UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

 

or

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 1-35327

 

 

 

GENIE ENERGY LTD.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   45-2069276

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     
520 Broad Street, Newark, New Jersey   07102
(Address of principal executive offices)   (Zip Code)

 

(973) 438-3500

(Registrant’s telephone number, including area code)

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
       
Non-accelerated filer   (Do not check if a smaller reporting company) Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ☐   No  ☒

 

As of May 4, 2016, the registrant had the following shares outstanding:

 

Class A common stock, $.01 par value: 1,574,326 shares outstanding
Class B common stock, $.01 par value: 23,055,611 shares outstanding (excluding 201,017 treasury shares)

 

 

  

 

 

 

GENIE ENERGY LTD.

TABLE OF CONTENTS

 

PART I.  FINANCIAL INFORMATION   1
       
Item 1.  Financial Statements (Unaudited)   1
       
   Consolidated Balance Sheets   1
     
   Consolidated Statements of Operations   2
       
   Consolidated Statements of Comprehensive Income (Loss)   3
       
   Consolidated Statements of Cash Flows   4
       
   Notes to Consolidated Financial Statements   5
       
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations   16
       
Item 3.  Quantitative and Qualitative Disclosures About Market Risks   28
       
Item 4.  Controls and Procedures   29
       
PART II.  OTHER INFORMATION   29
       
Item 1.  Legal Proceedings   29
       
   Item 1A.  Risk Factors   29
       
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds   30
       
Item 3.  Defaults upon Senior Securities   30
       
Item 4.  Mine Safety Disclosures   30
       
Item 5.  Other Information   30
       
Item 6.  Exhibits   30
       
SIGNATURES   31

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.     Financial Statements (Unaudited)

 

GENIE ENERGY LTD.

 

CONSOLIDATED BALANCE SHEETS

 

   March 31,
2016
   December 31,
2015
 
   (Unaudited)   (Note 1) 
   (in thousands) 
Assets        
Current assets:        
Cash and cash equivalents   $37,899   $38,786 
Restricted cash—short-term    10,795    10,894 
Certificates of deposit    8,868    8,850 
Trade accounts receivable, net of allowance for doubtful accounts of $177 and $182 at March 31, 2016 and December 31, 2015, respectively    27,817    27,222 
Inventory    6,799    11,440 
Prepaid expenses    9,146    11,328 
Other current assets    6,850    6,104 
           
Total current assets    108,174    114,624 
Property and equipment, net    1,351    1,347 
Capitalized exploration costs—unproved oil and gas property    35,969    26,878 
Goodwill    3,663    3,663 
Restricted cash—long-term    2,246    1,802 
Deferred income tax assets, net    1,642    1,642 
Other assets    6,268    5,859 
           
Total assets   $159,313   $155,815 
           
Liabilities and equity          
Current liabilities:          
Trade accounts payable   $11,681   $12,642 
Accrued expenses    19,021    19,424 
Advances from customers    613    1,055 
Income taxes payable    1,623    923 
Due to IDT Corporation    185    438 
Energy hedging contracts    1,336    2,192 
Other current liabilities    665    878 
           
Total current liabilities    35,124    37,552 
Revolving credit loan payable    2,000    2,000 
Other liabilities    1,236    1,566 
           
Total liabilities    38,360    41,118 
           
Commitments and contingencies          
Equity:          
Genie Energy Ltd. stockholders’ equity:          
Preferred stock, $.01 par value; authorized shares—10,000:              
Series 2012-A, designated shares—8,750; at liquidation preference, consisting of 2,322 shares issued and outstanding at March 31, 2016 and December 31, 2015    19,743    19,743 
Class A common stock, $.01 par value; authorized shares—35,000; 1,574 shares issued and outstanding at March 31, 2016 and December 31, 2015    16    16 
Class B common stock, $.01 par value; authorized shares—200,000; 23,260 and 23,239 shares issued and 23,059 and 23,041 shares outstanding at March 31, 2016 and December 31, 2015, respectively    233    232 
Additional paid-in capital    125,658    124,449 
Treasury stock, at cost, consisting of 201 shares and 198 shares of Class B common stock at March 31, 2016 and December 31, 2015, respectively    (1,599)   (1,570)
Accumulated other comprehensive income    1,414    154 
Accumulated deficit    (15,010)   (19,647)
           
Total Genie Energy Ltd. stockholders’ equity    130,455    123,377 
Noncontrolling interests:          
Noncontrolling interests    (7,835)   (7,013)
Receivable for issuance of equity    (1,667)   (1,667)
           
Total noncontrolling interests    (9,502)   (8,680)
           
Total equity    120,953    114,697 
           
Total liabilities and equity   $159,313   $155,815 

 

See accompanying notes to consolidated financial statements.

 

 1 

 

 

GENIE ENERGY LTD.

 

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands, except per share data) 
Revenues:          
Electricity   $44,385   $47,336 
Natural gas    13,366    26,164 
Other    387    929 
           
Total revenues    58,138    74,429 
Cost of revenues    33,274    57,963 
           
Gross profit    24,864    16,466 
           
Operating expenses and losses:          
Selling, general and administrative (i)    16,008    16,639 
Research and development    127    703 
Exploration    1,691    1,573 
Equity in the net loss of AMSO, LLC    222     
           
Income (loss) from operations    6,816    (2,449)
Interest income    82    99 
Other (expense) income, net    (135)   11 
           
Income (loss) before income taxes    6,763    (2,339)
Provision for income taxes    (1,096)   (91)
           
Net income (loss)    5,667    (2,430)
Net loss attributable to noncontrolling interests    819    420 
           
Net income (loss) attributable to Genie Energy Ltd.    6,486    (2,010)
Dividends on preferred stock    (370)   (370)
           
Net income (loss) attributable to Genie Energy Ltd. common stockholders.   $6,116   $(2,380)
Earnings (loss) per share attributable to Genie Energy Ltd. common stockholders:          
Basic   $0.27   $(0.11)
Diluted   $0.26   $(0.11)
Weighted-average number of shares used in calculation of earnings (loss) per share:          
Basic    22,791    22,107 
Diluted    23,684    22,107 
Dividends declared per common share  $0.06   $0.06 
(i) Stock-based compensation included in selling, general and administrative expense   $1,210   $1,237 

 

See accompanying notes to consolidated financial statements. 

 

 2 

 

 

GENIE ENERGY LTD.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

(Unaudited)

 

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 
Net income (loss)   $5,667   $(2,430)
Other comprehensive income (loss):          
Foreign currency translation adjustments    1,257    (56)
Comprehensive income (loss)    6,924    (2,486)
Comprehensive loss attributable to noncontrolling interests    822    414 
Comprehensive income (loss) attributable to Genie Energy Ltd.   $7,746   $(2,072)

See accompanying notes to consolidated financial statements. 

 

 3 

 

 

GENIE ENERGY LTD.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 
Operating activities        
Net income (loss)   $5,667   $(2,430)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:          
Depreciation    97    104 
Provision for doubtful accounts receivable    (3)   8 
Stock-based compensation    1,210    1,237 
Equity in the net loss of AMSO, LLC    222     
Change in assets and liabilities:          
Restricted cash    (294)   (1,373)
Trade accounts receivable    (592)   (8,117)
Inventory    4,640    2,646 
Prepaid expenses    2,220    (2,648)
Other current assets and other assets    (1,055)   (2,603)
Trade accounts payable, accrued expenses and other current liabilities    (2,998)   4,507 
Advances from customers    (442)   (268)
Due to IDT Corporation    (253)   (407)
Income taxes payable    701    58 
Net cash provided by (used in) operating activities    9,120    (9,286)
Investing activities          
Capital expenditures    (84)   (289)
Investments in capitalized exploration costs—unproved oil and gas property    (8,031)   (4,308)
Capital contributions to AMSO, LLC    (63)    
Net cash used in investing activities    (8,178)   (4,597)
Financing activities          
Dividends paid    (1,849)   (1,840)
Repurchases of Class B common stock from employees    (29)   (22)
Payment for acquisitions    (104)   (63)
Net cash used in financing activities    (1,982)   (1,925)
Effect of exchange rate changes on cash and cash equivalents    153    (64)
Net decrease in cash and cash equivalents    (887)   (15,872)
Cash and cash equivalents at beginning of period    38,786    71,895 
Cash and cash equivalents at end of period   $37,899   $56,023 

 

See accompanying notes to consolidated financial statements.

 

 4 

 

 

GENIE ENERGY LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

Note 1—Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Genie Energy Ltd. and its subsidiaries (the “Company” or “Genie”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The balance sheet at December 31, 2015 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the U.S. Securities and Exchange Commission (the “SEC”).

 

The Company 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’s principal businesses consist of the following:

 

Genie Retail Energy owns retail energy providers (“REPs”), including IDT Energy, Inc. (“IDT Energy”) and Residents Energy, Inc. (“Residents 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; and

 

Genie Oil and Gas is an oil and gas exploration company that consists of:

 

an 86.3% interest in Afek Oil and Gas, Ltd. (“Afek”), which operates an exploration project in the Golan Heights in Northern Israel, and

 

other projects including (1) an 88.3% interest in Genie Mongolia, Inc. (“Genie Mongolia”), an oil shale exploration project in Central Mongolia, which is inactive, (2) a 98.3% interest in American Shale Oil Corporation (“AMSO”), which operates American Shale Oil, L.L.C. (“AMSO, LLC”), an oil shale development project in Colorado that is being decommissioned, and (3) an 86.1% interest in Israel Energy Initiatives, Ltd. (“IEI”), an oil shale development project in Israel, which is inactive.

 

GRE has outstanding deferred stock units granted to directors and employees that represent an interest of 3.9% of the equity of GRE.

 

On March 23, 2016, Total S.A. (“Total”) gave AMSO its notice of withdrawal from AMSO, LLC (see Note 5). The withdrawal was effective on April 30, 2016.

 

On February 1, 2016, Israel’s Northern District Planning and Building Committee approved a two-year permit extension for Afek to continue to conduct its up to ten-well oil and gas exploration program. The original permit was for a one-year period, which commenced in February 2015. This extension is expected to cover the remainder of Afek’s ongoing exploration program in the area covered by it exploration license. In April 2016, Afek received an extension of its license from the Israeli Ministry of Energy and Water through April 9, 2017. Afek is conducting its oil and gas exploration program pursuant to that license which was initially granted for a three-year period that expired on April 9, 2016.

 

Reclassification

 

In the consolidated statement of operations, $0.7 million previously included in “Financing fees” in the three months ended March 31, 2015 was reclassified to “Cost of revenues” to conform to the current year’s presentation.

 

 5 

 

 

Seasonality and Weather

 

The weather and the seasons, among other things, affect GRE’s revenues. Weather conditions have a significant impact on the demand for natural gas used for heating and electricity used for heating and cooling. Typically, colder winters increase demand for natural gas and electricity, and hotter summers increase demand for electricity. Milder winters and/or summers have the opposite effect. Natural gas revenues typically increase in the first quarter due to increased heating demands and electricity revenues typically increase in the third quarter due to increased air conditioning use. Approximately 64% and 59% of GRE’s natural gas revenues for the relevant years were generated in the first quarter of 2015 and 2014, respectively, when demand for heating was highest. Although the demand for electricity is not as seasonal as natural gas (due, in part, to usage of electricity for both heating and cooling), approximately 30% and 20% of GRE’s electricity revenues for the relevant years were generated in the third quarter of 2015 and 2014, respectively. Because of dramatic increases in wholesale electricity prices in January and February 2014, the retail electricity prices that the GRE-owned REPs and many other variable rate electricity suppliers charged to their customers also increased sharply. As a result, approximately 45% of GRE’s electricity revenues in 2014 were generated in the first quarter of 2014. GRE’s revenues and operating income are subject to material seasonal variations, and the interim financial results are not necessarily indicative of the estimated financial results for the full year.

 

Note 2—Fair Value Measurements

 

The following table presents the balance of assets and liabilities measured at fair value on a recurring basis:

 

   Level 1 (1)  

Level 2 (2)

  

Level 3 (3)

   Total 
   (in thousands) 
March 31, 2016                
Assets:                
Derivative contracts   $2   $2,817   $   $2,819 
Liabilities:                    
Derivative contracts   $   $1,336   $   $1,336 
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.

 

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, advances from customers, due to IDT Corporation and other current liabilities. At March 31, 2016 and December 31, 2015, the carrying amounts 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 was classified as Level 1 and certificates of deposit, prepaid expenses, other current assets, 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 March 31, 2016 and December 31, 2015, other assets included an aggregate of $1.5 million 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.

 

 6 

 

 

Note 3—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 March 31, 2016 and December 31, 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 March 31, 2016 was as follows (MWh – Megawatt hour and Dth – Decatherm):

 

Commodity  Settlement Dates  Volume
Electricity   April 2016  33,600 MWh
Electricity   May 2016  33,600 MWh
Electricity   July 2016  272,000 MWh
Electricity   August 2016  312,800 MWh
Electricity   September 2016  33,600 MWh
Electricity   December 2016  67,200 MWh
Electricity   January 2017  134,400 MWh
Electricity   February 2017  128,000 MWh
Natural gas   July 2016  1,110,000 Dth
Natural gas   August 2016  800,000 Dth

 

The fair value of outstanding derivative instruments recorded as assets in the accompanying consolidated balance sheets were as follows:

 

Asset Derivatives  Balance Sheet Location  March 31, 2016   December 31, 2015 
      (in thousands) 
Derivatives not designated or not qualifying as hedging instruments:           
Energy contracts and options   Other current assets  $2,819   $1,681 

 

The fair value of outstanding derivative instruments recorded as liabilities in the accompanying consolidated balance sheets were as follows:

 

Liability Derivatives  Balance Sheet
Location
  March 31, 2016   December 31, 2015 
      (in thousands) 
Derivatives not designated or not qualifying as hedging instruments:           
Energy contracts and options   Energy hedging contracts  $1,336   $2,192 

 

The effects of derivative instruments on the consolidated statements of operations were as follows:

 

Amount of Gain (Loss) Recognized on Derivatives
   Location of Gain  Three Months Ended 
   (Loss) Recognized  March 31, 

Derivatives not designated or not qualifying as hedging instruments

 

on Derivatives

 

2016

  

2015

 
      (in thousands) 
Energy contracts and options   Cost of revenues  $361   $(957)

 

Note 4—Afek Oil and Gas Exploration Activities

 

The Company accounts for Afek’s 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. At March 31, 2016 and December 31, 2015, the Company had capitalized exploration costs of $36.0 million and $26.9 million, respectively. At March 31, 2016, $4.3 million of the capitalized exploration costs had been capitalized for a period greater than one year, although drilling has not yet been completed. The Company is in the process of determining if proved reserves have been found. If no proved reserves are found, the related capitalized exploration costs will be charged to expense. In the three months ended March 31, 2016 and 2015, the Company recognized exploration expense of $1.7 million and $1.6 million, respectively.

 

 7 

 

 

In April 2016, Afek concluded a well flow test on one of its completed wells (Ness 3) in Northern Israel. Afek continues to execute on its oil and gas exploration program. Well flow testing within the second test well - Devorah 1 (Ness 2) - is currently underway, with testing completed on three of five planned depth level zones. To date, the flow tests at Devorah 1 have yielded gaseous hydrocarbons and Afek has extracted small amounts of heavy hydrocarbons. The gaseous hydrocarbons at Devorah 1 were sufficiently concentrated to flare. Testing at the first site, Ness 3 provided valuable data that has enhanced the quality of subsequent testing and ongoing exploration activities without yielding hydrocarbons demonstrative of a commercially viable resource. Preliminary results from the analysis conducted to date are consistent with Afek’s initial model for the basin. Afek has engaged experts to conduct further analysis on both wells and additional exploratory work in order to better understand the resource and its commercial potential.

 

Afek assesses the economic and operational viability of its project on an ongoing basis, and to date believes that sufficient progress is being made. The assessment requires significant estimates and assumptions by management. Should our estimates or assumptions regarding the recoverability of the capitalized exploration costs prove to be incorrect, we may be required to record impairments of such costs in future periods and such impairments could be material.

 

Note 5—Investment in American Shale Oil, LLC

 

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 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. The Company is currently decommissioning the project. 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. AMSO estimates that the decommissioning, winding up and dissolution of AMSO, LLC will cost up to $5.0 million.

 

Because of AMSO’s decisions not to fund all of its share of AMSO, LLC’s expenditures in 2014 and 2015, at March 31, 2016, AMSO’s ownership interest in AMSO, LLC was 41.3% and Total’s ownership interest was 58.7%.

 

The following table summarizes the change in the balance of the Company’s investment in AMSO, LLC:

  

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 
Balance, beginning of period   $(399)  $(252)
Capital contributions    63     
Equity in the net loss of AMSO, LLC    (222)    
Balance, end of period   $(558)  $(252)

 

At March 31, 2016 and at December 31, 2015, the liability for equity loss in AMSO, LLC was included in “Accrued expenses” in the consolidated balance sheet.

 

Summarized unaudited statements of operations of AMSO, LLC are as follows:

 

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 
Operating expenses:          
General and administrative   $87   $119 
Research and development    1,050    1,462 
Total operating expenses    1,137    1,581 
Loss from operations and net loss   $(1,137)  $(1,581)

 

 8 

 

 

Note 6—Equity

 

Changes in the components of equity were as follows:

  

   Three Months Ended March 31, 2016 
   Attributable to Genie   Noncontrolling Interests   Total 
   (in thousands) 
Balance, December 31, 2015   $123,377   $(8,680)  $114,697 
Dividends on preferred stock    (370)       (370)
Dividends declared on common stock ($0.06 per share)    (1,479)       (1,479)
Restricted Class B common stock purchased from employees    (29)       (29)
Stock-based compensation    1,210        1,210 
Comprehensive income:               
Net income    6,486    (819)   5,667 
Foreign currency translation adjustments    1,260    (3)   1,257 
Comprehensive income    7,746    (822)   6,924 
Balance, March 31, 2016   $130,455   $(9,502)  $120,953 

 

Dividend Payments

 

On February 16, 2016, the Company paid a quarterly Base Dividend of $0.1594 per share on its Series 2012-A Preferred Stock (“Preferred Stock”) for the fourth quarter of 2015. On April 13, 2016, the Company’s Board of Directors declared a quarterly Base Dividend of $0.1594 per share on the Preferred Stock for the first quarter of 2016. The dividend will be paid on or about May 16, 2016 to stockholders of record as of the close of business on May 6, 2016. The aggregate dividends declared and paid in the three months ended March 31, 2016 and 2015 were $0.4 million and $0.4 million, respectively.

 

On February 12, 2016, the Company paid a quarterly dividend of $0.06 per share on its Class A common stock and Class B common stock in the aggregate amount of $1.5 million. On March 31, 2015, the Company paid a quarterly dividend of $0.06 per share on its Class A common stock and Class B common stock for the fourth quarter of 2014 in the aggregate amount of $1.5 million. In May 2016, the Company’s Board of Directors declared a quarterly dividend of $0.06 per share on its Class A common stock and Class B common stock for the first quarter of 2016. The dividend will be paid on or about May 20, 2016 to stockholders of record as of the close of business on May 16, 2016.

 

Stock Repurchase Program

 

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. There were no repurchases under this program in the three months ended March 31, 2016 and 2015. At March 31, 2016, 6.9 million shares remained available for repurchase under the stock repurchase program.

 

Variable Interest Entities

 

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, which is not owned by the Company. Since 2011, the Company provided CCE with substantially all of the cash required to fund its operations. The Company determined that it has 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.

 

 9 

 

 

Net loss related to CCE and aggregate net funding (provided by) repaid to the Company to CCE in order to finance its operations were as follows:

 

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 
         
Net loss   $(571)  $(104)
Aggregate funding (provided by) repaid to the Company, net   $(371)  $313 

 

Summarized combined balance sheet amounts related to CCE is as follows:

 

   March 31,
2016
   December 31,
2015
 
   (in thousands) 
Assets        
Cash and cash equivalents   $55   $48 
Restricted cash    11    25 
Trade accounts receivable    792    844 
Prepaid expenses    373    479 
Other current assets    9    51 
Other assets    449    468 
Total assets   $1,689   $1,915 
Liabilities and noncontrolling interests          
Current liabilities   $241   $267 
Due to IDT Energy    798    427 
Noncontrolling interests    650    1,221 
Total liabilities and noncontrolling interests   $1,689   $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 7—Earnings (Loss) 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 computed 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 weighted-average number of shares used in the calculation of basic and diluted earnings (loss) per share attributable to the Company’s common stockholders consists of the following:

 

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 
Basic weighted-average number of shares    22,791    22,107 
Effect of dilutive securities:          
Stock options    41     
Non-vested restricted Class B common stock    852     
Diluted weighted-average number of shares    23,684    22,107 

 

 10 

 

 

The following shares were excluded from the diluted loss per share computation because their inclusion would have been anti-dilutive:

 

   March 31, 
   2016   2015 
   (in thousands) 
Stock options        436 
Non-vested restricted Class B common stock        2,453 
Shares excluded from the calculation of diluted earnings per share        2,889 

 

The diluted loss per share equals basic loss per share in the three months ended March 31, 2015 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. 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 IEI, Afek, 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.

 

Note 8—Related Party Transactions

 

On October 28, 2011, the Company was spun-off by IDT, its former parent company, (the “Spin-Off”). The Company entered into various agreements with IDT prior to the Spin-Off including an agreement for certain services to be performed by the Company and IDT. Following the Spin-Off, the charges for services provided by IDT are included in “Selling, general and administrative” expense in the consolidated statements of operations. Also, the Company provides specified administrative services to certain of IDT’s foreign subsidiaries. The charges for these services reduce the Company’s “Selling, general and administrative” expense.

 

   Three Months Ended
March 31,
 
   2016   2015 
   (in thousands) 
Amount IDT charged the Company   $434   $620 
Amount the Company charged IDT   $120   $139 

 

Note 9—Business Segment 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, GOGAS and Afek. GRE owns REPs including IDT Energy and Residents 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. GOGAS is an oil and gas exploration company. The GOGAS segment is comprised of early stage oil shale projects including (1) an 88.3% interest in Genie Mongolia, an oil shale exploration project in Central Mongolia, which is inactive, (2) a 98.3% interest in AMSO, which operates AMSO, LLC, an oil shale development project in Colorado that is being decommissioned, and (3) an 86.1% interest in IEI, an oil shale development project in Israel, which is inactive. The Company has an 86.3% interest in Afek, which operates an oil and gas exploration project in the Golan Heights in Northern Israel. GRE has outstanding deferred stock units granted to officers and employees that represent an interest of 3.9% of the equity of GRE. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expense and other corporate-related general and administrative expense. Corporate does not generate any revenues, nor does it incur any cost of revenues. 

 

 11 

 

 

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 
Three Months Ended March 31, 2016                    
Revenues   $58,138   $   $   $   $58,138 
Income (loss) from operations    11,515    (1,827)   (469)   (2,403)   6,816 
Research and development            127        127 
Exploration        1,691            1,691 
Equity in the net loss of AMSO, LLC            222        222 
                          
Three Months Ended March 31, 2015                         
Revenues   $74,429   $   $   $   $74,429 
Income (loss) from operations    2,771    (1,799)   (904)   (2,517)   (2,449)
Research and development        52    651        703 
Exploration        1,573            1,573 

 

Total assets for the business segments of the Company were as follows:

 

(in thousands)  GRE   Afek   GOGAS   Corporate   Total 
Total assets:                    
March 31, 2016   $80,474   $46,852   $14,808   $17,179   $159,313 
                          
December 31, 2015    80,177    38,665   $17,770    19,203    155,815 

 

Note 10—Commitments and Contingencies

 

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 Company believes that the claims in this lawsuit are without merit and intends to vigorously defend the action.

 

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. In the Joint Complaint, the AG and the OCA allege, among other things, various violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, the Telemarketing Registration Act and the Pennsylvania Public Utility Commission’s regulations. IDT Energy has 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, if approved by the PUC, IDT Energy will agree to 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 agree to implement certain modifications to its sales, marketing and customer service processes, along with additional compliance and reporting requirements. The settlement must be approved by the Pennsylvania PUC, which is expected in the second quarter of 2016.

 

 12 

 

 

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 December 19, 2014, IDT Energy filed a motion to dismiss the complaint. On December 9, 2015, the Court denied IDT Energy’s motion to dismiss without prejudice so as to allow McLaughlin to file an amended complaint. 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”). Subsequently, on February 22, 2016, IDT Energy moved to dismiss the amended complaint. The named plaintiff opposed that motion and the parties are currently awaiting a decision from the Court. In the meantime, the parties are engaged in limited discovery. The Company believes that the claims in the amended complaint are without merit and intends to vigorously defend the action.

 

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 alleged 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. On November 6, 2014, the Court denied IDT Energy’s motion to dismiss the complaint and the parties are currently engaged in discovery. Most recently, 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. To date, only IDT Energy has been served with the amended complaint, for which a response is due on or before May 25, 2016. The Company believes that the claims in the amended complaint are also without merit and intends to vigorously defend the action.

 

At March 31, 2016, the Company had an aggregate of $2.5 million accrued for the complaints and lawsuits described above.

 

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 Order

 

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 until a court hearing on those parties’ motion for a preliminary injunction. The hearing on that motion was set for April 14, 2016, but has since been adjourned by stipulation of the parties to May 20, 2016. A group of parties from the REP industry also filed motions for reconsideration with the PSC. Those motions remain pending.

 

The Company is evaluating the potential impact of the PSC’s order on its New York operations, while preparing to operate in compliance with any new requirements.  Depending on the final language of the order and the outcome of legal appeals, as well as our final response to the order with respect to our relationships with our New York customers, the order will likely have a substantial impact upon the operations of GRE-owned REPs in New York. At March 31, 2016, New York represented 50% of the total meters served by GRE-owned REPs and 42% of the total residential customer equivalents of the customer base of those REPs.

 

Purchase Commitments

 

The Company had purchase commitments of $14.2 million at March 31, 2016. The purchase commitments outstanding at March 31, 2016 are expected to be paid as follows: $11.0 million in the year ending March 31, 2017 and $3.2 million in the year ending March 31, 2018.

 

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 March 31, 2016, GRE had commitments to purchase renewable energy credits of $42.7 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 accrued amounts. Accordingly, additional provisions may be recorded in the future as revised estimates are made 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.

 

 13 

 

 

Letters of Credit

 

At March 31, 2016, the Company had letters of credit outstanding totaling $8.1 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 March 31, 2016 expire in the twelve months ending March 31, 2017.

 

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 March 31, 2016, GRE had aggregate performance bonds of $11.9 million outstanding.

 

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 March 31, 2016, the Company was in compliance with such covenants. At March 31, 2016, restricted cash—short-term of $0.7 million and trade accounts receivable of $27.7 million were pledged to BP as collateral for the payment of IDT Energy’s trade accounts payable to BP of $6.9 million at March 31, 2016.

 

Note 11—Revolving Lines 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. Therefore, the revolving line of credit is not available for future borrowings. The collateral for the revolving loan consists of the borrowers’ receivables, the balances in certain bank accounts and certain commercial and intangible rights. Outstanding principal amount incurs interest at LIBOR plus 3.5% per annum. Interest is payable monthly and all outstanding principal and any accrued and unpaid interest is due on the maturity date of December 17, 2018.

 

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. In April 2016, the Loan Agreement was modified to extend the maturity date from April 30, 2016 to May 31, 2017. 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. 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 March 31, 2016 and December 31, 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 March 31, 2016 and December 31, 2015, letters of credit of $8.1 million and $7.7 million, respectively, were outstanding.

 

Note 12—Recently Issued Accounting Standards Not Yet Adopted

 

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 will 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.

 

 14 

 

 

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 measures GRE’s natural gas inventory at weighted average cost. The Company will adopt the amendments in this ASU on January 1, 2017. The Company is evaluating the impact that the ASU will have on its consolidated financial statements.

 

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 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, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company will adopt the new standard on January 1, 2017. The Company is evaluating the impact that the new standard will have on its consolidated financial statements.

 

 15 

 

 

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following information should be read in conjunction with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the U.S. Securities and Exchange Commission (or SEC).

 

As used below, unless the context otherwise requires, the terms “the Company,” “Genie,” “we,” “us,” and “our” refer to Genie Energy Ltd., a Delaware corporation, and its subsidiaries, collectively.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 and in Item 1A to Part II “Risk Factors” in this Form 10-Q. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Overview

 

We own 99.3% of our subsidiary, Genie Energy International Corporation, or GEIC, which owns 100% of Genie Retail Energy, or GRE, and 92% of Genie Oil and Gas, Inc., or GOGAS. Our principal businesses consist of the following:

 

Genie Retail Energy owns retail energy providers, or REPs, including IDT Energy, Inc., or IDT Energy, and Residents Energy, Inc., or Residents 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; and

 

Genie Oil and Gas is an oil and gas exploration company that consists of:

 

an 86.3% interest in Afek Oil and Gas, Ltd., or Afek, which operates an exploration project in the Golan Heights in Northern Israel, and

 

other projects including (1) an 88.3% interest in Genie Mongolia, Inc., or Genie Mongolia, an oil shale exploration project in Central Mongolia, which is inactive, (2) a 98.3% interest in American Shale Oil Corporation, or AMSO, which operates American Shale Oil, L.L.C., or AMSO, LLC, an oil shale development project in Colorado that is being decommissioned, and (3) an 86.1% interest in Israel Energy Initiatives, Ltd., or IEI, an oil shale development project in Israel, which is inactive.

 

GRE has outstanding deferred stock units granted to officers and employees that represent an interest of 3.9% of the equity of GRE.

 

On March 23, 2016, Total S.A., or Total, gave AMSO its notice of withdrawal from AMSO, LLC. The withdrawal was effective on April 30, 2016.

 

As part of our ongoing business development efforts, we continuously seek out new opportunities, which may include complementary operations or businesses that reflect horizontal or vertical expansion from our current operations. Some of these potential opportunities are considered briefly and others are examined in further depth. In particular, we seek out acquisitions to expand the geographic scope and size of our REP businesses, and additional energy exploration projects to diversify our GOGAS unit’s operations, among geographies, technologies and resources.

 

 16 

 

 

Genie Retail Energy

 

Seasonality and Weather

  

The weather and the seasons, among other things, affect GRE’s revenues. Weather conditions have a significant impact on the demand for natural gas used for heating and electricity used for heating and cooling. Typically, colder winters increase demand for natural gas and electricity, and hotter summers increase demand for electricity. Milder winters and/or summers have the opposite effects. Natural gas revenues typically increase in the first quarter due to increased heating demands and electricity revenues typically increase in the third quarter due to increased air conditioning use. Approximately 64% and 59% of GRE’s natural gas revenues for the relevant years were generated in the first quarter of 2015 and 2014, respectively, when demand for heating was highest. Although the demand for electricity is not as seasonal as natural gas (due, in part, to usage of electricity for both heating and cooling), approximately 30% and 20% of GRE’s electricity revenues for the relevant years were generated in the third quarter of 2015 and 2014, respectively. Because of dramatic increases in wholesale electricity prices in January and February 2014, the retail electricity prices that the GRE-owned REPs and many other variable rate electricity suppliers charged to their customers also increased sharply. As a result, approximately 45% of GRE’s electricity revenues in 2014 were generated in the first quarter of 2014. Our revenues and operating income are subject to material seasonal variations, and the interim financial results are not necessarily indicative of the estimated financial results for the full year.

 

Concentration of Customers and Associated Credit Risk

  

The GRE-owned REPs reduce their customer credit risk by participating in purchase of receivable, or POR, programs for a majority of its 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 our consolidated revenues and consolidated gross trade accounts receivable balance and such concentrations increase our 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 our consolidated revenues in the period (no other single utility company accounted for 10% or greater of our consolidated revenues in these periods):

 

   Three Months Ended
March 31,
 
   2016   2015 
Con Edison    18%   20%
ComEd    11%   na 
National Grid USA    11%   13%

 

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 March 31, 2016 and December 31, 2015 (no other single utility company accounted for 10% or greater of our consolidated gross trade accounts receivable at March 31, 2016 or December 31, 2015):

 

   March 31, 2016   December 31, 2015 
Con Edison    20%   22%

 

New York Public Service Commission Order

 

On February 23, 2016, the New York Public Service Commission, or 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 until a court hearing on those parties’ motion for a preliminary injunction. The hearing on that motion was set for April 14, 2016, but has since been adjourned by stipulation of the parties to May 20, 2016. A group of parties from the REP industry also filed motions for reconsideration with the PSC. Those motions remain pending.

 

We are evaluating the potential impact of the PSC’s order on our New York operations while preparing to operate in compliance with any new requirements.  Depending on the final language of the order and the outcome of legal appeals, as well as our final response to the order with respect to our relationships with our New York customers, the order will likely have a substantial impact upon the operations of GRE-owned REPs in New York. At March 31, 2016, New York represented 50% of the total meters served by GRE-owned REPs and 42% of the total residential customer equivalents of the customer base of those REPs.

 

 17 

 

 

Afek Oil and Gas, Ltd.

  

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. On February 1, 2016, Israel’s Northern District Planning and Building Committee approved a two-year permit extension for Afek to continue to conduct its up to ten-well oil and gas exploration program. The original permit was for a one-year period, which commenced in February 2015. This extension is expected to cover the remainder of Afek’s ongoing exploration program in the area covered by its exploration license. In April 2016, Afek received an extension of its license from the Israeli Ministry of Energy and Water through April 9, 2017. Afek is conducting a multi-well oil and gas exploration program pursuant to that license which was initially granted for a three-year period that expired on April 9, 2016.

 

In February 2015, Afek began drilling its first exploratory well in Northern Israel’s Golan Heights. To date, Afek has completed drilling five wells. In April 2016, Afek concluded a well flow test on one of its completed wells (Ness 3) in Northern Israel. Well flow testing within the second test well - Devorah 1 (Ness 2) - is currently underway, with testing completed on three of five planned depth level zones. To date, the flow tests at Devorah 1 have yielded gaseous hydrocarbons and Afek has extracted small amounts of heavy hydrocarbons. The gaseous hydrocarbons at Devorah 1 were sufficiently concentrated to flare. Testing at the first site, Ness 3 provided valuable data that has enhanced the quality of subsequent testing and ongoing exploration activities without yielding hydrocarbons demonstrative of a commercially viable resource. Preliminary results from the analysis conducted to date are consistent with Afek’s initial model for the basin. Afek has engaged experts to conduct further analysis on both wells and additional exploratory work in order to better understand the resource and its commercial potential.

 

Afek assesses the economic and operational viability of its project on an ongoing basis, and to date believes that sufficient progress is being made. The assessment requires significant estimates and assumptions by management. Should our estimates or assumptions regarding the recoverability of the capitalized exploration costs prove to be incorrect, we may be required to record impairments of such costs in future periods and such impairments could be material.

 

Investment in American Shale Oil, LLC

 

AMSO, LLC holds a research, development and demonstration lease awarded by the U.S. Bureau of Land Management that covers an area of 160 acres in western Colorado. We accounted for our ownership interest in AMSO, LLC using the equity method since we had the ability to exercise significant influence over its operating and financial matters, although we did not control AMSO, LLC. AMSO, LLC was a variable interest entity, however, we determined that we were not the primary beneficiary.

 

Because of AMSO’s decisions not to fund all of its share of AMSO, LLC’s expenditures in 2014 and 2015, at March 31, 2016, AMSO’s ownership interest in AMSO, LLC was 41.3% and Total’s ownership interest was 58.7%.

 

On February 23, 2016, Total notified AMSO 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. We are currently decommissioning the project. 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. We estimate that the decommissioning, winding up and dissolution of AMSO, LLC will cost up to $5.0 million.

 

Critical Accounting Policies

 

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, goodwill, oil and gas accounting and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

 18 

 

 

Recently Issued Accounting Standards Not Yet Adopted

 

In May 2014, the Financial Accounting Standards Board, or 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, or 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. We will 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. We are evaluating the impact that the standard will have on our consolidated financial statements.

 

In July 2015, the FASB issued an Accounting Standards Update, or 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. We measure GRE’s natural gas inventory at weighted average cost. We will adopt the amendments in this ASU on January 1, 2017. We are evaluating the impact that the ASU will have on our consolidated financial statements.

 

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. We will adopt the amendments in this ASU on January 1, 2018. We are evaluating the impact that the ASU will have on our 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. We 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. We are evaluating the impact that the new standard will have on our consolidated financial statements.

 

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, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We will adopt the new standard on January 1, 2017. We are evaluating the impact that the new standard will have on our consolidated financial statements.

 

Results of Operations

 

We evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.

  

 19 

 

 

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

 

Genie Retail Energy Segment

 

In our results of operations, $0.7 million previously included in “Financing fees” in the three months ended March 31, 2015 was reclassified to “Cost of revenues” to conform to the current year’s presentation.

 

   Three months ended
March 31,
   Change 
   2016   2015   $   % 
   (in millions) 
Revenues:                
Electricity   $44.4   $47.3   $(2.9)   (6.2)%
Natural gas    13.4    26.2    (12.8)   (48.9)
Other    0.3    0.9    (0.6)   (58.3)
                     
Total revenues    58.1    74.4    (16.3)   (21.9)
Cost of revenues    33.2    57.9    (24.7)   (42.6)
                     
Gross profit    24.9    16.5    8.4    51.0 
Selling, general and administrative    13.4    13.7    (0.3)   (2.5)
                     
Income from operations   $11.5   $2.8   $8.7    315.5%

  

Revenues. GRE’s electricity revenues decreased in the three months ended March 31, 2016 compared to the same period in 2015 because of an 8.7% decrease in the average rate charged to customers, partially offset by a 2.8% increase in electricity consumption. The decrease in the average rate charged to customers was due to a 40.3% decrease in the underlying commodity cost in the three months ended March 31, 2016 compared to the same period in 2015. The increase in electricity consumption was primarily the result of an increase in meters served, which increased 13.2% in the three months ended March 31, 2016 compared to the same period in 2015, although average consumption per meter decreased 9.2% in the three months ended March 31, 2016 compared to the same period in 2015.

 

GRE's natural gas revenues decreased in the three months ended March 31, 2016 compared to the same period in 2015 because of milder winter weather that resulted in a 29.4% decrease in natural gas consumption and a 29.1% decrease in average consumption per meter. In addition, meters served decreased 0.5% in the three months ended March 31, 2016 compared to the same period in 2015. The decrease in GRE's natural gas revenues in the three months ended March 31, 2016 compared to the same period in 2015 was also due to a 27.6% decrease in the average rate charged to customers resulting from a 28.5% decrease in the underlying commodity cost in the three months ended March 31, 2016 compared to the same period in 2015.

 

The customer base for the GRE-owned REPs as measured by meters served consisted of the following:

 

  

March 31,

2016

  

December 31,

2015

   September 30,
2015
  

June 30,
2015

  

March 31, 2015

 
   (in thousands) 
Meters at end of quarter:                    
Electricity customers    267    264    261    250    232 
Natural gas customers    126    128    127    127    126 
                          
Total meters    393    392    388    377    358 

 

Gross meter acquisitions in the three months ended March 31, 2016 were 65,000 compared to 52,000 in the same period in 2015. The GRE-owned REPs had success in selling “IDT Energy® SmartBudget” and other offerings with fixed rate characteristics. Net meters served increased by 35,000 or 9.8% in the three months ended March 31, 2016 compared to a decrease of 5,000 or 1.3% in the three months ended March 31, 2015 due to the increase in gross meter acquisitions, partially offset by an increase in customer churn. Average monthly churn increased from 5.9% in the three months ended March 31, 2015 to 6.4% in the three months ended March 31, 2016. Average monthly churn in the three months ended March 31, 2016 was consistent with the prior three calendar quarters reflecting the successful introduction of the pricing plans with fixed rate characteristics, whereas average monthly churn in the three months ended March 31, 2015 was relatively low.

 

GRE-owned REPs have applications pending to enter into additional utility service areas, primarily natural gas and dual meter territories, in various locations in the states where we currently operate and in other jurisdictions. We continue to evaluate additional, deregulation-driven opportunities in order to expand our business geographically, and we expect to enter an additional state during the second quarter of 2016.

 

 20 

 

 

The average rates of annualized energy consumption, as measured by residential customer equivalents, or RCEs, are presented in the chart below. An RCE represents a natural gas customer with annual consumption of 100 mmbtu or an electricity customer with annual consumption of 10 MWh. Because different customers have different rates of energy consumption, RCEs are an industry standard metric for evaluating the consumption profile of a given retail customer base.

 

  

March 31,

2016

  

December 31,

2015

   September 30, 2015   June 30, 2015   March 31, 2015 
   (in thousands) 
RCEs at end of quarter:                    
Electricity customers    175    178    178    168    158 
Natural gas customers    72    81    82    83    83 
                          
Total RCEs    247    259    260    251    241 

  

The total RCE increase at March 31, 2016 compared to March 31, 2015 primarily reflects the increase in electricity meters served. The decrease in natural gas customers’ RCEs at March 31, 2016 compared to March 31, 2015 was primarily due to unseasonably cold weather in the three months ended March 31, 2015 that caused relatively higher natural gas consumption, whereas unseasonably warm weather in the three months ended March 31, 2016 resulted in relatively lower natural gas consumption that reduced the annualized natural gas consumption.

 

Other revenue in the three months ended March 31, 2016 and 2015 includes revenue earned by Diversegy, LLC, or Diversegy, and IDT Energy Network, or IDTEN (formerly Epiq Energy, LLC), both of which were acquired in December 2013. Diversegy and IDTEN earn commissions, entry fees and other fees from their retail energy advisory and brokerage business and network marketing business, respectively.

 

Cost of Revenues and Gross Margin Percentage. GRE’s cost of revenues and gross margin percentage were as follows:

 

   Three months ended
March 31,
   Change 
   2016   2015   $   % 
   (in millions) 
Cost of revenues:                
Electricity   $22.7   $37.1   $(14.4)   (38.7)%
Natural gas    10.3    20.4    (10.1)   (49.5)
Other    0.2    0.4    (0.2)   (51.9)
                     
Total cost of revenues   $33.2   $57.9   $(24.7)   (42.6)%

 

   Three months ended
March 31,
     
   2016   2015   Change 
Gross margin percentage:            
Electricity    48.7%   21.5%   27.2%
Natural gas    22.8    21.9    0.9 
Other    51.7    58.2    (6.5)
                
Total gross margin percentage    42.8%   22.1%   20.7%

 

Cost of revenues for electricity decreased in the three months ended March 31, 2016 compared to the same period in 2015 primarily because of the 40.3% decrease in the average unit cost of electricity, partially offset by the 2.8% increase in electricity consumption. Gross margin on electricity sales increased in the three months ended March 31, 2016 compared to the same period in 2015 because the average rate charged to customers decreased less than the average unit cost of electricity.

 

Cost of revenues for natural gas decreased in the three months ended March 31, 2016 compared to the same period in 2015 primarily because the average unit cost of natural gas decreased 28.5% and natural gas consumption decreased 29.4%. Gross margin on natural gas sales increased in the three months ended March 31, 2016 compared to the same period in 2015 because the average rate charged to customers decreased less than the average unit cost of natural gas.

 

Other cost of revenues primarily includes commission expense incurred by Diversegy and IDTEN.

 

Selling, General and Administrative. The decrease in selling, general and administrative expense in the three months ended March 31, 2016 compared to the same period in 2015 was primarily due to a decrease in regulatory and legal costs, partially offset by an increase in customer acquisition costs. In the three months ended March 31, 2015, we accrued $1.2 million for regulatory and legal matters including outside counsel fees related to certain complaints and lawsuits described in Note 10 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report. As a percentage of GRE’s total revenues, selling, general and administrative expense increased from 18.4% in the three months ended March 31, 2015 to 23.0% in the three months ended March 31, 2016 primarily because of the significant decrease in revenues.

 

 21 

 

 

Afek Segment

 

Afek does not currently generate any revenues, nor does it incur any cost of revenues.

 

   Three months ended
March 31,
   Change 
   2016   2015   $   % 
   (in millions) 
General and administrative   $0.1   $0.2   $(0.1)   (22.3)%
Exploration    1.7    1.6    0.1    7.5 
                     
Loss from operations   $1.8   $1.8   $    (1.5)%

 

General and Administrative. General and administrative expense decreased in the three months ended March 31, 2016 compared to the same period in 2015 primarily because of decreases in payroll expense and consulting and professional fees.

 

Exploration.  In February 2015, Afek began drilling its first exploratory well in Northern Israel’s Golan Heights. To date, Afek has completed drilling five wells. In April 2016, Afek concluded a well flow test on one of its completed wells (Ness 3) in Northern Israel. Well flow testing within the second test well - Devorah 1 (Ness 2) - is currently underway, with testing completed on three of five planned depth level zones. To date, the flow tests at Devorah 1 have yielded gaseous hydrocarbons and Afek has extracted small amounts of heavy hydrocarbons. The gaseous hydrocarbons at Devorah 1 were sufficiently concentrated to flare. Testing at the first site, Ness 3 provided valuable data that has enhanced the quality of subsequent testing and ongoing exploration activities without yielding hydrocarbons demonstrative of a commercially viable resource. Preliminary results from the analysis conducted to date are consistent with Afek’s initial model for the basin. Afek has engaged experts to conduct further analysis on both wells and additional exploratory work in order to better understand the resource and its commercial potential.

 

Afek continues to analyze the well test and other data to enhance its model of the reservoir, optimize the well flow tests and determine the next steps in the exploration program. Potential next steps may include flow testing at additional completed wells, undertaking additional seismic work, drilling new exploratory wells or initiating other activities. The exploration program’s next steps are intended to enhance the understanding of the geology and resources present in the license area, identify the locations of the “sweet spots” within the basin, suggest potential approaches to production engineering of the identified reservoir and explore other plays within the license area. The resources do not constitute proved, probable or possible reserves.

 

Afek assesses the economic and operational viability of its project on an ongoing basis, and to date believes that sufficient progress is being made. The assessment requires significant estimates and assumptions by management. Should our estimates or assumptions regarding the recoverability of the capitalized exploration costs prove to be incorrect, we may be required to record impairments of such costs in future periods and such impairments could be material.

 

Genie Oil and Gas Segment

 

Genie Oil and Gas does not currently generate any revenues, nor does it incur any cost of revenues.

 

   Three months ended
March 31,
   Change 
   2016   2015   $   % 
   (in millions) 
General and administrative   $0.1   $0.2   $(0.1)   (52.4)%
Research and development    0.2    0.7    (0.5)   (80.4)
Equity in the net loss of AMSO, LLC    0.2        0.2    nm 
                     
Loss from operations   $0.5   $0.9   $(0.4)   (48.1)%

 

 

nm—not meaningful

 

General and Administrative. General and administrative expense decreased in the three months ended March 31, 2016 compared to the same period in 2015 primarily due to decreases in stock-based compensation, legal fees and payroll expense.

 

 22 

 

  

Research and Development. Research and development expense consist of the following:

 

   Three months ended
March 31,
 
   2016   2015 
   (in millions) 
Genie Mongolia   $0.2   $0.6 
IEI        0.1 
           
Total research and development expense   $0.2   $0.7 

 

Genie Mongolia’s research and development expense in the three months ended March 31, 2016 and 2015 related to the joint geological survey agreement with the Republic of Mongolia, which was executed in April 2013, to explore certain of that country’s oil shale deposits. In late 2015, we scaled back operations in Mongolia, and in 2016 we suspended our operations.

 

IEI had an exclusive Shale Oil Exploration and Production License awarded in July 2008 by the Government of Israel. The license was extended until July 2015 when it expired. IEI is evaluating whether and how to exploit the abundant oil shale resource in Israel. Operations at IEI are currently suspended.

 

Equity in the Net Loss of AMSO, LLC. Equity in the net loss of AMSO, LLC was $0.2 million and nil in the three months ended March 31, 2016 and 2015, respectively. In part because of AMSO’s decisions not to fund all of its share of AMSO, LLC’s expenditures in 2014 and 2015, AMSO, LLC allocated its net loss mostly to Total in the three months ended March 31, 2016 and entirely to Total in the three months ended March 31, 2015. AMSO, LLC’s net loss was $1.1 million and $1.6 million in the three months ended March 31, 2016 and 2015, respectively. On February 23, 2016, Total notified AMSO 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. We are currently decommissioning the project. 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. We estimate that the decommissioning, winding up and dissolution of AMSO, LLC will cost up to $5.0 million.

 

Corporate

 

Corporate does not generate any revenues, nor does it incur any cost of revenues. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expense and other corporate-related general and administrative expense.

 

  

Three months ended
March 31,

   Change 
  

2016

  

2015

   $   % 
   (in millions) 
General and administrative expense and loss from operations   $2.4   $2.5   $(0.1)   (4.5)%

 

The decrease in general and administrative expense in the three months ended March 31, 2016 as compared to the same period in 2015 was due primarily to a decrease in professional and consulting fees, partially offset by an increase in payroll and related expense. As a percentage of our consolidated revenues, Corporate general and administrative expense increased from 3.4% in the three months ended March 31, 2015 to 4.1% in the three months ended March 31, 2016 because of the significant decrease in revenues.

 

Consolidated

 

Selling, General and Administrative. On October 28, 2011, we were spun-off by IDT Corporation, or IDT, our former parent company (the Spin-Off). Pursuant to an agreement between us and IDT, IDT charges us for services it provides, and we charge IDT for services that we provide to certain of IDT’s subsidiaries. In the three months ended March 31, 2016 and 2015, the amounts that IDT charged us, net of the amounts that we charged IDT, were $0.3 million and $0.5 million, respectively, which were included in consolidated selling, general and administrative expense.

 

Stock-based compensation expense included in consolidated selling, general and administrative expense was $1.2 million in the three months ended March 31, 2016 and 2015. At March 31, 2016, aggregate unrecognized compensation cost related to non-vested stock-based compensation was $11.1 million. The unrecognized compensation cost is recognized over the expected service period.

 

 23 

 

 

The following is a discussion of our consolidated income and expense line items below income (loss) from operations:

 

   Three months ended
March 31,
   Change 
   2016   2015   $   % 
   (in millions) 
Income (loss) from operations   $6.8   $(2.4)  $9.2    378.3%
Interest income    0.1        0.1    17.2 
Other expense, net    (0.1)       (0.1)    nm 
Provision for income taxes    (1.1)       (1.1)    nm 
                     
Net income (loss)    5.7    (2.4)   8.1    333.2 
Net loss attributable to noncontrolling interests    0.8    0.4    0.4    95.0 
                     
Net income (loss) attributable to Genie   $6.5   $(2.0)  $8.5    422.7%

 

 

nm not meaningful

 

Other (Expense) Income, net.  Other (expense) income, net, in the three months ended March 31, 2016 and 2015 consisted primarily of foreign currency translation losses of $0.1 million and gains of $12,000, respectively.

 

Provision for Income Taxes. The change in provision for income taxes from $91,000 in the three months ended March 31, 2015 to $1.1 million in the three months ended March 31, 2016 was primarily due to the change in income tax expense in GRE. GRE’s income before income taxes and provision for income taxes increased in the three months ended March 31, 2016 compared to the similar period in 2015. GRE includes IDT Energy, certain limited liability companies and our consolidated variable interest entity. IDT Energy and the limited liability companies are included in our consolidated return. Citizen’s Choice Energy, LLC, or CCE, is our consolidated variable interest entity, which files a separate tax return since we do not have any ownership interest in this variable interest entity. The following table summarizes GRE’s aggregate income before income taxes and provision for income taxes:

 

   Three months ended
March 31,
 
   2016   2015 
   (in millions) 
Genie Retail Energy:        
Aggregate income before income taxes   $11.6   $2.8 
           
Aggregate provision for income taxes   $(4.6)  $(1.2)

 

Net Loss Attributable to Noncontrolling Interests. The change in the net loss attributable to noncontrolling interests in the three months ended March 31, 2016 compared to the similar period in 2015 was primarily due to a decrease in the net income of CCE. CCE is a variable interest entity that is consolidated within our GRE segment. We do not have any ownership interest in CCE, therefore, 100% of the net income or loss incurred by CCE has been attributed to noncontrolling interests. CCE’s net loss in the three months ended March 31, 2016 was $0.6 million compared to net income of $26,000 in the three months ended March 31, 2015. The change was primarily due to a decrease in gross profit and a reduction in benefit from income taxes.

 

Liquidity and Capital Resources

 

General

 

Historically, we have satisfied our cash requirements primarily through a combination of our existing cash and cash equivalents, GRE’s cash flow from operating activities, and sales of equity interests in GOGAS and certain of its subsidiaries. We currently expect that our operations in the next twelve months and the $46.8 million balance of cash, cash equivalents, and certificates of deposit that we held at March 31, 2016 will be sufficient to meet our currently anticipated cash requirements for at least the twelve months ending March 31, 2017, including Afek’s anticipated substantial expenditures in the twelve months ending March 31, 2017.

 

We are considering sales of equity interests in Afek or GOGAS to provide the necessary financing for such activities. Afek has begun to seek additional financing to support further exploration activities, potentially by accessing the public markets, which could spearhead a process by which Afek would become an independent entity.

 

 24 

 

 

At March 31, 2016, we had working capital (current assets less current liabilities) of $73.1 million.

 

  

Three months ended
March 31,

 
   2016   2015 
   (in millions) 
Cash flows provided by (used in):        
Operating activities   $9.1   $(9.3)
Investing activities    (8.2)   (4.6)
Financing activities    (2.0)   (1.9)
Effect of exchange rate changes on cash and cash equivalents    0.2    (0.1)
           
Decrease in cash and cash equivalents   $(0.9)  $(15.9)
 

Operating Activities

 

Cash provided by operating activities was $9.1 million in the three months ended March 31, 2016 and cash used in operating activities was $9.3 million in the three months ended March 31, 2015. Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable, including payments relating to our exploration and research and development activities.

 

CCE is a consolidated variable interest entity. We determined that since the acquisition of the interest in CCE, we had the power to direct the activities of CCE that most significantly impact its economic performance, and we have the obligation to absorb losses of CCE that could potentially be significant to CCE on a stand-alone basis. We therefore determined that we are the primary beneficiary of CCE, and as a result, we consolidate CCE within our GRE segment. We provided CCE with all of the cash required to fund its operations. In the three months ended March 31, 2016, we provided CCE with net funding of $0.4 million to finance its operations. In the three months ended March 31, 2015, CCE repaid to us $0.3 million.

 

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, or 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. 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 March 31, 2016, we were in compliance with such covenants. At March 31, 2016, restricted cash—short-term of $0.7 million and trade accounts receivable of $27.7 million were pledged to BP as collateral for the payment of IDT Energy’s trade accounts payable to BP of $6.9 million at March 31, 2016.

 

At March 31, 2016, we had an aggregate of $2.5 million accrued for certain complaints and lawsuits described in Note 10 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report. In one matter, which is included in this accrual, subject to the approval of the Pennsylvania Public Utility Commission, IDT Energy has agreed to issue additional refunds to its Pennsylvania customers who had variable rates for electricity supply in January, February and March of 2014.

 

We are subject to audits in various jurisdictions for various taxes. Amounts asserted by taxing authorities or the amount ultimately assessed against us could be greater than accrued amounts. Accordingly, additional provisions may be recorded in the future as revised estimates are made or underlying matters are settled or resolved. Imposition of assessments as a result of tax audits could have an adverse effect on our results of operations, cash flows and financial condition.

 

On February 23, 2016, the New York 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 until a court hearing on those parties’ motion for a preliminary injunction. The hearing on that motion was set for April 14, 2016, but has since been adjourned by stipulation of the parties to May 20, 2016. A group of parties from the REP industry also filed motions for reconsideration with the PSC. Those motions remain pending.

 

We are evaluating the potential impact of the PSC’s order on our New York operations while preparing to operate in compliance with any new requirements. Depending on the final language of the order and the outcome of legal appeals, as well as our final response to the order with respect to our relationships with our New York customers, the order will likely have a substantial impact upon the operations of GRE-owned REPs in New York. At March 31, 2016, New York represented 50% of the total meters served by GRE-owned REPs and 42% of the total residential customer equivalents of the customer base of those REPs.

 

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Investing Activities

 

Our capital expenditures were $0.1 million in the three months ended March 31, 2016 compared to $0.3 million in the three months ended March 31, 2015. Costs for research and development activities are charged to expense when incurred.

 

In the three months ended March 31, 2016 and 2015, we used cash of $8.0 million and $4.3 million, respectively, for investments in Afek’s unproved oil and gas property in the Golan Heights in Northern Israel. We had purchase commitments of $14.2 million at March 31, 2016 that included commitments for capital expenditures and exploration costs. We currently anticipate that our total expenditures for Afek’s exploration costs and other capital expenditures in the twelve months ending March 31, 2017 will be between $10 million and $15 million.

 

In the three months ended March 31, 2016 and 2015, cash used for capital contributions to AMSO, LLC was $0.1 million and nil, respectively. On February 23, 2016, Total notified AMSO 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. We are currently decommissioning the project. 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. We estimate that the decommissioning, winding up and dissolution of AMSO, LLC will cost up to $5.0 million.

 

Financing Activities

 

In the three months ended March 31, 2016 and 2015, we paid a Base Dividend of $0.1594 per share on our Series 2012-A Preferred Stock, or Preferred Stock, for the fourth quarter of 2015 and 2014, respectively. The aggregate amount paid in the three months ended March 31, 2016 and 2015 was $0.4 million. On April 13, 2016, our Board of Directors declared a quarterly Base Dividend of $0.1594 per share on our Preferred Stock for the first quarter of 2016. The dividend will be paid on or about May 16, 2016 to stockholders of record as of the close of business on May 6, 2016.

 

In the three months ended March 31, 2016 and 2015, we paid a quarterly dividend of $0.06 per share on our Class A common stock and Class B common stock for the fourth quarter of 2015 and 2014, respectively. The aggregate amount paid in the three months ended March 31, 2016 and 2015 was $1.5 million. In May 2016, our Board of Directors declared a quarterly dividend of $0.06 per share on our Class A common stock and Class B common stock for the first quarter of 2016. The dividend will be paid on or about May 20, 2016 to stockholders of record as of the close of business on May 16, 2016.

 

In the three months ended March 31, 2016, we paid $29,000 to repurchase 3,096 shares of our Class B common stock. In the three months ended March 31, 2015, we paid $22,000 to repurchase 3,740 shares of our Class B common stock. These shares were tendered by our employees to satisfy tax withholding obligations in connection with the lapsing of restrictions on awards of restricted stock. Such shares were repurchased by us based on their fair market value on the trading day immediately prior to the vesting date.

 

In December 2013, IDT Energy acquired 100% of the outstanding membership interests of Diversegy and IDTEN. In the three months ended March 31, 2016 and 2015, we paid $0.1 million related to these acquisitions. At March 31, 2016, the remaining estimated contingent payments were $0.3 million.

 

On March 11, 2013, our Board of Directors approved a stock repurchase program for the repurchase of up to an aggregate of 7.0 million shares of our Class B common stock. There were no repurchases under the program in the three months ended March 31, 2016 and 2015. At March 31, 2016, 6.9 million shares remained available for repurchase under the stock repurchase program.

 

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. Therefore, the revolving line of credit is not available for future borrowings. The collateral for the revolving loan consists of the borrowers’ receivables, the balances in certain bank accounts and certain commercial and intangible rights. Outstanding principal amount incurs interest at LIBOR plus 3.5% per annum. Interest is payable monthly and all outstanding principal and any accrued and unpaid interest is due on the maturity date of December 17, 2018.

 

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As of April 23, 2012, we 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. In April 2016, the Loan Agreement was modified to extend the maturity date from April 30, 2016 to May 31, 2017. The proceeds from the line of credit may be used to provide working capital and for the issuance of letters of credit. We 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. We are 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. We pay 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 ours and IDT Energy under the Loan Agreement. At March 31, 2016, 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 March 31, 2016, letters of credit of $8.1 million were outstanding.

 

Changes in Trade Accounts Receivable and Inventory

 

Gross trade accounts receivable increased to $28.0 million at March 31, 2016 from $27.4 million at December 31, 2015 reflecting the increase in our revenues in the three months ended March 31, 2016 compared to the three months ended December 31, 2015. Our revenues increased primarily due to seasonal cold weather that impacted the overall demand for electricity and natural gas for heat.

 

Inventory of natural gas decreased to $0.3 million at March 31, 2016 from $1.6 million at December 31, 2015 due to a 78% decrease in quantity and a 16% decrease in the average unit cost at March 31, 2016 compared to December 31, 2015. Inventory at March 31, 2016 and December 31, 2015 also included $6.5 million and $9.9 million, respectively, in renewable energy credits.

 

Contractual Obligations and Other Commercial Commitments

 

The following tables quantify our future contractual obligations and other commercial commitments at March 31, 2016:

 

Contractual Obligations

 

Payments Due by Period

 

(in millions)  Total  

Less than

1 year

   1—3 years   4—5 years  

After

5 years

 
Purchase obligations   $14.2   $11.0   $3.2   $   $ 
Renewable energy credit purchase obligations    42.7    10.2    20.9    11.6     
Revolving credit loan payable (1)    2.0        2.0         
Operating leases    0.5    0.4    0.1         
Other liabilities (2)    0.3    0.3             
TOTAL CONTRACTUAL OBLIGATIONS (3)   $59.7   $21.9   $26.2   $11.6   $ 

 

(1)The revolving credit loan payable may need to be repaid prior to its scheduled due date as a result of the closure of the lending bank.

 

(2)The above table does not include estimated contingent payments of $0.3 million in connection with the acquisition of Diversegy and IDTEN due to the uncertainty of the amount and/or timing of any such payments.

 

(3) The above table does not include AMSO’s estimated share of the costs to decommission AMSO, LLC due to the uncertainty of the amount and/or timing of any such payments. 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. We estimate that the decommissioning, winding up and dissolution of AMSO, LLC will cost up to $5.0 million. In addition, the above table does not include our unrecognized income tax benefits for uncertain tax positions at March 31, 2016 of $0.7 million due to the uncertainty of the amount and/or timing of any such payments. Uncertain tax positions taken or expected to be taken on an income tax return may result in additional payments to tax authorities. We are not currently able to reasonably estimate the timing of any potential future payments. If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary.

  

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Other Commercial Commitments

 

Payments Due by Period

 

(in millions)  Total  

Less than

1 year

   1—3 years   4—5 years  

After

5 years

 
Standby letters of credit (1)   $8.1   $8.1   $   $   $ 

 

(1) The above table does not include an aggregate of $11.9 million in performance bonds at March 31, 2016 due to the uncertainty of the amount and/or timing of any payments. 

 

Off-Balance Sheet Arrangements

 

We do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following.

 

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 retail energy providers. At March 31, 2016, GRE had aggregate performance bonds of $11.9 million outstanding.

 

In connection with our Spin-Off, we and IDT entered into various agreements prior to the Spin-Off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with IDT after the Spin-Off, and a Tax Separation Agreement, which sets forth the responsibilities of us 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 Separation and Distribution Agreement, among other things, we indemnify IDT and IDT indemnifies us for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. Pursuant to the Tax Separation Agreement, among other things, IDT indemnifies us from all liability for taxes of IDT with respect to any taxable period, and we indemnify IDT from all liability for taxes of ours with respect to any taxable period, including, without limitation, the ongoing tax audits related to our business.

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risks

 

Our primary market risk exposure is the price applicable to our natural gas and electricity purchases and sales. The sales price of our natural gas and electricity is primarily driven by the prevailing market price. Hypothetically, if our gross profit per unit in the three months ended March 31, 2016 had remained the same as in the three months ended March 31, 2015, our gross profit from electricity sales would have decreased by $11.1 million in the three months ended March 31, 2016 and our gross profit from natural gas sales would have increased by $1.0 million in that same period.

 

The energy markets have historically been very volatile, and we can reasonably expect that electricity and natural gas prices will be subject to fluctuations in the future. In an effort to reduce the effects of the volatility of the price of electricity and natural gas on our operations, we have adopted a policy of hedging electricity and natural gas prices from time to time, at relatively lower volumes, primarily through the use of put and call options and swaps. While the use of these hedging arrangements limits the downside risk of adverse price movements, it also limits future gains from favorable movements. We do not apply hedge accounting to these options or swaps, therefore the mark-to-market change in fair value is recognized in cost of revenue in our consolidated statements of operations.

 

The summarized volume of GRE’s outstanding contracts and options at March 31, 2016 was as follows (MWh – Megawatt hour and Dth – Decatherm):

 

Commodity               Settlement Dates   

Volume

 
Electricity   April 2016   33,600 MWh 
Electricity   May 2016   33,600 MWh 
Electricity   July 2016   272,000 MWh 
Electricity   August 2016   312,800 MWh 
Electricity   September 2016   33,600 MWh 
Electricity   December 2016   67,200 MWh 
Electricity   January 2017   134,400 MWh 
Electricity   February 2017   128,000 MWh 
Natural gas   July 2016   1,110,000 Dth 
Natural gas   August 2016   800,000 Dth 

 

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Item 4.     Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2016.

 

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

Legal proceedings in which we are involved are more fully described in Note 10 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

 

Item 1A.    Risk Factors

 

There are no material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the year ended December 31, 2015, except for the following:

 

We could be harmed by network disruptions, security breaches, or other significant disruptions or failures of our IT infrastructure and related systems.

 

To be successful, we need to continue to have available a high capacity, reliable and secure network. We face the risk, as does any company, of a security breach, whether through cyber-attack, malware, computer viruses, sabotage, or other significant disruption of our IT infrastructure and related systems. We face a risk of a security breach or disruption from unauthorized access to our proprietary or classified information on our systems. Certain of our personnel operate in jurisdictions that could be a target for cyber-attacks. Further, there are political issues related to certain of our activities that could make us a more likely target of hackers related to certain causes. The secure maintenance and transmission of our information is a critical element of our operations. Our information technology and other systems that maintain and transmit our information, or those of service providers or business partners, may be compromised by a malicious third party penetration of our network security, or that of a third party service provider or business partner, or impacted by advertent or inadvertent actions or inactions by our employees, or those of a third party service provider or business partner. As a result, our information may be lost, disclosed, accessed or taken without our consent. In the first quarter of 2016, certain of our internet-based systems were subject to concentrated denial of service attacks. We do not believe that any key data of ours or our customers was compromised or that the attacks had any material impact on us.

 

Our approach is to minimize the amount of information that is stored or available on web-based systems, and to provide that any such information that needs to be on servers that support our internet-based operations, is on such systems for as brief a period as practicable. 

 

Although we continuously make significant efforts to maintain the security and integrity of these types of information and systems, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging, especially in light of the growing sophistication of cyber-attacks and intrusions. We may be unable to anticipate all potential types of attacks or intrusions or to implement adequate security barriers or other preventative measures.

 

Network disruptions, security breaches and other significant failures of the above-described systems could (i) disrupt the proper functioning of these networks and systems, and therefore, our operations; (ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of our proprietary, confidential, sensitive or otherwise valuable information, including trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; (iii) require significant management attention or financial resources to remedy the damages that result or to change our systems; or (iv) result in a loss of business, damage our reputation or expose us to litigation. Any or all of which could have a negative impact on our results of operations, financial condition and cash flows.

 

 29 

 

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 

The following table provides information with respect to purchases by us of our shares during the first quarter of 2016:

 

   Total
Number of
Shares
Purchased 
   Average
Price
per Share
   Total Number
of Shares
Purchased as
part of
Publicly
Announced
Plans or
Programs
   Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
(1)
 
January 1–31, 2016 (2)   3,096   $9.30        6,896,669 
February 1–29, 2016        $        6,896,669 
March 1–31, 2016       $        6,896,669 
                     
Total    3,096   $9.30          

 

 

(1)Under our existing stock repurchase program, approved by our Board of Directors on March 11, 2013, we were authorized to repurchase up to an aggregate of 7 million shares of our Class B common stock.

 

(2)Consists of shares of Class B common stock that were tendered by employees of ours to satisfy the tax withholding obligations in connection with the lapsing of restrictions on awards of restricted stock. Such shares were repurchased by us based on their fair market value on the trading day immediately prior to the vesting date.

 

Item 3.      Defaults upon Senior Securities

 

None.

 

Item 4.     Mine Safety Disclosures

 

Not applicable.

 

Item 5.     Other Information

 

None.

 

Item 6.     Exhibits

 

Exhibit
Number 

 

Description 

     
31.1*   Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document.

 

 

* Filed or furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Genie Energy Ltd.
     
May 10, 2016 By: /s/ Howard S. Jonas
   

Howard S. Jonas

Chief Executive Officer

     
May 10, 2016 By: /s/ Avi Goldin
   

Avi Goldin

Chief Financial Officer

 

 

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