CORRESP 1 filename1.htm comment_letter_2_01182019

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Via EDGAR

 

Correspondence Submission (non-public)

 

 

January 18, 2019

 

 

Mr. James Giugliano

Division of Corporation Finance

Office of Beverages, Apparel and Mining

United States Securities and Exchange Commission

 

Re: Hallador Energy Company

Form 10-K for Fiscal Year Ended December 31, 2017 Filed March 13, 2018

Form 8-K Filed November 7, 2018

File: No. 001-34743



Re:Comment letter dated December 20, 2018 regarding (1) segment reporting (2) inventories, and (3) non-GAAP measures

 

Dear Mr. Giugliano:

 

With regard to your item 1. Notes to Consolidated Financial Statements, (1) Summary of Significant Accounting Policies, page 48 – below is our response as well as a draft disclosure we will make in future filings.



We have identified Lawrence D. Martin as our chief operating decision maker (“CODM”).  Mr. Martin is President of Sunrise Coal, LLC, the largest subsidiary of Hallador Energy Company, which makes up 99% of Hallador revenues and 94% of total assets.  The majority of Mr. Martin’s time and compensation is related to the management of Sunrise Coal, LLC.  Within Sunrise Coal, two primary operating segments exist, the Oaktown and Carlisle underground coal mines.  Each segment engages in business activities from which it may earn revenues and incur expenses, its operating results are reviewed monthly by the CODM to make decisions about resources to be allocated and to assess performance, and discrete financial information is available.  For reporting purposes, we aggregate the results of operations based on the aggregation criteria in FASB ASC 280-10-50-11.  Each of the mines operates in the same seam, mines the same coal, utilizes the same mining process, customer contracts are generally interchangeable between the mines, distributes the coal via rail or truck, and are expected to have similar future economic characteristics.  The Oaktown mine consists of two slopes which share a surface area, wash plant, and loading facility.  Carlisle reserves are also contiguous to Oaktown reserves.

 

January 18, 2019

Page | 2



Segment Information (draft disclosure)

The Company’s significant operating segments include the Oaktown and Carlisle underground mines located in southwestern Indiana.  The Company’s chief operating decision maker (“CODM”) reviews the operating results, assesses performance and makes decisions about allocation of resources to these segments at the mine level, however, we aggregate the results of operations of the mines for reporting purposes since the nature of the product, production process, customer type, product distribution, and long-term economic characteristics at each location are similar. 



With regard to your item 2. Inventories, page 48 – below is a draft disclosure we will make in future filings.

Inventory and parts and supplies are valued at the lower of average cost or net realizable value.  Inventory costs include labor, supplies, operating overhead, and other related costs incurred at or on behalf of the mining location, including depreciation, depletion, and amortization of equipment, buildings, mineral rights, and mine development costs.

With regard to your item 3. Form 8-K Filed November 7, 2018, Exhibit 99.1 regarding non-GAAP measures, below are reconciliations based on the nine months and three months ended September 30, 2018 and 2017.  Similar reconciliations will be included in future filings.



 

 

 

 

 

 

 



Nine Months Ended

 

Three Months Ended



September 30,

 

September 30,



2018

 

2017

 

2018

 

2017

Net income

 $5,023 

 

 $11,719 

 

 $2,914 

 

 $3,916 

Income tax expense (benefit)

 (546)

 

 993 

 

 (589)

 

 10 

Loss from Hourglass Sands

 871 

 

                    -  

 

 314 

 

                    -  

Loss (income) from equity method investments

 198 

 

 (427)

 

 42 

 

 (169)

Purchased contract amortization

                    -  

 

 6,877 

 

                    -  

 

 2,435 

DD&A

 32,759 

 

 28,533 

 

 10,810 

 

 9,729 

ARO accretion

 866 

 

 640 

 

 293 

 

 219 

Loss (gain) on impairment & disposal of assets

 576 

 

 (8)

 

 4 

 

 (12)

Loss (gain) on marketable securities

 60 

 

                    -  

 

 (134)

 

                    -  

Interest Expense

 10,284 

 

 9,662 

 

 3,261 

 

 3,229 

Other amortization

 2,517 

 

 1,669 

 

 935 

 

 705 

Stock-based compensation

 2,755 

 

 6,388 

 

 389 

 

 994 

Adjusted EBITDA

 $55,363 

 

 $66,046 

 

 $18,239 

 

 $21,056 



 

January 18, 2019

Page | 3





 

 

 

 

 

 

 



Nine Months Ended

 

Three Months Ended



September 30,

 

September 30,



2018

 

2017

 

2018

 

2017

Net Income

 $5,023 

 

 $11,719 

 

 $2,914 

 

 $3,916 

Equity method investments

 198 

 

 (427)

 

 42 

 

 (169)

Purchased contract amortization

                    -  

 

 6,877 

 

                    -  

 

 2,435 

Deferred income tax expense (benefit)

 (120)

 

 2,151 

 

 (385)

 

 2,542 

DD&A

 32,764 

 

 28,533 

 

 10,815 

 

 9,729 

ARO accretion

 866 

 

 640 

 

 293 

 

 219 

Deferred financing costs amortization

 1,482 

 

 1,371 

 

 542 

 

 457 

Change in fair value of interest rate swaps

 136 

 

 (476)

 

 (708)

 

 (36)

Loss (gain) on impairment & disposal of assets

 576 

 

 (3)

 

 4 

 

 56 

Maintenance capex

 (15,469)

 

 (8,880)

 

 (4,639)

 

 (2,961)

Stock-based compensation less taxes paid

 2,744 

 

 3,926 

 

 389 

 

 824 

Adjusted Free Cash Flow

 $28,200 

 

 $45,431 

 

 $9,267 

 

 $17,012 



Please contact Todd Davis at (812) 299-2800, extension 228 or via e-mail at tdavis@sunrisecoal.com with any further questions.

 

Sincerely,

 

 

/s/ Lawrence D. Martin

Lawrence D. Martin, CFO