UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-Q
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[ x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the quarterly period ended:
March 31,
2010
or
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[
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
file number: 0-14731
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HALLADOR ENERGY
COMPANY
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Colorado
(State of
incorporation)
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84-1014610
(IRS Employer
Identification No.)
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1660
Lincoln Street, Suite 2700, Denver, Colorado
(Address of
principal executive offices)
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80264-2701
(Zip
Code)
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Issuer's
telephone number: 303.839.5504
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Fax:
303.832.3013
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Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes þ No
o
Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files). Yes o No o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the
definitions of "larger accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
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o Large accelerated
filer
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o Accelerated
filer
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o Non-accelerated
filer (do not check if a small reporting company)
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þ Smaller reporting
company
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Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.)
Yes o No þ
As of April 30,
2010 we had 27,782,028 shares outstanding.
1
PART
1- Financial Information
ITEM
1. Financial Statements
Consolidated
Balance Sheet
(in thousands, except per share
data)
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March
31,
2010
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December 31,
2009
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| ASSETS | |||||
| Current assets: | |||||
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Cash and cash
equivalents
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$
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16,231
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$
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15,226
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Certificates
of deposit
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3,464
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3,458
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Income taxes
receiveable
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1,000
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1,511
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Accounts
receivable
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7,552
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5,411
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Coal
inventory
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798
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2,165
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Other
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2,335
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2,498
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Total current
assets
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31,380
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30,269
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Coal
properties, at cost:
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Land,
buildings and equipment
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100,890
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95,270
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Mine
development
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49,143
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47,479
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150,033
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142,749
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Less -
accumulated DD&A
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(19,715
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)
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(16,958
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)
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130,318
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125,791
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Investment in
Savoy
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6,449
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6,259
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Other
assets
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3,087
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2,771
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$
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171,234
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$
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165,090
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Current
portion of bank debt
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$
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10,000
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$
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10,000
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Accounts
payable and accrued liabilities
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8,139
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9,950
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Income taxes
payable
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2,073
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464
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Other
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254
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179
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Total current
liabilities
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20,466
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20,593
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Long-term
liabilities:
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Bank debt,
net of current portion
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25,000
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27,500
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Interest rate
swaps, at estimated fair value
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1,265
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1,404
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Deferred
income taxes
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4,129
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1,699
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Asset
retirement obligations
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937
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922
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Other
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4,345
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4,345
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Total
long-term liabilities
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35,676
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35,870
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Total
liabilities
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56,142
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56,463
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Stockholders’
equity:
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Preferred
stock, $.10 par value, 10,000 shares authorized;
none
issued
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Common stock,
$.01 par value, 100,000 shares authorized;
27,782 shares
outstanding for both periods
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277
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277
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Additional
paid-in capital
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84,886
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85,245
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Retained
earnings
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29,929
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23,105
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Total
stockholders’ equity
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115,092
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108,627
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$
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171,234
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$
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165,090
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See accompanying
notes.
2
Consolidated
Statement of Operations
For the three
months ended March 31,
(in thousands, except per share
data)
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2010
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2009
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Revenue:
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Coal
sales
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$ | 34,955 | $ | 29,811 | ||||
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Equity income
(loss) - Savoy
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190 | (259 | ) | |||||
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Other
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137 | 458 | ||||||
| 35,282 | 30,010 | |||||||
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Costs and
expenses:
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Cost of coal
sales
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19,449 | 15,321 | ||||||
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DD&A
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2,757 | 1,769 | ||||||
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SG&A
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1,140 | 940 | ||||||
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Interest
(1)
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562 | 382 | ||||||
| 23,908 | 18,412 | |||||||
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Income before
income taxes
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11,374 | 11,598 | ||||||
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Less income
taxes
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(4,550 | ) | (3,663) | |||||
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Net
income
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6,824 | 7,935 | ||||||
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Less net
income attributable to the noncontrolling interest
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(886 | ) | ||||||
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Net income
attributable to Hallador
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$ | 6,824 | $ | 7,049 | ||||
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Net income
per share attributable to Hallador:
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Basic
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$ | .25 | $ | .31 | ||||
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Diluted
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$ | .24 | $ | .31 | ||||
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Weighted
average shares outstanding:
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Basic
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27,782 | 22,446 | ||||||
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Diluted
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28,396 | 22,446 | ||||||
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(1)
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Included
in interest expense for 2010 and 2009 is a credit of $139 and $157,
respectively, for the change in the estimated fair value of our interest
rate swaps. We also capitalized $0 and $300 in interest charges
for 2010 and 2009,
respectively.
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See accompanying
notes.
3
Consolidated
Statement of Cash Flows
For the three
months ended March 31,
(in thousands)
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2010
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2009
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Operating
activities:
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Cash provided
by operating activities
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$ | 14,769 | $ | 13,391 | ||||
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Investing
activities:
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Capital
expenditures for coal properties
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(10,126 | ) | (12,802 | ) | ||||
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Other
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(295 | ) | (1,838 | ) | ||||
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Cash used in
investing activities
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(10,421 | ) | (14,640 | ) | ||||
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Financing
activities:
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Payments of
bank debt
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(2,500 | ) | ||||||
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Cash
distributions to noncontrolling interests
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(164 | ) | ||||||
| Stock option buy out for cash | (679 | ) | ||||||
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Cash used in
financing activities
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(3,343 | ) | ||||||
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Increase
(decrease) in cash and cash equivalents
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1,005 | (1,249 | ) | |||||
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Cash and cash
equivalents, beginning of period
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15,226 | 21,013 | ||||||
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Cash and cash
equivalents, end of period
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$ | 16,231 | $ | 19,764 | ||||
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Cash paid for
interest (net of amount capitalized - $0 and $300)
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$ | 607 | $ | 480 | ||||
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Changes in
accounts payable for coal properties
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$ | (2,848 | ) | |||||
See accompanying
notes.
4
Consolidated
Statement of Stockholders’ Equity
(in thousands)
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Shares
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Common
Stock
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Additional
Paid-in
Capital
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Retained
Earnings
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Total
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Balance
January 1, 2010
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27,782 | $ | 277 | $ | 85,245 | $ | 23,105 | $ | 108,627 | |||||||||||
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Stock-based
compensation
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484 | 484 | ||||||||||||||||||
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Stock option
buy out for cash
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(679 | ) | (679 | ) | ||||||||||||||||
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Cash
distributions to former noncontrolling interests for
their personal income taxes
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(164 | ) | (164 | ) | ||||||||||||||||
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Net
income
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6,824 | 6,824 | ||||||||||||||||||
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Balance March
31, 2010
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27,782 | $ | 277 | $ | 84,886 | $ | 29,929 | $ | 115,092 | |||||||||||
See accompanying
notes.
5
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(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 financial statements
included herein have been prepared pursuant to the SEC’s rules and regulations;
accordingly, certain information and footnote disclosures normally included in
GAAP financial statements have been condensed or omitted. The results of
operations and cash flows for the three months ended March 31, 2010 are not
necessarily indicative of the results to be expected for future quarters or for
the year ending December 31, 2010.
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 2009 Form 10-K. This quarterly report should be read in conjunction with
such 10-K.
The accompanying
consolidated financial statements include the accounts of Hallador Energy
Company and its subsidiary. All significant intercompany accounts and
transactions have been eliminated. We are engaged in the production of
coal from an underground mine located in southwestern Indiana. We
also own a 45% equity interest in Savoy Energy L.P., a private oil and gas
company which has operations primarily in Michigan.
(2) Stock
Options
On
January 7, 2010 we allowed four Denver employees (non officers) a one-time
opportunity to relinquish 1/3 of their vested options (115,833) for cash of
$679,000; the intrinsic value on such date. Equity was charged for
this transaction; in our 2009 Form 10-K we disclosed that the charge would be an
expense; however, upon further analysis of the accounting literature that
governs such transactions we concluded that it was an equity
transaction. As a result of this transaction, we now have 434,167
outstanding stock options which are fully vested.
(3) Sunrise
Coal Acquisition
Through a series of
independent transactions which began in 2006 and ended in September 2009, we now
own 100% of Sunrise Coal, LLC (Sunrise). At the end of 2006 and 2007
we owned 60% of Sunrise; at the end of 2008 we owned 80%; and at the end of 2009
we owned 100%.
(4) Notes
Payable
In
December 2008, we entered into a new loan agreement with a bank consortium that
provides for a $40 million term loan and a $30 million revolving credit
facility. At March 31, 2010, we owe $35 million on the term
loan. We have outstanding letters of credit in the amount of $6
million, which leaves about $24 million available under the
revolver. We pay a 2.5% fee on the letters of credit and a .5%
commitment fee on the unused funds. Substantially all of Sunrise's
assets are pledged under this loan agreement and we are the
guarantor. The loan agreement requires customary covenants, required
financial ratios and restrictions on dividends or distributions. The
current interest rate is LIBOR (0.28%) plus 2.50% or 2.78%.
In
connection with the old loan agreements, we entered into two agreements swapping
variable rates for fixed rates. Considering the two swap agreements, our current
interest rate is about 5.7%. Our balance sheet presents the estimated
value of our swaps.
Accounting rules
require us to recognize all derivatives on the balance sheet at estimated fair
value. Derivatives that are not hedges must be adjusted to estimated fair value
through earnings. We have no derivatives designated as a hedge. The recorded
value of our bank debt approximates fair value as it bears interest at a
floating rate.
6
(5) Equity
Investment in Savoy
We
own a 45% interest in Savoy Energy L.P., a private company engaged in the oil
and gas business primarily in the State of Michigan. We account for our interest
in Savoy using the equity method of accounting.
Below (in
thousands) are a condensed balance sheet at March 31, 2010 and a condensed
statement of operations for the three months ended March 31, 2010 and
2009.
Condensed Balance
Sheet
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2010
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Current
assets
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$ | 6,626 | ||
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Oil and gas
properties, net
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13,219 | |||
| $ | 19,845 | |||
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Total
liabilities
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$ | 5,529 | ||
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Partners'
capital
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14,316 | |||
| $ | 19,845 | |||
Condensed Statement of
Operations
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2010
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2009
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Revenue
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$ | 2,425 | $ | 1,981 | ||||
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Expenses
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(2,000 | ) | (2,556 | ) | ||||
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Net income
(loss)
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$ | 425 | $ | (575 | ) | |||
7
ITEM
2. MD&A
THE
FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2009 FORM
10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH.
Our consolidated
financial statements should be read in conjunction with this
discussion.
Liquidity and Capital
Resources
For the first
quarter of 2010, we generated about $15 million in cash from
operations. We do not anticipate any liquidity issues in the
foreseeable future. We plan to fund future mine expansion at the Carlisle mine
through a combination of draws from the remaining $24 million on our revolver
and cash from operations. Our capital expenditures budget for the
remainder of 2010 is in the $12-15 million range. Eventually, when we develop a
new reserve, we intend to incur additional debt and restructure our existing
credit facility.
We
have no material off-balance sheet arrangements.
Results of
Operations
Three months ended March 31,
2010 vs 2009
For the first
quarter of 2010, we sold 806,300 tons at an average price of
$43.35/ton. For the first quarter of 2009, we sold 662,000 tons
at an average price of $45/ton. Our average price for the remainder
of 2010, based on our contracts, will be about $41.50/ton, which is less than
the average prices for the first quarters of 2010 and 2009. The lower
price for 2010 is due to the mix of our various contracts and corresponding
prices. We expect our coal sales for the remainder of 2010 to be in
the 2.2 million ton range.
Cost of coal sales
averaged $24.12/ton in 2010 compared to $23.14 in 2009. The increase
was due to primarily to lower recovery rates. Our recovery percentage
for mined material to clean coal was about 66% for the 2010 period compared to
about 83% for the 2009 period. We are mining in an area where the raw
coal exhibits higher impurities compared to the same period last year;
accordingly, our costs are higher to extract these impurities. The
final product we sell to our customers is of the same high quality whether we
have 83% recoveries or 66% recoveries. We expect the 66% recovery
rate to continue for the remainder of 2010 if not longer. Our mining
employees totaled 310 at March 31, 2010 compared to 256 at March 31,
2009. We expect our cost of coal sales to average $24-25/ton for the
remainder of 2010.
The increase in
DD&A was due to the increase in our coal sales and the additions to coal
properties to support the higher sales volume.
SG&A increased
primarily to the higher level of operations and to higher amortization of our
restricted stock units (RSUs). RSU amortization in 2010 was $411,000
compared to $60,000 for 2009. Included in cost of sales for 2010 was
$73,000 for RSU amortization compared to nil for 2009.
8
On
January 7, 2010, we allowed four Denver employees (non officers) a one-time
opportunity to relinquish 1/3 of their vested options (115,833) for cash of
$679,000; the intrinsic value on such date. Equity was charged for
this transaction; in our 2009 Form 10-K we disclosed that the charge would be an
expense; however, upon further analysis of the accounting literature that
governs such transactions we concluded that it was an equity
transaction. As a result of this transaction, we now have 434,167
outstanding stock options which are fully vested.
The accounting
literature dictates, that when a cash offer is made such as the one we did, we
must evaluate whether we should record a liability for the fair value of the
remaining options, which based on a current price of $9 per share and an
exercise price of $2.30 would compute to a liability of about $2.9
million. The theory being we might make the offer again at some time
in the future and therefore should record a liability via a charge to earnings
and each quarter adjust the liability account either up or down based on the
change in the market price of our stock. We performed such evaluation
and concluded that the offer we made was an infrequent event; accordingly, we do
not think it appropriate to record such a liability.
Interest expense
for 2010 is higher primarily due to $300,000 being capitalized in 2009 offset by
lower interest expense due to lower debt levels. Because our mine expansion was
completed in the summer of 2009, we are no longer capitalizing
interest.
Regarding Savoy, we
picked up a loss for 2009 compared to a profit for 2010. As a result of
successful drilling efforts, Savoy’s 2010 oil production of 22,000 barrels
has almost tripled compared to the same period in 2009; and 2010 oil prices
averaged $72/barrel compared to $36 for 2009. Gas prices and
production are down slightly for 2010 compared to 2009. Currently,
oil revenue comprises about 86% of Savoy’s oil and gas
revenue. Exploration costs for 2010 were $530,000 compared to
$750,000 for 2009 due primarily to lower impairment charges. Savoy
also experienced a one-time gain of $280,000 during the 2010 quarter relating to
an insurance claim settlement. Assuming oil prices do not
decline, we expect Savoy to break even or record a small profit for the
remainder of 2010.
Our effective tax
rate for the 2010 quarter was 40% and we expect that rate for the remainder of
2010.
New Accounting
Pronouncements
None of the recent
FASB pronouncements will have any material effect on us.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Smaller reporting
companies are not required to provide the information required by this
item.
9
ITEM 4
T. CONTROLS AND PROCEDURES.
Disclosure
Controls
We
maintain a system of disclosure controls and procedures that are designed for
the purposes of ensuring that information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our CEO and CFO as appropriate to allow timely decisions
regarding required disclosure.
As
of the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our CEO and CFO, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based upon that evaluation, our CEO and CFO concluded that our
disclosure controls and procedures are effective for the purposes discussed
above.
There has been no
change in our internal control over financial reporting during the quarter ended
March 31, 2010 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II - Other Information
ITEM 6. EXHIBITS
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31
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SOX 302
Certifications
(1)
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32
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SOX 906
Certification (1)
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---------------------------------------
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(1) Filed
herewith.
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SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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HALLADOR
ENERGY COMPANY
|
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Date: April
30, 2010
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/s/W. Anderson
Bishop
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|
|
W.
Anderson Bishop, CFO and CAO
|