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Table of Contents

8

Table of Contents

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.

(6)ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands)

(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)

(9)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

(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):