Hallador Energy Company — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. The interim financial statements are unaudited and were reviewed, not audited. Hallador primarily mines steam coal in Indiana through Sunrise Coal, with equity interests in Michigan oil and gas company Savoy Energy (45%) and Sunrise Energy (50%).
Financial results and position
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue and other income | $35.8 million | $37.7 million |
| Coal sales | $33.0 million | $34.0 million |
| Income before taxes | $4.7 million | $6.9 million |
| Net income | $3.5 million | $5.5 million |
| Diluted EPS | $0.12 | $0.19 |
| Cash provided by operations | $6.2 million | $6.3 million |
| Capital expenditures | $2.9 million | $8.6 million |
Coal sales were 776,000 tons at an average $42.55 per ton, versus 840,000 tons at $40.47 per ton a year earlier. Operating costs averaged $29.65 per ton, up from $27.73; coal margin was $10.0 million, or $12.90 per ton, compared with $10.7 million, or $12.74 per ton. The filing does not provide a clearly labeled consolidated operating margin.
At March 31, cash and cash equivalents were $18.3 million, marketable securities were $1.6 million, and current assets totaled $43.3 million against current liabilities of $9.9 million. Bank debt was $16.0 million, unchanged from year-end; the company reported a $165 million secured revolver, with approximately $100 million available and a current covenant-based borrowing limit of $116 million. Stockholders’ equity was $186.2 million. The company paid $1.2 million in dividends during the quarter. Cash increased $2.0 million to $18.3 million.
Material changes and drivers
- Total revenue and other income declined about 5%, while net income declined about 36% year over year. Coal sales fell modestly as tons sold decreased, partly offset by a higher average selling price.
- Lower other income was a significant comparison factor: Q1 2013 included $2.1 million of MSHA reimbursements; none was recorded in Q1 2014. The company recognizes these reimbursements only after customer acceptance.
- Equity income from Savoy increased to $2.4 million from $1.1 million. Savoy’s reported net income rose to $5.3 million from $2.4 million; these are Savoy’s full-company figures, not Hallador’s proportionate share.
- Cold weather supported high coal burn but caused train delays and missed shipments, increased stockpiles, reduced wash-plant recovery, and constrained production. Management attributed higher mining costs to these disruptions.
Outlook, risks and notable items
- Management expected to make up missed shipments during 2014. Train delays continued into April; until resolved, Q2 mining costs were expected to approximate Q1 levels. Management expected costs of $28.50 per ton or less in the second half of 2014 and $29.00 per ton or less for the remainder of the year.
- For the remaining nine months of 2014, contracted coal deliveries were 2.758 million tons at an average contracted price of $42.01 per ton; management expected sales in the 2.7 million-ton range. The 2014 remaining-year capital expenditure budget was approximately $12 million, expected to be funded from operating cash flow, with the bank line as additional liquidity.
- Management projected a 2014 effective tax rate of 25% or slightly less and forecast tax payments exceeding existing prepayments by $3.5 million.
- Savoy was marketing its Trenton-Black River oil properties; offers had been received and negotiations were pending, with additional offers expected. No completed sale was reported.
- Hallador expected no Ohio River Terminal revenue until 2015. Development of the unassigned Bulldog and War Eagle coal reserves requires sales commitments and substantial investment; each mine was estimated to cost approximately $150 million at full capacity. Bulldog permitting was expected in Q4 2014; War Eagle permit filing was anticipated in late 2014.
- Key risks include continued rail disruption and production-cost pressure, customer and coal-market concentration, permitting and project-development requirements, and uncertainty in coal-reserve estimates. Hallador also disclosed that it had discontinued property insurance on underground mining equipment with historical cost of about $109 million.
Important facts for investors to verify
- Whether rail service normalized and delayed shipments were recovered, and whether mining costs met management’s stated targets.
- Actual 2014 coal volumes, realized prices, wash-plant recovery, and remaining-year capital spending versus expectations.
- Availability under the revolver and compliance with leverage covenants and project drawdown milestones.
- Progress and terms, if any, of Savoy’s proposed property sale; no accepted offer was disclosed in this filing.
- Customer acceptance and timing of reimbursement for MSHA-related costs, and the effect of taxes and the $3.5 million projected additional cash tax outlay.