Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

hnrg_Current_Folio_10-Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number:  001‑34743

 

 

 

 

 

 

“COAL KEEPS YOUR LIGHTS ON”

 

Picture 1

 

“COAL KEEPS YOUR LIGHTS ON”

HALLADOR ENERGY COMPANY

(www.halladorenergy.com)

 

 

 

Colorado

(State of incorporation)

    

84-1014610

(IRS Employer

Identification No.)

 

 

 

1183 East Canvasback Drive, Terre Haute, Indiana

(Address of principal executive offices)

 

 

47802

(Zip Code)

1660 Lincoln Street, Suite 2700 Denver, Colorado 80264

(Former address of principal executive offices)

 

 

 

 

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 ☑ No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ 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.

 

Large accelerated filer

    

Accelerated filer ☑

Non-accelerated filer 

 

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 ☑

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Common Shares, $.01 par value

 

HNRG

 

Nasdaq

 

As of August 3, 2019, we had 30,248,953 shares outstanding.

 

 

Table of Contents

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

3

 

 

ITEM 1. FINANCIAL STATEMENTS  

3

 

 

Consolidated Balance Sheets 

3

Consolidated Statements of Comprehensive Income (Loss) 

4

Condensed Consolidated Statements of Cash Flows 

5

Consolidated Statements of Stockholders’ Equity 

6

Notes to Condensed Consolidated Financial Statements 

7

Report of Independent Registered Public Accounting Firm 

16

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

18

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

23

 

 

ITEM 4. CONTROLS AND PROCEDURES 

23

 

 

PART II - OTHER INFORMATION 

23

 

 

ITEM 4. MINE SAFETY DISCLOSURES 

23

 

 

ITEM 6. EXHIBITS  

24

 

 

2

Table of Contents

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Hallador Energy Company

Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2019

 

2018

ASSETS

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

6,406

 

$

15,502

Restricted cash (Note 8)

 

 

4,576

 

 

4,592

Certificates of deposit

 

 

245

 

 

488

Marketable securities

 

 

2,074

 

 

1,842

Accounts receivable

 

 

20,239

 

 

18,428

Prepaid income taxes

 

 

1,188

 

 

2,606

Inventory

 

 

30,923

 

 

20,507

Parts and supplies, net of allowance of $994 and $1,595, respectively

 

 

11,534

 

 

9,645

Prepaid expenses

 

 

4,101

 

 

11,368

Total current assets

 

 

81,286

 

 

84,978

Property, plant and equipment, at cost:

 

 

  

 

 

  

Land and mineral rights

 

 

131,921

 

 

130,897

Buildings and equipment

 

 

384,660

 

 

365,481

Mine development

 

 

144,642

 

 

140,990

Total property, plant and equipment, at cost

 

 

661,223

 

 

637,368

Less – accumulated DD&A

 

 

(247,408)

 

 

(224,730)

Total property, plant and equipment, net

 

 

413,815

 

 

412,638

Investment in Sunrise Energy (Note 4)

 

 

3,500

 

 

3,666

Other assets (Note 5)

 

 

14,294

 

 

14,217

Total assets

 

$

512,895

 

$

515,499

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Current portion of bank debt, net (Note 3)

 

$

29,067

 

$

25,392

Accounts payable and accrued liabilities (Note 6)

 

 

32,094

 

 

26,421

Total current liabilities

 

 

61,161

 

 

51,813

Long-term liabilities:

 

 

  

 

 

  

Bank debt, net (Note 3)

 

 

137,703

 

 

155,655

Deferred income taxes

 

 

26,747

 

 

26,441

Asset retirement obligations (ARO)

 

 

15,013

 

 

14,586

Other

 

 

11,219

 

 

8,130

Total long-term liabilities

 

 

190,682

 

 

204,812

Total liabilities

 

 

251,843

 

 

256,625

Redeemable noncontrolling interests (Note 14)

 

 

4,000

 

 

4,000

Stockholders' equity:

 

 

  

 

 

  

Preferred stock, $.10 par value, 10,000 shares authorized; none issued

 

 

 —

 

 

 —

Common stock, $.01 par value, 100,000 shares authorized; 30,247 and 30,245 outstanding

 

 

302

 

 

302

Additional paid-in capital

 

 

101,747

 

 

100,742

Retained earnings

 

 

155,003

 

 

153,830

Total stockholders’ equity

 

 

257,052

 

 

254,874

Total liabilities, redeemable noncontrolling interests, and stockholders’ equity

 

$

512,895

 

$

515,499

 

See accompanying notes.

3

Table of Contents

Hallador Energy Company

Consolidated Statements of Comprehensive Income (Loss)

 (in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Six Months Ended

    

Three Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2019

    

2018

 

2019

 

2018

 

Revenue:

 

 

  

 

 

  

 

 

  

 

 

  

 

Coal sales

 

$

156,348

 

$

123,709

 

$

71,113

 

$

56,922

 

Other income (Note 7)

 

 

5,275

 

 

398

 

 

1,197

 

 

321

 

Total revenue

 

 

161,623

 

 

124,107

 

 

72,310

 

 

57,243

 

Costs and expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Operating costs and expenses

 

 

116,420

 

 

85,514

 

 

54,001

 

 

  38,874

 

DD&A

 

 

23,834

 

 

21,949

 

 

12,096

 

 

11,120

 

ARO accretion

 

 

623

 

 

573

 

 

314

 

 

291

 

Exploration costs

 

 

488

 

 

532

 

 

208

 

 

315

 

SG&A

 

 

6,459

 

 

6,364

 

 

3,475

 

 

2,474

 

Interest (1)

 

 

9,988

 

 

7,023

 

 

5,369

 

 

4,315

 

Total costs and expenses

 

 

157,812

 

 

121,955

 

 

75,463

 

 

57,389

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

Income (loss) before income taxes

 

 

3,811

 

 

2,152

 

 

(3,153)

 

 

(146)

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

Income tax expense (benefit)

 

 

  

 

 

  

 

 

  

 

 

  

 

Current

 

 

(151)

 

 

(222)

 

 

78

 

 

(19)

 

Deferred

 

 

306

 

 

265

 

 

113

 

 

(104)

 

Total income tax expense (benefit)

 

 

155

 

 

43

 

 

191

 

 

(123)

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

Net income (loss)

 

$

3,656

 

$

2,109

 

$

(3,344)

 

$

(23)

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

Net income (loss) per share (Note 9):

 

 

  

 

 

  

 

 

  

 

 

  

 

Basic and diluted

 

$

0.12

 

$

0.07

 

$

(0.11)

 

$

(0.00)

 

 

 

 

 

 

 

  

 

 

 

 

 

  

 

Weighted average shares outstanding:

 

 

  

 

 

  

 

 

  

 

 

  

 

Basic and diluted

 

 

30,245

 

 

29,968

 

 

30,245

 

 

29,980

 


(1)

Interest expense for the six months ended June 30, 2019 and 2018 includes $2,856 and $844, respectively, for the net change in the estimated fair value of our interest rate swaps.  Such amounts were $1,843 and $1,003 for the three months ended June 30, 2019 and 2018, respectively.

 

See accompanying notes.

4

Table of Contents

Hallador Energy Company

Condensed Consolidated Statements of Cash Flows

 (in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

    

2019

    

2018

Operating activities:

 

  

 

 

  

 

Cash provided by operating activities

 

$

23,711

 

$

15,876

Investing activities:

 

 

  

 

 

  

Capital expenditures

 

 

(18,293)

 

 

(19,683)

Proceeds from sale of royalty interests in oil properties

 

 

 2,949

 

 

 —

Proceeds from sale of equipment

 

 

129

 

 

29

Proceeds from maturities of certificates of deposit

 

 

245

 

 

760

Proceeds from sale of Savoy

 

 

 —

 

 

8,000

Cash used in investing activities

 

 

(14,970)

 

 

(10,894)

Financing activities:

 

 

  

 

 

  

Payments on bank debt

 

 

(27,363)

 

 

(21,767)

Borrowings of bank debt

 

 

12,000

 

 

14,000

Deferred financing costs

 

 

 —

 

 

(608)

Proceeds from noncontrolling interests (Note 14)

 

 

 —

 

 

4,000

Taxes paid on vesting of RSUs

 

 

(7)

 

 

(11)

Dividends

 

 

(2,483)

 

 

(2,471)

 Cash used in financing activities:

 

 

(17,853)

 

 

(6,857)

Decrease in cash, cash equivalents, and restricted cash

 

 

(9,112)

 

 

(1,875)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

20,094

 

 

16,294

Cash, cash equivalents, and restricted cash, end of period

 

$

10,982

 

$

14,419

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash consist of the following:

 

 

  

 

 

  

 

 

 

June 30, 

 

 

 

2019

 

 

2018

Cash and cash equivalents

 

$

6,406

 

$

10,185

Restricted cash

 

 

4,576

 

 

4,234

 

 

$

10,982

 

$

14,419

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

  

 

 

  

Capital expenditures included in accounts payable

 

$

5,544

 

$

(6,474)

Right-to-use asset due to adoption of ASU 2016-02

 

 

 942

 

 

 —

 

See accompanying notes.

5

Table of Contents

Hallador Energy Company

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock Issued

 

Paid-in

 

Retained

 

 

 

Stockholders'

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

AOCI*

 

Equity

 

Balance, March 31, 2019

 

30,245

 

$

302

 

$

101,236

 

$

159,589

 

$

 —

 

$

261,127

 

Stock-based compensation

 

 —

 

 

 —

 

 

518

 

 

 —

 

 

 —

 

 

518

 

Stock issued on vesting of RSUs

 

 4

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Taxes paid on vesting of RSUs

 

(2)

 

 

 —

 

 

(7)

 

 

 —

 

 

 —

 

 

(7)

 

Dividends

 

 —

 

 

 —

 

 

 —

 

 

(1,242)

 

 

 —

 

 

(1,242)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(3,344)

 

 

 —

 

 

(3,344)

 

Balance, June 30, 2019

 

30,247

 

$

302

 

$

101,747

 

$

155,003

 

$

 —

 

$

257,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2019

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock Issued

 

Paid-in

 

Retained

 

 

 

Stockholders'

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

AOCI*

 

Equity

 

Balance, December 31, 2018

 

30,245

 

$

302

 

$

100,742

 

$

153,830

 

$

 —

 

$

254,874

 

Stock-based compensation

 

 —

 

 

 —

 

 

1,012

 

 

 —

 

 

 —

 

 

1,012

 

Stock issued on vesting of RSUs

 

 4

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Taxes paid on vesting of RSUs

 

(2)

 

 

 —

 

 

(7)

 

 

 —

 

 

 —

 

 

(7)

 

Dividends

 

 —

 

 

 —

 

 

 —

 

 

(2,483)

 

 

 —

 

 

(2,483)

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

3,656

 

 

 —

 

 

3,656

 

Balance, June 30, 2019

 

30,247

 

$

302

 

$

101,747

 

$

155,003

 

$

 —

 

$

257,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock Issued

 

Paid-in

 

Retained

 

 

Stockholders'

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

AOCI*

 

Equity

 

Balance, March 31, 2018

 

29,956

 

$

299

 

$

99,841

 

$

152,047

 

$

 —

 

$

252,187

 

Stock-based compensation

 

 —

 

 

 —

 

 

394

 

 

 —

 

 

 —

 

 

394

 

Stock issued on vesting of RSUs

 

221

 

 

 2

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

Taxes paid on vesting of RSUs

 

 —

 

 

 —

 

 

(7)

 

 

 —

 

 

 —

 

 

(7)

 

Dividends

 

 —

 

 

 —

 

 

 —

 

 

(1,235)

 

 

 —

 

 

(1,235)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(23)

 

 

 —

 

 

(23)

 

Balance, June 30, 2018

 

30,177

 

$

301

 

$

100,228

 

$

150,789

 

$

 —

 

$

251,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock Issued

 

Paid-in

 

Retained

 

 

 

Stockholders'

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

AOCI*

 

Equity

 

Balance, December 31, 2017

 

29,955

 

$

299

 

$

97,873

 

$

150,236

 

$

915

 

$

249,323

 

Impact from adoption of new accounting standards

 

 —

 

 

 —

 

 

 —

 

 

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

 

 

*Accumulated Other Comprehensive Income

See accompanying notes.

6

Table of Contents

Hallador Energy Company

Notes to Condensed Consolidated Financial Statements

(unaudited)

(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 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 six months ended June 30, 2019 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2019.

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 2018 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 (hereinafter known as, “we, us, or our”) and its wholly-owned subsidiaries Sunrise Coal, LLC (Sunrise) and Hourglass Sands, LLC (Hourglass), and Sunrise’s wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Sunrise is engaged in the production of steam coal from mines located in western Indiana. Hourglass is in the development stage and is involved in the frac sand industry in the State of Colorado (see Note 14).    

New Accounting Standards Issued and Adopted

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) (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 disclose key information about lease arrangements. The new guidance classifies leases as either finance or operating, 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. The FASB issued clarifications, updates and implementation guidance to ASU 2016‑02, such as ASU 2018‑11, Leases (Topic 842) (ASU 2018‑11) which provides practical expedients for transition to Topic 842. ASU 2018‑11 provides an option to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented and permits lessors to not separate non-lease components from the associated lease component if certain conditions are met.

We adopted ASU 2016‑02 effective January 1, 2019 and elected the option to not restate comparative periods in transition and also elected the practical expedients within the standard which permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs. Additionally, the Company made an election to not separate lease and non-lease components for all leases and will not use hindsight. The adoption of the standard had no impact on the Company’s consolidated income statement or statement of cash flows. Effective January 1, 2019, we recorded a right-to-use asset and corresponding lease liability of $0.5 million.

7

Table of Contents

New Accounting Standards Issued and Not Yet Adopted

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016‑13). ASU 2016‑13 changes the impairment model for most financial assets and certain other instruments to require the use of a new forward-looking "expected loss" model that generally will result in earlier recognition of allowances for losses. The new standard will require disclosure of significantly more information related to these items. ASU 2016‑13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for the fiscal year beginning after December 15, 2018, including interim periods. We are currently evaluating the effect of adopting ASU 2016‑13, but do not anticipate it will have a material impact on our condensed consolidated financial statements.

(2)ASSET IMPAIRMENT REVIEW

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, 2019. Also, in October 2017, the Illinois Department of Natural Resources (ILDNR) notified us that our mine application, along with modifications, was acceptable. In October 2018, we paid the required fee and bond and the permit was issued in April 2019. We have determined that no impairment is necessary. If estimates inherent in the assessment change, it may result in future impairment of the assets.

(3)BANK DEBT

Our bank debt is comprised of term debt and a $120 million revolver, both of which mature May 21, 2022. Our debt is recorded at cost which approximates fair value due to the variable interest rates in the agreement and is collateralized primarily by Hallador’s assets.

Liquidity

Our bank debt at June 30, 2019, was $173 million (term - $118 million, revolver - $55 million). As of June 30, 2019, we had additional borrowing capacity of $65 million and total liquidity of $73 million.

Fees

Unamortized bank fees and other costs incurred in connection with the initial facility and a subsequent amendment totaled $8.8 million as of our most recent amendment in May 2018. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of June 30, 2019 and December 31, 2018 were $6.3 million and $7.4 million, respectively.

8

Table of Contents

Bank debt, less debt issuance costs, is presented below (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

    

2019

    

2018

Current bank debt

 

$

31,237

 

$

27,563

Less unamortized debt issuance cost

 

 

(2,170)

 

 

(2,171)

Net current portion

 

$

29,067

 

$

25,392

 

 

 

 

 

 

 

Long-term bank debt

 

$

141,863

 

$

160,900

Less unamortized debt issuance cost

 

 

(4,160)

 

 

(5,245)

Net long-term portion

 

$

137,703

 

$

155,655

 

 

 

 

 

 

 

Total bank debt

 

$

173,100

 

$

188,463

Less total unamortized debt issuance cost

 

 

(6,330)

 

 

(7,416)

Net bank debt

 

$

166,770

 

$

181,047

 

 

 

 

 

 

 

Covenants

The credit facility includes a Maximum Leverage Ratio (consolidated funded debt / trailing twelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailing twelve months, not to exceed the amounts below:

 

 

 

Fiscal Periods Ending

    

Ratio

June 30, 2019 and September 30, 2019

 

3.50 to 1.00

December 31, 2019 through September 30, 2020

 

3.25 to 1.00

December 31, 2020 through September 30, 2021

 

3.00 to 1.00

December 31, 2021 and each fiscal quarter thereafter

 

2.75 to 1.00

 

As of June 30, 2019, our Leverage Ratio of 2.20 was in compliance with the requirements of the credit agreement.

The credit facility also requires a Minimum Debt Service Coverage Ratio (consolidated adjusted EBITDA / annual debt service) calculated as of the end of each fiscal quarter for the trailing twelve months of 1.25 to 1 through the maturity of the credit facility.

As of June 30, 2019, our Debt Service Coverage Ratio of 2.25 was in compliance with the requirements of the credit agreement.

Rate

The interest rate on the facility ranges from LIBOR plus 3.00% to LIBOR plus 4.50%, depending on our Leverage Ratio. We entered into swap agreements to fix the LIBOR component of the interest rate to achieve an effective fixed rate of ~6% on the original term loan balance and on $53 million of the revolver. At June 30, 2019, we are paying LIBOR of 2.41% plus 3.50% for a total interest rate of 5.91%.

(4)EQUITY METHOD INVESTMENTS

Savoy Energy, L.P.

On March 9, 2018, we sold our entire 30.6% partnership interest to Savoy for $8 million. Our net proceeds were $7.5 million after commissions paid to a related party, which were applied to our bank debt as required under the agreement. The sale resulted in a loss of $538,000 for the three months and six months ended June 30, 2018.

9

Table of Contents

Sunrise Energy, LLC

We 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, 2019, and December 31, 2018, was $3.5 million and $3.7 million, respectively.

(5)OTHER ASSETS (in thousands)

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

    

2019

    

2018

Advanced coal royalties

 

$

10,168

 

$

10,186

Marketable equity securities available for sale, at fair value (restricted)*

 

 

2,147

 

 

1,909

Other

 

 

1,979

 

 

2,122

Total other assets

 

$

14,294

 

$

14,217


* Held by Sunrise Indemnity, Inc., our wholly-owned captive insurance company.

(6)ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands)

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2019

 

2018

Accounts payable

 

$

8,185

 

$

5,844

Goods received not yet invoiced

 

 

8,255

 

 

6,095

Accrued property taxes

 

 

2,836

 

 

2,763

Accrued payroll

 

 

2,735

 

 

1,825

Workers' compensation reserve

 

 

3,785

 

 

3,670

Group health insurance

 

 

2,200

 

 

2,200

Other

 

 

4,098

 

 

4,024

Total accounts payable and accrued liabilities

 

$

32,094

 

$

26,421

 

 

(7)OTHER INCOME (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

Three Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Equity loss - Sunrise Energy

 

 

(166)

 

 

(156)

 

 

(132)

 

 

(73)

Loss on disposal of Savoy

 

 

 —

 

 

(538)

 

 

 —

 

 

 —

MSHA reimbursements**

 

 

300

 

 

653

 

 

150

 

 

 150

Gain on sale of royalty interests in oil properties

 

 

2,949

 

 

 —

 

 

449

 

 

— 

Miscellaneous

 

 

2,192

 

 

439

 

 

730

 

 

244

 

 

$

5,275

 

$

398

 

$

1,197

 

$

321

 

 

(8)SELF-INSURANCE

We self-insure our underground mining equipment. Such equipment is allocated among ten mining units dispersed over 22 miles. The historical cost of such equipment was approximately $266 million and $255 million as of June 30, 2019 and December 31, 2018, respectively.

Restricted cash of $4.6 million and $4.6 million as of June 30, 2019 and December 31, 2018, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.

10

Table of Contents

(9)NET INCOME (LOSS) PER SHARE

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

Three Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Numerator:

 

 

  

 

 

  

 

 

  

 

 

  

Net income (loss)

 

$

3,656

 

$

2,109

 

$

(3,344)

 

$

(23)

Less earnings allocated to RSUs

 

 

(94)

 

 

(49)

 

 

85

 

 

 1

Net income (loss) allocated to common shareholders

 

$

3,562

 

$

2,060

 

$

(3,259)

 

$

(22)

 

 

(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, 2019 and 2018 was ~4% and ~2%, 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 before income taxes.

(11)RESTRICTED STOCK UNITS (RSUs)

 

 

 

Non-vested grants at December 31, 2018

    

789,250

Granted – share price on grant date was $5.27 

 

8,000

Vested – share price on vesting date was $5.56

 

(4,000)

Forfeited

 

 —

Non-vested grants at June 30, 2019

 

793,250

 

With the passing of our Chairman, Victor Stabio, on March 7, 2018, the vesting of his 220,000 RSUs accelerated. The value of the accelerated RSUs was $1.5 million.

Non-vested RSU grants will vest as follows:

 

 

 

Vesting Year

    

RSUs Vesting

2019

 

302,750

2020

 

176,250

2021

 

314,250

 

 

793,250

 

The outstanding RSUs have a value of $4.3 million based on the August 1, 2019, closing stock price of $5.48.

At June 30, 2019, we had 1,251,718 RSUs available for future issuance.

11

Table of Contents

(12)REVENUE

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.

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. 70% and 67% of our coal revenue for the six and three months ended June 30, 2019, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Florida, Georgia, North Carolina, Kentucky, Tennessee, and South Carolina.    72% and 70% of our coal revenue for the six and three months ended June 30, 2018, respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Florida, North Carolina, and Kentucky.

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.

12

Table of Contents

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 truck or railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the right to receive substantially all benefits and the risk of loss in ownership of the coal.

We have remaining performance obligations relating to fixed priced contracts of approximately $684 million, which represent the average fixed prices on our committed contracts as of June 30, 2019.  We expect to recognize approximately 61% of this revenue through 2020, with the remainder recognized thereafter. 

We have remaining performance obligations relating to contracts with price reopeners of approximately $330 million, which represents our estimate of the expected re-opener price on committed contracts as of June 30, 2019.  We expect to recognize all of this revenue 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)LEASES

We have operating leases for office space and processing facilities with remaining lease terms ranging from less than one year to approximately five years. As most of the leases do not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.

Information related to leases was as follows:

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

Three Months Ended

 

 

    

June 30, 2019

 

    

June 30, 2019

 

 

 

(In thousands)

 

 

(In thousands)

 

Operating lease information:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

157

 

 

$

78

 

Weighted average remaining lease term in years

 

 

 4.19

 

 

 

4.26

 

Weighted average discount rate

 

 

6.0

%

 

 

6.0

%

 

13

Table of Contents

Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:

 

 

 

 

Year

    

Amount

 

 

 (In thousands)

2019

 

$

163

2020

 

 

233

2021

 

 

201

2022

 

 

206

2023

 

 

174

2024

 

 

60

Total minimum lease payments

 

$

1,037

Less imputed interest

 

 

(95)

 

 

 

 

Total operating lease liability

 

$

942

 

 

 

 

As reflected on balance sheet:

 

 

 

Other long-term liabilities

 

$

942

Total operating lease liability

 

$

942

 

 

 

 

 

At June 30, 2019, we had approximately $942,000 right-of-use operating lease assets recorded within “buildings and equipment” on the Consolidated Balance Sheet.

(14)HOURGLASS SANDS

In 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 in 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.

14

Table of Contents

Below is a condensed Hourglass balance sheet as of June 30, 2019 and December 31, 2018 and a condensed statement of operations for the three and six months ended June 30, 2019 and 2018. Current assets include cash totaling $1.7 million and sand inventory totaling $1.7 million as of June 30, 2019. Current assets include cash totaling $2.9 million and sand inventory totaling $1.3 million as of December 31, 2018.

Expenses are included in operating costs and expenses, exploration costs, and SG&A in our consolidated statements of comprehensive income.

Condensed Balance Sheet

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

    

2018

Current assets

    

$

3,412

 

$

4,241

Property and equipment

 

 

3,053

 

 

3,092

Total assets

 

$

6,465

 

$

7,333