WARRIOR MET COAL INC

Previous wording

The following discussion and analysis provides a narrative of our results of operations and financial condition for the three and six months ended June 30, 2024 and June 30, 2023. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Form 10-Q and the audited financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, 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, 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.”

Current wording

The following discussion and analysis provides a narrative of our results of operations and financial condition for the three and nine months ended September 30, 2024 and September 30, 2023. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Form 10-Q and the audited financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, 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, 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.”

Previous wording

U.S. inflation remains at approximately 3%, driven by increased energy and food costs, supply constraints and strong consumer demand. While inflation is expected to ease in the overall economy for the remainder of 2024, we have not seen it easing significantly 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. Specifically, we have experienced inflationary cost increases ranging from 25% to 35%, primarily in relation to labor, construction materials, and certain equipment. In addition, we have experienced inflation in the costs of belt structure, roof bolts, cable, magnetite, rock dust and other supplies, plus labor and parts on equipment repair and rebuilds.

Current wording

U.S. inflation is currently at approximately 2.4%, driven by increased energy and food costs, supply constraints and strong consumer demand. While inflation in the overall economy has eased in the last twelve months, we have not seen it easing significantly in the coal mining industry. We 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. Specifically, we have experienced inflationary cost increases ranging from 25% to 35%, primarily in relation to labor, construction materials, and certain equipment. In addition, we have experienced inflation in the costs of belt structure, roof bolts, cable, magnetite, rock dust and other supplies, plus labor and parts on equipment repair and rebuilds.

Previous wording

Our Collective Bargaining Agreement ("CBA") with the labor union representing certain of our hourly employees 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. 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. We incurred business interruption expenses of approximately $0.1 million and $0.3 million for the three and six months ended June 30, 2024, which represent ongoing legal expenses associated with ongoing labor negotiations. We incurred $3.5 million and $7.8 million for the three and six months ended June 30, 2023, 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 presented separately in the Condensed Statements of Operations. The Company continues to engage in good faith efforts with the labor union to reach an agreement on a new contract.

Current wording

Our Collective Bargaining Agreement ("CBA") with the labor union representing certain of our hourly employees 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. 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. We incurred business interruption expenses of approximately $0.1 million and $0.4 million for the three and nine months ended September 30, 2024, which represent ongoing legal expenses associated with ongoing labor negotiations. We incurred $0.3 million and $8.1 million for the three and nine months ended September 30, 2023, 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 presented separately in the Condensed Statements of Operations. The Company continues to engage in good faith efforts with the labor union to reach an agreement on a new contract.

Previous wording

We define Segment Adjusted EBITDA as net income adjusted for other revenues; cost of other revenues; depreciation and depletion expense; selling, general and administrative expenses; business interruption expenses; interest income, net; income tax expense; other income and certain transactions or adjustments that the Chief Executive Officer, 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:

Current wording

We define Segment Adjusted EBITDA as net income adjusted for other revenues; cost of other revenues; depreciation and depletion expense; selling, general and administrative expenses; business interruption expenses; interest income, net; income tax expense; loss on early extinguishment of debt; other expense and certain transactions or adjustments that the Chief Executive Officer, 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:

Previous wording

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 steelmaking coal. Our sales volume and sales prices are largely dependent upon the terms of our annual steelmaking coal sales contracts, for which prices generally are set on daily index averages or a quarterly basis. The volume of steelmaking coal we sell is also a function of the pricing environment in the international met coal markets and the amounts of LV and HVA coal that we sell. We evaluate the price we receive for our steelmaking coal based on our average net selling price per metric ton.

Current wording

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 steelmaking coal. Our sales volume and sales prices are largely dependent upon the terms of our annual steelmaking coal sales contracts, for which prices generally are set on daily index averages on a quarterly basis. The volume of steelmaking coal we sell is also a function of the pricing environment in the international met coal markets and the amounts of LV and HVA coal that we sell. We evaluate the price we receive for our steelmaking coal based on our average net selling price per metric ton.

Previous wording

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 demurrage and quality specification adjustments.

Current wording

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 demurrage and quality specification adjustments. We normally compete on a delivered basis when negotiating contract and spot transactions with our global customers. However, depending on market dynamics and other circumstances, the burden of ocean freight may be borne entirely by the supplier, shared between both partners, or assumed entirely by the customer. In the instance when we are responsible for the freight, the freight costs will reduce our net sales revenues and impact our net selling price realizations.

Previous wording

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 accounting principles generally accepted in the United States ("GAAP"), are classified in the Condensed Statements of Operations as costs other than cost of sales, but relate directly to the costs incurred to produce met coal and sell it FOB at the Port of Mobile, 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:

Current wording

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 accounting principles generally accepted in the United States ("GAAP"), are classified in the Condensed Statements of Operations as costs other than cost of sales, but relate directly to the costs incurred to produce met coal and sell it FOB 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:

Previous wording

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 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 cost of sales presents a useful measure of our controllable costs and our operational results by including all costs incurred to produce met coal and sell it FOB at the Port of Mobile, Alabama. Period-to-period comparisons of cash cost of sales are intended to help management identify and assess additional trends that potentially impact us and that may not be shown solely by period-to-period comparisons of cost of sales. Cash cost of sales should not be considered an alternative to cost of sales or any other measure of financial performance or liquidity presented in accordance with GAAP. Cash cost of sales excludes some, but not all, items that affect cost of sales, and our presentation may vary from the presentations of other companies. As a result, cash cost of sales as presented below may not be comparable to similarly titled measures of other companies.

Current wording

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 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 cost of sales presents a useful measure of our controllable costs and our operational results by including all costs incurred to produce met coal and sell it FOB 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 that potentially impact us and that may not be shown solely by period-to-period comparisons of cost of sales. Cash cost of sales should not be considered an alternative to cost of sales or any other measure of financial performance or liquidity presented in accordance with GAAP. Cash cost of sales excludes some, but not all, items that affect cost of sales, and our presentation may vary from the presentations of other companies. As a result, cash cost of sales as presented below may not be comparable to similarly titled measures of other companies.

Previous wording

We define Adjusted EBITDA as net income before interest income, net, income tax expense, depreciation and depletion, non-cash asset retirement obligation accretion, non-cash stock compensation expense, other non-cash accretion, mark-to-market gain on gas hedges, business interruption and other income. 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:

Current wording

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

Previous wording

We produced 2.0 million metric tons of steelmaking coal for the three months ended June 30, 2024 compared to 1.7 million metric tons for the three months ended June 30, 2023, representing a 13% increase. The increased production drove an increase in sales as both Mine No. 4 and Mine No. 7 operated at higher capacity levels in the second quarter of 2024 compared to the second quarter of 2023.

Current wording

We produced 1.7 million metric tons of steelmaking coal for the three months ended September 30, 2024 compared to 1.8 million metric tons for the three months ended September 30, 2023, representing a 3.8% decrease. The decreased production is primarily due to us operating at lower capacity levels in the third quarter of 2024 compared to 2023 due to anticipated lower sales volumes discussed in further detail below.

Previous wording

Sales for the three months ended June 30, 2024 were $390.4 million compared to $371.0 million for the three months ended June 30, 2023. The $19.4 million increase in sales was primarily driven by a $66.9 million increase in sales due to a 18% or 0.3 million metric ton increase in steelmaking coal sales volume offset partially by a $47.6 million decrease in sales related to a $24.98 per metric ton decrease in the average net selling price per metric ton of steelmaking coal. The 18% increase in sales volumes was driven by higher production from both Mine No. 4 and Mine No. 7 operating at higher capacity levels in 2024 compared to 2023. The average net selling price of our steelmaking coal decreased $24.98 from the $230.03 per metric ton in the second quarter of 2023 to $205.05 per metric ton in the second quarter of 2024.

Current wording

Sales for the three months ended September 30, 2024 were $319.9 million compared to $416.9 million for the three months ended September 30, 2023. The $96.9 million decrease in sales was primarily driven by a $73.3 million decrease in sales due to a 17.6% or 0.4 million metric ton decrease in steelmaking coal sales volume and a $23.7 million decrease in sales related to a $14.02 per metric ton decrease in the average net selling price per metric ton of steelmaking coal. The 17.6% decrease in sales volumes was driven by us being selective with spot sales and exercising patience while we wait for market conditions to improve. The average net selling price of our steelmaking coal decreased $14.02 from $203.56 per metric ton in the third quarter of 2023 to $189.54 per metric ton in the third quarter of 2024.

Previous wording

For the three months ended June 30, 2024, our geographic customer mix was 39% in Europe, 37% in Asia, 23% in South America and 1% in the United States. For the three months ended June 30, 2023, our geographic customer mix was 47% in Europe, 33% in Asia, 19% in South America and 1% in the United States. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.

Current wording

For the three months ended September 30, 2024, our geographic customer mix was 44% in Europe, 41% in Asia, 15% in South America and 1% in the United States. For the three months ended September 30, 2023, our geographic customer mix was 45% in Asia, 36% in Europe and 19% in South America. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.

Previous wording

Other revenues for the three months ended June 30, 2024 were $6.1 million compared to $8.6 million for the three months ended June 30, 2023. Other revenues are comprised of revenue derived from our natural gas operations, gains on sales and disposals of property, plant and equipment and land, changes in the fair value of our natural gas swap contracts, as well as earned royalty revenue. The $2.5 million decrease in other revenues is primarily due to a decrease in sales volume of 10% as the Southern Louisiana natural gas price average per Million British Thermal Unit ("MMBtu") remained relatively consistent for the three months ended June 30, 2024 as compared to the prior year comparable period.

Current wording

Other revenues for the three months ended September 30, 2024 were $7.8 million compared to $6.6 million for the three months ended September 30, 2023. Other revenues are comprised of revenue derived from our natural gas operations, gains on sales and disposals of property, plant and equipment and land and earned royalty revenue. The $1.2 million increase in other revenues is primarily due to an increase of royalty income offset partially by a decrease in the Southern Louisiana natural gas price average per Million British Thermal Unit ("MMBtu") of 15% for the three months ended September 30, 2024 as compared to the prior year comparable period.

Previous wording

Cost of sales was $261.3 million, or 65.9% of total revenues, for the three months ended June 30, 2024, compared to $230.5 million, or 60.7% of total revenues for the three months ended June 30, 2023. The $30.9 million increase is primarily driven by a $41.3 million increase due to a 0.3 million metric ton increase in steelmaking coal sales volume offset partially by a $10.6 million decrease due to a $24.98 per metric ton decrease in the average net selling price per metric ton of steelmaking coal and its effect on our variable cost structure, primarily for wages, transportation and royalties. For the three months ended June 30, 2024 cost of production represented 61% of cost of sales and transportation and royalties accounted for approximately 39% compared to cost of production of 59% and transportation and royalties of 41% for the three months ended June 30, 2023.

Current wording

Cost of sales was $231.6 million, or 70.7% of total revenues, for the three months ended September 30, 2024, compared to $260.4 million, or 61.5% of total revenues for the three months ended September 30, 2023. The $28.8 million decrease is primarily driven by a $45.5 million decrease due to a 0.4 million metric ton decrease in steelmaking coal sales volume offset partially by a $16.4 million increase due to a $9.74 per metric ton increase in cash cost of sales per metric ton due to an increase in production costs driven by increased headcount and supply costs. For the three months ended September 30, 2024, cost of production represented 66% of cost of sales and transportation and royalties accounted for approximately 34% compared to cost of production of 62% and transportation and royalties of 38% for the three months ended September 30, 2023.

Previous wording

Depreciation and depletion expenses were $38.1 million, or 9.6% of total revenues, for the three months ended June 30, 2024, compared to $30.6 million, or 8.0% of total revenues for the three months ended June 30, 2023. The $7.6 million increase in depreciation and depletion is primarily driven by an increase additional assets placed into service and an increase in met coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Current wording

Depreciation and depletion expenses were $36.6 million, or 11.2% of total revenues, for the three months ended September 30, 2024, compared to $34.0 million, or 8.0% of total revenues for the three months ended September 30, 2023. The $2.6 million increase in depreciation and depletion is primarily driven by an increase in additional assets placed into service partially offset by a decrease in met coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Previous wording

Selling, general and administrative expenses were $15.4 million, or 3.9% of total revenues, for the three months ended June 30, 2024, compared to $13.2 million, or 3.5% of total revenues, for the three months ended June 30, 2023. The $2.2 million increase in selling, general and administrative expenses for the period is due to an increase in employee related expenses.

Current wording

Selling, general and administrative expenses were $11.4 million, or 3.5% of total revenues, for the three months ended September 30, 2024, compared to $11.1 million, or 2.6% of total revenues, for the three months ended September 30, 2023. The $0.3 million increase in selling, general and administrative expenses for the period is due to an increase in employee related expenses.

Previous wording

Business interruption expenses were $0.3 million and $7.8 million for the six months ended June 30, 2024 and 2023, respectively. These expenses decreased compared to the prior period primarily due to the end of the labor strike on February 16, 2023 that the labor union initiated on April 1, 2021 and represent ongoing legal expenses associated with the labor negotiations.

Current wording

Business interruption expenses were $0.1 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively. These expenses represent ongoing legal expenses associated with labor negotiations.

Previous wording

Interest expense was $0.9 million, or 0.2% of total revenues, for the three months ended June 30, 2024, compared to interest expense of $5.5 million, or 1.4% of total revenues, for the three months ended June 30, 2023. The $4.5 million decrease is due to the early retirement of our Notes (as defined below) in August 2023 and maturity of financing leases.

Current wording

Interest expense was $1.4 million, or 0.4% of total revenues, for the three months ended September 30, 2024, compared to interest expense of $3.4 million, or 0.8% of total revenues, for the three months ended September 30, 2023. The $2.0 million decrease is due to the early retirement of $146.1 million of our $350.0 million in aggregate principal amount of 7.875% senior secured notes due 2028 (the "Notes") in September 2023, maturity of financing leases and the capitalization of interest associated with the development of Blue Creek.

Previous wording

Interest income was $9.2 million, or 2.3% of total revenues for the three months ended June 30, 2024, compared to $11.6 million, or 3.1% of total revenues for the three months ended June 30, 2023. The $2.4 million decrease was primarily driven by a decrease in invested cash balances.

Current wording

Interest income was $8.7 million, or 2.6% of total revenues for the three months ended September 30, 2024, compared to $10.7 million, or 2.5% of total revenues for the three months ended September 30, 2023. The $2.0 million decrease was primarily driven by a decrease in invested cash balances and lower rates of return earned on our investments.

Previous wording

For the three months ended June 30, 2024, we recognized income tax expense of $8.5 million compared to income tax expense of $14.5 million for the three months ended June 30, 2023. The $6.0 million decrease in income tax expense is primarily driven by a decrease in pre-tax income. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period. The $8.5 million income tax expense for the three months ended June 30, 2024, includes a benefit related to depletion, Internal Revenue Code ("IRC") Section 250 Deduction: Foreign-Derived Intangible Income ("FDII") and Section 45l Deduction: Marginal Well Credit. The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017 and enacted IRC Section 250 Deduction: FDII, which provides for, among other things, a deduction of 37.5% with respect to foreign-derived intangible income, which reduces the statutory tax rate from 21% to 13.125%. Beginning in 2026, the deduction is reduced from 37.5% to 21.875% of foreign-derived intangible income. The Marginal Well Credit is a production-based tax credit that provides a credit for qualified natural gas production and is phased out when natural gas prices exceed certain thresholds.

Current wording

For the three months ended September 30, 2024, we recognized income tax expense of $4.6 million comp ared to income tax expense of $16.8 million for the three months ended September 30, 2023. The $12.2 million decrease in income tax expense is primarily driven by a decrease in pre-tax income. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period. The $4.6 million income tax expense for the three months ended September 30, 2024, includes a benefit related to depletion, Internal Revenue Code ("IRC") Section 250 Deduction: Foreign-Derived Intangible Income ("FDII") and Section 45l Deduction: Marginal Well Credit. The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017 and enacted IRC Section 250 Deduction: FDII, which provides for, among other things, a deduction of 37.5% with respect to foreign-derived intangible income, which reduces the statutory tax rate from 21% to 13.125%. Beginning in 2026, the deduction is reduced from 37.5% to 21.875% of foreign- derived intangible income. The Marginal Well Credit is a production-based tax credit that provides a credit for qualified natural gas production and is phased out when natural gas prices exceed certain thresholds.

Previous wording

We produced 3.8 million metric tons of steelmaking coal for the six months ended June 30, 2024 compared to 3.3 million metric tons for the six months ended June 30, 2023, representing a 13% increase. The increased production drove an increase in sales as both Mine No. 4 and Mine No. 7 operated at higher capacity levels in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

We produced 5.6 million metric tons of steelmaking coal for the nine months ended September 30, 2024 compared to 5.1 million metric tons for the nine months ended September 30, 2023, representing an 8% increase. The increased production drove a slight increase in sales as both Mine No. 4 and Mine No. 7 operated at higher capacity levels in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Previous wording

Sales for the six months ended June 30, 2024 were $888.4 million compared to $871.5 million for the six months ended June 30, 2023. The 2% increase in sales was primarily driven by a $117.0 million increase in sales due to a 13% or 0.5 million metric ton increase in steelmaking coal sales volume offset partially by a $100.1 million decrease in sales related to a 10% or $26.11 per metric ton decrease in the average net selling price per metric ton of steelmaking coal. The 13% 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.

Current wording

Sales for the nine months ended September 30, 2024 were $1,208.4 million compared to $1,288.4 million for the nine months ended September 30, 2023. The $80.0 million or 6.2% decrease in sales was primarily driven by a $102.3 million decrease in sales related to a 7.8% or $18.53 per metric ton decrease in the average net selling price per metric ton of steelmaking coal offset partially by a $22.3 million increase in sales due to a 1.7% or 0.1 million metric ton increase in steelmaking coal sales volume. The 1.7% 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.

Previous wording

For the six months ended June 30, 2024, our geographic customer mix was 42% in Europe, 37% in Asia, 20% in South America and 1% in the United States. For the six months ended June 30, 2023, our geographic customer mix was 50% in Europe, 27% in Asia, 22% in South America and 1% in the United States. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.

Current wording

For the nine months ended September 30, 2024, our geographic customer mix was 43% in Asia, 39% in Europe, 17% in South America and 1% in the United States. For the nine months ended September 30, 2023, our geographic customer mix was 46% in Europe, 34% in Asia, and 20% in South America. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments.

Previous wording

Other revenues for the six months ended June 30, 2024 were $11.6 million compared to $17.8 million for the six months ended June 30, 2023. Other revenues are comprised of revenue derived from our natural gas operations, gains on sales and disposals of property, plant and equipment and land, changes in the fair value of our natural gas swap contracts, as well as earned royalty revenue. The $6.2 million decrease in other revenues is due to the decrease in the Southern Louisiana natural gas price average of $0.58 per MMBtu or 20% and a decrease in sales volume for the six months ended June 30, 2024 as compared to the prior year comparable period.

Current wording

Other revenues for the nine months ended September 30, 2024 were $19.4 million compared to $24.4 million for the nine months ended September 30, 2023. Other revenues are comprised of revenue derived from our natural gas operations, gains on sales and disposals of property, plant and equipment and land, changes in the fair value of our natural gas swap contracts, as well as earned royalty revenue. The $5.0 million decrease in other revenues is due to the decrease in the Southern Louisiana natural gas price average of $0.52 per MMBtu or 19% and a decrease in sales volume for the nine months ended September 30, 2024 as compared to the prior year comparable period.

Previous wording

Cost of sales (exclusive of items shown separately below) was $546.9 million, or 60.8% of total revenues, for the six months ended June 30, 2024, compared to $463.1 million, or 52.1% of total revenues for the six months ended June 30, 2023. The $83.8 million increase is primarily driven by a $61.8 million increase due to a 13% or 0.5 million metric ton increase in steelmaking coal sales volume combined with a $21.5 million increase due to an increase in cost of production primarily driven by increased labor costs and increased transportation costs due to the failure of a lock and dam system on the Tombigbee River that occurred in January, which slightly increased our transportation costs. For the six months ended June 30, 2024 cost of production represented 61% of cost of sales and transportation and royalties accounted for approximately 39% compared to cost of production of 58% and transportation and royalties of 42% for the six months ended June 30, 2023.

Current wording

Cost of sales (exclusive of items shown separately below) was $778.5 million, or 63.4%, of total revenues, for the nine months ended September 30, 2024, compared to $723.5 million, or 55.1% of total revenues for the nine months ended September 30, 2023. The $55.0 million increase is primarily driven by a $41.9 million increase due to an increase in cost of production primarily driven by increased labor costs, increased supply costs and increased transportation costs due to multiple failures of lock and dam systems that have prevented us from barging coal for the majority of this year combined with a $12.4 million increase due to a 2% or 0.1 million metric ton increase in steelmaking coal sales volume. For the nine months ended September 30, 2024, cost of production represented 63% of cost of sales and transportation and royalties accounted for approximately 37% compared to cost of production of 60% and transportation and royalties of 40% for the nine months ended September 30, 2023.

Previous wording

Depreciation and depletion expenses were $78.2 million, or 8.7% of total revenues, for the six months ended June 30, 2024, compared to $67.8 million, or 7.6% for the six months ended June 30, 2023. The $10.4 million increase in depreciation and depletion is primarily driven by additional assets placed into service and a 13% or 0.5 million metric ton increase in steelmaking coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Current wording

Depreciation and depletion expenses were $114.8 million, or 9.4% of total revenues, for the nine months ended September 30, 2024, compared to $101.8 million, or 7.8%, for the nine months ended September 30, 2023. The $13.0 million increase in depreciation and depletion is primarily driven by additional assets placed into service and a 1.7% or 0.1 million metric ton increase in steelmaking coal sales volume as depreciation and depletion is first capitalized into coal inventory and relieved when the tons are sold.

Previous wording

Selling, general and administrative expenses were $34.0 million, or 3.8% of total revenues, for the six months ended June 30, 2024, compared to $27.7 million, or 3.1% of total revenues, for the six months ended June 30, 2023. The $6.4 million increase in selling, general and administrative expenses for the period is due to an increase in employee related expenses.

Current wording

Selling, general and administrative expenses were $45.5 million, or 3.7% of total revenues, for the nine months ended September 30, 2024, compared to $38.8 million, or 3.0% of total revenues, for the nine months ended September 30, 2023. The $6.6 million increase in selling, general and administrative expenses for the period is due to an increase in employee related expenses.

Previous wording

Business interruption expenses were $0.1 million and $3.5 million for the three months ended June 30, 2024 and 2023, respectively. The decrease in business interruption expenses is due to the end of the labor strike on February 16, 2023 that the labor union initiated on April 1, 2021. The expenses in the three months ended June 30, 2024 represent ongoing legal expenses associated with labor negotiations and the expenses in the three months ended June 30, 2023 represent non-recurring expenses that were directly attributable to the labor strike for incremental safety and security, legal and labor negotiations and other expenses.

Current wording

Business interruption expenses were $0.4 million and $8.1 million for the nine months ended September 30, 2024 and 2023, respectively. These expenses decreased compared to the prior period primarily due to the end of the labor strike on February 16, 2023 that the labor union initiated on April 1, 2021. The expenses for the nine months ended September 30, 2024 represent ongoing legal expenses associated with the labor negotiations and the expenses in the nine months ended September 30, 2023 represent non-recurring expenses that were directly attributable to the labor strike for incremental safety and security, legal and labor negotiations and other expenses.

Previous wording

Interest expense was $2.0 million, or 0.2% of total revenues, for the six months ended June 30, 2024, compared to $12.9 million, or 1.4% of total revenues, for the six months ended June 30, 2023. The $10.9 million decrease was primarily driven by a decrease in interest expense due to the early retirement of our Notes in August 2023, an increase in capitalized interest associated with the Blue Creek project and maturity of financing leases.

Current wording

Interest expense was $3.5 million, or 0.3% of total revenues, for the nine months ended September 30, 2024, compared to $16.3 million, or 1.2% of total revenues, for the nine months ended September 30, 2023. The $12.9 million decrease was primarily driven by a decrease in interest expense due to the early retirement of our Notes in September 2023, an increase in capitalized interest associated with the Blue Creek project and maturity of financing leases.

Previous wording

Interest income was $17.4 million, or 1.9% of total revenues for the six months ended June 30, 2024, compared to $20.5 million, or 2.3% of total revenues for the six months ended June 30, 2023. The $3.1 million decrease was primarily driven by a decrease in invested cash balances.

Current wording

Interest income was $26.1 million, or 2.1% of total revenues for the nine months ended September 30, 2024, compared to $31.2 million, or 2.4%, of total revenues for the nine months ended September 30, 2023. The $5.2 million decrease was primarily driven by a decrease in invested cash balances and lower rates of return earned on our investments.

Previous wording

Other income for the six months ended June 30, 2023 of $0.2 million represents proceeds received from the Chapter 11 Cases from Walter Energy, Inc.

Current wording

Other expense for the nine months ended September 30, 2023 of $0.9 million represents non-recurring expenses incurred in connection with a ransomware attack offset partially by proceeds received from the Chapter 11 Cases from Walter Energy, Inc.

Previous wording

We recognized income tax expense of $27.6 million and $43.6 million for the six months ended June 30, 2024 and June 30, 2023, respectively. The decrease in income tax expense is primarily driven by a decrease in pre-tax income. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period. The $27.6 million income tax expense for the six months ended June 30, 2024, includes a benefit related to depletion, IRC Section 250 Deduction: FDII and Section 45l Deduction: Marginal Well Credit. The TCJA was enacted on December 22, 2017 and enacted IRC Section 250 Deduction: FDII, which provides for, among other things, a deduction of 37.5% with respect to foreign-derived intangible income, which reduces the statutory tax rate from 21% to 13.125%. Beginning in 2026, the deduction is reduced from 37.5% to 21.875% of foreign-derived intangible income. The Marginal Well Credit is a production-based tax credit that provides a credit for qualified natural gas production and is phased out when natural gas prices exceed certain thresholds. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period.

Current wording

We recognized income tax expense of $32.2 million and $60.4 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. The decrease in income tax expense is primarily driven by a decrease in pre-tax income. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period. The $32.2 million income tax expense for the nine months ended September 30, 2024 includes a benefit related to depletion, IRC Section 250 Deduction: FDII and Section 45l Deduction: Marginal Well Credit. The TCJA was enacted on December 22, 2017 and enacted IRC Section 250 Deduction: FDII, which provides for, among other things, a deduction of 37.5% with respect to foreign-derived intangible income, which reduces the statutory tax rate from 21% to 13.125%. Beginning in 2026, the deduction is reduced from 37.5% to 21.875% of foreign-derived intangible income. The Marginal Well Credit is a production-based tax credit that provides a credit for qualified natural gas production and is phased out when natural gas prices exceed certain thresholds. We estimated our annual effective tax rate and applied this effective tax rate to our year-to-date pretax income at the end of the interim reporting period.

Previous wording

Going forward, we plan to 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.

Current wording

Going forward, we plan to 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, 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.

Previous wording

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.

Current wording

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.

Previous wording

Our total liquidity as of June 30, 2024 was $816.4 million, consisting of cash and cash equivalents of $709.0 million and $107.4 million available under our ABL Facility. As of June 30, 2024, 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.

Current wording

Our total liquidity as of September 30, 2024 was $746.4 million, consisting of cash and cash equivalents of $583.2 million, long-term investments of $49.7 million and $113.5 million available under our ABL Facility. As of September 30, 2024, no loans were outstanding under the ABL Facility and there were $2.5 million of letters of credit issued and outstanding under the ABL Facility.

Previous wording

During the first quarter of 2023, we repurchased in the open market and extinguished approximately $8.0 million principal amount of our Notes at a discount to par value. 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 expense in the Condensed Statements of Operations.

Current wording

During the first quarter of 2023, we repurchased in the open market and extinguished approximately $8.8 million principal amount of our Notes at a discount to par value. 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 expense in the Condensed 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.

Previous wording

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. From June 1, 2020 through May 31, 2024, we had a deductible policy where we are responsible for the first $1.0 million for each black lung claim. Beginning June 1, 2024, we have a deductible policy where we are responsible for the first $2.0 million for each black lung claim.

Current wording

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 under which we were responsible for the first $0.5 million for each black lung claim. From June 1, 2020 through May 31, 2024, we had a deductible policy under which we were responsible for the first $1.0 million for each black lung claim. Beginning June 1, 2024, we have a deductible policy where we are responsible for the first $2.0 million for each black lung claim.

Previous wording

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 $9.3 million of collateral recognized as short-term investments in addition to maintaining a black lung trust of $2.1 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 have 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.

Current wording

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 $9.4 million of collateral recognized as short-term investments in addition to maintaining a black lung trust of $2.1 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 have 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 require, among other requirements, all self-insured operators to post security equal to 120 percent of their projected black lung liabilities.

Previous wording

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 June 30, 2024, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our mining operations totaling $45.8 million, $18.6 million as collateral for self-insured black lung related claims and $5.2 million for miscellaneous purposes.

Current wording

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 September 30, 2024, we had outstanding surety bonds and letters of credit with parties for post-mining reclamation at all of our mining operations totaling $46.3 million, $18.6 million as collateral for self-insured black lung related claims and $5.2 million for miscellaneous purposes.

Previous wording

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.

Current wording

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.