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Natural Resource Partners L.P. Reports 2003 Fourth Quarter and Full Year Results

02/12/2004

Highlights:

  • Fourth quarter net income of $8.6 million or $0.37 per unit and 2003 net income of $36.9 million or $1.59 per unit
  • Fourth quarter and 2003 cash flow from operating activities of $14.7 million and $64.5 million, respectively
  • Fourth quarter and 2003 distributable cash flow of $12.4 million and $59.8 million, respectively
  • Recently announced increase in quarterly distribution to $0.5625 per unit
  • Cash balance increased from $7.8 million on December 31, 2002 to $24.3 million on December 31, 2003

HOUSTON, Feb. 12 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. (NYSE: NRP) today reported fourth quarter 2003 net income of $8.6 million or $0.37 per limited partner unit and 2003 net income of $36.9 million or $1.59 per limited partner unit. Cash flow from operating activities was $14.7 million and $64.5 million, for the fourth quarter and the year respectively, while distributable cash flow was $12.4 million and $59.8 million, respectively, for the quarter and the year. Distributable cash flow is a non-GAAP financial measure.

The condensed statement of income and the statement of cash flows that follow include the results for the period commencing on October 17, 2002, the closing of NRP's initial public offering, through December 31, 2002. Since this time period is less than a full quarter, we have not compared earnings or cash flows of the current year versus the prior year.

Fourth Quarter 2003

Fourth quarter 2003 sales by NRP's lessees generated $18.4 million in coal royalty revenues based on sales volumes of 11.0 million tons, for an average coal royalty revenue of $1.68 per ton. This compares to $14.4 million in coal royalty revenues based on production of 8.9 million tons, for an average coal royalty revenue of $1.62 per ton for the same three month period of 2002. The 27% increase in coal royalty revenues is due mainly to the 23% increase in production, with a $0.06 per ton increase in the average coal royalty rate. Acquisitions completed during the last year account for $2.2 million of the increase in coal royalty revenues and 1.1 million tons of the increase in production.

Full Year 2003

For the year ended December 31, 2003, NRP's lessees sold 44.3 million tons of coal, up 13.8 million tons, or 45% from last year. This production generated coal royalty revenues of $73.8 million, an increase of $24.2 million, or approximately 49%. This increase is primarily due to the acquisitions NRP completed during the last year.

Capital Resources

At December 31, 2003, NRP had borrowings under the revolving credit facility totaling $27 million, and $175 million of outstanding senior unsecured notes. On January 2, 2004, NRP borrowed an additional $73 million under its revolving credit facility to purchase mineral interests from BLC Properties LLC. Subsequent to the borrowing on January 2, the partnership has $75 million of available capacity under its revolving credit facility.

Pinnacle Mine Update

As previously reported, in September 2003, the Pinnacle mine was idled following a ventilation disruption most likely caused by a lightening strike, and on December 10, 2003, NRP received a force majeure notice from Pinnacle Mining Company, LLC, its lessee regarding the mine. The notice allows Pinnacle to forego payment of the minimum royalties due under the lease terms until the mine is again in production. Although the scientific tests performed by Pinnacle indicate that there has been no recent activity in the mine, the mine remains idled. This week however, a coordinated team of mine rescue personnel consisting of trained Pinnacle employees as well as representatives from the U.S. Mining Safety and Health Administration (MSHA) and the West Virginia Office of Miners Health Safety and Training entered the mine to examine and assess the conditions underground. Pinnacle's management will continue to work with government officials and the United Mine Workers to safely reopen the mine for production.

Quote

"Our net income for the year was in line with our previously announced expectations. Our fourth quarter net income, while in line with our expectations, was below the third quarter net income due to the idled Pinnacle mine. The Pinnacle mine accounted for approximately $1.6 million in coal royalty revenues and $1.2 million in net income in the third quarter prior to its idling," said Nick Carter, President and Chief Operating Officer of NRP.

2004 Outlook

There has been no change to the previously announced guidance for 2004. NRP still anticipates generating net income of approximately $39.5 to $41.5 million and distributable cash flow of $64.1 to $66.6 million. These estimates do not include any production from the currently idled Pinnacle mine.

Distributions

NRP recently announced an increase of $0.025 to its quarterly distribution, which is now $0.5625 per unit, or $2.25 per unit on an annualized basis. This was the third distribution increase since going public in October 2002 and equates to a 10% increase in NRP's annualized distributions since that time.

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.

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 in the three major coal producing regions of the United States: Appalachia, the Illinois Basin and the Powder River Basin.

For additional information, please contact Kathy Hager at 713-751-7555 or khager@nrplp.com . Further information about NRP is available on the partnership's website at http://www.nrplp.com .

This press release may include "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements include the net income and the distributable cash flow discussed in the 2004 Outlook. 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.

                        NATURAL RESOURCE PARTNERS L.P.
                             Operating Statistics
                     (In thousands, except per ton data)

                                          Three Months Ended    Year ended
                                             December 31,      December 31,
                                            2003     2002     2003     2002
    Coal royalty revenues:
            Appalachia                     $16,009  $11,829  $63,855  $40,688
            Illinois Basin                     793      892    3,566    2,994
            Northern Powder River Basin      1,575    1,712    6,349    5,926

      Total                                $18,377  $14,433  $73,770  $49,608

    Sales volumes (tons):
            Appalachia                       8,957    6,535   35,998   22,600
            Illinois Basin                     666      737    3,034    2,433
            Northern Powder River Basin      1,336    1,638    5,312    5,474

      Total                                 10,959    8,910   44,344   30,507

    Average royalty revenue per ton:
            Appalachia                       $1.79    $1.81    $1.77    $1.80
            Illinois Basin                    1.19     1.21     1.18     1.23
            Northern Powder River Basin       1.18     1.05     1.20     1.08

      Total                                  $1.68    $1.62    $1.66    $1.63


                        NATURAL RESOURCE PARTNERS L.P.
                        Condensed Statement of Income
                   (In thousands, except per unit amounts)

                                          From                       From
                                      Commencement              Commencement
                                      of Operations             of Operations
                              Three   (October 17,               (October 17,
                              Months      2002)         Year         2002)
                              Ended      through       Ended        through
                          December 31, December 31,  December 31, December 31,
                               2003        2002         2003          2002
    Revenues:
      Coal royalties         $18,377     $11,532      $73,770       $11,532
      Property taxes           1,550       1,047        5,069         1,047
      Minimums recognized
       as revenue                427         872        2,033           872
      Override royalties         209         226        1,022           226
      Other                    1,455         216        3,572           216
        Total revenues        22,018      13,893       85,466        13,893

    Operating costs and
     expenses:
      Depletion and
       amortization            6,344       4,526       25,365         4,526
      General administrative
       and other               2,419       1,059        8,923         1,059
      Taxes other than income  1,553       1,296        5,810         1,296
      Royalty payments           337         397        1,299           397
        Total operating costs
         and expenses         10,653       7,278       41,397         7,278
    Operating income          11,365       6,615       44,069         6,615
    Other income (expense)
      Interest expense        (2,718)       (200)      (6,814)         (200)
      Interest income             47         ---          206           ---
      Loss from sale of oil
       and gas properties        (55)        ---          (55)          ---
      Loss from interest
       rate hedge                ---         ---         (499)          ---
    Net income                $8,639      $6,415      $36,907        $6,415

    Net income attributable
     to general partner         $173        $128         $738          $128
    Net income attributable
     to limited partners      $8,466      $6,287      $36,169        $6,287
    Basic and diluted net
     income per limited
     partner unit
    Common                     $0.37       $0.28        $1.59         $0.28
    Subordinated               $0.37       $0.28        $1.59         $0.28
    Weighted average number
     of units outstanding:
    Common                    11,354      11,354       11,354        11,354
    Subordinated              11,354      11,354       11,354        11,354


                        NATURAL RESOURCE PARTNERS L.P.
                           Statement of Cash Flows
                                (In thousands)

                                       (October 17,             (October 17,
                         Three Months      2002)       Year         2002)
                             Ended       through       Ended       through
                          December 31, December 31, December 31, December 31,
                              2003         2002         2003         2002

    Cash flows from
     operating activities:
      Net Income              $8,639       $6,415      $36,907       $6,415
      Adjustments to
       reconcile net income
       to net cash provided
       by operating
       activities:
        Depletion and
         amortization          6,344        4,526       25,365        4,526
        Non-cash interest
         charge                   12          ---           26          ---
        Loss on sale of
         oil and gas
         properties               55          ---           55          ---
        Change in operating
         assets and
         liabilities:
          Accounts receivable   (842)      (9,043)      (1,947)      (9,043)
          Other assets        (1,284)        (511)        (811)        (511)
          Accounts payable
           and accrued
           liabilities        (1,075)       1,602         (193)       1,602
          Deferred revenue     2,043        2,018        1,802        2,018
          Cash paid on accrued
           incentive plan       (507)         ---         (507)         ---
          Accrued incentive
           plan expenses         837          ---        2,763          ---
          Property and
           franchise taxes
           payable               517        1,731        1,068        1,731
            Net cash provided
             by operating
             activities       14,739        6,738       64,528        6,738

    Cash flows from
     investing activities:
      Acquisition of
       property              (18,832)     (57,449)    (142,541)     (57,449)
      Proceeds from sale
       of oil and gas
       properties                 30          ---           30          ---
            Net cash used in
             investing
             activities      (18,802)     (57,449)    (142,511)     (57,449)

    Cash flows from financing
     activities:
      Proceeds from loans     19,000       57,500      317,100       57,500
      Deferred financing
       costs                     ---       (1,316)      (2,541)      (1,316)
      Repayment of loans         ---      (46,531)    (172,600)     (46,531)
      Distributions to
       partners              (12,454)         ---      (46,478)         ---
      Contributions by
       sponsors                  ---        1,847          ---        1,847
      Proceeds from initial
       sale of common units
       net of costs              ---       45,453          ---       45,453
      Proceeds from sale of
       common units to GNP
       and NGCC                  ---        1,510          ---        1,510
      Accumulated other
       comprehensive loss        ---          ---         (931)         ---
            Net cash provided
             by financing
             activities        6,546       58,463       94,550       58,463
    Net increase in cash       2,483        7,752       16,567        7,752
    Cash at beginning of
     period                   21,837            1        7,753            1
    Cash at end of period    $24,320       $7,753      $24,320       $7,753

    SUPPLEMENTAL INFORMATION:
    Cash paid during the
     period for interest      $4,025         $---       $5,778         $---
    Non-cash investing
     activities                  ---          ---          ---          ---
    Net assets contributed
     by partners                 ---      153,091          ---      153,091
    Excess of cost over net
     book value of Arch
     properties                  ---      110,315          ---      110,315
    Deferred revenue assumed
     on acquisition of property  ---       (2,152)         ---       (2,152)


                        NATURAL RESOURCE PARTNERS L.P.
                           Condensed Balance Sheet
                                (In thousands)

                                                  December 31,   December 31,
                                                      2003           2002

    Current assets                                   $36,496        $17,307

    Land, coal and other mineral rights owned
     and leased, net                                 492,160        374,187

    Other assets                                       3,020          1,225

        Total assets                                $531,676       $392,719

    Current liabilities                              $14,744         $3,333

    Long term debt                                   192,650         57,500

    Deferred revenue                                  15,054         13,252

    Accrued liabilities (A)                            1,070            ---

    Partner's capital                                308,158        318,634

        Total liabilities and partners' capital     $531,676       $392,719

    Supplemental information:
    Long term debt                                  $192,650        $57,500
    Partner's capital                                308,158        318,634
    Total capitalization                            $500,808       $376,134
    Long term debt/Total capitalization                  38%            15%

    (A)  Associated with the Partnership's long term incentive plan


                        NATURAL RESOURCE PARTNERS L.P.
             Reconciliation of Unaudited GAAP Financial Measures
                        to Non-GAAP Financial Measures
                                (In thousands)

                                           From                       From
                                       Commencement              Commencement
                                       of Operations             of Operations
                              Three     (October 17,              (October 17,
                              Months        2002)        Year         2002)
                              Ended       through        Ended       through
                           December 31, December 31, December 31, December 31,
                               2003         2002          2003         2002

    Reconcilation of GAAP "Net
     cash provided by operating
     activities" to Non-GAAP
     "Distributable Cash Flow".

    Cash flow from operating
     activities               $14,739       $6,738       $64,528       $6,738
    Less actual principal
     payments                     ---          ---           ---          ---
    Less reserves for
     scheduled principal
     payments                  (2,350)         ---        (4,700)         ---
      Distributable Cash
       Flow                   $12,389       $6,738       $59,828       $6,738

CONTACT: Kathy Hager of Natural Resource Partners L.P., +1-713-751-7555, or khager@nrplp.com
Web site: http://www.nrplp.com

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