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Section 1: 10-Q (10-Q)

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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: September 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)

 

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 November 1, 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 

17

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

22

 

 

ITEM 4. CONTROLS AND PROCEDURES 

22

 

 

PART II - OTHER INFORMATION 

22

 

 

ITEM 4. MINE SAFETY DISCLOSURES 

22

 

 

ITEM 6. EXHIBITS  

 

 

 

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)

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2019

 

2018

ASSETS

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

6,361

 

$

15,502

Restricted cash (Note 8)

 

 

4,726

 

 

4,592

Certificates of deposit

 

 

245

 

 

488

Marketable securities

 

 

2,023

 

 

1,842

Accounts receivable

 

 

21,722

 

 

18,428

Prepaid income taxes

 

 

1,614

 

 

2,606

Inventory

 

 

26,962

 

 

20,507

Parts and supplies, net of allowance of $274 and $1,595, respectively

 

 

12,041

 

 

9,645

Prepaid expenses

 

 

7,568

 

 

11,368

Total current assets

 

 

83,262

 

 

84,978

Property, plant and equipment, at cost:

 

 

 

 

 

 

Land and mineral rights

 

 

131,890

 

 

130,897

Buildings and equipment

 

 

387,699

 

 

365,481

Mine development

 

 

147,349

 

 

140,990

Total property, plant and equipment, at cost

 

 

666,938

 

 

637,368

Less - accumulated DD&A

 

 

(259,121)

 

 

(224,730)

Total property, plant and equipment, net

 

 

407,817

 

 

412,638

Investment in Sunrise Energy (Note 4)

 

 

3,315

 

 

3,666

Other assets (Note 5)

 

 

14,417

 

 

14,217

Total assets

 

$

508,811

 

$

515,499

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of bank debt, net (Note 3)

 

$

31,333

 

$

25,392

Accounts payable and accrued liabilities (Note 6)

 

 

37,106

 

 

26,421

Total current liabilities

 

 

68,439

 

 

51,813

Long-term liabilities:

 

 

 

 

 

 

Bank debt, net (Note 3)

 

 

133,697

 

 

155,655

Deferred income taxes

 

 

23,700

 

 

26,441

Asset retirement obligations (ARO)

 

 

15,304

 

 

14,586

Other

 

 

11,164

 

 

8,130

Total long-term liabilities

 

 

183,865

 

 

204,812

Total liabilities

 

 

252,304

 

 

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; 30,249 and 30,245 outstanding

 

 

302

 

 

302

Additional paid-in capital

 

 

102,166

 

 

100,742

Retained earnings

 

 

150,039

 

 

153,830

Total stockholders’ equity

 

 

252,507

 

 

254,874

Total liabilities, redeemable noncontrolling interests, and stockholders’ equity

 

$

508,811

 

$

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Three Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal sales

 

$

239,231

 

$

202,764

 

$

82,883

 

$

79,055

 

Other income (Note 7)

 

 

5,488

 

 

1,065

 

 

213

 

 

667

 

Total revenue

 

 

244,719

 

 

203,829

 

 

83,096

 

 

79,722

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses

 

 

187,783

 

 

145,744

 

 

71,363

 

 

60,230

 

DD&A

 

 

35,612

 

 

32,764

 

 

11,778

 

 

10,815

 

ARO accretion

 

 

943

 

 

866

 

 

320

 

 

293

 

Exploration costs

 

 

835

 

 

811

 

 

347

 

 

279

 

SG&A

 

 

9,385

 

 

8,883

 

 

2,926

 

 

2,519

 

Interest (1)

 

 

13,546

 

 

10,284

 

 

3,558

 

 

3,261

 

Total costs and expenses

 

 

248,104

 

 

199,352

 

 

90,292

 

 

77,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(3,385)

 

 

4,477

 

 

(7,196)

 

 

2,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

(577)

 

 

(426)

 

 

(426)

 

 

(204)

 

Deferred

 

 

(2,741)

 

 

(120)

 

 

(3,047)

 

 

(385)

 

Total income tax benefit

 

 

(3,318)

 

 

(546)

 

 

(3,473)

 

 

(589)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(67)

 

$

5,023

 

$

(3,723)

 

$

2,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.00)

 

$

0.16

 

$

(0.12)

 

$

0.09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

30,246

 

 

30,038

 

 

30,249

 

 

30,177

 


(1)

Interest expense for the nine months ended September 30, 2019 and 2018 includes $3,018 and $136, respectively, for the net change in the estimated fair value of our interest rate swaps. Such amounts were $162 and $(708) for the three months ended September 30, 2019 and 2018, respectively.

 

See accompanying notes.

4

Table of Contents

Hallador Energy Company

Condensed Consolidated Statements of Cash Flows

 (in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended

September 30, 

 

    

2019

    

2018

Operating activities:

 

  

 

 

  

 

Cash provided by operating activities

 

$

36,323

 

$

30,295

Investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(27,269)

 

 

(25,519)

Proceeds from sale of royalty interests in oil properties

 

 

2,949

 

 

 —

Proceeds from sale of equipment

 

 

129

 

 

64

Proceeds from maturities of certificates of deposit

 

 

245

 

 

1,000

Proceeds from sale of Savoy

 

 

 

 

8,000

Cash used in investing activities

 

 

(23,946)

 

 

(16,455)

Financing activities:

 

 

 

 

 

 

Payments on bank debt

 

 

(34,713)

 

 

(27,280)

Borrowings of bank debt

 

 

18,250

 

 

19,000

Deferred financing costs

 

 

(1,183)

 

 

(730)

Proceeds from redeemable noncontrolling interests (Note 14)

 

 

 

 

4,000

Taxes paid on vesting of RSUs

 

 

(14)

 

 

(11)

Dividends

 

 

(3,724)

 

 

(3,707)

Cash used in financing activities

 

 

(21,384)

 

 

(8,728)

Increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(9,007)

 

 

5,112

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

 

 

20,094

 

 

16,294

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

 

$

11,087

 

$

21,406

 

 

 

 

 

 

 

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

 

 

  

 

 

  

 

 

 

September 30, 

 

 

 

2019

 

 

2018

Cash and cash equivalents

 

$

6,361

 

$

16,903

Restricted cash

 

 

4,726

 

 

4,503

 

 

$

11,087

 

$

21,406

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

  

 

 

  

Change in capital expenditures included in accounts payable

 

$

2,018

 

$

(8,957)

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

 

 

882

 

 

 —

 

See accompanying notes.

5

Table of Contents

Hallador Energy Company

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

Retained

 

 

 

Stockholders'

 

 

 

Shares

 

Amount

 

 

Capital

 

Earnings

 

AOCI*

 

Equity

 

Balance, June 30, 2019

 

30,247

 

$

302

 

$

101,747

 

$

155,003

 

$

 —

 

$

257,052

 

Stock-based compensation

 

 —

 

 

 —

 

 

426

 

 

 —

 

 

 —

 

 

426

 

Stock issued on vesting of RSUs

 

 3

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

—  

 

Taxes paid on vesting of RSUs

 

(1)

 

 

 —

 

 

(7)

 

 

 —

 

 

 —

 

 

(7)

 

Dividends

 

 —

 

 

 —

 

 

 —

 

 

(1,241)

 

 

 —

 

 

(1,241)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(3,723)

 

 

 —

 

 

(3,723)

 

Balance, September 30, 2019

 

30,249

 

$

302

 

$

102,166

 

$

150,039

 

$

 —

 

$

252,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

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

 

 

 

 

 

 

1,438

 

 

 

 

 

 

1,438

 

Stock issued on vesting of RSUs

 

7

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid on vesting of RSUs

 

(3)

 

 

 

 

 

(14)

 

 

 

 

 

 

(14)

 

Dividends

 

 

 

 

 

 

 

 

(3,724)

 

 

 

 

(3,724)

 

Net loss

 

 

 

 

 

 

 

 

(67)

 

 

 

 

(67)

 

Balance, September 30, 2019

 

30,249

 

$

302

 

$

 

102,166

 

$

150,039

 

$

 

$

252,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

Retained

 

 

Stockholders'

 

 

 

Shares

 

Amount

 

 

Capital

 

Earnings

 

AOCI*

 

Equity

 

Balance, June 30, 2018

 

30,177

 

$

301

 

$

 

100,228

 

$

150,789

 

$

 

$

251,318

 

Stock-based compensation

 

 

 

 

 

 

389

 

 

 

 

 

 

389

 

Stock issued on vesting of RSUs

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid on vesting of RSUs

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

 

 

 

(1,236)

 

 

 

 

(1,236)

 

Net income

 

 

 

 

 

 

 

 

2,914

 

 

 

 

2,914

 

Balance, September 30, 2018

 

30,177

 

$

301

 

$

 

100,617

 

$

152,467

 

$

 

$

253,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

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

 

 

 

 

 

 

2,755

 

 

 

 

 

 

2,755

 

Stock issued on vesting of RSUs

 

223

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Taxes paid on vesting of RSUs

 

(1)

 

 

 

 

 

(11)

 

 

 

 

 

 

(11)

 

Dividends

 

 

 

 

 

 

 

 

(3,707)

 

 

 

 

(3,707)

 

Net income

 

 

 

 

 

 

 

 

5,023

 

 

 

 

5,023

 

Balance, September 30, 2018

 

30,177

 

$

301

 

$

 

100,617

 

$

152,467

 

$

 

$

253,385

 

 

*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 nine months ended September 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 September 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

On September 30, 2019, we executed an amendment to our credit agreement with PNC, administrative agent for our lenders.  The primary purposes of the amendment were to extend the maturity by 16 months to September 2023 and to modify pricing to reduce the interest rate by 50 basis points over the remainder of the term.

Our bank debt is comprised of term debt ($110 million as of September 30, 2019) and a $120 million revolver ($62 million borrowed as of September 30, 2019).  The term debt amortization concludes with a final payment in March 2023.  The revolver matures September 2023.  Our debt is recorded at cost which approximates fair value due to the variable interest rates in the agreement and is collateralized primarily by our assets.

Liquidity

Our bank debt at September 30, 2019, was $172 million. As of September 30, 2019, we had additional borrowing capacity of $58 million and total liquidity of $67 million.

Fees

Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $7.2 million as of our most recent amendment in September 2019. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of September 30, 2019 and December 31, 2018 were $7.0 million and $7.4 million, respectively.  Amortization of deferred financing costs for the nine months ended September 30, 2019 and 2018 was $1,628 and $1,482, respectively.  Such amounts were $543 and $542 for the three months ended September 30, 2019 and 2018, respectively.

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

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2019

 

2018

Current bank debt

 

$

33,075

 

$

27,563

Less unamortized debt issuance cost

 

 

(1,742)

 

 

(2,171)

Net current portion

 

$

31,333

 

$

25,392

 

 

 

 

 

 

 

Long-term bank debt

 

$

138,925

 

$

160,900

Less unamortized debt issuance cost

 

 

(5,228)

 

 

(5,245)

Net long-term portion

 

$

133,697

 

$

155,655

 

 

 

 

 

 

 

Total bank debt

 

$

172,000

 

$

188,463

Less total unamortized debt issuance cost

 

 

(6,970)

 

 

(7,416)

Net bank debt

 

$

165,030

 

$

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

September 30, 2019

 

3.25 to 1.00

December 31, 2019 through September 30, 2020

 

3.00 to 1.00

December 31, 2020 through September 30, 2021

 

2.75 to 1.00

December 31, 2021 and each fiscal quarter thereafter

 

2.50 to 1.00

 

As of September 30, 2019, our Leverage Ratio of 2.43 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 September 30, 2019, our Debt Service Coverage Ratio of 1.96 was in compliance with the requirements of the credit agreement.

Rate

The interest rate on the facility ranges from LIBOR plus 2.25% to LIBOR plus 4.00%, depending on our Leverage Ratio. We entered into swap agreements to fix the LIBOR component of the interest rate at 2.92% on the declining term loan balance and on $53 million of the revolver. At September 30, 2019, we are paying LIBOR at the swap rate of 2.92% plus 3.00% for a total interest rate of 5.92%. Prior to the amendment on September 30, 2019, we were paying LIBOR at the swap rate of 2.92% plus 3.5% for a total interest rate of 6.42%.

(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 nine months ended March 31, 2018 and September 30, 2018, respectively.

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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 September 30, 2019, and December 31, 2018, was $3.3 million and $3.7 million, respectively.

(5)OTHER ASSETS (in thousands)

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2019

 

2018

Advanced coal royalties

 

$

10,284

 

$

10,186

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

 

 

2,181

 

 

1,909

Other

 

 

1,952

 

 

2,122

Total other assets

 

$

14,417

 

$

14,217


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

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

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2019

 

2018

Accounts payable

 

$

8,388

 

$

5,844

Goods received not yet invoiced

 

 

10,682

 

 

6,095

Accrued property taxes

 

 

3,156

 

 

2,763

Accrued payroll

 

 

3,535

 

 

1,825

Workers' compensation reserve

 

 

3,985

 

 

3,670

Group health insurance

 

 

2,400

 

 

2,200

Other

 

 

4,960

 

 

4,024

Total accounts payable and accrued liabilities

 

$

37,106

 

$

26,421

 

 

(7)OTHER INCOME (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Three Months Ended

 

 

September 30, 

 

September 30, 

 

 

2019

 

2018

 

2019

 

2018

Equity loss - Sunrise Energy

 

 

(350)

 

 

(198)

 

 

(184)

 

 

(42)

Loss on disposal of Savoy

 

 

 —

 

 

(538)

 

 

 —

 

 

MSHA reimbursements

 

 

450

 

 

833

 

 

150

 

 

 —

Gain on sale of royalty interests in oil properties

 

 

2,949

 

 

 —

 

 

 —

 

 

180

Miscellaneous

 

 

2,439

 

 

968

 

 

247

 

 

529

 

 

$

5,488

 

$

1,065

 

$

213

 

$

667

 

 

(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 $275 million and $255 million as of September 30, 2019 and December 31, 2018, respectively.

Restricted cash of $4.7 million and $4.6 million as of September 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.

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(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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Three Months Ended

 

 

September 30, 

 

September 30, 

 

 

2019

 

2018

 

2019

 

2018

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(67)

 

$

5,023

 

$

(3,723)

 

$

2,914

Less loss (earnings) allocated to RSUs

 

 

-

 

 

(116)

 

 

93

 

 

(67)

Net income (loss) allocated to common shareholders

 

$

(67)

 

$

4,907

 

$

(3,630)

 

$

2,847

 

 

(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 nine months ended September 30, 2019 and 2018 was 98% and (12)%, 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.

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(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 – weighted average share price on vesting date was $5.48

 

 (7,000)

Forfeited

 

(13,000)

Non-vested grants at September 30, 2019

 

 777,250

 

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

 

294,750

2020

 

176,250

2021

 

306,250

 

 

 777,250

 

The outstanding RSUs have a value of $2.6 million based on the November  1, 2019, closing stock price of $3.36.

At September 30, 2019, we had 1,266,112 RSUs available for future issuance.

(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 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.

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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. 69% and 67% of our coal revenue for the nine and three months ended September 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.    74% and 77% of our coal revenue for the nine and three months ended September 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.

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 $662 million, which represent the average fixed prices on our committed contracts as of September 30, 2019.  We expect to recognize approximately 54% of this revenue through 2020, with the remainder recognized thereafter.

We have remaining performance obligations relating to contracts with price reopeners of approximately $266 million, which represents our estimate of the expected re-opener price on committed contracts as of September 30, 2019.  We expect to recognize all of this revenue beginning in 2021.

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.

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(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:

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2019

 

 

 

(In thousands)

 

 

(In thousands)

 

Operating lease information:

 

 

 

 

 

 

 

 

Operating cash outflows from operating leases

 

$

234

 

 

$

77

 

Weighted average remaining lease term in years

 

 

4.11

 

 

 

4.11

 

Weighted average discount rate

 

 

6.0

%

 

 

6.0

%

 

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

 

 

 

 

Year

    

Amount

 

 

 (In thousands)

2019

 

$

88

2020

 

 

238

2021

 

 

201

2022

 

 

206

2023

 

 

174

2024

 

 

59

Total minimum lease payments

 

$

966

Less imputed interest

 

 

(84)

 

 

 

 

Total operating lease liability

 

$

882

 

 

 

 

As reflected on balance sheet: