SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2024

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

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

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 a 50% interest 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.

During the fourth quarter of 2024, we sold our held-for-sale wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River. For further information, see “Note 21 – Assets Held For Sale” below.

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 which operated throughout the year ended December 31, 2023 and were subsequently idled during the year ended December 31, 2024. 

Reclassifications

Amounts in the prior years 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.

In the fourth quarter of 2024, the Company made certain reclassifications that reduced “other operating and maintenance costs” and increased “depreciation, depletion and amortization” on the Consolidated Statements of Operations for certain assets with a useful life of one to three years. The entire adjustment is reflected in the fourth quarter of 2024. Previous interim periods and prior year were not adjusted as the amounts were not material. The amounts recognized in the fourth quarter of 2024 that are related to the first, second and third quarters of 2024 were $2.1 million, $2.6 million and $1.7 million, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include investments with maturities when purchased 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 experienced any material losses in such accounts.

Restricted Cash

Restricted cash represents cash held by third parties primarily for future workers’ compensation claims and MISO escrow payments. Workers’ compensation is based estimated claim liabilities and MISO escrow payments are based on power purchased or sold related to power demand 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 as power is delivered or as coal is shipped or at periodic intervals in accordance with contractual terms. 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, 2024 or 2023.

Inventory and Parts and Supplies

Inventory and parts and supplies are valued at the lower of cost or net realizable value determined using the first-in first-out method. 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.

Contract Asset - Coal Purchase Agreement

Contract Asset - Coal Purchase Agreement, is the result of a coal purchase agreement with Hoosier whereby we purchased coal from Hoosier through May 31, 2023, at fixed prices which were below market prices at the date of entry into the agreement. This agreement was entered into as consideration in our 2022 acquisition of Merom. The asset was amortized to inventory as coal was purchased over the term of the agreement as the contract was fulfilled. During the years ended December 31, 2023, $19.6 million was amortized, of which $30.7 million was recognized in operating expenses on the consolidated statements of operations. The Coal Purchase Agreement term was from October 21, 2022 to May 31, 2023.

Prepaid Expenses

Prepaid expenses include prepaid insurance and other prepaid balances with vendors for various services paid for 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.

Plant Equipment and Mining Properties

The values of our Hallador Power 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 remaining estimated useful life of the Merom at the time of equipment acquisition, or seven to nine years.

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. Other than land and most mining equipment, mining properties are depreciated using the units-of-production method over the estimated recoverable reserves. Most surface and underground mining equipment is depreciated using estimated useful lives ranging from three 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 charge 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, 2023.

Mine Development

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

Asset Retirement Obligations (“ARO”) – Reclamation

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 charge to mine development. Obligations are typically incurred when the Company commences development of underground and surface mines and include reclamation of support facilities, refuse areas and slurry ponds.

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 the units-of-production method over estimated recoverable (proven and probable) reserves. 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 mines be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds.

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. The change in estimate for the year ended December 31, 2023, was a result of a change in timing and acreage of expected reclamation of Merom. There was no change in estimate for the year ended December 31, 2024. In the event the Company is not able to perform reclamation, it has surety bonds at December 31, 2024 totaling $30.8 million to cover ARO. The undiscounted asset retirement obligation was $26.1 million and $26.6 million at December 31, 2024 and 2023, respectively.

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

	Year Ended December 31,
	2024		2023
Balance, beginning of year	$	16,688	$	20,834
Accretion		1,628		1,804
Change in estimate		—		(2,566)
Payments		(1,407)		(3,384)
Balance, end of year		16,909		16,688
Less current portion		(1,952)		(2,150)
Long-term balance, end of year	$	14,957	$	14,538

Contract Liabilities

Contract Liabilities include the PPA with Hoosier whereby Hallador Power is selling power to Hoosier through 2025 at fixed prices which were below market prices at the date the parties entered into the agreement.  Hallador Power also agreed to a reduction in future capacity payments as part of the acquisition consideration. These agreements were entered into as consideration for the acquisition of Merom in 2022. The agreement was amended August 31, 2023 to extend through 2028. The amendment included additional obligations to Hoosier of $186.6 million, or $56.00 per MWh, as of December 31, 2024. The power purchase agreement liability is amortized to electric sales revenue pro-rata over the term of the agreement as the contract is fulfilled. During the years ended December 31, 2024 and 2023, amortization of the power purchase agreement contract liability totaled $47.1 million and $70.5 million, respectively. The Power Purchase Agreement term is from October 21, 2022 to May 31, 2028. The Capacity Payment Reductions occurred on May 31, 2023 and November 30, 2023 in the amount of $7.5 million each. The contract liability relating to this contract totaled $43.5 million as of December 31, 2024.

We also have contract liabilities arising from PPA’s for capacity and physically delivered power entered into whereas the customers made advance payments to Hallador Power. These contracts that have delivery periods through the Spring shoulder season ending May 31, 2025. The liability will be amortized to electric sales revenue over the remaining term of the agreement as the contract is fulfilled. The contract liability relating to these contracts totaled $42.0 million as of December 31, 2024.

During the year ended December 31, 2024, the Company entered into a $60.0 million prepaid physically delivered power contract. The power purchase agreement term is from June 1, 2025 through December 31, 2026. The power purchase agreement liability will be amortized to electric sales revenue pro-rata over the term of the agreement as the contract is fulfilled. The contract liability, including $1.2 million of implied interest relating to this contract totaled $61.2 million as of December 31, 2024.

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. See “Note 22 – Contingencies” related to our decision to settle certain litigation in February of 2025.

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 from fuel costs on the Consolidated Statements of Operations.

Income Taxes

Income taxes are provided based on the 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.

Net Income 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 and convertible debt. We apply the treasury stock method to account for the dilutive impact of its restricted stock units and the if converted method for its convertible notes. 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 is the same as the basic net loss per share for the periods presented.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles 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 included in the preparation of the financial statements relate to: (i) deferred income tax accounts, (ii) coal reserves, (iii) SMCRA and other state statutes, (iv) depreciation, depletion, and amortization, (v) the lower of cost or net realizable value for our inventory (vi) estimates used in our impairment analysis, and (vii) estimates used in the calculation of ARO.

Long-term Contracts

Power Operations

As of December 31, 2024, we are committed to supply the following long-term delivered energy and capacity related to Hoosier and third-party customers:

	2025	2026	2027	2028	2029
Annual plant energy generation (in MWh) (in millions)	6.0	6.0	6.0	6.0	6.0
Hoosier PPA delivered energy (in MWh) (in millions)	1.7	1.6	1.3	0.4	-
Percentage of annual plant energy generation	28%	27%	22%	7%	0%
Other customers delivered energy (in MWh) (in millions)	0.6	1.8	0.5	0.7	0.3
Percentage of annual plant energy generation	10%	30%	8%	12%	5%
Plant capacity (in MW)	775	800	800	800	800
Hoosier PPA Capacity (in MW)	97	105	110	46	-
Percentage of annual plant capacity	13%	13%	14%	6%	0%
Other customers capacity (in MW)	68	89	118	120	15
Percentage of annual plant capacity	9%	11%	15%	15%	2%

For 2024, we derived 89% of our delivered energy and 88% of our capacity sales revenue from three and four customers, respectively, each of which representing at least 10% of sales revenue. At December 31, 2024, 100% of our accounts receivable were with three customers.

For 2023, we derived 100% of our electric delivered energy generation from Hoosier and 91% of our capacity sales revenue from three customers, each representing at least 10% of capacity sales revenue. For the year ended  December 31, 2023, 100% of our electric sales and accounts receivable were with two customers.

Coal Operations

As of December 31, 2024, we are committed to supplying third-party customers 8.4 million tons of coal through 2028. There are no coal contracts with price reopeners at December 31, 2024. In addition, we are committed to supplying 9.2 million tons of coal to Merom through 2028. All committed tons to Merom are priced based upon the terms of the intercompany sales transactions.

For 2024, we derived 94% of our third-party coal sales from three customers, each representing at least 10% of coal sales. At December 31, 2024, 98% of our coal operations accounts receivable was from four customers, each representing more than 10%.

For 2023, we derived 93% of our third-party coal sales from five customers, each representing at least 10% of coal sales. At December 31, 2023, 85% of our coal operations accounts receivable was from four customers, each representing more than 10%.

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 applicable vesting period of the stock award (generally two to four years) using the straight-line method.

Recent Accounting Pronouncements - Adopted

The Company has adopted Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which is effective retrospectively for the year end December 31, 2024. ASU 2023-07 primarily enhances disclosures about significant segment expenses regularly provided to the chief operating decision maker ("CODM"), the amount and composition of other segment items, and the title and position of the CODM. The Company updated the “Segment of Business” footnote below to reflect changes for what the CODM reviews on a regular basis. The Company updated its prior year information to conform to the current year presentation. See “Note 20 – Segments of Business” for enhanced disclosures associated with the adoption of ASU 2023-07.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). 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. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09, but do not expect it to have a material effect on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-04, Debt - Debt With Conversion and Other Options (Subtopic 470-20): Induced Conversion of Convertible Debt Instruments. The objective of the standard is to improve the relevance and consistency in application of the induced conversion guidance in Subtopic 470-20, Debt with Conversion and Other

Options. This standard will affect entities that settle convertible debt instruments for which the conversion privileges are changed to induce conversion. The guidance will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact of the new standard on its financial statements and related disclosures.

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. The standard update improves 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.