UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: SeptemberJune 30, 20172018
OR
¨ | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-3473001-34743
“COAL KEEPS YOUR LIGHTS ON” | “COAL KEEPS YOUR LIGHTS ON” |
HALLADOR ENERGY COMPANY
(www.halladorenergy.com)
Nasdaq: HNRG
| |||
Colorado | 84-1014610 | ||
(State of incorporation) |
(IRS Employer
| ||
Identification No.) |
1660 Lincoln Street, Suite 2700, Denver, Colorado | 80264-2701 | |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number: 303.839.5504
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xþ No ¨
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 Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xþ No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer¨ | Accelerated filer |
Non-accelerated filer ¨ | Smaller reporting company¨ |
(Do not check if a smaller reporting company) | Emerging growth company¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨No xþ
As of NovemberAugust 3, 2017,2018, we had 29,809,89830,176,990 shares outstanding.
TABLE OF CONTENTS
2 |
PART I - FINANCIAL INFORMATION
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 9,407 | $ | 9,788 | ||||
Restricted cash (Note 5) | 3,428 | 2,817 | ||||||
Certificates of deposit | 2,735 | 7,315 | ||||||
Marketable securities | 1,924 | 1,763 | ||||||
Accounts receivable | 16,776 | 22,307 | ||||||
Prepaid income taxes | 1,588 | �� | - | |||||
Coal inventory | 15,121 | 10,100 | ||||||
Parts and supply inventory | 10,543 | 10,091 | ||||||
Purchased coal contracts | 2,045 | 8,922 | ||||||
Prepaid expenses | 10,401 | 9,647 | ||||||
Total current assets | 73,968 | 82,750 | ||||||
Coal properties, at cost: | ||||||||
Land and mineral rights | 129,724 | 126,303 | ||||||
Buildings and equipment | 351,334 | 339,999 | ||||||
Mine development | 134,537 | 126,037 | ||||||
Total coal properties, at cost | 615,595 | 592,339 | ||||||
Less - accumulated DD&A | (196,805 | ) | (169,579 | ) | ||||
Total coal properties, net | 418,790 | 422,760 | ||||||
Investment in Savoy (Note 3) | 7,986 | 7,577 | ||||||
Investment in Sunrise Energy (Note 3) | 3,966 | 4,122 | ||||||
Other assets (Note 4) | 14,271 | 14,114 | ||||||
Total assets | $ | 518,981 | $ | 531,323 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of bank debt, net (Note 2) | $ | 33,171 | $ | 28,796 | ||||
Accounts payable and accrued liabilities | 19,822 | 19,773 | ||||||
Total current liabilities | 52,993 | 48,569 | ||||||
Long-term liabilities: | ||||||||
Bank debt, net (Note 2) | 174,066 | 204,944 | ||||||
Deferred income taxes | 47,325 | 45,174 | ||||||
Asset retirement obligations (ARO) | 13,699 | 13,260 | ||||||
Other | 1,921 | 2,486 | ||||||
Total long-term liabilities | 237,011 | 265,864 | ||||||
Total liabilities | 290,004 | 314,433 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $.10 par value, 10,000 shares authorized; none issued | - | - | ||||||
Common stock, $.01 par value, 100,000 shares authorized; 29,810 and 29,413 shares outstanding, respectively | 298 | 294 | ||||||
Additional paid-in capital | 97,738 | 93,816 | ||||||
Retained earnings | 130,120 | 122,052 | ||||||
Accumulated other comprehensive income | 821 | 728 | ||||||
Total stockholders’ equity | 228,977 | 216,890 | ||||||
Total liabilities and stockholders’ equity | $ | 518,981 | $ | 531,323 |
Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 10,185 | $ | 12,483 | ||||
Restricted cash (Note 8) | 4,234 | 3,811 | ||||||
Certificates of deposit | 735 | 1,495 | ||||||
Marketable securities | 1,791 | 1,907 | ||||||
Accounts receivable | 11,627 | 16,762 | ||||||
Prepaid income taxes | 2,540 | 2,899 | ||||||
Coal inventory | 34,373 | 12,804 | ||||||
Parts and supply inventory | 11,487 | 10,043 | ||||||
Prepaid expenses | 15,633 | 9,433 | ||||||
Total current assets | 92,605 | 71,637 | ||||||
Property, plant and equipment, at cost: | ||||||||
Land and mineral rights | 130,860 | 129,724 | ||||||
Buildings and equipment | 368,220 | 356,911 | ||||||
Mine development | 138,467 | 136,762 | ||||||
Total property, plant and equipment, at cost | 637,547 | 623,397 | ||||||
Less - accumulated DD&A | (225,231 | ) | (203,391 | ) | ||||
Total property, plant and equipment, net | 412,316 | 420,006 | ||||||
Equity method investments (Note 4) | 3,697 | 11,890 | ||||||
Other assets (Note 5) | 14,798 | 14,660 | ||||||
Total assets | $ | 523,416 | $ | 518,193 | ||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of bank debt, net (Note 3) | $ | 21,749 | $ | 33,171 | ||||
Accounts payable and accrued liabilities (Note 6) | 25,785 | 21,115 | ||||||
Total current liabilities | 47,534 | 54,286 | ||||||
Long-term liabilities: | ||||||||
Bank debt, net (Note 3) | 170,362 | 165,773 | ||||||
Deferred income taxes | 28,993 | 28,728 | ||||||
Asset retirement obligations (ARO) | 14,077 | 13,506 | ||||||
Other | 7,132 | 6,577 | ||||||
Total long-term liabilities | 220,564 | 214,584 | ||||||
Total liabilities | 268,098 | 268,870 | ||||||
Redeemable noncontrolling interests (Note 13) | 4,000 | - | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $.10 par value, 10,000 shares authorized; none issued | - | - | ||||||
Common stock, $.01 par value, 100,000 shares authorized; 30,177 and 29,955 shares outstanding, respectively | 301 | 299 | ||||||
Additional paid-in capital | 100,228 | 97,873 | ||||||
Retained earnings | 150,789 | 150,236 | ||||||
Accumulated other comprehensive income (AOCI) | - | 915 | ||||||
Total stockholders’ equity | 251,318 | 249,323 | ||||||
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity | $ | 523,416 | $ | 518,193 |
See accompanying notes.
3 |
Consolidated Statements of Comprehensive Income (Loss)
(in thousands, except per share data)
(unaudited)
Nine Months Ended | Three Months Ended | Six Months Ended | Three Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||
Coal sales | $ | 199,280 | $ | 207,429 | $ | 73,896 | $ | 65,360 | $ | 123,709 | $ | 125,384 | $ | 56,922 | $ | 62,829 | ||||||||||||||||
Equity income (loss) - Savoy | 409 | (42 | ) | 153 | 26 | |||||||||||||||||||||||||||
Equity income (loss) - Sunrise Energy | 18 | (264 | ) | 16 | (106 | ) | ||||||||||||||||||||||||||
MSHA reimbursement | 1,725 | 1,753 | 89 | - | ||||||||||||||||||||||||||||
Other income | 901 | 1,340 | 314 | 487 | ||||||||||||||||||||||||||||
Other income (Note 7) | 398 | 2,481 | 321 | 1,483 | ||||||||||||||||||||||||||||
Total revenue | 202,333 | 210,216 | 74,468 | 65,767 | 124,107 | 127,865 | 57,243 | 64,312 | ||||||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||||
Operating costs and expenses | 138,125 | 142,114 | 54,354 | 46,940 | 85,514 | 83,771 | 38,874 | 44,079 | ||||||||||||||||||||||||
DD&A | 28,533 | 26,180 | 9,729 | 7,942 | 21,949 | 18,804 | 11,120 | 9,101 | ||||||||||||||||||||||||
ARO accretion | 640 | 764 | 219 | 260 | 573 | 421 | 291 | 214 | ||||||||||||||||||||||||
Coal exploration costs | 566 | 1,168 | 152 | 354 | ||||||||||||||||||||||||||||
Exploration costs | 532 | 414 | 315 | 275 | ||||||||||||||||||||||||||||
SG&A | 12,095 | 8,076 | 2,859 | 2,585 | 6,364 | 9,236 | 2,474 | 6,578 | ||||||||||||||||||||||||
Interest(1) | 9,662 | 12,694 | 3,229 | 2,601 | 7,023 | 6,433 | 4,315 | 3,342 | ||||||||||||||||||||||||
Total costs and expenses | 189,621 | 190,996 | 70,542 | 60,682 | 121,955 | 119,079 | 57,389 | 63,589 | ||||||||||||||||||||||||
Income before income taxes | 12,712 | 19,220 | 3,926 | 5,085 | ||||||||||||||||||||||||||||
Income (loss) before income taxes | 2,152 | 8,786 | (146 | ) | 723 | |||||||||||||||||||||||||||
Less income taxes: | ||||||||||||||||||||||||||||||||
Income tax expense (benefit): | ||||||||||||||||||||||||||||||||
Current | (1,158 | ) | (270 | ) | (2,532 | ) | (270 | ) | (222 | ) | 1,374 | (19 | ) | 1,357 | ||||||||||||||||||
Deferred | 2,151 | 3,153 | 2,542 | 1,033 | 265 | (391 | ) | (104 | ) | (1,023 | ) | |||||||||||||||||||||
Total income taxes | 993 | 2,883 | 10 | 763 | ||||||||||||||||||||||||||||
Total income tax expense (benefit) | 43 | 983 | (123 | ) | 334 | |||||||||||||||||||||||||||
Net income(2) | $ | 11,719 | $ | 16,337 | $ | 3,916 | $ | 4,322 | ||||||||||||||||||||||||
Net income (loss)* | $ | 2,109 | $ | 7,803 | $ | (23 | ) | $ | 389 | |||||||||||||||||||||||
Net income per share (Note 6): | ||||||||||||||||||||||||||||||||
Net income (loss) per share (Note 9): | ||||||||||||||||||||||||||||||||
Basic and diluted | $ | 0.38 | $ | 0.54 | $ | 0.13 | $ | 0.14 | $ | 0.07 | $ | 0.25 | $ | (0.00 | ) | $ | 0.01 | |||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||
Basic and diluted | 29,603 | 29,251 | 29,774 | 29,252 | 29,968 | 29,458 | 29,980 | 29,503 |
*There is no material difference between net income and comprehensive income.
(1) Interest expense for the first ninesix months of 2018 and 2017 includes $844 and 2016 includes $(476) and $793,$(440), respectively, for the net change in the estimated fair value of our interest rate swaps. Such amounts were $(36)$1,003 and $(955)$(20) for Q3the second quarter of 2018 and 2017, and 2016, respectively.
(2) There is no material difference between net income and comprehensive income.
See accompanying notes.
4 |
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30, | Six Months Ended June 30, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Operating activities: | ||||||||||||||||
Cash provided by operating activities | $ | 47,387 | $ | 43,691 | $ | 15,865 | $ | 23,961 | ||||||||
Investing activities: | ||||||||||||||||
Capital expenditures | (21,328 | ) | (11,810 | ) | (19,683 | ) | (11,855 | ) | ||||||||
Proceeds from sale of equipment | 506 | - | 29 | 343 | ||||||||||||
Proceeds from maturities of certificates of deposit | 4,580 | - | 760 | 3,879 | ||||||||||||
Purchase of Freelandville assets | - | (18,000 | ) | |||||||||||||
Other | - | 186 | ||||||||||||||
Proceeds from sale of Savoy | 8,000 | - | ||||||||||||||
Cash used in investing activities | (16,242 | ) | (29,624 | ) | (10,894 | ) | (7,633 | ) | ||||||||
Financing activities: | ||||||||||||||||
Payments on bank debt | (27,875 | ) | (26,492 | ) | ||||||||||||
Bank borrowings | - | 15,000 | ||||||||||||||
Payments of bank debt | (21,767 | ) | (13,125 | ) | ||||||||||||
Borrowings of bank debt | 14,000 | - | ||||||||||||||
Debt issuance costs | - | (2,090 | ) | (608 | ) | - | ||||||||||
Proceeds from noncontrolling interests (Note 13) | 4,000 | - | ||||||||||||||
Dividends | (3,651 | ) | (3,597 | ) | (2,471 | ) | (2,409 | ) | ||||||||
Cash used in financing activities | (31,526 | ) | (17,179 | ) | (6,846 | ) | (15,534 | ) | ||||||||
Decrease in cash and cash equivalents | (381 | ) | (3,112 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | 9,788 | 15,930 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 9,407 | $ | 12,818 | ||||||||||||
Increase (decrease) in cash, cash equivalents, and restricted cash | (1,875 | ) | 794 | |||||||||||||
Cash, cash equivalents, and restricted cash, beginning of period | 16,294 | 12,605 | ||||||||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 14,419 | $ | 13,399 |
__________________Cash, cash equivalents, and restricted cash consist of the following:
(1) We
June 30, | ||||||||
2018 | 2017 | |||||||
Cash and cash equivalents | $ | 10,185 | $ | 10,079 | ||||
Restricted cash | 4,234 | 3,320 | ||||||
$ | 14,419 | $ | 13,399 |
Non-cash activity:
Upon the formation of Hourglass Sands, LLC, we acquired $3.3assets by assuming a liability of $1.1 million.
Additional financing costs of $5.7 million were incurred at the closing of the new credit facility in capital equipment in the first nine months of 2017 that was prepaid in a prior period.May 2018.
See accompanying notes.
5 |
Consolidated Statement of Stockholders’ Equity
(in thousands)
(unaudited)
Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | AOCI* | Total | |||||||||||||||||||
Balance January 1, 2017 | 29,413 | $ | 294 | $ | 93,816 | $ | 122,052 | $ | 728 | $ | 216,890 | |||||||||||||
Stock-based compensation | - | - | 6,384 | - | - | 6,384 | ||||||||||||||||||
Stock issued on vesting of RSUs | 720 | 4 | - | - | - | 4 | ||||||||||||||||||
Taxes paid on vesting of RSUs | (323 | ) | - | (2,462 | ) | - | - | (2,462 | ) | |||||||||||||||
Dividends | - | - | - | (3,651 | ) | - | (3,651 | ) | ||||||||||||||||
Net income | - | - | - | 11,719 | - | 11,719 | ||||||||||||||||||
Other | - | - | - | - | 93 | 93 | ||||||||||||||||||
Balance, September 30, 2017 | 29,810 | $ | 298 | $ | 97,738 | $ | 130,120 | $ | 821 | $ | 228,977 |
_____________________________
*Accumulated Other Comprehensive Income
Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | AOCI | Total | |||||||||||||||||||
Balance, December 31, 2017 | 29,955 | $ | 299 | $ | 97,873 | $ | 150,236 | $ | 915 | $ | 249,323 | |||||||||||||
Impact from adoption of ASU 2018-02 and ASU 2016-01 (Note 1) | - | - | - | 915 | (915 | ) | - | |||||||||||||||||
Stock-based compensation | - | - | 2,366 | - | - | 2,366 | ||||||||||||||||||
Stock issued on vesting of RSUs | 223 | 2 | - | - | - | 2 | ||||||||||||||||||
Taxes paid on vesting of RSUs | (1 | ) | - | (11 | ) | - | - | (11 | ) | |||||||||||||||
Dividends | - | - | - | (2,471 | ) | - | (2,471 | ) | ||||||||||||||||
Net income | - | - | - | 2,109 | - | 2,109 | ||||||||||||||||||
Balance, June 30, 2018 | 30,177 | $ | 301 | $ | 100,228 | $ | 150,789 | $ | - | $ | 251,318 |
See accompanying notes.
6 |
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) |
The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the SEC’s rules and regulations; accordingly, certain information and footnote disclosures normally included in GAAP financial statements have been condensed or omitted.
The results of operations and cash flows for the ninesix months ended SeptemberJune 30, 2017,2018, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2017.2018. To maintain consistency and comparability, certain 20162017 amounts have been reclassified to conform to the 20172018 presentation.
Our organization and business, the accounting policies we follow and other information, are contained in the notes to our condensed consolidated financial statements filed as part of our 20162017 Form 10-K. This quarterly report should be read in conjunction with such 10-K.
The condensed consolidated financial statements include the accounts of Hallador Energy Company (the Company)(hereinafter known as, “we, us, or our”) and its wholly-owned subsidiarysubsidiaries Sunrise Coal, LLC (Sunrise) and Hourglass Sands, LLC (Hourglass), and Sunrise’s wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. We areSunrise is engaged in the production of steam coal from mines located in western Indiana. Hourglass is in the development stage and engages in the production of frac sand in the State of Colorado (see Note 13).
New Accounting Standards Issued and Adopted
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory ("ASU 2015-11"). ASU 2015-11 simplifies the subsequent measurement of inventory. It replaces the current lower of cost or market test with the lower of cost or net realizable value test. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard was applied prospectively and is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The adoption of ASU 2015-11 did not have a material impact on our consolidated financial statements.
New Accounting Standards Issued and Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 is a comprehensive revenue recognition standard that will supersedesupersedes nearly all existing revenue recognition guidance under current U.S. GAAP and replacereplaces it with a principle-based approach for determining revenue recognition. On January 1, 2018, we adopted the new accounting standard and all of the related amendments to all contracts using the modified retrospective method. Adoption of the new revenue standard did not result in a material cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We do not expect the adoption of the new revenue standard to have a material impact to our net income on an ongoing basis. See “Note 12 - Revenue” to these condensed consolidated financial statements for additional disclosures.
In January 2016, the FASB issued ASU 2014-09 will requireNo. 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires equity investments that companies recognize revenue basedare not accounted for under the equity method of accounting or that do not result in consolidation of the investee to be measured at fair value with changes recognized in net earnings. ASU 2016-01 also eliminates the available-for-sale classification for equity investments that recognized changes in fair value as a component of other comprehensive income. We adopted ASU 2016-01 on January 1, 2018, using the valuemodified retrospective method, which resulted in a $1.1 million (net of transferred goods tax) cumulative-effect adjustment from accumulated other comprehensive income to retained earnings. Adoption of ASU 2016-01 did not have a material impact on our results of operations and/or services as they occurcash flows.
In November 2016, the FASB issued guidance regarding the presentation of restricted cash in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertaintystatement of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09(ASU 2016-18). This update is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities2017, and early adoption is permitted. We have adopted the new standard as of January 1, 2018. Adoption of ASU 2016-18 did not have a material impact on the company’s results of operations and/or cash flows.
In January 2017, the FASB issued new guidance to assist in determining if a set of assets and activities being acquired or sold is a business (ASU 2017-01). It also provided a framework to assist entities in evaluating whether both an input and a substantive process are present, which at a minimum, must be present to be considered a business. We have adopted the new standard as of January 1, 2018. The standard does not have an impact on our historical recognition of asset acquisitions and business combinations. However, we expect there will be ablean impact on how we account for such acquisitions in the future.
7 |
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows companies to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company’s primary source of revenue isreclassify stranded tax effects resulting from the sale2017 Tax Act from accumulated other comprehensive income to retained earnings. The company elected to early adopt ASU 2018-02 on January 1, 2018, which resulted in a reclassification of coal through both short-term and long-term contracts with utility companies whereby revenue is currently recognized when risk$192,000 of loss has passed to the customer. Upon adoption of this new standard, the Company believes that the timing of revenue recognitionstranded tax effects, related to our coal sales will remain consistent with our current practice. The Company is currently evaluatingunrealized gain on marketable securities, from accumulated other revenue streamscomprehensive income to determine the potential impact related to the adoptionretained earnings. Adoption of the standard, as well as potential disclosures required by the standard. Because we doASU 2018-02 did not anticipate a change in our pattern of revenue recognition, we anticipate that neither method of adoption will have a material impact on our consolidated financial statements, other than the additional disclosure requirements which will apply to us.results of operations and/or cash flows.
New Accounting Standards Issued and Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02")(ASU 2016-02). ASU 2016-02 increases transparency and comparability among organizations by requiring lessees to record right-to-use assets and corresponding lease liabilities on the balance sheet and disclosing key information about lease arrangements. The new guidance will classify leases as either finance or operating (similar to current standard’s “capital” or “operating” classification), with classification affecting the pattern of income recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currently in the process of accumulating all contractual lease arrangements in order to determine the impact on our financial statements and do not believe we have significant amounts of off-balance sheet leases; accordingly, we do not expect the adoption of ASU 2016-02 to have a material impact on our condensed consolidated financial statements. We continue to monitor closely the activities of the FASB and various non-authoritative groups with respect to implementation issues that could affect our evaluation.
(2) | ASSET IMPAIRMENT REVIEW |
Carlisle Mine
During the second quarter of 2018, we began preparations to re-open the Carlisle mine. In July 2018, we commenced production and began shipping coal to customers. We conducted a review of the Carlisle Mine assets as of June 30, 2018, based on estimated future net cash flows, and determined that no impairment to the aggregate net carrying value of $108 million was necessary. If in future periods we reduce our estimate of the future net cash flows attributable to the Carlisle Mine, it may result in future impairment of such assets and such charges could be significant.
Bulldog Reserves
In October 2017, we entered into an agreement to sell land associated with the Bulldog Mine for $4.9 million. As part of the transaction, we hold the rights to repurchase the property for eight years at the original sale price of $4.9 million plus interest. We are accounting for the sale as a financing transaction with the liability recorded in other long-term liabilities. The Bulldog Mine assets had an aggregate net carrying value of $15 million at June 30, 2018. Also, in October 2017, the Illinois Department of Natural Resources (ILDNR) notified us that our mine application, along with modifications, was acceptable. The permit will be issued upon submittal of a fee and bond which are required within 12 months of the notification. We have determined that no impairment is necessary. If estimates inherent in the assessment change, it may result in future impairment of the assets.
On March 18, 2016,May 21, 2018, we executed an amendment to our credit agreementthe Third Amended and Restated Credit Agreement with PNC, as administrative agent for our lenders,lenders. The $267 million credit facility is a combination of a $147 term loan and $120 million revolver. The credit facility extends the term through May 21, 2022, reduces the debt service requirements, changes the borrower from Sunrise Coal to Hallador, and allows for the primary purpose of increasing liquidity and maintaining compliance through the maturityinvestments in Hourglass Sands. The credit facility is collateralized primarily by Hallador’s assets. Our borrowing capacity increased by $6 million as of the agreement in August 2019. The revolver was reduced from $250 million to $200 million, andeffective date of the term loan remains the same. amended agreement.
Liquidity
Our bank debt at SeptemberJune 30, 2017,2018, was $211$201 million (term-$80(term - $142 million, revolver-$131revolver - $59 million). As of SeptemberJune 30, 2017,2018, we had additional borrowing capacity of $69$61 million and total liquidity of $83$74 million.
Fees
Bank fees and other costs incurred in connection with the amended credit agreement and unamortized costs incurred in connection with the initial facility and thea subsequent amendment were $9.1 million, whichtotaled $8.7 million. These costs were deferred and are being amortized over the term of the loan.
Covenants
The credit facility is collateralized by substantially all of Sunrise’s assets, and we are the guarantor.
The amended credit facility increased theincludes a Maximum Leverage Ratio (Sunrise total(consolidated funded debt/debt / trailing 12twelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for trailing twelve months, not to those listedexceed the amounts below:
Fiscal Periods Ending | Ratio | |
June 30, | ||
December 31, | ||
December 31, 2021 and each fiscal quarter thereafter | 2.75 to 1.00 |
The amended credit facility also requires a Minimum Debt Service Coverage Ratio minimum(consolidated adjusted EBITDA / annual debt service) calculated as of 1.25Xthe end of each fiscal quarter for the trailing twelve months of 1.25 to 1 through the maturity of the credit facility. The amendment defines the Debt Service Coverage Ratio as Sunrise’s trailing 12 months adjusted EBITDA/annual debt service.
At SeptemberJune 30, 2017,2018, our Maximum Leverage Ratio was 2.42,2.64, and our Debt Service Coverage Ratio was 2.19.2.28. Therefore, we were in compliance with those two ratios.
Rate
The interest rate on the facility ranges from LIBOR plus 2.25%3.00% to LIBOR plus 4%4.50%, depending on our leverage ratio.Leverage Ratio. We entered into swap agreements to fix the LIBOR component of the interest rate to achieve an effective fixed rate of ~5%~6% on the original term loan balance and on $100$53 million of the revolver. The revolver swap notional value steps down 10% each quarter which commenced on March 31, 2016.
At SeptemberJune 30, 2017,2018, we were paying LIBOR of 1.24%2.10% plus 3.50%4.00% for a total interest rate of 4.74%6.10%. We anticipate this stepping down to LIBOR plus 3.00% in November, 2017.
9 |
Bank debt, less debt issuance costs, areis presented below (in thousands):
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Current debt | $ | 35,000 | $ | 30,625 | ||||
Less debt issuance cost | (1,829 | ) | (1,829 | ) | ||||
Net current portion | $ | 33,171 | $ | 28,796 | ||||
Long-term debt | $ | 175,742 | $ | 207,992 | ||||
Less debt issuance cost | (1,676 | ) | (3,048 | ) | ||||
Net long-term portion | $ | 174,066 | $ | 204,944 |
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
Current debt | $ | 23,888 | $ | 35,000 | ||||
Less debt issuance cost | (2,139 | ) | (1,829 | ) | ||||
Net current portion | $ | 21,749 | $ | 33,171 | ||||
Long-term debt | $ | 176,600 | $ | 166,992 | ||||
Less debt issuance cost | (6,238 | ) | (1,219 | ) | ||||
Net long-term portion | $ | 170,362 | $ | 165,773 |
We own a 30.6% interest in Savoy Energy, L.P.,
On March 9, 2018, we sold our entire 30.6% partnership interest to Savoy for $8 million. The carrying value of the investment included in our consolidated balance sheets as of December 31, 2017, was $8.0 million. Our net proceeds were $7.5 million after commissions paid to a private company engagedrelated party, which were applied to our bank debt as required under the agreement. The sale resulted in a loss of $538,000 for the oilthree months and gas business primarily in the State of Michigan.six months ended March 31, 2018 and June 30, 2018.
Sunrise Energy, LLC
We also own a 50% interest in Sunrise Energy, LLC, which owns gas reserves and gathering equipment with plans to develop and operate such reserves. Sunrise Energy also plans to develop and explore for oil, gas and coal-bed methane gas reserves on or near our underground coal reserves. The carrying value of the investment included in our consolidated balance sheets as of June 30, 2018, and December 31, 2017, was $3.7 million and $3.9 million, respectively.
September 30, | December 31, | June 30, | December 31, | |||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Other assets: | ||||||||||||||||
Advanced coal royalties | $ | 9,629 | $ | 9,296 | $ | 10,396 | $ | 9,720 | ||||||||
Marketable equity securities available for sale, at fair value (restricted)* | 2,005 | 2,036 | ||||||||||||||
Marketable equity securities at fair value (restricted)* | 2,017 | 2,148 | ||||||||||||||
Other | 2,637 | 2,782 | 2,385 | 2,792 | ||||||||||||
Total other assets | $ | 14,271 | $ | 14,114 | $ | 14,798 | $ | 14,660 |
____________________
*Held by Sunrise Indemnity, Inc., our wholly ownedwholly-owned captive insurance company.
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
Accounts payable | $ | 6,924 | $ | 4,008 | ||||
Goods received not yet invoiced | 5,005 | 5,574 | ||||||
Accrued property taxes | 2,782 | 2,751 | ||||||
Workers' compensation | 3,800 | 2,969 | ||||||
Other | 7,274 | 5,813 | ||||||
Total accounts payable and accrued liabilities | $ | 25,785 | $ | 21,115 |
10 |
(7) | OTHER INCOME (in thousands) |
Six Months Ended | Three Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Equity income - Savoy | $ | - | $ | 256 | $ | - | $ | 44 | ||||||||
Equity income (loss) - Sunrise Energy | (156 | ) | 2 | (73 | ) | (17 | ) | |||||||||
Loss on disposal of Savoy | (538 | ) | - | - | ||||||||||||
MSHA reimbursements | 653 | 1,636 | 150 | 1,250 | ||||||||||||
Other | 439 | 587 | 244 | 206 | ||||||||||||
Total other income | $ | 398 | $ | 2,481 | $ | 321 | $ | 1,483 |
(8) | SELF-INSURANCE |
We self-insure our underground mining equipment. Such equipment is allocated among teneleven mining units spread out over 18 miles. The historical cost of such equipment iswas approximately $256 million.$267 million and $258 million for the periods ended June 30, 2018 and December 31, 2017, respectively.
Restricted cash of $3.4$4.2 million and $3.8 million for the periods ended June 30, 2018 and December 31, 2017, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.
We compute net income (loss) per share using the two-class method, which is an allocation formula that determines net income (loss) per share for common stock and participating securities, which for us are our outstanding RSUs.
The following table sets forth the computation of net income (loss) allocated to common shareholders (in thousands):
Nine Months Ended | Three Months Ended | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 11,719 | $ | 16,337 | $ | 3,916 | $ | 4,322 | ||||||||
Less earnings allocated to RSUs | (444 | ) | (429 | ) | (153 | ) | (115 | ) | ||||||||
Net income allocated to common shareholders | $ | 11,275 | $ | 15,908 | $ | 3,763 | $ | 4,207 |
Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 2,109 | $ | 7,803 | $ | (23 | ) | $ | 389 | |||||||
(Earnings) loss allocated to RSUs | (49 | ) | (304 | ) | 1 | (16 | ) | |||||||||
Net income (loss) allocated to common shareholders | $ | 2,060 | $ | 7,499 | $ | (22 | ) | $ | 373 |
(10) | INCOME TAXES |
For interim period reporting, we record 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 effective tax rate for the six months ended June 30, 2018 and June 30, 2017 was 2% and 11%, respectively. Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion in excess of tax basis. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.
Carlisle Mine
In December 2016, the deterioration of the North End of the Carlisle Mine (the North End), coupled with lower coal prices led us to determine that the North End could no longer be mined safely and profitably. The sealing of the North End was completed in March 2017.
With the Carlisle Mine remaining in hot idle status, we conducted a review of the Carlisle Mine assets as of September 30, 2017, based on estimated future net cash flows, and determined that no impairment was necessary.
The Carlisle Mine assets had an aggregate net carrying value of $112 million at September 30, 2017. If in future periods we reduce our estimate of the future net cash flows attributable to the Carlisle Mine, it may result in future impairment of such assets and such charges could be significant.
Bulldog Mine
In October 2017, we entered into an agreement to sell land associated with the Bulldog Mine for $4.9 million. As part of the transaction, we will hold the rights to repurchase the property for 8 years. Because of the likelihood of exercising the repurchase option, we will account for the sale as a financing transaction. The Bulldog Mine assets had an aggregate net carrying value of $15 million at September 30, 2017. Also in October 2017, the Illinois Department of Natural Resources (ILDNR) notified us that our mine application, along with modifications, was acceptable. The permit will be issued upon submittal of a fee and bond which is required to be submitted within 12 months of the notification. We have determined that no impairment is necessary. If estimates inherent in the assessment change, it may result in future impairment of the assets.
Our effective tax rate (ETR) was estimated at 8% and 15% for the nine months ended September 30, 2017 and 2016, respectively. Assuming no changes in our expected results of operations, we expect our ETR for the remainder of 2017 to be about the same as the first nine months of 2017. Our ETR differs from the statutory rate due primarily to statutory depletion in excess of tax basis, which is a permanent difference.
Non-vested grants at December 31, | ||||
Granted | ||||
Vested - weighted average share price | ( | ) | ||
Forfeited | (8,000 | ) | ||
Non-vested grants at |
(1)Following isThe 223,500 shares that vested during the vesting schedule of RSUs.
Vesting Year | RSUs Vesting | |||
2017 | 270,000 | |||
2018 | 178,250 | |||
2019 | 373,750 | |||
2020 | 231,250 | |||
2021 | 161,250 | |||
1,214,500 |
On May 25, 2017, the Hallador Energy Company 2008 Restricted Stock Unit Plan (the Plan) was amended and restated to extend the term of the Plan to May 25, 2027, and add 1,000,000 shares to the Plan.
At Septembersix months ended June 30, 2017, we had 1,267,917 RSUs available for future issuance.
Upon vesting, the shares noted above2018, had a value of $5.5 million for the nine months ended September 30, 2017, of which $438,000 was for the three months ended September 30, 2017.$1.5 million. Under our RSU plan, participants are allowed to relinquish shares to pay for their required statutory income taxes.
For the ninesix months ended SeptemberJune 30, 20172018, and 2016,2017, our stock-based compensation was $6.4$2.4 million and $1.8$5.4 million, respectively. For the three months ended SeptemberJune 30, 2018 and 2017, and 2016, our stock-basedstock based compensation was $1.0 million$.4 and $.6$4.6 million, respectively.
Non-vested RSU grants will vest as follows:
Vesting Year | RSUs Vesting | |||
2018 | 121,250 | |||
2019 | 309,250 | |||
2020 | 176,250 | |||
2021 | 106,250 | |||
713,000 |
The outstanding RSUs have a value of $6.1$5.1 million based on the November 3, 2017,June 29, 2018, closing stock price of $5.02.$7.14.
At June 30, 2018, we had 1,402,325 RSUs available for future issuance.
Effective January 1, 2018, we adopted ASU 2014-09. The adoption of this standard did not impact the timing of revenue recognition on our consolidated balance sheets or condensed consolidated statements of comprehensive income.
Revenue from Contracts with Customers
We account for a contract with a customer when the parties have approved the contract and are committed to performing their respective obligations, the rights of each party are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. We recognize revenue when we satisfy a performance obligation by transferring control of a good or service to a customer.
Our revenue is derived from sales to customers of coal produced at our facilities. Our customers purchase coal directly from our mine sites and our Princeton Loop, where the sale occurs and where title, risk of loss, and control typically pass to the customer at that point. Our customers arrange for and bear the costs of transporting their coal from our mines to their plants or other specified discharge points. Our customers are typically domestic utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts, or include a predetermined escalation in price for each year. Price re-opener and index provisions may allow either party to commence a renegotiation of the contract price at a pre-determined time. Price re-opener provisions may automatically set a new price based on prevailing market price or, in some instances, require us to negotiate a new price, sometimes within specified ranges of prices. The terms of our coal sales agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these contracts vary by customer.
Coal sales agreements will typically contain coal quality specifications. With coal quality specifications in place, the raw coal sold by us to the customer at the delivery point must be substantially free of magnetic material and other foreign material impurities and crushed to a maximum size as set forth in the respective coal sales agreement. Price adjustments are made and billed in the month the coal sale was recognized based on quality standards that are specified in the coal sales agreement, such as Btu factor, moisture, ash, and sulfur content and can result in either increases or decreases in the value of the coal shipped.
12 |
Disaggregation of Revenue
Revenue is disaggregated by primary geographic markets, as we believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. 72% and 70% of our coal revenue for the six months and three months ending June 30, 2018, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Kentucky, North Carolina, and Florida. 67% and 64% of our coal revenue for the six months and three months ending June 30, 2017, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Kentucky and Florida.
Performance Obligations
A performance obligation is a promise in a contract with a customer to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. In most of our contracts, the customer contracts with us to provide coal that meets certain quality criteria. We consider each ton of coal a separate performance obligation and allocate the transaction price based on the base price per the contract, increased or decreased for quality adjustments.
We recognize revenue at a point in time as the customer does not have control over the asset at any point during the fulfillment of the contract. For substantially all of our customers, this is supported by the fact that title and risk of loss transfer to the customer upon loading of the railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the significant risks and rewards in ownership of the coal.
We have remaining performance obligations relating to fixed priced contracts of approximately $542 million, which represent the average fixed prices on our committed contracts as of June 30, 2018. We expect to recognize approximately 68% of this revenue through 2019, with the remainder recognized thereafter. We have remaining performance obligations relating to index priced contracts or contracts with price reopeners of approximately $330 million, which represents our estimate of the expected re-opener/indexed price on committed contracts as of June 30, 2018. We expect to recognize all of this income beginning in 2020.
The tons used to determine the remaining performance obligations are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce tonnage if such option exists in the customer contract.
Contract Balances
Under ASC 606, the timing of when a performance obligation is satisfied can affect the presentation of accounts receivable, contract assets, and contract liabilities. The main distinction between accounts receivable and contract assets is whether consideration is conditional on something other than the passage of time. A receivable is an entity’s right to consideration that is unconditional. Under the typical payment terms of our contracts with customers, the customer pays us a base price for the coal, increased or decreased for any quality adjustments. Amounts billed and due are recorded as trade accounts receivable and included in accounts receivable in our consolidated balance sheets. We do not currently have any contracts in place where we would transfer coal in advance of knowing the final price of the coal sold, and thus do not have any contract assets recorded. Contract liabilities arise when consideration is received in advance of performance. This deferred revenue is included in accounts payable and accrued liabilities in our consolidated balance sheets when consideration is received, and revenue is not recognized until the performance obligation is satisfied. We are rarely paid in advance of performance and do not currently have any deferred revenue recorded in our consolidated balance sheets.
13 |
(13) | HOURGLASS SANDS |
In October 2017,February 2018, we invested $4 million in Hourglass Sands, LLC (Hourglass), a permitted frac sand mining company in the State of Colorado. We own 100% of the Class A units and are consolidating the activity of Hourglass in these statements. Class A units are entitled to 100% of profit until our capital investment and interest is returned, then 90% of profits are allocated to us with remainder to Class B units. We do not own any Class B units.
In February 2018, a Yorktown company associated with one of our directors also invested $4 million in Hourglass in return for a royalty interest in Hourglass. This investment coupled with our $4 million investment brings the initial capitalization of Hourglass to $8 million. We report the royalty interest as a redeemable noncontrolling interest on the consolidated balance sheets. A representative of the Yorktown company holds a seat on the board of managers, and, with a change of control, the Yorktown company may be entitled to receive a portion of the net proceeds realized, as prescribed in the Hourglass operating agreement.
As of June 30, 2018, we have expensed costs totaling $557,000 which are included in operating costs and expenses, exploration costs, and SG&A in our consolidated statements of comprehensive income (loss).
(14) | SUBSEQUENT EVENTS |
On July 16, 2018, we declared a dividend of $.04 per share to shareholders of record as of OctoberJuly 31, 2017.2018. The dividend is payable on NovemberAugust 17, 2017.2018.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Hallador Energy Company
Denver, Colorado
Results of Review of Interim Condensed Financial Statements
We have reviewed the accompanyingcondensed consolidated balance sheet of Hallador Energy Company (the "Company") and subsidiaries (the “Company”) as of SeptemberJune 30, 2017,2018, and the related condensed consolidated statements of comprehensive income for the ninethree-month and three-monthsix-month periods ended SeptemberJune 30, 2018 and 2017, and 2016, the condensed consolidated statements of cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 2018 and 2017, and 2016, and the condensed consolidated statement of stockholders’ equity for the nine-monthsix-month period ended SeptemberJune 30, 2017. These2018, and the related notes (collectively referred to as the "interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the interim financial statements arereferred to above for them to be in conformity with accounting principles generally accepted in the responsibilityUnited States of the Company’s management.America.
We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). ("PCAOB"), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2017, and the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for the year then ended (not presented herein); and in our report dated March 12, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial information referred to above for it to be in conformity with accounting principles generally accepted in the United States of America.
/s/ EKS&H LLLP | |
Denver, Colorado | |
August 6, 2018 |
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2016, and the related consolidated statements of comprehensive income, cash flows, and stockholders’ equity for the year then ended (not presented herein); and in our report dated March 10, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
/s/ EKS&H LLLP
November 6, 2017
Denver, Colorado
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion updates the MD&A section of our 20162017 Form 10-K and should be read in conjunction therewith.
Our unaudited condensed consolidated financial statements should also be read in conjunction with this discussion. The following analysis includes discussion of metrics on a per ton basis derived from the unaudited condensed consolidated financial statements, which are considered non-GAAP measurements.
Our Coal ContractsOUR COAL CONTRACTS
Our significant customers include Duke Energy Corporation (NYSE: DUK), Hoosier Energy, an electric cooperative, Indianapolis Power & Light Company (IPL), a wholly-owned subsidiary of The AES Corporation (NYSE: AES), Vectren Corporation (NYSE: VVC), and Orlando Utility Commission (OUC). We are excited to have contracted and be shipping coal to two new customers. One of the new customers is a result of the addition of our new Princeton Rail Loop on the Norfolk and Southern Rail Road, the other is to a plant located in North Carolina. We attribute new North Carolina coal sales to the trend of ILB coal replacing coal from higher cost eastern basins.
We have 20.6 million tons contracted for the next five years (2018 to 2022), which represents 59% of our forecasted sales for those same years. As a result of additional sales completed in the first quarter, we are raising our sales guidance from 6.8 to 7.0 million tons for 2018. The majority of our 2018 sales will be delivered in the second six months of the year. Additionally, we anticipate our sales price to be higher in the second six months of 2018 as lower price contracts were delivered during the first six months. The table below (in thousands, except prices) showsreflects our contractedprojected tons.
Targeted | *Contracted | Estimated | ||||||||||||||
tons | tons | price | ||||||||||||||
Year | (millions) | (millions) | % Committed | per ton | ||||||||||||
2018 | 7.0 | 7.0 | 100 | % | $ | 40 | ||||||||||
2019 | 7.0 | 5.2 | 74 | % | $ | 41 | ||||||||||
*Some of our contracts contain language that allowallows our customers to increase or decrease tonnages throughout the year. The table represents the minimum and maximum tonnages we could deliver under existing contracts. In some cases, our customers are required to purchase their additional tonnage needs from us. We fully anticipate making additional sales.
Estimated | ||||||||||||||||||||||||||||
Minimum Tons to Be Sold | Maximum Tons to Be Sold | Prices @ | ||||||||||||||||||||||||||
Priced | Unpriced | Total | Priced | Unpriced | Total | Minimum | ||||||||||||||||||||||
Tons | Tons | Tons | Tons | Tons | Tons | Tons | ||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||
(last 3 months) | 1,533 | 1,533 | 1,590 | 1,590 | $ | 40.96 | ||||||||||||||||||||||
2018 | 4,061 | - | 4,061 | 4,788 | - | 4,788 | 40.71 | |||||||||||||||||||||
2019 | 2,836 | 810 | 3,646 | 3,903 | 1,210 | 5,113 | 42.70 | |||||||||||||||||||||
2020 | 1,810 | 1,199 | 3,009 | 2,210 | 1,791 | 4,001 | 45.57 | |||||||||||||||||||||
2021 | - | 2,009 | 2,009 | - | 3,001 | 3,001 | ||||||||||||||||||||||
2022 | - | 2,009 | 2,009 | - | 3,001 | 3,001 | ||||||||||||||||||||||
2023 | - | 1,620 | 1,620 | - | 2,420 | 2,420 | ||||||||||||||||||||||
2024 | - | 810 | 810 | - | 1,210 | 1,210 | ||||||||||||||||||||||
10,240 | 8,457 | 18,697 | 12,491 | 12,633 | 25,124 |
Unpriced tons are firm commitments, meaning we are required to ship, and our customer is required to receive said tons through the duration of the contract. The contracts provide mechanisms for establishing a market-based price. As set forth in the table above, we have 8-13 million tons committed but unpriced through 2024. We currently have a minimum of 6.4 million tons contracted for 2017, of which 4.9 million were sold during the first nine months of 2017; we project total contracted tons for 2017 to range from 6.4 to 6.5 million. We expect 2018 sales volumes to be similar and potentially greater than 2017 sales volumes due to the addition of the Princeton Rail Loop which we anticipate being operational in Spring, 2018.
We expect to continue selling a significant portion of our coal under supply agreements with terms of one year or longer. Typically, customers enter into coal supply agreements to secure reliable sources of coal at predictable prices while we seek stable sources of revenue to support the investments required to open, expand and maintain, or improve productivity at the mines needed to supply these contracts. The terms of coal supply agreements result from competitive bidding and extensive negotiations with customers.
Asset Impairment ReviewASSET IMPAIRMENT REVIEW
See Note 72 to our unaudited condensed consolidated financial statements.
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
As set forth in our Statementunaudited condensed consolidated statements of Cash Flows,cash flows, cash provided by operations was $47$15.9 million inand $24.0 million for the six months ended June 30, 2018 and 2017, and $44 million in 2016.respectively. Our CapExcapex budget for the next threesix months is $10$16 million, of which $6.5$6 million is for maintenance CapEx.capex. Cash provided by operations for the next threesix months shouldis expected to fund our maintenance capital expenditures, debt service, and dividend.
As referencedOur coal inventory increased from $12.8 million at December 31, 2017, to $34.4 million at June 30, 2018. We increased inventory to prepare for substantially higher sales shipments in the table below, we have acquired landsecond six months of 2018, to build a base of inventory at our new Princeton Loop and begun constructionto prepare for the reopening of a rail loop approximately 46 miles souththe Carlisle Mine. We expect our coal inventories to drop by the end of our Oaktown mining complex. The rail loop is expectedthe year, but to become operational in Spring, 2018remain higher than December 31, 2017 balance due to new stockpiles at the Princeton Loop and will provide us direct access to the Norfolk Southern railroad which will increase our customer reach in Indiana and the Southeast.Carlisle.
16 |
Other than our surety bonds for reclamation, we have no material off-balance sheet arrangements. Our surety bonds covering reclamation total $25 million inIn the event we are not able to perform.perform reclamation, which is presented as asset retirement obligations (ARO) in our accompanying unaudited consolidated balance sheets, we have surety bonds totaling $26 million to pay for ARO.
Capital Expenditures (CapEx)CAPITAL EXPENDITURES (capex)
For the first ninesix months of 2018, capex for 2017 was $24.6$19.7 million including $3.3 million of non-cash acquisitions, allocated as follows (in millions):
Oaktown – investment | $ | 8.5 | ||
Oaktown – maintenance CapEx | 11.6 | |||
Princeton Rail Loop | 3.7 | |||
Other projects | 0.8 | |||
Capex per the Cash Flow Statement | $ | 24.6 |
Oaktown – investment | $ | 1.7 | ||
Oaktown – maintenance capex | 10.5 | |||
Princeton Rail Loop | 5.4 | |||
Hourglass - investment | 1.5 | |||
Other | 0.6 | |||
Capex per the Unaudited Condensed Consolidated Statements of Cash Flows | $ | 19.7 |
Results of OperationsRESULTS OF OPERATIONS
Oaktown’s operating costs were $26.60/ton and $29.90/ton for the nine months and three months ended September 30, 2017, respectively. We see Oaktown’s costs ranging from $27 to $29 for the remainder of 2017. We expect SG&A for the remainder of 2017 to be $2.9 million and operating costs associated with Prosperity and Carlisle for the remainder of 2017 to be $1.5 million. Prosperity and Carlisle operating costs were $1.7 million during the three months ended September 30, 2017. We expect those costs to be $6 million in 2018.
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.
4th 2016 | 1st 2017 | 2nd 2017 | 3rd 2017 | T4Qs | ||||||||||||||||||||||||||||||||||||
Coal Mines | 3rd 2017 | 4th 2017 | 1st 2018 | 2nd 2018 | T4Qs | |||||||||||||||||||||||||||||||||||
Tons produced | 1,640 | 1,917 | 1,647 | 1,487 | 6,691 | 1,487 | 1,561 | 1,975 | 1,983 | 7,006 | ||||||||||||||||||||||||||||||
Tons sold | 1,739 | 1,555 | 1,548 | 1,786 | 6,628 | 1,786 | 1,685 | 1,707 | 1,477 | 6,655 | ||||||||||||||||||||||||||||||
Coal sales | $ | 71,495 | $ | 62,555 | $ | 62,829 | $ | 73,896 | $ | 270,775 | $ | 73,896 | $ | 68,922 | $ | 66,787 | $ | 56,922 | $ | 266,527 | ||||||||||||||||||||
Average price/ton | $ | 41.11 | $ | 40.23 | $ | 40.59 | $ | 41.38 | $ | 40.85 | $ | 41.38 | $ | 40.90 | $ | 39.13 | $ | 38.54 | $ | 40.05 | ||||||||||||||||||||
Wash plant recovery in % | 67 | % | 67 | % | 61 | % | 69 | % | 70 | % | 68 | % | 69 | % | 73 | % | ||||||||||||||||||||||||
Operating costs | $ | 50,663 | $ | 39,692 | $ | 44,079 | $ | 54,354 | $ | 188,788 | $ | 54,354 | $ | 52,025 | $ | 46,640 | $ | 38,809 | $ | 191,828 | ||||||||||||||||||||
Average cost/ton | $ | 29.13 | $ | 25.53 | $ | 28.47 | $ | 30.43 | $ | 28.48 | $ | 30.43 | $ | 30.88 | $ | 27.32 | $ | 26.28 | $ | 28.82 | ||||||||||||||||||||
Margin | $ | 20,832 | $ | 22,863 | $ | 18,750 | $ | 19,542 | $ | 81,987 | $ | 19,542 | $ | 16,897 | $ | 20,147 | $ | 18,113 | $ | 74,699 | ||||||||||||||||||||
Margin/ton | $ | 11.98 | $ | 14.70 | $ | 12.11 | $ | 10.94 | $ | 12.37 | $ | 10.94 | $ | 10.03 | $ | 11.80 | $ | 12.26 | $ | 11.22 | ||||||||||||||||||||
Capex | $ | 8,022 | $ | 3,093 | $ | 10,260 | $ | 11,304 | $ | 32,679 | $ | 9,473 | $ | 7,294 | $ | 10,428 | $ | 7,784 | $ | 34,979 | ||||||||||||||||||||
Maintenance capex | $ | 5,301 | $ | 836 | $ | 6,581 | $ | 4,507 | $ | 17,225 | $ | 2,961 | $ | 2,520 | $ | 5,772 | $ | 5,058 | $ | 16,311 | ||||||||||||||||||||
Maintenance capex/ton | $ | 3.05 | $ | .54 | $ | 4.25 | $ | 2.52 | $ | 2.60 | $ | 1.66 | $ | 1.50 | $ | 3.38 | $ | 3.42 | $ | 2.45 |
4th 2015 | 1st 2016 | 2nd 2016 | 3rd 2016 | T4Qs | ||||||||||||||||||||||||||||||||||||
Coal Mines | 3rd 2016 | 4th 2016 | 1st 2017 | 2nd 2017 | T4Qs | |||||||||||||||||||||||||||||||||||
Tons produced | 1,608 | 1,524 | 1,448 | 1,501 | 6,081 | 1,501 | 1,640 | 1,917 | 1,647 | 6,705 | ||||||||||||||||||||||||||||||
Tons sold | 1,432 | 1,629 | 1,464 | 1,485 | 6,010 | 1,485 | 1,739 | 1,555 | 1,548 | 6,327 | ||||||||||||||||||||||||||||||
Coal sales | $ | 65,762 | $ | 75,795 | $ | 66,274 | $ | 65,360 | $ | 273,191 | $ | 65,360 | $ | 71,495 | $ | 62,555 | $ | 62,829 | $ | 262,239 | ||||||||||||||||||||
Average price/ton | $ | 45.92 | $ | 46.53 | $ | 45.27 | $ | 44.01 | $ | 45.46 | $ | 44.01 | $ | 41.11 | $ | 40.23 | $ | 40.59 | $ | 41.45 | ||||||||||||||||||||
Wash plant recovery in % | 64 | % | 65 | % | 63 | % | 68 | % | 68 | % | 67 | % | 71 | % | 69 | % | ||||||||||||||||||||||||
Operating costs | $ | 46,470 | $ | 49,777 | $ | 45,397 | $ | 46,940 | $ | 188,584 | $ | 46,940 | $ | 50,663 | $ | 39,692 | $ | 44,079 | $ | 181,374 | ||||||||||||||||||||
Average cost/ton | $ | 32.45 | $ | 30.56 | $ | 31.01 | $ | 31.61 | $ | 31.38 | $ | 31.61 | $ | 29.13 | $ | 25.53 | $ | 28.47 | $ | 28.67 | ||||||||||||||||||||
Margin | $ | 19,292 | $ | 26,018 | $ | 20,877 | $ | 18,420 | $ | 84,607 | $ | 18,420 | $ | 20,832 | $ | 22,863 | $ | 18,750 | $ | 80,865 | ||||||||||||||||||||
Margin/ton | $ | 13.47 | $ | 15.97 | $ | 14.26 | $ | 12.40 | $ | 14.08 | $ | 12.40 | $ | 11.98 | $ | 14.70 | $ | 12.11 | $ | 12.78 | ||||||||||||||||||||
Capex | $ | 4,058 | $ | 6,053 | $ | 1,822 | $ | 3,935 | $ | 15,868 | $ | 3,935 | $ | 8,022 | $ | 5,144 | $ | 6,711 | $ | 23,812 | ||||||||||||||||||||
Maintenance capex | $ | 1,047 | $ | 2,984 | $ | 904 | $ | 1,709 | $ | 6,644 | $ | 1,709 | $ | 5,301 | $ | 2,887 | $ | 3,032 | $ | 12,929 | ||||||||||||||||||||
Maintenance capex/ton | $ | 0.73 | $ | 1.83 | $ | .62 | $ | 1.15 | $ | 1.11 | $ | 1.15 | $ | 3.05 | $ | 1.86 | $ | 1.96 | $ | 2.04 |
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2018 v. 2017 v. 2016 (first ninesix months)
For 2017,2018, we sold 4,889,0003,184,000 tons at an average price of $40.76/$38.85/ton. For 2016,2017 we sold 4,578,0003,103,000 tons at an average price of $45.31/$40.41/ton. The decrease in average price per ton was expected and is the result of our changing contract mix caused by the expiration of contracts and acquisition of othernew contracts. In the first six months of 2018, we shipped a greater proportion of our lower priced contracts, thus we anticipate a higher sales price of ~$40.50 in the last six months of the year. In addition to the higher sales price, we expect to ship 3.8 million tons in the last six months of 2018, which will result in a strong finish to the year.
Operating costs for all of our coal mines averaged $28.25/$26.84/ton ($26.60/and $27.00/ton atfor the six months ended June 30, 2018 and 2017, respectively. Our mines have consistently averaged less than $29.00/ton for the prior four and eight quarter periods. Thus, we are proud to see our operating costs ~$2/ton lower than our historical averages. Oaktown mines)operating costs were $25.01/ton and $24.73/ton for the six months ended June 30, 2018 and 2017, respectively. These costs are also well below our prior guidance of $28-$30/ton for Oaktown. For the remainder of 2018, we expect Oaktown’s operating cost to be $28-$30/ton.
We expect operating costs associated with the idled Prosperity mine to be $0.7 million for the remainder of 2018. Prosperity and Carlisle operating costs were $3.5 million during the six months ended June 30, 2018. As a result of increasing demand and inquiries we are experiencing for Carlisle coal qualities, we re-opened the Carlisle mine in 2017 and $31.04/ton ($28.55 at Oaktown) in 2016. This ~$2-3 reduction in cost was due to two primary factors. First, we made a conscious effortJuly 2018. We expect to produce more325,000 to 350,000 tons at the Carlisle mine during the last six months of 2018.
DD&A increased approximately $3.1 million in the first six weeksmonths of the first quarter,2018 when compared to 2017. A portion of our assets are depreciated based on raw production which increased in anticipation of stronger market demand. Secondly, we added new haulage equipment to some of2018. We also incurred significant asset additions in 2017 such as the units at the Oaktown mines; those units are seeing production increases of ~30%. Both of these factors combined led to a 13% increase in production over our 2016 average production. In Q4, we anticipate the arrival of additional haulage equipment and the implementation of a new elevator at Oaktown 1. Both investments will contribute to maintaining our low-cost structure.1 which did not go into service until the fourth quarter of 2017.
SG&A expenses are $4.0decreased approximately $2.9 million higher in the first six months of 2018 when compared to 2017. In May 2017, than in 2016 due primarily to a stock bonus oftotaling $3.8 million was awarded to three executives as reportedcompany executives. No such award occurred in 2018. In March 2018, accelerated vesting of restricted stock units totaling $1.5 million occurred due to the passing of our 8-K filed May 17, 2017.former Chairman, Victor Stabio. We expect SG&A for the remainder of 2018 to be $5.0 million.
Our Sunrise Coal employees totaled 714790 at SeptemberJune 30, 2017,2018, compared to 737717 at SeptemberJune 30, 2016.2017. We increased our head count in preparation for increased shipments in the second six months of the year and the reopening of the Carlisle Mine.
2018 v. 2017 v. 2016 (third(second quarter)
For 2017,2018, we sold 1,786,0001,477,000 tons at an average price of $41.38/$38.54/ton. For 2016,2017 we sold 1,485,0001,548,000 tons at an average price of $44.01/$40.59/ton. The decrease in average price per ton was expected and is the result of our changing contract mix caused by the expiration of contracts and acquisition of othernew contracts. The decrease in tons sold was due in part to transportation issues with the railroad. We expect to make up the tons over the remainder of 2018.
Operating costs for all coal mines averaged $30.43/$26.28/ton ($29.90/23.95/ton at our operating Oaktown mines) in 20172018 and $31.61/$28.47/ton ($29.5726.30/ton at Oaktown)our operating Oaktown mines) in 2016.2017. As noted above, our operating costs for the quarter are below our guidance of $28-$30/ton as we continue to experience outstanding production. Prosperity and Carlisle operating costs were $1.9 million during the three months ended June 30, 2018.
Earnings (loss) per ShareDD&A increased approximately $2.0 million in the second quarter of 2018 when compared to the second quarter of 2017. A portion of our assets are depreciated based on raw production which has been increasing in 2018. We also incurred significant asset additions in 2017 such as the new elevator at Oaktown 1 which did not go into service until the fourth quarter of 2017.
4th 2016 | 1st 2017 | 2nd 2017 | 3rd 2017 | |||||||||||||
Basic and diluted | $ | (.13 | ) | $ | .25 | $ | .01 | $ | .13 |
SG&A expenses decreased approximately $4.1 million in the second quarter of 2018 when compared to the second quarter of 2017 due to a stock bonus totaling $3.8 million awarded to company executives in May 2017.
4th 2015 | 1st 2016 | 2nd 2016 | 3rd 2016 | |||||||||||||
Basic and diluted | $ | .02 | $ | .21 | $ | .19 | $ | .14 |
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CURRENT PROJECTS
Income TaxesHourglass Sands
In February 2018, we invested $4 million in Hourglass Sands, LLC, a permitted frac sand mining company in the State of Colorado. In April 2018, we closed on the purchase of a commercial sand dryer and contracted with a third party to process our sand in Colorado Springs, Colorado.
We began producing raw sand in Colorado in June 2018. We anticipate shipping sand to customers beginning in the fourth quarter of 2018. We do not anticipate Hourglass being profitable in 2018 but are excited about its growth potential in future years. Currently, we believe we control the only permitted frac sand mine in the State of Colorado.
Princeton Rail Loop
The Princeton loop, which provides access to new markets and customers, was completed and our first coal trains were delivered to customers in May 2018. The facility is a truck to rail transload facility located six miles east of Princeton, IN and is capable of loading 135 car unit trains in less than four hours. The new facility primarily serves utility coal plants served by Norfolk Southern Railway Company. We expect to ship 625,000 tons during the last six months of 2018 from this facility.
EARNINGS (LOSS) PER SHARE
3rd 2017 | 4th 2017 | 1st 2018 | 2nd 2018 | |||||||||||||
Basic and diluted | $ | .13 | $ | .69 | $ | .07 | $ | (.00 | ) |
3rd 2016 | 4th 2016 | 1st 2017 | 2nd 2017 | |||||||||||||
Basic and diluted | $ | .14 | $ | (.13 | ) | $ | .25 | $ | .01 |
INCOME TAXES
Our effective tax rate (ETR) was estimated at 8%2% and 15%11% for the ninesix months ended SeptemberJune 30, 2017,2018 and 2016,2017, respectively. Assuming no changes in our expected results of operations, we expect our ETR for the remainder of 20172018 to be about the same as the first ninesix months. Our ETR differs from the statutory rate due primarily to statutory depletion in excess of tax basis, which is a permanent difference.
MSHA ReimbursementsREIMBURSEMENTS
Some of our legacy coal contracts allow us to pass on to our customers certain costs incurred resulting from changes in costs to comply with mandates issued by MSHA or other government agencies. We do not recognize any revenue until our customers have notified us that they acceptAfter applying the charges.
We submitted our incurred costs for 2012 inprovisions of ASU 2014-09, as of June 2015 and received $1.75 million from one of our customers in June 2016. We received an additional payment of $1.25 million in Q2 2017 for 2012 costs. As stated above30, 2018, we do not recordconsider unreimbursed costs from our customers related to these compliance matters to be material and have constrained such reimbursements as revenue untilamounts and will recognize them when they have been agreed to by our customers.can be estimated with certainty.
Incurred costs for 2013 will be submitted in Q4 2017. 2013 costs are expected to be between $2 million and $2.7 million. Such reimbursable costs for 2014 through 2016 are not expected to be material.
Restricted Stock Grants
On May 16, 2017, the Board authorized the grant and immediate vesting of 495,000 RSUs to our executives as reported in our 8-K filed May 17, 2017. On May 16, 2017, the grant and vesting date of those RSUs, the shares were valued at $7.74 per share based upon the closing price on that date.
Under our RSU plan, the participants are allowed to relinquish shares to pay for their required statutory income taxes. Of the 495,000 RSUs granted, 230,057 shares were relinquished back to the Company as consideration for the income taxes due.
As part of our executive Four-Year Compensation Plan, on June 6, 2017, the Board authorized the grant of 645,000 RSUs to our executives as reported in our 8-K filed June 9, 2017. The shares were valued at $5.3 million based upon $8.23 per share, the closing stock price on the date of grant. These RSUs vest over four years, with the first vesting date on December 16, 2018.
For the nine months ended September 30, 2017 and 2016, our stock-based compensation was $6.4 million and $1.8 million, respectively. For the three months ended September 30, 2017, and 2016, our stock-based compensation was $1.0 million and $.6 million, respectively.
Bulldog MineRESTRICTED STOCK GRANTS
See “Item 1. Financial Statements - Note 7. Asset Impairment Review”.11. Restricted Stock Units (RSUs)” for a discussion of RSUs.
Princeton Rail Loop
As noted in the Liquidity and Capital Resources section of Management’s Discussion and Analysis, construction has begun on the Princeton Loop, a truck to rail coal loading facility that will be located 6 miles west of Princeton, Indiana, on Highway 64. The facility will include the ability to unload trucks, blend coals, load 135 car unit trains in four hours and store over 4 million tons of coal. The new facility will primarily serve utility coal plants served by Norfolk Southern Railway Company once the rail facility is completed in the spring of 2018.
Critical Accounting EstimatesCRITICAL ACCOUNTING ESTIMATES
We believe that the estimates of our coal reserves, our business acquisitions, our interest rate swaps, our deferred tax accounts, our business acquisitions, and the estimates used in our impairment analysis are our only critical accounting estimates.
The reserve estimates are used in the DD&A calculation and in our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our DD&A expense and impairment test may be affected.
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We account for business combinations using the purchase method of accounting. The purchase method requires us to determine the fair value of all acquired assets, including identifiable intangible assets and all assumed liabilities. The total cost of acquisitions is allocated to the underlying identifiable net assets, based on their respective estimated fair values. Determining whether an acquisition is considered to be a business or an asset acquisition, and if deemed to meet the definition of a business, the fair value of assets acquired and liabilities assumed requires management's judgment and the utilization of independent valuation experts, and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates and asset lives, among other items.
The fair value of our interest rate swaps is determined using a discounted future cash flow model based on the key assumption of anticipated future interest rates.
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 willwould be sustained on audit and do not anticipate any adjustments that will result in a material change to our consolidated financial position.
New Accounting PronouncementsYorktown Distributions
As disclosed in our 8-K filed on May 15, 2018, Yorktown Energy Partners VII, L.P. distributed 670,501 shares of Hallador common stock to its general and limited partners. Currently, the Yorktown Energy Partners VII, LP and its affiliated partners hold 4.79 million shares of our stock representing 15.9% of total shares outstanding. We were advised that the distributed shares could be sold immediately.
We have been informed by Yorktown that they have not made any determination as to the disposition of their remaining Hallador stock. While we do not know Yorktown’s ultimate strategy to realize the value of their Hallador investment for their partners, we expect that over time such distributions will increase our liquidity and float.
NEW ACCOUNTING PRONOUNCEMENTS
See “Item 1. Financial Statements - Note 1. General Business” for a discussion of new accounting standards.
Yorktown Distributions
Yorktown Energy Partners and its affiliated partnerships (Yorktown) own approximately 18.3% of our total shares outstanding as of September 30, 2017. Yorktown has made 14 distributions to their numerous partners since May 2011. Yorktown last distributed shares in November 2016.
If we are advised of another Yorktown distribution, we will timely report such on a Form 8-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.RISK
No material change from the disclosure in our 20162017 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure ControlsDISCLOSURE 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 and CFO 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 and CFO of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective for the purposes discussed above.
There have been no changes to our internal control over financial reporting during the quarter ended SeptemberJune 30, 2017,2018, that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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ITEM 4. MINE SAFETY DISCLOSURES
Safety is a core value at Hallador Energy and our Subsidiaries.subsidiaries. As such we have dedicated a great deal of time, energy, and resources to creating a culture of safety. Thus, we are very proud of the mine rescue team at Sunrise Coal who’swhose current list of achievements include reigning National Champions of the Nationwide Mine Rescue Skills Championship and Governor’s Award recipient (1stplace) at the 2017 Indiana Mine Rescue Association Contest.
See Exhibit 95 to this Form 10-Q for a listing of our mine safety violations.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HALLADOR ENERGY COMPANY | |
Date: | /s/ Lawrence D. Martin |
Lawrence D. Martin, CFO and CAO |