Company Quick10K Filing
Warrior Met Coal
Price19.33 EPS13
Shares52 P/E2
MCap997 P/FCF2
Net Debt130 EBIT724
TEV1,127 TEV/EBIT2
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-04-29
10-K 2019-12-31 Filed 2020-02-19
10-Q 2019-09-30 Filed 2019-10-30
10-Q 2019-06-30 Filed 2019-07-31
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-21
10-Q 2018-09-30 Filed 2018-10-31
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-02
10-K 2017-12-31 Filed 2018-02-14
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-18
8-K 2020-08-05 Earnings, Exhibits
8-K 2020-04-29
8-K 2020-04-24
8-K 2020-03-24
8-K 2020-03-18
8-K 2020-02-19
8-K 2020-02-19
8-K 2020-02-14
8-K 2019-12-19
8-K 2019-10-30
8-K 2019-07-31
8-K 2019-07-15
8-K 2019-06-01
8-K 2019-05-08
8-K 2019-05-01
8-K 2019-04-23
8-K 2019-03-25
8-K 2019-02-21
8-K 2018-10-31
8-K 2018-10-16
8-K 2018-08-14
8-K 2018-08-08
8-K 2018-08-01
8-K 2018-07-27
8-K 2018-07-06
8-K 2018-06-12
8-K 2018-05-08
8-K 2018-05-02
8-K 2018-04-26
8-K 2018-03-01
8-K 2018-02-26
8-K 2018-02-26
8-K 2018-02-21
8-K 2018-02-14

HCC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Business and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Inventories, Net
Note 4 - Income Taxes
Note 5 - Debt
Note 6 - Other Long - Term Liabilities
Note 7 - Leases
Note 8 - Net Income (Loss) per Share
Note 9 - Related Party Transactions
Note 10 - Commitments and Contingencies
Note 11 - Stockholders' Equity
Note 12 - Fair Value of Financial Instruments
Note 13 - Segment Information
Note 14 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults on Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-10.1 exhibit101-6302020.htm
EX-31.1 exhibit311-6302020.htm
EX-31.2 exhibit312-6302020.htm
EX-32.1 exhibit321-6302020.htm
EX-95 exhibit95-6302020.htm

Warrior Met Coal Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
1.51.20.90.60.30.02017201820192020
Assets, Equity
0.50.40.30.20.10.02016201720182020
Rev, G Profit, Net Income
0.30.20.0-0.1-0.3-0.42017201820192020
Ops, Inv, Fin

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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 June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
hcc-20200630_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 August 3, 2020: 51,185,501



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. 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:
 

successful implementation of our business strategies;

the impact of the COVID-19 (as defined below) pandemic, including its impact on our business, employees, suppliers and customers, the met coal and steel industries, and global economic markets;

a substantial or extended decline in pricing or demand for metallurgical ("met") coal;

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

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

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

impact of weather and natural disasters on demand and production;

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

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

competition and foreign currency fluctuations;

our ability to comply with covenants in our asset-based revolving credit facility (as amended and restated, the "ABL Facility") and the Indenture (as defined below);

our substantial indebtedness and debt service requirements;

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

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

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

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

our obligations surrounding reclamation and mine closure;

inaccuracies in our estimates of our met coal reserves;

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

1


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

challenges to our licenses, permits and other authorizations;

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

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

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

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

costs associated with our workers’ compensation benefits;

litigation, including claims not yet asserted;

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

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

terrorist attacks or security threats, including cybersecurity threats.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under “Part II, Item 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
June 30,
For the six months ended June 30,
2020201920202019
Revenues:
Sales$159,043  $387,429  $380,381  $757,110  
Other revenues4,658  10,184  10,040  18,793  
Total revenues163,701  397,613  390,421  775,903  
Costs and expenses:
Cost of sales (exclusive of items shown separately below)130,777  205,188  282,291  387,816  
Cost of other revenues (exclusive of items shown separately below)7,642  8,019  15,203  15,764  
Depreciation and depletion22,156  25,678  50,848  47,911  
Selling, general and administrative8,457  10,783  16,913  19,688  
Total costs and expenses169,032  249,668  365,255  471,179  
Operating income (loss)(5,331) 147,945  25,166  304,724  
Interest expense, net(8,255) (6,951) (15,788) (15,543) 
Loss on early extinguishment of debt      (9,756) 
Other income  17,543  1,822  17,543  
Income (loss) before income tax expense(13,586) 158,537  11,200  296,968  
Income tax expense (benefit)(4,425) 33,056  (1,184) 61,040  
Net income (loss)$(9,161) $125,481  $12,384  $235,928  
Basic and diluted net income (loss) per share:
Net income (loss) per share—basic $(0.18) $2.43  $0.24  $4.58  
Net income (loss) per share—diluted$(0.18) $2.43  $0.24  $4.57  
Weighted average number of shares outstanding—basic51,187  51,553  51,147  51,532  
Weighted average number of shares outstanding—diluted51,288  51,681  51,255  51,641  
Dividends per share:$0.05  $4.46  $0.10  $4.51  
The accompanying notes are an integral part of these condensed financial statements.

4


WARRIOR MET COAL, INC.
CONDENSED BALANCE SHEETS
(in thousands)
 June 30, 2020 (Unaudited)December 31, 2019
  
ASSETS
Current assets:
Cash and cash equivalents$220,663  $193,383  
Short-term investments8,502  14,675  
Trade accounts receivable77,009  99,471  
Income tax receivable24,274  12,925  
Inventories, net153,905  97,901  
Prepaid expenses and other receivables34,967  25,691  
Total current assets519,320  444,046  
Mineral interests, net105,120  110,130  
Property, plant and equipment, net601,955  606,200  
Non-current income tax receivable  11,349  
Deferred income taxes155,451  154,297  
Other long-term assets15,343  18,242  
Total assets$1,397,189  $1,344,264  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$55,805  $46,436  
Accrued expenses60,343  65,755  
Short term financing lease liabilities7,726  10,146  
Other current liabilities7,273  6,615  
Total current liabilities131,147  128,952  
Long-term debt379,541  339,189  
Asset retirement obligations54,986  53,583  
Long term financing lease liabilities24,731  25,528  
Other long-term liabilities31,821  31,430  
Total liabilities622,226  578,682  
Stockholders’ Equity:
Common stock, $0.01 par value per share (Authorized -140,000,000 shares as of June 30, 2020 and December 31, 2019, 53,406,023 issued and 51,184,182 outstanding as of June 30, 2020 and 53,293,449 issued and 51,071,608 outstanding as of December 31, 2019)
533  533  
Preferred stock, $0.01 par value per share (10,000,000 shares authorized, shares issued and outstanding)
    
Treasury stock, at cost (2,221,841 shares as of June 30, 2020 and December 31, 2019)
(50,576) (50,576) 
Additional paid in capital246,126  243,932  
Retained earnings578,880  571,693  
Total stockholders’ equity774,963  765,582  
Total liabilities and stockholders’ equity$1,397,189  $1,344,264  
The accompanying notes are an integral part of these condensed financial statements.
5


WARRIOR MET COAL, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
 
 
For the three months ended June 30,For the six months ended June 30,
2020201920202019
Common Stock
Balance, beginning of period$533  $533  $533  $533  
Balance, end of period533  533  533  533  
Preferred Stock
Balance, beginning of period        
Balance, end of period        
Treasury Stock
Balance, beginning of period(50,576) (40,000) (50,576) (38,030) 
Treasury stock purchase      (1,970) 
Balance, end of period(50,576) (40,000) (50,576) (40,000) 
Additional Paid in Capital
Balance, beginning of period244,525  240,408  243,932  239,827  
Stock compensation1,862  1,327  3,466  2,435  
Other(261) (715) (1,272) (1,242) 
Balance, end of period246,126  241,020  246,126  241,020  
Retained Earnings
Balance, beginning of period590,640  618,123  571,693  510,282  
Net income (loss)(9,161) 125,481  12,384  235,928  
Dividends paid(2,599) (232,604) (5,197) (235,210) 
Other  105    105  
Balance, end of period578,880  511,105  578,880  511,105  
Total Stockholders' Equity$774,963  $712,658  $774,963  $712,658  
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 six months ended June 30,
20202019
OPERATING ACTIVITIES
Net income $12,384  $235,928  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and depletion50,848  47,911  
Deferred income tax expense (benefit)(1,154) 60,954  
Stock based compensation expense3,724  2,649  
Amortization of debt issuance costs and debt discount/premium, net708  696  
Accretion of asset retirement obligations1,466  1,624  
Loss on early extinguishment of debt  9,756  
Changes in operating assets and liabilities:
Trade accounts receivable22,462  (22,435) 
Income tax receivable  21,607  
Inventories(45,594) (10,633) 
Prepaid expenses and other receivables(5,693) 8,510  
Accounts payable17,379  5,819  
Accrued expenses and other current liabilities(9,087) (12,968) 
Other5,543  8,420  
Net cash provided by operating activities52,986  357,838  
INVESTING ACTIVITIES
Purchase of property, plant and equipment(48,754) (52,100) 
Deferred mine development costs(8,731) (12,069) 
Proceeds from sale of property, plant and equipment  3,063  
Sale of short-term investments14,733  17,501  
Purchases of short-term investments(8,500) (14,250) 
Net cash used in investing activities(51,252) (57,855) 
FINANCING ACTIVITIES
Dividends paid(5,197) (235,210) 
Borrowings under ABL Facility70,000    
Repayments under ABL Facility(30,000)   
Retirements of debt  (140,272) 
Principal repayments of finance lease obligations(7,985) (7,654) 
Common shares repurchased  (1,970) 
Other(1,272) (1,137) 
Net cash provided by (used in) financing activities25,546  (386,243) 
Net increase (decrease) in cash and cash equivalents and restricted cash27,280  (86,260) 
Cash and cash equivalents and restricted cash at beginning of period193,383  206,405  
Cash and cash equivalents and restricted cash at end of period$220,663  $120,145  
The accompanying notes are an integral part of these condensed financial statements.


7


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2020 (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 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, 2019 (the "2019 Annual Report"). Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2020. The balance sheet at December 31, 2019 has been derived from the audited financial statements for the year ended December 31, 2019 included in the 2019 Annual Report.
Impact of the COVID-19 Pandemic Upon our Financial Condition and Results of Operations
The global steelmaking industry's demand for met coal is affected by pandemics, epidemics or other public health emergencies, such as the recent outbreak of the novel coronavirus disease 2019 ("COVID-19"), which has spread from China to many other countries including the United States. In March 2020, the World Health Organization ("WHO") declared COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, school closures, and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
The Company operates in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. As such, the Company continues to operate its mines in a safe manner under the guidelines issued by the Centers for Disease Control and Prevention and the Alabama State Health Department. In response to these measures and for the protection of employees, the Company has taken steps to ensure our employees remain safe. As of the filing of this Form 10-Q, the Company has not had to idle or temporarily idle its mines.
Notwithstanding our continued operations, COVID-19 has begun to have and may continue to have further negative impacts on our two operating mines, supply chain, transportation networks and customers, which may continue to compress our margins, and reduce demand for the met coal that we produce. The COVID-19 outbreak is a widespread public health crisis that is adversely affecting the economies and financial markets of many countries, including those of our customers, which are primarily located in Europe, South America and Asia. A prolonged economic downturn could adversely affect demand for our met coal and contribute to volatile supply and demand conditions affecting prices and volumes. The progression of COVID-19 could also negatively impact our business or results of operations through the temporary closure of one of our mines, customers or critical suppliers, or the McDuffie Coal Terminal at the Port of Mobile, Alabama, or a disruption to our rail and barge carriers, which would delay or prevent deliveries to our customers, among others.
In addition, the ability of our employees and our suppliers' and customers' employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19, or as a result of the control measures noted above, which may significantly affect the demand for met coal. Our customers may be directly impacted by business curtailments or weak market conditions and may not be willing or able to fulfill their contractual obligations or open letters of credit. We may also experience delays in obtaining letters of credit or processing letter of credit payments due to the impacts of COVID-19 on foreign issuing and U.S. intermediary banks. Furthermore, the progression of, and global response to, the COVID-19 outbreak has begun to cause, and increases the risk of, further delays in construction activities and equipment deliveries related to our
8


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)


capital projects, including potential delays in obtaining permits from government agencies. The extent of such delays and other effects of COVID-19 on our capital projects, certain of which are outside of our control, is unknown, but they may impact or delay the timing of anticipated benefits of capital projects.
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 2019 Annual Report, except for changes related to new accounting pronouncements described in "New Accounting Pronouncements."
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 ("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 June 30, 2020, short-term investments consisted of $8.5 million in cash and fixed income securities. As of December 31, 2019, the Company’s short-term investments consisted of $14.7 million in cash and fixed income securities. The short-term investments are posted as collateral for the self-insured black lung related claims asserted by or on behalf of former employees of Walter Energy, Inc. ("Walter Energy") and its subsidiaries, which were assumed by the Company and relate to periods prior to March 31, 2016.
Revenue Recognition
        Revenue is recognized when performance obligations under the terms of a contract with the Company's customers are satisfied; for all contracts this occurs when control of the promised goods 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 hard coking coal. 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 June 30, 2020 there were no sales to XCoal. During the three months ended June 30, 2019, XCoal accounted for $68.1 million, or 17.5% of total revenues. During the six months ended June 30, 2020 and 2019, XCoal accounted for approximately $43.6 million, or 11.4% of total revenues, and $163.0 million, or 21.7% of total revenues, 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.

9


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)


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, 31-60, 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 metallurgical coal and steel market environments. As of June 30, 2020, the estimated allowance for credit losses was immaterial and did not have a material impact on the Company's financial statements.

New Accounting Pronouncements

The Company adopted Accounting Standards Update 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" as of January 1, 2020 using the modified retrospective approach. The ASU requires the use of an “expected loss” model for instruments measured at amortized cost, in which companies will be required to estimate the lifetime expected credit loss and record an allowance to offset the amortized cost basis, resulting in a net presentation of the amount expected to be collected on the financial asset. The adoption of the new standard did not have a material impact on the Company's financial statements, including accounting policies, processes and systems.
Note 3—Inventories, net
Inventories, net are summarized as follows (in thousands):
 June 30, 2020December 31, 2019
Coal$123,243  $69,064  
Raw materials, parts, supplies and other, net30,662  28,837  
Total inventories, net$153,905  $97,901  
Note 4—Income Taxes
For the three and six months ended June 30, 2020, the Company utilized a discrete period method to calculate taxes, as it does not believe that the annual effective tax rate method represents a reliable estimate given the current uncertainty surrounding COVID-19 and its impact on the Company's annual guidance. For the three and six months ended June 30, 2020, the Company had income tax benefit of $4.4 million and $1.2 million, respectively. The Company had income tax expense of $33.1 million and $61.0 million for the three and six months ended June 30, 2019, respectively.

On March 27, 2020, the President of the United States signed and enacted into law the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act, among other things, provides temporary relief from certain aspects of the Tax Cuts and Jobs Act of 2017 that had imposed limitations on the utilization of certain losses, interest expense deductions and alternative minimum tax ("AMT") credits. The CARES Act also provides opportunities for businesses to improve their cash flows by obtaining refunds for prior taxable years and reducing their income and deferring payroll tax liabilities for the current taxable year. Specifically, Section 2305 of the CARES Act accelerates the ability to receive refunds of remaining AMT credits for tax years 2019, 2020 and 2021. As a result, in the first quarter of 2020, the Company recorded an adjustment of approximately $11.3 million to reclassify AMT credits from a non-current income tax receivable to a current income tax receivable, as the Company now expects to receive approximately $24.3 million in 2020 for refunds of AMT credits. The Company is continuing to evaluate the impact of the CARES Act on its business, financial results and disclosures.
Note 5—Debt
Debt consisted of the following (in thousands):
10


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)


June 30,
2020
December 31, 2019Weighted Average Interest Rate at June 30, 2020Final Maturity
Senior Secured Notes$343,435  $343,435  8%2024
ABL Borrowings40,000    3.75%2023
Debt discount/premium, net(3,894) (4,246) 
Total debt379,541  339,189  
Less: current debt    
Total long-term debt$379,541  $339,189  
Senior Secured Notes
        On November 2, 2017, the Company issued $350.0 million aggregate principal amount of its 8.00% Senior Secured Notes due 2024 (the "Original Notes"). It then issued an additional $125.0 million in aggregate principal amount of its 8.00% Senior Secured Notes due 2024 (the “New Notes” and, together with the Original Notes, the "Notes") on March 1, 2018. The New Notes were issued as "Additional Notes" under the indenture dated as of November 2, 2017 (the "Original Indenture"), among the Company, the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee and priority lien collateral trustee, as supplemented by the First Supplemental Indenture, dated as of March 1, 2018 (the "First Supplemental Indenture" and, the Original Indenture as supplemented thereby and by the Second Supplemental Indenture, dated as of March 2, 2018, the "Indenture"). The Notes mature on November 1, 2024 and interest is payable on May 1 and November 1 of each year.
Offers to Purchase the Notes
On February 21, 2019, the Company commenced an offer to purchase (the “Restricted Payment Offer”), in cash, up to $150,000,000 principal amount of its outstanding Notes, at a repurchase price of 103% of the aggregate principal amount of such Notes, plus accrued and unpaid interest with respect to such Notes to, but not including, the date of repurchase (the “Restricted Payment Repurchase Price”). Concurrently with, but separate from, the Restricted Payment Offer, the Company commenced a cash tender offer (the “Tender Offer” and, together with the Restricted Payment Offer, the “Offers”) to purchase up to $150,000,000 principal amount of the Notes at a repurchase price of 104.25% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to, but not including, the date of repurchase (the “TO Repurchase Price”). The Offers expired on March 22, 2019 (the “Expiration Date”).

Restricted Payment Offer

As of the Expiration Date, $1,900,000 aggregate principal amount of the Notes were validly tendered and not validly withdrawn pursuant to the Restricted Payment Offer. Pursuant to the terms of the Restricted Payment Offer:
        
(1) an automatic pro ration factor of 31.5789% was applied to the $1,900,000 aggregate principal amount of the Notes that were validly tendered and not validly withdrawn in the Restricted Payment Offer (rounded down to avoid the purchase of Notes in a principal amount other than in integrals of $1,000), which resulted in $599,000 aggregate principal amount of the Notes (the “RP Pro-Rated Tendered Notes”);

(2) the Company accepted all $599,000 aggregate principal amount of the RP Pro-Rated Tendered Notes for payment of the Restricted Payment Repurchase Price in cash; and

(3) the remaining balance of $1,301,000 aggregate principal amount of the Notes tendered that were not RP Pro-Rated Tendered Notes were not accepted for payment and were returned to the tendering holder of the Notes.

The Company consummated the Restricted Payment Offer on March 25, 2019.

Accordingly, pursuant to the terms of the Indenture, the Company was permitted to make one or more restricted payments in the form of special dividends to holders of the Company’s common stock and/or repurchases of the Company’s common stock in the aggregate amount of up to $299,401,000 (the "RP Basket") without having to make another offer to repurchase Notes. The Company used a portion of the RP Basket to pay a special cash dividend totaling approximately $230.0
11


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)


million, which was paid to stockholders on May 14, 2019 and intends to use the remainder of the RP Basket to make repurchases under the Stock Repurchase Program (as defined in Note 11).

Tender Offer

As of the Expiration Date, $415,099,000 aggregate principal amount of the Notes were validly tendered and not validly withdrawn pursuant to the Tender Offer. Pursuant to the terms of the Tender Offer:

(1) an automatic pro ration factor of 31.5789% was applied to the $415,099,000 aggregate principal amount of the Notes that were validly tendered and not validly withdrawn in the Tender Offer (rounded down to avoid the purchase of Notes in a principal amount other than in integrals of $1,000), which resulted in $130,966,000 aggregate principal amount of the Notes (the “TO Pro-Rated Tendered Notes”);

(2) the Company accepted all $130,966,000 aggregate principal amount of the TO Pro-Rated Tendered Notes for payment of the TO Repurchase Price in cash; and

(3) the remaining balance of $284,133,000 aggregate principal amount of the Notes tendered that were not TO Pro-Rated Tendered Notes were not accepted for payment and were returned to the tendering holder of the Notes.

The Company consummated the Tender Offer on March 26, 2019.

In connection with the payments for the RP Pro-Rated Tendered Notes and the TO Pro-Rated Tendered Notes, the Company recognized a loss on early extinguishment of debt of $9.8 million during the three months ended March 31, 2019.
ABL Facility

On March 24, 2020, the Company borrowed $70.0 million in a partial draw of the ABL Facility (the “ABL Draw”) as a precautionary measure in order to increase the Company’s cash position and preserve financial flexibility in light of the current uncertainty resulting from the COVID-19 outbreak. In June 2020, the Company reduced the outstanding principal amount of the ABL Draw by $30.0 million. As of June, 30, 2020, the Company had an aggregate principal amount of $40.0 million drawn under the ABL Facility. In accordance with the terms of the ABL Facility, the proceeds from the ABL Draw will be available to be used, if needed, for working capital and general corporate purposes. The Company believes that the $220.7 million of cash on hand as of June 30, 2020 provides adequate liquidity for the Company in the current environment.
Note 6—Other Long-Term Liabilities

Other long-term liabilities are summarized as follows (in thousands):
 June 30, 2020December 31, 2019
Black lung obligations$29,910  $30,233  
Other1,911  1,197  
Total other long-term liabilities$31,821  $31,430  

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. The leases have remaining lease terms of one to four years. These leases 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):
12


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)


June 30, 2020December 31, 2019
Finance lease right-of-use assets, net(1)
$39,040  $40,227  
Finance lease liabilities
Current7,726  10,146  
Noncurrent24,731  25,528  
Total finance lease liabilities$32,457  $35,674  
Weighted average remaining lease term - finance leases (in months)43.0  44.7  
Weighted average discount rate - finance leases(2)
5.81 %6.02 %
(1) Finance lease right-of-use assets are recorded net of accumulated amortization of $9.0 million and $4.8 million and are included in property, plant and equipment, net in the Condensed Balance Sheet as of June 30, 2020 and the Balance Sheet as of December 31, 2019, 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
June 30,
For the six months ended
June 30,
2020201920202019
Operating lease cost(1):
$501  $63  $793  $207  
Finance lease cost:
Amortization of leased assets2,918  3,421  5,916  5,828  
Interest on lease liabilities542  395  1,088  408  
Net lease cost$3,961  $3,879  $7,797  $6,443  
(1) Includes leases that are for periods of 12 months or less.

Maturities of lease liabilities were as follows (in thousands):
Finance Leases(1)
2020$5,050  
202113,359  
20228,558  
20238,558  
2024842  
Thereafter  
Total36,367  
Less: amount representing interest(3,910) 
Present value of lease liabilities$32,457  
(1) Finance lease payments include $4.9 million of future payments required under signed lease agreements that have not yet commenced.

Supplemental cash flow information related to leases was as follows (in thousands):
13


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)


For the six months ended
June 30,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases$1,088  $408  
Financing cash flows from finance leases$7,985  $7,654  
Non-cash right-of-use assets obtained in exchange for lease obligations:
Finance leases$4,394  $40,302  
As of June 30, 2020, the Company had additional commitments for finance leases, primarily for mining equipment, that have not yet commenced of $4.9 million. These finance leases will commence between fiscal year 2020 and 2021 with lease terms of one to two years.
Note 8—Net Income (Loss) per Share
Basic and diluted net income (loss) per share was calculated as follows (in thousands, except per share data):
 For the three months ended
June 30,
For the six months ended
June 30,
2020201920202019
Numerator:
Net income (loss)$(9,161) $125,481  $12,384  $235,928  
Denominator:
Weighted-average shares used to compute net income (loss) per share—basic51,187  51,553  51,147  51,532  
Dilutive restrictive stock awards101  128  108  109  
Weighted-average shares used to compute net income (loss) per share—diluted51,288  51,681  51,255  51,641  
Net income (loss) per share—basic $(0.18) $2.43  $0.24  $4.58  
Net income (loss) per share—diluted$(0.18) $2.43  $0.24  $4.57  
2017 Equity Plan
On February 13, 2020, the Company awarded 420,303 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. The Company recognized approximately $1.0 million and $1.5 million in stock compensation expense associated with these awards for the three and six months ended June 30, 2020, respectively.
On April 24, 2020, the Company awarded 56,715 restricted stock unit awards under the Company's 2017 Equity Plan. These awards have service-based vesting conditions and vest over a period of three years. The Company recognized approximately $639,000 in stock compensation expense associated with these awards for the three and six months ended June 30, 2020.
As of June 30, 2020, there were 290,130 restricted stock unit awards for which the service-based vesting conditions for these awards were not met as of the measurement date. As such, these awards were excluded from basic earnings per share. These awards had a 30,109 and 33,567 share impact on dilutive weighted average shares for the three and six months ended June 30, 2020, respectively. As of June 30, 2020, there were 452,052 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 June 30, 2020, there were 97,466 restricted stock unit awards classified as a liability. The Company considered the impact on diluted earnings as if the award was
14


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)


settled in cash or in shares. These awards had a 36,107 and 40,612 share impact on dilutive weighted average shares for the three and six months ended June 30, 2020, respectively.
As of June 30, 2020, there were 43,580 shares of the Company's common stock contingently issuable upon the settlement of a vested phantom unit award granted under our 2016 Equity Plan (as defined below) and 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.
2016 Equity Plan

As of June 30, 2020, there were 52,221 restricted stock unit awards granted under the Company's 2016 Equity Incentive Plan (the "2016 Equity Plan") to certain directors and employees, for which the service-based vesting conditions for these awards were not met as of the measurement date. As such, these awards were excluded from basic earnings per share. These awards had a 34,924 and 33,599 share impact on dilutive weighted average shares for the three and six months ended June 30, 2020, respectively.
Note 9—Related Party Transactions
The Company owns a 50% interest in Black Warrior Methane (“BWM”) and Black Warrior Transmission (“BWT”), which are accounted for under the proportionate consolidation method and equity method, respectively. The Company has granted the rights to produce and sell methane gas from its coal mines to BWM and BWT. The Company’s net investments in, advances to/from and equity in earnings or loss of BWT are not material to the Company. The Company supplied labor to BWM and incurred costs, including property and liability insurance, to support the joint venture. The Company charged the joint venture for such costs on a monthly basis, which totaled $0.8 million and $1.3 million for the three and six months ended June 30, 2020, respectively, and $0.4 million and $0.5 million for the three and six months ended June 30, 2019, respectively.
Note 10—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 June 30, 2020 and December 31, 2019, 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 their businesses. The Company records costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on the Company’s future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. As of June 30, 2020 and December 31, 2019, there were no items accrued for miscellaneous litigation.

Walter Canada Settlement Proceeds

On July 15, 2015, Walter Energy and certain of its wholly owned U.S. subsidiaries, including Jim Walter Resources, Inc. (“JWR”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code (the “Chapter 11 Cases”) in the Northern District of Alabama, Southern Division. On December 7, 2015, Walter Energy Canada Holdings, Inc., Walter Canadian Coal Partnership and their Canadian affiliates (collectively “Walter Canada”) applied for and were granted
15


WARRIOR MET COAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
SIX MONTHS ENDED JUNE 30, 2020 (UNAUDITED)