# WARRIOR MET COAL, INC. (HCC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from WARRIOR MET COAL, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1691303/000169130324000008/hcc-20231231.htm
Accession: 0001691303-24-000008
Filing date: 2024-02-14
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/HCC/
All MD&A years: /company/HCC/mda/
Previous year: /company/HCC/mda/fy2022/ (FY 2022)
Next year: /company/HCC/mda/fy2024/ (FY 2024)

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, 2023 and December 31, 2022. 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.”

For a discussion and analysis of our results of operations and financial condition for the year ended December 31, 2021, please refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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 steelmaking 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 steelmaking 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, 2023, Mine No. 4 and Mine No. 7, our two operating mines, had approximately 82.9 million metric tons of recoverable reserves and our undeveloped Blue Creek mine contained 67.6 million metric tons of recoverable reserves and 39.7 million metric tons of coal resources exclusive of reserves, which total 107.3 million metric tons. As a result of our high-quality coal, our Mine No. 7 steelmaking coal realized price has historically been in line with, or at a slight discount to, the Platts Premium Low Volatility ("LV") Free-On-Board Australian Index (the "S&P Platts Index"). Our Mine No. 4 steelmaking coal transitioned in the second half of the year from a Mid Vol to a High Vol A quality that typically trades at a larger discount to the price of coal from Mine No. 7. We now primarily target the East Coast High Vol A indices price for our Mine No. 4 coal. Our steelmaking coal, mined from the Southern Appalachian portion of the Blue Creek coal seam, is characterized by low sulfur, low-to-medium ash, and Low Vol to High Vol. These qualities make our coal ideally suited as a coking coal for the manufacture of steel.

We sell substantially all of our steelmaking coal production to steel producers. Steelmaking coal, which is converted to coke, is a critical input in the steel production process. Steelmaking 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 steelmaking 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 steelmaking coal, which would have a material adverse effect upon our business. Similarly, if alternative ingredients are used in substitution for steelmaking coal in the integrated steel mill process, the demand for steelmaking coal would materially decrease, which could also materially adversely affect demand for our steelmaking coal.

Recent Developments

U.S. inflation remains at 3.4%, driven by increased energy and food costs, supply constraints and strong consumer demand. High inflation has been driven by growth in the economy as it bounces back from the novel coronavirus ("COVID-19"), powered in part by low interest rates and government stimulus to counter the pandemic's impact. While we expect inflation to continue to ease in the overall economy during 2024, we have not seen it easing in the coal mining industry and expect that inflation will continue to negatively impact our profitability, as we expect inflation to remain high for steel prices, freight rates, labor and other materials and supplies. Inflation affects, among others, the costs of belt structure, roof bolts, cable, magnetite, rock dust and other supplies, plus labor and parts on equipment repair and rebuilds.

The continued war in Ukraine, the conflict in the Middle East and the global macroeconomic slowdown in the economy created a volatile year for steel demand and for premium steelmaking coal. Seaborne steelmaking coal supply continues to be impacted by production cuts, seasonal rainfall in Australia and impacts from cyclones in Australia. According to WoodMac, for the nine months ended September 30, 2023, seaborne steelmaking coal supply out of Australia was down 6.2% compared to 2022 and 19.2% compared to 2019. During this period of declining supply, demand for premium

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steelmaking coal has increased, led by India and Southeast Asia. We expect that demand in India and Southeast Asia will continue to increase driven by their increased demand for high-quality steel and due to these countries having limited domestic resources. Further, we expect the demand for premium high-quality steelmaking coal to increase as steel producers remain focused on reducing carbon emissions in blast furnaces as well as improving yields and steel quality. Due to the supply constraints described above coupled with the increased demand, we expect premium steelmaking coal price premiums to remain strong in the near term.

Collective Bargaining Agreement

Our CBA contract with the United Mine Workers of America (“UMWA”) expired on April 1, 2021 and the labor union initiated a strike after an agreement on a new contract was not reached. As a result of the strike, we initially idled Mine No. 4 and scaled back operations at Mine No. 7. In the first quarter of 2022, we restarted operations at Mine No. 4. Due to the reduced operations at Mine No. 4 and Mine No. 7, we incurred idle mine expenses of $12.1 million and $33.9 million for the years ended December 31, 2022 and December 31, 2021, respectively. These expenses are reported separately in the Statements of Operations and represent expenses incurred while the respective mine was idled or operating below normal capacity, such as electricity, insurance and maintenance labor. We incurred business interruption expenses of approximately $8.3 million, $23.5 million and $21.4 million for the years ended December 31, 2023, December 31, 2022, and December 31, 2021, respectively, which represent non-recurring expenses that were directly attributable to the labor strike for incremental safety and security, labor negotiations and other expenses. These expenses are also presented separately in the Statements of Operations. On February 16, 2023, the labor union representing certain of our hourly employees announced that they were ending the strike and made an unconditional offer to return to work. The return-to-work process for eligible employees who wished to return to work which began in February has been completed. We continue to engage in good faith efforts with the labor union to reach an agreement on a new contract.

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" or "Warrior").

How We Evaluate Our Operations

Our primary business, the mining and exporting of steelmaking 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, royalties from our leased properties and the business results related to the Blue Creek mine development. 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.

[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["","2023","","2022","","2021"],["(in thousands)"],["Segment Adjusted EBITDA","$","737,723","","","$","996,974","","","$","474,001"],["Metric tons sold","6,820","","","5,099","","","5,699"],["Metric tons produced","6,936","","","5,729","","","5,084"],["Average net selling price per metric ton","$","241.64","","","$","334.89","","","$","180.43"],["Cash cost of sales per metric ton","$","132.60","","","$","138.35","","","$","96.43"],["Adjusted EBITDA","$","698,866","","","$","994,221","","","$","457,008"]]
[[/GREPCENT_TABLE]]

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Segment Adjusted EBITDA

We define Segment Adjusted EBITDA as net income adjusted for other revenues, cost of other revenues, depreciation and depletion, selling, general and administrative expenses, business interruption expenses, idle mine expenses, loss on early extinguishment of debt, other (expense) income, net interest (income) expense, income tax expense 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 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 steelmaking coal markets and the amounts of Low Vol and High Vol A coal that we sell. We evaluate the price we receive for our coal based on our average net selling price per metric ton.

Our average net selling price per metric ton represents our coal net sales revenue divided by total metric tons of coal sold. In addition, our average net selling price per metric ton is net of the previously mentioned demurrage and quality specification adjustments.

Cash Cost of Sales

We evaluate our cash cost of sales on a cost per metric ton basis. Cash cost of sales is based on reported cost of sales and includes items such as freight, royalties, manpower, fuel and other similar production and sales cost items, and may be adjusted for other items that, pursuant to GAAP, are classified in the Statements of Operations as costs other than cost of sales, but relate directly to the costs incurred to produce steelmaking 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 steelmaking 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

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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.

[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["","2023","","2022","","2021"],["(in thousands)"],["Cost of sales","$","910,269","","","$","710,605","","","$","554,282"],["Asset retirement obligation accretion and valuation adjustment","(2,109)","","","(1,801)","","","(2,802)"],["Stock compensation expense","(3,841)","","","(3,379)","","","(1,917)"],["Cash cost of sales","$","904,319","","","$","705,425","","","$","549,563"]]
[[/GREPCENT_TABLE]]

Adjusted EBITDA

We define Adjusted EBITDA as net income before net interest (income) expense, income tax expense, depreciation and depletion, non-cash asset retirement obligation accretion and valuation adjustments, non-cash stock compensation expense, other non-cash accretion and valuation adjustments, non-cash mark-to-market (gain) loss on gas hedges, loss on early extinguishment of debt, business interruption expenses, idle mine expenses 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.

We believe that the presentation of Adjusted EBITDA in this Annual Report provides information useful to investors in assessing our financial condition and results of operations. The GAAP measure most directly comparable to Adjusted EBITDA is net income. Adjusted EBITDA should not be considered an alternative to net income or loss or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjustments exclude some, but not all, items that affect net 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 income, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated.

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[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["","2023","","2022","","2021"],["(in thousands)"],["Net income","$","478,629","","","$","641,298","","","$","150,881"],["Interest (income) expense, net","(22,739)","","","18,995","","","$","35,389"],["Income tax expense","$","72,790","","","141,806","","","49,096"],["Depreciation and depletion","127,356","","","115,279","","","141,418"],["Asset retirement obligation accretion and valuation adjustment (1)","4,535","","","1,941","","","3,427"],["Stock compensation expense (2)","18,300","","","17,621","","","9,370"],["Other non-cash accretion and valuation adjustments (3)","205","","","(5,344)","","","1,881"],["Non-cash mark-to-market loss on gas hedges (4)","(1,227)","","","27,708","","","1,595"],["Loss on early extinguishment of debt (5)","11,699","","","\u2014","","","9,678"],["Business interruption (6)","8,291","","","23,455","","","21,372"],["Idle mine (7)","\u2014","","","12,137","","","33,899"],["Other (expense) income (8)","1,027","","","(675)","","","(998)"],["Adjusted EBITDA","$","698,866","","","$","994,221","","","$","457,008"]]
[[/GREPCENT_TABLE]]

(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 (see Note 12 to our consolidated financial statements).

(3)Represents non-cash accretion expense and valuation adjustments associated with our black lung obligations (see Note 10 to our consolidated financial statements).

(4)Represents non-cash mark-market losses recognized on our gas hedges (see Note 17 to our consolidated financial statements).

(5)Represents a loss incurred in connection with the early extinguishment of debt (see Note 13 to our consolidated financial statements).

(6)Represents business interruption expenses associated with the UMWA strike.

(7)Represents idle mine expenses incurred in connection with reduced operations at Mine No 4 and Mine No. 7.

(8)Represents non-recurring expenses incurred in connection with the ransomware attack discovered by the Company on July 29, 2023, proceeds received upon settlement of a lawsuit, COVID-19 pandemic related expenses and proceeds received upon settlement of a lawsuit and 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).

Results of Operations

Year Ended December 31, 2023 and 2022

The following table summarizes certain financial information relating to our operating results that have been derived from our audited financial statements for the years ended December 31, 2023 and 2022.

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[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["(in thousands)","2023","","% of Total Revenues","","2022","","% of Total Revenues"],["Revenues:"],["Sales","$","1,647,992","","","98.3","%","","$","1,707,579","","","98.2","%"],["Other revenues","28,633","","","1.7","%","","31,159","","","1.8","%"],["Total revenues","1,676,625","","","100.0","%","","1,738,738","","","100.0","%"],["Costs and expenses:"],["Cost of sales (exclusive of items shown separately below)","910,269","","","54.3","%","","710,605","","","40.9","%"],["Cost of other revenues (exclusive of items shown separately below)","37,486","","","2.2","%","","27,047","","","1.6","%"],["Depreciation and depletion","127,356","","","7.6","%","","115,279","","","6.6","%"],["Selling, general and administrative","51,817","","","3.1","%","","48,791","","","2.8","%"],["Business interruption","8,291","","","0.5","%","","23,455","","","1.3","%"],["Idle mine","\u2014","","","\u2014","%","","12,137","","","0.7","%"],["Total costs and expenses","1,135,219","","","67.7","%","","937,314","","","53.9","%"],["Operating income","541,406","","","32.3","%","","801,424","","","46.1","%"],["Interest expense","(17,960)","","","(1.1)","%","","(31,433)","","","(1.8)","%"],["Interest income","40,699","","","2.4","%","","12,438","","","0.7","%"],["Loss on early extinguishment of debt","(11,699)","","","(0.7)","%","","\u2014","","","\u2014","%"],["Other (expense) income","(1,027)","","","(0.1)","%","","675","","","\u2014","%"],["Income before income tax expense","551,419","","","32.9","%","","783,104","","","45.0","%"],["Income tax expense","$","72,790","","","4.3","%","","141,806","","","8.2","%"],["Net income","$","478,629","","","28.5","%","","$","641,298","","","36.9","%"]]
[[/GREPCENT_TABLE]]

Sales, production and cost of sales components on a per unit basis for the years ended December 31, 2023 and 2022 were as follows:

[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["","2023","","2022"],["Steelmaking Coal (metric tons in thousands)"],["Metric tons sold","6,820","","","5,099"],["Metric tons produced","6,936","","","5,729"],["Average net selling price per metric ton","$","241.64","","","$","334.89"],["Cash cost of sales per metric ton","$","132.60","","","$","138.35"],["Cost of production %","60","%","","53","%"],["Transportation and royalties %","40","%","","47","%"]]
[[/GREPCENT_TABLE]]

The following list highlights our key accomplishments for the year ended December 31, 2023:

•we achieved strong net income of $478.6 million, or $9.20 per diluted share and adjusted EBITDA of $698.9 million;

•we achieved annual sales volumes of 6.8 million metric tons, a 34% increase compared to the prior year, and production volume of 6.9 million metric tons, a 21% increase compared to the prior year, which represent run rates not seen since 2020;

•we delivered positive cash flows from operations of $701.1 million and free cash flow of $176.3 million while continuing to invest a record high $524.8 million in property, plant and equipment and mine development and retired early approximately 50% of our senior secured notes;

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•we maintained a strong balance sheet with total liquidity of $845.6 million, consisting of cash and cash equivalents of $738.2 million and $107.4 million available under our ABL Facility;

•we made excellent progress in developing our world class Blue Creek growth project, which remains on schedule and invested $319.1 million for the year ended December 31, 2023;

•we achieved a total reportable incidence rate of 1.90, which is 57% lower than the national total reportable incidence rate for all underground coal mines in the United States of 4.39 for the nine months ended September 30, 2023, which represents the latest data available; and

•we demonstrated an ongoing commitment to returning capital to our stockholders paying a regular quarterly dividend of $0.07 per share, an increase of approximately 17% compared to the prior year and special dividends of $0.88 per share.

Sales were $1.6 billion for the year ended December 31, 2023, compared to $1.7 billion for the year ended December 31, 2022. The $59.6 million decrease in sales was primarily driven by a $635.9 million decrease related to a $93.25 decrease in the average net selling price per metric ton of steelmaking coal offset partially by a $576.3 million increase due to a 34% or 1.7 million metric ton increase in steelmaking coal sales volume. The 34% increase in sales volumes was driven by increased production due to both Mine No. 4 and Mine No. 7 operating at higher capacity levels combined with improved performance by our rail transportation provider and the McDuffie Terminal. While we continued to achieve some of the highest prices for our premium Mine No. 7 Low Vol steelmaking coal, our Mine No. 4 steelmaking coal transitioned in the second half of the year from Mid Vol to a High Vol A quality that typically trades at a larger discount to the price of coal from Mine No. 7.

For the year ended December 31, 2023, the Company's geographic customer mix was 48% in Europe, 29% in Asia, 21% in South America and 2% in the U.S. For the year ended December 31, 2022, the Company's geographic customer mix was 61% in Europe, 20% in Asia and 19% in South America.

Other revenues for the year ended December 31, 2023 were $28.6 million compared to $31.2 million for the year ended December 31, 2022. Other revenues are comprised of revenue derived from our natural gas operations, gains and losses on our natural gas hedges and earned royalty revenue. The $2.5 million decrease in other revenues is primarily driven by a decrease in gas revenues of $26.5 million related to a $4.24 or 60% decrease in the Southern Louisiana natural gas price average partially offset by a $28.9 million loss recognized in the prior year on the fair value adjustment related to our natural gas swap contracts.

Cost of sales (exclusive of items shown separately below) was $910.3 million, or 54.3% of total revenues for the year ended December 31, 2023, compared to $710.6 million, or 40.9% of total revenues for the year ended December 31, 2022. The $199.7 million increase in cost of sales was primarily driven by a $238.1 million increase due to a 34% or 1.7 million metric ton increase in steelmaking coal sales volumes offset partially by a $39.2 million decrease due to a $5.75 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 decreased transportation and royalty costs driven by lower average net selling prices and its impact on our transportation and royalty costs partially offset by higher labor costs due to the returning employees from the labor strike.

Cost of other revenues was $37.5 million for the year ended December 31, 2023, compared to $27.0 million for the year ended December 31, 2022. The $10.4 million increase is primarily due to an increase in gas compression costs, asset retirement obligation accretion expense and a decrease of approximately of $5.2 million in our black lung obligation valuation adjustment benefit recorded annually in the fourth quarter primarily attributable to changes in discount rates and claims history.

Depreciation and depletion was $127.4 million, or 7.6% of total revenues, for the year ended December 31, 2023, compared to $115.3 million, or 6.6% of total revenues for the year ended December 31, 2022. The $12.1 million increase in depreciation and depletion is primarily driven by a 34% or 1.7 million metric ton increase in steelmaking coal sales volumes as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Selling, general and administrative expenses were $51.8 million, or 3.1% of total revenues for the year ended December 31, 2023 compared to $48.8 million, or 2.8% of total revenues for the year ended December 31, 2022. The $3.0 million increase in selling, general and administrative expenses is primarily driven by an increase in employee related expenses.

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Business interruption expenses were $8.3 million, 0.5% of total revenues for the year ended December 31, 2023, compared to $23.5 million, or 1.3% of total revenues for the year ended December 31, 2022. These expenses decreased compared to the prior period primarily due to the end of the labor strike in February 2023 and represent non-recurring expenses that are directly attributable to the labor strike for incremental safety and security, legal and labor negotiations and other expenses. We expect to incur ongoing legal expenses associated with the labor negotiations.

Idle mine expenses were $12.1 million, or 0.7% of total revenues for the year ended December 31, 2022. These expenses represent idle expenses incurred in connection with the idling of Mine No. 4 and reduced operations at Mine No. 7, such as electricity, insurance and maintenance labor.

Interest expense was $18.0 million, or 1.1%, of total revenues, for the year ended December 31, 2023, compared to $31.4 million, or 1.8% of total revenues, for the year ended December 31, 2022. The $13.5 million decrease is due to the retirement of debt of $162.4 million.

Interest income was $40.7 million, or 2.4% of total revenues, for the year ended December 31, 2023, compared to $12.4 million, or 0.7% of total revenues, for the year ended December 31, 2022. The $28.3 million increase was primarily driven by an increase in yields earned on cash investments.

For the year ended December 31, 2023, we recognized a loss on early extinguishment of debt of $11.7 million upon the extinguishment of $146.1 million of our Notes. The loss on early extinguishment of debt represents a premium paid to retire the debt, fees incurred in connection with the transaction, accelerated amortization of debt discount and debt issuance costs.

Other expense for the year ended December 31, 2023 represents non-recurring expenses incurred in connection with the ransomware attack discovered by the Company on July 29, 2023 and proceeds received from the Chapter 11 Cases (as defined below) from Walter Energy, Inc. We do not anticipate any additional material expenses in the future related to this ransomware incident. Other income for the year ended December 31, 2022 represents proceeds received in connection with the settlement of a lawsuit offset partially by COVID-19 pandemic related expenses.

For the year ended December 31, 2023, we recognized income tax expense of $72.8 million or an effective tax rate of 13.2% primarily due to pre-tax income of $551.4 million offset partially by an income tax benefit of $26.1 million due to a deduction under Section 250 of the Code: Foreign-Derived Intangible Income ("FDII") and $21.8 million of depletion. For the year ended December 31, 2022, we recognized income tax expense of $141.8 million or an effective tax rate of 18.1% primarily due to pre-tax income of $783.1 million offset partially by an income tax benefit due to $23.6 million of depletion.

At December 31, 2023, we had state NOLs of approximately $928.2 million. These NOLs represent a deferred tax asset of approximately $6.9 million, net of the valuation allowance. See Note 7 of the Notes to the Financial Statements for more information.

Liquidity and Capital Resources

Overview

Our sources of cash have been steelmaking 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, working capital, 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, our reclamation obligations, professional fees and other non-recurring transaction expenses and strategic investments, the development of Blue Creek, and, if declared, to pay our quarterly and/or special dividends. Our ability to fund our capital needs, including the development of Blue Creek, going forward will depend on our ongoing ability to generate cash from operations and borrowing availability under the ABL Facility, and, in the case of any future strategic investments, capital needs, the development of Blue Creek, or special dividends financed partially or wholly with debt financing and our ability to access the capital markets to raise additional capital.

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Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on continued stable global economic conditions and a resolution of the CBA contract negotiations with the labor union representing certain of our hourly employees.

Our available liquidity as of December 31, 2023 was $845.6 million, consisting of $738.2 million of cash and cash equivalents and $107.4 million, net of outstanding letters of credit, of availability under our ABL Facility. As of December 31, 2023, no loans were outstanding under the ABL Facility and there were $8.7 million of letters of credit issued and outstanding under the ABL Facility.

During the year ended December 31, 2023, we repurchased in the open market and extinguished approximately $8.0 million principal amount of our Notes at a discount to par value. The discounts to par value and the interest expense savings from this open-market purchase is estimated to be approximately $4.0 million through the maturity of our Notes. In connection with the extinguishment of our Notes, we recognized a loss on early extinguishment of debt of $0.1 million which is included in interest income (expense), net in the Statements of Operations. In addition, in the third quarter of 2023, we retired approximately $146.1 million of our Notes and recognized a loss on early extinguishment of debt of $11.7 million, which represents a premium paid to retire the debt, accelerated amortization of debt discount, net, and fees incurred in connection with the transaction.

In the future, we may, at any time and from time to time, seek to retire or purchase additional Notes in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, if any, and other factors.

We are responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969, as amended. Beginning on April 1, 2016 through May 31, 2018, we were insured under a guaranteed cost insurance policy, through a third-party insurance carrier, for black lung claims raised by any employee subsequent to the acquisition of certain assets of Walter Energy. Beginning on June 1, 2018 through May 31, 2020, we had a deductible policy where we are responsible for the first $0.5 million for each black lung claim. Since June 1, 2020, we have a deductible policy where we are responsible for the first $1.0 million for each black lung claim.

In addition, in connection with the acquisition of certain assets of Walter Energy, we assumed all black lung liabilities of Walter Energy and its U.S. subsidiaries incurred prior to March 31, 2016, for which we are self-insured. We have posted $18.6 million in surety bonds and $9.0 million of collateral recognized as short term investments in addition to maintaining a black lung trust of $1.8 million that was acquired from Walter Energy. We received a letter from the U.S. Department of Labor ("DOL") on February 21, 2020 under its new process for self-insurance renewals that would require us to increase the amount of collateral posted to $39.8 million, but we appealed such increase. We received another letter from the DOL on December 8, 2021 requesting additional information to support our appeal of the collateral requested by the DOL. On February 9, 2022, the DOL held a conference call with representatives from the Company related to our appeal. On July 12, 2022, we received a decision on our appeal from the DOL lowering the amount of collateral required to be posted from $39.8 million to $28 million. We appealed this decision. In addition, on January 19, 2023, the DOL proposed revisions to regulations under the Black Lung Benefits Act governing authorization of self-insurers. The proposed rules requires, among other requirements, all self-insured operators to post security equal to 120 percent of their projected black lung liabilities.

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, 2023, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our mining operations totaling $44.3 million, $18.6 million as collateral for self-insured black lung related claims and $5.2 million for miscellaneous purposes.

We believe that our future cash flows from operations, together with cash on our balance sheet and proceeds from the borrowings under our ABL Facility, will provide adequate resources to fund our debt service payments and planned operating and capital expenditure needs, including the development of Blue Creek, for at least the next twelve months and beyond. However, we will continue to assess our liquidity needs in light of the ongoing CBA contract negotiations with the labor union representing certain of our hourly employees and the ongoing impact of inflation.

The Company's principal contractual commitments include repayments of long-term debt and related interest, potential minimum throughput payments associated with our rail and port providers, asset retirement obligation payments, black lung obligation payments, payments on various coal and land leases, payments under financing lease obligations and payments

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associated with our natural gas swap contracts. Currently, there are no known trends or expected changes anticipated in future periods that would not be indicative of past results for our contractual commitments.

Refer to the respective notes to the financial statements for further information about our credit facilities and long-term debt (Note 13), commitments and contingencies (Note 15), asset retirement obligations (Note 8), black lung obligations (Note 10), lease payment obligations (Note 14), share repurchase programs (Note 16) and derivative instruments (Note 17).

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 governing the Notes (the "Indenture"), 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 $738.2 million, $829.5 million and $395.8 million at December 31, 2023, December 31, 2022, and December 31, 2021, respectively.

The following table sets forth, a summary of the net cash provided by (used in) operating, investing and financing activities for the period (in thousands): 

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[[/GREPCENT_TABLE]]

Operating Activities

Net cash flows from operating activities consist of net income adjusted for noncash items, such as depreciation and depletion of property, plant and equipment and mineral interests, deferred income tax expense, stock-based compensation, amortization of debt issuance costs and debt discount, accretion expense and valuation adjustment associated with our asset retirement obligations, mark-to-market adjustments on gas hedges, loss on early extinguishment of debt and changes in net working capital. The timing between the conversion of our billed and unbilled receivables into cash from our customers, production and sale of coal inventory and disbursements to our vendors is the primary driver of changes in our working capital.

Net cash provided by operating activities was $701.1 million for the year ended December 31, 2023, and was primarily attributed to net income of $478.6 million adjusted for depreciation and depletion expense of $127.4 million, deferred income tax expense of $52.9 million, stock-based compensation expense of $18.2 million, loss on early extinguishment of debt of $11.7 million, accretion and valuation adjustment of asset retirement obligations of $4.5 million and amortization of debt issuance costs and debt discount of $2.1 million and a decrease in net working capital of $5.7 million. The decrease in our working capital was primarily attributable to a decrease in trade accounts receivable offset partially by an increase in inventories, an increase in accrued expenses and other current liabilities and an increase in income tax receivable. The decrease in trade accounts receivable is due to the timing of sales and collections combined with a $93.25 decrease in our steelmaking coal average net selling price per metric ton offset partially by a 1.7 million increase in steelmaking coal metric tons sold. The increase in inventories is due to an increase in production.

Net cash provided by operating activities was $841.9 million for the year ended December 31, 2022, and was primarily attributed to net income of $641.3 million adjusted for depreciation and depletion expense of $115.3 million, deferred income tax expense of $141.8 million, stock-based compensation expense of $17.6 million, mark-to-market loss on gas hedges of $4.0 million, amortization of debt issuance costs and debt discount of $3.2 million, accretion expense and valuation adjustment of asset retirement obligations of $1.9 million, an increase in other operating activities of $0.8 million and an increase in net

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working capital of $84.0 million. The increase in our working capital was primarily attributable to an increase in inventories and trade accounts receivable offset partially by an increase in accrued expenses and other current liabilities.

Investing Activities

Net cash used in investing activities was $527.2 million for the year ended December 31, 2023, primarily comprised of $491.7 million of purchases of property, plant and equipment and $33.1 million of capitalized mine development costs associated with our Blue Creek development. We spent approximately $91.7 million in sustaining capital and spent an additional $400.0 million in other discretionary capital, which primarily included capital spent on the development of Blue Creek of $319.1 million, deposits on two extra sets of longwall shields of $50.9 million and capital spent on the bunker at Mine No. 4 of $24.5 million. The current period also includes $2.4 million cash paid to acquire the remaining ownership interest in gas wells owned by an independent third party.

Net cash used in investing activities was $255.1 million for the year ended December 31, 2022, primarily comprised of $205.2 million of purchases of property, plant and equipment and $48.9 million of capitalized mine development costs associated with our Mine No. 4 and Blue Creek development. We spent approximately $87.1 million in sustaining capital and spent an additional $118.1 million in other discretionary capital, which primarily included deposits on two extra sets of longwall shields of $55.3 million and capital spent on the development of Blue Creek of $47.1 million and the portal facilities at Mine No. 4 of $15.7 million. The current period also includes $3.5 million cash payments in connection with the acquisition of leased mineral rights offset partially by $2.5 million net cash acquired in connection with the acquisition of the remaining 50% interest in Black Warrior Methane and Black Warrior Transmission.

Financing Activities

Net cash used in financing activities was $265.2 million for the year ended December 31, 2023, primarily due to the retirements of debt related to our Notes of $162.4 million, payment of quarterly and special dividends of $61.1 million and principal repayments of financing lease obligations of $32.3 million.

Net cash used in financing activities was $153.1 million for the year ended December 31, 2022, primarily due to the payment of quarterly and special dividends of $79.7 million, retirements of debt related to our Notes of $39.4 million and principal repayments of financing lease obligations of $30.3 million.

Capital Allocation Policy

On May 17, 2017, the Board adopted the Capital Allocation Policy of paying a quarterly cash dividend of $0.05 per share. In February 2022, we announced that the Board approved an increase in the regular quarterly cash dividend by 20%, from $0.05 per share to $0.06 per share. In February 2023, we announced that the Board approved an increase in the regular quarterly cash dividend by 17%, from $0.06 per share to $0.07 per share. On February 9, 2024, we announced the Board approved an increase in the regular quarterly cash dividend by 14% from $0.07 per share to $0.08 per share and declared a special cash dividend of $0.50 per share. Our strategy continues to be focused on optimizing our capital structure to improve returns to stockholders, through special cash dividends, while allowing flexibility for us to develop our strategic growth project Blue Creek. We intend on returning cash to stockholders in stronger price markets where we are generating significant amounts of cash flow, and less cash to stockholders during weaker markets. We also intend on using stock repurchases when there is no short- or long-term use for additional cash that will deliver meaningful value to stockholders. We have paid a regular quarterly cash dividend every quarter since the Board adopted the Capital Allocation Policy.

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 selective strategic growth opportunities that can provide compelling stockholder returns.

During the year ended December 31, 2023, we have paid $61.1 million of regular quarterly and special cash dividends under the Capital Allocation Policy.

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Stock Repurchase Program

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

    Under the New Stock Repurchase Program, the Company may repurchase shares of its common stock from time to time, in amounts, at prices and at such times as the Company deems appropriate, subject to market and industry conditions, share price, regulatory requirements and other considerations as determined from time to time by the Company. The Company’s repurchases may be executed using open market purchases or privately negotiated transactions in accordance with applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act and repurchases may be executed pursuant to Rule 10b5-1 under the Exchange Act. Repurchases will be subject to limitations in the ABL Facility and the Indenture. The Company intends to fund repurchases under the New Stock Repurchase Program from cash on hand and/or other sources of liquidity. Any future repurchases of shares of the Company's common stock will be subject to the 1% excise tax under the IRA.

As of December 31, 2022, the Company has repurchased 0.5 million shares for approximately $10.6 million, leaving $59.4 million of share repurchases authorized under the New Stock Repurchase Program.

ABL Facility

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

Under the ABL Facility, up to $10.0 million of the commitments may be used to incur swingline loans from Citibank and up to $65.0 million of the commitments may be used to issue letters of credit. The ABL Facility will mature on December 6, 2026. As of December 31, 2023, no loans were outstanding under the ABL Facility and there were $8.7 million of letters of credit issued and outstanding under the ABL Facility. At December 31, 2023, the Company had $107.4 million of availability under the ABL Facility.

Revolving loan (and letter of credit) availability under the ABL Facility is subject to a borrowing base, which at any time is equal to the sum of certain eligible billed and unbilled accounts, certain eligible inventory, certain eligible supplies inventory and qualified cash, in each case, subject to specified advance rates. The borrowing base availability is subject to certain reserves, which may be established by the agent in its reasonable credit discretion. The reserves may include rent reserves, lower of cost or market reserve, port charges reserves and any other reserves that the Agent determines in its 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), 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), which includes, among other things, material mining properties, shares of capital stock of the guarantors, intellectual property, as extracted collateral (to the extent not constituting inventory), and certain fixed assets of ours and the guarantors.

Borrowings under the ABL Facility bear interest at a rate equal to either (i) SOFR, plus a credit adjustment spread, ranging currently from approximately 11 bps to 43 bps depending on the interest period selected by us, or (ii) an alternate base

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rate plus, in each case of the foregoing (i) and (ii), an applicable margin, which is determined based on the average availability of the commitments under the ABL Facility, ranging currently from 150 bps to 200 bps or 50 bps to 100 bps, respectively. In addition to paying interest on the outstanding borrowings under the ABL Facility, we are required to pay a fee in respect of unutilized commitments, which is based on the availability of the commitments under the ABL Facility, ranging from 25 bps to 37.5 bps. We are also required to pay a fee on amounts available to be drawn under outstanding letters of credit under the ABL Facility at a rate not in excess of 200 bps, and certain administrative fees.

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, 2023, 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, 2023.

Senior Secured Notes

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

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

At any time prior to December 1, 2024, we may redeem the Notes, in whole or in part, at a price equal to 100.00% of the principal amount of the Notes redeemed plus the Applicable Premium (as defined in the Indenture) and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. The Notes are redeemable at our option, in whole or in part, from time to time, on or after December 1, 2024, at redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to, but excluding the redemption date. At any time on or prior to December 1, 2024, we may redeem up to 40% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings, at a redemption price of 107.875% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to but excluding the redemption date. We are also required to make offers to purchase the Notes (i) at a purchase price of 101.00% of the principal amount thereof in the event we experience specific kinds of change of control triggering events, (ii) at a purchase price of 103.00% of the principal amount thereof prior to making certain restricted payments, and (iii) at a purchase price of 100.00% of the principal amount thereof in the event we make certain asset sales or dispositions and do not reinvest the net proceeds therefrom or use such net proceeds to repay certain indebtedness, in each case, plus accrued and unpaid interest, if any, to, but excluding the date of purchase.

During the year ended December 31, 2023, we repurchased in the open market and extinguished approximately $8.0 million principal amount of our Notes. In connection with the extinguishment of our Notes, we recognized a loss on early extinguishment of debt of $0.1 million which is included in interest income (expense), net in the Statements of Operations.

Offers to Purchase the Notes

On August 9, 2023, we commenced an offer to purchase (the “Restricted Payment Offer”), in cash, up to $150.0 million 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

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Payment Repurchase Price”). Concurrently with, but separate from, the Restricted Payment Offer, we commenced a cash tender offer (the “Tender Offer” and, together with the Restricted Payment Offer, the “Offers”) to purchase up to $150.0 million 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 September 7, 2023 (the “Expiration Date”).

Restricted Payment Offer

As of the Expiration Date, $0.2 million 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 49.5674% was applied to the $0.2 million 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 $0.1 million aggregate principal amount of the Notes (the “RP Pro-Rated Tendered Notes”);

(2) we accepted all $0.1 million 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 $0.1 million 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.

We consummated the Restricted Payment Offer on September 8, 2023.

Accordingly, pursuant to the terms of the Indenture, we will have the ability from time to time in the future to make one or more restricted payments (the "Proposed Restricted Payment") in the form of special dividends to holders of our common stock and/or repurchases of our common stock in the aggregate amount of up to $299.9 million consistent with the terms of the Capital Allocation Policy adopted by our Board. Any future Proposed Restricted Payments will be at the discretion of the Board and subject to a number of factors and there can be no assurance that we will make any Proposed Restricted Payments in the future.

Tender Offer

As of the Expiration Date, $294.8 million 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 49.5674% was applied to the $294.8 million 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 $146.0 million aggregate principal amount of the Notes (the “TO Pro-Rated Tendered Notes”);

(2) we accepted all $146.0 million 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 $148.8 million 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.

We consummated the Tender Offer on September 11, 2023.

In connection with the payments for the RP Pro-Rated Tendered Notes and the TO Pro-Rated Tendered Notes, we recognized a loss on early extinguishment of debt of $11.7 million during the year ended December 31, 2023.

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Short-Term Investments

During the year ended December 31, 2023, we had $9.0 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 steelmaking coal reserves, mining costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations require ongoing capital expenditures. The cost of our capital expenditures are also impacted by inflation and any prolonged inflation could result in higher costs and decreased margins and earnings. 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 steelmaking 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 $491.7 million and $205.2 million for the years ended December 31, 2023 and December 31, 2022, respectively. During 2023, we spent approximately $91.7 million in sustaining capital and an additional $400.0 million in other discretionary capital, which primarily included capital spent on the development of Blue Creek of $319.1 million, final payments on two extra sets of longwall shields of $50.9 million and capital spent on the bunker at Mine No. 4 of $24.5 million. Our deferred mine development costs were $33.1 million and $48.9 million for the years ended December 31, 2023 and December 31, 2022, respectively, and primarily relate to the development of Blue Creek and Mine No. 4. We evaluate our spending on an ongoing basis in connection with our mining plans and the prices of steelmaking coal taking into consideration the funding available to maintain our operations at optimal production levels.

Our capital spending is expected to range from $435.0 million to $500.0 million for the full year 2024, consisting of sustaining capital expenditures of approximately $100.0 to $110.0 million and discretionary capital expenditures of approximately $335.0 to $390.0 million for the development of Blue Creek reserves and Mine No. 4. Our sustaining capital expenditures include expenditures related to longwall operations, continuous miners, new ventilation, and bleeder shafts.

Amended Rights Agreement

On February 14, 2020, we adopted an NOL Rights Agreement, which was amended on March 4, 2022 by Amendment No. 1 to the Rights Agreement and on December 8, 2023 by Amendment No. 2 to the Rights Agreement, to supplement the 382 Transfer Restrictions. The Company's stockholders ratified the Rights Agreement at the 2020 Annual Meeting of Stockholders and ratified the Amendment No. 1 to Rights Agreement at the 2022 Annual Meeting of Stockholders.

The Amended 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 federal and state NOLs and is similar to plans adopted by other companies with significant federal and state NOLs.

Pursuant to the Amended Rights Agreement, one preferred stock purchase right (a “Right” or the “Rights”) was 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 $159.00 per Right. While the Amended 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

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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 Amended 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 and approve requests to exempt certain acquisitions of the Company’s securities from the Amended Rights Agreement if the Board determines that doing so would not limit or impair the availability of the federal and state NOLs or is otherwise in the best interests of the Company and conditioned upon and subject to the satisfaction of certain continuing factual representations and covenants. The Board may redeem the Rights for $0.01 per Right at any time before any person or group triggers the Amended 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 April 19, 2026, (ii) the time at which the Rights are redeemed as provided in the Amended Rights Agreement, (iii) the time at which the Rights are exchanged as provided in the Amended Rights Agreement, (iv) the time at which the Board determines that the NOLs are fully utilized or no longer available under Section 382 of the Code, (v) the effective date of the repeal of Section 382 of the Code if the Board determines that the Amended Rights Agreement is no longer necessary or desirable for the preservation of NOLs, or (vi) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in the Amended Rights Agreement. Additional details about the Amended Rights Agreement are contained in our Current Reports on Form 8-K filed with the SEC on February 14, 2020, March 4, 2022 and December 8, 2023.

Update on the Development of Blue Creek

More than a year after the relaunch of the Blue Creek mine development in May 2022, Warrior has initiated important and highly beneficial project scope changes that will require incremental capital expenditures over the life of the project while lowering operating costs, increasing flexibility to manage risks, and making better use of multi-channel transportation methods. Most of these scope changes are transportation and logistics-related, with additional amounts related to inflation for these changes only. They are expected to increase total capital expenditures for the Blue Creek mine by approximately $120 - $130 million over the remainder of the project development period.

While the Company originally planned on a single channel to transport coal from the Blue Creek mine via an overland belt to a third-party owned and operated barge loadout facility, it now plans to build a belt conveyor system to a railroad loadout to transport the majority of the coal. We expect this change to de-risk the single channel to market, lower operating cost and move volumes faster to the port. Warrior will also build and operate a barge loadout itself rather than utilizing a third-party provider. The Company believes that the potential economic benefits associated with this scope change should provide Warrior with an inherently robust and cost competitive outbound logistics model that will provide additional flexibility to manage alternative transportation methods. The inclusion of the benefits and incremental capital expenditures relating to these specific scope changes did not have a material impact to the project economic metrics of net present value and internal rate of return.

In addition, the Company has experienced inflationary cost increases ranging from 25 to 35 percent in both operating expenses and capital expenditures for its existing mining operations since late 2021. The Company is also experiencing inflationary pressures at Blue Creek, especially in relation to labor, construction materials and certain equipment, that is expected to continue during the remainder of the project development period. As a number of key material contracts are currently being negotiated, and due to uncertainty regarding future inflation rates, the Company is not providing an estimate of the impact of inflation at this time. However, as the Company negotiates and enters into contracts for the larger project components, the Company expects that more information will become available to allow it to provide revised guidance. While cost inflation has impacted the cost of the project, these inflationary pressures are expected to be offset by an inflationary increase in the long-term price assumption for steelmaking coal.

The Company is also employing a number of techniques to mitigate the impact of the inflationary costs such as ordering and purchasing equipment earlier, offering earlier payments for additional discounts on both equipment and services and other contract term modifications.

Subject to the considerations discussed above, our revised estimate of capital expenditures in 2024 for the development of the Blue Creek mine is approximately $325 to $375 million and is subject to change. The Company anticipates that its strong cash flow generation and current available liquidity, as well as ability to finance $120 to $130 million of capital expenditures

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through equipment leases, will allow us to be opportunistic as we evaluate funding options for Blue Creek with the goal of maintaining an efficient and low-cost of capital.

The project remains on schedule with the first development tons from continuous miner units expected in the third quarter of 2024 and the longwall scheduled to start up in the second quarter of 2026.

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

Our mineral reserves and resources estimates are calculated in accordance with subpart 1300 of Regulation S-K under the Modernization of Property Disclosures for Mining Registrants of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Our mineral reserves and resources are updated on an annual basis. There are numerous uncertainties inherent in estimating quantities and values of mineral reserves and resources, including many factors that are beyond our control. As a result, estimates of mineral reserves and resources are by their nature uncertain. Information about our reserves and resources 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 and resource 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 mineral reserve and resource 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 and resources. For these reasons, estimates of economically recoverable quantities of coal attributable to a particular group of properties, and

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classifications of these reserves and resources based on risk of recovery and estimates of future net cash flows, may vary substantially. Actual production, revenues and expenditures with respect to reserves and resources 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, resources and depletion rates. As of December 31, 2023, we had estimated reserves totaling 159.1 million metric tons and estimated mineral resources exclusive of reserves of 39.7 million metric tons.

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, 2023, we had recorded asset retirement obligation liabilities of $84.2 million, including $12.5 million reported as a current liability.

Income Taxes

In connection with the acquisition of certain assets of Walter Energy consummated on March 31, 2016, we acquired deferred tax assets primarily associated with federal and state NOLs attributable to Walter Energy's write-off of its investment in Walter Energy Canada Holdings, Inc. As of December 31, 2023, we believe we have utilized all of our federal NOLs and federal general business credit carryforwards, subject to the filing of the 2023 federal income tax return. The Company has state NOL carryforwards of approximately $928.2 million, which expire predominantly on December 31, 2029 through December 31, 2034.

We believe the utilization of the state NOLs, subject to certain limitations, will significantly reduce the amount of state income taxes payable by us as compared to what we would have had to pay at the statutory rates without these NOL benefits. Under state law provisions similar to 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. 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 federal and state 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, and that a similar approach would be applied at the state level. 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 federal and state 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

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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.

On February 12, 2021, the Alabama Governor signed into law Alabama House Bill 170, now Act 2021-1 (the "Act"). The Act makes several changes to the state’s business tax structure. Among the provisions of the Act, is the repeal of the so-called corporate income tax “throwback rule.” That rule required all sales originating in Alabama and delivered to a jurisdiction where the seller was not subject to tax, to be included in the seller’s Alabama income tax base. Thus, prior to repeal of the throwback rule, we had to rely on its Alabama NOL carryforwards to shelter taxes imposed under such throwback rule. As a result of the now repealed throwback rule, effective January 1, 2021, all such sales should now be excluded from Alabama taxable income without the need to utilize Alabama NOLs. As a result of the repeal of the throwback rule, we have determined that it is not more likely than not that we would have sufficient taxable income to utilize all of our Alabama deferred income tax assets prior to expiration. Therefore, at December 31, 2023, we have a valuation allowance against our state deferred income tax assets of approximately $41.0 million.

Recently Adopted Accounting Standards

See Note 2 of our consolidated financial statements for disclosures related to new accounting pronouncements.

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