SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2025

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

Hallador Energy Company (“Hallador” or the “Company”) is a vertically integrated, independent power producer (“IPP”) and fuel company with operations primarily in Indiana. The Company operates across multiple stages of the energy supply chain, from accredited capacity and electricity to coal. The Company’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of Hallador and our wholly owned subsidiaries Hallador Power Company, LLC (“Hallador Power”), Sunrise Coal, LLC (“Sunrise”) as well as their respective subsidiaries and Hourglass Sands, LLC. All significant intercompany accounts and transactions have been eliminated. Our operations comprise Hallador Power that provides accredited capacity and energy to utilities and other energy market participants through the MISO interconnection, and Sunrise that mines bituminous coal in Indiana to serve various power plants in the Midwest and Southeast United States.

Segment Information

Our business is organized based on the services and products we provide in two segments: (i) Electric Operations and (ii) Coal Operations. The Chief Operating Decision Maker (“CODM”), who is the Company’s Chief Executive Officer, reviews and assesses operating performance measures related to our Electric Operations and our Coal Operations segments.

In addition to these reportable segments, the Company has a “Corporate and Other and Eliminations” category, which is not significant enough, on a stand-alone basis, to be considered an operating segment. Corporate and Other and Eliminations primarily consist of unallocated corporate costs and activities, including our 50% interests in Sunrise Energy, LLC (“Sunrise Energy”), a private gas exploration company with operations in Indiana and Oaktown Gas, LLC, which we account for using the equity method.

The Electric Operations reportable segment includes electric power generation facilities of the Merom Power Plant (“Merom”).

The Coal Operations reportable segment includes our currently operating underground mining complex Oaktown 1 among other mining complexes and locations most of which were idled during the year ended December 31, 2024. 

Reclassifications

Amounts in the prior year’s consolidated financial statements are reclassified whenever necessary to conform to the current year’s presentation. Any reclassification adjustments had no impact on prior year total assets, liabilities, net income or shareholders’ equity.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates. The most significant estimates and assumptions included in the preparation of the financial statements relate to: (i) deferred income tax accounts, (ii) coal reserves, (iii) depreciation, depletion, and amortization, (iv) estimates used in our impairment analysis, and (v) estimates used in the calculation of asset retirement obligations (“ARO”) under the Federal Surface Mining Control and Reclamation Act of 1977 (“SMCRA”) and other state statues.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and on deposit at financial institutions, including highly liquid investments with original maturities of three months or less. Cash balances at individual banks may exceed the federally insured limit by the Federal Deposit Insurance Corporation. The Company has not historically experienced any losses in such accounts.

Restricted Cash

Restricted cash represents cash held by third parties primarily for future workers’ compensation claims and Midcontinent Independent System Operator’s ("MISO") escrow payments. The amount restricted for workers’ compensation is based on estimated claim liabilities. The amount restricted for MISO escrow payments is based on power purchased or sold through the MISO interconnection and our power purchase agreements (“PPA”).

Accounts Receivable

The timing of revenue recognition, billings and cash collections results in accounts receivable from customers. Customers are invoiced at periodic intervals in accordance with contractual terms for delivered energy and accredited capacity. Coal customers are invoiced upon shipment. Coal invoices typically include customary adjustments for the resolution of price variability, such as coal quality thresholds. Payments are generally received within thirty days of invoicing. Historically, credit losses have been insignificant. No charges for credit losses were recognized during the years ended December 31, 2025 or 2024.

Inventory and Parts and Supplies

Coal inventory is valued at the lower of cost or net realizable value (“NRV”) determined using the first-in first-out method. Coal inventory costs include labor, supplies, operating overhead, and other related costs incurred at or on behalf of the mining location or plant, including depreciation, depletion, and amortization of equipment, buildings, mineral rights, and mine development costs. Parts and supplies inventory is stated at cost basis determined using the first-in first-out method, less a reserve for surplus and obsolescence.

Prepaid Expenses

Prepaid expenses include prepaid insurance and other prepaid balances with vendors for various services paid in advance of use.

Advanced Royalties

Coal leases that require minimum annual or advance payments and are recoverable from future production are generally deferred and charged to expense as the coal is subsequently produced. Advance royalties are included in other assets.

Property, Plant and Equipment

The values of our Hallador Power’s property, plant and equipment were initially recorded at relative fair value based on the consideration paid upon closing of the acquisition of Merom in 2022. Other equipment is recorded at cost. Expenditures that extend the useful lives or increase the productivity of the assets are capitalized. The cost of maintenance and repairs that do not extend the useful lives or increase the productivity of the assets are expensed as incurred. Most power plant equipment is depreciated over the estimated useful life of the assets ranging from six to nine years.

Construction work in process (“CWIP”) on the consolidated balance sheets represent costs incurred for the construction, development, and installation of property, plant, and equipment that are not yet ready for their intended use. CWIP includes direct construction costs, labor, fees, and other directly attributable costs incurred during the construction period.

Costs are capitalized in CWIP as incurred and are not depreciated until the related asset is substantially complete and ready for its intended use. Upon completion, the accumulated costs are reclassified from CWIP to the appropriate property and equipment category and depreciation is commenced based on the asset’s estimated useful life and applicable depreciation method.

In connection with MISO’s Expedited Resource Addition Study (“ERAS”) project, the Company has deposits totaling approximately $13.6 million as of December 31, 2025, related to project development activities. These amounts are included in CWIP to the extent that they represent costs directly attributable to the project. The deposit balance of approximately $12.9 million paid to MISO in 2025 is refundable in the event the project is terminated and therefore does not represent costs of assets that are ready for their intended use. Accordingly, such amounts are not depreciated and remain classified as CWIP until the project advances to a stage at which the related assets are placed in service. If the project is terminated, any refundable amounts will be reclassified as appropriate upon receipt.

Mining properties are recorded at cost. Interest costs applicable to major asset additions are capitalized during the construction period. Expenditures that extend the useful lives or increase the productivity of the assets are capitalized. The cost of maintenance and repairs that do not extend the useful lives or increase the productivity of the assets are expensed as incurred. Mining properties are depreciated using the units-of-production method over the estimated recoverable reserves. Mining equipment and other plant and equipment assets are depreciated using the straight-line method over their estimated useful life. Most surface and underground mining equipment is depreciated using estimated useful lives ranging from one to fifteen years.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances, known as triggering events, indicate that the carrying amount of a long-lived asset or asset group, may not be recoverable. Management considers various factors when determining if long-lived assets should be evaluated for impairment, including a significant adverse change in the business climate or industry conditions (such as sustained decreases in commodity prices, volatility in energy costs, and the global economy), a current period operating or cash flow loss combined with a history of losses, a significant adverse change in the extent or manner in which an asset is used, or a current expectation that the asset will be sold or otherwise disposed of before the end of its useful life.

During the fourth quarter of 2024, the Company completed a review of its coal mining facilities and future mining plans. The impairment analysis was based upon our coal mining operating plans, market driven pricing and cost trends. As part of that analysis, the Company determined the carrying amount of its coal mining long-lived asset group was not recoverable and recorded a non-cash, long-lived asset impairment of $215.1 million in 2024. See “Note 19 – Impairment of Coal Properties” below related to our 2024 impairment. There were no long-lived asset impairments during the year ended December 31, 2025.

Mine Development

Costs of developing new mines, including ARO assets, or significantly expanding the capacity of existing mines, are capitalized and amortized using the units-of-production method over estimated recoverable reserves.

ARO – Reclamation

Our operations are governed by various state and federal statues which establish reclamation and mine closure standards. At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated fair value, with a corresponding increase to the respective assets. Obligations are typically incurred when the Company commences development of underground and surface mines or acquires or expands power plant facilities. Obligations include reclamation of support facilities, refuse areas, slurry ponds and our landfill.

Obligations are reflected at the present value of their future cash flows. The Company reflects accretion of the obligations for the period from the date they are incurred through the date they are extinguished. The ARO assets are amortized using straight line method over the useful life of the related asset. The Company uses the credit-adjusted risk-free discount rates ranging from 7% to 10% to discount the obligation, inflation rates anticipated during the time to reclamation, and cost estimates prepared by its engineers inclusive of market risk premiums. Federal and state laws

require that our properties be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in applicable permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, reclamation of refuse areas, slurry ponds and our landfill.

The Company reviews its ARO at least annually and reflects revisions for permit changes, changes in estimated reclamation costs and changes in the estimated timing of such costs. In the event the Company is not able to perform reclamation, it has surety bonds at December 31, 2025 totaling $30.9 million to cover ARO. The undiscounted asset retirement obligation was $25.3 million and $26.1 million at December 31, 2025 and 2024, respectively.

The table below (in thousands) reflects the changes to ARO for the periods presented:

	Year Ended December 31,
	2025		2024
Balance, beginning of year	$	16,810	$	16,589
Accretion		1,764		1,628
Change in estimate		—		—
Payments		(727)		(1,407)
Balance, end of year		17,847		16,810
Less current portion		(2,606)		(1,853)
Long-term balance, end of year	$	15,241	$	14,957

Contract Liabilities

The Company records contract liabilities when consideration is received or due prior to the satisfaction of the performance obligations. Contract liabilities are amortized to electric sales revenue pro-rata over the term of the agreements as the contracts are fulfilled. Contract liabilities primarily relate to accredited capacity or physically delivered energy.

Business Interruption Insurance

The Company carries an insurance policy to cover insurance risks including business interruption. There were no business interruption insurance settlements during the years ended December 31, 2025 and 2024. Business interruption insurance is recorded to cost of operations in the consolidated statements of operations and cash provided by operating activities in the consolidated statement of cash flows.

Commitments and Contingencies

From time to time, we are involved in legal proceedings and/or may be subject to industry rulings that could bring rise to claims in the ordinary course of business. We have concluded that the likelihood is remote that the ultimate resolution of any pending litigation or pending claims will be material or have a material adverse effect on our business, financial position, results of operations or liquidity.

Fuel Costs

Fuel costs in our Electric Operations include coal purchased from Sunrise Coal and third parties to operate Merom. Fuel costs in our Coal Operations include mainly diesel, as well as natural gas and petroleum to operate our coal mines. These fuel costs are expensed as the fuel is used. The difference between Sunrise Coal’s cost to produce coal and the contracted sales price to Hallador Power is eliminated in consolidation.

Income Taxes

Income taxes are provided based on the asset and liability method of accounting. The provision for income taxes is based on pretax financial income. Deferred tax assets and liabilities are recognized for the future expected tax consequences of temporary differences between income tax and financial reporting and principally relate to differences in the tax basis of

assets and liabilities and their reported amounts, using enacted tax rates in effect for the year in which differences are expected to reverse.

Earnings per Share

Basic earnings per share (“EPS”) are computed by dividing net earnings by the weighted average number of common shares outstanding for the period.

Diluted EPS attributable to common shareholders is computed by adjusting net earnings by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include shares of restricted stock units as if the units issued by us were vested. We apply the treasury stock method to account for the dilutive impact of its restricted stock units. Anti-dilutive securities are excluded from diluted EPS. As a result of determining the effect of potentially dilutive securities, in certain periods, diluted net loss per share may be the same as the basic net loss per share for the periods presented.

Stock-based Compensation

Stock-based compensation for restricted stock units is measured at the grant date based on the fair value of the award and is recognized as expense over the respective vesting period of the stock award using the straight-line method.

Recent Accounting Pronouncements - Adopted

The Company has adopted Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which is effective for fiscal years beginning after December 15, 2024. ASU 2023-09 primarily requires enhanced disclosures to (1) disclose specific categories in the rate reconciliation, (2) disclose the amount of income taxes paid and expensed disaggregated by federal, state, and foreign taxes, with further disaggregation by individual jurisdictions if certain criteria are met, and (3) disclose income (loss) from continuing operations before income tax (benefit) disaggregated between domestic and foreign. Please see “Note 7 – Income Taxes” for additional information.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting-Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). The update is intended to improve the disclosures about a public business entity’s expenses by requiring more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation and amortization) included within income statement expense captions. The guidance will be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The standard will be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating the impact of adoption of the standard on its financial statement disclosures.