Via EDGAR
Correspondence Submission (non-public)
January 18, 2019
Mr. James Giugliano
Division of Corporation Finance
Office of Beverages, Apparel and Mining
United States Securities and Exchange Commission
Re: Hallador Energy Company
Form 10-K for Fiscal Year Ended December 31, 2017 Filed March 13, 2018
Form 8-K Filed November 7, 2018
File: No. 001-34743
Re:Comment letter dated December 20, 2018 regarding (1) segment reporting (2) inventories, and (3) non-GAAP measures
Dear Mr. Giugliano:
With regard to your item 1. Notes to Consolidated Financial Statements, (1) Summary of Significant Accounting Policies, page 48 – below is our response as well as a draft disclosure we will make in future filings.
We have identified Lawrence D. Martin as our chief operating decision maker (“CODM”). Mr. Martin is President of Sunrise Coal, LLC, the largest subsidiary of Hallador Energy Company, which makes up 99% of Hallador revenues and 94% of total assets. The majority of Mr. Martin’s time and compensation is related to the management of Sunrise Coal, LLC. Within Sunrise Coal, two primary operating segments exist, the Oaktown and Carlisle underground coal mines. Each segment engages in business activities from which it may earn revenues and incur expenses, its operating results are reviewed monthly by the CODM to make decisions about resources to be allocated and to assess performance, and discrete financial information is available. For reporting purposes, we aggregate the results of operations based on the aggregation criteria in FASB ASC 280-10-50-11. Each of the mines operates in the same seam, mines the same coal, utilizes the same mining process, customer contracts are generally interchangeable between the mines, distributes the coal via rail or truck, and are expected to have similar future economic characteristics. The Oaktown mine consists of two slopes which share a surface area, wash plant, and loading facility. Carlisle reserves are also contiguous to Oaktown reserves.
January 18, 2019
Page | 2
Segment Information (draft disclosure)
The Company’s significant operating segments include the Oaktown and Carlisle underground mines located in southwestern Indiana. The Company’s chief operating decision maker (“CODM”) reviews the operating results, assesses performance and makes decisions about allocation of resources to these segments at the mine level, however, we aggregate the results of operations of the mines for reporting purposes since the nature of the product, production process, customer type, product distribution, and long-term economic characteristics at each location are similar.
With regard to your item 2. Inventories, page 48 – below is a draft disclosure we will make in future filings.
Inventory and parts and supplies are valued at the lower of average cost or net realizable value. Inventory costs include labor, supplies, operating overhead, and other related costs incurred at or on behalf of the mining location, including depreciation, depletion, and amortization of equipment, buildings, mineral rights, and mine development costs.
With regard to your item 3. Form 8-K Filed November 7, 2018, Exhibit 99.1 regarding non-GAAP measures, below are reconciliations based on the nine months and three months ended September 30, 2018 and 2017. Similar reconciliations will be included in future filings.
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| Nine Months Ended |
| Three Months Ended | ||||
| September 30, |
| September 30, | ||||
| 2018 |
| 2017 |
| 2018 |
| 2017 |
Net income | $5,023 |
| $11,719 |
| $2,914 |
| $3,916 |
Income tax expense (benefit) | (546) |
| 993 |
| (589) |
| 10 |
Loss from Hourglass Sands | 871 |
| - |
| 314 |
| - |
Loss (income) from equity method investments | 198 |
| (427) |
| 42 |
| (169) |
Purchased contract amortization | - |
| 6,877 |
| - |
| 2,435 |
DD&A | 32,759 |
| 28,533 |
| 10,810 |
| 9,729 |
ARO accretion | 866 |
| 640 |
| 293 |
| 219 |
Loss (gain) on impairment & disposal of assets | 576 |
| (8) |
| 4 |
| (12) |
Loss (gain) on marketable securities | 60 |
| - |
| (134) |
| - |
Interest Expense | 10,284 |
| 9,662 |
| 3,261 |
| 3,229 |
Other amortization | 2,517 |
| 1,669 |
| 935 |
| 705 |
Stock-based compensation | 2,755 |
| 6,388 |
| 389 |
| 994 |
Adjusted EBITDA | $55,363 |
| $66,046 |
| $18,239 |
| $21,056 |
January 18, 2019
Page | 3
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| Nine Months Ended |
| Three Months Ended | ||||
| September 30, |
| September 30, | ||||
| 2018 |
| 2017 |
| 2018 |
| 2017 |
Net Income | $5,023 |
| $11,719 |
| $2,914 |
| $3,916 |
Equity method investments | 198 |
| (427) |
| 42 |
| (169) |
Purchased contract amortization | - |
| 6,877 |
| - |
| 2,435 |
Deferred income tax expense (benefit) | (120) |
| 2,151 |
| (385) |
| 2,542 |
DD&A | 32,764 |
| 28,533 |
| 10,815 |
| 9,729 |
ARO accretion | 866 |
| 640 |
| 293 |
| 219 |
Deferred financing costs amortization | 1,482 |
| 1,371 |
| 542 |
| 457 |
Change in fair value of interest rate swaps | 136 |
| (476) |
| (708) |
| (36) |
Loss (gain) on impairment & disposal of assets | 576 |
| (3) |
| 4 |
| 56 |
Maintenance capex | (15,469) |
| (8,880) |
| (4,639) |
| (2,961) |
Stock-based compensation less taxes paid | 2,744 |
| 3,926 |
| 389 |
| 824 |
Adjusted Free Cash Flow | $28,200 |
| $45,431 |
| $9,267 |
| $17,012 |
Please contact Todd Davis at (812) 299-2800, extension 228 or via e-mail at tdavis@sunrisecoal.com with any further questions.
Sincerely,
/s/ Lawrence D. Martin
Lawrence D. Martin, CFO