*There is no material difference between net income and
comprehensive income.
(1) Interest expense
for the nine months ended September 30, 2018 and 2017 includes $136 and $(476), respectively, for the net change in the estimated
fair value of our interest rate swaps. Such amounts were $(708) and $(36) for the three months ended September 30, 2018 and 2017,
respectively.
Cash, cash equivalents,
and restricted cash consist of the following:
Upon the formation of Hourglass Sands, LLC in 2018, we acquired
assets by assuming a liability of $1.1 million.
Additional financing costs of $5.7 million were incurred at
the closing of the new credit facility in May 2018.
Notes to Condensed Consolidated Financial
Statements
(unaudited)
The interim financial data is unaudited; however, in our opinion,
it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for
the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the SEC’s
rules and regulations; accordingly, certain information and footnote disclosures normally included in GAAP financial statements
have been condensed or omitted.
The results of operations and cash flows for the three and nine
months ended September 30, 2018 are not necessarily indicative of the results to be expected for future quarters or for the year
ending December 31, 2018. To maintain consistency and comparability, certain 2017 amounts have been reclassified to conform to
the 2018 presentation.
Our organization and business, the accounting policies we follow
and other information, are contained in the notes to our condensed consolidated financial statements filed as part of our 2017
Form 10-K. This quarterly report should be read in conjunction with such 10-K.
The condensed consolidated financial statements include the
accounts of Hallador Energy Company (hereinafter known as, “we, us, or our”) and its wholly-owned subsidiaries Sunrise
Coal, LLC (Sunrise) and Hourglass Sands, LLC (Hourglass), and Sunrise’s wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Sunrise is engaged in the production of steam coal from mines located in western
Indiana. Hourglass is in the development stage and is engaged in the production of frac sand in the State of Colorado (see Note
13).
New Accounting Standards Issued and Adopted
In May 2014, the FASB issued ASU No. 2014-09, “Revenue
from Contracts with Customers.” ASU 2014-09 is a comprehensive revenue recognition standard that supersedes nearly all existing
revenue recognition guidance under current U.S. GAAP and replaces it with a principle-based approach for determining revenue recognition.
On January 1, 2018, we adopted the new accounting standard and all of the related amendments to all contracts using the modified
retrospective method. Adoption of the new revenue standard did not result in a material cumulative effect adjustment to the opening
balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting
standards in effect for those periods. We do not expect the adoption of the new revenue standard to have a material impact to our
net income on an ongoing basis. See “Note 12 - Revenue” to these condensed consolidated financial statements for additional
disclosures.
In January 2016, the FASB issued ASU No. 2016-01, Financial
Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires equity
investments that are not accounted for under the equity method of accounting or that do not result in consolidation of the investee
to be measured at fair value with changes recognized in net earnings. ASU 2016-01 also eliminates the available-for-sale classification
for equity investments that recognized changes in fair value as a component of other comprehensive income. We adopted ASU 2016-01
on January 1, 2018, using the modified retrospective method, which resulted in a $1.1 million (net of tax) cumulative-effect adjustment
from accumulated other comprehensive income to retained earnings. Adoption of ASU 2016-01 did not have a material impact on our
results of operations and/or cash flows.
In November 2016, the FASB issued guidance regarding the presentation
of restricted cash in the statement of cash flows (ASU 2016-18). This update is effective for annual reporting periods beginning
after December 15, 2017, and early adoption is permitted. We have adopted the new standard as of January 1, 2018. Adoption of ASU
2016-18 did not have a material impact on the company’s results of operations and/or cash flows.
In January 2017, the FASB issued new guidance to assist in determining
if a set of assets and activities being acquired or sold is a business (ASU 2017-01). It also provided a framework to assist entities
in evaluating whether both an input and a substantive process are present, which at a minimum, must be present to be considered
a business. We have adopted the new standard as of January 1, 2018. The standard does not have an impact on our historical recognition
of asset acquisitions and business combinations. However, we expect there may be an impact on how we account for such acquisitions
in the future.
In February 2018, the FASB issued ASU 2018-02, Income
Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income. ASU 2018-02 allows companies to reclassify stranded tax effects resulting from the 2017 Tax Act from
accumulated other comprehensive income to retained earnings. The company elected to early adopt ASU 2018-02 on January 1,
2018, which resulted in a reclassification of $192,000 of stranded tax effects, related to our unrealized gain on marketable
securities, from accumulated other comprehensive income to retained earnings. Adoption of ASU 2018-02 did not have a material
impact on our results of operations and/or cash flows.
New Accounting Standards Issued and Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic
842) (ASU 2016-02). ASU 2016-02 increases transparency and comparability among organizations by requiring lessees to record
right-to-use assets and corresponding lease liabilities on the balance sheet and disclosing key information about lease arrangements.
The new guidance will classify leases as either finance or operating (similar to current standard’s “capital”
or “operating” classification), with classification affecting the pattern of income recognition in the statement of
income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years, with early adoption permitted. We are currently in the process of accumulating all contractual lease arrangements in order
to determine the impact on our financial statements and do not believe we have significant amounts of off-balance sheet leases;
accordingly, we do not expect the adoption of ASU 2016-02 to have a material impact on our condensed consolidated financial statements.
We continue to monitor closely the activities of the FASB and various non-authoritative groups with respect to implementation issues
that could affect our evaluation.
(2)
|
ASSET IMPAIRMENT REVIEW
|
Carlisle Mine
In July 2018, we restarted production at the Carlisle Mine and
began shipping coal to customers. We conducted a review of the Carlisle Mine assets as of September 30, 2018, based on estimated
future net cash flows, and determined that no impairment to the aggregate net carrying value of $105 million was necessary. If
in future periods we reduce our estimate of the future net cash flows attributable to the Carlisle Mine, it may result in future
impairment of such assets and such charges could be significant.
Bulldog Reserves
In October 2017, we entered into an agreement to sell land associated
with the Bulldog Mine for $4.9 million. As part of the transaction, we hold the rights to repurchase the property for eight years
at the original sale price of $4.9 million plus interest. We are accounting for the sale as a financing transaction with the liability
recorded in other long-term liabilities. The Bulldog Mine assets had an aggregate net carrying value of $15 million at September
30, 2018. Also, in October 2017, the Illinois Department of Natural Resources (ILDNR) notified us that our mine application, along
with modifications, was acceptable. In October 2018, we paid the required fee and bond and the permit is expected to be issued
prior to December 31, 2018. We have determined that no impairment is necessary. If estimates inherent in the assessment change,
it may result in future impairment of the assets.
On May 21, 2018, we executed the Third Amended and Restated
Credit Agreement with PNC, as administrative agent for our lenders. The $267 million credit facility is a combination of a $147
million term loan and $120 million revolver. The credit facility extends the term through May 21, 2022, reduces the debt service
requirements, changes the borrower from Sunrise Coal to Hallador, and allows for investments in Hourglass Sands. The credit facility
is collateralized primarily by Hallador’s assets. Our borrowing capacity increased by $6 million as of the effective date
of the amended agreement.
Liquidity
Our bank debt at September 30, 2018, was $200 million (term
- $136 million, revolver - $64 million). As of September 30, 2018, we had additional borrowing capacity of $56 million and total
liquidity of $75 million.
Fees
Bank fees and other costs incurred in connection with the amended
credit agreement and unamortized costs incurred in connection with the initial facility and a subsequent amendment totaled $8.8
million. These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of September 30, 2018
and December 31, 2017 were $8.0 million and $3.0 million, respectively.
Covenants
The credit facility includes a
Maximum Leverage Ratio (consolidated funded debt / trailing twelve months adjusted EBITDA), calculated as of the end of each fiscal
quarter for the trailing twelve months, not to exceed the amounts below
:
Fiscal Periods Ending
|
|
Ratio
|
September 30, 2018 through March 31, 2019
|
|
3.75 to 1.00
|
June 30, 2019 and September 30, 2019
|
|
3.50 to 1.00
|
December 31, 2019 through September 30, 2020
|
|
3.25 to 1.00
|
December 31, 2020 through September 30, 2021
|
|
3.00 to 1.00
|
December 31, 2021 and each fiscal quarter thereafter
|
|
2.75 to 1.00
|
The credit facility also requires a Minimum Debt Service Coverage
Ratio (consolidated adjusted EBITDA / annual debt service) calculated as of the end of each fiscal quarter for the trailing twelve
months of 1.25 to 1 through the maturity of the credit facility.
At September 30, 2018, our Leverage Ratio was 2.73, and our
Debt Service Coverage Ratio was 2.12. Therefore, we were in compliance with those two ratios.
Rate
The interest rate on the facility ranges from LIBOR plus 3.00%
to LIBOR plus 4.50%, depending on our Leverage Ratio. We entered into swap agreements to fix the LIBOR component of the interest
rate to achieve an effective fixed rate of ~6% on the original term loan balance and on $53 million of the revolver. At September
30, 2018, we are paying LIBOR of 2.26% plus 4.00% for a total interest rate of 6.26%.
Bank debt, less debt issuance costs, is presented below (in
thousands):
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Current debt
|
|
$
|
25,725
|
|
|
$
|
35,000
|
|
Less debt issuance cost
|
|
|
(2,170
|
)
|
|
|
(1,829
|
)
|
Net current portion
|
|
$
|
23,555
|
|
|
$
|
33,171
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
174,250
|
|
|
$
|
166,992
|
|
Less debt issuance cost
|
|
|
(5,788
|
)
|
|
|
(1,219
|
)
|
Net long-term portion
|
|
$
|
168,462
|
|
|
$
|
165,773
|
|
|
(4)
|
EQUITY
METHOD INVESTMENTS
|
Savoy Energy, L.P.
On March 9, 2018, we sold our entire 30.6% partnership interest
to Savoy for $8 million. The carrying value of the investment included in our consolidated balance sheets as of December 31, 2017,
was $8.0 million. Our net proceeds were $7.5 million after commissions paid to a related party, which were applied to our bank
debt as required under the agreement. The sale resulted in a loss of $538,000 for the three months and nine months ended March
31, 2018 and September 30, 2018, respectively.
Sunrise Energy, LLC
We own a 50% interest in Sunrise Energy, LLC, which owns gas
reserves and gathering equipment with plans to develop and operate such reserves. Sunrise Energy also plans to develop and explore
for oil, gas and coal-bed methane gas reserves on or near our underground coal reserves. The carrying value of the investment included
in our consolidated balance sheets as of September 30, 2018, and December 31, 2017, was $3.7 million and $3.9 million, respectively.
|
(5)
|
OTHER
ASSETS (in thousands)
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Advanced coal royalties
|
|
$
|
10,600
|
|
|
$
|
9,720
|
|
Marketable equity securities at fair value (restricted)*
|
|
|
2,089
|
|
|
|
2,148
|
|
Other
|
|
|
2,599
|
|
|
|
2,792
|
|
Total other assets
|
|
$
|
15,288
|
|
|
$
|
14,660
|
|
*Held by Sunrise Indemnity, Inc., our wholly-owned captive insurance
company.
|
(6)
|
ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES (in thousands)
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Accounts payable
|
|
$
|
5,215
|
|
|
$
|
4,008
|
|
Goods received not yet invoiced
|
|
|
5,114
|
|
|
|
5,574
|
|
Accrued property taxes
|
|
|
3,170
|
|
|
|
2,751
|
|
Workers' compensation
|
|
|
4,541
|
|
|
|
2,969
|
|
Other
|
|
|
8,631
|
|
|
|
5,813
|
|
Total accounts payable and accrued liabilities
|
|
$
|
26,671
|
|
|
$
|
21,115
|
|
(7)
|
OTHER INCOME (in thousands)
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Equity income - Savoy
|
|
$
|
-
|
|
|
$
|
409
|
|
|
$
|
-
|
|
|
$
|
153
|
|
Equity income (loss) - Sunrise Energy
|
|
|
(198
|
)
|
|
|
18
|
|
|
|
(42
|
)
|
|
|
16
|
|
Loss on disposal of Savoy
|
|
|
(538
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
MSHA reimbursements
|
|
|
833
|
|
|
|
1,725
|
|
|
|
180
|
|
|
|
89
|
|
Other
|
|
|
968
|
|
|
|
901
|
|
|
|
529
|
|
|
|
314
|
|
Total other income
|
|
$
|
1,065
|
|
|
$
|
3,053
|
|
|
$
|
667
|
|
|
$
|
572
|
|
We self-insure our underground mining equipment. Such equipment
is allocated among eleven mining units spread out over 18 miles. The historical cost of such equipment was approximately $269 million
and $258 million as of September 30, 2018 and December 31, 2017, respectively.
Restricted cash of $4.5 million and $3.8 million as of September
30, 2018 and December 31, 2017, respectively, represents cash held and controlled by a third party and is restricted for future
workers’ compensation claim payments.
We compute net income per share using
the two-class method, which is an allocation formula that determines net income per share for common stock and participating securities,
which for us are our outstanding RSUs.
The following table sets forth the
computation of net income allocated to common shareholders (in thousands):
|
|
Nine Months Ended
September 30,
|
|
|
Three Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,023
|
|
|
$
|
11,719
|
|
|
$
|
2,914
|
|
|
$
|
3,916
|
|
Earnings allocated to RSUs
|
|
|
(116
|
)
|
|
|
(444
|
)
|
|
|
(67
|
)
|
|
|
(153
|
)
|
Net income allocated to common shareholders
|
|
$
|
4,907
|
|
|
$
|
11,275
|
|
|
$
|
2,847
|
|
|
$
|
3,763
|
|
For interim period reporting, we record income taxes using an
estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and
statutory rates in states in which we operate. Our effective tax rate for the nine months ended September 30, 2018 and September
30, 2017 was (12)% and 8%, respectively. Historically, our actual effective tax rates have differed from the statutory effective
rate primarily due to the benefit received from statutory percentage depletion in excess of tax basis. The deduction for statutory
percentage depletion does not necessarily change proportionately to changes in income before income taxes.
(11)
|
RESTRICTED STOCK UNITS (RSUs)
|
Non-vested grants at December 31, 2017
|
|
|
944,500
|
|
Granted
|
|
|
-
|
|
Vested - weighted average share price on vesting date was $6.65
|
|
|
(223,500
|
)
|
Forfeited
|
|
|
(10,000
|
)
|
Non-vested grants at September 30, 2018
|
|
|
711,000
|
|
The 223,500 shares that vested during the nine months ended
September 30, 2018, had a value of $1.5 million. Under our RSU plan, participants are allowed to relinquish shares to pay for their
required statutory income taxes.
For the nine months ended September 30, 2018, and 2017, our
stock-based compensation was $2.8 million and $6.4 million, respectively. For the three months ended September 30, 2018 and 2017,
our stock-based compensation was $0.4 million and $1.0 million, respectively.
Non-vested RSU grants will vest as follows:
Vesting Year
|
|
RSUs Vesting
|
|
2018
|
|
|
121,250
|
|
2019
|
|
|
307,250
|
|
2020
|
|
|
176,250
|
|
2021
|
|
|
106,250
|
|
|
|
|
711,000
|
|
The outstanding RSUs have a value of $4.4 million based on the
September 28, 2018, closing stock price of $6.22.
At September 30, 2018, we had 1,404,325 RSUs available for future
issuance.
Effective January 1, 2018, we adopted ASU 2014-09. The adoption
of this standard did not impact the timing of revenue recognition on our consolidated balance sheets or condensed consolidated
statements of comprehensive income.
Revenue from Contracts with Customers
We account for a contract with a customer when the parties have
approved the contract and are committed to performing their respective obligations, the rights of each party are identified, payment
terms are identified, the contract has commercial substance, and collectability of consideration is probable. We recognize revenue
when we satisfy a performance obligation by transferring control of a good or service to a customer.
Our revenue is derived from sales to customers of coal produced
at our facilities. Our customers purchase coal directly from our mine sites and our Princeton Loop, where the sale occurs and where
title, risk of loss, and control typically pass to the customer at that point. Our customers arrange for and bear the costs of
transporting their coal from our mines to their plants or other specified discharge points. Our customers are typically domestic
utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts, or include a predetermined
escalation in price for each year. Price re-opener and index provisions may allow either party to commence a renegotiation of the
contract price at a pre-determined time. Price re-opener provisions may automatically set a new price based on prevailing market
price or, in some instances, require us to negotiate a new price, sometimes within specified ranges of prices. The terms of our
coal sales agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these
contracts vary by customer.
Coal sales agreements will typically contain coal quality specifications.
With coal quality specifications in place, the raw coal sold by us to the customer at the delivery point must be substantially
free of magnetic material and other foreign material impurities and crushed to a maximum size as set forth in the respective coal
sales agreement. Price adjustments are made and billed in the month the coal sale was recognized based on quality standards that
are specified in the coal sales agreement, such as Btu factor, moisture, ash, and sulfur content and can result in either increases
or decreases in the value of the coal shipped.
Disaggregation of Revenue
Revenue is disaggregated by primary geographic markets, as we
believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic
factors. 74% and 77% of our coal revenue for the nine months and three months ending September 30, 2018, respectively, was sold
to customers in the State of Indiana with the remainder sold to customers in Kentucky, North Carolina, and Florida. 65% and 61%
of our coal revenue for the nine months and three months ending September 30, 2017, respectively, was sold to customers in the
State of Indiana with the remainder sold to customers in Kentucky and Florida.
Performance Obligations
A performance obligation is a promise in a contract with a customer
to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue recognition
standard and therefore determine when and how revenue is recognized. In most of our contracts, the customer contracts with us to
provide coal that meets certain quality criteria. We consider each ton of coal a separate performance obligation and allocate the
transaction price based on the base price per the contract, increased or decreased for quality adjustments.
We recognize revenue at a point in time as the customer does
not have control over the asset at any point during the fulfillment of the contract. For substantially all of our customers, this
is supported by the fact that title and risk of loss transfer to the customer upon loading of the railcar at the mine. This is
also the point at which physical possession of the coal transfers to the customer, as well as the significant risks and rewards
in ownership of the coal.
We have remaining performance obligations relating to fixed
priced contracts of approximately $629 million, which represent the average fixed prices on our committed contracts as of September
30, 2018. We expect to recognize approximately 54% of this revenue through 2019, with the remainder recognized thereafter. We have
remaining performance obligations relating to index priced contracts or contracts with price reopeners of approximately $330 million,
which represents our estimate of the expected re-opener/indexed price on committed contracts as of September 30, 2018. We expect
to recognize all of this income beginning in 2020.
The tons used to determine the remaining performance obligations
are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce
tonnage if such option exists in the customer contract.
Contract Balances
Under ASC 606, the timing of when a performance obligation is
satisfied can affect the presentation of accounts receivable, contract assets, and contract liabilities. The main distinction between
accounts receivable and contract assets is whether consideration is conditional on something other than the passage of time. A
receivable is an entity’s right to consideration that is unconditional. Under the typical payment terms of our contracts
with customers, the customer pays us a base price for the coal, increased or decreased for any quality adjustments. Amounts billed
and due are recorded as trade accounts receivable and included in accounts receivable in our consolidated balance sheets. We do
not currently have any contracts in place where we would transfer coal in advance of knowing the final price of the coal sold,
and thus do not have any contract assets recorded. Contract liabilities arise when consideration is received in advance of performance.
This deferred revenue is included in accounts payable and accrued liabilities in our consolidated balance sheets when consideration
is received, and revenue is not recognized until the performance obligation is satisfied. We are rarely paid in advance of performance
and do not currently have any deferred revenue recorded in our consolidated balance sheets.
In February 2018, we invested $4 million in Hourglass Sands,
LLC (Hourglass), a permitted frac sand mining company in the State of Colorado. We own 100% of the Class A units and are consolidating
the activity of Hourglass in these statements. Class A units are entitled to 100% of profit until our capital investment and interest
is returned, then 90% of profits are allocated to us with remainder to Class B units. We do not own any Class B units.
In February 2018, a Yorktown company associated with one of
our directors also invested $4 million in Hourglass in return for a royalty interest in Hourglass. This investment coupled with
our $4 million investment brings the initial capitalization of Hourglass to $8 million. We report the royalty interest as a redeemable
noncontrolling interest in the consolidated balance sheets. A representative of the Yorktown company holds a seat on the board
of managers, and, with a change of control, the Yorktown company may be entitled to receive a portion of the net proceeds realized,
as prescribed in the Hourglass operating agreement.
Below is a condensed Hourglass balance sheet as of September
30, 2018 and a condensed statement of operations for the nine months ended September 30, 2018. Current assets include cash totaling
$4.2 million and sand inventory totaling $0.8 million. Expenses are included in operating costs and expenses, exploration costs,
and SG&A in our consolidated statements of comprehensive income.
Condensed Balance
Sheet
Current assets
|
|
$
|
5,054
|
|
Property and equipment
|
|
|
2,575
|
|
Total assets
|
|
$
|
7,629
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
500
|
|
Redeemable noncontrolling interests
|
|
|
4,000
|
|
Members' equity
|
|
|
3,129
|
|
Total liabilities and equity
|
|
$
|
7,629
|
|
Condensed
Statement of Operations
Revenue
|
|
$
|
36
|
|
Expenses
|
|
|
907
|
|
Net loss
|
|
$
|
(871
|
)
|
On October 15, 2018, we declared a dividend of $.04 per share
to shareholders of record as of October 31, 2018. The dividend is payable on November 16, 2018.
CAPITAL EXPENDITURES (capex)
For the nine months of 2018, capex was $25.5 million allocated
as follows (in millions):
Oaktown – investment
|
|
$
|
2.6
|
|
Oaktown – maintenance capex
|
|
|
14.9
|
|
Princeton Rail Loop
|
|
|
5.9
|
|
Hourglass - investment
|
|
|
1.5
|
|
Other
|
|
|
0.6
|
|
Capex per the Unaudited Condensed Consolidated Statements of Cash Flows
|
|
$
|
25.5
|
|
RESULTS OF OPERATIONS
Quarterly coal sales and cost data (in thousands, except per
ton and percentage data) are provided below. Per ton calculations below are based on tons sold.
All Mines
|
|
4th 2017
|
|
|
1st 2018
|
|
|
2nd 2018
|
|
|
3rd 2018
|
|
|
T4Qs
|
|
Tons produced
|
|
|
1,561
|
|
|
|
1,975
|
|
|
|
1,983
|
|
|
|
1,713
|
|
|
|
7,232
|
|
Tons sold
|
|
|
1,685
|
|
|
|
1,707
|
|
|
|
1,477
|
|
|
|
1,962
|
|
|
|
6,831
|
|
Coal sales
|
|
$
|
68,922
|
|
|
$
|
66,787
|
|
|
$
|
56,922
|
|
|
$
|
79,055
|
|
|
$
|
271,686
|
|
Average price/ton
|
|
$
|
40.90
|
|
|
$
|
39.13
|
|
|
$
|
38.54
|
|
|
$
|
40.29
|
|
|
$
|
39.77
|
|
Wash plant recovery in %
|
|
|
68
|
%
|
|
|
69
|
%
|
|
|
73
|
%
|
|
|
72
|
%
|
|
|
|
|
Operating costs
|
|
$
|
52,025
|
|
|
$
|
46,640
|
|
|
$
|
38,809
|
|
|
$
|
60,132
|
|
|
$
|
197,606
|
|
Average cost/ton
|
|
$
|
30.88
|
|
|
$
|
27.32
|
|
|
$
|
26.28
|
|
|
$
|
30.65
|
|
|
$
|
28.93
|
|
Margin
|
|
$
|
16,897
|
|
|
$
|
20,147
|
|
|
$
|
18,113
|
|
|
$
|
18,923
|
|
|
$
|
74,080
|
|
Margin/ton
|
|
$
|
10.03
|
|
|
$
|
11.80
|
|
|
$
|
12.26
|
|
|
$
|
9.64
|
|
|
$
|
10.84
|
|
Capex
|
|
$
|
7,294
|
|
|
$
|
10,428
|
|
|
$
|
7,784
|
|
|
$
|
5,856
|
|
|
$
|
31,362
|
|
Maintenance capex
|
|
$
|
2,520
|
|
|
$
|
5,772
|
|
|
$
|
5,058
|
|
|
$
|
4,639
|
|
|
$
|
17,989
|
|
Maintenance capex/ton
|
|
$
|
1.50
|
|
|
$
|
3.38
|
|
|
$
|
3.42
|
|
|
$
|
2.36
|
|
|
$
|
2.63
|
|
All Mines
|
|
4th 2016
|
|
|
1st 2017
|
|
|
2nd 2017
|
|
|
3rd 2017
|
|
|
T4Qs
|
|
Tons produced
|
|
|
1,640
|
|
|
|
1,917
|
|
|
|
1,647
|
|
|
|
1,487
|
|
|
|
6,691
|
|
Tons sold
|
|
|
1,739
|
|
|
|
1,555
|
|
|
|
1,548
|
|
|
|
1,786
|
|
|
|
6,628
|
|
Coal sales
|
|
$
|
71,495
|
|
|
$
|
62,555
|
|
|
$
|
62,829
|
|
|
$
|
73,896
|
|
|
$
|
270,775
|
|
Average price/ton
|
|
$
|
41.11
|
|
|
$
|
40.23
|
|
|
$
|
40.59
|
|
|
$
|
41.38
|
|
|
$
|
40.85
|
|
Wash plant recovery in %
|
|
|
67
|
%
|
|
|
71
|
%
|
|
|
69
|
%
|
|
|
70
|
%
|
|
|
|
|
Operating costs
|
|
$
|
50,663
|
|
|
$
|
39,692
|
|
|
$
|
44,079
|
|
|
$
|
54,354
|
|
|
$
|
188,788
|
|
Average cost/ton
|
|
$
|
29.13
|
|
|
$
|
25.53
|
|
|
$
|
28.47
|
|
|
$
|
30.43
|
|
|
$
|
28.48
|
|
Margin
|
|
$
|
20,832
|
|
|
$
|
22,863
|
|
|
$
|
18,750
|
|
|
$
|
19,542
|
|
|
$
|
81,987
|
|
Margin/ton
|
|
$
|
11.98
|
|
|
$
|
14.70
|
|
|
$
|
12.11
|
|
|
$
|
10.94
|
|
|
$
|
12.37
|
|
Capex
|
|
$
|
8,022
|
|
|
$
|
5,144
|
|
|
$
|
6,711
|
|
|
$
|
9,473
|
|
|
$
|
29,350
|
|
Maintenance capex
|
|
$
|
5,301
|
|
|
$
|
2,887
|
|
|
$
|
3,032
|
|
|
$
|
2,961
|
|
|
$
|
14,181
|
|
Maintenance capex/ton
|
|
$
|
3.05
|
|
|
$
|
1.86
|
|
|
$
|
1.96
|
|
|
$
|
1.66
|
|
|
$
|
2.14
|
|
2018 v. 2017 (first nine months)
For 2018, we sold 5,146,000 tons at an average price of $39.40/ton.
For 2017, we sold 4,889,000 tons an average price of $40.76/ton. The decrease in average price per ton was expected and is the
result of our changing contract mix caused by the expiration of contracts and acquisition of new contracts. We are contracted to
ship in excess of 2.1 million tons during the last three months of 2018 at a price of ~$40.00/ton.
Operating costs for all of our active coal mines
averaged $28.29/ton and $28.25/ton for the nine months ended September 30, 2018 and 2017, respectively. Our mines have
consistently averaged less than $29.00/ton for the prior four and eight quarter periods. With the restart of production at
the Carlisle mine in July 2018, our operating costs have increased, but we expect operating costs for our active mines to
remain $28-$30/ton for the remainder of 2018.
We expect operating costs associated with the idled Prosperity
mine to be $0.3 million for the remainder of 2018. Prosperity operating costs were $1.0 million during the nine months ended September
30, 2018.
DD&A increased approximately $4.2 million in the first nine
months of 2018 when compared to 2017. A portion of our assets is depreciated based on raw production which has increased in 2018,
thus as production increases so does our DD&A. Additionally, we began depreciating a new elevator at Oaktown 1 and assets relating
to the Carlisle mine that had been idled since 2015.
SG&A expenses decreased approximately $3.2 million in the
first nine months of 2018 when compared to 2017. In May 2017, a stock bonus totaling $3.8 million was awarded to company executives.
No such award occurred in 2018. In March 2018, accelerated vesting of restricted stock units totaling $1.5 million occurred due
to the passing of our former Chairman, Victor Stabio. We expect SG&A for the remainder of 2018 to be $2.5 million.
Our Sunrise Coal employees totaled 803 at September 30, 2018,
compared to 714 at September 30, 2017. We increased our head count in preparation for increased shipments in the last six months
of the year.
2018 v. 2017 (third quarter)
For 2018, we sold 1,962,000 tons at an average price of $40.29/ton.
For 2017 we sold 1,786,000 tons at an average price of $41.38/ton. The decrease in average price per ton was expected and is the
result of our changing contract mix caused by the expiration of contracts and acquisition of new contracts. We are contracted to
ship in excess of 2.1 million tons during the last three months of 2018 at a price of ~$40.00/ton.
Operating costs for all of our active coal mines averaged
$30.65/ton in 2018 and $30.43/ton in 2017. Our operating costs for the quarter are slightly above our previous guidance of
$28-$30/ton due in part to the restart of production at the Carlisle mine in July 2018. We expect operating costs for our
active mines to remain $28-$30/ton for the remainder of 2018. Prosperity operating costs were $0.3 million during the
three months ended September 30, 2018.
DD&A increased approximately $1.1 million in the third quarter
of 2018 when compared to the third quarter of 2017. A portion of our assets are depreciated based on raw production which has increased
in 2018, thus as production increases so does our DD&A. Additionally, we began depreciating a new elevator at Oaktown 1 and
assets relating to the Carlisle mine that had been idled since 2015.
CURRENT PROJECTS
Hourglass Sands
In February 2018, we invested $4 million in Hourglass Sands,
LLC, a permitted frac sand mining company in the State of Colorado. In April 2018, we closed on the purchase of a commercial sand
dryer and contracted with a third party to process our sand in Colorado Springs, Colorado.
We began producing raw sand in Colorado in June 2018. We shipped
test shipments of sand in September 2018 to two customers. We do not anticipate Hourglass being profitable in 2018 but are excited
about its growth potential in future years. Currently, we believe we control the only permitted frac sand mine in the State of
Colorado.
Princeton Rail Loop
The Princeton loop, which provides access to new markets and
customers, was completed and our first coal trains were delivered to customers in May 2018. The facility is a truck to rail transload
facility located six miles east of Princeton, IN and is capable of loading 135 car unit trains in less than four hours. The new
facility primarily serves utility coal plants served by Norfolk Southern Railway Company.
EARNINGS (LOSS) PER SHARE
|
|
4th 2017
|
|
|
1st 2018
|
|
|
2nd 2018
|
|
|
3rd 2018
|
|
Basic and diluted
|
|
$
|
.69
|
|
|
$
|
.07
|
|
|
$
|
(.00
|
)
|
|
$
|
.09
|
|
|
|
4th 2016
|
|
|
1st 2017
|
|
|
2nd 2017
|
|
|
3rd 2017
|
|
Basic and diluted
|
|
$
|
(.13
|
)
|
|
$
|
.25
|
|
|
$
|
.01
|
|
|
$
|
.13
|
|
INCOME TAXES
Our effective tax rate (ETR) was estimated at (12)% and 8% for
the nine months ended September 30, 2018 and 2017, respectively. Assuming no changes in our expected results of operations, we
expect our ETR for the remainder of 2018 to be about the same as the first nine months. Our ETR differs from the statutory rate
due primarily to statutory depletion in excess of tax basis, which is a permanent difference. The deduction for statutory percentage
depletion does not necessarily change proportionately to changes in income (loss) before income taxes.
MSHA REIMBURSEMENTS
Some of our legacy coal contracts allow us to pass on to our
customers certain costs incurred resulting from changes in costs to comply with mandates issued by MSHA or other government agencies.
After applying the provisions of ASU 2014-09, as of September 30, 2018, we do not consider unreimbursed costs from our customers
related to these compliance matters to be material and have constrained such amounts and will recognize them when they can be estimated
with reasonable certainty.
RESTRICTED STOCK GRANTS
See “Item 1. Financial Statements - Note 11. Restricted
Stock Units (RSUs)” for a discussion of RSUs.
CRITICAL ACCOUNTING ESTIMATES
We believe that the estimates of our coal reserves, our business
acquisitions, our interest rate swaps, our deferred tax accounts, and the estimates used in our impairment analysis are our only
critical accounting estimates.
The reserve estimates are used in the DD&A calculation and
in our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our DD&A expense
and impairment test may be affected.
We account for business combinations using the purchase method
of accounting. The purchase method requires us to determine the fair value of all acquired assets, including identifiable intangible
assets and all assumed liabilities. The total cost of acquisitions is allocated to the underlying identifiable net assets, based
on their respective
estimated fair values. Determining whether an acquisition is
considered to be a business or an asset acquisition, and if deemed to meet the definition of a business, the fair value of assets
acquired and liabilities assumed requires management's judgment and the utilization of independent valuation experts, and often
involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows,
discount rates and asset lives, among other items.
The fair value of our interest rate swaps is determined using
a discounted future cash flow model based on the key assumption of anticipated future interest rates.
We have analyzed our filing positions in all of the federal
and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions.
We identified our federal tax return and our Indiana state tax return as “major” tax jurisdictions.
We believe that our income tax filing positions and deductions would be sustained on audit and do not anticipate any adjustments
that will result in a material change to our consolidated financial position.
Yorktown Distributions
As disclosed in our 8-K filed on August 16, 2018, Yorktown Energy
Partners VII, L.P. distributed 868,405 shares of Hallador common stock to its general and limited partners. We were advised that
the distributed shares could be sold immediately. Currently, the Yorktown Energy Partners VII, LP, and its affiliated partners
hold 3,915,998 million shares of our stock representing 13% of total shares outstanding.
We have been informed by Yorktown that they have not made any
determination as to the disposition of their remaining Hallador stock.
NEW ACCOUNTING PRONOUNCEMENTS
See “Item 1. Financial Statements - Note 1. General Business”
for a discussion of new accounting standards.