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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
hcc-20220331_g1.jpg
Commission File Number: 001-38061
Warrior Met Coal, Inc.
(Exact name of registrant as specified in its charter)
Delaware
81-0706839
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
16243 Highway 216
BrookwoodAlabama35444
(Address of Principal Executive Offices)(Zip Code)
(205554-6150
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.01 per shareHCCNew York Stock Exchange
Rights to Purchase Series A Junior Participating Preferred Stock, par value $0.01 per share--New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filerýAccelerated fileroNon-accelerated fileroSmaller reporting company
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No ý
Number of shares of common stock outstanding as of May 3, 2022: 51,653,152



TABLE OF CONTENTS
 



FORWARD-LOOKING STATEMENTS

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


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

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

successful implementation of our business strategies;

unavailability of, or price increases in, the transportation of our met coal;
significant cost increases and fluctuations, and delay in the delivery of raw materials, mining equipment and purchased components;

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

competition and foreign currency fluctuations;

litigation, including claims not yet asserted;

terrorist attacks or security threats, including cybersecurity threats;

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

impact of weather and natural disasters on demand and production;
a substantial or extended decline in pricing or demand for met coal;

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

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

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

inaccuracies in our estimates of our met coal reserves;

costs associated with our workers’ compensation benefits;

challenges to our licenses, permits and other authorizations;

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

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

1


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

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

our obligations surrounding reclamation and mine closure;

our substantial indebtedness and debt service requirements;

our ability to comply with covenants in our Second Amended and Restated Credit Facility (the “ABL Facility” or the "Second Amended and Restated Credit Agreement") and the Indenture (as defined below);

adequate liquidity and the cost, availability and access to capital and financial markets;
our expectations regarding our future cash tax rate as well as our ability to effectively utilize our net operating loss carry forwards (“NOLs”);

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

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

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

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

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

2


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


3


WARRIOR MET COAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
For the three months ended
March 31,
20222021
Revenues:
Sales$382,433 $206,989 
Other revenues(3,781)6,775 
Total revenues378,652 213,764 
Costs and expenses:
Cost of sales (exclusive of items shown separately below)135,341 154,350 
Cost of other revenues (exclusive of items shown separately below)7,040 7,795 
Depreciation and depletion25,797 32,903 
Selling, general and administrative13,929 7,637 
Business interruption 6,688  
Idle mine 3,008  
Total costs and expenses191,803 202,685 
Operating income 186,849 11,079 
Interest expense, net(7,822)(8,693)
Other income (expenses)675 (109)
Income before income tax expense179,702 2,277 
Income tax expense 33,453 23,632 
Net income (loss) 146,249 $(21,355)
Basic and diluted net income (loss) per share:
Net income (loss) per share—basic $2.84 $(0.42)
Net income (loss) per share—diluted$2.83 $(0.42)
Weighted average number of shares outstanding—basic51,532 51,274 
Weighted average number of shares outstanding—diluted51,634 51,274 
Dividends per share:$0.05 $0.05 
The accompanying notes are an integral part of these condensed financial statements.

4


WARRIOR MET COAL, INC.
CONDENSED BALANCE SHEETS
(in thousands)
 March 31, 2022
(Unaudited)
December 31, 2021
  
ASSETS
Current assets:
Cash and cash equivalents$434,047 $395,839 
Short-term investments8,506 8,505 
Trade accounts receivable260,477 122,150 
Inventories, net110,535 59,619 
Prepaid expenses and other receivables26,045 41,088 
Total current assets839,610 627,201 
Mineral interests, net91,196 93,180 
Property, plant and equipment, net606,198 603,412 
Deferred income taxes92,684 125,276 
Other long-term assets13,662 15,142 
Total assets$1,643,350 $1,464,211 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$60,446 $33,829 
Accrued expenses55,736 54,847 
Short term financing lease liabilities21,910 23,622 
Other current liabilities17,592 9,830 
Total current liabilities155,684 122,128 
Long-term debt340,078 339,806 
Asset retirement obligations69,018 65,536 
Long term financing lease liabilities24,853 28,434 
Other long-term liabilities35,109 36,324 
Total liabilities624,742 592,228 
Stockholders’ Equity:
Common stock, $0.01 par value per share (Authorized -140,000,000 shares as of March 31, 2022 and December 31, 2021, 53,832,331 issued and 51,610,490 outstanding as of March 31, 2022 and 53,659,643 issued and 51,437,802 outstanding as of December 31, 2021)
537 537 
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 shares as of March 31, 2022 and December 31, 2021)
(50,576)(50,576)
Additional paid in capital259,561 256,059 
Retained earnings809,086 665,963 
Total stockholders’ equity1,018,608 871,983 
Total liabilities and stockholders’ equity$1,643,350 $1,464,211 
The accompanying notes are an integral part of these condensed financial statements.
5


WARRIOR MET COAL, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
 
 
For the three months ended March 31,
20222021
Common Stock
Balance, beginning of period$537 $534 
Issuance of shares 2 
Balance, end of period537 536 
Preferred Stock
Balance, beginning of period  
Balance, end of period  
Treasury Stock
Balance, beginning of period(50,576)(50,576)
Balance, end of period(50,576)(50,576)
Additional Paid in Capital
Balance, beginning of period256,059 249,746 
Stock compensation7,218 1,567 
Other(3,716)(2,539)
Balance, end of period259,561 248,774 
Retained Earnings
Balance, beginning of period665,963 525,537 
Net income (loss)146,249 (21,355)
Dividends paid(3,126)(2,613)
Balance, end of period809,086 501,569 
Total Stockholders' Equity$1,018,608 $700,303 
The accompanying notes are an integral part of these condensed financial statements.

6


WARRIOR MET COAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 For the three months ended March 31,
20222021
OPERATING ACTIVITIES
Net income (loss) $146,249 $(21,355)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and depletion25,797 32,903 
Deferred income tax expense 33,382 23,632 
Stock based compensation expense7,218 1,696 
Amortization of debt issuance costs and debt discount522 425 
Accretion of asset retirement obligations867 805 
Mark-to-market loss on gas hedges11,681  
Changes in operating assets and liabilities:
Trade accounts receivable(138,328)7,178 
Inventories(39,446)(16,107)
Prepaid expenses and other receivables7,148 10,192 
Accounts payable13,090 4,964 
Accrued expenses and other current liabilities(1,500)(5,463)
Other3,461 6,352 
Net cash provided by operating activities70,141 45,222 
INVESTING ACTIVITIES
Purchase of property, plant and equipment(10,528)(9,479)
Deferred mine development costs(9,893)(12,333)
Acquisition of Black Warrior Methane and Black Warrior Transmission, net of $2.8 million cash acquired
2,533  
Proceeds from sale of property, plant and equipment 20 
Net cash used in investing activities(17,888)(21,792)
FINANCING ACTIVITIES
Dividends paid(3,126)(2,613)
Principal repayments of finance lease obligations(7,203)(8,247)
Other(3,716)(2,539)
Net cash used in financing activities(14,045)(13,399)
Net increase in cash and cash equivalents38,208 10,031 
Cash and cash equivalents at beginning of period395,839 211,916 
Cash and cash equivalents at end of period$434,047 $221,947 
The accompanying notes are an integral part of these condensed financial statements.


7


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)
Note 1—Business and Basis of Presentation

Description of the Business

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

Basis of Presentation

The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. For further information, refer to the financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report"). Operating results for the three months ended March 31, 2022 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2022. The balance sheet at December 31, 2021 has been derived from the audited financial statements for the year ended December 31, 2021 included in the 2021 Annual Report.

Collective Bargaining Agreement

The Company's Collective Bargaining Agreement contract with the UMWA expired on April 1, 2021. While the Company continues to engage in good faith negotiations with the UMWA, the Company has not reached a new contract and the UMWA is engaging in a strike. As a result of the strike, the Company initially idled Mine No. 4 and scaled back operations at Mine No. 7. During the current quarter, the Company restarted operations at Mine No. 4. Due to the reduced operations at Mine No. 4 and Mine No. 7, the Company incurred idle mine expenses of $3.0 million for the three months ended March 31, 2022. These expenses are reported separately in the Condensed Statements of Operations and represent expenses incurred, such as electricity, insurance and maintenance labor. The Company has also incurred approximately $6.7 million of business interruption expenses for the three months ended March 31, 2022, which represent non-recurring expenses that are directly attributable to the ongoing UMWA strike for incremental safety and security, labor negotiations and other expenses. These expenses are also presented separately in the Condensed Statements of Operations.

Black Warrior Methane (“BWM”) and Black Warrior Transmission (“BWT”)

On March 1, 2022, the Company acquired the remaining 50% interest in BWM and BWT for $0.3 million. The purchase consideration has been preliminarily allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. A full and detailed valuation of the assets and liabilities is being completed with the assistance of an independent third party and certain information and analysis remains pending at this time. Accordingly, the allocation is preliminary and may change as additional information becomes available and is assessed by the Company. The final allocation of the consideration transferred may include adjustments to the fair value estimates of identifiable assets and liabilities, after a full review has been completed. The acquisition is not deemed to be material to the condensed financial statements.

Note 2—Summary of Significant Accounting Policies

The Company's significant accounting policies are consistent with those disclosed in Note 2 to its audited financial statements included in the 2021 Annual Report, except for changes related to new accounting pronouncements described in "New Accounting Pronouncements."

8


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

Cash and Cash Equivalents

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

Short-Term Investments

Instruments with maturities greater than three months, but less than twelve months, are included in short-term investments. The Company 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 are those securities that management has the intent and ability to hold to maturity.
As of March 31, 2022 and December 31, 2021, short-term investments consisted of $8.5 million in cash and fixed income securities. The short-term investments are posted as collateral for the self-insured black lung related claims asserted by or on behalf of former employees of Walter Energy, Inc. ("Walter Energy") and its subsidiaries, which were assumed by the Company and relate to periods prior to March 31, 2016.

Revenue Recognition

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

Since February 2017, the Company has had an arrangement with XCoal Energy & Resources ("XCoal") to serve as XCoal's strategic partner for exports of low-volatility HCC. Under this arrangement, XCoal takes title to and markets coal that the Company would historically have sold on the spot market, in an amount of the greater of (i) 10% of the Company's total production during the applicable term of the arrangement or (ii) 250,000 metric tons. During the three months ended March 31, 2022 and 2021, XCoal accounted for approximately $83.5 million, or 21.6% of total sales, and $106.2 million, or 50.9% of total sales, respectively.

Trade Accounts Receivable and Allowance for Credit Losses

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

In order to estimate the allowance for credit losses on trade accounts receivable, the Company utilizes an aging approach in which potential impairment is calculated based on how long a receivable has been outstanding (e.g., current, 1-31 days, 31-60 days, etc.). The Company calculates an expected credit loss rate based on the Company’s historical credit loss rate, the risk characteristics of our customers, and the current met coal and steel market environments. As of March 31, 2022 and December 31, 2021, the estimated allowance for credit losses was immaterial and did not have a material impact on the Company's financial statements.

New Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-10, “Disclosures by Business Entities about Government Assistance,” which requires business entities to make annual disclosures about transactions with a government accounted for by analogizing to a grant or contribution accounting model. The required annual disclosures include the nature of the transaction, the related accounting policy, the financial statement line items affected and the amounts
9


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

reflected in the current period financial statements, and any significant terms and conditions. The ASU is effective for fiscal years beginning after December 15, 2021. The adoption of this ASU is not expected to have a 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):
 March 31, 2022December 31, 2021
Coal$70,250 $24,185 
Raw materials, parts, supplies and other, net40,284 35,435 
Total inventories, net$110,535 $59,619 

Note 4—Income Taxes

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

For the three months ended March 31, 2021, the Company utilized a discrete period method to calculate taxes, as it did not believe that the annual effective tax rate method represented a reliable estimate given the uncertainty at the time surrounding the COVID-19 pandemic, the Chinese ban on Australian coal and other potentially disruptive factors and its impact on the Company's annual guidance. For the three months ended March 31, 2021, the Company had income tax expense of $23.6 million. The income tax expense of $23.6 million was due to the establishment of a non-cash $47.8 million state deferred income tax asset valuation allowance, discussed below, offset partially by a net non-cash income tax benefit of $22.9 million due to the remeasurement of state deferred income tax assets and liabilities and $1.3 million of net income tax benefit from the Internal Revenue Code ("IRC") Section 45I Marginal Well Credit, depletion and other adjustments. The Marginal Well Credit is a production-based tax credit that provides a credit for qualified natural gas production. The credit is phased out when natural gas prices exceed certain levels.

On February 12, 2021, the Alabama Governor signed into law Alabama House Bill 170, now Act 2021-1 (the "Act").
The Act makes several changes to the state’s business tax structure. Among the provisions of the Act, is the repeal of the so-called corporate income tax “throwback rule.” That rule required all sales originating in Alabama and delivered to a jurisdiction where the seller was not subject to tax, to be included in the seller’s Alabama income tax base. Thus, prior to repeal of the throwback rule, the Company had to rely on its Alabama NOL carryforwards to shelter taxes imposed under such throwback rule. As a result of the now repealed throwback rule, effective January 1, 2021, all such sales should now be excluded from Alabama taxable income without the need to utilize Alabama NOLs. As a result of the repeal of the throwback rule, in the first quarter of 2021, the Company remeasured its Alabama deferred income tax assets and liabilities and recorded the non-cash income tax benefit noted above of $22.9 million. Additionally, the Company determined that it is not more likely than not that the Company would have sufficient taxable income to utilize all of the Company’s Alabama deferred income tax assets prior to expiration. Therefore, in the first quarter of 2021, the Company established a non-cash valuation allowance of $47.8 million against such deferred income tax assets.

10


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

Note 5—Debt
Debt consisted of the following (in thousands):
March 31,
2022
December 31, 2021Weighted Average Interest Rate at March 31, 2022Final Maturity
Senior Secured Notes$350,000 $350,000 7.875%2028
ABL Borrowings  
Varies1
2026
Debt discount/premium, net(9,922)(10,194)
Total debt340,078 339,806 
Less: current debt  
Total long-term debt$340,078 $339,806 
(1) The weighted average interest rate on our ABL Facility is based on the Secured Overnight Financing Rate which rate varies between 1.5% and 2.0% based on the quarterly availability under the borrowing base plus a credit adjustment spread of 0.11448% to 0.26161%.

Senior Secured Notes

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

ABL Facility

On December 6, 2021, the Company entered into the Second Amended and Restated Asset-Based Revolving Credit Agreement (the “Second Amended and Restated Credit Agreement”), by and among the Company and certain of its subsidiaries, as borrowers, the guarantors party thereto, the lenders from time to time party thereto and Citibank, as administrative agent (in such capacity, the "Agent"), which amends and restates in its entirety the existing Amended and Restated Asset-Based Revolving Credit Agreement (as amended, the “ABL Facility”). The Second Amended and Restated Credit Agreement, among other things, (i) extended the maturity date of the ABL Facility to December 6, 2026; (ii) changed the calculation of the interest rate payable on borrowings from being based on a London Inter-Bank Offered Rate to be based on a Secured Overnight Financing Rate, with corresponding changes to the applicable interest rate margins with respect to such borrowings, (iii) amended certain definitions related to the calculation of the borrowing base; (iv) increased the commitments that may be used to issue letters of credit to $65.0 million; and (v) amended certain baskets contained in the covenants to conform to the baskets contained in the indenture governing the Notes. The Second Amended and Restated Credit Agreement also allows the Company to borrow up to $132.0 million through October 14, 2023, decreasing to $116.0 million through November 2026, subject to availability under the borrowing base and other conditions.

As of March 31, 2022, no loans were outstanding under the ABL Facility and there were $9.4 million of letters of credit issued and outstanding under the ABL Facility. At March 31, 2022, the Company had $122.7 million of availability under the ABL Facility (calculated net of $9.4 million of letters of credit outstanding at such time).

Note 6—Other Long-Term Liabilities

Other long-term liabilities are summarized as follows (in thousands):
 March 31, 2022December 31, 2021
Black lung obligations$34,606 $34,482 
Other503 1,842 
Total other long-term liabilities$35,109 $36,324 
11


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)


Note 7—Leases

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

Supplemental balance sheet information related to leases was as follows (in thousands):
March 31, 2022December 31, 2021
Finance lease right-of-use assets, net(1)
$72,982$75,692 
Finance lease liabilities
Current21,91023,622 
Noncurrent24,85328,434 
Total finance lease liabilities$46,763$52,056 
Weighted average remaining lease term - finance leases (in months)32.5 35.1 
Weighted average discount rate - finance leases(2)
6.04 %6.11 %
(1) Finance lease right-of-use assets are recorded net of accumulated amortization of $22.3 million and $17.7 million and are included in property, plant and equipment, net in the Condensed Balance Sheet as of March 31, 2022 and the Balance Sheet as of December 31, 2021, respectively.
(2) When an implicit discount rate is not readily available in a lease, the Company uses its incremental borrowing rate based on information available at the commencement date when determining the present value of lease payments.

    The components of lease expense were as follows (in thousands):
For the three months ended
March 31,
20222021
Operating lease cost(1):
$5,990 $1,189 
Finance lease cost:
Amortization of leased assets4,621 4,125 
Interest on lease liabilities880 774 
Net lease cost$11,491 $6,088 
(1) Includes leases that are for periods of 12 months or less.

Maturities of lease liabilities were as follows (in thousands):
Finance Leases(1)
202218,538 
202327,551 
20243,195 
20251,353 
2026156 
Thereafter 
Total50,793 
Less: amount representing interest(4,030)
Present value of lease liabilities$46,763 
(1) Finance lease payments include $3.9 million of future payments required under signed lease agreements that have not yet commenced.
12


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)


Supplemental cash flow information related to leases was as follows (in thousands):
For the three months ended
March 31,
20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases$880 $774 
Financing cash flows from finance leases$7,203 $8,247 
Non-cash right-of-use assets obtained in exchange for lease obligations:
Finance leases$1,911 $35,288 
As of March 31, 2022, the Company had additional commitments for finance leases, primarily for mining equipment, that have not yet commenced of $3.9 million. These finance leases will commence during fiscal year 2022 and 2023 with lease terms of one to two years.
Note 8—Net Income (Loss) per Share
Basic and diluted net income (loss) per share was calculated as follows (in thousands, except per share data):
 For the three months ended
March 31,
20222021
Numerator:
Net income (loss)$146,249 $(21,355)
Denominator:
Weighted-average shares used to compute net income (loss) per share—basic51,532 51,274 
Dilutive restrictive stock awards (1)
102  
Weighted-average shares used to compute net income (loss) per share—diluted51,634 51,274 
Net income (loss) per share—basic $2.84 $(0.42)
Net income (loss) per share—diluted$2.83 $(0.42)
(1) In periods of net loss, the number of shares used to calculate diluted earnings per share is the same as basic earnings per share; therefore, the effect of dilutive securities is zero for such periods.

On February 16, 2022, the Company awarded 320,156 restricted stock unit awards under the Company's 2017 Equity Incentive Plan (the "2017 Equity Plan"). These awards have certain service-based, performance-based and market-based vesting conditions, as applicable. The service-based awards vest over a period of three years and the performance-based and market-based awards are based on the Company's performance in each of the three years.

As of March 31, 2022, there were 284,734 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.

As of March 31, 2022, there were 485,102 restricted stock unit awards for which the performance-based and market-based vesting conditions were not met as of the measurement date and, as such, these awards were excluded from basic and diluted earnings per share. Based on the Company's closing share price on March 31, 2022, there were 19,448 restricted stock unit awards classified as a liability.

As of March 31, 2022, there were 13,157 shares of its common stock contingently issuable upon the settlement of a vested restricted stock unit award under the 2017 Equity Plan. The settlement date for these awards is the earlier of a change in control as described in the 2016 Equity Plan or 2017 Equity Plan, as applicable, 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 (loss) per share.

13


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

During the first quarter of 2022, restricted stock unit awards granted to certain employees who were retirement eligible resulted in incremental stock compensation expense of $6.3 million that is included in selling, general and administrative expenses within the Condensed Statements of Operations.

Note 9—Commitments and Contingencies

Environmental Matters

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

The Company believes it is in compliance with federal, state and local environmental laws and regulations. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and can be reasonably estimated. As of March 31, 2022 and December 31, 2021, there were no accruals for environmental matters other than asset retirement obligations for mine reclamation.

Miscellaneous Litigation

From time to time, the Company is party to lawsuits arising in the ordinary course of its businesses. The Company records costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on the Company’s future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. As of March 31, 2022 and December 31, 2021, there were no items accrued for miscellaneous litigation.

On July 15, 2015, Walter Energy and certain of its wholly owned U.S. subsidiaries, including Jim Walter Resources, Inc. (“JWR”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code (the “Chapter 11 Cases”) in the Northern District of Alabama, Southern Division. On December 7, 2015, Walter Energy Canada Holdings, Inc., Walter Canadian Coal Partnership and their Canadian affiliates (collectively “Walter Canada”) applied for and were granted protection under the Companies’ Creditors Arrangement Act (the “CCAA”) pursuant to an Initial Order of the Supreme Court of British Columbia. As a result of the Company’s acquisition of certain core operating assets of Walter Energy during the Chapter 11 Cases, the Company received $0.7 million from the Chapter 11 Cases which is reflected as other income in the Condensed Statement of Operations for the three months ended March 31, 2022.

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, the unloading of rail cars or barges, and the loading of vessels. If the Company does not meet its minimum throughput obligations, which are based on annual minimum amounts, it is required to pay the transportation providers or the Alabama State Port Authority a contractually specified amount per metric ton for the difference between the actual throughput and the minimum throughput requirement. At March 31, 2022 and December 31, 2021, 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, they generally last for the economic life of the reserves. Coal royalty expense was $25.2 million for the three months ended March 31, 2022, and $12.7 million for the three months ended March 31, 2021.


14


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

Note 10—Stockholders' Equity

Stock Repurchase Program

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

    Under the 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 as determined from time to time by the Company and other considerations. 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 Stock Repurchase Program from cash on hand and/or other sources of liquidity.

    As of March 31, 2022, the Company has repurchased 500,000 shares for approximately $10.6 million, leaving approximately $58.8 million of share repurchases authorized under the Stock Repurchase Program.

Regular Quarterly Dividend

On February 18, 2022, the Board declared a regular quarterly cash dividend of $0.06 per share, totaling $3.1 million, which was paid on March 10, 2022, to stockholders of record as of the close of business on March 3, 2022.

On April 26, 2022, the Board declared a regular quarterly cash dividend of $0.06 per share, totaling approximately $3.1 million, which will be paid on May 13, 2022, to stockholders of record as of the close of business on May 6, 2022.

May 2022 Special Dividend

On May 3, 2022, the Board declared a special quarterly cash dividend of $0.50 per share, to be paid on May 20, 2022, to stockholders of record as of the close of business on May 13, 2022.

Note 11—Derivative Instruments

The Company enters into natural gas swap contracts from time to time to hedge the exposure to variability in expected
future cash flows associated with the fluctuations in the price of natural gas related to the Company’s forecasted sales. As of March 31, 2022, the Company had natural gas swap contracts outstanding with notional amounts totaling 5,900,000 metric million British thermal units maturing in the first quarter of 2023. As of December 31, 2021, the Company had 6,100,000 metric million British thermal unit natural gas swap contracts outstanding.

The Company’s natural gas swap contracts economically hedge certain risks but are not designated as hedges for
financial reporting purposes. All changes in the fair value of these derivative instruments are recorded as other revenues in the
Condensed Statements of Operations. The Company recognized a loss of $13.2 million, which includes $1.5 million of realized losses, for the three months ended March 31, 2022. The Company records all derivative instruments at fair value and had a liability of $7.6 million as of March 31, 2022 in other current liabilities in the accompanying Condensed Balance Sheets and had an asset of 4.0 million as of December 31, 2021 in prepaid expenses and other in the accompanying Condensed Balance Sheets.
Note 12—Fair Value of Financial Instruments
The following table presents information about the Company’s financial liabilities measured at fair value on a recurring basis as of March 31, 2022 and indicates the level of the fair value hierarchy utilized to determine such fair value (in thousands):
15


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)


 Fair Value Measurements as of March 31, 2022 Using:
Level 1Level 2Level 3Total
Liabilities:
Natural gas swap contracts$ $7,638 $ $7,638 
 Fair Value Measurements as of December 31, 2021 Using:
Level 1Level 2Level 3Total
Assets:
Natural gas swap contracts$ $4,043 $ $4,043 
The Company had no assets or any other liabilities measured at fair value on a recurring basis as of March 31, 2022 or December 31, 2021. During the three months ended March 31, 2022, 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. There were no changes to the valuation techniques used to measure liability fair values on a recurring basis during the three months ended March 31, 2022.

 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, receivables and trade accounts payable—The carrying amounts reported in the Condensed Balance Sheets 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 March 31, 2022, there were no borrowings outstanding under the ABL Facility, with $122.7 million available, net of outstanding letters of credit of $9.4 million. As of December 31, 2021, the Company had no borrowings outstanding under the ABL Facility and $9.4 million of letters of credit issued and outstanding under the ABL Facility. As of March 31, 2022 and December 31, 2021, the estimated fair value of the Notes based upon observable market data (Level 2) was approximately $368.4 million and $359.6 million, respectively.

Note 13—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 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 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, transactions costs, interest expense, and income tax expense by segment.

The following tables include reconciliations of segment information to consolidated amounts (in thousands):
16


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)

 For the three months ended
March 31,
20222021
Revenues
Mining$382,433 $206,989 
All other(3,781)6,775 
Total revenues$378,652 $213,764 
 
 For the three months ended
March 31,
20222021
Capital Expenditures
Mining$7,155 $8,619 
All other3,373 860 
Total capital expenditures$10,528 $9,479 
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, business interruption, idle mine, other income, interest expense, net, income tax (expense) benefit, 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): 
 For the three months ended
March 31,
20222021
Segment Adjusted EBITDA$247,092 $52,639 
Other revenues(3,781)6,775 
Cost of other revenues(7,040)(7,795)
Depreciation and depletion(25,797)(32,903)
Selling, general and administrative(13,929)(7,637)
Business interruption (6,688) 
Idle mine (3,008) 
Other income (loss)675 (109)
Interest expense, net(7,822)(8,693)
Income tax (expense) benefit (33,453)(23,632)
Net income (loss) $146,249 $(21,355)

17


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2022 (UNAUDITED)


Note 14—Subsequent Event
On May 3, 2022, the Company announced that it is relaunching the development of its Blue Creek reserves into a new, world-class longwall mine located in Alabama near its existing mines.
18


ITEM 2. 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 three months ended March 31, 2022 and March 31, 2021. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Form 10-Q and the audited financial statements for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, 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, 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 metallurgical ("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, 2021, based on a reserve report prepared by Marshall Miller & Associates, Inc. ("Marshall Miller"), Mine No. 4 and Mine No. 7, our two operating mines, had approximately 90.2 million metric tons of recoverable reserves and our undeveloped Blue Creek mine contained 63.3 million metric tons of recoverable reserves and 44.9 million metric tons of coal resources exclusive of reserves, which total 108.2 million metric tons. 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 Premium Low Volatility ("LV") Free On Board ("FOB") Australia Index Price ("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 mid-volatility ("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.
The global steelmaking industry's demand for met coal is also affected by pandemics, epidemics or other public health emergencies, such as the outbreak of the novel coronavirus ("COVID-19"). As of the filing of this Form 10-Q, we have not had to idle or temporarily idle our mines as a result of COVID-19.
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, such as the unofficial ban on Australian coal in November 2020, on their domestic coal industry, sometimes with little advance notice, which has impacted worldwide coal demand, supply and prices. The ban on Australian coal has significantly impacted the global met coal market in recent years. 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.
In February 2022, the war in Ukraine pushed seaborne met coal export prices into uncharted waters. Market fundamentals before the conflict were already tight, with prices close to record levels. After the invasion began, spot cargo requests for Australian met coals could not be filled. The U.S., Canada and Indonesia were also not able to step up at short notice. These supply shortages combined with the urgent purchases of non-Russian coal against a backdrop of mounting sanctions, trade finance problems and seaborne logistical constraints pushed the Queensland PLV HCC price to over $660.00
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per metric ton by mid-March. Soon after the large spike in prices, panic subsided and prices fell $120.00 per metric ton in just over a few days as buyers refused to pay the exorbitant prices while others took a wait and see approach for lower pricing.
U.S. inflation surged to a new four decade record high of 8.5% in March 2022, driven by increased energy and food costs, supply constraints and strong consumer demand. High inflation has been driven by growth in the economy as it bounces back from COVID-19, powered in part by low interest rates and government stimulus to counter the pandemic's impact. We expect COVID-19 to continue to impact global supply markets and supply chains, resulting in shortages, extended lead times and increased inflation impacting our operations and profitability. We are applying a number of different strategies to mitigate the impact of these challenges on our operations, including placing purchase orders earlier, utilizing short term contracts and leveraging our supplier relationships. While inflation did not have a significant impact to our profitability in the first quarter of 2022, we do expect ongoing inflation to have a larger impact for the remainder of the year. In 2022, we expect inflation to have a larger negative impact on our profitability, as we expect increases in steel prices, freight rates, labor and other materials and supplies. These increases affect, among others, the costs of belt structure, roof bolts, cable, magnetite, rock dust and machinery and equipment purchases.
The Chinese ban on Australian coal, the ongoing war in Ukraine, additional sanctions against Russia and a broader economic weakening as inflation rises and stimulus falls are all likely to continue to impact the global met coal market and impact our business, financial condition or results of operations.
Our primary business, the mining and exporting of met coal for the steel industry, is conducted in one reportable 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 (as defined below), a non-GAAP financial measure; (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.
 For the three months ended
March 31,
20222021
(in thousands)
Segment Adjusted EBITDA$247,092 $52,639 
Metric tons sold1,022 1,771 
Metric tons produced1,395 1,970 
Average selling price per metric ton$374.20 $116.88 
Cash cost of sales per metric ton$131.48 $86.67 
Adjusted EBITDA$243,823 $47,137 
Segment Adjusted EBITDA
We define Segment Adjusted EBITDA as net income (loss) adjusted for other revenues, cost of other revenues, depreciation and depletion, selling, general and administrative, business interruption, idle mine, net interest expense, income tax benefit, other income (expense) and certain transactions or adjustments that the Chief Executive Officer, 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 dividends;
our ability to incur and service debt and fund capital expenditures; and
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the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
Sales Volumes 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 annual coal sales contracts, for which prices generally are set on daily index averages. 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 based on our average net selling price per metric ton.
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 accounting principles generally accepted in the United States ("GAAP"), are classified in the Condensed Statements of Operations as costs other than cost of sales, but relate directly to the costs incurred to produce met coal and sell it FOB at the Port of Mobile, Alabama. 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.
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 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 cost 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 FOB at the Port of Mobile, Alabama. Period-to-period comparisons of cash cost of sales are intended to help management identify and assess additional trends that potentially impact us and 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.
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.
 For the three months ended
March 31,
20222021
(in thousands)
Cost of sales$135,341 $154,350 
Asset retirement obligation accretion(493)(432)
Stock compensation expense(475)(422)
Cash cost of sales$134,373 $153,496 


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Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense, depreciation and depletion, non-cash stock compensation expense, non-cash asset retirement obligation accretion, other non-cash accretion, non-cash mark-to-market loss on gas hedges, business interruption, idle mine and other (income) expense. 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.
We believe that the presentation of Adjusted EBITDA in this 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 (loss). Adjusted EBITDA should not be considered an alternative to net income (loss) or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjustments exclude some, but not all, items that affect net income (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.
 For the three months ended
March 31,
20222021
Net income (loss)146,249 $(21,355)
Interest expense, net7,822 8,693 
Income tax expense33,453 23,632 
Depreciation and depletion25,797 32,903 
Asset retirement obligation accretion (1)
867 805 
Stock compensation expense (2)
7,218 1,696 
Other non-cash accretion (3)
231 361 
Mark-to-market loss on gas hedges (4)
13,165 — 
Business interruption (5)
6,688 — 
Idle mine costs (6)
3,008 — 
Other (income) expense (7)
(675)402 
Adjusted EBITDA$243,823 $47,137 
(1)Represents non-cash accretion expense associated with our asset retirement obligations.
(2)Represents non-cash stock compensation expense associated with equity awards.
(3)Represents non-cash accretion expense associated with our black lung obligations.
(4)Represents mark-to-market loss recognized on gas hedges.
(5)Represents business interruption expenses associated with the ongoing United Mine Workers of America's (the "UMWA") strike.
(6)Represents idle mine expenses incurred in connection with reduced operations at Mine No. 4 and Mine No. 7.
(7)Represents proceeds received from the Chapter 11 Cases from Walter Energy, Inc., and COVID-19 pandemic related expenses.

Results of Operations
Three Months Ended March 31, 2022 and 2021
The following table summarizes certain unaudited financial information for the three months ended March 31, 2022 and 2021.
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For the three months ended
March 31,
(in thousands)2022% of Total Revenues2021% of Total Revenues
Revenues:
Sales$382,433 101.0 %$206,989 96.8 %
Other revenues(3,781)(1.0)%6,775 3.2 %
Total revenues378,652 100.0 %213,764 100.0 %
Costs and expenses:
Cost of sales (exclusive of items shown separately below)135,341 35.7 %154,350 72.2 %
Cost of other revenues (exclusive of items shown separately below)7,040 1.9 %7,795 3.6 %
Depreciation and depletion25,797 6.8 %32,903 15.4 %
Selling, general and administrative13,929 3.7 %7,637 3.6 %
Business interruption 6,688 1.8 %— — %
Idle mine 3,008 0.8 %— — %
Total costs and expenses191,803 50.7 %202,685 94.8 %
Operating income 186,849 49.3 %11,079 5.2 %
Interest expense, net(7,822)(2.1)%(8,693)(4.1)%
Other income (expenses)675 0.2 %(109)(0.1)%
Income before income tax expense 179,702 47.5 %2,277 1.1 %
Income tax expense 33,453 8.8 %23,632 11.1 %
Net income (loss)$146,249 38.6 %$(21,355)(10.0)%

Sales and cost of sales components on a per unit basis for the three months ended March 31, 2022 and 2021 were as follows: 
 For the three months ended
March 31,
 20222021
Met Coal (metric tons in thousands)
Metric tons sold 1,022 1,771 
Metric tons produced1,395 1,970 
Average selling price per metric ton$374.20 $116.88 
Cash cost of sales per metric ton$131.48 $86.67 
We produced 1.4 million metric tons of met coal for the three months ended March 31, 2022 compared to 2.0 million metric tons for the three months ended March 31, 2021. The tons produced in the first quarter of 2022 resulted from us running both longwalls and four continuous miner units at Mine No. 7 and the longwall and two continuous miner units at Mine No. 4.
Sales for the three months ended March 31, 2022 were $382.4 million compared to $207.0 million for the three months ended March 31, 2021. The $175.4 million increase in sales was primarily driven by a $263.0 million increase in sales related to a $257.32 increase in the average selling price per metric ton of met coal offset partially by $87.5 million decrease in sales due to a 749 thousand metric ton decrease in met coal sales volume. In addition, approximately one hundred thousand metric tons of expected shipments were delayed and moved into the second quarter of 2022 due to port congestion, maintenance and equipment failures which lowered our first quarter of 2022 sales volumes.
For the three months ended March 31, 2022, our geographic customer mix was 66% in Europe, 22% in Asia, and 12% in South America. For the three months ended March 31, 2021, our geographic customer mix was 54% in Europe, 26% in Asia and 20% in South America. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.
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Other revenues for the three months ended March 31, 2022 were $(3.8) million compared to $6.8 million for the three months ended March 31, 2021. Other revenues are comprised of revenue derived from our natural gas operations, gains on sales and disposals of property, plant and equipment and land, changes in the fair value of our natural gas swap contracts, as well as earned royalty revenue. The $10.6 million decrease in other revenues is primarily due to a $13.2 million loss recognized on the fair value adjustment related to our natural gas swap contracts due to an increase in natural gas futures offset partially by a $2.6 million increase in gas revenues due to a $2.28, or 86.0%, increase in average gas selling prices. Cost of other revenues for the period was consistent with the prior year period.
Cost of sales (exclusive of items shown separately below) was $135.3 million, or 35.7% of total revenues, for the three months ended March 31, 2022, compared to $154.4 million, or 72.2% of total revenues for the three months ended March 31, 2021. The $19.1 million decrease is primarily driven by a $64.9 million decrease due to a 749 thousand metric ton decrease in met coal sales volumes offset partially by a $45.8 million increase due to higher costs on price sensitive transportation and royalty costs, as well as the impact of inflation. Inflation accounted for an approximate $3.00 per metric ton impact due to increases in the costs of belt structure, roof bolts, cable, magnetite, rock dust and other materials and supplies. While the impact to the current quarter is not considered to be material, the continued rise of inflation may materially impact our results of operations and financial condition in the future.
Depreciation and depletion expenses were $25.8 million, or 6.8% of total revenues, for the three months ended March 31, 2022, compared to $32.9 million, or 15.4% for the three months ended March 31, 2021. The $7.1 million decrease in depreciation and depletion is primarily driven by a 749 thousand metric ton decrease in met coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.
Selling, general and administrative expenses were $13.9 million, or 3.7% of total revenues, for the three months ended March 31, 2022, compared to $7.6 million, or 3.6% of total revenues, for the three months ended March 31, 2021. The $6.3 million increase in selling, general and administrative expenses for the period is primarily due to the acceleration of stock compensation expense for awards granted to certain employees who qualify as retirement eligible combined with an increase in awards granted and an increase in the grant date fair value of the awards.
Business interruption expenses were $6.7 million for the three months ended March 31, 2022. These expenses represent non-recurring expenses that are directly attributable to the ongoing UMWA strike for incremental safety and security, labor negotiations and other expenses.
Idle mine expenses were $3.0 million for the three months ended March 31, 2022. These expenses represent idle expenses incurred in connection with reduced operations at Mine No. 7 and Mine No. 4, such as electricity, insurance and maintenance labor.
Interest expense, net was $7.8 million, or 2.1% of total revenues, for the three months ended March 31, 2022, compared to $8.7 million, or 4.1% of total revenues, for the three months ended March 31, 2021. The $0.9 million decrease is primarily driven by a decrease in interest on our outstanding senior secured notes.
Other income of $0.7 million for the three months ended March 31, 2022 represents proceeds received of $0.7 million from the Chapter 11 Cases from Walter Energy, Inc. Other expense for the three months ended March 31, 2021 of $0.1 million represents COVID-19 pandemic related expenses.
For the three months ended March 31, 2022, we recognized income tax expense of $33.5 million, which was principally offset by the utilization of federal NOLs for cash tax purposes. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period. For the three months ended March 31, 2021, we utilized a discrete period method to calculate taxes, as we did not believe that the annual effective tax rate method represented a reliable estimate given the uncertainty surrounding the outbreak of COVID-19 and its impact on our annual guidance at that time. The income tax expense of $23.6 million was due to the establishment of a non-cash $47.8 million state deferred income tax asset valuation allowance, offset partially by a non-cash net income tax benefit of $22.9 million due to the remeasurement of state deferred income tax assets and liabilities and $1.3 million of net income tax benefit from the Internal Revenue Code ("IRC") Section 45I Marginal Well Credit, depletion and other adjustments. The Marginal Well Credit is a production-based tax credit that provides a credit for qualified natural gas production. The credit is phased out when natural gas prices exceed certain levels.


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Liquidity and Capital Resources
Overview
Our sources of cash have been met coal and natural gas sales to customers, proceeds received from the issuance of the Notes (as defined below) and access to our ABL Facility. Historically, our primary uses of cash have been for funding the operations of our met coal and natural gas production operations, our capital expenditures, our reclamation obligations, payment of principal and interest on our Notes, professional fees and other non-recurring transaction expenses. In addition, we have used available cash on hand to repurchase shares of our common stock, pay quarterly dividends, and pay special dividends, each of which reduces cash and cash equivalents.
Going forward, we will use cash to fund debt service payments on our Notes, the ABL Facility and our other indebtedness, to fund operating activities, working capital, capital expenditures, and strategic investments, and, if declared, to pay our quarterly and/or special dividends. 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, or special dividends financed partially or wholly with debt financing, our ability to access the capital markets to raise additional capital.
Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on continued stable global economic conditions and a resolution of negotiations regarding the Company's Collective Bargaining Agreement ("CBA") with the UMWA. There remains significant uncertainty as to the effects of new COVID-19 variants on the global economy, which in turn may, among other things, impact our ability to generate positive cash flows from operations, fund capital expenditure needs and successfully execute and fund key initiatives, such as the development of Blue Creek.
Our total liquidity as of March 31, 2022 was $556.7 million, consisting of cash and cash equivalents of $434.0 million and $122.7 million available under our ABL Facility. As of March 31, 2022, no loans were outstanding under the ABL Facility and there were $9.4 million of letters of credit issued and outstanding under the ABL Facility.
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 March 31, 2022, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our mining operations totaling $40.9 million, $17.0 million as collateral for self-insured black lung related claims and $3.6 million for miscellaneous purposes.
We believe that our future cash flows from operations, together with cash on our balance sheet, will provide adequate resources to fund our debt service payments and planned operating and capital expenditure needs for at least the next twelve months. However, we will continue to assess our liquidity needs in light of the ongoing CBA contract negotiations with the UMWA and the ongoing impact of COVID-19.
The Company's principal contractual commitments include repayments of long-term debt and related interest, potential minimum throughput payments associated with our rail and port providers, asset retirement obligation payments, black lung obligation payments, payments on various coal and land leases, payments under financing lease obligations and payments associated with our natural gas swap contracts. Currently, there are no known trends or expected changes anticipated in future periods that would not be indicative of past results for our contractual commitments.
Refer to the respective notes in our audited financial statements for the year ended December 31, 2021 included in our 2021 Annual Report for further information about our credit facilities and long-term debt (Note 13), commitments and contingencies (Note 16), asset retirement obligations (Note 8), black lung obligations (Note 10), lease payment obligations (Note 14), share repurchase programs (Note 17) and derivative instruments (Note 18).
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. 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 (as defined below), 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.

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Statements of Cash Flows
Cash balances were $434.0 million and $395.8 million at March 31, 2022 and December 31, 2021, respectively.
The following table sets forth, a summary of the net cash provided by (used in) operating, investing and financing activities for the period (in thousands): 
 For the three months ended March 31,
20222021
Net cash provided by operating activities$70,141 $45,222 
Net cash used in investing activities(17,888)(21,792)
Net cash used in by financing activities(14,045)(13,399)
Net increase in cash and cash equivalents $38,208 $10,031 
Operating Activities
Net cash flows from operating activities consist of net income (loss) adjusted for noncash items, such as depreciation and depletion of property, plant and equipment and mineral interests, deferred income tax expense, stock-based compensation, amortization of debt issuance costs and debt discount/premium, accretion of asset retirement obligations, mark-to-market losses on gas hedges and changes in net working capital.
Net cash provided by operating activities was $70.1 million for the three months ended March 31, 2022, and was primarily attributed to net income of $146.2 million adjusted for deferred income tax expense of $33.4 million, depreciation and depletion expense of $25.8 million, mark-to-market loss on gas hedges of $11.7 million, stock based compensation expense of $7.2 million, accretion of asset retirement obligations of $0.9 million, amortization of debt issuance costs and debt discount/premium, net of $0.5 million and an increase in our net working capital of $159.0 million since December 31, 2021. The increase in our working capital was primarily driven by increases in accounts receivable and inventory combined with a decrease in accrued expenses and other current liabilities offset partially by an increase in accounts payable combined with a decrease in other receivables. The increase in trade accounts receivable and accounts payable is primarily driven by the timing of cash receipts and payments. The increase to inventory was due to greater production than sales volume for the current period.
Net cash provided by operating activities was $45.2 million for the three months ended March 31, 2021, and was primarily attributed to the net loss of $21.4 million adjusted for depreciation and depletion expense of $32.9 million, deferred income tax expense of $23.6 million, stock based compensation expense of $1.7 million, accretion of asset retirement obligations of $0.8 million and amortization of debt issuance costs and debt discount/premium, net of $0.4 million, offset by a decrease in our net working capital of $0.8 million since December 31, 2020. The decrease in our working capital was primarily driven by decreases in trade accounts receivable and prepaid expenses and other receivables combined with an increase to accounts payable offset partially by an increase to inventory and a decrease to accrued expenses and other current liabilities. The increase in inventory is due to greater production volume than sales volume in the quarter. The decrease in trade accounts receivable is due to a decrease in sales volumes combined with a decrease in the average selling price per metric ton sold. The increase in our accounts payable is primarily driven by the timing of payments.
Investing Activities
Net cash used in investing activities was $17.9 million and $21.8 million for the three months ended March 31, 2022 and March 31, 2021, respectively, primarily due to purchases of property, plant and equipment and mine development. The current year period also includes net cash acquired in connection with the acquisition of the remaining 50% interest in BWM and BWT.
Financing Activities

Net cash used by financing activities was $14.0 million for the three months ended March 31, 2022, primarily due to principal repayments of capital lease obligations of $7.2 million and the payment of dividends of $3.1 million. Net cash used by financing activities was $13.4 million for the three months ended March 31, 2021, primarily due to principal repayments of capital lease obligations of $8.2 million and the payment of dividends of $2.6 million.

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Stock Repurchase Program

On March 26, 2019, our board of directors (the "Board") approved our second stock repurchase program (the “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 of $40.0 million of our outstanding common stock. The Stock Repurchase Program does not require us to repurchase a specific number of shares or have an expiration date. The Stock Repurchase Program may be suspended or discontinued by the Board at any time without prior notice.

    Under the 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 as determined from time to time by us and other considerations. 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 Stock Repurchase Program from cash on hand and/or other sources of liquidity.

As of March 31, 2022, we have repurchased 500,000 shares for approximately $10.6 million, leaving approximately $58.8 million of share repurchases authorized under the Stock Repurchase Program.

Capital Allocation Policy
On May 17, 2017, the Board adopted 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. 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 Capital Allocation Policy and beginning in 2022 increased the regular quarterly cash dividend 20% to $0.06 per share. As of March 31, 2022, the Company has paid $53.0 million of regular quarterly cash dividends under the Capital Allocation Policy.
Regular Quarterly Dividend

On February 18, 2022, the Board declared a regular quarterly cash dividend of $0.06 per share, totaling $3.1 million, which was paid on March 8, 2022, to stockholders of record as of the close of business on March 1, 2022.

On April 26, 2022, the Board declared a regular quarterly cash dividend of $0.06 per share, totaling approximately $3.1 million, which will be paid on May 13, 2022, to stockholders of record as of the close of business on May 6, 2022.

May 2022 Special Dividend

On May 3, 2022, the Board declared a special quarterly cash dividend of $0.50 per share, to be paid on May 20, 2022, to stockholders of record as of the close of business on May 13, 2022.

ABL Facility
    
The ABL Facility will mature on December 6, 2026. As of March 31, 2022, no loans were outstanding under the ABL Facility and there were $9.4 million of letters of credit issued and outstanding under the ABL Facility. At March 31, 2022, we had $122.7 million of availability under the ABL Facility.
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
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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.
Borrowings under the ABL Facility bear interest at a rate equal to either (i) SOFR, plus a credit adjustment spread, ranging currently from approximately 11 bps to 43 bps depending on the interest period selected by us, or (ii) an alternate base rate plus, in each case of the foregoing (i) and (ii), 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.
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 March 31, 2022, we were not subject to this covenant. Subject to customary grace periods and notice requirements, the ABL Facility also contains customary events of default.
We were in compliance with all applicable covenants under the ABL Facility as of March 31, 2022.
Senior Secured Notes
On December 6, 2021, we issued $350.0 million in aggregate principal amount of 7.875% senior secured notes due 2028 (the “Notes”) at an initial price of 99.343% of their face amount. The Notes were issued to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in accordance with Regulation S under the Securities Act. We used the net proceeds of the offering of the Notes, together with cash on hand, to fund the redemption of all of our outstanding 8.00% senior secured notes due 2024 (the “Existing Notes”), including payment of the redemption premium in connection with such redemption.

The Notes will accrue interest at a rate of 7.875% per year from December 6, 2021. Interest on the Notes will be payable on June 1 and December 1 of each year, commencing on June 1, 2022. The Notes will mature on December 1, 2028.

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 could also affect our capital needs or cause future capital expenditures to be higher than in the past and/or higher than our estimates.
The costs of our capital expenditures is impacted by inflation. While the impact of inflation on our capital expenditures in the current quarter is not considered to be material, the continued rise of inflation may materially impact the costs of our capital expenditures.
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, including as a result of the COVID-19 pandemic, that are beyond our control.
Our capital expenditures were $10.5 million and $9.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively. Capital expenditures for these periods primarily related to investments required to maintain our
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property, plant and equipment. Our deferred mine development costs were $9.9 million and $12.3 million for the three months ended March 31, 2022 and March 31, 2021, respectively, and relate to Mine No. 4.
Our guidance for capital expenditures in 2022 consists of sustaining capital spending of approximately $75.0 - $80.0 million, including regulatory and gas requirements, and discretionary capital spending of $90.0 - $95.0 million for the 4 North portal construction, deposits on two new sets of longwall shields and the development of the Blue Creek project for which the Company has budgeted $45.0 million for 2022. The 4 North portal construction is a new development in the north section of Mine No. 4 that includes a new portal, bathhouse, hoist shaft, office building, and warehouse that will shorten the travel distance for our current Mine No. 4 employees. We will continue to 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.

Relaunch of Blue Creek

On May 3, 2022, we announced the relaunch of the development of our Blue Creek mine, a strategic growth project that we expect will deliver significant future returns to stockholders.

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.

According to our third party reserve report, and under the SEC's new rules governing mineral reserves, specifically subpart 1300 of Regulation S-K under the Modernization of Property Disclosures for Mining Registrants, Blue Creek has 63.3 million metric tons of recoverable reserves and 44.9 million metric tons of coal resources exclusive of reserves, which total 108.2 million metric tons. We have the ability to acquire adjacent reserves that would increase total reserves to over 154 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 coke strength after reaction. 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.

Since the initial announcement, inflation in steel and other commodity prices, including labor costs have increased the total capital spending requirements of this project. However, during a refresh of the project, the Company has identified production increases of approximately 10% and is able to accelerate the start of longwall production by approximately fifteen months based on design modifications and stronger available liquidity to fund the project.

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 4.4 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 60%. 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.

We expect to invest approximately $650.0 to $700.0 million over the next five years to develop Blue Creek with expected spending in 2022 of approximately $45.0 million to begin the project. Based on the current schedule, we expect the first development tons from continuous miner units to occur in the third quarter of 2024 with the longwall scheduled to start up in the second quarter of 2026. Our strong cash flow generation and current available liquidity, as well as the ability to finance $120.0 to $130.0 million of capital expenditures through equipment leases, allows us to be opportunistic as we evaluate funding options for Blue Creek with the goal of maintaining an efficient and low cost capital.


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Critical Accounting Policies

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.

Our most critical accounting estimates 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.

There have been no material changes to the Company's critical accounting estimates as described in the "Critical Accounting Policies" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2021 Form 10-K.

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 March 31, 2022, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our U.S. mining operations totaling $40.9 million, $17.0 million as collateral for self-insured black lung related claims and $3.6 million for miscellaneous purposes.

Recently Adopted Accounting Standards
A summary of recently adopted accounting pronouncements is included in Note 2 of the "Notes to Condensed Financial Statements" in this Form 10-Q.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We are exposed to commodity price risk on sales of met coal. We sell most of our met coal under fixed supply contracts primarily with indexed pricing terms and volume terms of up to 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 occasionally enter into natural gas swap contracts to hedge the exposure to variability in expected future cash flows associated with the fluctuations in the price of natural gas related to our forecasted sales. Our natural gas swap contracts economically hedge certain risk but are not designated as hedges for financial reporting purposes. All changes in the fair value of these derivative instruments are recorded as other revenues in the Condensed Statements of Operations. All of our derivative instruments were entered into for hedging purposes rather than speculative trading.

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. As of March 31, 2022 and December 31, 2021, the estimated allowance for credit losses was immaterial and did not have a material impact on the Company's financial statements.

Interest Rate Risk

Our Notes have a fixed rate of interest of 7.875% per annum and are payable semi-annually in arrears on June 1 and December 1 of each year.

Our ABL Facility bears an interest rate equal to SOFR, plus a credit adjustment spread, ranging currently from 11 bps to 43 bps, 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. 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 March 31, 2022, assuming we had $132.0 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.

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.


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ITEM 4. 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 March 31, 2022. Based on the evaluation of our disclosure controls and procedures as of March 31, 2022, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2022, 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.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Disclosure Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.





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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.
See Note 9 of the “Notes to Condensed Financial Statements” in this Form 10-Q for a description of current legal proceedings, which is incorporated by reference in this Part II, Item 1.
We and our subsidiaries are parties to a number of other lawsuits arising in the ordinary course of our business. We record 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 our 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. While the results of litigation cannot be predicted with certainty, we believe that the final outcome of such litigation will not have a material adverse effect on our financial statements.
Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in "Risk Factors" in "Part I, Item 1A. Risk Factors" in our 2021 Annual Report. Our business, financial condition, operating results and cash flows can be impacted by a number of factors, any one of which could cause actual results to vary materially from recent results or from anticipated future results. In addition to the other information set forth in this Form 10-Q, you should carefully consider the risks discussed in "Part I, Item 1A. Risk Factors" in our 2021 Annual Report, which could materially affect our business, financial condition or future results. However, the risks described in our 2021 Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth share repurchases of our common stock made during the quarter ended March 31, 2022:
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate dollar value of shares that may yet be purchased under the plans or programs(1)
January 1, 2022 - January 31, 2022
Stock Repurchase Program(1)
— $— — $59,000,000 
Employee Transactions(2)
1,434 $25.71 — 
February 1, 2022 - February 28, 2022
Stock Repurchase Program(1)
— $— — 
Employee Transactions(2)
119,048 $30.71 — 
March 1, 2022 - March 31, 2022
Stock Repurchase Program(1)
— $— — 
Employee Transactions(2)
617 $38.42 — 
Total121,099 — 
__________
(1)On March 26, 2019, the Board approved the Stock Repurchase Program that authorizes repurchases of up to an aggregate of $70.0 million of our outstanding common stock. The Stock Repurchase Program does not require us to repurchase a specific number of shares or have an expiration date.
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(2)These shares were acquired to satisfy certain employees' tax withholding obligations associated with the lapse of restrictions on certain restricted stock awards granted under the 2016 Equity Incentive Plan and 2017 Equity Incentive Plan. Upon acquisition, these shares were retired.
Item 3. Defaults on Senior Securities.
None.
Item 4. Mine Safety Disclosures.
The information concerning mine safety violations and other regulatory matters is filed as Exhibit 95 to this Form 10-Q 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).
Item 5. Other Information.

None.
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Item 6. Exhibits
 
Exhibit
Number
Description
3.1
3.2
3.3
3.4
3.5
4.1
31.1*
31.2*
32.1**
95*
101.INS*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
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
*    Filed herewith.
**    Furnished herewith.




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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Warrior Met Coal, Inc.
By: /s/ Dale W. Boyles
 Dale W. Boyles
Chief Financial Officer (on behalf of the registrant and as Principal Financial and Accounting Officer)
Date: May 5, 2022
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