GENIE
ENERGY LTD.
CONSOLIDATED STATEMENTS OF EQUITY (in thousands)-(Continued)
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Genie
Energy Ltd. Stockholders
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Noncontrolling
Interests
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Accumulated
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Receivable
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Other
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Retained
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for
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Preferred
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Class A
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Class B
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Additional
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Comprehensive
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Earnings
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|
issuance
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Stock
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Common
Stock
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Common
Stock
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Paid-In
|
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Treasury
|
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Income
|
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(Accumulated
|
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Noncontrolling
|
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|
of
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Total
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Shares
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Amount
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Shares
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Amount
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Shares
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Amount
|
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Capital
|
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Stock
|
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(Loss)
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Deficit)
|
|
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Interests
|
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equity
|
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Equity
|
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BALANCE
AT DECEMBER 31, 2015
|
|
|
2,322
|
|
|
|
19,743
|
|
|
|
1,574
|
|
|
|
16
|
|
|
|
23,239
|
|
|
|
232
|
|
|
|
124,449
|
|
|
|
(1,570
|
)
|
|
|
154
|
|
|
|
(19,647
|
)
|
|
|
(7,013
|
)
|
|
|
(1,667
|
)
|
|
|
114,697
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|
Dividends
on preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
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|
|
—
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|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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|
(1,481
|
)
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|
|
—
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|
|
|
—
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|
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|
(1,481
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)
|
Dividends
on common stock ($0.24 per share)
|
|
|
—
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|
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—
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|
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—
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—
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—
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—
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|
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—
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—
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—
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(5,914
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)
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—
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—
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(5,914
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)
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Restricted
Class B common stock purchased from employees
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—
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—
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—
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—
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—
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—
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—
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(29
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)
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—
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—
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—
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|
|
—
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(29
|
)
|
Stock-based
compensation
|
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—
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|
|
|
—
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|
—
|
|
|
|
—
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|
|
—
|
|
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|
—
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|
4,122
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|
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|
—
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|
—
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|
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|
—
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|
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|
—
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—
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4,122
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|
Restricted
stock issued to employees and directors
|
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—
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|
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—
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—
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—
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35
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|
1
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—
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—
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—
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—
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—
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—
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1
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Sale
of equity of subsidiary
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—
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—
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—
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—
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—
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—
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1,360
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|
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|
—
|
|
|
|
—
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—
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(360
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)
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—
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1,000
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|
Subsidiary
equity grant reclassified to liability
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—
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|
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—
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|
—
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|
|
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—
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—
|
|
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—
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(1,688
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)
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|
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—
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|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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—
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(1,688
|
)
|
Other
comprehensive income
|
|
|
—
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|
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—
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—
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—
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—
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—
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—
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—
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1,311
|
|
|
|
—
|
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|
38
|
|
|
|
—
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|
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|
1,349
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|
Net
(loss) income for the year ended December 31, 2016
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—
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—
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—
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—
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—
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—
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—
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—
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—
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(24,525
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)
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|
(7,667
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)
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—
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|
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|
(32,192
|
)
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BALANCE
AT DECEMBER 31, 2016
|
|
|
2,322
|
|
|
$
|
19,743
|
|
|
|
1,574
|
|
|
$
|
16
|
|
|
|
23,274
|
|
|
$
|
233
|
|
|
$
|
128,243
|
|
|
$
|
(1,599
|
)
|
|
$
|
1,465
|
|
|
$
|
(51,567
|
)
|
|
$
|
(15,002
|
)
|
|
$
|
(1,667
|
)
|
|
$
|
79,865
|
|
See
accompanying notes to consolidated financial statements.
GENIE
ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,192
|
)
|
|
$
|
(8,636
|
)
|
|
$
|
(27,407
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
581
|
|
|
|
428
|
|
|
|
132
|
|
Goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
3,562
|
|
Gain on adjustment to estimated contingent payments
|
|
|
—
|
|
|
|
—
|
|
|
|
(206
|
)
|
Deferred income taxes
|
|
|
(139
|
)
|
|
|
(180
|
)
|
|
|
(622
|
)
|
Provision for doubtful accounts receivable
|
|
|
8
|
|
|
|
(29
|
)
|
|
|
310
|
|
Stock-based compensation
|
|
|
4,813
|
|
|
|
5,229
|
|
|
|
10,758
|
|
Loss on disposal of property
|
|
|
25
|
|
|
|
156
|
|
|
|
—
|
|
Gain from repayment of revolving credit loan payable
|
|
|
(200
|
)
|
|
|
—
|
|
|
|
—
|
|
Write-off of capitalized exploration costs
|
|
|
41,041
|
|
|
|
—
|
|
|
|
—
|
|
Gain on consolidation of AMSO, LLC
|
|
|
(1,262
|
)
|
|
|
—
|
|
|
|
—
|
|
Equity in the net loss of AMSO, LLC
|
|
|
222
|
|
|
|
397
|
|
|
|
—
|
|
Change in assets and liabilities, net of effect of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
905
|
|
|
|
(1,062
|
)
|
|
|
3,923
|
|
Trade accounts receivable
|
|
|
(6,030
|
)
|
|
|
4,234
|
|
|
|
11,189
|
|
Inventory
|
|
|
5,737
|
|
|
|
(274
|
)
|
|
|
(7,822
|
)
|
Prepaid expenses
|
|
|
7,539
|
|
|
|
(5,615
|
)
|
|
|
(2,306
|
)
|
Other current assets and other assets
|
|
|
2,863
|
|
|
|
(2,346
|
)
|
|
|
(2,664
|
)
|
Trade accounts payable, accrued expenses and other current liabilities
|
|
|
(9,292
|
)
|
|
|
3,689
|
|
|
|
(5,718
|
)
|
Advances from customers
|
|
|
(274
|
)
|
|
|
652
|
|
|
|
(700
|
)
|
Due to IDT Corporation
|
|
|
(298
|
)
|
|
|
(104
|
)
|
|
|
1
|
|
Income taxes payable
|
|
|
1,503
|
|
|
|
380
|
|
|
|
(1,532
|
)
|
Net cash provided by (used in) operating activities
|
|
|
15,550
|
|
|
|
(3,081
|
)
|
|
|
(19,102
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(586
|
)
|
|
|
(324
|
)
|
|
|
(1,437
|
)
|
Investments in capitalized exploration costs – unproved oil and gas property
|
|
|
(12,884
|
)
|
|
|
(26,969
|
)
|
|
|
—
|
|
Proceeds from disposal of property
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
Cash acquired from consolidation of AMSO, LLC
|
|
|
702
|
|
|
|
—
|
|
|
|
—
|
|
Capital contribution to AMSO, LLC received from Total
|
|
|
3,000
|
|
|
|
—
|
|
|
|
—
|
|
Capital contributions to AMSO, LLC
|
|
|
(63
|
)
|
|
|
(250
|
)
|
|
|
—
|
|
Payment for acquisition, net of cash acquired
|
|
|
(8,700
|
)
|
|
|
—
|
|
|
|
—
|
|
Repayment of notes receivable
|
|
|
50
|
|
|
|
50
|
|
|
|
—
|
|
Issuance of notes receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
(82
|
)
|
Purchases of certificates of deposit
|
|
|
(2,974
|
)
|
|
|
(8,820
|
)
|
|
|
(4,655
|
)
|
Proceeds from maturities of certificates of deposit
|
|
|
11,900
|
|
|
|
4,688
|
|
|
|
4,334
|
|
Net cash used in investing activities
|
|
|
(9,528
|
)
|
|
|
(31,625
|
)
|
|
|
(1,840
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(7,395
|
)
|
|
|
(4,431
|
)
|
|
|
(2,825
|
)
|
Payment for acquisitions
|
|
|
(227
|
)
|
|
|
(358
|
)
|
|
|
(1,138
|
)
|
Proceeds from revolving line of credit and loan payable
|
|
|
3,650
|
|
|
|
2,000
|
|
|
|
—
|
|
Repayment of revolving line of credit and loan payable
|
|
|
(6,690
|
)
|
|
|
—
|
|
|
|
—
|
|
Proceeds from sales of Class B common stock to Howard S. Jonas
|
|
|
—
|
|
|
|
—
|
|
|
|
24,552
|
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
|
174
|
|
|
|
28
|
|
Proceeds from sales of equity of subsidiaries
|
|
|
1,000
|
|
|
|
2,500
|
|
|
|
—
|
|
Collection of receivables for issuance of equity
|
|
|
—
|
|
|
|
1,912
|
|
|
|
—
|
|
Payment for option to purchase noncontrolling interests
|
|
|
—
|
|
|
|
(175
|
)
|
|
|
—
|
|
Repurchases of Class B common stock
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(1,070
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(9,691
|
)
|
|
|
1,595
|
|
|
|
19,547
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
75
|
|
|
|
2
|
|
|
|
(595
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(3,594
|
)
|
|
|
(33,109
|
)
|
|
|
(1,990
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
38,786
|
|
|
|
71,895
|
|
|
|
73,885
|
|
Cash and cash equivalents at end of period
|
|
$
|
35,192
|
|
|
$
|
38,786
|
|
|
$
|
71,895
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments made for interest
|
|
$
|
19
|
|
|
$
|
10
|
|
|
$
|
3
|
|
Cash payments made for income taxes
|
|
$
|
745
|
|
|
$
|
49
|
|
|
$
|
2,647
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary equity grant reclassified to liability
|
|
$
|
1,688
|
|
|
$
|
1,200
|
|
|
$
|
—
|
|
Liability incurred for acquisition
|
|
$
|
312
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Receivables for issuance of equity of subsidiaries
|
|
$
|
—
|
|
|
$
|
2,500
|
|
|
$
|
—
|
|
See
accompanying notes to consolidated financial statements.
GENIE
ENERGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1—Description of Business and Summary of Significant Accounting Policies
Description
of Business
Genie
Energy Ltd. (“Genie”), a Delaware corporation, was incorporated in January 2011. Genie owns 99.3% of its subsidiary,
Genie Energy International Corporation (“GEIC”), which owns 100% of Genie Retail Energy (“GRE”) and 92%
of Genie Oil and Gas, Inc. (“GOGAS”). The “Company” in these financial statements refers to Genie, Genie
Retail Energy and Genie Oil and Gas, and their respective subsidiaries, on a consolidated basis.
Genie’s
principal businesses consist of the following:
|
●
|
Genie
Retail Energy operates retail energy providers (“REPs”), including IDT Energy,
Inc. (“IDT Energy”), Residents Energy, Inc. (“Residents Energy”)
and Town Square Energy (see Note 2), and energy brokerage and marketing services. Its
REP businesses resell electricity and natural gas to residential and small business customers
primarily in the Eastern United States; and
|
|
●
|
Genie
Oil and Gas, which is an oil and gas exploration company that consists of an 85.1%
interest in Afek Oil and Gas, Ltd. (“Afek”), which operates an exploration
project in the Golan Heights in Northern Israel, and certain inactive projects.
|
GRE
has outstanding deferred stock units granted to officers and employees that represent an interest of 2.5% of the equity of GRE.
Basis
of Consolidation
The
method of accounting applied to long-term investments, whether consolidated, equity or cost, involves an evaluation of the significant
terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee
and also includes the identification of any variable interests in which the Company is the primary beneficiary. The consolidated
financial statements include the Company’s controlled subsidiaries and the variable interest entity in which the Company
is the primary beneficiary (see Note 13). All significant intercompany accounts and transactions between the consolidated entities
are eliminated.
Reclassifications
In
the consolidated statements of operations, $2.4 million and $2.6 million previously included in “Financing fees” in
the years ended December 31, 2015 and 2014, respectively, have been reclassified to “Cost of revenues” to conform
to the current year’s presentation.
In
the consolidated balance sheet, $150,000 previously included in “Other assets” at December 31, 2015 has been reclassified
to “Other intangibles, net” to conform to the current year’s presentation.
Error Corrections
In the consolidated statement of operations, Pennsylvania
gross receipt tax was previously recorded as a reduction to electricity revenue instead of as cost of revenues. Electricity revenues
and cost of revenues were adjusted to correct the classification by reflecting additional revenue and cost of revenues in the
consolidated statement of operations in the amounts of $2.9 million and $5.9 million in the years ended December 31, 2015 and
2014, respectively.
In Note 10 “Income Taxes” in the Notes to Consolidated
Financial Statements, the following changes were made to correct errors in prior periods:
|
●
|
At December 31, 2015, the Company’s deferred income tax asset for stock
options and restricted stock was decreased by $6.6 million, and the valuation allowance for deferred income taxes was reduced accordingly.
|
|
|
|
|
●
|
In the reconciliation of the differences between income taxes expected at
the U.S. federal statutory income tax rate and income taxes provided, the valuation allowance amount was increased by $7.7 million
and $1.5 million in the years ended December 31, 2015 and 2014, respectively, and the foreign tax rate differential was reduced
accordingly.
|
Accounting
for Investments
Investments
in businesses that the Company does not control, but in which the Company has the ability to exercise significant influence over
operating and financial matters, are accounted for using the equity method. Through April 30, 2016, the Company accounted for
its ownership interest in AMSO, LLC using the equity method (see Note 6). The Company periodically evaluated this equity method
investment for impairment due to declines considered to be other than temporary. If the Company determined that a decline in fair
value was other than temporary, then a charge to earnings would have been recorded, and a new basis in the investment would have
been established.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those estimates.
Revenue
Recognition
Revenues
from GRE’s sale of electricity and natural gas are recognized under the accrual method based on deliveries of electricity
and natural gas to customers. Revenues from electricity and natural gas delivered but not billed are estimated and recorded as
accounts receivable. Cash received in advance from customers under billing arrangement is reported as deferred revenue and is
included in “Advances from customers” in the accompanying consolidated balance sheets. GOGAS does not yet generate
revenues.
In
May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board jointly
issued a comprehensive new revenue recognition standard that will supersede most of the current revenue recognition guidance under
U.S. GAAP and International Financial Reporting Standards (“IFRS”). The goals of the revenue recognition project were
to clarify and converge the revenue recognition principles under U.S. GAAP and IFRS and to develop guidance that would streamline
and enhance revenue recognition requirements. The Company is required to adopt this standard on January 1, 2018. Entities have
the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. The Company
is evaluating the impact that the standard will have on its consolidated financial statements, and has not yet selected an adoption
date or a transition method. The Company cannot reasonably estimate the impact that the adoption of the standard will have on
its consolidated financial statements.
Cost
of Revenues
Cost
of revenues for GRE consists primarily of the cost of natural gas and electricity sold, and also includes financing fees, scheduling
costs, Independent System Operator (“ISO”) fees, pipeline costs and utility service charges. In addition, the changes
in the fair value of GRE’s futures contracts, swaps and put and call options are recorded in cost of revenues. GOGAS does
not yet incur cost of revenues.
Research
and Development Costs
Research
and development costs are charged to expense as incurred.
Oil
and Gas Exploration Costs
The
Company accounts for its oil and gas activities under the successful efforts method of accounting. Under this method, the costs
of drilling exploratory wells and exploratory-type stratigraphic test wells are capitalized, pending determination of whether
the well has found proved reserves. Other exploration costs are charged to expense as incurred. Unproved properties are assessed
for impairment, and if considered impaired, are charged to expense when such impairment is deemed to have occurred (see Note 5).
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Inventory
Inventory
consists of natural gas, which is stored at various third parties’ underground storage facilities, of $0.6 million and $1.6
million at December 31, 2016 and 2015, respectively. Inventory also includes renewable energy credits of $5.4 million and $9.8
million at December 31, 2016 and 2015, respectively. Natural gas inventory is valued at weighted average cost, which is based
on the purchase price of the natural gas and the cost to transport, plus or minus injections or withdrawals.
In
July 2015, the FASB issued an Accounting Standards Update (“ASU”) that simplifies the subsequent measurement of inventory.
The amendments in this ASU do not apply to inventory that is measured using last-in, first-out or the retail inventory method.
The ASU changes the measurement of inventory to the lower of cost and net realizable value. Net realizable value is the estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
The Company adopted the amendments in this ASU on January 1, 2017. The adoption of this ASU did not have a significant impact
on the Company’s consolidated financial statements.
Renewable
Energy Credits
GRE
must obtain a certain percentage or amount of its power supply from renewable energy sources in order to meet the requirements
of renewable portfolio standards in the states in which it operates. This requirement may be met by obtaining renewable energy
credits that provide evidence that electricity has been generated by a qualifying renewable facility or resource. GRE holds renewable
energy credits for both sale and use, and treats the credits as a government incentive to encourage the construction of renewable
power plants. Renewable energy credits are valued at the lower of cost and market, where cost is the purchase price. Gains and
losses from the sale of renewable energy credits are recognized in cost of revenues when the credits are transferred to the buyer.
Long-Lived
Assets
Computer
software and development, computers and computer hardware, laboratory and drilling equipment and office equipment and other are
recorded at cost and are depreciated on a straight-line basis over their estimated useful lives, which range as follows: computer
software and development—2, 3 or 5 years; computers and computer hardware—5 years, laboratory and drilling equipment—7
years, and office equipment and other —5 or 7 years. Leasehold improvements included in office equipment and other are recorded
at cost and are depreciated on a straight-line basis over the term of their lease or their estimated useful lives, whichever is
shorter.
The
fair value of trademark, non-compete agreement and customer relationships acquired in a business combination accounted for under
the purchase method are amortized over their estimated useful lives as follows: trademark is amortized on a straight-line basis
over the 20-year period of expected cash flows; non-compete agreement is amortized on a straight-line basis over its 2 year term;
and customer relationships are amortized ratably over the 2 year period of expected cash flows.
The
Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. The Company tests the recoverability based on the projected
undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying
value of the asset, the Company will record an impairment loss based on the difference between the estimated fair value and the
carrying value of the asset. The Company generally measures fair value by considering sale prices for similar assets or by discounting
estimated future cash flows from such asset using an appropriate discount rate. Cash flow projections and fair value estimates
require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company
may be required to record impairments in future periods and such impairments could be material.
Goodwill
and Indefinite Lived Intangible Assets
Goodwill
is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Goodwill and
other indefinite lived intangible assets are not amortized. These assets are reviewed annually (or more frequently under various
conditions) for impairment using a fair value approach. The goodwill impairment assessment involves estimating the fair value
of the reporting unit and comparing it to its carrying amount, which is known as Step 1. If the carrying value of the reporting
unit exceeds its estimated fair value, Step 2 is performed to determine if an impairment of goodwill is required. The fair value
of the reporting unit is estimated using discounted cash flow methodologies, as well as considering third party market value indicators.
Goodwill impairment is measured by the excess of the carrying amount of the reporting unit’s goodwill over its implied fair
value. Calculating the fair value of the reporting units, and allocating the estimated fair value to all of the tangible assets,
intangible assets and liabilities, requires significant estimates and assumptions by management. Should the estimates and assumptions
regarding the fair value of the reporting units prove to be incorrect, the Company may be required to record impairments to its
goodwill in future periods and such impairments could be material.
The
Company has the option to perform a qualitative assessment to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test. However, the Company may elect to perform the two-step quantitative goodwill impairment test even if
no indications of a potential impairment exist.
In
January 2017, the FASB issued an ASU that simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill
impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine
the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following
the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.
Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing
the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible
goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still
has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is
necessary. Early adoption of this standard is permitted for interim or annual goodwill impairment tests performed on testing dates
after January 1, 2017. We plan to adopt this standard for the goodwill impairment test to be performed in 2017.
For
the impairment test of the Company’s indefinite-lived intangible assets, a quantitative impairment test is only necessary
if the Company determines that it is more likely than not that an indefinite-lived intangible asset is impaired based on an assessment
of certain qualitative factors.
Derivative
Instruments and Hedging Activities
The
Company records its derivatives instruments at their respective fair values. The accounting for changes in the fair value (that
is, gains or losses) of a derivative instrument is dependent upon whether the derivative has been designated and qualifies as
part of a hedging relationship and further, on the type of hedging relationship.
Due
to the volatility of electricity and natural gas prices, GRE enters into futures contracts, swaps and put and call options as
hedges against unfavorable fluctuations in market prices of electricity and natural gas and to reduce exposure from price fluctuations.
The Company does not designate its derivative instruments to qualify for hedge accounting, accordingly the futures contracts,
swaps and put and call options are recorded at fair value as a current asset or liability and any changes in fair value are recorded
in “Cost of revenues” in the consolidated statements of operations.
In
addition to the above, GRE utilizes forward physical delivery contracts for a portion of its purchases of electricity and natural
gas, which are defined as commodity derivative contracts. Using the exemption available for qualifying contracts, GRE applies
the normal purchase and normal sale accounting treatment to its forward physical delivery contracts, thereby these contracts are
not adjusted to fair value. GRE also applies the normal purchase and normal sale accounting treatment to forward contracts for
the physical delivery of electricity in nodal energy markets that result in locational marginal pricing charges or credits, since
this does not constitute a net settlement, even when legal title to the electricity is conveyed to the ISO during transmission.
Accordingly, GRE recognizes revenue from customer sales, and the related cost of revenues, at the contracted price, as electricity
and natural gas is delivered to retail customers.
Repairs
and Maintenance
The
Company charges the cost of repairs and maintenance, including the cost of replacing minor items not constituting substantial
betterment, to selling, general and administrative expense as these costs are incurred.
Foreign
Currency Translation
Assets
and liabilities of foreign subsidiaries denominated in foreign currencies are translated to U.S. Dollars at end-of-period rates
of exchange, and their monthly results of operations are translated to U.S. Dollars at the average rates of exchange for that
month. Gains or losses resulting from such foreign currency translations are recorded in “Accumulated other comprehensive
income” in the accompanying consolidated balance sheets. Foreign currency transaction gains and losses are reported in “Other
income (expense), net” in the accompanying consolidated statements of operations.
Advertising
Expense
Cost
of advertising for customer acquisitions are charged to selling, general and administrative expense in the period in which it
is incurred. Most of the advertisements are in print, over the radio, or direct mail. In the years ended December 31, 2016, 2015
and 2014, advertising expense included in selling, general and administrative expense was $1.4 million, $0.9 million and $0.3
million, respectively.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between
the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance
is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary
differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date of such change.
The
Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The
Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution
of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position
has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate
taxing authority that has full knowledge of all relevant information. Tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of tax benefit to recognize in the financial statements. The tax position is measured
at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences
between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or
more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a
reduction in a deferred tax asset, or an increase in a deferred tax liability.
The
Company classifies interest and penalties on income taxes as a component of income tax expense.
Contingencies
The
Company accrues for loss contingencies when both (a) information available prior to issuance of the financial statements
indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount
of loss can reasonably be estimated. When the Company accrues for loss contingencies and the reasonable estimate of the loss is
within a range, the Company records its best estimate within the range. When no amount within the range is a better estimate than
any other amount, the Company accrues the minimum amount in the range. The Company discloses an estimated possible loss or a range
of loss when it is at least reasonably possible that a loss may have been incurred.
Earnings
Per Share
Basic
earnings per share is computed by dividing net income or loss attributable to all classes of common stockholders of the Company
by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings
per share is determined in the same manner as basic earnings per share, except that the number of shares is increased to include
restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury
stock method, unless the effect of such increase is anti-dilutive.
The
following shares were excluded from the diluted earnings per share computations because their inclusion would have been anti-dilutive:
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Stock options
|
|
|
414
|
|
|
|
414
|
|
|
|
438
|
|
Non-vested restricted Class
B common stock
|
|
|
1,226
|
|
|
|
1,852
|
|
|
|
2,473
|
|
Shares excluded from the calculation
of diluted earnings per share
|
|
|
1,640
|
|
|
|
2,266
|
|
|
|
2,911
|
|
The
diluted loss per share equals basic loss per share in the years ended December 31, 2016, 2015 and 2014 because the Company had
a net loss and the impact of the assumed exercise of stock options and vesting of restricted stock would have been anti-dilutive.
An
entity affiliated with Lord (Jacob) Rothschild has a one-time option, subject to certain conditions and exercisable between November
2017 and February 2018, to exchange its GOGAS shares for shares of the Company with equal fair value as determined by the parties
(see Note 11). The number of shares issuable in such an exchange is not currently determinable. If this option is exercised, the
shares issued by the Company may dilute the earnings per share in future periods.
An
employee of the Company, pursuant to the terms of his employment agreement, has the option to exchange his equity interests in
Afek, Israel Energy Initiatives, Ltd. (“IEI”), Genie Mongolia, Inc. (“Genie Mongolia”) and any equity
interest that he may acquire in other entities that the Company may create, for shares of the Company. In addition, employees
and directors of the Company that were previously granted restricted stock of Afek and Genie Mongolia have the right to exchange
the restricted stock, upon vesting of such shares, into shares of the Company’s Class B common stock. GRE has the right,
at its option, to satisfy its obligations to issue common stock of GRE upon the vesting of the deferred stock units it granted
in July 2015 to officers and employees of the Company in shares of the Company’s Class B common stock or cash. These exchanges
and issuances, if elected, would be based on the relative fair value of the shares exchanged or to be issued. The number of shares
of the Company’s stock issuable in an exchange is not currently determinable. If shares of the Company’s stock are
issued upon such exchange, the Company’s earnings per share may be diluted in future periods.
Stock-Based
Compensation
The
Company recognizes compensation expense for grants of stock-based awards to its employees based on the estimated fair value on
the grant date. Stock based awards granted to nonemployees are marked-to-market until the vesting of the award. Compensation cost
for awards is recognized using the straight-line method over the vesting period. Stock-based compensation is included in selling,
general and administrative expense.
In
March 2016, the FASB issued an ASU to improve the accounting for employee share-based payments. The new standard simplifies several
aspects of the accounting for share-based payment transactions, including the income tax consequences and classification on the
statement of cash flows. The Company adopted the new standard on January 1, 2017. The adoption of the new standard did not have
a significant impact on the Company’s consolidated financial statements.
Vulnerability
Due to Certain Concentrations
Financial
instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents,
restricted cash, certificates of deposit and trade accounts receivable. The Company holds cash, cash equivalents, restricted cash
and certificates of deposit at several major financial institutions, which may exceed FDIC insured limits. Historically, the Company
has not experienced any losses due to such concentration of credit risk. The Company’s temporary cash investments policy
is to limit the dollar amount of investments with any one financial institution and monitor the credit ratings of those institutions.
While the Company may be exposed to credit losses due to the nonperformance of the holders of its deposits, the Company does not
expect the settlement of these transactions to have a material effect on its results of operations, cash flows or financial condition.
The
GRE-owned REPs reduce their customer credit risk by participating in purchase of receivable programs for a majority of their receivables.
In addition to providing billing and collection services, utility companies purchase those REPs’ receivables and assume
all credit risk without recourse to those REPs. The GRE-owned REPs’ primary credit risk is therefore nonpayment by the utility
companies. Certain of the utility companies represent significant portions of the Company’s consolidated revenues and consolidated
gross trade accounts receivable balance and such concentrations increase the Company’s risk associated with nonpayment by
those utility companies.
The
following table summarizes the percentage of consolidated revenues from customers by utility company that equal or exceed 10%
of consolidated revenues in the period (no other single utility company accounted for more than 10% of consolidated revenues in
these periods):
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Con Edison
|
|
|
20
|
%
|
|
|
23
|
%
|
|
|
23
|
%
|
ComEd
|
|
|
13
|
%
|
|
|
na
|
|
|
|
na
|
|
National Grid USA
|
|
|
na
|
|
|
|
12
|
%
|
|
|
na
|
|
West Penn Power
|
|
|
na
|
|
|
|
na
|
|
|
|
10
|
%
|
na-less
than 10% of consolidated revenue in the period
The
following table summarizes the percentage of consolidated gross trade accounts receivable by utility company that equal or exceed
10% of consolidated gross trade accounts receivable at December 31, 2016 and 2015 (no other single utility company accounted for
10% or greater of the Company’s consolidated gross trade accounts receivable at December 31, 2016 or 2015):
December 31
|
|
2016
|
|
|
2015
|
|
Con Edison
|
|
|
15
|
%
|
|
|
22
|
%
|
ComEd
|
|
|
10
|
%
|
|
|
na
|
|
na-less
than 10% of consolidated gross trade accounts receivable
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable
balance. The allowance is determined based on known troubled accounts, historical experience and other currently available evidence.
Doubtful accounts are written-off upon final determination that the trade accounts will not be collected. The change in the allowance
for doubtful accounts was as follows:
(in thousands)
|
|
Balance at
beginning of
period
|
|
|
Additions charged (reversals
credited) to expense
|
|
|
Deductions
(1)
|
|
|
Balance at
end of period
|
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
182
|
|
|
$
|
8
|
|
|
$
|
(19
|
)
|
|
$
|
171
|
|
Year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
227
|
|
|
$
|
(29
|
)
|
|
$
|
(16
|
)
|
|
$
|
182
|
|
Year ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
930
|
|
|
$
|
310
|
|
|
$
|
(1,013
|
)
|
|
$
|
227
|
|
|
(1)
|
Uncollectible
accounts written off.
|
Fair
Value Measurements
Fair
value of financial and non-financial assets and liabilities is defined as an exit price, which is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs to valuation techniques used to measure
fair value, is as follows:
Level 1
|
–
|
quoted
prices (unadjusted) in active markets for identical assets or liabilities.
|
Level 2
|
–
|
quoted
prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either
directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
|
Level 3
|
–
|
unobservable
inputs based on the Company’s assumptions used to measure assets and liabilities at fair value.
|
A
financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is
significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement
requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair
value hierarchy.
Accounting
Standards Updates
In
January 2016, the FASB issued an ASU to provide more information about recognition, measurement, presentation and disclosure of
financial instruments. The amendments in the ASU include, among other changes, the following: (1) equity investments (except those
accounted for under the equity method or that result in consolidation) will be measured at fair value with changes in fair value
recognized in net income, (2) a qualitative assessment each reporting period to identify impairment of equity investments without
readily determinable fair values, (3) financial assets and financial liabilities will be presented separately by measurement category
and form of financial asset on the balance sheet or the notes to the financial statements, and (4) an entity should evaluate the
need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s
other deferred tax assets. Entities will no longer be able to recognize unrealized holding gains and losses on equity securities
classified as available-for-sale in other comprehensive income. In addition, a practicability exception will be available for
equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient.
These investments may be measured at cost, less any impairment, plus or minus changes resulting from observable price changes
in orderly transactions for an identical or similar investment of the same issuer. Entities will have to reassess at each reporting
period whether an investment qualifies for this practicability exception. The Company will adopt the amendments in this ASU on
January 1, 2018. The Company is evaluating the impact that the ASU will have on its consolidated financial statements.
In
February 2016, the FASB issued an ASU related to the accounting for leases. The new standard establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. The Company will adopt the new standard on January 1, 2019. A modified retrospective transition
approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. The Company is evaluating
the impact that the new standard will have on its consolidated financial statements.
In
June 2016, the FASB issued an ASU that changes the impairment model for most financial assets and certain other instruments. For
receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model
that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized
losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances
instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more
information about allowances, credit quality indicators and past due securities. The new provisions will be applied as a cumulative-effect
adjustment to retained earnings. The Company will adopt the new standard on January 1, 2020. The Company is evaluating the impact
that the new standard will have on its consolidated financial statements.
In
November 2016, the FASB issued an ASU that includes specific guidance on the classification and presentation of changes in restricted
cash and cash equivalents in the statement of cash flows. The amendments in this ASU require that a statement of cash flows explain
the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. Amounts generally described as restricted cash or restricted cash equivalents will be included with cash and
cash equivalents when reconciling the beginning of the period and end of the period total amounts shown on the statement of cash
flows. The ASU will be applied using a retrospective transition method to each period presented. The Company will adopt the amendments
in this ASU on January 1, 2018. The adoption will impact the Company’s beginning of the period and end of the period cash
and cash equivalents balance in its statement of cash flows, as well as its net cash provided by operating activities.
Note
2—Acquisition of Retail Energy Holdings, LLC
On
November 2, 2016, GRE acquired Retail Energy Holdings, LLC (“REH”), a privately held owner of REPs, for $9.5 million
plus $1.4 million for REH’s working capital, or an aggregate cash payment of $10.9 million. At December 31, 2016, an additional
$0.3 million remains to be paid. The amount paid for REH’s working capital is subject to adjustment. REH operates as Town
Square Energy in eight states. REH’s licenses and customer base expanded GRE’s geographic footprint to four new states
– New Hampshire, Rhode Island, Massachusetts and Connecticut – and provided additional electricity customers in New
Jersey, Maryland, Ohio and Pennsylvania. REH operates as a wholly owned subsidiary utilizing the Town Square Energy brand. REH’s
operating results from the date of acquisition, which were not significant, are included in the Company’s consolidated financial
statements.
The
impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet and the acquisition
date fair value of the total consideration transferred were as follows:
(in thousands)
|
|
|
|
Trade accounts receivable
|
|
$
|
3,614
|
|
Inventory
|
|
|
287
|
|
Prepaid expenses
|
|
|
81
|
|
Other current assets
|
|
|
26
|
|
Property and equipment
|
|
|
110
|
|
Trademark
|
|
|
2,100
|
|
Non-compete agreement
|
|
|
110
|
|
Customer relationships
|
|
|
2,100
|
|
Goodwill
|
|
|
5,065
|
|
Other assets
|
|
|
1,600
|
|
Revolving line of credit
|
|
|
(1,919
|
)
|
Trade accounts payable
|
|
|
(2,620
|
)
|
Accrued expenses
|
|
|
(1,542
|
)
|
Net assets
excluding cash acquired
|
|
$
|
9,012
|
|
Supplemental information:
|
|
|
|
|
Cash paid
|
|
$
|
10,949
|
|
Cash acquired
|
|
|
(2,249
|
)
|
Cash paid, net of cash acquired
|
|
|
8,700
|
|
Liability for additional purchase price
|
|
|
312
|
|
Total
consideration, net of cash acquired
|
|
$
|
9,012
|
|
The
goodwill resulting from the acquisition is primarily attributable to the existing workforce of the acquired entities and synergies
expected from the combination of GRE and REH’s REP businesses. None of the goodwill is deductible for income tax purposes.
The
following table presents unaudited pro forma information of the Company as if the acquisition occurred on January 1, 2015:
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
243,147
|
|
|
$
|
243,165
|
|
Net loss
|
|
$
|
(32,303
|
)
|
|
$
|
(11,256
|
)
|
|
|
|
|
|
|
|
|
|
Note
3—Fair Value Measurements
The
following table presents the balance of assets and liabilities measured at fair value on a recurring basis:
(in thousands)
|
|
Level 1 (1)
|
|
|
Level 2 (2)
|
|
|
Level 3 (3)
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
256
|
|
|
$
|
2,395
|
|
|
$
|
—
|
|
|
$
|
2,651
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
60
|
|
|
$
|
1,667
|
|
|
$
|
—
|
|
|
$
|
1,727
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
373
|
|
|
$
|
1,308
|
|
|
$
|
—
|
|
|
$
|
1,681
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
609
|
|
|
$
|
1,583
|
|
|
$
|
—
|
|
|
$
|
2,192
|
|
(1)
– quoted prices in active markets for identical assets or liabilities
(2)
– observable inputs other than quoted prices in active markets for identical assets and liabilities
(3)
– no observable pricing inputs in the market
The
Company’s derivative contracts consist of natural gas and electricity put and call options and swaps. The underlying asset
in the Company’s put and call options is a forward contract. The Company’s swaps are agreements whereby a floating
(or market or spot) price is exchanged for a fixed price over a specified period. The Company’s derivatives were classified
as Level 1, Level 2 or Level 3. The Level 1 derivatives were valued using quoted prices in active markets for identical contracts.
The Level 2 derivatives were valued using observable inputs based on quoted market prices in active markets for similar contracts.
The fair value of the Level 3 derivatives was based on the value of the underlying contracts, estimated in conjunction with the
counterparty and could not be corroborated by the market.
The
following tables summarize the change in the balance of the Company’s assets measured at fair value on a recurring basis
using significant unobservable inputs (Level 3). There were no liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) in the years ended December 31, 2016, 2015 or 2014.
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62
|
|
Total losses included in earnings
in “Cost of revenues”
|
|
|
—
|
|
|
|
—
|
|
|
|
(62
|
)
|
Balance, end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains
(losses) for the period included in earnings in “Cost of revenues” attributable to the change in unrealized gains
or losses relating to assets held at the end of the period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fair
Value of Other Financial Instruments
The
estimated fair value of the Company’s other financial instruments was determined using available market information or other
appropriate valuation methodologies. However, considerable judgment is required in interpreting this data to develop estimates
of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid
in a current market exchange.
Restricted
cash—short-term and long-term, certificates of deposit, prepaid expenses, other current assets, revolving line of credit,
advances from customers, due to IDT Corporation and other current liabilities.
At December 31, 2016 and 2015, the carrying
amount of these assets and liabilities approximated fair value because of the short period to maturity. The fair value estimate
for restricted cash—short-term and long-term were classified as Level 1 and certificates of deposit, prepaid expenses, other
current assets, revolving line of credit, advances from customers, due to IDT Corporation and other current liabilities were classified
as Level 2 of the fair value hierarchy.
Other
assets, revolving credit loan payable and other liabilities.
At December 31, 2016 and 2015, other assets included an aggregate
of $1.0 million and $1.4 million, respectively, in notes receivable. The carrying amounts of the notes receivable, revolving credit
loan payable and other liabilities approximated fair value. The fair values were estimated based on the Company’s assumptions,
and were classified as Level 3 of the fair value hierarchy.
Note
4—Derivative Instruments
The
primary risk managed by the Company using derivative instruments is commodity price risk, which is accounted for in accordance
with Accounting Standards Codification 815—Derivatives and Hedging. Natural gas and electricity put and call options and
swaps are entered into as hedges against unfavorable fluctuations in market prices of natural gas and electricity. The Company
does not apply hedge accounting to these options or swaps, therefore the changes in fair value are recorded in earnings. By using
derivative instruments to mitigate exposures to changes in commodity prices, the Company exposes itself to credit risk and market
risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value
of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company minimizes the
credit or repayment risk in derivative instruments by entering into transactions with high-quality counterparties. At December
31, 2016 and 2015, GRE’s swaps and options were traded on the New York Mercantile Exchange.
The
summarized volume of GRE’s outstanding contracts and options at December 31, 2016 was as follows (MWh – Megawatt hour
and Dth – Decatherm):
Commodity
|
|
Settlement Dates
|
|
Volume
|
Electricity
|
|
January 2017
|
|
141,200 MWh
|
Electricity
|
|
February 2017
|
|
608,000 MWh
|
Electricity
|
|
March 2017
|
|
250,240 MWh
|
Electricity
|
|
July 2017
|
|
70,400 MWh
|
Electricity
|
|
August 2017
|
|
80,960 MWh
|
Electricity
|
|
October 2017
|
|
158,400 MWh
|
Electricity
|
|
November 2017
|
|
151,200 MWh
|
Electricity
|
|
December 2017
|
|
240,000 MWh
|
Electricity
|
|
January 2018
|
|
45,760 MWh
|
Electricity
|
|
February 2018
|
|
41,600 MWh
|
Electricity
|
|
October 2018
|
|
73,600 MWh
|
Electricity
|
|
November 2018
|
|
67,200 MWh
|
Electricity
|
|
December 2018
|
|
64,000 MWh
|
Natural gas
|
|
February 2017
|
|
730,000 Dth
|
Natural gas
|
|
March 2017
|
|
1,000,000 Dth
|
Natural gas
|
|
April 2017
|
|
600,000 Dth
|
Natural gas
|
|
February 2018
|
|
69,720 Dth
|
The
fair value of outstanding derivative instruments recorded in the accompanying consolidated balance sheets were as follows:
December 31
(in thousands)
|
|
|
|
2016
|
|
|
2015
|
|
Asset Derivatives
|
|
Balance Sheet Location
|
|
|
|
|
|
|
Derivatives not designated or not qualifying as hedging instruments:
|
|
|
|
|
|
|
|
|
Energy contracts
and options
|
|
Other current assets
|
|
$
|
2,651
|
|
|
$
|
1,681
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
Derivatives not designated or not qualifying as hedging instruments:
|
|
|
|
|
|
|
|
|
Energy contracts
and options
|
|
Energy hedging contracts
|
|
$
|
1,727
|
|
|
$
|
2,192
|
|
The
effects of derivative instruments on the consolidated statements of operations were as follows:
|
|
|
|
Amount of Gain (Loss) Recognized
on Derivatives
|
|
|
|
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Derivatives not designated or not qualifying as hedging instruments
|
|
Location of Gain (Loss) Recognized on Derivatives
|
|
|
|
|
|
|
|
|
|
Energy contracts
and options
|
|
Cost of revenues
|
|
$
|
(538
|
)
|
|
$
|
(1,772
|
)
|
|
$
|
(1,674
|
)
|
Note
5—Afek Oil and Gas Exploration Activities
In April 2013, the Government of Israel finalized the award to
Afek of an exclusive three-year petroleum exploration license covering 396.5 square kilometers in the southern portion of the
Golan Heights in Northern Israel. The license has been extended to April 2018. Israel’s Northern District Planning and Building
Committee granted Afek a one-year permit that commenced in February 2015, which has been subsequently extended to April 18, 2018,
to conduct an up to ten-well oil and gas exploration program. This permit as extended is expected to cover the remainder of Afek’s
ongoing exploration program in the area covered by its exploration license.
In
February 2015, Afek began drilling its first exploratory well. To date, Afek has completed drilling five wells in the Southern
region of its license area. In light of the analysis received in the third quarter of 2016 and the information and market conditions
at the time, Afek determined that it did not have a clear path to demonstrate probable or possible reserves in the Southern region
of its license area over the next 12 to 18 months. Since there was substantial doubt regarding the economic viability of these
wells, in the year ended December 31, 2016, Afek wrote off the $41.0 million of capitalized exploration costs incurred in the
Southern region.
Afek
has turned its operational focus to the Northern region of its license area. Afek views the Northern and Southern regions separately
when evaluating its unproved properties. Afek is preparing to drill its sixth exploratory well at one of the Northern sites in
its license area. Afek expects to spud this well in March 2017 and complete the well during the second quarter of 2017.
Afek
assesses the economic and operational viability of its project on an ongoing basis. The assessment requires significant estimates
and assumptions by management. Should Afek’s estimates or assumptions regarding the recoverability of future capitalized
exploration costs, if any, prove to be incorrect, Afek may be required to record impairments of such costs in future periods and
such impairments could be material.
Note
6—Investment in American Shale Oil, LLC
The
Company through GOGAS has a 98.3% interest in American Shale Oil Corporation (“AMSO”), which operated American Shale
Oil, L.L.C. (“AMSO, LLC”), its oil shale development project in Colorado. Through April 30, 2016, the Company accounted
for its ownership interest in AMSO, LLC using the equity method since the Company had the ability to exercise significant influence
over its operating and financial matters, although it did not control AMSO, LLC. AMSO, LLC was a variable interest entity, however,
the Company determined that it was not the primary beneficiary, as the Company did not have the power to direct the activities
of AMSO, LLC that most significantly impact AMSO, LLC’s economic performance.
On
February 23, 2016, TOTAL S.A. (“Total”) notified the Company of its decision not to continue to fund AMSO, LLC. On
March 23, 2016, Total gave AMSO its notice of withdrawal from AMSO, LLC. The withdrawal was effective on April 30, 2016. As of
April 1, 2016, AMSO and Total agreed that Total would pay AMSO, LLC $3.0 million as full payment of its share of all costs associated
with the decommissioning, winding up and dissolution of AMSO, LLC. Total will not be refunded any amount if the decommissioning
costs are less than $3.0 million. At December 31, 2016, the AMSO, LLC project was substantially decommissioned. Effective April
30, 2016, AMSO, LLC’s assets, liabilities, results of operations and cash flows are included in the Company’s consolidated
financial statements.
The
following table summarizes the change in the balance of the Company’s investment in AMSO, LLC:
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, beginning of period
|
|
$
|
(399
|
)
|
|
$
|
(252
|
)
|
|
$
|
(252
|
)
|
Capital contributions
|
|
|
63
|
|
|
|
250
|
|
|
|
—
|
|
Equity in net loss of AMSO, LLC
|
|
|
(222
|
)
|
|
|
(397
|
)
|
|
|
—
|
|
Elimination of the investment in AMSO, LLC
|
|
|
558
|
|
|
|
—
|
|
|
|
—
|
|
Balance, end of period
|
|
$
|
—
|
|
|
$
|
(399
|
)
|
|
$
|
(252
|
)
|
At
December 31, 2015, the liability for equity loss in AMSO, LLC was included in “Accrued expenses” in the consolidated
balance sheet.
Summarized
statements of operations of AMSO, LLC through the April 30, 2016 acquisition date are as follows:
(in thousands)
|
|
Period from January 1, 2016
to April 30, 2016
|
|
|
Year ended December 31, 2015
|
|
|
Year ended December 31, 2014
|
|
REVENUES
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
120
|
|
|
|
403
|
|
|
|
456
|
|
Research and development
|
|
|
3,512
|
|
|
|
4,782
|
|
|
|
7,755
|
|
TOTAL OPERATING
EXPENSES
|
|
|
3,632
|
|
|
|
5,185
|
|
|
|
8,211
|
|
Loss from operations
|
|
|
(3,632
|
)
|
|
|
(5,185
|
)
|
|
|
(8,211
|
)
|
Other income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
NET LOSS
|
|
$
|
(3,632
|
)
|
|
$
|
(5,185
|
)
|
|
$
|
(8,211
|
)
|
Summarized
balance sheet of AMSO, LLC at April 30, 2016 (in thousands) is as follows:
Assets
|
|
|
|
Cash and cash equivalents
|
|
$
|
750
|
|
Receivable from Total
|
|
|
3,000
|
|
Other current assets
|
|
|
128
|
|
Other assets
|
|
|
860
|
|
Total assets
|
|
$
|
4,738
|
|
|
|
|
|
|
Liabilities and member’s interest
|
|
|
|
|
Current liabilities
|
|
$
|
518
|
|
Asset retirement obligations
|
|
|
2,535
|
|
Other liabilities
|
|
|
981
|
|
Member’s interest
|
|
|
704
|
|
Total liabilities and member’s
interest
|
|
$
|
4,738
|
|
The
Company accounted for its acquisition on April 30, 2016 of Total’s ownership interest in AMSO, LLC as a business combination.
The Company estimated the fair value of AMSO, LLC to be nil, as it had ceased operations and its shutdown was in progress. The
Company recognized a gain from the acquisition of Total’s interest in AMSO, LLC because the Company acquired the net assets
of AMSO, LLC while no consideration was transferred by the Company, due to the Company’s assumption of the risk associated
with the shutdown obligations. The gain also included the Company’s gain on the remeasurement of AMSO’s investment
in AMSO, LLC at its acquisition date fair value. The aggregate gain recognized was $1.3 million, which was included in “Gain
on consolidation of AMSO, LLC” in the consolidated statements of operations.
Revenue,
income from operations and net income of AMSO, LLC since the acquisition date included in the Company’s consolidated statement
of operations are as follows:
(in thousands)
|
|
Year ended December 31, 2016
|
|
Revenues
|
|
$
|
—
|
|
Income from operations
|
|
$
|
118
|
|
Net income
|
|
$
|
76
|
|
The
following table presents unaudited pro forma information of the Company as if the acquisition occurred on January 1, 2015:
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
212,112
|
|
|
$
|
213,056
|
|
Net loss
|
|
$
|
(35,602
|
)
|
|
$
|
(13,424
|
)
|
In
April 2016, AMSO, LLC recorded a liability for the decommissioning of its project and the remediation of the leased area. The
following table summarizes the change in the balance of the AMSO, LLC retirement obligations after the consolidation of AMSO,
LLC:
(in thousands)
|
|
|
|
Liability at April 30, 2016 acquisition
date
|
|
$
|
2,535
|
|
Adjustments
|
|
|
(441
|
)
|
Payments
|
|
|
(1,978
|
)
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
116
|
|
Note
7—Property and Equipment
December 31
(in thousands)
|
|
2016
|
|
|
2015
|
|
Computer software and development
|
|
$
|
1,836
|
|
|
$
|
1,287
|
|
Computers and computer hardware
|
|
|
231
|
|
|
|
221
|
|
Laboratory and drilling equipment
|
|
|
543
|
|
|
|
528
|
|
Office equipment and other
|
|
|
424
|
|
|
|
349
|
|
|
|
|
3,034
|
|
|
|
2,385
|
|
Less: accumulated depreciation
|
|
|
(1,417
|
)
|
|
|
(1,038
|
)
|
Property and equipment, net
|
|
$
|
1,617
|
|
|
$
|
1,347
|
|
Depreciation
expense of property and equipment was $0.4 million, $0.4 million and $0.1 million in in the years ended December 31, 2016, 2015
and 2014, respectively.
Note
8—Goodwill and Other Intangibles
All
of the Company’s goodwill at December 31, 2016 and 2015 was attributable to the GRE segment. The table below reconciles
the change in the carrying amount of goodwill for the period from December 31, 2013 to December 31, 2016:
(in thousands)
|
|
|
|
Balance at December 31, 2013
|
|
$
|
7,349
|
|
Adjustment
|
|
|
(124
|
)
|
Impairment
|
|
|
(3,562
|
)
|
Balance at December 31, 2014
|
|
|
3,663
|
|
Change in carrying amount
|
|
|
—
|
|
Balance at December 31, 2015
|
|
|
3,663
|
|
Acquisition of Retail Energy Holdings, LLC (see Note 2)
|
|
|
5,065
|
|
Balance at December 31, 2016
|
|
$
|
8,728
|
|
In
December 2013, IDT Energy acquired 100% of the outstanding membership interests of Diversegy, LLC (“Diversegy”), a
retail energy advisory and brokerage company that serves commercial and industrial customers, and Epiq Energy, LLC, which was
subsequently renamed IDT Energy Network (“IDTEN”), a network marketing company that provides independent representatives
with the opportunity to build sales organizations and to profit from both residential and commercial energy. In the year ended
December 31, 2014, the annual goodwill impairment test resulted in the impairment of the goodwill of the Diversegy and IDTEN reporting
unit primarily because of continuing losses since the acquisitions. The goodwill impairment of $3.6 million reduced the carrying
amount of the goodwill of the Diversegy and IDTEN reporting unit to zero. The Company estimated the fair value of the reporting
unit and compared the estimated fair value to the reporting unit’s carrying amount. The Company measured the fair value
of the reporting unit by discounting its estimated future cash flows using an appropriate discount rate. Since the carrying value
of the reporting unit including goodwill exceeded the estimated fair value, the Company performed the required additional steps
and determined that the goodwill was fully impaired.
The
table below presents information on the Company’s other intangible assets:
(in thousands)
|
|
Weighted
Average
Amortization
Period
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Balance
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark (see Note 2)
|
|
|
20
years
|
|
|
$
|
2,100
|
|
|
$
|
(13
|
)
|
|
$
|
2,087
|
|
Non-compete agreement (see Note 2)
|
|
|
2
years
|
|
|
|
110
|
|
|
|
(11
|
)
|
|
|
99
|
|
Customer relationships (see Note 2)
|
|
|
2
years
|
|
|
|
2,100
|
|
|
|
(159
|
)
|
|
|
1,941
|
|
Licenses
|
|
|
—
|
|
|
|
150
|
|
|
|
—
|
|
|
|
150
|
|
TOTAL
|
|
|
10.4
years
|
|
|
$
|
4,460
|
|
|
$
|
(183
|
)
|
|
$
|
4,277
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
—
|
|
|
$
|
150
|
|
|
$
|
—
|
|
|
$
|
150
|
|
Amortization
expense of intangible assets was $0.2 million, nil and nil in in the years ended December 31, 2016, 2015 and 2014, respectively.
The Company estimates that amortization expense of intangible assets with finite lives will be $1.2 million, $1.0 million, $0.1
million, $0.1 million and $0.1 million in the years ending December 31, 2017, 2018, 2019, 2020 and 2021, respectively.
Note
9—Revolving Credit and Loan Facility
REH
has a Credit Agreement with Vantage Commodities Financial Services II, LLC for a revolving line of credit for up to a maximum
principal amount of $7.5 million. The principal outstanding incurs interest at one-month LIBOR plus 5.25% per annum, payable monthly.
The outstanding principal and any accrued and unpaid interest is due on the maturity date of October 31, 2017. The collateral
for the revolving line of credit consists of REH’s accounts receivable, bank account balances and other assets. REH pays
an unused commitment fee each month equal to one-month LIBOR per annum on the difference between $7.5 million and the average
daily outstanding principal balance of the note. At December 31, 2016, $0.7 million was outstanding under the line of credit.
On
December 17, 2015, GRE, IDT Energy and certain affiliates entered into a Credit Agreement with Maple Bank GmbH for a revolving
loan facility. On December 17, 2015, GRE borrowed $2.0 million under the facility. In February 2016, the German banking regulator,
Bafin, closed Maple Bank GmbH due to impending financial over-indebtedness related to tax-evasion investigations. In September
2016, GRE, and its affiliates entered into a settlement agreement with the court appointed liquidator of Maple Bank. Under this
agreement, GRE paid $1.8 million as a full settlement of all of its obligations, and the revolving loan facility was terminated.
Accordingly, GRE recorded in 2016 a gain from this settlement of $0.2 million, which was included in “Other income (expense),
net” in the consolidated statements of operations.
As
of April 23, 2012, the Company and IDT Energy entered into a Loan Agreement with JPMorgan Chase Bank for a revolving line of credit
for up to a maximum principal amount of $25.0 million. The proceeds from the line of credit may be used to provide working capital
and for the issuance of letters of credit. The Company agreed to deposit cash in a money market account at JPMorgan Chase Bank
as collateral for the line of credit equal to the greater of (a) $10.0 million or (b) the sum of the amount of letters of credit
outstanding plus the outstanding principal under the revolving note. The Company is not permitted to withdraw funds or exercise
any authority over the required balance in the collateral account. The principal outstanding will bear interest at the lesser
of (a) the LIBOR rate multiplied by the statutory reserve rate established by the Board of Governors of the Federal Reserve System
plus 1.0% per annum, or (b) the maximum rate per annum permitted by whichever of applicable federal or Texas laws permit the higher
interest rate. Interest is payable at least every three months and all outstanding principal and any accrued and unpaid interest
is due on the maturity date of May 31, 2017. The Company pays a quarterly unused commitment fee of 0.08% per annum on the difference
between $25.0 million and the average daily outstanding principal balance of the note. In addition, as of April 23, 2012, GEIC
issued a Corporate Guaranty to JPMorgan Chase Bank whereby GEIC unconditionally guarantees the full payment of all indebtedness
of the Company and IDT Energy under the Loan Agreement. At December 31, 2016 and 2015, there were no amounts borrowed under the
line of credit, and cash collateral of $10.0 million was included in “Restricted cash—short-term” in the consolidated
balance sheet. In addition, at December 31, 2016 and 2015, letters of credit of $8.1 million and $7.7 million, respectively, were
outstanding.
Note
10—Income Taxes
The following changes were made in this Note 10 to correct errors
in prior periods:
|
●
|
At
December 31, 2015, the Company’s deferred income tax asset for stock options and
restricted stock was decreased by $6.6 million, and the valuation allowance for deferred
income taxes was reduced accordingly.
|
|
|
|
|
●
|
In
the reconciliation of the differences between income taxes expected at the U.S. federal
statutory income tax rate and income taxes provided, the valuation allowance amount was
increased by $7.7 million and $1.5 million in the years ended December 31, 2015 and 2014,
respectively, and the foreign tax rate differential was reduced accordingly.
|
The
components of loss before income taxes are as follows:
|
|
Year
ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Domestic
|
|
$
|
18,629
|
|
|
$
|
1,517
|
|
|
$
|
(14,900
|
)
|
Foreign
|
|
|
(48,603
|
)
|
|
|
(9,628
|
)
|
|
|
(12,412
|
)
|
LOSS BEFORE INCOME TAXES
|
|
$
|
(29,974
|
)
|
|
$
|
(8,111
|
)
|
|
$
|
(27,312
|
)
|
Significant
components of the Company’s deferred income tax assets consist of the following:
December 31
(in thousands)
|
|
2016
|
|
|
2015 (Revised)
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
Bad debt reserve
|
|
$
|
70
|
|
|
$
|
75
|
|
Accrued expenses
|
|
|
3,821
|
|
|
|
3,865
|
|
State taxes
|
|
|
221
|
|
|
|
91
|
|
Charitable contributions
|
|
|
470
|
|
|
|
402
|
|
Net operating loss
|
|
|
37,568
|
|
|
|
26,186
|
|
Stock options and restricted stock
|
|
|
1,456
|
|
|
|
1,131
|
|
Depreciation
|
|
|
11,153
|
|
|
|
1,661
|
|
Total deferred income tax assets
|
|
|
54,759
|
|
|
|
33,411
|
|
Valuation allowance
|
|
|
(52,978
|
)
|
|
|
(31,769
|
)
|
DEFERRED INCOME TAX ASSETS, NET
|
|
$
|
1,781
|
|
|
$
|
1,642
|
|
The
provision for income taxes consists of the following:
|
|
Year
ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State and local
|
|
|
2,349
|
|
|
|
704
|
|
|
|
730
|
|
Foreign
|
|
|
8
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
|
2,357
|
|
|
|
704
|
|
|
|
718
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
6
|
|
|
|
19
|
|
|
|
68
|
|
State and local
|
|
|
(145
|
)
|
|
|
(198
|
)
|
|
|
(691
|
)
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(139
|
)
|
|
|
(179
|
)
|
|
|
(623
|
)
|
PROVISION FOR INCOME TAXES
|
|
$
|
2,218
|
|
|
$
|
525
|
|
|
$
|
95
|
|
The
differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:
|
|
Year ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015 (Revised)
|
|
|
2014 (Revised)
|
|
U.S. federal income tax at statutory rate
|
|
$
|
(10,491
|
)
|
|
$
|
(2,840
|
)
|
|
$
|
(9,559
|
)
|
Valuation allowance
|
|
|
21,209
|
|
|
|
10,687
|
|
|
|
11,050
|
|
Foreign tax rate differential
|
|
|
(9,901
|
)
|
|
|
(7,674
|
)
|
|
|
(1,464
|
)
|
Other
|
|
|
(95
|
)
|
|
|
20
|
|
|
|
115
|
|
State and local income tax, net of federal benefit
|
|
|
1,496
|
|
|
|
332
|
|
|
|
(47
|
)
|
PROVISION FOR INCOME TAXES
|
|
$
|
2,218
|
|
|
$
|
525
|
|
|
$
|
95
|
|
At
December 31, 2016, the Company had U.S. federal and state net operating loss carry-forwards of approximately $31.6 million and
$93.9 million, respectively. These carry-forward losses are available to offset future U.S. federal and state taxable income.
The federal net operating loss carry-forwards will start to expire in 2032, with the year ended December 31, 2016’s loss
expiring in 2037. The state net operating loss carry-forwards will start to expire in 2028, with the year ended December 31, 2016’s
loss expiring in 2037.
At December 31, 2016, the Company had foreign net operating loss
carry-forwards of approximately $84.5 million, of which $76.1 million will not expire.
The
Company includes certain entities that are not included in the Company’s consolidated tax return. The entities have separate
U.S. federal and state net operating loss carry-forwards of $1.2 million that begin to expire in 2035, with the year ended December
31, 2016’s loss expiring in 2037.
The
change in the valuation allowance for deferred income taxes was as follows:
(in thousands)
|
|
Balance at
beginning of
period
|
|
|
Additions
charged to
costs and
expenses
|
|
|
Deductions
|
|
|
Balance at
end of period
|
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for valuation allowances deducted from deferred income taxes, net
|
|
$
|
31,769
|
|
|
$
|
21,209
|
|
|
$
|
—
|
|
|
$
|
52,978
|
|
Year ended December 31, 2015 (Revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for valuation allowances deducted from deferred income taxes, net
|
|
$
|
21,082
|
|
|
$
|
10,687
|
|
|
$
|
—
|
|
|
$
|
31,769
|
|
Year ended December 31, 2014 (Revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for valuation allowances deducted from deferred income taxes, net
|
|
$
|
10,032
|
|
|
$
|
11,050
|
|
|
$
|
—
|
|
|
$
|
21,082
|
|
The
table below summarizes the change in the balance of unrecognized income tax benefits:
|
|
Year
ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at beginning of period
|
|
$
|
636
|
|
|
$
|
543
|
|
|
$
|
542
|
|
Additions based on tax positions related to the current period
|
|
|
81
|
|
|
|
97
|
|
|
|
209
|
|
Additions for tax positions of prior periods
|
|
|
4
|
|
|
|
10
|
|
|
|
9
|
|
Lapses of statutes of limitations
|
|
|
(89
|
)
|
|
|
(14
|
)
|
|
|
(217
|
)
|
Balance at end of period
|
|
$
|
632
|
|
|
$
|
636
|
|
|
$
|
543
|
|
All
of the unrecognized income tax benefits at December 31, 2016 and 2015 would have affected the Company’s effective income
tax rate if recognized. The Company does not expect the total amount of unrecognized income tax benefits to significantly increase
or decrease within the next twelve months.
In
the years ended December 31, 2016, 2015 and 2014, the Company recorded interest on income taxes of $4,000, $10,000 and $9,000,
respectively. At December 31, 2016 and 2015, there was no accrued interest included in current income taxes payable.
The
Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for 2013 to 2016, state
and local tax returns generally for 2012 to 2016 and foreign tax returns generally for 2012 to 2016.
Note
11—Equity
Class A
Common Stock and Class B Common Stock
The
rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion
rights and restrictions on transferability. The holders of Class A common stock and Class B common stock receive identical
dividends per share when and if declared by the Company’s Board of Directors. In addition, the holders of Class A common
stock and Class B common stock have identical and equal priority rights per share in liquidation. The Class A common stock
and Class B common stock do not have any other contractual participation rights. The holders of Class A common stock are
entitled to three votes per share and the holders of Class B common stock are entitled to one-tenth of a vote per share. Except
as required by law or under the terms of the Series 2012-A Preferred Stock (the “Preferred Stock”), the holders of
Class A and Class B common stock and the Preferred Stock vote together as a single class on all matters submitted to a vote of
the Company’s stockholders. Each share of Class A common stock may be converted into one share of Class B common stock,
at any time, at the option of the holder. Shares of Class A common stock are subject to certain limitations on transferability
that do not apply to shares of Class B common stock.
Series
2012-A Preferred Stock
Each
share of Preferred Stock has a liquidation preference of $8.50 (the “Liquidation Preference”), and is entitled to
receive an annual dividend per share equal to the sum of (i) $0.6375 (the “Base Dividend”) plus (ii) seven and one-half
percent (7.5%) of the quotient obtained by dividing (A) the amount by which the EBITDA for a fiscal year of the Company’s
retail energy provider business exceeds $32 million by (B) 8,750,000 (the “Additional Dividend”), payable in cash.
EBITDA consists of income (loss) from operations exclusive of depreciation and amortization and other operating gains (losses).
During any period when the Company has failed to pay a dividend on the Preferred Stock and until all unpaid dividends have been
paid in full, the Company is prohibited from paying dividends or distributions on the Company’s Class B or Class A common
stock.
The
Preferred Stock is redeemable, in whole or in part, at the option of the Company following October 11, 2017 at 101% of the Liquidation
Preference plus accrued and unpaid dividends, and 100% of the Liquidation Preference plus accrued and unpaid dividends following
October 11, 2018.
The
Base Dividend is payable (if declared by the Company’s Board of Directors, and accrued, if not declared) quarterly on each
February 15, May 15, August 15 and November 15, and to the extent that there is any Additional Dividend payable with respect to
a fiscal year, it will be paid to holders of Preferred Stock with the May dividend. With respect to the payment of dividends and
amounts upon liquidation, dissolution or winding up, the Preferred Stock is equal in rank to all other equity securities the Company
issues, the terms of which specifically provide that such equity securities rank on a parity with the Preferred Stock with respect
to dividend rights or rights upon the Company’s liquidation, dissolution or winding up; senior to the Company’s common
stock; and junior to all of the Company’s existing and future indebtedness.
Each
share of Preferred Stock has the same voting rights as a share of Class B common stock, except on certain matters that only impact
the Company’s common stock, as well as additional voting rights on specific matters or upon the occurrence of certain events.
Dividend
Payments
In
the year ended December 31, 2016, the Company paid aggregate cash dividends of $0.24 per share on its Class A common stock and
Class B common stock, equal to $5.9 million in total dividends paid. In the year ended December 31, 2015, the Company paid aggregate
cash dividends of $0.12 per share on its Class A common stock and Class B common stock, equal to $3.0 million in total dividends
paid. In the year ended December 31, 2014, the Company paid aggregate cash dividends of $0.06 per share on its Class A common
stock and Class B common stock, equal to $1.5 million in total dividends paid. On March 7, 2017, the Company’s Board of
Directors declared a quarterly dividend of $0.075 per share on the Company’s Class A common stock and Class B common stock
for the fourth quarter of 2016 to stockholders of record as of the close of business on March 20, 2017. The dividend will be paid
on or about March 24, 2017.
In
each of the years ended December 31, 2016 and 2015, the Company paid aggregate cash dividends of $0.6376 per share on its Preferred
Stock, equal to $1.5 million in dividends paid. In the year ended December 31, 2014, the Company paid aggregate cash dividends
of $0.6376 per share on its Preferred Stock, equal to $1.4 million in total Preferred Stock dividends paid. On February 15, 2017,
the Company paid a quarterly Base Dividend of $0.1594 per share on its Preferred Stock for the fourth quarter of 2016 to stockholders
of record as of the close of business on February 6, 2017.
Stock
Repurchases
On
March 11, 2013, the Board of Directors of the Company approved a stock repurchase program for the repurchase of up to an aggregate
of 7.0 million shares of the Company’s Class B common stock. In the year ended December 31, 2014, the Company repurchased
103,331 shares of Class B common stock under this program for an aggregate purchase price of $0.8 million. There were no repurchases
under the program in the years ended December 31, 2016 and 2015. At December 31, 2016, 6.9 million shares remained available for
repurchase under the stock repurchase program.
Exchange
Offer and Issuance of Preferred Stock
On
May 22, 2014, the Company initiated an offer to exchange up to 5.0 million shares of its outstanding Class B common stock for
the same number of shares of its Preferred Stock. The offer expired on June 23, 2014. On June 27, 2014, the Company issued 404,732
shares of its Preferred Stock in exchange for an equal number of shares of Class B common stock tendered in the exchange offer.
Sale
of Shares to Howard S. Jonas
On
July 30, 2014, the Company entered into a Second Amended and Restated Employment Agreement and a Restricted Stock Sale Agreement
with Howard S. Jonas, the Company’s Chairman of the Board and Chief Executive Officer. Pursuant to these agreements, (a)
options to purchase 3.0 million shares of the Company’s Class B common stock previously granted to Mr. Jonas, with an exercise
price of $10.30 per share were cancelled, (b) the term of the existing employment agreement between the Company and Mr. Jonas
was extended for an additional one year period, expiring on December 31, 2019, and (c) Mr. Jonas committed to purchase an aggregate
of 3.6 million shares of the Company’s Class B common stock from the Company at a price of $6.82 per share (the closing
price per share of the Class B common stock on the day that the arrangement was approved by the Company’s Board of Directors
and Compensation Committee). Upon certain terminations of Mr. Jonas’ employment by the Company, 1.2 million of the Class
B shares are subject to repurchase by the Company at $6.82 per share. This repurchase right lapses as to 0.6 million shares on
December 31, 2017 and 2018. On July 30, 2014 and August 4, 2014, the Company sold an aggregate of 3.6 million shares of the Company’s
Class B common stock to Mr. Jonas for an aggregate purchase price of $24.6 million. The Company accounted for the change in the
equity arrangements with Mr. Jonas as a modification, with an incremental value of nil. Accordingly, the unrecognized compensation
cost at July 30, 2014 of $17.0 million is being recognized on a straight-line basis over the modified vesting period. The estimated
total value of the options on the date of the grant was $19.3 million.
Sales
of Equity of Subsidiaries
Per
the terms of his employment agreement, Dr. Harold Vinegar, Chief Scientist of the Company, has an option to purchase, at fair
value, up to 10% of the GOGAS ventures in which he is a key contributor. In prior years, Dr. Vinegar purchased interests in IEI,
Afek and Genie Mongolia. In December 2016, Dr. Vinegar purchased an additional 1% interest in Afek for $1.0 million in cash.
In
November 2010, GOGAS sold a 0.5% equity interest to Rupert Murdoch for $1.0 million paid with a promissory note. The note was
secured by a pledge of the shares issued in exchange for the note. The note accrued interest at 1.58% per annum. The Company received
an aggregate of $1.1 million for the payment of the principal and accrued interest on the maturity date of November 15, 2015.
In
connection with the sale by GOGAS in November 2010 of a 5.0% equity interest to an entity affiliated with Lord (Jacob) Rothschild
for $10.0 million, the entity affiliated with Lord Rothschild has a one-time option through November 12, 2017 to exchange its
GOGAS shares for shares of the Company with equal fair value as determined by the parties. The number of shares issuable in such
an exchange is not currently determinable.
Exercise
of GOGAS Stock Option
GOGAS
issued a stock option in June 2011 to Michael Steinhardt, the Chairman of the Board of IEI, at an exercise price of $5.0 million.
The expiration date was April 9, 2015. The expiration date was extended for one month, and on May 9, 2015, the option was
exercised. Mr. Steinhardt and an affiliate received interests of approximately 1.5% in each of Afek, Genie Mongolia and IEI. In
addition, Mr. Steinhardt and the affiliate received an approximately 1.7% interest in AMSO. The exercise price of $5.0 million
was paid $2.5 million in cash and $2.5 million in promissory notes due in November 2015. The notes bear interest at 0.43% per
annum, and are secured by 50% of the shares received in the exercise. In November 2015, the Company received cash of $0.8 million
to repay one-third of the principal amount of the promissory notes, and released one-third of the shares securing the remaining
notes. The remaining notes, an aggregate of $1.7 million, are expected to be repaid in 2017. At December 31, 2016 and 2015, the
notes receivable were included in “Receivables for issuance of equity” in the consolidated balance sheet.
Note
12—Stock-Based Compensation
Stock-Based
Compensation Plan
The
Company’s 2011 Stock Option and Incentive Plan is intended to provide incentives to executives, employees, directors and
consultants of the Company. Incentives available under the 2011 Stock Option and Incentive Plan may include stock options, stock
appreciation rights, limited rights, deferred stock units, and restricted stock. The plan is administered by the Compensation
Committee of the Company’s Board of Directors. On May 5, 2015, the Company’s stockholders approved an amendment and
restatement to the Company’s 2011 Stock Option and Incentive Plan that increased the number of shares of the Company’s
Class B common stock available for the grant of awards thereunder by an additional 180,000 shares. At December 31, 2016, the Company
had 1.3 million shares of Class B common stock reserved for award under its 2011 Stock Option and Incentive Plan and 0.1 million
shares were available for future grants.
Restricted
Stock
The
fair value of restricted shares of the Company’s Class B common stock is determined based on the closing price of the Company’s
Class B common stock on the grant date. Share awards generally vest on a graded basis over three years of service following the
grant.
A
summary of the status of the Company’s grants of restricted shares of Class B common stock is presented below:
|
|
Number
of
Non-
vested Shares
(in thousands)
|
|
|
Weighted-
Average Grant
Date Fair
Value
|
|
Non-vested shares at December 31, 2015
|
|
|
52
|
|
|
$
|
11.72
|
|
Granted
|
|
|
38
|
|
|
|
8.19
|
|
Vested
|
|
|
(61
|
)
|
|
|
8.50
|
|
Forfeited
|
|
|
(3
|
)
|
|
|
11.15
|
|
NON-VESTED SHARES AT DECEMBER 31, 2016
|
|
|
26
|
|
|
$
|
10.08
|
|
At
December 31, 2016, there was $5.7 million of total unrecognized compensation cost related to non-vested stock-based compensation
arrangements, mostly related to the shares purchased by Howard S. Jonas (see Note 11). The total unrecognized compensation cost
is expected to be recognized over a weighted-average period of 1.1 years. The total grant date fair value of shares vested in
the years ended December 31, 2016, 2015 and 2014 was $0.5 million, $0.5 million and $2.5 million, respectively. The Company recognized
compensation cost related to the vesting of the restricted stock of $3.5 million, $3.6 million, and $6.6 million in the years
ended December 31, 2016, 2015, and 2014, respectively.
Effective
January 6, 2014, the Company issued 29,126 restricted shares of its Class B common stock to Michael Stein, Executive Vice President
of the Company, and son-in-law of Howard S. Jonas. The restricted shares vest in three equal annual installments that commenced
on January 5, 2015. The fair value of the restricted shares on the date of the grant was $0.3 million, which is being recognized
on a straight-line basis over the vesting period.
Stock
Options
Option
awards are generally granted with an exercise price equal to the market price of the Company’s stock on the date of grant.
Option awards generally vest on a graded basis over three years of service and have ten-year contractual terms. Expected volatility
is based on historical volatility of the Company’s Class B common stock and other factors. The Company uses historical data
on exercise of stock options, post vesting forfeitures and other factors to estimate the expected term of the stock-based payments
granted. The risk free rate is based on the U.S. Treasury yield curve in effect at the time of grant.
The
fair value of stock options granted in the years ended December 31, 2016 and 2015 was estimated on the date of the grant using
a Black-Scholes valuation model and the assumptions in the following table. No option awards were granted in the year ended December
31, 2014.
|
|
Year
ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSUMPTIONS
|
|
|
|
|
|
|
Average risk-free interest rate
|
|
|
0.4
|
%
|
|
|
0.93
|
%
|
Expected dividend yield
|
|
|
5.01
|
%
|
|
|
—
|
|
Expected volatility
|
|
|
55.5
|
%
|
|
|
61.0
|
%
|
Expected term
|
|
|
1 year
|
|
|
|
5.5 years
|
|
Weighted-average grant date fair value of options granted
|
|
$
|
1.05
|
|
|
$
|
9.67
|
|
A
summary of stock option activity for the Company is as follows:
|
|
Number
of
Options
(in thousands)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
(in
years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding at December 31, 2015
|
|
|
414
|
|
|
$
|
6.74
|
|
|
|
5.6
|
|
|
$
|
1,825
|
|
Granted
|
|
|
5
|
|
|
|
7.14
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cancelled / Forfeited
|
|
|
(5
|
)
|
|
|
6.85
|
|
|
|
|
|
|
|
|
|
OUTSTANDING AT DECEMBER 31, 2016
|
|
|
414
|
|
|
$
|
6.75
|
|
|
|
4.6
|
|
|
$
|
37
|
|
EXERCISABLE AT DECEMBER 31, 2016
|
|
|
327
|
|
|
$
|
6.66
|
|
|
|
4.5
|
|
|
$
|
24
|
|
The
total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was nil, $12,000 and $12,000,
respectively. At December 31, 2016, there was $0.1 million of total unrecognized compensation cost related to non-vested
stock options, which is expected to be recognized over a weighted-average period of 1.5 years. The Company recognized compensation
cost related to the vesting of the options of $23,000, $0.3 million and $2.5 million in the years ended December 31, 2016, 2015
and 2014, respectively.
Subsidiary
Equity Grants Reclassified to Liability
On
May 5, 2015, the Compensation Committee of the Company’s Board of Directors approved the grant of deferred stock units in
GRE to certain of the Company’s officers and employees. Howard S. Jonas was granted deferred stock units representing 2.8%
of the outstanding equity in GRE, Avi Goldin, the Company’s Chief Financial Officer and Executive Vice President - Finance
was granted deferred stock units representing 0.2% of the outstanding equity in GRE, Michael Stein, the Company’s Executive
Vice President and the Chief Executive Officer and a Director of GRE was granted deferred stock units representing 0.3% of the
outstanding equity in GRE, and other employees were granted deferred stock units representing an aggregate of 0.6% of the outstanding
equity in GRE. The deferred stock units vest in equal amounts on the first, second and third anniversaries of the date of grant.
The fair value of the GRE deferred stock units on the date of grant was $3.3 million, which was being recognized on a straight-line
basis over the vesting period. GRE had the right to issue shares of the Company’s Class B common stock or pay cash to satisfy
its obligations to issue common stock of GRE upon the vesting of the deferred stock units. GRE elected to pay cash for the deferred
stock units that vested in June and July 2016. The Company paid cash in the amount of $1.7 million in August 2016 to satisfy its
obligation to issue common stock of GRE. Accordingly, as a result of the cash settlement, the Company determined that the remaining
GRE deferred stock units should be classified as a liability. At December 31, 2016, $0.7 million related to the GRE deferred stock
units was included in “Other current liabilities” in the consolidated balance sheet.
The
Company recognized aggregate compensation cost related to the vesting of the GRE deferred stock units and other subsidiary equity
interests that were granted in prior years of $0.6 million, $1.4 million and $1.6 million in the years ended December 31, 2016,
2015 and 2014, respectively.
In
August 2014, the Company elected to exchange vested deferred stock units of IDT Energy previously granted to employees and directors
of the Company for shares of the Company’s Class B common stock upon the vesting of the deferred stock units based on the
relative fair value of the shares exchanged. Accordingly, the Company issued 137,738 shares of the Company’s Class B common
stock in exchange for 23.6 vested deferred stock units of IDT Energy. In August 2015, the Company elected to pay cash of $1.2
million for the deferred stock units of IDT Energy that vested in June and July 2015 based on the estimated fair value of the
deferred stock units of IDT Energy.
Note
13—Variable Interest Entity
Citizens
Choice Energy, LLC (“CCE”) is a REP that resells electricity and natural gas to residential and small business customers
in the State of New York. Since 2011, the Company provided CCE with substantially all of the cash required to fund its operations.
The Company determined that it had the power to direct the activities of CCE that most significantly impact its economic performance
and it has the obligation to absorb losses of CCE that could potentially be significant to CCE on a stand-alone basis. The Company
therefore determined that it is the primary beneficiary of CCE, and as a result, the Company consolidates CCE within its GRE segment.
The Company does not own any interest in CCE and thus the net income or loss incurred by CCE was attributed to noncontrolling
interests in the accompanying consolidated statements of operations.
In
October 2015, GRE paid $0.2 million to the owner of the limited liability company interests in CCE, and loaned CCE $0.5 million
in exchange for an option to purchase 100% of the issued and outstanding limited liability company interests of CCE for one dollar
plus the forgiveness of the $0.5 million loan. The option expires on October 22, 2023.
Net
(loss) income related to CCE and aggregate net funding (provided by) repaid to the Company in order to finance CCE’s operations
were as follows:
|
|
Year
ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net (loss) income
|
|
$
|
(1,136
|
)
|
|
$
|
34
|
|
|
$
|
659
|
|
Aggregate funding (provided by) repaid to the Company, net
|
|
|
(871
|
)
|
|
|
950
|
|
|
|
(266
|
)
|
Summarized
consolidated balance sheet amounts related to CCE are as follows:
December 31
(in thousands)
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
150
|
|
|
$
|
48
|
|
Restricted cash
|
|
|
17
|
|
|
|
25
|
|
Trade accounts receivable
|
|
|
1,008
|
|
|
|
844
|
|
Prepaid expenses
|
|
|
450
|
|
|
|
479
|
|
Other current assets
|
|
|
26
|
|
|
|
51
|
|
Other assets
|
|
|
439
|
|
|
|
468
|
|
TOTAL ASSETS
|
|
$
|
2,090
|
|
|
$
|
1,915
|
|
LIABILITIES AND NONCONTROLLING INTERESTS
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
707
|
|
|
$
|
267
|
|
Due to IDT Energy
|
|
|
1,298
|
|
|
|
427
|
|
Noncontrolling interests
|
|
|
85
|
|
|
|
1,221
|
|
TOTAL LIABILITIES AND NONCONTROLLING INTERESTS
|
|
$
|
2,090
|
|
|
$
|
1,915
|
|
The
assets of CCE may only be used to settle obligations of CCE, and may not be used for other consolidated entities. The liabilities
of CCE are non-recourse to the general credit of the Company’s other consolidated entities.
Note
14—Accumulated Other Comprehensive Income
The
accumulated balances for other comprehensive (loss) income were as follows:
(in thousands)
|
|
Foreign
currency
translation
|
|
Balance at December 31, 2013
|
|
$
|
745
|
|
Other comprehensive loss attributable to Genie
|
|
|
(735
|
)
|
Balance at December 31, 2014
|
|
|
10
|
|
Other comprehensive income attributable to Genie
|
|
|
144
|
|
Balance at December 31, 2015
|
|
|
154
|
|
Other comprehensive income attributable to Genie
|
|
|
1,311
|
|
BALANCE AT DECEMBER 31, 2016
|
|
$
|
1,465
|
|
Note
15—Legal and Regulatory Proceedings
Legal
Proceedings
On
March 13, 2014, named plaintiff, Anthony Ferrare, commenced a putative class-action lawsuit against IDT Energy, Inc. in the Court
of Common Pleas of Philadelphia County, Pennsylvania. The complaint was served on IDT Energy on July 16, 2014. The named plaintiff
filed the suit on behalf of himself and other former and current electric customers of IDT Energy in Pennsylvania with variable
rate plans, whom he contends were injured as a result of IDT Energy’s allegedly unlawful sales and marketing practices. On
August 7, 2014, IDT Energy removed the case to the United States District Court for the Eastern District of Pennsylvania. On October
20, 2014, IDT Energy moved to stay or, alternatively, dismiss the complaint, as amended, by the named plaintiff. On November 10,
2014, the named plaintiff opposed IDT Energy’s motion to dismiss and IDT Energy filed a reply memorandum of law in further
support of its motion to dismiss. On June 10, 2015, the Court granted IDT Energy’s motion to stay and denied its motion
to dismiss without prejudice. The parties participated in mediation, and entered into a Memorandum of Understanding (“MOU”)
with respect to a proposed settlement of the above-referenced putative class action (as well as the other putative class actions
referred to in this section). There are a number of material issues not addressed by the MOU that must be resolved before
a settlement can be finalized. The parties notified the Court of that development and are working towards finalizing the settlement,
which will need to be approved by the Court. The Company believes that the claims in this lawsuit are without merit.
On
June 20, 2014, the Pennsylvania Attorney General’s Office (“AG”) and the Acting Consumer Advocate (“OCA”)
filed a Joint Complaint against IDT Energy, Inc. with the Pennsylvania Public Utility Commission (“PUC”). In
the Joint Complaint, the AG and the OCA alleged, among other things, various violations of Pennsylvania’s Unfair Trade Practices
and Consumer Protection Law, the Telemarketing Registration Act and the Pennsylvania PUC’s regulations. IDT Energy reached
an agreement in principle on a settlement with the AG and the OCA to terminate the litigation with no admission of liability or
finding of wrongdoing by IDT Energy. On August 4, 2015, IDT Energy, the AG, and the OCA filed a Joint Petition to the Pennsylvania
PUC seeking approval of the settlement terms. Under the settlement, IDT Energy will issue additional refunds to its Pennsylvania
customers who had variable rates for electricity supply in January, February and March of 2014. IDT Energy will also implement
certain modifications to its sales, marketing and customer service processes, along with additional compliance and reporting requirements.
The settlement was approved by the Pennsylvania PUC on July 8, 2016. In July 2016, IDT Energy paid the agreed-upon $2.4 million
for additional customer refunds to a refund administrator, and that administrator is currently in the process of issuing the additional
refunds to customers.
On
July 2, 2014, named plaintiff, Louis McLaughlin, filed a putative class-action lawsuit against IDT Energy, Inc. in the United
States District Court for the Eastern District of New York, contending that he and other class members were injured as a result
of IDT Energy’s allegedly unlawful sales and marketing practices. The named plaintiff filed the suit on behalf of himself
and two subclasses: all IDT Energy customers who were charged a variable rate for their energy from July 2, 2008, and all
IDT Energy customers who participated in IDT Energy’s rebate program from July 2, 2008. On January 22, 2016, the named plaintiff
filed an amended complaint on behalf of himself and all IDT Energy customers in New York State against IDT Energy, Inc., Genie
Retail Energy, Genie Energy International Corporation, and Genie Energy Ltd. (collectively, “IDT Energy”). On February
22, 2016, IDT Energy moved to dismiss the amended complaint, and the named plaintiff opposed that motion. The parties participated
in mediation, and entered into a MOU with respect to a proposed settlement of the above-referenced putative class action (as well
as the other putative class actions referred to in this section). There are a number of material issues not addressed by
the MOU that must be resolved before a settlement can be finalized. The parties notified the Court of that development and
are working towards finalizing the settlement, which will need to be approved by the Court. The Company believes that the claims
in this lawsuit are without merit.
On
July 15, 2014, named plaintiff, Kimberly Aks, commenced a putative class-action lawsuit against IDT Energy, Inc. in New Jersey
Superior Court, Essex County, contending that she and other class members were injured as a result of IDT Energy’s allegedly
unlawful sales and marketing practices. The named plaintiff filed the suit on behalf of herself and all other New Jersey
residents who were IDT Energy customers at any time between July 11, 2008 and the present. The parties were engaged in discovery
prior to the mediation described below. On April 20, 2016, the named plaintiff filed an amended complaint on behalf of herself
and all IDT Energy customers in New Jersey against IDT Energy, Inc., Genie Retail Energy, Genie Energy International Corporation
and Genie Energy Ltd. On June 27, 2016, defendants Genie Retail Energy, Genie Energy International Corporation and Genie Energy
Ltd. filed a motion to dismiss the amended complaint. On August 26, 2016, the named plaintiff opposed that motion and IDT Energy
filed a reply memorandum of law in further support of its motion to dismiss. The Court granted the motion to dismiss, but the
parties agreed to set aside that decision to give the plaintiff an opportunity to submit opposition papers that had not been considered
by the Court in rendering its decision. The parties participated in mediation, and entered into a MOU with respect to a proposed
settlement of the above-referenced putative class action (as well as the other putative class actions referred to in this section). There
are a number of material issues not addressed by the MOU that must be resolved before a settlement can be finalized. The
parties notified the Court of that development and are working towards finalizing the settlement, which will need to be approved
by the Court. The Company believes that the claims in this lawsuit are without merit.
In
addition to the above, the Company may from time to time be subject to legal proceedings that arise in the ordinary course of
business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have
a material adverse effect on the Company’s results of operations, cash flows or financial condition.
New
York Public Service Commission Orders
On
February 23, 2016, the New York Public Service Commission (“PSC”) issued an order that sought to impose significant
new restrictions on REPs operating in New York, including those owned by GRE. The restrictions described in the PSC’s order,
which were to become effective March 4, 2016, would require that all REPs’ electricity and natural gas offerings to residential
and small business customers include an annual guarantee of savings compared to the price charged by the relevant incumbent utility
or, for electricity offerings, provide at least 30% of the supply from renewable sources. Customers not enrolled in a compliant
program would be relinquished back to the local utility at the end of their contract period or, for variable price customers operating
on month to month agreements, at the end of the current monthly billing cycle.
On
March 4, 2016, a group of parties from the REP industry sought and won a temporary restraining order to stay implementation of
the most restrictive portions of the PSC’s order pending a court hearing on those parties’ motion for a preliminary
injunction. On July 25, 2016, the New York State Supreme Court, County of Albany, entered a decision and order granting the Petitioners’
petition, vacated provisions 1 through 3 of the Order, and remitted the matter to the PSC for further proceedings consistent with
the Court’s order.
On
December 2, 2016, the PSC noticed an evidentiary hearing scheduled to take place in 2017 to assess the retail energy market in
New York. That process is underway and is expected to last several months. The Company is evaluating the potential impact of any
new order from the PSC that would follow from the evidentiary process, while preparing to operate in compliance with any new requirements
that may be imposed. Depending on the final language of any new order, as well as the Company’s ability to modify its relationships
with its New York customers, an order could have a substantial impact upon the operations of GRE-owned REPs in New York.
On
July 14, 2016, and on September 19, 2016, the PSC issued Orders restricting REPs, including those owned by GRE, from serving customers
enrolled in New York’s utility low-income assistance programs. Representatives of the REP industry challenged the ruling
in New York State Supreme Court, Albany County, and, on September 27, 2016, the court issued an order temporarily restraining
the PSC from implementing the July and September Orders. On December 16, 2016, the PSC issued a prohibition on REP service to
customers enrolled in New York’s utility low-income assistance programs. As part of a stipulated schedule upon request of
the REP industry, the PSC agreed to extend the deadlines for compliance with that order until May 2017. That order is under review
in New York State Supreme Court, Albany County.
Note
16—Commitments and Contingencies
Purchase
Commitments
The
Company had purchase commitments of $39.6 million at December 31, 2016. The purchase commitments outstanding at December 31, 2016
are expected to be paid as follows: $32.0 million in the year ending December 31, 2017, $5.9 million in the year ending December
31, 2018 and $1.7 million in the year ending December 31, 2019.
Renewable
Energy Credits
GRE
must obtain a certain percentage or amount of its power supply from renewable energy sources in order to meet the requirements
of renewable portfolio standards in the states in which it operates. This requirement may be met by obtaining renewable energy
credits that provide evidence that electricity has been generated by a qualifying renewable facility or resource. At December
31, 2016, GRE had commitments to purchase renewable energy credits of $42.5 million.
Tax
Audits
The
Company is subject to audits in various jurisdictions for various taxes. Amounts asserted by taxing authorities or the amount
ultimately assessed against the Company could be greater than the accrued amount. Accordingly, provisions may be recorded in the
future as estimates are revised or underlying matters are settled or resolved. Imposition of assessments as a result of tax audits
could have an adverse effect on the Company’s results of operations, cash flows and financial condition.
Letters
of Credit
At
December 31, 2016, the Company had letters of credit outstanding totaling $8.2 million primarily for the benefit of regional transmission
organizations that coordinate the movement of wholesale electricity and for certain utility companies. The letters of credit outstanding
at December 31, 2016 expire as follows: $4.2 million in the year ending December 31, 2017 and $4.0 million in the year ending
December 31, 2018.
Performance
Bonds
GRE
has performance bonds issued through a third party for the benefit of various states in order to comply with the states’
financial requirements for REPs. At December 31, 2016, GRE had aggregate performance bonds of $7.7 million outstanding.
Lease
Commitments
The
future minimum payments for operating leases at December 31, 2016 are as follows:
(in thousands)
|
|
|
|
|
Year ending December 31:
|
|
|
|
|
2017
|
|
|
$
|
201
|
|
2018
|
|
|
|
121
|
|
2019
|
|
|
|
95
|
|
2020
|
|
|
|
34
|
|
2021
|
|
|
|
—
|
|
Thereafter
|
|
|
|
—
|
|
Total
payments
|
|
|
$
|
451
|
|
Rental
expense under operating leases was $0.7 million, $1.2 million and $0.8 million in the years ended December 31, 2016, 2015 and
2014, respectively.
Other
Contingencies
As
of November 19, 2015, IDT Energy and certain of its affiliates entered into an Amended and Restated Preferred Supplier Agreement
with BP Energy Company (“BP”). The agreement’s termination date is November 30, 2019, except either party may
terminate the agreement on November 30, 2018 by giving the other party notice by May 31, 2018. Under the agreement, IDT Energy
purchases electricity and natural gas at market rate plus a fee. IDT Energy’s obligations to BP are secured by a first security
interest in deposits or receivables from utilities in connection with their purchase of IDT Energy’s customer’s receivables,
and in any cash deposits or letters of credit posted in connection with any collateral accounts with BP. IDT Energy’s ability
to purchase electricity and natural gas under this agreement is subject to satisfaction of certain conditions including the maintenance
of certain covenants. At December 31, 2016, the Company was in compliance with such covenants. At December 31, 2016, restricted
cash—short-term of $0.7 million and trade accounts receivable of $31.7 million were pledged to BP as collateral for the
payment of IDT Energy’s trade accounts payable to BP of $11.5 million at December 31, 2016.
Note
17—Related Party Transactions
The
Company was formerly a subsidiary of IDT Corporation (“IDT”). On October 28, 2011, the Company was spun-off by IDT
and became an independent public company through a pro rata distribution of the Company’s common stock to IDT’s stockholders
(the “Spin-Off”). The Company entered into various agreements with IDT prior to the Spin-Off including a Separation
and Distribution Agreement to effect the separation and provide a framework for the Company’s relationship with IDT after
the Spin-Off, and a Transition Services Agreement, which provides for certain services to be performed by the Company and IDT.
IDT charges the Company for services it provides pursuant to the Transition Services Agreement. The charges for these services
are included in “Selling, general and administrative” expense. In addition, the Company provides services to certain
of IDT’s subsidiaries. The charges for these services reduce the Company’s “Selling, general and administrative”
expense.
|
|
Year
ended December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount IDT charged the Company
|
|
$
|
2,197
|
|
|
$
|
2,340
|
|
|
$
|
3,447
|
|
Amount the Company charged IDT
|
|
|
627
|
|
|
|
546
|
|
|
|
530
|
|
In
addition, the Company entered into a Tax Separation Agreement with IDT, which sets forth the responsibilities of the Company and
IDT with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including
the Spin-Off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes
for such periods. Pursuant to the Tax Separation Agreement, among other things, IDT indemnifies the Company from all liability
for taxes of IDT with respect to any taxable period, and the Company indemnifies IDT from all liability for taxes of the Company
with respect to any taxable period, including, without limitation, the ongoing tax audits related to the Company’s business.
The
Company had notes receivable outstanding from employees aggregating $1.0 million at both December 31, 2016 and 2015, which are
included in “Other assets” in the accompanying consolidated balance sheet.
The
Company obtains insurance policies from several insurance brokers, one of which is IGM Brokerage Corp. (“IGM”). IGM
is owned by the mother of Howard S. Jonas and Joyce Mason, the Company’s Corporate Secretary. Jonathan Mason, husband of
Joyce Mason and brother-in-law of Howard S. Jonas, provides insurance brokerage services via IGM. Based on information the Company
received from IGM, the Company believes that (1) IGM received commissions and fees from payments made by the Company (including
payments from third party brokers) in the aggregate amounts of $18,164; $14,236 and $13,912 in the years ended December 31, 2016,
2015 and 2014, respectively, which fees and commissions inured to the benefit of Mr. Mason, and (2) the total payments
made by the Company to IGM for various insurance policies were $18,657; $143,367and $140,374 in the years ended December 31, 2016,
2015 and 2014, respectively. The commissions and fees paid to IGM in the year ended December 31, 2016 included commissions and
fees for various insurance policies for which the Company paid $144,110 to a third party broker. Neither Howard S. Jonas nor Joyce
Mason has any ownership or other interest in IGM other than via the familial relationships with their mother and Jonathan Mason.
Note
18—Business Segment and Geographic Information
The
Company owns 99.3% of its subsidiary, GEIC, which owns 100% of GRE and 92% of GOGAS. The Company has three reportable business
segments: GRE, Afek and GOGAS. GRE operates REPs, including IDT Energy, Residents Energy and Town Square Energy, and energy brokerage
and marketing services. Its REP businesses resell electricity and natural gas to residential and small business customers primarily
in the Eastern United States. GRE has outstanding deferred stock units granted to officers and employees that represent an interest
of 2.5% of the equity of GRE. The Afek segment is comprised of the Company’s 85.1% interest in Afek, which operates an oil
and gas exploration project in the Golan Heights in Northern Israel. The GOGAS segment is comprised of inactive oil shale projects
including AMSO, LLC, Genie Mongolia and IEI. Corporate costs include unallocated compensation, consulting fees, legal fees, business
development expenses and other corporate-related general and administrative expenses. Corporate does not generate any revenues,
nor does it incur any cost of revenues.
The
Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services.
The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.
The
accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the
performance of its business segments based primarily on income (loss) from operations. There are no significant asymmetrical allocations
to segments.
Operating
results for the business segments of the Company were as follows:
(in thousands)
|
|
GRE
|
|
|
Afek
|
|
|
GOGAS
|
|
|
Corporate
|
|
|
Total
|
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
212,112
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
212,112
|
|
Income (loss) from operations
|
|
|
26,503
|
|
|
|
(48,272
|
)
|
|
|
439
|
|
|
|
(9,183
|
)
|
|
|
(30,513
|
)
|
Depreciation and amortization
|
|
|
427
|
|
|
|
124
|
|
|
|
29
|
|
|
|
1
|
|
|
|
581
|
|
Research and development
|
|
|
—
|
|
|
|
—
|
|
|
|
(269
|
)
|
|
|
—
|
|
|
|
(269
|
)
|
Exploration
|
|
|
—
|
|
|
|
6,088
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,088
|
|
Write-off of capitalized exploration costs
|
|
|
—
|
|
|
|
41,041
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,041
|
|
Equity in the net loss of AMSO, LLC
|
|
|
—
|
|
|
|
—
|
|
|
|
222
|
|
|
|
—
|
|
|
|
222
|
|
Year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (revised)
|
|
$
|
213,056
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
213,056
|
|
Income (loss) from operations
|
|
|
11,095
|
|
|
|
(7,458
|
)
|
|
|
(3,058
|
)
|
|
|
(8,908
|
)
|
|
|
(8,329
|
)
|
Depreciation
|
|
|
245
|
|
|
|
104
|
|
|
|
78
|
|
|
|
1
|
|
|
|
428
|
|
Research and development
|
|
|
—
|
|
|
|
63
|
|
|
|
1,922
|
|
|
|
—
|
|
|
|
1,985
|
|
Exploration
|
|
|
—
|
|
|
|
6,583
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,583
|
|
Equity in the net loss of AMSO, LLC
|
|
|
—
|
|
|
|
—
|
|
|
|
397
|
|
|
|
—
|
|
|
|
397
|
|
Year ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (revised)
|
|
$
|
280,963
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
280,963
|
|
Income (loss) from operations
|
|
|
956
|
|
|
|
(7,294
|
)
|
|
|
(6,479
|
)
|
|
|
(15,353
|
)
|
|
|
(28,170
|
)
|
Depreciation
|
|
|
24
|
|
|
|
8
|
|
|
|
99
|
|
|
|
1
|
|
|
|
132
|
|
Research and development
|
|
|
—
|
|
|
|
144
|
|
|
|
5,394
|
|
|
|
—
|
|
|
|
5,538
|
|
Exploration
|
|
|
—
|
|
|
|
6,971
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,971
|
|
Goodwill impairment
|
|
|
3,562
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,562
|
|
Total
assets for the business segments of the Company were as follows:
(in thousands)
|
|
GRE
|
|
|
Afek
|
|
|
GOGAS
|
|
|
Corporate
|
|
|
Total
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
87,539
|
|
|
$
|
6,685
|
|
|
$
|
12,224
|
|
|
$
|
15,365
|
|
|
$
|
121,813
|
|
December 31, 2015
|
|
|
80,177
|
|
|
|
38,665
|
|
|
|
17,770
|
|
|
|
19,203
|
|
|
|
155,815
|
|
December 31, 2014
|
|
|
78,254
|
|
|
|
6,243
|
|
|
|
48,899
|
|
|
|
19,532
|
|
|
|
152,928
|
|
Geographic
Information
There
were no revenues from customers located outside of the United States in all periods presented.
Net
long-lived assets and total assets held outside of the United States, which are located primarily in Israel, were as follows:
(in thousands)
|
|
United
States
|
|
|
Foreign
Countries
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net
|
|
$
|
1,060
|
|
|
$
|
582
|
|
|
$
|
1,642
|
|
Total assets
|
|
|
113,158
|
|
|
|
8,655
|
|
|
|
121,813
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net
|
|
$
|
763
|
|
|
$
|
646
|
|
|
$
|
1,409
|
|
Total assets
|
|
|
114,880
|
|
|
|
40,935
|
|
|
|
155,815
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net
|
|
$
|
834
|
|
|
$
|
1,230
|
|
|
$
|
2,064
|
|
Total assets
|
|
|
143,897
|
|
|
|
9,031
|
|
|
|
152,928
|
|
Note
19—Selected Quarterly Financial Data (Unaudited)
The
table below presents selected quarterly financial data of the Company for its fiscal quarters in 2016 and 2015:
Quarter Ended
(in thousands,
|
|
Revenues
|
|
|
Cost of revenues
|
|
|
(Loss) income
from operations
|
|
|
Net (loss)
|
|
|
Net
(loss) income
attributable
to
Genie
|
|
|
(Loss)
earnings per common share
|
|
except per share data)
|
|
(2) (3)
|
|
|
(2) (3)
|
|
|
(3)
|
|
|
income
|
|
|
Energy
Ltd.
|
|
|
Basic
|
|
|
Diluted
|
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
$
|
51,519
|
|
|
$
|
36,949
|
|
|
$
|
(1,344
|
)
|
|
$
|
(1,285
|
)
|
|
$
|
(816
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.05
|
)
|
September 30 (1)
|
|
|
57,153
|
|
|
|
36,946
|
|
|
|
(37,102
|
)
|
|
|
(37,174
|
)
|
|
|
(32,139
|
)
|
|
|
(1.43
|
)
|
|
|
(1.43
|
)
|
June 30
|
|
|
44,561
|
|
|
|
26,445
|
|
|
|
1,934
|
|
|
|
1,417
|
|
|
|
2,761
|
|
|
|
0.10
|
|
|
|
0.10
|
|
March 31
|
|
|
58,879
|
|
|
|
34,832
|
|
|
|
5,999
|
|
|
|
4,850
|
|
|
|
5,669
|
|
|
|
0.23
|
|
|
|
0.22
|
|
TOTAL
|
|
$
|
212,112
|
|
|
$
|
135,172
|
|
|
$
|
(30,513
|
)
|
|
$
|
(32,192
|
)
|
|
$
|
(24,525
|
)
|
|
$
|
(1.14
|
)
|
|
$
|
(1.14
|
)
|
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
$
|
44,575
|
|
|
$
|
29,042
|
|
|
$
|
(4,242
|
)
|
|
$
|
(4,106
|
)
|
|
$
|
(3,794
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.19
|
)
|
September 30
|
|
|
52,988
|
|
|
|
31,760
|
|
|
|
3,249
|
|
|
|
2,626
|
|
|
|
2,845
|
|
|
|
0.11
|
|
|
|
0.10
|
|
June 30
|
|
|
40,330
|
|
|
|
26,909
|
|
|
|
(4,887
|
)
|
|
|
(4,726
|
)
|
|
|
(4,498
|
)
|
|
|
(0.22
|
)
|
|
|
(0.22
|
)
|
March 31
|
|
|
75,163
|
|
|
|
58,698
|
|
|
|
(2,449
|
)
|
|
|
(2,430
|
)
|
|
|
(2,010
|
)
|
|
|
(0.11
|
)
|
|
|
(0.11
|
)
|
TOTAL
|
|
$
|
213,056
|
|
|
$
|
146,409
|
|
|
$
|
(8.329
|
)
|
|
$
|
(8,636
|
)
|
|
$
|
(7,457
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.40
|
)
|
|
(1)
|
In
the third quarter of 2016, loss from operations included write-off of capitalized exploration
costs of $41.0 million.
|
|
(2)
|
GRE
prepays various electricity costs that are subsequently charged to cost of revenues when
the related electricity revenue is recognized. In the third quarter of 2016, the Company
concluded that certain of these amounts included in “Prepaid expenses” in
its consolidated balance sheet at March 31, 2016 and June 30, 2016 should have been charged
to cost of revenues in the first and second quarters of 2016. The amounts that should
have been charged to cost of revenues were $817 thousand and $691 thousand in the three
months ended March 31, 2016 and June 30, 2016, respectively. The impact of this correction
on basic and diluted earnings per share in the three months ended March 31, 2016 was
a decrease of $0.04 per share. The impact of this correction on basic and diluted earnings
per share in the three months ended June 30, 2016 was a decrease of $0.04 and $0.03 per
share, respectively. During the third quarter of 2016, the Company revised its first
and second quarters of 2016 by reducing prepaid expenses and increasing electricity cost
of revenues. The amounts above reflect the correction of the error.
|
|
(3)
|
These
amounts reflect the reclassification of financing fees and the correction of gross receipt
tax (see Note 1).
|
F-33
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