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Section 1: 10-Q (10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended: September 30, 2018

 

OR

 

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

 

Commission file number: 001-34743

 

“COAL KEEPS YOUR LIGHTS ON” “COAL KEEPS YOUR LIGHTS ON”

 

HALLADOR ENERGY COMPANY

(www.halladorenergy.com)

Nasdaq: HNRG

 

Colorado   84-1014610
(State of incorporation)   (IRS Employer
    Identification No.)
     
1660 Lincoln Street, Suite 2700, Denver, Colorado   80264-2701
(Address of principal executive offices)   (Zip Code)

 

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 þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

Yes þ No ¨

 

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

 

Large accelerated filer ¨   Accelerated filer þ
Non-accelerated filer ¨   Smaller reporting company þ
    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. o

 

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

 

As of November 2, 2018, we had 30,176,990 shares outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS  
   
PART I - FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
Consolidated Balance Sheets 3
Consolidated Statements of Comprehensive Income 4
Condensed Consolidated Statements of Cash Flows 5
Consolidated Statement of Stockholders’ Equity 6
Notes to Condensed Consolidated Financial Statements 7
Report of Independent Registered Public Accounting Firm 15
   
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
   
ITEM 4. CONTROLS AND PROCEDURES 21
   
PART II - OTHER INFORMATION 22
   
ITEM 4. MINE SAFETY DISCLOSURES 22
   
ITEM 6. EXHIBITS 22

 

2

 

 

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
Hallador Energy Company
Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
 
   September 30,   December 31, 
   2018   2017 
ASSETS          
Current assets:          
Cash and cash equivalents  $16,903   $12,483 
Restricted cash (Note 8)   4,503    3,811 
Certificates of deposit   493    1,495 
Marketable securities   1,888    1,907 
Accounts receivable   15,938    16,762 
Prepaid income taxes   1,244    2,899 
Inventory   29,542    12,804 
Parts and supplies   10,775    10,043 
Prepaid expenses   15,885    9,433 
Total current assets   97,171    71,637 
Property, plant and equipment, at cost:          
Land and mineral rights   130,156    129,724 
Buildings and equipment   375,626    356,911 
Mine development   140,030    136,762 
Total property, plant and equipment, at cost   645,812    623,397 
Less - accumulated DD&A   (235,889)   (203,391)
Total property, plant and equipment, net   409,923    420,006 
Equity method investments (Note 4)   3,654    11,890 
Other assets (Note 5)   15,288    14,660 
           
Total assets  $526,036   $518,193 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Current portion of bank debt, net (Note 3)  $23,555   $33,171 
Accounts payable and accrued liabilities (Note 6)   26,671    21,115 
Total current liabilities   50,226    54,286 
Long-term liabilities:          
Bank debt, net (Note 3)   168,462    165,773 
Deferred income taxes   28,608    28,728 
Asset retirement obligations (ARO)   14,171    13,506 
Other   7,184    6,577 
Total long-term liabilities   218,425    214,584 
Total liabilities   268,651    268,870 
Redeemable noncontrolling interests (Note 13)   4,000    - 
Stockholders' equity:          
Preferred stock, $.10 par value, 10,000 shares authorized; none issued   -    - 
Common stock, $.01 par value, 100,000 shares authorized; 30,177 and 29,955 shares outstanding, respectively   301    299 
Additional paid-in capital   100,617    97,873 
Retained earnings   152,467    150,236 
Accumulated other comprehensive income (AOCI)   -    915 
Total stockholders’ equity   253,385    249,323 
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity  $526,036   $518,193 

 

See accompanying notes.

 

3

 

 

Hallador Energy Company
Consolidated Statements of Comprehensive Income
(in thousands, except per share data)
(unaudited)
                 
   Nine Months Ended   Three Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
Revenue:                    
Coal sales  $202,764   $199,280   $79,055   $73,896 
Other income (Note 7)   1,065    3,053    667    572 
Total revenue   203,829    202,333    79,722    74,468 
Costs and expenses:                    
Operating costs and expenses   145,744    138,125    60,230    54,354 
DD&A   32,764    28,533    10,815    9,729 
ARO accretion   866    640    293    219 
Exploration costs   811    566    279    152 
SG&A   8,883    12,095    2,519    2,859 
Interest (1)   10,284    9,662    3,261    3,229 
Total costs and expenses   199,352    189,621    77,397    70,542 
                     
Income before income taxes   4,477    12,712    2,325    3,926 
                     
Income tax expense (benefit):                    
Current   (426)   (1,158)   (204)   (2,532)
Deferred   (120)   2,151    (385)   2,542 
Total income tax expense (benefit)   (546)   993    (589)   10 
                     
Net income*  $5,023   $11,719   $2,914   $3,916 
                     
Net income per share (Note 9):                    
Basic and diluted  $0.16   $0.38   $0.09   $0.13 
                     
Weighted average shares outstanding:                    
Basic and diluted   30,038    29,603    30,177    29,774 

 

 

*There is no material difference between net income and comprehensive income.

 

(1)       Interest expense for the nine months ended September 30, 2018 and 2017 includes $136 and $(476), respectively, for the net change in the estimated fair value of our interest rate swaps. Such amounts were $(708) and $(36) for the three months ended September 30, 2018 and 2017, respectively.

 

See accompanying notes.

 

4

 

 

Hallador Energy Company
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
         
   Nine Months Ended September 30, 
   2018   2017 
Operating activities:          
Cash provided by operating activities  $30,284   $47,998 
           
Investing activities:          
Capital expenditures   (25,519)   (21,328)
Proceeds from sale of equipment   64    506 
Proceeds from maturities of certificates of deposit   1,000    4,580 
Proceeds from sale of Savoy   8,000    - 
Cash used in investing activities   (16,455)   (16,242)
           
Financing activities:          
Payments of bank debt   (27,280)   (27,875)
Borrowings of bank debt   19,000    - 
Debt issuance costs   (730)   - 
Proceeds from noncontrolling interests (Note 13)   4,000    - 
Dividends   (3,707)   (3,651)
Cash used in financing activities   (8,717)   (31,526)
           
Increase in cash, cash equivalents, and restricted cash   5,112    230 
Cash, cash equivalents, and restricted cash, beginning of period   16,294    12,605 
Cash, cash equivalents, and restricted cash, end of period  $21,406   $12,835 

 

Cash, cash equivalents, and restricted cash consist of the following:          

 

   September 30, 
   2018   2017 
Cash and cash equivalents  $16,903   $9,407 
Restricted cash   4,503    3,428 
   $21,406   $12,835 

 

Non-cash activity:

Upon the formation of Hourglass Sands, LLC in 2018, we acquired assets by assuming a liability of $1.1 million.

 

Additional financing costs of $5.7 million were incurred at the closing of the new credit facility in May 2018.

 

See accompanying notes.

 

5

 

 

Hallador Energy Company

Consolidated Statement of Stockholders’ Equity

(in thousands)

(unaudited)

 

   Shares   Common
Stock
   Additional
Paid-in
Capital
   Retained
Earnings
   AOCI   Total 
Balance, December 31, 2017   29,955   $299   $97,873   $150,236   $915   $249,323 
Impact from adoption of ASU 2018-02 and ASU 2016-01 (Note 1)   -    -    -    915    (915)   - 
Stock-based compensation   -    -    2,755    -    -    2,755 
Stock issued on vesting of RSUs   223    2                   2 
Taxes paid on vesting of RSUs   (1)   -    (11)   -    -    (11)
Dividends   -    -    -    (3,707)   -    (3,707)
Net income   -    -    -    5,023    -    5,023 
Balance, September 30,2018   30,177   $301   $100,617   $152,467   $-   $253,385 

 

See accompanying notes.

 

6

 

 

Hallador Energy Company

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’s rules and regulations; accordingly, certain information and footnote disclosures normally included in GAAP financial statements have been condensed or omitted.

 

The results of operations and cash flows for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2018. To maintain consistency and comparability, certain 2017 amounts have been reclassified to conform to the 2018 presentation.

 

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 2017 Form 10-K. This quarterly report should be read in conjunction with such 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. Hourglass is in the development stage and is engaged in the production of frac sand in the State of Colorado (see Note 13).

 

New Accounting Standards Issued and Adopted

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 is a comprehensive revenue recognition standard that supersedes nearly all existing revenue recognition guidance under current U.S. GAAP and replaces it with a principle-based approach for determining revenue recognition. On January 1, 2018, we adopted the new accounting standard and all of the related amendments to all contracts using the modified retrospective method. Adoption of the new revenue standard did not result in a material cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We do not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing basis. See “Note 12 - Revenue” to these condensed consolidated financial statements for additional disclosures.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires equity investments that are not accounted for under the equity method of accounting or that do not result in consolidation of the investee to be measured at fair value with changes recognized in net earnings. ASU 2016-01 also eliminates the available-for-sale classification for equity investments that recognized changes in fair value as a component of other comprehensive income. We adopted ASU 2016-01 on January 1, 2018, using the modified retrospective method, which resulted in a $1.1 million (net of tax) cumulative-effect adjustment from accumulated other comprehensive income to retained earnings. Adoption of ASU 2016-01 did not have a material impact on our results of operations and/or cash flows.

 

In November 2016, the FASB issued guidance regarding the presentation of restricted cash in the statement of cash flows (ASU 2016-18). This update is effective for annual reporting periods beginning after December 15, 2017, and early adoption is permitted. We have adopted the new standard as of January 1, 2018. Adoption of ASU 2016-18 did not have a material impact on the company’s results of operations and/or cash flows.

 

In January 2017, the FASB issued new guidance to assist in determining if a set of assets and activities being acquired or sold is a business (ASU 2017-01). It also provided a framework to assist entities in evaluating whether both an input and a substantive process are present, which at a minimum, must be present to be considered a business. We have adopted the new standard as of January 1, 2018. The standard does not have an impact on our historical recognition of asset acquisitions and business combinations. However, we expect there may be an impact on how we account for such acquisitions in the future.

 

7

 

  

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows companies to reclassify stranded tax effects resulting from the 2017 Tax Act from accumulated other comprehensive income to retained earnings. The company elected to early adopt ASU 2018-02 on January 1, 2018, which resulted in a reclassification of $192,000 of stranded tax effects, related to our unrealized gain on marketable securities, from accumulated other comprehensive income to retained earnings. Adoption of ASU 2018-02 did not have a material impact on our results of operations and/or cash flows.

 

New Accounting Standards Issued and Not Yet Adopted

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 increases transparency and comparability among organizations by requiring lessees to record right-to-use assets and corresponding lease liabilities on the balance sheet and disclosing key information about lease arrangements. The new guidance will classify leases as either finance or operating (similar to current standard’s “capital” or “operating” classification), with classification affecting the pattern of income recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currently in the process of accumulating all contractual lease arrangements in order to determine the impact on our financial statements and do not believe we have significant amounts of off-balance sheet leases; accordingly, we do not expect the adoption of ASU 2016-02 to have a material impact on our condensed consolidated financial statements. We continue to monitor closely the activities of the FASB and various non-authoritative groups with respect to implementation issues that could affect our evaluation.

 

(2)

ASSET IMPAIRMENT REVIEW 

 

Carlisle Mine

 

In July 2018, we restarted production at the Carlisle Mine and began shipping coal to customers. We conducted a review of the Carlisle Mine assets as of September 30, 2018, based on estimated future net cash flows, and determined that no impairment to the aggregate net carrying value of $105 million was necessary. If in future periods we reduce our estimate of the future net cash flows attributable to the Carlisle Mine, it may result in future impairment of such assets and such charges could be significant.

 

Bulldog Reserves

 

In October 2017, we entered into an agreement to sell land associated with the Bulldog Mine for $4.9 million. As part of the transaction, we hold the rights to repurchase the property for eight years at the original sale price of $4.9 million plus interest. We are accounting for the sale as a financing transaction with the liability recorded in other long-term liabilities. The Bulldog Mine assets had an aggregate net carrying value of $15 million at September 30, 2018. Also, in October 2017, the Illinois Department of Natural Resources (ILDNR) notified us that our mine application, along with modifications, was acceptable. In October 2018, we paid the required fee and bond and the permit is expected to be issued prior to December 31, 2018. We have determined that no impairment is necessary. If estimates inherent in the assessment change, it may result in future impairment of the assets.

 

8

 

 

(3) BANK DEBT

 

On May 21, 2018, we executed the Third Amended and Restated Credit Agreement with PNC, as administrative agent for our lenders. The $267 million credit facility is a combination of a $147 million term loan and $120 million revolver. The credit facility extends the term through May 21, 2022, reduces the debt service requirements, changes the borrower from Sunrise Coal to Hallador, and allows for investments in Hourglass Sands. The credit facility is collateralized primarily by Hallador’s assets. Our borrowing capacity increased by $6 million as of the effective date of the amended agreement.

 

Liquidity

 

Our bank debt at September 30, 2018, was $200 million (term - $136 million, revolver - $64 million). As of September 30, 2018, we had additional borrowing capacity of $56 million and total liquidity of $75 million.

 

Fees

 

Bank fees and other costs incurred in connection with the amended credit agreement and unamortized costs incurred in connection with the initial facility and a subsequent amendment totaled $8.8 million. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of September 30, 2018 and December 31, 2017 were $8.0 million and $3.0 million, respectively.

 

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
September 30, 2018 through March 31, 2019   3.75 to 1.00
June 30, 2019 and September 30, 2019   3.50 to 1.00
December 31, 2019 through September 30, 2020   3.25 to 1.00
December 31, 2020 through September 30, 2021   3.00 to 1.00
December 31, 2021 and each fiscal quarter thereafter   2.75 to 1.00

  

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 1.25 to 1 through the maturity of the credit facility.

 

At September 30, 2018, our Leverage Ratio was 2.73, and our Debt Service Coverage Ratio was 2.12. Therefore, we were in compliance with those two ratios.

 

Rate

 

The interest rate on the facility ranges from LIBOR plus 3.00% to LIBOR plus 4.50%, depending on our Leverage Ratio. We entered into swap agreements to fix the LIBOR component of the interest rate to achieve an effective fixed rate of ~6% on the original term loan balance and on $53 million of the revolver. At September 30, 2018, we are paying LIBOR of 2.26% plus 4.00% for a total interest rate of 6.26%.

 

9

 

 

Bank debt, less debt issuance costs, is presented below (in thousands):

 

   September 30,   December 31, 
   2018   2017 
Current debt  $25,725   $35,000 
Less debt issuance cost   (2,170)   (1,829)
Net current portion  $23,555   $33,171 
           
Long-term debt  $174,250   $166,992 
Less debt issuance cost   (5,788)   (1,219)
Net long-term portion  $168,462   $165,773 

 

(4)EQUITY METHOD INVESTMENTS

 

Savoy Energy, L.P.

 

On March 9, 2018, we sold our entire 30.6% partnership interest to Savoy for $8 million. The carrying value of the investment included in our consolidated balance sheets as of December 31, 2017, was $8.0 million. Our net proceeds were $7.5 million after commissions paid to a related party, which were applied to our bank debt as required under the agreement. The sale resulted in a loss of $538,000 for the three months and nine months ended March 31, 2018 and September 30, 2018, respectively.

 

Sunrise Energy, LLC

 

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 consolidated balance sheets as of September 30, 2018, and December 31, 2017, was $3.7 million and $3.9 million, respectively.

 

(5)OTHER ASSETS (in thousands)

 

   September 30,   December 31, 
   2018   2017 
Advanced coal royalties  $10,600   $9,720 
Marketable equity securities at fair value (restricted)*   2,089    2,148 
Other   2,599    2,792 
Total other assets  $15,288   $14,660 

 

 

*Held by Sunrise Indemnity, Inc., our wholly-owned captive insurance company.

 

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

 

   September 30,   December 31, 
   2018   2017 
Accounts payable  $5,215   $4,008 
Goods received not yet invoiced   5,114    5,574 
Accrued property taxes   3,170    2,751 
Workers' compensation   4,541    2,969 
Other   8,631    5,813 
Total accounts payable and accrued liabilities  $26,671   $21,115 

 

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(7) OTHER INCOME (in thousands)

 

   Nine Months Ended   Three Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
Equity income - Savoy  $-   $409   $-   $153 
Equity income (loss) - Sunrise Energy   (198)   18    (42)   16 
Loss on disposal of Savoy   (538)   -    -    - 
MSHA reimbursements   833    1,725    180    89 
Other   968    901    529    314 
Total other income  $1,065   $3,053   $667   $572 

 

(8) SELF-INSURANCE

 

We self-insure our underground mining equipment. Such equipment is allocated among eleven mining units spread out over 18 miles. The historical cost of such equipment was approximately $269 million and $258 million as of September 30, 2018 and December 31, 2017, respectively.

 

Restricted cash of $4.5 million and $3.8 million as of September 30, 2018 and December 31, 2017, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.

 

(9) NET INCOME PER SHARE

 

We compute net income per share using the two-class method, which is an allocation formula that determines net income per share for common stock and participating securities, which for us are our outstanding RSUs.

 

The following table sets forth the computation of net income allocated to common shareholders (in thousands):

 

  

Nine Months Ended

September 30,

  

Three Months Ended

September 30,

 
   2018   2017   2018   2017 
Numerator:                    
Net income  $5,023   $11,719   $2,914   $3,916 
Earnings allocated to RSUs   (116)   (444)   (67)   (153)
Net income allocated to common shareholders  $4,907   $11,275   $2,847   $3,763 

 

(10) INCOME TAXES

 

For interim period reporting, we record 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 effective tax rate for the nine months ended September 30, 2018 and September 30, 2017 was (12)% and 8%, 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 before income taxes.

 

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(11) RESTRICTED STOCK UNITS (RSUs)

 

Non-vested grants at December 31, 2017   944,500 
Granted   - 
Vested - weighted average share price on vesting date was $6.65   (223,500)
Forfeited   (10,000)
Non-vested grants at September 30, 2018   711,000 

 

The 223,500 shares that vested during the nine months ended September 30, 2018, had a value of $1.5 million. Under our RSU plan, participants are allowed to relinquish shares to pay for their required statutory income taxes.

 

For the nine months ended September 30, 2018, and 2017, our stock-based compensation was $2.8 million and $6.4 million, respectively. For the three months ended September 30, 2018 and 2017, our stock-based compensation was $0.4 million and $1.0 million, respectively.

 

Non-vested RSU grants will vest as follows:

 

Vesting Year  RSUs Vesting 
2018   121,250 
2019   307,250 
2020   176,250 
2021   106,250 
    711,000 

 

The outstanding RSUs have a value of $4.4 million based on the September 28, 2018, closing stock price of $6.22.

 

At September 30, 2018, we had 1,404,325 RSUs available for future issuance.

 

(12) REVENUE

 

Effective January 1, 2018, we adopted ASU 2014-09. The adoption of this standard did not impact the timing of revenue recognition on our consolidated balance sheets or condensed consolidated statements of comprehensive income.

 

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.

 

Our revenue is derived from sales to customers of coal produced at our facilities. Our customers purchase coal directly from our mine sites and our Princeton Loop, where the sale occurs and where title, risk of loss, and control typically 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 predetermined 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 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.

 

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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.

 

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. 74% and 77% of our coal revenue for the nine months and three months ending September 30, 2018, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Kentucky, North Carolina, and Florida. 65% and 61% of our coal revenue for the nine months and three months ending September 30, 2017, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Kentucky and Florida.

 

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 railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the significant risks and rewards in ownership of the coal.

 

We have remaining performance obligations relating to fixed priced contracts of approximately $629 million, which represent the average fixed prices on our committed contracts as of September 30, 2018. We expect to recognize approximately 54% of this revenue through 2019, with the remainder recognized thereafter. We have remaining performance obligations relating to index priced contracts or contracts with price reopeners of approximately $330 million, which represents our estimate of the expected re-opener/indexed price on committed contracts as of September 30, 2018. We expect to recognize all of this income beginning in 2020.

 

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 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 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 not currently have any deferred revenue recorded in our consolidated balance sheets.

 

(13) HOURGLASS SANDS

 

In February 2018, we invested $4 million in Hourglass Sands, LLC (Hourglass), a permitted frac sand mining company in the State of Colorado. We own 100% of the Class A units and are consolidating the activity of Hourglass in these statements. Class A units are entitled to 100% of profit until our capital investment and interest is returned, then 90% of profits are allocated to us with remainder to Class B units. We do not own any Class B units.

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In February 2018, a Yorktown company associated with one of our directors also invested $4 million in Hourglass in return for a royalty interest in Hourglass. This investment coupled with our $4 million investment brings the initial capitalization of Hourglass to $8 million. We report the royalty interest as a redeemable noncontrolling interest in the consolidated balance sheets. A representative of the Yorktown company holds a seat on the board of managers, and, with a change of control, the Yorktown company may be entitled to receive a portion of the net proceeds realized, as prescribed in the Hourglass operating agreement.

 

Below is a condensed Hourglass balance sheet as of September 30, 2018 and a condensed statement of operations for the nine months ended September 30, 2018. Current assets include cash totaling $4.2 million and sand inventory totaling $0.8 million. Expenses are included in operating costs and expenses, exploration costs, and SG&A in our consolidated statements of comprehensive income.

 

Condensed Balance Sheet

 

Current assets  $5,054 
Property and equipment   2,575 
Total assets  $7,629 
      
Total liabilities  $500 
Redeemable noncontrolling interests   4,000 
Members' equity   3,129 
Total liabilities and equity  $7,629 

 

Condensed Statement of Operations

 

Revenue  $36 
Expenses   907 
Net loss  $(871)

 

(14) SUBSEQUENT EVENTS

 

On October 15, 2018, we declared a dividend of $.04 per share to shareholders of record as of October 31, 2018. The dividend is payable on November 16, 2018.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

 

To the Board of Directors and Stockholders

Hallador Energy Company

 

 

RESULTS OF REVIEW OF INTERIM CONDENSED FINANCIAL STATEMENTS

 

We have reviewed the condensed consolidated balance sheet of Hallador Energy Company (the "Company") and subsidiaries as of September 30, 2018, and the related condensed consolidated statements of comprehensive income for the three-month and nine-month periods ended September 30, 2018, the condensed consolidated statement of cash flows for the nine-month period ended September 30, 2018, the condensed consolidated statement of stockholders' equity for the nine-month period ended September 30, 2018, and the related notes (collectively referred to as the "interim financial statements"). Based on our review, 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

 

These interim financial statements are the responsibility of the Company's management. We conducted our review 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.

 

A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

 

 

/s/ Plante & Moran, PLLC

 

Denver, Colorado

November 5, 2018

 

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To the Board of Directors and Stockholders

Hallador Energy Company

Denver, Colorado

 

We have reviewed the accompanying condensed consolidated balance sheet of Hallador Energy Company and subsidiaries (the “Company”) as of September 30, 2017, the related condensed consolidated statements of comprehensive income for the nine and three-month periods ended September 30, 2017, the condensed consolidated statements of cash flows for the nine-month period ended September 30, 2017, and the condensed consolidated statement of stockholders’ equity for the nine-month period ended September 30, 2017.  These financial statements are the responsibility of the Company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information 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 standards of the Public Company Accounting Oversight Board (United States), 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.

 

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial information referred to above for it to be in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of comprehensive income, cash flows, and stockholders’ equity for the year then ended (not presented herein); and in our report dated March 12, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

  

/s/ EKS&H LLLP

 

Denver, Colorado

March 12, 2018

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion updates the MD&A section of our 2017 Form 10-K and should be read in conjunction therewith.

 

Our unaudited condensed consolidated financial statements should also be read in conjunction with this discussion. The following analysis includes discussion of metrics on a per ton basis derived from the unaudited condensed consolidated financial statements, which are considered non-GAAP measurements.

 

OUR COAL CONTRACTS

 

As a result of additional sales, we are raising our 2018 sales guidance to 7.3 million tons, of which we anticipate delivering over 2.1 million tons in the 4th quarter of 2018 (an 8.4 million ton annualized pace). We have added six new customers this year, bringing our current contracted customer total to 15. These new customers reside in Indiana, North Carolina, South Carolina, Georgia, and Alabama. We attribute our sales growth to the recent addition of our Princeton Rail Loop, the strong export market removing tons from the domestic market, and a hot summer. Our significant customers include Duke Energy Corporation (NYSE: DUK), Hoosier Energy, an electric cooperative, Indianapolis Power & Light Company (IPL), a wholly-owned subsidiary of The AES Corporation (NYSE: AES), Vectren Corporation (NYSE: VVC), and Orlando Utility Commission (OUC).

 

When looking at the remainder of 2018 through 2022, we have 19.6 million tons sold, which represents ~63% of our sales at a ~7.3 million ton annualized pace. The table below reflects our projected tons.

 

   Targeted   *Contracted       Estimated 
   tons   tons       price 
Year  (millions)   (millions)   % Committed   per ton 
2018   7.3    7.3    100%  $40 
2019   7.3    6.1    84%  $41 

__________________

* Some of our contracts contain language that allows our customers to increase or decrease tonnages throughout the year. In some cases, our customers are required to purchase their additional tonnage needs from us.

 

We expect to continue selling a significant portion of our coal under supply agreements with terms of one year or longer. Typically, customers enter into coal supply agreements to secure reliable sources of coal at predictable prices while we seek stable sources of revenue to support the investments required to open, expand and maintain, or improve productivity at the mines needed to supply these contracts. The terms of coal supply agreements result from competitive bidding and extensive negotiations with customers.

 

ASSET IMPAIRMENT REVIEW

 

See Note 2 to our unaudited condensed consolidated financial statements.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As set forth in our unaudited condensed consolidated statements of cash flows, cash provided by operations was $30 million and $48 million for the nine months ended September 30, 2018 and 2017, respectively. Management chose to increase coal inventory, which was $28.7 million at September 30, 2018 compared to $12.8 million at December 31, 2017, in anticipation of larger sales in the latter part of 2018, to build a base of inventory at our new Princeton Loop, and to increase inventory in connection with restarting production at the Carlisle Mine. This $15.9 million increase in coal inventory lessened cash provided by operations as compared to 2017. We expect our coal inventories to decrease by ~$7 million by December 31, 2018. Our projected capex budget for the remaining three months of 2018 is $6 million, of which $4 million is for maintenance capex. Cash provided by operations for the next three months is expected to fund our maintenance capital expenditures, debt service, and dividend.

 

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 unaudited consolidated balance sheets, we have surety bonds totaling $26 million to pay for ARO.

 

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CAPITAL EXPENDITURES (capex)

 

For the nine months of 2018, capex was $25.5 million allocated as follows (in millions):

 

Oaktown – investment  $2.6 
Oaktown – maintenance capex   14.9 
Princeton Rail Loop   5.9 
Hourglass - investment   1.5 
Other   0.6 
Capex per the Unaudited Condensed Consolidated Statements of Cash Flows  $25.5 

 

RESULTS OF OPERATIONS

 

Quarterly coal sales and cost data (in thousands, except per ton and percentage data) are provided below. Per ton calculations below are based on tons sold.

 

All Mines  4th 2017   1st 2018   2nd 2018   3rd 2018   T4Qs 
Tons produced   1,561    1,975    1,983    1,713    7,232 
Tons sold   1,685    1,707    1,477    1,962    6,831 
Coal sales  $68,922   $66,787   $56,922   $79,055   $271,686 
Average price/ton  $40.90   $39.13   $38.54   $40.29   $39.77 
Wash plant recovery in %   68%   69%   73%   72%     
Operating costs  $52,025   $46,640   $38,809   $60,132   $197,606 
Average cost/ton  $30.88   $27.32   $26.28   $30.65   $28.93 
Margin  $16,897   $20,147   $18,113   $18,923   $74,080 
Margin/ton  $10.03   $11.80   $12.26   $9.64   $10.84 
Capex  $7,294   $10,428   $7,784   $5,856   $31,362 
Maintenance capex  $2,520   $5,772   $5,058   $4,639   $17,989 
Maintenance capex/ton  $1.50   $3.38   $3.42   $2.36   $2.63 

 

All Mines  4th 2016   1st 2017   2nd 2017   3rd 2017   T4Qs 
Tons produced   1,640    1,917    1,647    1,487    6,691 
Tons sold   1,739    1,555    1,548    1,786    6,628 
Coal sales  $71,495   $62,555   $62,829   $73,896   $270,775 
Average price/ton  $41.11   $40.23   $40.59   $41.38   $40.85 
Wash plant recovery in %   67%   71%   69%   70%     
Operating costs  $50,663   $39,692   $44,079   $54,354   $188,788 
Average cost/ton  $29.13   $25.53   $28.47   $30.43   $28.48 
Margin  $20,832   $22,863   $18,750   $19,542   $81,987 
Margin/ton  $11.98   $14.70   $12.11   $10.94   $12.37 
Capex  $8,022   $5,144   $6,711   $9,473   $29,350 
Maintenance capex  $5,301   $2,887   $3,032   $2,961   $14,181 
Maintenance capex/ton  $3.05   $1.86   $1.96   $1.66   $2.14 

 

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2018 v. 2017 (first nine months)

 

For 2018, we sold 5,146,000 tons at an average price of $39.40/ton. For 2017, we sold 4,889,000 tons an average price of $40.76/ton. The decrease 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. We are contracted to ship in excess of 2.1 million tons during the last three months of 2018 at a price of ~$40.00/ton.

 

Operating costs for all of our active coal mines averaged $28.29/ton and $28.25/ton for the nine months ended September 30, 2018 and 2017, respectively. Our mines have consistently averaged less than $29.00/ton for the prior four and eight quarter periods. With the restart of production at the Carlisle mine in July 2018, our operating costs have increased, but we expect operating costs for our active mines to remain $28-$30/ton for the remainder of 2018.

 

We expect operating costs associated with the idled Prosperity mine to be $0.3 million for the remainder of 2018. Prosperity operating costs were $1.0 million during the nine months ended September 30, 2018.

 

DD&A increased approximately $4.2 million in the first nine months of 2018 when compared to 2017. A portion of our assets is depreciated based on raw production which has increased in 2018, thus as production increases so does our DD&A. Additionally, we began depreciating a new elevator at Oaktown 1 and assets relating to the Carlisle mine that had been idled since 2015.

 

SG&A expenses decreased approximately $3.2 million in the first nine months of 2018 when compared to 2017. In May 2017, a stock bonus totaling $3.8 million was awarded to company executives. No such award occurred in 2018. In March 2018, accelerated vesting of restricted stock units totaling $1.5 million occurred due to the passing of our former Chairman, Victor Stabio. We expect SG&A for the remainder of 2018 to be $2.5 million.

 

Our Sunrise Coal employees totaled 803 at September 30, 2018, compared to 714 at September 30, 2017. We increased our head count in preparation for increased shipments in the last six months of the year.

 

2018 v. 2017 (third quarter)

 

For 2018, we sold 1,962,000 tons at an average price of $40.29/ton. For 2017 we sold 1,786,000 tons at an average price of $41.38/ton. The decrease 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. We are contracted to ship in excess of 2.1 million tons during the last three months of 2018 at a price of ~$40.00/ton.

 

Operating costs for all of our active coal mines averaged $30.65/ton in 2018 and $30.43/ton in 2017. Our operating costs for the quarter are slightly above our previous guidance of $28-$30/ton due in part to the restart of production at the Carlisle mine in July 2018. We expect operating costs for our active mines to remain $28-$30/ton for the remainder of 2018. Prosperity operating costs were $0.3 million during the three months ended September 30, 2018.

 

DD&A increased approximately $1.1 million in the third quarter of 2018 when compared to the third quarter of 2017. A portion of our assets are depreciated based on raw production which has increased in 2018, thus as production increases so does our DD&A. Additionally, we began depreciating a new elevator at Oaktown 1 and assets relating to the Carlisle mine that had been idled since 2015.

  

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CURRENT PROJECTS

 

Hourglass Sands

 

In February 2018, we invested $4 million in Hourglass Sands, LLC, a permitted frac sand mining company in the State of Colorado. In April 2018, we closed on the purchase of a commercial sand dryer and contracted with a third party to process our sand in Colorado Springs, Colorado.

 

We began producing raw sand in Colorado in June 2018. We shipped test shipments of sand in September 2018 to two customers. We do not anticipate Hourglass being profitable in 2018 but are excited about its growth potential in future years. Currently, we believe we control the only permitted frac sand mine in the State of Colorado.

 

Princeton Rail Loop

 

The Princeton loop, which provides access to new markets and customers, was completed and our first coal trains were delivered to customers in May 2018. The facility is a truck to rail transload facility located six miles east of Princeton, IN and is capable of loading 135 car unit trains in less than four hours. The new facility primarily serves utility coal plants served by Norfolk Southern Railway Company.

 

EARNINGS (LOSS) PER SHARE

 

   4th 2017   1st 2018   2nd 2018   3rd 2018 
Basic and diluted  $.69   $.07   $(.00)  $.09 

 

   4th 2016   1st 2017   2nd 2017   3rd 2017 
Basic and diluted  $(.13)  $.25   $.01   $.13 

 

INCOME TAXES

 

Our effective tax rate (ETR) was estimated at (12)% and 8% for the nine months ended September 30, 2018 and 2017, respectively. Assuming no changes in our expected results of operations, we expect our ETR for the remainder of 2018 to be about the same as the first nine 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 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 MSHA or other government agencies. After applying the provisions of ASU 2014-09, as of September 30, 2018, 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 11. Restricted Stock Units (RSUs)” for a discussion of RSUs.

 

CRITICAL ACCOUNTING ESTIMATES

 

We believe that the estimates of our coal reserves, our business acquisitions, our interest rate swaps, our deferred tax accounts, and the estimates used in our impairment analysis are our only critical accounting estimates.

 

The reserve estimates are used in the DD&A calculation and in 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.

 

We account for business combinations using the purchase method of accounting. The purchase method requires us to determine the fair value of all acquired assets, including identifiable intangible assets and all assumed liabilities. The total cost of acquisitions is allocated to the underlying identifiable net assets, based on their respective

 

20 

 

 

estimated fair values. Determining whether an acquisition is considered to be a business or an asset acquisition, and if deemed to meet the definition of a business, the fair value of assets acquired and liabilities assumed requires management's judgment and the utilization of independent valuation experts, and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates and asset lives, among other items.

 

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.

 

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.

 

Yorktown Distributions

 

As disclosed in our 8-K filed on August 16, 2018, Yorktown Energy Partners VII, L.P. distributed 868,405 shares of Hallador common stock to its general and limited partners. We were advised that the distributed shares could be sold immediately. Currently, the Yorktown Energy Partners VII, LP, and its affiliated partners hold 3,915,998 million shares of our stock representing 13% of total shares outstanding.

 

We have been informed by Yorktown that they have not made any determination as to the disposition of their remaining Hallador stock.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

See “Item 1. Financial Statements - Note 1. General Business” for a discussion of new accounting standards.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

No material change from the disclosure in our 2017 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 and CFO 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 and CFO of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective for the purposes discussed above.

 

There have been no changes to our internal control over financial reporting during the quarter ended September 30, 2018, that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Safety is a core value at Hallador Energy 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 whose current list of achievements include 1st place at the 2018 Indiana Mine Rescue Association Contest which was held in June 2018 and top 3 finishes at several other contests over the last year.

 

See Exhibit 95 to this Form 10-Q for a listing of our mine safety violations.

 

ITEM 6. EXHIBITS

 

15.1 Letter Regarding Unaudited Interim Financial Information – Plante Moran
15.2 Letter Regarding Unaudited Interim Financial Information - EKSH
31.1 SOX 302 Certification
31.2 SOX 302 Certification
32 SOX 906 Certification
95 Mine Safety Disclosures
101 Interactive Files

 

SIGNATURE

 

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.

 

  HALLADOR ENERGY COMPANY
   
Date: November 5, 2018   /s/ LAWRENCE D. MARTIN
  Lawrence D. Martin, CFO and CAO

 

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Section 2: EX-15.1 (EXHIBIT 15.1)

 

Exhibit 15.1

 

Letter Regarding Unaudited Interim Financial Information

 

Hallador Energy Company

 

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Hallador Energy Company for the periods ended September 30, 2018, as indicated in our report dated November 5, 2018. Because we did not perform an audit, we expressed no opinion on that information.

 

We are aware that our report referred to above, which is included in your Form 10-Q for the quarter ended September 30, 2018, is incorporated by reference in Registration Statement Nos. 333-163431 and 333-171778 of Hallador Energy Company on Form S-8.

 

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

 

/s/ Plante & Moran, PLLC

 

Denver, Colorado

November 5, 2018

 

 

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Section 3: EX-15.2 (EXHIBIT 15.2)

 

Exhibit 15.2

 

Letter Regarding Unaudited Interim Financial Information

 

Hallador Energy Company

 

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Hallador Energy Company for the period ended September 30, 2017, as indicated in our report dated March 12, 2018. Because we did not perform an audit, we expressed no opinion on that information.

 

We are aware that our report referred to above, which is included in your Form 10-Q for the quarter ended September 30, 2017, is incorporated by reference in Registration Statement Nos. 333-163431 and 333-171778 of Hallador Energy Company on Form S-8.

 

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

 

/s/ EKS&H LLLP

 

Denver, Colorado

November 5, 2018

 

 

(Back To Top)

Section 4: EX-31.1 (EXHIBIT 31.1)

 

Exhibit 31.1

 

CERTIFICATION

 

I, Brent K. Bilsland, certify that:

 

1.       I have reviewed this quarterly report on Form 10-Q of Hallador Energy Company;

 

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
   
 d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

 

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

  

November 5, 2018 /s/BRENT K. BILSLAND  
  Brent K. Bilsland, Chairman, President and CEO  

 

 

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Section 5: EX-31.2 (EXHIBIT 31.2)

 

Exhibit 31.2

 

CERTIFICATION

 

I, Lawrence D. Martin, certify that:

 

1.       I have reviewed this quarterly report on Form 10-Q of Hallador Energy Company;

 

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.       The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

 

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

November 5, 2018 /s/LAWRENCE D. MARTIN  
  Lawrence D. Martin, CFO  

 

 

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Section 6: EX-32 (EXHIBIT 32)

 

Exhibit 32

 

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with this Quarterly Report (the "Report"), of Hallador Energy Company (the "Company"), on Form 10-Q for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof the undersigned, in the capacities and date indicated below, each hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

 

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

November 5, 2018  
  By: /s/BRENT K. BILSLAND  
    Brent K. Bilsland, Chairman, President and CEO  
     
  By: /s/LAWRENCE D. MARTIN  
    Lawrence D. Martin, CFO  

 

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Section 7: EX-95 (EXHIBIT 95)

 

Exhibit 95 Mine Safety Disclosures

 

Our principles at Sunrise Coal, LLC are safety, honesty, and compliance. We firmly believe that these values compose a dedicated workforce and with that, come high production. The core to this is our strong training programs that include accident prevention, workplace inspection and examination, emergency response and compliance. We work with the Federal and State regulatory agencies to help eliminate safety and health hazards from our workplace and increase safety and compliance awareness throughout the mining industry.

 

We are regulated by the Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (“Mine Act”). MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. We present information below regarding certain violations which MSHA has issued with respect to our mines. While assessing this information please consider that the number and cost of violations will vary depending on the MSHA inspector and can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed.

 

The disclosures listed below are provided pursuant to the Dodd-Frank Act. We believe that the following disclosures comply with the requirements of the Dodd-Frank Act; however, it is possible that future SEC rule making may require disclosures to be filed in a different format than the following.

 

The table that follows outlines citations and orders issued to us by MSHA during the third Quarter 2018. The citations and orders outlined below may differ from MSHA`s data retrieval system due to timing, special assessed citations, and other factors.

 

Definitions:

 

Section 104(a) Significant and Substantial Citations “S&S”: An alleged violation of a mining safety or health standard or regulation where there exists a reasonable likelihood that the hazard outlined will result in an injury or illness of a serious nature.

 

Section 104(b) Orders: Failure to abate a 104(a) citation within the period of time prescribed by MSHA. The result of which is an order of immediate withdraw of non-essential persons from the affected area until MSHA determines the violation has been corrected.

 

Section 104(d) Citations and Orders: An alleged unwarrantable failure to comply with mandatory health and safety standards.

 

Section 107(a) Orders: An order of withdraw for situations where MSHA has determined that an imminent danger exists.

 

Section 110(b)(2) Violations: An alleged flagrant violation issued by MSHA under section 110(b)(2) of the Mine Act.

 

Pattern or Potential Pattern of Violations: A pattern of violations of mandatory health or safety standards that are of such a nature as could have significantly and substantially contributed to the cause and effect of coal mine health or safety hazards under section 104(e) of the Mine Act or a potential to have such a pattern.

 

Contest of Citations, Orders, or Proposed Penalties: A contest proceeding may be filed with the Commission by the operator or miners/miner’s representative to challenge the issuance or penalty of a citation or order issued by MSHA.

 

MSHA Federal Mine ID#`s:

(12-02349 – Carlisle Mine) (12-02465 – Carlisle Preparation Plant) (12-02460 – Ace in the Hole Mine)

(12-02394 – Oaktown Fuels No. 1) (12-02418 – Oaktown Fuels No. 2) (12-02462 – Oaktown Fuels Preparation Plant)

(12-02249 – Prosperity Mine)

 

 

 

 

3rd Quarter 2018

 

   Section   Section   Section   Section   Section   Proposed 
   104(a)   104(b)   104(d)   107(a)   110(b)(2)   MSHA 
   Citations   Orders   Citations/Orders   Orders   Violations   Assessments 
Mine ID#                 (In thousands) 
12-02349   8    0    0    0    0   $2.50 
12-02465   0    0    0    0    0   $0.00 
12-02460   1    0    0    0    0   $0.70 
12-02394   11    0    0    0    0   $57.50 
12-02418   7    0    0    1    0   $5.70 
12-02462   1    0    0    0    0   $0.70 
12-02249   0    0    0    0    0   $0.00 

 

   Section   Section                 
   104(e)   104(e)   Mining   Legal   Legal   Legal 
   Notice   POV   Related   Actions   Actions   Actions 
   Yes/No   Yes/No   Fatalities   Pending   Initiated   Resolved 
Mine ID#                        
12-02349   No    No    0    0    0    0 
12-02465   No    No    0    0    0    0 
12-02460   No    No    0    0    0    0 
12-02394   No    No    0    4    3    3 
12-02418   No    No    0    0    0    0 
12-02462   No    No    0    0    0    0 
12-02249   No    No    0    0    0    0 

 

   Contest of   Contest   Complaints   Complaints   Applications   Appeals of 
   Citations/   of   of   of Discharge/   of Temp.   Decisions/ 
   Orders   Penalties   Compensation   Discrimination   Relief   Orders 
Mine ID#                        
12-02349   0    0    0    0    0    0 
12-02465   0    0    0    0    0    0 
12-02460   0    0    0    0    0    0 
12-02394   2    1    0    0    0    0 
12-02418   0    0    0    0    0    0 
12-02462   0    0    0    0    0    0 
12-02249   0    0    0    0    0    0 

 

 

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