WARRIOR MET COAL, INC. 10-K

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides a narrative of our results of operations and financial condition for the years ended December 31, 2020, December 31, 2019, and December 31, 2018. You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward ‑ looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in “ Part I, Item 1A. Risk Factors,” our actual results could differ materially from the results described in, or implied by, the forward ‑ looking statements contained in the following discussion and analysis. Please see “ Forward-Looking Statements. ” Overview We are a U.S.-based, environmentally and socially minded supplier to the global steel industry. We are dedicated entirely to mining non-thermal met coal used as a critical component of steel production by metal manufacturers in Europe, South America and Asia. We are a large-scale, low-cost producer and exporter of premium met coal, also known as hard coking coal (“HCC”), operating highly-efficient longwall operations in our underground mines based in Alabama, Mine No. 4 and Mine No. 7. As of December 31, 2020, Mine No. 4 and Mine No. 7, our two operating mines, had approximately 97.5 million metric tons of recoverable reserves and our undeveloped Blue Creek mine contained 103.0 million metric tons of recoverable reserves. As a result of our high quality coal, our realized price has historically been in line with, or at a slight discount to, the Platts Index. Our HCC, mined from the Southern Appalachian portion of the Blue Creek coal seam, is characterized by low sulfur, low-to-medium ash, and LV to MV. These qualities make our coal ideally suited as a coking coal for the manufacture of steel. We sell substantially all of our met coal production to steel producers. Met coal, which is converted to coke, is a critical input in the steel production process. Met coal is both consumed domestically in the countries where it is produced and exported by several of the largest producing countries, such as China, Australia, the United States, Canada and Russia. Therefore, demand for our coal will be highly correlated to conditions in the global steelmaking industry. The steelmaking industry’s demand for met coal is affected by a number of factors, including the cyclical nature of that industry’s business, technological developments in the steelmaking process and the availability of substitutes for steel such as aluminum, composites and plastics. A significant reduction in the demand for steel products would reduce the demand for met coal, which would have a material adverse effect upon our business. Similarly, if alternative ingredients are used in substitution for met coal in the integrated steel mill process, the demand for met coal would materially decrease, which could also materially adversely affect demand for our met coal. The global steelmaking industry's demand for met coal is also 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 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak has resulted in governments around the world implementing 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. We are a company operating in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. As such, we continue to operate our mines in a safe manner under the guidelines issued by the Centers for Disease Control and Prevention and Alabama State Health Department. This includes, among other things, eliminating business travel, staggering manbuses, cage and shift start times to allow for social distancing, enhanced disinfectant cleaning at all locations, maintaining antibacterial supplies at all locations, providing employees with masks, gloves and other gear, eliminating visitors or vendors on property without strict screening process and testing the temperature of all employees. As of the filing of this Form 10-K, we have not had to idle or temporarily idle our 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 compress our margins, and reduce demand for the met coal that we produce, including as a result of preventative and precautionary measures that we, other businesses and governments are taking. The COVID-19 outbreak is a widespread public health crisis that is adversely affecting 62 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 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. In light of the uncertainties regarding the duration of the COVID-19 pandemic and its overall impact on the Company, its operations and the global economy, we withdrew our full-year 2020 guidance issued on February 19, 2020 and will not provide full year 2021 guidance at this time. We also continue to appropriately adjust our operational needs, including managing our expenses, capital expenditures, working capital, liquidity and cash flows. In addition, as a precautionary measure, we borrowed $70.0 million under the ABL Facility on March 24, 2020 ( the "ABL Draw") in order to increase the Company's cash position and preserve financial flexibility. In June 2020, we reduced the principal amount of the outstanding ABL Draw by $30.0 million. As of December 31, 2020, the Company had an aggregate principal amount of $40.0 million drawn under the ABL Facility. We intend on retaining the funds in cash to preserve liquidity amid the growing uncertainty surrounding the COVID-19 outbreak. We also delayed spending the $25.0 million that we budgeted for the development of Blue Creek until at least summer 2021 and temporarily suspended our New Stock Repurchase Program. Our financial approach continues to focus on cash flow management and protecting the balance sheet in order to strategically move through this period of uncertainty and mitigate potential long-term impacts to the business (see Liquidity and Capital Resources below). Basis of Presentation The consolidated financial statements included elsewhere in this Annual Report and the other financial information presented and discussed in this management's discussion and analysis includes the accounts of Warrior Met Coal, Inc. and its subsidiaries (the "Company"). How We Evaluate Our Operations Our primary business, the mining and exporting of met coal for the steel industry, is conducted in one business segment: Mining. All other operations and results are reported under the “All Other” category as a reconciling item to consolidated amounts, which includes the business results from our sale of natural gas extracted as a byproduct from our underground coal mines and royalties from our leased properties. Our natural gas and royalty businesses do not meet the criteria in ASC 280, Segment Reporting , to be considered as operating or reportable segments. Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) Segment Adjusted EBITDA; (ii) sales volumes and average selling price, which drive coal sales revenue; (iii) cash cost of sales, a non-GAAP financial measure; and (iv) Adjusted EBITDA, a non-GAAP financial measure. 63 For the years ended December 31, 2020 2019 2018 (in thousands) Segment Adjusted EBITDA $ 136,701 $ 515,253 $ 626,038 Metric tons sold 6,735 7,240 6,931 Metric tons produced 7,132 7,683 7,017 Gross price realization (1) 96 % 98 % 97 % Average net selling price per metric ton $ 113.12 $ 170.72 $ 193.72 Cash cost of sales per metric ton $ 92.31 $ 99.15 $ 103.35 Adjusted EBITDA $ 108,276 $ 485,693 $ 601,901 (1) Gross price realization represents a volume weighted-average calculation of our daily realized price per ton based on gross sales, which excludes demurrage and other charges, as a percentage of the Platts Index. Segment Adjusted EBITDA We define Segment Adjusted EBITDA as net (loss) income adjusted for other revenues, cost of other revenues, depreciation and depletion, selling, general and administrative, and certain transactions or adjustments that the CEO, our Chief Operating Decision Maker does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance. Segment Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess: • our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure; • the ability of our assets to generate sufficient cash flow to pay distributions; • our ability to incur and service debt and fund capital expenditures; and • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities, such as Blue Creek. Sales Volumes, Gross Price Realization and Average Net Selling Price We evaluate our operations based on the volume of coal we can safely produce and sell in compliance with regulatory standards, and the prices we receive for our coal. Our sales volume and sales prices are largely dependent upon the terms of our coal sales contracts, for which prices generally are set on daily index averages or a quarterly basis. The volume of coal we sell is also a function of the pricing environment in the international met coal markets and the amounts of LV and MV coal that we sell. We evaluate the price we receive for our coal on two primary metrics: first, our gross price realization and second, our average net selling price per metric ton. Our gross price realization represents a volume weighted-average calculation of our daily realized price per ton based on the blended gross sales of our LV and MV coal, excluding demurrage and quality specification adjustments, as a percentage of the Platts Index daily price. Our gross price realizations reflect the premiums and discounts we achieve on our LV and MV coal versus the Platts Index price because of the high quality premium products we sell into the export markets. In addition, the premiums and discounts in a quarter or year can be impacted by a rising or falling price environment. On a quarterly basis, our blended gross selling price per metric ton may differ from the Platts Index price per metric ton, primarily due to our gross sales price per ton being based on a blended average of gross sales price on our LV and MV coals as compared to the Platts Index price and due to the fact that many of our met coal supply agreements are based on a variety of indices. 64 Our average net selling price per metric ton represents our coal net sales revenue divided by total metric tons of coal sold. In addition, our average net selling price per metric ton is net of the previously mentioned demurrage and quality specification adjustments. Cash Cost of Sales We evaluate our cash cost of sales on a cost per metric ton basis. Cash cost of sales is based on reported cost of sales and includes items such as freight, royalties, manpower, fuel and other similar production and sales cost items, and may be adjusted for other items that, pursuant to GAAP, are classified in the Statements of Operations as costs other than cost of sales, but relate directly to the costs incurred to produce met coal and sell it free-on-board at the Port of Mobile in Alabama. Our cash cost of sales per metric ton is calculated as cash cost of sales divided by the metric tons sold. Cash cost of sales is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess: • our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure; and • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities, such as Blue Creek. We believe that this non-GAAP financial measure provides additional insight into our operating performance, and reflects how management analyzes our operating performance and compares that performance against other companies on a consistent basis for purposes of business decision making by excluding the impact of certain items that management does not believe are indicative of our core operating performance. We believe that cash costs of sales presents a useful measure of our controllable costs and our operational results by including all costs incurred to produce met coal and sell it free-on-board at the Port of Mobile in Alabama. Period-to-period comparisons of cash cost of sales are intended to help management identify and assess additional trends potentially impacting our Company that may not be shown solely by period-to-period comparisons of cost of sales. Cash cost of sales should not be considered an alternative to cost of sales or any other measure of financial performance or liquidity presented in accordance with GAAP. Cash cost of sales excludes some, but not all, items that affect cost of sales, and our presentation may vary from the presentations of other companies. As a result, cash cost of sales as presented below may not be comparable to similarly titled measures of other companies. The following table presents a reconciliation of cash cost of sales to total cost of sales, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated. For the years ended December 31, 2020 2019 2018 (in thousands) Cost of sales $ 625,170 $ 720,745 $ 716,645 Asset retirement obligation accretion and valuation adjustment (1,702) (1,519) 875 Stock compensation expense (1,789) (1,405) (1,214) Cash cost of sales $ 621,679 $ 717,821 $ 716,306 Adjusted EBITDA We define Adjusted EBITDA as net (loss) income before net interest expense, income tax expense (benefit), depreciation and depletion, non-cash asset retirement obligation accretion, non-cash stock compensation expense, other non-cash accretion and valuation adjustments, transaction and other costs, loss on early extinguishment of debt and other income and expenses. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess: • our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure; and • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities, such as Blue Creek. 65 We believe that the presentation of Adjusted EBITDA in this Annual Report provides information useful to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to Adjusted EBITDA is net (loss) income. Adjusted EBITDA should not be considered an alternative to net income or loss or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjustments excludes some, but not all, items that affect net (loss) income and our presentation of Adjusted EBITDA may vary from that presented by other companies. The following table presents a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated. For the years ended December 31, 2020 2019 2018 (in thousands) Net (loss) income $ (35,761) $ 301,699 $ 696,787 Interest expense, net 32,310 29,335 37,314 Income tax (benefit) expense (20,144) 65,417 (225,814) Depreciation and depletion 118,092 97,330 97,209 Asset retirement obligation accretion and valuation adjustment (1) 2,631 (7,891) (19,942) Stock compensation expense (2) 7,602 5,820 6,405 Other non-cash accretion and valuation adjustments (3) 6,014 7,042 874 Transaction and other costs (4) — — 9,068 Loss on early extinguishment of debt (5) — 9,756 — Other income and expenses (6) (2,468) (22,815) — Adjusted EBITDA $ 108,276 $ 485,693 $ 601,901 (1) Represents non-cash accretion expense and valuation adjustment associated with our asset retirement obligations (see Note 8 to our consolidated financial statements). (2) Represents non-cash stock compensation expense associated with equity awards. (3) Represents non-cash accretion expense and valuation adjustment associated with our black lung obligations (see Note 10 to our consolidated financial statements). (4) Represents non-recurring costs incurred by the Company in connection with the offering of the Notes (see Note 13 to our consolidated financial statements) and the Secondary Equity Offerings (as defined in Note 17). (5) Represents a loss incurred in connection with the early extinguishment of debt (see Note 13 to our consolidated financial statements) (6) Represents settlement proceeds received for the Shared Services Claim and Hybrid Debt Claim associated with the Walter Canada CCAA and other Walter Claims (each discussed below) less incremental expenses incurred by the Company related to COVID-19. 66 Results of Operations Year Ended December 31, 2020 and 2019 The following table summarizes certain financial information relating to our operating results that have been derived from our audited financial statements for the year ended December 31, 2020 and 2019. For the years ended December 31, (in thousands) 2020 % of Total Revenues 2019 % of Total Revenues Revenues: Sales $ 761,871 97.3 % $ 1,235,998 97.5 % Other revenues 20,867 2.7 % 32,311 2.5 % Total revenues 782,738 100.0 % 1,268,309 100.0 % Costs and expenses: Cost of sales (exclusive of items shown separately below) 625,170 79.9 % 720,745 56.8 % Cost of other revenues (exclusive of items shown separately below) 33,736 4.3 % 29,828 2.4 % Depreciation and depletion 118,092 15.1 % 97,330 7.7 % Selling, general and administrative 32,879 4.2 % 37,014 2.9 % Total costs and expenses 809,877 103.5 % 884,917 69.8 % Operating (loss) income (27,139) (3.5) % 383,392 30.2 % Interest expense, net (32,310) (4.1) % (29,335) (2.3) % Loss on early extinguishment of debt — — % (9,756) (0.8) % Other income 3,544 0.5 % 22,815 1.8 % (Loss) income before income tax (benefit) expense (55,905) (7.1) % 367,116 28.9 % Income tax (benefit) expense (20,144) (2.6) % 65,417 5.2 % Net (loss) income $ (35,761) (4.6) % 301,699 23.8 % Sales, production and cost of sales components on a per unit basis for the year ended December 31, 2020 and 2019 were as follows: For the years ended December 31, 2020 2019 Met Coal (metric tons in thousands) Metric tons sold 6,735 7,240 Metric tons produced 7,132 7,683 Gross price realization 96 % 98 % Average net selling price per metric ton $ 113.12 $ 170.72 Cash cost of sales per metric ton $ 92.31 $ 99.15 The year ended December 31, 2020 was a challenging year. COVID-19 has had an unprecedented impact on our business, 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. Despite the ongoing challenges posed by COVID-19, we are pleased with our performance in 2020. The following list highlights our key accomplishments for the year ended December 31, 2020: • we achieved an annual sales volume of 6.7 million metric tons and production volume of 7.1 million metric tons; 67 • we continued to successfully implement and maintain social distancing procedures under the guidelines issued by the Centers for Disease Control and Prevention related to COVID-19 while continuing to operate our mines near capacity; • we achieved our lowest annual cash cost of sales per metric ton of $92.31; • we reduced 2020 selling, general and administrative expenses by 11% to $32.9 million • we reduced planned capex by 40% or $57.5 million from plan; • we delivered positive cash flows from operations and nearly positive free cash flow in a low price environment while continuing to invest $114.6 million in property, plant and equipment and mine development; • we maintained a strong balance sheet with total liquidity of $243.5 million, consisting of cash and cash equivalents of $211.9 million and $31.6 million available under our ABL Facility; and • we demonstrated an ongoing commitment to returning capital to our stockholders, paying our regular $0.05 per share quarterly dividends. Sales were $761.9 million for the year ended December 31, 2020, compared to $1.2 billion for the year ended December 31, 2019. The $474.1 million decrease in revenues was primarily driven by a $387.9 million decrease related to a $57.60 decrease in the average selling price per metric ton of met coal combined with a $86.2 million decrease due to a 0.5 million metric ton decrease in met coal sales volume. Other revenues for the year ended December 31, 2020 were $20.9 million compared to $32.3 million for the year ended December 31, 2019. Other revenues are comprised of revenue derived from our natural gas operations, as well as earned royalty revenue. The $11.4 million decrease in other revenues is primarily due to a 22% decrease in gas sales driven by a decrease in natural gas prices and production during 2020. Cost of sales (exclusive of items shown separately below) was $625.2 million, or 79.9% of total revenues for the year ended December 31, 2020, compared to $720.7 million, or 56.8% of total revenues for the year ended December 31, 2019. The $95.6 million decrease in cost of sales was primarily driven by a $50.1 million decrease due to a 0.5 million metric ton decrease in met coal sales volumes combined with a $46.1 million decrease due to a $6.84 per metric ton decrease in the average cash cost of sales per metric ton. The decrease in average cash cost of sales per metric ton is primarily due to our variable cost structure in our labor, royalties and logistics contracts that vary in response to changes in met coal prices. Cost of other revenues was $33.7 million for the year ended December 31, 2020, compared to $29.8 million for the year ended December 31, 2019. The $3.9 million increase is primarily due to a net change of $10.4 million in our asset retirement obligation adjustment related to our gas businesses primarily attributable to the net impact of changes in current estimates of the costs and scope of remaining reclamation work, changes in discount rates and fluctuations in projected mine life estimates. This increase is partially offset by a $3.2 million decrease in expenses related to Blue Creek, a $2.2 million decrease in gas cost of sales (excluding asset retirement obligation adjustments) related to the 28% decrease in gas sales driven by natural gas prices and production during 2020, and a $1.0 million decrease in our black lung obligation actuarial adjustment. Depreciation and depletion was $118.1 million, or 15.1% of total revenues, for the year ended December 31, 2020, compared to $97.3 million, or 7.7% of total revenues for the year ended December 31, 2019. The increase in depreciation expense is primarily driven by an increase in the book value of in-service assets. Selling, general and administrative expenses were $32.9 million, or 4.2% of total revenues, for the year ended December 31, 2020 compared to $37.0 million, or 2.9% of total revenues for the year ended December 31, 2019. The $4.1 million decrease in selling, general and administrative expenses is primarily due to decreases in professional services and employee related expenses. Interest expense, net was $32.3 million, or 4.1% of total revenues, for the year ended December 31, 2020, compared to $29.3 million, or 2.3% of total revenues, for the year ended December 31, 2019. The $3.0 million increase was primarily driven by a decrease in interest income of $3.4 million and a $0.6 million increase in interest expense primarily related to the ABL Draw. For the year ended December 31, 2019, we recognized a loss on early extinguishment of debt of $9.8 million upon the extinguishment of $131.6 million of our Notes (as defined below). The loss on early extinguishment of debt represents a 68 premium paid to retire the debt, accelerated amortization of debt discount, net, and fees incurred in connection with the transactions. Other income was $3.5 million, or 0.5% of total revenues, for the year ended December 31, 2020 compared to $22.8 million or 1.8% of total revenues, for the year ended December 31, 2019. In connection with our acquisition of certain core operating assets of Walter Energy, we acquired a receivable owed to Walter Energy by Walter Canada for certain shared services provided by Walter Energy to Walter Canada (the “Shared Services Claim”) and a receivable for unpaid interest owed to Walter Energy from Walter Canada in respect of a promissory note (the “Hybrid Debt Claim”). Each of these claims were asserted by us in the Walter Canada CCAA proceedings. Walter Energy deemed these receivables to be uncollectible for the year ended December 31, 2015 and we did not assign any value to these receivables in acquisition accounting as collectability was deemed remote. In 2019, we received $22.8 million in settlement proceeds for the Shared Services Claim and Hybrid Debt Claim which is reflected as other income in the Statements of Operations. In March 2020, we received an additional $1.8 million in settlement proceeds for the Shared Services Claim and Hybrid Debt Claim which is reflected as other income in the Statements of Operations. The collectability of additional amounts, if any, related to the Shared Services Claim and Hybrid Debt Claim depends on the outcome of, and the timing of any resolution of, the Walter Canada CCAA proceedings and cannot be predicted with certainty During the fourth quarter of 2020, we received $1.7 million in settlement proceeds related to other Walter Energy claims. As with the Walter Canada CCAA claims, we did not assign any value to these receivables in acquisition accounting as collectability was deemed remote. 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% primarily due to a loss recognized before income taxes and a $4.0 million income tax benefit from the 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. For the year ended December 31, 2019, we recognized an income tax expense of $65.4 million or an effective tax rate of 17.8%. In the fourth quarter of 2019, an adjustment of $6.7 million was recorded to recognize additional alternative minimum tax credits, general business credits and net operating losses available to the Company in connection with a settlement agreement between Walter Energy and the Internal Revenue Service. At December 31, 2020, we had federal and state NOLs of approximately $920.7 million and $995.8 million, respectively. 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. Accordingly, we expect to continue to utilize our NOLs and we believe we will not pay any cash federal income taxes for the next six to eight years based on our long-term forecast of met coal prices, sales volumes and performance. Our U.S. federal and state pre-tax net operating loss carryforwards do not begin to expire until 2034 and 2029, respectively. Our general business credits begin to expire in December 31, 2027. See Note 7 of the Notes to the Consolidated Financial Statements for more information. 69 Year Ended December 31, 2019 and 2018 The following table summarizes certain financial information relating to our operating results that have been derived from our audited financial statements for the year ended 2019 and 2018. For the years ended December 31, 2019 % of Total Revenues 2018 % of Total Revenues (in thousands) Revenues: Sales $ 1,235,998 97.5 % 1,342,683 97.4 % Other revenues 32,311 2.5 % 35,324 2.6 % Total revenues 1,268,309 100.0 % 1,378,007 100.0 % Costs and expenses: Cost of sales (exclusive of items shown separately below) 720,745 56.8 % 716,645 52.0 % Cost of other revenues (exclusive of items shown separately below) 29,828 2.4 % 10,172 0.7 % Depreciation and depletion 97,330 7.7 % 97,209 7.1 % Selling, general and administrative 37,014 2.9 % 36,626 2.7 % Transaction and other costs — — % 9,068 70.0 % Total costs and expenses 884,917 69.8 % 869,720 63.1 % Operating income 383,392 30.2 % 508,287 36.9 % Interest expense, net (29,335) (2.3) % (37,314) (2.7) % Loss on early extinguishment of debt (9,756) (8.0) % — — % Other income 22,815 1.8 % — — % Income before income tax expense (benefit) 367,116 28.9 % 470,973 34.2 % Income tax expense (benefit) 65,417 5.2 % (225,814) (16.4) % Net income $ 301,699 23.8 % 696,787 50.6 % Sales, production and cost of sales components on a per unit basis for the year ended 2019 and 2018 were as follows: For the years ended December 31, 2019 2018 Met Coal (metric tons in thousands) Metric tons sold 7,240 6,931 Metric tons produced 7,683 7,017 Gross price realization (1) 98 % 97 % Average net selling price per metric ton $ 170.72 $ 193.72 Cash cost of sales per metric ton $ 99.15 $ 103.35 (1) For the years ended 2019 and 2018, our gross price realization represents a volume weighted-average calculation of our daily realized price per ton based on gross sales, which excludes demurrage and other charges, as a percentage of the Platts Index price. The year ended December 31, 2019 was an outstanding year, as reflected in our record high operational performance and strong financial performance. For the full year of 2019, we produced 7.7 million metric tons of coal and sold 7.2 million metric tons, both of which were record highs for us. We were pleased with our performance in 2019, even in the face of challenging market conditions in the second half of the year. Even with a slowdown in steel production in the latter half of 2019, as well as additional macroeconomic issues in the global economy which significantly impacted pricing, we were still able to execute another year of strong sales volume along with a significant increase in production volume. 70 The following list highlights our key accomplishments for the year ended December 31, 2019: • through strong operational and financial performance, we were able to increase our guidance targets for 2019 and produced and sold record high volumes; • we achieved a record annual sales volume of 7.2 million metric tons and cash cost of sales per metric ton of $99.15; • we recorded our best ever annual production volume of 7.7 million metric tons, while achieving a record low safety incident rate at the mines of 2.30; • we successfully retired $131.6 million aggregate principal amount of our Notes through the Restricted Payment Offer (as defined below) and Tender Offer (as defined below) to permit up to $299.0 million in stockholder returns; • we demonstrated an ongoing commitment to returning capital to our stockholders, including $240.4 million of special dividends and our regular $0.05 per share quarterly dividends; • we implemented the New Stock Repurchase Program (as defined below) of $70.0 million after fully exhausting the First Stock Repurchase Program (as defined below) of $40.0 million and repurchased 0.6 million shares of the Company’s common stock, totaling $12.5 million; • we amended our ABL Facility to generally conform certain definitions with the corresponding definitions of these terms in our indenture governing the Notes; and • we successfully completed five longwall operation moves during 2019. Sales were $1.2 billion for the year ended December 31, 2019, compared to $1.3 billion for the year ended December 31, 2018. The $106.7 million decrease in revenues was primarily driven by a $166.5 million decrease in revenue related to a $23.00 decrease in the average selling price per metric ton of met coal offset partially by a $59.9 million increase in revenue due to a 0.3 million metric ton increase in met coal sales volume. Other revenues for the year ended December 31, 2019 were $32.3 million compared to $35.3 million for the year ended December 31, 2018. Other revenues are comprised of revenue derived from our natural gas operations, as well as earned royalty revenue. The $3.0 million decrease in other revenues is primarily due to an 18% decrease in gas sales driven by a decrease in natural gas prices and production during 2019. Cost of sales (exclusive of items shown separately below) was $720.7 million, or 56.8% of total revenues for the year ended December 31, 2019, compared to $716.6 million, or 52.0% of total revenues for the year ended December 31, 2018. The $4.1 million increase in cost of sales was primarily driven by a $31.9 million increase due to a 0.3 million metric ton increase in met coal sales volumes offset partially by a $30.4 million decrease due to a $4.20 per metric ton decrease in the average cash cost of sales per metric ton. The decrease in average cash cost of sales per metric ton is primarily due to our variable cost structure in our labor, royalties and logistics contracts that vary in response to changes in met coal prices. Cost of other revenues was $29.8 million for the year ended December 31, 2019, compared to $10.2 million for the year ended December 31, 2018. The $19.7 million increase is primarily due to the change in our asset retirement obligation adjustment attributable to the net impact of changes in current estimates of the costs and scope of remaining reclamation work, changes in discount rates and fluctuations in projected mine life estimates. This increase is partially offset by an 18% decrease in gas sales driven by natural gas prices and production during 2019. Depreciation and depletion was $97.3 million, or 7.7% of total revenues, for the year ended December 31, 2019, compared to $97.2 million, or 7.1% of total revenues for the year ended December 31, 2018. The year ended December 31, 2018, included $4.0 million of accelerated depreciation on equipment beyond its economic repair. This was offset by an increase of $4.1 million in capital expenditures combined with an increase in depletion due to an increase in metric tons produced. Selling, general and administrative expenses were $37.0 million, or 2.9% of total revenues, for the year ended December 31, 2019, and remained consistent compared to $36.6 million, or 2.7% of total revenues for the year ended December 31, 2018. 71 Transaction and other costs were $9.1 million, or 0.7% for the year ended December 31, 2018 which was comprised primarily of professional fees incurred in connection with the issuance of the New Notes and the Secondary Equity Offerings. Interest expense, net was $29.3 million, or 2.3% of total revenues, for the year ended December 31, 2019, compared to $37.3 million, or 2.7% of total revenues, for the year ended December 31, 2018. The $8.0 million decrease was primarily driven by the retirement of debt of $131.6 million in the first quarter of 2019. Interest expense, net is comprised of interest on our senior secured notes and amortization of our ABL Facility and senior secured notes debt issuance costs offset partially by earned interest income. For the year ended December 31, 2019, we recognized a loss on early extinguishment of debt of $9.8 million upon the extinguishment of $131.6 million of our Notes (as defined below). The loss on early extinguishment of debt represents a premium paid to retire the debt, accelerated amortization of debt discount, net, and fees incurred in connection with the transactions. Other income was $22.8 million, or 1.8% of total revenues, for the year ended December 31, 2019. In 2019, we received $22.8 million in settlement proceeds for the Shared Services Claim and Hybrid Debt Claim which is reflected as other income in the Statements of Operations. For the year ended December 31, 2019, we recognized income tax expense of $65.4 million or an effective tax rate of 17.8% which was principally offset by the utilization of our NOLs for cash tax purposes. In the fourth quarter of 2019, an adjustment of $6.7 million was recorded to recognize additional alternative minimum tax credits, general business credits and net operating losses available to the Company in connection with a settlement agreement between Walter Energy and the Internal Revenue Service. At December 31, 2019, we had federal and state NOLs of approximately $785.6 million and $860.3 million, respectively. Accordingly, we expect to continue to utilize our NOLs and we believe we will not pay any cash federal income taxes for the next six to eight years based on our long-term forecast of met coal prices, sales volumes and performance. Our U.S. federal pre-tax net operating loss carryforwards do not begin to expire until 2034. For the year ended December 31, 2018 we recognized an income tax benefit of $225.8 million or an effective tax rate of (47.9)%. During the fourth quarter of 2018, we concluded that our deferred income tax assets are more likely than not to be realized. In making such determination, we considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income and our continued strong financial performance which contributed to a cumulative three-year income position. Accordingly, at December 31, 2018, we released all of our valuation allowance against our deferred income tax assets. The release of the valuation allowance primarily resulted in a net income tax benefit of $225.8 million that was recorded in income tax (expense) benefit in our Statements of Operations. On January 14, 2019, the IRS issued a statement that AMT refunds for taxable years beginning after December 31, 2017 will not be subject to sequestration which reversed an earlier IRS announcement that refundable AMT credits would be subject to sequestration. As a result, we completed our accounting for the income tax effects of the Tax Cuts and Jobs Act and recorded a measurement period adjustment recognizing an income tax receivable and related income tax benefit of $2.8 million. As of December 31, 2019, we had a current income tax receivable of $12.9 million and a non-current income tax receivable of $11.3 million. During the third quarter of 2020, the Company received these proceeds. Liquidity and Capital Resources Overview Our sources of cash have been coal and natural gas sales to customers, proceeds received from the Notes (as defined below) and access to our ABL Facility. Historically, our primary uses of cash have been for funding the operations of our coal and natural gas production operations, our capital expenditures, our reclamation obligations, payment of principal and interest on our Notes, professional fees and other non-recurring transaction expenses. In addition, we used available cash on hand to repurchase shares of common stock and to pay our quarterly and special dividends, each of which reduces or reduced cash and cash equivalents. Going forward, we will use cash to fund debt service payments on our Notes, the ABL Facility and our other indebtedness, to fund operating activities, working capital, capital expenditures, and strategic investments, and, if declared, to pay our quarterly and/or special dividends. Our ability to fund our capital needs going forward will depend on our ongoing ability to generate cash from operations and borrowing availability under the ABL Facility, and, in the case of any future 72 strategic investments, capital expenditures, or special dividends financed partially or wholly with debt financing, our ability to access the capital markets to raise additional capital. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on continued stable global economic conditions. In March 2020, the WHO declared the outbreak of COVID-19 a global pandemic. There is significant uncertainty as to the effects of this pandemic on the global economy, which in turn may, among other things, impact our ability to generate positive cash flows from operations, fund capital expenditure needs and successfully execute and fund key initiatives, such as the development of Blue Creek. As events relating to COVID-19 continue to develop globally and impact the capital markets, our liquidity could also be adversely impacted due to possible deterioration in our customers' financial condition and their ability to timely pay outstanding receivables owed to us. Our available liquidity as of December 31, 2020 was $243.5 million, consisting of $211.9 million of cash and cash equivalents and $31.6 million of availability under our ABL Facility. As of December 31, 2020, we had an aggregate principal amount of $40.0 million drawn under the ABL Facility and issued and outstanding letters of credit with a face amount equal to $9.4 million. On March 24, 2020, we borrowed $70.0 million in a partial draw of the ABL Facility (the “ABL Draw”) as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of the current uncertainty resulting from the COVID-19 outbreak. In June 2020, we reduced the outstanding principal amount of the ABL Draw by $30.0 million. We believe that our future cash flows from operations, together with cash on our balance sheet and proceeds from the ABL Draw, will provide adequate resources to fund our debt service payments and planned operating and capital expenditure needs for at least the next twelve months. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued worldwide disruption could materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. If our cash flows from operations are less than we require, we may need to incur additional debt or issue additional equity. From time to time we may need to access the long-term and short-term capital markets to obtain financing. Our access to, and the availability of, financing on acceptable terms and conditions in the future will be affected by many factors, including: (i) our credit ratings, (ii) the liquidity of the overall capital markets, (iii) the current state of the global economy and (iv) restrictions in our ABL Facility, the Indenture (as defined below), and any other existing or future debt agreements. There can be no assurance that we will have or continue to have access to the capital markets on terms acceptable to us or at all. Statements of Cash Flows Cash balances were $211.9 million, $193.4 million and $205.6 million at December 31, 2020, December 31, 2019, and December 31, 2018, respectively. The following table sets forth, a summary of the net cash provided by (used in) operating, investing and financing activities for the period (in thousands): For the years ended December 31, 2020 2019 2018 Net cash provided by operating activities $ 112,626 $ 532,814 $ 559,396 Net cash used in investing activities (108,189) (134,213) (107,629) 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 Operating Activities Net cash flows from operating activities consist of net (loss) income adjusted for noncash items, such as depreciation and depletion of property, plant and equipment and mineral interests, deferred income tax expense (benefit), stock-based compensation, amortization of debt issuance costs and debt discount, net, accretion expense and valuation adjustment associated with our asset retirement obligations, loss on early extinguishment of debt and changes in net working capital. The 73 timing between the conversion of our billed and unbilled receivables into cash from our customers and disbursements to our vendors is the primary driver of changes in our working capital. Net cash provided by operating activities was $112.6 million for the year ended December 31, 2020, and was primarily attributed to a net loss of $35.8 million adjusted for depreciation and depletion expense of $118.1 million, an increase in other operating activities of $19.6 million, stock-based compensation expense of $7.6 million, accretion expense of asset retirement obligations of $3.0 million, amortization of debt issuance costs and debt discount of $1.5 million and a decrease in net working capital of $19.0 million, partially offset by a deferred income tax benefit of $20.1 million and a change in the asset retirement obligation due to a change in estimate of $0.4 million. The decrease in our working capital was primarily attributable to a decrease in income tax receivable and trade accounts receivable combined with an increase in accounts payable offset partially by an increase in inventories combined with a decrease in accrued expenses. The decrease in income tax receivable is due to the alternative minimum tax ("AMT") credit refund of $24.3 million received during the third quarter of 2020. The decrease in trade accounts receivable and increase in inventories is due to a 0.5 million metric ton decrease in met coal sales volume. The increase in our accounts payable is primarily driven by the timing of payments. Net cash provided by operating activities was $532.8 million for the year ended December 31, 2019, and was primarily attributed to net income of $301.7 million adjusted for depreciation and depletion expense of $97.3 million, deferred income tax expense of $68.5 million, an increase in other operating activities of $26.1 million, loss on early extinguishment of debt of $9.8 million, stock-based compensation expense of $5.8 million, accretion expense of asset retirement obligations of $3.2 million, amortization of debt issuance costs and debt discount of $1.4 million, and a decrease in net working capital of $30.2 million, partially offset by a change in asset retirement obligation due to a change in estimate of $11.1 million. The decrease in our working capital was primarily attributable to a decrease in trade accounts receivable combined with a decrease in income tax receivable and an increase in inventories offset by accrued expenses and accounts payable due to decreased fourth quarter production and sales volume. Net cash provided by operating activities was $559.4 million for the year ended December 31, 2018, and was primarily attributed to net income of $696.8 million adjusted for depreciation and depletion expense of $97.2 million, stock based compensation expense of $6.4 million, amortization of debt issuance costs and debt discount of $2.5 million, accretion of asset retirement obligations of $4.6 million, offset partially by an increase in net working capital of $10.7 million, a change in asset retirement obligation due to a change in estimate of $24.6 million and the release of our valuation allowance against deferred income tax assets of $223.0 million. The increase in our working capital was primarily attributable to an increase in trade accounts receivable due to higher sales volumes combined with an increase in income tax receivable offset by an increase in accounts payable and accrued expenses due to increased production and sales volume. Investing Activities Net cash used in investing activities was $108.2 million for the year ended December 31, 2020, primarily comprised of $87.5 million of purchases of property, plant and equipment and $27.1 million of capitalized mine development costs associated with our Mine No. 4 development. We spent approximately $60.0 million in sustaining capital and spent an additional $28.0 million in other discretionary capital, which included primarily the service shaft construction and bathhouse at Mine No. 4. The cash capital expenditures exclude non-cash capital accruals and leases of approximately $44.8 million. Net cash used in investing activities also includes $8.5 million of purchases of short-term investments offset partially by $14.7 million of sales of short-term investments and $0.2 million of proceeds from sale of property, plant and equipment. Net cash used in investing activities was $134.2 million for the year ended December 31, 2019, primarily comprised of $107.3 million of purchases of property, plant and equipment and $23.4 million of capitalized mine development costs associated with our Mine 4 development. We spent approximately $89.0 million in sustaining capital and spent an additional $18.0 million in other discretionary capital, which included primarily the shaft construction at Mine No. 4. The cash capital expenditures exclude non-cash capital accruals and leases of approximately $45.5 million. Net cash used in investing activities also includes $24.2 million of purchases of short-term investments offset partially by $17.5 million of sales of short-term investments and $3.1 million of proceeds from sale of property, plant and equipment. Net cash used in investing activities was $107.6 million for the year ended December 31, 2018, primarily comprised of $101.6 million of purchases of property, plant and equipment and $8.9 million of capitalized mine development costs associated with our Mine 4 development. We spent approximately $69.0 million in sustaining capital and spent an additional $33.0 million in other discretionary capital, which included the construction of a new portal at Mine No. 7. The cash capital expenditures exclude non-cash capital accruals and leases of approximately $6.3 million. 74 Financing Activities Net cash provided by financing activities was $14.1 million for the year ended December 31, 2020, primarily due to the proceeds received from the ABL Draw of $70.0 million offset by the subsequent partial repayment of the ABL Draw in an amount equal to $30.0 million, principal repayments of financing lease obligations of $14.2 million and the payment of dividends of $10.4 million. Net cash used in financing activities was $411.6 million for the year ended December 31, 2019, primarily due to the payment of regular quarterly dividends and the April 2019 Special Dividend totaling $240.4 million in the aggregate, retirements of debt of $140.3 million, repayments of financing lease obligations of $17.3 million, and common shares repurchased of $12.5 million. Net cash used in financing activities was $281.6 million for the year ended December 31, 2018, primarily due to the payment of dividends totaling $360.6 million in the aggregate, common shares repurchased of $38.0 million, payment of debt issuance costs of $3.7 million, retirements of debt of $3.1 million, offset partially by the net proceeds received from the issuance of the New Notes of $128.8 million. Capital Allocation On May 17, 2017, the Board adopted the Capital Allocation Policy of paying a quarterly cash dividend of $0.05 per share. The Capital Allocation Policy states the following: In addition to the regular quarterly dividend and to the extent that the Company generates excess cash that is beyond the then current requirements of the business, the Board may consider returning all or a portion of such excess cash to stockholders through a special dividend or implementation of a stock repurchase program. Any future dividends or stock repurchases will be at the discretion of the Board and subject to consideration of a number of factors, including business and market conditions, future financial performance and other strategic investment opportunities. The Company will also seek to optimize its capital structure to improve returns to stockholders while allowing flexibility for the Company to pursue very selective strategic growth opportunities that can provide compelling stockholder returns. The Company has paid a regular quarterly cash dividend of $0.05 per share every quarter since the Board adopted the Dividend Policy. As of December 31, 2020, the Company has paid $39.5 million of regular quarterly cash dividends under the Dividend Policy. As the Company continues to monitor its liquidity in light of the COVID-19 pandemic, the Company may decide to suspend its Dividend Policy in the future if the Board deems it to be necessary or appropriate. April 2018 Special Dividend On April 3, 2018, the Board declared the April Special Dividend of approximately $350.0 million, which was funded with the net proceeds from the offering of the New Notes due 2024, together with cash on hand of approximately $225.0 million, and was paid on April 20, 2018 to stockholders of record as of the close of business on April 13, 2018. April 2019 Special Dividend On April 23, 2019, the Board declared a special cash dividend of approximately $230.0 million which was paid with cash on hand and was paid on May 14, 2019 to stockholders of record as of the close of business on May 6, 2019. Stock Repurchase Program On March 26, 2019, the Board approved the Company's second stock repurchase program (the “New Stock Repurchase Program”) that authorizes repurchases of up to an aggregate of $70.0 million of the Company's outstanding common stock. The Company fully exhausted its previous stock repurchase program (the "First Stock Repurchase Program") of $40.0 million of its outstanding common stock. The New Stock Repurchase Program does not require the Company to repurchase a specific number of shares or have an expiration date. The New Stock Repurchase Program may be suspended or discontinued by the Board at any time without prior notice. Under the New Stock Repurchase Program, we may repurchase shares of our common stock from time to time, in amounts, at prices and at such times as we deem appropriate, subject to market and industry conditions, share price, regulatory requirements and other considerations as determined from time to time by us. Our repurchases may be executed using open 75 market purchases or privately negotiated transactions in accordance with applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act and repurchases may be executed pursuant to Rule 10b5-1 under the Exchange Act. Repurchases will be subject to limitations in the ABL Facility and the Indenture. We intend to fund repurchases under the New Stock Repurchase Program from cash on hand and/or other sources of liquidity. As of December 31, 2020, we have repurchased 500,000 shares for approximately $10.6 million, leaving approximately $58.8 million of share repurchases authorized under the New Stock Repurchase Program. 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. ABL Facility On April 1, 2016, we entered into the ABL Facility with certain lenders and Citibank, N.A. (together with its affiliates, “Citibank”), as administrative agent and collateral agent, with an aggregate lender commitment of up to $50.0 million, at any time outstanding, subject to borrowing base availability. On October 15, 2018, we entered into an Amended and Restated Asset-Based Revolving Credit Agreement, by and among us and certain of our subsidiaries, as borrowers, the guarantors party thereto, the lenders from time to time party thereto and Citibank, N.A. as administrative agent (in such capacity, the "Agent"), which amended and restated in its entirety the existing ABL Facility and, among other things (i) increased the aggregate commitments available to be borrowed under the ABL Facility to $125.0 million, (ii) extended the maturity date of the ABL Facility to October 15, 2023; (iii) decreased the applicable interest rate margins with respect to the loans and the applicable fees in connection with the issuance of letters of credit; and (iv) amended certain covenants and other terms and provisions. On December 19, 2019, we entered into an Amendment No. 2 to the Amended and Restated Credit Agreement (the “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, solely for purposes of incurring unsecured debt based on the Fixed Charge Coverage Ratio and added customary language in connection 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, 2020, the Company had $40.0 million outstanding 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, we had $31.6 million of availability under the ABL Facility. We intend to retain these funds in cash to preserve liquidity amid the growing uncertainty surrounding the COVID-19 outbreak. The ABL Draw, which is a proactive measure similar to actions taken by other public companies, is one of the Company’s precautionary measures taken to reduce risk during these unprecedented times. Revolving loan (and letter of credit) availability under the ABL Facility is subject to a borrowing base, which at any time is equal to the sum of certain eligible billed and unbilled accounts, certain eligible inventory, certain eligible supplies inventory and qualified cash, in each case, subject to specified advance rates. The borrowing base availability is subject to certain reserves, which may be established by the agent in its reasonable credit discretion. The reserves may include rent reserves, lower of cost or market reserve, port charges reserves and any other reserves that the agent determines in its reasonable credit judgment to the extent such reserves relate to conditions that could reasonably be expected to have an adverse effect on the value of the collateral included in the borrowing base. Subject to permitted exceptions, the obligations of the borrowers under the ABL Facility are guaranteed by each of our domestic subsidiaries and secured by (i) first-priority security interests in the ABL Priority Collateral (as defined in the indenture governing the Notes), which includes, among other things, certain accounts receivables, inventory and cash of ours and the guarantors, and (ii) second-priority security interests in the Notes Priority Collateral (as defined in the indenture governing the Notes), which includes, among other things, material mining properties, shares of capital stock of the guarantors, intellectual property, as extracted collateral (to the extent not constituting inventory), and certain fixed assets of ours and the guarantors. 76 Borrowings under the ABL Facility bear interest at a rate equal to LIBOR or an alternate base rate plus an applicable margin, which is determined based on the average availability of the commitments under the ABL Facility, ranging currently from 150 bps to 200 bps or 50 bps to 100 bps, respectively. In addition to paying interest on the outstanding borrowings under the ABL Facility, we are required to pay a fee in respect of unutilized commitments, which is based on the availability of the commitments under the ABL Facility, ranging from 25 bps to 37.5 bps. We are also required to pay a fee on amounts available to be drawn under outstanding letters of credit under the ABL Facility at a rate not in excess of 200 bps, and certain administrative fees. We are able to voluntarily repay outstanding loans and reduce unused commitments, in each case, in whole or in part, at any time without premium or penalty. We are required to repay outstanding loans and cash collateralize letters of credit anytime the outstanding loans and letters of credit exceed the maximum availability then in effect. We are also required to use net proceeds from certain significant asset sales to repay outstanding loans, but may re-borrow following such prepayments if the conditions to borrowings are met. The ABL Facility contains customary covenants for asset-based credit agreements of this type, including among other things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence of certain indebtedness; (iii) restrictions on the existence or incurrence of certain liens; (iv) restrictions on making certain restricted payments; (v) restrictions on making certain investments; (vi) restrictions on certain mergers, consolidations and asset dispositions; (vii) restrictions on certain transactions with affiliates; and (viii) restrictions on modifications to certain indebtedness. Additionally, the ABL Facility contains a springing fixed charge coverage ratio of not less than 1.00 to 1.00, which ratio is tested if availability under the ABL Facility is less than a certain amount. As of December 31, 2020, we were not subject to this covenant. Subject to customary grace periods and notice requirements, the ABL Facility also contains customary events of default. We were in compliance with all applicable covenants under the ABL Facility as of December 31, 2020. Senior Secured Notes On November 2, 2017, we consummated a private offering (the “Offering”) of $350.0 million aggregate principal amount of 8.00% Senior Secured Notes due 2024 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in accordance with Regulation S under the Securities Act. The Company used the net proceeds of approximately $340.0 million from the Offering, together with cash on hand of approximately $260.0 million, to pay a special cash dividend of approximately $600.0 million, or $11.21 per share, to all of its stockholders on a pro rata basis. On March 1, 2018, we issued $125.0 million in aggregate principal amount of its 8.00% Senior Secured Notes due 2024 (the "New Notes") to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in transactions outside the United States in accordance with Regulation S under the Securities Act ("Regulation S"). The New Notes were issued at103.00% of the aggregate principal amount thereof, plus accrued interest from November 2, 2017. The New Notes were issued as "Additional Notes" under the indenture dated as of November 2, 2017 (the "Original Indenture") among the Company, the subsidiary guarantors party thereto and Wilmington Trust, National Association, as trustee (the "Trustee") and priority lien collateral trustee (the "Priority Lien Collateral Trustee"), as supplemented by the First Supplemental Indenture, dated as of March 1, 2018 (the "First Supplemental Indenture" and, the Original Indenture as supplemented thereby, the "Indenture"). The New Notes have not been and will not be registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Company used the net proceeds of the offering of the New Notes, together with cash on hand of $225.0 million, to pay a special dividend of approximately $350.0 million, or $6.53 per share, to all of its stockholders on a pro rata basis on April 20, 2018. The 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 redeemable at our option, in whole or in part, from time to time, on or after November 1, 2020, at redemption prices specified in the indenture, plus accrued and unpaid interest, if any, to, but excluding the redemption date. We are also required to make offers to purchase the Notes (i) at a purchase price of 101.00% of the principal amount thereof in the event we experience specific kinds of change of control triggering events, (ii) at a purchase price of 103.00% of the principal amount thereof prior to making certain restricted payments, and (iii) at a purchase price of 100.00% of the principal amount thereof in the event we make certain asset sales or dispositions and do not reinvest the net proceeds therefrom or use such net 77 proceeds to repay certain indebtedness, in each case, plus accrued and unpaid interest, if any, to, but excluding the date of purchase. Offer to Purchase the Notes On February 21, 2019, the Company commenced an offer to purchase (the “Restricted Payment Offer”), in cash, up to $150,000,000 principal amount of its outstanding Notes, at a repurchase price of 103% of the aggregate principal amount of such Notes, plus accrued and unpaid interest with respect to such Notes to, but not including, the date of repurchase (the “Restricted Payment Repurchase Price”). Concurrently with, but separate from, the Restricted Payment Offer, the Company commenced a cash tender offer (the “Tender Offer” and, together with the Restricted Payment Offer, the “Offers”) to purchase up to $150,000,000 principal amount of the Notes at a repurchase price of 104.25% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to, but not including, the date of repurchase (the “TO Repurchase Price”). The Offers expired on March 22, 2019 (the “Expiration Date”). Restricted Payment Offer As of the Expiration Date, $1,900,000 aggregate principal amount of the Notes were validly tendered and not validly withdrawn pursuant to the Restricted Payment Offer. Pursuant to the terms of the Restricted Payment Offer: (1) an automatic pro ration factor of 31.5789% was applied to the $1,900,000 aggregate principal amount of the Notes that were validly tendered and not validly withdrawn in the Restricted Payment Offer (rounded down to avoid the purchase of Notes in a principal amount other than in integrals of $1,000), which resulted in $599,000 aggregate principal amount of the Notes (the “RP Pro-Rated Tendered Notes”); (2) the Company accepted all $599,000 aggregate principal amount of the RP Pro-Rated Tendered Notes for payment of the Restricted Payment Repurchase Price in cash; and (3) the remaining balance of $1,301,000 aggregate principal amount of the Notes tendered that were not RP Pro- Rated Tendered Notes were not accepted for payment and were returned to the tendering holder of the Notes. The Company consummated the Restricted Payment Offer on March 25, 2019. Accordingly, pursuant to the terms of the Indenture, the Company was permitted to make one or more restricted payments in the form of special dividends to holders of the Company’s common stock and/or repurchases of the Company’s common stock in the aggregate amount of up to $299,401,000 (the "RP Basket") without having to make another offer to repurchase Notes. The Company used a portion of the RP Basket to pay the April 2019 Special Dividend (as defined below) and intends to use the remainder of the RP Basket to make repurchases under the New Stock Repurchase Program (as defined below). Tender Offer As of the Expiration Date, $415,099,000 aggregate principal amount of the Notes were validly tendered and not validly withdrawn pursuant to the Tender Offer. Pursuant to the terms of the Tender Offer: (1) an automatic pro ration factor of 31.5789% was applied to the $415,099,000 aggregate principal amount of the Notes that were validly tendered and not validly withdrawn in the Tender Offer (rounded down to avoid the purchase of Notes in a principal amount other than in integrals of $1,000), which resulted in $130,966,000 aggregate principal amount of the Notes (the “TO Pro-Rated Tendered Notes”); (2) the Company accepted all $130,966,000 aggregate principal amount of the TO Pro-Rated Tendered Notes for payment of the TO Repurchase Price in cash; and (3) the remaining balance of $284,133,000 aggregate principal amount of the Notes tendered that were not TO Pro-Rated Tendered Notes were not accepted for payment and were returned to the tendering holder of the Notes. The Company consummated the Tender Offer on March 26, 2019. In connection with the payments for the RP Pro-Rated Tendered Notes and the TO Pro-Rated Tendered Notes, the Company recognized a loss on early extinguishment of debt of $9.8 million during the year ended December 31, 2019. 78 Short-Term Investments During the year ended December 31, 2020, we had $17.0 million of surety bonds with $8.5 million of collateral recognized as short term investments. These investments were posted as collateral for the self-insured black lung related claims asserted by or on behalf of former employees of Walter Energy and its subsidiaries, which were assumed in the acquisition of certain assets of Walter Energy and relate to periods prior to March 31, 2016. Capital Expenditures Our mining operations require investments to maintain, expand, upgrade or enhance our operations and to comply with environmental regulations. Maintaining and expanding mines and related infrastructure is capital intensive. Specifically, the exploration, permitting and development of met coal reserves, mining costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations require ongoing capital expenditures. While a significant amount of the capital expenditures required at our mines has been spent, we must continue to invest capital to maintain our production. In addition, any decisions to increase production at our mines and the development of the high-quality met coal recoverable reserves at Blue Creek could also affect our capital needs or cause future capital expenditures to be higher than in the past and/or higher than our estimates. To fund our capital expenditures, we may be required to use cash from our operations, incur debt or sell equity securities. Our ability to obtain bank financing or our ability to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering and the covenants in our current or future debt agreements, as well as by general economic conditions, contingencies and uncertainties, including as a result of the COVID-19 pandemic that are beyond our control. Our capital expenditures were $87.5 million and $107.3 million for the year ended December 31, 2020 and December 31, 2019, respectively. This represents the continuation of the capital investment program that we implemented in 2017 to upgrade all key production equipment to further improve efficiency and reliability of our mining operations. We spent approximately $60.0 million in sustaining capital and an additional $28.0 million in other discretionary capital, which included primarily the service shaft construction and bathhouse at Mine No. 4. The capital expenditures exclude non-cash capital accruals and leases of approximately $44.8 million. Our deferred mine development costs were $27.1 million and $23.4 million for the years ended December 31, 2020 and December 31, 2019, respectively, and relate to Mine No. 4. We evaluate our spending on an ongoing basis in connection with our mining plans and the prices of met coal taking into consideration the funding available to maintain our operations at optimal production levels. 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 79 availability of the NOLs or is otherwise in the best interests of the Company. The Board may redeem the Rights for $0.01 per Right at any time before any person or group triggers the Rights Agreement. The distribution of the Rights is not a taxable event for stockholders of the Company and will not affect the Company’s’ financial condition or results of operations (including earnings per share). The Rights will expire on the earliest of (i) the close of business on February 14, 2023,(ii) the close of business on the first anniversary of the date of entry into the Rights Agreement, if stockholder approval of the Rights Agreement has not been received by or on such date, (iii) the time at which the Rights are redeemed as provided in the Rights Agreement, (iv) the time at which the Rights are exchanged as provided in the Rights Agreement, (v) the time at which the Board determines that the NOLs are fully utilized or no longer available under Section 382 of the Code, (vi) the effective date of the repeal of Section 382 of the Code if the Board determines that the Rights Agreement is no longer necessary or desirable for the preservation of NOLs, or (vii) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in the Rights Agreement. Additional details about the Rights Agreement is contained in the Company’s Current Report on Form 8-K filed with the SEC on February 14, 2020. Designation of Series A Junior Participating Preferred Stock In connection with the adoption of the Rights Agreement, the Board approved a certificate of designations of Series A Junior Participating Preferred Stock designating 140,000 shares of preferred stock, which was filed on February 14, 2020 with the Secretary of State of the State of Delaware and became effective on such date. Each one one-thousandth of a share of Series A Junior Participating Preferred Stock, if issued: • will not be redeemable; • will entitle the holder to quarterly dividend payments equal to the dividend paid on one share of common stock; • will entitle the holder upon liquidation, dissolution or winding-up of the Company to receive the greater of (a) $0.01 per one one-thousandth of a share of Series A Junior Participating Preferred Stock (plus any accrued but unpaid dividends) and (b) an amount equal to the payment made on one share of common stock; • will have the same voting power as one share of common stock; and • if shares of common stock are exchanged via merger, consolidation, or a similar transaction, will entitle the holder to a payment equal to the payment made on one share of Common Stock. Blue Creek We believe that Blue Creek represents one of the few remaining untapped reserves of premium High Vol A met coal in the United States and that it has the potential to provide us with meaningful growth. We believe that the combination of a low production cost and the high quality of the High Vol A met coal mined from Blue Creek, assuming we achieve our expected price realizations, will generate some of the highest met coal margins in the U.S., generate strong investment returns for us and achieve a rapid payback of our investment across a range of met coal price environments. According to our third party reserve report, Blue Creek contains approximately 103.0 million metric tons of recoverable reserves and we have the ability to acquire adjacent reserves that would increase total reserves to over 154 million metric tons. We expect that Blue Creek will have a mine life of approximately 50 years assuming a single longwall operation. Our third-party reserve report also indicates that, once developed, Blue Creek will produce a premium High Vol A met coal that is characterized by low-sulfur and high CSR. High Vol A met coal has traditionally priced at a discount to the Australian Premium Low Vol and the U.S. Low Vol coals; however, in the last eighteen months, it has been priced at or slightly above these coals. Warrior expects High Vol A coals will continue to become increasingly scarce as a result of Central Appalachian producers mining thinner and deeper reserves, which we expect will continue to support prices. This trend creates an opportunity for us to take advantage of favorable pricing dynamics driven by the declining supply of premium High Vol A met coal. If we are able to successfully develop Blue Creek, we expect that it will be a transformational investment for us. We expect that the new single longwall mine at Blue Creek will have the capacity to produce an average of 3.9 million metric tons 80 per annum of premium High Vol A met coal over the first ten years of production, thereby increasing our annual production capacity by 54%. This, in turn, would expand our product portfolio to our global customers by allowing us to offer three premium hard coking coals from a single port location. Given these factors, and assuming we achieve expected price realizations, we believe that we will achieve some of the highest premium met coal margins in the United States. The COVID-19 pandemic has substantially affected national and international financial markets, which could affect our ability to obtain financing for Blue Creek. The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the geographic spread of the virus, the severity of the disease, the duration of the outbreak, the actions that may be taken by various governmental authorities in response to the outbreak and the impact on the U.S. or global economy. As a result of this uncertainty, the Company initially delayed spending the $25.0 million that we budgeted for the development of the Blue Creek project until at least July 1, 2020 and has now further delayed the development of that project until at least summer 2021. Outlook As a result of the COVID-19 pandemic and the unprecedented period of uncertainty, including the unknown duration and overall impact on our operations and the global economy, we withdrew our full-year 2020 guidance issued on February 19, 2020. Due to the ongoing uncertainty related to the COVID-19 pandemic, we will not provide full year 2021 guidance at this time. Although we are aggressively managing our response to the recent COVID-19 pandemic, its impact on our full-year fiscal 2021 results and beyond is uncertain. The Company is taking a more conservative approach to managing its cash flow given this uncertainty, and is carefully managing operating expenses, working capital, and capital expenditures during this period, as well as suspending our New Stock Repurchase Program. We have also implemented extensive preventative measures across all operations in order to safeguard the health of our employees. This includes among other things: eliminating business travel, staggering manbuses, cage and shift start times to allow for social distancing, enhanced disinfectant cleaning at all locations, maintaining antibacterial supplies at all locations, providing employees with mask, gloves and other gear, eliminating visitors or vendors on property without strict screening process and testing temperatures of all employees. We believe that the most significant elements of uncertainty are the intensity and duration of the impact on the global steel industry, primarily due to restrictions to contain the virus. However, we believe the execution of our strategy will continue to provide attractive opportunities for profitable growth in the long term following the recovery of the global economy from the effects of the COVID-19 pandemic. Contractual Obligations The following is a summary of our significant contractual obligations at December 31, 2020. Payments due by Year Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years (in thousands) Senior Secured Notes (principal and interest) (1) $ 451,045 27,475 54,950 368,620 — Minimum throughput obligations (2) $ 426,999 95,874 150,267 153,133 27,725 Royalty obligations (3) $ 81,389 5,999 11,879 11,879 51,632 Black lung obligations (4) $ 82,143 2,367 5,123 4,845 69,808 Asset retirement obligations (4) $ 78,752 4,375 4,247 6,432 63,698 Financing lease obligations (5) $ 42,894 16,276 23,330 3,288 — Total contractual obligations $ 1,163,222 $ 152,366 $ 249,796 $ 548,197 $ 212,863 (1) Represents principal and interest payments on our Notes. See Note 13 to our consolidated financial statements. (2) Represents minimum throughput obligations with our rail and port providers. (3) We have obligations on various coal and land leases to prepay certain amounts, which are recoupable in future years when mining occurs. (4) Represents estimated costs for black lung and asset retirement obligations, which have been presented on an undiscounted basis. (5) Represents a financing lease obligation for the purchase of underground mining equipment. See Note 14 to our consolidated financial statements. 81 Off-Balance Sheet Arrangements In the ordinary course of our business, we are required to provide surety bonds and letters of credit to provide financial assurance for certain transactions and business activities. Federal and state laws require us to obtain surety bonds or other acceptable security to secure payment of certain long-term obligations including mine closure or reclamation costs and other miscellaneous obligations. As of December 31, 2020, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our mining operations totaling $40.8 million, $17.0 million as collateral for self-insured black lung related claims and $3.6 million for miscellaneous purposes. Critical Accounting Policies and Estimates The financial statements are prepared in conformity with GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the period presented. Management evaluates these estimates and assumptions on an ongoing basis, using historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from management’s estimates. We believe the following discussion addresses our most critical accounting estimates, which are those that are most important to the presentation of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are based upon management’s historical experience and on various other assumptions that we believe reasonable under the circumstances. Changes in estimates used in these and other items could have a material impact on our financial statements. Our significant accounting policies are described in Note 2 to our financial statements included elsewhere in this Annual Report. Coal Reserves There are numerous uncertainties inherent in estimating quantities and values of economically recoverable coal reserves, including many factors that are beyond our control. As a result, estimates of economically recoverable coal reserves are by their nature uncertain. Information about our reserves consists of estimates based on engineering, economic and geological data assembled by our internal engineers and geologists or third-party consultants. A number of sources of information are used to determine accurate recoverable reserve estimates including: • geological conditions; • historical production from the area compared with production from other producing areas; • the assumed effects of regulations and taxes by governmental agencies; • previously completed geological and reserve studies; • assumptions governing future prices; and • future operating costs. Some of the factors and assumptions, which will change from time to time, that impact economically recoverable reserve estimates include, among other factors: • mining activities; • new engineering and geological data; • acquisition or divestiture of reserve holdings; and • modification of mining plans or mining methods. Each of these factors may vary considerably from the assumptions used in estimating reserves. For these reasons, estimates of economically recoverable quantities of coal attributable to a particular group of properties, and classifications of 82 these reserves based on risk of recovery and estimates of future net cash flows, may vary substantially. Actual production, revenues and expenditures with respect to reserves will likely vary from estimates and these variances may be material. Variances could affect our projected future revenues and expenditures, as well as the valuation of coal reserves and depletion rates. As of December 31, 2020, we had 210.4 million metric tons of proven and probable coal reserves. Asset Retirement Obligations Our asset retirement obligations primarily consist of spending estimates to reclaim surface lands and supporting infrastructure at both surface and underground mines in accordance with applicable reclamation laws in the United States as defined by each mining permit. Significant reclamation activities include reclaiming refuse piles and slurry ponds, reclaiming the pit and support acreage at surface mines, and sealing portals at underground mines. Asset retirement obligations are determined for each mine using various estimates and assumptions, including estimates of disturbed acreage as determined from engineering data, estimates of future costs to reclaim the disturbed acreage and the timing of related cash flows, discounted using a credit-adjusted, risk-free rate. Our asset retirement obligations also include estimates to reclaim gas wells in accordance with the Oil and Gas Board of Alabama. On at least an annual basis, we review our entire asset retirement obligation liability and make necessary adjustments for permit changes, the anticipated timing of mine closures, and revisions to cost estimates and productivity assumptions to reflect current experience. As changes in estimates occur, the carrying amount of the obligation and asset are revised to reflect the new estimate after applying the appropriate credit-adjusted, risk-free discount rate. For sites where there is no asset, expense or income is recognized for changes in estimates. If our assumptions differ from actual experience, or if changes in the regulatory environment occur, our actual cash expenditures and costs that we incur could be materially different than currently estimated. At December 31, 2020, we had recorded asset retirement obligation liabilities of $61.9 million, including $4.4 million reported as current. Income Taxes As a result of the acquisition of certain assets of Walter Energy, we have significant federal and state NOLs of approximately $920.7 million and $995.8 million, respectively, as of December 31, 2020. We believe the utilization of these NOLs, subject to certain limitations, will significantly reduce the amount of federal and state income taxes payable by us for the foreseeable future as compared to what we would have had to pay at the statutory rates without these NOL benefits. Under Section 382 of the Code, these NOLs could be subject to annual limitations, further limitations, or elimination, as described below, if we were to undergo a subsequent ownership change in the future. To the extent we have taxable income in the future and can utilize these NOL carryforwards, subject to certain limitations, to reduce taxable income, our cash taxes will be significantly reduced in those future years. Notwithstanding the above, even if all of our regular U.S. federal income tax liability for a given year is reduced to zero by virtue of utilizing our NOLs, we may still be subject to state, local or other non-federal income taxes. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business—We may be unable to generate sufficient taxable income from future operations, or other circumstances could arise, which may limit or eliminate our ability to utilize our significant tax NOLs or maintain our deferred tax assets.” On September 18, 2017, the IRS issued to us a private letter ruling, which favorably resolved certain questions about our ability to qualify for an exception to the annual limitations under Section 382 of the Code on the utilization of NOLs to reduce taxable income. Based on such private letter ruling, we believe that there is no limitation on the utilization of our NOLs to shield our income from federal taxation. The private letter ruling was issued based on, among other things, certain facts and assumptions, as well as certain representations, statements and undertakings provided to the IRS by us. If any of these facts, assumptions, representations, statements or undertakings are, or become, incorrect, inaccurate or incomplete, the private letter ruling may be invalid and the conclusions reached therein could be jeopardized. If we were to undergo a subsequent ownership change, our ability to utilize our NOLs and other tax attributes could be subject to severe limitations. GAAP requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are required to be reduced by a valuation allowance if it is “more likely than not” that some portion or the entire deferred tax asset will not be realized. In our evaluation of the need for a valuation allowance on our deferred tax assets, we consider, among other things, all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, the overall business environment, our historical financial results, our industry's historically cyclical financial results, our cumulative three-year income or loss position and potential current and future tax planning strategies. 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 83 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. Recently Adopted Accounting Standards See Note 2 of our consolidated financial statements for disclosures related to new accounting pronouncements. 84