UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31,June 30, 2009
OR
                                                      
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 0-14731
 
 
Hallador Petroleum Company
(Exact Name of Registrant as Specified in Its Charter)
Colorado 84-1014610
(State of Incorporation) (I.R.S. Employer Identification No.)
   
1660 Lincoln St., Suite 2700, Denver, Colorado 80264-2701
(Address of Principal Executive Offices) (Zip Code)
(303) 839-5504  fax: (303) 832-3013
(Issuer’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days). Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer o
 
Accelerated filer o
 
 
Non-accelerated filer o  (Do
(Do not check if a smaller reporting company)
 
Smaller reporting company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes o No o
 
Shares outstanding as of May 7,August 6, 2009:  22,446,028
1
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet
 (in thousands, except share data)
 
 March 31,
2009
 
December 31,
2008 * 
ASSETS
Current assets:
       
June 30,
2009
  
December 31,
2008 * 
 
Cash and cash equivalents$  19,764 $21,013  $15,832  $21,013 
Certificates of deposit 2,838      2,862     
Federal income tax receivable 417  1,531 
Prepaid Federal income taxes  888   1,531 
Accounts receivable    6,732  6,113   5,728   6,113 
Coal inventory 71  776   308   776 
Other   1,814  1,928   1,867   1,928 
Total current assets   31,636  31,361   27,485   31,361 
      
Coal properties, at cost:              
Land, buildings and equipment   64,489  55,027   73,366   55,027 
Mine development     48,426  45,289   48,952   45,289 
     112,915  100,316   122,318   100,316 
Less - accumulated depreciation, depletion, and amortization     (9,890) (7,233)  (11,908)  (7,233)
   103,025  93,083   110,410   93,083 
Investment in Savoy   7,652  7,911   7,362   7,911 
Other assets   2,505  3,710   2,651   3,710 
$  144,818 $136,065  $147,908  $136,065 
LIABILITIES AND STOCKHOLDERS' EQUITY      
LIABILITIES AND EQUITY        
Current liabilities:              
Current portion of bank debt $  5,000  $2,500  $7,500  $2,500 
Accounts payable and accrued liabilities   10,210  11,563   7,503   11,563 
State income tax payable   1,173  605   602   605 
Other   18  310   626   310 
Total current liabilities   16,401  14,978   16,231   14,978 
              
Long-term liabilities:              
Bank debt, net of current portion   35,000  37,500   32,500   37,500 
Interest rate swaps, at estimated fair value   2,133  2,290   1,759   2,290 
Deferred income taxes   3,681  1,700   6,351   1,700 
Asset retirement obligations   696  686   714   686 
Other   4,345  4,345   4,345   4,345 
Total long-term liabilities   45,855  46,521   45,669   46,521 
              
Total liabilities   62,256  61,499   61,900   61,499 
Equity:              
Hallador stockholders' equity      
Hallador stockholders' equity:        
Preferred stock, $.10 par value, 10,000,000 shares authorized; none issued              
Common stock, $.01 par value, 100,000,000 shares authorized; 22,446,028 outstanding  224    224   224   224 
Additional paid-in capital   69,800  69,739   69,859   69,739 
Retained earnings   9,969  2,920   13,461   2,920 
Total Hallador stockholders' equity    79,993  72,883   83,544   72,883 
Noncontrolling interest      2,569  1,683   2,464   1,683 
Total equity  82,562  74,566   86,008   74,566 
$   144,818 $136,065  $147,908  $136,065 
*Derived from theour Form 10-K

See accompanying notes.
 
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Consolidated Statement of Operations
(in thousands, except per share data)

 
  Six months ended  Three months ended 
  June 30,  June 30, 
  2009  2008  2009  2008 
Revenue:            
  Coal sales $55,597  $23,962  $25,786  $14,281 
  Equity income (loss) – Savoy  (549)  275   (290)  306 
  Other  795   782   337   221 
   55,843   25,019   25,833   14,808 
                 
Costs and expenses:                
  Cost of coal sales  31,430   16,452   16,109   8,867 
  DD&A  3,787   1,931   2,018   1,026 
  G&A  1,740   1,368   800   767 
Interest (1)
  828   1,376   446   (156)
   37,785   21,127   19,373   10,504 
                 
Income  before income taxes  18,058   3,892   6,460   4,304 
                 
Income taxes  6,140       2,477     
                 
Net income                
Less: net income attributable to the noncontrolling interest  11,918       3,983     
   (1,377)  (481)  (491)  (555)
                 
Net income attributable to Hallador $10,541  $3,411  $3,492  $3,749 
                 
Net income per share attributable to Hallador:                
Basic and diluted $.47  $.21  $.16  $.23 
                 
Weighted average shares outstanding:                
Basic and diluted  22,446   16,366   22,446   16,370 
                 
                 

   
Three months ended March 31,
 
  2009  2008 
Revenue:      
Coal Sales                                        
 $29,811  $9,681 
Equity (loss) - Savoy  (259)   (31) 
Other  458   561 
   30,010   10,211 
         
Costs and expenses:        
Cost of coal sales  15,321   7,585 
DD&A  1,769   905 
G&A  940   600 
Interest  382   1,532* 
   18,412   10,622 
                                                                       
Income (loss) before income taxes    11,598   (411) 
         
Income taxes:        
Current  1,682     
Deferred  1,981     
   3,663     
         
Net income (loss)  7,935   (411) 
Less: net (income) loss  attributable to the noncontrolling interest  (886)    74 
         
Net income (loss) attributable to Hallador $7,049  $(337) 
         
Net income (loss) per share:        
Basic and diluted $.31  $ (.02)
         
Weighted average shares outstanding:        
Basic and diluted   22,446   16,363 
(1) Included in interest expense for the six and three months ended June 30, 2009 was a credit of $531,000 and $373,000, respectively, due to the change in the estimated fair value of the interest rate swaps.  Such credit was $39,000 and $924,000 for the six and three months ended June 30, 2008, respectively.
--------------------------------------------
*Includes $885 relating to our interest rate swaps.

See accompanying notes.
notes

 
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Condensed Consolidated Statement of Cash Flows
(in thousands)



  
Six months ended
June 30,
 
  2009  2008 
Operating activities:      
Cash provided by operating activities $23,237  $2,740 
         
Investing activities:        
Capital expenditures for coal properties  (25,945)  (6,264)
Other  (1,877)  682 
 Cash used in investing activities  (27,822)  (5,582)
         
Financing activities:        
Proceeds from bank debt      2,000 
Cash distributions to noncontrolling interests  (596)    
 Cash provided by (used in) financing activities  (596)  2,000 
         
Decrease in cash and cash equivalents  (5,181)  (842)
         
Cash and cash equivalents, beginning of period  21,013   6,978 
         
Cash and cash equivalents, end of period $15,832  $6,136 
         
Cash paid for interest (net of amount capitalized - $293 and $176) $1,612  $1,440 
 
Cash paid for state income taxes  
 $849     
         
Change in accounts payable for coal properties $(4,049) $(1,500)
         
         
         

   Three months ended March 31, 
  2009  2008 
       
Operating activities:      
Cash provided by operating activities  $13,391   $730 
         
Investing activities:        
Capital expenditures for coal properties  (12,802)   (2,941)
Other  (1,838)   604 
Cash used in investing activities  (14,640)   (2,337)
         
Financing activities:        
Proceeds from bank debt      1,698 
Cash provided by financing activities      1,698 
         
Increase (decrease) in cash and cash equivalents  (1,249)  91 
         
Cash and cash equivalents, beginning of period  21,013   6,978 
         
Cash and cash equivalents, end of period $19,764  $7,069 
         
Cash paid for interest (net of amount capitalized – $300 and $100) $963  $672 




See accompanying notes.


 
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Notes to Consolidated Financial Statements
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 financial statements included herein have been prepared pursuant to the SEC’s rules and regulations; accordingly, certain information and footnote disclosures normally included in GAAP financial statements have been condensed or omitted.
 
On January 1, 2009, we adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements.
 
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 2008 Form 10-K. This quarterly report should be read in conjunction with such 10-K.
 
The accompanying consolidated financial statements include the accounts of Hallador Petroleum Company and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.  We are engaged in the production of coal from a shallow underground mine located in western Indiana.  We also own a 45% equity interest in Savoy Energy L.P., a private oil and gas company which has operations primarily in Michigan.
 
As discussed in prior filings, we have entered into significant equity transactions with Yorktown and other entities that invest with Yorktown.  Yorktown currently owns about 55% of our common stock and represents one of the five seats on our board.
 
2.Equity Investment in Savoy
 
We account for our 45% interest in Savoy using the equity method of accounting.
 
Below (in thousands) are:   (i) a condensed balance sheet at March 31,June 30, 2009 and (ii) a condensed statement of operations for the quarterssix months ended March 31,June 30, 2009 and 2008.

 
Condensed Balance Sheet
 
 Current assets $  8,5019,573 
 PP&E   11,35711,530 
   $19,85821,103 
     
 Total liabilities $  2,8934,780 
 Partners' capital   16,96516,323 
   $19,85821,103 
  
Condensed Statement of Operations
 
  2009 2008 
      
 Revenue$ 3,638 $ 3,670 
 Expenses  (4,855)   (2,559)
 Net income (loss)
$(1,217
) $ 1,111 
      
  2009 2008 
      
 Revenue$ 1,981  $1,460 
 Expenses  (2,556)    (1,289) 
 Net income (loss)$  (575) $   171 
      
 
For 2008, the difference between the purchase price and our pro rata share of the equity of Savoy was amortized based on Savoy's units of production rate using proved developed oil and gas reserves and amounted to $109,000.$226,000.  For 2009 there was no difference. 
 
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3.         Notes Payable

In December 2008, we entered into a new loan agreement with a bank consortium that provides for a $40 million term loan and a $30 million revolving credit facility.  At March 31,June 30, 2009, we have fully drawn down the $40 million term loan.  We have outstanding letters of credit in the amount of $3 million, which leaves $27 million available under the revolver.  
 
In connection with the old loan agreements, we entered into two interest rate swap agreements swapping variable rates for fixed rates. The first swap agreement, which coversinitially covered $26 million in debt, commenced on July 15, 2007 and matures on July 15, 2012.2012; the current notional amount is about $17 million.  The second swap agreement, which coversinitially covered $10 million, commenced on December 28, 2007 and matures on December 28, 2011.  The2011; the current notional amount is about $8 million.  Considering the two swap agreements fix our current interest rate atis about 8.3%6.2%.  At MarchJune 30, 2009 and December 31, 2009,2008, our interest rates swaps resulted in a liability of about $2.1$1.76 million and at December 31, 2008 they resulted in a liability of$2.3 million.million, respectively.  The difference of $157,000$531,000 is included as a reduction in our interest expense.expense for the six months ended June 30, 2009.  The recorded value of our bank debt approximates fair value as it bears interest at a floating rate.
 
4.         Income Taxes

TheOur effective tax rate of about 34%37% for the threesix months ended March 31,June 30, 2009 was calculated using the annual effective rate projection on recurring earnings.   Excess tax depletion is the primary reason for theour effective rate being less than the statutory rate.


5.         Cash Distributions by Sunrise

During the six months ended June 30, 2009 Sunrise made cash distributions, for members’ tax purposes, of about $3.6 million of which $600,000 was made to the noncontrolling members.

6.        Subsequent Events

No subsequent events have occurred through August 6, 2009 that could have a material effect on our financial position, cash flows or results of operations.
 

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ITEM 2. MD&A.

THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2008 FORM 10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH. THERETO.
We are still on track to sell about three million tons of coal for the year. Through March 31, 2009 we have sold about 662,000 tons at an average price of about $45/ton. 
 
Cap on Carbon Emissions
 
On April 17, 2009 the Obama Administration declared that carbon dioxide threatened the planet.  The landmark decision lays the ground work for federal efforts to cap carbon emissions.   The Environmental Protection Agency (EPA) officials are on record saying they would take a go-slow approach, holding two public hearings in May 2009 before the findings are official.  After that, any new regulations would go through a public comment period, more hearings and a long review.  New regulations driven by the finding could be years away; but, unless superseded by congressional action, the EPA ruling eventually could lead to stricter emissions limits. 
 
Under our current contracts, any new taxes or costs relating to these events can be passed on to the customer.  We are unable to determine what effect these events will have on future coal demand.

Our management is in favor of reasonable and practical steps to protect the environment.  We are not in favor of the current cap and trade bill passed by the House.  Unless countries like Mexico, China, India and Russia pass and enforce similar laws any reduction in carbon omissions in our country would be inconsequential to the ultimate goal.
Liquidity and Capital Resource
 
We plan to fund future mine expansion through a combination of draws from the $30 million revolving credit facility with our banks and cash from operations.  We have $27 million available under the revolver due to outstanding letters of credit of $3 million.  Our budgeted capital expenditures for the last half of 2009 are about $15 million.
 
We have no material off-balance sheet arrangements.
 
Results of Operations 

Year to Date

The recession has reduced power demand, which has reduced the need for coal.  Stockpiles at some of our customers are high and accordingly, we were asked by one of our customers to defer a total of 400,000 tons through December 31, 2010.  These tons will be shipped in 2011-2013 at an escalated price.  We have agreed to assist our customer because of our valued relationship.
 
DuringDue to the reduced power demand, we estimate 2009 we soldsales to be about 662,0002.7 million tons of coal at an average selling price of $44/ton.  We expect 2010 sales to be about $45/3 million tons at an average price of $42.  The reduction in average prices is due to higher priced coal being deferred to later years.

For 2009 we sold 1,258,000 tons at an average price of about $44/ton.  DuringFor 2008 we sold 825,000 tons at an average price of about 353,000$29/ton.

During 2009 our equity loss in Savoy was due to lower oil and gas prices and higher exploration costs relative to 2008.

Cost of coal sales per ton averaged $25/ton in 2009 compared to $20 in 2008.  The increase was due to inefficiencies during our mine expansion and construction and temporary adverse mining conditions.  Our mining employees totaled 290 at about $27/ton.  For the remainder ofJune 30, 2009 wecompared to 160 at June 30, 2008.  We expect the average price to be in the $45/ton range.
The increase in cost of coal sales and DD&A was due to average $24/ton for the significant increase in our coal sales.remainder of 2009.

 
7
G&A increased primarily to the higher level of operations.
 
Included in 20082009 interest expense was about $885,000a credit of $531,000 relating to our interest rate swaps.  The 20092008 amount includes a credit of $39,000 for the swaps.  In addition, we capitalized $293,000 in interest expense for 2009 compared to $176,000 for 2008.  Because our mine expansion is complete we are no longer capitalizing interest.
Quarter to Date

For 2009 we sold 596,000 tons at an average price of about $160,000$43/ton.  For 2008 we sold 472,000 tons at an average price of about $30/ton.

For 2009 our equity loss in Savoy was due to lower oil and gas prices and higher exploration costs relative to 2008.

Cost of coal sales averaged $27/ton in 2009 compared to $19 in 2008.  If we are not able to gain efficiencies and if the temporary adverse mining conditions persist, our costs could remain in the $27/ton range for the remainder of the year.
The increase in DD&A was due to the significant increase in our coal sales.

Included in 2009 interest expense was a credit of $373,000 relating to our interest rate swaps.  The 2008 amount includes a credit of $924,000 for the swaps.  In addition, we capitalized about $300,000$3,000 in interest expense for 2009 compared to $100,000$75,000 for 2008.

For most of our history, we operated in a loss position and had significant net operating loss carry forwards.  At December 31, 2008, we have federal net operating loss carry forwards of about $2.5 million and expect to utilize them in 2009.  For calendar year 2008 we had pretax income of about $11.8 million and a tax provision of about $2.9 million.  For the quarter ended March 31, 2009 we had pretax income of about $11.6 million and a tax provision of about $3.7 million.  We expect these income trends to continue and estimate our effective tax rate to be in the 34% - 38% range for the foreseeable future.  
New Accounting Pronouncements

None of the recent FASB pronouncements had, or will have any material effect on us.
 
7

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Smaller reporting companies are not required to provide the information required by this item.
ITEM 4(T).  CONTROLS AND PROCEDURES.
 
Disclosure Controls
 
We maintain a system of disclosure controls and procedures that are designed for the purposes of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our CEO 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 of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO, who is also our CFO, concluded that our disclosure controls and procedures are effective for the purposes discussed above.
 
There has been no change in our internal control over financial reporting during the quarter ended March 31,June 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
PART II—OTHER INFORMATION
 
ITEM 6.EXHIBITS

(a)
31    -- SOX 302 Certification
32    -- SOX 906 Certification
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HALLADOR PETROLEUM COMPANY
Dated: May 7, 2009
 By:
/S/ VICTOR P. STABIO
CEO and CFO
 Signing on behalf of registrant and
 as principal financial officer.
 
 
 
8
 
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated:  August 6, 2009                                                                    By:  ­/S/ VICTOR P. STABIO
          Victor P. Stabio
          CEO and CFO
          Signing on behalf of registrant and
          as principal financial officer

9