# Hallador Energy Co: Form 10-Q for the period ended Sep 30, 2023

- Company: [Hallador Energy Co](/companies/hnrg.md) (CIK 788965)
- Form: 10-Q
- Filed: 2023-11-06
- Accepted by EDGAR: Nov 6, 2023, 22:19 ET
- Period: 2023-09-30
- Accession: 0001437749-23-030422
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/788965/000143774923030422/hnrg20230829_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/788965/000143774923030422/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $165.8m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $515.3m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $119.0m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $368.0m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $6.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $18.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $23.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $75.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $3.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $10.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $3.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $8.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $16.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $55.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.44 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.52 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.49 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.66 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 36,848,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 36,748,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $79.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $48.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $2.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $92.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $585.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $171.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $313.5m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $36.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $21.2m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $271.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 24,302 characters.

**THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2022 ANNUAL REPORT ON FORM 10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH.**

Our condensed consolidated financial statements should also be read in conjunction with this discussion. The following analysis includes a discussion of metrics on a per-ton basis derived from the condensed consolidated financial statements, which are considered non-GAAP measurements. These metrics are significant factors in assessing our operating results and profitability.

Net income of $16.1 million for the quarter helped add to net income of $55.0 million for the first nine months of the year. Cash flow from operations of $79.5 million for the first nine months has been reinvested through $48.7 million of capital expenditures in our mines and power plant to improve efficiency and reliability. In the first nine months of 2023, we have utilized $30.5 million in financing activities, including $23.5 million to repay debt. Improved earnings and debt repayment have improved our balance sheet by reducing our debt to adjusted EBITDA multiple to 0.71X and increasing our liquidity to $66.4 million. Liquidity consists of our additional borrowing capacity and cash and cash equivalents.

On August 2, 2023, we successfully amended our credit facility with PNC Bank, which we accounted for as a debt extinguishment. This amendment is important as it extends the maturity of our credit into 2026.

During the third quarter of 2023, high coal sales prices coupled with large coal shipment volumes led to significant coal revenue growth. Our well-contracted sales book supported our revenue growth despite operational challenges increasing our cost per ton during the quarter. We chose to relocate 57% of our coal units of production during the third quarter and into October to obtain better geologic conditions. This led to higher costs and decreased production during this timeframe but is resulting in overall production improvements following the moves.

On the power side of the business, intercompany coal sales from our coal division to our power plant division increased average variable costs per MWh of electric operations to $40.03 per MWh, an increase of $9.98 per MWh over the prior quarter on a segment basis. We set the price of the coal we sell to ourselves based on third-party market indicators that we review from time to time. Costs per MWh were $23.49 per MWh on a consolidated basis.

During the third quarter and subsequently, our power division was successful in securing $325 million of energy and capacity sales for the years 2024 - 2028. Latest sales include approximately 3.3 million MWh of energy at $56 per MWh, totaling $186 million, delivered over energy years 2026, 2027, and 2028. An energy year is defined as June 1st through May 31st. Additionally, we sold $139 million in capacity sales for energy years 2024-2028 at an average price of approximately $220 per MWd during the quarter and subsequently.

### OVERVIEW

### I. Q3 2023 Net Income of $16.1 million.

a. 2.1 million tons of coal were shipped at an average sales price of $65.43 on a segment basis during the quarter, with approximately 0.5 million tons of that being shipped to the Merom Power Plant for $37.0 million. The average sales price of coal was $62.41 per ton on a consolidated basis.

i. The sales price for remaining tons to ship for 2023 is expected to average $54.3 per ton on a consolidated basis (not including coal shipped to Merom).

b. In Q3 2023, Hallador's coal operating costs were $46.54 per ton on a segment basis, which represents a $5.02 per ton increase from Q2 2023. Coal operating costs were $48.92 per ton on a consolidated basis.

c. We recorded coal margins for the quarter at $18.89 per ton on a segment basis. This is a decline of $5.03 per ton from Q2 2023 margins, due to higher costs resulting from relocation of 57% of our coal production units to take advantage of improved geologic conditions. Margins for the quarter were $13.49 on a consolidated basis.

### II. Q3 2023 Activity

a. Cash Flow & Debt

i. During Q3 2023, our operating cash flow was $35.3 million, and we decreased our bank debt by $12.5 million.

ii. As of September 30, 2023, our bank debt was $61.8 million, liquidity was $66.4 million, and our leverage ratio came in at 0.71X, within our covenant of 2.25X.

b. Coal & Power

i. Coal production was 1.6 million tons for the quarter, 0.1 million less than Q2 2023. Approximately 0.5 million tons of that production were shipped to the Merom Power Plant in Q2 2023.

ii. Power production was 1.3 million MWh for the quarter.

### III. Solid Forward Sales Position - Segment Basis, Before Intercompany Eliminations

| Coal | 2023 (Q4) | 2024 | 2025 | 2026 | 2027 | 2028 | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Priced tons (in millions) | 2.4 | 3.4 | 1.3 | 0.5 | 0.5 | - | 8.1 |
| Average price per ton | $54.30 | $51.10 | $50.80 | $56.00 | $56.00 | $- |  |
| Contracted coal revenue (in millions) | $130.32 | $173.74 | $66.04 | $28.00 | $28.00 | $- | $426.10 |
| % Priced | 100% | 49% | 19% | 7% | 7% | 0% |  |
| Committed & unpriced tons (in millions) - 3rd party | - | - | 1.0 | 1.0 | 1.0 | - | 3.0 |
| Committed & unpriced tons (in millions) - Merom | - | 2.9 | 2.9 | 2.9 | 2.9 | 2.9 | 14.5 |
| Total contracted tons (in millions) | 2.4 | 6.3 | 5.2 | 4.4 | 4.4 | 2.9 | 25.6 |
| % Coal Sold\* | 100% | 90% | 74% | 63% | 63% | 41% |  |
| Average cost per ton of coal was $42.57 for the nine months ending September 30, 2023 ($43.25 after eliminating for intercompany sales to Merom) |  |  |  |  |  |  |  |
| Coal Capex Budget (in millions) | $10.00 |  |  |  |  |  |  |
| **Power** |  |  |  |  |  |  |  |
| **Energy** |  |  |  |  |  |  |  |
| Contracted MWh (in millions) | 0.4 | 1.6 | 1.7 | 1.6 | 1.3 | 0.4 | 7.0 |
| Contracted price per MWh | $34.00 | $34.00 | $34.00 | $56.00 | $56.00 | $56.00 |  |
| Contracted revenue (in millions) | $13.60 | $54.40 | $57.80 | $89.60 | $72.80 | $24.19 | $312.39 |
| % Energy Sold\* | 27% | 27% | 28% | 27% | 22% | 7% |  |
| **Capacity** |  |  |  |  |  |  |  |
| Average monthly contracted capacity | 828 | 670 | 450 | 508 | 550 | 354 |  |
| % Capacity Contracted\*\* | 100% | 78% | 52% | 59% | 64% | 41% |  |
| Average contracted capacity price per MWd | $146 | $178 | $200 | $226 | $225 | $224 |  |
| Contracted capacity revenue (in millions) | $11.00 | $43.65 | $32.92 | $41.89 | $45.26 | $28.88 | $203.60 |
| **Total Energy & Capacity Revenue** |  |  |  |  |  |  |  |
| Contracted Power Revenue (in millions) | $24.60 | $98.05 | $90.72 | $131.49 | $118.06 | $53.07 | $515.99 |
| Contracted Power Revenue per MWh\* | $41.33 | $43.34 | $44.49 | $67.82 | $67.79 | $67.69 |  |
| 2023 average cost per MWh was $33.43 for the nine months ending September 30, 2023 ($27.45 assuming intercompany sales of coal were sold at cost) |  |  |  |  |  |  |  |
| Power Capex Budget (in millions) | $20.00 |  |  |  |  |  |  |
| **TOTAL CONTRACTED REVENUE (IN MILLIONS)** | $154.92 | $271.79 | $156.76 | $159.49 | $146.06 | $53.07 | $942.09 |

\*Based on coal production of 7.0 million tons and 6.0 million MWh annually.

\*\*Based on a MISO accreditation of 860MW per day. Accreditations are adjusted annually based on 3-year rolling performance metrics.

### LIQUIDITY AND CAPITAL RESOURCES

### I. Liquidity and Capital Resources

a. As set forth in our condensed consolidated statements of cash flows, cash provided by operations was $79.5 million and $13.9 million for the nine months ended September 30, 2023 and 2022, respectively.

i. Operating margins from coal sales, which we define as coal sales less operating expenses, were $108.7 million on a segment basis, during the first nine months of 2023, up from $35.6 million during the first nine months of 2022. Operating margins for coal shipped to the Merom Power Plant were $29.4 million and are eliminated in consolidation.

1\. Our operating margins from coal sales were $19.91 per ton on a segment basis in the first nine months of 2023 compared to $7.62 in the first nine months of 2022 Operating margins were $17.04 on a consolidated basis.

2\. We shipped 5.5 million tons of coal in the first nine months of 2023, with 0.8 million tons of that being shipped to the Merom Power Plant.

ii. Operating margins for electric, which we define as operating revenues less operating expenses on a segment basis, were $43.3 million, with $32.4 million attributed to the amortization of the contract asset and liability adjustments related to the Merom Acquisition in Q4 2022. Operating margins were $64.9 million on a consolidated basis.

b. Our projected capital expenditure budget for the remainder of 2023 is $30 million, of which approximately one-half is anticipated for maintenance capex.

c. We paid down debt of $23.5 million in the first nine months of 2023. As of September 30, 2023, our bank debt was $61.8 million. On August 2, 2023, we executed an amendment to our credit agreement with PNC Bank, National Association (in its capacity as administrative agent, "PNC"), administrative agent for our lenders under our credit agreement. The primary purpose of the amendment was to increase the term debt to $65 million, enter a revolver of $75 million, and extend the maturity of the debt to 2026.

d. We expect cash from operations generated primarily to fund our capital expenditures and our debt service. As of September 30, 2023, we also had an additional borrowing capacity of $63.8 million.

### II. Material Off-Balance Sheet Arrangements

a. Other than our surety bonds for reclamation, we have no material off-balance sheet arrangements. We have recorded the present value of reclamation obligations of $19.9 million, including $7.7 million at Merom, presented as asset retirement obligations (ARO) and accounts payable and accrued liabilities in our accompanying balance sheets. In the event we are not able to perform reclamation, we have surety bonds in place totaling $37.5 million to cover ARO.

### CAPITAL EXPENDITURES (capex)

For the first nine months of 2023, capex was $48.7 million allocated as follows (in millions):

|  |  |
| --- | ---: |
| Oaktown – maintenance capex | $23.8 |
| Oaktown – investment | 12.9 |
| Freelandville Mine | 1.2 |
| Merom Plant | 10.1 |
| Other | 0.7 |
| Capex per the Condensed Consolidated Statements of Cash Flows | $48.7 |

19

### Results of Operations

### Presentation of Segment Information

Our operations are divided into two primary reportable segments: coal operations and electric operations. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other and Eliminations" within the Notes to the Consolidated Financial Statements and primarily are comprised of unallocated corporate costs and activities, including a 50% interest in Sunrise Energy, LLC, a private gas exploration company with operations in Indiana, which we account for using the equity method, and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River.

### Coal Operations

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **OPERATING REVENUES:** | $134,896 | $84,530 | $343,267 | $208,190 |
| **EXPENSES:** |  |  |  |  |
| Operating expenses | 95,592 | 64,836 | 232,462 | 169,095 |
| Depreciation, depletion and amortization | 11,508 | 11,149 | 37,249 | 31,772 |
| Asset retirement obligations accretion | 309 | 255 | 912 | 751 |
| Exploration costs | 171 | 121 | 682 | 393 |
| General and administrative | 2,552 | 2,071 | 7,747 | 5,599 |
| Total operating expenses | 110,132 | 78,432 | 279,052 | 207,610 |
| **INCOME FROM OPERATIONS** | $24,764 | $6,098 | $64,215 | $580 |

### 2023 vs. 2022 (third quarter)

Operating revenues from coal operations increased 60% over 2022 due to a combination of an increase in the volume and average sales price for coal. As a result, higher-priced contracts sold in the summer of 2022 that were delivered in Q3 of 2023 increased our average sales price by over $16 per ton from Q3 2022. We also sold 0.3 million additional tons over Q3 2022 at higher average prices. Operating revenues for Q3 2023 include $37.0 million in sales to the Merom plant which are eliminated in the consolidation but increased the average price per ton of coal sold for the quarter by approximately 4.8%.

Operating expenses, however, increased $9.08 per ton over Q3 2022. The addition of the higher-cost Prosperity surface mine, poor temporary mining conditions at Oaktown, as well as continued significant inflationary pressures, have elevated the costs.

General and administrative expenses increased 23% over Q3 2022 due to performance and production bonuses paid and accrued to employees, additional professional fees, and additional IT costs related to enhanced security and compliance activities.

### 2023 vs. 2022 (first nine months)

Operating revenues from coal operations increased 65% over 2022 due largely to an increase in the average sales price for coal. As a result, higher-priced contracts increased our average sales price by approximately $19 per ton from the first nine months of 2022. We also sold 0.8 million additional tons over the first nine months of 2022 at higher average prices. Operating revenues for the first nine months of 2023 include $60.6 million in sales to the Merom plant which are eliminated in the consolidation but increased the average price per ton of coal sold for the first nine months by approximately 3.6%.

Operating expenses increased by $6.42 per ton sold over the first nine months of 2022. The addition of the higher-cost Freelandville and Prosperity surface mines, poor temporary mining conditions at Oaktown, as well as continued significant inflationary pressures have elevated the costs.

Depreciation, depletion, and amortization increased by 17% as a significant amount of our assets were depreciated and amortized based on production, which increased approximately 10% over the first nine months of 2022. Inflationary pressures have also contributed to the higher capital asset additions over the past couple of years contributing to the increase.

General and administrative expenses increased 38% over the first nine months of 2022 due to performance, production, and discretionary bonuses paid to employees, additional professional fees related to the 2022 audit, and additional IT costs related to enhanced security and compliance activities.

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

| All Mines | 4th 2022 | 1st 2023 | 2nd 2023 | 3rd 2023 | T4Qs |
| --- | ---: | ---: | ---: | ---: | ---: |
| Tons produced | 1,721 | 2,006 | 1,723 | 1,594 | 7,044 |
| Tons sold | 1,664 | 1,693 | 1,714 | 2,054 | 7,125 |
| Coal sales | $84,641 | $94,602 | $112,171 | $134,400 | $425,814 |
| Average price/ton | $50.87 | $55.88 | $65.44 | $65.43 | $59.76 |
| Wash plant recovery in % | 68% | 70% | 67% | 65% |  |
| Operating costs | $67,319 | $65,700 | $71,168 | $95,592 | $299,779 |
| Average cost/ton | $40.46 | $38.81 | $41.52 | $46.54 | $42.07 |
| Margin | $17,322 | $28,902 | $41,003 | $38,808 | $126,035 |
| Margin/ton | $10.41 | $17.07 | $23.92 | $18.89 | $17.69 |
| Capex | $12,368 | $12,639 | $14,445 | $11,570 | $51,022 |
| Maintenance capex | $5,748 | $7,778 | $9,754 | $7,938 | $31,218 |
| Maintenance capex/ton | $3.45 | $4.59 | $5.69 | $3.86 | $4.38 |

| All Mines | 4th 2021 | 1st 2022 | 2nd 2022 | 3rd 2022 | T4Qs |
| --- | ---: | ---: | ---: | ---: | ---: |
| Tons produced | 1,447 | 1,397 | 1,762 | 1,663 | 6,269 |
| Tons sold | 1,554 | 1,377 | 1,595 | 1,705 | 6,231 |
| Coal sales | $64,388 | $57,010 | $64,161 | $83,563 | $269,122 |
| Average price/ton | $41.43 | $41.40 | $40.23 | $49.01 | $43.19 |
| Wash plant recovery in % | 70% | 67% | 71% | 69% |  |
| Operating costs | $54,583 | $54,443 | $50,776 | $63,876 | $223,678 |
| Average cost/ton | $35.12 | $39.54 | $31.83 | $37.46 | $35.90 |
| Margin | $9,805 | $2,567 | $13,385 | $19,687 | $45,444 |
| Margin/ton | $6.31 | $1.86 | $8.39 | $11.55 | $7.29 |
| Capex | $9,975 | $9,082 | $13,821 | $15,096 | $47,974 |
| Maintenance capex | $3,302 | $4,481 | $7,600 | $6,625 | $22,008 |
| Maintenance capex/ton | $2.12 | $3.25 | $4.76 | $3.89 | $3.53 |

21

### Electric Operations

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **OPERATING REVENUES:** | $67,544 | $— | $231,141 | $— |
| **EXPENSES:** |  |  |  |  |
| Operating expenses | 64,171 | 991 | 187,849 | 991 |
| Depreciation, depletion and amortization | 4,695 | — | 14,045 | — |
| Asset retirement obligations accretion | 159 | — | 468 | — |
| General and administrative | 1,195 | — | 3,494 | — |
| Total operating expenses | 70,220 | 991 | 205,856 | 991 |
| **INCOME (LOSS) FROM OPERATIONS** | $(2,676) | $(991) | $25,285 | $(991) |

A comparative discussion is not relevant as the Electric Operations did not begin until the Merom Acquisition was completed in October 2022.

Operating revenue is derived from a power purchase agreement signed with Hoosier in conjunction with the Merom Acquisition at fixed prices below market prices at the date we closed the transaction. The power purchase agreement expires in 2025 and requires us to provide a fixed amount of power over the term of the agreement. As a result of the below-market contract, we recorded a contract liability at the close of the acquisition totaling $184.5 million that will be amortized over the term of the agreement as the contract is fulfilled. For the three and nine months ended September 30, 2023, we recorded $10.3 million and $63.2 million, respectively, of revenue as a result of amortizing the contract liability.

Operating expenses include coal purchased under an agreement signed with Hoosier in conjunction with the Merom acquisition at fixed prices which were below market prices at the date we entered into the agreement. The coal purchase agreement expired in May 2023 that required us to purchase a fixed amount of coal over the term of the agreement. As a result of the below-market contract, we recorded a contract asset at the close of the acquisition totaling $34.3 million that was amortized over the term of the agreement as the contract was fulfilled. For the three and six months ended June 30, 2023, we recorded $13.0 million and $30.7 million in additional operating expenses for coal purchased and used and a reduction of $6.8 million and $11.2 million, respectively, to inventory for coal purchased and unused as a result of amortizing the contract asset, thereby eliminating the remaining balance of the contract asset as of June 30, 2023.

Quarterly electric sales and cost data (in thousands, except per MWh data) are provided below. Fixed costs in the table are considered "non-GAAP" and are a component of operating expenses, the most comparable GAAP measure. We consider fixed costs to be costs associated with the plant whether or not the plant is in operation.

|  | 1st 2023 | 2nd 2023 | 3rd 2023 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| MWh sold | 1,262 | 1,043 | 1,307 | 3,612 |
| Capacity revenue | $15,970 | $17,155 | $13,012 | $46,137 |
| Delivered energy and PPA revenue | 76,422 | 53,862 | 54,391 | 184,675 |
| Total electric sales | 92,392 | 71,017 | 67,403 | 230,812 |
| Less amortization of contract liability | (33,347) | (19,555) | (10,281) | (63,183) |
| Total electric sales less amortization of contract liability | $59,045 | $51,462 | $57,122 | $167,629 |
| Average price/MWh of delivered energy and PPA revenue less amortization of contract liability | $34.13 | $32.89 | $33.75 | $33.64 |
| Operating expenses (on a segment basis) | $67,682 | $55,996 | $64,172 | $187,850 |
| Less fixed costs | (12,807) | (11,693) | (11,858) | (36,358) |
| Less amortization of contract asset | (17,778) | (12,962) | - | (30,740) |
| Operating expenses less fixed costs and amortization of contract asset | $37,097 | $31,341 | $52,314 | $120,752 |
| Average variable cost/MWh of operating expenses less fixed costs and amortization of contract asset | $29.40 | $30.05 | $40.03 | $33.43 |
| Energy and PPA margin less fixed costs and amortization of contract asset and liabilities | $5,978 | $2,966 | $(8,204) | $740 |
| Energy & PPA margin/MWh less fixed costs amortization of contract asset and liabilities | $4.74 | $2.84 | $(6.28) | $0.20 |

### Presentation of Consolidated Information

### EARNINGS (LOSS) PER SHARE

|  | 4th 2022 | 1st 2023 | 2nd 2023 | 3rd 2023 |
| --- | ---: | ---: | ---: | ---: |
| Basic | $0.91 | $0.67 | $0.51 | $0.49 |
| Diluted | $0.83 | $0.61 | $0.47 | $0.44 |

|  | 4th 2021 | 1st 2022 | 2nd 2022 | 3rd 2022 |
| --- | ---: | ---: | ---: | ---: |
| Basic | $(0.25) | $(0.33) | $(0.11) | $0.05 |
| Diluted | $(0.25) | $(0.33) | $(0.11) | $0.05 |

23

### INCOME TAXES

Our effective tax rate (ETR) is estimated at ~13% and ~ (8)% for the nine months ended September 30, 2023, and 2022, respectively. For the nine months ended September 30, 2023, and 2022, we recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items, and statutory rates in states in which we operate. Our ETR differs from the statutory rate due primarily to statutory depletion in excess of tax basis and changes in the valuation allowance. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.

### RESTRICTED STOCK GRANTS

See “Item 1. Financial Statements - Note 8. Stock Compensation Plans” for a discussion of RSUs.

### CRITICAL ACCOUNTING ESTIMATES

We believe that the estimates of our coal reserves, our asset retirement obligation liabilities, our deferred tax accounts, our valuation of inventory, our treatment of business combinations, and the estimates used in our impairment analysis are our critical accounting estimates.

The reserve estimates are used in the depreciation, depletion, and amortization calculations and our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our depreciation, depletion and amortization expense, and impairment test may be affected. The process of estimating reserves is complex, requiring significant judgment in the evaluation of all available geological, geophysical, engineering, and economic data. The reserve estimates are prepared by professional engineers, both internal and external, and are subject to change over time as more data becomes available. Changes in the reserves estimates from the prior year were nominal.

We have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We identified our federal tax return and our Indiana state tax return as “major” tax jurisdictions. We believe that our income tax filing positions and deductions would be sustained on audit and do not anticipate any adjustments that will result in a material change to our consolidated financial position. We have not taken any significant uncertain tax positions, and our tax provisions and returns are prepared by a large public accounting firm with significant experience in energy-related industries. Changes to the estimates from reported amounts in the prior year were not significant.

Inventory is valued at a lower of cost or net realizable value (NRV). Anticipated utilization of low-sulfur, higher-cost coal from our Ace in the Hole, Freelandville, and Prosperity mines has the potential to create NRV adjustments as our estimated needs change. The NRV adjustments are subject to change as our costs may fluctuate due to higher or lower production, and our NRV may fluctuate based on sales contracts we enter into from time to time. There were no significant changes to our NRV adjustment estimates from the prior year.

## Controls and procedures

As filed, 1,062 characters.

### DISCLOSURE CONTROLS

We maintain a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our CEO, CFO, and CAO as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO, CFO, and CAO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our CEO, CFO, and CAO concluded that our disclosure controls and procedures are effective.

There have been no changes to our internal control over financial reporting during the quarter ended September 30, 2023, that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Filed Nov 6, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-030422. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.