hnrg20210930

hnrg20210930_10q.htm

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, 2021
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”

HALLADOR ENERGY COMPANY

(www.halladorenergy.com)

Colorado

(State of incorporation)

84-1014610

(IRS Employer Identification No.)

1183 East Canvasback Drive, Terre Haute, Indiana

(Address of principal executive offices)

47802

(Zip Code)

Registrant’s telephone number, 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 8, 2021, we had 30,612,572 shares of common stock outstanding.

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TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)	3

Condensed Consolidated Balance Sheets	3

Condensed Consolidated Statements of Operations	4

Condensed Consolidated Statements of Cash Flows	5

Condensed Consolidated Statements of Stockholders’ Equity	6

Notes to Condensed Consolidated Financial Statements	7

Report of Independent Registered Public Accounting Firm	15

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22

ITEM 4. CONTROLS AND PROCEDURES	22

PART II - OTHER INFORMATION	22

ITEM 4. MINE SAFETY DISCLOSURES	22

ITEM 6. EXHIBITS	23

SIGNATURES	25

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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,*
	*2021*			*2020*
ASSETS
Current assets:
Cash and cash equivalents	$	4,546		$	8,041
Restricted cash		3,249			4,030
Accounts receivable		16,455			14,414
Inventory		11,322			24,663
Parts and supplies		9,821			8,903
Prepaid expenses		3,687			3,282
Total current assets		49,080			63,333
Property, plant and equipment, at cost:
Land and mineral rights		115,859			115,853
Buildings and equipment		361,570			352,115
Mine development		105,855			93,635
Total property, plant and equipment, at cost		583,284			561,603
Less - accumulated depreciation, depletion and amortization		(281,041	)		(252,245	)
Total property, plant and equipment, net		302,243			309,358
Investment in Sunrise Energy		3,334			3,181
Other assets		8,428			8,258
Total Assets	$	363,085		$	384,130
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of bank debt, net	$	26,773		$	34,311
Current portion of PPP note		—			5,490
Accounts payable and accrued liabilities		39,253			31,409
Total current liabilities		66,026			71,210
Long-term liabilities:
Bank debt, net		83,523			97,307
PPP note		—			4,510
Deferred income taxes		133			2,824
Asset retirement obligations		17,212			16,177
Other		2,109			2,842
Total long-term liabilities		102,977			123,660
Total liabilities		169,003			194,870
Redeemable noncontrolling interests		4,000			4,000
Stockholders' equity:
Preferred stock, $.10 par value, 10,000 shares authorized; none issued and outstanding		—			—
Common stock, $.01 par value, 100,000 shares authorized; 30,613 and 30,610 issued and outstanding, respectively		306			306
Additional paid-in capital		104,231			103,399
Retained earnings		85,545			81,555
Total stockholders’ equity		190,082			185,260
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity	$	363,085		$	384,130

See accompanying notes.

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Hallador Energy Company

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2021*			*2020*			*2021*			*2020*
SALES AND OPERATING REVENUES:
Coal sales	$	79,036		$	64,754		$	179,515		$	177,159
Other revenues		786			493			2,640			1,421
Total revenue		79,822			65,247			182,155			178,580
EXPENSES:
Operating expenses		67,792			46,570			144,257			131,204
Depreciation, depletion and amortization		9,842			9,315			29,864			30,159
Asset impairment		—			1,799			—			1,799
Asset retirement obligations accretion		380			348			1,116			1,024
Exploration costs		96			174			313			635
General and administrative		3,067			3,131			9,271			8,787
Total operating expenses		81,177			61,337			184,821			173,608

INCOME (LOSS) FROM OPERATIONS		(1,355	)		3,910			(2,666	)		4,972

Interest expense (1)		(2,108	)		(2,329	)		(6,188	)		(10,877	)
Gain on extinguishment of debt		10,000			—			10,000			—
Equity method investment income (loss)		90			(119	)		153			1,167
INCOME (LOSS) BEFORE INCOME TAXES		6,627			1,462			1,299			(4,738	)

INCOME TAX BENEFIT:
Current		—			(74	)		—			(598	)
Deferred		(1,359	)		(387	)		(2,691	)		(2,657	)
Total income tax benefit		(1,359	)		(461	)		(2,691	)		(3,255	)

NET INCOME (LOSS)	$	7,986		$	1,923		$	3,990		$	(1,483	)

NET INCOME (LOSS) PER SHARE:
Basic and diluted	$	0.26		$	0.06		$	0.13		$	(0.05	)

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted		30,613			30,465			30,612			30,436


(1) Interest Expense:
Bank interest		2,167			2,714			6,610			8,210
Non-cash interest:
Change in interest rate swap valuation		(716	)		(995	)		(2,330	)		981
Amortization of debt issuance costs		657			610			1,908			1,686
Total non-cash interest		(59	)		(385	)		(422	)		2,667
Total interest	$	2,108		$	2,329		$	6,188		$	10,877

See accompanying notes.

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Hallador Energy Company

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	*Nine Months Ended September 30,*
	*2021*			*2020*
OPERATING ACTIVITIES:
Net income (loss)	$	3,990		$	(1,483	)
Deferred income taxes		(2,691	)		(2,657	)
Equity income – Sunrise Energy		(153	)		(1,167	)
Cash distribution - Sunrise Energy		—			1,125
Depreciation, depletion, and amortization		29,864			30,159
Asset impairment		—			1,799
Gain on extinguishment of debt		(10,000	)		—
Loss on sale of assets		—			38
Unrealized gain on marketable securities		—			(14	)
Change in fair value of interest rate swaps		(2,330	)		981
Change in fair value of fuel hedge		(379	)		775
Amortization of debt issuance costs		1,908			1,686
Asset retirement obligations accretion		1,116			1,024
Stock-based compensation		834			927
Change in current assets and liabilities:
Accounts receivable		(2,041	)		9,742
Inventory		13,341			(9,247	)
Parts and supplies		(918	)		2,603
Prepaid income taxes		—			1,562
Prepaid expenses		(4,631	)		1,744
Accounts payable and accrued liabilities		8,960			(5,488	)
Other		161			—
Cash provided by operating activities		37,031			34,109
INVESTING ACTIVITIES:
Investment in Sunrise Energy		—			(113	)
Capital expenditures		(18,075	)		(13,991	)
Proceeds from sale of equipment		—			56
Proceeds from sale of marketable securities		—			2,310
Proceeds from maturities of certificates of deposit		—			245
Cash used in investing activities		(18,075	)		(11,493	)
FINANCING ACTIVITIES:
Payments on bank debt		(37,062	)		(40,475	)
Borrowings of bank debt		14,250			7,250
Proceeds from PPP loan		—			10,000
Debt issuance costs		(418	)		(1,903	)
Taxes paid on vesting of RSUs		(2	)		(18	)
Dividends paid		—			(1,236	)
Cash used in financing activities		(23,232	)		(26,382	)
Decrease in cash, cash equivalents, and restricted cash		(4,276	)		(3,766	)
Cash, cash equivalents, and restricted cash, beginning of period		12,071			13,311
Cash, cash equivalents, and restricted cash, end of period	$	7,795		$	9,545
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH CONSIST OF THE FOLLOWING:
Cash and cash equivalents	$	4,546		$	5,302
Restricted cash		3,249			4,243
	$	7,795		$	9,545

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	6,728		$	8,246
SUPPLEMENTAL NON-CASH FLOW INFORMATION:
Change in capital expenditures included in accounts payable and prepaid expense	$	5,782		$	968

See accompanying notes.

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Hallador Energy Company

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, 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

						*Additional*						*Total*
	*Common Stock Issued*					*Paid-in*			*Retained*			*Stockholders'*
	*Shares*			*Amount*		*Capital*			*Earnings*			*Equity*
Balance, June 30, 2020		30,465		$	305	$	102,833		$	84,369		$	187,507
Stock-based compensation		—			—		291			—			291
Stock issued on vesting of RSUs		2			—		—			—			—
Taxes paid on vesting of RSUs		(1	)		—		(1	)		—			(1	)
Net income		—			—		—			1,923			1,923
Balance, September 30, 2020		30,466		$	305	$	103,123		$	86,292		$	189,720

Balance, December 31, 2019		30,420		$	304	$	102,215		$	89,011		$	191,530
Stock-based compensation		—			—		927			—			927
Stock issued on vesting of RSUs		72			1		(1	)		—			—
Taxes paid on vesting of RSUs		(26	)		—		(18	)		—			(18	)
Dividends		—			—		—			(1,236	)		(1,236	)
Net loss		—			—		—			(1,483	)		(1,483	)
Balance, September 30, 2020		30,466		$	305	$	103,123		$	86,292		$	189,720

See accompanying notes.

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Hallador Energy Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1)

GENERAL BUSINESS

The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the 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, 2021, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2021. To maintain consistency and comparability, certain 2020 amounts have been reclassified to conform to the 2021 presentation, with no impact to cash provided by operating activities or net income (loss).

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 2020 Annual Report on Form 10-K. This quarterly report should be read in conjunction with such Annual Report on Form 10-K.

The condensed consolidated financial statements include the accounts of Hallador Energy Company (hereinafter known as “we, us, or our”) and its wholly-owned subsidiaries Sunrise Coal, LLC (Sunrise) and Hourglass Sands, LLC (Hourglass), and Sunrise’s wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Sunrise is engaged in the production of steam coal from mines located in western Indiana.

We announced in June 2021 an agreement to join with Hoosier Energy Rural Electric Cooperative, Inc. to begin developing renewable power in 2023.

Subsequent Events

We have evaluated all subsequent events through the date the financial statements were issued. There are no material recognized or non-recognizable subsequent events.

(2)

LONG-LIVED ASSET IMPAIRMENTS

Long-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable. For the three and nine-month periods ended September 30, 2021, there were no impairment charges recorded for long-lived assets.

Hourglass Sands

We recorded an impairment of $2.9 million as of December 31, 2019, due to softness in the pricing of the frac sand market. The impairment included inventory, land, mine development, buildings and equipment and was determined using a market approach. The remaining fair market value of inventory, equipment, and buildings at Hourglass Sands was $1.9 million as of December 31, 2019. Due to the continued regression of the frac sand market, in August 2020 we ceased operations of the plant and recorded an impairment of $1.8 million for the quarter ended September 30, 2020, which included the remaining inventory and buildings and which was determined using a market approach.

(3)

INVENTORY

Inventory is valued at lower of average cost or net realizable value (NRV). As of September 30, 2021, and December 31, 2020, coal inventory includes NRV adjustments of $2.7 million and $1.6 million, respectively, a majority of which resulted from utilizing low sulfur coal from our Ace in the Hole mine which was necessary to blend with Oaktown coal to ship to and create additional opportunities in the southeast market.

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(4)

OTHER LONG-TERM ASSETS (in thousands)

	*September 30,*		*December 31,*
	*2021*		*2020*
Advanced coal royalties	$	6,705	$	6,449
Other		1,723		1,809
Total other assets	$	8,428	$	8,258

(5)

BANK DEBT

Bank debt is comprised of term debt ($40.4 million as of September 30, 2021) and a $120 million revolver ($74.5 million borrowed as of September 30, 2021). 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, 2021, we had additional borrowing capacity of $37.1 million and total liquidity of $41.7 million. Our additional borrowing capacity is net of $5.7 million in outstanding letters of credit as of September 30, 2021, that were required to maintain surety bonds. Liquidity consists of our additional borrowing capacity and cash and cash equivalents.

Fees

Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $7.9 million as of our amendment in April 2020. Additional fees of $0.4 million were incurred in May 2021 for a technical amendment related to our entry into the renewable power market. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of September 30, 2021, and December 31, 2020, were $4.6 million and $6.1 million, respectively.

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

	*September 30,*			*December 31,*
	*2021*			*2020*
Current bank debt	$	29,400		$	36,750
Less unamortized debt issuance cost		(2,627	)		(2,439	)
Net current portion	$	26,773		$	34,311

Long-term bank debt	$	85,525		$	100,988
Less unamortized debt issuance cost		(2,002	)		(3,681	)
Net long-term portion	$	83,523		$	97,307

Total bank debt	$	114,925		$	137,738
Less total unamortized debt issuance cost		(4,629	)		(6,120	)
Net bank debt	$	110,296		$	131,618

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, 2021 and December 31, 2021		3.00 to 1.00
March 31, 2022 and each fiscal quarter thereafter		2.50 to 1.00

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As of September 30, 2021, our Leverage Ratio of 2.29 was in compliance with the requirements of the credit agreement.

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

As of September 30, 2021, our Debt Service Coverage Ratio of 1.15 was in compliance with the requirements of the credit agreement.

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. At September 30, 2021, we are paying LIBOR at the swap rate of 2.92% plus 4.0% for a total interest rate of 6.92% on the hedged amount ($93.1 million) and 4.0% on the remainder ($21.8 million).

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 is being recognized during the Company’s third fiscal quarter ending September 30, 2021.

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.

At December 31, 2020, the PPP loan totaling $10 million is presented as current and long-term liabilities on the condensed consolidated balance sheets based upon the schedule of repayments and excluding any possible forgiveness of the loan.

(6)

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands)

	*September 30,*		*December 31,*
	*2021*		*2020*
Accounts payable	$	20,890	$	14,785
Accrued property taxes		2,939		2,566
Accrued payroll		3,918		1,621
Workers' compensation reserve		3,137		2,988
Group health insurance		1,800		1,800
Fair value of interest rate swaps		1,563		2,793
Other		5,006		4,856
Total accounts payable and accrued liabilities	$	39,253	$	31,409

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(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. We utilize the normal purchase normal sales exception for all long-term sales contracts.

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 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. 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. 75% of our coal revenue for the three and nine months ended September 30, 2020, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Florida, Georgia, North Carolina, and Tennessee.

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 $573 million, which represent the average fixed prices on our committed contracts as of September 30, 2021. We expect to recognize approximately 57% of this revenue in 2021 and 2022, with the remainder recognized thereafter.

We have remaining performance obligations relating to contracts with price re-openers of approximately $122 million, which represents our estimate of the expected re-opener price on committed contracts as of September 30, 2021. We expect to recognize all of this revenue between 2025 and 2027.

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

Contract Balances

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

(8)

INCOME TAXES

For the nine months ended September 30, 2021, and 2020, 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 three and nine months ended September 30, 2021, and 2020 was ~31% and ~69%, 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.

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STOCK COMPENSATION PLANS

Non-vested grants at December 31, 2020	324,250
Vested – average weighted share price on vesting date was $1.63	(3,500	)
Forfeited	(12,500	)
Non-vested grants at September 30, 2021	308,250

For the three and nine months ended September 30, 2021, our stock compensation was $0.3 million and $0.8 million, respectively. For the three and nine months ended September 30, 2021, our stock compensation was $0.3 million and $0.9 million, respectively.

Non-vested RSU grants will vest as follows:

Vesting Year	*RSUs Vesting*
2021		298,250
2022		—
2023		10,000
		308,250

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The outstanding RSUs have a value of $0.9 million based on the September 30, 2021, closing stock price of $2.96.

At September 30, 2021, we had 1,448,416 RSUs available for future issuance.

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LEASES

We have operating leases for office space and processing facilities (expired in 2020) with remaining lease terms ranging from approximately two years to approximately three years. As most of the leases do not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.

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

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2021*			*2020*			*2021*			*2020*
Operating lease information:
Operating cash outflows from operating leases	$	51		$	50		$	148		$	184
Weighted average remaining lease term in years		2.45			3.43			2.45			3.43
Weighted average discount rate		6.0	%		6.0	%		6.0	%		6.0	%

Future minimum lease payments under non-cancellable leases as of September 30, 2021, were as follows:

Year	*Amount*
	(In thousands)
2021	$	51
2022		207
2023		174
2024		59
Total minimum lease payments	$	491
Less imputed interest		(20	)

Total operating lease liability	$	471

As reflected on balance sheet:
Other long-term liabilities	$	471

At September 30, 2021, and December 31, 2020, we had approximately $471,000 and $602,000, respectively, of right-of-use operating lease assets recorded within “buildings and equipment” on the condensed consolidated balance sheets.

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SELF-INSURANCE

We self-insure our underground mining equipment. Such equipment is allocated among seven mining units dispersed over ten miles. The historical cost of such equipment was approximately $278 million and $269 million as of September 30, 2021, and December 31, 2020, respectively.

Restricted cash of $3.2 million and $4.0 million as of September 30, 2021, and December 31, 2020, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.

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NET INCOME (LOSS) PER SHARE

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

The following table (in thousands, except per share amounts) sets forth the computation of net income (loss) per share:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2021*			*2020*			*2021*			*2020*
Numerator:
Net income (loss)	$	7,986		$	1,923		$	3,990		$	(1,483	)
Less loss (income) allocated to RSUs		(80	)		(28	)		(40	)		23
Net income (loss) allocated to common shareholders	$	7,906		$	1,895		$	3,950		$	(1,460	)

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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 fuel hedges and interest rate swaps, and impairment measurements. The fair values of our hedges and swaps were estimated using discounted cash flow calculations based upon forward fuel prices and interest-rate yield curves. The notional values of our two interest rate swaps were $52.7 million and $40.4 million as of September 30, 2021, both with maturities of May 2022. Fuel hedges include 0.2 million gallons of diesel fuel that are subject to pricing fluctuations with a minimum of $1.79/gallon and a maximum of $2.00/gallon through December 2021. Although we utilize third-party broker quotes to assess the reasonableness of our prices and valuation, we do not have sufficient corroborating market evidence to support classifying these assets and liabilities as Level 2. The Company also recorded impairments during Q3 2020 which incorporate Level 3 non-recurring fair value measures as further discussed in Note 2.

The following table summarizes our financial assets and liabilities measured on a recurring basis at fair value at September 30, 2021, and December 31, 2020, by the respective level of the fair value hierarchy (in thousands):

	*Level 1*		*Level 2*		*Level 3*		*Total*
December 31, 2020
Liabilities:
Fuel hedge	$	—	$	—	$	297	$	297
Interest rate swaps		—		—		3,893		3,893
	$	—	$	—	$	4,190	$	4,190

September 30, 2021
Assets:
Fuel hedge	$	—	$	—	$	82	$	82

Liabilities:
Interest rate swaps	$	—	$	—