UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended |
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:001-34743
“COAL KEEPS YOUR LIGHTS ON” | “COAL KEEPS YOUR LIGHTS ON” | |
HALLADOR ENERGY COMPANY (www.halladorenergy.com) |
Colorado (State of incorporation) |
| 84-1014610 (IRS Employer Identification No.) |
|
|
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1183 East Canvasback Drive, Terre Haute, Indiana (Address of principal executive offices) |
| 47802 (Zip Code) |
Registrant’s telephone number, including area code: 812.299.2800
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
Common Shares, $.01 par value |
| HNRG |
| Nasdaq |
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. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 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.
Large accelerated filer ☐ |
| Accelerated filer |
Non-accelerated filer |
| Smaller reporting company ☑ |
|
| Emerging growth company ☐ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of October 28, 2020,May 3, 2021, we had 30,465,66530,612,572 shares of common stock outstanding.
| |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
SIGNATURES | |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hallador Energy Company
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
September 30, | December 31, | March 31, | December 31, | |||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 5,302 | $ | 8,799 | $ | 3,863 | $ | 8,041 | ||||||||
Restricted cash (Note 12) | 4,243 | 4,512 | ||||||||||||||
Certificates of deposit | 0 | 245 | ||||||||||||||
Restricted cash | 3,771 | 4,030 | ||||||||||||||
Accounts receivable | 15,846 | 25,580 | 13,633 | 14,414 | ||||||||||||
Prepaid income taxes | 0 | 1,562 | ||||||||||||||
Inventory (Note 3) | 36,803 | 28,297 | ||||||||||||||
Parts and supplies, net of allowance of $274 | 9,172 | 11,775 | ||||||||||||||
Inventory | 34,036 | 24,663 | ||||||||||||||
Parts and supplies | 9,288 | 8,903 | ||||||||||||||
Prepaid expenses | 4,771 | 1,678 | 1,631 | 3,282 | ||||||||||||
Total current assets | 76,137 | 82,448 | 66,222 | 63,333 | ||||||||||||
Property, plant and equipment, at cost: | ||||||||||||||||
Land and mineral rights | 115,894 | 114,722 | 115,840 | 115,853 | ||||||||||||
Buildings and equipment | 357,498 | 351,614 | 356,256 | 352,115 | ||||||||||||
Mine development | 89,229 | 84,160 | 96,971 | 93,635 | ||||||||||||
Total property, plant and equipment, at cost | 562,621 | 550,496 | 569,067 | 561,603 | ||||||||||||
Less - accumulated depreciation, depletion and amortization | (250,134 | ) | (220,780 | ) | (262,523 | ) | (252,245 | ) | ||||||||
Total property, plant and equipment, net | 312,487 | 329,716 | 306,544 | 309,358 | ||||||||||||
Investment in Sunrise Energy (Note 15) | 3,293 | 3,139 | ||||||||||||||
Other long-term assets (Note 4) | 8,290 | 10,324 | ||||||||||||||
Investment in Sunrise Energy | 3,181 | 3,181 | ||||||||||||||
Other assets | 8,261 | 8,258 | ||||||||||||||
Total Assets | $ | 400,207 | $ | 425,627 | $ | 384,208 | $ | 384,130 | ||||||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of bank debt, net (Note 5) | $ | 34,311 | $ | 33,044 | ||||||||||||
Current portion of PPP note (Note 5) | $ | 2,160 | $ | 0 | ||||||||||||
Accounts payable and accrued liabilities (Note 6) | 33,526 | 31,800 | ||||||||||||||
Current portion of bank debt, net | $ | 34,311 | $ | 34,311 | ||||||||||||
Current portion of PPP note | 8,871 | 5,490 | ||||||||||||||
Accounts payable and accrued liabilities | 35,166 | 31,409 | ||||||||||||||
Total current liabilities | 69,997 | 64,844 | 78,348 | 71,210 | ||||||||||||
Long-term liabilities: | ||||||||||||||||
Bank debt, net (Note 5) | 105,885 | 140,594 | ||||||||||||||
PPP note (Note 5) | 7,840 | 0 | ||||||||||||||
Bank debt, net | 96,230 | 97,307 | ||||||||||||||
PPP note | 1,129 | 4,510 | ||||||||||||||
Deferred income taxes | 2,228 | 4,884 | 1,095 | 2,824 | ||||||||||||
Asset retirement obligations | 16,476 | 15,694 | 16,537 | 16,177 | ||||||||||||
Other | 4,061 | 4,081 | 2,361 | 2,842 | ||||||||||||
Total long-term liabilities | 136,490 | 165,253 | 117,352 | 123,660 | ||||||||||||
Total liabilities | 206,487 | 230,097 | 195,700 | 194,870 | ||||||||||||
Redeemable noncontrolling interests (Note 2) | 4,000 | 4,000 | ||||||||||||||
Redeemable noncontrolling interests | 4,000 | 4,000 | ||||||||||||||
Stockholders' equity: | ||||||||||||||||
Preferred stock, $.10 par value, 10,000 shares authorized; none issued and outstanding | 0 | 0 | 0 | 0 | ||||||||||||
Common stock, $.01 par value, 100,000 shares authorized; 30,466 and 30,420 issued and outstanding, respectively | 305 | 304 | ||||||||||||||
Common stock, $.01 par value, 100,000 shares authorized; 30,613 and 30,610 issued and outstanding, respectively | 306 | 306 | ||||||||||||||
Additional paid-in capital | 103,123 | 102,215 | 103,679 | 103,399 | ||||||||||||
Retained earnings | 86,292 | 89,011 | 80,523 | 81,555 | ||||||||||||
Total stockholders’ equity | 189,720 | 191,530 | 184,508 | 185,260 | ||||||||||||
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity | $ | 400,207 | $ | 425,627 | $ | 384,208 | $ | 384,130 |
See accompanying notes.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
REVENUE: | ||||||||||||||||||||||||
SALES AND OPERATING REVENUES: | ||||||||||||||||||||||||
Coal sales | $ | 64,754 | $ | 82,883 | $ | 177,159 | $ | 239,231 | $ | 45,879 | $ | 61,932 | ||||||||||||
Other operating income (Note 8) | 374 | 213 | 2,588 | 5,488 | ||||||||||||||||||||
Total revenue | 65,128 | 83,096 | 179,747 | 244,719 | ||||||||||||||||||||
COSTS AND EXPENSES: | ||||||||||||||||||||||||
Operating costs and expenses | 46,570 | 71,363 | 131,204 | 187,783 | ||||||||||||||||||||
Other revenues | 816 | 551 | ||||||||||||||||||||||
Total revenues | 46,695 | 62,483 | ||||||||||||||||||||||
EXPENSES: | ||||||||||||||||||||||||
Operating expenses | 34,009 | 48,469 | ||||||||||||||||||||||
Depreciation, depletion and amortization | 9,315 | 11,778 | 30,159 | 35,612 | 10,307 | 10,627 | ||||||||||||||||||
Asset retirement obligations accretion | 348 | 320 | 1,024 | 943 | 363 | 333 | ||||||||||||||||||
Exploration costs | 174 | 347 | 635 | 835 | 58 | 253 | ||||||||||||||||||
Selling, general and administrative | 3,131 | 2,926 | 8,787 | 9,385 | ||||||||||||||||||||
Interest (1) | 2,329 | 3,558 | 10,877 | 13,546 | ||||||||||||||||||||
Asset impairment | 1,799 | 0 | 1,799 | 0 | ||||||||||||||||||||
Total costs and expenses | 63,666 | 90,292 | 184,485 | 248,104 | ||||||||||||||||||||
General and administrative | 2,821 | 2,978 | ||||||||||||||||||||||
Total operating expenses | 47,558 | 62,660 | ||||||||||||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 1,462 | (7,196 | ) | (4,738 | ) | (3,385 | ) | |||||||||||||||||
LOSS FROM OPERATIONS | (863 | ) | (177 | ) | ||||||||||||||||||||
INCOME TAX BENEFIT (NOTE 9): | ||||||||||||||||||||||||
Interest expense (1) | (1,898 | ) | (5,714 | ) | ||||||||||||||||||||
Equity method investment income | 0 | 55 | ||||||||||||||||||||||
LOSS BEFORE INCOME TAXES | (2,761 | ) | (5,836 | ) | ||||||||||||||||||||
INCOME TAX BENEFIT: | ||||||||||||||||||||||||
Current | (74 | ) | (426 | ) | (598 | ) | (577 | ) | 0 | (524 | ) | |||||||||||||
Deferred | (387 | ) | (3,047 | ) | (2,657 | ) | (2,741 | ) | (1,729 | ) | (1,652 | ) | ||||||||||||
Total income tax benefit | (461 | ) | (3,473 | ) | (3,255 | ) | (3,318 | ) | (1,729 | ) | (2,176 | ) | ||||||||||||
NET INCOME (LOSS) | $ | 1,923 | $ | (3,723 | ) | $ | (1,483 | ) | $ | (67 | ) | |||||||||||||
NET LOSS | $ | (1,032 | ) | $ | (3,660 | ) | ||||||||||||||||||
INCOME (LOSS) PER SHARE (NOTE 13): | ||||||||||||||||||||||||
LOSS PER SHARE: | ||||||||||||||||||||||||
Basic and diluted | $ | 0.06 | $ | (0.12 | ) | $ | (0.05 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.12 | ) | |||||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||||||||||||||
Basic and diluted | 30,465 | 30,249 | 30,436 | 30,246 | 30,611 | 30,420 | ||||||||||||||||||
(1) Bank interest | 2,709 | 2,801 | 8,201 | 8,746 | 2,135 | 2,654 | ||||||||||||||||||
Non-cash interest: | ||||||||||||||||||||||||
Change in fair value of interest rate swaps valuation | (995 | ) | 162 | 981 | 3,018 | (848 | ) | 2,593 | ||||||||||||||||
Amortization of debt issuance costs | 610 | 543 | 1,686 | 1,628 | 611 | 467 | ||||||||||||||||||
Other | 5 | 52 | 9 | 154 | ||||||||||||||||||||
Total non-cash interest | (380 | ) | 757 | 2,676 | 4,800 | (237 | ) | 3,060 | ||||||||||||||||
Total interest | $ | 2,329 | $ | 3,558 | $ | 10,877 | $ | 13,546 | $ | 1,898 | $ | 5,714 |
See accompanying notes.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net loss | $ | (1,483 | ) | $ | (67 | ) | $ | (1,032 | ) | $ | (3,660 | ) | ||||
Deferred income taxes | (2,657 | ) | (2,741 | ) | (1,729 | ) | (1,652 | ) | ||||||||
Equity (income) loss – Sunrise Energy | (1,167 | ) | 350 | |||||||||||||
Cash distribution - Sunrise Energy | 1,125 | 0 | ||||||||||||||
DD&A | 30,159 | 35,612 | ||||||||||||||
Asset impairment | 1,799 | 0 | ||||||||||||||
Loss (gain) on sale of assets | 38 | (99 | ) | |||||||||||||
Equity income – Sunrise Energy | 0 | (55 | ) | |||||||||||||
Depreciation, depletion, and amortization | 10,307 | 10,627 | ||||||||||||||
Unrealized gain on marketable securities | (14 | ) | (334 | ) | 0 | (14 | ) | |||||||||
Gain on sale of royalty interests in oil properties | 0 | (2,949 | ) | |||||||||||||
Change in fair value of interest rate swaps | 981 | 3,018 | (848 | ) | 2,593 | |||||||||||
Change in fair value of fuel hedge | 775 | 0 | (239 | ) | 1,311 | |||||||||||
Amortization and write off of debt issuance costs | 1,686 | 1,628 | ||||||||||||||
Accretion of ARO | 1,024 | 943 | ||||||||||||||
Amortization of debt issuance costs | 611 | 467 | ||||||||||||||
Asset retirement obligations accretion | 363 | 333 | ||||||||||||||
Stock-based compensation | 927 | 1,438 | 282 | 319 | ||||||||||||
Change in current assets and liabilities: | ||||||||||||||||
Accounts receivable | 9,742 | (3,294 | ) | 781 | 12,885 | |||||||||||
Inventory | (9,247 | ) | (6,455 | ) | (9,373 | ) | (9,113 | ) | ||||||||
Parts and supplies | 2,603 | (2,396 | ) | (385 | ) | 889 | ||||||||||
Prepaid income taxes | 1,562 | 992 | 0 | 581 | ||||||||||||
Prepaid expenses | 1,744 | 3,800 | (242 | ) | 159 | |||||||||||
Accounts payable and accrued liabilities | (5,488 | ) | 6,877 | 4,342 | (1,691 | ) | ||||||||||
Other | 135 | 2,277 | ||||||||||||||
Cash provided by operating activities | $ | 34,109 | $ | 36,323 | $ | 2,973 | $ | 16,256 | ||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Investment in Sunrise Energy | (113 | ) | 0 | 0 | (112 | ) | ||||||||||
Capital expenditures | (13,991 | ) | (27,269 | ) | (5,720 | ) | (6,022 | ) | ||||||||
Proceeds from sale of equipment | 56 | 129 | ||||||||||||||
Proceeds from sale of royalty interests in oil properties | 0 | 2,949 | ||||||||||||||
Proceeds from sale of marketable securities | 2,310 | 0 | 0 | 2,310 | ||||||||||||
Maturities of certificates of deposit | 245 | 245 | ||||||||||||||
Proceeds from maturities of certificates of deposit | 0 | 245 | ||||||||||||||
Cash used in investing activities | (11,493 | ) | (23,946 | ) | (5,720 | ) | (3,579 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Payments on bank debt | (40,475 | ) | (34,713 | ) | (9,188 | ) | (12,100 | ) | ||||||||
Borrowings of bank debt | 7,250 | 18,250 | 7,500 | 0 | ||||||||||||
Proceeds from PPP note | 10,000 | 0 | ||||||||||||||
Payments of debt issuance costs | (1,903 | ) | (1,183 | ) | ||||||||||||
Taxes paid on vesting of restricted stock units | (18 | ) | (14 | ) | ||||||||||||
Taxes paid on vesting of RSUs | (2 | ) | 0 | |||||||||||||
Dividends paid | (1,236 | ) | (3,724 | ) | 0 | (1,236 | ) | |||||||||
Cash used in financing activities | (26,382 | ) | (21,384 | ) | (1,690 | ) | (13,336 | ) | ||||||||
Decrease in cash, cash equivalents, and restricted cash | (3,766 | ) | (9,007 | ) | (4,437 | ) | (659 | ) | ||||||||
Cash, cash equivalents, and restricted cash, beginning of period | 13,311 | 20,094 | 12,071 | 13,311 | ||||||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 9,545 | $ | 11,087 | $ | 7,634 | $ | 12,652 | ||||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH CONSIST OF THE FOLLOWING: | ||||||||||||||||
Cash and cash equivalents | $ | 5,302 | $ | 6,361 | $ | 3,863 | $ | 7,918 | ||||||||
Restricted cash | 4,243 | 4,726 | 3,771 | 4,734 | ||||||||||||
$ | 9,545 | $ | 11,087 | $ | 7,634 | $ | 12,652 | |||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||||||
Cash paid for interest | $ | 8,246 | $ | 8,900 | $ | 2,145 | $ | 2,707 | ||||||||
SUPPLEMENTAL NON-CASH FLOW INFORMATION: | ||||||||||||||||
Capital expenditures included in accounts payable and prepaid expense | $ | 968 | $ | 2,018 | ||||||||||||
Right-of-use assets acquired in exchange for operating lease liabilities | 645 | 882 | ||||||||||||||
Change in capital expenditures included in accounts payable and prepaid expense | $ | 1,872 | $ | 3,516 |
See accompanying notes.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
Three and Nine Months Ended September 30, 2020 | ||||||||||||||||||||
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
Balance, June 30, 2020 | 30,465 | $ | 305 | $ | 102,833 | $ | 84,369 | $ | 187,507 | |||||||||||
Stock-based compensation | — | 0 | 291 | 0 | 291 | |||||||||||||||
Stock issued on vesting of RSUs | 2 | 0 | 0 | 0 | 0 | |||||||||||||||
Taxes paid on vesting of RSUs | (1 | ) | 0 | (1 | ) | 0 | (1 | ) | ||||||||||||
Dividends | — | 0 | 0 | 0 | 0 | |||||||||||||||
Net income | — | 0 | 0 | 1,923 | 1,923 | |||||||||||||||
Balance, September 30, 2020 | 30,466 | $ | 305 | $ | 103,123 | $ | 86,292 | $ | 189,720 | |||||||||||
Balance, December 31, 2019 | 30,420 | $ | 304 | $ | 102,215 | $ | 89,011 | $ | 191,530 | |||||||||||
Stock-based compensation | — | 0 | 927 | 0 | 927 | |||||||||||||||
Stock issued on vesting of RSUs | 72 | 1 | (1 | ) | 0 | 0 | ||||||||||||||
Taxes paid on vesting of RSUs | (26 | ) | 0 | (18 | ) | 0 | (18 | ) | ||||||||||||
Dividends | — | 0 | 0 | (1,236 | ) | (1,236 | ) | |||||||||||||
Net loss | — | 0 | 0 | (1,483 | ) | (1,483 | ) | |||||||||||||
Balance, September 30, 2020 | 30,466 | $ | 305 | $ | 103,123 | $ | 86,292 | $ | 189,720 |
Three Months Ended March 31, 2021 | ||||||||||||||||||||
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
Balance, December 31, 2020 | 30,610 | $ | 306 | $ | 103,399 | $ | 81,555 | $ | 185,260 | |||||||||||
Stock-based compensation | — | 0 | 282 | 0 | 282 | |||||||||||||||
Stock issued on vesting of RSUs | 4 | 0 | 0 | 0 | 0 | |||||||||||||||
Taxes paid on vesting of RSUs | (1 | ) | 0 | (2 | ) | 0 | (2 | ) | ||||||||||||
Net loss | — | 0 | 0 | (1,032 | ) | (1,032 | ) | |||||||||||||
Balance, March 31, 2021 | 30,613 | $ | 306 | $ | 103,679 | $ | 80,523 | $ | 184,508 |
Three and Nine Months Ended September 30, 2019 | ||||||||||||||||||||
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
Balance, June 30, 2019 | 30,247 | $ | 302 | $ | 101,747 | $ | 155,003 | $ | 257,052 | |||||||||||
Stock-based compensation | — | 0 | 426 | 0 | 426 | |||||||||||||||
Stock issued on vesting of RSUs | 3 | 0 | 0 | 0 | 0 | |||||||||||||||
Taxes paid on vesting of RSUs | (1 | ) | 0 | (7 | ) | 0 | (7 | ) | ||||||||||||
Dividends | — | 0 | 0 | (1,241 | ) | (1,241 | ) | |||||||||||||
Net loss | — | 0 | 0 | (3,723 | ) | (3,723 | ) | |||||||||||||
Balance, September 30, 2019 | 30,249 | $ | 302 | $ | 102,166 | $ | 150,039 | $ | 252,507 | |||||||||||
Balance, December 31, 2018 | 30,245 | $ | 302 | $ | 100,742 | $ | 153,830 | $ | 254,874 | |||||||||||
Stock-based compensation | — | 0 | 1,438 | 0 | 1,438 | |||||||||||||||
Stock issued on vesting of RSUs | 7 | 0 | 0 | 0 | 0 | |||||||||||||||
Taxes paid on vesting of RSUs | (3 | ) | 0 | (14 | ) | 0 | (14 | ) | ||||||||||||
Dividends | — | 0 | 0 | (3,724 | ) | (3,724 | ) | |||||||||||||
Net loss | — | 0 | 0 | (67 | ) | (67 | ) | |||||||||||||
Balance, September 30, 2019 | 30,249 | $ | 302 | $ | 102,166 | $ | 150,039 | $ | 252,507 |
Three Months Ended March 31, 2020 | ||||||||||||||||||||
Additional | Total | |||||||||||||||||||
Common Stock | Paid-in | Retained | Stockholders' | |||||||||||||||||
Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
Balance, December 31, 2019 | 30,420 | $ | 304 | $ | 102,215 | $ | 89,011 | $ | 191,530 | |||||||||||
Stock-based compensation | — | 0 | 319 | 0 | 319 | |||||||||||||||
Dividends | — | 0 | 0 | (1,236 | ) | (1,236 | ) | |||||||||||||
Net loss | — | 0 | 0 | (3,660 | ) | (3,660 | ) | |||||||||||||
Balance, March 31, 2020 | 30,420 | $ | 304 | $ | 102,534 | $ | 84,115 | $ | 186,953 |
See accompanying notes.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) | GENERAL BUSINESS |
The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the SEC’sSecurities and Exchange Commission's ( the "SEC") rules and regulations; accordingly, certain information and footnote disclosures normally included in GAAPgenerally accepted accounting principles ("GAAP") financial statements have been condensed or omitted.
The results of operations and cash flows for the three and ninemonths ended September 30, 2020March 31, 2021, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 20202021. To maintain consistency and comparability, certain 20192020 amounts have been reclassified to conform to the 20202021 presentation, with no impact to cash provided by operationsoperating activities or net income (loss).loss.
Our organization and business, the accounting policies we follow, and other information are contained in the notes to our consolidated financial statements filed as part of our 20192020 Annual Report on Form 10-K. This quarterly report should be read in conjunction with such Annual Report on Form 10-K.
The condensed consolidated financial statements include the accounts of Hallador Energy Company (hereinafter known as “we, us, or our”) and its wholly-owned subsidiaries Sunrise Coal, LLC (Sunrise) and Hourglass Sands, LLC (Hourglass), and Sunrise’s wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Sunrise is engaged in the production of steam coal from mines located in western Indiana.
New Accounting Standards Issued and Adopted
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The amendments in this update modify the disclosure requirements for fair value measurements. For public business entities, the standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We adopted ASU 2018-13 effective January 1, 2020. Adoption of ASU 2018-13 did not have a material impact on the Company’s condensed consolidated financial statements.
Subsequent Events
We have evaluated all subsequent events through the date the financial statements were issued. There are Nono material recognized or non-recognizable subsequent events were identified.other than those already disclosed.
LONG-LIVED ASSET IMPAIRMENTS |
Long-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable. The impact of COVID-19 is being monitored closely, but forFor the quarter ended September 30, 2020March 31, 2021, there were no material COVID-19 related impairment charges recorded for long-lived assets.
Carlisle Mine
We recorded an impairment of $65.7 million as of December 31, 2019 due to our decision to idle the Carlisle Mine during Q42019. The impairment included buildings, land, rail, mine development, equipment, and advanced royalties. Buildings, land, and rail were impaired to their estimated salvage value. The remaining salvage value of land and buildings at the Carlisle Mine is estimated at $1.8 million as of September 30, 2020 and December 31, 2019.
Subsequent to year-end during late Q12020, we determined that it was economically prudent to permanently close the Carlisle Mine. Equipment totaling $23 million is being redeployed and will be utilized at the Oaktown mines. NaN additional impairment costs were recorded during Q12020 as a result of the decision to close the Carlisle Mine. Exit and disposal costs to close the mine were $1.1 million, which were recorded as current period costs in Q1 and Q2 of 2020.
Bulldog Reserves
As a result of the Carlisle Mine impairment, we determined that an impairment of the Bulldog Reserves was also necessary. With the closure of the Carlisle Mine, it became apparent that the likelihood of construction and opening of Bulldog was reduced. Based on our review, we recorded an impairment of $9.2 million as of December 31, 2019, which included land and advanced royalties, and was a complete impairment of all assets.
Hourglass Sands
We recorded an impairment of $2.9 million as of December 31, 2019, due to softness in the pricing of the frac sand market. The impairment included inventory, land, mine development, buildings and equipment and was determined using a market approach. The remaining fair market value of inventory, equipment, and buildings at Hourglass Sands was $1.9 million as of December 31, 2019. Due to the continued regression of the frac sand market, in August 2020 we ceased operations of the plant and recorded an impairment of $1.8 million for the quarter ended September 30, 2020, which included the remaining inventory and buildings and which was determined using a market approach.
(3) | INVENTORY |
Inventory is valued at lower of average cost or net realizable value (NRV). As of September 30, 2020March 31, 2021, and December 31, 20192020, coal inventory includes NRV adjustments of $0.5$1.1 million and $2.0$1.6 million, respectively.
(4) | OTHER LONG-TERM ASSETS (in thousands) |
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
Advanced coal royalties | $ | 6,453 | $ | 6,105 | ||||
Marketable equity securities available for sale, at fair value (restricted)* | 0 | 2,296 | ||||||
Other | 1,837 | 1,923 | ||||||
Total other assets | $ | 8,290 | $ | 10,324 |
* Held by Sunrise Indemnity, Inc., our wholly-owned captive insurance company.
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Advanced coal royalties | $ | 6,481 | $ | 6,449 | ||||
Other | 1,780 | 1,809 | ||||||
Total other assets | $ | 8,261 | $ | 8,258 |
(5) |
|
On April 15, 2020, we executed an amendment to our credit agreement with PNC, administrative agent for our lenders. The primary purpose of the amendment was to modify the allowable leverage ratio over the term of the loan to increase available liquidity. As a result of the amendment, our maximum annual capital expenditures are limited to $30 million for 2020, and our dividend is suspended until our leverage ratio falls below 2.0X.
In the firstnine months of 2020, we reduced our bank debt by $33 million, which as of September 30, 2020 was $147 million. Bank debt is comprised of term debt ($7758.8 million as of September 30, 2020March 31, 2021) and a $120 million revolver ($7077.3 million borrowed as of September 30, 2020March 31, 2021). The term debt amortization concludes with the final payment in March 2023. The revolver matures September 2023. Our debt is recorded at amortized cost, which approximates fair value due to the variable interest rates in the agreement and is collateralized primarily by our assets.
Liquidity
As of September 30, 2020March 31, 2021, we had additional borrowing capacity of $47.4$24.0 million and total liquidity of $52.7$27.9 million. Our additional borrowing capacity is net of $5.7 million in outstanding letters of credit as of March 31, 2021 that were required to maintain surety bonds. Liquidity consists of our additional borrowing capacity and cash and cash equivalents.
Fees
Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $7.9 million as of our amendment in April 2020. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of September 30, 2020March 31, 2021, and December 31, 20192020, were $6.7$5.5 million and $6.5$6.1 million, respectively. Additional costs incurred with the April 15 amendment were $1.9 million.
Bank debt, less debt issuance costs, is presented below (in thousands):
September 30, | December 31, | March 31, | December 31, | |||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Current bank debt | $ | 36,750 | $ | 34,912 | $ | 36,750 | $ | 36,750 | ||||||||
Less unamortized debt issuance costs | (2,439 | ) | (1,868 | ) | (2,439 | ) | (2,439 | ) | ||||||||
Net current portion | $ | 34,311 | $ | 33,044 | $ | 34,311 | $ | 34,311 | ||||||||
Long-term bank debt | $ | 110,175 | $ | 145,238 | $ | 99,300 | $ | 100,988 | ||||||||
Less unamortized debt issuance costs | (4,290 | ) | (4,644 | ) | (3,070 | ) | (3,681 | ) | ||||||||
Net long-term portion | $ | 105,885 | $ | 140,594 | $ | 96,230 | $ | 97,307 | ||||||||
Total bank debt | $ | 146,925 | $ | 180,150 | $ | 136,050 | $ | 137,738 | ||||||||
Less total unamortized debt issuance costs | (6,729 | ) | (6,512 | ) | (5,509 | ) | (6,120 | ) | ||||||||
Net bank debt | $ | 140,196 | $ | 173,638 | $ | 130,541 | $ | 131,618 |
Covenants
The credit facility includes a Maximum Leverage Ratio (consolidated funded debt/trailing twelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailing twelve months, not to exceed the amounts below:
Fiscal Periods Ending | Ratio | ||
| |||
March 31, 2021 and June 30, 2021 | 3.25 to 1.00 | ||
September 30, 2021 and December 31, 2021 | 3.00 to 1.00 | ||
March 31, 2022 and each fiscal quarter thereafter | 2.50 to 1.00 |
As of September 30, 2020March 31, 2021, our Leverage Ratio of 2.462.78 was in compliance with the requirements of the credit agreement.
The credit facility also requires a Minimum Debt Service Coverage Ratio (consolidated adjusted EBITDA / annual debt service) calculated as of the end of each fiscal quarter for the trailing twelve months of 1.05 to 1.00 through December 31, 2021, at which time it increases to 1.25 to 1.00 through the maturity of the credit facility.
As of September 30, 2020March 31, 2021, our Debt Service Coverage Ratio of 1.441.13 was in compliance with the requirements of the credit agreement.
Interest Rate
The interest rate on the facility ranges from LIBOR plus 2.75% to LIBOR plus 4.00%, depending on our Leverage Ratio, with a LIBOR floor of 0.50%. We entered into swap agreements to fix the LIBOR component of the interest rate at 2.92% on the declining term loan balance and on $53 million of the revolver. At September 30, 2020March 31, 2021, we are paying LIBOR at the swap rate of 2.92% plus 3.50%4.0% for a total interest rate of 6.42%6.92% on the hedged amount ($130111.8 million) and 4%4.0% on the remainder ($1724.3 million).
Paycheck Protection Program
On April 16, 2020,we entered into an unsecured promissory note in the amount of $10 million under the Paycheck Protection Program (the “PPP Note”). The Paycheck Protection Program was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration.Administration (the "SBA"). The PPP note was funded through First Financial Bank, N.A. (the “Lender”).
The annual interest rate on the PPP Note is 1.00%. Monthly principal and interest payments were originally deferred for six months after the date of the loan, but the deferral has been extended to 2021. If the note is not forgiven, monthly payments of ~$1.1 million will commence in August 2021 with maturity of April 2022. The PPP Note contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Lender, or breaching the terms of the Loan Documents. The occurrence of an event of default mayresult in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining a judgment against the Company.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any covered payments of mortgage interest, rent, and utilities. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The Company used all proceeds from the PPP Loan to maintain payroll and utility payments.
If the SBA determines that the Company was not initially eligible under the program or concludes that the Company did not have an adequate basis for making the good-faith certification of the necessity of the loan at the time of application, the loan could become payable on demand. The SBA retains the right to review the Company's loan file for a period subsequent to the date the loan is forgiven or paid in full, with the potential for the SBA to pursue legal remedies at its discretion.
At September 30, 2020March 31, 2021, the PPP loan totaling $10 million is presented as current and long-term liabilities on the condensed consolidated balance sheets based upon the schedule of repayments and excluding any possible forgiveness of the loan. See Part II Item
In 1A.RiskDecember 2020, Factors we applied for forgiveness of this Quarterly Reportthe full $10 million promissory note. On January 8, 2021, we were notified by the Lender that they had approved the application for the full forgiveness of the $10 million note and had forwarded on Form 10-Qto the SBA for discussionfinal approval. The SBA has 90 days from receipt of significant risk factors relatedapplication from the Lender to our participation inmake its determination as to the Paycheck Protection Program.amount of forgiveness. There can be no assurance that any portion of the PPP loan will be forgiven. The determination was expected by April 8, 2021, however, we are told the SBA is running behind on loan forgiveness applications. Thus, we are patiently awaiting the decision from the SBA as to their determination as to the amount of the forgiveness.
(6) | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands) |
September 30, | December 31, | March 31, | December 31, | |||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Accounts payable | $ | 14,223 | $ | 16,115 | $ | 16,067 | $ | 14,785 | ||||||||
Accrued property taxes | 2,898 | 2,835 | 2,953 | 2,566 | ||||||||||||
Accrued payroll | 3,030 | 2,151 | 2,838 | 1,621 | ||||||||||||
Workers' compensation reserve | 3,824 | 3,446 | 3,111 | 2,988 | ||||||||||||
Group health insurance | 1,800 | 2,500 | 1,800 | 1,800 | ||||||||||||
Fair value of interest rate swaps | 3,021 | 1,714 | 2,551 | 2,793 | ||||||||||||
Other | 4,730 | 3,039 | 5,846 | 4,856 | ||||||||||||
Total accounts payable and accrued liabilities | $ | 33,526 | $ | 31,800 | $ | 35,166 | $ | 31,409 |
(7) | REVENUE |
Revenue from Contracts with Customers
We account for a contract with a customer when the parties have approved the contract and are committed to performing their respective obligations, the rights of each party are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. We recognize revenue when we satisfy a performance obligation by transferring control of a good or service to a customer. We utilize the normal purchase normal sales exception for all long-term sales contracts.
Our revenue is derived from sales to customers of coal produced at our facilities. Our customers typically purchase coal directly from our mine sites or our Princeton Loop, where the sale occurs and where title, risk of loss, and control pass to the customer at that point. Our customers arrange for and bear the costs of transporting their coal from our mines to their plants or other specified discharge points. Nearly all ourOur customers are typically domestic utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts, or include a predetermined escalation in price re-openers, fixed-volume supply contracts.for each year. Price re-opener and index provisions may allow either party to commence a renegotiation of the contract price at a pre-determined time. Price re-opener provisionsmay automatically set a new price based on prevailing market price or, in some instances, require us to negotiate a new price, sometimes within specified ranges of prices. The terms of our coal sales agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these contracts vary by customer.
Coal sales agreements will typically contain coal quality specifications. With coal quality specifications including BTUs, ash, moisture,in place, the raw coal sold by us to the customer at the delivery point must be substantially free of magnetic material and sulfur content among other qualities.foreign material impurities and crushed to a maximum size as set forth in the respective coal sales agreement. Price adjustments are made and billed in the month the coal sale was recognized based on quality standards that are specified in the coal sales agreement, such as Btu factor, moisture, ash, and sulfur content and can result in either increases or decreases in the value of the coal shipped.
Disaggregation of Revenue
Revenue is disaggregated by primary geographic markets, as we believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. 75%77% and 78% of our coal revenue for the three months ended March 31, 2021, and ninethree months ended September 30,March 31, 2020, and 67% and 69% for three and nine months ended September 30, 2019, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Florida, Georgia, North Carolina, Kentucky, Tennessee, and South Carolina.Tennessee.
Performance Obligations
A performance obligation is a promise in a contract with a customer to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. In most of our contracts, the customer contracts with us to provide coal that meets certain quality criteria. We consider each ton of coal a separate performance obligation and allocate the transaction price based on the base price per the contract, increased or decreased for quality adjustments.
We recognize revenue at a point in time, as the customer does not have control over the asset at any point during the fulfillment of the contract. For substantially all of our customers, this is supported by the fact that title and risk of loss transfer to the customer upon loading of the truck or railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the right to receive substantially all benefits and the risk of loss in ownership of the coal.
We have remaining performance obligations relating to fixed priced contracts of approximately $494$455 million, which represent the average fixed prices on our committed contracts as of September 30, 2020March 31, 2021. We expect to recognize approximately 57%76% of this revenue throughin 2021 and 2022, with the remainder recognized thereafter.
We have remaining performance obligations relating to contracts with price reopeners of approximately $237 million, which represents our estimate of the expected re-opener price on committed contracts as of September 30, 2020March 31, 2021. We expect to recognize all of this revenue frombeginning in 20222022.-2027.
The tons used to determine the remaining performance obligations are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce tonnage if such option exists in the customer contract.
Contract Balances
Under ASC 606, the timing of when a performance obligation is satisfied can affect the presentation of accounts receivable, contract assets, and contract liabilities. The main distinction between accounts receivable and contract assets is whether consideration is conditional on something other than the passage of time. A receivable is an entity’s right to consideration that is unconditional. Under the typical payment terms of our contracts with customers, the customer pays us a base price for the coal, increased or decreased for any quality adjustments. Amounts billed and due are recorded as trade accounts receivable and included in accounts receivable in our condensed consolidated balance sheets. We do not currently have any contracts in place where we would transfer coal in advance of knowing the final price of the coal sold, and thus do not have any contract assets recorded. Contract liabilities arise when consideration is received in advance of performance. This deferred revenue is included in accounts payable and accrued liabilities in our condensed consolidated balance sheets when consideration is received, and revenue is not recognized until the performance obligation is satisfied. We are rarely paid in advance of performance, but we currently are carrying $0.4$0.2 million in deferred revenue recorded in our condensed consolidated balance sheets as of September 30, 2020March 31, 2021. related to coal storage for one customer.
(8) |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Equity income (loss) - Sunrise Energy | $ | (119 | ) | $ | (184 | ) | $ | 1,167 | $ | (350 | ) | |||||
Government imposition reimbursements | 100 | 150 | 300 | 450 | ||||||||||||
Gain on sale of royalty interests in oil properties | 0 | 0 | 2,949 | |||||||||||||
Coal storage | 127 | 0 | 211 | 0 | ||||||||||||
Miscellaneous | 266 | 247 | 910 | 2,439 | ||||||||||||
$ | 374 | $ | 213 | $ | 2,588 | $ | 5,488 |
| INCOME TAXES |
For the three and nine months ended September 30, 2020, the Company utilized a discreteinterim period method to calculatereporting, we record income taxes as it does not believe theusing an estimated annual effective tax rate method represents a reliable estimate given the current uncertainty surrounding COVID-19.based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. Our effective tax rate for the three and ninemonths ended September 30, 2020March 31, 2021 and 20192020 was ~69%63% and ~98%37%, respectively. Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion in excess of tax basis. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.
On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit (“AMT”) refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, the CARES Act, (i) eliminates the 80% of taxable income limitation by allowing corporate entities to fully utilize NOLs to offset taxable income in 2018,2019, or 2020, (ii) increases the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning January 1, 2019 and 2020 and (iv) allows taxpayers with AMT credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the Tax Cuts and Jobs Act in 2017.
STOCK COMPENSATION PLANS |
Non-vested grants at December 31, | ||||
| ||||
Vested – average weighted share price on vesting date was | ( | ) | ||
Forfeited | ( | ) | ||
Non-vested grants at |
For the three and ninemonths ended September 30, March 31, 2021 and 2020,, our stock compensation was $0.3 million and $0.9$0.3 million, respectively. For the three and nine months ended September 30, 2019, our stock-based compensation was $0.4 million and $1.4 million, respectively.
Non-vested RSU grants will vest as follows:
Vesting Year | RSUs Vesting | RSUs Vesting | ||||||
2020 | 106,250 | |||||||
2021 | 306,750 | 301,750 | ||||||
2022 | 24,000 | 0 | ||||||
2023 | 10,000 | 10,000 | ||||||
447,000 | 311,750 |
The outstanding RSUs have a value of $0.3$0.6 million based on the September 30, 2020,March 31, 2021, closing stock price of $0.65.$1.87.
At September 30, 2020March 31, 2021 we had 1,379,6501,444,916 RSUs available for future issuance.
( | LEASES |
We have operating leases for office space and processing facilities with remaining lease terms ranging from less than one year to approximately five years. As most of the leases do not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.
Information related to leases was as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | |||||||||||||||||||
Operating lease information: | ||||||||||||||||||||||||
Operating cash outflows from operating leases | $ | 50 | $ | 77 | $ | 184 | $ | 234 | $ | 47 | $ | 87 | ||||||||||||
Weighted average remaining lease term in years | 3.43 | 4.11 | 3.43 | 4.11 | 2.94 | 3.92 | ||||||||||||||||||
Weighted average discount rate | 6.0 | % | 6.0 | % | 6.0 | % | 6.0 | % | 6.0 | % | 6.0 | % |
Future minimum lease payments under non-cancellable leases as of September 30, 2020March 31, 2021 were as follows:
Year | Amount | Amount | ||||||
(In thousands) | (In thousands) | |||||||
2020 | $ | 50 | ||||||
2021 | 203 | $ | 152 | |||||
2022 | 206 | 206 | ||||||
2023 | 174 | 173 | ||||||
2024 | 60 | 60 | ||||||
Total minimum lease payments | $ | 693 | $ | 591 | ||||
Less imputed interest | (48 | ) | (33 | ) | ||||
Total operating lease liabilities | $ | 645 | $ | 558 | ||||
As reflected on balance sheet: | ||||||||
Other long-term liabilities | $ | 645 | $ | 558 |
At September 30, 2020March 31, 2021, and December 31, 20192020, we had approximately $645,000$558,000 and $800,000,$602,000, respectively, of right-of-use operating lease assets recorded within “buildings and equipment” on the condensed consolidated balance sheets.
( | SELF-INSURANCE |
We self-insure our underground mining equipment. Such equipment is allocated among 7seven mining units dispersed over 10 miles. The historical cost of such equipment was approximately $273 million and $269 million as of September 30, 2020March 31, 2021, and December 31, 20192020., respectively.
Restricted cash of $4.2$3.8 million and $4.5$4.0 million as of September 30, 2020March 31, 2021, and December 31, 20192020, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.
( |
|
We compute income (loss)net loss per share using the two-class method, which is an allocation formula that determines income (loss)net loss per share for common stock and participating securities, consisting ofwhich for us are our outstanding RSUs.
The following table (in thousands, except per share amounts) sets forth the computation of net income (loss) allocated to common shareholders (in thousands):loss per share:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 1,923 | $ | (3,723 | ) | $ | (1,483 | ) | $ | (67 | ) | |||||
Less loss (income) allocated to RSUs | (28 | ) | 93 | 23 | 0 | |||||||||||
Net income (loss) allocated to common shareholders | $ | 1,895 | $ | (3,630 | ) | $ | (1,460 | ) | $ | (67 | ) |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Numerator: | ||||||||
Net loss | $ | (1,032 | ) | $ | (3,660 | ) | ||
Less loss allocated to RSUs | 11 | 59 | ||||||
Net loss allocated to common shareholders | $ | (1,021 | ) | $ | (3,601 | ) |
( | FAIR VALUE MEASUREMENTS |
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our marketable securities areWe have no Level 1 instruments.
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. We have no Level 2 instruments.
Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). Our Level 3 instruments are comprised of fuel hedges and interest rate swaps.swaps, and impairment measurements. The fair values of our hedges and swaps were estimated using discounted cash flow calculations based upon forward fuel prices and interest-rate yield curves. The notional values of our 2two interest rate swaps were $53 million and $86$58 million as of September 30, 2020March 31, 2021, both with maturities of May 2022. Fuel hedges include 1.40.7 million gallons of diesel fuel that are subject to pricing fluctuations with a minimum of $1.79/gallon and a maximum of $2.00/gallon through December 2021. Although we utilize third-party broker quotes to assess the reasonableness of our prices and valuation, we do not have sufficient corroborating market evidence to support classifying these assets and liabilities as Level 2. The Company also recorded impairments during Q32020 which incorporate Level 3 non-recurring fair value measures as further discussed in Note 2.
The following table summarizes our financial assets and liabilities measured on a recurring basis at fair value at September 30, 2020March 31, 2021 and December 31, 20192020 by the respective level of the fair value hierarchy (in thousands):
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Fuel hedge | $ | 0 | $ | 0 | $ | 25 | $ | 25 | ||||||||||||||||||||||||
Marketable securities - restricted | 2,296 | 0 | 0 | 2,296 | ||||||||||||||||||||||||||||
$ | 2,296 | $ | 0 | $ | 25 | $ | 2,321 | |||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Interest rate swaps | $ | 0 | $ | 0 | $ | 3,825 | $ | 3,825 | ||||||||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Fuel hedge | 0 | 0 | 750 | 750 | $ | 0 | $ | 0 | $ | 297 | $ | 297 | ||||||||||||||||||||
Interest rate swaps | 0 | 0 | 4,806 | 4,806 | 0 | 0 | 3,893 | 3,893 | ||||||||||||||||||||||||
$ | 0 | $ | 0 | $ | 5,556 | $ | 5,556 | $ | 0 | $ | 0 | $ | 4,190 | $ | 4,190 | |||||||||||||||||
March 31, 2021 | ||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Fuel hedge | 0 | 0 | 58 | 58 | ||||||||||||||||||||||||||||
Interest rate swaps | 0 | 0 | 3,045 | 3,045 | ||||||||||||||||||||||||||||
$ | 0 | $ | 0 | $ | 3,103 | $ | 3,103 |
The table below highlights the change in fair value of the fuel hedges and interest rate swaps which are based on a discounted future cash flow model (in thousands):
Ending balance, December 31, 2019* | $ | (3,800 | ) | |
Change in estimated fair value | (1,756 | ) | ||
Ending balance, September 30, 2020* | $ | (5,556 | ) |
Ending balance, December 31, 2020* | $ | (4,190 | ) | |
Change in estimated fair value | 1,087 | |||
Ending balance, March 31, 2021* | $ | (3,103 | ) |
*Recorded in accounts payable and accrued liabilities and other liabilities in the Condensed Consolidated Balance Sheets.
( | EQUITY METHOD INVESTMENTS |
We own a 50% interest in Sunrise Energy, LLC, which owns gas reserves and gathering equipment with plans to develop and operate such reserves. Sunrise Energy also plans to develop and explore for oil, gas, and coal-bed methane gas reserves on or near our underground coal reserves. The carrying value of the investment included in our condensed consolidated balance sheets as of September 30, 2020March 31, 2021, and December 31, 20192020, was $3.3 million and $3.1 million, respectively.$3.2 million.
(15) | HOURGLASS SANDS |
In February2018, we invested $4 million in Hourglass Sands, LLC (Hourglass), a frac sand mining company in the State of Colorado. We own 100% of the Class A units and are consolidating the activity of Hourglass in these statements. Class A units are entitled to 100% of profit until our capital investment and interest is returned, then 90% of profits are allocated to us with remainder to Class B units. We do not own any Class B units.
In February2018, a Yorktown company associated with one of our directors also invested $4 million in Hourglass in return for a royalty interest in Hourglass. This investment coupled with our $4 million investment brings the initial capitalization of Hourglass to $8 million. We report the royalty interest as a redeemable noncontrolling interest in the consolidated balance sheets. A representative of the Yorktown company holds a seat on the board of managers, and, with a change of control, the Yorktown company may be entitled to receive a portion of the net proceeds realized, as prescribed in the Hourglass operating agreement.
In December 2019, we recorded an impairment to Hourglass Sands of $2.9 million. In August 2020, we ceased operation of the plant and recorded an additional impairment of $1.8 million. See Note 2to these consolidated financial statements for further discussion.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders
of Hallador Energy Company
RESULTS OF REVIEW OF INTERIM CONDENSED FINANCIAL STATEMENTS
Results of Review of Interim Financial Statements
We have reviewed the condensed consolidated balance sheet of Hallador Energy Company (the "Company") and subsidiaries as of September 30, 2020, and 2019, andMarch 31, 2021, the related condensed consolidated statements of operations, for the three-month and nine-month periods ended September 30, 2020 and 2019, the condensed consolidated statement of cash flows, for the nine-month periods ended September 30, 2020 and 2019, the condensed consolidated statement of stockholders’ equity for the three-month and nine-month periods ended September 30,March 31, 2021 and 2020, and 2019, and the related notes (collectively referred to as the "interim financial statements"). Based on our review,reviews, we are not aware of any material modifications that should be made to the interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
BASIS FOR REVIEW RESULTSWe have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2020, and the related consolidated statements of operations, cash flows, and stockholders’ equity for the year then ended (not presented herein); and in our report dated March 8, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These interim financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards of the Public Company Oversight Board (United States) ("PCAOB"). We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our review in accordance with the standards of the PCAOB. A review of interim financial informationstatements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Plante & Moran, PLLC
Denver, Colorado
November 2, 2020May 3, 2021
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 20192020 ANNUAL REPORT ON FORM 10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH.
Our condensed consolidated financial statements should also be read in conjunction with this discussion. The following analysis includes a discussion of metrics on a per ton basis derived from the condensed consolidated financial statements, which are considered non-GAAP measurements. These metrics are significant factors in assessing our operating results and profitability.
IMPACT OF COVID-19
We continue to face uncertainty regardingIn the evolving impactfirst quarter of the2020, COVID-19 emerged as a global pandemic. The State of Indiana, where our operations are located, issued a shelter in place order from March 24, 2020, to May 4, 2020. The State deemed our operations necessary and essential, and we were allowed to operate as a supplier to critical power infrastructure. Below is an outline of some of the actions we have taken to address the challenges the COVID-19 pandemic has brought. We continue to monitor the ongoing pandemic and note that if conditions deteriorate in the future, it could result in further negative impact on our results of operations, financial position, and liquidity.
We have instituted many policies and procedures, in alignment with CDC guidelines along with state and local mandates, to protect our employees during the COVID-19 outbreak. These policies and procedures include, but are not limited to, staggering shift times to limit the number of people in common areas at one time, limiting meetings and meeting sizes, continual cleaning and disinfecting of high touch and high traffic areas, including door handles, bath rooms, bath houses, access elevators, mining equipment, and other areas, limiting contractor access to our properties, limiting business travel, and instituting work from home for administrative employees. We plan to keep these policies and procedures in place, in accordance with CDC, state, and local guidelines, and continually evaluate further enhancements for as long as necessary. We recognize that the COVID-19 outbreak and responses thereto will also impact both our customers and suppliers. To date, we have not had any significant issues with critical suppliers, and we continue to communicate with them and closely monitor their developments to ensure we have access to the goods and services required to maintain our operations. Our customers have reacted, and continue to react, in various ways and to varying degrees to changes in demand for their products. We have worked closely with our customers and all are expected to honor their contracts. |
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As vaccines for COVID-19 continue to become readily available, we intend to continue encouraging our workforce to get vaccinated, and we are hopeful that the case rate of our employees will continue to decline, and economic activity in general will accelerate. |
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OVERVIEW
Considering the challenges we have faced during this unprecedented time, Hallador has performed well. Below are some highlights for the quarter and first ninethree months of 2020:2021:
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a. | Sales: During |
i. | Coal inventory |
b. | Production: |
c. | Cash Flow & Debt: During |
i. | As of |
Reconciliation of GAAP “net income” to non-GAAP “adjusted EBITDA” (in thousands), the most comparable GAAP financial measure.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income (loss) | $ | 1,923 | $ | (3,723 | ) | $ | (1,483 | ) | $ | (67 | ) | |||||
Income tax benefit | (461 | ) | (3,473 | ) | (3,255 | ) | (3,318 | ) | ||||||||
Loss from Hourglass Sands | 64 | 47 | 205 | 438 | ||||||||||||
(Income) loss from equity method investments | 119 | 184 | (1,167 | ) | 350 | |||||||||||
DD&A | 9,313 | 11,774 | 30,151 | 35,598 | ||||||||||||
Asset impairment | 1,799 | — | 1,799 | — | ||||||||||||
ARO accretion | 348 | 320 | 1,024 | 943 | ||||||||||||
Loss (gain) on disposal of assets | 38 | 1 | 38 | (99 | ) | |||||||||||
Loss (gain) on marketable securities | — | 14 | (14 | ) | (334 | ) | ||||||||||
Interest Expense | 2,329 | 3,558 | 10,877 | 13,546 | ||||||||||||
Other amortization | 1,452 | 1,323 | 4,274 | 3,614 | ||||||||||||
Change in fair value of fuel hedges | (138 | ) | - | 775 | — | |||||||||||
Stock-based compensation | 291 | 426 | 927 | 1,438 | ||||||||||||
Adjusted EBITDA | $ | 17,077 | $ | 10,451 | $ | 44,151 | $ | 52,109 |
Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Net loss | $ | (1,032 | ) | $ | (3,660 | ) | ||
Income tax benefit | (1,729 | ) | (2,176 | ) | ||||
Loss from Hourglass Sands | 80 | 78 | ||||||
Income from equity method investments | — | (55 | ) | |||||
Depreciation, depletion and amortization | 10,307 | 10,623 | ||||||
Asset retirement obligations accretion | 363 | 333 | ||||||
Gain on marketable securities | — | (14 | ) | |||||
Interest Expense | 1,898 | 5,714 | ||||||
Other amortization | 1,489 | 1,426 | ||||||
Change in fair value of fuel hedges | (239 | ) | 1,311 | |||||
Stock-based compensation | 282 | 319 | ||||||
Adjusted EBITDA | $ | 11,419 | $ | 13,899 |
Management believes that the presentation of such additional financial measures provides useful information to investors regarding our performance and results of operations because these measures when used in conjunction with related GAAP financial measures, (i) provide additional information about our core operating performance and ability to generate and distribute cash flow, (ii) provide investors with the financial and analytical framework upon which management bases financial, operation, compensation, and planning decisions, and (iii) present measurements that investors, rating agencies, and debt holders have indicated are useful in assessing our results.
II. | Solid Sales Position Through 2022 |
Contracted | Estimated | |||||||
tons | Priced | |||||||
Year | (millions)* | per ton | ||||||
2021 (Q2 - Q4) | 4.5 | $ | 39.25 | |||||
2022 | 5.1 | 39.35 | ||||||
9.6 |
COVID-19 has created a lot of uncertainty in the world, but we are comforted by our strong sales position through 2022.
Contracted | Estimated | |||||||
tons | Priced | |||||||
Year | (millions)* | per ton | ||||||
2020 (Q4) | 2.1 | $ | 40.00 | |||||
2021 | 5.0 | $ | 39.30 | |||||
2022 | 5.3 | $ | 40.20 | |||||
12.4 |
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* Contracted tons are subject to adjustment due to the exercise of customer options to either take additional tons or reduce tonnage if such options exist in the customer contract. Our actual shipments for the remainder of 2020 are estimated to be 1.7 million tons as we expect our customers to defer or carryover 400,000 tons from 2020 to 2021 from the contracted tons noted above.
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Signs of Improvement for the Coal Market |
a. | Gas prices are increasing |
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b. | Coal export prices are improving |
i. | API 4 (Asia) for Q3 2021 is |
ii. | API 2 (Europe) for Q3 2021 is |
LONG-LIVED ASSET IMPAIRMENT REVIEW
See Note 2 to our condensed consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
I. | Cash Provided by Operations |
a. | As set forth in our condensed consolidated statements of cash flows, cash provided by operations was |
i. | Operating margins from coal decreased during the first |
1. | Our operating margins were |
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ii. | The combination of the lower margins offset by changes in working capital items contributed substantially to our decrease in cash from operations compared to |
b. | Our projected capex budget for the remainder of |
c. | Cash provided by operations for the remainder of the year is expected to fund our maintenance capital expenditures and debt service, especially as we |
d. | As we continue to monitor the effects of COVID-19, we continue to proactively manage costs and capital expenditures to ensure adequate liquidity until there is more of a sense of economic certainty in the markets in which we operate. |
II. | Material Off-Balance Sheet Arrangements |
a. | Other than our surety bonds for reclamation, we have no material off-balance sheet arrangements. In the event we are not able to perform reclamation, which is presented as asset retirement obligations (ARO) in our accompanying condensed consolidated balance sheets, we have surety bonds totaling |
CAPITAL EXPENDITURES (capex)
For the ninethree months of 2020,2021, capex was $14.0$5.7 million allocated as follows (in millions):
Oaktown – maintenance capex | $ | 7.3 | $ | 2.3 | ||||
Oaktown – investment | 6.3 | 3.4 | ||||||
Other | 0.4 | |||||||
Capex per the Condensed Consolidated Statements of Cash Flows | $ | 14.0 | $ | 5.7 |
Quarterly coal sales and cost data (in thousands, except per ton and percentage data) are provided below. Per ton calculations below are based on tons sold.
All Mines | 4th 2019 | 1st 2020 | 2nd 2020 | 3rd 2020 | T4Qs | 2nd 2020 | 3rd 2020 | 4th 2020 | 1st 2021 | T4Qs | ||||||||||||||||||||||||||||||
Tons produced | 2,122 | 1,701 | 1,468 | 1,234 | 6,525 | 1,468 | 1,234 | 1,233 | 1,592 | 5,527 | ||||||||||||||||||||||||||||||
Tons sold | 2,015 | 1,526 | 1,244 | 1,585 | 6,370 | 1,244 | 1,585 | 1,613 | 1,174 | 5,616 | ||||||||||||||||||||||||||||||
Coal sales | $ | 78,205 | $ | 61,932 | $ | 50,473 | $ | 64,754 | $ | 255,364 | $ | 50,473 | $ | 64,754 | $ | 64,925 | $ | 45,879 | $ | 226,031 | ||||||||||||||||||||
Average price/ton | $ | 38.81 | $ | 40.58 | $ | 40.57 | $ | 40.85 | $ | 40.09 | $ | 40.57 | $ | 40.85 | $ | 40.25 | $ | 39.08 | $ | 40.25 | ||||||||||||||||||||
Wash plant recovery in % | 74 | % | 74 | % | 76 | % | 71 | % | 76 | % | 71 | % | 68 | % | 74 | % | ||||||||||||||||||||||||
Operating costs | $ | 60,082 | $ | 48,334 | $ | 36,001 | $ | 46,444 | $ | 190,861 | $ | 36,001 | $ | 46,444 | $ | 54,640 | $ | 33,907 | $ | 170,992 | ||||||||||||||||||||
Average cost/ton | $ | 29.82 | $ | 31.67 | $ | 28.94 | $ | 29.30 | $ | 29.96 | $ | 28.94 | $ | 29.30 | $ | 33.87 | $ | 28.88 | $ | 30.45 | ||||||||||||||||||||
Margin | $ | 18,123 | $ | 13,598 | $ | 14,472 | $ | 18,310 | $ | 64,503 | $ | 14,472 | $ | 18,310 | $ | 10,285 | $ | 11,972 | $ | 55,039 | ||||||||||||||||||||
Margin/ton | $ | 8.99 | $ | 8.91 | $ | 11.63 | $ | 11.55 | $ | 10.13 | $ | 11.63 | $ | 11.55 | $ | 6.38 | $ | 10.20 | $ | 9.80 | ||||||||||||||||||||
Capex | $ | 8,264 | $ | 5,999 | $ | 4,006 | $ | 3,995 | $ | 22,264 | $ | 4,006 | $ | 3,995 | $ | 6,661 | $ | 5,720 | $ | 20,382 | ||||||||||||||||||||
Maintenance capex | $ | 4,115 | $ | 3,470 | $ | 2,578 | $ | 1,365 | $ | 11,528 | $ | 2,578 | $ | 1,365 | $ | 2,342 | $ | 2,343 | $ | 8,628 | ||||||||||||||||||||
Maintenance capex/ton | $ | 2.04 | $ | 2.27 | $ | 2.07 | $ | 0.86 | $ | 1.81 | $ | 2.07 | $ | 0.86 | $ | 1.45 | $ | 2.00 | $ | 1.54 |
All Mines | 4th 2018 | 1st 2019 | 2nd 2019 | 3rd 2019 | T4Qs | 2nd 2019 | 3rd 2019 | 4th 2019 | 1st 2020 | T4Qs | ||||||||||||||||||||||||||||||
Tons produced | 1,938 | 2,205 | 2,003 | 1,891 | 8,037 | 2,003 | 1,891 | 2,122 | 1,701 | 7,717 | ||||||||||||||||||||||||||||||
Tons sold | 2,219 | 2,130 | 1,807 | 2,118 | 8,274 | 1,807 | 2,118 | 2,015 | 1,526 | 7,466 | ||||||||||||||||||||||||||||||
Coal sales | $ | 89,019 | $ | 85,235 | $ | 71,113 | $ | 82,883 | $ | 328,250 | $ | 71,113 | $ | 82,883 | $ | 78,205 | $ | 61,932 | $ | 294,133 | ||||||||||||||||||||
Average price/ton | $ | 40.12 | $ | 40.02 | $ | 39.35 | $ | 39.13 | $ | 39.67 | $ | 39.35 | $ | 39.13 | $ | 38.81 | $ | 40.58 | $ | 39.40 | ||||||||||||||||||||
Wash plant recovery in % | 68 | % | 73 | % | 71 | % | 70 | % | 71 | % | 70 | % | 74 | % | 74 | % | ||||||||||||||||||||||||
Operating costs | $ | 69,364 | $ | 62,271 | $ | 53,915 | $ | 71,372 | $ | 256,922 | $ | 53,915 | $ | 71,372 | $ | 60,082 | $ | 48,334 | $ | 233,703 | ||||||||||||||||||||
Average cost/ton | $ | 31.26 | $ | 29.24 | $ | 29.84 | $ | 33.70 | $ | 31.05 | $ | 29.84 | $ | 33.70 | $ | 29.82 | $ | 31.67 | $ | 31.30 | ||||||||||||||||||||
Margin | $ | 19,655 | $ | 22,964 | $ | 17,198 | $ | 11,511 | $ | 71,328 | $ | 17,198 | $ | 11,511 | $ | 18,123 | $ | 13,598 | $ | 60,430 | ||||||||||||||||||||
Margin/ton | $ | 8.86 | $ | 10.78 | $ | 9.52 | $ | 5.43 | $ | 8.62 | $ | 9.52 | $ | 5.43 | $ | 8.99 | $ | 8.91 | $ | 8.09 | ||||||||||||||||||||
Capex | $ | 8,996 | $ | 8,840 | $ | 9,448 | $ | 8,981 | $ | 36,265 | $ | 9,448 | $ | 8,981 | $ | 8,264 | $ | 5,999 | $ | 32,692 | ||||||||||||||||||||
Maintenance capex | $ | 7,186 | $ | 6,672 | $ | 6,164 | $ | 5,537 | $ | 25,559 | $ | 6,164 | $ | 5,537 | $ | 4,115 | $ | 3,470 | $ | 19,286 | ||||||||||||||||||||
Maintenance capex/ton | $ | 3.24 | $ | 3.13 | $ | 3.41 | $ | 2.61 | $ | 3.09 | $ | 3.41 | $ | 2.61 | $ | 2.04 | $ | 2.27 | $ | 2.58 |
2021 v. 2020 vs. 2019 (first nine months)(first quarter)
For the first nine months of 2020,quarter 2021, we sold 4,355,0001,174,000 tons at an average price of $40.68/$39.08/ton. For the first nine months of 2019,quarter 2020 we sold 6,055,0001,526,000 tons at an average price of $39.51/$40.58/ton. The increase in average price per ton was expected and is the result of our changing contract mix caused by the expiration of contracts and acquisition of new contracts. The decrease in tons sold is related to the effects of COVID-19 resulting in lower customer demand, our contracted position coming into 2020, and lower natural gas prices further reducing coal demand. We expect to ship a majority of the remaining contracted tons during the last three months of the year or defer to 2021.
Operating costs for all of our active coal mines averaged $30.03/ton and $30.98/ton for the nine months ended September 30, 2020 and 2019, respectively. Oaktown costs over that same period were $28.59 and $29.96, respectively. The lower costs are a result of the closure of the Carlisle Mine in February allowing us to focus our efforts on our lower cost Oaktown mines. For the remainder of 2020, we expect operating costs for our operating Oaktown mines to be $29-$30/ton.
We expect operating costs associated with the idled Prosperity mine to be $0.3 million for the remainder of 2020. Prosperity operating costs were $0.8 million during the nine months ended September 30, 2020.
We expect operating costs associated with the closed Carlisle mine to be $0.3 million for the remainder of 2020. We estimate that we incurred approximately $1.1 million of exit and disposal costs during the first nine months of 2020.
Other operating income decreased $2.9 million in the first nine months of 2020 when compared to 2019. The largest contributor to this decrease was the income from the sale of overriding royalty interests in certain oil-producing properties for $2.9 million in the first half of 2019. Our investment in Sunrise Energy contributed $1.2 million to income in 2020 but incurred a loss of $0.4 million in 2019. Other items contributing to the decrease related to the sale of scrap metal and other non-producing assets in 2019.
DD&A decreased $5.5 million in the first nine months of 2020 when compared to 2019. A portion of our assets are depreciated based on raw production, which has decreased in 2020, thus as production decreases, so does our DD&A.
SG&A expenses decreased $0.6 million during the first nine months of 2020 when compared to 2019. The decrease is a result of lower payroll, commissions, and consulting fees as sales and project activity have declined compared to last year due to COVID-19. We expect SG&A for the remainder of 2020 to be $3 million.
Interest expense decreased approximately $2.7 million in the first nine months of 2020 when compared to 2019. The change in estimated fair value of our interest rate swap agreement resulted in a reduction in non-cash expense of $2.0 million in 2020 when compared to 2019. The remaining decrease of $0.7 million is a result of lower interest rates due to our amended credit agreements in September 2019 and April 2020 and our continued reduction in debt.
Our Sunrise Coal employees and contractors totaled 658 at September 30, 2020, compared to 923 at September 30, 2019, and 907 at December 31, 2019. The decrease in our headcount was due primarily to the closure of the Carlisle Mine in February 2020.
2020 v. 2019 (third quarter)
For the third quarter 2020, we sold 1,585,000 tons at an average price of $40.85/ton. For the third quarter 2019 we sold 2,118,000 tons at an average price of $39.13/ton. The increase in average price per ton was expected and is the result of our changing contract mix caused by the expiration of contracts and acquisition of new contracts. As noted above, the decrease in tons sold was due to the effects of COVID-19 resultingtransportation issues related to the weather conditions in lower customer demand, our contracted position for 2020, and lower natural gas prices further reducing coal demand. We expect to ship a majority of the remaining contracted tons during the last three months of the year or defer to 2021.February.
Operating costs for all coal mines averaged $29.30/$28.88/ton in 20202021 and $33.70/$31.67/ton in 2019.2020. Oaktown costs over that same period were $28.65$27.21 and $32.60,$29.92, respectively. Our operating costs for the quarter are within our prior guidance of $29-$30/ton as we continueton. Our efforts in Q1 to experience solid production in spiteimprove recovery and lower costs have been effective thus far. We expect operating costs associated with the idled Prosperity mine to be $0.9 million for the remainder of the COVID-19 pandemic. Costs are lower than last year due to the closure of the Carlisle Mine in February 2020 allowing us to focus our efforts on our lower cost Oaktown mines.2021. Prosperity operating costs were $0.3 million during the three months ended September 30, 2020.March 31, 2021.
DD&A decreased approximately $2.5 million inWe expect general and administrative expenses for the third quarterremainder of 2020 when compared2021 to the third quarter of 2019. A portion of our assets are depreciated based on raw production, which has decreased in 2020, thus as production decreases, so does our DD&A.
SG&A expenses increased $0.2 million during the third quarter of 2020 when compared to the third quarter of 2019. The increase is a result of additional business development activities in the quarter.be $9 million.
Interest expense decreased approximately $1.2$3.8 million in the thirdfirst quarter of 20202021 when compared to the thirdfirst quarter of 2019.2020. The change in estimated fair value of our interest rate swap agreement resulted in a reduction in non-cash expense of $1.0$3.4 million in 20202021 when compared to 2019.2020. The remainder of the decrease is a result of our declining bank debt balance.
Our Sunrise Coal employees and contractors totaled 700 at March 31, 2021, compared to 695 at March 31, 2020.
EARNINGS (LOSS) PER SHARE
4th 2019 | 1st 2020 | 2nd 2020 | 3rd 2020 | |||||||||||||
Basic and diluted | $ | (1.95 | ) | $ | (0.12 | ) | $ | 0.01 | $ | 0.06 |
2nd 2020 | 3rd 2020 | 4th 2020 | 1st 2021 | |||||||||||||
Basic and diluted | $ | 0.01 | $ | 0.06 | $ | (0.15 | ) | $ | (0.03 | ) |
4th 2018 | 1st 2019 | 2nd 2019 | 3rd 2019 | |||||||||||||
Basic and diluted | $ | 0.09 | $ | 0.23 | $ | (0.11 | ) | $ | (0.12 | ) |
2nd 2019 | 3rd 2019 | 4th 2019 | 1st 2020 | |||||||||||||
Basic and diluted | $ | (0.11 | ) | $ | (0.12 | ) | $ | (1.95 | ) | $ | (0.12 | ) |
INCOME TAXES
Our effective tax rate (ETR) is estimated at ~69%~63% and ~98%~37% for the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, respectively. ForAssuming no changes in our expected results of operations, we expect our ETR for the nine months ended September 30, 2020,remainder of 2021 to be about the Company utilized a discrete period method to calculate taxes,same as it does not believe the annual effective tax rate method represents a reliable estimate given the current uncertainty surrounding COVID-19.first three months. Our ETR differs from the statutory rate due primarily to statutory depletion in excess of tax basis, which is a permanent difference. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.
GOVERNMENT IMPOSITION REIMBURSEMENTS
Some of our legacy coal contracts allow us to pass on to our customers certain costs incurred resulting from changes in costs to comply with mandates issued by Mine Safety and Health Administration (MSHA) or other government agencies. After applying the provisions of ASU 2014-09, as of September 30, 2020,March 31, 2021, we do not consider unreimbursed costs from our customers related to these compliance matters to be material and have constrained such amounts and will recognize them when they can be estimated with reasonable certainty.
RESTRICTED STOCK GRANTS
See “Item 1. Financial Statements - Note 10.9. Stock Compensation Plans”Plans” for a discussion of RSUs.
CRITICAL ACCOUNTING ESTIMATES
We believe that the estimates of our coal reserves, our interest rate swaps, our deferred tax accounts, and the estimates used in our impairment analysis are our critical accounting estimates.
The reserve estimates are used in the DD&A calculation and our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our DD&A expense and impairment test may be affected.
The fair value of our interest rate swaps is determined using a discounted future cash flow model based on the key assumption of anticipated future interest rates and related credit adjustment considerations.
We have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We identified our federal tax return and our Indiana state tax return as “major” tax jurisdictions. We believe that our income tax filing positions and deductions would be sustained on audit and do not anticipate any adjustments that will result in a material change to our consolidated financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes from the disclosure in our 20192020 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS
We maintain a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our CEO, CFO, and CAO as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO, CFO, and CAO of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our CEO, CFO, and CAO concluded that our disclosure controls and procedures are effective.
There have been no changes to our internal control over financial reporting during the quarter ended September 30, 2020,March 31, 2021, that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
Our activities have been and will continue to be adversely affected by the global outbreak of the novel coronavirus (COVID-19), which may prevent us from meeting our targeted production levels, negatively impact our customers’ demand for coal and their ability to honor or renew contracts, adversely affect the health and welfare of Company personnel, prevent our vendors and contractors from performing normal and contracted activities, and negatively affect our liquidity and results of operations.
The recent outbreak of COVID-19, which was first detected in Wuhan, China in December 2019 and declared a pandemic by the World Health Organization in March 2020, could have a material and adverse effect on our business, financial condition, and results of operations. The outbreak has resulted and may continue to result in disruptions to economic and industrial activity worldwide.
In addition to the potential impact on coal demand and volatility in coal prices, COVID-19 may result in disruptions or restrictions on our employees’ ability to operate our coal mines in the ordinary course of business, which would restrict our production capacity. Similarly, we cannot predict how, if at all, the outbreak will affect our suppliers’ ability to provide the mining materials and equipment we require. If our production capacity or our ability to meet our supply needs is affected, our business and our financial results could be materially and adversely affected. Finally, the COVID-19 pandemic has substantially affected national and international financial markets, which could affect our ability to obtain financing for our business, severely limiting liquidity and credit availability.
The COVID-19 pandemic may also have the effect of heightening many of the other risks described in Item 1A, “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2019, including, but not limited to, those relating to coal prices; economic and market conditions; decreases in coal consumption; disruptions in the availability of mining and other industrial supplies; changes in purchasing patterns of our customers and their effects on our coal supply agreements; our ability to obtain financing and insurance upon favorable terms; among others.
The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the geographic spread of the virus, the severity of the disease, the duration of the outbreak, the actions that may be taken by various governmental authorities in response to the outbreak, and the impact on the U.S. or global economy. As a result, at the time of this filing, it is impossible to predict the overall impact of COVID-19 on our business, liquidity, capital resources, and financial results.
The SBA continues to develop and issue new and updated guidance regarding the PPP loan application process, including guidance regarding required borrower certifications and requirements for forgiveness of loans made under the program. We continue to track the guidance as it is released and assess various aspects of its application as necessary based on the guidance. However, given the evolving nature of the guidance, we cannot give any assurance that the anticipated PPP loan will be forgiven in whole or in part.
The PPP loan application required us to certify that the current economic uncertainty made the PPP loan request necessary to support our ongoing operations. While we made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria and that our receipt of the PPP loan is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act, the certification described above does not contain any objective criteria and is subject to interpretation. In addition, the SBA has stated that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If despite our good faith belief that we satisfied all eligibility requirements for the PPP loan, we are found to have been ineligible to receive the PPP loan or in violation of any of the laws or regulations that apply to us in connection with the PPP loan, including the False Claims Act, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP loan. In the event that we seek forgiveness of all or a portion of the PPP loan, we will also be required to make certain certifications that will be subject to audit and review by governmental entities and could subject us to significant penalties and liabilities if found to be inaccurate. In addition, our receipt of the PPP loan may result in adverse publicity and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could harm our business, results of operations, and financial condition.
On April 30, 2020, we received a letter from the Listing Qualifications Department of the NASDAQ Stock Market LLC (“Nasdaq”) stating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the minimum bid price of the Company’s common stock on the Nasdaq Capital Market had closed below $1.00 per share for 30 consecutive business days. The notification letter has no immediate effect on the Company’s common stock Nasdaq listing or trading.
Due to the market disruption caused by the ongoing COVID-19 pandemic, Nasdaq has tolled the requirement for meeting the minimum bid price until September 30, 2020. As such, the Company has 180 days from July 1, 2020, or until December 28, 2020, to achieve compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days before December 28, 2020, and in such case, Nasdaq will provide the Company with written confirmation of compliance.
On December 28, 2020, if the Company has not regained compliance, the Company may be eligible for additional time to regain compliance. To qualify, the Company will need to meet all of the other continued listing requirements for The Nasdaq Capital Market (with the exception of the minimum bid price requirement) and notify Nasdaq of the Company’s intention to cure the deficiency. At that time, the Company may be granted an additional 180 calendar days to regain compliance. If the Company is not eligible for an additional compliance period at that time, Nasdaq will provide the Company with written notification that the Company’s common stock will be subject to delisting.
The Company intends to monitor the bid price of the Company’s common stock and will consider available options to regain compliance with the listing requirements. There can be no assurance that the Company will be able to restore compliance with the minimum bid requirement or maintain compliance with the other listing requirements.
ITEM 4. MINE SAFETY DISCLOSURES
Safety is a core value for us and our subsidiaries. As such, we have dedicated a great deal of time, energy, and resources to creating a culture of safety. We are proud of the mine rescue team at Sunrise Coal, who placed 2nd overall in the National Mine Rescue contest held in Lexington, Kentucky in September 2019. We would also like to recognize Willie Hamilton, who finished second in the nation on pre-shift and Steve Earle, who was first in Indiana on bench.
See Exhibit 95 to this Form 10-Q for a listing of our mine safety violations.
15.1 * | * | Letter Regarding Unaudited Interim Financial |
31.1 * |
| SOX 302 Certification - President and Chief Executive Officer |
31.2 * |
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31.3 * |
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32* |
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95.1* |
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101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Schema Document | |
101.CAL* | Inline XBRL Calculation Linkbase Document. | |
101.LAB* | Inline XBRL Labels Linkbase Document. | |
101.PRE* | Inline XBRL Presentation Linkbase Document. | |
101.DEF* | Inline XBRL Definition Linkbase Document. | |
104* | Cover Page Interactive Data File (embedded with the Inline XBRL document) | |
*Filed Herewith |
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.
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| HALLADOR ENERGY COMPANY |
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Date: |
| /S/ LAWRENCE D. MARTIN |
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| Lawrence D. Martin, CFO |
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Date: |
| /S/ R. TODD DAVIS |
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| R. Todd Davis, CAO |