225,814)
696,787
$
0.7 %
7.1 %
2.7 %
0.7 %
63.1 %
36.9 %
(2.7)%
34.2 %
(16.4)%
50.6 %
28,422
75,413
36,453
12,873
745,691
423,401
(6,947)
416,454
(38,592)
455,046
2.4 %
6.5 %
3.1 %
1.1 %
63.8 %
36.2 %
(0.6)%
35.6 %
(3.3)%
38.9 %
Sales, production and cost of sales components on a per unit basis for the year ended December 31, 2018 and 2017
were as follows:
Met Coal (metric tons in thousands)
Metric tons sold
Metric tons produced
Gross price realization (1)
Average net selling price per metric ton
Cash cost of sales per metric ton
For the years ended December 31,
2018
2017
6,931
7,017
97%
$
$
193.72
103.35
$
$
5,921
6,091
96%
189.94
99.86
(1) For the year ended December 31, 2018, our gross price realization represents a volume weighted-average calculation of our
daily realized price per ton based on gross sales, which excludes demurrage and other charges, as a percentage of the Platts
Index price. For the year ended December 31, 2017, our gross price realization represents a volume weighted-average
calculation of our realized price per ton based on gross sales as a percentage of the Australian LV Index.
Sales were $1.3 billion for the year ended December 31, 2018, compared to $1.1 billion for the year ended
December 31, 2017. The $218.0 million increase in revenues was primarily driven by a $191.8 million increase in revenue due
68
to a 1.0 million metric ton increase in met coal sales volume combined with a $26.2 million increase in revenue related to a
$3.78 increase in the average selling price per metric ton of met coal.
Other revenues for the year ended December 31, 2018 were $35.3 million compared to $44.4 million for the year
ended December 31, 2017. Other revenues are comprised of revenue derived from our natural gas operations, as well as earned
royalty revenue. The $9.1 million decrease in other revenues is primarily due to a realized loss of $1.8 million on our natural
gas swap contracts for the year ended December 31, 2018 combined with a realized gain of $5.4 million on our natural gas
swap contracts for the year ended December 31, 2017.
Cost of sales (exclusive of items shown separately below) was $716.6 million, or 52.0% of total revenues for the year
ended December 31, 2018, compared to $592.5 million, or 50.7% of total revenues for the year ended December 31, 2017.
The $124.1 million increase in cost of sales was primarily driven by $100.9 million increase due to a 1.0 million metric ton
increase in met coal sales volumes coupled with a $24.2 million increase due to a $3.49 increase in the average cash cost of
sales per metric ton primarily due to higher spending associated with the increased sales volume.
Cost of other revenues was $10.2 million for the year ended December 31, 2018, compared to $28.4 million for the
year ended December 31, 2017. The $18.3 million decrease is primarily due to a $21.5 million decrease in our asset retirement
obligations attributable to the net impact of changes in current estimates of the costs and scope of remaining reclamation work,
changes in discount rates and fluctuations in projected mine life estimates.
Depreciation and depletion was $97.2 million, or 7.1% of total revenues, for the year ended December 31, 2018,
compared to $75.4 million, or 6.5% of total revenues for the year ended December 31, 2017. The $21.8 million increase was
driven primarily by an increase in capital expenditures combined with an increase in depletion due to an increase in metric tons
produced combined with $4.0 million of accelerated depreciation recorded in the current year on equipment beyond its
economic repair.
Selling, general and administrative expenses were $36.6 million, or 2.7% of total revenues, for the year ended
December 31, 2018, compared to $36.5 million, or 3.1% of total revenues for the year ended December 31, 2017. The $0.2
million increase is driven primarily by an increase in employee bonuses based on our performance through the year end
December 31, 2018.
Transaction and other costs were $9.1 million, or 0.7% of total revenues, for the year ended December 31, 2018,
which was comprised primarily of professional fees incurred in connection with the issuance of the New Notes and the
Secondary Equity Offerings (as defined in Notes 16 and 19 to our consolidated financial statements). Transaction and other
costs were $12.9 million, or 1.1% for the year ended December 31, 2017 which was comprised primarily of professional fees
incurred in connection with our IPO and with the issuance of the Existing Notes (as defined in Note 16 to the consolidated
financial statements).
Interest expense, net was $37.3 million, or 2.7% of total revenues, for the year ended December 31, 2018, compared to
$6.9 million, or 0.6% of total revenues, for the year ended December 31, 2017. The $30.4 million increase was primarily driven
by $36.3 million of additional interest expense on the Notes due to the issuance of $125.0 million in aggregate principal
amount on March 1, 2018 and the issuance of $350.0 million aggregate principal amount on November 2, 2017.
Income tax benefit for the year ended December 31, 2018 was $225.8 million or an effective tax rate of (47.9)%
compared to an income tax benefit of $38.6 million or an effective tax rate of (9.27)% for the year ended December 31, 2017.
During the fourth quarter of 2018, we concluded that our deferred income tax assets are more likely than not to be
realized. In making such determination, we considered all available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income and our continued strong financial performance which
contributed to a cumulative three-year income position. Accordingly, at December 31, 2018, we released all of our valuation
allowance against our deferred income tax assets. The release of the valuation allowance primarily resulted in a net income tax
benefit of $225.8 million that was recorded in income tax benefit (expense) in our Consolidated Statement of Operations. At
December 31, 2018, we had $1.1 billion of U.S. federal pre-tax net operating loss carryforwards.
The Tax Cuts and Jobs Act was enacted on December 22, 2017 and significantly revised the U.S. corporate income tax
regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also
repealing the deduction for domestic production activities, implementing a territorial tax system, limiting the deduction for
interest expense, limiting the use of net operating losses generated on or after January 1, 2018 to offset taxable income and
repealing the corporate AMT and triggering refunding provisions for existing AMT credits. In the fourth quarter of 2017, we
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recorded an income tax benefit of approximately $1.7 million due to the remeasurement of the deferred tax liability associated
with the indefinite lived asset that will now reverse at the new 21% rate.
On January 14, 2019, the IRS issued a statement that AMT refunds for taxable years beginning after December 31,
2017 will not be subject to sequestration which reversed an earlier IRS announcement that refundable AMT credits would be
subject to sequestration. As a result, for the year ended December 31, 2018, we completed our accounting for the income tax
effects of the Tax Cuts and Jobs Act and recorded a measurement period adjustment recognizing an income tax receivable and
related income tax benefit of $2.8 million. As of December 31, 2018, we had a current income tax receivable of $21.6 million
and a non-current income tax receivable of $21.3 million which represented our total AMT credits.
Liquidity and Capital Resources
Overview
Our sources of cash have been coal and natural gas sales to customers, proceeds received from the Notes Offering and
access to our ABL Facility. Historically, our primary uses of cash have been for funding the operations of our coal and natural
gas production operations, our capital expenditures, our reclamation obligations, professional fees and other costs incurred in
connection with the Asset Acquisition, the Secondary Equity Offerings and our IPO. In addition, we used available cash on
hand to repurchase shares of common stock and to pay our quarterly and special dividends, each of which reduces or reduced
cash and cash equivalents.
Going forward, we will need cash to fund debt service payments on our Notes and our other indebtedness and to fund
operating activities, working capital, capital expenditures, including capital expenditures for Blue Creek, and other strategic
investments. Our ability to fund our capital needs going forward will depend on our ongoing ability to generate cash from
operations and borrowing availability under the ABL Facility, and, in the case of any future strategic investments, capital
expenditures, including financing for Blue Creek or special dividends financed partially or wholly with debt financing, our
ability to access the capital markets to raise additional capital. We believe that our future cash flow from operations, together
with cash on our balance sheet and borrowing availability under our ABL Facility, will provide adequate resources to fund our
debt service payments and planned operating and capital expenditure needs for at least the next twelve months.
If our cash flows from operations are less than we require, we may need to incur additional debt or issue additional
equity. From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we
believe we can currently finance our operations on acceptable terms and conditions, our access to, and the availability of,
financing on acceptable terms and conditions in the future will be affected by many factors, including: (i) our credit ratings,
(ii) the liquidity of the overall capital markets, (iii) the current state of the global economy and (iv) restrictions in our ABL
Facility, the indenture governing the Notes and any other existing or future debt agreements. There can be no assurance that we
will have or continue to have access to the capital markets on terms acceptable to us or at all. See “Part I, Item 1A, Risk
Factors.”
Our available liquidity as of December 31, 2019 was $309.5 million, consisting of $193.4 million of cash and cash
equivalents and $116.1 million of availability under our ABL Facility (calculated net of $8.95 million of letters of credit
outstanding at such time). For the year ended December 31, 2019, cash flows provided by operating activities were $532.8
million, cash flows used in investing activities were $134.2 million and cash flows used in financing activities were $411.6
million.
On September 18, 2017, the IRS issued to us a private letter ruling that favorably impacts our ability to utilize our
NOLs for federal income tax purposes. Prior to the issuance of the private letter ruling, we applied an annual limitation on the
utilization of NOLs pursuant to Section 382 of the Code and, accordingly, expected to pay a significantly higher amount of
income taxes for 2017. Following the issuance of the private letter ruling, we believe that our NOLs will not be subject to the
annual limit of Section 382 as previously applied during 2017. The Tax Cuts and Jobs Act was enacted in December 2017. We
expect that our future free cash flow will meaningfully benefit from the favorable private letter ruling and the Tax Cuts and
Jobs Act due to (i) the unlimited use of our federal and state NOLs of approximately $785.6 million and $860.3 million,
respectively, and (ii) the refunding of AMT credits of approximately $24.3 million, which we expect to receive in 2019 through
2022.
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Statements of Cash Flows
Cash balances were $193.4 million, $205.6 million and $35.5 million at December 31, 2019, December 31, 2018, and
December 31, 2017, respectively.
The following table sets forth, a summary of the net cash provided by operating, investing and financing activities for
the period (in thousands):
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Operating Activities
For the years ended December 31,
2019
2018
2017
$
532,814
(134,213)
(411,623)
$
559,396
(107,629)
(281,626)
$
434,512
(92,625)
(458,279)
$
(13,022) $
170,141
$ (116,392)
Net cash flows from operating activities consist of net income adjusted for noncash items, such as depreciation and
depletion of property, plant and equipment and mineral interests, deferred income tax expense (benefit), stock-based
compensation, amortization of debt issuance costs and debt discount, net, accretion expense and valuation adjustment
associated with our asset retirement obligations, loss on early extinguishment of debt and changes in net working capital. The
timing between the conversion of our billed and unbilled receivables into cash from our customers and disbursements to our
vendors is the primary driver of changes in our working capital.
Net cash provided by operating activities was $532.8 million for the year ended December 31, 2019, and was
primarily attributed to net income of $301.7 million adjusted for depreciation and depletion expense of $97.3 million, deferred
income tax expense of $68.5 million, an increase in other operating activities of $26.1 million, loss on early extinguishment of
debt of $9.8 million, stock-based compensation expense of $5.8 million, accretion expense of asset retirement obligations of
$3.2 million, amortization of debt issuance costs and debt discount of $1.4 million, and a decrease in net working capital of
$30.2 million, partially offset by a change in asset retirement obligation due to a change in estimate of $11.1 million. The
decrease in our working capital was primarily attributable to a decrease in trade accounts receivable combined with a decrease
in income tax receivable and an increase in inventories offset by accrued expenses and accounts payable due to decreased
fourth quarter production and sales volume.
Net cash provided by operating activities was $559.4 million for the year ended December 31, 2018, and was
primarily attributed to net income of $696.8 million adjusted for depreciation and depletion expense of $97.2 million, stock-
based compensation expense of $6.4 million, amortization of debt issuance costs and debt discount of $2.5 million, accretion of
asset retirement obligations of $4.6 million, offset partially by an increase in net working capital of $10.7 million, a change in
asset retirement obligation due to a change in estimate of $24.6 million and the release of our valuation allowance against
deferred income tax assets of $223.0 million. The increase in our working capital was primarily attributable to an increase in
trade accounts receivable due to higher sales volumes combined with an increase in income tax receivable offset by an increase
in accounts payable and accrued expenses due to increased production and sales volume.
Net cash provided by operating activities was $434.5 million for the year ended December 31, 2017, and
was primarily attributed to net income of $455.0 million adjusted for depreciation and depletion expense of $75.4 million,
stock-based compensation expense of $4.2 million, amortization of debt issuance costs and debt discount of $1.9 million and
accretion of asset retirement obligations of $1.8 million, offset by a net increase in our working capital of $61.0 million. The
increase in our working capital was primarily driven by an increase in trade accounts receivables, income tax receivables, other
receivables, inventories, and prepaid expenses and other current assets offset partially by an increase in accounts payable,
accrued expenses and other current liabilities. The increase in our accounts receivable was primarily driven by an increase in
the average selling price per metric ton of our coal coupled with an increase in metric tons sold. The increase in our long-term
income tax receivable was due to refundable AMT credits which will be received in 2019 through 2022 for the 2018 through
2021 tax years, as a result of changes from the Tax Cuts and Jobs Act of 2017. The increase in inventories was due to the
continued ramp up of production throughout 2017. The increase in prepaid expenses was primarily due to an increase in
capitalized deferred longwall move expenses associated with the three longwall moves that occurred during the fourth quarter
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of 2017. The increase in accounts payable and accrued expenses and other current liabilities was primarily driven by an
increase in expenditures due to the increase in production at Mine No. 4 and Mine No. 7.
Investing Activities
Net cash used in investing activities was $134.2 million for the year ended December 31, 2019, primarily comprised
of $107.3 million of purchases of property, plant and equipment and $23.4 million of capitalized mine development costs
associated with our Mine 4 development. We spent approximately $89.0 million in sustaining capital and spent an additional
$18.0 million in other discretionary capital, which included primarily the shaft construction at Mine No. 4. The cash capital
expenditures exclude non-cash capital accruals and leases of approximately $45.5 million. Net cash used in investing activities
also includes $24.2 million of purchases of short-term investments offset partially by $17.5 million of sales of short-term
investments and $3.1 million of proceeds from sale of property, plant and equipment.
Net cash used in investing activities was $107.6 million for the year ended December 31, 2018, primarily comprised
of $101.6 million of purchases of property, plant and equipment and $8.9 million of capitalized mine development costs
associated with our Mine 4 development. We spent approximately $69.0 million in sustaining capital and spent an additional
$33.0 million in other discretionary capital, which included the construction of a new portal at Mine No. 7. The cash capital
expenditures exclude non-cash capital accruals and leases of approximately $6.3 million.
Net cash used in investing activities was $92.6 million for the year ended December 31, 2017, primarily as
a result of a significant capital investment program that we implemented in 2017 to upgrade all key production equipment to
further improve efficiency and reliability of the mining operations. We spent approximately $62.0 million in sustaining capital,
$26.0 million in capital for projects that had been deferred in prior years due to low met coal price environments and spent an
additional $19.0 million in other discretionary capital, which included the start of construction of a new portal at Mine No. 7
that was completed in 2018. The cash capital expenditures exclude non-cash capital accruals and leases of
approximately $15.0 million.
Financing Activities
Net cash used in financing activities was $411.6 million for the year ended December 31, 2019, primarily due to the
payment of regular quarterly dividends and the April 2019 Special Dividend totaling $240.4 million in the aggregate,
retirements of debt of $140.3 million, repayments of capital lease obligations of $17.3 million, and common shares repurchased
of $12.5 million.
Net cash used in financing activities was $281.6 million for the year ended December 31, 2018, primarily due to the
payment of dividends totaling $360.6 million in the aggregate, common shares repurchased of $38.0 million, payment of debt
issuance costs of $3.7 million, retirements of debt of $3.1 million, offset partially by the net proceeds received from the
issuance of the New Notes of $128.8 million.
Net cash used in financing activities was $458.3 million for the year ended December 31, 2017, primarily
due to the payment of the March 2017 Special Distribution, November 2017 Special Dividend and quarterly dividends totaling
$796.9 million in the aggregate, payment of debt issuance costs of $2.6 million, retirements of debt of $3.1 million, offset
partially by the net proceeds from the Notes Offering of $344.8 million.
Capital Allocation
On May 17, 2017, the Board adopted the Capital Allocation Policy of paying a quarterly cash dividend of $0.05 per
share. The initial quarterly dividend of $2.7 million was paid on June 13, 2017 to stockholders of record on May 30, 2017. The
Capital Allocation Policy also states the following: In addition to the regular quarterly dividend and to the extent that the
Company generates excess cash that is beyond the then current requirements of the business, the Board may consider returning
all or a portion of such excess cash to stockholders through a special dividend or implementation of a stock repurchase
program. Any future dividends or stock repurchases will be at the discretion of the Board and subject to consideration of a
number of factors, including business and market conditions, future financial performance and other strategic investment
opportunities. The Company will also seek to optimize its capital structure to improve returns to stockholders while allowing
flexibility for the Company to pursue very selective strategic growth opportunities that can provide compelling stockholder
returns.
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The Company has paid a regular quarterly cash dividend of $0.05 per share every quarter since the Board adopted the
Dividend Policy. As of December 31, 2019, the Company has paid $29.3 million of regular quarterly cash dividends under the
Dividend Policy.
March 2017 Special Distribution
On March 31, 2017, our board of managers declared a cash distribution payable to holders of our Class A Units, Class
B Units and Class C Units as of March 27, 2017, resulting in distributions to such holders in the aggregate amount of $190.0
million. The March Special Distribution was funded with available cash on hand and was paid to Computershare Trust
Company, N.A., as disbursing agent, on March 31, 2017.
November 2017 Special Dividend
On November 2, 2017, the Board declared the November Special Dividend of approximately $600.0 million, which
was funded with the net proceeds from the Notes Offering, together with cash on hand of approximately $260.0 million and
was paid on November 22, 2017 to stockholders of record as of the close of business on November 13, 2017.
April 2018 Special Dividend
On April 3, 2018, the Board declared the April Special Dividend of approximately $350.0 million, which was funded
with the net proceeds from the offering of the New Notes due 2024, together with cash on hand of approximately $225.0
million, and was paid on April 20, 2018 to stockholders of record as of the close of business on April 13, 2018.
April 2019 Special Dividend
On April 23, 2019, the Board declared a special cash dividend of approximately $230.0 million which was paid with
cash on hand and was paid on May 14, 2019 to stockholders of record as of the close of business on May 6, 2019.
Stock Repurchase Program
On March 26, 2019, the Board approved our second stock repurchase program (the “New Stock Repurchase
Program”) that authorizes repurchases of up to an aggregate of $70.0 million of our outstanding common stock. We fully
exhausted our previous stock repurchase program (the "First Stock Repurchase Program") of $40.0 million of our outstanding
common stock. The New Stock Repurchase Program does not require us 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, we may repurchase shares of our common stock from time to time, in
amounts, at prices and at such times as we deem appropriate, subject to market and industry conditions, share price, regulatory
requirements and other considerations as determined from time to time by us. Our 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. We intend to fund repurchases under the New
Stock Repurchase Program from cash on hand and/or other sources of liquidity.
As of December 31, 2019, we have repurchased 500,000 shares for approximately $10.6 million, leaving
approximately $58.8 million of share repurchases authorized under the New Stock Repurchase Program.
During 2019, we returned approximately $252.9 million of capital to stockholders and have returned $1.3 billion since
our IPO. We remain committed to providing returns to stockholders through dividends and stock repurchases.
ABL Facility
On April 1, 2016, we entered into the ABL Facility with certain lenders and Citibank, N.A. (together with its affiliates,
“Citibank”), as administrative agent and collateral agent, with an aggregate lender commitment of up to $50.0 million, at any
time outstanding, subject to borrowing base availability.
On October 15, 2018, we entered into an Amended and Restated Asset-Based Revolving Credit Agreement, by and
among us and certain of our subsidiaries, as borrowers, the guarantors party thereto, the lenders from time to time party thereto
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and Citibank, N.A. as administrative agent (in such capacity, the "Agent"), which amended and restated in its entirety the
existing ABL Facility and, among other things (i) increased the aggregate commitments available to be borrowed under the
ABL Facility to $125.0 million, (ii) extended the maturity date of the ABL Facility to October 15, 2023; (iii) decreased the
applicable interest rate margins with respect to the loans and the applicable fees in connection with the issuance of letters of
credit; and (iv) amended certain covenants and other terms and provisions.
On December 19, 2019, we entered into an Amendment No. 2 to the Amended and Restated Credit Agreement (the
“Amendment”). The purpose of the Amendment was to (i) amend the definitions of Fixed Charges and Fixed Charge Coverage
Ratio as these terms are used in the Amended and Restated Credit Agreement to generally conform to the corresponding
definitions of these terms in the Indenture governing our Notes, solely for purposes of incurring unsecured debt based upon the
Fixed Charge Coverage Ratio and (ii) add customary language that satisfies the requirements of the Qualified Financial
Contract Stay Rules.
Under the ABL Facility, up to $10.0 million of the commitments may be used to incur swingline loans from Citibank
and up to $50.0 million of the commitments may be used to issue letters of credit. The ABL Facility will mature on October 15,
2023. As of December 31, 2019, no loans were outstanding under the ABL Facility and there were $8.95 million of letters of
credit issued and outstanding under the ABL Facility. At December 31, 2019, we had $116.1 million of availability under the
ABL Facility (calculated net of $4.6 million of letters of credit outstanding at such time).
Revolving loan (and letter of credit) availability under the ABL Facility is subject to a borrowing base, which at any
time is equal to the sum of certain eligible billed and unbilled accounts, certain eligible inventory, certain eligible supplies
inventory and qualified cash, in each case, subject to specified advance rates. The borrowing base availability is subject to
certain reserves, which may be established by the agent in its reasonable credit discretion. The reserves may include rent
reserves, lower of cost or market reserve, port charges reserves and any other reserves that the agent determines in its
reasonable credit judgment to the extent such reserves relate to conditions that could reasonably be expected to have an adverse
effect on the value of the collateral included in the borrowing base.
Subject to permitted exceptions, the obligations of the borrowers under the ABL Facility are guaranteed by each of our
domestic subsidiaries and secured by (i) first-priority security interests in the ABL Priority Collateral (as defined in the
indenture governing the Notes), which includes, among other things, certain accounts receivables, inventory and cash of ours
and the guarantors, and (ii) second-priority security interests in the Notes Priority Collateral (as defined in the indenture
governing the Notes), which includes, among other things, material mining properties, shares of capital stock of the guarantors,
intellectual property, as extracted collateral (to the extent not constituting inventory), and certain fixed assets of ours and the
guarantors.
Borrowings under the ABL Facility bear interest at a rate equal to LIBOR 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 currently
from 150 bps to 200 bps or 50 bps to 100 bps, respectively. In addition to paying interest on the outstanding borrowings under
the ABL Facility, we are required to pay a fee in respect of unutilized commitments, which is based on the availability of the
commitments under the ABL Facility, ranging from 25 bps to 37.5 bps. We are also required to pay a fee on amounts available
to be drawn under outstanding letters of credit under the ABL Facility at a rate not in excess of 200 bps, and certain
administrative fees.
We are able to voluntarily repay outstanding loans and reduce unused commitments, in each case, in whole or in part,
at any time without premium or penalty. We are required to repay outstanding loans and cash collateralize letters of credit
anytime the outstanding loans and letters of credit exceed the maximum availability then in effect. We are also required to use
net proceeds from certain significant asset sales to repay outstanding loans, but may re-borrow following such prepayments if
the conditions to borrowings are met.
The ABL Facility contains customary covenants for asset-based credit agreements of this type, including among other
things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence
of certain indebtedness; (iii) restrictions on the existence or incurrence of certain liens; (iv) restrictions on making certain
restricted payments; (v) restrictions on making certain investments; (vi) restrictions on certain mergers, consolidations and asset
dispositions; (vii) restrictions on certain transactions with affiliates; and (viii) restrictions on modifications to certain
indebtedness. Additionally, the ABL Facility contains a springing fixed charge coverage ratio of not less than 1.00 to 1.00,
which ratio is tested if availability under the ABL Facility is less than a certain amount. As of December 31, 2019, we were not
subject to this covenant. Subject to customary grace periods and notice requirements, the ABL Facility also contains customary
events of default.
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We were in compliance with all applicable covenants under the ABL Facility as of December 31, 2019.
Senior Secured Notes
On November 2, 2017, we consummated a private offering (the “Offering”) of $350.0 million aggregate
principal amount of 8.00% Senior Secured Notes due 2024 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 approximately $340.0
million from the Offering, together with cash on hand of approximately $260.0 million, to pay a special cash dividend of
approximately $600.0 million, or $11.21 per share, to all of its stockholders on a pro rata basis (the "November Special
Dividend").
On March 1, 2018, we issued $125.0 million in aggregate principal amount of its 8.00% Senior Secured Notes due
2024 (the "New Notes") 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 ("Regulation S"). The New Notes were issued at 103.00% of the aggregate principal amount thereof,
plus accrued interest from November 2, 2017. The New Notes were issued as "Additional Notes" under the indenture dated as
of November 2, 2017 (the "Original Indenture") among the Company, the subsidiary guarantors party thereto and Wilmington
Trust, National Association, as trustee (the "Trustee") and priority lien collateral trustee (the "Priority Lien Collateral Trustee"),
as supplemented by the First Supplemental Indenture, dated as of March 1, 2018 (the "First Supplemental Indenture" and, the
Original Indenture as supplemented thereby, the "Indenture"). The New Notes have not been and will not be registered under
the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from the
registration requirements of the Securities Act. The Company used the net proceeds of the offering of the New Notes, together
with cash on hand of $225.0 million, to pay a special dividend of approximately $350.0 million, or $6.53 per share, to all of its
stockholders on a pro rata basis on April 20, 2018 (the "April Special Dividend").
The Notes will mature on November 1, 2024 and interest is payable on May 1 and November 1 of each year,
commencing May 1, 2018.
At any time prior to November 1, 2020, we may redeem the Notes, in whole or in part, at a price equal to 100.00% of
the principal amount of the Notes redeemed plus the Applicable Premium (as defined in the indenture) and accrued and unpaid
interest, if any, to, but excluding, the applicable redemption date. The Notes are redeemable at our option, in whole or in part,
from time to time, on or after November 1, 2020, at redemption prices specified in the indenture, plus accrued and unpaid
interest, if any, to, but excluding the redemption date. At any time on or prior to November 1, 2020, we may redeem up to 40%
of the aggregate principal amount of the Notes with the proceeds of certain equity offerings, at a redemption price of 108.00%
of the principal amount of the Notes, plus accrued and unpaid interest, if any, to but excluding the redemption date. We are also
required to make offers to purchase the Notes (i) at a purchase price of 101.00% of the principal amount thereof in the event we
experience specific kinds of change of control triggering events, (ii) at a purchase price of 103.00% of the principal amount
thereof prior to making certain restricted payments, and (iii) at a purchase price of 100.00% of the principal amount thereof in
the event we make certain asset sales or dispositions and do not reinvest the net proceeds therefrom or use such net proceeds to
repay certain indebtedness, in each case, plus accrued and unpaid interest, if any, to, but excluding the date of purchase.
Offer to Purchase the Notes
On February 21, 2019, 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 March 22, 2019 (the “Expiration Date”).
Restricted Payment Offer
As of the Expiration Date, $1,900,000 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:
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(1) an automatic pro ration factor of 31.5789% was applied to the $1,900,000 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 $599,000 aggregate principal amount of the
Notes (the “RP Pro-Rated Tendered Notes”);
(2) the Company accepted all $599,000 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 $1,301,000 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 March 25, 2019.
Accordingly, pursuant to the terms of the Indenture, the Company was permitted to make one or more restricted
payments 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 $299,401,000 (the "RP Basket") without having to make another offer to
repurchase Notes. The Company used a portion of the RP Basket to pay the April 2019 Special Dividend (as defined below)
and intends to use the remainder of the RP Basket to make repurchases under the New Stock Repurchase Program (as defined
below).
Tender Offer
As of the Expiration Date, $415,099,000 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 31.5789% was applied to the $415,099,000 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 $130,966,000 aggregate principal amount of the
Notes (the “TO Pro-Rated Tendered Notes”);
(2) the Company accepted all $130,966,000 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 $284,133,000 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 March 26, 2019.
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 $9.8 million during the year ended December 31, 2019.
Short-Term Investments
During the year ended December 31, 2019, we had $17.0 million of surety bonds with $14.5 million of collateral
recognized as short term investments. These investments were posted as collateral for the self-insured black lung related claims
asserted by or on behalf of former employees of Walter Energy and its subsidiaries, which were assumed in the Asset
Acquisition and relate to periods prior to March 31, 2016.
Capital Expenditures
Our mining operations require investments to maintain, expand, upgrade or enhance our operations and to comply
with environmental regulations. Maintaining and expanding mines and related infrastructure is capital intensive. Specifically,
the exploration, permitting and development of met coal reserves, mining costs, the maintenance of machinery and equipment
and compliance with applicable laws and regulations require ongoing capital expenditures. While a significant amount of the
capital expenditures required at our mines has been spent, we must continue to invest capital to maintain our production. In
addition, any decisions to increase production at our mines and the development of the high-quality met coal recoverable
reserves at Blue Creek in the future could also affect our capital needs or cause future capital expenditures to be higher than in
the past and/or higher than our estimates.
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To fund our capital expenditures, we may be required to use cash from our operations, incur debt or sell equity
securities. Our ability to obtain bank financing or our ability to access the capital markets for future equity or debt offerings
may be limited by our financial condition at the time of any such financing or offering and the covenants in our current or
future debt agreements, as well as by general economic conditions, contingencies and uncertainties that are beyond our control.
Our cash capital expenditures were $107.3 million for the year ended December 31, 2019, primarily as a result of the
continuation of the capital investment program that we implemented in 2017 to upgrade all key production equipment to further
improve efficiency and reliability of our mining operations. We spent approximately $89.0 million in sustaining capital which
was greater than our guidance of $70.0 to $83.0 million, and an additional $18.0 million in other discretionary capital, which
included primarily the shaft construction at Mine No. 4 and which was below our guidance. The cash capital expenditures
exclude non-cash capital accruals and leases of approximately $45.5 million.
We evaluate our spending on an ongoing basis in connection with our mining plans and the prices of met coal taking
into consideration the funding available to maintain our operations at optimal production levels.
We expect to continue making significant capital expenditures in 2020 above our normal sustaining capital
expenditures that we believe will further improve efficiency, reliability and production levels in 2020 and the future. Total
capital spending will depend upon a number of factors, including business and economic conditions, the met coal pricing
environment and our expected financial performance and our capital expenditures can be reduced if those conditions were to
deteriorate in 2020 or beyond. Our capital spending is expected to range from $125.0 to $145.0 million for the full year 2020,
consisting of sustaining capital expenditures of approximately $75.0 to $85.0 million and discretionary capital expenditures of
approximately $50.0 to $60.0 million. Our sustaining capital expenditures include expenditures related to longwall operations,
continuous miners, new ventilation, and bleeder shafts. Our discretionary capital expenditures include development of Blue
Creek (as discussed below), Mine 4 development, and other various operational improvements, which will increase efficiency,
increase production and lower costs over time. Because of the long lead times on the discretionary capital spending, we expect
to realize the benefits of those projects primarily in 2021 and beyond.
Blue Creek
We recently announced plans to commence development of Blue Creek. We believe that Blue Creek represents one of
the few remaining untapped reserves of premium High Vol A met coal in the United States and that it has the potential to
provide us with meaningful growth. We believe that the combination of a low production cost and the high quality of the High
Vol A met coal mined from Blue Creek, assuming we achieve our expected price realizations, will generate some of the highest
met coal margins in the U.S., generate strong investment returns for us and achieve a rapid payback of our investment across a
range of met coal price environments. For 2020, our developmental plans for this mine consist of capital expenditures of $25.0
million.
According to our third party reserve report, Blue Creek contains approximately 103.0 million metric tons of
recoverable reserves and we have the ability to acquire adjacent reserves that would increase total reserves to over 170 million
metric tons. We expect that Blue Creek will have a mine life of approximately 50 years assuming a single longwall operation.
Our third-party reserve report also indicates that, once developed, Blue Creek will produce a premium High Vol A met
coal that is characterized by low-sulfur and high CSR. High Vol A met coal has traditionally priced at a discount to the
Australian Premium Low Vol and the U.S. Low Vol coals; however, in the last eighteen months, it has been priced at or slightly
above these coals. Warrior expects High Vol A coals will continue to become increasingly scarce as a result of Central
Appalachian producers mining thinner and deeper reserves, which we expect will continue to support prices. This trend creates
an opportunity for us to take advantage of favorable pricing dynamics driven by the declining supply of premium High Vol A
met coal.
If we are able to successfully develop Blue Creek, we expect that it will be a transformational investment for us. We
expect that the new single longwall mine at Blue Creek will have the capacity to produce an average of 3.9 million metric tons
per annum of premium High Vol A met coal over the first ten years of production, thereby increasing our annual production
capacity by 54%. This, in turn, would expand our product portfolio to our global customers by allowing us to offer three
premium hard coking coals from a single port location. Given these factors, and assuming we achieve expected price
realizations, we believe that we will achieve some of the highest premium met coal margins in the United States.
Contractual Obligations
The following is a summary of our significant contractual obligations at December 31, 2019.
77
Payments due by Year
Total
Less than
1 year
1 - 3 years
3 - 5 years
More than
5 years
Senior Secured Notes (principal and interest)(1)
Minimum throughput obligations(2)
Royalty obligations(3)
Black lung obligations(4)
Asset retirement obligations(4)
Capital lease obligations (5)
$
$
$
$
$
$
478,520
501,448
87,269
79,809
77,119
40,845
27,475
96,238
5,939
2,293
2,164
12,132
(in thousands)
54,950
148,866
11,879
5,411
4,696
19,313
396,095
151,689
11,879
4,930
3,639
9,400
—
104,655
57,572
67,175
66,620
—
Total contractual obligations
$ 1,265,010 $ 146,241 $
245,115 $
577,632 $
296,022
(1) Represents principal and interest payments on our Notes. See Note 13 to our consolidated financial statements.
(2) Represents minimum throughput obligations with our rail and port providers.
(3) We have obligations on various coal and land leases to prepay certain amounts, which are recoupable in future years
when mining occurs.
(4) Represents estimated costs for black lung and asset retirement obligations, which have been presented on an
undiscounted basis.
(5) Represents a capital lease obligation for the purchase of underground mining equipment. See Note 14 to our consolidated
financial statements.
Off-Balance Sheet Arrangements
In the ordinary course of our business, we are required to provide surety bonds and letters of credit to provide financial
assurance for certain transactions and business activities. Federal and state laws require us to obtain surety bonds or other
acceptable security to secure payment of certain long-term obligations including mine closure or reclamation costs and other
miscellaneous obligations. As of December 31, 2019, we had outstanding surety bonds and letters of credit with parties for
post-mining reclamation at all of our mining operations totaling $40.6 million, and $2.2 million for miscellaneous purposes.
Critical Accounting Policies and Estimates
The financial statements are prepared in conformity with GAAP, which require the use of estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and expenses in the period presented. Management
evaluates these estimates and assumptions on an ongoing basis, using historical experience, consultation with experts and other
methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from
management’s estimates.
We believe the following discussion addresses our most critical accounting estimates, which are those that are most
important to the presentation of our financial condition and results of operations and require management’s most difficult,
subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain. These estimates are based upon management’s historical experience and on various other assumptions that we
believe reasonable under the circumstances. Changes in estimates used in these and other items could have a material impact on
our financial statements. Our significant accounting policies are described in Note 2 to our financial statements included
elsewhere in this Annual Report.
Coal Reserves
There are numerous uncertainties inherent in estimating quantities and values of economically recoverable coal
reserves, including many factors that are beyond our control. As a result, estimates of economically recoverable coal reserves
are by their nature uncertain. Information about our reserves consists of estimates based on engineering, economic and
geological data assembled by our internal engineers and geologists or third-party consultants. A number of sources of
information are used to determine accurate recoverable reserve estimates including:
78
•
•
•
•
•
•
geological conditions;
historical production from the area compared with production from other producing areas;
the assumed effects of regulations and taxes by governmental agencies;
previously completed geological and reserve studies;
assumptions governing future prices; and
future operating costs.
Some of the factors and assumptions, which will change from time to time, that impact economically recoverable
reserve estimates include, among other factors:
• mining activities;
•
•
new engineering and geological data;
acquisition or divestiture of reserve holdings; and
• modification of mining plans or mining methods.
Each of these factors may vary considerably from the assumptions used in estimating reserves. For these reasons,
estimates of economically recoverable quantities of coal attributable to a particular group of properties, and classifications of
these reserves based on risk of recovery and estimates of future net cash flows, may vary substantially. Actual production,
revenues and expenditures with respect to reserves will likely vary from estimates and these variances may be material.
Variances could affect our projected future revenues and expenditures, as well as the valuation of coal reserves and depletion
rates. As of December 31, 2019, we had 218.8 million metric tons of proven and probable coal reserves.
Asset Retirement Obligations
Our asset retirement obligations primarily consist of spending estimates to reclaim surface lands and supporting
infrastructure at both surface and underground mines in accordance with applicable reclamation laws in the United States as
defined by each mining permit. Significant reclamation activities include reclaiming refuse piles and slurry ponds, reclaiming
the pit and support acreage at surface mines, and sealing portals at underground mines. Asset retirement obligations are
determined for each mine using various estimates and assumptions, including estimates of disturbed acreage as determined
from engineering data, estimates of future costs to reclaim the disturbed acreage and the timing of related cash flows,
discounted using a credit-adjusted, risk-free rate. Our asset retirement obligations also include estimates to reclaim gas wells in
accordance with the Oil and Gas Board of Alabama. On at least an annual basis, we review our entire asset retirement
obligation liability and make necessary adjustments for permit changes, the anticipated timing of mine closures, and revisions
to cost estimates and productivity assumptions to reflect current experience. As changes in estimates occur, the carrying amount
of the obligation and asset are revised to reflect the new estimate after applying the appropriate credit-adjusted, risk-free
discount rate. For sites where there is no asset, expense or income is recognized for changes in estimates. If our assumptions
differ from actual experience, or if changes in the regulatory environment occur, our actual cash expenditures and costs that we
incur could be materially different than currently estimated. At December 31, 2019, we had recorded asset retirement obligation
liabilities of $56.2 million, including $2.6 million reported as current.
Income Taxes
As a result of the Asset Acquisition, we have significant federal and state NOLs of approximately $785.6 million and
$860.3 million, respectively as of December 31, 2019.
We believe the utilization of these NOLs, subject to certain limitations, will significantly reduce the amount of federal
and state income taxes payable by us for the foreseeable future as compared to what we would have had to pay at the statutory
rates without these NOL benefits. Under Section 382 of the Code, these NOLs could be subject to annual limitations, further
limitations, or elimination, as described below, if we were to undergo a subsequent ownership change in the future. To the
extent we have taxable income in the future and can utilize these NOL carryforwards, subject to certain limitations, to reduce
taxable income, our cash taxes will be significantly reduced in those future years. Notwithstanding the above, even if all of our
79
regular U.S. federal income tax liability for a given year is reduced to zero by virtue of utilizing our NOLs, we may still be
subject to state, local or other non-federal income taxes. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business—
We may be unable to generate sufficient taxable income from future operations, or other circumstances could arise, which may
limit or eliminate our ability to utilize our significant tax NOLs or maintain our deferred tax assets.”
On September 18, 2017, the IRS issued to us a private letter ruling, which favorably resolved certain questions about
our ability to qualify for an exception to the annual limitations under Section 382 of the Code on the utilization of NOLs to
reduce taxable income. Based on such private letter ruling, we believe that there is no limitation on the utilization of our NOLs
to shield our income from federal taxation. The private letter ruling was issued based on, among other things, certain facts and
assumptions, as well as certain representations, statements and undertakings provided to the IRS by us. If any of these facts,
assumptions, representations, statements or undertakings are, or become, incorrect, inaccurate or incomplete, the private letter
ruling may be invalid and the conclusions reached therein could be jeopardized. If we were to undergo a subsequent ownership
change, our ability to utilize our NOLs and other tax attributes could be subject to severe limitations.
GAAP requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary
differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are required to be reduced by a
valuation allowance if it is “more likely than not” that some portion or the entire deferred tax asset will not be realized. In our
evaluation of the need for a valuation allowance on our deferred tax assets, we consider, among other things, all available
positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, the
overall business environment, our historical financial results, our industry's historically cyclical financial results, our
cumulative three-year income or loss position and potential current and future tax planning strategies.
We recorded a full valuation allowance in 2016 due to our cumulative loss position at that time, compounded by the
negative industry-wide business trends and outlook. At December 31, 2017, we had a $312.5 million valuation allowance
established against our deferred income tax assets, which represented a full valuation allowance against our net deferred
income tax assets. For 2017, we recorded a pre-tax profit of $416.5 million; however, we remained in a three-year cumulative
loss position, had limited operating results as a new Company and given the industry's recent history of significant losses
concluded as of December 31, 2017 that another year of significant profitability was needed to support a release of valuation
allowance.
During 2018, we continued our trend of sustained profitability, recording a pre-tax profit of $471.0 million for the
year. During the fourth quarter of 2018, after considering all relevant factors, we concluded that our deferred income tax assets
are more likely than not to be realized. In evaluating the likelihood of utilizing our deferred tax assets, the significant relevant
factors that we considered are: (1) our recent history of profitability; (2) growth in the U.S. and global economies; (3) estimates
of future HCC prices; (4) we moved from a three-year cumulative loss position to a cumulative income position for the first
time since we established the full valuation allowance; and (5) future impact of taxable temporary differences. Based on this
evaluation, at December 31, 2018, we released our valuation allowance against our net deferred income tax assets resulting in
the $225.8 million benefit in our provision for income taxes.
As of December 31, 2019, after considering all relevant factors, we concluded that our deferred income tax assets
remain more likely than not to be realized and a valuation allowance is not required.
Recently Adopted Accounting Standards
See Note 2 of our consolidated financial statements for disclosures related to new accounting pronouncements.
Recent Development
Rights Agreement
On February 14, 2020, we adopted the Rights Agreement in an effort to prevent the imposition of significant limitations
under Section 382 of the Code on our ability to utilize our current NOLs to reduce our future tax liabilities.
The Rights Agreement is intended to supplement the 382 Transfer Restrictions and is designed to serve the interests of all
stockholders by preserving the availability of our NOLs and is similar to plans adopted by other companies with significant NOLs.
Pursuant to the Rights Agreement, one preferred stock purchase right (a “Right” or the “Rights”) will be distributed to
stockholders of the Company for each share of common stock of the Company outstanding as of the close of business on
February 28, 2020. Initially, these Rights will not be exercisable and will trade with the shares of common stock. If the Rights
80
become exercisable, each Right will initially entitle stockholders to buy one one-thousandth of a share of a newly created series
of preferred stock designated as “Series A Junior Participating Preferred Stock” at an exercise price of $31.00 per Right. While
the Rights Agreement is in effect, any person or group that acquires beneficial ownership of 4.99% or more of the common
stock or any existing stockholder who currently owns 5.00% or more of the common stock that acquires any additional shares
of common stock (such person, group or existing stockholder, an "Acquiring Person") without approval from the Board would
be subject to significant dilution in their ownership interest in the Company. In such an event, each Right will entitle its holder
to buy, at the exercise price, common stock having a market value of two times the then current exercise price of the Right and
the Rights held by such Acquiring Person will become void. The Rights Agreement also gives discretion to the Board to
determine that someone is an Acquiring Person even if they do not own 4.99% or more of the Common Stock but do own
4.99% or more in value of the outstanding stock, as determined pursuant to Section 382 of the Code and the regulations
promulgated thereunder. In addition, the Board has established procedures to consider requests to exempt certain acquisitions
of the Company’s securities from the Rights Agreement if the Board determines that doing so would not limit or impair the
availability of the NOLs or is otherwise in the best interests of the Company. The Board may redeem the Rights for $0.01 per
Right at any time before any person or group triggers the Rights Agreement. The distribution of the Rights is not a taxable
event for stockholders of the Company and will not affect the Company’s’ financial condition or results of operations
(including earnings per share).
The Rights will expire on the earliest of (i) the close of business on February 14, 2023,(ii) the close of business on the first
anniversary of the date of entry into the Rights Agreement, if stockholder approval of the Rights Agreement has not been received
by or on such date, (iii) the time at which the Rights are redeemed as provided in the Rights Agreement, (iv) the time at which the
Rights are exchanged as provided in the Rights Agreement, (v) the time at which the Board determines that the NOLs are fully
utilized or no longer available under Section 382 of the Code, (vi) the effective date of the repeal of Section 382 of the Code if
the Board determines that the Rights Agreement is no longer necessary or desirable for the preservation of NOLs, or (vii) the
closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in
the Rights Agreement. Additional details about the Rights Agreement is contained in the Company’s Current Report on Form 8-
K filed with the SEC on February 14, 2020.
Designation of Series A Junior Participating Preferred Stock
In connection with the adoption of the Rights Agreement, the Board approved a certificate of designations of Series A
Junior Participating Preferred Stock designating 140,000 shares of preferred stock, which was filed on February 14, 2020 with
the Secretary of State of the State of Delaware and became effective on such date. Each one one-thousandth of a share of Series
A Junior Participating Preferred Stock, if issued:
• will not be redeemable;
• will entitle the holder to quarterly dividend payments equal to the dividend paid on one share of common stock;
• will entitle the holder upon liquidation, dissolution or winding-up of the Company to receive the greater of (a) $0.01
per one one-thousandth of a share of Series A Junior Participating Preferred Stock (plus any accrued but unpaid
dividends) and (b) an amount equal to the payment made on one share of common stock;
• will have the same voting power as one share of common stock; and
•
if shares of common stock are exchanged via merger, consolidation, or a similar transaction, will entitle the holder to
a payment equal to the payment made on one share of Common Stock.
81
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
We are exposed to commodity price risk on sales of coal. We sell most of our met coal under contracts primarily with
pricing terms of three months and volume terms of one to three years. Sales commitments in the met coal market are typically
not long-term in nature, and we are, therefore, subject to fluctuations in market pricing.
We have exposure to price risk for supplies that are used directly or indirectly in the normal course of production, such
as diesel fuel, steel, explosives and other items. We manage our risk for these items through strategic sourcing contracts in
normal quantities with our suppliers. We historically have not entered into any derivative commodity instruments to manage the
exposure to changing price risk for supplies.
Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk consist principally of trade
receivables. We provide our products to customers based on an evaluation of the financial condition of our customers. In some
instances, we require letters of credit, cash collateral or prepayments from our customers on or before shipment to mitigate the
risk of loss. Exposure to losses on receivables is principally dependent on each customer’s financial condition. We monitor the
exposure to credit losses and maintain allowances for anticipated losses. For the years ended December 31, 2019 and 2018 we
did not have any allowances for credit losses associated with our trade accounts receivables.
Interest Rate Risk
Our Notes have a fixed rate of interest of 8.00% per annum and are payable semi-annually in arrears on May 1 and
November 1 of each year.
Our ABL Facility bears an interest rate equal to LIBOR plus an applicable margin, which is based on the average
availability of the commitments under the ABL Facility, ranging currently from 150 to 200 basis points. Any debt that we incur
under the ABL Facility will expose us to interest rate risk. If interest rates increase significantly in the future, our exposure to
interest rate risk will increase. As of December 31, 2019, assuming we had $125.0 million outstanding under our ABL Facility,
a 100 basis point increase or decrease in interest rates would increase or decrease our annual interest expense under the ABL
Facility by approximately $1.3 million. Furthermore, such interest rates under our ABL Facility are based upon benchmarks
that are subject to potential change or elimination, including as a result of the announcement from the United Kingdom
Financial Conduct Authority ("FCA"), which regulates LIBOR, that it intends to stop compelling banks to submit rates for the
calculation of LIBOR after 2021.
Impact of Inflation
While inflation may impact our revenues and cost of sales, we believe the effects of inflation, if any, on our results of
operations and financial condition have not been significant. However, there can be no assurance that our results of operations
and financial condition will not be materially impacted by inflation in the future.
Item 8. Financial Statements and Supplementary Data
The information required by this item appears beginning on page F-1 following the signature pages of this Annual
Report.
82
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) as of December 31, 2019. Based on the
evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of December 31, 2019, our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act is (1) recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms and (2) accumulated and
communicated to our management, including our principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosures.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended). Our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, our
management used the criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Our
management has concluded that, as of December 31, 2019, our internal control over financial reporting is effective based on
this assessment and these criteria.
Our independent registered public accounting firm, Ernst & Young LLP, has audited the effectiveness of our internal
control over financial reporting, as stated in their attestation report included in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2019,
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
83
Item 10. Directors, Executive Officers and Corporate Governance
Part III
Information regarding our Code of Business Conduct and Ethics and Corporate Governance Guidelines for our
principal executive officer and principal financial and accounting officer are described in “Item 1. Business” in this Annual
Report. Pursuant to paragraph 3 of General Instruction G to Form 10-K, we incorporate by reference into this Item 10 the
information to be disclosed in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC
within 120 days after the close of the year ended December 31, 2019.
Item 11. Executive Compensation
Pursuant to paragraph 3 of General Instruction G to Form 10-K, we incorporate by reference into this Item 11 the
information to be disclosed in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC
within 120 days after the close of the year ended December 31, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The equity compensation plan information as required by Item 201(d) of Regulation S-K is included in Part II, Item 5
of this Annual Report. Pursuant to paragraph 3 of General Instruction G to Form 10-K, we incorporate by reference into this
Item 12 all other information to be disclosed in our definitive proxy statement, which is to be filed pursuant to Regulation 14A
with the SEC within 120 days after the close of the year ended December 31, 2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Pursuant to paragraph 3 of General Instruction G to Form 10-K, we incorporate by reference into this Item 13 the
information to be disclosed in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC
within 120 days after the close of the year ended December 31, 2019.
Item 14. Principal Accounting Fees and Services
Pursuant to paragraph 3 of General Instruction G to Form 10-K, we incorporate by reference into this Item 14 the
information to be disclosed in our definitive proxy statement, which is to be filed pursuant to Regulation 14A with the SEC
within 120 days after the close of the year ended December 31, 2019.
84
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) (1) Financial Statements
Our consolidated financial statements are included in this Annual Report beginning on page F-1.
(a) (2) Financial Statement Schedules
All schedules have been omitted because they are either not applicable, not required or the information called for
therein appears in the consolidated financial statements or notes thereto.
(a) (3) Exhibits
Exhibit
Number
2.1#
2.2
3.1
3.2
3.3
4.1
4.2
4.3
4.4
Description
Amended and Restated Asset Purchase Agreement, dated as of March 31, 2016, by and among Warrior Met
Coal, LLC and the other purchasers party thereto, as buyers, and Walter Energy, Inc. and certain subsidiaries of
Walter Energy, Inc., as sellers (incorporated by reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form S-1 (File No. 333-216499) filed with the Commission on March 7, 2017).
Form of Certificate of Conversion of Warrior Met Coal, LLC (incorporated by reference to Exhibit 2.2 to the
Registrant's Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-216499) filed with the
Commission on April 3, 2017).
Certificate of Incorporation of Warrior Met Coal, Inc. (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-8 (File No. 333-217389) filed with the Commission on April 19,
2017).
Bylaws of Warrior Met Coal, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form S-8 (File No. 333-217389) filed with the Commission on April 19, 2017).
Certificate of Designations of Series A Junior Participating Preferred Stock of Warrior Met Coal, Inc., as filed
with the Secretary of State of the State of Delaware on February 14, 2020 (incorporated by reference to Exhibit
3.1 to the Registrant's Current Report on Form 8-K (File No. 001-38061) filed with the Commission on
February 14, 2020).
Indenture, dated as of November 2, 2017, by and among Warrior Met Coal, Inc., the Subsidiary Guarantors
party thereto from time to time and Wilmington Trust, National Association, as trustee and as priority lien
collateral trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K (File
No. 001-38061) filed with the Commission on November 6, 2017).
First Supplemental Indenture, dated as of March 1, 2018, among Warrior Met Coal, Inc., the Subsidiary
Guarantors party thereto and Wilmington Trust, National Association, as trustee and as priority lien collateral
trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K (File No.
001-38061) filed with the Commission on March 6, 2018).
Second Supplemental Indenture, dated as of March 2, 2018, among Warrior Met Coal, Inc. and Wilmington
Trust, National Association, as trustee and as priority lien collateral trustee (incorporated by reference to Exhibit
4.2 to the Registrant's Current Report on Form 8-K (File No. 001-38061) filed with the Commission on March
6, 2018).
Specimen Certificate for shares of common stock, par value $0.01 per share, of the Company (incorporated by
reference to Exhibit 4.1 to the Registrant's Amendment No. 2 to the Registration Statement on Form S-1 (File
No. 333-216499) filed with the Commission on April 3, 2017).
85
4.5
4.6*
10.1#
10.2
10.3
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
Rights Agreement, dated as of February 14, 2020, between Warrior Met Coal, Inc. and Computershare Trust
Company, N.A., as rights agent (including the form of Certificate of Designations of Series A Junior
Participating Preferred Stock attached thereto as Exhibit A, the form of Right Certificate attached thereto as
Exhibit B and the Summary of Rights to Purchase Preferred Shares attached thereto as Exhibit C (incorporated
by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-38061) filed with the
Commission on February 14, 2020)).
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
Amended and Restated Asset-Based Revolving Credit Agreement, dated as of October 15, 2018, among Warrior
Met Coal, Inc. and certain of its subsidiaries, as borrowers, the guarantors party thereto, Citibank, N.A., as
administrative agent and collateral agent, each lender and letter of credit issuer party thereto and Citigroup
Global Markets Inc. and Credit Suisse Securities (USA) LLC as joint lead arrangers and joint book runners
(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-38061)
filed with the Commission on October 16, 2018).
Intercreditor Agreement, dated as of November 2, 2017, among Citibank, N.A., initial ABL agent, Wilmington
Trust National Association, as trustee and initial term agent, and each additional term debt agent from time to
time party thereto (incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K
(File No. 001-38061) filed with the Commission on February 14, 2018).
Registration Rights Agreement, dated as of April 19, 2017, among Warrior Met Coal, Inc. and certain of its
equity holders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q (File No. 001-38061) filed with the Commission on August 3, 2017).
Warrior Met Coal, Inc. 2017 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant's
Current Report on Form 8-K (File No. 001-38061) filed with the Commission on April 19, 2017).
Warrior Met Coal, LLC 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.11 to the
Registrant's Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-216499) filed with the
Commission on March 27, 2017).
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K (File No. 001-38061) filed with the Commission on April 19, 2017).
Employment Agreement, dated March 31, 2016 by and between Warrior Met Coal, LLC and Walter J. Scheller,
III (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (File No.
333-216499) filed with the Commission on March 7, 2017).
Employment Agreement, dated March 31, 2016 by and between Warrior Met Coal, LLC and Jack K.
Richardson (incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-1
(File No. 333-216499) filed with the Commission on March 7, 2017).
Employment Agreement, dated January 1, 2017, by and between Warrior Met Coal, LLC and Dale W. Boyles
(incorporated by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (File No.
333-216499) filed with the Commission on March 7, 2017).
10.10†
Employment Agreement, dated March 31, 2016, by and between Warrior Met Coal, LLC and Kelli K. Gant
(incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K (File No.
001-38061) filed with the Commission on February 14, 2018).
10.11*†
Employment Agreement, dated March 31, 2016, by and between Warrior Met Coal, LLC and Brian M. Chopin.
10.12*†
Employment Letter, dated January 18, 2018, by and between Warrior Met Coal, Inc. and Charles Lussier.
10.13†
10.14†
10.15†
Employment Agreement, dated June 5, 2019, by Warrior Met Coal, Inc. and Phillip C. Monroe (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-38061) filed with the
Commission on June 6, 2019).
Form of Warrior Met Coal, Inc. 2017 Equity Incentive Plan Restricted Stock Unit Award Agreement
(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No. 001-38061)
filed with the Commission on June 5, 2017).
Restricted Unit Award Agreement, dated March 31, 2016, by and between Warrior Met Coal, LLC and Walter J.
Scheller, III (incorporated by reference to Exhibit 10.13 to the Registrant's Amendment No. 3 to the Registration
Statement on Form S-1 (File No. 333-216499) filed with the Commission April 10, 2017).
86
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25†
10.26*†
10.27*†
10.28*†
10.29*†
21.1*
23.1*
23.2*
23.3*
23.4*
31.1*
31.2*
Restricted Unit Award Agreement, dated April 20, 2016, by and between Warrior Met Coal, LLC and Jack K.
Richardson (incorporated by reference to Exhibit 10.15 to the Registrant's Amendment No. 3 to the Registration
Statement on Form S-1 (File No. 333-216499) filed with the Commission on April 10, 2017).
Restricted Unit Award Agreement, dated January 1, 2017, by and between Warrior Met Coal, LLC and Dale W.
Boyles (incorporated by reference to Exhibit 10.16 to the Registrant's Amendment No. 3 to the Registration
Statement on Form S-1 (File No. 333-216499) filed with the Commission on April 10, 2017).
Restricted Unit Award Agreement, dated March 31, 2016, by and between Warrior Met Coal, LLC and Stephen
D. Williams (incorporated by reference to Exhibit 10.17 to the Registrant's Amendment No. 3 to the
Registration Statement on Form S-1 (File No. 333-216499) filed with the Commission on April 10, 2017).
Restricted Unit Award Agreement, dated February 24, 2017, by and between Warrior Met Coal, LLC and
Stephen D. Williams (incorporated by reference to Exhibit 10.18 to the Registrant's Amendment No. 3 to the
Registration Statement on Form S-1 (File No. 333-216499) filed with the Commission on April 10, 2017).
Phantom Unit Award Agreement, dated March 31, 2016, by and between Warrior Met Coal, LLC and Stephen
D. Williams (incorporated by reference to Exhibit 10.19 to the Registrant's Amendment No. 3 to the
Registration Statement on Form S-1 (File No. 333-216499) filed with the Commission on April 10, 2017).
Restricted Unit Award Agreement, dated April 19, 2017, by and between Warrior Met Coal, Inc. and Stephen D.
Williams (incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K (File No.
001-38061) filed with the commission on February 21, 2019).
Form of Restricted Unit Award Agreement (for non-employee directors), dated April 27, 2017 (incorporated by
reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K (File No. 001-38061) filed with the
commission on February 21, 2019).
Form of Restricted Unit Award Agreement (for non-employee directors) (incorporated by reference to Exhibit
10.25 to the Registrant's Annual Report on Form 10-K (File No. 001-38061) filed with the commission on
February 21, 2019).
Form of Warrior Met Coal, Inc. 2017 Equity Incentive Plan Restricted Stock Unit Award Agreement (Time-
Based Vesting Award) (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q (File No. 001-38061) filed with the Commission on May 2, 2018).
Form of Warrior Met Coal, Inc. 2017 Equity Incentive Plan Restricted Stock Unit Award Agreement
(Performance-Based Vesting Award) (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q (File No. 001-38061) filed with the Commission on May 2, 2018).
Form of Warrior Met Coal, Inc. 2017 Equity Plan Restricted Stock Unit Award Agreement (Performance-Based
Vesting Award - 2019 Retention Grant).
Form of Amendment to Restricted Stock Unit Award Agreements (for executive officers), effective January 1,
2020.
Form of Warrior Met Coal, Inc. 2017 Equity Plan Restricted Stock Unit Award Agreement (Time-Based Vesting
Award - Revised).
Form of Warrior Met Coal, Inc. 2017 Equity Plan Restricted Stock Unit Award Agreement (Performance-Based
Vesting Award - Revised).
List of Subsidiaries of the Company.
Consent of Ernst & Young LLP.
Consent of Marshall Miller & Associates, Inc.
Consent of Stantec Consulting Services, Inc.
Consent of McGehee Engineering Corp.
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.
32.1**
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18. U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
87
95*
Mine Safety Disclosures Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act and Item 104 of Regulation S-K (17 CFR 299.104)
101INS*
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation LinkBase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition LinkBase Document
101.LAB*
Inline XBRL Taxonomy Extension Label LinkBase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation LinkBase Document
104*
Cover Page Interactive Data File (formatted Inline XBRL and included in the Interactive Data Files submitted
under Exhibit 101).
*Filed herewith.
**
†
#
Company will furnish copies of such schedules to the SEC upon request.
Furnished herewith.
Management contract, compensatory plan or arrangement.
The schedules to this agreement have been omitted for this filing pursuant to Item 601(b)(2) of Regulation S-K. The
Item 16. Form 10-K Summary
None.
88
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Warrior Met Coal, Inc.
By:
/s/ Dale W. Boyles
Dale W. Boyles
Chief Financial Officer (on behalf of the registrant)
Date: February 19, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Walter J. Scheller, III
Walter J. Scheller, III
/s/ Dale W. Boyles
Dale W. Boyles
/s/ Stephen D. Williams
Stephen D. Williams
/s/ Ana B. Amicarella
Ana B. Amicarella
/s/ J. Brett Harvey
J. Brett Harvey
/s/ Alan H. Schumacher
Alan H. Schumacher
/s/ Gareth Turner
Gareth Turner
Chief Executive Officer (Principal
Executive Officer) and Director
February 19, 2020
Chief Financial Officer (Principal
Financial and Accounting Officer)
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
February 19, 2020
Director
Director
Director
Director
Director
89
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2019 and December 31, 2018
Statements of Operations for the years ended December 31, 2019, December 31, 2018, and December 31, 2017
Statements of Changes in Equity for the years ended December 31, 2019, December 31, 2018, and December 31,
2017
Statements of Cash Flows for the years ended December 31, 2019, December 31, 2018, and December 31, 2017
Notes to Financial Statements
Supplemental Summary Quarterly Financial Information (Unaudited)
F-2
F-5
F-6
F-7
F-8
F-10
F-36
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Warrior Met Coal, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Warrior Met Coal, Inc. (the Company) as of December 31,
2019 and 2018, the related consolidated statements of operations, changes in equity, and cash flows for each of the three years
in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 19, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosure to which it relates.
F-2
Asset Retirement Obligation
Description of
the Matter
At December 31, 2019, the Company had recorded asset retirement obligations of approximately
$56.2 million for the estimated costs to reclaim surface lands and supporting infrastructure in
accordance with applicable reclamation laws in the United States as defined by each mining
permit. Changes in the asset retirement obligations are more fully described in Note 8 to the
consolidated financial statements.
The calculation of reclamation obligations requires significant judgment due to the inherent
complexity in estimating the amount and timing of future costs and determining an appropriate
rate to discount these costs back to their present value.
Auditing the Company's asset retirement obligation involved a high degree of subjectivity as
estimates underlying the determination of the obligation were based on assumptions unique to
mining operations and subject to various laws and regulations governing the protection of the
applicable environment, including estimates of disturbed acreage as determined from engineering
data, estimates of future costs to reclaim the disturbed acreage and the timing and amount of
related cash flows, which are discounted using a credit-adjusted, risk-free rate. Actual costs
incurred in future periods could differ from amounts estimated and future changes to
environmental laws and regulations could increase the extent of reclamation work required.
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s process for evaluating the asset retirement obligations. For example,
we tested controls over management’s review of the assumptions described above.
To test the asset retirement obligations, our audit procedures included, among others, involving
our specialist to assist us in evaluating the Company’s reclamation cost estimates, including
estimates of disturbed acreage, the scope of estimated reclamation activities against regulatory
requirements, the associated future reclamation costs, and the timing of related cash flows, and
the Company's reclamation methodology against industry practice. We also evaluated
management’s methodology for determining the credit adjusted risk free rate used to discount the
asset retirement obligation.
How We
Addressed the
Matter in Our
Audit
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2016.
Birmingham, Alabama
February 19, 2020
F-3
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Warrior Met Coal, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Warrior Met Coal, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Warrior Met Coal, Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated
statements of operations, changes in equity, and cash flows for each of the three years in the period ended December 31, 2019,
and the related notes and our report dated February 19, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Birmingham, Alabama
February 19, 2020
F-4
WARRIOR MET COAL, INC.
BALANCE SHEETS
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Trade accounts receivable
Other receivables
Income tax receivable
Inventories, net
Prepaid expenses and other
Total current assets
Mineral interests, net
Property, plant and equipment, net
Non-current income tax receivable
Deferred income taxes
Other long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Asset retirement obligations
Short-term financing lease obligations
Other current liabilities
Current portion of long-term debt
Total current liabilities
Long-term debt
Asset retirement obligations
Black lung obligations
Financing lease obligations
Other long-term liabilities
Total liabilities
Stockholders’ Equity:
Common stock, $0.01 par value per share (Authorized -140,000,000 shares, 53,293,449
issued and 51,071,608 outstanding as of December 31, 2019 and 53,256,098 issued and
51,622,898 outstanding as of December 31, 2018)
Preferred stock, $0.01 par value per share (10,000,000 shares authorized, no shares
issued and outstanding)
Treasury stock, at cost (2,221,841 and 1,633,200 shares as of December 31, 2019 and
December 31, 2018)
Additional paid in capital
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2019
December 31,
2018
$
$
$
$
$
$
193,383
14,675
99,471
1,847
12,925
97,901
23,844
444,046
110,130
606,200
11,349
154,297
18,242
1,344,264
46,436
65,755
2,623
10,146
3,992
—
128,952
339,189
53,583
30,233
25,528
1,197
578,682
205,577
17,501
138,399
1,434
21,607
56,719
27,932
469,169
120,427
540,315
21,310
222,780
21,039
1,395,040
33,588
82,342
2,775
—
4,967
760
124,432
468,231
59,049
25,206
—
5,510
682,428
533
—
533
—
(50,576)
243,932
571,693
765,582
1,344,264
$
(38,030)
239,827
510,282
712,612
1,395,040
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
WARRIOR MET COAL, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Revenues:
Sales
Other revenues
Total revenues
Costs and expenses:
For the years ended December 31,
2019
2018
2017
$ 1,235,998
$ 1,342,683
$ 1,124,645
32,311
35,324
44,447
1,268,309
1,378,007
1,169,092
Cost of sales (exclusive of items shown separately below)
720,745
716,645
592,530
Cost of other revenues (exclusive of items shown separately below)
Depreciation and depletion
Selling, general and administrative
Transaction and other costs
Total costs and expenses
Operating income
Interest expense, net
Loss on early extinguishment of debt
Other income
Income before income taxes
Income tax expense (benefit)
Net income
Basic and diluted net income per share:
Net income per share—basic
Net income per share—diluted
Weighted average number of shares outstanding—basic
Weighted average number of shares outstanding— diluted
Dividends per share:
29,828
97,330
37,014
—
884,917
383,392
(29,335)
(9,756)
22,815
367,116
65,417
301,699
5.87
5.86
51,363
51,493
$
$
$
10,172
97,209
36,626
9,068
869,720
508,287
(37,314)
—
—
470,973
(225,814)
696,787
13.19
13.17
52,812
52,918
$
$
$
4.61
$
6.73
$
28,422
75,413
36,453
12,873
745,691
423,401
(6,947)
—
—
416,454
(38,592)
455,046
8.62
8.62
52,800
52,806
14.92
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
WARRIOR MET COAL, INC.
STATEMENTS OF CHANGES IN EQUITY
(in thousands)
Common
Stock
Preferred
Stock
Treasury
Stock
Additional
Paid in
Capital
Retained
Earnings
(Accumulated
deficit)
Total
Stockholders’
Equity
$
533
$
— $
— $
802,107
$
—
(49,673) $
455,046
752,967
455,046
Balance at December 31, 2016
Net income
Dividends paid ($14.92 per
share)
Purchase accounting
measurements period
adjustment
Equity award modification
Stock compensation
Common shares issued
Balance at December 31, 2017
$
Net income
Dividends paid ($6.73 per
share)
Stock compensation
Treasury stock purchase
Other
Balance at December 31, 2018
—
—
—
—
—
1
534
—
—
—
—
(1)
—
—
—
—
—
—
— $
$
—
—
—
—
—
$
533
$
— $
Net income
Dividends paid ($4.61 per
share)
Stock compensation
Treasury stock purchase
Other
Balance at December 31, 2019
$
—
—
—
—
—
—
—
—
—
533
$
—
— $
—
—
—
—
—
—
— $
—
—
—
(38,030)
—
(38,030) $
—
—
—
(12,546)
—
(50,576) $
(474,025)
(322,877)
(796,902)
(3,525)
1,255
4,181
—
329,993
—
(91,122)
6,405
—
(5,449)
—
—
—
$
—
82,496
696,787
$
(269,513)
—
—
512
239,827
$
510,282
$
—
—
5,349
—
(1,244)
243,932
$
301,699
(240,394)
—
—
106
571,693
$
(3,525)
1,255
4,181
1
413,023
696,787
(360,635)
6,405
(38,030)
(4,938)
712,612
301,699
(240,394)
5,349
(12,546)
(1,138)
765,582
The accompanying notes are an integral part of these consolidated financial statements.
F-7
WARRIOR MET COAL, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and depletion
Deferred income tax expense (benefit)
Stock-based compensation expense
Amortization of debt issuance costs and debt discount, net
Accretion and valuation adjustment of ARO
Loss on early extinguishment of debt
Changes in operating assets and liabilities:
Trade accounts receivable
Other receivables
Income tax receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other current liabilities
Non-current income tax receivable
Other
Net cash provided by operating activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Deferred mine development costs
Proceeds from sale of property, plant and equipment
Sale of short-term investments
Purchases of short-term investments
Net cash used in investing activities
FINANCING ACTIVITIES
Dividends paid
Proceeds from issuance of debt
Retirements of debt
Principal repayments of capital lease obligations
Debt issuance costs paid
Common shares repurchased
Other
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
For the years ended December 31,
2019
2018
2017
$
301,699
$
696,787
$
455,046
97,330
68,483
5,820
1,361
(7,891)
9,756
38,928
(224)
21,795
(30,491)
4,088
13,409
(17,317)
—
26,068
97,209
(223,038)
6,405
2,486
(19,942)
—
(20,653)
3,872
(12,431)
(1,812)
1,444
5,060
13,835
17,945
(7,771)
75,413
(1,686)
4,181
1,889
1,834
—
(51,850)
(8,121)
—
(13,732)
(17,366)
14,388
15,642
(39,255)
(1,871)
532,814
559,396
434,512
(107,278)
(101,620)
(92,625)
(23,392)
3,127
17,501
(24,171)
(8,937)
2,928
—
—
—
—
—
—
(134,213)
(107,629)
(92,625)
(240,394)
(360,635)
—
(140,272)
(17,273)
—
(12,546)
(1,138)
128,750
(3,060)
—
(3,713)
(38,030)
(4,938)
(411,623)
(281,626)
(13,022)
206,405
170,141
36,264
(796,902)
344,750
(3,060)
(505)
(2,562)
—
—
(458,279)
(116,392)
152,656
36,264
Cash and cash equivalents and restricted cash at end of period
$
193,383
$
206,405
$
The accompanying notes are an integral part of these consolidated financial statements.
F-8
WARRIOR MET COAL, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
For the years ended December 31,
2019
2018
2017
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized interest
Cash paid for income taxes
$
$
33,544
85
$
$
30,237
3
$
$
211
2,349
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital leases - equipment
$
45,523
$
6,822
$
7,355
The accompanying notes are an integral part of these consolidated financial statements.
F-9
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1—Business and Basis of Presentation
Description of the Business
Warrior Met Coal, LLC (the "Company") was formed on September 3, 2015 by certain Walter Energy, Inc. lenders
under the 2011 Credit Agreement, dated as of April 1, 2011 and the noteholders under the 9.50% Senior Secured Notes due
2019 in connection with the acquisition of certain core operating assets of Walter Energy under section 363 under Chapter 11 of
Title 11 of the U.S. Bankruptcy Code in the Northern District of Alabama, Southern Division (the "Asset Acquisition"). On
January 8, 2016, the Bankruptcy Court approved the Asset Acquisition which closed on March 31, 2016. 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 metallurgical (met) coal used as a critical component of steel production by metal manufacturers in Europe,
South America and Asia. 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.
Corporate Conversion and Initial Public Offering
On April 12, 2017, in connection with the Company’s initial public offering (“IPO”), Warrior Met Coal, LLC filed a
certificate of conversion, whereby Warrior Met Coal, LLC effected a corporate conversion from a Delaware limited liability
company to a Delaware corporation and changed its name to Warrior Met Coal, Inc. In connection with this corporate
conversion, the Company filed a certificate of incorporation, whereby the Company is authorized to issue up to 140,000,000
shares of common stock $0.01 par value per share and 10,000,000 shares of preferred stock $0.01 par value per share.
On April 19, 2017, the Company completed its IPO, whereby the selling stockholders named in the Registration
Statement on Form S-1 (File No. 333-216499) sold 16,666,667 shares of common stock at a price to the public of $19.00 per
share. The Company did not receive any proceeds from the sale of common stock in the IPO. All of the net proceeds from the
IPO were received by the selling stockholders.
The aggregate net proceeds to the selling stockholders in the IPO were $296.9 million, net of underwriting discounts
and commissions of $19.8 million. The Company paid cumulative offering expenses of $15.9 million on behalf of the selling
stockholders. Upon the closing of the IPO, 53,442,532 shares of common stock were outstanding.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Warrior Met Coal, Inc and its subsidiaries
(the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation.
Note 2—Summary of Significant Accounting Policies
Use of Estimates
The Company prepares its financial statements in conformity with GAAP, which requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods
presented. Due to the inherent uncertainty involved in making estimates, actual results could differ from those estimates.
Concentrations of Credit Risk and Major Customers
The Company’s principal line of business is mining and marketing met coal to foreign steel producers. For the year
ended December 31, 2019, approximately 97.5% of sales were derived from coal shipments to customers, located primarily in
Europe, South America and Asia. At December 31, 2019 approximately 97.3% of trade receivables were related to these
customers. For the year ended December 31, 2019, our geographic customer mix was 56% in Europe, 22% in South America
and 22% in Asia. 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.
F-10
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2019 Xcoal Energy & Resources, Exiros BV Sucursal Uruguay, ArcelorMittal,
and Thyssenkrupp Steel Europe AG accounted for $276.2 million, or 22.3%, $159.6 million, or 12.9%, $128.2 million, or
10.4%, and $125.5 million, or 10.1% of total revenues, respectively. During the year ended December 31, 2018, Xcoal Energy
& Resources, Exiros BV Sucursal Uruguay and Huettenwerke Krupp Mannesmann GmbH accounted for $203.6 million, or
15.1%, $148.5 million, or 11.0%, and $141.3 million, or 10.5% of total revenues, respectively. During the year ended
December 31, 2017, Xcoal Energy & Resources and Salzgitter Flachstahl GmBH accounted for $181.9 million, or 16.1%, and
$112.8 million, or 10%, of total revenues
Credit is extended based on an evaluation of the individual customer’s financial condition. 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 minimal historical credit losses.
Revenue Recognition
The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with
Customers”, as of January 1, 2018, using the modified retrospective approach. The Company applied the standard to all
customer contracts entered into as of the date of initial application. The Company concluded that the adoption did not change
the timing at which the Company historically recognized revenue nor did it have a material impact on its consolidated financial
statements.
For periods prior to January 1, 2018, revenue was recognized when the following criteria had been met: (i) persuasive
evidence of an arrangement existed; (ii) the price to the buyer was fixed or determinable; (iii) delivery had occurred; and (iv)
collectability was reasonably assured. Delivery is considered to have occurred at the time title and risk of loss transfers to the
customer. For coal shipments to domestic customers via rail, delivery occurs when the railcar is loaded. For coal shipments to
international customers via ocean vessel, delivery occurs when the vessel is loaded at the Port of Mobile, Alabama. For natural
gas sales, delivery occurs when the gas has been transferred to the pipeline.
For periods subsequent to January 1, 2018, revenue is recognized when performance obligations under the terms of a
contract with our customers are satisfied; for all contracts this occurs when control of the promised goods have been transferred
to our 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 included in
all other revenues, as disclosed in Note 20.
Our coal and gas sales generally include up to 45-day payment terms following the transfer of control of the goods to the
customer. We typically do not include extended payment terms in our contracts with customers.
Shipping and Handling
Costs incurred to transport coal to the point of sale at the Port of Mobile, Alabama, are included in cost of sales and the
gross amounts billed to customers, if any, to cover shipping and handling to the ultimate/final destination are included in sales.
Cash and Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the
Balance Sheets that sum to the total of the same such amounts shown in the Statements of Cash Flows (in thousands):
F-11
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Cash and cash equivalents
Restricted cash included in other long-term assets
Total cash and cash equivalents and restricted cash included in the Statements of Cash
Flows
December 31, 2019
December 31, 2018
$
$
193,383
$
205,577
—
828
193,383
$
206,405
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. As of December 31, 2018, restricted
cash included in other long-term assets in the Balance Sheet represented amounts invested in certificates of deposits as financial
assurance for post mining reclamation obligations.
Short-Term Investments
Instruments with maturities greater than three months, but less than twelve months, are included in short-term
investments. The Company purchases United States Treasury bills with maturities ranging from six to twelve months which are
classified as held to maturity and are carried at amortized cost, which approximates fair value. 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 securities are those securities that management has the intent and
ability to hold to maturity.
As of December 31, 2019, the Company’s short-term investments consisted of $14.7 million of cash and fixed income
securities. As of December 31, 2018, the Company’s short-term investments consisted of $17.5 million in Treasury bills with a
maturity of six months. These investments were posted as collateral for the self-insured black lung related claims asserted by or
on behalf of former employees of Walter Energy and its subsidiaries, which were assumed in the Asset Acquisition and relate to
periods prior to March 31, 2016.
Inventories
Inventories are valued at the lower of cost or net realizable value. Coal inventory costs include labor, supplies,
equipment costs, operating overhead, freight, royalties, depreciation and depletion and other related costs. Coal inventories are
valued using the first-in, first-out (“FIFO”) inventory valuation method. The valuation of coal inventories is subject to estimates
due to possible gains and losses resulting from inventory movements from the mine site to storage facilities, inherent
inaccuracies in belt scales and aerial surveys used to measure quantities and fluctuations in moisture content. Periodic
adjustments to coal tonnages on hand are made for an estimate of coal shortages and overages due to these inherent gains and
losses, primarily based on historical results from aerial surveys and periodic coal pile clean-ups. Supplies inventories are valued
using the average cost method of accounting. Management evaluates its supplies inventory in terms of excess and obsolete
exposures which includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate market value. A
reserve for excess and obsolete supplies inventory is established and charged to cost of sales in the Statements of Operations.
Deferred Longwall Move Expenses
Direct costs, including labor and supplies, associated with moving longwall equipment and the related equipment
refurbishment costs are deferred and included in prepaid expenses. These deferred costs are amortized on a units-of-production
basis into cost of sales over the life of the subsequent panel of coal mined by the longwall equipment. See Note 4 for further
disclosures related to deferred longwall move expenses.
Advanced Mining Royalties
Lease rights to coal reserves are often acquired in exchange for royalty payments. Advance mining royalties are
advance payments made to lessors under terms of mineral lease agreements that are recoupable against future production
royalties. These advance payments are deferred and charged to operations as the coal reserves are mined. Advance mining
royalties are included in other long-term assets.
F-12
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Property, Plant and Equipment
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is recorded principally on the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are amortized on the straight-line method over the lesser
of the useful life of the improvement or the remaining lease term. Estimated useful lives used in computing depreciation
expense range from three to ten years for machinery and equipment, and from fifteen to thirty years for land improvements and
buildings. Well life is used to estimate the useful life for gas properties and related development, and mine life is used for
amortizing mine development costs. Gains and losses upon disposition are reflected in the Statements of Operations in the
period of disposition. Maintenance and repair expenditures are charged to cost of sales as incurred.
Deferred Mine Development
Costs of developing new underground mines and certain underground expansion projects are capitalized. Underground
development costs, which are costs incurred to make the coal physically accessible, may include construction permits and
licenses, mine design, construction of access roads, main entries, airshafts, roof protection and other facilities. Mine
development costs are amortized primarily on a units-of-production basis over the estimated reserve tons directly benefiting
from the capital expenditures. Costs amortized during the production phase of a mine are capitalized into inventory and
expensed to cost of sales as the coal is sold. Coal sales revenue related to incidental production during the development phase
are recorded as sales with an offset to cost of sales based on the estimated cost per ton sold for the mine when the asset is in
place for its intended use.
Owned and Leased Mineral Interests
Costs to obtain coal reserves and lease mineral rights are capitalized based on cost or the fair value at acquisition and
depleted using the units-of-production method over the life of proven and probable reserves. Lease agreements are generally
long-term in nature (original terms range from 10 to 50 years) and substantially all of the leases contain provisions that allow
for automatic extension of the lease term provided certain requirements are met. Depletion expense was $9.9 million, $9.6
million, and $9.4 million for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively,
and is included in depreciation and depletion in the accompanying Statements of Operations.
Asset Retirement Obligations
The Company has certain asset retirement obligations primarily related to mine closing reclamation costs, perpetual
water care costs and other costs associated with dismantling and removing facilities. Asset retirement obligations are
determined for each mine using various estimates and assumptions, including estimates of disturbed acreage as determined
from engineering data, estimates of future costs to reclaim the disturbed acreage and the timing of related cash flows,
discounted using a credit-adjusted, risk-free rate. The Company's asset retirement obligations also include estimates to reclaim
gas well in accordance with the Oil and Gas Board of Alabama. On at least an annual basis, the Company reviews the entire
asset retirement obligation liability and makes necessary adjustments for permit changes, the anticipated timing of mine
closures, and revisions to cost estimates and productivity assumptions to reflect current experience. As changes in estimates
occur, the carrying amount of the obligation and asset are revised to reflect the new estimate after applying the appropriate
credit-adjusted, risk-free discount rate. The future costs of these obligations are accrued at the estimated fair value in the period
in which they are incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset
retirement cost is capitalized as part of the carrying amount of the long-lived asset. For sites where there is no asset, expense or
income is recognized for changes in estimates.
Capitalized asset retirement costs are amortized on a units-of-production basis over the estimated reserves. Accretion
of the asset retirement obligation is recognized over time and generally will escalate over the life of the producing asset,
typically as production declines. Accretion is included in cost of sales on the Statements of Operations.
Accrued mine closing costs, perpetual care costs and reclamation costs and other costs of dismantling and removing
facilities are regularly reviewed by management and revised for changes in future estimated costs and regulatory requirements,
as necessary. For ongoing operations, adjustments to the liability result in an adjustment to the corresponding asset. For some
operations, adjustments to the liability are recognized as income or expense in the period the adjustment is recorded as no asset
F-13
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
was recorded to offset the liability established during acquisition accounting related to the Asset Acquisition as the operations
were idle at that time. Any difference between the recorded obligation and the actual cost of reclamation is recorded in profit or
loss in the period the obligation is settled. See Note 8 for further disclosures related to asset retirement obligations.
Impairment of Long-Lived Assets
Property, plant and equipment and other long-lived assets are reviewed for impairment at least annually or whenever
events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically
evaluates whether events and circumstances have occurred that would indicate possible impairment. When impairment
indicators exist, the Company uses an estimate of the future undiscounted cash flows of the related asset or asset group over the
remaining life in measuring whether or not the asset values are recoverable. If the carrying amount of an asset or asset group
exceeds its estimated future cash flows, impairment is recognized equal to the amount by which the carrying amount of the
asset exceeds the fair value of the asset or asset group. Fair value is generally determined using market quotes, if available, or a
discounted cash flow approach. The Company’s estimate of future undiscounted cash flows is based on assumptions including
long-term met coal pricing forecasts, anticipated production volumes and mine operating costs for the life of the mine or
estimated useful life of the asset.
Equity Award Compensation
The Company accounts for equity award-based compensation to employees and non-employee/directors in accordance
with ASC 718 requiring employee equity awards to be accounted for under the fair value method adjusted for estimated
forfeitures rates based on historical experience. The Company recognizes compensation expense associated with equity awards
for all awards made to employees as the requisite service, performance and market vesting conditions are met. The Company
measures compensation expense based on the grant-date fair value of the awards calculated using a Black-Scholes or Monte
Carlo valuation model.
Compensation expense for equity awards with a service-only condition is recognized over the employee’s requisite
service period using a graded vesting method. For awards with a performance condition that affects vesting, the performance
condition is not considered in determining the award’s grant-date fair value; however, the performance conditions are
considered when estimating the quantity of awards that are expected to vest. No compensation expense is recorded for awards
with performance conditions until the performance condition is determined to be probable of achievement. For awards with a
market condition that affects vesting, the market condition is considered in determining the award’s grant-date fair value.
Compensation expense for awards with a market condition is recognized straight-line over the derived or implied service
period. For awards with both performance and market conditions, the market condition is incorporated into the fair value of the
award, while the performance condition impacts the timing of expense recognition.
Compensation expense for equity awards is included in cost of sales (exclusive of items shown separately below) and
selling, general and administrative in the accompanying Statements of Operations.
Deferred Financing Costs
The costs to obtain new debt financing or amend existing financing agreements are deferred and amortized to interest
expense over the life of the related indebtedness or credit facility using the straight-line method. As of December 31, 2019 and
December 31, 2018, respectively, there were $2.7 million and $3.1 million, respectively, of origination fees related to the ABL
Facility (as defined below) in other long-term assets on the accompanying Balance Sheet. As of December 31, 2019 and
December 31, 2018 there were $4.2 million and $6.8 million, respectively of unamortized deferred financing costs and debt
discount, net, related to the Notes (as defined below), which is presented as a net deduction from the carrying amount of the
debt recognized in the accompanying Balance Sheet.
Income Taxes
The Company records a tax provision for the expected tax effects of the reported results of operations. The provision
for income taxes is determined using the asset and liability method, under which deferred tax assets and liabilities are
recognized for the expected future tax impact of temporary differences between the financial reporting and tax bases of assets
and liabilities, and for operating losses and tax credit carryforwards. Deferred income tax assets and liabilities are measured
using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities
F-14
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
are expected to be realized or settled. The Company records a valuation allowance to reduce deferred income tax assets to the
amount that is believed more likely than not to be realized. When the Company concludes that all or part of the net deferred
income tax assets are not realizable in the future, the Company makes an adjustment to the valuation allowance that is charged
to earnings in the period that such determination was made.
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate settlement.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A three level hierarchy has been established for valuing assets
and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs
considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy
levels are defined as follows:
Level 1: Quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets
or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that
are observable or can be corroborated by observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity that are significant to determining the fair
value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
New Accounting Pronouncements
The Company adopted ASU No. 2016-02, "Leases (Topic 842)" as of January 1, 2019 using the modified retrospective
approach (the "New Leases Standard"). The New Leases Standard requires a lessee to recognize a right-of-use asset and lease
liability on its balance sheet for all leases. The Company has chosen to use its adoption date as its date of initial application. As
a result, financial information will not be updated and the disclosures required under the new standard will not be provided for
dates and periods before January 1, 2019.
The Company made an accounting policy election that leases with an initial term of 12 months or less will remain off
its balance sheet and lease payments will instead be recognized in the Statements of Operations on a straight-line
basis over the lease term. Additionally, the Company elected the package of practical expedients for all leases, which permits
the Company to forego reassessing expired or existing contracts to determine: whether they are or contain leases, lease
classification, and initial direct costs. Management elected the optional transition expedient which allows the Company to
continue applying the current policy for accounting for expired or existing land easement contracts that may not have been
previously accounted for under ASC Leases (Topic 840). New or modified land easements executed after adoption will be
considered under the New Leases Standard. The Company elected the practical expedient as an accounting policy election for
all asset classifications, which allows it to account for them as a single lease component, rather than as separate lease and non-
lease components.
As the Company’s historical operating leases are primarily short-term rental agreements of less than one year, the
Company did not record any additional lease assets or lease liabilities upon adoption of the New Leases Standard. Therefore,
the New Leases Standard did not impact the Company's balance sheet or consolidated net income and had no impact on cash
flows upon adoption.
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, “Financial Instruments
Credit Losses (Topic 326)” (“ASU 2016-13”). The new standard provides decision-useful information about the expected credit
losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To
achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP
with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. For public companies, this standard is effective for fiscal years
F-15
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
beginning after December 15, 2019. The Company expects to adopt the standard as of January 1, 2020 with no material impact
to the Company’s results of operations, financial condition, cash flows or financial statement presentation.
Note 3—Inventories, net
Inventories, net are summarized as follows (in thousands):
Coal
Raw materials, parts, supplies and other, net
Total inventories, net
Note 4—Prepaid Expenses and Other
Prepaid expenses and other consisted of the following (in thousands):
Deferred longwall move expenses
Prepaid insurance
Prepaid deposits
Other
Total prepaid expenses and other
December 31, 2019
December 31, 2018
$
$
69,064
28,837
97,901
$
$
32,854
23,865
56,719
December 31, 2019
December 31, 2018
$
$
15,621
$
3,631
345
4,247
23,844
$
20,053
4,670
692
2,517
27,932
Note 5—Mineral Interests and Property, Plant and Equipment, net
Mineral interests totaled $144.2 million and $144.2 million and the related accumulated depletion totaled
$34.1 million and $23.8 million as of December 31, 2019 and December 31, 2018, respectively.
Property, plant and equipment are summarized as follows (in thousands):
Land
Land improvements
Building and leasehold improvements
Mine development and infrastructure costs
Machinery and equipment
Financing lease right of use asset
Construction in progress
Total
Less: Accumulated depreciation
Property, plant and equipment, net
December 31, 2019
December 31, 2018
$
72,267
$
18,026
74,342
13,315
614,687
44,996
42,106
879,739
(273,539)
606,200
$
$
72,139
18,083
71,561
3,567
512,594
—
46,814
724,758
(184,443)
540,315
Depreciation and depletion expense was $97.3 million, $97.2 million, and $75.4 million, for the years ended
December 31, 2019 and December 31, 2018, and December 31, 2017, respectively.
Note 6—Other Long-Term Assets
Other long-term assets consisted of the following (in thousands):
F-16
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 2019
December 31, 2018
$
$
8,976
$
—
9,266
18,242
$
10,910
828
9,301
21,039
Advance mining royalties
Restricted cash
Other
Total other long-term assets
Note 7—Income Taxes
The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Tax Cuts and Jobs Act significantly revised the
U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective
January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system,
limiting the deduction for interest expense, limiting the use of net operating losses generated on or after January 1, 2018 to
offset taxable income and repealing the corporate alternative minimum tax ("AMT") and triggering refunds of prior year AMT
credits. As of December 31, 2019, the Company has a current income tax receivable of $12.9 million and a non-current income
tax receivable of $11.3 million for AMT credits, which are expected to be received in 2020 through 2022.
Income Tax Expense (Benefit)
Income tax expense (benefit) consisted of the following (in thousands):
Current
Federal
State
Deferred
Federal
State
Total
For the years ended December 31,
2019
2018
2017
$
(3,151) $
85
(3,066)
(2,776) $
—
(2,776)
53,677
14,806
68,483
$
65,417
$
(176,141)
(46,897)
(223,038)
(225,814) $
(36,906)
—
(36,906)
(1,712)
26
(1,686)
(38,592)
For the year ended December 31, 2019, we recognized income tax expense of $65.4 million or an effective tax rate of
17.8% which was principally offset by the utilization of our NOLs for cash tax purposes.
Total income tax expense (benefit) differs from the expected tax expense (benefit) (computed by multiplying the U.S.
federal statutory rate of 21% in 2019 and 2018 and 35% in 2017 by income before income taxes) as a result of the following (in
thousands):
F-17
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Income before income tax expense (benefit)
Tax expense (benefit) at statutory tax rate
Effect of:
Depletion
Tax Cuts and Jobs Act impact
State and local income tax, net of federal effect
Valuation allowance on deferred tax assets
Non-deductible transaction costs
Impact of Walter Energy IRS Settlement
Other
Tax expense (benefit) recognized
For the years ended December 31,
2019
2018
2017
$
367,116
$
470,973
$
77,094
98,904
(16,198)
—
11,747
—
—
(6,615)
(611)
65,417
(18,227)
(2,775)
14,897
(312,493)
566
—
(6,686)
(225,814) $
$
$
416,454
145,759
(25,212)
(38,592)
9,620
(129,245)
4,506
—
(5,428)
(38,592)
In the fourth quarter of 2019, an adjustment of $6.7 million was recorded to recognize additional alternative minimum
tax credits, general business credits and net operating losses available to the Company in connection with a settlement
agreement between Walter Energy and the Internal Revenue Service.
Deferred Taxes
Deferred income tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of
temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases.
Deferred income tax assets and liabilities are measured using enacted tax rates that apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Significant components of the Company's deferred income tax assets and liabilities were (in thousands):
December 31, 2019
December 31, 2018
Deferred income tax assets:
Net operating loss and credit carryforwards
$
215,805
$
Inventory
Asset retirement obligations
Black lung obligations
Accrued expenses
Other
Total deferred income tax assets
Deferred income tax liabilities:
Prepaid expenses
Property, plant and equipment
Other
Total deferred income tax liabilities
Net deferred income tax asset
457
14,115
8,168
5,597
3,649
247,791
(8,514)
(82,539)
(2,441)
(93,494)
154,297
$
$
298,180
119
15,526
6,720
3,611
2,767
326,923
(9,894)
(92,361)
(1,888)
(104,143)
222,780
The Company has federal net operating loss carryforwards of approximately $785.6 million as of December 31, 2019,
which expire predominantly in December 31, 2034 through December 31, 2036. The Company has state net operating loss
carryforwards of approximately $860.3 million, which expire predominantly in December 31, 2029 through December 31,
2031. In addition, the Company has approximately $14.6 million of general business credits which begin to expire in December
31, 2027 and fully expire in December 31, 2034.
F-18
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Under the Internal Revenue Code of 1986, as amended (the "Code"), a company is generally allowed a deduction for
NOLs against its federal taxable income. A company’s ability to deduct its NOLs and utilize certain other available tax
attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code if it undergoes
an “ownership change” as defined in Section 382 or if similar provisions of state law apply. While the Company does not
believe an ownership change has occurred since April 1, 2016, because the rules under Section 382 are highly complex and
actions of the Company's stockholders which are beyond its control or knowledge could impact whether an ownership change
has occurred, the Company cannot give you any assurance that another Section 382 ownership change has not occurred or will
not occur in the future. As a result of the Company qualifying for the aforementioned exception, were the Company to have
undergone a subsequent ownership change prior to April 1, 2018, its NOLs would effectively be reduced to zero. An ownership
change after such date would severely limit the Company's ability to utilize its NOLs and other tax attributes.
Valuation Allowance
The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to
realize its deferred income tax assets. The Company establishes valuation allowances if it is not likely it will realize its deferred
income tax assets. In making this determination, the Company considers all available positive and negative evidence and
makes certain assumptions. The Company considers, among other things, all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future taxable income, the overall business environment, its
historical financial results, the industry's historically cyclical financial results, its cumulative three-year income or loss position
and potential current and future tax planning strategies.
At December 31, 2017, the Company had a $312.5 million valuation allowance established against its deferred income
tax assets, which represented a full valuation allowance against its net deferred income tax assets. For 2017, the Company
recorded a pre-tax profit of $416.5 million; however, the Company remained in a three-year cumulative loss position, had
limited operating results as a new Company and given the industry's recent history of significant losses concluded as of
December 31, 2017 that another year of significant profitability was needed to support a release of the valuation allowance.
During the fourth quarter of 2018, after considering all relevant factors, the Company concluded that its deferred
income tax assets were more likely than not to be realized. In evaluating the likelihood of utilizing its deferred tax assets, the
significant relevant factors that the Company considered were: (1) its recent history of profitability; (2) growth in the U.S. and
global economies; (3) estimates of future met coal prices; (4) the Company moved from a three-year cumulative loss position to
a cumulative income position for the first time since it established the full valuation allowance; and (5) future impact of taxable
temporary differences. Based on this evaluation, at December 31, 2018, the Company released its valuation allowance against
its net deferred income tax assets resulting in a $225.8 million income tax benefit.
During 2019, the Company continued the trend of sustained profitability, recording a pre-tax profit of $367.1 million
for the year. After considering the continued profit trend and all other relevant factors, we concluded that our deferred income
tax assets remain more likely than not to be realized and a valuation allowance was not required.
The following table shows the balance of our valuation allowance and the associated activity during 2018:
Beginning balance
Addition/(Reduction) - current tax expense/(benefit)
Release
Ending balance
Uncertain Tax Positions
December 31, 2018
$
$
$
312,493
(86,679)
(225,814)
—
The Company has filed income tax returns in the U.S. and in various state and local jurisdictions which are routinely
examined by tax authorities in these jurisdictions. Net operating losses and carryforwards are subject to adjustments based on
examination and the statute of limitations is currently open for all such loss and credit carryforwards. The Company had no
unrecognized tax benefits or accruals for unrecognized tax benefits as of December 31, 2019 and 2018, respectively.
F-19
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
The Company did not record any interest or penalties associated with income taxes but would record interest and
penalties within income tax expense.
Note 8—Asset Retirement Obligations
Changes in the asset retirement obligations (“ARO”) were as follows (in thousands):
Balance at Beginning of Period
Accretion expense
Revisions to estimates
Obligations settled
Balance at End of Period
December 31, 2019
December 31, 2018
$
$
61,824
$
3,169
(7,825)
(962)
56,206
$
99,668
4,619
(42,064)
(399)
61,824
The portion of costs expected to be paid within a year as of December 31, 2019 is $2.6 million. The portion of costs
expected to be incurred beyond one year as of December 31, 2019 is $53.6 million. There were no assets that were legally
restricted for purposes of settling asset retirement obligations at December 31, 2019. Alabama's regulatory framework
technically allows for self-bonding. However, as a practical matter, due to the onerous regulatory requirements for self-
bonding, mining companies in Alabama utilize surety bonds, collateral bonds, or letters of credit to meet their financial
assurance requirements. At December 31, 2019, the Company had outstanding surety bonds and letters of credit with parties
for post-mining reclamation at all of its mining operations totaling $40.6 million, and $2.2 million for miscellaneous purposes.
For the year ended December 31, 2019 and December 31, 2018, the reduction to the liability was primarily attributable
to the net impact of changes in discount rates, current estimates of the costs and scope of remaining reclamation work and
fluctuations in projected mine life estimates. For the years ended December 31, 2019 and December 31, 2018, $11.1 million or
$0.22 per share and $24.6 million or $0.42 per share, respectively, of the adjustment to the liability was reflected as income in
the period because there was no asset recorded to offset the adjustment to the liability. This portion of the liability relates to
operations that were idle at the time of purchase accounting for the Asset Acquisition and no value was attributed to any asset as
an offset for the asset retirement obligation.
Note 9—Accrued Expenses
Accrued expenses consisted of the following (in thousands):
December 31, 2019
December 31, 2018
Accrued wages and employee benefits
$
38,429
$
Accrued operating expenses
Accrued royalties
Accrued freight
Accrued interest
Accrued non-income taxes
Other
Total accrued expenses
10,326
3,304
1,971
4,635
3,155
3,935
37,221
20,383
8,617
4,053
6,333
1,642
4,093
$
65,755
$
82,342
Note 10— Pneumoconiosis ("Black Lung") Obligations
The Company is responsible for medical and disability benefits for black lung disease under the Federal Coal Mine
Health and Safety Act of 1969, as amended. Beginning on April 1, 2016 through May 31, 2018, the Company was insured
under a guaranteed cost insurance policy, through a third-party insurance carrier, for black lung claims raised by any employee
subsequent to the Asset Acquisition. Beginning June 1, 2018, the Company has a deductible policy where the Company is
responsible for the first $0.5 million for each black lung claim.
F-20
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
In addition, in connection with the Asset Acquisition, the Company assumed all black lung liabilities of Walter Energy
and its U.S. subsidiaries incurred prior to March 31, 2016. The Company is self-insured for the black lung claims assumed in
the Asset Acquisition. Due to a limited operating history as a stand-alone company and as a result of being self-insured for these
historical black lung claims, the Department of Labor required the Company to post $17.0 million in the form of Treasury bills
or surety bonds as collateral, in addition to maintaining a black lung trust acquired in the Asset Acquisition. As of December 31,
2019, the Company had $17.0 million of surety bonds with $14.5 million of collateral recognized as short term investments. As
of December 31, 2018, the Company had $17.5 million in Treasury Bills posted as collateral recognized as short-term
investments. There were also $3.3 million and $3.6 million of assets held in a black lung trust, which is offset against the long-
term portion of the black lung obligations within the Balance Sheet as of December 31, 2019 and December 31, 2018,
respectively. The estimated total black lung liabilities (net of black lung trust assets) were $32.5 million as of December 31,
2019, of which $2.3 million is classified in other current liabilities and the remainder of $30.2 million is shown as a long-term
liability in a separate line item in the Consolidated Balance Sheet. For the year ended December 31, 2018, the estimated black
lung liabilities (net of the black lung trust assets) were $26.8 million, of which $1.6 million is classified in other current
liabilities and $25.2 million is displayed as a long-term liability in a separate line item in the Balance Sheet. Accretion of the
black lung liabilities is included in cost of other revenues on the Statements of Operations. The Company performs an annual
evaluation of its black lung liabilities at each balance sheet date. The calculation uses assumptions regarding rates of successful
claims, discount factors, benefit increases and mortality rates, among others.
Note 11—Employee Benefit Plans
Defined Contribution Plans
The Company sponsors a defined contribution plan to assist its eligible employees in providing for retirements.
Generally, under the terms of the plan, employees make voluntary contributions through payroll deductions and the Company
makes matching contributions, as defined by the plan. Contributions to these defined contribution plans amounted to $2.9
million for the year ended December 31, 2019, $3.1 million for the year ended December 31, 2018 and $1.4 million for the year
ended December 31, 2017 accounted for in cost of sales and selling, general and administrative costs.
Collective Bargaining Agreement
In connection with the Asset Acquisition, the Company negotiated a new initial collective bargaining agreement
(“CBA”) with the United Mine Workers of America ("UMWA") (the “UMWA CBA”), which was ratified by UMWA’s
members on February 16, 2016 and expires on March 31, 2021. Pursuant to the UMWA CBA, the Company agreed to
contribute $25.0 million to a Voluntary Employee Beneficiary Association (“VEBA”) trust formed and administered by the
UMWA in installments throughout 2016 and 2017. Approximately 68.2% and 69% of the Company's employees were
represented by the UMWA as of December 31, 2019 and December 31, 2018, respectively.
Note 12—Equity Award Plans
Warrior Met Coal, LLC 2016 Equity Incentive Plan
The Company adopted the Warrior Met Coal, LLC 2016 Equity Incentive Plan (the “2016 Equity Plan”). Under the
2016 Equity Plan, employees, directors and officers of the Company were granted equity interests in Warrior Met Coal, LLC in
the form of restricted units and phantom units. In connection with the corporate conversion on April 12, 2017, the awards of
restricted units were converted into restricted shares of common stock of the Company (the "Restricted Shares").
The Restricted Shares have certain service-based, performance-based and market-based vesting conditions, including
the occurrence of an initial public offering or a change in control as set forth in the 2016 Equity Plan and the applicable award
agreements. As of December 31, 2019, 805,083 Restricted Shares were issued, of which, approximately 30,217 had been
forfeited, 676,668 had vested and 98,216 remain unvested. Upon effectiveness of the 2017 Equity Plan (defined below), no
further awards were granted under the 2016 Equity Plan.
Restricted Shares were issued proportionally as Tranche A, Tranche B, and Tranche C shares.
The Tranche A shares have service and performance based vesting conditions and the awards vest in equal installments
on each of the first five anniversaries of the grant date that occurs prior to an IPO and thereafter, subject to the employee’s
F-21
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
continued employment or the director’s continued service with the Company. Vesting is conditioned and contingent upon at
least 50% of the shares originally acquired in the Asset Acquisition having been disposed of to an independent third party,
whether before or after an IPO. During the second quarter of 2018, certain stockholders of the Company sold in two separate
transactions an aggregate of 13,000,000 shares of the Company's common stock in public secondary offerings (see Note 17). In
connection with the first of these secondary offerings, the performance based vesting condition was met resulting in
approximately $3.6 million of incremental stock compensation expense. The remaining awards shall vest over the remaining
time based vesting conditions. As of December 31, 2019, 144,585 Tranche A shares have vested. In the event of a change in
control, any Tranche A shares that have not previously vested shall become fully vested at the time of such change in control,
subject to the employee’s continued employment or the director's continued service with the Company through the change in
control date.
The Tranche B and Tranche C shares are performance and market- based awards, with vesting being contingent upon
the achievement of certain market conditions and subject to the employee’s continued employment or the director's continued
service with the Company through the date of achievement. In 2017, 532,083 Tranche B and Tranche C shares met the required
performance and market conditions and were fully vested. In connection with the vesting of the Tranche B and C shares, the
Company recognized approximately $3.2 million in stock compensation expense for the year ended December 31, 2017. The
Company also recognized an excess income tax benefit of $3.4 million in connection with this vesting.
Holders of phantom shares have the right to receive shares of the Company on the earlier of (i) a change in control as
defined by the 2016 Equity Plan or (ii) the fifth anniversary of the grant date of the phantom share. The phantom shares are
settled in the Company’s shares. As of December 31, 2019, there were 43,580 phantom shares issued to a director of the
Company, all of which were fully vested upon issuance.
The Company recognized stock compensation expense of $0.5 million for the year ended December 31, 2019
associated with the 2016 Equity Plan awards. As of December 31, 2019, 2018, and 2017 unrecognized compensation expense
related to the 2016 Equity Plan amounted to approximately $0.4 million, $1.0 million, and $5.7 million, respectively.
The following table presents a summary of Restricted Shares granted under the 2016 Equity Plan for the year ended
December 31, 2019:
Non-vested at December 31, 2018
Granted
Forfeited
Vested
Outstanding at December 31, 2019
Number of
Restricted Class C
Shares
Weighted
Average Grant
Date Fair Value
149,539
$
21.34
—
(4,864) $
(46,459) $
$
98,216
21.34
21.34
21.34
The Company used the Black-Scholes option pricing model to estimate the fair value of restricted Tranche A shares
granted and the Monte Carlo pricing model to estimate the fair value of restricted Tranche B and C shares granted. The pricing
model incorporated the assumptions as presented in the following table, shown at their weighted average values:
Expected stock price volatility (a)
Risk-free interest rate (b)
Expected life (years) (c)
For the years ended December 31,
2017
35%
1.75%
4.17
2016
25.25%
1.25%
5.00
(a) The Company bases its expected volatility on a group of companies believed to be a representative peer group, selected
based on industry and market capitalization.
F-22
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(b) The risk-free rate for periods within the expected term of the award is based on the U.S. Government Bond yield with a
term equal to the awards' expected term on the date of grant.
(c) Expected life represents the period of time that awards granted are expected to be outstanding.
Warrior Met Coal, Inc. 2017 Equity Incentive Plan
In connection with the IPO, the Company adopted the Warrior Met Coal, Inc. 2017 Equity Incentive Plan (the “2017
Equity Plan”). Awards previously issued and outstanding under the 2016 Equity Plan will continue to be governed by the 2016
Equity Plan. However, no further awards will be granted under the 2016 Equity Plan.
Under the 2017 Equity Plan, directors, officers, employees, consultants and advisors and those of affiliated companies,
as well as those who have accepted offers of employment or consultancy from the Company or the Company’s affiliated
companies, may be granted equity interest in Warrior Met Coal, Inc. in the form of stock options, stock appreciation rights,
restricted stock, restricted stock units, stock bonus awards, and performance awards.
The total number of shares of common stock, including incentive stock options, available for grant of awards under the
2017 Equity Plan as of December 31, 2019 is 5,381,997. If any outstanding award expires, is canceled, forfeited, or settled in
cash, the shares allocable to that award will again be available for grant under the 2017 Equity Plan.
As of December 31, 2019, the equity awards granted under the 2017 Equity Plan are comprised of common stock,
restricted stock awards, and restricted stock unit awards. The Company recognized stock compensation expense of $5.3 million
for the year ended December 31, 2019 associated with awards granted under the 2017 Equity Plan. Unrecognized compensation
expense related to the 2017 Equity Plan amounted to approximately $2.9 million as of December 31, 2019.
A summary of activity related to restricted stock unit award grants under the 2017 Equity Incentive Plan during the
year ended December 31, 2019 is as follows:
Non-vested at December 31, 2018
Granted
Canceled
Forfeited
Vested
Outstanding at December 31, 2019
Equity Modification
Shares
Weighted
Average Grant
Date Fair Value
191,525
$
397,246
$
(4,793) $
(19,804) $
(60,282) $
503,892
27.30
25.51
27.08
27.97
27.57
On March 31, 2017, the board of managers of the Company declared a cash distribution payable to holders of our then
outstanding Class A Units, Class B Units and Class C Units as of March 27, 2017, resulting in distributions to such holders in
the aggregate amount of $190.0 million (the “Special Distribution”). The Special Distribution with respect to Restricted Shares
outstanding was not paid but held in trust pending their vesting. As of December 31, 2019, approximately $6.0 million of
dividends on unvested stock is held in the trust and is included within other long-term assets in the accompanying Balance
Sheets.
On June 1, 2017, the Compensation Committee (the "Committee") of the Board approved the modification described
below (the “Modification”) to the award agreements (the “Awards”) for the Restricted Shares to certain officers, directors and
employees of the Company. Pursuant to the Modification, the Committee waived certain vesting requirements with respect to
the Special Distribution for the Restricted Shares such that funds currently held in trust as described above with respect to the
Special Distribution were paid in full to recipients that received equal to or less than $100.0 thousand and were paid with
respect to 50% of the Restricted Shares for recipients that received greater than $100.0 thousand. However, funds held in trust
with respect to the Special Distribution for the remaining 50% of the Restricted Shares for recipients that received greater than
$100.0 thousand will not be released until such shares vest pursuant to the original terms of the Awards on the basis of the
passage of time and the Company’s achievement of certain metrics.
F-23
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
In addition and pursuant to the Modification, the holders of the Restricted Shares were permitted to elect to receive the
Special Distribution released from trust as described above with respect to their Restricted Shares (i) 100% in cash; (ii) 50% in
cash and 50% in restricted stock units (“RSUs”); or (iii) 100% in RSUs.
In connection with the Modification, the Committee approved a form of Restricted Stock Unit Award Agreement (the
“RSU Award Agreement”) pursuant to the 2017 Equity Plan on June 1, 2017 (the “Grant Date”) for those holders who elected
to receive the Special Distribution, in whole or in part, in RSUs (the “Participants”). The RSU Award Agreement provides that
RSUs awarded pursuant to the Modification shall be fully vested on the Grant Date and shall be settled in shares of common
stock on a one-for-one basis on the earliest of (i) one-third on each of the first three anniversaries of the Grant Date; (ii) a
Change in Control (as defined in the 2017 Equity Plan); (iii) the Participant’s separation from service with the Company or its
affiliates; or (iv) death of the Participant.
In connection with the Modification, for the year ended December 31, 2017, the Company recognized a reduction to
dividends payable of $0.2 million associated with the holders that elected to receive cash and $1.3 million was treated as an
adjustment to equity for those that elected RSUs.
Note 13—Debt
Debt consisted of the following (in thousands):
Senior secured notes
Promissory note
Debt discount, net
Total debt
Less: current debt
Total long-term debt
Weighted
Average Interest
Rate at
December 31,
2019
8%
—%
Final Maturity
2024
2019
December 31, 2019
December 31, 2018
$
343,435
$
—
(4,246)
339,189
—
$
339,189
$
475,000
760
(6,769)
468,991
(760)
468,231
The Company's minimum debt repayment schedule, excluding interest, as of December 31, 2019 is as follows (in
thousands):
Senior secured notes
Total
ABL Facility
Payments Due
2020
2021
2022
2023
2024
Thereafter
$
$
— $
— $
— $
— $
— $
— $
— $ 343,435
— $ 343,435
$
$
—
—
On October 15, 2018, the Company entered into an Amended and Restated Asset-Based Revolving 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, N.A, as administrative agent and collateral agent (in such capacities, the "Agent"), which
amended and restated in its entirety the existing ABL Facility, and, among other things (i) increased the aggregate commitments
available to be borrowed under the ABL Facility to $125.0 million, (ii) extended the maturity date of the ABL Facility to
October 15, 2023, (iii) decreased the applicable interest rate margins with respect to the loans and the applicable fees in
connection with the issuance of letters of credit, and (iv) amended certain covenants and other terms and provisions.
On December 19, 2019, the Company entered into an Amendment No. 2 to the Amended and Restated Credit
Agreement (the “Amendment”). The purpose of the Amendment was to (i) amend the definitions of Fixed Charges and Fixed
Charge Coverage Ratio as these terms are used in the Amended and Restated Credit Agreement to generally conform to the
corresponding definitions of these terms in the Indenture (as defined below), dated as of November 2, 2017, as supplemented,
F-24
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
by and among the Company, as issuer, the subsidiary guarantors named therein and Wilmington Trust, National Association, as
trustee and priority lien collateral trustee, solely for purposes of incurring unsecured debt based upon the Fixed Charge
Coverage Ratio and (ii) add customary language that satisfies the requirements of the Qualified Financial Contract Stay Rules.
Under the ABL Facility, up to $10.0 million of the commitments may be used to incur swingline loans from Citibank
and up to $50.0 million of the commitments may be used to issue letters of credit. The ABL Facility will mature on October 15,
2023. As of December 31, 2019, no loans were outstanding under the ABL Facility and there were $8.95 million of letters of
credit issued and outstanding under the ABL Facility. At December 31, 2019, the Company had $116.1 million of availability
under the ABL Facility (calculated net of $8.95 million of letters of credit outstanding at such time).
The ABL Facility contains customary covenants for asset-based credit agreements of this type, including among other
things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence
of certain indebtedness; (iii) restrictions on the existence or incurrence of certain liens; (iv) restrictions on making certain
restricted payments; (v) restrictions on making certain investments; (vi) restrictions on certain mergers, consolidations and asset
dispositions; (vii) restrictions on certain transactions with affiliates; and (viii) restrictions on modifications to certain
indebtedness. Additionally, the ABL Facility contains a springing fixed charge coverage ratio of not less than 1.00 to 1.00,
which ratio is tested if availability under the ABL Facility is less than a certain amount. As of December 31, 2019, the Company
was not subject to this covenant. Subject to customary grace periods and notice requirements, the ABL Facility also contains
customary events of default.
The Company was in compliance with all applicable covenants under the ABL Facility as of December 31, 2019.
Senior Secured Notes
On November 2, 2017, the Company consummated a private offering (the “Offering”) of $350.0 million aggregate
principal amount of 8.00% Senior Secured Notes due 2024 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 approximately $340.0
million from the Offering, together with cash on hand of approximately $260.0 million, to pay a special cash dividend of
approximately $600.0 million, or $11.21 per share, to all of its stockholders on a pro rata basis (the "November Special
Dividend").
On March 1, 2018, the Company issued $125.0 million in aggregate principal amount of its 8.00% Senior Secured
Notes due 2024 (the "New Notes") 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 ("Regulation S"). The New Notes were issued at 103.00% of the aggregate principal
amount thereof, plus accrued interest from November 2, 2017. The New Notes were issued as "Additional Notes" under the
indenture dated as of November 2, 2017 (the "Original Indenture") among the Company, the subsidiary guarantors party thereto
and Wilmington Trust, National Association, as trustee (the "Trustee") and priority lien collateral trustee (the "Priority Lien
Collateral Trustee"), as supplemented by the First Supplemental Indenture, dated as of March 1, 2018 (the "First Supplemental
Indenture" and, the Original Indenture as supplemented thereby, the "Indenture"). The New Notes have not been and will not
be registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable
exemption from the registration requirements of the Securities Act. The Company used the net proceeds of the offering of the
New Notes, together with cash on hand of $225.0 million, to pay a special dividend of approximately $350.0 million, or $6.53
per share, to all of its stockholders on a pro rata basis on April 20, 2018 (the "April Special Dividend").
In connection with the issuance of the New Notes, the Company incurred transaction costs of $6.4 million for the year
ended December 31, 2018, which consists of legal fees and structuring fees, and is included in transaction and other expenses in
the Statements of Operations. In addition, the Company incurred debt issuance costs of approximately $3.7 million, which
consists of consent solicitation fees paid to holders of the Existing Notes (as defined below), and is included in long-term debt
in the Balance Sheet.
The New Notes and the $350.0 million in aggregate principal amount of the Company’s existing 8.00% Senior
Secured Notes due 2024 (the “Existing Notes” and, together with the New Notes, the "Notes"), rank pari passu in right of
payment and constitute a single class of securities for all purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions, offers to purchase and collateral matters, and are fungible (except that the New Notes issued
F-25
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
pursuant to Regulation S traded separately under different CUSIP/ISIN numbers until 40 days after the issue date, but thereafter
any such holders may transfer their New Notes pursuant to Regulation S into the same CUSIP/ISIN numbers as the Existing
Notes issued pursuant to Regulation S).
The Notes will mature on November 1, 2024 and interest is payable on May 1 and November 1 of each year,
commencing May 1, 2018. The Notes are fully and unconditionally guaranteed on a joint and several basis by each of the
Company's direct and indirect wholly-owned domestic restricted subsidiaries that are guarantors under the ABL Facility
(subject to customary release provisions).
At any time prior to November 1, 2020, the Company may redeem the Notes, in whole or in part, at a price equal
to 100.00% of the principal amount of the Notes redeemed plus the Applicable Premium (as defined in the indenture governing
the Notes) and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. The Notes are redeemable
at the Company's option, in whole or in part, from time to time, on or after November 1, 2020, at redemption prices specified in
the indenture, plus accrued and unpaid interest, if any, to, but excluding the redemption date. At any time on or prior to
November 1, 2020, the Company may redeem up to 40% of the aggregate principal amount of the Notes with the proceeds of
certain equity offerings, at a redemption price of 108.00% of the principal amount of the Notes, plus accrued and unpaid
interest, if any, to but excluding the redemption date. The Company is also required to make offers to purchase the Notes (i) at a
purchase price of 101.00% of the principal amount thereof in the event it experiences specific kinds of change of control
triggering events, (ii) at a purchase price of 103.00% of the principal amount thereof prior to making certain restricted
payments, and (iii) at a purchase price of 100.00% of the principal amount thereof in the event it makes certain asset sales or
dispositions and does not reinvest the net proceeds therefrom or use such net proceeds to repay certain indebtedness, in each
case, plus accrued and unpaid interest, if any, to, but excluding the date of purchase.
Offer to Purchase the Notes
On February 21, 2019, 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 March 22, 2019 (the “Expiration Date”).
Restricted Payment Offer
As of the Expiration Date, $1,900,000 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 31.5789% was applied to the $1,900,000 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 $599,000 aggregate principal amount of the
Notes (the “RP Pro-Rated Tendered Notes”);
(2) the Company accepted all $599,000 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 $1,301,000 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 March 25, 2019.
Accordingly, pursuant to the terms of the Indenture, the Company was permitted to make one or more restricted
payments 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 $299,401,000 (the "RP Basket") without having to make another offer to
repurchase Notes. The Company used a portion of the RP Basket to pay the April 2019 Special Dividend (as defined below) and
F-26
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
intends to use the remainder of the RP Basket to make repurchases under the New Stock Repurchase Program (as defined
below).
Tender Offer
As of the Expiration Date, $415,099,000 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 31.5789% was applied to the $415,099,000 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 $130,966,000 aggregate principal amount of the
Notes (the “TO Pro-Rated Tendered Notes”);
(2) the Company accepted all $130,966,000 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 $284,133,000 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 March 26, 2019.
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 $9.8 million during the year ended December 31, 2019.
Note 14—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 in accordance with the Company's accounting policy election described in Note 2. 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):
Finance lease right-of-use assets, net(1)
Finance lease liabilities
Current
Noncurrent
Total finance lease liabilities
December 31, 2019
$
$
40,227
10,146
25,528
35,674
Weighted average remaining lease term - finance leases (in months)
Weighted average discount rate - finance leases(2)
(1) Finance lease right-of-use assets are recorded net of accumulated amortization of $4.8 million and are included in property,
plant and equipment, net in the Balance Sheets as of December 31, 2019. See Note 5 for additional disclosure.
(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.
44.7
6.02%
The components of lease expense were as follows (in thousands):
F-27
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Operating lease cost(1):
Finance lease cost:
Amortization of leased assets
Interest on lease liabilities
Net lease cost
(1) Includes leases that are for periods of 12 months or less.
Maturities of lease liabilities were as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total
Less: amount representing interest
Present value of lease liabilities
For the year
ended
December 31,
2019
$
$
2,527
11,202
1,761
15,490
Finance Leases(1)
$
$
12,132
10,755
8,558
8,558
842
—
40,845
(5,171)
35,674
(1) Finance lease payments exclude $2.2 million of future payments required under signed lease agreements that have not yet commenced.
Supplemental cash flow information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Financing cash flows from finance leases
Non-cash right-of-use assets obtained in exchange for lease obligations:
Finance leases
For the year
ended
December 31,
2019
$
$
$
1,761
17,273
45,523
As of December 31, 2019 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 between fiscal year 2020 and
2021 with lease terms of one to two years.
Note 15—Related Party Transactions
In connection with the Asset Acquisition, the Company acquired a 50% interest in Black Warrior Methane (“BWM”)
and Black Warrior Transmission (“BWT”), which are accounted for under the proportionate consolidation method and equity
method, respectively. The Company has granted the rights to produce and sell methane gas from its coal mines to BWM and
BWT. The Company’s net investments in, advances to/from and equity in earnings or loss of BWT are not material to the
Company. The Company supplied labor to BWM and incurred costs, including property and liability insurance, to support the
joint venture. The Company charged the joint venture for such costs on a monthly basis, which were $1.5 million for the year
ended December 31, 2019, $3.2 million for the year ended December 31, 2018, $2.9 million for the year ended December 31,
2017.
F-28
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 16—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 that it is in substantial 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 December 31, 2019 and December 31, 2018, 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 a number of lawsuits arising in the ordinary course of their 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 December 31,
2019 and December 31, 2018, there were no items accrued for miscellaneous litigation.
Walter Canada Settlement Proceeds
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
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.
In connection with the Company’s acquisition of certain core operating assets of Walter Energy, the Company acquired
a receivable owed to Walter Energy by Walter Canada for certain shared services provided by Walter Energy to Walter Canada
(the “Shared Services Claim”) and a receivable for unpaid interest owed to Walter Energy from Walter Canada in respect of a
promissory note (the “Hybrid Debt Claim”). Each of these claims were asserted by the Company in the Walter Canada CCAA
proceedings. Walter Energy deemed these receivables to be uncollectable for the year ended December 31, 2015 and the
Company did not assign any value to these receivables in acquisition accounting as collectability was deemed remote. In May
and August 2019, the Company received approximately $17.5 million and $5.3 million, respectively, in settlement proceeds for
the Shared Services Claim and Hybrid Debt Claim which is reflected as other income in the Statements of Operations. The
collectability of additional amounts, if any, related to the Shared Services Claim and Hybrid Debt Claim depends on the
outcome of, and the timing of any resolutions of, the Walter Canada CCAA proceedings and cannot be predicted with certainty.
Commitments and Contingencies—Other
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, 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 December 31, 2019 and December 31,
2018, 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
land owners. These leases convey mining rights to the Company in exchange for royalties to be paid to the land owner as either
a fixed amount per ton or as a percentage of the sales price. Although coal leases have varying renewal terms and conditions,
F-29
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
they generally last for the economic life of the reserves. Coal royalty expense was $87.3 million, $101.0 million, $93.3 million,
for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively.
Note 17—Stockholders' Equity
New 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.
As of December 31, 2019, the Company has repurchased 500,000 shares for approximately $10.6 million, leaving
$58.8 million of share repurchases authorized under the New Stock Repurchase Program.
First Stock Repurchase Program
On May 2, 2018, the Board approved the First Stock Repurchase Program that authorized repurchases of up to an
aggregate of $40.0 million of the Company's outstanding common stock.
During the first quarter of 2019, the Company repurchased the remaining share repurchases authorized under the First
Stock Repurchase Program for approximately $1.9 million.
Secondary Equity Offerings
On May 10, 2018 certain stockholders of the Company sold 8,000,000 shares of the Company's common stock in a
public secondary offering at a price to the underwriter of $24.20 per share. The Company did not receive any of the proceeds
from this offering. In connection with this offering, the Company repurchased 500,000 shares of common stock under the
Stock Repurchase Program, funded with cash on hand for the aggregate amount of $12.1 million (the "Stock Repurchase"). The
shares repurchased by the Company in the Stock Repurchase are reflected as Treasury Stock on the Balance Sheets.
On June 14, 2018, certain stockholders of the Company sold 5,000,000 shares of the Company's common stock in a
public secondary offering at a price to the underwriter of $28.35 per share. The Company did not receive any of the proceeds
from the offering.
On August 8, 2018, certain stockholders of the Company sold 2,204,806 shares of the Company's common stock in a
public secondary offering at a price to the underwriter of $25.40 per share. The Company did not receive any of the proceeds
from the offering.
We refer to these offerings herein collectively as the "Secondary Equity Offerings." In connection with the Secondary
Equity Offerings, we incurred transaction costs of approximately $2.7 million for the year December 31, 2018.
F-30
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 18—Fair Value of Financial Instruments
The Company has no significant assets or other liabilities measured at fair value on a recurring basis as of
December 31, 2019 or December 31, 2018. During the year ended December 31, 2019, there were no transfers between
Level 1, Level 2 and Level 3. The Company uses quoted dealer prices for similar contracts in active over-the-counter markets
for determining fair value of Level 2 liabilities.
The following methods and assumptions were used to estimate the fair value for which the fair value option was not
elected:
Cash and cash equivalents, short-term investments, restricted cash, receivables and accounts payable—The carrying
amounts reported in the Balance Sheet approximate fair value due to the short-term nature of these assets and liabilities.
Debt—The Company's outstanding debt is carried at cost. As of December 31, 2019, there were no borrowings
outstanding under the ABL Facility and there were $8.95 million of letters of credit issued and outstanding under the ABL
Facility. The estimated fair value of the Notes is approximately $349.9 million based upon observable market data (Level 2).
Note 19—Net Income per Share
The computation of basic net income per share is based on the number of weighted average common shares
outstanding during the period. The computation of diluted net income per share is based on the weighted average number of
shares outstanding plus the incremental shares that would be outstanding assuming issuance of restricted stock. The number of
incremental shares is calculated by applying the treasury stock method. Basic and diluted net income per share was calculated
as follows (in thousands, except per share data):
Numerator:
Net income
Denominator:
Weighted-average shares used to compute net income per share—basic
Dilutive restricted stock awards and units
Weighted-average shares used to compute net income per share—diluted
Net income per share—basic
Net income per share—diluted
For the years ended December 31,
2019
2018
2017
$
301,699
$
696,787
$
455,046
51,363
130
52,812
106
52,800
6
51,493
52,918
52,806
$
$
5.87
5.86
$
$
13.19
13.17
$
$
8.62
8.62
As of December 31, 2019, there were 161,998 restricted stock unit awards for which the service-based vesting
conditions for these awards were not met as of the measurement date. As such, these awards were excluded from basic earnings
per share. These awards had a 39,950 share impact on dilutive weighted average shares for the year ended December 31, 2019.
As of December 31, 2019, there were 271,589 shares granted under the 2017 Equity Plan to employees, for which
neither the service based nor performance based vesting conditions were met as of the measurement date. As such, these shares
have been excluded from basic and diluted earnings per share.
The Company awarded $1.5 million of restricted stock unit awards under the 2017 Equity Plan that can
be settled in shares or in cash at the election of employees. These awards have certain service-based and performance-based
vesting conditions and can be earned no later than December 31, 2021. If the Company were to settle these awards in shares
these awards would represent 70,989 shares based on the Company's closing share price on December 31, 2019. The Company
considered the impact on diluted earnings as if the award was settled in cash or in shares. These awards had a 19,438 share
impact on dilutive weighted average shares for the year ended December 31, 2019.
F-31
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
As of December 31, 2019, there were 98,216 shares of common stock issued under the 2016 Equity Plan to certain
directors and employees, for which the service based vesting conditions were not met as of the measurement date. As such,
these awards were excluded from basic earnings per share. These awards had a 70,410 share impact on dilutive weighted
average shares for the year ended December 31, 2019.
As of December 31, 2019, there were 43,580 shares of common stock contingently issuable upon the settlement of a
vested phantom unit award under the 2016 Equity Plan and 13,157 shares of common stock contingently issuable upon the
settlement of a vested restricted stock unit award under the 2017 Equity Plan. The settlement date is the earlier of a change in
control as described in the 2016 Equity Plan and 2017 Equity Plan or five years from the grant date. These awards are vested
and as such have been included in the weighted-average shares used to compute basic and diluted net income per share.
As of December 31, 2019, there were 21,169 shares of common stock issued under the 2017 Equity plan to certain
directors and employees which immediately vested, but settle over the next two years on the anniversary of issuance. As such,
these shares have been included in both basic and diluted earnings per share.
Dividends
On March 31, 2017, the Company's board of managers declared a cash distribution of $3.56 per share, totaling $190.0
million, which was paid on March 31, 2017 to holders of Class A Units, Class B Units and Class C Units of record as of March
31, 2017.
On May 17, 2017, the Board adopted the Dividend Policy of paying a quarterly cash dividend of $0.05 per share. The
initial quarterly dividend of $2.7 million was paid on June 13, 2017 to stockholders of record on May 30, 2017. The Dividend
Policy also states the following: In addition to the regular quarterly dividend and to the extent that the Company generates
excess cash that is beyond the then current requirements of the business, the Board may consider returning all or a portion of
such excess cash to stockholders through a special dividend or implementation of a stock repurchase program. Any future
dividends or stock repurchases will be at the discretion of the Board and subject to consideration of a number of factors,
including business and market conditions, future financial performance and other strategic investment opportunities. The
Company will also seek to optimize its capital structure to improve returns to stockholders while allowing flexibility for the
Company to pursue very selective strategic growth opportunities that can provide compelling stockholder returns.
The Company has paid a regular quarterly cash dividend of $0.05 per share every quarter since the Board adopted the
Dividend Policy. As of December 31, 2019, the Company has paid $29.3 million of regular quarterly cash dividends under the
Dividend Policy.
On November 2, 2017, the Board declared the November Special Dividend of approximately $600.0 million, which was
funded with the net proceeds from the Notes Offering, together with cash on hand of approximately $260.0 million and was
paid on November 22, 2017 to stockholders of record as of the close of business on November 13, 2017.
On April 3, 2018, the Board declared the April Special Dividend of approximately $350.0 million, which was funded
with the net proceeds from the offering of the New Notes due 2024, together with cash on hand of approximately $225.0
million, and was paid on April 20, 2018 to stockholders of record as of the close of business on April 13, 2018.
On April 23, 2019, the Board declared a special cash dividend of $4.41 per share (the "April 2019 Special Dividend"),
totaling approximately $230.0 million, which was paid on May 14, 2019 to stockholders of record as of the close of business on
May 6, 2019.
Note 20—Segment Information
The Company identifies a business as an operating segment if: i) it engages in business activities from which it may
earn revenues and incur expenses; ii) its operating results are regularly reviewed by the Chief Operating Decision Maker
(“CODM”), who is the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment
and assess its performance; and iii) it has available discrete financial information. The Company has determined that its two
underground mining operations are its operating segments. The CODM reviews financial information at the operating
segment level to allocate resources and to assess the operating results and financial performance for each operating segment.
Operating segments are aggregated into a reportable segment if the operating segments have similar quantitative economic
F-32
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
characteristics and if the operating segments are similar in the following qualitative characteristics: i) nature of products and
services; ii) nature of production processes; iii) type or class of customer for their products and services; iv) methods used to
distribute the products or provide services; and v) if applicable, the nature of the regulatory environment.
The Company has determined that the two operating segments are similar in both quantitative and qualitative
characteristics and thus the two operating segments have been aggregated into one reportable segment. The Company has
determined that its natural gas and royalty businesses and other unallocated activities did not meet the criteria in ASC 280 to be
considered as operating or reportable segments. Therefore, the Company has included their results in an “all other” category as
a reconciling item to consolidated amounts.
The Company does not allocate all of its assets, or its depreciation and depletion expense, selling, general and
administrative expenses, other post-retirement benefits, transactions costs, restructuring costs, interest expense, reorganization
items, net and income tax expense by segment.
The following tables include reconciliations of segment information to consolidated amounts (in thousands):
Revenues
Mining
All other
Total revenues
Capital Expenditures
Mining
All other
Total capital expenditures
For the years ended December 31,
2019
2018
2017
1,235,998
32,311
1,268,309
$
$
1,342,683
35,324
1,378,007
$
$
1,124,645
44,447
1,169,092
For the years ended December 31,
2019
2018
2017
100,768
6,510
107,278
$
$
97,607
4,013
101,620
$
$
89,700
2,925
92,625
$
$
$
$
The Company evaluates the performance of its segment based on Segment Adjusted EBITDA, which is defined as net
income (loss) adjusted for other revenues, cost of other revenues, depreciation and depletion, selling, general and
administrative, other postretirement benefits, and certain transactions or adjustments that the CODM does not consider for the
purposes of making decisions to allocate resources among segments or assessing segment performance. Segment Adjusted
EBITDA does not represent and should not be considered as an alternative to cost of sales under GAAP and may not be
comparable to other similarly titled measures used by other companies. Below is a reconciliation of Segment Adjusted EBITDA
to net income (loss), which is its most directly comparable financial measure calculated and presented in accordance with
GAAP (in thousands):
F-33
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Segment Adjusted EBITDA
Other revenues
Cost of other revenues
Depreciation and depletion
Selling, general and administrative
Other postretirement benefits
Restructuring charges
Transaction and other costs
Loss on early extinguishment of debt
Other income
Interest expense, net
Income tax benefit (expense)
For the years ended December 31,
2019
2018
2017
$
515,253
$
626,038
$
532,115
32,311
(29,828)
(97,330)
(37,014)
—
—
—
(9,756)
22,815
(29,335)
(65,417)
301,699
35,324
(10,172)
(97,209)
(36,626)
—
—
(9,068)
—
—
(37,314)
225,814
44,447
(28,422)
(75,413)
(36,453)
—
—
(12,873)
—
—
(6,947)
38,592
$
696,787
$
455,046
Net income
$
Note 21—Subsequent Events
Regular Quarterly Dividend
On February 14, 2020, the Board declared a regular quarterly cash dividend of $0.05 per share, totaling $2.6 million,
which will be paid on March 2, 2020, to stockholders of record as of the close of business on February 25, 2020.
Rights Agreement
On February 14, 2020, we adopted the Rights Agreement in an effort to prevent the imposition of significant limitations
under Section 382 of the Code on our ability to utilize our current NOLs to reduce our future tax liabilities.
The Rights Agreement is intended to supplement the 382 Transfer Restrictions and is designed to serve the interests of all
stockholders by preserving the availability of our NOLs and is similar to plans adopted by other companies with significant NOLs.
Pursuant to the Rights Agreement, one preferred stock purchase right (a “Right” or the “Rights”) will be distributed to
stockholders of the Company for each share of common stock of the Company outstanding as of the close of business on
February 28, 2020. Initially, these Rights will not be exercisable and will trade with the shares of common stock. If the Rights
become exercisable, each Right will initially entitle stockholders to buy one one-thousandth of a share of a newly created series
of preferred stock designated as “Series A Junior Participating Preferred Stock” at an exercise price of $31.00 per Right. While
the Rights Agreement is in effect, any person or group that acquires beneficial ownership of 4.99% or more of the common
stock or any existing stockholder who currently owns 5.00% or more of the common stock that acquires any additional shares
of common stock (such person, group or existing stockholder, an "Acquiring Person") without approval from the Board would
be subject to significant dilution in their ownership interest in the Company. In such an event, each Right will entitle its holder
to buy, at the exercise price, common stock having a market value of two times the then current exercise price of the Right and
the Rights held by such Acquiring Person will become void. The Rights Agreement also gives discretion to the Board to
determine that someone is an Acquiring Person even if they do not own 4.99% or more of the common stock but do own 4.99%
or more in value of the outstanding stock, as determined pursuant to Section 382 of the Code and the regulations promulgated
thereunder. In addition, the Board has established procedures to consider requests to exempt certain acquisitions of the
Company’s securities from the Rights Agreement if the Board determines that doing so would not limit or impair the
availability of the NOLs or is otherwise in the best interests of the Company. The Board may redeem the Rights for $0.01 per
Right at any time before any person or group triggers the Rights Agreement. The distribution of the Rights is not a taxable
event for stockholders of the Company and will not affect the Company’s’ financial condition or results of operations (including
earnings per share).
F-34
WARRIOR MET COAL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
The Rights will expire on the earliest of (i) the close of business on February 14, 2023,(ii) the close of business on the first
anniversary of the date of entry into the Rights Agreement, if stockholder approval of the Rights Agreement has not been received
by or on such date, (iii) the time at which the Rights are redeemed as provided in the Rights Agreement, (iv) the time at which the
Rights are exchanged as provided in the Rights Agreement, (v) the time at which the Board determines that the NOLs are fully
utilized or no longer available under Section 382 of the Code, (vi) the effective date of the repeal of Section 382 of the Code if
the Board determines that the Rights Agreement is no longer necessary or desirable for the preservation of NOLs, or (vii) the
closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in
the Rights Agreement. Additional details about the Rights Agreement is contained in the Company’s Current Report on Form 8-
K filed with the SEC on February 14, 2020.
F-35
SUPPLEMENTAL SUMMARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share amounts)
Fiscal Year 2019
Total revenues
Gross profit (1)
Operating income
Net income (2)
Net income per share—basic(4)
Net income per share—diluted(4)
Quarter Ended
March 31
June 30
September 30
December 31
$
$
$
$
$
$
378,290
187,917
156,779
110,447
2.14
2.14
$
$
$
$
$
$
397,613
184,406
147,945
125,481
2.43
2.43
$
$
$
$
$
$
287,506
89,702
54,599
45,022
0.88
0.87
$
$
$
$
$
$
204,901
55,713
24,071
20,751
0.41
0.41
Quarter Ended
$
March 31
Fiscal Year 2018
Total revenues
Gross profit (1)
Operating income
Net income (3)
Net income per share—basic(4)
Net income per share—diluted(4)
(1) Represents total revenues less cost of sales (exclusive of items shown separately below) and cost of other revenues
September 30
322,555
421,788
187,254
273,304
223,328
136,674
178,694
101,096
62,719
99,412
52,591
91,312
June 30
1.00
1.00
1.72
3.36
1.72
3.36
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
360,360
191,776
157,218
374,190
7.13
7.11
December 31
(exclusive of items shown separately below) for each respective period.
(2) Net income for the three months ended March 31, 2019 includes a loss on early extinguishment of debt of $9.8 million.
Net income for the three months ended June 30, 3019 includes $17.5 million and $5.3 million in proceeds received for the
Shared Services Claim and Hybrid Debt Claim for the three months ended June 30, 2019 and September 30, 2019,
respectively. Net income for the three months ended December 31, 2019 includes a change in ARO due to revisions to
estimates of $7.8 million which is discussed further in Note 8.
(3) Net income included transaction and other costs of $3.3 million, $1.0 million, $3.3 million, and $1.5 million for the three
months ended March 31, 2018, June 30, 2018, September 30, 2018, and December 31, 2018. Net income for the three
months ended December 31, 2018 also includes the impact of the NOL valuation allowance release of $225.8 million and a
change in the ARO due to revisions to estimates of $42.1 million.
(4) The sum of quarterly amounts may not equal the annual amounts reported due to rounding. In addition, the sum of
quarterly EPS amounts may be different than annual amounts as a result of the impact of variations in shares outstanding.
F-36
C O R P O R A T E P R O F I L E
CORPORATE HEADQUARTERS
FORM 10-K
Warrior Met Coal, Inc.
16243 Highway 216
Brookwood, AL 35444
Tel: 205.554.6150
Web: www.warriormetcoal.com
INVESTOR CONTACT
Dale W. Boyles
Warrior Met Coal, Inc.
16243 Highway 216
Brookwood, AL 35444
Tel: 205.554.6150
Email: investorrelations@warriormetcoal.com
MEDIA CONTACT
Jason R. Houston
Warrior Met Coal, Inc.
16243 Highway 216
Brookwood, AL 35444
Email: jason.houston@warriormetcoal.com
BOARD OF DIRECTORS
Stephen D. Williams - Chairman (4,5)
Ana B. Amicarella (1, 3, 4)
J. Brett Harvey - Lead Director (1, 2, 3)
Walter J. Scheller, III (4, 5)
Alan H. Schumacher (1, 2)
Gareth N. Turner (2, 3, 5)
BOARD OF DIRECTORS COMMITTEES
1 - Audit Committee
2 - Compensation Committee
3 - Nominating and Corporate Governance Committee
4 - Environmental, Health & Safety Committee
5 - Finance Committee
ANNUAL MEETING
The Annual Meeting of Shareholders of Warrior Met Coal,
Inc. will be held Friday, April 24, 2020 at 9:00 am ET at
the office of Akin Gump Strauss Hauer & Feld, LLP, located
at One Bryant Park, Bank of America Tower, New York,
New York.
Additional copies of the company’s Annual Report on
Form 10-K for the year ended December 31, 2019 are
available on the company’s website, or without charge, by
written request to:
Investor Relations
Warrior Met Coal, Inc.
16243 Highway 216
Brookwood, AL 35444
Tel: 205.554.6150
Or by e-mail to: investorrelations@warriormetcoal.com
COMMON STOCK
New York Stock Exchange / Symbol: HCC
TRANSFER AGENT AND REGISTRAR
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
United States
P.O. Box 505000
Louisville, KY 40233-5000
United States
Shareholder Services
Tel: 1.800.736.3001
www.computershare.com
INDEPENDENT ACCOUNTANTS
Ernst & Young, LLP
1901 Sixth Avenue North, Suite 1200
Birmingham, AL 35203
OFFICERS OF THE CORPORATION
Walter J. Scheller, III
Chief Executive Officer
Jack K. Richardson
Chief Operating Officer
Dale W. Boyles
Chief Financial Officer
Kelli K. Gant
Chief Administrative Officer and Corporate Secretary
Charles Lussier
Chief Commercial Officer
Brian M. Chopin
Chief Accounting Officer and Controller
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WARRIOR MET COAL, INC. | 16243 HIGHWAY 216 | BROOKWOOD, AL 35444 USA | (205) 554-6150
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