Natural Resource Partners L.P. Reports Third Quarter 2008 Results and Confirms Guidance
HOUSTON, Nov. 6 /PRNewswire-FirstCall/ — Natural Resource Partners L.P. today reported third quarter 2008 distributable cash flow, a non-GAAP measure, rose 59% to $54.0 million from the $34.0 million reported for the third quarter of 2007. A reconciliation of distributable cash flow is provided in the tables attached. Net income attributable to the limited partners increased 55% to $35.5 million for the third quarter of 2008, compared to $22.9 million for the same period last year. Net income per unit increased 57% to a record $0.55 per unit in the third quarter of 2008 compared to the same period last year.
Highlights 3Q08 2Q08 3Q07 (in thousands except per ton and per unit) Coal production: 14,935 16,093 14,708 Coal royalty revenues: $58,323 $60,026 $44,378 Average coal royalty revenue per ton: $3.91 $3.73 $3.02 Total revenues: $76,196 $75,592 $56,366 Net income to limited partners: $35,505 $30,562 $22,902 Average units outstanding in quarter: 64,891 64,891 64,891 Net income per unit: $0.55 $0.47 $0.35 Distributable cash flow: $53,965 $57,359 $34,045
“NRP had another solid quarter, setting records in both total revenues and net income per unit,” said Nick Carter, President and Chief Operating Officer. “In the third quarter we experienced an approximate 5% increase in our average coal royalty revenue per ton as our lessees continue to roll over their contracts at higher prices and export more coal.”
These are uncertain times in both the financial and the coal markets. While it is too early to determine the long-term impacts on the coal industry resulting from the economic slowdowns that are forecasted around the globe, demand and pricing should remain strong for the near-term future. Over the last two weeks, most of NRP’s publicly traded lessees have reported earnings and commented that while there has been a decline in the over-the-counter price indices, that decline has not been reflected in the physical markets on which they base their contracts. In addition, most of NRP’s public lessees have reported locking in contracts for substantial portions of their 2009 production at prices above their 2008 prices, and continue to believe that 2009 and 2010 prices will improve over 2008 prices.
The industry continues to deal with many issues related to production: labor shortages, lower productivity, a difficult regulatory environment and geologic issues related primarily to Central Appalachia. These production issues will cause coal supply to remain tight for both steam and metallurgical coal. In the United States, the demand for steam coal should improve or remain relatively constant, even in a declining economy, as over 90% of all coal production in the United States is used for generation of electricity.
NRP continues to see strong pricing by its lessees and confirms its 2008 guidance issued on August 11, 2008. NRP is currently in the process of gathering information from its lessees in preparation for issuing 2009 guidance.
Third Quarter 2008 versus Second Quarter 2008
Total revenues in the third quarter increased over the second quarter of 2008, due to increases in nearly every revenue item. Override royalties increased the most significantly, improving by $1.1 million over the second quarter as NRP’s lessees produced more coal on properties subject to overrides. Coal royalty revenues were down slightly due to a 7% decline in production on our properties, which was partially offset by a $0.18, or 5% increase in the average coal royalty revenue per ton. NRP saw a decline in Appalachian production as a result of production on adjacent property, geologic issues, labor shortages and delays due to the current regulatory environment. However, the biggest increase in average coal royalty revenue per ton occurred in Appalachia, where the per ton amount increased by 7%, or $0.31 per ton in just the last quarter. In contrast to the Appalachian production decline, NRP continues to see additional production in the Illinois Basin due to increased production from a longwall mine.
Third Quarter and Nine Month Results Revenues Third Quarter
Total revenues for the third quarter of 2008 increased 35% to $76.2 million over the same period last year, due primarily to increases in coal royalty revenues. Coal royalty revenues increased 31% over the third quarter of 2007 to $58.3 million due to a 29% increase in the average royalty revenue per ton and a 2% increase in coal royalty production.
Average coal royalty revenue per ton increased $0.89 to $3.91. The most dramatic increase again occurred in Appalachia, where NRP experienced a 37% increase to $4.45 per ton due to improvements in realizations for steam coal and met coal. The Illinois Basin experienced a 23% increase to $2.64 over the third quarter of 2007.
Coal processing and transportation fees more than doubled to $5.2 million, up from $2.4 million in the third quarter of 2007, mainly due to additional transportation fees in the Illinois Basin. In addition, override royalties increased approximately $2.2 million due to additional production as well as increases in realizations per ton. Oil and gas royalties increased 59% largely due to price increases but also from small production increases.
Total revenues rose 37% over the first nine months of last year to $215.8 million due to significant increases in coal royalty revenues, coal processing and transportation fees and override royalties as well as increases in oil and gas royalties and aggregates.
Coal royalty revenues increased $41.4 million, or 33%, over the same period last year due to a 9% increase in production and a 22% increase in average royalty revenue per ton. Coal processing and transportation more than doubled over the nine month period last year increasing to $13.9 million from $5.7 million while overriding royalties also more than doubled to $7.6 million from $3.0 million.
Metallurgical coal accounted for 33% of NRP coal royalty revenues and 24% of its production for the first nine months of 2008.
Expenses Third Quarter
Total expenses increased $1.2 million in the third quarter of 2008 when compared to the same period last year, due to increased depreciation, depletion and amortization offset by decreases in general and administrative expenses and property and franchise taxes. Depreciation, depletion and amortization expense increased due to a combination of increased production, particularly from properties with higher depletion rates per ton. General and administrative expenses decreased due to accruals under the partnership’s incentive compensation plan as a result of the decrease in NRP’s unit price this quarter.
Total expenses for the nine month period ending September 30, 2008 increased $9.2 million over the same period last year to $74.1 million. This rise was due to an increase in depreciation, depletion and amortization expense of $11.6 million for the reasons stated above. Offsetting these increases was a decrease of approximately $3.1 million in general and administrative expenses from the nine month period last year.
Net Income Attributable to the Limited Partners Third Quarter
Third quarter 2008 net income attributable to the limited partners improved 55%, or $12.6 million, over the third quarter last year. This equates to a $0.20 increase in the basic and diluted net income per limited partner unit to $0.55 for the third quarter of 2008.
Net income attributable to the limited partners for the nine month period ended September 30, 2008 increased $33.1 million, or 56% over the same period last year, accounting for a $0.51 increase in net income per unit to $1.42 for the nine month period.
Distributable Cash Flow Third Quarter
Distributable cash flow increased 59% to $54.0 million when compared to the same quarter last year due to increases in total revenues.
For the nine months ended September 30, 2008 distributable cash flow increased $40.3 million or 38% to $146.2 million, predominantly due to increased revenues, offset by $3.8 million of additional reserves for debt payments.
Capital Markets and Liquidity
NRP has minimal capital expenditures and had approximately $64 million of cash available at the end of the quarter. In the fourth quarter, NRP forecasts generating excess cash over its current quarterly distribution amount, which cash can be used for acquisitions or principal reduction of its credit facility. NRP currently does not have any need to raise capital through the equity markets and has approximately $250 million available under its existing credit facility which expires in 2012.
As reported on October 15, the Board of Directors of NRP’s general partner declared a quarterly distribution of $0.525 per unit, an increase of $0.01 per unit. This increase represented an 11% increase over the same period last year and a 2% increase over the second quarter 2008 distribution. This is the twenty-first consecutive quarterly increase in the distribution.
Natural Resource Partners L.P. is headquartered in Houston, TX, with its operations headquarters in Huntington, WV. NRP is a master limited partnership that is principally engaged in the business of owning and managing coal properties, and coal handling and transportation infrastructure in the three major coal producing regions of the United States: Appalachia, the Illinois Basin and the Powder River Basin. In addition, the partnership also manages aggregate reserves, oil and gas properties and timber assets across the United States.
For additional information, please contact Kathy H. Roberts at 713-751-7555 or firstname.lastname@example.org. Further information about NRP is available on the partnership’s website at http://www.nrplp.com/.
Disclosure of Non-GAAP Financial Measures
Distributable cash flow represents cash flow from operations less actual principal payments and cash reserves set aside for scheduled principal payments on the senior notes. Distributable cash flow is a “non-GAAP financial measure” that is presented because management believes it is a useful adjunct to net cash provided by operating activities under GAAP. Distributable cash flow is a significant liquidity metric that is an indicator of NRP’s ability to generate cash flows at a level that can sustain or support an increase in quarterly cash distributions paid to its partners. Distributable cash flow is also the quantitative standard used throughout the investment community with respect to publicly traded partnerships. Distributable cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. A reconciliation of distributable cash flow to net cash provided by operating activities is included in the tables attached to this release. Distributable cash flow may not be calculated the same for NRP as other companies.
This press release may include “forward-looking statements” as defined by the Securities and Exchange Commission. Such statements include the current coal market conditions and borrowing capacity. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the partnership expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by the partnership based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the partnership. These risks include, but are not limited to, decreases in demand for coal; changes in operating conditions and costs; production cuts by our lessees; commodity prices; unanticipated geologic problems; changes in the legislative or regulatory environment and other factors detailed in Natural Resource Partners’ Securities and Exchange Commission filings. Natural Resource Partners L.P. has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
- Financial statements follow - Natural Resource Partners L.P. Operating Statistics (In thousands except per ton data) For the Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (unaudited) (unaudited) Coal Royalties: Coal royalty revenues: Appalachia Northern $3,433 $3,941 $11,838 $11,064 Central 40,371 29,662 117,642 88,248 Southern 5,397 4,649 14,697 13,677 Total Appalachia $49,201 $38,252 $144,177 $112,989 Illinois Basin 6,438 2,462 14,995 4,941 Northern Powder River Basin 2,684 3,664 8,329 8,154 Total $58,323 $44,378 $167,501 $126,084 Coal royalty production (tons): Appalachia Northern 1,172 1,640 4,436 4,875 Central 8,859 8,927 27,430 27,022 Southern 1,015 1,184 3,239 3,514 Total Appalachia 11,046 11,751 35,105 35,411 Illinois Basin 2,441 1,147 5,899 2,307 Northern Powder River Basin 1,448 1,810 4,493 4,072 Total 14,935 14,708 45,497 41,790 Average royalty revenue per ton: Appalachia Northern $2.93 $2.40 $2.67 $2.27 Central 4.56 3.32 4.29 3.27 Southern 5.32 3.93 4.54 3.89 Total Appalachia 4.45 3.26 4.11 3.19 Illinois Basin 2.64 2.15 2.54 2.14 Northern Powder River Basin 1.85 2.02 1.85 2.00 Combined average royalty revenue per ton $3.91 $3.02 $3.68 $3.02 Aggregates: Royalty revenues $1,980 $1,932 $5,028 $5,293 Aggregate royalty bonus $300 $164 $2,544 $492 Production 1,484 1,584 3,876 4,456 Average base royalty per ton $1.33 $1.22 $1.30 $1.19 Natural Resource Partners L.P. Consolidated Statements of Income (In thousands, except per unit data) For the Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (Unaudited) (Unaudited) Revenues: Coal royalties $58,323 $44,378 $167,501 $126,084 Aggregate royalties 2,280 2,096 7,575 5,785 Coal processing fees 2,044 1,374 5,698 3,404 Transportation fees 3,183 1,000 8,193 2,306 Oil and gas royalties 2,201 1,388 5,579 3,924 Property taxes 2,263 2,963 7,760 7,836 Minimums recognized as revenue 737 913 1,193 1,698 Override royalties 3,133 953 7,638 2,994 Other 2,032 1,301 4,706 3,639 Total revenues 76,196 56,366 215,843 157,670 Operating costs and expenses: Depreciation, depletion and amortization 17,042 13,045 48,849 37,324 General and administrative 1,732 3,687 12,771 15,880 Property, franchise and other taxes 2,822 3,993 10,569 10,618 Transportation costs 431 79 960 149 Coal royalty and override payments 287 246 939 914 Total operating costs and expenses 22,314 21,050 74,088 64,885 Income from operations 53,882 35,316 141,755 92,785 Other income (expense) Interest expense (6,912) (7,124) (21,336) (21,584) Interest income 368 736 1,124 2,239 Net income $47,338 $28,928 $121,543 $73,440 Net income attributable to: General partner $8,023 $4,119 $19,885 $10,012 Holders of incentive distribution rights $3,810 $1,907 $9,738 $4,602 Limited partners $35,505 $22,902 $91,920 $58,826 Basic and diluted net income per limited partner unit: $0.55 $0.35 $1.42 $0.91 Weighted average number of units outstanding: 64,891 64,891 64,891 64,363 Natural Resource Partners L.P. Statements of Cash Flows (In thousands) For the Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $47,338 $28,928 $121,543 $73,440 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 17,042 13,045 48,849 37,324 Non-cash interest charge 31 117 266 326 Loss from disposition of assets - - 32 - Change in operating assets and liabilities: Accounts receivable (2,323) (4,835) (11,294) (7,634) Other assets 308 326 892 883 Accounts payable and accrued liabilities 18 77 447 (217) Accrued interest (2,934) (2,763) (3,199) (166) Deferred revenue 1,263 2,890 3,989 10,807 Accrued incentive plan expenses (1,584) 495 (506) (138) Property, franchise and other taxes payable (886) 45 (1,876) 304 Net cash provided by operating activities 58,273 38,325 159,143 114,929 Cash flows from investing activities: Acquisition of land, coal and other mineral rights - - - (24,233) Acquisition or construction of plant and equipment (2,498) (7,435) (9,952) (15,835) Cash placed in restricted account - - - (6,240) Net cash used in investing activities (2,498) (7,435) (9,952) (46,308) Cash flows from financing activities: Proceeds from loans - 7,000 - 262,400 Deferred financing costs - (6) - (1,292) Repayments of loans (7,692) (400) (17,235) (235,942) Distributions to partners (44,125) (37,635) (125,885) (108,099) Contributions by general partner - - - 2,645 Net cash used in financing activities (51,817) (31,041) (143,120) (80,288) Net increase or (decrease) in cash and cash equivalents 3,958 (151) 6,071 (11,667) Cash and cash equivalents at beginning of period 60,454 54,528 58,341 66,044 Cash and cash equivalents at end of period $64,412 $54,377 $64,412 $54,377 SUPPLEMENTAL INFORMATION: Cash paid during the period for interest $9,729 $9,752 $24,179 $21,379 Non-cash investing activities: Equity issued in business combinations $ - $ - $ - $350,741 Liability assumed in business combination - - - 1,989 Natural Resource Partners L.P. Consolidated Balance Sheets (In thousands, except for unit information) ASSETS September 30, December 31, 2008 2007 (unaudited) Current assets: Cash and cash equivalents $64,412 $58,341 Restricted cash 6,240 6,240 Accounts receivable, net of allowance for doubtful accounts 37,577 27,643 Accounts receivable - affiliate 2,365 1,005 Other 202 1,009 Total current assets 110,796 94,238 Land 24,343 24,343 Plant and equipment, net 67,741 61,441 Coal and other mineral rights, net 987,370 1,030,088 Intangible assets 103,798 106,222 Loan financing costs, net 2,784 3,098 Other assets, net 516 601 Total assets $1,297,348 $1,320,031 LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable and accrued liabilities $3,012 $2,567 Accounts payable - affiliate 106 104 Current portion of long-term debt 17,234 17,234 Accrued incentive plan expenses - current portion 4,455 3,993 Property, franchise and other taxes payable 4,539 6,415 Accrued interest 3,077 6,276 Total current liabilities 32,423 36,589 Deferred revenue 40,275 36,286 Asset retirement obligations 39 39 Accrued incentive plan expenses 5,501 6,469 Long-term debt 478,822 496,057 Partners' capital: Common units 726,021 731,113 General partner's interest 14,413 14,177 Holders of incentive distribution rights 514 - Accumulated other comprehensive loss (660) (699) Total partners' capital 740,288 744,591 Total liabilities and partners' capital $1,297,348 $1,320,031 Natural Resource Partners L.P. Reconciliation of GAAP "Net cash provided by operating activities" To Non-GAAP "Distributable cash flow" (In thousands) For the Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (unaudited) (unaudited) Net cash provided by operating activities $58,273 $38,325 $159,143 $114,929 Less scheduled principal payments (7,691) - (17,234) (9,350) Less reserves for future principal payments (4,308) (4,280) (12,924) (9,080) Add reserves used for scheduled principal payments 7,691 - 17,234 9,400 Distributable cash flow $53,965 $34,045 $146,219 $105,899
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Natural Resource Partners L.P.
CONTACT: Kathy H. Roberts of Natural Resource Partners L.P.,+1-713-751-7555, firstname.lastname@example.org
Web site: http://www.nrplp.com/