10-Q 1 nrp20230930_10q.htm FORM 10-Q nrp20230930_10q.htm
0001171486 NATURAL RESOURCE PARTNERS LP false --12-31 Q3 2023 12,634,642 71,666 71,666 250,000 250,000 1,000 1,000 1,850 1,850 12,634,642 12,634,642 12,505,996 12,505,996 3.25 1.2 3.0 0.75 22.81 2.25 34.00 48.0 2 0 0.75 0.75 22.81 22.81 2.25 2.25 34.00 34.00 5.55 4.73 4.73 5.82 5.82 8.92 8.92 5.03 5.03 5.18 5.18 19.1 15 0 0.4 10,000 false false false false Lease term does not include renewal periods. Other current assets, net includes short-term notes receivables from contracts with customers. The fair value of the Opco Credit Facility approximates the outstanding borrowing amount because the interest rates are variable and reflective of market rates and the terms of the credit facility allow the Partnership to repay the debt at any time without penalty. Relates to accrued distribution paid upon the redemption of 15,001 preferred units in September 2023. Special distribution was made to help cover unitholder tax liabilities associated with owning NRP's common units during 2022. Relates to accrued distribution paid upon the redemption of 35,834 preferred units in May 2023. The fair value of the Partnership's contract receivable is determined based on the present value of future cash flow projections related to the underlying asset at a discount rate of 15% at June 30, 2023 and December 31, 2022. Other long-term assets, net includes long-term lease amendment fee receivables from contracts with customers. Revenues from Alpha Metallurgical Resources, Inc. and Foresight are included within the Partnership's Mineral Rights segment. The fair value of the Opco Senior Notes at June 30, 2023 and December 31, 2022 were estimated by management utilizing the present value replacement method incorporating the interest rate of the Opco Credit facility at June 30, 2023 and December 31, 2022, respectively. Relates to accrued distribution paid upon the redemption of 47,499 preferred units in February 2023. Amounts reclassified into income out of accumulated other comprehensive loss were $2.3 million and $(3.0) million for the three months ended June 30, 2023 and 2022, respectively, and $(18.3) million and $(4.7) million for the six months ended June 30, 2023 and 2022, respectively. Relates to accrued distribution paid upon the redemption of 45,000 preferred units in June 2023. Relates to accrued distribution paid upon the redemption of 19,321 preferred units paid-in-kind in February 2022. Net income includes $2.9 million of income attributable to preferred unitholders that accumulated during the period, of which $2.9 million is allocated to the common unitholders and $0.1 million is allocated to the general partner. Totals include the amount paid to NRP's general partner in accordance with the general partner's 2% general partner interest. Net income includes $5.0 million of income attributable to preferred unitholders that accumulated during the period, of which $4.9 million is allocated to the common unitholders and $0.1 million is allocated to the general partner. Net income includes $7.5 million of income attributable to preferred unitholders that accumulated during the period, of which $7.4 million is allocated to the common unitholders and $0.2 million is allocated to the general partner. Transportation and processing services revenues from contracts with customers as defined under ASC 606 was $3.9 million and $4.9 million for the three months ended September 30, 2023 and 2022, respectively and $9.5 million and $12.9 million for the nine months ended September 30, 2023 and 2022, respectively. The remaining transportation and processing services revenues of $0.6 million and $1.1 million for the three months ended September 30, 2023 and 2022, respectively, and $1.9 million and $2.5 million for the nine months ended September 30, 2023 and 2022, respectively, related to other NRP-owned infrastructure leased to and operated by third-party operators accounted for under other guidance. See Note 15. Financing Transaction for more information. Relates to accrued distribution paid upon the redemption of 35,000 preferred units in August 2023. 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Table of Contents

 

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 September 30, 2023 or

 

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

     
  

Commission file number:

 001-31465

 

 

nrp20220630_10qimg001.jpg

 

NATURAL RESOURCE PARTNERS LP

 

(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.)

1415 Louisiana Street, Suite 3325

Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

(713) 751-7507

(Registrants 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  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ☒   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

 

Non-accelerated Filer

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  ☒

 

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

Part I. Financial Information

Item 1.

Consolidated Financial Statements

 
 

Consolidated Balance Sheets

1

 

Consolidated Statements of Comprehensive Income

2

 

Consolidated Statements of Partners Capital

3

 

Consolidated Statements of Cash Flows

5

 

Notes to Consolidated Financial Statements

6

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

Part II. Other Information

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

31

 

Signatures

32

 

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS

 

  

September 30,

  

December 31,

 
  2023  2022 

(In thousands, except unit data)

 

(Unaudited)

    

ASSETS

        

Current assets

        

Cash and cash equivalents

 $18,411  $39,091 

Accounts receivable, net

  38,569   42,701 

Other current assets, net

  2,570   1,822 

Total current assets

 $59,550  $83,614 

Land

  24,008   24,008 

Mineral rights, net

  400,548   412,312 

Intangible assets, net

  14,014   14,713 

Equity in unconsolidated investment

  282,491   306,470 

Long-term contract receivable, net

  26,997   28,946 

Other long-term assets, net

  7,601   7,068 

Total assets

 $815,209  $877,131 

LIABILITIES AND CAPITAL

        

Current liabilities

        

Accounts payable

 $1,143  $1,992 

Accrued liabilities

  6,511   11,916 

Accrued interest

  1,224   989 

Current portion of deferred revenue

  6,399   6,256 

Current portion of long-term debt, net

  36,780   39,076 

Total current liabilities

 $52,057  $60,229 

Deferred revenue

  35,076   40,181 

Long-term debt, net

  170,735   129,205 

Other non-current liabilities

  6,833   5,472 

Total liabilities

 $264,701  $235,087 

Commitments and contingencies (see Note 13)

          

Class A Convertible Preferred Units (71,666 and 250,000 units issued and outstanding at September 30, 2023 and December 31, 2022, respectively, at $1,000 par value per unit; liquidation preference of $1,850 per unit at September 30, 2023 and December 31, 2022) (See Note 3)

 $47,181  $164,587 

Partners’ capital

        

Common unitholders’ interest (12,634,642 and 12,505,996 units issued and outstanding at September 30, 2023 and December 31, 2022, respectively)

 $461,043  $404,799 

General partner’s interest

  7,196   5,977 

Warrant holders’ interest

  32,843   47,964 

Accumulated other comprehensive income

  2,245   18,717 

Total partners’ capital

 $503,327  $477,457 

Total liabilities and partners' capital

 $815,209  $877,131 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 

(In thousands, except per unit data)

 

2023

  

2022

  

2023

  

2022

 

Revenues and other income

                

Royalty and other mineral rights

 $68,533  $81,379  $205,811  $231,795 

Transportation and processing services

  4,579   5,969   11,447   15,377 

Equity in earnings of Sisecam Wyoming

  12,401   14,556   58,633   44,036 

Gain on asset sales and disposals

  854   354   955   699 

Total revenues and other income

 $86,367  $102,258  $276,846  $291,907 
                 

Operating expenses

                

Operating and maintenance expenses

 $8,358  $7,898  $23,451  $25,989 

Depreciation, depletion and amortization

  4,594   6,850   12,469   16,565 

General and administrative expenses

  5,669   4,518   17,157   14,037 

Asset impairments

  63   812   132   874 

Total operating expenses

 $18,684  $20,078  $53,209  $57,465 
                 

Income from operations

 $67,683  $82,180  $223,637  $234,442 
                 

Other expenses, net

                

Interest expense, net

 $(3,837) $(5,141) $(10,182) $(22,636)

Loss on extinguishment of debt

     (2,484)     (6,532)

Total other expenses, net

 $(3,837) $(7,625) $(10,182) $(29,168)
                 

Net income

 $63,846  $74,555  $213,455  $205,274 

Less: income attributable to preferred unitholders

  (2,936)  (7,500)  (14,568)  (22,500)

Less: redemption of preferred units

  (17,083)     (60,929)   

Net income attributable to common unitholders and the general partner

 $43,827  $67,055  $137,958  $182,774 
                 

Net income attributable to common unitholders

 $42,951  $65,714  $135,199  $179,119 

Net income attributable to the general partner

  876   1,341   2,759   3,655 
                 

Net income per common unit (see Note 5)

                

Basic

 $3.40  $5.25  $10.72  $14.36 

Diluted

  2.91   3.71   8.88   10.24 
                 

Net income

 $63,846  $74,555  $213,455  $205,274 

Comprehensive income (loss) from unconsolidated investment and other

  2,200   289   (16,472)  (1,179)

Comprehensive income

 $66,046  $74,844  $196,983  $204,095 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL

(Unaudited)

 

                  

Accumulated

     
                  

Other

  

Total

 
  

Common Unitholders

  

General

  

Warrant

  

Comprehensive

  

Partners'

 

(In thousands)

 

Units

  

Amounts

  

Partner

  

Holders

  

Income (Loss)

  

Capital

 

Balance at December 31, 2022

  12,506  $404,799  $5,977  $47,964  $18,717  $477,457 

Net income (1)

     77,690   1,585         79,275 

Redemption of preferred units

     (15,904)  (324)        (16,228)

Distributions to common unitholders and the general partner

     (40,082)  (818)        (40,900)

Distributions to preferred unitholders

     (7,924)  (162)        (8,086)

Issuance of unit-based awards

  129                

Unit-based awards amortization and vesting, net

     (1,178)           (1,178)

Capital contribution

        142         142 

Comprehensive loss from unconsolidated investment and other

              (19,583)  (19,583)

Balance at March 31, 2023

  12,635  $417,401  $6,400  $47,964  $(866) $470,899 

Net income (2)

     68,927   1,407         70,334 

Redemption of preferred units

     (27,065)  (553)        (27,618)

Distributions to common unitholders and the general partner

     (9,476)  (193)        (9,669)

Distributions to preferred unitholders

     (7,248)  (148)        (7,396)

Unit-based awards amortization and vesting

     2,299            2,299 

Comprehensive income from unconsolidated investment and other

              911   911 

Balance at June 30, 2023

  12,635  $444,838  $6,913  $47,964  $45  $499,760 

Net income (3)

     62,569   1,277         63,846 

Redemption of preferred units

     (16,741)  (342)        (17,083)

Distributions to common unitholders and the general partner

     (9,475)  (194)        (9,669)

Distributions to preferred unitholders

     (4,349)  (88)        (4,437)

Unit-based awards amortization and vesting

     2,318            2,318 

Warrant settlement

     (18,117)  (370)  (15,121)     (33,608)

Comprehensive income from unconsolidated investment and other

              2,200   2,200 

Balance at September 30, 2023

  12,635  $461,043  $7,196  $32,843  $2,245  $503,327 
         
(1)

Net income includes $6.7 million of income attributable to preferred unitholders that accumulated during the period, of which $6.5 million is allocated to the common unitholders and $0.1 million is allocated to the general partner.

(2) Net income includes $5.0 million of income attributable to preferred unitholders that accumulated during the period, of which $4.9 million is allocated to the common unitholders and $0.1 million is allocated to the general partner.
(3) Net income includes $2.9 million of income attributable to preferred unitholders that accumulated during the period, of which $2.9 million is allocated to the common unitholders and $0.1 million is allocated to the general partner. 

 

 

 

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL

(Unaudited)

 

                  

Accumulated

     
                  

Other

  

Total

 
  

Common Unitholders

  

General

  

Warrant

  

Comprehensive

  

Partners'

 

(In thousands)

 

Units

  

Amounts

  

Partner

  

Holders

  

Income

  

Capital

 

Balance at December 31, 2021

  12,351  $203,062  $1,787  $47,964  $3,211  $256,024 

Net income (1)

     62,621   1,278         63,899 

Distributions to common unitholders and the general partner

     (5,559)  (113)        (5,672)

Distributions to preferred unitholders

     (7,603)  (155)        (7,758)

Issuance of unit-based awards

  155                

Unit-based awards amortization and vesting, net

     (1,754)           (1,754)

Capital contribution

        112         112 

Comprehensive income from unconsolidated investment and other

              2,545   2,545 

Balance at March 31, 2022

  12,506  $250,767  $2,909  $47,964  $5,756  $307,396 

Net income (1)

     65,484   1,336         66,820 

Distributions to common unitholders and the general partner

     (9,379)  (191)        (9,570)

Distributions to preferred unitholders

     (7,350)  (150)        (7,500)

Unit-based awards amortization and vesting

     1,231            1,231 

Comprehensive loss from unconsolidated investment and other

              (4,013)  (4,013)

Balance at June 30, 2022

  12,506  $300,753  $3,904  $47,964  $1,743  $354,364 

Net income (1)

     73,064   1,491         74,555 

Distributions to common unitholders and the general partner

     (9,380)  (191)        (9,571)

Distributions to preferred unitholders

     (7,350)  (150)        (7,500)

Unit-based awards amortization and vesting

     1,245            1,245 

Comprehensive income from unconsolidated investment and other

              289   289 

Balance at September 30, 2022

  12,506  $358,332  $5,054  $47,964  $2,032  $413,382 
         

(1)

Net income includes $7.5 million of income attributable to preferred unitholders that accumulated during the period, of which $7.4 million is allocated to the common unitholders and $0.2 million is allocated to the general partner.

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

For the Nine Months Ended September 30,

 

(In thousands)

 

2023

  

2022

 

Cash flows from operating activities

        

Net income

 $213,455  $205,274 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation, depletion and amortization

  12,469   16,565 

Distributions from unconsolidated investment

  66,140   34,055 

Equity earnings from unconsolidated investment

  (58,633)  (44,036)

Gain on asset sales and disposals

  (955)  (699)

Loss on extinguishment of debt

     6,532 

Asset impairments

  132   874 

Bad debt expense

  813   641 

Unit-based compensation expense

  7,903   4,216 

Amortization of debt issuance costs and other

  1,043   1,887 

Change in operating assets and liabilities:

        

Accounts receivable

  4,090   (10,118)

Accounts payable

  (850)  223 

Accrued liabilities

  (6,288)  (4,831)

Accrued interest

  235   3,014 

Deferred revenue

  (4,963)  (17,094)

Other items, net

  (1,399)  1,447 

Net cash provided by operating activities

 $233,192  $197,950 
         

Cash flows from investing activities

        

Proceeds from asset sales and disposals

 $961  $699 

Return of long-term contract receivable

  1,830   1,138 

Capital expenditures

  (10)  (59)

Net cash provided by investing activities

 $2,781  $1,778 
         

Cash flows from financing activities

        

Debt borrowings

 $215,034  $ 

Debt repayments

  (176,061)  (197,665)

Distributions to common unitholders and the general partner

  (60,238)  (24,813)

Distributions to preferred unitholders

  (19,919)  (22,758)

Redemption of preferred units

  (178,334)   

Redemption of preferred units paid-in-kind

     (19,321)

Warrant settlement

  (33,608)   

Other items, net

  (3,527)  (9,754)

Net cash used in financing activities

 $(256,653) $(274,311)
         

Net decrease in cash and cash equivalents

 $(20,680) $(74,583)

Cash and cash equivalents at beginning of period

  39,091   135,520 

Cash and cash equivalents at end of period

 $18,411  $60,937 
         

Supplemental cash flow information:

        

Cash paid for interest

 $9,484  $18,501 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

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 Sisecam Wyoming LLC ("Sisecam 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. The Partnership’s operations are conducted through, and its operating assets are owned by, its subsidiaries. The Partnership owns its subsidiaries through one wholly owned operating company, NRP (Operating) LLC ("Opco"). 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, 2022 and notes thereto included in the Partnership's Annual Report on Form 10-K, which was filed with the SEC on March 3, 2023. Reclassifications have been made to prior year amounts in the Consolidated Financial Statements to conform with current year 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.

 

Recently Adopted Accounting Standard

 

On January 1, 2023, NRP adopted Accounting Standards Update ("ASU") 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06)”. The ASU includes targeted improvements to earnings per share, which the Partnership adopted on a modified retrospective basis. The adoption of this ASU did not have a material impact on the Partnership’s Consolidated Financial Statements. See Note 5. Net Income Per Common Unit for the calculations of our basic and diluted net income per common unit. See Note 3. Class A Convertible Preferred Units and Warrants for disclosures related to our convertible preferred units and warrants.

 

6

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
 
 

2.    Revenues from Contracts with Customers

 

The following table presents the Partnership's Mineral Rights segment revenues by major source:

 

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 

(In thousands)

 

2023

  

2022

  

2023

  

2022

 

Coal royalty revenues

 $55,544  $52,381  $161,527  $170,775 

Production lease minimum revenues

  850   1,885   2,025   3,542 

Minimum lease straight-line revenues

  4,464   4,778   13,414   14,235 

Carbon neutral initiative revenues

  681   8,600   2,914   8,600 

Property tax revenues

  1,770   1,360   4,710   4,527 

Wheelage revenues

  2,385   2,977   9,538   11,073 

Coal overriding royalty revenues

  827   1,367   1,165   2,307 

Lease amendment revenues

  623   759   2,322   2,450 

Aggregates royalty revenues

  736   884   2,175   2,691 

Oil and gas royalty revenues

  324   6,170   5,126   10,890 

Other revenues

  329   218   895   705 

Royalty and other mineral rights revenues

 $68,533  $81,379  $205,811  $231,795 

Transportation and processing services revenues (1)

  4,579   5,969   11,447   15,377 

Total Mineral Rights segment revenues

 $73,112  $87,348  $217,258  $247,172 
     
(1)

Transportation and processing services revenues from contracts with customers as defined under ASC 606 was $3.9 million and $4.9 million for the three months ended September 30, 2023 and 2022, respectively and $9.5 million and $12.9 million for the nine months ended September 30, 2023 and 2022, respectively. The remaining transportation and processing services revenues of $0.6 million and $1.1 million for the three months ended September 30, 2023 and 2022, respectively, and $1.9 million and $2.5 million for the nine months ended September 30, 2023 and 2022, respectively, related to other NRP-owned infrastructure leased to and operated by third-party operators accounted for under other guidance. See Note 15. Financing Transaction for more information.

 

The following table details the Partnership's Mineral Rights segment receivables and liabilities resulting from contracts with customers:

 

  

September 30,

  

December 31,

 

(In thousands)

 

2023

  

2022

 

Receivables

        

Accounts receivable, net

 $34,775  $39,004 

Other current assets, net (1)

  2,382    

Other long-term assets, net (2)

     75 
         

Contract liabilities

        

Current portion of deferred revenue

 $6,399  $6,256 

Deferred revenue

  35,076   40,181 
     
(1)

Other current assets, net includes short-term notes receivables from contracts with customers.

(2)

Other long-term assets, net includes long-term lease amendment fee receivables from contracts with customers.

 

The following table shows the activity related to the Partnership's Mineral Rights segment deferred revenue:

 

  

For the Nine Months Ended September 30,

 

(In thousands)

 

2023

  

2022

 

Balance at beginning of period (current and non-current)

 $46,437  $61,862 

Increase due to minimums and lease amendment fees

  11,525   11,309 

Recognition of previously deferred revenue

  (16,487)  (28,403)

Balance at end of period (current and non-current)

 $41,475  $44,768 

 

The Partnership's non-cancelable annual minimum payments due under the lease terms of its coal and aggregates royalty leases are as follows as of  September 30, 2023 (in thousands):

 

Lease Term (1)

 

Weighted Average Remaining Years

  

Annual Minimum Payments

 

0 - 5 years

  1.7  $19,867 

5 - 10 years

  4.8   10,417 

10+ years

  12.0   27,129 

Total

  7.2  $57,413 
     
(1)

Lease term does not include renewal periods.

 

7

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
 
 

3.      Class A Convertible Preferred Units and Warrants

 

On March 2, 2017, NRP issued $250 million of Class A Convertible Preferred Units representing limited partner interests in NRP (the "preferred units") to certain entities controlled by funds affiliated with The Blackstone Group Inc. (collectively referred to as "Blackstone") and certain affiliates of GoldenTree Asset Management LP (collectively referred to as "GoldenTree") (together the "preferred purchasers") pursuant to a Preferred Unit and Warrant Purchase Agreement. NRP issued 250,000 preferred units to the preferred purchasers at a price of $1,000 per preferred unit (the "per unit purchase price"), less a 2.5% structuring and origination fee. The preferred units entitle the preferred purchasers to receive cumulative distributions at a rate of 12% of the purchase price per year, up to one half of which NRP may pay in additional preferred units (such additional preferred units, the "PIK units"). The preferred units have a perpetual term, unless converted or redeemed as described below.

 

NRP also issued two tranches of warrants (the "warrants") to purchase common units to the preferred purchasers (warrants to purchase 1.75 million common units with a strike price of $22.81 and warrants to purchase 2.25 million common units with a strike price of $34.00). The warrants may be exercised by the holders thereof at any time before the eighth anniversary of the closing date. Upon exercise of the warrants, NRP may, at its option, elect to settle the warrants in common units or cash, each on a net basis.

 

After March 2, 2022 and prior to March 2, 2025, the holders of the preferred units may elect to convert up to 33% of the outstanding preferred units in any 12-month period into common units if the volume weighted average trading price of our common units (the "VWAP") for the 30 trading days immediately prior to date notice is provided is greater than $51.00. In such case, the number of common units to be issued upon conversion would be equal to the per unit purchase price plus the value of any accrued and unpaid distributions divided by an amount equal to a 7.5% discount to the VWAP for the 30 trading days immediately prior to the notice of conversion. Rather than have the preferred units convert to common units in accordance with the provisions of this paragraph, NRP would have the option to elect to redeem the preferred units proposed to be converted for cash at a price equal to the per unit purchase price plus the value of any accrued and unpaid distributions.

 

On or after March 2, 2025, the holders of the preferred units may elect to convert the preferred units to common units at a conversion rate equal to the Liquidation Value divided by an amount equal to a 10% discount to the VWAP for the 30 trading days immediately prior to the notice of conversion. The “liquidation value” will be an amount equal to the greater of: (1) (a) the per unit purchase price multiplied by (i) prior to March 2, 2020, 1.50, (ii) on or after March 2, 2020 and prior to March 2, 2021, 1.70 and (iii) on or after March 2, 2021, 1.85, less (b)(i) all preferred unit distributions previously made by NRP and (ii) all cash payments previously made in respect of redemption of any PIK units; and (2) the per unit purchase price plus the value of all accrued and unpaid distributions.

 

To the extent the holders of the preferred units have not elected to convert their preferred units before March 2, 2029, NRP has the right to force conversion of the preferred units at a price equal to the liquidation value divided by an amount equal to a 10% discount to the VWAP for the 30 trading days immediately prior to the notice of conversion.

 

In addition, NRP has the ability to redeem at any time (subject to compliance with its debt agreements) all or any portion of the preferred units and any outstanding PIK units for cash. The redemption price for each outstanding PIK unit is $1,000 plus the value of any accrued and unpaid distributions per PIK unit. The redemption price for each preferred unit is the liquidation value divided by the number of outstanding preferred units. The preferred units are redeemable at the option of the preferred purchasers only upon a change in control.

 

The terms of the preferred units contain certain restrictions on NRP's ability to pay distributions on its common units. To the extent that either (i) NRP's consolidated Leverage Ratio, as defined in the Partnership's Fifth Amended and Restated Partnership Agreement dated March 2, 2017 (the "restated partnership agreement"), is greater than 3.25x, or (ii) the ratio of NRP's Distributable Cash Flow (as defined in the Restated Partnership Agreement) to cash distributions made or proposed to be made is less than 1.2x (in each case, with respect to the most recently completed four-quarter period), NRP may not increase the quarterly distribution above $0.45 per quarter without the approval of the holders of a majority of the outstanding preferred units. In addition, if at any time after January 1, 2022, any PIK units are outstanding, NRP may not make distributions on its common units until it has redeemed all PIK units for cash.

 

The holders of the preferred units have the right to vote with holders of NRP’s common units on an as-converted basis and have other customary approval rights with respect to changes of the terms of the preferred units. In addition, Blackstone has certain approval rights over certain matters as identified in the restated partnership agreement. GoldenTree also has more limited approval rights that will expand once Blackstone's ownership goes below the minimum preferred unit threshold (as defined below). These approval rights are not transferrable without NRP's consent. In addition, the approval rights held by Blackstone and GoldenTree will terminate at such time that Blackstone (together with their affiliates) or GoldenTree (together with their affiliates), as applicable, no longer own at least 20% of the total number of preferred units issued on the closing date, together with all PIK units that have been issued but not redeemed (the "minimum preferred unit threshold").

 

At the closing, pursuant to the Board Representation and Observation Rights Agreement, the Preferred Purchasers received certain board appointment and observation rights, and Blackstone appointed one director and one observer to the Board of Directors.

 

NRP also entered into a registration rights agreement (the "preferred unit and warrant registration rights agreement") with the preferred purchasers, pursuant to which NRP is required to file (i) a shelf registration statement to register the common units issuable upon exercise of the warrants and to cause such registration statement to become effective not later than 90 days following the closing date and (ii) a shelf registration statement to register the common units issuable upon conversion of the preferred units and to cause such registration statement to become effective not later than the earlier of the fifth anniversary of the closing date or 90 days following the first issuance of any common units upon conversion of preferred units (the "registration deadlines"). In addition, the preferred unit and warrant registration rights agreement gives the preferred purchasers piggyback registration and demand underwritten offering rights under certain circumstances. The shelf registration statement to register the common units issuable upon exercise of the warrants became effective on April 20, 2017. If the shelf registration statement to register the common units issuable upon conversion of the preferred units is not effective by the applicable registration deadline, NRP will be required to pay the preferred purchasers liquidated damages in the amounts and upon the term set forth in the preferred unit and warrant registration rights agreement.

 

8

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
 

Accounting for the Preferred Units and Warrants

 

Classification

 

The preferred units are accounted for as temporary equity on NRP's Consolidated Balance Sheets due to certain contingent redemption rights that may be exercised at the election of preferred purchasers. The warrants are accounted for as equity on NRP's Consolidated Balance Sheets.

 

Initial Measurement

 

The net transaction price was allocated to the preferred units and warrants based on their relative fair values at inception date. NRP allocated the transaction issuance costs to the preferred units and warrants primarily on a pro-rata basis based on their relative inception date allocated values.

 

Subsequent Measurement

 

Preferred Units

 

Subsequent adjustment of the preferred units will not occur until NRP has determined that the conversion or redemption of all or a portion of the preferred units is probable of occurring. Once conversion or redemption becomes probable of occurring, the carrying amount of the preferred units will be accreted to their redemption value over the period from the date the feature is probable of occurring to the date the preferred units can first be converted or redeemed. 

 

In  February 2023, the Partnership received a notice from holders of the Class A Preferred Units exercising their right to either convert or redeem, at the election of NRP, an aggregate of 47,499 Class A Preferred Units. The Partnership chose to redeem the preferred units for $47.5 million in cash rather than issuing common units. In May 2023, the Partnership received a notice from holders of the Class A Preferred Units exercising their right to either convert or redeem, at the election of NRP, an aggregate of 35,834 Class A Preferred Units. The Partnership chose to redeem the preferred units for $35.8 million in cash rather than issuing common units. In June 2023, the Partnership executed a negotiated transaction with holders of the Class A Preferred Units pursuant to which it repurchased and retired an aggregate of 45,000 Class A Preferred Units for $45.0 million in cash. In August 2023, the Partnership executed a negotiated transaction with holders of the Class A Preferred Units pursuant to which it repurchased and retired an aggregate of 35,000 Class A Preferred Units for $35.0 million in cash. In September 2023, the Partnership executed a negotiated transaction with holders of the Class A Preferred Units pursuant to which it repurchased and retired an aggregate of 15,001 Class A Preferred Units for $15.0 million in cash. Of the originally issued 250,000 Class A Preferred Units, 71,666 Class A Preferred Units remain outstanding as of September 30, 2023. Following these repurchases, the Subject units were retired and are no longer outstanding, and all rights of Blackstone thereof have ceased with respect to the subject units, therefore, Blackstone's board designee resigned from the board of the Partnership's general partner.

 

Activity related to the preferred units is as follows:

 

  

Units

  

Financial

 

(In thousands, except unit data)

 

Outstanding

  

Position

 

Balance at December 31, 2021

  269,321  $183,908 

Redemption of preferred units paid-in-kind

  (19,321)  (19,321)

Balance at December 31, 2022

  250,000  $164,587 

Redemption of preferred units

  (178,334)  (117,406)

Balance at September 30, 2023

  71,666  $47,181 

 

Warrants

 

Subsequent adjustment of the warrants will not occur until the warrants are exercised, at which time, NRP may, at its option, elect to settle the warrants in common units or cash, each on a net basis. The net basis will be equal to the difference between the Partnership's common unit price and the strike price of the warrant. Once warrant exercise occurs, the difference between the carrying amount of the warrants and the net settlement amount will be allocated on a pro-rata basis to the common unitholders and general partner.

 

On September 18, 2023 (the "exercise date"), the Partnership negotiated a transaction with holders of the Partnership's warrants pursuant to which the Partnership repurchased and retired an aggregate of 752,500 warrants with an exercise price of $22.81 and 60,000 warrants with an exercise price of $34.00 for approximately $33.6 million in cash. As of September 30, 2023 there were 2.19 million warrants to purchase common units with a strike price of $34.00 outstanding and no warrants to purchase common units with a strike price of $22.81 outstanding. As of December 31, 2022 there were 3.0 million warrants outstanding, which included warrants to purchase 0.75 million common units at a strike price of $22.81 and warrants to purchase 2.25 million common units with a strike price of $34.00. These warrants had a $32.8 million carrying value included in warrant holders' interest within partners' capital on the Partnership's Consolidated Balance Sheets at September 30, 2023 and $48.0 million at December 31, 2022. 

 

Activity related to the warrants is as follows:

 

  

Warrants

  

Financial

 

(In thousands, except warrant data)

 

Outstanding

  

Position

 

Balance at December 31, 2021 and 2022

  3,002,500  $47,964 

Warrant settlement

  (812,500)  (15,121)

Balance at September 30, 2023

  2,190,000  $32,843 

 

Embedded Features

 

Certain embedded features within the preferred unit and warrant purchase agreement are accounted for at fair value and are remeasured each quarter. See Note 10. Fair Value Measurements for further information regarding valuation of these embedded derivatives.

 

9

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
 
 

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 available to common unitholders and the general partner by $2.9 million and $7.5 million during the three months ended September 30, 2023 and 2022, respectively, and $14.6 million and $22.5 million during the nine months ended September 30, 2023 and 2022, respectively, as a result of accumulated preferred unit distributions earned during the period. Of the $6.7 million in accumulated preferred unit distributions earned during the three months ended March 31, 2023, $0.6 million was paid in February 2023 in connection with the preferred units that were redeemed in February. Of the $5.0 million in accumulated preferred unit distributions earned during the three months ended June 30, 2023, $0.4 million was paid in May 2023 and $0.9 million was paid in June 2023 in connection with the preferred units that were redeemed during those months. Of the $2.9 million in accumulated preferred unit distributions earned during the three months ended September 30, 2023, $0.4 million was paid in August 2023 and $0.4 million was paid in September 2023 in connection with the preferred units that were redeemed during those months. Income available to common unitholders and the general partner is also reduced by the difference between the fair value of the consideration paid upon redemption and the carrying value of the preferred units. As such, NRP reduced net income available to common unitholders and the general partner by $17.1 million and $60.9 million during the three and nine months ended September 30, 2023, respectively. 

 

The following table shows the cash distributions declared and paid to common and preferred unitholders during the nine months ended September 30, 2023 and 2022, respectively:

 

                   
    

Common Units

  

Preferred Units

 

Month Paid

 

Period Covered by Distribution

 

Distribution per Unit

  

Total Distribution (1) (In thousands)

  

Distribution per Unit

  

Total Distribution (In thousands)

 

2023

                  

February

 

October 1 - December 31, 2022

 $0.75  $9,571  $30.00  $7,500 

February (2)

 

January 1 - February 8, 2023

        12.33   586 

March (3)

 

Special Distribution

  2.43   31,329       

May

 

January 1 - March 31, 2023

  0.75   9,669   30.00   6,075 

May (4)

 

April 1 - May 5, 2023

        11.33   406 

June (5)

 

April 1 - June 2, 2023

        20.33   915 

August

 

April 1 - June 30, 2023

  0.75   9,669   30.00   3,650 

August (6)

 

June 30 - August 8, 2023

        12.33   432 

September (7)

 

June 30 - September 12, 2023

        23.67   355 
                   

2022

                  

February

 

October 1 - December 31, 2021

 $0.45  $5,672  $30.00  $7,500 

February (8)

 

January 1 - February 8, 2022

        13.35   258 

May

 

January 1 - March 31, 2022

  0.75   9,570   30.00   7,500 

August

 

April 1 - June 30, 2022

  0.75   9,571   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)Relates to accrued distribution paid upon the redemption of 47,499 preferred units in February 2023.
(3)Special distribution was made to help cover unitholder tax liabilities associated with owning NRP's common units during 2022.
(4)Relates to accrued distribution paid upon the redemption of 35,834 preferred units in May 2023.
(5)Relates to accrued distribution paid upon the redemption of 45,000 preferred units in June 2023.
(6)Relates to accrued distribution paid upon the redemption of 35,000 preferred units in August 2023. 
(7)Relates to accrued distribution paid upon the redemption of 15,001 preferred units in September 2023.
(8)Relates to accrued distribution paid upon the redemption of 19,321 preferred units paid-in-kind in February 2022.

 

10

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
 
 

5.    Net Income Per Common Unit

 

Basic net income per common unit is computed by dividing net income, after considering income attributable to preferred unitholders, the difference between the fair value of the consideration paid upon redemption and the carrying value of the preferred units 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 calculation of diluted net income per common unit for the three and nine months ended September 30, 2023 includes the assumed conversion of the remaining preferred units while it does not include the assumed conversion of the preferred units that were redeemed during the three and nine months ended September 30, 2023 as the inclusion of these units would be anti-dilutive. The calculation of diluted net income per common unit for the three and nine months ended September 30, 2022 includes the assumed conversion of the preferred units.

 

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 diluted net income per common unit for the three and nine months ended September 30, 2023 includes the net settlement of warrants to purchase 2.19 million common units with a strike price of $34.00. The calculation of diluted net income per common unit for the three and nine months ended September 30, 2022 includes the net settlement of warrants to purchase 0.75 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.

 

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:

 

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 

(In thousands, except per unit data)

 

2023

  

2022

  

2023

  

2022

 

Basic net income per common unit

                

Net income attributable to common unitholders

 $42,951  $65,714  $135,199  $179,119 

Weighted average common units—basic

  12,635   12,506   12,613   12,476 

Basic net income per common unit

 $3.40  $5.25  $10.72  $14.36 
                 

Diluted net income per common unit

                

Weighted average common units—basic

  12,635   12,506   12,613   12,476 

Plus: dilutive effect of preferred units

  1,104   6,210   2,434   6,210 

Plus: dilutive effect of warrants

  1,492   807   1,296   759 

Plus: dilutive effect of unvested unit-based awards

  240   195   190   204 

Weighted average common units—diluted

  15,471   19,718   16,533   19,649 
                 

Net income

 $63,846  $74,555  $213,455  $205,274 

Less: income attributable to preferred unitholders

  (786)     (2,693)   

Less: redemption of preferred units

  (17,083)     (60,929)   

Diluted net income attributable to common unitholders and the general partner

 $45,977  $74,555  $149,833  $205,274 

Less: diluted net income attributable to the general partner

  (920)  (1,491)  (2,997)  (4,105)

Diluted net income attributable to common unitholders

 $45,057  $73,064  $146,836  $201,169 
                 

Diluted net income per common unit

 $2.91  $3.71  $8.88  $10.24 

 

11

NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(Unaudited)
 
 

6.    Segment Information

 

The Partnership's segments are strategic business units that offer distinct products and services to different customers in different geographies within the U.S. and that are managed accordingly. NRP has the following two operating segments:

 

Mineral Rights—consists of mineral interests and other subsurface rights across the United States. NRP's ownership provides critical inputs for the manufacturing of steel, electricity and basic building materials, as well as opportunities for carbon sequestration and renewable energy. The Partnership is working to strategically redefine its business as a key player in the transitional energy economy in the years to come.

 

Soda Ash—consists of the Partnership's 49% non-controlling equity interest in Sisecam Wyoming, a trona ore mining operation and soda ash refinery in the Green River Basin of Wyoming. Sisecam Wyoming mines trona and processes it into soda ash that is sold both domestically and internationally to the glass and chemicals industries.

 

Direct segment costs and certain other costs incurred at the corporate level that are identifiable and that benefit the Partnership's segments are allocated to the operating segments accordingly. These allocated costs generally include salaries and benefits, insurance, property taxes, legal, royalty, information technology and shared facilities services and are included in operating and maintenance expenses on the Partnership's Consolidated Statements of Comprehensive Income.

 

Corporate and Financing includes functional corporate departments that do not earn revenues. Costs incurred by these departments include interest and financing, corporate headquarters and overhead, centralized treasury, legal and accounting and other corporate-level activity not specifically allocated to a segment and are included in general and administrative expenses on the Partnership's Consolidated Statements of Comprehensive Income.

 

The following table summarizes certain financial information for each of the Partnership's business segments:

 

  

Operating Segments

         

(In thousands)

 

Mineral Rights

  

Soda Ash

  

Corporate and Financing

  

Total

 

For the Three Months Ended September 30, 2023

                

Revenues

 $73,112  $12,401  $  $85,513 

Gain on asset sales and disposals

  854         854 

Operating and maintenance expenses

  8,305   53      8,358 

Depreciation, depletion and amortization

  4,589      5   4,594 

General and administrative expenses

        5,669   5,669 

Asset impairments

  63         63 

Other expenses, net

        3,837   3,837 

Net income (loss)

  61,009   12,348   (9,511)  63,846 
                 

For the Three Months Ended September 30, 2022