UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period |
OR | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission file number:001‑34743
001-34743
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“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 |
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| Name of each exchange on which registered |
Common Shares, $.01 par value | HNRG | Nasdaq |
Registrant’s telephone number: 303.839.5504
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‑212b-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‑212b-2 of the Exchange Act). Yes ☐ No ☑
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As of May 11, 2020,3, 2021, we had 30,419,96730,612,572 shares of common stock outstanding.
PART I - FINANCIAL INFORMATION
Hallador Energy Company
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
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| March 31, |
| December 31, | March 31, | December 31, | ||||||||
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| 2020 |
| 2019 | 2021 | 2020 | ||||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 7,918 |
| $ | 8,799 | $ | 3,863 | $ | 8,041 | ||||
Restricted cash (Note 12) |
|
| 4,734 |
|
| 4,512 | ||||||||
Certificates of deposit |
|
| — |
|
| 245 | ||||||||
Restricted cash | 3,771 | 4,030 | ||||||||||||
Accounts receivable |
|
| 12,703 |
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| 25,580 | 13,633 | 14,414 | ||||||
Prepaid income taxes |
|
| 981 |
|
| 1,562 | ||||||||
Inventory (Note 3) |
|
| 37,410 |
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| 28,297 | ||||||||
Parts and supplies, net of allowance of $274 |
|
| 10,886 |
|
| 11,775 | ||||||||
Inventory | 34,036 | 24,663 | ||||||||||||
Parts and supplies | 9,288 | 8,903 | ||||||||||||
Prepaid expenses |
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| 1,519 |
|
| 1,678 | 1,631 | 3,282 | ||||||
Total current assets |
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| 76,151 |
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| 82,448 | 66,222 | 63,333 | ||||||
Property, plant and equipment, at cost: |
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Land and mineral rights |
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| 114,994 |
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| 114,722 | 115,840 | 115,853 | ||||||
Buildings and equipment |
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| 358,488 |
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| 351,614 | 356,256 | 352,115 | ||||||
Mine development |
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| 86,165 |
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| 84,160 | 96,971 | 93,635 | ||||||
Total property, plant and equipment, at cost |
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| 559,647 |
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| 550,496 | 569,067 | 561,603 | ||||||
Less - accumulated DD&A |
|
| (231,370) |
|
| (220,780) | ||||||||
Less - accumulated depreciation, depletion and amortization | (262,523 | ) | (252,245 | ) | ||||||||||
Total property, plant and equipment, net |
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| 328,277 |
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| 329,716 | 306,544 | 309,358 | ||||||
Investment in Sunrise Energy (Note 15) |
|
| 3,306 |
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| 3,139 | ||||||||
Other long-term assets (Note 4) |
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| 7,955 |
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| 10,324 | ||||||||
Investment in Sunrise Energy | 3,181 | 3,181 | ||||||||||||
Other assets | 8,261 | 8,258 | ||||||||||||
Total Assets |
| $ | 415,689 |
| $ | 425,627 | $ | 384,208 | $ | 384,130 | ||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Current portion of bank debt, net (Note 5) |
| $ | 34,882 |
| $ | 33,044 | ||||||||
Accounts payable and accrued liabilities (Note 6) |
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| 38,247 |
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| 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 |
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| 73,129 |
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| 64,844 | 78,348 | 71,210 | ||||||
Long-term liabilities: |
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Bank debt, net (Note 5) |
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| 127,123 |
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| 140,594 | ||||||||
Bank debt, net | 96,230 | 97,307 | ||||||||||||
PPP note | 1,129 | 4,510 | ||||||||||||
Deferred income taxes |
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| 3,233 |
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| 4,619 | 1,095 | 2,824 | ||||||
Asset retirement obligations (ARO) |
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| 15,993 |
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| 15,694 | ||||||||
Asset retirement obligations | 16,537 | 16,177 | ||||||||||||
Other |
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| 5,258 |
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| 4,346 | 2,361 | 2,842 | ||||||
Total long-term liabilities |
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| 151,607 |
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| 165,253 | 117,352 | 123,660 | ||||||
Total liabilities |
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| 224,736 |
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| 230,097 | 195,700 | 194,870 | ||||||
Redeemable noncontrolling interests (Note 2) |
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| 4,000 |
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| 4,000 | ||||||||
Redeemable noncontrolling interests | 4,000 | 4,000 | ||||||||||||
Stockholders' equity: |
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Preferred stock, $.10 par value, 10,000 shares authorized; none issued |
|
| — |
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| — | ||||||||
Common stock, $.01 par value, 100,000 shares authorized; 30,420 and 30,245 outstanding, respectively |
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| 304 |
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| 304 | ||||||||
Preferred stock, $.10 par value, 10,000 shares authorized; none issued and outstanding | 0 | 0 | ||||||||||||
Common stock, $.01 par value, 100,000 shares authorized; 30,613 and 30,610 issued and outstanding, respectively | 306 | 306 | ||||||||||||
Additional paid-in capital |
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| 102,534 |
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| 102,215 | 103,679 | 103,399 | ||||||
Retained earnings |
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| 84,115 |
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| 89,011 | 80,523 | 81,555 | ||||||
Total stockholders’ equity |
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| 186,953 |
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| 191,530 | 184,508 | 185,260 | ||||||
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity |
| $ | 415,689 |
| $ | 425,627 | $ | 384,208 | $ | 384,130 |
See accompanying notes.
Condensed Consolidated Statements of Income (Loss)
For the Three Months Ended March 31,Operations
(in thousands, except per share data)
(unaudited)
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| 2020 |
| 2019 |
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REVENUE: |
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Coal sales |
| $ | 61,932 |
| $ | 85,235 |
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Other operating income (Note 8) |
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| 606 |
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| 4,078 |
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Total revenue |
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| 62,538 |
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| 89,313 |
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COSTS AND EXPENSES: |
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Operating costs and expenses |
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| 48,469 |
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| 62,419 |
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DD&A |
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| 10,627 |
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| 11,738 |
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ARO accretion |
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| 333 |
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| 309 |
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Exploration costs |
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| 253 |
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| 280 |
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SG&A |
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| 2,978 |
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| 2,984 |
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Interest (1) |
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| 5,714 |
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| 4,619 |
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Total costs and expenses |
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| 68,374 |
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| 82,349 |
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INCOME (LOSS) BEFORE INCOME TAXES |
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| (5,836) |
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| 6,964 |
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INCOME TAX EXPENSE (BENEFIT) (NOTE 9): |
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Current |
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| (524) |
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| (229) |
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Deferred |
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| (1,652) |
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| 193 |
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Total income tax expense (benefit) |
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| (2,176) |
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| (36) |
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NET INCOME (LOSS) |
| $ | (3,660) |
| $ | 7,000 |
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NET INCOME (LOSS) PER SHARE (NOTE 13): |
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Basic and diluted |
| $ | (0.12) |
| $ | 0.23 |
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WEIGHTED AVERAGE SHARES OUTSTANDING |
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Basic and diluted |
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| 30,420 |
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| 30,245 |
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Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
SALES AND OPERATING REVENUES: | ||||||||
Coal sales | $ | 45,879 | $ | 61,932 | ||||
Other revenues | 816 | 551 | ||||||
Total revenues | 46,695 | 62,483 | ||||||
EXPENSES: | ||||||||
Operating expenses | 34,009 | 48,469 | ||||||
Depreciation, depletion and amortization | 10,307 | 10,627 | ||||||
Asset retirement obligations accretion | 363 | 333 | ||||||
Exploration costs | 58 | 253 | ||||||
General and administrative | 2,821 | 2,978 | ||||||
Total operating expenses | 47,558 | 62,660 | ||||||
LOSS FROM OPERATIONS | (863 | ) | (177 | ) | ||||
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 | 0 | (524 | ) | |||||
Deferred | (1,729 | ) | (1,652 | ) | ||||
Total income tax benefit | (1,729 | ) | (2,176 | ) | ||||
NET LOSS | $ | (1,032 | ) | $ | (3,660 | ) | ||
LOSS PER SHARE: | ||||||||
Basic and diluted | $ | (0.03 | ) | $ | (0.12 | ) | ||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
Basic and diluted | 30,611 | 30,420 | ||||||
(1) Bank interest | 2,135 | 2,654 | ||||||
Non-cash interest: | ||||||||
Change in fair value of interest rate swaps valuation | (848 | ) | 2,593 | |||||
Amortization of debt issuance costs | 611 | 467 | ||||||
Total non-cash interest | (237 | ) | 3,060 | |||||
Total interest | $ | 1,898 | $ | 5,714 |
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(1) Bank interest |
| $ | 2,654 |
| $ | 3,012 |
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Non-cash interest: |
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Change in interest rate swap valuation |
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| 2,593 |
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| 1,013 |
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Amortization of debt issuance costs |
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| 467 |
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| 543 |
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Other |
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| — |
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| 51 |
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Total non-cash interest |
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| 3,060 |
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| 1,607 |
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Total interest |
| $ | 5,714 |
| $ | 4,619 |
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See accompanying notes.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(in thousands)
(unaudited)
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| Three Months Ended March 31, | |||||||
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| 2020 |
| 2019 |
| 2021 | 2020 | ||||||||
OPERATING ACTIVITIES: |
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Net income (loss) |
| $ | (3,660) |
| $ | 7,000 |
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Net loss | $ | (1,032 | ) | $ | (3,660 | ) | |||||||||
Deferred income taxes |
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| (1,652) |
|
| 193 |
| (1,729 | ) | (1,652 | ) | ||||
Equity (income) loss – Sunrise Energy |
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| (55) |
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| 34 |
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DD&A |
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| 10,627 |
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| 11,738 |
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Equity income – Sunrise Energy | 0 | (55 | ) | ||||||||||||
Depreciation, depletion, and amortization | 10,307 | 10,627 | |||||||||||||
Unrealized gain on marketable securities |
|
| (14) |
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| (303) |
| 0 | (14 | ) | |||||
Gain on sale of royalty interests in oil properties |
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| — |
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| (2,500) |
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Change in fair value of interest rate swaps |
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| 2,593 |
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| 1,013 |
| (848 | ) | 2,593 | |||||
Change in fair value of fuel hedge |
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| 1,311 |
|
| — |
| (239 | ) | 1,311 | |||||
Amortization and write off of deferred financing costs |
|
| 467 |
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| 543 |
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Accretion of ARO |
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| 333 |
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| 309 |
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Amortization of debt issuance costs | 611 | 467 | |||||||||||||
Asset retirement obligations accretion | 363 | 333 | |||||||||||||
Stock-based compensation |
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| 319 |
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| 494 |
| 282 | 319 | ||||||
Change in current assets and liabilities: |
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Accounts receivable |
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| 12,885 |
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| 2,823 |
| 781 | 12,885 | ||||||
Inventory |
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| (9,113) |
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| (2,674) |
| (9,373 | ) | (9,113 | ) | ||||
Parts and supplies |
|
| 889 |
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| (1,084) |
| (385 | ) | 889 | |||||
Prepaid income taxes |
|
| 581 |
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| 1,340 |
| 0 | 581 | ||||||
Prepaid expenses |
|
| 159 |
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| 1,701 |
| (242 | ) | 159 | |||||
Accounts payable and accrued liabilities |
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| (1,691) |
|
| 2,325 |
| 4,342 | (1,691 | ) | |||||
Other |
|
| 2,277 |
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| (2,105) |
| 135 | 2,277 | ||||||
Cash provided by operating activities |
| $ | 16,256 |
| $ | 20,847 |
| $ | 2,973 | $ | 16,256 | ||||
INVESTING ACTIVITIES: |
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Investment in Sunrise Energy |
|
| (112) |
|
| — |
| 0 | (112 | ) | |||||
Capital expenditures |
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| (6,022) |
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| (8,840) |
| (5,720 | ) | (6,022 | ) | ||||
Proceeds from sale of royalty interests in oil properties |
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| — |
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| 2,500 |
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Proceeds from sale of marketable securities |
|
| 2,310 |
|
| — |
| 0 | 2,310 | ||||||
Proceeds from maturities of certificates of deposit |
|
| 245 |
|
| — |
| 0 | 245 | ||||||
Cash used in investing activities |
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| (3,579) |
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| (6,340) |
| (5,720 | ) | (3,579 | ) | ||||
FINANCING ACTIVITIES: |
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Payments on bank debt |
|
| (12,100) |
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| (20,013) |
| (9,188 | ) | (12,100 | ) | ||||
Dividends |
|
| (1,236) |
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| (1,241) |
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Borrowings of bank debt | 7,500 | 0 | |||||||||||||
Taxes paid on vesting of RSUs | (2 | ) | 0 | ||||||||||||
Dividends paid | 0 | (1,236 | ) | ||||||||||||
Cash used in financing activities |
|
| (13,336) |
|
| (21,254) |
| (1,690 | ) | (13,336 | ) | ||||
Decrease in cash, cash equivalents, and restricted cash |
|
| (659) |
|
| (6,747) |
| (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 |
| $ | 12,652 |
| $ | 13,347 |
| $ | 7,634 | $ | 12,652 | ||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH CONSIST OF THE FOLLOWING: |
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Cash and cash equivalents |
| $ | 7,918 |
| $ | 8,690 |
| $ | 3,863 | $ | 7,918 | ||||
Restricted cash |
|
| 4,734 |
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| 4,657 |
| 3,771 | 4,734 | ||||||
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| $ | 12,652 |
| $ | 13,347 |
| $ | 7,634 | $ | 12,652 | ||||
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
| $ | 2,707 |
| $ | 3,058 |
| $ | 2,145 | $ | 2,707 | ||||
Cash received from income taxes |
|
| 1,105 |
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| 1,569 |
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SUPPLEMENTAL NON-CASH FLOW INFORMATION: |
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Capital expenditures included in accounts payable and prepaid expense |
| $ | 3,516 |
| $ | 3,250 |
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Right-of-use assets acquired by operating lease |
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| — |
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| 426 |
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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)
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| Additional |
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| Total |
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| Common Stock Issued |
| Paid-in |
| Retained |
| Stockholders' |
| ||||||
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| Shares |
| Amount |
| Capital |
| Earnings |
| Equity |
| ||||
Balance, December 31, 2018 |
| 30,245 |
| $ | 302 |
| $ | 100,742 |
| $ | 153,830 |
| $ | 254,874 |
|
Stock-based compensation |
| — |
|
| — |
|
| 494 |
|
| — |
|
| 494 |
|
Dividends |
| — |
|
| — |
|
| — |
|
| (1,241) |
|
| (1,241) |
|
Net income |
| — |
|
| — |
|
| — |
|
| 7,000 |
|
| 7,000 |
|
Balance, March 31, 2019 |
| 30,245 |
| $ | 302 |
| $ | 101,236 |
| $ | 159,589 |
| $ | 261,127 |
|
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Balance, December 31, 2019 |
| 30,420 |
| $ | 304 |
| $ | 102,215 |
| $ | 89,011 |
| $ | 191,530 |
|
Stock-based compensation |
| — |
|
| — |
|
| 319 |
|
| — |
|
| 319 |
|
Dividends |
| — |
|
| — |
|
| — |
|
| (1,236) |
|
| (1,236) |
|
Net loss |
| — |
|
| — |
|
| — |
|
| (3,660) |
|
| (3,660) |
|
Balance, March 31, 2020 |
| 30,420 |
| $ | 304 |
| $ | 102,534 |
| $ | 84,115 |
| $ | 186,953 |
|
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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 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 |
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 months ended March 31, 2020,2021, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2020.2021. To maintain consistency and comparability, certain 2020 amounts have been reclassified to conform to the 2021 presentation, with no impact to cash provided by operating activities or net loss.
Our organization and business, the accounting policies we follow, and other information are contained in the notes to our condensed consolidated financial statements filed as part of our 20192020 Annual Report on Form 10‑K.10-K. This quarterly report should be read in conjunction with such 10‑K.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.
(2)LONG-LIVED ASSET IMPAIRMENTS Subsequent Events
Carlisle Mine
We recorded an impairment of $65.7 million as of December 31, 2019 due to our decision to idlehave evaluated all subsequent events through the Carlisle Mine during Q4 2019. The impairment included buildings, land, rail, mine development, equipment, and advanced royalties. Buildings, land, and raildate the financial statements 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 March 31, 2020 and December 31, 2019.issued. There are no material recognized or non-recognizable subsequent events other than those already disclosed.
Subsequent to year end during late Q1 2020, 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. No additional impairment costs were recorded during Q1 2020 as a result of the decision to close the Carlisle Mine. We anticipate exit and disposal costs to close the mine to be $3.0 million, which will be recorded as current period costs in Q1 and Q2 of 2020. The exit and disposal costs during Q1 2020 were $0.5 million.
7
LONG-LIVED ASSET IMPAIRMENTS |
Bulldog Reserves
As a resultLong-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the Carlisle Mineassets may not be recoverable. For the quarter ended March 31, 2021, there were no 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, wecharges recorded an impairment of $9.2 million as of December 31, 2019, which included land and advanced royalties, and was a complete impairment of allfor long-lived 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 iswas $1.9 million as of March 31, 2020 and December 31, 2019.2019. 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
(3) | INVENTORY |
Inventory is valued at lower of average cost or net realizable value (NRV). As of March 31, 2020,2021, and December 31, 2019,2020, coal inventory includes NRV adjustments of $1.1 million and $2.0$1.6 million, respectively.
(4)OTHER LONG-TERM ASSETS (in thousands)
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Advanced coal royalties |
| $ | 6,060 |
| $ | 6,105 |
Marketable equity securities available for sale, at fair value (restricted)* |
|
| — |
|
| 2,296 |
Other |
|
| 1,895 |
|
| 1,923 |
Total other assets |
| $ | 7,955 |
| $ | 10,324 |
(4) | OTHER LONG-TERM ASSETS (in thousands) |
*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) | BANK DEBT |
(5)BANK DEBT
On April 15, 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.
Our bank debt at March 31, 2020 was $168 million. Bank debt is comprised of term debt ($96 ($58.8 million as of March 31, 2020)2021) and a $120 $120 million revolver ($72 ($77.3 million borrowed as of March 31, 2020)2021). The term debt amortization concludes with athe 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
Liquidity
As of March 31, 2020, under the new leverage ratio,2021, we had additional borrowing capacity of $47.5$24.0 million and total liquidity of $55.4 $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. Prior to the amendment, our additional borrowing capacity was $4.2 million.
Fees
Fees
Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $7.2 $7.9 million as of our amendment in September 2019. April 2020. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of March 31, 2020,2021, and December 31, 2019,2020, were $6.0 $5.5 million and $6.5 $6.1 million, respectively. Additional costs incurred with the April 15 amendment total approximately $1.9 million.
8
Bank debt, less debt issuance costs, is presented below (in thousands):
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Current bank debt |
| $ | 36,750 |
| $ | 34,912 |
Less unamortized debt issuance cost |
|
| (1,868) |
|
| (1,868) |
Net current portion |
| $ | 34,882 |
| $ | 33,044 |
|
|
|
|
|
|
|
Long-term bank debt |
| $ | 131,300 |
| $ | 145,238 |
Less unamortized debt issuance cost |
|
| (4,177) |
|
| (4,644) |
Net long-term portion |
| $ | 127,123 |
| $ | 140,594 |
|
|
|
|
|
|
|
Total bank debt |
| $ | 168,050 |
| $ | 180,150 |
Less total unamortized debt issuance cost |
|
| (6,045) |
|
| (6,512) |
Net bank debt |
| $ | 162,005 |
| $ | 173,638 |
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Current bank debt | $ | 36,750 | $ | 36,750 | ||||
Less unamortized debt issuance costs | (2,439 | ) | (2,439 | ) | ||||
Net current portion | $ | 34,311 | $ | 34,311 | ||||
Long-term bank debt | $ | 99,300 | $ | 100,988 | ||||
Less unamortized debt issuance costs | (3,070 | ) | (3,681 | ) | ||||
Net long-term portion | $ | 96,230 | $ | 97,307 | ||||
Total bank debt | $ | 136,050 | $ | 137,738 | ||||
Less total unamortized debt issuance costs | (5,509 | ) | (6,120 | ) | ||||
Net bank debt | $ | 130,541 | $ | 131,618 |
Covenants
The credit facility includes a Maximum Leverage Ratio (consolidated funded debt / 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 March 31, 2020,2021, our Leverage Ratio of 2.932.78 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 March 31, 2020,2021, our Debt Service Coverage Ratio of 1.481.13 was in compliance with the requirements of the credit agreement.
Rate
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 March 31, 2020,2021, we are paying LIBOR at the swap rate of 2.92% plus 3.50% for a total interest rate of 6.42%. As a condition of the amendment, effective April 15, 2020, we are paying LIBOR at the swap rate of 2.92% plus 4.00%4.0% for a total interest rate of 6.92% until such timeon the hedged amount ($111.8 million) and 4.0% on the remainder ($24.3 million).
Paycheck Protection Program
On April 16, 2020, we submit our quarterly compliance certificate. At such time, ourentered 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 (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 drop backcommence in August 2021 with maturity of April 2022. The PPP Note contains customary events of default relating to, LIBORamong 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 may result 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 swap ratetime of 2.92% plus 3.50%application, the loan could become payable on demand. The SBA retains the right to review the Company's loan file for a total interest rateperiod 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 March 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 6.42%.repayments and excluding any possible forgiveness of the loan.
In December 2020, we applied for forgiveness of the 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 to the SBA for final approval. The SBA has 90 days from receipt of application from the Lender to make its determination as to the 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.
9
(6) | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands) |
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Accounts payable | $ | 16,067 | $ | 14,785 | ||||
Accrued property taxes | 2,953 | 2,566 | ||||||
Accrued payroll | 2,838 | 1,621 | ||||||
Workers' compensation reserve | 3,111 | 2,988 | ||||||
Group health insurance | 1,800 | 1,800 | ||||||
Fair value of interest rate swaps | 2,551 | 2,793 | ||||||
Other | 5,846 | 4,856 | ||||||
Total accounts payable and accrued liabilities | $ | 35,166 | $ | 31,409 |
(7) | REVENUE |
(6)ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands)
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Accounts payable |
| $ | 20,584 |
| $ | 16,115 |
Accrued property taxes |
|
| 3,183 |
|
| 2,835 |
Accrued payroll |
|
| 2,373 |
|
| 2,151 |
Workers' compensation reserve |
|
| 3,898 |
|
| 3,446 |
Group health insurance |
|
| 2,400 |
|
| 2,500 |
Other |
|
| 5,809 |
|
| 4,753 |
Total accounts payable and accrued liabilities |
| $ | 38,247 |
| $ | 31,800 |
(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. 78%77% and 72%78% of our coal revenue for the three months ended March 31, 2021, and three months ended March 31, 2020 and March 31, 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 $508$455 million, which represent the average fixed prices on our committed contracts as of March 31, 2020.2021. We expect to recognize approximately 74%76% of this revenue through 2021,in 2021 and 2022, with the remainder recognized thereafter.
We have remaining performance obligations relating to contracts with price reopeners of approximately $266$237 million, which represents our estimate of the expected re-opener price on committed contracts as of March 31, 2020.2021. We expect to recognize all of this revenue beginning in 2021.2022.
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, and do notbut we currently have anyare carrying $0.2 million in deferred revenue recorded in our condensed consolidated balance sheets.sheets as of March 31, 2021 related to coal storage for one customer.
(8)OTHER OPERATING INCOME (in thousands)
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| ||||
|
| March 31, |
| ||||
|
| 2020 |
| 2019 |
| ||
Equity income (loss) - Sunrise Energy |
| $ | 55 |
| $ | (34) |
|
MSHA reimbursements |
|
| 100 |
|
| 150 |
|
Gain on sale of royalty interests in oil properties |
|
| — |
|
| 2,500 |
|
Miscellaneous |
|
| 451 |
|
| 1,462 |
|
|
| $ | 606 |
| $ | 4,078 |
|
(8) | INCOME TAXES |
For the three months ended March 31, 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 months ended March 31, 2020,2021 and 20192020 was ~37%~63% and ~ 0%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
11
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. The Company has completed its review of the different aspects of the CARES Act and has recorded an additional $0.5 million to prepaid income taxes for the quarter ended March 31, 2020.
(10)STOCK COMPENSATION PLANS
STOCK COMPENSATION PLANS |
Non-vested grants at December 31, |
| |||
| 324,250 |
| ||
Vested – average weighted share price on vesting date was $1.63 |
| (3,500 | ) | |
Forfeited |
| (9,000 | ) | |
Non-vested grants at March 31, |
| 311,750 |
No shares vested during the three months ended March 31, 2020.
For the three months ended March 31, 2020,2021 and 2019,2020, our stock-basedstock compensation was $0.3 million and $0.5$0.3 million, respectively.
Non-vested RSU grants will vest as follows:
|
|
|
Vesting Year |
| RSUs Vesting |
2020 |
| 176,250 |
2021 |
| 311,750 |
2022 |
| 24,000 |
|
| 512,000 |
Vesting Year | RSUs Vesting | |||
2021 | 301,750 | |||
2022 | 0 | |||
2023 | 10,000 | |||
311,750 |
The outstanding RSUs have a value of $0.35$0.6 million based on the May 8, 2020, March 31, 2021, closing stock price of $0.69.$1.87.
At May 8, 2020, March 31, 2021 we had 1,360,3481,444,916 RSUs available for future issuance.
(11)LEASES
(10) | 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 |
| |||||
|
|
| March 31, |
| ||||
|
| 2020 |
|
| 2019 |
| ||
Operating lease information: |
|
|
|
|
|
|
|
|
Operating cash outflows from operating leases |
| $ | 87 |
|
| $ | 79 |
|
Weighted average remaining lease term in years |
|
| 3.92 |
|
|
| 4.26 |
|
Weighted average discount rate |
|
| 6.0 | % |
|
| 6.0 | % |
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Operating lease information: | ||||||||
Operating cash outflows from operating leases | $ | 47 | $ | 87 | ||||
Weighted average remaining lease term in years | 2.94 | 3.92 | ||||||
Weighted average discount rate | 6.0 | % | 6.0 | % |
12
Future minimum lease payments under non-cancellable leases as of March 31, 20202021 were as follows:
|
|
|
|
Year |
| Amount | |
|
| (In thousands) | |
2020 |
| $ | 148 |
2021 |
|
| 201 |
2022 |
|
| 206 |
2023 |
|
| 174 |
2024 |
|
| 59 |
Total minimum lease payments |
| $ | 788 |
Less imputed interest |
|
| (65) |
|
|
|
|
Total operating lease liability |
| $ | 723 |
|
|
|
|
As reflected on balance sheet: |
|
|
|
Other long-term liabilities |
| $ | 723 |
|
|
|
|
Year | Amount | |||
(In thousands) | ||||
2021 | $ | 152 | ||
2022 | 206 | |||
2023 | 173 | |||
2024 | 60 | |||
Total minimum lease payments | $ | 591 | ||
Less imputed interest | (33 | ) | ||
Total operating lease liabilities | $ | 558 | ||
As reflected on balance sheet: | ||||
Other long-term liabilities | $ | 558 |
At March 31, 2020,2021, and December 31, 2019, respectively,2020, we had approximately $723,000$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.
(12)SELF-INSURANCE
(11) | SELF-INSURANCE |
We self-insure our underground mining equipment. Such equipment is allocated among seven mining units dispersed over ten10 miles. The historical cost of such equipment was approximately $271$273 million and $273$269 million as of March 31, 2020,2021, and December 31, 2019,2020, respectively.
Restricted cash of $4.7$3.8 million and $4.5$4.0 million as of March 31, 2020,2021, and December 31, 2019,2020, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.
(13)NET INCOME (LOSS) PER SHARE
(12) | NET LOSS PER SHARE |
We compute net income (loss)loss per share using the two-classtwo-class method, which is an allocation formula that determines net income (loss)loss per share for common stock and participating securities, which 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 | ||||
|
| March 31, | ||||
|
| 2020 |
| 2019 | ||
Numerator: |
|
|
|
|
|
|
Net income (loss) |
| $ | (3,660) |
| $ | 7,000 |
Less loss (earnings) allocated to RSUs |
|
| 59 |
|
| (180) |
Net income (loss) allocated to common shareholders |
| $ | (3,601) |
| $ | 6,820 |
|
|
|
|
|
|
|
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 | ) |
(13) | FAIR VALUE MEASUREMENTS |
13
(14)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 two interest rate swaps were $53 million and $58 million as of March 31, 2020,2021, both with maturities of May 2022. Fuel hedges include 2,1600.7 million gallons of diesel fuel that are subject to pricing fluctuations with a minimum of $1.79/$1.79/gallon and a maximum of $2.40/$2.00/gallon through December 2021. AlthoughAlthough we utilize third-partythird-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 March 31, 20202021 and December 31, 20192020 by the respective level of the fair value hierarchy (in thousands):
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
December 31, 2020 | ||||||||||||||||
Liabilities: | ||||||||||||||||
Fuel hedge | $ | 0 | $ | 0 | $ | 297 | $ | 297 | ||||||||
Interest rate swaps | 0 | 0 | 3,893 | 3,893 | ||||||||||||
$ | 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 |
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| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
December 31, 2019 |
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|
|
Assets: |
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|
|
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|
|
|
|
|
|
|
|
Fuel hedge |
| $ | — |
| $ | — |
| $ | 25 |
| $ | 25 |
Marketable securities - restricted |
|
| 2,296 |
|
| — |
|
| — |
|
| 2,296 |
|
| $ | 2,296 |
| $ | — |
| $ | 25 |
| $ | 2,321 |
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
| $ | — |
| $ | — |
| $ | 3,825 |
| $ | 3,825 |
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|
|
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|
|
March 31, 2020 |
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|
|
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|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Fuel hedge |
|
| — |
|
| — |
|
| 1,286 |
|
| 1,286 |
Interest rate swaps |
|
| — |
|
| — |
|
| 6,418 |
|
| 6,418 |
|
| $ | — |
| $ | — |
| $ | 7,704 |
| $ | 7,704 |
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, 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 Balance Sheet to these Condensed Consolidated Financial Statements.Balance Sheets.
(14) | EQUITY METHOD INVESTMENTS |
14
(15)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 March 31, 2020,2021, and December 31, 2019,2020, was $3.3$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 $3.1 million, respectively.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.
On April 16, 2020, we entered intoIn February2018, a promissory note evidencing an unsecured loanYorktown 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 amountconsolidated balance sheets. A representative of $10 million made to the Company under the Paycheck Protection Program (the “Loan”). The Paycheck Protection Program (or “PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The Loan to the Company is being made through First Financial Bank, N.A. (the “Lender”).
The interest rateYorktown company holds a seat on the Loan is 1.00%. Beginning seven months fromboard of managers, and, with a change of control, the date of the Loan, the Company is requiredYorktown company may be entitled to make 24 monthly payments of principal and interest. The promissory note evidencing the Loan 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 may result 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 orreceive a portion of loan granted under the PPP. Such forgiveness will be determined, subjectnet proceeds realized, as prescribed in the Hourglass operating agreement.
In December 2019, we recorded an impairment to limitations, based onHourglass Sands of $2.9 million. In August 2020, we ceased operation of the useplant and recorded an additional impairment of loan proceeds$1.8 million. See Note 2to these consolidated financial statements for paymentfurther discussion.
15
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 sheetssheet of Hallador Energy Company (the "Company") and subsidiaries as of March 31, 2020 and 2019, and2021, the related condensed consolidated statements of income (loss), the condensed consolidated statements ofoperations, cash flows, and the condensed consolidated statements of stockholders’ equity for the three-month periods ended March 31, 2021 and 2020, and 2019,and the related notes (collectively referred to as the "interim financial statements"). Based on our 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 RESULTS
We 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
May 11, 2020
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‑K10-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
In the first quarter of 2020, COVID-19 has hademerged as a significant impact on our customers, which is, in turn, delaying our sales. The Midwest Independent System Operator (MISO), the regional system operator 78% of our customers sell power to, is estimating a 10% decline in power demand for 2020.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. However, severaloperate as a supplier to critical power infrastructure. 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.
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 customers have had difficulty accepting contracted minimum shipments. This has caused our inventory levelsemployees will continue to risedecline, and our sales to decline. We expect more shipment delayseconomic activity in general will accelerate.
OVERVIEW
Below are highlights for the second quarter.first three months of 2021:
I. | Q1 2021 Net Loss of $1.0 million, Adjusted EBITDA (a non-GAAP financial measure) of $11.4 million |
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i. | Coal inventory increased by ~$6.0 million during the |
b. | Production: Q1 production costs were $28.88 per ton, which represents a $4.99 per ton improvement over Q4 2020 and $2.79 per ton improvement over Q1 2020 as we continue to make efforts to improve recovery and add efficiencies at the mine. |
c. | Cash Flow & Debt: During Q1, we generated $3.0 million in operating cash flow and paid down our bank debt by $1.7 million. The shipment delays |
i. | As of March 31, 2021, our |
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OVERVIEW
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17
GAAP “net income” to non-GAAP “adjusted EBITDA” (in thousands), the most comparable GAAP financial measure.
II.Solid Sales Position Through 2022
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.
COVID-19 has created a lot of uncertainty in the world, but we are comforted by our strong sales position through 2022.
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| Contracted |
|
| Estimated |
|
|
| tons |
|
| Priced |
Year |
|
| (millions)* |
|
| per ton |
2020 (Q2 – Q4) |
|
| 5.0 |
|
| $ 40.25 |
2021 |
|
| 5.1 |
|
| $ 39.65 |
2022 |
|
| 5.3 |
|
| $ 40.25 |
|
|
| 15.4 |
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|
|
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 |
___________
* 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.
III. |
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a. |
|
i. | Nymex gas prices (a competitor to |
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i. | API 4 (Asia) for Q3 2021 is ~$86/tonne for 2021, up 26% versus end of |
ii. | API 2 (Europe) for |
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LONG-LIVED ASSET IMPAIRMENT REVIEW
See Note 2 to our condensed consolidated financial statements.
18
LIQUIDITY AND CAPITAL RESOURCES
I. | Cash Provided |
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 three months of |
1. |
| Our operating margins were |
2. |
|
|
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 |
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|
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 |
d. | As we continue to monitor the effects of COVID-19, we continue to |
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 |
19
CAPITAL EXPENDITURES (capex)
For the three months of 2020,2021, capex was $6.0$5.7 million allocated as follows (in millions):
Oaktown – maintenance capex | $ | 2.3 | ||
Oaktown – investment | 3.4 | |||
Capex per the Condensed Consolidated Statements of Cash Flows | $ | 5.7 |
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|
|
Oaktown – maintenance capex |
| $ | 3.5 |
Oaktown – investment |
| 2.4 | |
Other |
|
| 0.1 |
Capex per the Condensed Consolidated Statements of Cash Flows |
| $ | 6.0 |
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.
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All Mines |
| 2nd 2019 |
| 3rd 2019 |
| 4th 2019 |
| 1st 2020 |
| T4Qs |
| |||||
Tons produced |
|
| 2,003 |
|
| 1,891 |
|
| 2,122 |
|
| 1,701 |
|
| 7,717 |
|
Tons sold |
|
| 1,807 |
|
| 2,118 |
|
| 2,015 |
|
| 1,526 |
|
| 7,466 |
|
Coal sales |
| $ | 71,113 |
| $ | 82,883 |
| $ | 78,205 |
| $ | 61,932 |
| $ | 294,133 |
|
Average price/ton |
| $ | 39.35 |
| $ | 39.13 |
| $ | 38.81 |
| $ | 40.58 |
| $ | 39.40 |
|
Wash plant recovery in % |
|
| 71 | % |
| 70 | % |
| 74 | % |
| 74 | % |
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|
Operating costs |
| $ | 53,915 |
| $ | 71,372 |
| $ | 60,082 |
| $ | 48,334 |
| $ | 233,703 |
|
Average cost/ton |
| $ | 29.84 |
| $ | 33.70 |
| $ | 29.82 |
| $ | 31.67 |
| $ | 31.30 |
|
Margin |
| $ | 17,198 |
| $ | 11,511 |
| $ | 18,123 |
| $ | 13,598 |
| $ | 60,430 |
|
Margin/ton |
| $ | 9.52 |
| $ | 5.43 |
| $ | 8.99 |
| $ | 8.91 |
| $ | 8.09 |
|
Capex |
| $ | 9,448 |
| $ | 8,981 |
| $ | 8,264 |
| $ | 5,999 |
| $ | 32,692 |
|
Maintenance capex |
| $ | 6,164 |
| $ | 5,537 |
| $ | 4,115 |
| $ | 3,470 |
| $ | 19,286 |
|
Maintenance capex/ton |
| $ | 3.41 |
| $ | 2.61 |
| $ | 2.04 |
| $ | 2.27 |
| $ | 2.58 |
|
All Mines | 2nd 2020 | 3rd 2020 | 4th 2020 | 1st 2021 | T4Qs | |||||||||||||||
Tons produced | 1,468 | 1,234 | 1,233 | 1,592 | 5,527 | |||||||||||||||
Tons sold | 1,244 | 1,585 | 1,613 | 1,174 | 5,616 | |||||||||||||||
Coal sales | $ | 50,473 | $ | 64,754 | $ | 64,925 | $ | 45,879 | $ | 226,031 | ||||||||||
Average price/ton | $ | 40.57 | $ | 40.85 | $ | 40.25 | $ | 39.08 | $ | 40.25 | ||||||||||
Wash plant recovery in % | 76 | % | 71 | % | 68 | % | 74 | % | ||||||||||||
Operating costs | $ | 36,001 | $ | 46,444 | $ | 54,640 | $ | 33,907 | $ | 170,992 | ||||||||||
Average cost/ton | $ | 28.94 | $ | 29.30 | $ | 33.87 | $ | 28.88 | $ | 30.45 | ||||||||||
Margin | $ | 14,472 | $ | 18,310 | $ | 10,285 | $ | 11,972 | $ | 55,039 | ||||||||||
Margin/ton | $ | 11.63 | $ | 11.55 | $ | 6.38 | $ | 10.20 | $ | 9.80 | ||||||||||
Capex | $ | 4,006 | $ | 3,995 | $ | 6,661 | $ | 5,720 | $ | 20,382 | ||||||||||
Maintenance capex | $ | 2,578 | $ | 1,365 | $ | 2,342 | $ | 2,343 | $ | 8,628 | ||||||||||
Maintenance capex/ton | $ | 2.07 | $ | 0.86 | $ | 1.45 | $ | 2.00 | $ | 1.54 |
All Mines | 2nd 2019 | 3rd 2019 | 4th 2019 | 1st 2020 | T4Qs | |||||||||||||||
Tons produced | 2,003 | 1,891 | 2,122 | 1,701 | 7,717 | |||||||||||||||
Tons sold | 1,807 | 2,118 | 2,015 | 1,526 | 7,466 | |||||||||||||||
Coal sales | $ | 71,113 | $ | 82,883 | $ | 78,205 | $ | 61,932 | $ | 294,133 | ||||||||||
Average price/ton | $ | 39.35 | $ | 39.13 | $ | 38.81 | $ | 40.58 | $ | 39.40 | ||||||||||
Wash plant recovery in % | 71 | % | 70 | % | 74 | % | 74 | % | ||||||||||||
Operating costs | $ | 53,915 | $ | 71,372 | $ | 60,082 | $ | 48,334 | $ | 233,703 | ||||||||||
Average cost/ton | $ | 29.84 | $ | 33.70 | $ | 29.82 | $ | 31.67 | $ | 31.30 | ||||||||||
Margin | $ | 17,198 | $ | 11,511 | $ | 18,123 | $ | 13,598 | $ | 60,430 | ||||||||||
Margin/ton | $ | 9.52 | $ | 5.43 | $ | 8.99 | $ | 8.91 | $ | 8.09 | ||||||||||
Capex | $ | 9,448 | $ | 8,981 | $ | 8,264 | $ | 5,999 | $ | 32,692 | ||||||||||
Maintenance capex | $ | 6,164 | $ | 5,537 | $ | 4,115 | $ | 3,470 | $ | 19,286 | ||||||||||
Maintenance capex/ton | $ | 3.41 | $ | 2.61 | $ | 2.04 | $ | 2.27 | $ | 2.58 |
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All Mines |
| 2nd 2018 |
|
| 3rd 2018 |
| 4th 2018 |
| 1st 2019 | T4Qs |
| |||||
Tons produced |
|
| 1,983 |
|
| 1,713 |
|
| 1,938 |
|
| 2,205 |
|
| 7,839 |
|
Tons sold |
|
| 1,477 |
|
| 1,962 |
|
| 2,219 |
|
| 2,130 |
|
| 7,788 |
|
Coal sales |
| $ | 56,922 |
| $ | 79,055 |
| $ | 89,019 |
| $ | 85,235 |
| $ | 310,231 |
|
Average price/ton |
| $ | 38.54 |
| $ | 40.29 |
| $ | 40.12 |
| $ | 40.02 |
| $ | 39.83 |
|
Wash plant recovery in % |
|
| 73 | % |
| 72 | % |
| 68 | % |
| 73 |
|
|
|
|
Operating costs |
| $ | 38,809 |
| $ | 60,132 |
| $ | 69,364 |
| $ | 62,271 |
| $ | 230,576 |
|
Average cost/ton |
| $ | 26.28 |
| $ | 30.65 |
| $ | 31.26 |
| $ | 29.24 |
| $ | 29.61 |
|
Margin |
| $ | 18,113 |
| $ | 18,923 |
| $ | 19,655 |
| $ | 22,964 |
| $ | 79,655 |
|
Margin/ton |
| $ | 12.26 |
| $ | 9.64 |
| $ | 8.86 |
| $ | 10.78 |
| $ | 10.23 |
|
Capex |
| $ | 7,784 |
| $ | 5,856 |
| $ | 8,996 |
| $ | 8,840 |
| $ | 31,476 |
|
Maintenance capex |
| $ | 5,058 |
| $ | 4,639 |
| $ | 7,186 |
| $ | 6,672 |
| $ | 23,555 |
|
Maintenance capex/ton |
| $ | 3.42 |
| $ | 2.36 |
| $ | 3.24 |
| $ | 3.13 |
| $ | 3.02 |
|
2021 v. 2020 vs. 2019(first quarter)
For Q1the first quarter 2021, we sold 1,174,000 tons at an average price of $39.08/ton. For the first quarter 2020 we sold 1,5261,526,000 tons at an average price of $40.58/ton. For Q1 2019, we sold 2,130 tons at an average price of $40.02/ton. The increasedecrease 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 transportation issues related to the weather conditions in February.
Operating costs for all of our active coal mines averaged $28.88/ton in 2021 and $31.67/ton and $29.24/ton for the three months ended March 31, 2020 and 2019, respectively.in 2020. Oaktown costs over that same period were $27.21 and $29.92, and $27.17, respectively. The higher costs are a result of lower than expected production during the quarter due to the effects of COVID-19 and due to the costs associated with the closure of the Carlisle Mine in February. For the remainder of 2020, we expectOur operating costs for the quarter are within our operating Oaktown mines to beprior guidance of $29-$30/ton.
Our efforts in Q1 to improve recovery and lower costs have been effective thus far. We expect operating costs associated with the idled Prosperity mine to be $0.8$0.9 million for the remainder of 2020.2021. Prosperity operating costs were $0.3 million during the three months ended March 31, 2020.
20
2021.
We expect operating, exit,general and disposal costs associated with the closed Carlisle mine to be $3.0 millionadministrative expenses for the remainder of 2020, of which approximately $2.25 million relates to exit and disposal costs. We estimate that we incurred approximately $0.5 million of exit and disposal costs in Q1 2020.
Other income decreased $3.5 million in the first three 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 $2.5 million in Q1 2019.Other items contributing to the decrease relate to the sale of scrap metal and other non-producing assets in 2019.
DD&A decreased $1.1 million in the three first 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.
We expect SG&A for the remainder of 20202021 to be $9 million.
Interest expense increased approximately $1.1decreased $3.8 million in the first three monthsquarter of 20202021 when compared to 2019.the first quarter of 2020. The change in estimated fair value of our interest rate swap agreement resulted in additionala reduction in non-cash expense of $1.6$3.4 million in 20202021 when compared to 2019.The remaining2020. The remainder of the decrease of $0.5 million is a result of lower interest rates due to our amended credit agreement in September 2019.declining bank debt balance.
Our Sunrise Coal employees and contractors totaled 700 at March 31, 2021, compared to 695 at March 31, 2020, compared to 899 at March 31, 2019, and 907 at December 31, 2019.The decrease in our headcount was due primarily to the closure2020.
EARNINGS (LOSS) PER SHARE
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| 2nd 2019 |
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| $ | (.11) |
| $ | (.12) |
| $ | (1.95) |
| $ | (0.12) |
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Basic and diluted |
| $ | — |
| $ | .09 |
| $ | .09 |
| $ | .23 |
2nd 2020 | 3rd 2020 | 4th 2020 | 1st 2021 | |||||||||||||
Basic and diluted | $ | 0.01 | $ | 0.06 | $ | (0.15 | ) | $ | (0.03 | ) |
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 ~37%~63% and ~0%~37% for the three months ended March 31, 2021 and 2020, and 2019, respectively. ForAssuming no changes in our expected results of operations, we expect our ETR for the remainder of 2021 to be about the same as the first three months ended March 31, 2020, the Company utilized a discrete period method to calculate taxes, as it does not believe the annual effective tax rate method represents a reliable estimate given the current uncertainty surrounding COVID-19. 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.
MSHA
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 MSHAMine Safety and Health Administration (MSHA) or other government agencies. After applying the provisions of ASU 2014‑09,2014-09, as of March 31, 2020,2021, 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.
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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.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 for the purposes discussed above.effective.
There have been no changes to our internal control over financial reporting during the quarter ended March 31, 2020,2021, that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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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.
ITEM 4. MINE SAFETY DISCLOSURES
Safety is a core value at 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‑Q10-Q for a listing of our mine safety violations.
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15.1 * | ||
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* | 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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| 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 | |
*Filed Herewith |
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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: May |
| /S/ LAWRENCE D. MARTIN |
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| Lawrence D. Martin, CFO |
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Date: May | /S/ R. TODD DAVIS | |
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