Warrior Met Coal(HCC) - 2023 Q3 - Quarterly Report

Forward-Looking Statements This section outlines the inherent risks and uncertainties associated with forward-looking statements, which could cause actual results to differ materially from projections - Forward-looking statements are based on expectations and beliefs concerning future events and are subject to uncertainties and factors difficult to predict, many beyond the company's control[8] - Key risks and uncertainties include the impact of global pandemics (e.g., COVID-19), inflation on costs and profitability, customer relationships, transportation availability and costs, raw material price increases, work stoppages, competition, litigation, cybersecurity threats, global steel demand, weather, and regulatory compliance[9][12] Part I. Financial Information Item 1. Financial Statements This section presents the unaudited condensed financial statements, including Statements of Operations, Balance Sheets, and Cash Flows, for the three and nine months ended September 30, 2023 Condensed Statements of Operations | Metric (in thousands, except per-share amounts) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Sales | $416,888 | $371,944 | $1,288,412 | $1,377,665 | | Other revenues | $6,599 | $18,236 | $24,409 | $16,323 | | Total revenues | $423,487 | $390,180 | $1,312,821 | $1,393,988 | | Cost of sales | $260,376 | $203,441 | $723,458 | $529,869 | | Total costs and expenses | $315,736 | $265,744 | $904,971 | $710,172 | | Operating income | $107,751 | $124,436 | $407,850 | $683,816 | | Interest income (expense), net | $7,273 | $(5,701) | $14,922 | $(20,706) | | Loss on early extinguishment of debt | $(11,699) | — | $(11,699) | — | | Income before income tax expense | $102,223 | $118,735 | $410,192 | $663,785 | | Income tax expense | $16,841 | $20,332 | $60,439 | $122,141 | | Net income | $85,382 | $98,403 | $349,753 | $541,644 | | Net income per share—basic | $1.64 | $1.91 | $6.73 | $10.49 | | Net income per share—diluted | $1.64 | $1.90 | $6.72 | $10.48 | | Dividends per share | $0.07 | $0.86 | $1.09 | $1.48 | Condensed Balance Sheets | Metric (in thousands) | September 30, 2023 | December 31, 2022 | | :-------------------- | :----------------- | :---------------- | | Cash and cash equivalents | $686,811 | $829,480 | | Total current assets | $1,104,205 | $1,173,109 | | Property, plant and equipment, net | $1,006,859 | $738,947 | | Total assets | $2,219,248 | $2,028,095 | | Total current liabilities | $143,961 | $153,124 | | Long-term debt | $152,883 | $302,588 | | Deferred income taxes | $75,174 | $23,378 | | Total liabilities | $474,036 | $580,580 | | Total stockholders' equity | $1,745,212 | $1,447,515 | | Total liabilities and stockholders' equity | $2,219,248 | $2,028,095 | Condensed Statements of Changes in Stockholders' Equity | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Common Stock, end of period | $542 | $539 | $542 | $539 | | Additional Paid in Capital, end of period | $275,287 | $266,585 | $275,287 | $266,585 | | Retained Earnings, beginning of period | $1,438,264 | $1,077,105 | $1,227,596 | $665,963 | | Net income | $85,382 | $98,403 | $349,753 | $541,644 | | Dividends paid | $(3,687) | $(44,423) | $(57,390) | $(76,522) | | Retained Earnings, end of period | $1,519,959 | $1,131,085 | $1,519,959 | $1,131,085 | | Total Stockholders' Equity, end of period | $1,745,212 | $1,347,633 | $1,745,212 | $1,347,633 | Condensed Statements of Cash Flows | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $456,018 | $646,910 | | Net cash used in investing activities | $(344,752) | $(156,679) | | Net cash used in financing activities | $(253,935) | $(140,404) | | Net (decrease) increase in cash and cash equivalents | $(142,669) | $349,827 | | Cash and cash equivalents at end of period | $686,811 | $745,666 | Notes to Condensed Financial Statements Note 1. Business and Basis of Presentation This note describes Warrior Met Coal, Inc. as a U.S.-based supplier of non-thermal metallurgical coal, detailing its operations, the end of a labor strike, and minor acquisitions - Warrior Met Coal, Inc. is a U.S.-based, low-cost producer and exporter of premium metallurgical coal (HCC) from underground mines in Alabama, primarily serving Europe, South America, and Asia[27] - The labor union strike, which began April 1, 2021, ended on February 16, 2023, with an unconditional offer to return to work; the company incurred $0.3 million and $8.1 million in business interruption expenses for the three and nine months ended September 30, 2023, respectively, primarily for ongoing legal expenses[29][97] - The company acquired the remaining ownership interest in gas wells for $2.4 million on March 31, 2023, and the remaining 50% interest in Black Warrior Methane and Black Warrior Transmission for $0.3 million on March 1, 2022; neither acquisition was material[30][31][33][98][99] Note 2. Summary of Significant Accounting Policies This note outlines the company's consistent accounting policies, including revenue recognition and details on its export sales arrangement with XCoal Energy & Resources - Revenue is recognized when control of promised goods (coal, natural gas) is transferred to customers, which occurs upon loading railcars for domestic shipments, loading ocean vessels for international shipments, or transfer to pipelines for natural gas[38] - XCoal Energy & Resources accounted for approximately 7.3% ($36.7 million) and 9.8% ($126.8 million) of total sales for the three and nine months ended September 30, 2023, respectively[39] Note 3. Inventories, net This note provides a breakdown of the company's net inventories, showing a decrease in total inventories primarily due to a reduction in coal inventory | Inventory Type (in thousands) | September 30, 2023 | December 31, 2022 | | :---------------------------- | :----------------- | :---------------- | | Coal | $57,923 | $109,822 | | Raw materials, parts, supplies and other, net | $50,834 | $44,217 | | Total inventories, net | $108,757 | $154,039 | Note 4. Income Taxes This note details the income tax expense and explains the benefit from the IRC Section 250 Deduction for Foreign-Derived Intangible Income (FDII) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | | Income tax expense | $16,841 | $60,439 | - Income tax expense for the three and nine months ended September 30, 2023, includes a benefit from depletion and the IRC Section 250 Deduction: Foreign-Derived Intangible Income (FDII), which reduces the statutory tax rate from 21% to 13.125% for foreign-derived intangible income[45] Note 5. Debt This note outlines the company's debt structure, primarily Senior Secured Notes and an ABL Facility, detailing significant debt repurchases and the resulting loss on early extinguishment | Debt Type (in thousands) | September 30, 2023 | December 31, 2022 | Weighted Average Interest Rate | Final Maturity | | :----------------------- | :----------------- | :---------------- | :----------------------------- | :------------- | | Senior Secured Notes | $156,517 | $310,618 | 7.875% | December 2028 | | Debt discount | $(3,634) | $(8,030) | | | | Total long-term debt | $152,883 | $302,588 | | | - During the nine months ended September 30, 2023, the company repurchased and extinguished approximately $8.0 million principal amount of its Notes in the open market, recognizing a $0.1 million loss on early extinguishment[49] - The company completed a Restricted Payment Offer and a Tender Offer in September 2023, repurchasing $99.0 million and $146.0 million aggregate principal amount of Notes, respectively, resulting in a $11.7 million loss on early extinguishment of debt[50][51][54][55] - As of September 30, 2023, no loans were outstanding under the ABL Facility, with $123.3 million of availability[57] Note 6. Other Long-Term Liabilities This note provides a summary of other long-term liabilities, primarily consisting of black lung obligations | Liability Type (in thousands) | September 30, 2023 | December 31, 2022 | | :---------------------------- | :----------------- | :---------------- | | Black lung obligations | $27,358 | $27,407 | | Other | $500 | $500 | | Total other long-term liabilities | $27,858 | $27,907 | Note 7. Leases This note details the company's finance and operating lease arrangements, providing supplemental balance sheet and cash flow information | Lease Metric (in thousands) | September 30, 2023 | December 31, 2022 | | :-------------------------- | :----------------- | :---------------- | | Finance lease right-of-use assets, net | $68,670 | $69,596 | | Current finance lease liabilities | $13,690 | $24,089 | | Noncurrent finance lease liabilities | $9,829 | $9,002 | | Total finance lease liabilities | $23,519 | $33,091 | | Weighted average remaining lease term - finance leases (months) | 22.7 | 27.2 | | Weighted average discount rate - finance leases | 7.01% | 6.96% | | Lease Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $6,278 | $11,187 | $19,203 | $29,759 | | Amortization of leased assets (finance) | $3,746 | $5,426 | $14,375 | $12,737 | | Interest on lease liabilities (finance) | $452 | $764 | $1,744 | $2,557 | | Net lease cost | $10,476 | $17,377 | $35,322 | $45,053 | | Cash Flow from Leases (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Operating cash flows from finance leases | $1,744 | $2,557 | | Financing cash flows from finance leases | $24,989 | $22,400 | | Non-cash right-of-use assets obtained in exchange for lease obligations (finance leases) | $8,315 | $2,011 | Note 8. Net Income per Share This note provides the calculation of basic and diluted net income per share for the three and nine months ended September 30, 2023 and 2022 | Metric (in thousands, except per share data) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $85,382 | $98,403 | $349,753 | $541,644 | | Weighted-average shares outstanding—basic | 52,019 | 51,654 | 51,958 | 51,612 | | Weighted-average shares outstanding—diluted | 52,111 | 51,744 | 52,028 | 51,699 | | Net income per share—basic | $1.64 | $1.91 | $6.73 | $10.49 | | Net income per share—diluted | $1.64 | $1.90 | $6.72 | $10.48 | Note 9. Commitments and Contingencies This note discusses the company's environmental compliance, miscellaneous litigation, and other commitments, noting no material accruals for environmental or litigation matters - The company believes it is in compliance with environmental laws and regulations, with no accruals for environmental matters other than asset retirement obligations for mine reclamation[65] - The company received $0.2 million and $0.7 million from the Walter Energy, Inc. Chapter 11 Cases in Q1 2023 and Q1 2022, respectively[68] | Royalty Expense (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Coal royalty expenses | $29.3 | $42.4 | $94.0 | $116.3 | Note 10. Stockholders' Equity This note provides information on common and preferred shares, the stock repurchase program, and dividend declarations, including remaining authorization and recent payments - As of September 30, 2023, approximately $59.4 million remains authorized under the New Stock Repurchase Program[74] | Dividend Type | Declaration Date | Record Date | Payable Date | Dividend per Share | Dividends Paid (in millions) | | :------------ | :--------------- | :---------- | :----------- | :----------------- | :--------------------------- | | Quarterly | Feb 9, 2023 | Feb 20, 2023 | Feb 27, 2023 | $0.07 | $3.6 | | Special | Feb 13, 2023 | Feb 28, 2023 | Mar 7, 2023 | $0.88 | $46.4 | | Quarterly | Apr 25, 2023 | May 5, 2023 | May 12, 2023 | $0.07 | $3.7 | | Quarterly | Jul 28, 2023 | Aug 7, 2023 | Aug 14, 2023 | $0.07 | $3.7 | | Quarterly | Oct 24, 2023 | Nov 3, 2023 | Nov 10, 2023 | $0.07 | $3.7 (expected) | Note 11. Derivative Instruments This note discusses the company's use of natural gas swap contracts to hedge price exposure, noting no outstanding contracts as of September 30, 2023 - The company had no natural gas swap contracts outstanding as of September 30, 2023, or December 31, 2022[77][78] - A gain of $1.2 million related to natural gas swap contracts was recognized for the nine months ended September 30, 2023, compared to a $27.7 million loss for the nine months ended September 30, 2022[78] Note 12. Fair Value of Financial Instruments This note provides fair value estimates for financial instruments, noting that carrying amounts for short-term assets and liabilities approximate fair value - As of September 30, 2023, the estimated fair value of the Senior Secured Notes was approximately $156.9 million, compared to $304.4 million as of December 31, 2022[81] Note 13. Segment Information This note explains that the company operates as one reportable segment, mining, aggregating its two underground mining operations due to similar characteristics - The company has one reportable segment: mining, which aggregates its two underground mining operations (Mine No. 4 and Mine No. 7)[83][84] | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Mining Revenues | $416,888 | $371,944 | $1,288,412 | $1,377,665 | | All other Revenues | $6,599 | $18,236 | $24,409 | $16,323 | | Total Revenues | $423,487 | $390,180 | $1,312,821 | $1,393,988 | | Mining Capital Expenditures | $37,259 | $28,031 | $115,796 | $94,921 | | All other Capital Expenditures | $69,266 | $13,289 | $195,024 | $25,101 | | Total Capital Expenditures | $106,525 | $41,320 | $310,820 | $120,022 | | Segment Adjusted EBITDA | $156,512 | $168,503 | $564,954 | $847,796 | | Net income | $85,382 | $98,403 | $349,753 | $541,644 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Warrior Met Coal's financial condition and results for the three and nine months ended September 30, 2023, covering business overview, key metrics, revenues, costs, and liquidity Overview This overview describes Warrior Met Coal as a low-cost producer of metallurgical coal, details its reserves, and discusses the impact of inflation and global market conditions on its operations - Warrior Met Coal is a U.S.-based, low-cost producer and exporter of premium metallurgical coal (HCC) from its underground Mine No. 4 and Mine No. 7 in Alabama[91] - As of December 31, 2022, Mine No. 4 and Mine No. 7 had approximately 89.0 million metric tons of recoverable reserves, and the undeveloped Blue Creek mine contained 68.2 million metric tons of recoverable reserves[92] - U.S. inflation remains at 3.7%, impacting the coal mining industry with high costs for steel prices, freight rates, labor, and other materials, negatively affecting profitability[94] - The global seaborne metallurgical coal market improved in Q3 2023 due to tight Australian supply and increased Chinese and Indian steel production, with all major met coal price indices ending the quarter at highs[95][96] Collective Bargaining Agreement This section details the conclusion of the labor union strike and the significant reduction in business interruption expenses for the current periods - The labor union strike ended on February 16, 2023, with an unconditional offer to return to work, leading to no idle mine expenses for the three and nine months ended September 30, 2023 (compared to $5.4 million and $10.1 million in 2022)[97] - Business interruption expenses decreased significantly to $0.3 million and $8.1 million for the three and nine months ended September 30, 2023, respectively, from $7.1 million and $20.1 million in 2022, representing ongoing legal expenses[97] Acquisitions This section reports on minor acquisitions of gas well interests, noting their immaterial financial impact - On March 31, 2023, the company acquired the remaining ownership interest in gas wells for $2.4 million; on March 1, 2022, it acquired the remaining 50% interest in Black Warrior Methane and Black Warrior Transmission for $0.3 million; both acquisitions were not material[98][99] How We Evaluate Our Operations This section outlines the key performance metrics used by management to evaluate the company's operations, including Segment Adjusted EBITDA, sales volumes, and cash cost of sales - Management evaluates performance using Segment Adjusted EBITDA, sales volumes, average net selling price, cash cost of sales, and Adjusted EBITDA[101] | Metric (in thousands, except per metric ton) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Segment Adjusted EBITDA | $156,512 | $168,503 | $564,954 | $847,796 | | Metric tons sold | 2,048 | 1,360 | 5,429 | 3,782 | | Metric tons produced | 1,808 | 1,490 | 5,149 | 4,397 | | Average net selling price per metric ton | $203.56 | $273.49 | $237.32 | $364.27 | | Cash cost of sales per metric ton | $126.36 | $148.56 | $132.49 | $139.15 | | Adjusted EBITDA | $145,780 | $171,612 | $535,167 | $846,680 | - Cash cost of sales per metric ton decreased by $22.20 (14.9%) for the three months and $6.66 (4.8%) for the nine months ended September 30, 2023, compared to the prior year periods[102] Results of Operations Three Months Ended September 30, 2023 and 2022 For the three months ended September 30, 2023, total revenues increased by $33.3 million (8.5%) to $423.5 million, driven by higher sales volume despite lower selling prices, while net income decreased by $13.0 million (13.2%) due to lower prices and a debt extinguishment loss | Metric (in thousands, except per metric ton) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :------------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total Revenues | $423,487 | $390,180 | $33,307 | 8.5% | | Net Income | $85,382 | $98,403 | $(13,021) | (13.2)% | | Metric tons sold | 2,048 | 1,360 | 688 | 50.6% | | Metric tons produced | 1,808 | 1,490 | 318 | 21.3% | | Average net selling price per metric ton | $203.56 | $273.49 | $(69.93) | (25.6)% | | Cash cost of sales per metric ton | $126.36 | $148.56 | $(22.20) | (14.9)% | - Sales increased by $45.0 million, driven by a 51% (0.7 million metric ton) increase in sales volume, partially offset by a $69.93 per metric ton (26%) decrease in average net selling price[116] - Other revenues decreased by $11.6 million, primarily due to a 72% decrease in the Southern Louisiana natural gas price average[118] - Cost of sales increased by $57.0 million, mainly due to higher sales volumes, partially offset by decreased transportation and royalty costs from lower average net selling prices; cost of production represented 62% of cost of sales in Q3 2023, up from 53% in Q3 2022, due to increased labor costs[119] - Interest income, net, was $7.3 million in Q3 2023, a significant improvement from interest expense, net, of $5.7 million in Q3 2022, due to increased interest income and decreased interest on outstanding senior secured notes[124] - A loss on early extinguishment of debt of $11.7 million was recognized in Q3 2023 due to the extinguishment of $146.1 million of Notes[125] Nine Months Ended September 30, 2023 and 2022 For the nine months ended September 30, 2023, total revenues decreased by $81.2 million (5.8%) to $1.31 billion, primarily due to lower selling prices despite increased sales volume, and net income decreased by $191.9 million (35.4%) | Metric (in thousands, except per metric ton) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :------------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total Revenues | $1,312,821 | $1,393,988 | $(81,167) | (5.8)% | | Net Income | $349,753 | $541,644 | $(191,891) | (35.4)% | | Metric tons sold | 5,429 | 3,782 | 1,647 | 43.6% | | Metric tons produced | 5,149 | 4,397 | 752 | 17.1% | | Average net selling price per metric ton | $237.32 | $364.27 | $(126.95) | (34.9)% | | Cash cost of sales per metric ton | $132.49 | $139.15 | $(6.66) | (4.8)% | - Sales decreased by $89.2 million, driven by a $689.2 million decrease from lower average net selling prices, partially offset by a $600.0 million increase from a 44% (1.6 million metric ton) increase in sales volume[134] - Other revenues increased by $8.1 million, primarily due to the prior year including a $27.7 million mark-to-market loss on natural gas swap contracts, partially offset by a 61% decrease in natural gas prices[136] - Cost of sales increased by $193.6 million, primarily due to the 44% increase in sales volume; cost of production represented 60% of cost of sales in 2023, up from 50% in 2022, due to increased labor costs from returning employees[137] - Interest income, net, was $14.9 million in 2023, compared to interest expense, net, of $20.7 million in 2022, driven by increased interest income and decreased interest expense on senior secured notes due to early extinguishment[142] - Income tax expense decreased to $60.4 million in 2023 from $122.1 million in 2022, benefiting from depletion and the FDII deduction[145] Liquidity and Capital Resources This section details the company's liquidity position, debt repurchases, self-insurance for black lung liabilities, and outstanding surety bonds and letters of credit - Total liquidity as of September 30, 2023, was $810.1 million, comprising $686.8 million in cash and cash equivalents and $123.3 million available under the ABL Facility[149] - The company repurchased approximately $8.8 million principal amount of Notes in Q1 2023 and $146.1 million in Q3 2023, resulting in a total loss on early extinguishment of debt of $11.7 million for the nine months[150] - The company is self-insured for black lung liabilities and has appealed a DOL decision requiring an increase in collateral posted from $18.6 million to $28 million[153] - Outstanding surety bonds and letters of credit totaled $44.0 million for post-mining reclamation, $18.6 million for black lung claims, and $5.2 million for miscellaneous purposes as of September 30, 2023[154] Statements of Cash Flows This section analyzes the changes in cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023, compared to the prior year | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $456,018 | $646,910 | | Net cash used in investing activities | $(344,752) | $(156,679) | | Net cash used in financing activities | $(253,935) | $(140,404) | | Net (decrease) increase in cash and cash equivalents | $(142,669) | $349,827 | | Cash and cash equivalents at end of period | $686,811 | $745,666 | - Net cash from operating activities decreased by $190.9 million, primarily due to lower net income and changes in working capital, including increased accounts receivable and decreased inventories[161][162] - Net cash used in investing activities increased by $188.1 million, mainly due to higher purchases of property, plant and equipment, and mine development, including $191.3 million for Blue Creek development[163] - Net cash used in financing activities increased by $113.5 million, primarily due to higher debt retirements ($162.4 million vs. $37.8 million) and dividend payments ($57.4 million vs. $76.5 million)[164][165] Capital Allocation Policy This section outlines the company's capital allocation strategy, including increases in regular quarterly dividends and the declaration of a special cash dividend - The Board increased the regular quarterly cash dividend by 17% to $0.07 per share in February 2023[166][169] - A special cash dividend of $0.88 per share, totaling $46.4 million, was declared on February 13, 2023, and paid on March 7, 2023[172] - The company paid $57.4 million in regular quarterly and special cash dividends during the nine months ended September 30, 2023[168] ABL Facility This section describes the ABL Facility, its maturity, available liquidity, interest rates, and the company's compliance with covenants - The ABL Facility matures on December 6, 2026; as of September 30, 2023, there were no outstanding loans and $123.3 million of availability[173] - Borrowings under the ABL Facility bear interest at a rate equal to SOFR plus a credit adjustment spread, or an alternate base rate plus an applicable margin[176] - The company was in compliance with all applicable covenants under the ABL Facility as of September 30, 2023[178] Senior Secured Notes This section details the company's 7.875% Senior Secured Notes due 2028, including open market repurchases and tender offers that resulted in significant debt extinguishment and associated losses - The company has $350.0 million in aggregate principal amount of 7.875% senior secured notes due December 1, 2028[179][180] - During the nine months ended September 30, 2023, the company repurchased and extinguished approximately $8.0 million principal amount of Notes in the open market, incurring a $0.1 million loss[181] - In August 2023, the company commenced offers to purchase up to $150 million principal amount of Notes each through a Restricted Payment Offer and a Tender Offer, resulting in the extinguishment of $146.1 million of Notes and a $11.7 million loss[182][183][184][187][188] Capital Expenditures This section provides a summary of capital expenditures, including significant investments in Blue Creek development, and outlines full-year 2023 projections | Capital Expenditures (in millions) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------- | :-------------------------- | :-------------------------- | | Total capital expenditures | $310.8 | $120.0 | | Blue Creek development | $191.3 | N/A | | Deferred mine development costs | $31.5 | $35.7 | - Capital expenditures for the full year 2023 are expected to range from $420.0 million to $485.0 million, including $95.0-$105.0 million for sustaining capital and $325.0-$380.0 million for discretionary capital (Blue Creek development, 4 North portal, longwall shields)[192] Update on the Development of Blue Creek This section provides an update on the Blue Creek mine development project, including its schedule, expected capital expenditure increases due to scope changes, and inflationary pressures - The Blue Creek mine development project remains on schedule, with first development tons expected in Q3 2024 and longwall startup in Q2 2026[198] - Project scope changes, primarily transportation and logistics-related, are expected to increase total capital expenditures for Blue Creek by approximately $120-$130 million over the remaining development period[193][194] - The company is experiencing inflationary pressures on labor, construction materials, and equipment at Blue Creek, but expects these to be offset by inflationary increases in long-term steelmaking coal prices[195] - The revised estimate for Blue Creek capital expenditures in 2023 is approximately $250-$300 million, driven by transportation scope changes[197] Critical Accounting Policies This section confirms that there have been no material changes to the company's critical accounting estimates as described in the 2022 Annual Report - There have been no material changes to the company's critical accounting estimates as described in the 2022 Annual Report[201] Off-Balance Sheet Arrangements This section details the company's outstanding surety bonds and letters of credit for post-mining reclamation, black lung claims, and miscellaneous purposes - As of September 30, 2023, the company had outstanding surety bonds and letters of credit totaling $44.0 million for post-mining reclamation, $18.6 million for self-insured black lung claims, and $5.2 million for miscellaneous purposes[202] Recently Adopted Accounting Standards This section indicates that there are no new accounting standards to report on for the period Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to commodity price risk for coal and natural gas, credit risk on receivables, and interest rate risk on debt, also addressing inflation's impact Commodity Price Risk This section addresses the company's exposure to price fluctuations in steelmaking coal and natural gas, noting its hedging practices - The company is exposed to commodity price risk for steelmaking coal, which is sold under fixed supply contracts with indexed pricing, and for natural gas sales[204] - As of September 30, 2023, the company had no natural gas swap contracts outstanding, which are occasionally used to hedge price fluctuations[205] Credit Risk This section describes how the company manages credit risk on trade receivables through insurance, letters of credit, cash collateral, or prepayments - The company manages credit risk on trade receivables through trade credit insurance, letters of credit, cash collateral, or prepayments[207] - The estimated allowance for credit losses was immaterial as of September 30, 2023, and December 31, 2022[208] Interest Rate Risk This section details the company's exposure to interest rate fluctuations on its fixed-rate Senior Secured Notes and variable-rate ABL Facility - The Senior Secured Notes have a fixed interest rate of 7.875% per annum, while the ABL Facility bears a variable interest rate based on SOFR or an alternate base rate[209][210] - A 100-basis point increase or decrease in interest rates would increase or decrease annual interest expense under the ABL Facility by approximately $1.3 million, assuming $132.0 million outstanding[210] Impact of Inflation This section discusses the inflationary pressures on operating costs, such as supplies, labor, and equipment repair, and the company's mitigation strategies - Inflationary pressures are contributing to rising costs for supplies (e.g., belt structure, roof bolts, cable, magnetite, rock dust) and labor/parts for equipment repair[211] - The company mitigates inflation through strategies like earlier purchase orders, short-term contracts, and leveraging supplier relationships[211] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated as effective as of September 30, 2023[212] - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[213] Part II. Other Information Item 1. Legal Proceedings This section refers to Note 9 for details on legal proceedings, stating that the company believes their outcome will not materially adversely affect its financial statements - The company records costs for legal matters when a loss is probable and estimable, and believes the final outcome of current litigation will not materially adversely affect its financial statements[216] Item 1A. Risk Factors This section updates risk factors, emphasizing increased dependence on digital technologies, cyber-attack vulnerabilities, a recent ransomware attack, and the company's decision to self-insure for cyber-related events - The company is increasingly dependent on digital technologies, making its IT systems vulnerable to malicious cyberattacks, which could lead to operational disruption, data loss, and financial obligations[219] - On July 29, 2023, the company experienced a ransomware attack impacting on-premises IT systems and data theft; while managed without significant disruption or material financial impact, future attacks could materially affect the business[221][223] - The company has strategically chosen to self-insure for cyber-related events, deeming it more cost-effective than third-party insurance[222] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that no shares were repurchased under the New Stock Repurchase Program during the three months ended September 30, 2023 - No shares were repurchased under the New Stock Repurchase Program during the three months ended September 30, 2023[224] - Approximately $59.0 million remains authorized for repurchases under the New Stock Repurchase Program[224] Item 3. Defaults on Senior Securities This item states that there were no defaults on senior securities - There were no defaults on senior securities[225] Item 4. Mine Safety Disclosures This section refers to Exhibit 95 for information concerning mine safety violations and other regulatory matters Item 5. Other Information This section confirms that no director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the third quarter of 2023 - No director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the third quarter of 2023[227] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, certifications, mine safety disclosures, and XBRL-related files Signatures This section contains the formal signatures for the Quarterly Report on Form 10-Q, confirming its submission by authorized personnel