What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-24 compared with 2020-02-19 · 382 added, 353 removed, 845 unchanged (47% of the section changed)

93 unchanged sentences

Employment Agreement, dated March 31, 2016, by and between Warrior Met Coal, LLC and Brian M.

Employment Letter, dated January 18, 2018, by and between Warrior Met Coal, Inc.

and Charles Lussier.

Chopin (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K (File No.

001-38061) filed with the Commission on February 19, 2020.)

Employment Agreement, dated March, by and between Warrior Met Coal, Inc.

and Charles Lussier (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (File No.

001-38061) filed with the Commission on April 29, 2020.)

Employment Agreement, dated June 5, 2019, by Warrior Met Coal, Inc.

44 unchanged sentences

Form of Warrior Met Coal, Inc.

2017 Equity Plan Restricted Stock Unit Award Agreement (Performance-Based Vesting Award - 2019 Retention Grant).

Form of Amendment to Restricted Stock Unit Award Agreements (for executive officers), effective January 1, 2020.

2017 Equity Plan Restricted Stock Unit Award Agreement (Performance-Based Vesting Award - 2019 Retention Grant) (incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K (File No.

001-38061) filed with the commission on February 21, 2020).

Form of Amendment to Restricted Stock Unit Award Agreements (for executive officers), effective January 1, 2020 (incorporated by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K (File No.

001-38061) filed with the commission on February 21, 2020).

Form of Warrior Met Coal, Inc.

2017 Equity Plan Restricted Stock Unit Award Agreement (Time-Based Vesting Award - Revised).

2017 Equity Plan Restricted Stock Unit Award Agreement (Time-Based Vesting Award - Revised) (incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K (File No.

001-38061) filed with the commission on February 21, 2020).

Form of Warrior Met Coal, Inc.

2017 Equity Plan Restricted Stock Unit Award Agreement (Performance-Based Vesting Award - Revised).

2017 Equity Plan Restricted Stock Unit Award Agreement (Performance-Based Vesting Award - Revised)(incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K (File No.

001-38061) filed with the commission on February 21, 2020).

List of Subsidiaries of the Company.

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Mine Safety Disclosures Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 299.104)

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.

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation LinkBase Document

Inline XBRL Taxonomy Extension Definition LinkBase Document

Inline XBRL Taxonomy Extension Label LinkBase Document

Inline XBRL Taxonomy Extension Presentation LinkBase Document

101INS* XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH* Inline XBRL Taxonomy Extension Schema Document

101.CAL* Inline XBRL Taxonomy Extension Calculation LinkBase Document

101.DEF* Inline XBRL Taxonomy Extension Definition LinkBase Document

101.LAB* Inline XBRL Taxonomy Extension Label LinkBase Document

101.PRE* Inline XBRL Taxonomy Extension Presentation LinkBase Document

104* Cover Page Interactive Data File (formatted Inline XBRL and included in the Interactive Data Files submitted under Exhibit 101).

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Scheller, III

Chief Executive Officer (Principal Executive Officer) and Director

February 19, 2020

Chief Financial Officer (Principal Financial and Accounting Officer)

February 19, 2020

Scheller, III Chief Executive Officer (Principal Executive Officer) and Director February 24, 2021

Chief Financial Officer (Principal Financial and Accounting Officer) February 24, 2021

/s/ Stephen D.

February 19, 2020

Director February 24, 2021

/s/ Gareth Turner

Gareth Turner

February 19, 2020

Director February 24, 2021

INDEX TO FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

Balance Sheets at December 31, 2019 and December 31, 2018

Statements of Operations for the years ended December 31, 2019, December 31, 2018, and December 31, 2017

Statements of Changes in Equity for the years ended December 31, 2019, December 31, 2018, and December 31, 2017

Statements of Cash Flows for the years ended December 31, 2019, December 31, 2018, and December 31, 2017

Notes to Financial Statements

Supplemental Summary Quarterly Financial Information (Unaudited)

Reports of Independent Registered Public Accounting Firm F- 2

Balance Sheets at December 31, 2020 and December 31, 2019 F- 5

Statements of Operations for the years ended December 31, 2020, December 31, 2019, and December 31, 2018 F- 6

Statements of Changes in Equity for the years ended December 31, 2020, December 31, 2019, and December 31, 2018 F- 7

Statements of Cash Flows for the years ended December 31, 2020, December 31, 2019, and December 31, 2018 F- 8

Notes to Financial Statements F- 10

Supplemental Summary Quarterly Financial Information (Unaudited) F- 35

Report of Independent Registered Public Accounting Firm

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Asset Retirement Obligation

Description of the Matter

At December 31, 2019, the Company had recorded asset retirement obligations of approximately $56.2 million for the estimated costs to reclaim surface lands and supporting infrastructure in accordance with applicable reclamation laws in the United States as defined by each mining permit.

Description of the Matter At December 31, 2020, the Company had recorded asset retirement obligations of approximately $61.9 million for the estimated costs to reclaim surface lands and supporting infrastructure in accordance with applicable reclamation laws in the United States as defined by each mining permit.

Changes in the asset retirement obligations are more fully described in Note 8 to the consolidated financial statements.

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Actual costs incurred in future periods could differ from amounts estimated and future changes to environmental laws and regulations could increase the extent of reclamation work required.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for evaluating the asset retirement obligations.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for evaluating the asset retirement obligations.

For example, we tested controls over management’s review of the assumptions described above.

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(in thousands)

December 31, 2019

December 31, 2020 December 31, 2019

Current assets:

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Other long-term assets 14,118 18,242

Total assets $ 1,393,936 $ 1,344,264

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Other current liabilities 6,361 3,992

Current portion of long-term debt

Total current liabilities 170,318 128,952

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Preferred stock, $ 0.01 par value per share ( 10,000,000 shares authorized, no shares issued and outstanding)

Treasury stock, at cost (2,221,841 and 1,633,200 shares as of December 31, 2019 and December 31, 2018)

Treasury stock, at cost ( 2,221,841 shares as of December 31, 2020 and December 31, 2019)

( 50,576 ) ( 50,576 )

Additional paid in capital 249,746 243,932

7 unchanged sentences

For the years ended December 31,

2020 2019 2018

Sales $ 761,871 $ 1,235,998 $ 1,342,683

Other revenues 20,867 32,311 35,324

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Total costs and expenses 809,877 884,917 869,720

Operating income

Operating (loss) income ( 27,139 ) 383,392 508,287

Interest expense, net ( 32,310 ) ( 29,335 ) ( 37,314 )

Loss on early extinguishment of debt — ( 9,756 ) —

Income before income taxes

Income tax expense (benefit)

Basic and diluted net income per share:

Net income per share—basic

Net income per share—diluted

Other income 3,544 22,815 —

(Loss) income before income taxes ( 55,905 ) 367,116 470,973

Income tax (benefit) expense ( 20,144 ) 65,417 ( 225,814 )

Net (loss) income $ ( 35,761 ) $ 301,699 $ 696,787

Basic and diluted net (loss) income per share:

Net (loss) income per share—basic $ ( 0.70 ) $ 5.87 $ 13.19

Net (loss) income per share—diluted $ ( 0.70 ) $ 5.86 $ 13.17

Weighted average number of shares outstanding—basic 51,168 51,363 52,812

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Dividends per share:

$ 0.20 $ 4.61 $ 6.73

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

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(in thousands)

Preferred Stock

Treasury Stock

Additional Paid in Capital

Retained Earnings (Accumulated

Common Stock Preferred Stock Treasury Stock Additional Paid in Capital Retained Earnings Total

Stockholders’

Balance at December 31, 2017 $ 534 $ — $ — $ 329,993 $ 82,496 $ 413,023

Net income — — — — 696,787 696,787

Dividends paid ($ 6.73 per share)

Purchase accounting measurements period adjustment

Equity award modification

— — — ( 91,122 ) ( 269,513 ) ( 360,635 )

Stock compensation — — — 6,405 — 6,405

Common shares issued

Treasury stock purchase — — ( 38,030 ) — — ( 38,030 )

Other ( 1 ) — — ( 5,449 ) 512 ( 4,938 )

Balance at December 31, 2018 $ 533 $ — $ ( 38,030 ) $ 239,827 $ 510,282 $ 712,612

Net income — — — — 301,699 301,699

Dividends paid ($ 4.61 per share)

— — — — ( 240,394 ) ( 240,394 )

Stock compensation — — — 5,349 — 5,349

Treasury stock purchase — — ( 12,546 ) — — ( 12,546 )

Other — — — ( 1,244 ) 106 ( 1,138 )

Balance at December 31, 2019 $ 533 $ — $ ( 50,576 ) $ 243,932 $ 571,693 $ 765,582

Net loss — — — — ( 35,761 ) ( 35,761 )

Dividends paid ($ 0.20 per share)

— — — — ( 10,395 ) ( 10,395 )

Stock compensation — — — 7,087 — 7,087

Treasury stock purchase

Other 1 — — ( 1,273 ) — ( 1,272 )

Balance at December 31, 2020 $ 534 $ — $ ( 50,576 ) $ 249,746 $ 525,537 $ 725,241

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For the years ended December 31,

2020 2019 2018

OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Net (loss) income $ ( 35,761 ) $ 301,699 $ 696,787

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and depletion 118,092 97,330 97,209

Deferred income tax expense (benefit)

Deferred income tax (benefit) expense ( 20,075 ) 68,483 ( 223,038 )

Stock-based compensation expense 7,602 5,820 6,405

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Income tax receivable 24,274 21,795 ( 12,431 )

Inventories ( 13,465 ) ( 30,491 ) ( 1,812 )

Prepaid expenses and other current assets ( 16,066 ) 4,088 1,444

2 unchanged sentences

Non-current income tax receivable — — 17,945

Other 19,558 26,068 ( 7,771 )

Net cash provided by operating activities 112,626 532,814 559,396

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Purchases of short-term investments

( 8,500 ) ( 24,171 ) —

Net cash used in investing activities ( 108,189 ) ( 134,213 ) ( 107,629 )

2 unchanged sentences

Proceeds from issuance of debt — — 128,750

Borrowings under ABL Facility 70,000 — —

Repayments under ABL Facility ( 30,000 ) — —

Retirements of debt — ( 140,272 ) ( 3,060 )

Principal repayments of capital lease obligations

Principal repayments of financing lease obligations ( 14,237 ) ( 17,273 ) —

Debt issuance costs paid — — ( 3,713 )

Common shares repurchased — ( 12,546 ) ( 38,030 )

Net cash used in financing activities

Other ( 1,272 ) ( 1,138 ) ( 4,938 )

Net cash provided by (used in) financing activities 14,096 ( 411,623 ) ( 281,626 )

Net increase (decrease) in cash and cash equivalents and restricted cash 18,533 ( 13,022 ) 170,141

6 unchanged sentences

For the years ended December 31,

2020 2019 2018

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Capital leases - equipment

Financing leases - equipment $ 18,967 $ 45,523 $ 6,822

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

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Description of the Business

Warrior Met Coal, LLC (the "Company") was formed on September 3, 2015 by certain Walter Energy, Inc.

lenders under the 2011 Credit Agreement, dated as of April 1, 2011 and the noteholders under the 9.50 % Senior Secured Notes due 2019 in connection with the acquisition of certain core operating assets of Walter Energy under section 363 under Chapter 11 of Title 11 of the U.S.

Bankruptcy Code in the Northern District of Alabama, Southern Division (the "Asset Acquisition").

On January 8, 2016, the Bankruptcy Court approved the Asset Acquisition which closed on March 31, 2016.

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 metallurgical (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.

Corporate Conversion and Initial Public Offering

On April 12, 2017, in connection with the Company’s initial public offering (“IPO”), Warrior Met Coal, LLC filed a certificate of conversion, whereby Warrior Met Coal, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to Warrior Met Coal, Inc.

In connection with this corporate conversion, the Company filed a certificate of incorporation, whereby the Company is authorized to issue up to 140,000,000 shares of common stock $ 0.01 par value per share and 10,000,000 shares of preferred stock $ 0.01 par value per share.

On April 19, 2017, the Company completed its IPO, whereby the selling stockholders named in the Registration Statement on Form S-1 (File No.

333-216499) sold 16,666,667 shares of common stock at a price to the public of $ 19.00 per share.

The Company did not receive any proceeds from the sale of common stock in the IPO.

All of the net proceeds from the IPO were received by the selling stockholders.

The aggregate net proceeds to the selling stockholders in the IPO were $ 296.9 million , net of underwriting discounts and commissions of $ 19.8 million .

The Company paid cumulative offering expenses of $ 15.9 million on behalf of the selling stockholders.

Upon the closing of the IPO, 53,442,532 shares of common stock were outstanding.

Basis of Presentation

1 unchanged sentence

All significant intercompany transactions and balances have been eliminated in consolidation.

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 ("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 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 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-K, the Company has not had to idle or temporarily idle its mines.

Notwithstanding our continued operations, COVID-19 has had 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 in 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 capital projects, including potential delays in obtaining permits from government agencies.

The extent of such delays and other

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

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

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For the year ended December 31, 2020, our geographic customer mix was 56 % in Europe, 25 % in South America and 19 % in Asia.

The Company also generates ancillary revenues from the sale of natural gas extracted as a byproduct from the underground coal mines and royalty revenues from leased properties.

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

During the year ended December 31, 2020, Xcoal Energy & Resources, Exiros BV Sucursal Uruguay, and Iskenderun Demir Ve Celik A.S.

accounted for $ 146.5 million, or 18.7 %, $ 117.7 million, or 15.0 %, and $ 89.1 million, or 11.4 % of total revenues, respectively.

During the year ended December 31, 2019, Xcoal Energy & Resources, Exiros BV Sucursal Uruguay, ArcelorMittal, and Thyssenkrupp Steel Europe AG accounted for $ 276.2 million, or 22.3 %, $ 159.6 million, or 12.9 %, $ 128.2 million, or 10.4 % and $ 125.5 million, or 10.1 % of total revenues, respectively.

During the year ended December 31, 2018, Xcoal Energy & Resources, Exiros BV Sucursal Uruguay and Huettenwerke Krupp Mannesmann GmbH accounted for $ 203.6 million, or 15.1 %, $ 148.5 million, or 11.0 %, and $ 141.3 million, or 10.5 % of total revenues, respectively.

During the year ended December 31, 2017 , Xcoal Energy & Resources and Salzgitter Flachstahl GmBH accounted for $ 181.9 million , or 16.1 % , and $ 112.8 million , or 10 % , of total revenues

Credit is extended based on an evaluation of the individual customer’s financial condition.

In some instances, the Company requires letters of credit, cash collateral or prepayments from its customers on or before shipment to mitigate the risk of loss.

These efforts have consistently resulted in minimal historical credit losses.

Revenue Recognition

The Company adopted Accounting Standards Update (“ASU”) No.

2014-09, “Revenue from Contracts with Customers”, as of January 1, 2018, using the modified retrospective approach.

The Company applied the standard to all customer contracts entered into as of the date of initial application.

The Company concluded that the adoption did not change the timing at which the Company historically recognized revenue nor did it have a material impact on its consolidated financial statements.

For periods prior to January 1, 2018, revenue was recognized when the following criteria had been met:

(i) persuasive evidence of an arrangement existed;

(ii) the price to the buyer was fixed or determinable;

(iii) delivery had occurred;

and (iv) collectability was reasonably assured.

Delivery is considered to have occurred at the time title and risk of loss transfers to the customer.

For coal shipments to domestic customers via rail, delivery occurs when the railcar is loaded.

For coal shipments to international customers via ocean vessel, delivery occurs when the vessel is loaded at the Port of Mobile, Alabama.

For natural gas sales, delivery occurs when the gas has been transferred to the pipeline.

For periods subsequent to January 1, 2018, revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied;

Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied;

for all contracts this occurs when control of the promised goods have been transferred to our customers.

For coal shipments to domestic customers via rail, control is transferred when the railcar is loaded.

For coal shipments to international customers via ocean vessel, control is transferred when the vessel is loaded at the Port of Mobile, Alabama.

For coal shipments to international customers via ocean vessel, control is transferred when the vessel is loaded at the Port of Mobile in Alabama.

For natural gas sales, control is transferred when the gas has been transferred to the pipeline.

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We typically do not include extended payment terms in our contracts with customers.

Shipping and Handling

Costs incurred to transport coal to the point of sale at the Port of Mobile, Alabama, are included in cost of sales and the gross amounts billed to customers, if any, to cover shipping and handling to the ultimate/final destination are included in sales.

Cash and Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Balance Sheets that sum to the total of the same such amounts shown in the Statements of Cash Flows (in thousands):

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, 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 December 31, 2020, the estimated allowance for credit losses was immaterial and did not have a material impact on the Company's financial statements.

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

December 31, 2019

December 31, 2018

Shipping and Handling

Cash and Cash Equivalents

Restricted cash included in other long-term assets

Total cash and cash equivalents and restricted cash included in the Statements of Cash Flows

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

As of December 31, 2018 , restricted cash included in other long-term assets in the Balance Sheet represented amounts invested in certificates of deposits as financial assurance for post mining reclamation obligations.

Short-Term Investments

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Securities classified as held to maturity securities are those securities that management has the intent and ability to hold to maturity.

As of December 31, 2019 , the Company’s short-term investments consisted of $ 14.7 million of cash and fixed income securities.

As of December 31, 2018 , the Company’s short-term investments consisted of $ 17.5 million in Treasury bills with a maturity of six months .

These investments were posted as collateral for the self-insured black lung related claims asserted by or on behalf of former employees of Walter Energy and its subsidiaries, which were assumed in the Asset Acquisition and relate to periods prior to March 31, 2016.

As of December 31, 2020 and 2019, the Company’s short-term investments of $ 8.5 million and $ 14.7 million, respectively, consisted of 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.

Inventories are valued at the lower of cost or net realizable value.

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Asset retirement obligations are determined for each mine using various estimates and assumptions, including estimates of disturbed acreage as determined from engineering data, estimates of future costs to reclaim the disturbed acreage and the timing of related cash flows, discounted using a credit-adjusted, risk-free rate.

The Company's asset retirement obligations also include estimates to reclaim gas well in accordance with the Oil and Gas Board of Alabama.

The Company's asset retirement obligations also include estimates to reclaim gas wells in accordance with the Oil and Gas Board of Alabama.

On at least an annual basis, the Company reviews the entire asset retirement obligation liability and makes necessary adjustments for permit changes, the anticipated timing of mine closures, and revisions to cost estimates and productivity assumptions to reflect current experience.

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For ongoing operations, adjustments to the liability result in an adjustment to the corresponding asset.

For some operations, adjustments to the liability are recognized as income or expense in the period the adjustment is recorded as no asset

For some operations, adjustments to the liability are recognized as income or expense in the period the adjustment is recorded as no asset was recorded to offset the liability established during acquisition accounting related to the acquisition of certain assets of Walter

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

was recorded to offset the liability established during acquisition accounting related to the Asset Acquisition as the operations were idle at that time.

Energy as the operations were idle at that time.

Any difference between the recorded obligation and the actual cost of reclamation is recorded in profit or loss in the period the obligation is settled.

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Equity Award Compensation

The Company accounts for equity award-based compensation to employees and non-employee/directors in accordance with ASC 718 requiring employee equity awards to be accounted for under the fair value method adjusted for estimated forfeitures rates based on historical experience.

The Company recognizes forfeitures as they occur.

The Company recognizes compensation expense associated with equity awards for all awards made to employees as the requisite service, performance and market vesting conditions are met.

The Company measures compensation expense based on the grant-date fair value of the awards calculated using a Black-Scholes or Monte Carlo valuation model.

For units granted containing only service and performance conditions, the fair value of the award is equal to the market price of the Company's common stock at the date of grant.

For units granted containing only a market condition, the fair value of the award is determined utilizing a Monte Carlo simulation model which incorporates the total stockholder return hurdles set for each grant.

Compensation expense for equity awards with a service-only condition is recognized over the employee’s requisite service period using a graded vesting method.

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Compensation expense for awards with a market condition is recognized straight-line over the derived or implied service period.

For awards with both performance and market conditions, the market condition is incorporated into the fair value of the award, while the performance condition impacts the timing of expense recognition.

Compensation expense for equity awards is included in cost of sales (exclusive of items shown separately below) and selling, general and administrative in the accompanying Statements of Operations.

1 unchanged sentence

The costs to obtain new debt financing or amend existing financing agreements are deferred and amortized to interest expense over the life of the related indebtedness or credit facility using the straight-line method.

As of December 31, 2019 and December 31, 2018 , respectively, there were $ 2.7 million and $ 3.1 million , respectively, of origination fees related to the ABL Facility (as defined below) in other long-term assets on the accompanying Balance Sheet.

As of December 31, 2019 and December 31, 2018 there were $ 4.2 million and $ 6.8 million , respectively of unamortized deferred financing costs and debt discount, net, related to the Notes (as defined below), which is presented as a net deduction from the carrying amount of the debt recognized in the accompanying Balance Sheet.

As of December 31, 2020 and December 31, 2019, there were $ 2.7 million of unamortized origination fees related to the ABL Facility (as defined in Note 13) in other long-term assets on the accompanying Balance Sheet.

As of December 31, 2020 and December 31, 2019 there were $ 3.5 million and $ 4.2 million, respectively, of unamortized deferred financing costs and debt discount, net, related to the Notes (as defined in Note 13), which is presented as a net deduction from the carrying amount of the debt recognized in the accompanying Balance Sheet.

The Company records a tax provision for the expected tax effects of the reported results of operations.

The provision for income taxes is determined using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax impact of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.

Deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities

Deferred income tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled.

The Company records a valuation allowance to reduce deferred income tax assets to the

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

are expected to be realized or settled.

The Company records a valuation allowance to reduce deferred income tax assets to the amount that is believed more likely than not to be realized.

amount that is believed more likely than not to be realized.

When the Company concludes that all or part of the net deferred income tax assets are not realizable in the future, the Company makes an adjustment to the valuation allowance that is charged to earnings in the period that such determination was made.

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Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company determines if an arrangement is a lease at inception.

The Company has an accounting policy election that leases with an initial term of 12 months or less remain off its balance sheet and lease payments are recognized in the Statements of Operations on a straight-line basis over the lease term.

A right-of-use asset represents the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term.

For purpose of calculating such present values, lease payments include components that vary based on an index or rate, using the prevailing index or rate at the commencement date and exclude components that vary based upon other factors.

For those leases that do not contain a readily determinable implicit rate, the Company uses its incremental borrowing rate at commencement to determine the present value of lease payments.

Variable lease payments not included within lease contracts are expensed as incurred.

The Company's leases may include options to extend or terminate the lease, and such options are reflected in the term when their exercise is reasonably certain.

Lease expense is recognized on a straight-line basis over the lease term.

New Accounting Pronouncements

The Company adopted ASU No.

2016-02, "Leases (Topic 842)" as of January 1, 2019 using the modified retrospective approach (the "New Leases Standard").

The New Leases Standard requires a lessee to recognize a right-of-use asset and lease liability on its balance sheet for all leases.

The Company has chosen to use its adoption date as its date of initial application.

As a result, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The Company made an accounting policy election that leases with an initial term of 12 months or less will remain off its balance sheet and lease payments will instead be recognized in the Statements of Operations on a straight-line

basis over the lease term.

Additionally, the Company elected the package of practical expedients for all leases, which permits the Company to forego reassessing expired or existing contracts to determine:

whether they are or contain leases, lease classification, and initial direct costs.

Management elected the optional transition expedient which allows the Company to continue applying the current policy for accounting for expired or existing land easement contracts that may not have been previously accounted for under ASC Leases (Topic 840).

New or modified land easements executed after adoption will be considered under the New Leases Standard.

The Company elected the practical expedient as an accounting policy election for all asset classifications, which allows it to account for them as a single lease component, rather than as separate lease and non-lease components.

As the Company’s historical operating leases are primarily short-term rental agreements of less than one year, the Company did not record any additional lease assets or lease liabilities upon adoption of the New Leases Standard.

Therefore, the New Leases Standard did not impact the Company's balance sheet or consolidated net income and had no impact on cash flows upon adoption.

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, “Financial Instruments Credit Losses (Topic 326)” (“ASU 2016-13”).

The new standard provides decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

For public companies, this standard is effective for fiscal years

The Company adopted Accounting Standards Update ("ASU") 2016-13, "Financial Instruments-Credit Losses (Topic

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.

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes.

This ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

The ASU is effective for fiscal years beginning after December 15, 2020.

The Company expects to adopt the standard as of January 1, 2021 with no material impact to the Company's results of operations, financial condition, cash flows or financial statement presentation.

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

beginning after December 15, 2019.

The Company expects to adopt the standard as of January 1, 2020 with no material impact to the Company’s results of operations, financial condition, cash flows or financial statement presentation.

Note 3— Inventories, net

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

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Coal $ 86,272 $ 69,064

Raw materials, parts, supplies and other, net 32,441 28,837

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Prepaid expenses and other consisted of the following (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Deferred longwall move expenses $ 22,972 $ 15,621

1 unchanged sentence

Prepaid deposits 6,937 345

Other 6,169 4,247

Total prepaid expenses and other $ 39,910 $ 23,844

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Property, plant and equipment are summarized as follows (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Land $ 71,886 $ 72,267

Land improvements 18,024 18,026

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Construction in progress 82,367 42,106

Total 1,015,647 879,739

Accumulated depreciation ( 378,539 ) ( 273,539 )

5 unchanged sentences

NOTES TO FINANCIAL STATEMENTS (Continued)

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Advance mining royalties $ 7,305 $ 8,976

Restricted cash

ABL Facility origination fees 2,667 2,723

Other 4,146 6,543

Total other long-term assets $ 14,118 $ 18,242

Note 7— Income Taxes

The Tax Cuts and Jobs Act was enacted on December 22, 2017.

The Tax Cuts and Jobs Act significantly revised the U.S.

corporate income tax regime by, among other things, lowering the U.S.

corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system, limiting the deduction for interest expense, limiting the use of net operating losses generated on or after January 1, 2018 to offset taxable income and repealing the corporate alternative minimum tax ("AMT") and triggering refunds of prior year AMT credits.

As of December 31, 2019, the Company has a current income tax receivable of $ 12.9 million and a non-current income tax receivable of $ 11.3 million for AMT credits, which are expected to be received in 2020 through 2022.

Income Tax Expense (Benefit)

Income tax expense (benefit) consisted of the following (in thousands):

On March 27, 2020, former President Trump 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.

During the third quarter of 2020, the Company received approximately $ 24.3 million for refunds of AMT credits.

As of December 31, 2020, the Company had no current income tax receivable and no non-current income tax receivable for AMT credits.

Income Tax (Benefit) Expense

Income tax (benefit) expense consisted of the following (in thousands):

For the years ended December 31,

For the year ended December 31, 2019 , we recognized income tax expense of $ 65.4 million or an effective tax rate of 17.8 % which was principally offset by the utilization of our NOLs for cash tax purposes.

Total income tax expense (benefit) differs from the expected tax expense (benefit) (computed by multiplying the U.S.

federal statutory rate of 21% in 2019 and 2018 and 35% in 2017 by income before income taxes) as a result of the following (in thousands):

2020 2019 2018

Federal $ ( 74 ) $ ( 3,151 ) $ ( 2,776 )

( 69 ) ( 3,066 ) ( 2,776 )

Federal ( 16,731 ) 53,677 ( 176,141 )

State ( 3,344 ) 14,806 ( 46,897 )

( 20,075 ) 68,483 ( 223,038 )

Total $ ( 20,144 ) $ 65,417 $ ( 225,814 )

For the year ended December 31, 2020, we recognized an income tax benefit of $ 20.1 million or an effective tax rate of 36.0 %.

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Total income tax (benefit) expense differs from the expected tax (benefit) expense (computed by multiplying the U.S.

federal statutory rate of 21% by (loss) income before income taxes) as a result of the following (in thousands):

For the years ended December 31,

Income before income tax expense (benefit)

Tax expense (benefit) at statutory tax rate

2020 2019 2018

(Loss) income before income tax (benefit) expense $ ( 55,905 ) $ 367,116 $ 470,973

Tax (benefit) expense at statutory tax rate ( 11,740 ) 77,094 98,904

Depletion ( 1,504 ) ( 16,198 ) ( 18,227 )

Tax Cuts and Jobs Act impact — — ( 2,775 )

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Impact of Walter Energy IRS Settlement (1)

Tax expense (benefit) recognized

In the fourth quarter of 2019, an adjustment of $ 6.7 million was recorded to recognize additional alternative minimum tax credits, general business credits and net operating losses available to the Company in connection with a settlement agreement between Walter Energy and the Internal Revenue Service.

— ( 6,615 ) —

IRC Section 451 marginal well credit ( 3,977 ) — ( 4,964 )

Other ( 286 ) ( 611 ) ( 1,722 )

Tax (benefit) expense recognized $ ( 20,144 ) $ 65,417 $ ( 225,814 )

(1) In the fourth quarter of 2019, an adjustment of $ 6.6 million was recorded to recognize additional alternative minimum tax credits, general business credits and NOLs available to the Company in connection with a settlement agreement between Walter Energy and the Internal Revenue Service.

Deferred Taxes

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Significant components of the Company's deferred income tax assets and liabilities were (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Deferred income tax assets:

Net operating loss and credit carryforwards $ 253,756 $ 215,805

Inventory — 457

Asset retirement obligations 15,547 14,115

1 unchanged sentence

Accrued expenses 4,303 5,597

Other 3,614 3,649

Total deferred income tax assets 286,495 247,791

Deferred income tax liabilities:

Inventory ( 558 ) —

Prepaid expenses ( 10,470 ) ( 8,514 )

Property, plant and equipment ( 98,637 ) ( 82,539 )

Other ( 2,458 ) ( 2,441 )

Total deferred income tax liabilities ( 112,123 ) ( 93,494 )

Net deferred income tax asset $ 174,372 $ 154,297

The Company has federal net operating loss carryforwards of approximately $ 785.6 million as of December 31, 2019, which expire predominantly in December 31, 2034 through December 31, 2036.

The Company has state net operating loss carryforwards of approximately $ 860.3 million , which expire predominantly in December 31, 2029 through December 31, 2031.

In addition, the Company has approximately $ 14.6 million of general business credits which begin to expire in December 31, 2027 and fully expire in December 31, 2034.

The Company has federal net operating loss ("NOL") carryforwards of approximately $ 920.7 million as of December 31, 2020, of which $ 27.8 million are indefinite lived and the remainder expire predominantly in December 31, 2034 through December 31, 2036.

The Company has state NOL carryforwards of approximately $ 995.8 million, of which

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Under the Internal Revenue Code of 1986, as amended (the "Code"), a company is generally allowed a deduction for NOLs against its federal taxable income.

$ 27.8 million are indefinite lived and the remainder expire predominantly in December 31, 2029 through December 31, 2031.

The increase in the federal and state NOLs from the prior year was primarily driven by the Company applying a 100%, first-year bonus depreciation for certain qualified equipment for tax purposes as allowed under the Tax Cuts and Jobs Act combined with the current year net loss.

In addition, the Company has approximately $ 18.6 million of general business credits which begin to expire in December 31, 2027 and fully expire in December 31, 2040.

The increase in the general business credits from the prior year is due to a $ 4.0 million income tax benefit from the Internal Revenue Code ("IRC") Section 451 Marginal Well Credit.

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.

Under the IRC of 1986, as amended (the "Code"), a company is generally allowed a deduction for NOLs against its federal taxable income.

A company’s ability to deduct its NOLs and utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code if it undergoes an “ownership change” as defined in Section 382 or if similar provisions of state law apply.

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An ownership change after such date would severely limit the Company's ability to utilize its NOLs and other tax attributes.

Rights Agreement

On February 14, 2020, we adopted the Rights Agreement in an effort to prevent the imposition of significant limitations under Section 382 of the Code on our ability to utilize our current NOLs to reduce our future tax liabilities.

The Rights Agreement is intended to supplement the 382 Transfer Restrictions and is designed to serve the interests of all stockholders by preserving the availability of our NOLs and is similar to plans adopted by other companies with significant NOLs.

Pursuant to the Rights Agreement, one preferred stock purchase right (a “Right” or the “Rights”) will be distributed to stockholders of the Company for each share of common stock of the Company outstanding as of the close of business on February 28, 2020.

Initially, these Rights will not be exercisable and will trade with the shares of common stock.

If the Rights become exercisable, each Right will initially entitle stockholders to buy one one-thousandth of a share of a newly created series of preferred stock designated as “Series A Junior Participating Preferred Stock” at an exercise price of $ 31.00 per Right.

While the Rights Agreement is in effect, any person or group that acquires beneficial ownership of 4.99 % or more of the common stock or any existing stockholder who currently owns 5.00 % or more of the common stock that acquires any additional shares of common stock (such person, group or existing stockholder, an "Acquiring Person") without approval from the Board would be subject to significant dilution in their ownership interest in the Company.

In such an event, each Right will entitle its holder to buy, at the exercise price, common stock having a market value of two times the then current exercise price of the Right and the Rights held by such Acquiring Person will become void.

The Rights Agreement also gives discretion to the Board to determine that someone is an Acquiring Person even if they do not own 4.99 % or more of the common stock but do own 4.99 % or more in value of the outstanding stock, as determined pursuant to Section 382 of the Code and the regulations promulgated thereunder.

In addition, the Board has established procedures to consider requests to exempt certain acquisitions of the Company’s securities from the Rights Agreement if the Board determines that doing so would not limit or impair the availability of the NOLs or is otherwise in the best interests of the Company.

The Board may redeem the Rights for $ 0.01 per Right at any time before any person or group triggers the Rights Agreement.

The distribution of the Rights is not a taxable event for stockholders of the Company and will not affect the Company’s’ financial condition or results of operations (including earnings per share).

The Rights will expire on the earliest of (i) the close of business on February 14, 2023,(ii) the close of business on the first anniversary of the date of entry into the Rights Agreement, if stockholder approval of the Rights Agreement has not been received by or on such date, (iii) the time at which the Rights are redeemed as provided in the Rights Agreement, (iv) the time at which the Rights are exchanged as provided in the Rights Agreement, (v) the time at which the Board determines that the NOLs are fully utilized or no longer available under Section 382 of the Code, (vi) the effective date of the repeal of Section 382 of the Code if the Board determines that the Rights Agreement is no longer necessary or desirable for the preservation of NOLs,

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

or (vii) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in the Rights Agreement.

Valuation Allowance

3 unchanged sentences

The Company considers, among other things, all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, the overall business environment, its historical financial results, the industry's historically cyclical financial results, its cumulative three-year income or loss position and potential current and future tax planning strategies.

At December 31, 2017, the Company had a $ 312.5 million valuation allowance established against its deferred income tax assets, which represented a full valuation allowance against its net deferred income tax assets.

For 2017, the Company recorded a pre-tax profit of $ 416.5 million ;

however, the Company remained in a three-year cumulative loss position, had limited operating results as a new Company and given the industry's recent history of significant losses concluded as of December 31, 2017 that another year of significant profitability was needed to support a release of the valuation allowance.

During the fourth quarter of 2018, after considering all relevant factors, the Company concluded that its deferred income tax assets were more likely than not to be realized.

In evaluating the likelihood of utilizing its deferred tax assets, the significant relevant factors that the Company considered were:

(1) its recent history of profitability;

(2) growth in the U.S.

and global economies;

(3) estimates of future met coal prices;

(4) the Company moved from a three-year cumulative loss position to a cumulative income position for the first time since it established the full valuation allowance;

and (5) future impact of taxable temporary differences.

Based on this evaluation, at December 31, 2018, the Company released its valuation allowance against its net deferred income tax assets resulting in a $ 225.8 million income tax benefit.

During 2019, the Company continued the trend of sustained profitability, recording a pre-tax profit of $ 367.1 million for the year.

After considering the continued profit trend and all other relevant factors, we concluded that our deferred income tax assets remain more likely than not to be realized and a valuation allowance was not required.

At December 31, 2017, the Company had a valuation allowance established against its deferred income tax assets, which represented a full valuation allowance against its net deferred income tax assets.

As of December 31, 2018, after considering all relevant factors, the Company concluded that its deferred income tax assets were more likely than not to be realized and released its valuation allowance against its net deferred income tax assets resulting in a $ 225.8 million income tax benefit.

As of December 31, 2020, the Company considered all positive and negative evidence and concluded that our deferred income tax assets remain more likely than not to be realized and a valuation allowance was not required.

Certain factors, could change or circumstances could arise that could further limit or eliminate the amount of the available NOLs to the Company, such as an ownership change or an adjustment by a tax authority.

Also, certain circumstances, such as the COVID-19 pandemic and the unknown duration and overall impact on our operations, including our failing to generate sufficient future taxable income from operations, could limit our ability to fully utilize our deferred tax assets before expiration.

The following table shows the balance of our valuation allowance and the associated activity during 2018:

2 unchanged sentences

Addition/(Reduction) - current tax expense/(benefit) ( 86,679 )

Release $ ( 225,814 )

Ending balance $ —

2 unchanged sentences

and in various state and local jurisdictions which are routinely examined by tax authorities in these jurisdictions.

Net operating losses and carryforwards are subject to adjustments based on examination and the statute of limitations is currently open for all such loss and credit carryforwards.

NOLs and carryforwards are subject to adjustments based on examination and the statute of limitations is currently open for all such loss and credit carryforwards.

The Company had no unrecognized tax benefits or accruals for unrecognized tax benefits as of December 31, 2020 and 2019, respectively.

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

The Company did not record any interest or penalties associated with income taxes but would record interest and penalties within income tax expense.

The Company did not record any interest or penalties associated with income taxes for years ended December 31, 2020, 2019 and 2018, respectively, but would record interest and penalties within income tax expense.

Note 8— Asset Retirement Obligations

Changes in the asset retirement obligations (“ARO”) were as follows (in thousands):

December 31, 2019

December 31, 2018

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

December 31, 2020 December 31, 2019

Balance at Beginning of Period $ 56,206 $ 61,824

9 unchanged sentences

At December 31, 2020, the Company had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of its mining operations totaling $ 40.8 million, and $ 3.6 million for miscellaneous purposes.

For the year ended December 31, 2019 and December 31, 2018 , the reduction to the liability was primarily attributable to the net impact of changes in discount rates, current estimates of the costs and scope of remaining reclamation work and fluctuations in projected mine life estimates.

For the years ended December 31, 2019 and December 31, 2018 , $ 11.1 million or $ 0.22 per share and $ 24.6 million or $ 0.42 per share, respectively, of the adjustment to the liability was reflected as income in the period because there was no asset recorded to offset the adjustment to the liability.

This portion of the liability relates to operations that were idle at the time of purchase accounting for the Asset Acquisition and no value was attributed to any asset as an offset for the asset retirement obligation.

For the year ended December 31, 2020 and December 31, 2019, the change to the liability was primarily attributable to the net impact of changes in discount rates and current estimates of the costs and scope of remaining reclamation work.

For the years ended December 31, 2020 and December 31, 2019, $ 0.4 million or $ 0.01 per share and $ 11.1 million or $ 0.22 per share, respectively, of the adjustment to the liability was reflected as income in the period because there was no asset recorded to offset the adjustment to the respective liability.

This portion of the liability relates to operations that were idle at the time of purchase accounting for the acquisition of certain assets of Walter Energy and no value was attributed to any asset as an offset for the asset retirement obligation.

Note 9— Accrued Expenses

Accrued expenses consisted of the following (in thousands):

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Accrued wages and employee benefits $ 25,539 $ 38,680

7 unchanged sentences

The Company is responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969, as amended.

Beginning on April 1, 2016 through May 31, 2018, the Company was insured under a guaranteed cost insurance policy, through a third-party insurance carrier, for black lung claims raised by any employee subsequent to the Asset Acquisition.

Beginning June 1, 2018, the Company has a deductible policy where the Company is responsible for the first $ 0.5 million for each black lung claim.

Beginning on June 1, 2018 through May 31, 2020, the Company had a deductible policy where the Company is responsible for the first $ 0.5 million for each black lung claim.

Since June 1, 2020, the Company has a deductible policy where the Company is responsible for the first $ 1.0 million for each black lung claim.

In addition, in connection with the acquisition of certain assets of Walter Energy, the Company assumed all black lung liabilities of Walter Energy and its U.S.

subsidiaries incurred prior to March 31, 2016, for which the Company is self-insured.

Due to a limited operating history as a stand-alone company and as a result of being self-insured for these historical black lung claims, the Department of Labor required the Company to post $ 17.0 million in the form of Treasury bills or surety bonds as collateral, in addition to maintaining a black lung trust acquired in the Walter Energy acquisition.

We received a letter from the Department of Labor on February 21, 2020 under its new process for self-insurance renewals that would require us to increase

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

In addition, in connection with the Asset Acquisition, the Company assumed all black lung liabilities of Walter Energy and its U.S.

subsidiaries incurred prior to March 31, 2016.

The Company is self-insured for the black lung claims assumed in the Asset Acquisition.

As of December 31, 2019, the Company had $ 17.0 million of surety bonds with $ 14.5 million of collateral recognized as short term investments.

As of December 31, 2018, the Company had $ 17.5 million in Treasury Bills posted as collateral recognized as short-term investments.

the amount of collateral posted to $ 39.8 million, but we have appealed such increase.

As of December 31, 2020, the Company had $ 17.0 million of surety bonds and $ 8.5 million of collateral recognized as short term investments.

As of December 31, 2019, the Company had $ 17.0 million of surety bonds and $ 14.5 million of collateral recognized as short term investments.

There were also $ 3.0 million and $ 3.3 million of assets held in a black lung trust, which is offset against the long-term portion of the black lung obligations within the Balance Sheet as of December 31, 2020 and December 31, 2019, respectively.

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Collective Bargaining Agreement

In connection with the Asset Acquisition, the Company negotiated a new initial collective bargaining agreement (“CBA”) with the United Mine Workers of America ("UMWA") (the “UMWA CBA”), which was ratified by UMWA’s members on February 16, 2016 and expires on March 31, 2021.

Pursuant to the UMWA CBA, the Company agreed to contribute $ 25.0 million to a Voluntary Employee Beneficiary Association (“VEBA”) trust formed and administered by the UMWA in installments throughout 2016 and 2017.

In connection with the acquisition of certain assets of Walter Energy, the Company negotiated a new initial collective bargaining agreement (“CBA”) with the United Mine Workers of America ("UMWA") (the “UMWA CBA”), which was ratified by UMWA’s members on February 16, 2016 and expires on March 31, 2021.

Approximately 67.2 % and 68.2 % of the Company's employees were represented by the UMWA as of December 31, 2020 and December 31, 2019, respectively.

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The Company adopted the Warrior Met Coal, LLC 2016 Equity Incentive Plan (the “2016 Equity Plan”).

Under the 2016 Equity Plan, employees, directors and officers of the Company were granted equity interests in Warrior Met Coal, LLC in the form of restricted units and phantom units.

In connection with the corporate conversion on April 12, 2017, the awards of restricted units were converted into restricted shares of common stock of the Company (the "Restricted Shares").

Under the 2016 Equity Plan, employees, directors and officers of the Company were granted equity interests in Warrior Met Coal, LLC in the form of restricted shares and phantom shares.

The restricted shares have certain service-based, performance-based and market-based vesting conditions, including the occurrence of an initial public offering or a change in control as set forth in the 2016 Equity Plan and the applicable award agreements.

As of December 31, 2019 , 805,083 Restricted Shares were issued, of which, approximately 30,217 had been forfeited, 676,668 had vested and 98,216 remain unvested.

As of December 31, 2020, 805,083 shares were issued, of which, approximately 30,199 have been forfeited, 722,663 have vested and 52,221 remain unvested.

Upon effectiveness of the 2017 Equity Plan (defined below), no further awards were granted under the 2016 Equity Plan.

Restricted shares were issued proportionally as Tranche A, Tranche B and Tranche C shares.

The Tranche A shares have service and performance based vesting conditions and the awards vest in equal installments on each of the first five anniversaries of the grant date that occurs prior to an IPO and thereafter, subject to the employee’s

Tranche B and C shares fully vested in 2017.

As of December 31, 2020, 268,352 Tranche A shares were issued, of which, approximately 25,551 have been forfeited, 190,580 have vested and 52,221 remain unvested.

Vesting is conditioned and contingent upon at least 50 % of the shares originally acquired in the acquisition of certain assets of Walter Energy having been disposed of to an independent third party, whether before or after an IPO.

In the event of a change in control, any Tranche A shares that have not previously vested shall become fully vested at the time of such change in control, subject to the employee’s continued employment or the director's continued service with the Company through the change in

WARRIOR MET COAL, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

continued employment or the director’s continued service with the Company.

Vesting is conditioned and contingent upon at least 50% of the shares originally acquired in the Asset Acquisition having been disposed of to an independent third party, whether before or after an IPO.

control date.

During the second quarter of 2018, certain stockholders of the Company sold in two separate transactions an aggregate of 13,000,000 shares of the Company's common stock in public secondary offerings (see Note 17).

In connection with the first of these secondary offerings, the performance based vesting condition was met resulting in approximately $ 3.6 million of incremental stock compensation expense.

In connection with the first of these secondary offerings, the performance based vesting condition was met resulting in approximately $ 3.6 million of incremental stock compensation expense in 2018.

The remaining awards shall vest over the remaining time based vesting conditions.

As of December 31, 2019 , 144,585 Tranche A shares have vested.

The Tranche B and Tranche C shares are performance and market- based awards, with vesting being contingent upon the achievement of certain market conditions and subject to the employee’s continued employment or the director's continued service with the Company through the date of achievement.

In 2017, 532,083 Tranche B and Tranche C shares met the required performance and market conditions and were fully vested.

In connection with the vesting of the Tranche B and C shares, the Company recognized approximately $ 3.2 million in stock compensation expense for the year ended December 31, 2017.

The Company also recognized an excess income tax benefit of $ 3.4 million in connection with this vesting.

The Company recognized stock compensation expense of $ 0.3 million for the year ended December 31, 2020 associated with the Tranche A shares.

As of December 31, 2020, unrecognized compensation expense related to the 2016 Equity Plan amounted to approximately $ 0.1 million.

Holders of phantom shares have the right to receive shares of the Company on the earlier of (i) a change in control as defined by the 2016 Equity Plan or (ii) the fifth anniversary of the grant date of the phantom share.

1 unchanged sentence

As of December 31, 2020, there were 43,580 phantom shares issued to a director of the Company, all of which were fully vested upon issuance.

The Company recognized stock compensation expense of $ 0.5 million for the year ended December 31, 2019 associated with the 2016 Equity Plan awards.

As of December 31, 2019 , 2018 , and 2017 unrecognized compensation expense related to the 2016 Equity Plan amounted to approximately $ 0.4 million , $ 1.0 million , and $ 5.7 million , respectively.

The following table presents a summary of Restricted Shares granted under the 2016 Equity Plan for the year ended December 31, 2019 :

Number of Restricted Class C Shares

Weighted Average Grant Date Fair Value

Non-vested at December 31, 2018

Outstanding at December 31, 2019

The Company used the Black-Scholes option pricing model to estimate the fair value of restricted Tranche A shares granted and the Monte Carlo pricing model to estimate the fair value of restricted Tranche B and C shares granted.

The pricing model incorporated the assumptions as presented in the following table, shown at their weighted average values:

For the years ended December 31,

Expected stock price volatility (a)

Risk-free interest rate (b)

Expected life (years) (c)

The Company bases its expected volatility on a group of companies believed to be a representative peer group, selected based on industry and market capitalization.

Warrior Met Coal, Inc.

NOTES TO FINANCIAL STATEMENTS (Continued)

The risk-free rate for periods within the expected term of the award is based on the U.S.

Government Bond yield with a term equal to the awards' expected term on the date of grant.

Expected life represents the period of time that awards granted are expected to be outstanding.

Warrior Met Coal, Inc.

2017 Equity Incentive Plan

In connection with the IPO, the Company adopted the Warrior Met Coal, Inc.

In connection with the Company's initial public offering, the Company adopted the Warrior Met Coal, Inc.

2017 Equity Incentive Plan (the “2017 Equity Plan”).

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A summary of activity related to restricted stock unit award grants under the 2017 Equity Incentive Plan during the year ended December 31, 2020 is as follows:

Weighted Average Grant Date Fair Value

Shares Weighted Average Grant Date Fair Value

Non-vested at December 31, 2019 503,892 $ 21.57

Granted 477,703 $ 12.38

Canceled ( 633 ) $ 22.21

Forfeited ( 16,267 ) $ 18.42

Vested ( 165,455 ) $ 26.04

Outstanding at December 31, 2020 799,240

Equity Modification

On March 31, 2017, the board of managers of the Company declared a cash distribution payable to holders of our then outstanding Class A Units, Class B Units and Class C Units as of March 27, 2017, resulting in distributions to such holders in the aggregate amount of $ 190.0 million (the “Special Distribution”).

The Special Distribution with respect to Restricted Shares outstanding was not paid but held in trust pending their vesting.

As of December 31, 2019 , approximately $ 6.0 million of dividends on unvested stock is held in the trust and is included within other long-term assets in the accompanying Balance Sheets.

On June 1, 2017, the Compensation Committee (the "Committee") of the Board approved the modification described below (the “Modification”) to the award agreements (the “Awards”) for the Restricted Shares to certain officers, directors and employees of the Company.

Pursuant to the Modification, the Committee waived certain vesting requirements with respect to the Special Distribution for the Restricted Shares such that funds currently held in trust as described above with respect to the Special Distribution were paid in full to recipients that received equal to or less than $ 100.0 thousand and were paid with respect to 50 % of the Restricted Shares for recipients that received greater than $ 100.0 thousand .

However, funds held in trust with respect to the Special Distribution for the remaining 50 % of the Restricted Shares for recipients that received greater than $ 100.0 thousand will not be released until such shares vest pursuant to the original terms of the Awards on the basis of the passage of time and the Company’s achievement of certain metrics.

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NOTES TO FINANCIAL STATEMENTS (Continued)

In addition and pursuant to the Modification, the holders of the Restricted Shares were permitted to elect to receive the Special Distribution released from trust as described above with respect to their Restricted Shares (i) 100 % in cash;

(ii) 50 % in cash and 50 % in restricted stock units (“RSUs”);

or (iii) 100 % in RSUs.

In connection with the Modification, the Committee approved a form of Restricted Stock Unit Award Agreement (the “RSU Award Agreement”) pursuant to the 2017 Equity Plan on June 1, 2017 (the “Grant Date”) for those holders who elected to receive the Special Distribution, in whole or in part, in RSUs (the “Participants”).

The RSU Award Agreement provides that RSUs awarded pursuant to the Modification shall be fully vested on the Grant Date and shall be settled in shares of common stock on a one -for-one basis on the earliest of (i) one -third on each of the first three anniversaries of the Grant Date;

(ii) a Change in Control (as defined in the 2017 Equity Plan);

(iii) the Participant’s separation from service with the Company or its affiliates;

or (iv) death of the Participant.

In connection with the Modification, for the year ended December 31, 2017 , the Company recognized a reduction to dividends payable of $ 0.2 million associated with the holders that elected to receive cash and $ 1.3 million was treated as an adjustment to equity for those that elected RSUs.

Note 13— Debt

Debt consisted of the following (in thousands):

December 31, 2019

December 31, 2018

Weighted Average Interest Rate at December 31, 2019

Final Maturity

December 31, 2020 December 31, 2019 Weighted Average Interest Rate at December 31, 2020 Final Maturity

Senior secured notes $ 343,435 $ 343,435 8 % 2024

Promissory note

ABL facility 40,000 — 4 % 2023

Debt discount, net ( 3,527 ) ( 4,246 )

Total debt 379,908 339,189

current debt — —

Total long-term debt $ 379,908 $ 339,189

The Company's minimum debt repayment schedule, excluding interest, as of December 31, 2020 is as follows (in thousands):

2020 2021 2022 2023 2024 Thereafter

Senior secured notes $ — $ — $ — $ — $ 343,435 $ —

ABL facility — — — 40,000 — —

Total $ — $ — $ — $ 40,000 $ 343,435 $ —

On October 15, 2018, the Company entered into an Amended and Restated Asset-Based Revolving Credit Agreement, by and among the Company and certain of its subsidiaries, as borrowers, the guarantors party thereto, the lenders from time to time party thereto and Citibank, N.A, as administrative agent and collateral agent (in such capacities, the "Agent"), which amended and restated in its entirety the existing ABL Facility, and, among other things (i) increased the aggregate commitments available to be borrowed under the ABL Facility to $ 125.0 million, (ii) extended the maturity date of the ABL Facility to October 15, 2023, (iii) decreased the applicable interest rate margins with respect to the loans and the applicable fees in connection with the issuance of letters of credit, and (iv) amended certain covenants and other terms and provisions.

On December 19, 2019, the Company entered into an Amendment No.

2 to the Amended and Restated Credit Agreement (the “Amendment”).

The purpose of the Amendment was to (i) amend the definitions of Fixed Charges and Fixed Charge Coverage Ratio as these terms are used in the Amended and Restated Credit Agreement to generally conform to the corresponding definitions of these terms in the Indenture (as defined below), dated as of November 2, 2017, as supplemented,

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by and among the Company, as issuer, the subsidiary guarantors named therein and Wilmington Trust, National Association, as trustee and priority lien collateral trustee, solely for purposes of incurring unsecured debt based upon the Fixed Charge Coverage Ratio and (ii) add customary language that satisfies the requirements of the Qualified Financial Contract Stay Rules.

2 to the Amended and Restated Credit Agreement (the “Second Amendment”), which, among other things, amended the definitions of Fixed Charges and Fixed Charge Coverage Ratio in the Amended and Restated Credit Agreement to generally conform to the corresponding definitions in the Indenture (as defined below), solely for purposes of incurring unsecured debt based upon the Fixed Charge Coverage Ratio and added customary language in connections with the Qualified Financial Contract Stay Rules.

On July 20, 2020, we entered into an Amendment No.

3 to the Amended and Restated Credit Agreement (the "Third Amendment"), which among other things (i) clarified certain definitions related to the calculation of the borrowing base and (ii) decreased the aggregate commitments available to be borrowed under the ABL Facility to $ 120.0 million on February 28, 2021.

Under the ABL Facility, up to $ 10.0 million of the commitments may be used to incur swingline loans from Citibank and up to $ 50.0 million of the commitments may be used to issue letters of credit.

The ABL Facility will mature on October 15, 2023.

As of December 31, 2019 , no loans were outstanding under the ABL Facility and there were $ 8.95 million of letters of credit issued and outstanding under the ABL Facility.

At December 31, 2019 , the Company had $ 116.1 million of availability under the ABL Facility (calculated net of $ 8.95 million of letters of credit outstanding at such time).

As of December 31, 2020, the Company had an aggregate principal amount of $ 40.0 million drawn under the ABL Facility and there were $ 9.4 million of letters of credit issued and outstanding under the ABL Facility.

At December 31, 2020, the Company had $ 31.6 million of availability under the ABL Facility.

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;

(ii) restrictions on the existence or incurrence

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of certain indebtedness;

(iii) restrictions on the existence or incurrence of certain liens;

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In addition, the Company incurred debt issuance costs of approximately $ 3.7 million, which consists of consent solicitation fees paid to holders of the Existing Notes (as defined below), and is included in long-term debt in the Balance Sheet.

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pursuant to Regulation S traded separately under different CUSIP/ISIN numbers until 40 days after the issue date, but thereafter any such holders may transfer their New Notes pursuant to Regulation S into the same CUSIP/ISIN numbers as the Existing Notes issued pursuant to Regulation S).

The New Notes and the $ 350.0 million in aggregate principal amount of the Company’s existing 8.00 % Senior Secured Notes due 2024 (the “Existing Notes” and, together with the New Notes, the "Notes"), rank pari passu in right of payment and constitute a single class of securities for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions, offers to purchase and collateral matters, and are fungible (except that the New Notes issued pursuant to Regulation S traded separately under different CUSIP/ISIN numbers until 40 days after the issue date, but thereafter any such holders may transfer their New Notes pursuant to Regulation S into the same CUSIP/ISIN numbers as the Existing Notes issued pursuant to Regulation S).

The Notes will mature on November 1, 2024 and interest is payable on May 1 and November 1 of each year, commencing May 1, 2018.

The Notes are fully and unconditionally guaranteed on a joint and several basis by each of the Company's direct and indirect wholly-owned domestic restricted subsidiaries that are guarantors under the ABL Facility (subject to customary release provisions).

At any time prior to November 1, 2020, the Company may redeem the Notes, in whole or in part, at a price equal to 100.00 % of the principal amount of the Notes redeemed plus the Applicable Premium (as defined in the indenture governing the Notes) and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

The Notes are redeemable at the Company's option, in whole or in part, from time to time, on or after November 1, 2020, at redemption prices specified in the indenture, plus accrued and unpaid interest, if any, to, but excluding the redemption date.

At any time on or prior to November 1, 2020, the Company may redeem up to 40 % of the aggregate principal amount of the Notes with the proceeds of certain equity offerings, at a redemption price of 108.00 % of the principal amount of the Notes, plus accrued and unpaid interest, if any, to but excluding the redemption date.

The Company is also required to make offers to purchase the Notes (i) at a purchase price of 101.00 % of the principal amount thereof in the event it experiences specific kinds of change of control triggering events, (ii) at a purchase price of 103.00 % of the principal amount thereof prior to making certain restricted payments, and (iii) at a purchase price of 100.00 % of the principal amount thereof in the event it makes certain asset sales or dispositions and does not reinvest the net proceeds therefrom or use such net proceeds to repay certain indebtedness, in each case, plus accrued and unpaid interest, if any, to, but excluding the date of purchase.

The Company is also required to make offers to purchase the Notes (i) at a purchase price of 101.00 % of the principal

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amount thereof in the event it experiences specific kinds of change of control triggering events, (ii) at a purchase price of 103.00 % of the principal amount thereof prior to making certain restricted payments, and (iii) at a purchase price of 100.00 % of the principal amount thereof in the event it makes certain asset sales or dispositions and does not reinvest the net proceeds therefrom or use such net proceeds to repay certain indebtedness, in each case, plus accrued and unpaid interest, if any, to, but excluding the date of purchase.

Offer to Purchase the Notes

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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 ommon stock in the aggregate amount of up to $ 299,401,000 (the "RP Basket") without having to make another offer to repurchase Notes.

The Company used a portion of the RP Basket to pay the April 2019 Special Dividend (as defined below) and

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NOTES TO FINANCIAL STATEMENTS (Continued)

intends to use the remainder of the RP Basket to make repurchases under the New Stock Repurchase Program (as defined below).

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

The Company used a portion of the RP Basket to pay the April 2019 Special Dividend (as defined below) and intends to use the remainder of the RP Basket to make repurchases under the New Stock Repurchase Program (as defined below).

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.

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(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;

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(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.

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

December 31, 2019

December 31, 2020 December 31, 2019

Finance lease right-of-use assets, net (1)

$ 46,746 $ 40,227

Finance lease liabilities

Current 14,385 10,146

Noncurrent 24,091 25,528

Total finance lease liabilities $ 38,476 $ 35,674

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Weighted average discount rate - finance leases (2)

(1) Finance lease right-of-use assets are recorded net of accumulated amortization of $ 4.8 million and are included in property, plant and equipment, net in the Balance Sheets as of December 31, 2019 .

5.77 % 6.02 %

(1) Finance lease right-of-use assets, recorded net of accumulated amortization of $ 9.8 million and $ 4.8 million, are included in property, plant and equipment, net in the Balance Sheets as of December 31, 2020 and December 31, 2019, respectively.

See Note 5 for additional disclosure.

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

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NOTES TO FINANCIAL STATEMENTS (Continued)

For the year ended December 31,

Operating lease cost (1):

$ 2,980 $ 2,527

Finance lease cost:

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

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NOTES TO FINANCIAL STATEMENTS (Continued)

Maturities of lease liabilities were as follows (in thousands):

Finance Leases (1)

2021 $ 16,276

amount representing interest ( 4,418 )

Present value of lease liabilities $ 38,476

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

(1) Finance lease payments include $ 1.6 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):

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As of December 31, 2020 the Company had additional commitments for finance leases, primarily for mining equipment, that have not yet commenced, of $ 1.6 million.

These finance leases will commence between fiscal year 2020 and 2021 with lease terms of one to two years .

These finance leases will commence during fiscal year 2021 with lease terms between one to two years .

Note 15— Related Party Transactions

In connection with the Asset Acquisition, the Company acquired a 50 % interest in Black Warrior Methane (“BWM”) and Black Warrior Transmission (“BWT”), which are accounted for under the proportionate consolidation method and equity method, respectively.

In connection with the acquisition of certain assets of Walter Energy, the Company acquired a 50 % interest in Black Warrior Methane (“BWM”) and Black Warrior Transmission (“BWT”), which are accounted for under the proportionate consolidation method and equity method, respectively.

The Company has granted the rights to produce and sell methane gas from its coal mines to BWM and BWT.

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The Company charged the joint venture for such costs on a monthly basis, which were $ 2.6 million for the year ended December 31, 2020, $ 1.5 million for the year ended December 31, 2019, $ 3.2 million for the year ended December 31, 2018.

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NOTES TO FINANCIAL STATEMENTS (Continued)

Note 16— Commitments and Contingencies

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As of December 31, 2020 and December 31, 2019, there were no accruals for environmental matters other than asset retirement obligations for mine reclamation.

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Miscellaneous Litigation

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Walter Energy deemed these receivables to be uncollectable for the year ended December 31, 2015 and the Company did not assign any value to these receivables in acquisition accounting as collectability was deemed remote.

In May and August 2019, the Company received approximately $ 17.5 million and $ 5.3 million , respectively, in settlement proceeds for the Shared Services Claim and Hybrid Debt Claim which is reflected as other income in the Statements of Operations.

In March 2020, the Company received approximately $ 1.8 million in settlement proceeds for the Shared Services Claim and

Hybrid Debt Claim and an additional $ 1.7 million in the fourth quarter of 2020, which are reflected as other income in the Statements of Operations.

These settlement proceeds are in addition to the $ 22.8 million received in 2019 which are reflected as other income in the Statements of Operations.

The collectability of additional amounts, if any, related to the Shared Services Claim and Hybrid Debt Claim depends on the outcome of, and the timing of any resolutions of, the Walter Canada CCAA proceedings and cannot be predicted with certainty.

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The Company is party to various transportation and throughput agreements with rail and barge transportation providers and the Alabama State Port Authority.

These agreements contain annual minimum tonnage guarantees with respect to coal transported from the mine sites to the Port of Mobile, Alabama, unloading of rail cars or barges, and the loading of vessels.

These agreements contain annual minimum tonnage guarantees with respect to coal transported from the mine sites to the Port of Mobile in Alabama, unloading of rail cars or barges, and the loading of vessels.

If the Company does not meet its minimum throughput obligations, which are based on annual minimum amounts, it is required to pay the transportation providers or the Alabama State Port Authority a contractually specified amount per metric ton for the difference between the actual throughput and the minimum throughput requirement.

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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,

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NOTES TO FINANCIAL STATEMENTS (Continued)

they generally last for the economic life of the reserves.

Although coal leases have varying renewal terms and conditions, they generally last for the economic life of the reserves.

Coal royalty expense was $ 49.5 million, $ 87.3 million, $ 101.0 million, for the years ended December 31, 2020, December 31, 2019, and December 31, 2018, respectively.

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The Company fully exhausted its previous stock repurchase program (the "First Stock Repurchase Program") of $ 40.0 million of its outstanding common stock.

The New Stock Repurchase Program does not require the Company to repurchase a specific number of shares or have an expiration date.

The New Stock Repurchase Program does not require the Company to

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NOTES TO FINANCIAL STATEMENTS (Continued)

repurchase a specific number of shares or have an expiration date.

The New Stock Repurchase Program may be suspended or discontinued by the Board at any time without prior notice.

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The Company intends to fund repurchases under the New Stock Repurchase Program from cash on hand and/or other sources of liquidity.

As of December 31, 2019 , the Company has repurchased 500,000 shares for approximately $ 10.6 million , leaving $ 58.8 million of share repurchases authorized under the New Stock Repurchase Program.

During the year ended December 31, 2019, the Company repurchased 500,000 shares for approximately $ 10.6 million, leaving $ 58.8 million of share repurchases authorized under the New Stock Repurchase Program.

In light of the uncertainties resulting from COVID-19 and as a precautionary measure to preserve liquidity, the

Company has temporarily suspended its New Stock Repurchase Program.

The Company will continue to monitor its liquidity in light of the COVID-19 pandemic and will consider when to reinstate the program.

First Stock Repurchase Program

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The Company did not receive any of the proceeds from this offering.

In connection with this offering, the Company repurchased 500,000 shares of common stock under the Stock Repurchase Program, funded with cash on hand for the aggregate amount of $ 12.1 million (the "Stock Repurchase").

In connection with this offering, the Company repurchased 500,000 shares of common stock under the First Stock Repurchase Program, funded with cash on hand for the aggregate amount of $ 12.1 million (the "Stock Repurchase").

The shares repurchased by the Company in the Stock Repurchase are reflected as Treasury Stock on the Balance Sheets.

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We refer to these offerings herein collectively as the "Secondary Equity Offerings." In connection with the Secondary Equity Offerings, we incurred transaction costs of approximately $ 2.7 million for the year December 31, 2018.

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NOTES TO FINANCIAL STATEMENTS (Continued)

Note 18— Fair Value of Financial Instruments

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The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected:

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NOTES TO FINANCIAL STATEMENTS (Continued)

Cash and cash equivalents, short-term investments, restricted cash, receivables and accounts payable— The carrying amounts reported in the Balance Sheet approximate fair value due to the short-term nature of these assets and liabilities.

Debt— The Company's outstanding debt is carried at cost.

As of December 31, 2019 , there were no borrowings outstanding under the ABL Facility and there were $ 8.95 million of letters of credit issued and outstanding under the ABL Facility.

The estimated fair value of the Notes is approximately $ 349.9 million based upon observable market data (Level 2).

Note 19— Net Income per Share

The computation of basic net income per share is based on the number of weighted average common shares outstanding during the period.

The computation of diluted net income per share is based on the weighted average number of shares outstanding plus the incremental shares that would be outstanding assuming issuance of restricted stock.

As of December 31, 2020, the Company had $ 40.0 million outstanding under the ABL Facility, with $ 31.6 million available, net of $ 9.4 million of letters of credit issued and outstanding at such time.

The estimated fair value of the Notes is approximately $ 352.5 million based upon observable market data (Level 2) and the carrying amount of the ABL Facility approximates fair value as these securities are not traded.

Note 19— Net (Loss) Income per Share

The computation of basic net (loss) income per share is based on the number of weighted average common shares outstanding during the period.

The computation of diluted net (loss) income per share is based on the weighted average number of shares outstanding plus the incremental shares that would be outstanding assuming issuance of restricted stock.

The number of incremental shares is calculated by applying the treasury stock method.

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

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

For the years ended December 31,

Weighted-average shares used to compute net income per share—basic

2020 2019 2018

Net (loss) income $ ( 35,761 ) $ 301,699 $ 696,787

Weighted-average shares used to compute net (loss) income per share—basic 51,168 51,363 52,812

Dilutive restricted stock awards and units (1)

Weighted-average shares used to compute net income per share—diluted

Net income per share—basic

Net income per share—diluted

Weighted-average shares used to compute net (loss) income per share—diluted 51,168 51,493 52,918

Net (loss) income per share—basic $ ( 0.70 ) $ 5.87 $ 13.19

Net (loss) income per share—diluted $ ( 0.70 ) $ 5.86 $ 13.17

(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.

As of December 31, 2020, there were 281,588 restricted stock unit awards for which the service-based vesting conditions for these awards were not met as of the measurement date.

As such, these awards were excluded from basic earnings per share.

These awards had a 39,950 share impact on dilutive weighted average shares for the year ended December 31, 2019 .

As of December 31, 2020, there were 447,295 shares granted under the 2017 Equity Plan to employees, for which neither the service based nor performance based vesting conditions were met as of the measurement date.

As such, these shares have been excluded from basic and diluted earnings per share.

The Company awarded $ 1.5 million of restricted stock unit awards under the 2017 Equity Plan that can be settled in shares or in cash at the election of employees.

These awards have certain service-based and performance-based vesting conditions and can be earned no later than December 31, 2021.

If the Company were to settle these awards in shares these awards would represent 70,989 shares based on the Company's closing share price on December 31, 2019 .

The Company considered the impact on diluted earnings as if the award was settled in cash or in shares.

These awards had a 19,438 share impact on dilutive weighted average shares for the year ended December 31, 2019 .

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NOTES TO FINANCIAL STATEMENTS (Continued)

As of December 31, 2020, there were 52,221 shares of common stock issued under the 2016 Equity Plan to certain directors and employees, for which the service based vesting conditions were not met as of the measurement date.

As such, these awards were excluded from basic earnings per share.

These awards had a 70,410 share impact on dilutive weighted average shares for the year ended December 31, 2019 .

As of December 31, 2020, there were 43,580 shares of common stock contingently issuable upon the settlement of a vested phantom unit award under the 2016 Equity Plan and 13,157 shares of common stock contingently issuable upon the settlement of a vested restricted stock unit award under the 2017 Equity Plan.

The settlement date is the earlier of a change in control as described in the 2016 Equity Plan and 2017 Equity Plan or five years from the grant date.

These awards are vested and as such have been included in the weighted-average shares used to compute basic and diluted net income per share.

As of December 31, 2019 , there were 21,169 shares of common stock issued under the 2017 Equity plan to certain directors and employees which immediately vested, but settle over the next two years on the anniversary of issuance.

As such, these shares have been included in both basic and diluted earnings per share.

On March 31, 2017, the Company's board of managers declared a cash distribution of $ 3.56 per share, totaling $ 190.0 million, which was paid on March 31, 2017 to holders of Class A Units, Class B Units and Class C Units of record as of March 31, 2017.

These awards are vested and as such have been included in the weighted-average shares used to compute basic and diluted net (loss) income per share.

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NOTES TO FINANCIAL STATEMENTS (Continued)

On May 17, 2017, the Board adopted the Dividend Policy of paying a quarterly cash dividend of $ 0.05 per share.

The initial quarterly dividend of $ 2.7 million was paid on June 13, 2017 to stockholders of record on May 30, 2017.

The Dividend Policy also states the following:

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As of December 31, 2020, the Company has paid $ 39.5 million of regular quarterly cash dividends under the Dividend Policy.

On November 2, 2017, the Board declared the November Special Dividend of approximately $ 600.0 million , which was funded with the net proceeds from the Notes Offering, together with cash on hand of approximately $ 260.0 million and was paid on November 22, 2017 to stockholders of record as of the close of business on November 13, 2017.

On April 3, 2018, the Board declared the April Special Dividend of approximately $ 350.0 million, which was funded with the net proceeds from the offering of the New Notes due 2024, together with cash on hand of approximately $ 225.0 million, and was paid on April 20, 2018 to stockholders of record as of the close of business on April 13, 2018.

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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

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characteristics and if the operating segments are similar in the following qualitative characteristics:

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;

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

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For the years ended December 31,

2020 2019 2018

Mining $ 761,871 $ 1,235,998 $ 1,342,683

All other 20,867 32,311 35,324

Total revenues $ 782,738 $ 1,268,309 $ 1,378,007

For the years ended December 31,

2020 2019 2018

Capital Expenditures

Mining $ 78,015 $ 100,768 $ 97,607

All other 9,473 6,510 4,013

Total capital expenditures $ 87,488 $ 107,278 $ 101,620

The Company evaluates the performance of its segment based on Segment Adjusted EBITDA, which is defined as net income (loss) adjusted for other revenues, cost of other revenues, depreciation and depletion, selling, general and administrative, other postretirement benefits, and certain transactions or adjustments that the CODM does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance.

The Company evaluates the performance of its segment based on Segment Adjusted EBITDA, which is defined as net (loss) income adjusted for other revenues, cost of other revenues, depreciation and depletion, selling, general and administrative, other postretirement benefits, and certain transactions or adjustments that the CODM does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance.

Segment Adjusted EBITDA does not represent and should not be considered as an alternative to cost of sales under GAAP and may not be comparable to other similarly titled measures used by other companies.

Below is a reconciliation of Segment Adjusted EBITDA to net income (loss), which is its most directly comparable financial measure calculated and presented in accordance with GAAP (in thousands):

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Below is a reconciliation of Segment Adjusted EBITDA to net (loss) income, which is its most directly comparable financial measure calculated and presented in accordance with GAAP (in thousands):

For the years ended December 31,

2020 2019 2018

Segment Adjusted EBITDA $ 136,701 $ 515,253 $ 626,038

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Selling, general and administrative ( 32,879 ) ( 37,014 ) ( 36,626 )

What changed 10-K

Item 9A. Controls and Procedures