NPR(NRP) - 2019 Q2 - Quarterly Report

Part I. Financial Information Consolidated Financial Statements This section presents Natural Resource Partners L.P.'s unaudited consolidated financial statements for the quarter ended June 30, 2019, covering balance sheets, income, and cash flows Consolidated Balance Sheets The Consolidated Balance Sheet as of June 30, 2019, shows total assets of $1.22 billion, a decrease from $1.34 billion at December 31, 2018, primarily due to debt repayments Consolidated Balance Sheet Highlights (in thousands) | | June 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $121,275 | $242,543 | | Total Assets | $1,219,443 | $1,341,647 | | Total Current Liabilities | $68,545 | $148,746 | | Total Liabilities | $614,595 | $756,514 | | Total Partners' Capital | $443,196 | $423,481 | | Total Liabilities and Capital | $1,219,443 | $1,341,647 | Consolidated Statements of Comprehensive Income Net income for the three months ended June 30, 2019, was $19.4 million, down from $38.1 million in 2018, primarily due to a $29.3 million loss on debt extinguishment Statement of Comprehensive Income Highlights (in thousands) | | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues and Other Income | $81,469 | $69,619 | $148,510 | $129,748 | | Income from Operations | $60,844 | $52,863 | $110,783 | $97,099 | | Net Income | $19,351 | $38,110 | $55,070 | $62,448 | | Net Income Attributable to Common Unitholders | $11,614 | $29,146 | $39,269 | $45,647 | | Diluted Net Income per Common Unit | $0.87 | $1.71 | $2.59 | $2.83 | Consolidated Statements of Cash Flows Net cash provided by operating activities for the six months ended June 30, 2019, was $76.5 million, while net cash used in financing activities significantly increased to $197.8 million due to debt redemption Cash Flow Summary (in thousands) | | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $76,546 | $74,143 | | Net Cash Provided by (Used in) Investing Activities | $961 | $(1,833) | | Net Cash Used in Financing Activities | $(197,762) | $(49,162) | | Net (Decrease) Increase in Cash | $(120,255) | $23,148 | Notes to Consolidated Financial Statements The notes detail accounting policies, business segments, debt refinancing, and a significant contingent consideration dispute with Anadarko - The Partnership's business consists of owning, managing, and leasing a diversified portfolio of mineral properties (coal, other resources) and a 49% non-controlling interest in Ciner Wyoming, a trona ore mining and soda ash production business[30] - The construction aggregates business, sold in December 2018, has been classified as a discontinued operation, with its results presented separately for all periods[46] - In April 2019, NRP issued $300 million of 9.125% Senior Notes due 2025 and used the proceeds, along with cash on hand, to redeem its 10.500% Senior Notes due 2022, resulting in a $29.3 million loss on extinguishment of debt[82][86] - NRP is in a legal dispute with Anadarko over a contingent consideration payment related to the 2013 OCI Wyoming acquisition, with a potential loss ranging from $0 to approximately $40 million plus fees[111] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance across Coal Royalty and Soda Ash segments, highlighting debt refinancing, credit facility extension, and future capital expenditure impacts on soda ash distributions - NRP's business is organized into two operating segments: Coal Royalty and Other, and Soda Ash (49% interest in Ciner Wyoming)[134][135] - In Q2 2019, NRP extended its credit facility maturity to April 2023 and issued $300 million of 9.125% senior notes due 2025 to redeem its 10.50% senior notes due 2022[138] - Management expects cash distributions from the Soda Ash segment (Ciner Wyoming) to decrease to approximately $25-28 million per year for the next two to three years to fund a significant capacity expansion project[148] Results of Operations - Second Quarter of 2019 and 2018 Compared For Q2 2019, total revenues increased by 17% to $81.5 million, driven by the Coal Royalty and Other segment, but net income decreased to $19.1 million due to a $29.3 million loss on debt extinguishment Q2 Revenue by Segment (in thousands) | Operating Segment | Q2 2019 | Q2 2018 | Increase (Decrease) | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Coal Royalty and Other | $70,136 | $53,090 | $17,046 | 32% | | Soda Ash | $11,333 | $16,529 | $(5,196) | (31)% | | Total | $81,469 | $69,619 | $11,850 | 17% | - The increase in Coal Royalty and Other revenue was primarily driven by a $13.9 million increase in production lease minimum revenues and $4.4 million in lease amendment revenues[156] - A loss on extinguishment of debt of $29.3 million was recognized in Q2 2019 related to the redemption of the 2022 Senior Notes[161] Q2 Adjusted EBITDA by Segment (in thousands) | Segment | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Coal Royalty and Other | $57,677 | $44,081 | | Soda Ash | $9,310 | $12,250 | | Corporate and Financing | $(4,196) | $(3,263) | | Total Adjusted EBITDA | $62,791 | $53,068 | Results of Operations - First Six Months of 2019 and 2018 Compared For the first six months of 2019, total revenues increased 14% to $148.5 million, but net income decreased to $54.9 million due to the $29.3 million loss on debt extinguishment Six-Month Revenue by Segment (in thousands) | Operating Segment | H1 2019 | H1 2018 | Increase (Decrease) | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Coal Royalty and Other | $125,495 | $103,598 | $21,897 | 21% | | Soda Ash | $23,015 | $26,150 | $(3,135) | (12)% | | Total | $148,510 | $129,748 | $18,762 | 14% | - Total other revenues in the Coal Royalty segment increased by $24.7 million, driven by a $14.0 million increase in production lease minimum revenues and a $6.0 million increase in minimum lease straight-line revenues[177] Six-Month Adjusted EBITDA by Segment (in thousands) | Segment | H1 2019 | H1 2018 | | :--- | :--- | :--- | | Coal Royalty and Other | $104,676 | $88,397 | | Soda Ash | $19,110 | $24,500 | | Corporate and Financing | $(8,546) | $(7,599) | | Total Adjusted EBITDA | $115,240 | $105,298 | Liquidity and Capital Resources As of June 30, 2019, NRP had total liquidity of $185.8 million and successfully refinanced its debt, with significant cash used in financing activities for senior notes redemption - Total liquidity as of June 30, 2019 was $185.8 million, including $70.9 million of cash, $14.9 million of restricted cash, and $100 million of borrowing capacity[195] - Cash flows used in financing activities increased by $148.6 million year-over-year, primarily due to the $345.6 million redemption of the 2022 Senior Notes, partially offset by $300 million in proceeds from the new 2025 Senior Notes[199] Total Debt, Net (in thousands) | | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Current portion of long-term debt, net | $46,040 | $115,184 | | Long-term debt, net | $498,029 | $557,574 | | Total debt, net | $544,069 | $672,758 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are commodity price volatility for coal and soda ash, and interest rate changes related to its variable-rate Opco Credit Facility - The company is exposed to commodity price risk, as its revenues and financial condition depend substantially on prevailing prices for coal and soda ash, which have been and are likely to continue to be volatile[206][210] - Interest rate risk is linked to the Opco Credit Facility, which has variable rates based on LIBOR, though there were no borrowings outstanding as of June 30, 2019[211] Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the first six months of 2019 - Management, including the CEO and CFO, concluded that disclosure controls and procedures are effective in providing reasonable assurance for timely and accurate reporting[212] - No material changes in the Partnership's internal control over financial reporting occurred during the first six months of 2019[213] Part II. Other Information Legal Proceedings The company is involved in various legal proceedings not expected to have a material effect, with specific reference to the Anadarko lawsuit detailed in Note 14 of the financial statements - The company states that ongoing legal proceedings are not expected to have a material impact on its financial position, liquidity, or operations[217] - Specific information regarding the Anadarko lawsuit is incorporated by reference from Note 14 of the consolidated financial statements[218] Risk Factors This section updates risk factors, highlighting potential legislative, judicial, or administrative changes to the U.S. federal income tax treatment of publicly traded partnerships, which could negatively impact unit value - A key risk is that the U.S. federal income tax treatment of publicly traded partnerships could be modified by legislative, judicial, or administrative changes, potentially on a retroactive basis[220] - Proposed legislation like the 'Clean Energy for America Act' could repeal the section of the tax code that allows NRP to be treated as a partnership, which would negatively impact the value of its units[220][222] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds were reported[223] Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[224] Mine Safety Disclosures No mine safety disclosures were provided for the period - No mine safety disclosures were provided[225] Other Information No other information was reported for the period - No other information was reported[226] Exhibits This section lists all exhibits filed with the Form 10-Q, including key agreements such as the Indenture for the 2025 Senior Notes, amendments to credit agreements, and certifications - Key exhibits filed include the Indenture for the 2025 Senior Notes, the Fourth Amendment to the Opco Credit Facility, and Sarbanes-Oxley certifications[229]