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Section 1: 10-Q (FORM 10-Q)

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Table of Contents

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D. C. 20549 

  

FORM 10-Q

 

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

  

 

For the quarterly period ended: June 30, 2020

OR

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

  

Commission file number:001-34743

 

“COAL KEEPS YOUR LIGHTS ON”

“COAL KEEPS YOUR LIGHTS ON”

HALLADOR ENERGY COMPANY

(www.halladorenergy.com)

  

  

  

Colorado

(State of incorporation)

 

84-1014610

(IRS Employer Identification No.)

 

 

 

1183 East Canvasback Drive, Terre Haute, Indiana

(Address of principal executive offices)

 

47802

(Zip Code)

  

Registrant’s telephone number: 812.299.2800

  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Shares, $.01 par value

 

HNRG

 

Nasdaq

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No 

 

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

  

Large accelerated filer

 

Accelerated filer ☑

Non-accelerated filer ☐

 

Smaller reporting company

 

 

Emerging growth company 

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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

 

As of July 31, 2020, we had 30,465,665 shares outstanding.

 

 

 
 

TABLE OF CONTENTS 

    

  

PART I - FINANCIAL INFORMATION

 

   

ITEM 1. FINANCIAL STATEMENTS

 

   

Condensed Consolidated Balance Sheets

 

   

Condensed Consolidated Statements of Income (Loss)

 

   

Condensed Consolidated Statements of Cash Flows

 

   

Condensed Consolidated Statements of Stockholders’ Equity

 

   

Notes to Condensed Consolidated Financial Statements

 

   

Report of Independent Registered Public Accounting Firm

 

   

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

 

   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

   

ITEM 4. CONTROLS AND PROCEDURES

 

   

PART II - OTHER INFORMATION

 

   

ITEM 1A. RISK FACTORS

 

   

ITEM 4. MINE SAFETY DISCLOSURES

 

   

ITEM 6. EXHIBITS

 

  

 

  

 

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,

 
  

2020

  

2019

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $7,375  $8,799 

Restricted cash (Note 12)

  4,508   4,512 

Certificates of deposit

     245 

Accounts receivable

  13,494   25,580 

Prepaid income taxes

  975   1,562 

Inventory (Note 3)

  42,012   28,297 

Parts and supplies, net of allowance of $274

  9,568   11,775 

Prepaid expenses

  2,682   1,678 

Total current assets

  80,614   82,448 

Property, plant and equipment, at cost:

        

Land and mineral rights

  114,974   114,722 

Buildings and equipment

  357,912   351,614 

Mine development

  87,542   84,160 

Total property, plant and equipment, at cost

  560,428   550,496 

Less - accumulated DD&A

  (240,964)  (220,780)

Total property, plant and equipment, net

  319,464   329,716 

Investment in Sunrise Energy (Note 15)

  3,412   3,139 

Other long-term assets (Note 4)

  8,169   10,324 

Total Assets

 $411,659  $425,627 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY

        

Current liabilities:

        

Current portion of bank debt, net (Note 5)

 $34,311  $33,044 
Current portion of PPP note (Note 5)  4,448    

Accounts payable and accrued liabilities (Note 6)

  32,801   31,800 

Total current liabilities

  71,560   64,844 

Long-term liabilities:

        

Bank debt, net (Note 5)

  119,463   140,594 
PPP note (Note 5)  5,552    

Deferred income taxes

  2,614   4,884 

Asset retirement obligations (ARO)

  16,262   15,694 

Other

  4,701   4,081 

Total long-term liabilities

  148,592   165,253 

Total liabilities

  220,152   230,097 

Redeemable noncontrolling interests (Note 2)

  4,000   4,000 

Stockholders' equity:

        

Preferred stock, $.10 par value, 10,000 shares authorized; none issued

      

Common stock, $.01 par value, 100,000 shares authorized; 30,465 and 30,420 outstanding, respectively

  305   304 

Additional paid-in capital

  102,833   102,215 

Retained earnings

  84,369   89,011 

Total stockholders’ equity

  187,507   191,530 

Total liabilities, redeemable noncontrolling interests, and stockholders’ equity

 $411,659  $425,627 

    

See accompanying notes.

 

3

 

 

Hallador Energy Company 

Condensed Consolidated Statements of Income (Loss)

(in thousands, except per share data) 

(unaudited) 

 

  

Three Months Ended June 30,

  

Six Months Ended June 30,

 
  

2020

  

2019

  

2020

  

2019

 

REVENUE:

                

Coal sales

 $50,473  $71,113  $112,405  $156,348 

Other operating income (Note 8)

  1,608   1,197   2,214   5,275 

Total revenue

  52,081   72,310   114,619   161,623 

COSTS AND EXPENSES:

                

Operating costs and expenses

  36,165   54,001   84,634   116,420 

DD&A

  10,217   12,096   20,844   23,834 

ARO accretion

  343   314   676   623 

Exploration costs

  208   208   461   488 

SG&A

  2,678   3,475   5,656   6,459 

Interest (1)

  2,834   5,369   8,548   9,988 

Total costs and expenses

  52,445   75,463   120,819   157,812 
                 

INCOME (LOSS) BEFORE INCOME TAXES

  (364)  (3,153)  (6,200)  3,811 
                 

INCOME TAX EXPENSE (BENEFIT) (NOTE 9):

                

Current

     78   (524)  (151)

Deferred

  (618)  113   (2,270)  306 

Total income tax expense (benefit)

  (618)  191   (2,794)  155 
                 

NET INCOME (LOSS)

 $254  $(3,344) $(3,406) $3,656 
                 

NET INCOME (LOSS) PER SHARE (NOTE 13):

                

Basic and diluted

 $0.01  $(0.11) $(0.11) $0.12 
                 

WEIGHTED AVERAGE SHARES OUTSTANDING

                

Basic and diluted

  30,423   30,245   30,421   30,245 
                 
                 

(1) Bank interest

  2,842   2,933   5,496   5,945 

Non-cash interest:

                

Change in interest rate swap valuation

  (617)  1,843   1,976   2,856 

Amortization of debt issuance costs

  609   542   1,076   1,085 

Other

     51      102 

Total non-cash interest

  (8)  2,436   3,052   4,043 

Total interest

 $2,834  $5,369  $8,548  $9,988 

   

See accompanying notes.

 

4

 

 

Hallador Energy Company 

Condensed Consolidated Statements of Cash Flows 

(in thousands) 

(unaudited)  

 

   

Six Months Ended June 30,

 
   

2020

   

2019

 

OPERATING ACTIVITIES:

               

Net income (loss)

  $ (3,406 )   $ 3,656  

Deferred income taxes

    (2,270 )     306  

Equity (income) loss – Sunrise Energy

    (1,286 )     166  

DD&A

    20,844       23,834  
Gain on sale of assets           (100 )

Unrealized gain on marketable securities

    (14 )     (348 )

Gain on sale of royalty interests in oil properties

          (2,949 )

Change in fair value of interest rate swaps

    1,976       2,856  

Change in fair value of fuel hedge

    913        

Amortization and write off of deferred financing costs

    1,076       1,085  

Accretion of ARO

    676       623  

Stock-based compensation

    636       1,012  

Change in current assets and liabilities:

               

Accounts receivable

    12,094       (1,811 )

Inventory

    (13,715 )     (10,416 )

Parts and supplies

    2,207       (1,889 )

Prepaid income taxes

    586       1,418  

Prepaid expenses

    (1,004 )     7,267  

Accounts payable and accrued liabilities

    (6,035 )     8,386  

Other

    3,896       (9,385 )

Cash provided by operating activities

  $ 17,174     $ 23,711  

INVESTING ACTIVITIES:

               

Distribution from investment in Sunrise Energy

    1,012        

Capital expenditures

    (10,032 )     (18,293 )
Proceeds from sale of equipment     56       129  

Proceeds from sale of royalty interests in oil properties

          2,949  

Proceeds from sale of marketable securities

    2,310        

Proceeds from maturities of certificates of deposit

    245       245  

Cash used in investing activities

    (6,409 )     (14,970 )

FINANCING ACTIVITIES:

               

Payments on bank debt

    (26,287 )     (27,363 )
Borrowings of bank debt     7,250       12,000  
Proceeds from PPP loan     10,000        
Debt issuance costs     (1,903 )      
Taxes paid on vesting of RSUs     (17 )     (7 )

Dividends

    (1,236 )     (2,483 )

Cash used in financing activities

    (12,193 )     (17,853 )

Decrease in cash, cash equivalents, and restricted cash

    (1,428 )     (9,112 )

Cash, cash equivalents, and restricted cash, beginning of period

    13,311       20,094  

Cash, cash equivalents, and restricted cash, end of period

  $ 11,883     $ 10,982  

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH CONSIST OF THE FOLLOWING:

               

Cash and cash equivalents

  $ 7,375     $ 6,406  

Restricted cash

    4,508       4,576  
    $ 11,883     $ 10,982  
                 

SUPPLEMENTAL CASH FLOW INFORMATION:

               

Cash paid for interest

  $ 5,571     $ 6,089  

Cash received from income taxes

    1,111       1,569  

SUPPLEMENTAL NON-CASH FLOW INFORMATION:

               

Capital expenditures included in accounts payable and prepaid expense

  $ 1,527     $ 5,544  

Right-of-use assets acquired by operating lease

          942  

      

See accompanying notes.

 

5

 

 

Hallador Energy Company 

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands) 

(unaudited)

 

2020

 
                   

Additional

           

Total

 
   

Common Stock Issued

   

Paid-in

   

Retained

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Equity

 

Balance, March 31, 2020

    30,420     $ 304     $ 102,534     $ 84,115     $ 186,953  

Stock-based compensation

                317             317  

Stock issued on vesting of RSUs

    70       1       (1 )            

Taxes paid on vesting of RSUs

    (25 )           (17 )           (17 )

Dividends

                             

Net loss

                      254       254  

Balance, June 30, 2020

    30,465     $ 305     $ 102,833     $ 84,369     $ 187,507  
                                         

Balance, December 31, 2019

    30,420     $ 304     $ 102,215     $ 89,011     $ 191,530  

Stock-based compensation

                636             636  

Stock issued on vesting of RSUs

    70       1       (1 )            

Taxes paid on vesting of RSUs

    (25 )           (17 )           (17 )

Dividends

                      (1,236 )     (1,236 )

Net loss

                      (3,406 )     (3,406 )

Balance, June 30, 2020

    30,465     $ 305     $ 102,833     $ 84,369     $ 187,507  

  

2019

 
                   

Additional

           

Total

 
   

Common Stock Issued

   

Paid-in

   

Retained

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Equity

 

Balance, March 31, 2019

    30,245     $ 302     $ 101,236     $ 159,589     $ 261,127  

Stock-based compensation

                518             518  

Stock issued on vesting of RSUs

    4                          

Taxes paid on vesting of RSUs

    (2 )           (7 )           (7 )

Dividends

                      (1,242 )     (1,242 )

Net loss

                      (3,344 )     (3,344 )

Balance, June 30, 2019

    30,247     $ 302     $ 101,747     $ 155,003     $ 257,052  
                                         

Balance, December 31, 2018

    30,245     $ 302     $ 100,742     $ 153,830     $ 254,874  

Stock-based compensation

                1,012             1,012  

Stock issued on vesting of RSUs

    4                          

Taxes paid on vesting of RSUs

    (2 )           (7 )           (7 )

Dividends

                      (2,483 )     (2,483 )

Net income

                      3,656       3,656  

Balance, June 30, 2019

    30,247     $ 302     $ 101,747     $ 155,003     $ 257,052  

 

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 six months ended June 30, 2020, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2020.  To maintain consistency and comparability, certain 2019 amounts have been reclassified to conform to the 2020 presentation.

 

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 2019 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.

 

New Accounting Standards Issued and Adopted

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The amendments in this update modify the disclosure requirements for fair value measurements. For public business entities, the standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We adopted ASU 2018-13 effective January 1, 2020. Adoption of ASU 2018-13 did not have a material impact on the Company’s condensed consolidated financial statements.

 

 

(2)

LONG-LIVED ASSET IMPAIRMENTS

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable.  The impact of COVID-19 is being monitored closely, but for the quarter ended June 30, 2020, there were no material impairment charges recorded for long-lived assets.

 

Carlisle Mine

 

We recorded an impairment of $65.7 million as of December 31, 2019 due to our decision to idle the Carlisle Mine during Q4 2019.  The impairment included buildings, land, rail, mine development, equipment, and advanced royalties. Buildings, land, and rail were impaired to their estimated salvage value. The remaining salvage value of land and buildings at the Carlisle Mine is estimated at $1.8 million as of June 30, 2020 and December 31, 2019.

 

Subsequent to year end during late Q1 2020, we determined that it was economically prudent to permanently close the Carlisle Mine. Equipment totaling  $23  million is being redeployed and will be utilized at the Oaktown mines. No additional impairment costs were recorded during Q1 2020 as a result of the decision to close the Carlisle Mine. Exit and disposal costs to close the mine were $1.1 million, which were recorded as current period costs in Q1 and Q2 of 2020.  The exit and disposal costs during Q2 2020 were $0.6 million.

 

7

 

Bulldog Reserves

 

As a result of the Carlisle Mine impairment, we determined that an impairment of the Bulldog Reserves was also necessary.  With the closure of the Carlisle Mine, it became apparent that the likelihood of construction and opening of Bulldog was reduced.  Based on our review, we recorded an impairment of $9.2  million as of December 31, 2019, which included land and advanced royalties, and was a complete impairment of all assets.

 

Hourglass Sands

 

We recorded an impairment of $2.9 million as of December 31, 2019, due to softness in the pricing of the frac sand market.  The impairment included inventory, land, mine development, buildings and equipment and was determined using a market approach.  The remaining fair market value of inventory, equipment, and buildings at Hourglass Sands is $1.8 million and $1.9 million as of June 30, 2020 and December 31, 2019,respectively.

 

 

(3)

INVENTORY

 

Inventory is valued at lower of average cost or net realizable value (NRV).  As of June 30, 2020, and December 31, 2019, coal inventory includes NRV adjustments of $0.6 million and $2.0 million, respectively.

 

 

(4)

OTHER LONG-TERM ASSETS (in thousands)

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 

Advanced coal royalties

  $ 6,303     $ 6,105  

Marketable equity securities available for sale, at fair value (restricted)*

          2,296  

Other

    1,866       1,923  

Total other assets

  $ 8,169     $ 10,324  

 


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

 

 

(5)

BANK DEBT

 

On April 15, 2020, we executed an amendment to our credit agreement with PNC, administrative agent for our lenders.  The primary purpose of the amendment was to modify the allowable leverage ratio over the term of the loan to increase available liquidity.  As a result of the amendment, our maximum annual capital expenditures are limited to $30 million for 2020, and our dividend is suspended until our leverage ratio falls below 2.0X.

 

In the first half of 2020, we reduced our bank debt $19 million, which as of June 30, 2020 was $161 million.  Bank debt is comprised of term debt ($86  million as of June 30, 2020) and a  $120 million revolver ($75 million borrowed as of June 30, 2020).  The term debt amortization concludes with a final payment in March 2023.  The revolver matures September 2023.  Our debt is recorded at cost, which approximates fair value due to the variable interest rates in the agreement and is collateralized primarily by our assets.

 

Liquidity

 

As of June 30, 2020, under the new leverage ratio, we had additional borrowing capacity of $45.3 million and total liquidity of $52.6 million.  Liquidity consists of our additional borrowing capacity and cash and cash equivalents.

 

Fees

 

Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled  $7.9 million as of our amendment in April 2020. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of June 30, 2020, and December 31, 2019, were $7.3 million and $6.5 million, respectively.  Additional costs incurred with the April 15 amendment were $1.9 million.

 

8

 

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

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 

Current bank debt

  $ 36,750     $ 34,912  

Less unamortized debt issuance cost

    (2,439 )     (1,868 )

Net current portion

  $ 34,311     $ 33,044  
                 

Long-term bank debt

  $ 124,363     $ 145,238  

Less unamortized debt issuance cost

    (4,900 )     (4,644 )

Net long-term portion

  $ 119,463     $ 140,594  
                 

Total bank debt

  $ 161,113     $ 180,150  

Less total unamortized debt issuance cost

    (7,339 )     (6,512 )

Net bank debt

  $ 153,774     $ 173,638  

 

Covenants

 

The credit facility includes a Maximum Leverage Ratio (consolidated funded debt / trailing twelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailing twelve months, not to exceed the amounts below:

 

Fiscal Periods Ending

 

Ratio

 

March 31, 2020 and June 30, 2020

  4.00 to 1.00  

September 30, 2020 and December 31, 2020

  3.50 to 1.00  

March 31, 2021 and June 30, 2021

  3.25 to 1.00  

September 30, 2021 and December 31, 2021

  3.00 to 1.00  

March 31, 2022 and each fiscal quarter thereafter

  2.50 to 1.00  

  

As of June 30, 2020, our Leverage Ratio of 2.97 was in compliance with the requirements of the credit agreement.

 

The credit facility also requires a Minimum Debt Service Coverage Ratio (consolidated adjusted EBITDA / annual debt service) calculated as of the end of each fiscal quarter for the trailing twelve months of 1.05 to 1.00 through December 31, 2021, at which time it increases to 1.25 to 1.00 through the maturity of the credit facility.

 

As of June 30, 2020, our Debt Service Coverage Ratio of 1.34 was in compliance with the requirements of the credit agreement.

 

Rate

 

The interest rate on the facility ranges from LIBOR plus 2.75% to LIBOR plus 4.00%, depending on our Leverage Ratio, with a LIBOR floor of 0.50%.  We entered into swap agreements to fix the LIBOR component of the interest rate at 2.92% on the declining term loan balance and on $53 million of the revolver. At June 30, 2020, we are paying LIBOR at the swap rate of 2.92% plus 3.50% for a total interest rate of 6.42% on the hedged amount ($139 million) and 4% on the remainder ($22 million).

 

Paycheck Protection Program

 

On April 16, 2020, we entered into a promissory note evidencing an unsecured loan in the amount of $10 million made to the Company under the Paycheck Protection Program (the “Loan”). The Paycheck Protection Program (or “PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The Loan to the Company is being made through First Financial Bank, N.A. (the “Lender”).    

  

The interest rate on the Loan is 1.00%. Beginning seven months from the date of the Loan, the Company is required to make 18 monthly payments of principal and interest. The promissory note evidencing the Loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Lender, or breaching the terms of the Loan Documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining a judgment against the Company.

  

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any covered payments of mortgage interest, rent, and utilities. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The Company used all proceeds from the PPP Loan to maintain payroll and make utility payments.

 

At June 30, 2020, the PPP loan totaling $10 million is presented as current and long-term liabilities on the condensed consolidated balance sheet based upon the schedule of repayments and excluding any possible forgiveness of the loan.

 

9

 
 

(6)

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands)

 

   

June 30,

   

December 31,

 
   

2020

   

2019

 

Accounts payable

  $ 15,331     $ 16,115  

Accrued property taxes

    2,543       2,835  

Accrued payroll

    2,605       2,151  

Workers' compensation reserve

    3,699       3,446  

Group health insurance

    2,100       2,500  
Fair value of interest rate swaps     3,246       1,714  

Other

    3,277       3,039  

Total accounts payable and accrued liabilities

  $ 32,801     $ 31,800  

  

 

(7)

REVENUE

 

Revenue from Contracts with Customers

 

We account for a contract with a customer when the parties have approved the contract and are committed to performing their respective obligations, the rights of each party are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. We recognize revenue when we satisfy a performance obligation by transferring control of a good or service to a customer.

 

Our revenue is derived from sales to customers of coal produced at our facilities. Our customers typically purchase coal directly from our mine sites or our Princeton Loop, where the sale occurs and where title, risk of loss, and control pass to the customer at that point. Our customers arrange for and bear the costs of transporting their coal from our mines to their plants or other specified discharge points. Nearly all our customers are domestic utility companies. Our coal sales agreements with our customers are fixed-priced, or include price re-openers, fixed-volume supply contracts. 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 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, including BTUs, ash, moisture, and sulfur content among other qualities. 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 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. 73% and 75% of our coal revenue for the three and six months ended June 30, 2020, and 67% and 70% for three and six months ended  June 30, 2019, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Florida, Georgia, North Carolina, Kentucky, Tennessee, and South Carolina.

 

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.

 

10

 

We recognize revenue at a point in time, as the customer does not have control over the asset at any point during the fulfillment of the contract. For substantially all of our customers, this is supported by the fact that title and risk of loss transfer to the customer upon loading of the truck or railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the right to receive substantially all benefits and the risk of loss in ownership of the coal.

 

We have remaining performance obligations relating to fixed priced contracts of approximately $450 million, which represent the average fixed prices on our committed contracts as of June 30, 2020. We expect to recognize approximately 70% of this revenue through 2021, with the remainder recognized thereafter. 

 

We have remaining performance obligations relating to contracts with price reopeners of approximately $266 million, which represents our estimate of the expected re-opener price on committed contracts as of June 30, 2020. We expect to recognize all of this revenue 2021-2024.

 

The tons used to determine the remaining performance obligations are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce tonnage if such option exists in the customer contract.

 

Contract Balances

 

Under ASC 606, the timing of when a performance obligation is satisfied can affect the presentation of accounts receivable, contract assets, and contract liabilities. The main distinction between accounts receivable and contract assets is whether consideration is conditional on something other than the passage of time. A receivable is an entity’s right to consideration that is unconditional. Under the typical payment terms of our contracts with customers, the customer pays us a base price for the coal, increased or decreased for any quality adjustments. Amounts billed and due are recorded as trade accounts receivable and included in accounts receivable in our condensed consolidated balance sheets. We do not currently have any contracts in place where we would transfer coal in advance of knowing the final price of the coal sold, and thus do not have any contract assets recorded. Contract liabilities arise when consideration is received in advance of performance. This deferred revenue is included in accounts payable and accrued liabilities in our condensed consolidated balance sheets when consideration is received, and revenue is not recognized until the performance obligation is satisfied. We are rarely paid in advance of performance, but we currently are carrying $0.5 million in deferred revenue recorded in our condensed consolidated balance sheets as of June 30, 2020.

 

 

(8)

OTHER OPERATING INCOME (in thousands)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Equity income (loss) - Sunrise Energy

  $ 1,231     $ (132 )   $ 1,286     $ (166 )

Government imposition reimbursements

    100       150       200       300  

Gain on sale of royalty interests in oil properties

          449             2,949  
Coal storage     84             84        

Miscellaneous

    193       730       644       2,192  
    $ 1,608     $ 1,197     $ 2,214     $ 5,275  

 

 

(9)

INCOME TAXES

 

For the three and six months ended June 30, 2020, the Company utilized a discrete period method to calculate taxes, as it does not believe the annual effective tax rate method represents a reliable estimate given the current uncertainty surrounding COVID-19.   Our effective tax rate for the six months ended June 30, 2020 and 2019 was ~45% and ~4%, respectively. Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion in excess of tax basis. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.

  

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit  (“AMT”) refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, the CARES Act, (i) eliminates the 80% of taxable income limitation by allowing corporate entities to fully utilize NOLs to offset taxable income in 2018, 2019 or 2020, (ii) increases the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning January 1, 2019 and 2020 and (iv) allows taxpayers with AMT credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the Tax Cuts and Jobs Act in 2017.

 

11

 
 

(10)

STOCK COMPENSATION PLANS

 

Non-vested grants at December 31, 2019

  488,500 

Granted – share price on grant date was $0.98

  30,000 

Vested – average weighted share price on vesting date was $0.68

  (70,000)

Forfeited

  (9,500)

Non-vested grants at June 30, 2020

  439,000 

 

For the three and six months ended June 30, 2020, our stock compensation was $0.3 million and $0.6 million, respectively. For the three and six months ended June 30,  2019, our stock-based compensation was $0.5 million and $1.0 million, respectively.

  

Non-vested RSU grants will vest as follows:

 

Vesting Year

 

RSUs Vesting

 

2020

  106,250 

2021

  308,750 

2022

  24,000 
   439,000 

  

The outstanding RSUs have a value of $0.3 million based on the July 31, 2020, closing stock price of$0.63.

 

At  July 31, 2020, we had 1,388,814 RSUs available for future issuance.

 

 

(11)

LEASES

 

We have operating leases for office space and processing facilities with remaining lease terms ranging from less than one year to approximately five years. As most of the leases do not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.

 

Information related to leases was as follows (in thousands):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Operating lease information:

                               

Operating cash outflows from operating leases

  $ 47     $ 78     $ 134     $ 157  

Weighted average remaining lease term in years

    3.67       4.19       3.67       4.19  

Weighted average discount rate

    6.0 %     6.0 %     6.0 %     6.0 %

 

12

 

Future minimum lease payments under non-cancellable leases as of June 30, 2020 were as follows:

 

Year

 

Amount

 
  

(In thousands)

 

2020

 $99 

2021

  201 

2022

  206 

2023

  174 

2024

  59 

Total minimum lease payments

 $739 

Less imputed interest

  (56)
     

Total operating lease liability

 $683 
     

As reflected on balance sheet:

    

Other long-term liabilities

 $683 

 

At June 30, 2020, and December 31, 2019, respectively, we had approximately $683,000 and $800,000, right-of-use operating lease assets recorded within “buildings and equipment” on the condensed consolidated balance sheets.

 

 

(12)

SELF-INSURANCE

 

We self-insure our underground mining equipment. Such equipment is allocated among seven mining units dispersed over ten miles. The historical cost of such equipment was approximately $273 million as of June 30, 2020, and December 31, 2019.

 

Restricted cash of $4.5 million as of June 30, 2020, and December 31, 2019 represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.

 

 

(13)

NET INCOME (LOSS) PER SHARE

 

We compute net income (loss) per share using the two-class method, which is an allocation formula that determines net income (loss) 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 (loss) allocated to common shareholders (in thousands):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Numerator:

                               

Net income (loss)

  $ 254     $ (3,344 )   $ (3,406 )   $ 3,656  

Less loss (earnings) allocated to RSUs

    (4 )     85       56       (94 )

Net income (loss) allocated to common shareholders

  $ 250     $ (3,259 )   $ (3,350 )   $ 3,562  

  

13

 
 

(14)

FAIR VALUE MEASUREMENTS

 

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our marketable securities are Level 1 instruments.

 

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. We have no Level 2 instruments.

 

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). Our Level 3 instruments are comprised of fuel hedges and interest rate swaps.  The fair values of our hedges and swaps were estimated using discounted cash flow calculations based upon forward fuel prices and interest-rate yield curves.  The notional values of our two interest rate swaps were $53 million and $58 million as of June 30, 2020, both with maturities of May 2022.  Fuel hedges include 1.8 million gallons of diesel fuel that are subject to pricing fluctuations with a minimum of $1.79/gallon and a maximum of $2.00/gallon through December 2021.  Although we utilize third-party broker quotes to assess the reasonableness of our prices and valuation, we do not have sufficient corroborating market evidence to support classifying these assets and liabilities as Level 2.

 

The following table summarizes our financial assets and liabilities measured on a recurring basis at fair value at June 30, 2020 and December 31, 2019 by respective level of the fair value hierarchy (in thousands):

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 

December 31, 2019

                               

Assets:

                               

Fuel hedge

  $     $     $ 25     $ 25  

Marketable securities - restricted

    2,296                   2,296  
    $ 2,296     $     $ 25     $ 2,321  

Liabilities:

                               

Interest rate swaps

  $     $     $ 3,825     $ 3,825  
                                 

June 30, 2020

                               

Liabilities:

                               

Fuel hedge

                888       888  

Interest rate swaps

                5,801       5,801  
    $     $     $ 6,689     $ 6,689  

    

The table below highlights the change in fair value of the fuel hedges and interest rate swaps which are based on a discounted future cash flow model (in thousands):

 

Ending balance, December 31, 2019

  $ (3,800 )

Change in estimated fair value

    (2,889 )

Ending balance, June 30, 2020*

  $ (6,689 )

 


*Recorded in accounts payable and accrued liabilities and other liabilities in the Balance Sheet to these Condensed Consolidated Financial Statements.

 

14

 
 

(15)

EQUITY METHOD INVESTMENTS

 

We own a 50% interest in Sunrise Energy, LLC, which owns gas reserves and gathering equipment with plans to develop and operate such reserves. Sunrise Energy also plans to develop and explore for oil, gas, and coal-bed methane gas reserves on or near our underground coal reserves. The carrying value of the investment included in our condensed consolidated balance sheets as of June 30, 2020, and December 31, 2019, was $3.4 million and $3.1 million, respectively.

 

  

15

 
 

 

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 June 30, 2020 and 2019, and the related condensed consolidated statements of income (loss) for the three-month and six-month periods ended June 30, 2020 and 2019, the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2020 and 2019, the condensed consolidated statement of stockholders’ equity for the three-month and six-month periods ended June 30, 2020 and 2019, 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 reviews in accordance with the standards of the Public Company Oversight Board (United States) ("PCAOB"). We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 

 

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

 

August 3, 2020

 

16

 

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

 

THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2019 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.

 

IMPACT OF COVID-19

 

We continue to face uncertainty regarding the evolving impact of the COVID-19 pandemic.  The State of Indiana, where our operations are located, issued a shelter in place order from March 24, 2020, to May 4, 2020. The State deemed our operations necessary and essential, and we were allowed to operate as a supplier to critical power infrastructure. Below is an outline of some of the actions we have taken to address the challenges the COVID-19 pandemic has brought. We continue to monitor the ongoing pandemic and note that if conditions deteriorate in the future, it could result in further negative impact on our results of operations, financial position, and liquidity.

 

 

I.

 

Sales – The global shelter in place response to the COVID–19 pandemic led to an unexpected and dramatic reduction in power demand, primarily during second quarter 2020.  As expected, we experienced shipment delays in the second quarter as our customers adjusted their inventory levels.  We have worked closely with all of our customers and feel comfortable that all will honor their contracts, most of which have increased shipments in the third quarter.

 

 

II.

 

Production – To date, our operations have performed well considering the additional burdens of operating while working to comply with CDC health and safety guidelines. However, we may experience production interruptions should a significant number of our employees or our suppliers' employees become infected with COVID-19. Our inventory levels rose in the first half of the year, but we expect shipments to increase and inventory levels to decline in the last half of the year.

 

  III.   Liquidity and financial flexibility - In Q2 2020, to enhance our liquidity and financial flexibility in response to COVID-19, we amended our credit facility, suspended our quarterly dividend, and borrowed $10 million under the Paycheck Protection Program as described below.

 

  a.   As of June 30, 2020, our liquidity was $52.6 million and our leverage ratio remained below 3.0X, which is comfortably within our covenant of 4.0X.

 

  IV.   Supply chain and distribution network - To date, we have not seen a material disruption in our access to supplies and equipment needed in the production of coal.  In the second quarter, we experienced delays in rail services that appear to be improving in the third quarter.

 

OVERVIEW

 

Despite the challenges we have all faced during this unprecedented time, Hallador has performed well above average. Below are some highlights for the quarter and first six months of 2020:

 

  I.

 

Q2 2020 Net Income of $0.25 million, Adjusted EBITDA of $13.2 million

 

 

a.

 

During Q2 2020, shipment delays resulted in lower sales volumes, but production costs fell to $28.94 per ton, a 9% reduction over the prior quarter.

  

 

i.

 

Lower production costs were expected and in part were the result of the permanent closure of our higher cost Carlisle Mine.

  

 

ii.

 

We expect our cost structure at our Oaktown mines to remain below $30/ton into the foreseeable future.

 

  b.   In the first half of 2020, bank debt was reduced by $19 million, and operating cash flow was $17.2 million, while coal inventories increased by $13.8 million. As previously stated, we anticipate shipments to improve in the last half of the year and inventory levels to decline, thus improving operating cash flow.

 

  c.  

As of June 30, 2020, our liquidity was $52.6 million and our leverage ratio remained below 3.0X, which is comfortably within our covenant of 4.0X.

 

17

 

Table of Contents

 

Reconciliation of GAAP “net income” to non-GAAP “adjusted EBITDA” (in thousands), the most comparable GAAP financial measure.

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net income (loss)

  $ 254     $ (3,344 )   $ (3,406 )   $ 3,656  

Income tax expense (benefit)

    (618 )     191       (2,794 )     155  

Loss from Hourglass Sands

    63       140       141       391  

(Income) loss from equity method investments

    (1,231 )     132       (1,286 )     166  

DD&A

    10,215       12,092       20,838       23,824  

ARO accretion

    343       314       676       623  
Gain on impairment and disposal of assets           (100 )           (100 )

Gain on marketable securities

          (45 )     (14 )     (348 )

Interest Expense

    2,834       5,369       8,548       9,988  

Other amortization

    1,396       1,156       2,822       2,291  

Change in fair value of fuel hedges

    (398 )     -       913        

Stock-based compensation

    317       518       636       1,012  

Adjusted EBITDA

  $ 13,175     $ 16,423     $ 27,074     $ 41,658  

 

 

Management believes that the presentation of such additional financial measures provides useful information to investors regarding our performance and results of operations because these measures, when used in conjunction with related GAAP financial measures, (i) provide additional information about our core operating performance and ability to generate and distribute cash flow, (ii) provide investors with the financial and analytical framework upon which management bases financial, operation, compensation, and planning decisions, and (iii) present measurements that investors, rating agencies, and debt holders have indicated are useful in assessing our results.

 

 

  II.    Solid Sales Position Through 2022 

    

COVID-19 has created a lot of uncertainty in the world, but we are comforted by our strong sales position through 2022.

 

   

Contracted

   

Estimated

 
   

tons

   

Priced

 

Year

 

(millions)*

   

per ton

 

2020 (Q3 – Q4)

    3.7       40.10  

2021

    5.2       40.10  

2022

    5.3       40.60  
      14.2          

_____________

* Contracted tons are subject to adjustment due to the exercise of customer options to either take additional tons or reduce tonnage if such options exist in the customer contract.

 

18

 

  

 

III.

 

Amended Credit Facility to Improve Liquidity

 

 

a.

 

In an effort to improve liquidity, on April 15, 2020, we executed an amendment to our credit agreement with PNC, administrative agent for our lenders. The amendment modified our leverage ratios, as disclosed in Note 5 to our condensed consolidated financial statements. The new leverage ratios provided us additional liquidity as the economic uncertainty of the next few months and quarters has the potential to dramatically reduce our liquidity.

 

 

i.

 

As a result of the amendment, our maximum annual capital expenditures are limited to $30 million for 2020, and our dividend is suspended until our leverage ratio falls below 2.0X.

 

 

IV.

 

Paycheck Protection Program and Payroll Tax Deferral

 

 

a.

 

Due to economic uncertainty as a result of COVID-19, on April 16, 2020, we entered into a promissory note evidencing an unsecured loan in the amount of $10 million made to the Company under the Paycheck Protection Program (the “Loan”).

  

 

i.

 

As noted previously, uncertainty was created as a result of unexpected sales delays due to the impacts of COVID-19.

  

 

1.

 

Starting in March and continuing through Q2, sales were 30% lower than expected.

 

  2.   The receipt of funds under the PPP loan allowed the Company to avoid workforce reduction measures amidst a steep decline in revenue and operating margins.

  

 

b.

 

Prior to the COVID-19 pandemic taking root in the United States, we idled and permanently closed the Carlisle Mine resulting in a reduction in force in Q1 2020.

  

 

i.

 

At June 30, 2020, the PPP loan totaling $10 million is presented as current and long-term liabilities on the condensed consolidated balance sheet based upon the schedule of repayments and excluding any possible forgiveness of the loan. Based on the terms of the loan, after factoring in the reduction in force prior to our application, we expect a portion of the loan to be forgiven following a successful audit by the Small Business Administration sometime after June 30, 2020.

 

  c.   In June 2020, we started to take advantage of the payroll tax deferral offered by the CARES act.  Through June 2020, we have deferred $0.1 million, but expect to defer approximately $1.6 million for the full year 2020, which will be due and payable in two annual installments at the end of 2021 and 2022.

 

  V.   Signs of Improvement for the Coal Market

 

  a.    Gas prices are increasing

 

  i.   Thus far, Henry Hub natural gas prices have averaged $1.79 for 2020. Looking to next year, the NYMEX gas 2021 forward strip is $2.70. Next year's gas prices are higher as the market anticipates less gas production in 2021. One indicator of less future gas production is the dramatic slowdown in oil and gas drilling. 

 

  ii.   Oil and gas rig counts as of July 24, 2020 are 251 vs. the 2018/2019 peak of 1,085, a 77% decline.

 

  iii.   Gas targeted rigs as of July 27, 2020 are 68 vs. the 2018/2019 peak of 198, a 66% decline.

 

  b.   Coal export prices are improving

 

  i.   API 4 is above $60 in Q1 2021

 

  ii.   API 2 is above $60 in Q3 2021

 

 

LONG-LIVED ASSET IMPAIRMENT REVIEW

 

See Note 2 to our condensed consolidated financial statements.

 

19

 

LIQUIDITY AND CAPITAL RESOURCES

 

 

I.

 

Cash Provided By Operations

 

 

a.

 

As set forth in our condensed consolidated statements of cash flows, cash provided by operations was $17.2 million and $23.7 million for the six months ended June 30, 2020 and 2019, respectively.

 

 

i.

 

Operating margins from coal decreased during the first six months of 2020 by $12.1 million when compared to the first six months of 2019.

 

 

1.

 

Our operating margins were $10.13 per ton in the first six months of 2020 compared to $10.20 in the first six months of 2019.

 

 

2.

 

Due to the effects of COVID-19, we experienced lower demand in in the first six months of  2020, resulting in sales of 2.8 million tons compared to sales in the first six months of 2019 of 3.9 million tons.

 

 

ii.

 

The combination of the lower margins offset by changes in working capital items contributed substantially to our decrease in cash from operations compared to 2019.

 

 

 

b.

 

Our projected capex budget for the remainder of 2020 is $10 million, of which approximately $5.0 million is for maintenance capex.

 

 

c.

 

Cash provided by operations for the remainder of the year is expected to fund our maintenance capital expenditures and debt service, especially as we look to reduce coal inventories throughout the balance of 2020.

 

 

d.

 

As we continue to monitor the effects of COVID-19, we continue to proactively manage costs and capital expenditures to ensure adequate liquidity until there is more of a sense of economic certainty in the markets in which we operate.

 

 

II.

 

Material Off-Balance Sheet Arrangements

 

 

a.

 

Other than our surety bonds for reclamation, we have no material off-balance sheet arrangements. In the event we are not able to perform reclamation, which is presented as asset retirement obligations (ARO) in our accompanying condensed consolidated balance sheets, we have surety bonds totaling $27 million to pay for ARO.

  

20

 

CAPITAL EXPENDITURES (capex)

 

For the six months of 2020, capex was $10.0 million allocated as follows (in millions):

 

Oaktown – maintenance capex

  $ 6.1  

Oaktown – investment

    3.7  

Other

    0.2  

Capex per the Condensed Consolidated Statements of Cash Flows

  $ 10.0  

  

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

 

All Mines

 

3rd 2019

   

4th 2019

   

1st 2020

   

2nd 2020

   

T4Qs

 

Tons produced

    1,891       2,122       1,701       1,468       7,182  

Tons sold

    2,118       2,015       1,526       1,244       6,903  

Coal sales

  $ 82,883     $ 78,205     $ 61,932     $ 50,473     $ 273,493  

Average price/ton

  $ 39.13     $ 38.81     $ 40.58     $ 40.57     $ 39.62  

Wash plant recovery in %

    70 %     74 %     74 %     76 %        

Operating costs

  $ 71,372     $ 60,082     $ 48,334     $ 36,001     $ 215,789  

Average cost/ton

  $ 33.70     $ 29.82     $ 31.67     $ 28.94     $ 31.26  

Margin

  $ 11,511     $ 18,123     $ 13,598     $ 14,472     $ 57,704  

Margin/ton

  $ 5.43     $ 8.99     $ 8.91     $ 11.63     $ 8.36  

Capex

  $ 8,981     $ 8,264     $ 5,999     $ 4,006     $ 27,250  

Maintenance capex

  $ 5,537     $ 4,115     $ 3,470     $ 2,578     $ 15,700  

Maintenance capex/ton

  $ 2.61     $ 2.04     $ 2.27     $ 2.07     $ 2.27  

 

All Mines

 

3rd 2018

   

4th 2018

   

1st 2019

   

2nd 2019

   

T4Qs

 

Tons produced

    1,713       1,938       2,205       2,003       7,859  

Tons sold

    1,962       2,219       2,130       1,807       8,118  

Coal sales

  $ 79,055     $ 89,019     $ 85,235     $ 71,113     $ 324,422  

Average price/ton

  $ 40.29     $ 40.12     $ 40.02     $ 39.35     $ 39.96  

Wash plant recovery in %

    72 %     68 %     73 %     71 %        

Operating costs

  $ 60,132     $ 69,364     $ 62,271     $ 53,915       245,682  

Average cost/ton

    30.65       31.26       29.24       29.84       30.26  

Margin

  $ 18,923     $ 19,655     $ 22,964     $ 17,198       78,740  

Margin/ton

  $ 9.64     $ 8.86     $ 10.78     $ 9.52       9.70  

Capex

  $ 5,856     $ 8,996     $ 8,840     $ 9,448       33,140  

Maintenance capex

  $ 4,639     $ 7,186     $ 6,672     $ 6,164       24,661  

Maintenance capex/ton

  $ 2.36     $ 3.24     $ 3.13     $ 3.41     $ 3.04  

      

2020 vs. 2019  (first six months)

  

For the first six months of 2020, we sold 2,770,000 tons at an average price of $40.58/ton. For the first six months of 2019, we sold 3,937,000 tons at an average price of $39.71/ton. The increase in average price per ton was expected and is the result of our changing contract mix caused by the expiration of contracts and acquisition of new contracts.  The decrease in tons sold is directly related to the effects of COVID-19 resulting in our lower customer demand.  We expect to ship a majority of the remaining contracted tons during the last 6 months of the year.

  

Operating costs for all of our active coal mines averaged $30.45/ton and $29.51/ton for the six months ended June 30, 2020 and 2019, respectively. Oaktown costs over that same period were $28.55 and $27.37, respectively. The higher costs are a result of lower production during the quarter due to the effects of COVID-19 and due to the costs associated with the closure of the Carlisle Mine in February. For the remainder of 2020, we expect operating costs for our operating Oaktown mines to be $29-$30/ton.

  

We expect operating costs associated with the idled Prosperity mine to be $0.5 million for the remainder of 2020. Prosperity operating costs were $0.5 million during the six months ended June 30, 2020.

 

21

 

We expect operating costs associated with the closed Carlisle mine to be $0.5 million for the remainder of 2020. We estimate that we incurred approximately $1.1 million of exit and disposal costs during the first six months of 2020.

  

Other operating income decreased $3.1 million in the first six months of 2020 when compared to 2019. The largest contributor to this decrease was the income from the sale of overriding royalty interests in certain oil-producing properties for $2.9 million in the first half of 2019. Our investment in Sunrise Energy contributed $1.3 million to income in 2020, but incurred a loss of $0.2 million in 2019. Other items contributing to the decrease relate to the sale of scrap metal and other non-producing assets in 2019.

  

DD&A decreased $3.0 million in the six first months of 2020 when compared to 2019. A portion of our assets are depreciated based on raw production, which has decreased in 2020, thus as production decreases, so does our DD&A.

  

SG&A expenses decreased $0.8 million during the first six months of 2020 when compared to 2019.  The decrease is a result of lower payroll, commissions, and consulting fees as sales and project activity have declined compared to last year due to COVID-19.  We expect SG&A for the remainder of 2020 to be $6 million.

  

Interest expense decreased approximately $1.4 million in the first six months of 2020 when compared to 2019. The change in estimated fair value of our interest rate swap agreement resulted in a reduction in non-cash expense of $0.9 million in 2020 when compared to 2019. The remaining decrease of $0.5 million is a result of lower interest rates due to our amended credit agreements in September 2019 and April 2020.

 

Our Sunrise Coal employees and contractors totaled 677 at June 30, 2020, compared to 908 at June 30, 2019, and 907 at December 31, 2019. The decrease in our headcount was due primarily to the closure of the Carlisle Mine in February 2020.  

 

2020 v. 2019 (second quarter)

 

For the second quarter 2020 we sold 1,244,000 tons at an average price of $40.57/ton.  For the second quarter 2019 we sold 1,807,000 tons at an average price of $39.35/ton.  The increase in average price per ton was expected and is the result of our changing contract mix caused by the expiration of contracts and acquisition of new contracts. As noted above, the decrease in tons sold was due to the effects of COVID-19 resulting in lower customer demand.  We expect to ship a majority of the remaining contracted tons during the last 6 months of the year.

 

Operating costs for all coal mines averaged $28.94/ton in  2020 and $29.84/ton in 2019 .  Oaktown costs over that same period were $27.68 and $27.59, respectively. Our operating costs for the quarter are within our prior guidance of $29-$30/ton as we continue to experience solid production in spite of the COVID-19 pandemic. Costs are lower than last year due to the closure of the Carlisle Mine in February 2020. Prosperity operating costs were $0.3 million during the three months ended June 30,  2020

 

DD&A decreased approximately $1.9 million in the second quarter of  2020 when compared to the second quarter of  2019 .  A portion of our assets are depreciated based on raw production, which has decreased in 2020, thus as production decreases, so does our DD&A.

 

SG&A expenses decreased $0.8 million during the second quarter of 2020 when compared to the second quarter of 2019.  The decrease is a result of lower payroll, commissions, and consulting fees as sales and project activity have declined compared to last year due to COVID-19.

 

Interest expense decreased approximately $2.5 million in the second quarter of 2020 when compared to the second quarter of 2019. The change in estimated fair value of our interest rate swap agreement resulted in a reduction in non-cash expense of $2.5 million in 2020 when compared to 2019.  

 

 

EARNINGS (LOSS) PER SHARE

 

   

3rd 2019

   

4th 2019

   

1st 2020

   

2nd 2020

 

Basic and diluted

  $ (0.12 )   $ (1.95 )   $ (0.12 )   $ 0.01  

 

   

3rd 2018

   

4th 2018

   

1st 2019

   

2nd 2019

 

Basic and diluted

  $ 0.09     $ 0.09     $ 0.23     $ (0.11 )

  

INCOME TAXES

 

Our effective tax rate (ETR) is estimated at ~45% and ~4% for the  six months ended June 30, 2020 and 2019,  respectively. For the six months ended June 30, 2020 , the Company utilized a discrete period method to calculate taxes, as it does not believe the annual effective tax rate method represents a reliable estimate given the current uncertainty surrounding COVID-19.  Our ETR differs from the statutory rate due primarily to statutory depletion in excess of tax basis, which is a permanent difference. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.

 

GOVERNMENT IMPOSITION REIMBURSEMENTS

 

Some of our legacy coal contracts allow us to pass on to our customers certain costs incurred resulting from changes in costs to comply with mandates issued by Mine Safety and Health Administration (MSHA) or other government agencies. After applying the provisions of ASU 2014-09, as of June 30, 2020, we do not consider unreimbursed costs from our customers related to these compliance matters to be material and have constrained such amounts and will recognize them when they can be estimated with reasonable certainty.

 

RESTRICTED STOCK GRANTS

 

See “Item 1. Financial Statements - Note 10. Stock Compensation Plans” for a discussion of RSUs.

 

22

 

CRITICAL ACCOUNTING ESTIMATES

 

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

 

The reserve estimates are used in the DD&A calculation and our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our DD&A expense and impairment test may be affected.

 

The fair value of our interest rate swaps is determined using a discounted future cash flow model based on the key assumption of anticipated future interest rates and related credit adjustment considerations.

 

We have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We identified our federal tax return and our Indiana state tax return as “major” tax jurisdictions. We believe that our income tax filing positions and deductions would be sustained on audit and do not anticipate any adjustments that will result in a material change to our consolidated financial position.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

No material changes from the disclosure in our 2019 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 for the purposes discussed above.

 

There have been no changes to our internal control over financial reporting during the quarter ended June 30, 2020, that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

23

 

PART II - OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

 

Our activities have been and will continue to be adversely affected by the global outbreak of the novel coronavirus (COVID-19), which may prevent us from meeting our targeted production levels, negatively impact our customers’ demand for coal and their ability to honor or renew contracts, adversely affect the health and welfare of Company personnel, prevent our vendors and contractors from performing normal and contracted activities, and negatively affect our liquidity and results of operations.

  

The recent outbreak of COVID-19, which was first detected in Wuhan, China in December 2019 and declared a pandemic by the World Health Organization in March 2020, could have a material and adverse effect on our business, financial condition, and results of operations. The outbreak has resulted and may continue to result in disruptions to economic and industrial activity worldwide.

  

In addition to the potential impact on coal demand and volatility in coal prices, COVID-19 may result in disruptions or restrictions on our employees’ ability to operate our coal mines in the ordinary course of business, which would restrict our production capacity. Similarly, we cannot predict how, if at all, the outbreak will affect our suppliers’ ability to provide the mining materials and equipment we require. If our production capacity or our ability to meet our supply needs is affected, our business and our financial results could be materially and adversely affected. Finally, the COVID-19 pandemic has substantially affected national and international financial markets, which could affect our ability to obtain financing for our business, severely limiting liquidity and credit availability.

  

The COVID-19 pandemic may also have the effect of heightening many of the other risks described in Item 1A, “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2019, including, but not limited to, those relating to coal prices; economic and market conditions; decreases in coal consumption; disruptions in the availability of mining and other industrial supplies; changes in purchasing patterns of our customers and their effects on our coal supply agreements; our ability to obtain financing and insurance upon favorable terms; among others.

  

The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the geographic spread of the virus, the severity of the disease, the duration of the outbreak, the actions that may be taken by various governmental authorities in response to the outbreak, and the impact on the U.S. or global economy. As a result, at the time of this filing, it is impossible to predict the overall impact of COVID-19 on our business, liquidity, capital resources, and financial results.

 

The SBA continues to develop and issue new and updated guidance regarding the PPP loan application process, including guidance regarding required borrower certifications and requirements for forgiveness of loans made under the program. We continue to track the guidance as it is released and assess various aspects of its application as necessary based on the guidance. However, given the evolving nature of the guidance, we cannot give any assurance that the anticipated PPP loan will be forgiven in whole or in part.

 

The PPP loan application required us to certify that the current economic uncertainty made the PPP loan request necessary to support our ongoing operations. While we made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria and that our receipt of the PPP loan is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act, the certification described above does not contain any objective criteria and is subject to interpretation. In addition, the SBA has stated that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good faith belief that we satisfied all eligibility requirements for the PPP loan, we are found to have been ineligible to receive the PPP loan or in violation of any of the laws or regulations that apply to us in connection with the PPP loan, including the False Claims Act, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP loan. In the event that we seek forgiveness of all or a portion of the PPP loan, we will also be required to make certain certifications which will be subject to audit and review by governmental entities and could subject us to significant penalties and liabilities if found to be inaccurate. In addition, our receipt of the PPP loan may result in adverse publicity and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could harm our business, results of operations and financial condition.

 

On April 30, 2020, we received a letter from the Listing Qualifications Department of the NASDAQ Stock Market LLC (“Nasdaq”) stating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the minimum bid price of the Company’s common stock on the Nasdaq Capital Market had closed below $1.00 per share for 30 consecutive business days. The notification letter has no immediate effect on the Company’s common stock Nasdaq listing or trading.

 

Due to the market disruption caused by the ongoing COVID-19 pandemic, Nasdaq has tolled the requirement for meeting the minimum bid price until June 30, 2020. As such, the Company has 180 days from July 1, 2020, or until December 28, 2020, to achieve compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days before December 28, 2020, and in such case, Nasdaq will provide the Company with written confirmation of compliance.

 

On December 28, 2020, if the Company has not regained compliance, the Company may be eligible for additional time to regain compliance.  To qualify, the Company will need to meet all of the other continued listing requirements for The Nasdaq Capital Market (with the exception of the minimum bid price requirement) and notify Nasdaq of the Company’s intention to cure the deficiency. At that time, the Company may be granted an additional 180 calendar days to regain compliance. If the Company is not eligible for an additional compliance period at that time, Nasdaq will provide the Company with written notification that the Company’s common stock will be subject to delisting.

 

The Company intends to monitor the bid price of the Company’s common stock and will consider available options to regain compliance with the listing requirements.  There can be no assurance that the Company will be able to restore compliance with the minimum bid requirement or maintain compliance with the other listing requirements.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Safety is a core value at for us and our subsidiaries. As such, we have dedicated a great deal of time, energy, and resources to creating a culture of safety. We are proud of the mine rescue team at Sunrise Coal, who placed 2nd overall in the National Mine Rescue contest held in Lexington, Kentucky in September 2019.We would also like to recognize Willie Hamilton, who finished second in the nation on pre-shift and Steve Earle, who was first in Indiana on bench.

  

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

 

24

 

ITEM 6.    EXHIBITS

 

15.1 *

*

Letter Regarding Unaudited Interim Financial Information – Plante Moran

31.1 *

 

SOX 302 Certification - President and Chief Executive Officer

31.2 *

 

SOX 302 Certification - Chief Financial Officer

31.3 *

 

SOX 302 Certification - Chief Accounting Officer

32*

 

SOX 906 Certification 

95.1*

 

Mine Safety Disclosures

101.INS*

 

Inline XBRL Instance Document 

101.SCH*   Inline XBRL Schema Document
101.CAL*   Inline XBRL Calculation Linkbase Document.
101.LAB*   Inline XBRL Labels Linkbase Document.
101.PRE*   Inline XBRL Presentation Linkbase Document.
101.DEF*   Inline XBRL Definition Linkbase Document.
104*   Cover Page Interactive Data File (embedded with the Inline XBRL document)
*Filed Herewith  

 

 

25

 

SIGNATURES

 

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: August 3, 2020

 

/S/ LAWRENCE D. MARTIN

 

 

Lawrence D. Martin, CFO

 

 

 

 

 

 

 

 

 

Date: August 3, 2020

 

/S/ R. TODD DAVIS

 

 

R. Todd Davis, CAO

  

 

26
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Section 2: EX-15.1 (LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION - PLANTE MORAN)

ex_195715.htm

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 June 30, 2020 and 2019, as indicated in our report dated August 3, 2020. 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 June 30, 2020, 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

August 3, 2020

 

 

 

 
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Section 3: EX-31.1 (EXHIBIT 31.1)

ex_190454.htm

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 officers 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.

  

August 3, 2020

    

/s/ BRENT K. BILSLAND

 

 

 

Brent K. Bilsland, Chairman, President and CEO

  

 
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Section 4: EX-31.2 (EXHIBIT 31.2)

ex_190455.htm

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 officers 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 officers 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. 

  

August 3, 2020

    

/s/LAWRENCE D. MARTIN

 

 

 

Lawrence D. Martin, CFO

  

 
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Section 5: EX-31.3 (EXHIBIT 31.3)

ex_190456.htm

Exhibit 31.3

  

CERTIFICATION

  

I, R. Todd Davis, 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 officers 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 officers 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. 

  

August 3, 2020

    

/S/R. TODD DAVIS

 

 

 

R. Todd Davis, CAO

  

 
(Back To Top)

Section 6: EX-32 (EXHIBIT 32)

ex_190457.htm

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 June 30, 2020 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.

  

August 3, 2020

 

By:

/S/BRENT K. BILSLAND

 

 

 

 

Brent K. Bilsland, Chairman, President and CEO

 

 

 

 

 

 

 

 

 

 

By: