UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 3130, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-191182

Armstrong Energy, Inc.

(Exact name of registrant as specified in its charter)



Delaware		20-8015664
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

7733 Forsyth Boulevard, Suite 1625 St. Louis, Missouri		63105
(Address of principal executive offices)		(Zip code)

(314) 721 – 8202

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No

As of ~~May~~August 1110, 2017, there were 21,883,224 shares of Armstrong Energy, Inc.’s Common Stock outstanding.

Table of Contents

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2124
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2935
Item 4.	Controls and Procedures	3035
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	3136
Item 1A.	Risk Factors	3136
Item 4.	Mine Safety Disclosures	31
Item 3.	Defaults Upon Senior Securities	37
Item 5.	Other Information	31
Item 4.	Mine Safety Disclosures	38
Item 6.	Exhibits	34
Item 5.	Other Information	38
Signatures		35
Item 6.	Exhibits	39
Signatures		40

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Armstrong Energy, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

	March 31, 2017			December 31, 2016
	June 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5143,~~838~~261		$	57,505
Accounts receivable	1114,~~623~~540			13,059
Inventories	1311,~~640~~926			11,809
Prepaid and other assets	14,~~925~~375			2,539
Total current assets	7974,~~026~~102			84,912
Property, plant, equipment, and mine development, net	~~227~~219,~~339~~777			233,766
Investments	2,794			2,794
Other non-current assets	12,~~966~~282			12,683
Total assets	$	~~322~~308,~~125~~955		$	334,155
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	13,~~296~~811		$	16,941
Accrued and other liabilities	1924,~~692~~149			11,837
Current portion of capital lease obligations	~~331~~104			555
Current maturities of long-term debt	7203,~~542~~506			8,217
Total current liabilities	40241,~~861~~570			37,550
Long-term debt, less current maturities	~~198,116~~—			199,040
Long-term obligation to related party	~~170~~171,~~419~~115			147,536
Related party payables, net	—			22,557
Asset retirement obligations	14,~~380~~711			14,056
Other non-current liabilities	7,~~542~~866			7,223
Total liabilities	~~431~~435,~~318~~262			427,962
Stockholders’ deficit:
Common stock, $0.01 par value, 70,000,000 shares authorized, 21,883,224 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively	219			219
Common stock, $0.01 par value, 70,000,000 shares authorized, 21,883,224 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	219			219
Preferred stock, $0.01 par value, 1,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively	—			—
Preferred stock, $0.01 par value, 1,000,000 shares authorized, zero shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	—			—
Additional paid-in-capital	238,~~678~~681			238,675
Accumulated deficit	(~~346~~363,~~610~~784		)	(331,164		)
Accumulated other comprehensive loss	(1,~~503~~446		)	(1,560		)
Armstrong Energy, Inc.’s deficit	(~~109~~126,~~216~~330		)	(93,830		)
Non-controlling interest	23			23
Total stockholders’ deficit	(~~109~~126,~~193~~307		)	(93,807		)
Total liabilities and stockholders’ deficit	$	~~322~~308,~~125~~955		$	334,155

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

Armstrong Energy, Inc. and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

	Three Months EndedMarch 31,
	Three Months EndedJune 30,						Six Months EndedJune 30,
	2017			2016			2017			2016
Revenue	$	5960,~~108~~904		$	60,~~444~~309		$	120,011		$	120,753
Costs and expenses:
Cost of coal sales, exclusive of items shown separately below	51,~~296~~678			5250,~~675~~639			102,974			103,314
Production royalty to related party	1,~~860~~891			1,~~629~~711			3,751			3,340
Depreciation, depletion, and amortization	7,~~637~~684			7,~~614~~544			15,320			15,158
Asset retirement obligation expenses	~~329~~341			~~329~~340			670			669
General and administrative expenses	2,957			3,518
Asset impairment and restructuring charges	3,382			3,381			3,382			3,381
Operating loss	(4,971		)	(5,321		)
General and administrative expenses	3,180			2,922			6,138			6,440
Other income (expense):
Operating loss	(7,252		)	(6,228		)	(12,224		)	(11,549		)
Interest expense, net	(9,194		)	(8,108		)
Other income (expense):
Other, net	(1,281		)	105
Interest expense, net	(9,250		)	(8,549		)	(18,444		)	(16,657		)
Loss before income taxes	(15,446		)	(13,324		)
Other, net	(909		)	(225		)	(2,189		)	(120		)
Income taxes	—			(117		)
Loss before income taxes	(17,411		)	(15,002		)	(32,857		)	(28,326		)
Net loss	(15,446		)	(13,441		)
Income taxes	237			—			237			(117		)
Income attributable to non-controlling interest	—			—
Net loss	(17,174		)	(15,002		)	(32,620		)	(28,443		)
Net loss attributable to common stockholders	$	(15,446	)	$	(13,441	)
Income attributable to non-controlling interest	—			—			—			—
Net loss attributable to common stockholders	$	(17,174	)	$	(15,002	)	$	(32,620	)	$	(28,443	)

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

Armstrong Energy, Inc. and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

	Three Months EndedMarch 31,
	Three Months EndedJune 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net loss	$	(1517,~~446~~174	)	$	(1315,~~441~~002	)	$	(32,620	)	$	(28,443	)
Postretirement benefit plan and other employee benefit obligations, net of tax	57			7778			114			155
Other comprehensive income	57			7778			114			155
Comprehensive loss	(1517,~~389~~117		)	(1314,~~364~~924		)	(32,506		)	(28,288		)
Less: comprehensive income (loss) attributable to non-controlling interests	—			—			—			—
Comprehensive loss attributable to common stockholders	$	(1517,~~389~~117	)	$	(1314,~~364~~924	)	$	(32,506	)	$	(28,288	)

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

Armstrong Energy, Inc. and Subsidiaries

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

~~Three~~Six Months Ended ~~March~~June 3130, 2017

(Amounts in thousands)

	Common Stock			Preferred Stock			AdditionalPaid-in-Capital		AccumulatedDeficit			AccumulatedOtherComprehensiveLoss			Non-ControllingInterest		TotalStockholders’Deficit
	Number ofShares	Amount		Number ofShares	Amount
Balance at December 31, 2016	21,883	$	219	—	$	—	$	238,675	$	(331,164	)	$	(1,560	)	$	23	$	(93,807	)
Net loss	—	—		—	—		—		(1532,~~446~~620		)	—			—		(1532,~~446~~620		)
Stock based compensation	—	—		—	—		36		—			—			—		36
Postretirement benefit plan and other employee benefit obligations, net of tax of zero	—	—		—	—		—		—			57114			—		57114
Balance at March 31, 2017	21,883	$	219	—	$	—	$	238,678	$	(346,610	)	$	(1,503	)	$	23	$	(109,193	)
Balance at June 30, 2017	21,883	$	219	—	$	—	$	238,681	$	(363,784	)	$	(1,446	)	$	23	$	(126,307	)

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

Armstrong Energy, Inc. and Subsidiaries

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Three Months EndedMarch 31,
	Six Months EndedJune 30,
	2017			2016
Cash Flows from Operating Activities:
Net loss	$	(1532,~~446~~620	)	$	(1328,~~441~~443	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Non-cash stock compensation expense (income)	36			(2825		)
Income from equity affiliate	—			(2964		)
Amortization of original issue discount	261			231
Gain on disposal of property, plant and equipment	(720		)	—
Amortization of debt issuance costs	366			412
Amortization of original issue discount	525			465
Depreciation, depletion and amortization	7,637			7,614
Amortization of debt issuance costs	736			827
Asset retirement obligation expenses	329			329
Depreciation, depletion and amortization	15,320			15,158
Non-cash activity with related party, net	640			2,961
Asset retirement obligation expenses	670			669
Non-cash interest on long-term obligations	5,875			5,879
Asset impairment	3,382			3,381
Non-cash activity with related party, net	1,336			6,456
Non-cash interest on long-term obligations	11,750			8
Change in operating assets and liabilities:
Decrease in accounts receivable	1,435			1,733
Increase in accounts receivable	(1,480		)	(250		)
Increase in inventories	(1,831		)	(870		)
(Increase) decrease in inventories	(117		)	4,072
Decrease in prepaid and other assets	300			845
Increase in prepaid and other assets	(2,150		)	(1,284		)
Increase in other non-current assets	(287		)	(481		)
Decrease (increase) in other non-current assets	392			(506		)
Decrease in accounts payable and accrued and other liabilities	(12,~~614~~472		)	(78,~~639~~946		)
Increase in other non-current liabilities	~~321~~644			~~282~~563
Net cash used in operating activities:	(24,~~011~~798		)	(27,~~202~~919		)
Cash Flows from Investing Activities:
Investment in property, plant, equipment, and mine development	(15,~~205~~337		)	(~~947~~1,593		)
Net cash used in investing activities	(1,205		)	(947		)
Proceeds from disposal of fixed assets	1,504			—
Net cash used in investing activities	(3,833		)	(1,593		)
Cash Flows from Financing Activities:
Payments on capital lease obligations	(~~224~~451		)	(~~676~~1,265		)
Payments of long-term debt	(25,~~227~~162		)	(13,~~690~~948		)
Net cash used in financing activities	(25,~~451~~613		)	(25,~~366~~213		)
Net change in cash and cash equivalents	(514,~~667~~244		)	(514,~~515~~725		)
Cash and cash equivalents, at the beginning of the period	57,505			67,617
Cash and cash equivalents, at the end of the period	$	5143,~~838~~261		$	6252,~~102~~892

	Three Months EndedMarch 31,
	Six Months EndedJune 30,
	2017		2016
Supplemental Cash Flow Information:
Non-Cash Transactions:
Non-cash portion of land and reserve sale/financing with related party	$	22,243	$	—
Assets acquired with long-term debt	$	150	$	886
Non-cash portion of land and reserve sale/financing with related party	$	22,243	$	16,413

Table of Contents

Armstrong Energy, Inc. and Subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and per acre amounts)

1. DESCRIPTION OF BUSINESS AND ENTITY STRUCTURE

Business

Armstrong Energy, Inc. and its subsidiaries and controlled entities (collectively, Armstrong or the Company) commenced business on September 19, 2006, for the purpose of owning and operating coal reserves (also referred to as mineral rights) and production assets. As of ~~March~~June 3130, 2017, all subsidiaries are majority owned. The Company is a producer of low chlorine, high sulfur thermal coal from the Illinois Basin, operating both surface and underground mines. Armstrong, which is headquartered in St. Louis, Missouri, markets its coal primarily to electric utility companies as fuel for their steam-powered generators. As of ~~March~~June 3130, 2017, the Company had approximately ~~627~~624 employees, none of whom are under a collective bargaining arrangement.

Prior to September 1, 2016, the Company’s wholly-owned subsidiary, Elk Creek GP, LLC (ECGP), was the sole general partner of, and had an approximate 0.2% ownership in, Thoroughbred Resources, L.P. (Thoroughbred). The various limited partners of Thoroughbred are related parties, as the entity is majority owned by investment funds managed by Yorktown Partners LLC (Yorktown), which has a majority ownership in the Company. Effective September 1, 2016, Yorktown exercised its right under the Second Amended and Restated Agreement of Limited Partnership of Thoroughbred Resources, L.P. to remove ECGP as the general partner of Thoroughbred. The Company does not consolidate the financial results of Thoroughbred. See Note 6, "Related-Party Transactions," for further discussion.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting and U.S. Securities and Exchange Commission (SEC) regulations. In the opinion of management, all adjustments consisting of normal, recurring accruals considered necessary for a fair presentation have been included. Balance sheet information presented herein as of December 31, 2016 has been derived from the Company’s audited consolidated balance sheet at that date. Results of operations for the three and six months ended ~~March~~June 3130, 2017 are not necessarily indicative of results to be expected for the year ending December 31, 2017. Certain prior year amounts have been reclassified to conform with the 2017 presentation. These financial statements should be read in conjunction with the audited financial statements and related notes as of and for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2017.

Newly Adopted Accounting Standards and Accounting Standards Not Yet Implemented

In March 2017, the Financial Accounting Standards Board (FASB) issued guidance that changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. The new guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period with only the service cost component eligible for capitalization in assets. Other components of the net periodic benefit cost are to be stated separately from the line item(s) that includes the service cost and outside of operating income. These components are not eligible for capitalization in assets. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within that annual period, with early adoption permitted. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements.

In March 2016, the FASB issued guidance that simplifies several aspects of accounting for share- based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company adopted all provisions of this new accounting standard in the first quarter of 2017 and changed its forfeiture policy to recognizing the impact of forfeitures when they occur from estimating expected forfeitures in determining stock-based compensation expense. There was no material impact to the Company's financial statements.

In February 2016, the FASB issued updated guidance regarding the accounting for leases. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the effect of this update on its consolidated financial statements.

Table of Contents

~~entered~~In ~~into~~May ~~after~~2014, the ~~beginning~~FASB issued a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard requires revenue to be recognized when promised goods or services are transferred to a customer in an amount that reflects the consideration expected in exchange for those goods or services. The standard permits the use of either the ~~earliest~~full ~~comparative~~retrospective ~~period~~or ~~presented~~modified inretrospective transition method. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted to the ~~financial~~original ~~statements~~effective date of December 15, 2016. The Company’s primary source of revenue is from the sale of coal through both short-term and long-term contracts, primarily with utilities, whereby revenue is currently ~~evaluating~~recognized when risk of loss has passed to the ~~effect~~customer. During 2016, the Company started its initial review of contracts with customers and does not currently anticipate any material change in the timing or method of recognizing revenue from our current practice. As such, the Company does not believe this ~~update~~new standard will have a material impact on its ~~consolidated~~results of operations, financial ~~statements~~condition or cash flows. The Company will adopt the new standard as of January 1, 2018, utilizing the modified retrospective method. However, the Company is still in the process of reviewing its contract portfolio and the relevant terms within each to assess the impact of adoption, including additional disclosures required by the standard.

In May 2014, the FASB issued a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard requires revenue to be recognized when promised goods or services are transferred to a customer in an amount that reflects the consideration expected in exchange for those goods or services. The standard permits the use of either the full retrospective or modified retrospective transition method. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted to the original effective date of December 15, 2016. The Company’s primary source of revenue is from the sale of coal through both short-term and long-term contracts, primarily with utilities, whereby revenue is currently recognized when risk of loss has passed to the customer. During 2016, the Company started its initial review of contracts with customers and does not currently anticipate any material change in the timing or method of recognizing revenue from our current practice. As such, the Company does not believe this new standard will have a material impact on its results of operations, financial condition or cash flows. The Company will adopt the new standard as of January 1, 2018, utilizing the modified retrospective method.

2. LIQUIDITY AND GOING CONCERN

The principal indicators of the Company’s liquidity ~~are~~since ~~cash~~the ~~on hand and, prior to its~~ termination, ~~availability~~of ~~under~~ its former asset-based credit facility dated December 21, 2012 (the 2012 Credit Facility) is cash on-hand. As more fully described below in Note 7, “Long-Term Debt,” the Company terminated the 2012 Credit Facility effective November 14, 2016. The Company’s available liquidity as of ~~March~~June 3130, 2017 was $5143,~~838~~261, which was comprised solely of cash on hand.

The Company has experienced recurring losses from operations, which has led to a substantial decline in cash flows from operating activities over the previous 1824 months. The Company’s current operating plan indicates that it will continue to incur losses from operations and generate negative cash flows from operating activities in the near-term. In addition, the Company entered into a settlement agreement, effective March 29, 2017, with Thoroughbred whereby the Company agreed, among other things, to begin paying Thoroughbred all production royalties earned on or after January 1, 2017 in cash, as permitted by the existing lease terms (the Settlement Agreement). See Note 6, “Related-Party Transactions,” for more information with respect to the ~~settlement~~Settlement ~~agreement~~Agreement. The Company’s continuing operating losses, negative cash flow projections and other liquidity risks raise substantial doubt about whether the Company will meet its obligations as they become due over the next year. As a result of this, as well as the continued uncertainty around future coal fundamentals, the Company has concluded there exists substantial doubt regarding its ability to continue as a going concern.

~~The~~Furthermore, ~~accompanying~~the ~~unaudited~~Company ~~condensed~~is ~~consolidated~~currently ~~financial~~in ~~statements~~default ~~have~~pursuant ~~been~~to ~~prepared~~the ~~assuming~~terms of the ~~Company~~Indenture ~~will~~(the ~~continue~~Indenture) governing its 11.75% Senior Secured Notes due 2019 (the Notes) as a ~~going~~result ~~concern~~of failing to make the $11,750 ~~which~~interest ~~contemplates~~payment due on the ~~realization~~Notes ofon ~~assets~~June ~~and~~15, ~~liabilities~~2017. ~~and~~On ~~commitments~~June in15, 2017, the ~~normal~~Company ~~course~~exercised ofits ~~business.~~right ~~The~~under ~~unaudited~~the ~~condensed~~Indenture ~~consolidated~~to ~~financial~~enter ~~statements~~into ~~for~~a 30-day grace period to defer the ~~three~~interest ~~months~~payment ~~ended~~on ~~March~~the 31Notes. The Company did not make the June 15, 2017 dointerest ~~not~~payment ~~include~~within ~~any~~the ~~adjustments~~30-day ~~that~~grace ~~may~~period, ~~result~~and ~~from~~as ~~uncertainty~~such, ~~related~~an event of default occurred pursuant to the ~~Company's~~terms ~~ability~~of the Indenture. Upon an event of default, the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare the principal of and accrued interest on the Notes to ~~continue~~be asimmediately adue ~~going~~and ~~concern~~payable.

~~Due~~On toJuly 16, 2017, the Company’s ~~current~~entered ~~financial~~into ~~outlook,~~a itforbearance ~~has~~agreement ~~undertaken~~(the ~~steps~~Forbearance toAgreement) ~~preserve~~with ~~its~~holders ~~liquidity~~who ~~and~~collectively beneficially own or manage ~~operating~~in ~~costs,~~excess ~~including~~of ~~controlling~~75% ~~capital~~of ~~expenditures.~~the ~~Beginning~~aggregate inprincipal ~~2015~~amount of the Notes (the Holders), whereby the ~~Company~~Holders ~~undertook~~have ~~steps~~agreed to ~~enhance~~forbear ~~its~~from ~~financial~~exercising ~~flexibility~~their rights and ~~reduce~~remedies ~~cash~~under ~~outflows~~the inIndenture or the ~~near~~related ~~term,~~security ~~including~~documents athrough ~~streamlining~~the earlier of ~~its~~August ~~cost~~14, ~~structure~~2017 ~~and~~or ~~anticipated~~an ~~reductions~~event inof ~~production~~termination, ~~volumes~~as ~~and~~set ~~capital~~forth ~~expenditures. In~~in ~~addition,~~ the ~~Company~~Forbearance isAgreement ~~actively~~(the ~~negotiating~~Forbearance aPeriod) ~~restructuring~~ with ~~advisers~~respect to ~~certain~~the ~~holders~~default as a result of the Company'’s 11failure to make the June 15, 2017 interest payment.~~75%~~ ~~Senior~~Accordingly, ~~Secured~~the ~~Notes~~Company ~~due~~has ~~2019~~classified (the Notes), ~~who~~as ~~collectively~~current ~~beneficially~~liabilities ~~own~~in orits ~~manage~~unaudited incondensed ~~excess~~consolidated ofbalance ~~75%~~sheet as of ~~the~~June ~~aggregate~~30, ~~principal~~2017. See ~~amount~~Note of7, "Long-Term Debt," for more information with respect to the ~~Notes~~Forbearance Agreement.

The Company also has ~~engaged~~other ~~financial~~debt ~~and~~obligations ~~legal~~entered ~~advisers~~into to ~~assist~~finance inthe ~~restructuring~~acquisition ~~its~~of ~~capital~~certain ~~structure~~equipment and ~~evaluating other potential alternatives to address the impending liquidity constraints~~land. ~~However,~~Certain ~~there~~of ~~can~~these befinancing noagreements ~~assurance~~include ~~that~~cross-default ~~any~~or ~~restructuring~~cross-event ~~will~~of bedefault ~~possible on acceptable terms, if at all~~provisions. ItAs ~~may~~a beresult ~~difficult to come to an agreement that is acceptable to all~~ of the Company’s ~~creditors.~~default ~~The~~under ~~Company’s~~the ~~failure~~Indenture, tothe ~~reach~~lenders anthat ~~agreement~~are onparty ~~the~~to ~~terms~~certain of athese ~~restructuring~~agreements ~~with~~could ~~its~~elect ~~creditors~~to ~~would~~declare ~~have~~some aor ~~material~~all ~~adverse~~of ~~effect on~~ the ~~Company’s~~amounts ~~liquidity,~~outstanding ~~financial~~as ~~condition~~immediately due and ~~results of operations~~payable. ~~In addition~~Therefore, ~~if a successful restructuring with~~ the ~~holders~~related ofdebt ~~the~~obligations ~~Notes~~have ~~(the~~been ~~Holders)~~classified isas ~~not~~current ~~achieved,~~liabilities itin ~~may be necessary for~~ the ~~Company~~unaudited tocondensed ~~file~~consolidated abalance ~~voluntary~~sheet ~~petition~~as ~~for relief under Chapter 11~~ of ~~the~~June ~~United States Bankruptcy Code in order to implement a restructuring~~30, ~~or the Company’s creditors could force it into an involuntary bankruptcy or liquidation~~2017.

3The Company’s continuing operating losses, negative cash flow projections, Indenture default and other liquidity risks raise substantial doubt about whether the Company will meet its obligations as they become due over the next year. As ~~INVENTORIES~~a result of this, as well as the continued uncertainty around future coal fundamentals, the Company has concluded there exists substantial doubt regarding its ability to continue as a going concern.

~~Inventories~~The ~~consist~~accompanying ofunaudited condensed consolidated financial statements have been prepared assuming the ~~following~~Company ~~amounts:~~will continue as a going concern, which contemplates the realization of assets and liabilities and commitments in the

Table of Contents

	March 31, 2017		December 31, 2016
Materials and supplies	$	8,634	$	8,610
Coal—raw and saleable	5,006		3,199
Total	$	13,640	$	11,809

normal course of business. The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2017 do not include any adjustments that may result from uncertainty related to the Company's ability to continue as a going concern.

Due to the Company’s current financial outlook, it has undertaken steps to preserve its liquidity and manage operating costs, including controlling capital expenditures. Beginning in 2015, the Company undertook steps to enhance its financial flexibility and reduce cash outflows in the near term, including a streamlining of its cost structure and anticipated reductions in production volumes and capital expenditures. In addition, the Company has engaged financial and legal advisers to assist in restructuring its capital and evaluating other potential alternatives to address the impending liquidity constraints. With the assistance of its advisers, the Company is actively negotiating the terms of a restructuring with the Holders of the Notes with the objective of reaching an agreement by the end of the Forbearance Period. Until any definitive agreements are negotiated in their entirety and executed, and the transactions contemplated thereby are consummated, there can be no assurance that any restructuring transaction will be completed by the end of the Forbearance Period or at all. Furthermore, it may be difficult to come to an agreement that is acceptable to all of the Company’s creditors, and there can be no assurance that any restructuring will be possible at all. The Company’s failure to reach an agreement on the terms of a restructuring with its creditors, including the Holders, would have a material adverse effect on the Company’s liquidity, financial condition and results of operations. It may be necessary for the Company to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring, or the Company’s creditors could force it into an involuntary bankruptcy or liquidation.

In June 2017, the Company entered into retention bonus agreements with certain executive officers and other key employees (Eligible Employees), whereby the Eligible Employees received a one-time lump sum cash payment. Each of the payments is subject to clawback and repayment by the Eligible Employee in the event such officer or employee is terminated with cause or resigns without good reason before the one-year anniversary of the agreement. As the Company continues to work through its overall restructuring, it has determined that the retention bonus agreements were necessary to ensure the Company has the continued services of its management and key employees. The aggregate amount of the retention bonus payments authorized by the Company’s Board of Directors totaled $1,672. For the three and six months ended June 30, 2017, a charge of $69 was recognized as a component of Other, net in the unaudited condensed consolidated statements of operations. The balance of the retention bonus payments will be expensed ratably over the remaining service period.

3. INVENTORIES

Inventories consist of the following amounts:



	June 30, 2017		December 31, 2016
Materials and supplies	$	8,024	$	8,610
Coal—raw and saleable	3,902		3,199
Total	$	11,926	$	11,809

4. ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities consist of the following amounts:

	March 31, 2017		December 31, 2016
	June 30, 2017		December 31, 2016
Payroll and related benefits	$	54,~~748~~749	$	4,804
Taxes other than income taxes	3,~~571~~030		3,566
Interest	612,~~854~~729		979
Asset retirement obligations	~~119~~105		133
Royalties	1,~~661~~832		610
Other	1,~~739~~704		1,745
Total	$	1924,~~692~~149	$	11,837

On June 15, 2017, the Company elected to forgo an interest payment of $11,750 on its Notes and enter into the 30-day grace period under the Indenture. The Company did not make the June 15, 2017 interest payment within the 30-day grace period, and as a result, triggered an event of default under the terms of the Indenture. The Company and Holders of the Notes entered into a Forbearance Agreement on July 16, 2017, pursuant to which the Holders agreed to forbear from exercising their

Table of Contents

rights and remedies under the Indenture or the related security documents through the Forbearance Period. See Note 7, "Long-Term Debt," for further discussion.

5. OTHER NON-CURRENT ASSETS

Other non-current assets consist of the following amounts:

	March 31, 2017		December 31, 2016
	June 30, 2017		December 31, 2016
Escrows and deposits	$	54,~~211~~851	$	5,216
Restricted surety and cash bonds	6,002		6,002
Advanced royalties	1,~~705~~386		1,413
Intangible assets, net	4843		52
Total	$	12,~~966~~282	$	12,683

6. RELATED-PARTY TRANSACTIONS

Investments

Effective September 1, 2016, Yorktown exercised its right under the Second Amended and Restated Agreement of Limited Partnership of Thoroughbred Resources, LP to remove ECGP as the general partner of Thoroughbred. The Company received cash of $500 for its 0.2% general partner interest and recognized a pre-tax loss of $320 during the three months ended September 30, 2016. The Company continues to maintain a 0.9% interest in Thoroughbred through its subsidiary, Armstrong Energy Holdings, Inc., but, as a result of its removal as general partner, no longer has the ability to exercise significant influence over Thoroughbred. Therefore, effective September 1, 2016, the remaining interest being retained by the Company is being accounted for under the cost method.

Prior to September 1, 2016 when the Company’s investment in Thoroughbred was accounted for under the equity method, the Company recognized income from its equity interest of $2935 and $64 for the three months and six months ended ~~March~~June 3130, 2016, respectively.

Sale of Coal Reserves

The Company has executed the sale of an undivided interest in certain land and mineral reserves in Ohio and Muhlenberg counties of Kentucky (the Jointly-Owned Property) to Thoroughbred, through a series of transactions beginning in February 2011. Subsequently, the Company entered into lease agreements with Thoroughbred pursuant to which Thoroughbred granted the Company leases to its undivided interests in the mining properties acquired and licenses to mine and sell coal from those properties in exchange for a production royalty. Due to the Company’s continuing involvement in the Jointly-Owned Property, these transactions have been accounted for as financing arrangements. A long-term obligation has been established that is being amortized over the anticipated life of the mineral reserves, at an annual rate of 7% of the estimated gross revenue generated from the sale of the coal originating from the leased mineral reserves. In addition, effective February 2011, the Company and Thoroughbred entered into a Royalty Deferment and Option Agreement (the Royalty Agreement), whereby the Company has been granted an option to defer payment of any royalties earned by Thoroughbred on coal mined from these properties. Compensation for the aforementioned transactions has consisted of a combination of cash payments and the forgiveness of amounts owed by the Company, which primarily consisted of deferred royalties.

Table of Contents

Thoroughbred entered into a Royalty Deferment and Option Agreement (the Royalty Agreement), whereby the Company has been granted an option to defer payment of any royalties earned by Thoroughbred on coal mined from these properties. Compensation for the aforementioned transactions has consisted of a combination of cash payments and the forgiveness of amounts owed by the Company, which primarily consisted of deferred royalties.

On June 1, 2016, the Company sold a 17.81% undivided interest in the Jointly-Owned Property to Thoroughbred in exchange for Thoroughbred forgiving amounts owed by the Company of $16,413. The amount forgiven consisted primarily of deferred production royalties. The newly acquired interest in the mineral reserves was leased and/or subleased by Thoroughbred to the Company in exchange for a production royalty. This transaction was accounted for as a financing arrangement and an additional long-term obligation to Thoroughbred of $16,413 was recognized on June 1, 2016.

The percentage interest in the Jointly-Owned Property sold to Thoroughbred in the above transaction was based on a fair value determined by a third-party specialist as of December 31, 2015. In addition, this transaction was approved by the conflicts committee of the board of directors of the Company, a committee including independent directors. As a result of the above, Thoroughbred’s undivided interest in the Jointly-Owned Property was increased to 79.19%.

Starting in December 2016, the Company received the first of multiple communications from Thoroughbred Holdings GP, LLC (Thoroughbred Holdings), the general partner of Thoroughbred, alleging certain claims associated with various transactions between the parties. Following a series of negotiations, Armstrong and certain of its affiliates, and Thoroughbred Holdings and certain of its affiliates, entered into a settlement agreement, which, among other things, transferred the remaining 20.81% interest in the Jointly-Owned Property to Thoroughbred. See “- Settlement Agreement” below for further discussion of the dispute and ultimate resolution with Thoroughbred Holdings.

As of March 31, 2017 and December 31, 2016, the outstanding long-term obligation to related party totaled $170,419 and $147,536, respectively. Interest expense recognized for the three months ended March 31, 2017 and 2016 associated with the long-term obligation to related party was $2,627 and $1,587, respectively. The effective interest rate of the long-term obligation to related party, which is adjusted based on significant mine plan changes and the completion of the periodic reserve transfers, was 6.3% as of March 31, 2017.9

Table of Contents

Holdings and certain of its affiliates, entered into the Settlement Agreement, which, among other things, transferred the remaining 20.81% interest in the Jointly-Owned Property to Thoroughbred bringing Thoroughbred's undivided interest in the Jointly-Owned Property to 100.00%. See “- Settlement Agreement” below for further discussion of the dispute and ultimate resolution with Thoroughbred Holdings.

As of June 30, 2017 and December 31, 2016, the outstanding long-term obligation to related party totaled $171,115 and $147,536, respectively. Interest expense recognized for the three months ended June 30, 2017 and 2016 associated with the long-term obligation to related party was $2,668 and $1,767, respectively, and $5,295 and $3,354 for the six months ended June 30, 2017 and 2016, respectively. The effective interest rate of the long-term obligation to related party, which is adjusted based on significant mine plan changes, was 6.3% as of June 30, 2017.

Settlement Agreement

On December 16, 2016, the Company received notification from legal counsel for Thoroughbred Holdings, the general partner of Thoroughbred, disputing the calculation of deferred royalties and valuation of the Jointly-Owned Property pursuant to the terms of the Royalty Agreement. In the December 16^th correspondence, counsel for Thoroughbred Holdings asserted that certain third-party valuations prepared in order to ascertain the amount of the Jointly-Owned Property to be transferred from us to Thoroughbred pursuant to the Royalty Agreement to satisfy production royalties due to Thoroughbred were inaccurate for fiscal year 2016 and prior years. Therefore, according to Thoroughbred, its ownership in the Jointly-Owned Property would have reached 100% during or prior to fiscal year 2016.

The Company promptly notified Thoroughbred that it disputed these assertions and requested information supporting Thoroughbred’s arguments. Following the Company’s request, in a letter dated January 6, 2017, Thoroughbred Holding’s CEO advised the Company that Thoroughbred, based on its analysis, concluded that Armstrong’s valuation of the remaining Jointly-Owned Property was significantly overstated, and using its valuation methodology, Thoroughbred would have been entitled to 100% ownership of the Jointly-Owned Property during the first half of 2016. Therefore, according to Thoroughbred’s calculations, cash payment of production royalties was required for a portion of the royalties incurred during 2016 and thereafter. In addition, Thoroughbred questioned several of the inputs utilized in the valuation by the Company during prior years, therefore challenging the validity of the prior land and reserve transfers.

By subsequent letter dated February 15, 2017, Thoroughbred clarified that its valuation analysis ascertained that the fair market value of the entirety of the Jointly-Owned Property as of December 31, 2016 was not more than $35,000. In addition, Thoroughbred insisted that applying more conservative inputs to the valuations of prior periods resulted in the underpayment of production royalties by not less than $26,000 and potentially in excess of $40,000 through December 31, 2016. Thoroughbred’s counsel, by separate letter dated February 15, 2017, also took exception to the Company’s calculation of the amount of deferred royalties for the year ended December 31, 2016, the amount of certain offsets from these deferred royalties by amounts due from Thoroughbred to Armstrong pursuant to an Administrative Services Agreement, and the offset of certain production royalties that the Company overpaid to Thoroughbred on properties other than the Jointly-Owned Property. The Company subsequently notified Thoroughbred of its continued disagreement with their claims.

As of December 31, 2016, amounts owed to Thoroughbred totaled $11,701, primarily representing deferred royalties incurred during calendar year 2016. Consistent with the previous annual land and reserve transfers pursuant to the Royalty Agreement, the Company proposed to transfer a 10.95% undivided interest in the Jointly-Owned Property in satisfaction of the amounts owed, which had been ascertained based on a fair market value determination obtained by the Company from an independent third-party. As noted above, Thoroughbred objected to this amount, asserting that, based on its own valuation, 10.95% was substantially undervalued. Following a series of negotiations to resolve the dispute, the Company and Thoroughbred entered into the Settlement Agreement effective March 29, 2017 in which the Company agreed to transfer, and Thoroughbred agreed to accept, an additional 9.86% undivided interest in Jointly-Owned Property for a total of 20.81%, bringing Thoroughbred’s interest in the Jointly-Owned Property to 100% as of January 1, 2017. The additional 9.86% undivided interest was expected to be earned by Thoroughbred during the first half of 2017 regardless of the settlement. Furthermore, as part of the Settlement Agreement, the Company and Thoroughbred agreed to mutual waivers and releases related to the Royalty Agreement, the payment of production royalties or any other sums due under the leases prior to January 1, 2017, and the Administrative Services Agreement. Thoroughbred also waived and released any prior claims against the Company for lost or wasted coal or mining practices and operational decisions made by the Company; any other demands, claims, or assertions set forth in the various communications from Thoroughbred Holdings and its legal counsel to the Company; and any other claims arising from the Company's administration of the leases prior to January 1, 2017. In addition, the Company agreed to begin paying Thoroughbred all production royalties earned on or after January 1, 2017 in cash pursuant to the existing lease terms, with royalties earned for January and February 2017 totaling $2,651 being paid on March 31, 2017.

Table of Contents

As of December 31, 2016, amounts owed to Thoroughbred totaled $11,701, primarily representing deferred royalties incurred during calendar year 2016. Consistent with the previous annual land and reserve transfers pursuant to the Royalty Agreement, the Company proposed to transfer a 10.95% undivided interest in the Jointly-Owned Property in satisfaction of the amounts owed, which had been ascertained based on a fair market value determination obtained by the Company from an independent third-party. As noted above, Thoroughbred objected to this amount, asserting that, based on its own valuation, 10.95% was substantially undervalued. Following a series of negotiations to resolve the dispute, the Company and Thoroughbred entered into a settlement agreement effective March 29, 2017 (the Settlement Agreement) in which the Company agreed to transfer, and Thoroughbred agreed to accept, an additional 9.86% undivided interest in Jointly-Owned Property for a total of 20.81%, bringing Thoroughbred’s interest in the Jointly-Owned Property to 100% as of January 1, 2017. The additional 9.86% undivided interest was expected to be earned by Thoroughbred during the first half of 2017 regardless of the settlement. Furthermore, as part of the Settlement Agreement, the Company and Thoroughbred agreed to mutual waivers and releases related to the Royalty Agreement, the payment of production royalties or any other sums due under the leases prior to January 1, 2017, and the Administrative Services Agreement. Thoroughbred also waived and released any prior claims against the Company for lost or wasted coal or mining practices and operational decisions made by the Company; any other demands, claims, or assertions set forth in the various communications from Thoroughbred Holdings and its legal counsel to the Company; and any other claims arising from the Company's administration of the leases prior to January 1, 2017. In addition, the Company agreed to begin paying Thoroughbred all production royalties earned on or after January 1, 2017 in cash pursuant to the existing lease terms, with royalties earned for January and February 2017 totaling $2,651 being paid on March 31, 2017. By letter dated April 18, 2017, certain of the Holders of the Notes expressed certain objections to entry into the Settlement Agreement.

As a result of the Settlement Agreement, the Company recognized a non-cash charge in the year ending December 31, 2016 totaling $10,542 related to the 9.86% increase in the Jointly-Owned Property transferred to resolve the aforementioned disputes. In addition, the Jointly-Owned Property that was the subject of the dispute has been leased and/or subleased by Thoroughbred to the Company in exchange for a production royalty effective January 1, 2017. As a result of the Company's continuing involvement in the land and mineral reserves transferred to Thoroughbred, this transaction was accounted for as a financing arrangement, and, therefore, resulted in an increase to the long-term obligation to Thoroughbred totaling $22,243 as of January 1, 2017.

Lease of Coal Reserves

In February 2011, Thoroughbred entered into a lease and sublease agreement with the Company relating to its Elk Creek reserves and granted the Company a license to mine coal on those properties. The terms of this agreement mirror those of the lease agreements associated with the Jointly-Owned Property between the Company and Thoroughbred. Total production royalties owed from mining of the Elk Creek reserves, where the Company’s Kronos underground mine resides, for the three months ended ~~March~~June 3130, 2017 and 2016 totaled $1,~~860~~891 and $1,~~629~~710, respectively., and for the six months ended June 30, 2017 and 2016 totaled $3,751 and $3,339, respectively.

Administrative Services Agreements

Effective as of January 1, 2011, the Company entered into an Administrative Services Agreement with Thoroughbred and its then current general partner, ECGP, pursuant to which the Company agreed to provide Thoroughbred with general administrative and management services, including, but not limited to, human resources, information technology, financial and accounting services and legal services. The administrative service fee, which was adjusted annually, was approved by the conflicts committee of the board of directors. In connection with ECGP's removal as general partner of Thoroughbred, the Company and Thoroughbred agreed to terminate the Administrative Services Agreement effective December 31, 2016. As consideration for the use of the Company’s employees and services, and for certain shared fixed costs, Thoroughbred paid the Company $~~236~~235 and $471 for the three months ~~ended~~and ~~March~~six 31months ended June 30, 2016., respectively.

Other

In 2007, the Company entered into an overriding royalty agreement with ana former executive employee to compensate him $0.05/ton of coal mined and sold from properties owned by certain subsidiaries of the Company. The agreement remains in effect for the later of 20 years from the date of the agreement or until all salable coal has been extracted. The royalty agreement transfers with the property regardless of ownership or lease status. The royalty is payable the month following the sale of coal mined from the specified properties. The Company accounts for this royalty arrangement as expense in the period in which the coal is sold. Expense recorded in the three months ended ~~March~~June 3130, 2017 and 2016 was $46 and $49, respectively, and $5195 and $100 for the six months ended June 30, 2017 and 2016, respectively.

Table of Contents

7. LONG-TERM DEBT

The Company’s total indebtedness consisted of the following:

Type	~~March~~June 3130, 2017		December 31, 2016
Notes	$	~~191~~192,~~818~~451	$	191,191
Other	1311,~~840~~055		16,066
	205,658		207,257
	203,506		207,257
Less: current maturities	7203,~~542~~506		8,217
Total long-term debt	$	~~198,116~~—	$	199,040

Senior Secured Notes due 2019

On December 21, 2012, the Company completed a $200,000 offering of the 11.75% Notes. The Notes were issued at an original issue discount (OID) of 96.567%. The OID was recorded on the Company’s balance sheet as a component of long-term debt, and is being amortized to interest expense over the life of the Notes. As of ~~March 31, 2017 and December 31, 2016, the unamortized OID was $3,360 and $3,622, respectively. Interest on the Notes is due semiannually on~~ June ~~15 and December 15 of each year. In addition~~30, ~~the Company used the proceeds to pay fees and expenses of $8,358 related to the Notes offering, which are being amortized to interest expense over the life of the Notes. As of March 31,~~ 2017 and December 31, 2016, the ~~unamortized deferred financing costs were $4,822 and $5,187, respectively.~~

Table of Contents

unamortized OID was $3,096 and $3,622, respectively. Interest on the Notes is due semiannually on June 15 and December 15 of each year. In addition, the Company used the proceeds to pay fees and expenses of $8,358 related to the Notes offering, which are being amortized to interest expense over the life of the Notes. As of June 30, 2017 and December 31, 2016, the unamortized deferred financing costs were $4,452 and $5,187, respectively.

On February 2, 2017, the Company received notice from legal counsel representing certain of the Holders of the Notes regarding an alleged Event of Default. See Note 12, "Commitments and Contingencies," for further information regarding this claim.

On June 15, 2017, the Company exercised its right under the Indenture governing the Notes to enter into a 30-day grace period to defer payment of interest of $11,750 on the Notes that was due on June 15, 2017. The Company elected to defer payment as it engaged in ongoing discussions with certain Holders who collectively beneficially own or manage a substantial majority of the Notes. The election to defer the June 15, 2017 interest payment during the 30-day grace period did not constitute an event of default as defined under the Indenture. However, the Company did not make the June 15, 2017 interest payment prior to the expiration of the 30-day grace period. As such, an event of default has occurred under the terms of the Indenture, and the Company has therefore classified the Notes as current liabilities in its unaudited condensed consolidated balance sheet as of June 30, 2017.

On July 16, 2017, the Company and certain subsidiaries of the Company entered into the Forbearance Agreement with the Holders, who hold approximately $158,000 in aggregate principal amount (representing approximately 79% of the outstanding principal amount) of the Notes issued pursuant to the Indenture. Pursuant to the Forbearance Agreement, the Holders have agreed to forbear from exercising their rights and remedies under the Indenture or the related security documents during the Forbearance Period with respect to the event of default arising under the Indenture.

The Forbearance Agreement is intended to provide the Company an opportunity to negotiate a restructuring of its indebtedness represented by the Notes with the Holders. The Company is actively negotiating with the Holders the terms of a restructuring with the objective of reaching agreement by the end of the Forbearance Period. Until any definitive agreements are negotiated in their entirety and executed, and the transactions contemplated thereby are consummated, there can be no assurance that any restructuring will be completed by the end of the forbearance period or at all. If the Company is not able to successfully negotiate and complete a restructuring of the Notes, it may be necessary to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring.

2012 Credit Facility

Concurrently with the closing of the Notes offering on December 21, 2012, the Company entered into the 2012 Credit Facility. The 2012 Credit Facility, which was subsequently terminated in November 2016, provided for a five year, $50,000 revolving credit facility that would expire on December 21, 2017. Borrowings under the 2012 Credit Facility could not exceed a borrowing base, as defined within the 2012 Credit Facility agreement. In addition, the 2012 Credit Facility included a $10,000 letter of credit sub-facility and a $5,000 swingline loan sub-facility. The Company incurred $1,198 of deferred financing fees related to the 2012 Credit Facility that were capitalized and amortized to interest expense over the life of the facility.

The 2012 Credit Facility included customary covenants that, among other things, required the Company at any time when (i) undrawn availability was less than the greater of (a) $10,000 or (b) an amount equal to 20% of the borrowing base or (ii) an event of default had occurred and was continuing, to maintain a fixed charge coverage ratio, as defined, calculated as of the end of each calendar month for the twelve months then ended, greater than 1.0 to 1.0. During 2016, the Company's fixed charge coverage ratio was less than 1.0-to-1.0, which would have required the Company to maintain minimum availability greater than $10,000 if any amounts were drawn on the 2012 Credit Facility. Since its inception, the Company had not borrowed under the 2012 Credit Facility, and, therefore, was not subject to the requirements of the financial covenants included within the agreement. Due to the restrictions imposed as a result of not maintaining the minimum fixed charge coverage ratio, the Company made the decision to terminate the 2012 Credit Facility effective November 14, 2016. Pursuant to this termination, the Company recognized a loss of $403 during the three months ended December 31, 2016 to write-off the remaining unamortized deferred financing costs associated with the 2012 Credit Facility.

Other Debt

Other debt consists of miscellaneous debt obligations entered into to finance the acquisition of certain equipment and land. These obligations have various maturities of one to five years and bear interest at rates between 2.99% to 6.50%. Certain of these financing agreements include cross-default or cross-event of default provisions. As a result of the Company's failure to make the scheduled interest payment on the Notes and subsequent event of default, the lenders party to certain of our other debt

1112

Table of Contents

agreements could elect to declare some or all of the amounts outstanding as immediately due and payable. Therefore, the related debt obligations have been classified as current liabilities in the unaudited condensed consolidated balance sheet as of June 30, 2017.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures the fair value of assets and liabilities using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1—observable inputs such as quoted prices in active markets; Level 2—inputs, other than quoted market prices in active markets, which are observable, either directly or indirectly; and Level 3—valuations derived from valuation techniques in which one or more significant inputs are unobservable. In addition, the Company may use various valuation techniques, including the market approach, using comparable market prices; the income approach, using the present value of future income or cash flow; and the cost approach, using the replacement cost of assets.

The Company’s financial instruments consist of cash equivalents, accounts receivable, cost method investment, long-term debt, and other long-term obligations. For cash equivalents, accounts receivable and other long-term obligations, the carrying amounts approximate fair value due to the short maturity and financial nature of the balances. The fair value of the cost method investment is not estimated, as it is impracticable to do so. The estimated fair market values of the Company’s Notes, which was determined using Level 2 inputs, and long-term obligation to related party, which was determined using Level 3 inputs, are as follows:

	March 31, 2017				December 31, 2016
	June 30, 2017				December 31, 2016
	FairValue		CarryingValue		FairValue		CarryingValue
Notes(1)	$	~~111~~80,~~260~~000	$	~~191~~192,~~818~~451	$	126,000	$	191,191
Long-term obligation to related party	126,~~039~~042		~~170~~171,~~419~~115		113,106		147,536
Total	$	~~237~~206,~~299~~042	$	~~362~~363,~~237~~566	$	239,106	$	338,727

(1) The carrying value of the Notes is net of the unamortized OID and deferred financing costs as of ~~March~~June 3130, 2017 and December 31, 2016, respectively.

The fair value of the Notes is based on quoted market prices, while the fair value of the long-term obligation to related party is based on estimated cash flows discounted to their present value.

9. ~~INCOME~~MINERAL ~~TAXES~~RESERVE LEASE

~~The~~In October 2010, the Company ~~has~~entered ~~not~~into ~~recognized~~a ~~certain~~lease ~~income~~agreement ~~tax~~for ~~benefits~~approximately 120,000 astons itof ~~does~~recoverable ~~not~~coal ~~believe~~reserves itlocated isin ~~more~~Union ~~likely~~and ~~than~~Webster ~~not~~Counties, itKentucky ~~will~~in beexchange ~~able~~for toa ~~realize~~production ~~its~~royalty. The ~~net~~initial ~~deferred~~term ~~tax~~of ~~assets.~~the ~~The~~lease ~~Company~~expired ~~has~~on June 1, ~~therefore~~2016. In addition, ~~established~~the alease ~~valuation~~required ~~allowance~~the ~~against~~Company ~~its~~to ~~net~~provide ~~deferred~~the ~~tax~~lessor ~~assets~~with asa certain amount of ~~March 31,~~coal ~~2017~~tonnage ~~and~~annually ~~December 31,~~until ~~2016.~~production ~~Based~~commenced on the ~~anticipated~~leased ~~reversals~~reserve. The ofCompany ~~its~~valued ~~deferred~~this ~~tax~~coal ~~assets~~tonnage ~~and~~using ~~deferred tax liabilities,~~ the ~~Company~~prevailing ~~has~~average ~~concluded~~market aprice, ~~valuation~~and ~~allowance~~the isadvance ~~necessary~~royalty ~~only~~was ~~for~~recoupable ~~the~~against ~~excess~~production ofroyalties ~~deferred~~generated ~~tax~~by ~~assets~~future ~~over~~mining ~~deferred tax liabilities~~activity.

10Upon expiration, the lease was renewed for an additional five-year term. The ~~EMPLOYEE~~terms ~~BENEFIT~~of ~~PLANS~~the renewal stipulated a minimum annual rent payable with a specified amount of coal tonnage beginning on June 1, 2017. In addition, the lease allowed for the early termination of the agreement by the Company upon payment of a termination fee, as defined, which was zero through December 1, 2017. Lastly, the minimum annual rent, including amounts previously paid, would no longer be recoupable against future production royalties. As a result, the Company recognized a non-cash impairment charge of $3,381 during the three months ended June 30, 2016 to write-off advanced royalties associated with the aforementioned lease.

By letter dated May 10, 2017, the Company notified the lessor of its intent to cancel the lease agreement, effective May 31, 2017, and relinquished control of approximately 120,000 tons of mineral reserves. Because the Company terminated the lease agreement before December 1, 2017, no termination fee was due. As a result of the lease termination, the Company recognized a non-cash impairment charge of $3,382 during the three months ended June 30, 2017 to write-off certain capitalized costs associated with the development of the property.

Table of Contents

10. INCOME TAXES

The Company has not recognized certain income tax benefits, as it does not believe it is more likely than not it will be able to realize its net deferred tax assets. The Company has, therefore, established a valuation allowance against its net deferred tax assets as of June 30, 2017 and December 31, 2016. Based on the anticipated reversals of its deferred tax assets and deferred tax liabilities, the Company has concluded a valuation allowance is necessary only for the excess of deferred tax assets over deferred tax liabilities.

11. EMPLOYEE BENEFIT PLANS

The Company provides certain health care benefits, including the reimbursement of a portion of out-of-pocket costs associated with insurance coverage, to qualifying salaried and hourly retirees and their dependents. Plan coverage for reimbursements will be provided to future hourly and salaried retirees in accordance with the plan document. The Company’s funding policy with respect to the plan is to fund the cost of all postretirement benefits as they are paid.

Net periodic postretirement benefit cost included the following components:

	Three months ended March 31,
	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Service cost for benefits earned	$	229	$	~~229~~230	$	459	459
Interest cost on accumulated postretirement benefit obligation	49		43		99		86
Amortization of prior service cost	24		2423		47		47
Net periodic postretirement cost	$	302	$	296	$	605	592

~~11.~~Effective ~~ACCUMULATED~~September ~~OTHER~~1, ~~COMPREHENSIVE~~2017, ~~LOSS~~the postretirement benefit program will be terminated and no further benefits will be provided to retirees.

~~Changes~~12. inACCUMULATED ~~accumulated~~OTHER ~~other~~COMPREHENSIVE ~~comprehensive loss, net of tax, for the three months ended March 31, 2017 consisted of the following:~~LOSS

12Changes in accumulated other comprehensive loss, net of tax, for the six months ended June 30, 2017 consisted of the following:



	Postretirement Benefit Plan and Other Employee Benefit Obligations			Accumulated Other Comprehensive Loss
Balance as of December 31, 2016	$	(1,560	)	$	(1,560	)
Amounts reclassified from accumulated other comprehensive loss	114			114
Current period change	—			—
Balance as of June 30, 2017	$	(1,446	)	$	(1,446	)

The following is a summary of reclassifications out of accumulated other comprehensive loss for the three and six months ended June 30, 2017 and 2016:

Table of Contents

	PostretirementBenefit Planand OtherEmployeeBenefitObligations				AccumulatedOtherComprehensiveLoss
Details about Accumulated OtherComprehensive Income (Loss) Components	Affected Line Item in theCondensed Consolidated Statement of Operations		Amounts Reclassified fromAccumulated OtherComprehensive LossFor theThree Months EndedJune 30,							Amounts Reclassified fromAccumulated OtherComprehensive LossFor theSix Months EndedJune 30,
Balance as of December 31, 2016	$	(1,560	)		$	(1,560	)
			2017				2016			2017			2016
Amounts reclassified from accumulated other comprehensive loss	57				57
Amortization of prior service cost associated with postretirement benefit plan and other employee benefit obligations	Cost of coal sales		$	(102	)		$	(103	)	$	(204	)	$	(205	)
Current period change	—				—
Amortization of net actuarial gain associated with other employee benefit obligations	Cost of coal sales		45				25			90			50
Balance as of March 31, 2017	$	(1,503	)		$	(1,503	)
			(57		)		(78		)	(114		)	(155		)
Income taxes			—				—			—			—
Total reclassifications			$	(57	)		$	(78	)	$	(114	)	$	(155	)

~~The~~13. ~~following~~COMMITMENTS isAND ~~a summary of reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2017 and 2016:~~CONTINGENCIES

Details about Accumulated OtherComprehensive Income (Loss) Components	Affected Line Item in theCondensed Consolidated Statement of Operations	Amounts Reclassified fromAccumulated OtherComprehensive LossFor theThree Months EndedMarch 31,
		2017			2016
Amortization of prior service cost associated with postretirement benefit plan and other employee benefit obligations	Cost of coal sales	$	(102	)	$	(102	)
Amortization of net actuarial gain associated with other employee benefit obligations	Cost of coal sales	45			25
		(57		)	(77		)
Income taxes		—			—
Total reclassifications		$	(57	)	$	(77	)

The Company is subject to various market, operational, financial, regulatory, and legislative risks. Numerous federal, state, and local governmental permits and approvals are required for mining operations. Federal and state regulations require regular monitoring of mines and other facilities to document compliance. Monetary penalties of $1,085 and $1,008 related to Mine Safety and Health Administration (MSHA) fines were accrued as of June 30, 2017 and December 31, 2016, respectively.

12. COMMITMENTS AND CONTINGENCIES

The Company is subject to various market, operational, financial, regulatory, and legislative risks. Numerous federal, state, and local governmental permits and approvals are required for mining operations. Federal and state regulations require regular monitoring of mines and other facilities to document compliance. Monetary penalties of $1,095 and $1,008 related to Mine Safety and Health Administration (MSHA) fines were accrued as of March 31, 2017 and December 31, 2016, respectively.

The Company is involved from time to time in various legal matters arising in the ordinary course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s consolidated cash flows, results of operations or financial condition. A summary of the significant legal matters is below.

Litigation

On July 20, 2016, the Company was notified by an Assistant U. S. Attorney for the Western District of Kentucky of an investigation into potential charges against Armstrong Coal Company, Inc., a wholly-owned subsidiary of the Company (Armstrong Coal Company), and one or more of its current and former employees arising from alleged inaccurate respirable dust sampling at certain of the Company's underground mines. In November 2016, seven current and former Armstrong Coal Company employees received individual target letters from the Assistant U.S. Attorney. In January 2014, MSHA issued a 104(d) citation to the Parkway underground mine related to inaccurate respirable dust sampling, which the Company has challenged. In addition, a Parkway underground mine employee was terminated. The impact of any charges against the Company or its current and former employees cannot be determined at this time, and the Company intends to vigorously defend any such charges should they be pursued.

Claim of Event of Default by Bondholders

On December 30, 2016, Rhino Resource Partners Holdings, LLC (Rhino Holdings), an entity wholly-owned by Yorktown, together with Rhino Resource Partners LP (Rhino), Royal Energy Resources, Inc. ~~(Royal)~~, and Rhino GP LLC ~~(Rhino GP)~~ entered into a put and call option agreement whereby Rhino received a call option, and Rhino Holdings received a put option, on all of the outstanding ~~Company~~common stock of the Company currently held by Yorktown (the Option), the majority owner of the Company's outstanding common stock, under certain circumstances. The Option provides that Rhino can exercise the Option after 60 days following entry of an agreement regarding the restructuring of the Notes, but in no event earlier than January 1, 2018 and no later than December 31, 2019. In exchange for Rhino Holdings granting Rhino the Option to purchase Yorktown’s holdings of Armstrong Energy stock, Rhino issued 5.0 million common units to Rhino Holdings upon the execution of the Option.

13In connection with entry into the Option by the aforementioned parties, on February 2, 2017, the Company received notice from certain of the Holders of the Notes that the Holders believe entry into the Option by the third-parties constitutes a Change of Control, as defined in the Indenture governing the Notes, and that an Event of Default occurred, as defined in the Indenture, when the Company failed to offer to purchase the Notes within 30 days following the purported Change of Control. This position was reiterated in a letter from such Holders dated April 18, 2017. The Holders are not currently pursuing remedies under the Indenture related to the alleged Event of Default, but have reserved their rights to do so at a future time. In addition, certain of the Company's financing agreements include cross-default or cross-event of default provisions,

Table of Contents

~~after~~which, 60if ~~days following entry of an agreement regarding~~ the ~~restructuring~~aforementioned ofassertions ~~the~~were ~~Notes,~~proven ~~but~~to inbe ~~no event earlier than January 1~~accurate, ~~2018~~would ~~and~~result noindirectly ~~later~~in ~~than~~an ~~December~~Event ~~31, 2019. In exchange for Rhino Holdings granting Rhino the Option to purchase Yorktown’s holdings~~ of ~~Armstrong~~Default ~~Energy~~under ~~stock,~~such ~~Rhino~~financing ~~issued 5~~arrangements.~~0 million common units to Rhino Holdings upon the execution of the Option.~~

InThe ~~connection with entry into the Option by the aforementioned parties, on February 2, 2017, the~~ Company ~~received~~believes ~~notice from certain of the Holders of the Notes~~ that ~~the~~neither ~~Holders believe entry into the Option by the third-parties constitutes~~ a Change of Control, asnor ~~defined~~a inrelated ~~the Indenture governing the Notes, and that an~~ Event of Default ~~occurred,~~under asthe ~~defined~~Indenture inhas ~~the~~occurred. To ~~Indenture~~that end, ~~when~~ the Company ~~failed~~has toadvised ~~offer to purchase~~ the ~~Notes~~Holders ~~within~~that 30it ~~days~~disputes ~~following~~ the ~~purported Change of Control~~allegations. ~~This position was reiterated in a letter dated April 18, 2017.~~ ~~The~~No ~~Holders~~further ~~are~~action ~~not~~associated ~~currently~~with ~~pursuing~~these ~~remedies~~claims ~~under~~has ~~the~~been ~~Indenture~~taken ~~related~~ to ~~the~~date ~~alleged~~by ~~Event of Default, but have reserved their rights to do so at a future time. In addition, certain of~~ the Company's ~~financing agreements include cross-default~~ or ~~cross-event of default provisions, which, if~~ the ~~aforementioned assertions were proven to be accurate, would result indirectly in an event of default under such financing arrangements~~Holders.

The Company believes that neither a Change of Control nor an Event of Default as defined in the Indenture has occurred. To that end, the Company has advised the Holders that it disputes the allegations. No further action associated with these claims has been taken to date by the Company or the Holders.

Coal Sales Contracts

The Company has historically sold the majority of its coal under multi-year supply agreements of varying duration. These contracts typically have specific volume and pricing arrangements for each year of the agreement, which allows customers to secure a supply for their future needs and provides the Company with greater predictability of sales volume and sales prices. Quantities sold under some of these contracts may vary from year to year within certain limits at the option of the customer or the Company. The remaining terms of the Company’s long-term contracts range from one to four years. The Company, via contractual agreements, has committed volumes of sales in 2017 of approximately 5.3 million tons.

1314. SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION

In accordance with the ~~indenture~~Indenture governing the Notes, certain wholly-owned subsidiaries of the Company (each, a Guarantor Subsidiary) have fully and unconditionally guaranteed the Notes, on a joint and several basis, subject to certain customary release provisions. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management believes that such information is not material to the holders of the Notes. The following historical financial statement information is provided for the Guarantor Subsidiaries. The non-guarantor subsidiaries are considered to be “minor” as the term is defined in Rule 3-10 of Regulation S-X promulgated by the SEC, and the financial position, results of operations, and cash flows of the non-guarantor subsidiaries are, therefore, included in the condensed financial data of the Guarantor Subsidiaries.

1416

Table of Contents

Unaudited Supplemental Condensed Consolidating Balance Sheets

	March 31, 2017
	June 30, 2017
	Parent /Issuer			GuarantorSubsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	5143,~~838~~261		$	—		$	5143,~~838~~261
Accounts receivable	—			1114,~~623~~540			—			1114,~~623~~540
Inventories	—			1311,~~640~~926			—			1311,~~640~~926
Prepaid and other assets	~~431~~2,248			12,~~494~~127			—			14,~~925~~375
Total current assets	~~431~~2,248			7871,~~595~~854			—			7974,~~026~~102
Property, plant, equipment, and mine development, net	98,~~865~~552			~~217~~211,~~474~~225			—			~~227~~219,~~339~~777
Investments	—			2,794			—			2,794
Investments in subsidiaries	3528,~~114~~126			—			(3528,~~114~~126		)	—
Intercompany receivables	4440,~~312~~209			(4440,~~312~~209		)	—			—
Other non-current assets	180			12,~~786~~102			—			12,~~966~~282
Total assets	$	8979,~~902~~315		$	~~267~~257,~~337~~766		$	(3528,~~114~~126	)	$	~~322~~308,~~125~~955
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT)
Current liabilities:
Accounts payable	$	~~136~~261		$	13,~~160~~550		$	—		$	13,~~296~~811
Accrued and other liabilities	712,~~077~~856			1211,~~615~~293			—			1924,~~692~~149
Current portion of capital lease obligations	—			~~331~~104			—			~~331~~104
Current maturities of long-term debt	—192,451			711,~~542~~055			—			7203,~~542~~506
Total current liabilities	7205,~~213~~568			3336,~~648~~002			—			40241,~~861~~570
Long-term debt, less current maturities	191,818			6,298			—			198,116
Long-term obligation to related party	—			171,115			—			171,115
Long-term obligation to related party	—			170,419			—			170,419
Asset retirement obligations	—			14,711			—			14,711
Related party payables, net	—			—			—			—
Other non-current liabilities	77			7,789			—			7,866
Asset retirement obligations	—			14,380			—			14,380
Total liabilities	205,645			229,617			—			435,262
Other non-current liabilities	87			7,455			—			7,542
Total liabilities	199,118			232,200			—			431,318
Stockholders’ equity/(deficit):
Armstrong Energy, Inc.’s equity/(deficit)	(~~109~~126,~~216~~330		)	3528,~~114~~126			(3528,~~114~~126		)	(~~109~~126,~~216~~330		)
Non-controlling interest	—			23			—			23
Total stockholders’ equity/(deficit)	(~~109~~126,~~216~~330		)	3528,~~137~~149			(3528,~~114~~126		)	(~~109~~126,~~193~~307		)
Total liabilities and stockholders’ equity/(deficit)	$	8979,~~902~~315		$	~~267~~257,~~337~~766		$	(3528,~~114~~126	)	$	~~322~~308,~~125~~955

1517

Table of Contents

Supplemental Condensed Consolidating Balance Sheets



	December 31, 2016
	Parent / Issuer			Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	57,505		$	—		$	57,505
Accounts receivable	—			13,059			—			13,059
Inventories	—			11,809			—			11,809
Prepaid and other assets	849			1,690			—			2,539
Total current assets	849			84,063			—			84,912
Property, plant, equipment, and mine development, net	9,948			223,818			—			233,766
Investments	—			2,794			—			2,794
Investments in subsidiaries	42,092			—			(42,092		)	—
Intercompany receivables	45,643			(45,643		)	—			—
Other non-current assets	180			12,503			—			12,683
Total assets	$	98,712		$	277,535		$	(42,092	)	$	334,155
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT)
Current liabilities:
Accounts payable	$	302		$	16,639		$	—		$	16,941
Accrued and other liabilities	1,578			10,259			—			11,837
Current portion of capital lease obligations	—			555			—			555
Current maturities of long-term debt	—			8,217			—			8,217
Total current liabilities	1,880			35,670			—			37,550
Long-term debt, less current maturities	191,191			7,849			—			199,040
Long-term obligation to related party	—			147,536			—			147,536
Related party payables, net	(628		)	23,185			—			22,557
Asset retirement obligations	—			14,056			—			14,056
Long-term portion of capital lease obligations	—			—			—			—
Other non-current liabilities	99			7,124			—			7,223
Total liabilities	192,542			235,420			—			427,962
Stockholders’ equity/(deficit):
Armstrong Energy, Inc.’s equity/(deficit)	(93,830		)	42,092			(42,092		)	(93,830		)
Non-controlling interest	—			23			—			23
Total stockholders’ equity/(deficit)	(93,830		)	42,115			(42,092		)	(93,807		)
Total liabilities and stockholders’ equity/(deficit)	$	98,712		$	277,535		$	(42,092	)	$	334,155

1618

Table of Contents

Unaudited Supplemental Condensed Consolidating Statements of Operations

	Three Months Ended March 31, 2017
	Three Months Ended June 30, 2017
	Parent /Issuer			GuarantorSubsidiaries			Eliminations		Consolidated
Revenue	$	—		$	5960,~~108~~904		$	—	$	5960,~~108~~904
Costs and expenses:
Operating costs and expenses	—			51,~~296~~678			—		51,~~296~~678
Production royalty to related party	—			1,~~860~~891			—		1,~~860~~891
Depreciation, depletion, and amortization	~~231~~223			7,~~406~~461			—		7,~~637~~684
Asset retirement obligation expenses	—			~~329~~341			—		~~329~~341
General and administrative expenses	580			2,377			—		2,957
Asset impairment and restructuring charges	1,218			2,164			—		3,382
Operating loss	(811		)	(4,160		)	—		(4,971		)
General and administrative expenses	689			2,491			—		3,180
Operating loss	(2,130		)	(5,122		)	—		(7,252		)
Other income (expense):
Interest expense, net	(6,~~355~~380		)	(2,~~839~~870		)	—		(9,~~194~~250		)
Other, net	(1,~~302~~676		)	21767			—		(~~1,281~~909		)
Loss from investment in subsidiaries	(6,~~978~~988		)	—			6,~~978~~988		—
Loss before income taxes	(1517,~~446~~174		)	(67,~~978~~225		)	6,~~978~~988		(1517,~~446~~411		)
Income taxes	—			—237			—		—237
Net loss	(1517,~~446~~174		)	(6,~~978~~988		)	6,~~978~~988		(1517,~~446~~174		)
Income attributable to non-controlling interest	—			—			—		—
Net loss attributable to common stockholders	$	(1517,~~446~~174	)	$	(6,~~978~~988	)	$	6,~~978~~988	$	(1517,~~446~~174	)

	Three Months Ended March 31, 2016
	Three Months Ended June 30, 2016
	Parent /Issuer			GuarantorSubsidiaries			Eliminations		Consolidated
Revenue	$	—		$	60,~~444~~309		$	—	$	60,~~444~~309
Costs and expenses:
Operating costs and expenses	—			5250,~~675~~639			—		5250,~~675~~639
Production royalty to related party	—			1,~~629~~711			—		1,~~629~~711
Depreciation, depletion, and amortization	~~302~~303			7,~~312~~241			—		7,~~614~~544
Asset retirement obligation expenses	—			~~329~~340			—		~~329~~340
General and administrative expenses	~~439~~321			32,~~079~~601			—		32,~~518~~922
Operating loss	(~~741~~624		)	(45,~~580~~604		)	—		(56,~~321~~228		)
Other income (expense):
Interest expense, net	(6,~~317~~382		)	(12,~~791~~167		)	—		(8,~~108~~549		)
Other, net	—(451		)	~~105~~226			—		~~105~~(225		)
Loss from investment in subsidiaries	(67,~~383~~545		)	—			67,~~383~~545		—
Loss before income taxes	(1315,~~441~~002		)	(67,~~266~~545		)	67,~~383~~545		(1315,~~324~~002		)
Income taxes	—			~~(117~~—		)	—		~~(117~~—		)
Net loss	(1315,~~441~~002		)	(67,~~383~~545		)	67,~~383~~545		(1315,~~441~~002		)
Income attributable to non-controlling interest	—			—			—		—
Net loss attributable to common stockholders	$	(1315,~~441~~002	)	$	(67,~~383~~545	)	$	67,~~383~~545	$	(1315,~~441~~002	)

1719

Table of Contents



	Six Months Ended June 30, 2017
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Revenue	$	—		120,011			$	—	120,011
Costs and expenses:
Operating costs and expenses	—			102,974			—		102,974
Production royalty to related party	—			3,751			—		3,751
Depreciation, depletion, and amortization	454			14,866			—		15,320
Asset retirement obligation expenses	—			670			—		670
Asset impairment and restructuring charges	1,218			2,164					3,382
General and administrative expenses	1,269			4,869			—		6,138
Operating loss	(2,941		)	(9,283		)	—		(12,224		)
Other income (expense):
Interest expense, net	(12,735		)	(5,709		)	—		(18,444		)
Other, net	(2,978		)	789			—		(2,189		)
Loss from investment in subsidiaries	(13,966		)	—			13,966		—
Loss before income taxes	(32,620		)	(14,203		)	13,966		(32,857		)
Income taxes	—			237			—		237
Net loss	(32,620		)	(13,966		)	13,966		(32,620		)
Income attributable to non-controlling interest	—			—			—		—
Net loss attributable to common stockholders	$	(32,620	)	$	(13,966	)	$	13,966	$	(32,620	)



	Six Months Ended June 30, 2016
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Revenue	$	—		$	120,753		$	—	$	120,753
Costs and expenses:
Operating costs and expenses	—			103,314			—		103,314
Production royalty to related party	—			3,340			—		3,340
Depreciation, depletion, and amortization	605			14,553			—		15,158
Asset retirement obligation expenses	—			669			—		669
General and administrative expenses	760			5,680			—		6,440
Operating loss	(1,365		)	(10,184		)	—		(11,549		)
Other income (expense):
Interest expense, net	(12,699		)	(3,958		)	—		(16,657		)
Other, net	(451		)	331			—		(120		)
Loss from investment in subsidiaries	(13,928		)	—			13,928		—
Loss before income taxes	(28,443		)	(13,811		)	13,928		(28,326		)
Income taxes	—			(117		)	—		(117		)
Net loss	(28,443		)	(13,928		)	13,928		(28,443		)
Income attributable to non-controlling interest	—			—			—		—
Net loss attributable to common stockholders	$	(28,443	)	$	(13,928	)	$	13,928	$	(28,443	)

Table of Contents

Unaudited Supplemental Condensed Consolidating Statements of Comprehensive Income (Loss)

	Three Months Ended March 31, 2017
	Three Months Ended June 30, 2017
	Parent /Issuer			GuarantorSubsidiaries			Eliminations		Consolidated
Net loss	$	(1517,~~446~~174	)	$	(6,~~978~~988	)	$	6,~~978~~988	$	(1517,~~446~~174	)
Other comprehensive income (loss):
Postretirement benefit plan and other employee benefit obligations, net of tax	—			57			—		57
Other comprehensive income	—			57			—		57
Comprehensive loss	(1517,~~446~~174		)	(6,~~921~~931		)	6,~~978~~988		(1517,~~389~~117		)
Less: comprehensive income (loss) attributable to non-controlling interest	—			—			—		—
Comprehensive loss attributable to common stockholders	$	(1517,~~446~~174	)	$	(6,~~921~~931	)	$	6,~~978~~988	$	(1517,~~389~~117	)

	Three Months Ended March 31, 2016
	Three Months Ended June 30, 2016
	Parent /Issuer			GuarantorSubsidiaries			Eliminations		Consolidated
Net loss	$	(1315,~~441~~002	)	$	(67,~~383~~545	)	$	67,~~383~~545	$	(1315,~~441~~002	)
Other comprehensive income (loss):
Postretirement benefit plan and other employee benefit obligations, net of tax	—			7778			—		7778
Other comprehensive income	—			7778			—		7778
Comprehensive loss	(1315,~~441~~002		)	(67,~~306~~467		)	67,~~383~~545		(1314,~~364~~924		)
Less: comprehensive income (loss) attributable to non-controlling interest	—			—			—		—
Comprehensive loss attributable to common stockholders	$	(1315,~~441~~002	)	$	(67,~~306~~467	)	$	67,~~383~~545	$	(1314,~~364~~924	)



	Six Months Ended June 30, 2017
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Net loss	$	(32,620	)	$	(13,966	)	$	13,966	$	(32,620	)
Other comprehensive income (loss):
Postretirement benefit plan and other employee benefit obligations, net of tax	—			114			—		114
Other comprehensive income	—			114			—		114
Comprehensive loss	(32,620		)	(13,852		)	13,966		(32,506		)
Less: comprehensive income (loss) attributable to non-controlling interest	—			—			—		—
Comprehensive loss attributable to common stockholders	$	(32,620	)	$	(13,852	)	$	13,966	$	(32,506	)

Table of Contents



	Six Months Ended June 30, 2016
	Parent / Issuer			Guarantor Subsidiaries			Eliminations		Consolidated
Net loss	$	(28,443	)	$	(13,928	)	$	13,928	$	(28,443	)
Other comprehensive income (loss):
Postretirement benefit plan and other employee benefit obligations, net of tax	—			155			—		155
Other comprehensive income	—			155			—		155
Comprehensive loss	(28,443		)	(13,773		)	13,928		(28,288		)
Less: comprehensive income (loss) attributable to non-controlling interest	—			—			—		—
Comprehensive loss attributable to common stockholders	$	(28,443	)	$	(13,773	)	$	13,928	$	(28,288	)

Table of Contents

Unaudited Supplemental Condensed Consolidating Statements of Cash Flows

	Three Months Ended March 31, 2017
	Six Months Ended June 30, 2017
	Parent /Issuer			GuarantorSubsidiaries			Consolidated
Cash Flows from Operating Activities:
Net cash (used in) provided by operating activities:	$	(15,~~184~~159	)	$	~~(827~~361	)	$	(24,~~011~~798	)
Cash Flows from Investing Activities:
Investment in property, plant, equipment, and mine development	(~~147~~275		)	(15,~~058~~062		)	(15,~~205~~337		)
Net cash used in investing activities	(147		)	(1,058		)	(1,205		)
Proceeds from disposal of fixed assets	—			1,504			1,504
Net cash used in investing activities	(275		)	(3,558		)	(3,833		)
Cash Flows from Financing Activities:
Payment on capital lease obligations	—			(~~224~~451		)	(~~224~~451		)
Payment of long-term debt	—			(25,~~227~~162		)	(25,~~227~~162		)
Transactions with affiliates, net	15,~~331~~434			(15,~~331~~434		)	—
Net cash provided by (used in) financing activities	15,~~331~~434			(311,~~782~~047		)	(25,~~451~~613		)
Net change in cash and cash equivalents	—			(514,~~667~~244		)	(514,~~667~~244		)
Cash and cash equivalents, at the beginning of the period	—			57,505			57,505
Cash and cash equivalents, at the end of the period	$	—		$	5143,~~838~~261		$	5143,~~838~~261

	Three Months Ended March 31, 2016
	Six Months Ended June 30, 2016
	Parent /Issuer			GuarantorSubsidiaries			Consolidated
Cash Flows from Operating Activities:
Net cash (used in) provided by operating activities:	$	(113,~~167~~560	)	$	(15,~~035~~641	)	$	(27,~~202~~919	)
Cash Flows from Investing Activities:
Investment in property, plant, equipment, and mine development	(~~201~~386		)	(~~746~~1,207		)	(~~947~~1,593		)
Proceeds from disposal of fixed assets	—			—			—
Net cash used in investing activities	(~~201~~386		)	(~~746~~1,207		)	(~~947~~1,593		)
Cash Flows from Financing Activities:
Payment on capital lease obligations	—			(~~676~~1,265		)	(~~676~~1,265		)
Payment of long-term debt	—			(13,~~690~~948		)	(13,~~690~~948		)
Transactions with affiliates, net	113,~~368~~946			(113,~~368~~946		)	—
Net cash provided by (used in) financing activities	113,~~368~~946			(319,~~734~~159		)	(25,~~366~~213		)
Net change in cash and cash equivalents	—			(514,~~515~~725		)	(514,~~515~~725		)
Cash and cash equivalents, at the beginning of the period	—			67,617			67,617
Cash and cash equivalents, at the end of the period	$	—		$	6252,~~102~~892		$	6252,~~102~~892

1923

Table of Contents

14. SUBSEQUENT EVENT

Effective June 1, 2016, the Company renewed a coal mining lease with Alcoa Fuels, Inc. (Alcoa) associated with certain mineral reserves located in Union and Webster Counties, Kentucky. The terms of the renewal stipulate a minimum annual rent payable with a specified amount of coal tonnage beginning on June 1, 2017. In addition, the lease allows for the early termination of the agreement by the Company upon payment of a termination fee, as defined in the lease agreement. By letter dated May 10, 2017, the Company notified Alcoa of its intent to cancel the coal mining lease effective May 31, 2017. As a result of the lease cancellation, the Company will relinquish control of approximately 120 million tons of mineral reserves. The Company did not incur any termination fees associated with the lease cancellation.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the SEC) on March 31, 2017.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Various statements contained in this quarterly report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this quarterly report speak only as of the date of this quarterly report; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, contingencies and uncertainties include, but are not limited to, the following:


•	our ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q;


•	liquidity constraints and our ability to service our outstanding indebtedness;


•	our ability to comply with the restrictions imposed by the indenture governing our notes and other financing arrangements;


•	market demand for coal and electricity;


•	geologic conditions, weather and other inherent risks of coal mining that are beyond our control;


•	competition within our industry and with producers of competing energy sources;


•	excess production and production capacity;


•	our ability to acquire or develop coal reserves in an economically feasible manner;


•	inaccuracies in our estimates of our coal reserves;


•	availability and price of mining and other industrial supplies, including steel-based supplies, diesel fuel, rubber tires and explosives;


•	the continued weakness in global economic conditions or in any industry in which our customers operate, or sustained uncertainty in financial markets, which may cause conditions we cannot predict;


•	coal users switching to other fuels in order to comply with various environmental standards related to coal combustion;


•	volatility in the capital and credit markets;


•	availability of skilled employees and other workforce factors;


•	our ability to collect payments from our customers;

2124

Table of Contents


•	defects in title or the loss of a leasehold interest;


•	railroad, barge, truck and other transportation performance costs;

• our ability to secure new coal supply arrangements or to renew existing coal supply arrangements, as a result of our current financial condition;


•	the deferral of contracted shipments of coal by our customers;


•	our ability to obtain or renew surety bonds on acceptable terms;


•	our ability to obtain and renew various permits, including permits authorizing the disposition of certain mining waste;


•	existing and future legislation and regulations affecting both our coal mining operations and our customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxide, nitrogen oxides, or toxic gases, such as hydrogen chloride, particulate matter or greenhouse gases;


•	the accuracy of our estimates of reclamation and other mine closure obligations;


•	our ability to attract and retain key management personnel; and


•	efforts to organize our workforce for representation under a collective bargaining agreement.

When considering these forward-looking statements, you should keep in mind the cautionary statements in this document and in our other SEC filings, including the more detailed discussion of these factors and other factors that could affect our results included in Item 1A, “Risk Factors,” in our Annual Report on Form 10-K filed with the SEC on March 31, 2017, as may be updated in subsequent filings with the SEC.

Overview

Armstrong Energy, Inc. (together with its subsidiaries, we, Armstrong, or the Company) is a producer of low chlorine, high sulfur thermal coal from the Illinois Basin, with both surface and underground mines. We market our coal primarily to proximate and investment-grade electric utility companies as fuel for their steam-powered generators. Based on 2016 production, we are the sixth largest producer in the Illinois Basin and the second largest in Western Kentucky. We were formed in 2006 to acquire and develop a large coal reserve holding. We commenced production in the second quarter of 2008 and currently operate five mines, including three surface and two underground. As of ~~March 31~~June 30, 2017, we controlled approximately ~~565~~445 million tons of proven and probable coal reserves. We also own and operate three coal processing plants, which support our mining operations. From our reserves, we mine coal from multiple seams that, in combination with our coal processing facilities, enhance our ability to meet customer requirements for blends of coal with different characteristics. The locations of our coal reserves and operations, adjacent to the Green River, together with our river dock coal handling and rail loadout facilities, allow us to optimize coal blending and handling, and provide our customers with rail, barge and truck transportation options.

We market our coal primarily to large utilities with coal-fired, base-load, scrubbed power plants under multi-year coal supply agreements. Our multi-year coal supply agreements usually have specific volume and pricing arrangements for each year of the agreement. These agreements allow customers to secure a supply for their future needs and provide us with greater predictability of sales volume and sales prices. At ~~March~~June 3130, 2017, we had coal supply agreements with terms ranging from one to four years. As of ~~March~~June 3130, 2017, we are contractually committed to sell approximately 5.3 million tons of coal in 2017.

Going Concern

We have experienced recurring losses from operations, which has led to a substantial decline in cash flows from operating activities. Our current operating plan indicates that we will continue to incur losses from operations and generate negative cash flows from operating activities. In addition, we entered into a settlement agreement with our affiliate, Thoroughbred Resources, L.P. (Thoroughbred), effective March 29, 2017, whereby we agreed, among other things, to begin paying Thoroughbred all production royalties earned on or after January 1, 2017 in cash, as permitted by the existing lease terms (~~see " - Recent Developments" below for more information with respect to~~ the ~~settlement agreement). Our continuing operating losses, negative cash flow projections and other liquidity risks raise substantial doubt about whether we will meet our~~

2225

Table of Contents

~~obligations~~Settlement asAgreement) ~~they~~(see ~~become~~Note ~~due~~6, ~~within one year from the filing of this Quarterly Report on Form 10~~"Related-~~Q. As~~Party ~~a result of this~~Transactions," asto ~~well~~our asunaudited ~~the~~consolidated ~~continued~~financial ~~uncertainty~~statements ~~around~~for ~~future~~more ~~coal~~information ~~fundamentals,~~with werespect ~~have concluded there exists substantial doubt regarding our ability~~ to ~~continue~~the asSettlement ~~a going concern~~Agreement).

~~The~~Furthermore, ~~accompanying~~the ~~unaudited~~Company ~~condensed~~is ~~consolidated~~currently ~~financial~~in ~~statements~~default ~~have~~pursuant ~~been~~to ~~prepared~~the ~~assuming~~terms weof ~~will~~the ~~continue~~Indenture (the Indenture) governing its 11.75% Senior Secured Notes due 2019 (the Notes) as a ~~going~~result ~~concern~~of failing to make the $11.75 million interest payment due on the Notes on June 15, ~~which~~2017. ~~contemplates~~On June 15, 2017, the ~~realization~~Company ofexercised ~~assets~~its ~~and~~right ~~liabilities~~under ~~and~~the ~~commitments~~Indenture into enter into a 30-day grace period to defer the ~~normal~~interest ~~course~~payment ofon ~~business~~the Notes. The ~~unaudited~~Company ~~condensed~~did ~~consolidated~~not ~~financial~~make ~~statements~~the ~~for~~June 15, 2017 interest payment within the ~~quarter~~30-day ~~ended~~grace ~~March~~period, 31and as such, ~~2017~~an doevent ~~not~~of ~~include~~default ~~any~~occurred ~~adjustments~~pursuant ~~that~~to the terms of the Indenture. Upon an event of default, the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding may ~~result~~declare ~~from~~the ~~uncertainty~~principal ~~related~~of toand ~~our~~accrued ~~ability~~interest on the Notes to ~~continue~~be asimmediately adue ~~going~~and ~~concern~~payable.

~~Due~~On toJuly ~~our~~16, ~~current~~2017, ~~financial~~the ~~outlook,~~Company weentered ~~have~~into ~~undertaken~~a ~~steps~~forbearance toagreement ~~preserve~~(the ~~our~~Forbearance ~~liquidity~~Agreement) ~~and~~with holders who collectively beneficially own or manage ~~operating~~in ~~costs,~~excess ~~including~~of ~~controlling~~75% ~~capital~~of ~~expenditures.~~the ~~Beginning~~aggregate inprincipal ~~2015~~amount of the Notes (the Holders), wewhereby ~~undertook~~the ~~steps~~Holders have agreed to ~~enhance~~forbear ~~our~~from ~~financial~~exercising ~~flexibility~~their rights and ~~reduce~~remedies ~~cash~~under ~~outflows~~the inIndenture or the ~~near~~related ~~term,~~security ~~including~~documents athrough ~~streamlining~~the earlier of ~~our~~August ~~cost~~14, ~~structure~~2017 ~~and~~or ~~anticipated~~an ~~reductions~~event of termination, as set forth in ~~production~~the ~~volumes~~Forbearance ~~and~~Agreement ~~capital~~(the ~~expenditures. In~~Forbearance ~~addition,~~Period) wewith ~~are~~respect ~~actively~~to ~~negotiating~~the default as a ~~restructuring~~result ~~with~~of ~~advisers~~the Company’s failure to ~~certain~~make ~~holders~~the ofJune ~~our~~15, 112017 interest payment.~~75%~~ ~~Senior~~Accordingly, ~~Secured~~the ~~Notes~~Company ~~due~~has ~~2019~~classified (the Notes), ~~who~~as ~~collectively~~current ~~beneficially~~liabilities ~~own~~in orits ~~manage~~unaudited incondensed ~~excess~~consolidated ofbalance ~~75%~~sheet as of ~~the~~June ~~aggregate~~30, ~~principal~~2017. See ~~amount~~Note of7, "Long-Term Debt," to our unaudited consolidated financial statements for more information with respect to the ~~Notes~~Forbearance Agreement.

We also have ~~engaged~~other ~~financial~~debt ~~and~~obligations ~~legal~~entered ~~advisers~~into to ~~assist~~finance usthe inacquisition ~~restructuring~~of ~~our~~certain ~~capital~~equipment ~~structure~~ and ~~evaluating other potential alternatives to address the impending liquidity constraints~~land. ~~However,~~Certain ~~there~~of ~~can~~these befinancing noagreements ~~assurance~~include ~~that~~cross-default ~~any~~or ~~restructuring~~cross-event ~~will~~of bedefault ~~possible on acceptable terms, if at all~~provisions. ItAs ~~may~~a beresult ~~difficult to come to an agreement that is acceptable to all~~ of our ~~creditors.~~default ~~Our~~under ~~failure to reach an agreement on~~ the ~~terms of a restructuring with our creditors would have a material adverse effect on our liquidity~~Indenture, ~~financial condition and results of operations. In addition, if a successful restructuring with~~ the ~~holders~~lenders ofthat ~~the~~are ~~Notes~~party ~~is not achieved, it may be necessary for us~~ to ~~file~~certain ~~a voluntary petition for relief under Chapter 11~~ of ~~the~~these ~~United~~agreements ~~States~~could ~~Bankruptcy~~elect ~~Code in order~~ to ~~implement~~declare asome ~~restructuring,~~ or ~~our~~all ~~creditors~~of ~~could~~the ~~force~~amounts usoutstanding ~~into~~as animmediately ~~involuntary~~due ~~bankruptcy~~and ~~or liquidation~~payable.

~~Recent~~The ~~Developments~~Company’s continuing operating losses, negative cash flow projections, Indenture default and other liquidity risks raise substantial doubt about whether the Company will meet its obligations as they become due over the next year. As a result of this, as well as the continued uncertainty around future coal fundamentals, the Company has concluded there exists substantial doubt regarding its ability to continue as a going concern.

~~Claim~~The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of ~~Event~~assets and liabilities and commitments in the normal course of ~~Default~~business. byThe ~~Bondholders~~ unaudited condensed consolidated financial statements for the three and six months ended June 30, 2017 do not include any adjustments that may result from uncertainty related to the Company's ability to continue as a going concern.

OnDue ~~December~~to ~~30,~~our ~~2016~~current financial outlook, ~~Rhino~~we ~~Resource~~have ~~Partners~~undertaken ~~Holdings,~~steps ~~LLC~~to ~~(Rhino~~preserve ~~Holdings),~~our anliquidity ~~entity~~and ~~wholly-owned~~manage byoperating ~~Yorktown~~costs, ~~together~~including ~~with~~controlling ~~Rhino~~capital ~~Resource~~expenditures. ~~Partners~~Beginning LPin ~~(Rhino)~~2015, ~~Royal~~we ~~Energy~~undertook ~~Resources,~~steps ~~Inc.~~to ~~(Royal),~~enhance our financial flexibility and ~~Rhino~~reduce GPcash ~~LLC~~outflows ~~(Rhino~~in ~~GP)~~the ~~entered~~near ~~into~~term, including a ~~put~~streamlining of our cost structure and ~~call~~anticipated ~~option~~reductions ~~agreement~~in ~~whereby~~production ~~Rhino~~volumes ~~received~~and acapital ~~call~~expenditures. ~~option~~In addition, we have engaged financial and ~~Rhino~~legal ~~Holdings~~advisers ~~received~~to aassist ~~put~~in ~~option,~~restructuring onour ~~all~~capital ofand ~~the~~evaluating ~~outstanding~~other ~~Armstrong~~potential ~~stock~~alternatives ~~currently~~to ~~held~~address bythe ~~Yorktown~~impending ~~Partners~~liquidity ~~LLC~~constraints. ~~(Yorktown),~~With the ~~majority~~assistance ~~owner~~ of our ~~outstanding common stock~~advisers, ~~under~~we ~~certain~~are ~~circumstances~~actively (negotiating the ~~Option).~~terms ~~The~~of ~~Option~~a ~~provides~~restructuring ~~that~~with ~~Rhino~~the ~~can~~Holders ~~exercise~~of the ~~Option~~Notes ~~after~~with 60the ~~days~~objective ~~following entry~~ of reaching an agreement ~~regarding~~by the ~~restructuring~~end of the ~~Notes,~~Forbearance ~~but~~Period. Until any definitive agreements are negotiated in their entirety and executed, and the transactions contemplated thereby are consummated, there can be no ~~event~~assurance ~~earlier~~that ~~than~~any ~~January~~restructuring 1transaction will be completed by the end of the Forbearance Period or at all. Furthermore, ~~2018~~it may be difficult to come to an agreement that is acceptable to all of our creditors, and there can be no ~~later~~assurance ~~than~~that ~~December~~any ~~31,~~restructuring ~~2019~~will be possible at all. InFailure ~~exchange~~to ~~for~~reach ~~Rhino~~an ~~Holdings~~agreement ~~granting~~on ~~Rhino~~the terms of a restructuring with our creditors, including the ~~Option~~Holders, towould ~~purchase~~have ~~Yorktown’s~~a ~~holdings~~material ofadverse ~~Armstrong~~effect ~~Energy~~on ~~stock~~our liquidity, ~~Rhino~~financial ~~issued~~condition 5and results of operations.0 It ~~million~~may ~~common~~be ~~units~~necessary for us to ~~Rhino~~file ~~Holdings~~a ~~upon~~voluntary ~~the~~petition ~~execution~~for relief under Chapter 11 of the ~~Option~~United States Bankruptcy Code in order to implement a restructuring, or our creditors could force us into an involuntary bankruptcy or liquidation.

InRecent connection with entry into the Option by the aforementioned parties, on February 2, 2017, we received notice from certain of the holders of the Notes (the Holders) that the Holders believe entry into the Option by the third-parties constitutes a Change of Control, as defined in the Indenture governing the Notes, and that an Event of Default occurred, as defined in the Indenture, when we failed to offer to purchase the Notes within 30 days following the purported Change of Control. This position was reiterated in a letter dated April 18, 2017. The Holders are not currently pursuing remedies under the Indenture related to the alleged Event of Default, but have reserved their rights to do so at a future time. In addition, certain of our financing agreements include cross-default or cross-event of default provisions, which, if the aforementioned assertions were proven to be accurate, would result indirectly in an event of default under such financing arrangements. Events

WeForbearance believe that neither a Change of Control nor an Event of Default as defined in the Indenture has occurred. To that end, we have advised the Holders that we dispute the allegations. No further action associated with these claims has been taken to date by us or the Holders.Agreement

~~Settlement~~As disclosed above, on July 16, 2017, Armstrong and certain of our subsidiaries (the Guarantors and, together with the Company, the Obligors) entered into the Forbearance Agreement with ~~Thoroughbred~~the Holders of approximately $158 million in aggregate principal amount (representing approximately 79% of the outstanding principal amount) of the Company’s outstanding Notes issued pursuant to the Indenture. Pursuant to the Forbearance Agreement, the Holders have agreed to forbear from exercising

On December 16, 2016, we received notification from legal counsel for Thoroughbred Holdings GP, LLC (Thoroughbred Holdings), the general partner of Thoroughbred, disputing the calculation of deferred royalties and valuation of certain jointly-owned land and mineral reserves in Ohio and Muhlenberg Counties, Kentucky (the Jointly-Owned Property) pursuant to the 26

Table of Contents

~~terms~~their ofrights and remedies under the ~~Amended~~Indenture ~~and~~or ~~Restated~~the ~~Royalty~~related ~~Deferment~~security ~~and~~documents ~~Option~~as ~~Agreement~~a (result of the ~~Royalty~~event ~~Agreement). In~~of default due to the ~~December~~Company’s ~~16th~~failure ~~correspondence~~to make the $11.75 million June 15, ~~counsel~~2017 ~~for~~interest ~~Thoroughbred~~payment ~~Holdings~~on ~~asserted~~the ~~that~~Notes ~~certain~~until ~~third-party~~the ~~valuations~~expiration ~~prepared~~of inthe ~~order~~Forbearance Period. The Holders have also agreed to ~~ascertain~~not transfer any ownership in the ~~amount~~Notes held by any of the ~~Jointly-Owned~~Holders ~~Property~~during the Forbearance Period other than to bepotential ~~transferred~~transferees ~~from~~currently usparties to ~~Thoroughbred~~or ~~pursuant~~who agree in writing to be bound by the ~~Royalty~~Forbearance Agreement. toWith ~~satisfy~~the ~~production~~assistance ~~royalties~~of ~~due~~our toadvisers, ~~Thoroughbred~~we ~~were~~are ~~inaccurate~~actively ~~for~~negotiating ~~fiscal~~the ~~year~~terms ~~2016~~of ~~and~~a ~~prior~~restructuring ~~years~~with the Holders of the Notes with the objective of reaching an agreement by the end of the Forbearance Period. ~~Therefore,~~ ~~according~~Until toany ~~Thoroughbred,~~definitive ~~its~~agreements ~~ownership~~are negotiated in their entirety and executed, and the ~~Jointly-Owned~~transactions ~~Property~~contemplated ~~would~~thereby ~~have~~are ~~reached~~consummated, ~~100%~~there ~~during~~can orbe ~~prior~~no toassurance ~~fiscal~~that ~~year~~any ~~2016~~restructuring transaction will be completed by the end of the Forbearance Period or at all.

WeTermination promptly notified Thoroughbred that we disputed these assertions and requested information supporting Thoroughbred’s arguments. Following our request, in a letter dated January 6, 2017, Thoroughbred Holding’s CEO advised us that Thoroughbred, based on its analysis, concluded that our valuation of ~~the~~Lease remaining Jointly-Owned Property was significantly overstated, and using its valuation methodology, Thoroughbred would have been entitled to 100% ownership of the Jointly-Owned Property during the first half of 2016. Therefore, according to Thoroughbred’s calculations, cash payment of production royalties was required for a portion of the royalties incurred during 2016 and thereafter. In addition, Thoroughbred questioned several of the inputs utilized in the valuation by us during prior years, therefore challenging the validity of the prior land and reserve transfers. Agreement

ByAs ~~subsequent~~previously ~~letter~~disclosed, ~~dated~~on ~~February~~June 151, ~~2017~~2016, ~~Thoroughbred~~Armstrong ~~clarified~~Coal ~~that~~Company, ~~its~~Inc. ~~valuation~~(ACC), ~~analysis~~a ~~ascertained~~wholly-owned ~~that~~subsidiary of the ~~fair~~Company, ~~market~~entered ~~value~~into ofa ~~the~~coal ~~entirety~~mining oflease (the ~~Jointly-Owned~~Lease ~~Property~~Agreement) aswith ofAlcoa ~~December 31~~Fuels, ~~2016~~Inc. ~~was~~(Alcoa) ~~not~~for ~~more~~the ~~than~~right ~~$35~~to ~~million. In~~mine ~~addition,~~the ~~Thoroughbred~~No. ~~insisted~~6 ~~that~~coal ~~applying~~seam, ~~more~~and ~~conservative~~all ~~inputs~~coal tolying above the ~~valuations~~No. of6 ~~prior~~coal ~~periods~~seam, ~~resulted~~underlying incertain ~~the~~property ~~underpayment~~in ofUnion ~~production~~and ~~royalties~~Webster byCounties, ~~not~~Kentucky. ~~less~~By ~~than~~letter ~~$26.0~~dated ~~million~~May ~~and~~10, ~~potentially~~2017, inACC ~~excess~~notified Alcoa of ~~$40.0~~its ~~million~~intent ~~through~~to ~~December~~cancel ~~31,~~the ~~2016. Thoroughbred’s~~Lease ~~counsel~~Agreement, byeffective ~~separate~~May ~~letter dated February 15~~31, 2017,. ~~also~~As ~~took~~a ~~exception~~result toof ~~our~~the ~~calculation~~lease ofcancellation, ~~the~~Armstrong ~~amount~~will relinquish control of ~~deferred~~approximately ~~royalties~~120 ~~for~~million ~~the~~tons ~~year~~of ~~ended~~mineral ~~December~~reserves. ~~31,~~No ~~2016,~~termination ~~the~~fees ~~amount~~were ofincurred ~~certain~~in ~~offsets~~connection ~~from~~with ~~these~~the ~~deferred~~cancellation ~~royalties~~of bythe ~~amounts~~Lease ~~due~~Agreement. As ~~from~~a ~~Thoroughbred~~result toof usthe ~~pursuant~~lease totermination, anthe ~~Administrative~~Company ~~Services~~recognized ~~Agreement,~~a ~~and~~non-cash ~~the~~impairment ~~offset~~charge of ~~certain~~approximately ~~production~~$3.4 ~~royalties~~million ~~that~~during wethe ~~overpaid~~three tomonths ~~Thoroughbred~~ended onJune ~~properties~~30, ~~other~~2017 ~~than~~to ~~the Jointly~~write-~~Owned~~off ~~Property. We~~certain ~~subsequently~~capitalized ~~notified~~costs ~~Thoroughbred~~associated ofwith ~~our~~the ~~continued~~future ~~disagreement~~development ~~with~~of ~~their~~the ~~claims~~property.

AsRetention ofBonus December 31, 2016, amounts owed to Thoroughbred totaled $11.7 million, primarily representing deferred royalties incurred during calendar year 2016. Consistent with the previous annual land and reserve transfers pursuant to the Royalty Agreement, we proposed to transfer a 10.95% undivided interest in the Jointly-Owned Property in satisfaction of the amounts owed, which had been ascertained based on a fair market value determination obtained by us from an independent third-party. As noted above, Thoroughbred objected to this amount, asserting that, based on its own valuation, 10.95% was substantially undervalued. Following a series of negotiations to resolve the dispute, we and Thoroughbred entered into a settlement agreement effective March 29, 2017 (the Settlement Agreement) in which we agreed to transfer, and Thoroughbred agreed to accept, an additional 9.86% undivided interest in Jointly-Owned Property for a total of 20.81%, bringing Thoroughbred’s interest in the Jointly-Owned Property to 100% as of January 1, 2017. The additional 9.86% undivided interest was expected to be earned by Thoroughbred during the first half of 2017 regardless of the settlement. Furthermore, as part of the Settlement Agreement, we and Thoroughbred agreed to mutual waivers and releases related to the Royalty Agreement, the payment of production royalties or any other sums due under the leases prior to January 1, 2017, and the Administrative Services Agreement. Thoroughbred also waived and released any prior claims against us for lost or wasted coal or mining practices and operational decisions made by us; any other demands, claims, or assertions set forth in the various communications from Thoroughbred Holdings and its legal counsel to us; and any other claims arising from our administration of the leases prior to January 1, 2017. In addition, we agreed to begin paying Thoroughbred all production royalties earned on or after January 1, 2017 in cash pursuant to the existing lease terms, with royalties earned for January and February 2017 totaling $2.7 million being paid on March 31, 2017. By letter dated April 18, 2017, certain of the Holders of the Notes expressed certain objections to entry into the Settlement Agreement.Agreements

AsIn aJune ~~result~~2017, ofwe ~~the~~entered ~~Settlement~~into ~~Agreement,~~retention webonus ~~recognized~~agreements awith ~~non-cash~~certain ~~charge~~executive inofficers ~~the~~and ~~year~~other ~~ending~~key ~~December~~employees 31(Eligible Employees), ~~2016~~whereby ~~totaling~~the ~~$10~~Eligible Employees received a one-time lump sum cash payment.5 Each ~~million~~of ~~related~~the payments is subject to clawback and repayment by the ~~9.86%~~Eligible ~~increase~~Employee in the ~~Jointly-Owned~~event ~~Property~~such ~~transferred~~officer toor ~~resolve~~employee ~~the~~is ~~aforementioned~~terminated ~~disputes. In~~with ~~addition,~~cause ~~the~~or ~~Jointly-Owned~~resigns ~~Property~~without ~~that~~good ~~was~~reason before the ~~subject~~one-year anniversary of the ~~dispute~~agreement. As we continue to work through our overall restructuring, it has ~~been~~determined ~~leased~~that ~~and/or~~the ~~subleased~~retention bybonus ~~Thoroughbred~~agreements were necessary to usensure inwe ~~exchange~~have ~~for~~the acontinued ~~production~~services ~~royalty~~of ~~effective~~its ~~January~~management 1,and ~~2017~~key employees. As The aaggregate ~~result~~amount of the retention bonus payments authorized by our ~~continuing~~Board ~~involvement~~of inDirectors totaled $1.7 million. For the ~~land~~three and ~~mineral~~six ~~reserves~~months ~~transferred~~ended toJune ~~Thoroughbred~~30, ~~this~~2017, ~~transaction~~a ischarge ~~accounted~~of ~~for~~$0.1 million was recognized as a ~~financing~~component ~~arrangement,~~of ~~and~~Other, ~~therefore,~~net ~~resulted~~ in anthe ~~increase~~unaudited tocondensed consolidated statements of operations. The balance of the ~~long-term~~retention ~~obligation~~bonus topayments ~~Thoroughbred~~will ~~totaling~~be ~~$22.2~~expensed ~~million~~ratably asover ofthe ~~January~~remaining 1,service ~~2017~~period.

Results of Operations

Non-GAAP Financial Information

Adjusted EBITDA, as presented in this Quarterly Report on Form 10-Q, is a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. generally accepted accounting principles (U.S. GAAP). It is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss) or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flows from operating activities as measures of our liquidity.

Table of Contents

(loss) or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flows from operating activities as measures of our liquidity.

We define Adjusted EBITDA as net income (loss) before deducting net interest expense, income taxes, depreciation, depletion and amortization, asset retirement obligation expenses, costs incurred evaluating strategic alternatives, non-cash production royalty to related party, asset impairment and restructuring charges, non-cash charge on settlement with Thoroughbred, loss on settlement of interest rate swap, loss on deferment of equity offering, non-cash stock compensation expense (income), non-cash employee benefit expense, and (gain) loss on extinguishment of debt. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers, because not all issuers and analysts calculate Adjusted EBITDA in the same manner. We present Adjusted EBITDA because we consider it an important supplemental measure of our performance and believe it is useful to an investor in evaluating our Company. We also include a quantitative reconciliation of Adjusted EBITDA to the most directly comparable U.S. GAAP financial performance measure, which is net income (loss), in the sections that follow.

~~Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016~~ 27

Table of Contents

Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

Summary

	Three Months EndedMarch 31,						Change
	Three Months EndedJune 30,						Change
	2017			2016			Amount			Percentage
	(In thousands, except per ton amounts)
Tons of coal sold	1,~~471~~498			1,~~424~~414			4784			35.39	%
Total revenue	$	5960,~~108~~904		$	60,~~444~~309		$	~~(1,336~~595	)	(21.20	)%
Average sales price per ton	$	40.1867		$	42.4465		$	(21.2698	)	(54.36	)%
Cost of coal sales1	$	51,~~296~~678		$	5250,~~675~~639		$	(1,~~379~~039	)	(2.61	)%
Average cost of sales per ton1	$	34.8751		$	3635.9981		$	21.1230		53.76	%
Net loss	$	(1517,~~446~~174	)	$	(1315,~~441~~002	)	$	(2,~~005~~172	)	(14.95	)%
Adjusted EBITDA2	$	35,~~108~~012		$	47,~~433~~081		$	(12,~~325~~069	)	(29.92	)%


¹	Includes revenue-based production taxes and royalties; excludes production royalty to related party, depreciation, depletion, and amortization, asset retirement obligation expenses, and general and administrative costs.


²	Non-GAAP measure; please see definition above and reconciliation below.

Revenue

Our coal sales revenue for the three months ended ~~March~~June 3130, 2017 ~~decreased~~increased by $10.36 million, or 21.20%, to $5960.19 million, as compared to $60.43 million for the three months ended months ended ~~March~~June 3130, 2016. This ~~decrease~~increase is attributable to a favorable volume variance of approximately $23.06 million year-over-year due to the timing of shipments, ~~and~~partially offset by an unfavorable price variance of approximately $3.30 million due to the renewal of sales contracts at less favorable prices, as well as unfavorable transportation adjustments included as a component of the price of certain of our long-term coal supply agreements as a result of declining diesel prices in the current quarter, as compared to the three months ended months ended March 31, 2016.

Cost of Coal Sales

Cost of coal sales ~~decreased~~increased 2.61% to $51.37 million in the three months ended ~~March~~June 3130, 2017, from $5250.76 million in the same period of 2016. On a per ton basis, our cost of coal sales decreased during the three months ended ~~March~~June 3130, 2017, compared to the same period of 2016, from $3635.9981 per ton to $34.8751 per ton. This decrease in per ton amount is primarily due to the closure of our Parkway underground mine in October 2016, which was a higher cost operation, and improved operating efficiency at our ~~Kronos~~ underground ~~mine~~mines from increased production due to higher demand for higher quality coal, partially offset by higher overall costs at our surface operations from mining in higher ratio reserves.

Production Royalty to Related Party

Production royalty to related party increased $0.2 million, or 1410.25%, to $1.9 million during the three months ended ~~March~~June 3130, 2017, as compared to the same period of 2016. This amount relates to production royalties earned by our affiliate, Thoroughbred, from sales originating from our Kronos underground mine (where the mineral reserves are leased directly from Thoroughbred). The increase is primarily due to aan ~~related~~ increase ofin sales volume experienced at our Kronos underground mine during the current quarter, partially offset by lower average sales prices in the current quarter, as compared to the same period of 2016, due to the renewal of sales contracts at less favorable prices. See Note 6, "Related -Party Transactions," to our unaudited condensed consolidated financial statements for further discussion related to Thoroughbred.

Table of Contents

Depreciation, Depletion and Amortization

Depreciation, depletion, and amortization of $7.67 million during the three months ended ~~March~~June 3130, 2017, was relatively consistent with the same period of 2016.

Asset Retirement Obligation Expenses

Asset retirement obligation expenses of $0.3 million in the three months ended ~~March~~June 3130, 2017, was consistent with the same period of 2016.

Asset Impairment Charges

During the three months ended June 30, 2017 and 2016, we recognized non-cash impairment charges of $3.4 million and $3.4 million, respectively. The current year charge is related to the write-off of certain mine development costs associated with the cancellation of a mineral reserve lease in Union and Webster Counties, Kentucky, whereas the prior year charge is related to the write-off of certain previously paid advance royalties that could no longer be recouped upon the renewal of the aforementioned mineral reserve lease. See Note 9, "Mineral Reserve Lease," to the unaudited condensed consolidated financial statements for further discussion.

Table of Contents

General and Administrative Expenses

General and administrative (G&A) expenses were $3.02 million for the three months ended ~~March~~June 3130, 2017, which was $0.63 million, or 158.98%, ~~lower~~higher than the three months ended ~~March~~June 3130, 2016. The ~~decrease~~increase in the three months ended ~~March~~June 3130, 2017, as compared to the same period of 2016, is due primarily to ~~lower~~higher expenses for professional ~~labor~~services ~~and benefits~~ ($0.~~3 million), information technology related costs ($0.~~1 million), and insurance costs ($0.1 million).

Interest Expense, Net

Interest expense, net is derived from the following components:

	Three Months Ended March 31,
	Three Months Ended June 30,
	2017			2016
	(In thousands)
11.75% Senior Secured Notes due 2019	$	5,875		$	5,875
Long-term obligation to related party	2,627			1,587
Long-term obligation to related-party	2,668			1,767
Other, net	~~839~~835			~~847~~1,049
Capitalized interest	(~~147~~128		)	(~~201~~142		)
Total	$	9,~~194~~250		$	8,~~108~~549

Interest expense, net was $9.23 million for the three months ended ~~March~~June 3130, 2017, as compared to $8.15 million for the three months ended ~~months ended March~~June 3130, 2016. The increase is principally attributable to higher related -party interest expense due to a higher effective interest rate, and a higher average balance on the long-term obligation to related -party.

Other, Net

Other, net for the three months ended ~~March~~June 3130, 2017 was a charge of $10.39 million, as compared to ~~income of~~ $0.12 million for the three months ended ~~March~~June 3130, 2016. The current year increase in expense is primarily due to higher costs incurred associated with evaluating strategic alternatives. For the three months ended June 30, 2017 and 2016, costs incurred evaluating strategic alternatives totaled $1.7 million and $0.5 million, respectively. Partially offsetting the increase in expense is the recognition in the three months ended June 30, 2017 of a gain on disposal of fixed assets of $0.7 million.

Net Loss

Net loss for the three months ended ~~March~~June 3130, 2017 was $1517.42 million, as compared to net loss of $1315.40 million for the same period of 2016. The increase in net loss of $2.02 million is due to a decline in gross margin quarter over quarter, as well as an increase in interest expense and ~~additional~~an increase of costs associated with evaluating strategic alternatives of $1.32 million in 2017, partially offset by ~~lower~~the ~~G&A~~recognition ~~expenses~~of a gain on disposal of fixed assets of $0.7 million during the three months ended ~~March~~June 3130, 2017, as compared to the same period of 2016.

26Adjusted EBITDA

The following table reconciles Adjusted EBITDA to net loss, the most directly comparable U.S. GAAP measure:



	Three Months Ended June 30,
	2017			2016
	(In thousands)
Net loss	$	(17,174	)	$	(15,002	)
Depreciation, depletion, and amortization	7,684			7,544
Asset retirement obligation expenses	341			340
Non-cash production royalty to related party	—			1,711
Interest expense, net	9,250			8,549
Income tax benefit	(237		)	—
Asset impairment charges	3,382			3,381
Costs incurred evaluating strategic alternatives	1,675			451
Non-cash employee benefit expense	88			104
Non-cash stock compensation expense	3			3
Adjusted EBITDA	$	5,012		$	7,081

Table of Contents

Our Adjusted EBITDA for the three months ended June 30, 2017 and 2016 was $5.0 million and $7.1 million, respectively. The decrease resulted primarily from the inclusion in Adjusted EBITDA of the cash portion of production royalties paid to Thoroughbred of $1.9 million, which began January 1, 2017, pursuant to existing lease terms and the Settlement Agreement, as well as a decline in gross margin and increase in G&A expenses during the three months ended June 30, 2017, partially offset by the recognition of a gain on disposal of fixed assets in the second quarter of 2017.

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

Summary



	Six Months Ended June 30,						Change
	2017			2016			Amount			Percentage
	(In thousands, except per ton amounts)
Tons of coal sold	2,969			2,838			131			4.6	%
Total revenue	$	120,011		$	120,753		$	(742	)	(0.6	)%
Average sales price per ton	$	40.43		$	42.55		$	(2.12	)	(5.0	)%
Cost of coal sales¹	$	102,974		$	103,314		$	340		0.3	%
Average cost of sales per ton¹	$	34.69		$	36.40		$	1.71		4.7	%
Net loss	$	(32,620	)	$	(28,443	)	$	(4,177	)	(14.7	)%
Adjusted EBITDA²	$	8,119		$	11,514		$	(3,395	)	(29.5	)%


¹	Includes revenue-based production taxes and royalties; excludes production royalty to related party, depreciation, depletion, and amortization, asset retirement obligation expenses, and general and administrative costs.


²	Non-GAAP measure; please see definition above and reconciliation below.

Revenue

Our coal sales revenue for the six months ended June 30, 2017 decreased by 0.7 million, or 0.6% , to $120.0 million, as compared to $120.8 million for the six months ended months ended June 30, 2016. This decrease is attributable to an unfavorable price variance of approximately $6.3 million due to the renewal of sales contracts at less favorable prices, as well as customer mix, as compared to the six months ended June 30, 2016. Partially offsetting this decrease was a favorable volume variance of approximately $5.6 million year-over-year due to timing of shipments.

Cost of Coal Sales

Cost of coal sales decreased 0.3% to $103.0 million in the six months ended June 30, 2017, from $103.3 million in the same period of 2016. On a per ton basis, our cost of coal sales decreased during the six months ended June 30, 2017, compared to the same period of 2016, from $36.40 per ton to $34.69 per ton. This decrease in per ton amount is primarily due to the closure of our Parkway underground mine in October 2016, which was a higher cost operation, and improved operating efficiency at our underground mines from increased production due to higher demand for higher quality coal, partially offset by higher overall costs at our surface operations from mining in higher ratio reserves.

Production Royalty to Related Party

Production royalty to related party increased $0.4 million, or 12.3%, to $3.8 million during the six months ended June 30, 2017, as compared to the same period of 2016. This amount relates to production royalties earned by our affiliate, Thoroughbred, from sales originating from our Kronos underground mine (where the mineral reserves are leased directly from Thoroughbred). The increase is primarily due to an increase in sales volume experienced at our Kronos underground mine during the current period, partially offset by lower average sales prices in the current period, as compared to the same period of 2016, due to the renewal of sales contracts at less favorable prices. See Note 6, "Related-Party Transactions," to our unaudited condensed consolidated financial statements for further discussion related to Thoroughbred.

Depreciation, Depletion and Amortization

Depreciation, depletion, and amortization of $15.3 million during the six months ended June 30, 2017 was relatively consistent with the same period of 2016.

Asset Retirement Obligation Expenses

Asset retirement obligation expenses of $0.7 million in the six months ended June 30, 2017 was consistent with the same period of 2016.

Table of Contents

Asset Impairment Charges

During the six months ended June 30, 2017 and 2016, we recognized non-cash impairment charges of $3.4 million and $3.4 million, respectively. The current year charge is related to the write-off of certain mine development costs associated with the cancellation of a mineral reserve lease in Union and Webster Counties, Kentucky, whereas the prior year charge is related to the write-off of certain previously paid advance royalties that could no longer be recouped upon the renewal of the aforementioned mineral reserve lease. See Note 9, "Mineral Reserve Lease," to the unaudited condensed consolidated financial statements for further discussion.

General and Administrative Expenses

G&A expenses were $6.1 million for the six months ended June 30, 2017, which was $0.3 million, or 4.7%, lower than the six months ended June 30, 2016. The decrease in the six months ended June 30, 2017, as compared to the same period of 2016, is due primarily to lower expenses for labor and benefits of $0.5 million.

Interest Expense, Net

Interest expense, net is derived from the following components:



	Six Months Ended June 30,
	2017			2016
	(In thousands)
11.75% Senior Secured Notes due 2019	$	11,750		$	11,750
Long-term obligation to related party	5,295			3,354
Other, net	1,674			1,896
Capitalized interest	(275		)	(343		)
Total	$	18,444		$	16,657

Interest expense, net was $18.4 million for the six months ended June 30, 2017, as compared to $16.7 million for the six months ended months ended June 30, 2016. The increase is principally attributable to higher related party interest expense due to a higher effective interest rate, and a higher average balance on the long-term obligation to related party.

Other, Net

Other, net for the six months ended June 30, 2017 was a charge of $2.2 million, as compared to $0.1 million for the six months ended months ended June 30, 2016. The current year increase in expense is primarily due to higher costs incurred associated with evaluating strategic alternatives. For the six months ended June 30, 2017 and 2016, costs incurred evaluating strategic alternatives totaled $3.0 million and $0.5 million, respectively. Partially offsetting the increase in expense is the recognition in the three months ended June 30, 2017 of a gain on disposal of fixed assets of $0.7 million.

Net Loss

Net loss for the six months ended June 30, 2017 was $32.6 million, as compared to net loss of $28.4 million for the same period of 2016. The increase in net loss of $4.2 million is due to a decline in gross margin year-over-year, as well as an increase in interest expense and additional costs associated with evaluating strategic alternatives of $2.5 million in 2017, partially offset by lower G&A expenses and the recognition of a gain on disposal of fixed assets during the six months ended June 30, 2017, as compared to the same period of 2016.

Adjusted EBITDA

The following table reconciles Adjusted EBITDA to net loss, the most directly comparable U.S. GAAP measure:

	Three Months Ended March 31,
	2017			2016
	(In thousands)
Net loss	$	(15,446	)	$	(13,441	)
Depreciation, depletion, and amortization	7,637			7,614
Asset retirement obligation expenses	329			329
Non-cash production royalty to related party	—			1,629
Interest expense, net	9,194			8,108
Income taxes	—			117
Costs incurred evaluating strategic alternatives	1,303			—
Non-cash employee benefit expense	88			105
Non-cash stock compensation expense (income)	3			(28		)
Adjusted EBITDA	$	3,108		$	4,433

~~Our~~Table ~~Adjusted EBITDA for the three months ended March 31, 2017 and 2016 was $3.1 million and $4.4 million, respectively. The decrease resulted primarily from the inclusion in Adjusted EBITDA~~ of the cash portion of production royalties paid to Thoroughbred of $1.9 million, which began January 1, 2017, pursuant to existing lease terms and the Settlement Agreement, partially offset by a decline in G&A expenses in the current quarter, as compared to the same period of 2016. Contents



	Six Months Ended June 30,
	2017			2016
	(In thousands)
Net loss	$	(32,620	)	$	(28,443	)
Depreciation, depletion, and amortization	15,320			15,158
Asset retirement obligation expenses	670			669
Non-cash production royalty to related party	—			3,340
Interest expense, net	18,444			16,657
Income tax (benefit) provision	(237		)	117
Asset impairment charges	3,382			3,381
Costs incurred evaluating strategic alternatives	2,978			451
Non-cash employee benefit expense	176			209
Non-cash stock compensation expense (income)	6			(25		)
Adjusted EBITDA	$	8,119		$	11,514

Our Adjusted EBITDA for the six months ended June 30, 2017 and 2016 was $8.1 million and $11.5 million, respectively. The decrease resulted primarily from the inclusion in Adjusted EBITDA of the cash portion of production royalties paid to Thoroughbred of $3.8 million, which began January 1, 2017, pursuant to existing lease terms and the Settlement Agreement, as well as lower gross margins in the current period, partially offset by lower G&A expenses and the recognition of a gain on disposal of fixed assets.

Liquidity and Capital Resources

Liquidity

The principal indicator of our liquidity since the termination of our former asset-based credit facility in November 2016 is cash on-hand, which, as of ~~March~~June 3130, 2017, was $5143.83 million.

Our business is capital intensive and requires substantial capital expenditures for purchasing, upgrading and maintaining equipment used in mining our reserves, as well as complying with applicable environmental laws and regulations. Our principal liquidity requirements are to finance current operations; fund capital expenditures, including acquisitions from time to time; satisfy reclamation obligations; and service our debt. Historically, our primary sources of liquidity to meet these needs have been cash generated by our operations, and to a lesser extent, borrowings under our credit facilities and contributions from our equity holders.

We manage our exposure to changing commodity prices for our long-term coal contract portfolio through the use of multi-year coal supply agreements. We generally enter into fixed price, fixed volume supply contracts with terms greater than one year with customers with whom we have historically had limited collection issues. Our ability to satisfy debt service obligations, fund planned capital expenditures, and make acquisitions will depend upon our future operating performance, which will be affected by prevailing economic conditions in the coal industry and financial, business and other factors, some of which are beyond our control.

We have experienced recurring losses from operations, which has led to a substantial decline in cash flows from operating activities ~~over the previous 18 months~~. Our current operating plan indicates that we will continue to incur losses from operations and generate negative cash flows from operating activities ~~in the near-term~~. In addition, we entered into the Settlement Agreement with our affiliate, Thoroughbred, effective March 29, 2017, ~~with Thoroughbred~~ whereby we agreed, among other things, to begin paying Thoroughbred all production royalties earned on or after January 1, 2017 in cash., ~~See~~as permitted by the existing lease terms (see Note 6, “"Related -Party Transactions,”" to our unaudited ~~condensed~~ consolidated financial statements ~~included in this report~~ for more information with respect to the Settlement Agreement). Our continuing operating losses, negative cash flow projections and other liquidity risks raise substantial doubt about whether we will meet our obligations as they become due within one year after the date of this report. As a result of this, as well as the continued uncertainty around future coal fundamentals, we have concluded there exists substantial doubt regarding our ability to continue as a going concern.

~~The~~Furthermore, ~~accompanying~~the ~~unaudited~~Company ~~condensed~~is ~~consolidated~~currently ~~financial~~in ~~statements~~default ~~have~~pursuant ~~been~~to ~~prepared~~the ~~assuming~~terms weof ~~will~~the ~~continue~~Indenture governing the Notes as a ~~going~~result ~~concern~~of failing to make the $11.75 million interest payment due on the Notes on June 15, ~~which~~2017. ~~contemplates~~On July 16, 2017, the ~~realization~~Company ofentered ~~assets~~into ~~and~~the ~~liabilities~~Forbearance Agreement with Holders, whereby the Holders have agreed to forbear from exercising their rights and ~~commitments~~remedies inunder the ~~normal~~Indenture ~~course~~or the related security documents through the Forbearance Period with respect to the default as a result of the Company’s failure to make the June 15, 2017 interest payment. See “Going Concern” for additional information.

2732

Table of Contents

~~business.~~We ~~The~~also ~~unaudited~~have ~~condensed~~other ~~consolidated~~debt ~~financial~~obligations ~~statements~~entered ~~for~~into to finance the ~~three~~acquisition ~~months~~of ~~ended~~certain ~~March~~equipment ~~31,~~and ~~2017 do~~land. ~~not~~Certain of these financing agreements include ~~any~~cross-default ~~adjustments~~or ~~that~~cross-event ~~may~~of default provisions. As a result ~~from~~of ~~uncertainty~~our ~~related~~default under the Indenture, the lenders that are party to ~~our~~certain ~~ability~~of these agreements could elect to ~~continue~~declare some or all of the amounts outstanding as aimmediately ~~going~~due ~~concern~~and payable.

~~Due~~The toCompany’s ~~our~~continuing ~~current~~operating ~~financial outlook~~losses, wenegative ~~continue~~cash toflow ~~take~~projections, ~~steps~~Indenture todefault ~~preserve~~and ~~our~~other liquidity ~~and~~risks ~~manage~~raise ~~operating~~substantial ~~costs,~~doubt ~~including~~about ~~controlling~~whether ~~capital~~the ~~expenditures.~~Company ~~Beginning~~will inmeet ~~2015,~~its weobligations ~~undertook~~as ~~steps~~they tobecome ~~enhance~~due ~~our~~over ~~financial flexibility and reduce cash outflows in~~ the ~~near~~next ~~term,~~year. As ~~including~~ a ~~streamlining~~result of ~~our~~this, ~~cost~~as ~~structure~~well ~~and~~as ~~anticipated~~the ~~reductions~~continued inuncertainty ~~production~~around ~~volumes~~future ~~and~~coal ~~capital expenditures. In addition~~fundamentals, ~~we are actively negotiating a restructuring with advisers to~~ the ~~Holders~~Company ofhas ~~the~~concluded ~~Notes,~~there ~~who~~exists ~~collectively~~substantial ~~beneficially~~doubt ~~own~~regarding orits ~~manage~~ability into ~~excess~~continue ofas ~~75%~~a ofgoing ~~the aggregate principal amount of the Notes~~concern.

WeDue to our current financial outlook, we have undertaken steps to preserve our liquidity and manage operating costs, including controlling capital expenditures. Beginning in 2015, we undertook steps to enhance our financial flexibility and reduce cash outflows in the near term, including a streamlining of our cost structure and anticipated reductions in production volumes and capital expenditures. In addition, we have engaged financial and legal advisers to assist in restructuring our capital ~~structure~~ and evaluating other potential alternatives to address the impending liquidity constraints. ~~However~~With the assistance of our advisers, we are actively negotiating the terms of a restructuring with the Holders of the Notes with the objective of reaching an agreement by the end of the Forbearance Period. Until any definitive agreements are negotiated in their entirety and executed, and the transactions contemplated thereby are consummated, there can be no assurance that any restructuring transaction will be ~~possible~~completed onby ~~acceptable~~the ~~terms,~~end ifof the Forbearance Period or at all. ItFurthermore, it may be difficult to come to an agreement that is acceptable to all of our creditors., ~~Our~~and ~~failure~~there can be no assurance that any restructuring will be possible at all. Failure to reach an agreement on the terms of a restructuring with our creditors, including the Holders, would have a material adverse effect on our liquidity, financial condition and results of operations. InIt ~~addition, if a successful restructuring with the Holders of the Notes is not achieved, it~~ may be necessary for us to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring, or our creditors could force us into an involuntary bankruptcy or liquidation.

Cash Flows

The following table reflects cash flows for the applicable periods:

	Three Months Ended March 31,
	Six Months Ended June 30,
	2017			2016
	(In thousands)
Net cash used in:
Operating activities	$	(24,~~011~~798	)	$	(27,~~202~~919	)
Investing activities	$	(13,~~205~~833	)	$	(~~947~~1,593	)
Financing activities	$	(25,~~451~~613	)	$	(25,~~366~~213	)

~~Three~~Six Months Ended ~~March~~June 3130, 2017 Compared to ~~Three~~Six Months Ended ~~March~~June 3130, 2016

Net cash used in operating activities was $24.08 million for the ~~three~~six months ended ~~March~~June 3130, 2017, a decrease of $03.21 million from net cash used in operating activities of $27.29 million for the same period of 2016. Operating results were negatively impacted during the first ~~three~~six months of 2017 due to an increase in interest expense and incurring costs of $1.3.0 million associated with evaluating certain strategic alternatives. In addition, operating cash flows were negatively impacted in the current ~~quarter~~period from commencing the payment of production royalties in cash to Thoroughbred as of January 1, 2017 pursuant to the Settlement Agreement. Positively impacting cash flows from operations was aan ~~decrease~~increase in ~~accounts~~non-cash ~~receivable~~interest ofexpense ~~$1.4 million~~ due to the ~~timing~~deferral of ~~cash~~the ~~receipts.~~interest payment on the Notes due June 15, 2017. Cash flows from operations for the ~~three~~six months ended ~~March~~June 3130, 2016 were positively impacted by an increase in the net related party liabilities of $36.05 million due to the deferment of amounts owed to our affiliate, Thoroughbred, including interest and royalties earned on leased reserves, and a decrease in ~~accounts~~inventory ~~receivable~~ due to the timing of ~~cash receipts~~shipments. Negatively impacting operating cash flows in the comparable period of the prior year ~~quarter~~ was a decrease in accounts payable and accrued and other liabilities due to the timing of payments.

Net cash used in investing activities increased $02.32 million to $13.28 million for the ~~three~~six months ended ~~March~~June 3130, 2017, as compared to $01.96 million for the same period of 2016. The current and prior year investments are primarily attributable to capital expenditures to maintain our existing fixed assets, partially offset by proceeds received from the disposal of certain fixed assets of $1.5 million during the current year period.

Net cash used in financing activities was $2.5 million for the three months ended March 31, 2017, as compared to net cash used in financing activities of $2.4 million for the three months ended March 31, 2016. The current and prior year activity relates primarily to scheduled capital lease and other long-term debt payments.33

Table of Contents

Net cash used in financing activities was $5.6 million for the six months ended June 30, 2017, as compared to net cash used in financing activities of $5.2 million for the six months ended June 30, 2016. The current and prior year activity relates primarily to scheduled capital lease and other long-term debt payments.

Contractual Obligations

Our contractual obligations have not changed materially from the disclosures in our Annual Report on Form 10-K filed with the SEC on March 31, 2017.

Table of Contents

Capital Expenditures

Our mining operations require investments to expand, upgrade or enhance existing operations and to comply with environmental and safety regulations. In response to the challenging coal environment, we have sought to maintain a controlled, disciplined approach to capital spending in order to preserve liquidity. Our anticipated total capital expenditures for 2017 are estimated to be within a range of $12.0 million to $1614.0 million. Management anticipates funding capital requirements with current cash balances and cash flows provided by operations. With respect to any significant development projects, we plan to defer them to time periods beyond 2017 and will continue to evaluate the timing associated with those projects based on changes in overall coal supply and demand.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements include guarantees and financial instruments with off-balance sheet risk, such as surety bonds. No liabilities related to these arrangements are reflected in our consolidated balance sheet.

Federal and state laws require us to secure certain long-term obligations such as mine closure and reclamation costs and other obligations. We typically secure these obligations by using surety bonds, an off-balance sheet instrument. The use of surety bonds is less expensive for us than the alternative of posting a 100% cash bond. To the extent that surety bonds become unavailable, we would seek to secure our reclamation obligations with letters of credit, cash deposits or other suitable forms of collateral.

As of ~~March~~June 3130, 2017, we had approximately $33.23 million in surety bonds outstanding to secure the performance of our reclamation obligations, which were supported by approximately $6.0 million of cash posted as collateral.

Related-Party Transactions

In the normal course of business, we engage in certain related-party transactions with Thoroughbred, as well as other affiliated parties. These transactions generally include production and overriding royalties, administrative service agreements, reserve leases, and certain financing arrangements. For more information regarding our related party transactions, see Note 6, “Related-Party Transactions,” to our unaudited condensed consolidated financial statements included in this report and “Item 13—Certain Relationships and Related-Party Transactions, and Director Independence” in our Annual Report on Form 10-K filed with the SEC on March 31, 2017.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

The most significant areas requiring the use of management estimates and assumptions relate to units-of-production amortization calculations, asset retirement obligations, useful lives for depreciation of fixed assets, impairment of long-lived assets, and the accounting for the long-term obligation to related-party. For a full discussion of our accounting estimates and assumptions that we have identified as critical in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K filed with the SEC on March 31, 2017.

Table of Contents

Recent Accounting Pronouncements

See Note 1, "Description of Business and Entity Structure," to our unaudited condensed consolidated financial statements included in this report for a discussion of newly adopted accounting standards and accounting standards not yet implemented.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We define market risk as the risk of economic loss as a consequence of the adverse movement of market rates and prices. We believe our principal market risks are commodity price risk and credit risk.

Table of Contents

Commodity Price Risk

We sell most of the coal we produce under multi-year coal supply agreements. Historically, we have principally managed the commodity price risks from our coal sales by entering into multi-year coal supply agreements of varying terms and durations, rather than through the use of derivative instruments.

Some of the products used in our mining activities, such as diesel fuel, explosives and steel products for roof support used in our underground mining, are subject to price volatility. Through our suppliers, we utilize forward purchases to manage a portion of our exposure related to diesel fuel volatility. A hypothetical increase of $0.10 per gallon for diesel fuel would have negatively impacted our results of operations by $0.1 million and $0.2 million for the three and six months ended ~~March~~June 3130, 2017., respectively. A hypothetical increase of 10% in steel prices would have negatively impacted our results of operations by $0.4 million and $0.8 million for the three and six months ended ~~March~~June 3130, 2017, respectively. A hypothetical increase of 10% in explosives prices would have negatively impacted our results of operations by $0.1 million and $0.3 million for the three and six months ended ~~March~~June 3130, 2017, respectively.

Credit Risk

Most of our coal sales are made to electric utilities. Therefore, our credit risk is primarily with domestic electric power generators. Our policy is to independently evaluate each customer’s creditworthiness prior to entering into a transaction with the customer and to constantly monitor outstanding accounts receivable against established credit limits. When deemed appropriate, we will take steps to reduce credit exposure to customers that do not meet our credit standards or whose credit has deteriorated. Credit losses are provided for in the financial statements and have historically been minimal.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures as of ~~March~~June 3130, 2017. Based upon such review and evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the date of such evaluation to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the ~~first~~second quarter of 2017, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

3035

Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are involved from time to time in various lawsuits and claims arising in the ordinary course of business. Although the outcomes of these lawsuits and claims are uncertain, we do not believe any of them will have a material adverse effect on our business, financial condition or results of operations. See Note 1213, "Commitments and Contingencies," to our unaudited condensed consolidated financial statements included in this report for a discussion of significant legal matters.

Item 1A. Risk Factors

~~There~~In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” sections in the Annual Report on Form 10-K for the year ended December 31, 2014, together with the cautionary statement under the caption “Cautionary Statement Regarding Forward-Looking Statements” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report. Except as set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K filed with the SEC on March 31, 2017.

We have concluded there is substantial doubt about our ability to continue as a going concern and our independent registered public accounting firm's report on our financial statements contains an explanatory paragraph describing our ability to continue as a going concern.

Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations, our accumulated deficit, and the anticipation of limited liquidity to meet our obligations through March 2018. Effective November 14, 2016, we terminated our asset-based revolving credit facility entered into in December 2012 due to restrictions in our borrowing capacity, which were anticipated to continue through the remaining term of the agreement. In addition, we entered into the Settlement Agreement with Thoroughbred, effective March 29, 2017, whereby we agreed, among other things, to begin paying Thoroughbred all production royalties earned on or after January 1, 2017 in cash (see Note 6, "Related-Party Transactions"). Furthermore, the Company is currently in default under the terms of the Indenture governing the Notes as a result of failing to make the $11.75 million interest payment due on the Notes on June 15, 2017. On July 16, 2017, the Company entered into the Forbearance Agreement with Holders, whereby the Holders have agreed to forbear from exercising their rights and remedies under the Indenture or the related security documents through the Forbearance Period with respect to the default as a result of the Company’s failure to make the June 15, 2017 interest payment. See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Going Concern” for additional information.

We also have other debt obligations entered into to finance the acquisition of certain equipment and land. Certain of these financing agreements include cross-default or cross-event of default provisions. As a result of our default under the Indenture, the lenders that are party to certain of these agreements could elect to declare some or all of the amounts outstanding as immediately due and payable.

The Company’s continuing operating losses, negative cash flow projections, Indenture default and other liquidity risks raise substantial doubt about whether the Company will meet its obligations as they become due over the next year. As a result of this, as well as the continued uncertainty around future coal fundamentals, the Company has concluded there exists substantial doubt regarding its ability to continue as a going concern. Our ability to continue as a going concern is subject to our ability to restructure our balance sheet, which could include seeking additional financing. Further, external perceptions regarding our ability to continue as a going concern and our continued net operating losses increase the difficulty of achieving such actions, and there can be no assurances that such measures will prove successful.

We have engaged financial and legal advisers to assist us in restructuring our capital structure and evaluating other potential alternatives to address the impending liquidity constraints. With the assistance of our advisers, we are actively negotiating the terms of a restructuring with the Holders of the Notes with the objective of reaching an agreement by the end of the Forbearance Period. Until any definitive agreements are negotiated in their entirety and executed, and the transactions contemplated thereby are consummated, there can be no assurance that any restructuring transaction will be completed by the end of the Forbearance Period or at all. Furthermore, it may be difficult to come to an agreement that is acceptable to all of our creditors, and there can be no assurance that any restructuring will be possible at all. Failure to reach an agreement on the terms of a restructuring with our creditors, including the Holders, would have a material adverse effect on our liquidity, financial condition and results of operations. It may be necessary for us to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring, or our creditors could force us into an involuntary bankruptcy or liquidation.

Table of Contents

Additionally, our auditors included an explanatory paragraph to their audit opinion relating to our consolidated financial statements for the fiscal year ended December 31, 2016 regarding the substantial doubt about our ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay amounts due under our indebtedness.

Our ability to make scheduled payments of principal or interest on our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt. As of June 30, 2017, our total consolidated indebtedness was approximately $203.5 million, consisting primarily of the Notes. As of June 30, 2017, we had cash on hand of approximately $43.3 million.

We are actively negotiating with the Holders the terms of a restructuring with the objective of reaching agreement by the end of the Forbearance Period. Until any definitive agreements are negotiated in their entirety and executed, and the transactions contemplated thereby are consummated, there can be no assurance that any restructuring transaction will be completed by the end of the Forbearance Period or at all. If we are unable to successfully negotiate and complete a restructuring of the Notes by the end of the Forbearance Period, or if we fail to otherwise comply with the terms of the Forbearance Agreement, the Forbearance Period will terminate, and the Holders may accelerate 100% of the principal and interest due on the Notes, which would be due and payable immediately.

If we are unable to satisfy our continuing debt obligations, or our lenders or Holders of the Notes declare amounts due as immediately due and payable as a result of the Indenture default, we may have to file a voluntary petition for relief under Chapter 11 in order to pursue and implement a restructuring of our business and capital structure, or our creditors could force us into an involuntary bankruptcy or liquidation.

We may seek the protection of the United States Bankruptcy Court (the Bankruptcy Court), which may harm our business and adversely affect our ability to retain key personnel.

We have engaged financial and legal advisors to assist us in, among other things, analyzing various strategic alternatives to address our liquidity and capital structure. However, as discussed herein, a filing under Chapter 11 may be unavoidable. Seeking Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. So long as the process related to a Chapter 11 proceeding continues, our senior management would be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on our business operations. Bankruptcy Court protection also might make it more difficult to retain management and other key personnel necessary to the success and growth of our business. In addition, the longer a Chapter 11 proceeding continues, the more likely it is that our customers would lose confidence in our ability to reorganize our businesses successfully and would seek to establish alternative commercial relationships.

Item 3. Defaults upon Senior Securities

On June 15, 2017, a scheduled interest payment of $11.75 million was due on the Company’s outstanding Notes. On June 15, 2017, the Company exercised its right under the Indenture governing the Notes to enter into a 30-day grace period to defer the interest payment on the Notes. The Company did not make the June 15, 2017 interest payment within the 30-day grace period, and as such, an event of default occurred pursuant to the terms of the Indenture. Upon an event of default, the Trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare the principal of and accrued interest on the Notes to be immediately due and payable.

On July 16, 2017, Armstrong and certain of our subsidiaries entered into the Forbearance Agreement with the Holders of approximately $158 million in aggregate principal amount (representing approximately 79% of the outstanding principal amount) of the Company’s outstanding Notes issued pursuant to the Indenture. Pursuant to the Forbearance Agreement, the Holders have agreed to forbear from exercising their rights and remedies under the Indenture or the related security documents

Table of Contents

as a result of the event of default due to the Company’s failure to make the $11.75 million June 15, 2017 interest payment on the Notes until the expiration of the Forbearance Period. The Holders have also agreed to not transfer any ownership in the Notes held by any of the Holders during the Forbearance Period other than to potential transferees currently parties to or who agree in writing to be bound by the Forbearance Agreement. With the assistance of our advisers, we are actively negotiating the terms of a restructuring with the Holders of the Notes with the objective of reaching an agreement by the end of the Forbearance Period. Until any definitive agreements are negotiated in their entirety and executed, and the transactions contemplated thereby are consummated, there can be no assurance that any restructuring transaction will be completed by the end of the Forbearance Period or at all. As of the date of filing this report, the total amount due and payable on the Notes, including principal and accrued interest, is $215.5 million.

The Company also has other debt obligations entered into to finance the acquisition of certain equipment and land. Certain of these financing agreements include cross-default or cross-event of default provisions. As a result of the Company’s default under the Indenture, the lenders that are party to certain of these agreements could elect to declare some or all of the amounts outstanding as immediately due and payable.

Item 4. Mine Safety Disclosures

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.

Item 5. Other Information

(a) ~~Submission of Matters to a Vote of Security Holders~~ None

~~The~~(b) On June 7, 2017, the Company held ~~its~~a ~~Annual~~Special Meeting of Shareholders ~~on May 9, 2017~~ (the ~~Annual~~Special Meeting). ~~The~~at ~~final~~which ~~results~~the ~~for~~Company’s shareholders approved the ~~matters~~adoption ~~submitted~~of the Company’s Amended and Restated Certificate of Incorporation and adopted the Second Amended and Restated Bylaws. Prior to aapproval ~~vote~~and adoption of these documents, the Company’s Amended and Restated Bylaws provided that shareholders could nominate an individual for director by providing notice, which was required to include the name of the nominee, at any time before the ~~Annual~~annual meeting. As approved and adopted at the Special Meeting, the Amended and Restated Certificate of ~~Shareholders~~Incorporation ~~are~~and ~~listed~~Second ~~below~~Amended and Restated Bylaws at the Special Meeting no longer contain director nomination requirements. ~~Broker~~The ~~non-votes~~amended ~~are~~documents ~~not~~now ~~shown~~provide ~~because~~that ~~there~~any isaction nothat ~~public~~may ~~trading~~be ~~market~~taken ~~for~~at ~~the~~an ~~Company’s~~annual ~~Common~~or ~~Stock~~special meeting of stockholders may be taken without a meeting, without prior notice and nowithout ~~brokers~~a ~~hold~~vote, ~~shares~~upon the written consent of the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting. Furthermore, the amended documents provide that the total number of directors constituting the board of directors can be fixed by the board of directors or by the holders of a majority of the voting power of the outstanding stock of the Company. Any vacancy on the board for any ~~underlying~~reason ~~beneficial~~can ~~owners~~be filled by a vote of ~~such~~the majority of directors then in office or the holders of a majority of the voting power of the outstanding shares. of the Company’s stock.

Election of Directors: To elect each of the following to serve as a Class III Director of the Company to serve a three-year term expiring at the 2020 Annual Meeting of Shareholders or until the earlier of his death, resignation, or removal, or until his successor has been duly elected and qualified. 38

Name	Votes For	Votes Against	Abstentions
James C. Crain	21,771,952	—	111,272
David L. Harris	21,761,186	—	122,038
W. Howard Keenan	21,493,574	—	389,650

Proposal No. 1: To amend Section 3.2 of the Bylaws of Armstrong Energy, Inc. to read in its entirety as follows:

The Board of Directors shall consist of nine directors. The new directorship resulting from the adoption of this paragraph shall be allocated to Class II of the Board.

Votes For		Votes Against		Abstentions
21,766,518		—		116,706

Proposal No. 2: To amend Section 3.4 of the Bylaws of Armstrong Energy, Inc. to read in its entirety as follows (the Section 3.4 Amendment):

Vacant and newly created directorships may be filled by either (i) a majority of the directors then in office, though less than a quorum, or (ii) the holders of a majority of the voting power of the capital stock of the Corporation outstanding and entitled to vote thereon.

Votes For		Votes Against		Abstentions
21,731,831		—		151,393

Proposal No. 3: To amend Section 2.9 of the Bylaws of Armstrong Energy, Inc. read in its entirety as follows (the Section 2.9 Amendment):

Table of Contents

To bring stockholder nominations or other business before an annual meeting of stockholders, a stockholder shall provide the Corporation a notice, at any time prior to the commencement of the annual meeting of stockholders, identifying the stockholder presenting the nomination or other business and setting forth (i) the names of the nominees for director (if any) and (ii) the text of any other business proposed to be adopted by stockholders. No other information or notice need be provided in order for stockholders to transact business at an annual meeting of stockholders. This paragraph shall apply to nominations and business presented for stockholder action at the 2017 annual meeting of stockholders of the Corporation and at each annual meeting thereafter held. For the avoidance of doubt, no Bylaw provision in effect prior to the adoption of this paragraph shall apply to nominations or business presented at the 2017 annual meeting of stockholders or any annual meeting held thereafter.

Votes For		Votes Against		Abstentions
21,731,831		—		151,393

Proposal No. 4: To amend Section 3.3 of the Bylaws of Armstrong Energy, Inc. to read in its entirety as follows: "Reserved."

Votes For		Votes Against		Abstentions
21,731,831		—		151,393

Proposal No. 5: To elect Bryan R. Lawrence to fill the newly created directorship of Armstrong Energy, Inc. created by the adoption of Proposal No. 1.

Votes For		Votes Against		Abstentions
21,448,121		10,766		424,337

Proposal No. 6: To appoint Joseph M. Stopper to fill the vacant directorship in Class I of the Board of Directors of Armstrong Energy, Inc.

Votes For		Votes Against		Abstentions
21,448,121		—		435,103

Departure of Directors or Certain Officers; Election of Directors; Appointments of Certain Officers; Compensatory Arrangements of Certain Officers.

At the Annual Meeting of Shareholders held on May 9, 2017, the Company's shareholders voted to elect James C. Crain, David L. Harris, and W. Howard Keenan as Class III Directors, Bryan R. Lawrence as a Class II Director, and Joseph M. Stopper as a Class I Director. Biographical information concerning the newly elected directors is set forth below.

James C. Crain-Mr. Crain was appointed to our Board of Directors in 2011. Mr. Crain has been in the energy industry for more than 35 years, both as an attorney and as an executive officer. In July 2013, Mr. Crain retired as President of Marsh Operating Company (“Marsh”), an investments management company, a position he held since 1989. Mr. Crain currently serves as an adviser to Marsh and is a private investor. Mr. Crain also serves as a consultant for Yorktown Partners LLC (“Yorktown”), which serves as an investment manager to funds that own a majority of the Company’s common stock, where he advises certain oil and gas related portfolio companies in connection with their business activities. Before joining Marsh in 1984, Mr. Crain was a partner in the law firm of Jenkens & Gilchrist. Mr. Crain is a director of Enlink Midstream, LLC, a midstream natural gas company, and Approach Resources, Inc., an independent oil and natural gas company. Mr. Crain was also formerly a director of Crosstex Energy, Inc. and Crosstex Energy, GP, LLC, midstream natural gas companies, GeoMet, Inc., a natural gas exploration and production company, and Crusader Energy Group Inc., an oil and gas exploration and production company. The Board selected Mr. Crain to serve as a director because of his extensive legal, investment and transactional experience, as well as his public company board experience. Mr. Crain serves as the Chairman of the Nominating and Corporate Governance and Audit Committees and is a member of the Conflicts Committee. The board has determined that Mr. Crain qualifies as an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K, as promulgated by the SEC.

Table of Contents

David L. Harris - Mr. Harris currently serves on the Kentucky Retirement Systems Board of Trustees, where he serves as Investment Committee Chair. He also serves on the boards of directors of the Retirement Plan Advisory Group of ASSPA, the Lexington Christian Academy, and Isaiah House Ministries. Mr. Harris studied Agriculture Finance at the University of Illinois before beginning his financial services career as a commodity trader on the Chicago Exchanges. In 1985, he became Vice President of Integrated Resource, Inc., an investment banking firm in New York. He continued on to found MidSouth Capital Asset Management, LLC in 1989, serving as its chief executive officer until the company was acquired in 2000. Shortly thereafter he joined MCF Advisors as a Senior Partner I Shareholder. Mr. Harris currently serves as CEO and Shareholder of MCF Advisors. The Board selected Mr. Harris to serve as a director because of his extensive experience in the financial services industry. Mr. Harris has been appointed by the Board of Directors to serve as a member of the Audit, Nominating and Corporate Governance, and Compensation Committees.

W. Howard Keenan - Mr. Keenan has over 40 years of experience in the financial and energy businesses. Since 1997, he has been a Member of Yorktown, a private investment manager focused on the energy industry. From 1975 to 1997, he was in the Corporate Finance Department of Dillon, Read & Co. Inc. and active in the private equity and energy areas, including the founding of the first Yorktown Partners fund in 1991. Mr. Keenan holds a Bachelor of Arts degree cum laude from Harvard College and a Masters of Business Administration degree from Harvard University. Mr. Keenan has broad knowledge of the energy industry and significant experience with energy companies. Mr. Keenan also serves on the board of directors of Antero Resources Corporation and as the general partner of Antero Midstream Partners LP. In addition, he is serving or has served as a director of multiple Yorktown’s portfolio companies.

Bryan R. Lawrence -Mr. Lawrence founded Oakcliff Capital (“Oakcliff”), an investment partnership, in 2004. Mr. Lawrence is a Member of Yorktown. He is the co-founder of Girls Prep, the first all-girls charter school in New York, and the Chairman of Public Prep, which develops and manages Boys Prep and Girls Prep schools. Prior to starting Oakcliff, he was a Managing Director of Lazard Freres & Co. LLC. He holds a Bachelor's Degree from Yale University, a Master's Degree in history from Cambridge University and an Master’s in Business Administration from Harvard University. Mr. Lawrence served as a Director of Extraction Oil & Gas, LLC (also known as Extraction Oil & Gas, Inc.) since its inception in 2012. He is a board member of Convergent Power & Energy, LLC, Eos Energy Storage LLC, Indigo Haynesville LLC, Indigo Minerals LLC, North Shore Energy LLC, PRE Resources LLC, and Thoroughbred Holdings GP LLC. He also serves as a board member of Families for Excellent Schools and the Oakcliff Sailing Center, and is a member of the business advisory council of ProPublica.

Joseph M. Stopper - Since June 2015, Joseph M. Stopper has been employed as an Analyst for Yorktown. Since May 2013, Mr. Stopper has been employed by Oakcliff Partners LLC, a private investment manager, and since June 2015, has been co-employed by Yorktown and Oakcliff Partners LLC. Mr. Stopper holds a Bachelor of Arts degree from Yale University. Mr. Stopper is a member of the board of managers of Solaris Midstream Holdings, LLC, a Delaware limited liability company that is privately held.

As previously disclosed, effective April 14, 2017, Louis B. Susman was appointed to serve as a member of the Board of Directors until the 2018 Annual Meeting of Shareholders to fill the vacancy created by the retirement of Anson M. Beard, Jr. from the Board of Directors, effective as of the same date. In addition, Mr. Susman has been appointed by the Board of Directors to serve as Chairman of the Compensation Committee and serve as a member of the Nominating and Corporate Governance and Conflicts Committees.

(b) At the Company’s Annual Meeting, the shareholders approved certain amendments to the Company’s Bylaws that changed the manner in which shareholders may recommend nominees to the Board of Directors. Specifically, the shareholders voted to delete Section 3.3 of the Company’s Bylaws, which formerly provided that nominations for director could only made in connection with an annual meeting and, in the case of shareholder nominations, pursuant to proper advance written notice. Section 3.3 provided that, generally, shareholders were required to provide notice of director nominees not less than 60 days or more than 90 days prior to the anniversary date of the immediately preceding annual meeting of shareholders pursuant to a notice containing certain specified information.

At the Annual Meeting, the shareholders approved the Section 2.9 Amendment, which provides that shareholders may nominate an individual for director by providing notice at any time before the annual meeting. The notice is required to include only the name of the director nominee. The Section 2.9 Amendment, as approved, was in effect and applied to the nominations for director relating to the Annual Meeting.

The shareholders also approved the Section 3.4 Amendment at the Annual Meeting. Previously, Section 3.4 of the Bylaws provided that any vacancy in the Board of Directors could be filled only by a vote of the remaining directors, or pursuant to a statutory vote if no directors remained on the Board. The Section 3.4 Amendment now in effect states that vacant and newly created directorships can be filled by either a majority of the directors then in office or by the holders of a majority of the voting power of the capital stock of the Company outstanding and entitled to vote on the matter.

Table of Contents

Item 6. Exhibits

		Incorporated by Reference				Filed orFurnishedHerewith
ExhibitNumber	Description	Form	File Number	Exhibit	FilingDate
3.1	Amended and Restated ~~Bylaws~~Certificate of Incorporation of Armstrong Energy, Inc., effective as of ~~May~~June 97, 2017.	8-K	333-191182	3.1	6/7/2017	X
3.2	Second Amended and Restated Bylaws of Armstrong Energy, Inc., effective as of ~~May~~June 97, 2017~~, marked to show amendments~~.	8-K	333-191182	3.3	6/7/2017	X
10.1†	Second Amendment to Employment Agreement by and between Armstrong Energy, Inc. and Jeffrey F. Winnick, dated as of March 17, 2017.	10-K	333-191182	10.11	03/31/17
10.1	Forbearance Agreement, dated as of July 16, 2017, by and among Armstrong Energy, Inc., the guarantors named therein and certain holders of the 11.75% Senior Secured Notes due 2019.	8-K	333-191182	10.1	7/17/2017
10.2	~~Settlement~~Form ~~Agreement and Release~~ of ~~Claims~~Retention ~~dated~~Bonus ~~as of March 29, 2017 by and between Armstrong Energy, Inc~~Agreement., Armstrong Coal Company, Inc., Elk Creek GP, LLC, Thoroughfare Mining, LLC, Western Diamond LLC, and Western Land Company, LLC; and Thoroughbred Holdings GP, LLC, Thoroughbred Resources, L.P., Western Mineral Development, LLC, and Ceralvo Holdings, LLC.	108-K	333-191182	10.341	036/3112/172017
10.3†	Retention Bonus Agreement, dated June 12, 2017, by and between Armstrong Energy, Inc. and Martin D. Wilson.	8-K	333-191182	10.2	6/12/2017
10.4†	Retention Bonus Agreement, dated June 12, 2017, by and between Armstrong Energy, Inc. and J. Hord Armstrong III.	8-K	333-191182	10.3	6/12/2017
10.5†	Retention Bonus Agreement, dated June 12, 2017, by and between Armstrong Energy, Inc. and Jeffrey F. Winnick.	8-K	333-191182	10.4	6/12/2017
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1#	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2#	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
95.1	Federal Mine Safety and Health Act Information.					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Scheme Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X



†	Indicates a management contract or compensatory plan or arrangement.
#	This certification is deemed not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

3439

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ARMSTRONG ENERGY, INC.
Date: May 12, 2017	By:	/s/ Jeffrey F. Winnick
Date: August 11, 2017	By:	/s/ Jeffrey F. Winnick
		Jeffrey F. Winnick
		Vice President and Chief Financial Officer
		(On behalf of the registrant and as Principal Financial Officer)

3540

Large accelerated filer

Accelerated filer

Non-accelerated filer

ý (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

Filing Compare · Armstrong Energy, Inc.