Hallador Energy Company — Q1 2013 Form 10-Q
Business context and period. The unaudited, reviewed results cover the three months ended March 31, 2013, compared with Q1 2012. Hallador primarily mines steam coal in Indiana through Sunrise Coal; it also holds 45% of oil and gas producer Savoy Energy and 50% of Sunrise Energy. Financial amounts below are in millions of dollars unless stated otherwise.
Financial and operating results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $37.662 | $33.956 |
| Coal sales | $33.995 | $29.620 |
| Operating costs and expenses | $23.290 | $18.433 |
| Income before taxes | $6.921 | $9.172 |
| Net income | $5.468 | $6.153 |
| Diluted earnings per share | $0.19 | $0.21 |
| Cash from operating activities | $6.333 | $9.579 |
- Coal sales volume increased to 840,000 tons from 701,000 tons, while average realized price declined to $40.47 per ton from $42.25. Coal operating cost rose to $27.73 per ton from $26.30, reducing reported coal margin to $12.74 per ton from $15.96.
- Total revenue increased about 11%, but operating costs increased about 26%; pretax income and net income declined. Equity income from Savoy fell to $1.084 million from $1.818 million; Sunrise Energy equity income increased to $0.122 million from $0.056 million.
- Cash and cash equivalents were $18.402 million at March 31, versus $21.888 million at December 31, 2012. Current assets were $34.106 million and current liabilities $9.972 million. Cash declined $3.486 million in the quarter.
- Capital expenditures were $8.604 million, mainly for Carlisle and development of the Ace mine. Investing activities used $9.819 million; financing activities used no net cash in Q1 2013, per the cash flow statement.
- Bank debt was $11.4 million, unchanged from year-end. Sunrise has a five-year, $165 million secured revolving facility; the filing says the current borrowing maximum is $125 million, subject to covenants and milestones.
Changes, outlook, and notable matters
- Management attributed higher coal costs per ton to poor mining conditions in January and February; conditions improved in March. It expects costs of $26–$27 per ton and margins of $14–$15 per ton for the rest of 2013.
- Management expects about 2.4 million tons of coal sales for the remainder of 2013, at an average contracted price of $40.84 per ton. Contracts listed cover 2.431 million tons for the remaining nine months of 2013 and 1.7 million tons for 2014.
- Ace-in-the-Hole surface mine development began in late 2012, with first shipments expected in late May 2013. It has 3.1 million controlled tons and planned maximum capacity of 500,000 tons annually; 20% of capacity was contracted for 2013 and 2014. Hallador expected an additional $1.75 million of Ace equipment and development spending during the rest of 2013.
- Hallador expects 2013 effective tax rate of about 21%, with approximately 60% of the rate for current taxes. The lower rate versus 33% in Q1 2012 was attributed to percentage depletion exceeding basis.
- Management cited low natural-gas prices, new Illinois Basin mines, mild weather, slow economic conditions, environmental regulation, and coal-policy concerns as headwinds. It pointed to scrubber installations, Illinois Basin coal’s competitive position, and higher natural-gas prices as potential tailwinds. These are management’s views, not guaranteed outcomes.
- Revenue included $3.3 million from bill-and-hold coal arrangements: 470,000 tons were stored for two customers at March 31, with ownership risks and rewards passing upon placement in segregated storage. The company reported that all March 31 receivables had been collected by April 30.
- MSHA-related reimbursements were $2.053 million in other income, versus $2.336 million a year earlier. One customer paid $2 million in February 2013 for 2011 costs; Hallador remained in discussions with the other customer and said it would not recognize that customer’s amount until acceptance.
- On April 5, 2013, the board adopted a regular quarterly dividend policy and declared $0.04 per common share, payable May 15 to shareholders of record April 30. This was a post-quarter event.
- The company self-insures about $110 million of underground mining equipment. It reported no material off-balance-sheet arrangements and said disclosure controls were effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether lower coal prices and elevated operating costs persist, and whether management achieves its remaining-2013 cost and margin expectations.
- Whether Ace begins shipments as planned, secures additional contracts, and completes development within the stated capital budget.
- Availability of the revolving facility in light of leverage covenants, borrowing limits, and drawdown milestones; the filing does not state unused availability as a clear figure.
- Collection and recognition status of remaining MSHA reimbursement claims, and the timing and revenue treatment of bill-and-hold deliveries.
- Exposure to coal-market, regulatory, weather, mine-operating, and self-insurance risks; Savoy’s results are also subject to drilling outcomes and unhedged oil prices.
The interim financial statements were reviewed by the independent accounting firm, not audited; the filing cautions that first-quarter results are not necessarily indicative of full-year results.