HALLADOR ENERGY CO
10-Ks and 10-Qs
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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:
June 30,
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 August 6,
2010 we had 27,782,028 shares outstanding.
1
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(in
thousands, except per share data)
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June 30,
2010
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December
31
,
2009
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ASSETS
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Current
assets:
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Cash and cash
equivalents
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$ | 14,553 | $ | 15,226 | ||||
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Certificates
of deposit
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3,467 | 3,458 | ||||||
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Income taxes
receivable
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1,511 | |||||||
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Accounts
receivable
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6,839 | 5,411 | ||||||
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Coal
inventory
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1,199 | 2,165 | ||||||
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Other
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2,610 | 2,498 | ||||||
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Total current
assets
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28,668 | 30,269 | ||||||
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Coal
properties, at cost:
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Land,
buildings and equipment
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106,660 | 95,270 | ||||||
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Mine
development
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51,403 | 47,479 | ||||||
| 158,063 | 142,749 | |||||||
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Less -
accumulated DD&A
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(22,586 | ) | (16,958 | ) | ||||
| 135,477 | 125,791 | |||||||
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Investment in
Savoy
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6,562 | 6,259 | ||||||
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Other
assets
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2,955 | 2,771 | ||||||
| $ | 173,662 | $ | 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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$ | 10,000 | $ | 10,000 | ||||
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Dividends
payable
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2,937 | |||||||
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Accounts
payable and accrued liabilities
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8,804 | 9,950 | ||||||
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Income taxes
payable
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464 | |||||||
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Other
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58 | 179 | ||||||
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Total current
liabilities
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21,799 | 20,593 | ||||||
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Long-term
liabilities:
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Bank debt,
net of current portion
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22,500 | 27,500 | ||||||
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Interest rate
swaps, at estimated fair value
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1,074 | 1,404 | ||||||
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Deferred
income taxes
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5,317 | 1,699 | ||||||
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Asset
retirement obligations
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1,114 | 922 | ||||||
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Other
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4,345 | 4,345 | ||||||
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Total
long-term liabilities
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34,350 | 35,870 | ||||||
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Total
liabilities
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56,149 | 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 | 277 | ||||||
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Additional
paid-in capital
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85,622 | 85,245 | ||||||
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Retained
earnings
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31,614 | 23,105 | ||||||
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Total
stockholders’ equity
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117,513 | 108,627 | ||||||
| $ | 173,662 | $ | 165,090 | |||||
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See
accompanying notes.
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2
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(in
thousands, except per share data)
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Six months
ended
June
30,
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Three months
ended
June
30,
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2010
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2009
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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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$ | 66,650 | $ | 55,597 | $ | 31,695 | $ | 25,786 | ||||||||
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Equity income
(loss) – Savoy
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303 | (549 | ) | 113 | (290 | ) | ||||||||||
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Other
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13 | 795 | (124 | ) | 337 | |||||||||||
| 66,966 | 55,843 | 31,684 | 25,833 | |||||||||||||
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Costs and
expenses:
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Cost of coal
sales
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38,332 | 31,430 | 18,883 | 16,109 | ||||||||||||
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DD&A
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5,642 | 3,787 | 2,885 | 2,018 | ||||||||||||
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SG&A
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2,596 | 1,740 | 1,456 | 800 | ||||||||||||
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Interest
(1)
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1,048 | 828 | 486 | 446 | ||||||||||||
| 47,618 | 37,785 | 23,710 | 19,373 | |||||||||||||
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Income before
income taxes
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19,348 | 18,058 | 7,974 | 6,460 | ||||||||||||
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Less income
taxes
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(7,740 | ) | (6,140 | ) | (3,190 | ) | (2,477 | ) | ||||||||
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Net
income
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11,608 | 11,918 | 4,784 | 3,983 | ||||||||||||
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Less net
income attributable to the noncontrolling interest
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(1,377 | ) | (491 | ) | ||||||||||||
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Net income
attributable to Hallador
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$ | 11,608 | $ | 10,541 | $ | 4,784 | $ | 3,492 | ||||||||
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Net income
per share attributable to Hallador:
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Basic
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$ | 0.42 | $ | 0.47 | $ | 0.17 | $ | 0.16 | ||||||||
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Diluted
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$ | 0.41 | $ | 0.47 | $ | 0.17 | $ | 0.16 | ||||||||
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Weighted
average shares outstanding:
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Basic
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27,782 | 22,446 | 27,782 | 22,446 | ||||||||||||
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Diluted
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28,510 | 22,446 | 28,563 | 22,446 | ||||||||||||
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______________________________
(1) Included
in interest expense for 2010 and 2009 are credits of $330 and $531,
respectively, for the change in the estimated fair value of our interest rate
swaps. Such amounts for the second quarter 2010 and 2009 were $191
and $373, respectively. We also capitalized $0 and $300 in interest charges for
2010 and 2009, respectively; no amounts were capitalized in the second quarter
of either year.
See accompanying
notes.
3
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For the six
months ended June 30,
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(
in thousands
)
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2010
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2009
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Operating
activities:
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Cash provided
by operating activities
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$ | 23,280 | $ | 23,237 | ||||
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Investing
activities:
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Capital
expenditures for coal properties
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(18,204 | ) | (25,945 | ) | ||||
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Other
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92 | (1,877 | ) | |||||
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Cash used in
investing activities
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(18,112 | ) | (27,822 | ) | ||||
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Financing
activities:
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Payments of
bank debt
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(5,000 | ) | ||||||
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Cash
distributions to noncontrolling interests
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(162 | ) | (596 | ) | ||||
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Stock option
buy out for cash
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(679 | ) | ||||||
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Cash used in
financing activities
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(5,841 | ) | (596 | ) | ||||
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Decrease in
cash and cash equivalents
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(673 | ) | (5,181 | ) | ||||
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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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$ | 14,553 | $ | 15,832 | ||||
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See
accompanying notes.
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4
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(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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1,056 | 1,056 | ||||||||||||||||||
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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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(162 | ) | (162 | ) | ||||||||||||||||
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Declared
dividends on common stock
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(2,778 | ) | (2,778 | ) | ||||||||||||||||
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Declared
dividends on RSUs and stock options
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(159 | ) | (159 | ) | ||||||||||||||||
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Net
income
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11,608 | 11,608 | ||||||||||||||||||
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Balance June
30, 2010
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27,782 | $ | 277 | $ | 85,622 | $ | 31,614 | $ | 117,513 | |||||||||||
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See
accompanying notes.
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5
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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(1)
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General
Business
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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 six months ended June 30, 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 June 30, 2010, we owe $32.5 million on the term
loan. We have outstanding letters of credit in the amount of $6
million, which leaves about $24 million available under the
revolver. We pay a 2.5% fee on the letters of credit and a .5%
commitment fee on the unused funds. Substantially all of Sunrise's
assets are pledged under this loan agreement and we are the
guarantor. The loan agreement requires customary covenants, required
financial ratios and restrictions on dividends or distributions. The
current interest rate is LIBOR (0.44%) plus 2.50% or 2.94%.
6
In
connection with the old loan agreements, we entered into two agreements swapping
variable rates for fixed rates. Considering the two swap agreements, our current
interest rate is about 5.7%. Our balance sheet presents the estimated
value of our swaps.
Accounting rules
require us to recognize all derivatives on the balance sheet at estimated fair
value. Derivatives that are not hedges must be adjusted to estimated fair value
through earnings. We have no derivatives designated as a hedge. The recorded
value of our bank debt approximates fair value as it bears interest at a
floating rate.
(5) Equity
Investment in Savoy
We
own a 45% interest in Savoy Energy L.P., a private company engaged in the oil
and gas business primarily in the State of Michigan. We account for our interest
in Savoy using the equity method of accounting. Savoy uses the
successful efforts method of accounting.
Below (in
thousands) are a condensed balance sheet at June 30, 2010 and a condensed
statement of operations for the six months ended June 30, 2010 and
2009.
Condensed
Balance Sheet
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2010
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Current
assets
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$ | 6,778 | ||
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Oil and gas
properties, net
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15,287 | |||
| $ | 22,065 | |||
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Total
liabilities
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$ | 7,505 | ||
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Partners'
capital
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14,560 | |||
| $ | 22,065 | |||
Condensed
Statement of Operations
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2010
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2009
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Revenue
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$ | 5,381 | $ | 3,638 | ||||
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Expenses
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(4,711 | ) | (4,855 | ) | ||||
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Net income (loss)
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$ | 670 | $ | (1,217 | ) | |||
(6)
Insurance
We
concluded to drop the insurance on our underground mining equipment which has a
cost of about $68 million. We also plan to purchase an insurance
policy to cover our director and officers; heretofore we did not have such
coverage.
7
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.
New
Underground Mining Project
We
have leased about 16,000 acres in Vermilion County, Illinois. Leasing and
exploratory drilling operations are ongoing. We are reviewing coal quality
and rock mechanics information at this time and hope to declare the property a
minable reserve before the end of the year. We expect the permitting
process in Illinois to take 18-24 months.
Liquidity and
Capital
Resources
For the first half
of 2010, we generated about $23.3 million in cash from operations. We do
not anticipate any liquidity issues in the foreseeable future. We plan to
fund future mine activity at our Carlisle Mine through cash from operations and,
if necessary, draws from the remaining $24 million on our revolver. Our
capital expenditures budget for the remainder of 2010 is in the $8-10 million
range. Eventually, if and when we develop a new reserve, we intend to incur
additional debt and restructure our existing credit facility.
On
May 27, 2010 we declared a one-time cash dividend of $0.10 per common share of
which there are 27,782,028 outstanding. The cash dividend was paid July 16, 2010
to shareholders of record at the close of business July 9, 2010.
Furthermore,
our board approved that the $.10 dividend would also apply to the 1,150,000
outstanding restricted stock units and to the 434,167 outstanding stock
options. The total cash payment for all the outstanding securities
was about $2.9 million.
Next
spring we plan to evaluate our cash position and funding requirements and decide
if we will again declare a cash dividend.
We
have no material off-balance sheet arrangements.
Results
of Operations
Six
months ended June 30, 2010 vs. 2009
For the first half
of 2010, we sold 1,562,000 tons at an average price of $42.68/ton. For the
first half of 2009, we sold 1,258,000 tons at an average price of
$44.19/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 halves 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 1.48 million ton
range.
Cost of coal sales
averaged $24.54/ton in 2010 compared to $25 in 2009. The change on a per ton
basis is not material. Our mining employees totaled 322 at June 30, 2010
compared to 290 at June 30, 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.
8
SG&A increased
primarily to the higher level of operations and to higher amortization of our
restricted stock units (RSUs). Total RSU amortization in 2010 was
$1,056,000 compared to $123,000 for 2009. Included in cost of sales
for 2010 was $226,000 for RSU amortization compared to nil for
2009.
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 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; therefore, we do not think it is
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. Average debt outstanding during
the first half of 2010 was $35 million compared to $40 million for the first
half of 2009; interest rates have remained static for the periods. Because our
mine expansion was completed in the summer of 2009, we are no longer
capitalizing interest. Furthermore, included in interest expense for
2010 and 2009 is a credit of $330,000 and $531,000 respectively, for the change
in the estimated fair value of our interest rate swaps.
Regarding Savoy, we
recorded a loss for 2009 compared to a profit for 2010. As a result
of successful drilling efforts, Savoy’s 2010 oil production of 50,000 barrels
has almost tripled compared to the same period in 2009; and 2010 oil prices
averaged $72/barrel compared to $46 for 2009. Gas production stayed
about the same but 2010 gas prices are lower. Currently, oil revenue
comprises about 88% of Savoy’s oil and gas revenue. Exploration costs
for 2010 were $1.4 million compared to $1.1 million for 2009; the increase was
due primarily to higher dry hole and geological and geophysical costs offset by
lower impairment charges. Savoy also experienced a one- time gain of $280,000
during the first quarter of 2010 relating to an insurance claim
settlement. Assuming oil prices do not materially decline, we expect
Savoy to break even or record a small profit for the remainder of
2010.
Our effective tax
rate was 40% and we expect that rate to continue for the remainder of
2010.
Three
months ended June 30, 2010 vs. 2009
For the second
quarter of 2010, we sold 755,470 tons at an average price of
$41.95/ton. For the second quarter of 2009, we sold 596,000 tons
at an average price of $43.27/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 second quarter of 2010 and
2009. The lower price for 2010 is due to the mix of our various
contracts and corresponding prices.
9
Cost of coal sales
averaged $25/ton in 2010 compared to $27 in 2009. The decrease was
due to improved mining conditions. 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). Total RSU amortization in 2010 was
$572,000 compared to $63,000 for 2009. Included in cost of sales for
2010 was $149,000 for RSU amortization compared to nil for 2009.
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
recorded a loss for 2009 compared to a profit for 2010. As a result
of successful drilling efforts, Savoy’s 2010 oil production of 27,600 barrels
has almost tripled compared to the same period in 2009; and 2010 oil prices
averaged $72/barrel compared to $53 for 2009. Gas production stayed about the
same but 2010 gas prices are lower. Currently, oil revenue comprises about 89%
of Savoy’s oil and gas revenue. Exploration costs for 2010 were
$898,000 compared to $387,000 for 2009 due primarily to higher dry hole
costs.
Our effective tax
rate was 40% and we expect that rate to continue for the remainder of
2010.
New
Accounting Pronouncements
None of the recent
FASB pronouncements will have any material effect on us.
Smaller reporting
companies are not required to provide the information required by this
item.
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 June 30, 2010
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting
.
10
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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: August
6, 2010
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/s/W.
Anderson Bishop
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W.
Anderson Bishop, CFO and CAO
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11
TABLE OF CONTENTS