Natural Resource Partners Earnings 2019-09-30
NRP 10Q Quarterly Report
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 |
FORM 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the quarterly period ended September 30, 2019 or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
Commission file number: 001-31465 | |||
NATURAL RESOURCE PARTNERS L.P. | |||
(Exact name of registrant as specified in its charter) | |||
Delaware | 35-2164875 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
(713) 751-7507
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Units representing limited partner interests | NRP | New York Stock Exchange | ||
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 ý 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 ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of "accelerated filer", "large accelerated filer", "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ¨ | Accelerated Filer | ý | |
Non-accelerated Filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | ¨ | |
Emerging Growth Company | ¨ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
NATURAL RESOURCE PARTNERS, L.P.
TABLE OF CONTENTS
Page | ||
i
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | ||||||
(In thousands, except unit data) | 2019 | 2018 | |||||
ASSETS | (Unaudited) | ||||||
Current assets | |||||||
Cash and cash equivalents | $ | 99,636 | $ | 101,839 | |||
Restricted cash | 12,527 | 104,191 | |||||
Accounts receivable, net | 27,447 | 32,058 | |||||
Prepaid expenses and other | 3,111 | 3,462 | |||||
Current assets of discontinued operations | 988 | 993 | |||||
Total current assets | $ | 143,709 | $ | 242,543 | |||
Land | 24,008 | 24,008 | |||||
Plant and equipment, net | 762 | 984 | |||||
Mineral rights, net | 733,154 | 743,112 | |||||
Intangible assets, net | 40,461 | 42,513 | |||||
Equity in unconsolidated investment | 258,063 | 247,051 | |||||
Long-term contract receivable | 37,473 | 38,945 | |||||
Other assets | 6,274 | 2,491 | |||||
Total assets | $ | 1,243,904 | $ | 1,341,647 | |||
LIABILITIES AND CAPITAL | |||||||
Current liabilities | |||||||
Accounts payable | $ | 1,591 | $ | 2,414 | |||
Accrued liabilities | 7,290 | 12,347 | |||||
Accrued interest | 14,364 | 14,345 | |||||
Current portion of deferred revenue | 5,047 | 3,509 | |||||
Current portion of long-term debt, net | 45,789 | 115,184 | |||||
Current liabilities of discontinued operations | 174 | 947 | |||||
Total current liabilities | $ | 74,255 | $ | 148,746 | |||
Deferred revenue | 43,587 | 49,044 | |||||
Long-term debt, net | 490,378 | 557,574 | |||||
Other non-current liabilities | 4,843 | 1,150 | |||||
Total liabilities | $ | 613,063 | $ | 756,514 | |||
Commitments and contingencies (see Note 14) | |||||||
Class A Convertible Preferred Units (250,000 units issued and outstanding at $1,000 par value per unit; liquidation preference of $1,500 per unit) | $ | 164,587 | $ | 164,587 | |||
Partners’ capital | |||||||
Common unitholders’ interest (12,261,199 and 12,249,469 units issued and outstanding at September 30, 2019 and December 31, 2018, respectively) | $ | 400,266 | $ | 355,113 | |||
General partner’s interest | 5,909 | 5,014 | |||||
Warrant holders’ interest | 66,816 | 66,816 | |||||
Accumulated other comprehensive loss | (3,802 | ) | (3,462 | ) | |||
Total partners’ capital | $ | 469,189 | $ | 423,481 | |||
Non-controlling interest | (2,935 | ) | (2,935 | ) | |||
Total capital | $ | 466,254 | $ | 420,546 | |||
Total liabilities and capital | $ | 1,243,904 | $ | 1,341,647 | |||
The accompanying notes are an integral part of these consolidated financial statements.
1
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands, except per unit data) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Revenues and other income | |||||||||||||||
Coal royalty and other | $ | 39,919 | $ | 42,518 | $ | 154,037 | $ | 134,912 | |||||||
Transportation and processing services | 3,865 | 6,853 | 14,740 | 17,238 | |||||||||||
Equity in earnings of Ciner Wyoming | 13,818 | 8,836 | 36,833 | 34,986 | |||||||||||
Gain on asset sales and disposals | 6,107 | — | 6,609 | 819 | |||||||||||
Total revenues and other income | $ | 63,709 | $ | 58,207 | $ | 212,219 | $ | 187,955 | |||||||
Operating expenses | |||||||||||||||
Operating and maintenance expenses | $ | 5,994 | $ | 6,790 | $ | 26,813 | $ | 21,122 | |||||||
Depreciation, depletion and amortization | 3,384 | 4,888 | 11,746 | 15,364 | |||||||||||
General and administrative expenses | 4,253 | 3,183 | 12,799 | 10,782 | |||||||||||
Asset impairments | 484 | — | 484 | 242 | |||||||||||
Total operating expenses | $ | 14,115 | $ | 14,861 | $ | 51,842 | $ | 47,510 | |||||||
Income from operations | $ | 49,594 | $ | 43,346 | $ | 160,377 | $ | 140,445 | |||||||
Other expenses, net | |||||||||||||||
Interest expense, net | $ | (10,431 | ) | $ | (17,493 | ) | $ | (37,061 | ) | $ | (53,177 | ) | |||
Loss on extinguishment of debt | — | — | (29,282 | ) | — | ||||||||||
Total other expenses, net | $ | (10,431 | ) | $ | (17,493 | ) | $ | (66,343 | ) | $ | (53,177 | ) | |||
Net income from continuing operations | $ | 39,163 | $ | 25,853 | $ | 94,034 | $ | 87,268 | |||||||
Income from discontinued operations | 7 | 2,688 | 206 | 3,721 | |||||||||||
Net income | $ | 39,170 | $ | 28,541 | $ | 94,240 | $ | 90,989 | |||||||
Net loss (income) attributable to non-controlling interest | — | 359 | — | (510 | ) | ||||||||||
Net income attributable to NRP | $ | 39,170 | $ | 28,900 | $ | 94,240 | $ | 90,479 | |||||||
Less: income attributable to preferred unitholders | (7,500 | ) | (7,500 | ) | (22,500 | ) | (22,500 | ) | |||||||
Net income attributable to common unitholders and general partner | $ | 31,670 | $ | 21,400 | $ | 71,740 | $ | 67,979 | |||||||
Net income attributable to common unitholders | $ | 31,036 | $ | 20,972 | $ | 70,305 | $ | 66,619 | |||||||
Net income attributable to the general partner | 634 | 428 | 1,435 | 1,360 | |||||||||||
Income from continuing operations per common unit (see Note 5) | |||||||||||||||
Basic | $ | 2.53 | $ | 1.50 | $ | 5.72 | $ | 5.14 | |||||||
Diluted | 1.66 | 1.18 | 3.91 | 3.89 | |||||||||||
Net income per common unit (see Note 5) | |||||||||||||||
Basic | $ | 2.53 | $ | 1.71 | $ | 5.73 | $ | 5.44 | |||||||
Diluted | 1.66 | 1.30 | 3.92 | 4.06 | |||||||||||
Net income | $ | 39,170 | $ | 28,541 | $ | 94,240 | $ | 90,989 | |||||||
Comprehensive income (loss) from unconsolidated investment and other | (520 | ) | 791 | (340 | ) | (768 | ) | ||||||||
Comprehensive income | $ | 38,650 | $ | 29,332 | $ | 93,900 | $ | 90,221 | |||||||
Comprehensive loss (income) attributable to non-controlling interest | — | 359 | — | (510 | ) | ||||||||||
Comprehensive income attributable to NRP | $ | 38,650 | $ | 29,691 | $ | 93,900 | $ | 89,711 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(Unaudited)
Common Unitholders | General Partner | Warrant Holders | Accumulated Other Comprehensive Loss | Partners' Capital Excluding Non-Controlling Interest | Non-Controlling Interest | Total Capital | ||||||||||||||||||||||||
(In thousands) | Units | Amounts | ||||||||||||||||||||||||||||
Balance at December 31, 2018 | 12,249 | $ | 355,113 | $ | 5,014 | $ | 66,816 | $ | (3,462 | ) | $ | 423,481 | $ | (2,935 | ) | $ | 420,546 | |||||||||||||
Net income (1) | — | 35,005 | 714 | — | — | 35,719 | — | 35,719 | ||||||||||||||||||||||
Distributions to common unitholders and general partner | — | (5,513 | ) | (112 | ) | — | — | (5,625 | ) | — | (5,625 | ) | ||||||||||||||||||
Distributions to preferred unitholders | — | (7,350 | ) | (150 | ) | — | — | (7,500 | ) | — | (7,500 | ) | ||||||||||||||||||
Issuance of unit-based awards | 12 | 486 | — | — | — | 486 | — | 486 | ||||||||||||||||||||||
Unit-based awards amortization and vesting | — | 399 | — | — | — | 399 | — | 399 | ||||||||||||||||||||||
Comprehensive income from unconsolidated investment and other | — | — | 10 | — | 1,005 | 1,015 | — | 1,015 | ||||||||||||||||||||||
Balance at March 31, 2019 | 12,261 | $ | 378,140 | $ | 5,476 | $ | 66,816 | $ | (2,457 | ) | $ | 447,975 | $ | (2,935 | ) | $ | 445,040 | |||||||||||||
Net income (1) | — | 18,964 | 387 | — | — | 19,351 | — | 19,351 | ||||||||||||||||||||||
Distributions to common unitholders and general partner | — | (15,939 | ) | (326 | ) | — | — | (16,265 | ) | — | (16,265 | ) | ||||||||||||||||||
Distributions to preferred unitholders | — | (7,350 | ) | (150 | ) | — | — | (7,500 | ) | — | (7,500 | ) | ||||||||||||||||||
Unit-based awards amortization and vesting | — | 460 | — | — | — | 460 | — | 460 | ||||||||||||||||||||||
Comprehensive loss from unconsolidated investment and other | — | — | — | — | (825 | ) | (825 | ) | — | (825 | ) | |||||||||||||||||||
Balance at June 30, 2019 | 12,261 | $ | 374,275 | $ | 5,387 | $ | 66,816 | $ | (3,282 | ) | $ | 443,196 | $ | (2,935 | ) | $ | 440,261 | |||||||||||||
Net income (1) | — | 38,386 | 784 | — | — | 39,170 | — | 39,170 | ||||||||||||||||||||||
Distributions to common unitholders and general partner | — | (5,518 | ) | (112 | ) | — | — | (5,630 | ) | — | (5,630 | ) | ||||||||||||||||||
Distributions to preferred unitholders | — | (7,350 | ) | (150 | ) | — | — | (7,500 | ) | — | (7,500 | ) | ||||||||||||||||||
Unit-based awards amortization and vesting | — | 473 | — | — | — | 473 | — | 473 | ||||||||||||||||||||||
Comprehensive loss from unconsolidated investment and other | — | — | — | — | (520 | ) | (520 | ) | — | (520 | ) | |||||||||||||||||||
Balance at September 30, 2019 | 12,261 | $ | 400,266 | $ | 5,909 | $ | 66,816 | $ | (3,802 | ) | $ | 469,189 | $ | (2,935 | ) | $ | 466,254 | |||||||||||||
(1) | Net income includes $7.5 million attributable to preferred unitholders that accumulated during the period, of which $7.35 million is allocated to the common unitholders and $0.15 million is allocated to the general partner. |
3
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(Unaudited)
Common Unitholders | General Partner | Warrant Holders | Accumulated Other Comprehensive Loss | Partners' Capital Excluding Non-Controlling Interest | Non-Controlling Interest | Total Capital | ||||||||||||||||||||||||
(In thousands) | Units | Amounts | ||||||||||||||||||||||||||||
Balance at December 31, 2017 | 12,232 | $ | 199,851 | $ | 1,857 | $ | 66,816 | $ | (3,313 | ) | $ | 265,211 | $ | (3,394 | ) | $ | 261,817 | |||||||||||||
Cumulative effect of adoption of accounting standard | — | 69,057 | 1,409 | — | — | 70,466 | — | 70,466 | ||||||||||||||||||||||
Net income (1) | — | 23,851 | 487 | — | — | 24,338 | — | 24,338 | ||||||||||||||||||||||
Distributions to common unitholders and general partner | — | (5,505 | ) | (112 | ) | — | — | (5,617 | ) | — | (5,617 | ) | ||||||||||||||||||
Distributions to preferred unitholders | — | (7,610 | ) | (155 | ) | — | — | (7,765 | ) | — | (7,765 | ) | ||||||||||||||||||
Issuance of unit-based awards | 14 | 410 | — | — | — | 410 | — | 410 | ||||||||||||||||||||||
Unit-based awards amortization and vesting | — | 197 | — | — | — | 197 | — | 197 | ||||||||||||||||||||||
Comprehensive income (loss) from unconsolidated investment and other | — | — | 8 | — | (1,125 | ) | (1,117 | ) | — | (1,117 | ) | |||||||||||||||||||
Balance at March 31, 2018 | 12,246 | $ | 280,251 | $ | 3,494 | $ | 66,816 | $ | (4,438 | ) | $ | 346,123 | $ | (3,394 | ) | $ | 342,729 | |||||||||||||
Net income (1) | — | 36,496 | 745 | — | — | 37,241 | 869 | 38,110 | ||||||||||||||||||||||
Distributions to common unitholders and general partner | — | (5,510 | ) | (113 | ) | — | — | (5,623 | ) | — | (5,623 | ) | ||||||||||||||||||
Distributions to preferred unitholders | — | (7,350 | ) | (150 | ) | — | — | (7,500 | ) | — | (7,500 | ) | ||||||||||||||||||
Unit-based awards amortization and vesting | — | 136 | — | — | — | 136 | — | 136 | ||||||||||||||||||||||
Comprehensive income (loss) from unconsolidated investment and other | — | 50 | 1 | — | (434 | ) | (383 | ) | (51 | ) | (434 | ) | ||||||||||||||||||
Balance at June 30, 2018 | 12,246 | $ | 304,073 | $ | 3,977 | $ | 66,816 | $ | (4,872 | ) | $ | 369,994 | $ | (2,576 | ) | $ | 367,418 | |||||||||||||
Net income (loss) (1) | — | 28,322 | 578 | — | — | 28,900 | (359 | ) | 28,541 | |||||||||||||||||||||
Distributions to common unitholders and general partner | — | (5,511 | ) | (112 | ) | — | — | (5,623 | ) | — | (5,623 | ) | ||||||||||||||||||
Distributions to preferred unitholders | — | (7,350 | ) | (150 | ) | — | — | (7,500 | ) | — | (7,500 | ) | ||||||||||||||||||
Unit-based awards amortization and vesting | — | 139 | — | — | — | 139 | — | 139 | ||||||||||||||||||||||
Comprehensive income from unconsolidated investment and other | — | — | — | — | 791 | 791 | — | 791 | ||||||||||||||||||||||
Balance at September 30, 2018 | 12,246 | 319,673 | 4,293 | 66,816 | (4,081 | ) | 386,701 | (2,935 | ) | 383,766 | ||||||||||||||||||||
(1) | Net income includes $7.5 million attributable to preferred unitholders that accumulated during the period, of which $7.35 million is allocated to the common unitholders and $0.15 million is allocated to the general partner. |
The accompanying notes are an integral part of these consolidated financial statements.
4
Nine Months Ended September 30, | |||||||
(In thousands) | 2019 | 2018 | |||||
Cash flows from operating activities | |||||||
Net income | $ | 94,240 | $ | 90,989 | |||
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: | |||||||
Depreciation, depletion and amortization | 11,746 | 15,364 | |||||
Distributions from unconsolidated investment | 25,480 | 34,653 | |||||
Equity earnings from unconsolidated investment | (36,833 | ) | (34,986 | ) | |||
Gain on asset sales and disposals | (6,609 | ) | (819 | ) | |||
Loss on extinguishment of debt | 29,282 | — | |||||
Income from discontinued operations | (206 | ) | (3,721 | ) | |||
Asset impairments | 484 | 242 | |||||
Unit-based compensation expense | 1,842 | 1,144 | |||||
Amortization of debt issuance costs and other | 3,223 | 4,021 | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable | 4,731 | (6,283 | ) | ||||
Accounts payable | (822 | ) | 90 | ||||
Accrued liabilities | (5,083 | ) | (3,193 | ) | |||
Accrued interest | 19 | (9,944 | ) | ||||
Deferred revenue | (3,920 | ) | 9,200 | ||||
Other items, net | 351 | 1,036 | |||||
Net cash provided by operating activities of continuing operations | $ | 117,925 | $ | 97,793 | |||
Net cash provided by (used in) operating activities of discontinued operations | (4 | ) | 9,755 | ||||
Net cash provided by operating activities | $ | 117,921 | $ | 107,548 | |||
Cash flows from investing activities | |||||||
Distributions from unconsolidated investment in excess of cumulative earnings | $ | — | $ | 2,097 | |||
Proceeds from asset sales and disposals | 6,611 | 826 | |||||
Return of long-term contract receivable | 1,351 | 2,606 | |||||
Net cash provided by investing activities of continuing operations | $ | 7,962 | $ | 5,529 | |||
Net cash used in investing activities of discontinued operations | (556 | ) | (9,343 | ) | |||
Net cash provided by (used in) investing activities | $ | 7,406 | $ | (3,814 | ) | ||
Cash flows from financing activities | |||||||
Debt borrowings | $ | 300,000 | $ | 35,000 | |||
Debt repayments | (442,747 | ) | (55,720 | ) | |||
Redemption of preferred units paid-in-kind | — | (8,844 | ) | ||||
Distributions to common unitholders and general partner | (27,520 | ) | (16,863 | ) | |||
Distributions to preferred unitholders | (22,500 | ) | (22,765 | ) | |||
Contributions to discontinued operations | (560 | ) | (2,275 | ) | |||
Debt issuance costs and other | (26,427 | ) | (228 | ) | |||
Net cash used in financing activities of continuing operations | $ | (219,754 | ) | $ | (71,695 | ) | |
Net cash provided by financing activities of discontinued operations | 560 | 1,521 | |||||
Net cash used in financing activities | $ | (219,194 | ) | $ | (70,174 | ) | |
5
Nine Months Ended September 30, | |||||||
(In thousands) | 2019 | 2018 | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (93,867 | ) | $ | 33,560 | ||
Cash, cash equivalents and restricted cash of continuing operations at beginning of period | $ | 206,030 | $ | 26,980 | |||
Cash and cash equivalents of discontinued operations at beginning of period | — | 2,847 | |||||
Cash, cash equivalents and restricted cash at beginning of period | $ | 206,030 | $ | 29,827 | |||
Cash, cash equivalents and restricted cash at end of period | $ | 112,163 | $ | 63,387 | |||
Less: cash and cash equivalents of discontinued operations at end of period | — | (4,780 | ) | ||||
Cash, cash equivalents and restricted cash of continuing operations at end of period | $ | 112,163 | $ | 58,607 | |||
Supplemental cash flow information: | |||||||
Cash paid during the period for interest of continuing operations | $ | 36,270 | $ | 58,153 | |||
The accompanying notes are an integral part of these consolidated financial statements.
6
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Nature of Business
Natural Resource Partners L.P. (the "Partnership") engages principally in the business of owning, managing and leasing a diversified portfolio of mineral properties in the United States, including interests in coal and other natural resources and owns a non-controlling 49% interest in Ciner Wyoming LLC ("Ciner Wyoming"), a trona ore mining and soda ash production business. The Partnership is organized into two operating segments further described in Note 6. Segment Information. As used in these Notes to Consolidated Financial Statements, the terms "NRP," "we," "us" and "our" refer to Natural Resource Partners L.P. and its subsidiaries, unless otherwise stated or indicated by context.
Principles of Consolidation and Reporting
The accompanying unaudited consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the financial statements for the year ended December 31, 2018 and notes thereto included in the Partnership's Annual Report on Form 10-K, which was filed with the SEC on March 7, 2019. In management's opinion, all necessary adjustments to fairly present the Partnership's results of operations, financial position and cash flows for the periods presented have been made and all such adjustments were of a normal and recurring nature. Certain reclassifications have been made to prior period amounts on the Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows to conform with current period presentation. These reclassifications had no impact on previously reported total assets, total liabilities, partners' capital, net income or cash flows from operating, investing or financing activities.
Recasting of Certain Prior Period Information
As described in Note 3. Discontinued Operations, the Partnership reclassified prior period information for the assets and liabilities, operating results and cash flows of its construction aggregates business as discontinued operations in its consolidated financial statements for all periods presented.
Restricted Cash
Restricted cash at September 30, 2019 and December 31, 2018 represents the remaining net proceeds from the sale of the Partnership's construction aggregates business and other asset sales and disposals that is required to be used to repay debt, make acquisitions or make capital expenditures per the terms of the Partnership's and Opco's debt agreements. In the first nine months of 2019, the Partnership used $97.1 million of restricted cash to repay principal amounts on Opco's private placement senior notes (the "Opco Senior Notes") and it intends to use the remaining $12.5 million of restricted cash to repay a portion of the remaining principal payments on the Opco Senior Notes in 2019.
Recently Adopted Accounting Standards
Leases
On January 1, 2019, NRP adopted Accounting Standards Codification (ASC) 842, Leases, and all the related amendments (the “new lease standard” and "ASC 842") and recognized assets and liabilities on its Consolidated Balance Sheet for the present value of the rights and obligations created by all leases with terms of more than 12 months. This standard does not apply to leases that explore for or use minerals, oil, natural gas and similar non-regenerative resources, including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. The guidance also required disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows arising from leases. The guidance was adopted by NRP on January 1, 2019 using a modified retrospective approach.
The Partnership is a lessee in one lease that is accounted for as an operating lease under the new lease standard, and the adoption of the new lease standard did not have a material impact to the Partnership's consolidated financial statements. For lease
7
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
agreements entered into or reassessed after the adoption of ASC 842, the Partnership elected to not combine lease and non-lease components. See Note 17. Leases for more information.
Recently Issued Accounting Standards
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The new standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new standard replaces today's "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The guidance is effective for annual and interim periods beginning after December 15, 2019 and is to be adopted using a modified retrospective approach. The Partnership is continuing to evaluate the provisions of this guidance on its consolidated financial statements, but based on its analysis to date, the Partnership does not expect this standard to have a material effect on its consolidated financial statements.
2. Revenues from Contracts with Customers
The following table represents the Partnership's Coal Royalty and Other segment revenues by major source:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Coal royalty revenues | $ | 24,727 | $ | 30,709 | $ | 87,561 | $ | 96,473 | ||||||||
Production lease minimum revenues | 2,752 | 1,769 | 21,331 | 6,310 | ||||||||||||
Minimum lease straight-line revenues | 3,982 | 567 | 11,152 | 1,739 | ||||||||||||
Property tax revenues | 1,606 | 1,263 | 4,416 | 3,968 | ||||||||||||
Wheelage revenues | 1,675 | 1,572 | 5,035 | 5,155 | ||||||||||||
Coal overriding royalty revenues | 2,189 | 3,918 | 10,163 | 10,492 | ||||||||||||
Lease amendment revenues | 1,535 | — | 6,720 | — | ||||||||||||
Aggregates royalty revenues | 954 | 888 | 3,655 | 3,551 | ||||||||||||
Oil and gas royalty revenues | 374 | 1,427 | 2,575 | 5,679 | ||||||||||||
Other revenues | 125 | 405 | 1,429 | 1,545 | ||||||||||||
Coal royalty and other revenues (1) | $ | 39,919 | $ | 42,518 | $ | 154,037 | $ | 134,912 | ||||||||
Transportation and processing services revenues (2) | 3,865 | 6,853 | 14,740 | 17,238 | ||||||||||||
Total Coal Royalty and Other segment revenues | $ | 43,784 | $ | 49,371 | $ | 168,777 | $ | 152,150 | ||||||||
(1) | Coal royalty and other revenues from contracts with customers as defined under ASC 606. |
(2) | Transportation and processing services revenues from contracts with customers as defined under ASC 606 was $1.7 million and $3.6 million for the three months ended September 30, 2019 and 2018, respectively, and $7.3 million and $9.6 million for the nine months ended September 30, 2019 and 2018, respectively. The remaining transportation and processing services revenues of $2.2 million and $3.3 million for the three months ended September 30, 2019, and 2018, respectively, and $7.5 million and $7.6 million for the nine months ended September 30, 2019 and 2018, respectively, related to other NRP-owned infrastructure leased to and operated by third party operators accounted for under other guidance. See Note 16. Financing Transaction and Note 17. Leases for more information. |
8
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
The following table details the Partnership's Coal Royalty and Other segment receivables and liabilities resulting from contracts with customers:
September 30, | December 31, | |||||||
(In thousands) | 2019 | 2018 | ||||||
Receivables | ||||||||
Accounts receivable, net | $ | 24,758 | $ | 29,001 | ||||
Prepaid expenses and other (1) | 2,852 | 2,483 | ||||||
Contract liabilities | ||||||||
Current portion of deferred revenue | $ | 5,047 | $ | 3,509 | ||||
Deferred revenue | 43,587 | 49,044 | ||||||
(1) | Prepaid expenses and other includes notes receivable from contracts with customers. |
The following table shows the activity related to the Partnership's Coal Royalty and Other segment deferred revenue:
Nine Months Ended September 30, | |||||||
(In thousands) | 2019 | 2018 | |||||
Balance at end of prior period (current and non-current) | $ | 52,553 | $ | 100,605 | |||
Cumulative adjustment for change in accounting principle | — | (65,591 | ) | ||||
Balance at beginning of period (current and non-current) | $ | 52,553 | $ | 35,014 | |||
Increase due to minimums and lease amendment fees | 37,315 | 23,534 | |||||
Recognition of previously deferred revenue | (41,234 | ) | (16,260 | ) | |||
Balance at end of period (current and non-current) | $ | 48,634 | $ | 42,288 | |||
The Partnership's non-cancelable annual minimum payments due under the lease terms of its coal and aggregates royalty and overriding royalty leases are as follows (in thousands):
Lease Term (1) | Weighted Average Remaining Years as of September 30, 2019 | Annual Minimum Payments (2) | ||||
0 - 5 years | 2.2 | $ | 12,439 | |||
5 - 10 years | 6.4 | 9,426 | ||||
10+ years | 12.1 | 46,737 | ||||
Total | 9.6 | $ | 68,602 | |||
(1) | Lease term does not include renewal periods. |
(2) | Annual minimum payments do not include $5.0 million from a coal infrastructure lease that is accounted for as a financing transaction. See Note 16. Financing Transaction for additional information. |
9
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
3. Discontinued Operations
In December 2018, the Partnership sold VantaCore Partners LLC, its construction aggregates business, and in July 2016, the Partnership sold its non-operated oil and gas working interest assets. The Partnership's exit from both its construction aggregates business and non-operated oil and gas working interest business represented strategic shifts to reduce debt and focus on its Coal Royalty and Other and Soda Ash business segments. As a result, the Partnership classified the assets and liabilities, operating results and cash flows of these businesses as discontinued operations in its Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for all periods presented.
The following table presents the carrying amounts of the Partnership's assets and liabilities of discontinued operations in the Consolidated Balance Sheets:
September 30, 2019 | December 31, 2018 | ||||||||||||||||||||||
(In thousands) | Construction Aggregates | NRP Oil and Gas | Total | Construction Aggregates | NRP Oil and Gas | Total | |||||||||||||||||
ASSETS | |||||||||||||||||||||||
Current assets | |||||||||||||||||||||||
Accounts receivable, net | $ | — | $ | 988 | $ | 988 | $ | 5 | $ | 988 | $ | 993 | |||||||||||
Total assets of discontinued operations | $ | — | $ | 988 | $ | 988 | $ | 5 | $ | 988 | $ | 993 | |||||||||||
LIABILITIES | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Accounts payable | $ | 42 | $ | — | $ | 42 | $ | 181 | $ | — | $ | 181 | |||||||||||
Accrued liabilities | 132 | — | 132 | 766 | — | 766 | |||||||||||||||||
Total liabilities of discontinued operations | $ | 174 | $ | — | $ | 174 | $ | 947 | $ | — | $ | 947 | |||||||||||
The following tables present summarized financial results of the Partnership's discontinued operations in the Consolidated Statements of Comprehensive Income:
Three Months Ended September 30, | |||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||
(In thousands) | Construction Aggregates | NRP Oil and Gas | Total | Construction Aggregates | NRP Oil and Gas | Total | |||||||||||||||||
Revenues and other income | |||||||||||||||||||||||
Construction aggregates | $ | — | $ | — | $ | — | $ | 30,398 | $ | — | $ | 30,398 | |||||||||||
Road construction and asphalt paving services | — | — | — | 6,250 | — | 6,250 | |||||||||||||||||
Oil and gas | — | 2 | 2 | — | (1 | ) | (1 | ) | |||||||||||||||
Gain on asset sales and disposals | 5 | — | 5 | 163 | — | 163 | |||||||||||||||||
Total revenues and other income | $ | 5 | $ | 2 | $ | 7 | $ | 36,811 | $ | (1 | ) | $ | 36,810 | ||||||||||
Operating expenses | |||||||||||||||||||||||
Operating and maintenance expenses | $ | — | $ | — | $ | — | $ | 30,758 | $ | 23 | $ | 30,781 | |||||||||||
Depreciation, depletion and amortization | — | — | — | 3,333 | — | 3,333 | |||||||||||||||||
Total operating expenses | $ | — | $ | — | $ | — | $ | 34,091 | $ | 23 | $ | 34,114 | |||||||||||
Interest expense | — | — | — | (8 | ) | — | (8 | ) | |||||||||||||||
Income (loss) from discontinued operations | $ | 5 | $ | 2 | $ | 7 | $ | 2,712 | $ | (24 | ) | $ | 2,688 | ||||||||||
10
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
Nine Months Ended September 30, | |||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||
(In thousands) | Construction Aggregates | NRP Oil and Gas | Total | Construction Aggregates | NRP Oil and Gas | Total | |||||||||||||||||
Revenues and other income | |||||||||||||||||||||||
Construction aggregates | $ | — | $ | — | $ | — | $ | 91,055 | $ | — | $ | 91,055 | |||||||||||
Road construction and asphalt paving services | — | — | — | 13,154 | — | 13,154 | |||||||||||||||||
Oil and gas | — | 2 | 2 | — | (3 | ) | (3 | ) | |||||||||||||||
Gain on asset sales and disposals | 243 | — | 243 | 214 | — | 214 | |||||||||||||||||
Total revenues and other income | $ | 243 | $ | 2 | $ | 245 | $ | 104,423 | $ | (3 | ) | $ | 104,420 | ||||||||||
Operating expenses | |||||||||||||||||||||||
Operating and maintenance expenses | $ | 27 | $ | 12 | $ | 39 | $ | 91,225 | $ | 69 | $ | 91,294 | |||||||||||
Depreciation, depletion and amortization | — | — | — | 9,377 | — | 9,377 | |||||||||||||||||
Total operating expenses | $ | 27 | $ | 12 | $ | 39 | $ | 100,602 | $ | 69 | $ | 100,671 | |||||||||||
Interest expense | — | — | — | (28 | ) | — | (28 | ) | |||||||||||||||
Income (loss) from discontinued operations | $ | 216 | $ | (10 | ) | $ | 206 | $ | 3,793 | $ | (72 | ) | $ | 3,721 | |||||||||
Capital expenditures related to the Partnership's discontinued operations were $9.7 million during the nine months ended September 30, 2018.
4. Common and Preferred Unit Distributions
The Partnership makes cash distributions to common and preferred unitholders on a quarterly basis, subject to approval by the Board of Directors of GP Natural Resource Partners LLC (the "Board of Directors"). NRP recognizes both common unit and preferred unit distributions on the date the distribution is declared.
Distributions made on the common units and the general partner's general partner ("GP") interest are made on a pro-rata basis in accordance with their relative percentage interests in the Partnership. The general partner is entitled to receive 2% of such distributions.
Income available to common unitholders and the general partner is reduced by preferred unit distributions that accumulated during the period. NRP reduced net income attributable to common unitholders and the general partner by $7.5 million during the three months ended September 30, 2019 and 2018 and $22.5 million during the nine months ended September 30, 2019 and 2018 as a result of accumulated preferred unit distributions earned during the period. During the three months ended March 31, 2018, the Partnership redeemed all of the outstanding PIK Units, which resulted in an $8.8 million cash payment during the period. This $8.8 million cash payment is not included in the table below.
11
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
The following table shows the distributions declared and paid to common and preferred unitholders during the nine months ended September 30, 2019 and 2018, respectively:
Common Units | Preferred Units | |||||||||||||||||
Date Paid | Period Covered by Distribution | Distribution per Unit | Total Distribution (1) (In thousands) | Distribution per Unit | Total Distribution (In thousands) | |||||||||||||
2019 | ||||||||||||||||||
February 2019 | October 1 - December 31, 2018 | $ | 0.45 | $ | 5,625 | $ | 30.00 | $ | 7,500 | |||||||||
May 2019 | January 1 - March 31, 2019 | 0.45 | 5,630 | 30.00 | 7,500 | |||||||||||||
May 2019 (2) | Special Distribution | 0.85 | 10,635 | — | — | |||||||||||||
August 2019 | April 1 - June 30, 2019 | 0.45 | 5,630 | 30.00 | 7,500 | |||||||||||||
2018 | ||||||||||||||||||
February 2018 | October 1 - December 31, 2017 | $ | 0.45 | $ | 5,617 | $ | 30.00 | $ | 7,765 | |||||||||
May 2018 | January 1 - March 31, 2018 | 0.45 | 5,623 | 30.00 | 7,500 | |||||||||||||
August 2018 | April 1 - June 30, 2018 | 0.45 | 5,623 | 30.00 | 7,500 | |||||||||||||
(1) | Totals include the amount paid to NRP's general partner in accordance with the general partner's 2% general partner interest. |
(2) | The special distribution of $0.85 per common unit was made to cover the common unitholders’ tax liability resulting from the sale of NRP’s construction aggregates business in December 2018. |
5. Net Income Per Common Unit
Basic net income per common unit is computed by dividing net income, after considering income attributable to non-controlling interest, preferred unitholders and the general partner’s general partner interest, by the weighted average number of common units outstanding. Diluted net income per common unit includes the effect of NRP's preferred units, warrants, and unvested unit-based awards if the inclusion of these items is dilutive.
The dilutive effect of the preferred units is calculated using the if-converted method. Under the if-converted method, the preferred units are assumed to be converted at the beginning of the period, and the resulting common units are included in the denominator of the diluted net income per unit calculation for the period being presented. Distributions declared in the period and undeclared distributions on the preferred units that accumulated during the period are added back to the numerator for purposes of the if-converted calculation.
The dilutive effect of the warrants is calculated using the treasury stock method, which assumes that the proceeds from the exercise of these instruments are used to purchase common units at the average market price for the period. The calculation of the dilutive effect of the warrants for the three months ended September 30, 2019 and 2018 and the nine months ended September 30, 2018 includes the net settlement of warrants to purchase 1.75 million common units with a strike price of $22.81 but did not include the net settlement of warrants to purchase 2.25 million common units with a strike price of $34.00 because the impact would have been anti-dilutive. The calculation of diluted net income per common unit for the nine months ended September 30, 2019 includes both the net settlement of warrants to purchase 1.75 million common units at a strike price of $22.81 and the net settlement of warrants to purchase 2.25 million common units with a strike price of $34.00.
12
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
The following table reconciles the numerator and denominator of the basic and diluted net income per common unit computations and calculates basic and diluted net income per common unit:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands, except per unit data) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Allocation of net income | |||||||||||||||
Net income from continuing operations | $ | 39,163 | $ | 25,853 | $ | 94,034 | $ | 87,268 | |||||||
Add (less): net loss (income) attributable to non-controlling interest | — | 359 | — | (510 | ) | ||||||||||
Less: income attributable to preferred unitholders | (7,500 | ) | (7,500 | ) | (22,500 | ) | (22,500 | ) | |||||||
Net income from continuing operations attributable to common unitholders and general partner | $ | 31,663 | $ | 18,712 | $ | 71,534 | $ | 64,258 | |||||||
Less: net income from continuing operations attributable to the general partner | (634 | ) | (374 | ) | (1,431 | ) | (1,285 | ) | |||||||
Net income from continuing operations attributable to common unitholders | $ | 31,029 | $ | 18,338 | $ | 70,103 | $ | 62,973 | |||||||
Net income from discontinued operations | $ | 7 | $ | 2,688 | $ | 206 | $ | 3,721 | |||||||
Less: net income from discontinued operations attributable to the general partner | 0 | (54 | ) | (4 | ) | (75 | ) | ||||||||
Net income from discontinued operations attributable to common unitholders | $ | 7 | $ | 2,634 | $ | 202 | $ | 3,646 | |||||||
Net income | $ | 39,170 | $ | 28,541 | $ | 94,240 | $ | 90,989 | |||||||
Add (less): net loss (income) attributable to non-controlling interest | — | 359 | — | (510 | ) | ||||||||||
Less: income attributable to preferred unitholders | (7,500 | ) | (7,500 | ) | (22,500 | ) | (22,500 | ) | |||||||
Net income attributable to common unitholders and general partner | $ | 31,670 | $ | 21,400 | $ | 71,740 | $ | 67,979 | |||||||
Less: net income attributable to the general partner | (634 | ) | (428 | ) | (1,435 | ) | (1,360 | ) | |||||||
Net income attributable to common unitholders | $ | 31,036 | $ | 20,972 | $ | 70,305 | $ | 66,619 | |||||||
Basic net income per common unit | |||||||||||||||
Weighted average common units—basic | 12,261 | 12,246 | 12,259 | 12,243 | |||||||||||
Basic net income from continuing operations per common unit | $ | 2.53 | $ | 1.50 | $ | 5.72 | $ | 5.14 | |||||||
Basic net income from discontinued operations per common unit | $ | 0.00 | $ | 0.22 | $ | 0.02 | $ | 0.30 | |||||||
Basic net income per common unit | $ | 2.53 | $ | 1.71 | $ | 5.73 | $ | 5.44 | |||||||
13
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands, except per unit data) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Diluted income per common unit | |||||||||||||||
Weighted average common units—basic | 12,261 | 12,246 | 12,259 | 12,243 | |||||||||||
Plus: dilutive effect of Preferred Units | 10,494 | 9,124 | 10,494 | 9,124 | |||||||||||
Plus: dilutive effect of Warrants | 389 | 470 | 800 | 474 | |||||||||||
Plus: dilutive effect of unvested unit-based awards | 13 | — | 31 | ||||||||||||