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 September 30, 2022 |
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.) |
|
|
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1183 East Canvasback Drive, Terre Haute, Indiana (Address of principal executive offices) |
| 47802 (Zip Code) |
Registrant’s telephone number, including area code: 812.299.2800
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class |
| 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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
| 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 November 11, 2022, we had 32,982,605 shares of common stock outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hallador Energy Company
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 7,000 | $ | 2,546 | ||||
Restricted cash | 3,483 | 3,283 | ||||||
Accounts receivable | 16,744 | 13,584 | ||||||
Inventory | 13,734 | 7,699 | ||||||
Parts and supplies | 14,990 | 10,015 | ||||||
Prepaid expenses | 2,220 | 2,112 | ||||||
Total current assets | 58,171 | 39,239 | ||||||
Property, plant and equipment: | ||||||||
Land and mineral rights | 115,704 | 115,837 | ||||||
Buildings and equipment | 363,903 | 342,782 | ||||||
Mine development | 131,820 | 112,575 | ||||||
Total property, plant and equipment | 611,427 | 571,194 | ||||||
Less - accumulated depreciation, depletion and amortization | (298,116 | ) | (268,370 | ) | ||||
Total property, plant and equipment, net | 313,311 | 302,824 | ||||||
Investment in Sunrise Energy | 4,051 | 3,545 | ||||||
Other assets | 7,828 | 8,372 | ||||||
Total Assets | $ | 383,361 | $ | 353,980 | ||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities, long-term bank debt, net | $ | 110,158 | $ | 23,098 | ||||
Accounts payable and accrued liabilities | 52,428 | 41,528 | ||||||
Total current liabilities | 162,586 | 64,626 | ||||||
Long-term liabilities: | ||||||||
Long-term bank debt, excluding current maturities, net | — | 84,667 | ||||||
Convertible note payable | 10,000 | — | ||||||
Convertible notes payable - related party | 9,000 | — | ||||||
Deferred income taxes | 3,690 | 2,850 | ||||||
Asset retirement obligations | 12,393 | 14,025 | ||||||
Other | 1,720 | 1,577 | ||||||
Total long-term liabilities | 36,803 | 103,119 | ||||||
Total liabilities | 199,389 | 167,745 | ||||||
Commitments and contingencies | ||||||||
Redeemable noncontrolling interests | — | 4,000 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $ par value, shares authorized; issued and outstanding | — | — | ||||||
Common stock, $ par value, shares authorized; and issued and outstanding,at September 30, 2022 and December 31, 2021, respectively | 330 | 308 | ||||||
Additional paid-in capital | 117,749 | 104,126 | ||||||
Retained earnings | 65,893 | 77,801 | ||||||
Total stockholders’ equity | 183,972 | 182,235 | ||||||
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity | $ | 383,361 | $ | 353,980 |
See accompanying notes.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||
SALES AND OPERATING REVENUES: |
||||||||||||
Coal sales |
$ | 83,562 | $ | 79,036 | $ | 204,733 | $ | 179,515 | ||||
Other revenues |
1,522 | 786 | 5,187 | 2,640 | ||||||||
Total revenue |
85,084 | 79,822 | 209,920 | 182,155 | ||||||||
EXPENSES: |
||||||||||||
Operating expenses |
64,557 | 67,792 | 170,552 | 144,257 | ||||||||
Depreciation, depletion and amortization |
11,187 | 9,842 | 31,882 | 29,864 | ||||||||
Asset retirement obligations accretion |
255 | 380 | 751 | 1,116 | ||||||||
Exploration costs |
121 | 96 | 393 | 313 | ||||||||
General and administrative |
3,569 | 3,067 | 10,440 | 9,271 | ||||||||
Total operating expenses |
79,689 | 81,177 | 214,018 | 184,821 | ||||||||
INCOME (LOSS) FROM OPERATIONS |
5,395 | (1,355 | ) | (4,098 | ) | (2,666 | ) | |||||
Interest expense (1) |
(3,355 | ) | (2,108 | ) | (7,476 | ) | (6,188 | ) | ||||
Gain on extinguishment of debt |
— | 10,000 | — | 10,000 | ||||||||
Equity method investment income |
168 | 90 | 506 | 153 | ||||||||
NET INCOME (LOSS) BEFORE INCOME TAXES |
2,208 | 6,627 | (11,068 | ) | 1,299 | |||||||
INCOME TAX EXPENSE (BENEFIT): |
||||||||||||
Current |
— | — | — | — | ||||||||
Deferred |
596 | (1,359 | ) | 840 | (2,691 | ) | ||||||
Total income tax expense (benefit) |
596 | (1,359 | ) | 840 | (2,691 | ) | ||||||
NET INCOME (LOSS) |
$ | 1,612 | $ | 7,986 | $ | (11,908 | ) | $ | 3,990 | |||
NET INCOME (LOSS) PER SHARE: |
||||||||||||
Basic and diluted |
$ | 0.05 | $ | 0.26 | $ | (0.38 | ) | $ | 0.13 | |||
WEIGHTED AVERAGE SHARES OUTSTANDING |
||||||||||||
Basic |
32,983 | 30,613 | 31,727 | 30,612 | ||||||||
Diluted |
33,268 | 30,613 | 31,727 | 30,612 | ||||||||
(1) Interest Expense: |
||||||||||||
Interest on bank debt |
$ | 2,133 | $ | 2,167 | $ | 5,555 | $ | 6,610 | ||||
Other interest |
227 | — | 285 | — | ||||||||
Amortization and swap-related interest: |
||||||||||||
Payments on interest rate swap, net of changes in value |
— | (716 | ) | (867 | ) | (2,330 | ) | |||||
Amortization of debt issuance costs |
995 | 657 | 2,503 | 1,908 | ||||||||
Total amortization and swap related interest |
995 | (59 | ) | 1,636 | (422 | ) | ||||||
Total interest expense |
$ | 3,355 | $ | 2,108 | $ | 7,476 | $ | 6,188 |
See accompanying notes.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30, |
||||||||
2022 |
2021 |
|||||||
OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | (11,908 | ) | $ | 3,990 | |||
Deferred income taxes |
840 | (2,691 | ) | |||||
Equity income – Sunrise Energy |
(506 | ) | (153 | ) | ||||
Depreciation, depletion, and amortization |
31,882 | 29,864 | ||||||
Gain on sale of assets |
(367 | ) | — | |||||
Gain on extinguishment of debt |
— | (10,000 | ) | |||||
Change in fair value of interest rate swaps |
(867 | ) | (2,330 | ) | ||||
Change in fair value of fuel hedge |
— | (379 | ) | |||||
Amortization of debt issuance costs |
2,503 | 1,908 | ||||||
Asset retirement obligations accretion |
751 | 1,116 | ||||||
Cash paid on asset retirement obligation reclamation |
(2,483 | ) | — | |||||
Stock-based compensation |
230 | 834 | ||||||
Provision for loss on customer contracts |
159 | — | ||||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
(3,160 | ) | (2,041 | ) | ||||
Inventory |
(6,035 | ) | 13,341 | |||||
Parts and supplies |
(4,975 | ) | (918 | ) | ||||
Prepaid expenses |
(2,390 | ) | (4,631 | ) | ||||
Accounts payable and accrued liabilities |
9,318 | 8,960 | ||||||
Other |
943 | 161 | ||||||
Cash provided by operating activities |
13,935 | 37,031 | ||||||
INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(38,344 | ) | (18,075 | ) | ||||
Proceeds from sale of equipment |
758 | — | ||||||
Cash used in investing activities |
(37,586 | ) | (18,075 | ) | ||||
FINANCING ACTIVITIES: |
||||||||
Payments on bank debt |
(35,713 | ) | (37,062 | ) | ||||
Borrowings of bank debt |
37,700 | 14,250 | ||||||
Issuance of convertible note payable |
11,000 | — | ||||||
Issuance of related party convertible notes payable |
18,000 | — | ||||||
Debt issuance costs |
(2,097 | ) | (418 | ) | ||||
Distributions to redeemable noncontrolling interests |
(585 | ) | — | |||||
Taxes paid on vesting of RSUs |
— | (2 | ) | |||||
Cash provided by (used in) financing activities |
28,305 | (23,232 | ) | |||||
Increase (decrease) in cash, cash equivalents, and restricted cash |
4,654 | (4,276 | ) | |||||
Cash, cash equivalents, and restricted cash, beginning of period |
5,829 | 12,071 | ||||||
Cash, cash equivalents, and restricted cash, end of period |
$ | 10,483 | $ | 7,795 | ||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH CONSIST OF THE FOLLOWING: |
||||||||
Cash and cash equivalents |
$ | 7,000 | $ | 4,546 | ||||
Restricted cash |
3,483 | 3,249 | ||||||
$ | 10,483 | $ | 7,795 | |||||
SUPPLEMENTAL CASH FLOW INFORMATION: |
||||||||
Cash paid for interest |
$ | 4,791 | $ | 6,728 | ||||
SUPPLEMENTAL NON-CASH FLOW INFORMATION: |
||||||||
Change in capital expenditures included in accounts payable and prepaid expense |
$ | 2,396 | $ | 5,782 | ||||
Convertible notes payable and related party convertible notes payable converted to common stock |
$ | 10,000 | $ | — |
See accompanying notes.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
Additional |
Total |
|||||||||||||||||||
Common Stock Issued |
Paid-in |
Retained |
Stockholders' |
|||||||||||||||||
Shares |
Amount |
Capital |
Earnings |
Equity |
||||||||||||||||
Balance, June 30, 2022 |
32,983 | $ | 330 | $ | 114,212 | $ | 64,281 | $ | 178,823 | |||||||||||
Stock-based compensation |
— | — | 122 | — | 122 | |||||||||||||||
Cancellation of redeemable noncontrolling interests |
— | — | 3,415 | — | 3,415 | |||||||||||||||
Net income |
— | — | — | 1,612 | 1,612 | |||||||||||||||
Balance, September 30, 2022 |
32,983 | $ | 330 | $ | 117,749 | $ | 65,893 | $ | 183,972 | |||||||||||
Balance, December 31, 2021 |
30,785 | $ | 308 | $ | 104,126 | $ | 77,801 | $ | 182,235 | |||||||||||
Stock-based compensation |
— | — | 230 | — | 230 | |||||||||||||||
Cancellation of redeemable noncontrolling interests |
— | — | 3,415 | — | 3,415 | |||||||||||||||
Stock issued on redemption of convertible note |
232 | 2 | 998 | — | 1,000 | |||||||||||||||
Stock issued on redemption of related party convertible notes |
1,966 | 20 | 8,980 | — | 9,000 | |||||||||||||||
Net loss |
— | — | — | (11,908 | ) | (11,908 | ) | |||||||||||||
Balance, September 30, 2022 |
32,983 | $ | 330 | $ | 117,749 | $ | 65,893 | $ | 183,972 |
Additional |
Total |
|||||||||||||||||||
Common Stock Issued |
Paid-in |
Retained |
Stockholders' |
|||||||||||||||||
Shares |
Amount |
Capital |
Earnings |
Equity |
||||||||||||||||
Balance, June 30, 2021 |
30,613 | $ | 306 | $ | 103,964 | $ | 77,559 | $ | 181,829 | |||||||||||
Stock-based compensation |
— | — | 267 | — | 267 | |||||||||||||||
Net income |
— | — | — | 7,986 | 7,986 | |||||||||||||||
Balance, September 30, 2021 |
30,613 | $ | 306 | $ | 104,231 | $ | 85,545 | $ | 190,082 | |||||||||||
Balance, December 31, 2020 |
30,610 | $ | 306 | $ | 103,399 | $ | 81,555 | $ | 185,260 | |||||||||||
Stock-based compensation |
— | — | 834 | — | 834 | |||||||||||||||
Stock issued on vesting of RSUs |
4 | — | — | — | — | |||||||||||||||
Taxes paid on vesting of RSUs |
(1 | ) | — | (2 | ) | — | (2 | ) | ||||||||||||
Net income |
— | — | — | 3,990 | 3,990 | |||||||||||||||
Balance, September 30, 2021 |
30,613 | $ | 306 | $ | 104,231 | $ | 85,545 | $ | 190,082 |
See accompanying notes.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) | GENERAL BUSINESS |
The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the Securities and Exchange Commission's (the "SEC") rules and regulations; accordingly, certain information and footnote disclosures normally included in generally accepted accounting principles ("GAAP") financial statements have been condensed or omitted.
The results of operations and cash flows for the three and nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2022.
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 2021 Annual Report on Form 10-K. This quarterly report should be read in conjunction with such Annual Report on Form 10-K.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. This was early adopted on January 1, 2022 and did not have a significant impact on our consolidated financial statements.
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 operations ceased in August 2020. We have remaining reclamation obligations estimated at $0.1 million, thus determined for the three months ended September 30, 2022 to distribute excess cash totaling $0.6 million to the redeemable noncontrolling interest and cancelling the remaining $3.4 million of redeemable noncontrolling interest during the same period.
As announced in our Form 8-K filed on February 18, 2022, on February 14, 2022, Hallador Energy Company, through its subsidiary Hallador Power Company, LLC, entered into an Asset Purchase Agreement (the "Purchase Agreement") to acquire Hoosier Energy’s 1-Gigawatt Merom Generating Station (Merom) located in Sullivan County, Indiana, in return for assuming certain decommissioning costs and environmental responsibilities. The transaction, which includes a 3.5-year power purchase agreement (PPA), closed in October 2022, as announced in our Form 8-K filed on October 21, 2022.
LONG-LIVED ASSET IMPAIRMENTS |
Long-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable. For the three and nine month periods ended September 30, 2022 and for the three and nine-month periods ended September 30, 2021, there were no impairment charges recorded for long-lived assets.
(3) | INVENTORY |
Inventory is valued at lower of average cost or net realizable value (NRV). As of September 30, 2022, and December 31, 2021, coal inventory includes NRV adjustments of $5.8 million and $3.8 million, respectively.
(4) | OTHER LONG-TERM ASSETS (in thousands) |
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Advanced coal royalties | $ | 6,181 | $ | 6,678 | ||||
Other | 1,647 | 1,694 | ||||||
Total other assets | $ | 7,828 | $ | 8,372 |
BANK DEBT |
On March 25, 2022, we executed an amendment to our credit agreement with PNC, administrative agent for our lenders. The primary purpose of the amendment was to return the allowable leverage ratio and debt service coverage ratio to their December 31, 2021 levels through September 30, 2022, with the debt service coverage waived for March 31, 2022.
On May 20, 2022, we executed an additional amendment to our credit agreement with PNC, administrative agent for our lenders. The primary purpose of this amendment was to modify the allowable leverage ratio and debt service coverage ratio through June 30, 2022, to provide relief for current and anticipated covenant violations.
On August 5, 2022, we executed an additional amendment to our credit agreement with PNC, administrative agent for our lenders. The primary purpose of this amendment was to modify the allowable leverage ratio and debt service coverage ratio through September 30, 2022, to provide relief for anticipated covenant violations.
Bank debt was reduced by $17 million during the three months ended September 30, 2022. Bank debt is comprised of term debt ($11.0 million as of September 30, 2022) and a $120 million revolver ($102.7 million borrowed as of September 30, 2022). The term debt amortization concludes with the final payment in March 2023. The revolver matures in September 2023. Our debt is recorded at amortized cost, which approximates fair value due to the variable interest rates in the agreement, and is collateralized primarily by our assets.
Liquidity
As of September 30, 2022, with the provisions of the amendments, we had additional borrowing capacity of $11.6 million and total liquidity of $18.6 million. Our additional borrowing capacity is net of $5.7 million in outstanding letters of credit as of September 30, 2022, that were required to maintain surety bonds. Liquidity consists of our additional borrowing capacity and cash and cash equivalents.
We entered into new contracts during the three months ended June 30, 2022, with significantly higher prices, that began shipping during the three months ended September 30, 2022. These contracts substantially increase our cash flow for the remainder of 2022 and 2023. While it is our intention to refinance our bank debt in early 2023 under similar terms, we believe we have the ability to pay off the remaining balance with operating cash flows when due in September 2023.
Fees
Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $4.0 million as of December 31, 2021. Additional costs incurred with the March 25, 2022, May 20, 2022, and August 5, 2022 amendments totaled $2.1 million. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of September 30, 2022, and December 31, 2021, were $3.6 million and $4.0 million, respectively.
Bank debt, less debt issuance costs, is presented below (in thousands):
September 30, |
December 31, |
|||||||
2022 |
2021 |
|||||||
Current bank debt |
$ | 113,725 | $ | 25,725 | ||||
Less unamortized debt issuance cost |
(3,567 | ) | (2,627 | ) | ||||
Net current portion |
$ | 110,158 | $ | 23,098 | ||||
Long-term bank debt |
$ | — | $ | 86,013 | ||||
Less unamortized debt issuance cost |
— | (1,346 | ) | |||||
Net long-term portion |
$ | — | $ | 84,667 | ||||
Total bank debt |
$ | 113,725 | $ | 111,738 | ||||
Less total unamortized debt issuance cost |
(3,567 | ) | (3,973 | ) | ||||
Net bank debt |
$ | 110,158 | $ | 107,765 |
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, 2022 |
4.50 to 1.00 | ||
December 31, 2022 |
2.50 to 1.00 | ||
March 31, 2023 and thereafter |
2.25 to 1.00 |
As of September 30, 2022, our Leverage Ratio of 3.50 was in compliance with the 4.50 covenant defined in the current and prior amendments.
Beginning December 31, 2022, the credit facility requires a Minimum Debt Service Coverage Ratio (consolidated adjusted EBITDA/annual debt service) calculated as of the end of each fiscal quarter for the trailing twelve months of 1.25 to 1.00 through the maturity of the credit facility.
Interest Rate
The interest rate on the facility ranges from LIBOR plus 2.75% to LIBOR plus 4.00%, depending on our Leverage Ratio, with a LIBOR floor of 0.50%. We entered into swap agreements to fix the LIBOR component of the interest rate at 2.92% on the entire amount of the declining term loan balance and on $52.7 million of the revolver. The swap agreements matured in May 2022. At September 30, 2022, we are paying LIBOR plus 4.0% on the outstanding bank debt.
Paycheck Protection Program
As previously reported in the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2020, we entered into a Paycheck Protection Program Promissory Note and Agreement on April 15, 2020, evidencing an unsecured $10 million loan (the “PPP Loan”) under the Paycheck Protection Program (or “PPP”) made through First Financial Bank, N.A., (the "Lender"). The 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 “SBA”).
Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness. The SBA can grant forgiveness of all, or a portion of loans made under the PPP if the recipients use the PPP loan proceeds for eligible purposes, including payroll costs, mortgage interest, rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. The Company used the PPP Loan proceeds for qualifying expenses and applied for the forgiveness of the PPP Loan in accordance with the terms of the CARES Act.
On July 23, 2021, we received a notification from the Lender that the SBA approved our PPP Loan forgiveness application for the entire PPP Loan balance of $10 million, together with interest accrued thereon. The Lender notified us that the forgiveness payment was received on July 26, 2021. The forgiveness of the PPP Loan was recognized as other income.
The SBA retains the right to review the Company's loan file for a period subsequent to the date the loan is forgiven, with the potential for the SBA to pursue legal remedies at its discretion.
(6) | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands) |
September 30, |
December 31, |
|||||||
2022 |
2021 |
|||||||
Accounts payable |
$ | 33,147 | $ | 27,835 | ||||
Accrued property taxes |
2,303 | 2,529 | ||||||
Accrued payroll |
4,625 | 2,413 | ||||||
Workers' compensation reserve |
3,749 | 2,560 | ||||||
Group health insurance |
2,400 | 1,800 | ||||||
Fair value of interest rate swaps |
— | 867 | ||||||
Other |
6,204 | 3,524 | ||||||
Total accounts payable and accrued liabilities |
$ | 52,428 | $ | 41,528 |
(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. Our customers are typically domestic utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts, or include a pre-determined escalation in price for each year. Price re-opener and index provisions may allow either party to commence a renegotiation of the contract price at a pre-determined time. Price re-opener provisions may automatically set a new price based on the prevailing market price or, in some instances, require us to negotiate a new price, sometimes within specified ranges of prices. The terms of our coal sales agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these contracts vary by customer.
Coal sales agreements will typically contain coal quality specifications. With coal quality specifications in place, the raw coal sold by us to the customer at the delivery point must be substantially free of magnetic material and other foreign material impurities and crushed to a maximum size as set forth in the respective coal sales agreement. Price adjustments are made and billed in the month the coal sale was recognized based on quality standards that are specified in the coal sales agreement, such as Btu factor, moisture, ash, and sulfur content, and can result in either increases or decreases in the value of the coal shipped.
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. 70% and 79% of our coal revenue for the three and nine months ended September 30, 2022 was sold to customers in the State of Indiana with the remainder sold to customers in Florida, Georgia, and North Carolina. 67% and 72% of our coal revenue for the three and nine months ended September 30, 2021 respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Florida, Georgia, and North 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.
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 $648 million, which represent the average fixed prices on our committed contracts as of September 30, 2022. We expect to recognize approximately 79% of this revenue in
and 2023, with the remainder recognized thereafter.
We have remaining performance obligations relating to contracts with price re-openers of approximately $166 million, which represents our estimate of the expected re-opener price on committed contracts as of September 30, 2022. We expect to recognize all of this revenue beginning in
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 an 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. As of January 1, 2021, accounts receivable for coal sales billed to customers was $14.4 million. 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.
(8) | INCOME TAXES |
For the nine months ended September 30, 2022, we recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. For the nine months ended September 30, 2021, with the exception of removing the forgiveness of the PPP note as a discrete item, the Company recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. The effective tax rate for the nine months ended September 30, 2022 and 2021 was ~ (8%) and ~ 31%, 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.
STOCK COMPENSATION PLANS |
Non-vested grants at December 31, 2021 |
183,000 | |||
Awarded - weighted average share price on award date was $6.11 |
357,826 | |||
Vested |
— | |||
Forfeited |
(7,500 | ) | ||
Non-vested grants at September 30, 2022 |
533,326 |
For the three and nine months ended September 30, 2022 our stock compensation was $0.1 million and $0.2 million, respectively. For the three and nine months ended September 30, 2021, our stock compensation was $0.3 million and $0.8 million, respectively.
Non-vested RSU grants will vest as follows:
Vesting Year |
RSUs Vesting |
|||
2023 |
301,442 | |||
2024 |
115,942 | |||
2025 |
115,942 | |||
533,326 |
The outstanding RSUs have a value of $3.0 million based on the September 30, 2022 closing stock price of $5.62.
As of September 30, 2022, unrecognized stock compensation expense is $2.3 million, and we had 1,050,845 RSUs available for future issuance. RSUs are not allocated earnings and losses as they are considered non-participating securities.
(10) |
LEASES |
Information related to leases was as follows (in thousands):
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Operating lease information: |
||||||||||||||||
Operating cash outflows from operating leases |
$ | 54 | $ | 51 | $ | 164 | $ | 148 | ||||||||
Weighted average remaining lease term in years |
1.51 | 2.45 | 1.51 | 2.45 | ||||||||||||
Weighted average discount rate |
6.0 | % | 6.0 | % | 6.0 | % | 6.0 | % |
Future minimum lease payments under non-cancellable leases as of September 30, 2022, were as follows:
Year |
Amount |
|||
(In thousands) |
||||
2022 |
$ | 52 | ||
2023 |
174 | |||
2024 |
60 | |||
Total minimum lease payments |
$ | 286 | ||
Less imputed interest |
(6 | ) | ||
Total operating lease liability |
$ | 280 | ||
As reflected within the following balance sheet line items: |
||||
Accounts payable and accrued liabilities |
$ | 200 | ||
Other long-term liabilities |
80 | |||
Total operating lease liability |
$ | 280 |
At September 30, 2022, and December 31, 2021, we had approximately $280,000 and $424,000, respectively, of right-of-use operating lease assets recorded within “buildings and equipment” on the condensed consolidated balance sheets.
(11) |
SELF-INSURANCE |
We self-insure our underground mining equipment. Such equipment is allocated among
mining units dispersed over ten miles. The historical cost of such equipment was approximately $276 million and $260 million as of September 30, 2022, and December 31, 2021, respectively.
Restricted cash of $3.5 million and $3.3 million as of September 30, 2022, and December 31, 2021, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.
(12) |
FAIR VALUE MEASUREMENTS |
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. We have no Level 1 instruments.
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. We have no Level 2 instruments.
Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). Our Level 3 instruments are comprised of interest rate swaps and impairment measurements. The fair values of our swaps were estimated using discounted cash flow calculations based upon forward interest-rate yield curves. The notional values of our two interest rate swaps were $52.7 million and $22.1 million when they matured in May 2022. 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. Certain properties' asset retirement obligation liabilities use Level 3 non-recurring fair value measures.
The following table summarizes our financial assets and liabilities measured on a recurring basis at fair value at December 31, 2021, by the respective level of the fair value hierarchy (in thousands):
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
December 31, 2021 |
||||||||||||||||
Liabilities: |
||||||||||||||||
Interest rate swaps |
$ | — | $ | — | $ | 867 | $ | 867 |
The table below highlights the change in fair value of the interest rate swaps which are based on a discounted future cash flow model (in thousands):
Ending balance, December 31, 2021 |
$ | 867 | |||
Settlements |
(1,058 | ) | |||
Unrealized loss |
191 | ||||
Ending balance, September 30, 2022 |
$ | — |
(13) |
EQUITY METHOD INVESTMENTS |
We own a 50% interest in Sunrise Energy, LLC, which owns gas reserves and gathering equipment and generates revenue from gas sales. Sunrise Energy plans to continue developing and exploring 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 September 30, 2022, and December 31, 2021, was $4.1 million and $3.5 million, respectively.
(14) |
CONVERTIBLE NOTES |
On May 2, 2022, and May 20, 2022, we issued senior unsecured convertible notes (the "Notes") to five parties, in the aggregate principal amount of $10 million, with $9 million going to related parties affiliated with independent members of our board of directors and the remainder to a non-affiliated party. The Notes were scheduled to mature on December 29, 2028, and accrue interest at 8% per annum, with interest payable on the date of maturity. Pursuant to the terms of the Notes, the holders of the Notes may convert the entire principal balance and all accrued and unpaid interest then outstanding during the period beginning June 1, 2022, and ending on May 31, 2027, into shares of the Company Common Stock (the "Conversion Shares") at a conversion price the greater of (i)$3.33 and (ii) the 30-day trailing volume-weighted average sales price for the Common Stock on the Nasdaq Capital Market ending on and including the date on which this Note is converted. At any time on or after June 1, 2025, the Company may, at its option and upon 30 days' written notice provided to the Holders, elect to redeem the Notes (in whole and not in part) and the Holders shall be obligated to surrender the Notes, at a redemption price equal to 100% of the outstanding Principal Balance, together with any accrued but unpaid interest thereon to the redemption date. After receipt of such redemption notice from the Company, the Holder may, at its option, elect to convert the Principal Balance and accrued interest into Conversion Shares by giving written notice of such election to the Company no later than 5 days prior to the date fixed for redemption.
In June 2022, the four holders of the $9 million related party convertible notes converted them into 1,965,841 shares of common stock of the Company and the one holder of the $1 million convertible note converted it into 231,697 shares of common stock pursuant to the terms of the notes and their related agreements.
On August 8, 2022, we issued $4 million of senior unsecured convertible notes to related parties affiliated with independent members of our board of directors. The notes carry an interest rate of 8% per annum with a maturity date of December 29, 2028. For the period August 18, 2022 through August 17, 2024, the holder has the option to convert the notes into shares of the Company's common stock at a conversion price of $6.254. Beginning August 8, 2025, the Company may elect to redeem the note and the holder shall be obligated to surrender the note at 100% of the outstanding principal balance together with any accrued unpaid interest. Upon receipt of the redemption notice from the Company, the holder may elect to convert the principal balance and accrued interest into conversion shares.
(15) |
SUBSEQUENT EVENTS |
As reported on Form 8-K on October 21, 2022, we finalized the acquisition of Hoosier Energy’s 1-Gigawatt Merom Generating Station, located in Sullivan County, Indiana, in return for assuming certain long-term decommissioning costs and environmental responsibilities with an estimated cost of $20 million. The transaction includes a 3.5-year power purchase agreement (PPA). In addition, the Company will purchase approximately $17 million in coal inventory from the Seller for an initial payment of $5.4 million, with subsequent periodic payments over time, subject to post-close adjustments based on actual on-site inventories. The Company also received $39 million in advance capacity payments at the closing that will be recorded as deferred revenue until recognized.
Hoosier will purchase 100% of the plant’s energy and capacity through May 2023, reducing purchases to 22% of energy output and 32% of its capacity beginning in June 2023 and through 2025. The companies’ existing renewable PPA – signed in May 2021 and representing 150 MW of solar generation and 50 MW of battery storage – will be retained, with its start date delayed until Merom’s eventual retirement.
Management, with the assistance of third-party valuation specialists, is currently in the process of determining the fair value of the assets acquired and liabilities assumed as part of this transaction.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2021 ANNUAL REPORT ON FORM 10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH.
Our condensed consolidated financial statements should also be read in conjunction with this discussion. The following analysis includes a discussion of metrics on a per ton basis derived from the condensed consolidated financial statements, which are considered non-GAAP measurements. These metrics are significant factors in assessing our operating results and profitability.
Q3 2022 was a transitional quarter for Hallador. We signed 2.2MM tons of new coal sales contracts at an average price of ~$125 per ton, of which a small percentage of deliveries began in Q3 2022 and will continue through 2025 with the majority to be delivered in Q4 2022 through the end of 2023. These contracts put us in a position to generate up to ~$160 million of EBITDA and will be a significant driver in our efforts to move towards a position of being net debt free next year.
To meet these new orders, we have been expanding our coal production by hiring more employees and putting more units to work at our Oaktown Mining Complex, opening a small surface mine pit near Freelandville, IN (Freelandville) and moving our Ace in the Hole production to a small surface mine pit near Petersburg, IN (Prosperity). This has required us to increase our capital expenditures, up ~$20 million year over year. We have been successful in increasing our head count 24% year over year, and thus, have increased employee acquisition and training costs. Freelandville and Prosperity production began in Q3 2022. Volumes from these new pits are expected to be higher cost and are forecasted to represent approximately 8% of our 2023 production. Our newer workforce and surface pits will require a ramp to reach peak productivity and with expectations of only slight easing of inflation in 2023, we expect our mining costs to remain elevated in 2022 followed by potentially small cost reductions in 2023.
To help fund our increased capital expenditures and improve our liquidity, we sold $29 million of convertible notes, $10 million in Q2 and $19 million in Q3 2022. The $10 million of notes issued in Q2 2022 have been converted to HNRG stock, bringing our current share count to 33.0 million shares. If all notes are converted to stock, this would equate to increasing our share count from 30.8MM shares at the beginning of Q2 to 36.1 million shares at some time in the future, prior to year-end 2026, representing an approximate 17% increase in share count. Bank debt was reduced during the quarter by $17MM bringing the balance owed at the end of Q3 to $114MM.
Subsequent to the end of Q3 2022, on October 21, 2022, we closed the acquisition of the 1-gigawatt Merom Generation Station from Hoosier Energy (Hoosier). At closing we received net payments of $34 million. These funds were part of capacity payments owed to Hallador through our Power Purchase Agreement (PPA) with Hoosier. With these funds, we paid down an additional $27 million of bank debt. Thus, when including the $17 million of bank debt paid in Q3, total debt was reduced by $44MM or 34% of the 3rd quarter’s beginning outstanding balance, bringing total bank debt on October 22, 2022 to $87 million, further increasing liquidity. This combination of debt reduction and rising EBITDA is quickly deleveraging our balance sheet which we anticipate being less than 2.5X Debt to EBITDA by the end of Q4 2022 and expect to be approaching a ratio of less than 1.0X by the end of Q1 2023.
Our goal at Hallador is to deleverage our balance sheet and create multiple uncorrelated revenue streams that take advantage of our unique place in the energy market. The acquisition of Merom is a significant step forward in this pursuit as it provides us the ability to monetize our coal production through both capacity and energy sales, while also providing us a platform for potential future investment, including new generation and energy storage. As capacity payments are currently covering most of the fixed costs of the plant, Merom provides optionality to Hallador in both the coal markets and the energy markets. Starting in 2024, our Sunrise Coal subsidiary has the flexibility to sell up to 3MM tons annually to Merom (~ 43% of coal production) if the economics of energy sales so dictate or divert some portion of said tons to third parties if the economics of outside coal sales create a higher value. In 2024, Hallador anticipates 4MM tons of annual coal sales to outside parties, while maintaining the flexibility to utilize its remaining coal production to generate up to 6.5 million Mwhr of annual energy sales at Merom. We believe that the ability to take advantage of this flexibility gives Hallador a tremendous opportunity to take advantage of the most favorable economic conditions in each market.
OVERVIEW
I. |
|
Q3 2022 Net Income of $1.6 million. |
a. | 1.7 million tons were shipped at an average sales price of $49.01 during the quarter. |
i. | Remaining tons to ship for 2022 are expected to average over $49 per ton. |
b. | In Q3, Hallador's operating costs increased to $37.46/ton, which represents a $5.63/ton increase from Q2 2022. |
c. |
Our margins improved in Q3 by over $3 per ton over Q2 2022. Further margin expansion is expected in 2023 as a result of dramatically higher priced sales contracts. |
d. | Cash Flow & Debt: During Q3, our operating cash flow increased $13.7 million, and we decreased our bank debt by $17.0 million. |
i. | As of September 30, 2022, our bank debt was $113.7 million, liquidity was $18.6 million, and our leverage ratio came in at 3.50X, within our covenant of 4.50X. |
II. | Q3 2022 Activity |
a. | Financing |
i. | We were successful in executing an amendment with our banks increasing our debt to EBITDA covenant for Q3 and waiving our debt service coverage ratio for Q3 as disclosed in Note 5 to our condensed consolidated financial statements. We expect to be in compliance with all bank covenants going forward. |
ii. | In August, we issued $19 million in convertible notes to improve our liquidity. The notes were purchased by parties affiliated with two of our board members and one non-affiliated party. |
b. | Sales |
i. | During Q2, we added 2.2 million tons of new coal contracts with average pricing at over $125 per ton to be delivered during the last half of 2022 through 2025. We shipped approximately 0.1 million of the new contracted tons in Q3 2022, with most of the remaining tons to be delivered in Q4 2022 through 2023. These contracts are expected to materially increase our margins during these periods and forecast to put the Company in position to be net debt free in 2023. |
c. | Production |
i | Production volumes slowed during Q3 with production of 1.7 million tons, down from 1.8 million tons in Q2.
We expect to increase production through additional headcount at the Oaktown Mining Complex, the addition of Freelandville, and the addition of Prosperity. Production from both Prosperity and Freelandville is higher cost and is expected to increase total mining cost structure to $37 - $38 per ton in Q4 2022 and $36 per ton through 2023.
|
III. | Q4 2022 Activity |
a. | Merom Generating Station |
i. | We completed the acquisition of the Merom Power Plant on October 21, 2022. The completion of the acquisition allows us optionality in future years to maximize our coal production and either sell the coal into the market or dispatch to the plant, depending on what makes the most logistical and financial sense at the time based on current market conditions. |
IV. | 2023 |
a. | Coal & Power |
i. | Our current 2023 average sales price is ~$17 per ton higher than the first half of 2022. |
ii. | Traditionally, Hallador has generated $50 million of Adjusted EBITDA, a significant non-GAAP measure, annually. In 2023, we expect our Adjusted EBITDA, a significant non-GAAP measure, to grow to over $160 million, primarily as a result of the additional higher-priced coal contracts. |
V. | Solid Sales Position Through 2023 |
Contracted |
Estimated |
|||||||
tons |
price |
|||||||
Year |
(millions)* |
per ton |
||||||
2022 (Q4) |
2.5 | $ | 49.00 | |||||
2023 (annual) |
6.7 | 58.00 | ||||||
2024-2027 (total) |
7.0 | ** | ||||||
16.2 |
___________
* Contracted tons are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce tonnage if such an option exists in the customer contract.
**Unpriced or partially priced tons
LIQUIDITY AND CAPITAL RESOURCES
I. |
Liquidity and Capital Resources |
a. |
As set forth in our condensed consolidated statements of cash flows, cash provided by operations was $13.9 million and $37.0 million for the nine months ended September 30, 2022 and 2021. |
|
i. |
Operating margins from coal were consistent during the first nine months of 2022 when compared to the first nine months of 2021. |
1. |
Our operating margins were $7.62 per ton in the first nine months of 2022 compared to $7.70 in the first nine months of 2021. Margins are expected to increase to ~$20 per ton starting in Q1 2023. |
2. |
We shipped 4.7 million tons of coal in the first nine months of 2022 and expect to ship a total of 6.5 million tons in 2022. |
b. |
Our projected capex budget for the remainder of 2022 is $13 million, of which approximately one-half is anticipated for maintenance capex. We also have scheduled payments on current maturities of long-term bank debt totaling $5.5 million over the last three months of the year. While it is our intention to refinance our bank debt in early 2023 under similar terms, we believe we have the ability to pay off the remaining balance with operating cash flow when due in September 2023.See Note 5
to our condensed consolidated financial statements for additional discussion about our bank debt and related liquidity.
|
|
c. |
We expect cash provided by operations and additional borrowing either from our revolver or other sources, if necessary, to fund our maintenance capital expenditures and debt service for the remainder of the year. We raised $9 million in May 2022 in senior unsecured convertible notes from related parties and $1 million from a non-affiliated party. In August 2022, we raised an additional $9 million from related parties and $10 million from a non-affiliated entity. The additional margins expected to begin in Q4 from the higher priced coal contracts will significantly enhance our ability to pay for capital expenditures and debt service. |
d. |
In the first half of 2022, we generated lower than expected EBITDA due to elevated cash costs related to: i) a decrease in efficiency, as new hires were integrated into the workforce to support more shifts required to fulfill the increase in contracted tonnage, and ii) supply constraints and vendor cost increases. We amended our bank agreement in May 2022, and again in August 2022, to provide covenant relief to maintain our liquidity levels as costs are anticipated and have begun to improve over the remainder of 2022. |
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 $23.4 million to pay for ARO. |
CAPITAL EXPENDITURES (capex)
For the first nine months of 2022, capex was $38.3 million allocated as follows (in millions):
Oaktown – maintenance capex |
$ | 15.8 | ||
Oaktown – investment |
16.6 | |||
Other |
5.9 | |||
Capex per the Condensed Consolidated Statements of Cash Flows |
$ | 38.3 |
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 2021 |
1st 2022 |
2nd 2022 |
3rd 2022 |
T4Qs |
|||||||||||||||
Tons produced |
1,447 | 1,397 | 1,762 | 1,663 | 6,269 | |||||||||||||||
Tons sold |
1,554 | 1,377 | 1,595 | 1,705 | 6,231 | |||||||||||||||
Coal sales |
$ | 64,388 | $ | 57,010 | $ | 64,161 | $ | 83,563 | $ | 269,122 | ||||||||||
Average price/ton |
$ | 41.43 | $ | 41.40 | $ | 40.23 | $ | 49.01 | $ | 43.19 | ||||||||||
Wash plant recovery in % |
70 | % | 67 | % | 71 | % | 69 | % | ||||||||||||
Operating costs |
$ | 54,583 | $ | 54,443 | $ | 50,776 | $ | 63,876 | $ | 223,678 | ||||||||||
Average cost/ton |
$ | 35.12 | $ | 39.54 | $ | 31.83 | $ | 37.46 | $ | 35.90 | ||||||||||
Margin |
$ | 9,805 | $ | 2,567 | $ | 13,385 | $ | 19,687 | $ | 45,444 | ||||||||||
Margin/ton |
$ | 6.31 | $ | 1.86 | $ | 8.39 | $ | 11.55 | $ | 7.29 | ||||||||||
Capex |
$ | 9,975 | $ | 9,082 | $ | 13,821 | $ | 15,096 | $ | 47,974 | ||||||||||
Maintenance capex |
$ | 3,302 | $ | 4,481 | $ | 7,600 | $ | 6,625 | $ | 22,008 | ||||||||||
Maintenance capex/ton |
$ | 2.12 | $ | 3.25 | $ | 4.76 | $ | 3.89 | $ | 3.53 |
All Mines |
4th 2020 |
1st 2021 |
2nd 2021 |
3rd 2021 |
T4Qs |
|||||||||||||||
Tons produced |
1,233 | 1,592 | 1,292 | 1,440 | 5,557 | |||||||||||||||
Tons sold |
1,613 | 1,174 | 1,403 | 2,042 | 6,232 | |||||||||||||||
Coal sales |
$ | 64,925 | $ | 45,879 | $ | 54,600 | $ | 79,036 | $ | 244,440 | ||||||||||
Average price/ton |
$ | 40.25 | $ | 39.08 | $ | 38.92 | $ | 38.71 | $ | 39.22 | ||||||||||
Wash plant recovery in % |
68 | % | 74 | % | 69 | % | 73 | % | ||||||||||||
Operating costs |
$ | 54,640 | $ | 33,907 | $ | 42,364 | $ | 67,694 | $ | 198,605 | ||||||||||
Average cost/ton |
$ | 33.87 | $ | 28.88 | $ | 30.20 | $ | 33.15 | $ | 31.87 | ||||||||||
Margin |
$ | 10,285 | $ | 11,972 | $ | 12,236 | $ | 11,342 | $ | 45,835 | ||||||||||
Margin/ton |
$ | 6.38 | $ | 10.20 | $ | 8.72 | $ | 5.55 | $ | 7.35 | ||||||||||
Capex |
$ | 6,661 | $ | 5,720 | $ | 5,117 | $ | 7,238 | $ | 24,736 | ||||||||||
Maintenance capex |
$ | 2,342 | $ | 2,343 | $ | 1,049 | $ | 2,324 | $ | 8,058 | ||||||||||
Maintenance capex/ton |
$ | 1.45 | $ | 2.00 | $ | 0.75 | $ | 1.14 | $ | 1.29 |
|
2022 vs. 2021 (first nine months)
For the nine months of 2022, we sold 4,677,000 tons at an average price of $43.77 per ton. For the first nine months of 2021, we sold 4,619,000 tons at an average price of $38.86 per 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. We expect to sell 6.5 million tons during 2022 with the remaining tons sold at an average price in excess of $49 per ton. Pricing for 2023 is expected to be in excess of $58 per ton. Quantities delivered each quarter will vary based on customer need and availability of transportation.
Operating costs for all coal mines averaged $36.15 per ton and $31.17 per ton for the nine months ended September 30, 2022, and 2021, respectively. Oaktown's costs over that same period were $35.62 and $29.17, respectively. Our operating costs for the quarter are higher than our prior guidance as explained in the overview.
Other revenues increased $2.5 million during the first nine months of 2022 when compared to 2021 due to additional income from coal storage fees, royalty income on mineral interests, and increased scrap prices and volume.
Depreciation, depletion and amortization increased $2.0 million in large part as a significant amount of our assets are depreciated and amortized based on production which was higher in Q3 2022.
General and administrative expense increased $1.2 million during the first nine months of 2022 when compared to 2021 primarily as a result of legal and due diligence costs related to the acquisition of Merom. We expect general and administrative expense for the remainder of 2022 to be $3 - $4 million.
Our Sunrise Coal employees and contractors totaled 902 at September 30, 2022, compared to 727 at September 30, 2021.
2022 v. 2021 (third quarter)
For the third quarter 2022, we sold 1,705,000 tons at an average price of $49.01 per ton. For the third quarter 2021, we sold 2,042,000 tons at an average price of $38.71 per 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.
Operating costs for all coal mines averaged $37.46 per ton in 2022 and $33.15 per ton in 2021. Oaktown's costs over that same period were $35.80 and $31.21, respectively. See the overview for additional discussion of operating costs.
Other revenues increased $0.7 million over Q3 2021 due to additional income from coal storage fees, royalty income on mineral interests, and increased scrap prices and volume.
Depreciation, depletion and amortization increased $1.3 million in large part as a significant amount of our assets are depreciated and amortized based on production which was higher in Q3 2022.
General and administrative expense increased $0.5 million during the quarter as a result of legal and due diligence costs related to the acquisition of Merom.
EARNINGS (LOSS) PER SHARE
4th 2021 |
1st 2022 |
2nd 2022 |
3rd 2022 |
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Basic and diluted |
$ | (0.25 | ) | $ | (0.33 | ) | $ | (0.11 | ) | $ | 0.05 |
4th 2020 |
1st 2021 |
2nd 2021 |
3rd 2021 |
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Basic and diluted |
$ | (0.15 | ) | $ | (0.03 | ) | $ | (0.10 | ) | $ | 0.26 |
INCOME TAXES
Our effective tax rate (ETR) is estimated at ~ (8%) and ~ 31% for the nine months ended September 30, 2022, and 2021, respectively. For the nine months ended September 30, 2022, we recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. For the nine months ended September 30, 2021, with the exception of removing the forgiveness of the PPP note as a discrete item, we recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. Our ETR differs from the statutory rate due primarily to statutory depletion in excess of tax basis and changes in the valuation allowance. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.
RESTRICTED STOCK GRANTS
See “Item 1. Financial Statements - Note 9. Stock Compensation Plans” for a discussion of RSUs.
CRITICAL ACCOUNTING ESTIMATES
We believe that the estimates of our coal reserves, our asset retirement obligation liabilities, our deferred tax accounts, our valuation of inventory, and the estimates used in our impairment analysis are our critical accounting estimates.
The reserve estimates are used in the depreciation, depletion and amortization calculations and our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our depreciation, depletion and amortization expense and impairment test may be affected.
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.
Inventory is valued at lower of average cost or net realizable value (NRV). Anticipated utilization of low sulfur, higher-cost coal from our Ace in the Hole mine has the potential to create NRV adjustments as our estimated need changes
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes from the disclosure in our 2021 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS
We maintain a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our CEO, CFO, and CAO as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO, CFO, and CAO of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our CEO, CFO, and CAO concluded that our disclosure controls and procedures are effective.
There have been no changes to our internal control over financial reporting during the quarter ended September 30, 2022, that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 4. MINE SAFETY DISCLOSURES
See Exhibit 95.1 to this Form 10-Q for a listing of our mine safety violations.
EXECUTIVE OFFICER COMPENSATION
On November 11, 2022, the Compensation Committee approved a new Two-Year Compensation Plan (the “New Plan”). The New Plan is intended to ensure retention of executive and key personnel of the Corporation and address executive and key personnel compensation. The Plan is effective on April 1, 2022 and ends on March 31, 2024.
Under the New Plan, our executive officers receive salary, restricted stock units (RSUs), and an annual discretionary bonus as recommended by the compensation committee to the board.
Restricted Stock Units
Mr. Bilsland will receive 267,537 RSUs under the New Plan. Mr. Martin will receive 173,913 RSUs under the new plan. The RSUs issued under the New Plan will vest/lapse one-third each year on March 31, 2023, March 31, 2024, and March 31, 2025, or otherwise by the terms of the RSU Plan and the applicable award agreements.
Two Year Plan Annual Base Salaries for 2022 - 2024
New annual salaries are set forth below:
● | Mr. Bilsland's salary shall be $615,000 per year. |
● | Mr. Martin's salary shall be $400,000 per year. |
________________________________ |
* Filed Herewith |
** Management Compensation Plans |
(5) IBR to Form 10-Q filed August 15, 2022 |
(6) IBR to Form 8-K filed October 4, 2022 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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HALLADOR ENERGY COMPANY |
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Date: November 14, 2022 |
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/S/ LAWRENCE D. MARTIN |
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Lawrence D. Martin, CFO |
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Date: November 14, 2022 |
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/S/ R. TODD DAVIS |
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R. Todd Davis, CAO |
Exhibit 10.17
APPENDIX A
HALLADOR ENERGY COMPANY
2022 EXECUTIVE OFFICER PLAN
The following definitions shall apply for purposes of this Hallador Energy Company 2022 Executive Officer Plan (this “2022 EO Plan”): “Cause” means, as determined in the Board’s discretion: (i) The Covered Person’s willful and continued material failure to perform the reasonable duties and responsibilities of his or her position after the Corporation has provided the Covered Person with a written demand for performance that describes the basis for the Corporation’s belief that the Covered Person has not substantially performed his or her duties and the Covered Person has not corrected the failure within thirty (30) days of the written demand; (ii) Any act of personal dishonesty taken by the Covered Person in connection with his or her responsibilities as an employee of the Corporation and intended to result in his or her substantial personal enrichment; (iii) The Covered Person’s conviction of, or plea of nolo contendere to, a felony that the Board reasonably believes has had or will have a material detrimental effect on the Corporation’s reputation or business; or (iv) The Covered Person’s breach of any fiduciary duty owed to the Corporation by the Covered Person that has a material detrimental effect on the Corporation’s reputation or business. “Change of Control” means the first to occur, following the Effective Date, of the following events: (i) the acquisition by any person or group of related persons (as determined pursuant to section 13(d)(3) of the Securities Exchange Act of 1934) of beneficial ownership of securities of the Corporation representing fifty percent (50%) or more of the total number of votes that may be cast for the election of Board members; or (ii) stockholder approval of (A) any agreement for a merger or consolidation in which the Corporation will not survive as an independent corporation or other entity, or (B) any sale, exchange or other disposition of all or substantially all of the Corporation’s assets, including, without limitation, the sale, exchange or other disposition of the equity securities or assets of Sunrise Coal, LLC or of Hallador Power Company, LLC.
Notwithstanding anything herein to the contrary, with respect to any amounts that constitute nonqualified deferred compensation under Code Section 409A and that would be payable in connection with a Change of Control, to the extent required to avoid accelerated or additional taxation under such section, no Change of Control will be deemed to have occurred unless such Change of Control also constitutes a change in the ownership or effective control of the Corporation or a change in the ownership of a substantial portion of the Corporation’s assets within the meaning of Code Section 409A(a)(2)(A)(v). “Closing” means the closing date of a transaction that results in a Change of Control, as set forth in the definitive agreement governing such transaction. “Code” means the Internal Revenue Code of 1986, as amended. “Covered Person” means each of the Corporation’s (i) Chief Executive Officer (also currently serving as the President, Corporate Secretary and Chairman of the Board of the Corporation), and (ii) the Chief Financial Officer. “Effective Date” means April 1, 2022, the effective date of this 2022 EO Plan. “Good Reason” with respect to a Covered Person, means the occurrence of one or more of the following without the Covered Person’s written consent: (i) A fifteen percent (15%) or more reduction in the Covered Person’s total annual cash compensation opportunity (base salary and target bonus opportunity collectively), as compared to the Covered Person’s total annual cash compensation opportunity immediately prior to the reduction in compensation; (ii) A change in the Covered Person’s principal work location resulting in a new one-way commute that is more than fifty (50) miles greater than the Covered Person’s one-way commute prior to the change in the Covered Person’s principal work location without allowing alternate accommodation (such as remote work), regardless of whether the Covered Person receives an offer of relocation benefits; or (iii) (A) A material reduction in the Covered Person’s authority, duties and/or responsibilities, or (B) in connection with a proposed Change of Control, a proposed material reduction in the Covered Person’s authority, duties and/or responsibility by the acquiring company as compared to the Executive’s authority, duties and/or responsibilities in effect immediately prior to the Closing (for example, but not by way of limitation, this determination will include an analysis of whether the Covered Person will maintain at least the same level, scope and type of duties and responsibilities with respect to the management, strategy, operations and business of the combined entity resulting from such transaction, taking the Corporation, any acquirer and their respective parent corporations, subsidiaries and other affiliates, together as a whole). With respect to any termination for Good Reason, the Covered Person shall give the Corporation written notice, which shall identify with reasonable specificity the grounds for the Covered Person’s resignation, and provide the Corporation a period of thirty (30) days from the day such notice is given to cure the alleged grounds for termination for Good Reason contained in the notice. A termination will not be for Good Reason if such notice is given by the Covered Person to the Corporation more than ninety (90) days after the occurrence of the event that the Covered Person alleges is Good Reason for her or her termination. Any event or condition shall cease to constitute “Good Reason” if the Corporation cures the event or condition within the thirty (30) day cure period, or, if the Corporation fails to cure the event or condition within such thirty (30) day period, the Covered Person fails to terminate employment within ninety (90) days following the expiration of the thirty (30) day cure period. “Payment Date” means the date on which the Corporation pays the Retention Bonus to the Covered Persons, which shall be on the date of the Closing. “Release” means a general release, in the form provided by the Corporation, of any and all claims against the Corporation and all related parties with respect to all matters arising out of the Covered Person’s employment by the Corporation and its affiliates and (if applicable) the termination thereof (other than claims for any entitlements under the terms of this 2022 EO Plan or for vested benefits under any employee benefit plans or programs of the Corporation made available to employees of the Corporation and its affiliates generally under which the Covered Person has accrued and is due a benefit), subject to applicable law. “RSU Plan” means that certain Amended and Restated 2008 Restricted Stock Unit Plan as adopted by the Corporation in May 2017, as amended and in effect from time to time. “Section 280G” means Section 280G of the Code and the final regulations and any guidance promulgated thereunder. “Section 409A” means Section 409A of the Code and the final regulations and any guidance promulgated thereunder. “Section 4999” means Section 4999 of the Code and the final regulations and any guidance promulgated thereunder. |
Definitions Definitions Definitions |
Each of the Covered Persons, along with other employees of the Corporation as determined by the Compensation Committee of the Board, shall be eligible to participate in this 2022 EO Plan, provided that the Covered Person is employed by the Corporation on the date this 2022 EO Plan is adopted by the Board, and is not excluded from this 2022 EO Plan as provided below. |
Participation in 2022 EO Plan |
Each Covered Person who is employed by the Corporation (or a subsidiary) upon a Change of Control and remains employed by the Corporation through the Closing, shall receive a retention bonus under this 2022 EO Plan (the “Retention Bonus”) and, provided that the conditions for payment of any Retention Bonus set forth in this 2022 EO Plan are satisfied, one-hundred percent (100%) of the Retention Bonus, as specified with respect to the Covered Person in Schedule 1 attached hereto, shall be paid in a lump-sum payment on the Payment Date. |
Retention Bonus Eligibility and Payment Date |
If, prior to the date of the Closing of a Change of Control, a Covered Person (i) voluntarily terminates his or her employment, or (ii) is terminated for Cause, he or she will not receive a Retention Bonus, and any funds that would have been utilized for that Covered Person’s Retention Bonus will revert to the Corporation and will not be reallocated to any other person, including any person that is a Covered Person under this or a similar compensation plan. |
Ineligibility to Receive Retention Bonuses |
In the event that, following an announcement by the Corporation of a transaction that would result in a Change of Control, or upon the occurrence of a Change of Control as described in clause (ii) of the definition of Change in Control above, but prior to the Closing relating to such Change of Control, a Covered Person’s employment with the Corporation is terminated without Cause or the Covered Person terminates his or her employment with the Corporation for Good Reason, that Covered Person shall be eligible to receive the Retention Bonus that he or she would otherwise have been entitled to receive had he or she remained employed with the Corporation through the Closing; provided, however, that any Retention Bonus payable to the Covered Person shall be reduced on a dollar for dollar basis, but not below zero, by the amount paid or payable to the Covered Person upon such termination pursuant to any severance agreement between the Covered Person and the Corporation. |
Termination Without Cause or Termination for Good Reason |
This 2022 EO Plan shall provide benefits to each Covered Person and his or her respective heirs, representatives, successors, and assigns, and will be binding on all successors and assigns of the Corporation and any acquirer of the Corporation. |
Benefits to Covered Persons and Their Respective Heirs |
Participation in this 2022 EO Plan will not provide any guarantee or promise of employment or continued service of any Covered Person or any employee of the Corporation or its subsidiaries with the Corporation or any of its subsidiaries, and the Corporation shall retain the right, and its subsidiaries shall retain the right, to terminate the employment of any Covered Person or any other employee of the Corporation or its subsidiaries, as applicable, at any time. |
No Guarantee of Continued Service |
Notwithstanding anything to the contrary herein, it is a condition to a Covered Person’s entitlement to receive a Retention Bonus under this 2022 EO Plan that a Covered Person shall have executed and delivered to the Corporation a written Release and shall not revoke such Release, such that the Release becomes irrevocable by its terms on or before the date on which such compensation is due to be paid by the Corporation. If a Covered Person fails to execute and deliver a Release, or revokes the Release before it becomes irrevocable, the Covered Person shall have no right to receive any Retention Bonus hereunder. |
Release |
The Corporation will withhold from any payments under this 2022 EO Plan (including to a beneficiary or estate) any amount required to satisfy all applicable federal, state, local, or foreign income, employment, and other tax withholding obligations. |
Withholding |
It is intended that Retention Bonuses under this 2022 EO Plan meet the short-term deferral exception under Section 409A (accordingly, notwithstanding anything herein to the contrary, no payments to be made hereunder shall be made later than the fifteenth (15th) day of the third (3rd) month following the last day of the taxable year in which the Closing of a Change of Control is effectuated or otherwise in which the payment right vests) and, if not exempt, the Retention Bonuses payable pursuant to this 2022 EO Plan are intended to comply with Section 409A, to the extent the requirements of Section 409A are applicable hereto. The provisions of this 2022 EO Plan shall be construed and administered in a manner consistent with that intention. |
Section 409A |
If payment of any amount under this 2022 EO Plan that is subject to Section 409A at the time specified therein would subject such amount to any additional tax under Section 409A, the payment of such amount shall be postponed to the earliest commencement date on which the payment of such amount could be made without incurring such additional tax. In addition, to the extent that any guidance issued under Section 409A would result in the Covered Person being subject to the payment of interest or any additional tax under Section 409A, the Corporation shall, to the extent reasonably possible and as allowed by applicable treasury regulations, amend this 2022 EO Plan in order to avoid the imposition of any such interest or additional tax under Section 409A, which amendment shall have the minimum economic effect necessary and be reasonably determined in good faith by the Corporation. |
409A Payment Adjustments |
Notwithstanding the foregoing, the Corporation makes no representations that the payments and benefits provided under this 2022 EO Plan comply with Section 409A and in no event will the Corporation be liable or be required to reimburse a Covered Person for all or any portion of any taxes, penalties, interest or other expenses that may be imposed on or incurred by him or her as a result of this 2022 EO Plan being subject to, but not compliant with, Section 409A. |
No Representation Regarding 409A |
If a Covered Person is deemed to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provisions of any benefit that is required to be delayed pursuant to Code Section 409A(a)(2)(B)(i), such payment or benefit shall not be made or provided prior to the earlier of: (i) the expiration of the six (6) month period measured from the date of the Covered Person’s “separation from service” (as such term is defined in Treasury Regulation Section 1.409A-1(h)); or (ii) the date of the Covered Person’s death (the “Delay Period”); and all payments and benefits delayed pursuant to the foregoing (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to the Covered Person in a lump sum within ten (10) days following the expiration of the Delay Period. |
409A Delay Payments |
No provision of this 2022 EO Plan will require the Corporation, for the purpose of satisfying any obligations under this 2022 EO Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor will the Corporation maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. |
No Trust Assets |
Nothing contained in this 2022 EO Plan and no action taken pursuant to the provisions of this 2022 EO Plan will create or be construed to create a trust of any kind. |
No Trust |
No property that may be acquired or invested by the Corporation in connection with this 2022 EO Plan will be deemed security for the obligations to the Covered Persons hereunder, but will be, and continue for all purposes to be, part of the general funds of the Corporation, and the Covered Persons will have no rights under this 2022 EO Plan other than as unsecured general creditors of the Corporation. |
No Property Will Constitute Security |
This 2022 EO Plan is intended to be a “bonus program” as defined under U.S. Department of Labor Regulation Section 2510.3-2(c) and will be construed and administered in accordance with such intention. |
Bonus Program |
All questions concerning the construction, validation, and interpretation of this 2022 EO Plan will be governed by the laws of the State of Colorado without regard to its conflict of laws provisions. |
Choice of Law |
The Corporation reserves the right to amend or terminate this 2022 EO Plan at any time; provided, however, that (i) any such amendment or termination shall be made in writing and approved by resolution of the Compensation Committee or the Board, and (ii) following the Effective Date, the Corporation may not, without a Covered Person’s written consent, amend or terminate this 2022 EO Plan in any way that (x) prevents the Covered Person from becoming eligible for his or her Retention Bonus under this 2022 EO Plan, or (y) reduces the amount of Retention Bonuses payable, or potentially payable to a Covered Person under this 2022 EO Plan. |
Amendment |
Under this 2022 EO Plan, effective as of April 1, 2022, the salaries (the “2022 EO Plan Annual Base Salary”) of the Covered Persons shall be as specified with respect to each such Covered Person in Schedule 1 attached hereto. |
2022 EO Plan Annual Base Salaries |
If a Change of Control occurs before March 31, 2024, for purposes of calculating the Retention Bonuses in Schedule 1, the 2022 EO Plan Annual Base Salaries shall be as set forth immediately above. |
Change of Control Salaries |
As promptly as practical after the adoption of this 2022 EO Plan, the Covered Persons shall be granted restricted stock units in accordance with the RSU Plan and pursuant to award agreements under said RSU Plan approved by the Compensation Committee as specified with respect to each such Covered Person in Schedule 1 attached hereto. Such restricted stock units shall vest in amounts and at times as set forth in Schedule 1 attached hereto and in accordance with the terms of the RSU Plan and applicable award agreement with respect thereto. |
2022 EO Plan Restricted Stock Units |
The Covered Persons shall be entitled to annual performance bonuses for each of the Corporation’s 2022 and 2023 fiscal years, in amounts as the Compensation Committee shall determine in its discretion with respect to each such Covered Person in accordance with the 2022 and 2023 Executive Officer Bonus Performance Plans (“EO Bonus Plans”) as described in Schedule 2 attached hereto, provided that such Covered Person continues in the service of the Corporation (or its subsidiary) through December 31, 2022 (with respect to the performance bonus for the 2022 fiscal year), or December 31, 2023 (with respect to the performance bonus for the 2023 fiscal year). |
2022 and 2023 EO Bonus Performance Plans |
Upon the closing of the acquisition of Merom Station (the “Merom Closing”) in accordance with that certain Asset Purchase Agreement dated as of February 14, 2022, by and between Hallador Power Company, LLC, a wholly-owned subsidiary of the Corporation, and Hoosier Energy Rural Electric Cooperative, Inc., the Compensation Committee shall grant additional bonuses in an aggregate amount of $500,000 (subject to all applicable withholding for income, employment and other withholding tax purposes) to be allocated, in the Compensation Committee’s sole discretion, between: (i) the Covered Persons in order to compensate such Covered Persons for services performed in connection with the acquisition of Merom Station and the Closing; provided that such persons are serving as officers or employees of the Corporation or one of its subsidiaries through the date on which the Merom Closing occurs and as of the Additional Bonus Payment Date (as defined below); and (ii) those executive officers and certain other employees of the Corporation or its subsidiaries other than the Covered Persons whom the Compensation Committee determines in its sole discretion shall be granted cash bonuses to compensate such persons for services performed in connection with the acquisition of Merom Station and the Merom Closing and who are employed by the Corporation or one of its subsidiaries through the date on which the Merom Closing occurs and as of the Additional Bonus Payment Date. One-hundred percent (100%) of the additional bonuses as described above shall be paid in lump-sum payments (subject to all applicable withholding for income, employment and other withholding tax purposes) to the Covered Persons and the other executive officers and employees receiving additional bonuses, on or before the date that is thirty (30) calendar days after the date of the Merom Closing (the “Additional Bonus Payment Date”). |
Additional Bonuses to Covered Persons and Certain Other Employees in Connection with Merom Station Acquisition |
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To the maximum extent allowed by law, the right of each of the Covered Persons to receive the Retention Bonus due pursuant to this 2022 EO Plan in the event of a Change of Control shall be subject to that Covered Person having entered into an agreement with the party that acquires the Corporation upon such Change of Control whereby that Covered Person shall agree to continue to work for the acquirer or its affiliate or the Corporation, as applicable, for a period of 3 months following the Closing of the Change of Control or such lesser period as determined by the acquirer (the “Post Change of Control Employment Period”); provided, that the foregoing shall not apply to a Covered Person unless: (a) the acquiror desires to engage that Covered Person to continue to work for the acquirer (or its affiliate or the Corporation or its affiliate); (b) the agreement between such Covered Person and the acquiror requires the acquiror to pay the Covered Person a monthly salary equivalent to or greater than the per month amount of the Covered Person’s 2022 EO Plan Annual Base Salary for each month during the Post Change of Control Employment Period; and (c) the agreement between such Covered Person and the acquiror requires the acquiror to pay such Covered Person a retention bonus equivalent to one quarter of the Covered Person’s performance bonus for the most recent completed fiscal year, which payment shall be due and payable within thirty (30) days after the end of the Post Change of Control Employment Period as long as such Covered Person continued to work for the acquirer, its affiliate or the Corporation until the last day of the Post Change of Control Employment Period or the acquirer, its affiliate or the Corporation terminates such agreement with such Covered Person prior to such date; and (d) the Covered Person having been employed by the Corporation or a subsidiary through the Closing of the Change of Control. |
Service Agreements |
Schedule 1
The Covered Person’s total compensation under the 2022 EO Plan shall be as follows:
Covered Person Title |
2022 EO Plan Annual Base Salary for Period April 1, 2022 through March 31, 2024 |
Chief Executive Officer |
$615,000 per year |
Chief Financial Officer |
$400,000 per year |
Retention Bonus Amount |
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Chief Executive Officer |
An amount equal to the sum of: (1) $1,230,000 in the event the acquiring company following the Closing of a Change of Control does not engage such Covered Person to continue to work for the acquirer, or $1,076,250 in the event the acquiring company does engage such Covered Person to continue to work for the acquirer pursuant to the requirements of the provisions in the 2022 EO Plan titled “Service Agreements;” plus (2) an amount equal to the Covered Person’s performance bonus for the prior fiscal year, pro rated for the period served in the fiscal year in which the Closing occurs through to the date of the Closing. |
Chief Financial Officer |
An amount equal to the sum of: (1) $800,000 in the event the acquiring company following the Closing of a Change of Control does not engage such Covered Person to continue to work for the acquirer, or $700,000 in the event the acquiring company does engage such Covered Person to continue to work for the acquirer pursuant to the requirements of the provisions in the 2022 EO Plan titled “Service Agreements;” plus (2) an amount equal to the Covered Person’s performance bonus for the prior fiscal year, pro rated for the period served in the fiscal year in which the Closing occurs through to the date of the Closing. |
Restricted Stock Units |
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Chief Executive Officer |
A one-time grant of a total of 267,537 restricted stock units, to be granted under the RSU Plan as promptly as practical after the adoption of this 2022 EO Plan, which shall vest in the amount of 89,179 restricted stock units on March 31st of each of 2023, 2024 and 2025, subject to the Covered Person’s continued Service, as defined in the RSU Plan, through the applicable vesting date, and shall vest in full subject to the Covered Person’s continued Service through to the date of a Change in Control, as defined in the RSU Plan, and otherwise in accordance with the terms of the RSU Plan and the applicable award agreement. |
Chief Financial Officer |
A one-time grant of a total of 173,913 restricted stock units, to be granted under the RSU Plan as promptly as practical after the adoption of this 2022 EO Plan, which shall vest in the amount of 57,971 restricted stock units on March 31st of each of 2023, 2024 and 2025, subject to the Covered Person’s continued Service through the applicable vesting date, and shall vest in full subject to the Covered Person’s continued Service through to the date of a Change in Control, and otherwise in accordance with the terms of the RSU Plan and the applicable award agreement. |
Schedule 2
RESOLUTIONS OF THE COMPENSATION COMMITTEE
Approval of the 2022 Hallador Energy Executive Officer Bonus Performance Plan Performance Goals
WHEREAS, Hallador Energy Company (the “Corporation”) desires to establish an annual Executive Officer Bonus Performance Plan (the “EO Bonus Plan”) to reward and motivate certain employees of the Corporation and certain of its subsidiaries to attain certain performance goals for fiscal years 2022 and 2023; and
WHEREAS, the Compensation Committee of the Board of Directors of the Corporation (the “Committee”) deems it advisable and in the best interests of the Corporation to establish terms and conditions for EO Bonus Plan awards consistent with the Corporation’s goals for the performance period of January 1, 2022 to December 31, 2022, or January 1, 2023 to December 31, 2023 (as applicable, the “Performance Period”);
NOW, THEREFORE, BE IT:
RESOLVED, that the Committee hereby approves the Bonus Plan, including the performance goals for each fiscal year as set forth in Exhibit A (the “Performance Goals”) and the Bonus Plan award opportunities for each of the key personnel identified in Exhibit A; and
FURTHER RESOLVED, that the Committee reserves the discretion, at any time prior to the final determination of whether the Performance Goals have been attained, to change the Performance Goals to reflect a change in corporate capitalization, such as a stock split, stock dividend, combination of shares or other changes in the Corporation’s corporate structure or shares, or a corporate transaction, such as a merger, consolidation, separation, reorganization or partial or complete liquidation, or to equitably reflect the occurrence of any extraordinary event, any change in applicable accounting rules or principles, any change in the Corporation’s method of accounting, any change in applicable law, or any other change of a similar nature.
General Authority
RESOLVED, that all such other acts or things which would cause the transactions contemplated by these resolutions to be consummated and performed be, and hereby are, authorized, approved and adopted; and
FURTHER RESOLVED, that each officer of the Corporation is hereby authorized to perform such further acts and execute and deliver such further documents or instruments as such officer may deem necessary or desirable to carry out with respect to the Corporation the intents and purposes of the foregoing resolutions.
Exhibit A
Executive Officer Bonus Performance Plan
Performance Goals and Payouts
Chief Executive Officer
The chart below sets forth the applicable goals and payouts for the Chief Executive Officer:
Area |
Goals |
Base Points |
Threshold Goal |
Target Goal |
Maximum Goal |
Payout Does Not Meet Threshold |
Payout at Target |
Payout at Maximum |
Safety (Sunrise) Note 1 |
Severity Measure (National Average) |
5 |
100.00% |
89% |
78.00% |
$0 |
$23,100 |
$46,200 |
Violations Per Inspection Day (National Average) |
5 |
0.50 |
0.42 |
0.34 |
$0 |
$23,100 |
$46,200 |
|
Safety (Power) Note 2 |
Incident Rate |
5 |
5.40 |
4.50 |
3.60 |
$0 |
$23,100 |
$46,200 |
Safety Inspection Rate |
5 |
1 |
1.25 |
1.50 |
$0 |
$23,100 |
$46,200 |
|
Financial |
Adjusted EBITDA ($ million) |
50 |
36.0 |
45.0 |
54.0 |
$0 |
$231,000 |
$462,000 |
Discretionary |
30 |
$0 |
$138,600 |
$277,200 |
Chief Financial Officer
The chart below sets forth the applicable goals and payouts for the Chief Financial Officer:
Area |
Goals |
Base Points |
Threshold Goal |
Target Goal |
Maximum Goal |
Payout Does Not Meet Threshold |
Payout at Target |
Payout at Maximum |
Safety (Sunrise) Note 1 |
Severity Measure (National Average) |
5 |
100.00% |
89% |
78.00% |
$0 |
$15,000 |
$30,000 |
Violations Per Inspection Day (National Average) |
5 |
0.50 |
0.42 |
0.34 |
$0 |
$15,000 |
$30,000 |
|
Safety (Power) Note 2 |
Incident Rate |
5 |
5.40 |
4.50 |
3.60 |
$0 |
$15,000 |
$30,000 |
Safety Inspection Rate |
5 |
1 |
1.25 |
1.50 |
$0 |
$15,000 |
$30,000 |
|
Financial |
Adjusted EBITDA ($ million) |
50 |
36.0 |
45.0 |
54.0 |
$0 |
$150,000 |
$300,000 |
Discretionary |
30 |
$0 |
$90,000 |
$180,000 |
Note 1: Safety (Sunrise) is based on Sunrise Coal’s performance percentage relative to the national average for underground coal mines over the preceding 4 years. For the 2022 Performance Period, safety will be determined relative to the 2018 – 2021 period. For the 2023 Performance Period, safety will be determined relative to the 2019 – 2022 period. Actual results for each safety measure will be calculated by Sunrise Coal management with final results available.
Note 2: If Hallador Power Company does not complete the pending acquisition of the Merom Station power generating facility by August 1, 2022, the Safety (Power) goal will not apply for 2022 and the Safety (Power) payout amounts will be added to the Safety (Sunrise) payout amounts (i.e., $23,100 or $15,000, as applicable, additional will be added to each Safety (Sunrise) goal Payout at Target amount, with corresponding changes to Payout at Maximum amounts). If Hallador Power Company does not complete the pending acquisition of the Merom Station power generating facility by June 30, 2023, the Safety (Power) goal will not apply for 2023 and the Safety (Power) payout amounts will be added to the Safety (Sunrise) payout amounts (i.e., $23,100 or $15,000, as applicable, additional will be added to each Safety (Sunrise) goal Payout at Target amount, with corresponding changes to Payout at Maximum amounts). If applicable, Safety (Power) is based on Hallador Power’s performance percentage relative to the national average for coal-fired power generating facilities over the preceding 4 years. For the 2022 Performance Period, safety will be determined relative to the 2018 – 2021 period. For the 2023 Performance Period, safety will be determined relative to the 2019 – 2022 period. Actual results for each safety measure will be calculated by Hallador Power management with final results available.
The charts above set forth the Performance Goals for each performance measure for each of the 2022 and 2023 Performance Periods and the associated payouts for the Chief Executive Officer and Chief Financial Officer.
For the Chief Executive Officer, the target bonus is $462,000 for each of the 2022 and the 2023 Performance Periods. For the Chief Financial Officer, the target bonus is $300,000 for each of the 2022 and the 2023 Performance Periods. A portion of the target bonus is allocated to each performance measure in proportion to the base points allocated to the performance measure. Performance against each Performance Goal and the corresponding payout are measured separately. The attained performance against a Performance Goal shall not affect the performance bonus amount payable with respect to any other Performance Goal.
No payout is available with respect to a performance measure if performance is at or below the threshold level.
The payout for performance above the threshold level but below the target level shall be determined by straight line interpolation between zero and the target payout amount.
The payout for performance above the target level but below the maximum level shall be determined by straight line interpolation between the target payout amount and the maximum payout amount.
Performance in excess of the maximum Performance Goal does not result in a payout in excess of the maximum payout amount.
Performance bonus amounts, if any, will be paid in a lump sum net of applicable withholding, after audit completion, in March 2023 with respect to the 2022 Performance Period and in March 2024 with respect to the 2023 Performance Period, contingent on the Chief Executive Officer’s or Chief Financial Officer’s continued service with the Corporation or its affiliates through to December 31, 2022, with respect to the 2022 Performance Period, and through to December 31, 2023, with respect to the 2023 Performance Period.
Example 1 - CEO:
By way of example, if, for the 2022 Performance Period, Severity Measure (National Average) is 99%, the threshold Performance Goal for Violations per Inspection Day, Incident Rate and Safety Inspection Rate are not exceeded, and the adjusted EBITDA is $50.0 million, the Chief Executive Officer shall be entitled to a receive a performance bonus for the 2022 Performance Period calculated as follows:
Severity Measure (National Average): $23,100 * (100 - 99)/(100 - 89) = $2,100
EBITDA: $231,000 + ($231,000 * (50 - 45)/(54 - 45)) = $231,000 + $128,333.33 = $359,333.33
TOTAL: $361,433.33
Example 2 - CFO:
By way of example, if, for the 2022 Performance Period, Severity Measure (National Average) is 99%, the threshold Performance Goal for Violations per Inspection Day, Incident Rate and Safety Inspection Rate are not exceeded, and the adjusted EBITDA is $50.0 million, the Chief Financial Officer shall be entitled to a receive a performance bonus for the 2022 Performance Period calculated as follows:
Severity Measure (National Average): $15,000 * (100 - 99)/(100 - 89) = $1,363.63
EBITDA: $150,000 + ($150,000 * (50 - 45)/(54 - 45)) = $150,000 + $83,333.33 = $233,333.33
TOTAL: $234,696.94
In addition to the safety and financial performance goals described in the above chart: (i) the Chief Executive Officer may also be entitled to receive a discretionary bonus amount for each of the 2022 Performance Period and 2023 Performance Period, as determined by the Board or the compensation committee, as applicable, of up to $277,200; and (ii) the Chief Financial Officer may also be entitled to receive a discretionary bonus amount for each of the 2022 Performance Period and 2023 Performance Period, as determined by the Board or the compensation committee, as applicable, of up to $180,000.
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 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. |
November 14, 2022 |
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/s/ BRENT K. BILSLAND |
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|
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Brent K. Bilsland, Chairman, President and CEO |
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. |
November 14, 2022 |
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/s/LAWRENCE D. MARTIN |
|
|
|
Lawrence D. Martin, CFO |
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. |
November 14, 2022 |
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/S/R. TODD DAVIS |
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|
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R. Todd Davis, CAO |
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, 2022 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 14, 2022 |
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By: |
/S/BRENT K. BILSLAND |
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Brent K. Bilsland, Chairman, President and CEO |
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By: |
/S/LAWRENCE D. MARTIN |
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Lawrence D. Martin, CFO |
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By: |
/S/R. TODD DAVIS |
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R. Todd Davis, CAO |
Exhibit 95.1
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 outline required disclosures and citations/orders issued to us by MSHA during the 3rd Quarter 2022. 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:
12-02465 – 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
12-02339 - Freelandville Mine
3rd Quarter 2022 |
||||||||||||||||||||||||
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 |
|||||||||||||||||||
(In thousands) |
||||||||||||||||||||||||
Mine ID# |
||||||||||||||||||||||||
12‐02465 |
— | — | — | — | — | $ | — | |||||||||||||||||
12‐02460 |
— | — | — | — | — | $ | — | |||||||||||||||||
12‐02394 |
12 | — | — | — | — | $ | 12.60 | |||||||||||||||||
12‐02418 |
3 | — | — | — | — | $ | 3.25 | |||||||||||||||||
12‐02462 |
— | — | — | — | — | $ | 0.40 | |||||||||||||||||
12‐02249 |
— | — | — | — | — | $ | 0.10 | |||||||||||||||||
12-02339 |
— | — | — | — | — | $ | 0.10 | |||||||||||||||||
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# |
||||||||||||||||||||||||
12‐02465 |
No |
No |
— | — | — | — | ||||||||||||||||||
12‐02460 |
No |
No |
— | — | — | — | ||||||||||||||||||
12‐02394 |
No |
No |
— | — | — | — | ||||||||||||||||||
12‐02418 |
No |
No |
— | — | — | — | ||||||||||||||||||
12‐02462 |
No |
No |
— | — | — | — | ||||||||||||||||||
12‐02249 |
No |
No |
— | — | — | — | ||||||||||||||||||
12-02339 |
No | No | — | — | — | — | ||||||||||||||||||
Contest of |
Contest |
Complaints |
Complaints |
Applications |
Appeals of |
|||||||||||||||||||
Citations/ |
of |
of |
of Discharge/ |
of Temp. |
Decisions/ |
|||||||||||||||||||
Orders |
Penalties |
Compensation |
Discrimination |
Relief |
Orders |
|||||||||||||||||||
Mine ID# |
||||||||||||||||||||||||
12‐02465 |
— | — | — | — | — | — | ||||||||||||||||||
12‐02460 |
— | — | — | — | — | — | ||||||||||||||||||
12‐02394 |
— | — | — | — | — | — | ||||||||||||||||||
12‐02418 |
— | — | — | — | — | — | ||||||||||||||||||
12‐02462 |
— | — | — | — | — | — | ||||||||||||||||||
12‐02249 |
— | — | — | — | — | — | ||||||||||||||||||
12-02339 |
— | — | — | — | — | — |