Form 10-Q HALLADOR ENERGY CO For: Jun 30
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended |
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| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
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| HALLADOR ENERGY COMPANY (www.halladorenergy.com) | ||
| (State of incorporation) |
| (IRS Employer Identification No.) |
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Registrant’s telephone number, including area code:
| Securities registered pursuant to Section 12(b) of the Act: | ||||
| Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ |
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| Non-accelerated filer ☐ |
| Smaller reporting company |
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 7, 2023, we had
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hallador Energy Company
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Parts and supplies | ||||||||
| Contract asset - coal purchase agreement | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment: | ||||||||
| Land and mineral rights | ||||||||
| Buildings and equipment | ||||||||
| Mine development | ||||||||
| Total property, plant and equipment | ||||||||
| Less - accumulated depreciation, depletion and amortization | ( | ) | ( | ) | ||||
| Total property, plant and equipment, net | ||||||||
| Investment in Sunrise Energy | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of bank debt, net | $ | $ | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Contract liability - power purchase agreement and capacity payment reduction | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Long-term bank debt, excluding current maturities, net | ||||||||
| Convertible note payable | ||||||||
| Convertible notes payable - related party | ||||||||
| Deferred income taxes | ||||||||
| Asset retirement obligations | ||||||||
| Contract liability - power purchase agreement | ||||||||
| Other | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $ par value, shares authorized; issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized; and issued and outstanding, as of June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| SALES AND OPERATING REVENUES: |
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| Coal sales |
$ | $ | $ | $ | ||||||||||||
| Electric sales |
$ | |||||||||||||||
| Other revenues |
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| Total revenue |
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| EXPENSES: |
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| Operating expenses |
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| Depreciation, depletion and amortization |
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| Asset retirement obligations accretion |
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| Exploration costs |
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| General and administrative |
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| Total operating expenses |
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| INCOME (LOSS) FROM OPERATIONS |
( |
) | ( |
) | ||||||||||||
| Interest expense (1) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Equity method investment (loss) income |
( |
) | ( |
) | ||||||||||||
| NET INCOME (LOSS) BEFORE INCOME TAXES |
( |
) | ( |
) | ||||||||||||
| INCOME TAX EXPENSE: |
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| Current |
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| Deferred |
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| Total income tax expense |
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| NET INCOME (LOSS) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| NET INCOME (LOSS) PER SHARE: |
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| Basic |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Diluted |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING |
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| Basic |
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| Diluted |
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| (1) Interest Expense: |
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| Interest on bank debt |
$ | $ | $ | $ | ||||||||||||
| Other interest |
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| Amortization and swap-related interest: |
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| Payments on interest rate swap, net of changes in value |
( |
) | ( |
) | ||||||||||||
| Amortization of debt issuance costs |
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| Total amortization and swap related interest |
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| Total interest expense |
$ | $ | $ | $ | ||||||||||||
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six Months Ended June 30, |
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| 2023 |
2022 |
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| OPERATING ACTIVITIES: |
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| Net income (loss) |
$ | $ | ( |
) | ||||
| Deferred income taxes |
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| Equity income (loss) – Sunrise Energy |
( |
) | ||||||
| Cash distribution - Sunrise Energy |
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| Depreciation, depletion, and amortization |
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| Loss on sale of assets |
( |
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| Change in fair value of interest rate swaps |
( |
) | ||||||
| Amortization of debt issuance costs |
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| Asset retirement obligations accretion |
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| Cash paid on asset retirement obligation reclamation |
( |
) | ( |
) | ||||
| Stock-based compensation |
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| Provision for loss on customer contracts |
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| Amortization of contract asset and contract liabilities |
( |
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| Other |
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| Change in operating assets and liabilities: |
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| Accounts receivable |
( |
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| Inventory |
( |
) | ( |
) | ||||
| Parts and supplies |
( |
) | ( |
) | ||||
| Prepaid expenses |
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| Accounts payable and accrued liabilities |
( |
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| Deferred revenue |
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| Cash provided by operating activities |
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| INVESTING ACTIVITIES: |
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| Capital expenditures |
( |
) | ( |
) | ||||
| Proceeds from sale of equipment |
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| Cash used in investing activities |
( |
) | ( |
) | ||||
| FINANCING ACTIVITIES: |
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| Payments on bank debt |
( |
) | ( |
) | ||||
| Borrowings of bank debt |
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| Issuance of convertible note |
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| Issuance of related party convertible notes payable |
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| Debt issuance costs |
( |
) | ( |
) | ||||
| Taxes paid on vesting of RSUs |
( |
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| Cash (used in) provided by financing activities |
( |
) | ||||||
| (Decrease) increase in cash, cash equivalents, and restricted cash |
( |
) | ||||||
| Cash, cash equivalents, and restricted cash, beginning of period |
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| Cash, cash equivalents, and restricted cash, end of period |
$ | $ | ||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH CONSIST OF THE FOLLOWING: |
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| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
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| $ | $ | |||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: |
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| Cash paid for interest |
$ | $ | ||||||
| SUPPLEMENTAL NON-CASH FLOW INFORMATION: |
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| Change in capital expenditures included in accounts payable and prepaid expense |
$ | $ | ||||||
| Debt issuance costs included in accounts payable and accrued liabilities |
$ | $ | ||||||
| Convertible notes payable and related party convertible notes payable converted to common stock |
$ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
| Additional |
Total |
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| Common Stock Issued |
Paid-in |
Retained |
Stockholders' |
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| Shares |
Amount |
Capital |
Earnings |
Equity |
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| Balance, March 31, 2023 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Net income |
— | |||||||||||||||||||
| Balance, June 30, 2023 |
$ | $ | $ | $ | ||||||||||||||||
| Balance, December 31, 2022 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Stock issued on vesting of RSUs |
( |
) | ||||||||||||||||||
| Taxes paid on vesting of RSUs |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| Net income |
— | |||||||||||||||||||
| Balance, June 30, 2023 |
$ | $ | $ | $ | ||||||||||||||||
| Additional |
Total |
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| Common Stock Issued |
Paid-in |
Retained |
Stockholders' |
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| Shares |
Amount |
Capital |
Earnings |
Equity |
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| Balance, March 31, 2022 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Stock issued on redemption of convertible notes |
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| Stock issued on redemption of related party convertible notes |
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| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, June 30, 2022 |
$ | $ | $ | $ | ||||||||||||||||
| Balance, December 31, 2021 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Stock issued on vesting of RSUs |
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| Taxes paid on vesting of RSUs |
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| Net loss |
— | ( |
) | ( |
) | |||||||||||||||
| Balance, June 30, 2022 |
$ | $ | $ | $ | ||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
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 Securities and Exchange Commission's (the "SEC") rules and regulations; accordingly, certain information and footnote disclosures normally included in generally accepted accounting principles ("GAAP") financial statements have been condensed or omitted.
The results of operations and cash flows for the three and six months ended June 30, 2023, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2023.
Our organization and business, the accounting policies we follow, and other information are contained in the notes to our consolidated financial statements filed as part of our 2022 Annual Report on Form 10-K. This quarterly report should be read in conjunction with such Annual Report on Form 10-K.
The condensed consolidated financial statements include the accounts of Hallador Energy Company (hereinafter known as “we, us, or our”) and its wholly owned subsidiaries Sunrise Coal, LLC ("Sunrise"), Hallador Power Company, LLC ("Hallador Power"), as well as Sunrise and Hallador Power's wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
As the result of Hallador Power’s acquisition of the Merom one gigawatt power plant in Sullivan County, Indiana (the “Merom Power Plant”) from Hoosier Energy Rural Electric Cooperative, Inc. (“Hoosier”) on October 21, 2022 (the “Merom Acquisition”), as further described in Note 14, beginning in the fourth quarter of 2022 we began to strategically view and manage our operations through reportable segments: Coal Operations and Electric Operations. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other and Eliminations" and primarily are comprised of unallocated corporate costs and activities, the elimination of coal sales from coal operations to electric operations, a
The Coal Operations reportable segment includes currently operating mining complexes Oaktown 1 and underground mines, Prosperity surface mine, Freelandville surface mine, and Carlisle wash plant.
The Electric Operations reportable segment includes electric power generation facilities of the Merom Power Plant.
| LONG-LIVED ASSET IMPAIRMENTS |
Long-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable. For the three and six-month periods ended June 30, 2023 and for the three and six-month periods ended June 30, 2022,
| (3) | INVENTORY |
Inventory is valued at a lower of average cost or net realizable value (NRV). As of June 30, 2023, and December 31, 2022, coal inventory includes NRV adjustments of $
| BANK DEBT |
On March 13, 2023, we executed an amendment to our credit agreement with PNC Bank, National Association (in its capacity as administrative agent, "PNC"), administrative agent for our lenders under our credit agreement, which was accounted for as a debt modification. The primary purpose of the amendment was to convert $
On August 2, 2023, we executed an additional amendment to our credit agreement with PNC, which was accounted for as a debt extinguishment. The primary purpose of the amendment was to convert $
Bank debt was reduced by $
Liquidity
Under the terms of the August 2, 2023 amendment, as of June 30, 2023, we had an additional borrowing capacity of $
Fees
Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $
Bank debt, less debt issuance costs, is presented below (in thousands):
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Current bank debt | $ | $ | ||||||
| Less unamortized debt issuance cost | ( | ) | ( | ) | ||||
| Net current portion | $ | $ | ||||||
| Long-term bank debt | $ | $ | ||||||
| Less unamortized debt issuance cost | ||||||||
| Net long-term portion | $ | $ | ||||||
| Total bank debt | $ | $ | ||||||
| Less total unamortized debt issuance cost | ( | ) | ( | ) | ||||
| Net bank debt | $ | $ | ||||||
Covenants
The credit facility includes a Maximum Leverage Ratio (consolidated funded debt/trailing twelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailing twelve months, not to exceed the amounts below:
| Fiscal Periods Ending | Ratio | ||
| June 30, 2023, and each fiscal quarter thereafter |
As of June 30, 2023, our Leverage Ratio of 0.94 was in compliance with the
The credit facility 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
As of June 30, 2023, we were in compliance with all other covenants defined in the credit agreement.
Interest Rate
The interest rate on the facility ranges from SOFR plus
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands) |
| June 30, |
December 31, |
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| 2023 |
2022 |
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| Accounts payable |
$ | $ | ||||||
| Accrued property taxes |
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| Accrued payroll |
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| Workers' compensation reserve |
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| Group health insurance |
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| Asset retirement obligation - current portion |
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| Other |
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| Total accounts payable and accrued liabilities |
$ | $ | ||||||
| (6) | 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 it is probable substantially all of the consideration will be collected. We recognize revenue when we satisfy a performance obligation by transferring control of a good or service to a customer.
Coal operations
Our coal 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 rail facility in Princeton, Indiana, 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. Our customers are typically domestic utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts or include a pre-determined escalation in price 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 provisions may automatically set a new price based on the 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 in place, the raw coal sold by us to the customer at the delivery point must be substantially free of magnetic material and other 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.
Electric operations
The Company concluded that the definition of a contract and the criteria in ASC 606, Revenue from Contracts with Customers ("ASC 606"), is met at the time a Power Purchase Agreement ("PPA") is executed by the parties, as this is the point at which enforceable rights and obligations are established. Accordingly, the Company concluded that a PPA constitutes a valid contract under ASC 606.
The Company will recognize revenue daily for the actual capacity made available as part of any stand-ready obligations to provide electricity for contract capacity performance obligations and daily for actual delivered electricity, plus the amortization of the contract liability as a result of the Asset Purchase Agreement with Hoosier, for the delivered energy performance obligation.
Disaggregation of Revenue
Revenue is disaggregated by primary geographic markets for our coal operations and by revenue source for our electric operations, as we believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors.
Coal operations
and
Electric operations
100% of our electric revenue for the three and six months ended June 30, 2023, was sold to Hoosier or the Midcontinent Independent System Operator ("MISO") wholesale market. MISO is the independent system operator managing the flow of high-voltage electricity across 15 U.S. states and the Canadian province of Manitoba. 100% of our electric revenue through May 31, 2023, was sold to Hoosier in the state of Indiana.
Performance Obligations
Coal operations
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 coal 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 during the contract's fulfillment. 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 coal sales performance obligations relating to fixed-priced contracts of approximately $
We have remaining performance obligations relating to unpriced coal sales contracts of approximately $
The coal 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 an option exists in the customer contract.
Electric operations
The Company concluded that each megawatt-hour ("MWh") of delivered energy is capable of being distinct as a customer could benefit from each on its own by using/consuming it as a part of its operations. The Company also concluded that the stand-ready obligation to be available to provide electricity to Hoosier is capable of being distinct as each unit of capacity provides an economic benefit to the holder and could be sold by the customer.
We have remaining delivered energy obligations through totaling $
In addition to delivered energy, Hallador provides stand-ready obligations to provide electricity, also known as contract capacity. We have remaining capacity obligations through
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 quality adjustments, electricity, or capacity. Amounts billed and due are recorded as trade accounts receivable and included in accounts receivable in our consolidated balance sheets. As of January 1, 2022, accounts receivable for coal sales billed to customers was $
| (7) | INCOME TAXES |
For the six months ended June 30, 2023, and 2022, we recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items, and statutory rates in states in which we operate. The effective tax rate for the six months ended June 30, 2023, and 2022 was and ~(
| STOCK COMPENSATION PLANS |
| Non-vested grants as of December 31, 2022 | ||||
| Awarded - weighted average share price on award date was $9.38 | ||||
| Vested - weighted average share price on vested date was $9.18 | ( | ) | ||
| Forfeited | ( | ) | ||
| Non-vested grants as of June 30, 2023 |
For the three and six months ended June 30, 2023, our stock compensation was $
Non-vested RSU grants will vest as follows:
| Vesting Year | RSUs Vesting | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
The outstanding RSUs have a value of $
As of June 30, 2023, unrecognized stock compensation expense is $
| (9) | LEASES |
The following table (in thousands) relates to our operating leases:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating lease information: | ||||||||||||||||
| Operating cash outflows from operating leases | $ | $ | $ | $ | ||||||||||||
| Weighted average remaining lease term in years | ||||||||||||||||
| Weighted average discount rate | % | % | % | % | ||||||||||||
Future minimum lease payments under non-cancellable leases as of June 30, 2023, were as follows:
| Amount | ||||
| (In thousands) | ||||
| 2023 | $ | |||
| 2024 | ||||
| Total minimum lease payments | $ | |||
| Less imputed interest | ( | ) | ||
| Total operating lease liability | $ | |||
| As reflected within the following balance sheet line items: | ||||
| Accounts payable and accrued liabilities | $ | |||
| Other long-term liabilities | ||||
| Total operating lease liability | $ | |||
As of June 30, 2023 and December 31, 2022, we had approximately $
| (10) | SELF-INSURANCE |
We self-insure our underground mining equipment. Such equipment is allocated among mining units dispersed over
Restricted cash of $
| (11) | 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. We 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). We have no Level 3 instruments.
| (12) | EQUITY METHOD INVESTMENTS |
We own a
| (13) | CONVERTIBLE NOTES |
On May 2, 2022, and May 20, 2022, we issued senior unsecured convertible notes (the "Notes") to five parties, in the aggregate principal amount of $
In June 2022, the four holders of the $
On July 29, 2022, we issued $
On August 8, 2022, we issued $
On August 12, 2022, we issued a $
The funds received from the notes described above were used to provide additional working capital to the Company. Each Conversion Share will consist of share of our common stock. The conversion price and number of shares of the Company’s Common Stock issuable upon conversion of the notes are subject to adjustment from time to time for any subdivision or consolidation of the Company’s shares and other standard dilutive events.
| (14) |
On February 14, 2022, Hallador Power signed an Asset Purchase Agreement (“APA”) with Hoosier, a rural electric membership corporation organized and existing under the laws of the state of Indiana.
Under the APA, Hallador acquired the Merom power plant, along with equipment and machinery in the power plant; materials inventory; a coal purchase agreement; a coal combustion certified coal ash landfill, certain Generation Interconnection Agreements, and coal inventory (collectively, the “Acquired Assets”). Additionally, contemporaneous with entering into the APA, Hallador entered into three other agreements with Hoosier comprised of (1) a Power Purchase Agreement (the "PPA”), (2) a Coal Supply Purchase Agreement (the "Coal Purchase Agreement"), and (3) a Closing Side Letter agreeing to a reduction in future capacity payments of $
The acquisition was accounted for as an asset acquisition under ASC 805-50 as substantially all of the fair value of the gross assets acquired are concentrated in a group of similar identifiable assets. As such, the total purchase consideration (which includes $
| Consideration: | (in thousands) | |||
| Direct transaction costs | $ | |||
| Contract liability - PPA | ||||
| Contract liability - Capacity payment reduction | ||||
| Contract asset - Coal purchase agreement | ( | ) | ||
| Coal inventory purchased | ||||
| Deferred coal inventory payment | ||||
| Total consideration | $ | |||
| Relative fair value of assets acquired: | ||||
| Plant | $ | |||
| Materials and supplies | ||||
| Coal inventory | ||||
| Amount attributable to assets acquired | $ | |||
| Fair value of liabilities assumed: | ||||
| Asset retirement obligations | $ | |||
| Amount attributable to liabilities assumed | $ | |||
Operating revenue for the Electric Operations segment is derived from a power purchase agreement signed with Hoosier in conjunction with the Merom Acquisition at fixed prices below market prices on the date we closed the transaction. The power purchase agreement expires in 2025 and requires us to provide a fixed amount of power over the term of the agreement. As a result of the below-market contract, we recorded a contract liability at the close of the acquisition totaling $
Operating expenses for the Electric Operations segment include coal purchased under an agreement signed with Hoosier in conjunction with the Merom Acquisition at fixed prices which were below market prices at the date we entered into the agreement. The coal purchase agreement expired in May 2023 that required us to purchase a fixed amount of coal over the term of the agreement. As a result of the below-market contract, we recorded a contract asset at the close of the acquisition totaling $
| (15) | SEGMENTS OF BUSINESS |
As of June 30, 2023, our operations are divided into
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Operating Revenues | ||||||||||||||||
| Coal Operations | $ | $ | $ | $ | ||||||||||||
| Electric Operations | ||||||||||||||||
| Corporate and Other and Eliminations | ( | ) | ( | ) | ||||||||||||
| Consolidated Operating Revenues | $ | $ | $ | $ | ||||||||||||
| Income (Loss) from Operations | ||||||||||||||||
| Coal Operations | $ | $ | $ | $ | ( | ) | ||||||||||
| Electric Operations | ||||||||||||||||
| Corporate and Other and Eliminations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Consolidated Income (Loss) from Operations | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Depreciation, Depletion and Amortization | ||||||||||||||||
| Coal Operations | $ | $ | $ | $ | ||||||||||||
| Electric Operations | ||||||||||||||||
| Corporate and Other and Eliminations | ||||||||||||||||
| Consolidated Depreciation, Depletion and Amortization | $ | $ | $ | $ | ||||||||||||
| Assets | ||||||||||||||||
| Coal Operations | $ | $ | $ | $ | ||||||||||||
| Electric Operations | ||||||||||||||||
| Corporate and Other and Eliminations | ( | ) | ( | ) | ||||||||||||
| Consolidated Assets | $ | $ | $ | $ | ||||||||||||
| Capital Expenditures | ||||||||||||||||
| Coal Operations | $ | $ | $ | $ | ||||||||||||
| Electric Operations | ||||||||||||||||
| Corporate and Other and Eliminations | ||||||||||||||||
| Consolidated Capital Expenditures | $ | $ | $ | $ | ||||||||||||
| (16) |
NET INCOME (LOSS) PER SHARE |
The following table (in thousands, except per share amounts) sets forth the computation of basic net income (loss) per share:
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Basic earnings per common share: |
||||||||||||||||
| Net income (loss) - basic |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Weighted average shares outstanding - basic |
||||||||||||||||
| Basic earnings (loss) per common share |
$ | 0.51 | $ | ( |
) | $ | 1.18 | $ | ) | |||||||
| The following table (in thousands, except per share amounts) sets forth the computation of diluted net income (loss) per share: |
||||||||||||||||
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Diluted earnings per common share: |
||||||||||||||||
| Net income (loss) - basic |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Less Loss allocated to RSUs |
$ | - | $ | $ | - | $ | ||||||||||
| Add: Convertible Notes interest expense, net of tax |
||||||||||||||||
| Net income (loss) - diluted |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Weighted average shares outstanding - basic |
||||||||||||||||
| Add: Dilutive effects of if converted Convertible Notes |
||||||||||||||||
| Add: Dilutive effects of Restricted Stock Units |
||||||||||||||||
| Weighted average shares outstanding - diluted |
||||||||||||||||
| Diluted net income (loss) per share |
$ | 0.47 | $ | ( |
) | $ | 1.08 | $ | ( |
) | ||||||
| (17) |
SUBSEQUENT EVENTS |
On August 2, 2023, we executed an amendment to our credit agreement with PNC as discussed in Note 4 to these condensed consolidated financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2022 ANNUAL REPORT ON FORM 10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH.
Our condensed consolidated financial statements should also be read in conjunction with this discussion. The following analysis includes a discussion of metrics on a per-ton basis derived from the condensed consolidated financial statements, which are considered non-GAAP measurements. These metrics are significant factors in assessing our operating results and profitability.
The highlight of the quarter was our coal segment. Record coal sales prices led to record margins, despite higher production costs. Net income for the quarter was $16.9 million and a record for the first half of the year at $39.0 million. This has enabled us to make great strides toward our goal of deleveraging our balance sheet. Under this lens, Hallador has dramatically improved both the quality of our business, with the addition of Hallador Power last October, and the quality of our balance sheet by reducing our Debt to EBITDA multiple to less than 1X.
During Q2, coal production was healthy, allowing us to grow coal inventories at our coal operations by $2.0 million. Our plan is to ship this additional inventory to Hallador Power enabling us to generate more MWh in the second half of the year than previously planned. Hallador Power contributed $9.2 million net income during the quarter due to existing energy commitments through May 2023, that were associated with the purchase of the Merom Power Plant. Starting in June 2023, approximately 80% of the output of the plant became available to sell on the open market.
OVERVIEW
| I. |
|
Q2 2023 Net Income of $16.9 million. |
| a. | 1.7 million tons of coal were shipped at an average sales price of $65.44 during the quarter, with approximately 0.3 million tons of that being shipped to the Merom Power Plant for $23.6 million. |
| i. | The sales price for remaining tons to ship for 2023 is expected to average $57.60 per ton. |
| b. | In Q2 2023, Hallador's coal operating costs were $41.52 per ton, before eliminations, which represents a $2.71 per ton increase from Q1 2023. Coal operating costs were $42.31 per ton after eliminations. |
| c. |
We reached record margins for the quarter at $23.92 per ton, before eliminations. This is an improvement of $6.85 per ton over Q1 2023 margins, due to delivering some of our higher price tons in the quarter. Margins for the quarter were $20.96 after eliminations for coal sold to the Merom Power Plant |
| II. | Q2 2023 Activity |
| a. | Cash Flow & Debt |
| i. | During Q2 2023, our operating cash flow was $18.1 million, and we decreased our bank debt by $1.0 million. |
| ii. | As of June 30, 2023, our bank debt was $74.2 million, liquidity under the terms of the amended credit agreement was $56.9 million, and our leverage ratio came in at 0.94X, within our covenant of 2.25X. |
| b. | Coal & Power |
| i. | Coal Production was 1.7 million tons for the quarter, 0.3 million less than Q1 2023. Approximately 0.3 million tons of that were shipped to the Merom Power Plant. |
| ii. | Power production was 1.0 million MWh for the quarter. None of the coal shipped to the power plant from Sunrise Coal was burned in Q2. |
| III. | Solid Forward Sales Position |
| 2023 (Q3/Q4) |
2024 |
2025 |
||||||||||
| Coal |
||||||||||||
| Priced tons (in millions) |
4.0 | 3.4 | 1.3 | |||||||||
| Average price per ton |
$ | 57.60 | $ | 51.40 | $ | 50.00 | ||||||
| Contracted coal revenue (in millions) |
$ | 230.40 | $ | 174.76 | $ | 65.00 | ||||||
| Committed & unpriced tons (in millions) |
- | 3.0 | 4.0 | |||||||||
| Total contracted tons (in millions) |
4.0 | 6.4 | 5.3 | |||||||||
| % Coal Sold |
100 | % | 91 | % | 76 | % | ||||||
| Energy |
||||||||||||
| Contracted MWh (in millions) |
0.8 | 1.6 | 1.7 | |||||||||
| Contracted price per MWh |
$ | 34.00 | $ | 34.00 | $ | 34.00 | ||||||
| Contracted MWh revenue (in millions) |
$ | 27.20 | $ | 54.40 | $ | 57.80 | ||||||
| Capacity |
||||||||||||
| Average monthly capacity accreditation |
846 | 860 | 860 | |||||||||
| Average monthly contracted capacity |
846 | 539 | 300 | |||||||||
| Average contracted capacity price per MWd |
$ | 185 | $ | 169 | $ | 191 | ||||||
| Contracted capacity (in millions) |
$ | 28.56 | $ | 33.25 | $ | 20.91 | ||||||
| Percent Capacity Sold |
100 | % | 63 | % | 35 | % | ||||||
| Committed and unpriced tons assume 3.0 million tons will be shipped to the Merom Power Plant in both 2024 and 2025. |
| Capacity accreditation in 2024 and 2025 is projected to be 860 MW. |
LIQUIDITY AND CAPITAL RESOURCES
| I. |
Liquidity and Capital Resources |
| a. |
As set forth in our condensed consolidated statements of cash flows, cash provided by operations was $44.2 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively. |
|
|
i. |
Operating margins from coal were $69.9 million, before eliminations, during the first six months of 2023, up from $16.0 million during the first six months of 2022. Operating margins for coal shipped to the Merom Power Plant were $11.7 million and are eliminated in consolidation. |
| 1. |
Our operating margins for coal operations were $20.52 per ton, before eliminations, in the first six months of 2023 compared to $5.37 in the first six months of 2022. Operating margins were $18.83 after eliminations. Margins are expected to remain elevated for the remainder of 2023. |
| 2. |
We shipped 3.4 million tons of coal in the first six months of 2023, with 0.3 million tons of that being shipped to the Merom Power Plant. |
| ii. | Operating margins for electric were $39.9 million, with $22.2 million attributed to the amortization of the contract asset and liability adjustments related to the Merom Acquisition in Q4 2022. |
| b. |
Our projected capital expenditure budget for the remainder of 2023 is $37 million, of which approximately one-half is anticipated for maintenance capex. |
|
|
c. |
We paid down debt of $11.0 million in the first half of 2023. As of June 30, 2023, our bank debt was $74.2 million. On August 2, 2023, we executed an amendment to our credit agreement with PNC Bank, National Association (in its capacity as administrative agent, "PNC"), administrative agent for our lenders under our credit agreement. The primary purpose of the amendment was to increase the term debt to $65 million, enter a revolver of $75 million, and extend the maturity of the debt to 2026. |
| d. |
We expect cash from operations generated primarily by our expected higher coal margins in 2023 to fund our capital expenditures and our debt service. |
| II. |
Material Off-Balance Sheet Arrangements |
| a. |
Other than our surety bonds for reclamation, we have no material off-balance sheet arrangements. We have recorded the present value of reclamation obligations of $20.7 million, including $7.5 million at Merom, presented as asset retirement obligations (ARO) and accounts payable and accrued liabilities in our accompanying balance sheets. In the event we are not able to perform reclamation, we have surety bonds in place totaling $36.3 million to cover ARO. |
CAPITAL EXPENDITURES (capex)
For the first six months of 2023, capex was $30.6 million allocated as follows (in millions):
| Oaktown – maintenance capex |
$ | 16.2 | ||
| Oaktown – investment |
9.2 | |||
| Freelandville Mine |
1.2 | |||
| Merom Plant |
3.3 | |||
| Other |
0.7 | |||
| Capex per the Condensed Consolidated Statements of Cash Flows |
$ | 30.6 |
Results of Operations
Presentation of Segment Information (before eliminations)
Our operations are divided into two primary reportable segments: coal operations and electric operations. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other and Eliminations" within the Notes to the Consolidated Financial Statements and primarily are comprised of unallocated corporate costs and activities, including a 50% interest in Sunrise Energy, LLC, a private gas exploration company with operations in Indiana, which we account for using the equity method, and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River.
Coal Operations
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| OPERATING REVENUES: |
$ | 113,098 | $ | 65,323 | $ | 208,371 | $ | 123,660 | ||||||||
| EXPENSES: |
||||||||||||||||
| Operating expenses |
71,170 | 49,816 | 136,870 | 104,259 | ||||||||||||
| Depreciation, depletion and amortization |
12,466 | 11,127 | 25,741 | 20,623 | ||||||||||||
| Asset retirement obligations accretion |
305 | 250 | 603 | 496 | ||||||||||||
| Exploration costs |
305 | 215 | 511 | 272 | ||||||||||||
| General and administrative |
2,489 | 1,987 | 5,195 | 3,528 | ||||||||||||
| Total operating expenses |
86,735 | 63,395 | 168,920 | 129,178 | ||||||||||||
| INCOME (LOSS) FROM OPERATIONS |
$ | 26,363 | $ | 1,928 | $ | 39,451 | $ | (5,518 | ) | |||||||
2023 vs. 2022 (second quarter)
Operating revenues from coal operations increased 73% over 2022 due largely to an increase in the average sales price for coal. As a result, higher-priced contracts sold in the summer of 2022 and delivered in Q2 of 2023 increased our average sales price by over $25 per ton from Q2 2022. We also sold 119,000 additional tons over Q2 2022 at higher average prices. Operating revenues for Q2 2023 include $23.6 million in sales to the Merom plant which are eliminated in the consolidation, but increased the average price per ton of coal sold for the quarter by approximately 3.4%.
Operating expenses, however, increased $9.69 per ton over Q2 2022. The addition of the higher-cost Freelandville and Prosperity surface mines as well as continued significant inflationary pressures, have elevated the costs.
Depreciation, depletion, and amortization increased by 12%. Inflationary pressures have also contributed to the higher capital asset additions over the past couple of years contributing to the increase.
General and administrative expenses increased 25% over Q2 2022 due to performance and production bonuses paid and accrued to employees, additional professional fees, and additional IT costs related to enhanced security and compliance activities.
2023 vs. 2022 (first six months)
Operating revenues from coal operations increased 69% over 2022 due largely to an increase in the average sales price for coal. As a result, higher-priced contracts increased our average sales price by over $19 per ton from the first six months of 2022. We also sold 435,000 additional tons over the first six months of 2022 at higher average prices. Operating revenues for the first six months of 2023 include $23.6 million in sales to the Merom plant which are eliminated in the consolidation but increased the average price per ton of coal sold for the first six months by approximately 2.5%.
Operating expenses increased by $4.77 per ton over the first six months of 2022. The addition of the higher-cost Freelandville and Prosperity surface mines as well as continued significant inflationary pressures have elevated the costs.
Depreciation, depletion, and amortization increased by 25% as a significant amount of our assets were depreciated and amortized based on production, which increased approximately 18% over the first six months of 2022. Inflationary pressures have also contributed to the higher capital asset additions over the past couple of years contributing to the increase.
General and administrative expenses increased 47% over the first six months of 2022 due to performance, production, and discretionary bonuses paid to employees, additional professional fees related to the 2022 audit, and additional IT costs related to enhanced security and compliance activities.
Quarterly coal sales and cost data (in thousands, except per ton and percentage data) are provided below. Per ton calculations below are based on tons sold.
| All Mines |
3rd 2022 |
4th 2022 |
1st 2023 |
2nd 2023 |
T4Qs |
|||||||||||||||
| Tons produced |
1,663 | 1,721 | 2,006 | 1,723 | 7,113 | |||||||||||||||
| Tons sold |
1,705 | 1,664 | 1,693 | 1,714 | 6,776 | |||||||||||||||
| Coal sales |
$ | 83,563 | $ | 84,641 | $ | 94,602 | $ | 112,171 | $ | 374,977 | ||||||||||
| Average price/ton |
$ | 49.01 | $ | 50.87 | $ | 55.88 | $ | 65.44 | $ | 55.34 | ||||||||||
| Wash plant recovery in % |
69 | % | 68 | % | 70 | % | 67 | % | ||||||||||||
| Operating costs |
$ | 63,876 | $ | 67,319 | $ | 65,700 | $ | 71,168 | $ | 268,063 | ||||||||||
| Average cost/ton |
$ | 37.46 | $ | 40.46 | $ | 38.81 | $ | 41.52 | $ | 39.56 | ||||||||||
| Margin |
$ | 19,687 | $ | 17,322 | $ | 28,902 | $ | 41,003 | $ | 106,914 | ||||||||||
| Margin/ton |
$ | 11.55 | $ | 10.41 | $ | 17.07 | $ | 23.92 | $ | 15.78 | ||||||||||
| Capex |
$ | 15,096 | $ | 12,368 | $ | 12,639 | $ | 14,445 | $ | 54,548 | ||||||||||
| Maintenance capex |
$ | 6,625 | $ | 5,748 | $ | 7,778 | $ | 9,754 | $ | 29,905 | ||||||||||
| Maintenance capex/ton |
$ | 3.89 | $ | 3.45 | $ | 4.59 | $ | 5.69 | $ | 4.41 | ||||||||||
| All Mines |
3rd 2021 |
4th 2021 |
1st 2022 |
2nd 2022 |
T4Qs |
|||||||||||||||
| Tons produced |
1,440 | 1,447 | 1,397 | 1,762 | 6,046 | |||||||||||||||
| Tons sold |
2,042 | 1,554 | 1,377 | 1,595 | 6,568 | |||||||||||||||
| Coal sales |
$ | 79,036 | $ | 64,388 | $ | 57,010 | $ | 64,161 | $ | 264,595 | ||||||||||
| Average price/ton |
$ | 38.71 | $ | 41.43 | $ | 41.40 | $ | 40.23 | $ | 40.29 | ||||||||||
| Wash plant recovery in % |
73 | % | 70 | % | 67 | % | 71 | % | ||||||||||||
| Operating costs |
$ | 67,694 | $ | 54,583 | $ | 54,443 | $ | 50,776 | $ | 227,496 | ||||||||||
| Average cost/ton |
$ | 33.15 | $ | 35.12 | $ | 39.54 | $ | 31.83 | $ | 34.64 | ||||||||||
| Margin |
$ | 11,342 | $ | 9,805 | $ | 2,567 | $ | 13,385 | $ | 37,099 | ||||||||||
| Margin/ton |
$ | 5.55 | $ | 6.31 | $ | 1.86 | $ | 8.39 | $ | 5.65 | ||||||||||
| Capex |
$ | 7,238 | $ | 9,975 | $ | 9,082 | $ | 13,821 | $ | 40,116 | ||||||||||
| Maintenance capex |
$ | 2,324 | $ | 3,302 | $ | 4,481 | $ | 7,600 | $ | 17,707 | ||||||||||
| Maintenance capex/ton |
$ | 1.14 | $ | 2.12 | $ | 3.25 | $ | 4.76 | $ | 2.70 | ||||||||||
Electric Operations
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| OPERATING REVENUES: |
$ | 71,103 | $ | — | $ | 163,597 | $ | — | ||||||||
| EXPENSES: |
||||||||||||||||
| Operating expenses |
55,996 | — | 123,678 | — | ||||||||||||
| Depreciation, depletion and amortization |
4,675 | — | 9,350 | — | ||||||||||||
| Asset retirement obligations accretion |
156 | — | 309 | — | ||||||||||||
| General and administrative |
1,020 | — | 2,299 | — | ||||||||||||
| Total operating expenses |
61,847 | — | 135,636 | — | ||||||||||||
| INCOME FROM OPERATIONS |
$ | 9,256 | $ | — | $ | 27,961 | $ | — |
|
|||||||
A comparative discussion is not relevant as the Electric Operations did not begin until the Merom Acquisition was completed in October 2022.
Operating revenue is derived from a power purchase agreement signed with Hoosier in conjunction with the Merom Acquisition at fixed prices below market prices at the date we closed the transaction. The power purchase agreement expires in 2025 and requires us to provide a fixed amount of power over the term of the agreement. As a result of the below-market contract, we recorded a contract liability at the close of the acquisition totaling $184.5 million that will be amortized over the term of the agreement as the contract is fulfilled. For the quarter ended three and six months ended June 30, 2023, we recorded $19.6 million and $52.9 million, respectively, of revenue as a result of amortizing the contract liability.
Operating expenses include coal purchased under an agreement signed with Hoosier in conjunction with the Merom acquisition at fixed prices which were below market prices at the date we entered into the agreement. The coal purchase agreement expired in May 2023 that required us to purchase a fixed amount of coal over the term of the agreement. As a result of the below-market contract, we recorded a contract asset at the close of the acquisition totaling $34.3 million that was amortized over the term of the agreement as the contract was fulfilled. For the three and six months ended June 30, 2023, we recorded $13.0 million and $30.7 million in additional operating expenses for coal purchased and used and a reduction of $6.8 million and $11.2 million, respectively, to inventory for coal purchased and unused as a result of amortizing the contract asset, thereby eliminating the remaining balance of the contract asset as of June 30, 2023.
Quarterly electric sales and cost data (in thousands, except per MWh data) are provided below. Fixed costs in the table are considered "non-GAAP" and are a component of operating expenses, the most comparable GAAP measure. We consider fixed costs to be costs associated with the plant whether or not the plant is in operation.
| 1st 2023 |
2nd 2023 |
2023 |
||||||||||
| MWh sold |
1,262 | 1,043 | 2,305 | |||||||||
| Capacity revenue |
$ | 15,970 | $ | 17,155 | $ | 33,125 | ||||||
| Delivered energy and PPA revenue |
76,422 | 53,862 | 130,284 | |||||||||
| Total electric sales |
92,392 | 71,017 | 163,409 | |||||||||
| Less amortization of contract liability |
(33,347 | ) | (19,555 | ) | (52,902 | ) | ||||||
| Total electric sales less amortization of contract liability |
$ | 59,045 | $ | 51,462 | $ | 110,507 | ||||||
| Average price/MWh of delivered energy and PPA revenue less amortization of contract liability |
$ | 34.13 | $ | 32.89 | $ | 33.57 | ||||||
| Operating expenses |
$ | 67,682 | $ | 55,996 | $ | 123,678 | ||||||
| Less fixed costs |
(12,807 | ) | (11,693 | ) | (24,500 | ) | ||||||
| Less amortization of contract asset |
(17,778 | ) | (12,962 | ) | (30,740 | ) | ||||||
| Operating expenses less fixed costs and amortization of contract asset |
$ | 37,097 | $ | 31,341 | $ | 68,438 | ||||||
| Average variable cost/MWh of operating expenses less fixed costs and amortization of contract asset |
$ | 29.40 | $ | 30.05 | $ | 29.69 | ||||||
| Energy and PPA margin less fixed costs and amortization of contract asset and liabilities |
$ | 5,978 | $ | 2,966 | $ | 8,944 | ||||||
| Energy & PPA margin/MWh less fixed costs amortization of contract asset and liabilities |
$ | 4.74 | $ | 2.84 | $ | 3.88 | ||||||
Presentation of Consolidated Information
EARNINGS (LOSS) PER SHARE
| 3rd 2022 |
4th 2022 |
1st 2023 |
2nd 2023 |
|||||||||||||
| Basic |
$ | 0.05 | $ | 0.91 | $ | 0.67 | $ | 0.51 | ||||||||
| Diluted |
$ | 0.05 | $ | 0.83 | $ | 0.61 | $ | 0.47 | ||||||||
| 3rd 2021 |
4th 2021 |
1st 2022 |
2nd 2022 |
|||||||||||||
| Basic |
$ | 0.26 | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.11 | ) | |||||
| Diluted |
$ | 0.26 | $ | (0.25 | ) | $ | (0.33 | ) | $ | (0.11 | ) | |||||
INCOME TAXES
Our effective tax rate (ETR) is estimated at ~11% and ~(2)% for the six months ended June 30, 2023, and 2022, respectively. For the six months ended June 30, 2023, and 2022, we recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items, and statutory rates in states in which we operate. Our ETR differs from the statutory rate due primarily to statutory depletion in excess of tax basis and changes in the valuation allowance. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.
RESTRICTED STOCK GRANTS
See “Item 1. Financial Statements - Note 8. Stock Compensation Plans” for a discussion of RSUs.
CRITICAL ACCOUNTING ESTIMATES
We believe that the estimates of our coal reserves, our asset retirement obligation liabilities, our deferred tax accounts, our valuation of inventory, our treatment of business combinations, and the estimates used in our impairment analysis are our critical accounting estimates.
The reserve estimates are used in the depreciation, depletion, and amortization calculations and our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our depreciation, depletion and amortization expense, and impairment test may be affected. The process of estimating reserves is complex, requiring significant judgment in the evaluation of all available geological, geophysical, engineering, and economic data. The reserve estimates are prepared by professional engineers, both internal and external, and are subject to change over time as more data becomes available. Changes in the reserves estimates from the prior year were nominal.
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. We have not taken any significant uncertain tax positions, and our tax provisions and returns are prepared by a large public accounting firm with significant experience in energy-related industries. Changes to the estimates from reported amounts in the prior year were not significant.
Inventory is valued at a lower of cost or net realizable value (NRV). Anticipated utilization of low-sulfur, higher-cost coal from our Ace in the Hole, Freelandville, and Prosperity mines has the potential to create NRV adjustments as our estimated needs change. The NRV adjustments are subject to change as our costs may fluctuate due to higher or lower production, and our NRV may fluctuate based on sales contracts we enter into from time to time. There were no significant changes to our NRV adjustment estimates from the prior year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes from the disclosure in our 2022 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS
We maintain a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our CEO, CFO, and CAO as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO, CFO, and CAO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our CEO, CFO, and CAO concluded that our disclosure controls and procedures are effective.
There have been no changes to our internal control over financial reporting during the quarter ended June 30, 2023, that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 4. MINE SAFETY DISCLOSURES
See Exhibit 95.1 to this Form 10-Q for a listing of our mine safety violations.
| Exhibit No. |
Document |
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| 10.1 | Amendment and Restated Loan Agreement dated August 2, 2023 | |
| 31.1 | SOX 302 Certification - Chief Executive Officer | |
| 31.2 | SOX 302 Certification - Chief Financial Officer | |
| 31.3 |
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| 32 |
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| 95.1 |
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| 101.INS |
Inline XBRL Instance Document |
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| 101.SCH |
Inline XBRL Schema Document |
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| 101.CAL |
Inline XBRL Calculation Linkbase Document |
|
| 101.LAB |
Inline XBRL Labels Linkbase Document |
|
| 101.PRE |
Inline XBRL Presentation Linkbase Document |
|
| 101.DEF |
Inline XBRL Definition Linkbase Document |
|
| 104 |
Cover Page Interactive Data File (embedded with the Inline XBRL document) |
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: August 7, 2023 |
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/S/ LAWRENCE D. MARTIN |
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Lawrence D. Martin, CFO |
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| Date: August 7, 2023 |
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/S/ R. TODD DAVIS |
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R. Todd Davis, CAO |
ATTACHMENTS / EXHIBITS
EXHIBIT 31.1 - SOX 302 CERTIFICATION - CHIEF EXECUTIVE OFFICER
EXHIBIT 31.2 - SOX 302 CERTIFICATION - CHIEF FINANCIAL OFFICER
EXHIBIT 31.3 - SOX 302 CERTIFICATION - CHIEF ACCOUNTING OFFICER
EXHIBIT 32 - SOX 906 CERTIFICATION
XBRL TAXONOMY EXTENSION SCHEMA
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
XBRL TAXONOMY EXTENSION LABEL LINKBASE
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
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