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Natural Resource Partners L.P. Reports Record Results and Raises 2004 Guidance

08/05/2004

Second Quarter Highlights:

  • Net income increases 49% to $15.1 million or $0.58 per unit
  • Coal royalty revenues increase 36% to $26.2 million
  • Distributable cash flow increases 26% over second quarter last year to $15.3 million
  • Distribution increases 15% to $0.60 per unit
  • Pinnacle mine has resumed operations
  • Increases 2004 earnings guidance to range of $2.10 to $2.25 per unit

HOUSTON, Aug. 5 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. (NYSE: NRP) today reported record earnings and distributable cash flow. Net income for the second quarter of 2004 increased 49% over the same quarter of last year to $15.1 million, or $0.58 per unit, while distributable cash flow for the second quarter increased 26% to $15.3 million from $12.1 million last year. Year to date net income for the first six months of the year increased 45% to $26.3 million, while distributable cash flow increased 16% to $31.8 million. Net income per unit increased 35% to $1.05 per unit from $0.78 per unit.

"NRP experienced record results this quarter primarily due to the improving coal markets," said Corbin J. Robertson, Jr., Chairman and Chief Executive Officer. "As a result of strong demand for both metallurgical and steam coal, we have seen a significant increase this quarter in coal prices realized by our lessees. Because we anticipate these higher prices to remain for the rest of the year and because Pinnacle has resumed production, we have increased our guidance for 2004."

Second Quarter Financial Results

Second quarter 2004 total revenues increased 35% to $29.5 million from $21.8 million for the same period last year. In addition, coal royalty revenues increased 36% to $26.2 million from $19.2 million last year, primarily due to improving coal prices in Appalachia. Average coal royalty revenues per ton increased 29% to $2.18 from $1.69. Production by our lessees also increased 5% to 12.0 million tons compared to 11.4 million tons for the same period last year.

Year to Date Financial Results

Year to date total revenues increased 40% to $55.9 million from $39.9 million for the same period last year. Coal royalty revenues for the first half of 2004 increased 42% to $49.0 million compared to $34.6 million for the comparable period last year. This significant increase is due to both a 27% increase in average royalty revenue to $2.07 per ton and a 12% increase in production to 23.7 million tons. The increase in production is due to the acquisitions in Appalachia since the beginning of 2003.

Pinnacle Mine Update

The Pinnacle mine restarted with limited production in April and by the end of June had resumed full operations.

Distributions

On July 22, 2004, NRP announced an increase of $0.025 in its quarterly distribution to $0.60 per unit, or $2.40 per unit on an annualized basis. This represents a 15% increase in Natural Resource Partners' distributions compared to the second quarter of 2003. "Our recent distribution increase partially reflects the anticipated continued production at Pinnacle and does not reflect our higher realized prices," said Corbin J. Robertson. "Once the Pinnacle mine has maintained production for a longer period of time and as we become more comfortable that today's prices are sustainable, we will consider further distribution increases."

2004 Outlook

Due to a very strong coal market and the anticipated continued production from the Pinnacle mine, NRP is increasing its guidance for the full year 2004. NRP anticipates coal royalty revenues of over $100 million with net income per unit increasing to between $2.10 and $2.25 per unit, up from our previous guidance of $1.70 to $1.80 per unit. A table is attached to the release with further details regarding guidance.

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 2004 guidance and comments related to the Pinnacle mine. 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)
                                 (Unaudited)

                              Three months ended         Six months ended
                                    June 30,                  June 30,
                                2004         2003         2004         2003

    Coal royalty revenues:
        Appalachia             $24,390      $16,886      $45,672      $29,599
        Illinois Basin             783          970        1,498        1,835
        Northern Powder
         River Basin             1,006        1,332        1,857        3,163

      Total                    $26,179      $19,188      $49,027      $34,597

    Coal Royalty Production
     (tons):
        Appalachia              10,537        9,464       20,868       16,960
        Illinois Basin             692          829        1,298        1,550
        Northern Powder
         River Basin               806        1,083        1,492        2,684

      Total                     12,035       11,376       23,658       21,194

    Average royalty revenue
     per ton:
        Appalachia               $2.31        $1.78        $2.19        $1.75
        Illinois Basin            1.13         1.17         1.15         1.18
        Northern Powder
         River Basin              1.25         1.23         1.24         1.18

      Total                      $2.18        $1.69        $2.07        $1.63


                        NATURAL RESOURCE PARTNERS L.P.

                      CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands, except per unit data)

                               Three months ended         Six months ended
                                     June 30,                  June 30,
                                2004         2003         2004         2003
                                               (Unaudited)

    Revenues:
      Coal royalties           $26,179      $19,188      $49,027      $34,597
      Property taxes             1,278        1,301        2,584        2,189
      Minimums recognized
       as revenue                  165          455          928        1,259
      Override royalties           757          200        1,434          661
      Other                      1,118          695        1,886        1,203
        Total revenues          29,497       21,839       55,859       39,909
    Operating costs and
     expenses:
      Depletion and
       amortization              7,493        6,369       14,841       12,173
      General and
       administrative            2,422        2,131        5,133        4,307
      Taxes other than income    1,712        1,421        3,369        2,581
      Override payments            ---          ---          ---          388
      Coal royalty payments        398          161          786          311
        Total operating costs
         and expenses           12,025       10,082       24,129       19,760
    Income from operations      17,472       11,757       31,730       20,149
    Other income (expense)
      Interest expense          (2,404)      (1,131)      (5,540)      (1,597)
      Interest income               60           56          112          103
      Loss from interest
       rate hedge                  ---         (499)         ---         (499)
    Net income                 $15,128      $10,183      $26,302      $18,156
    Net income attributable to:
      General partner (A)         $394         $204         $641         $363
      Other holders of incentive
       distribution rights (A)     $49         $---          $61         $---
      Limited partners         $14,685       $9,979      $25,600      $17,793
    Basic and diluted net
     income per limited partner
     unit:
      Common                      $.58         $.44        $1.05         $.78
      Subordinated                $.58         $.44        $1.05         $.78
    Weighted average number of
     units outstanding:
      Common                    13,987       11,354       12,902       11,354
      Subordinated              11,354       11,354       11,354       11,354

     (A)  Other holders of the incentive distribution rights (IDRs) include
          the WPP Group (25%) and NRP Investment LP (10%).  The net income
          allocated to the general partner includes the general partner's
          portion of the IDRs (65%).


                        NATURAL RESOURCE PARTNERS L.P.

                           STATEMENTS OF CASH FLOWS
                                (In thousands)
                                 (Unaudited)

                               Three months ended         Six months ended
                                     June 30,                  June 30,
                                2004         2003         2004         2003

    Cash flows from operating
     activities:
      Net income               $15,128      $10,183      $26,302      $18,156
      Adjustments to reconcile
        Operating activities:
          Depletion and
           amortization          7,493        6,369       14,841       12,173
          Non-cash interest
           charge                   13            1           27            1
          Change in operating
           assets and
           liabilities:
            Accounts receivable (1,265)      (2,650)      (3,208)        (557)
            Other assets           348       (2,343)         657       (2,180)
            Accounts payable
             and accrued
             liabilities          (218)         366         (422)        (734)
            Accrued interest    (2,430)         (53)        (414)          91
            Deferred revenue    (1,860)        (638)      (1,792)        (217)
            Accrued incentive
             plan expenses         656          607          485          798
            Property and
             franchise taxes
             payable              (295)         229           15          (91)
              Net cash provided
               by operating
               activities       17,570       12,071       36,491       27,440

    Cash flows from investing
     activities:
      Acquisition of property   (2,430)     (53,812)     (77,332)     (65,664)
      Cash placed in escrow        ---      (58,000)         ---      (58,000)
              Net cash used in
               investing
               activities       (1,673)    (111,812)     (77,332)    (123,664)

    Cash flows from financing
     activities:
        Proceeds from loans        ---      236,600       75,500      248,100
        Repayment of loans      (9,350)    (122,600)    (111,850)    (122,600)
        Distributions to
         partners              (14,918)     (12,106)     (27,951)     (21,917)
        Contributions by
         general partner           ---          ---        2,147          ---
        Proceeds from sale of
         5,250,000 common units,
         net of transaction costs  (66)         ---      200,355          ---
        Redemption of 2,616,752
         common units from Arch
         Coal, Inc. net of
         transaction costs         ---          ---     (100,121)         ---
        Settlement of hedge
         included in other
         comprehensive income      ---         (931)         ---         (931)
              Net cash provided
               by (used in)
               financing
               activities      (24,334)     100,963       38,080      102,652
    Net increase in cash and
     cash equivalents           (8,437)       1,222       (2,761)       6,428
    Cash and cash equivalents
     at beginning of period     29,996       12,959       24,320        7,753
    Cash and cash equivalents
     at end of period          $21,559      $14,181      $21,559      $14,181

    SUPPLEMENTAL INFORMATION:
    Cash paid during the
     period for interest        $4,821       $1,025       $5,927       $1,416


                        NATURAL RESOURCE PARTNERS L.P.

                         CONSOLIDATED BALANCE SHEETS
                                (In thousands)

                                    ASSETS

                                                    June 30,     December 31,
                                                      2004           2003
                                                  (Unaudited)

    Current assets:
      Cash and cash equivalents                      $21,559        $24,320
      Accounts receivable                             14,198          9,553
      Accounts receivable - affiliate                    ---          1,437
      Other                                              465          1,186
        Total current assets                          36,222         36,496
    Land                                              13,721         13,532
    Coal and other mineral rights, net               538,743        475,493
    Loan financing costs, net                          2,327          2,884
    Other assets, net                                  2,944          3,271
        Total assets                                $593,957       $531,676

                      LIABILITIES AND PARTNERS' CAPITAL

    Current liabilities:
      Accounts payable                                  $195           $423
      Accounts payable - affiliate                       111            305
      Current portion of long-term debt                9,350          9,350
      Accrued incentive plan expenses - current
       portion                                         1,122          1,186
      Property and franchise taxes payable             2,814          2,799
      Accrued interest                                   267            681
        Total current liabilities                     13,859         14,744
    Deferred revenue                                  13,262         15,054
    Accrued incentive plan expenses                    1,619          1,070
    Long-term debt                                   156,300        192,650
    Partners' capital:
      Common units (outstanding: 13,986,906 in
       2004, 11,353,658 in 2003)                     243,864        143,956
      Subordinated units (outstanding: 11,353,658)   157,217        158,633
      General partners' interest                       8,670          6,474
      Holders of incentive distribution rights            44            ---
      Accumulated other comprehensive loss              (878)          (905)
        Total partners' capital                      408,917        308,158
        Total liabilities and partners' capital     $593,957       $531,676


                        NATURAL RESOURCE PARTNERS L.P.

                  RECONCILIATION OF GAAP FINANCIAL MEASURES
                        TO NON-GAAP FINANCIAL MEASURES
                                (in thousands)

                               Three months ended        Six months ended
                                     June 30,                  June 30,
                                 2004        2003         2004         2003
                                              (Unaudited)

    Reconciliation of GAAP
     "Net cash provided by
     operating activities"
     to Non-GAAP "Distributable
     cash flow"

    Cash flow from operations   $17,570     $12,071      $36,491      $27,440
    Less scheduled principal
     payments                    (9,350)        ---       (9,350)         ---
    Less reserves for future
     principal payments          (2,350)        ---       (4,700)         ---
    Add reserves used for
     scheduled principal
     payments                     9,400         ---        9,400          ---
    Distributable cash flow     $15,270     $12,071      $31,841      $27,440


                        NATURAL RESOURCE PARTNERS L.P.
                                   GUIDANCE
                    (in millions except per unit amounts)

                                                        Full Year 2004
                                                            (Range)

    Coal royalty production (tons)
      Appalachia                                          43.0 -   45.0
      Illinois Basin                                       2.4 -    2.8
      Northern Powder River Basin                          3.1 -    3.5
        Total                                             48.5 -   51.3

    Coal royalty revenues
      Appalachia                                         $94.0 -  $97.0
      Illinois Basin                                       3.0 -    3.2
      Northern Powder River Basin                          3.8 -    4.2

    Revenues
      Coal royalty revenue                              $100.8 - $104.4
      Other revenues (A)                                  12.0 -   13.5

    Expenses
      Depletion and amortization                         $30.0 -  $32.0
      General and administrative                           9.6 -   10.0
      Other expenses (B)                                   8.3 -    8.6

      Interest expense (net)                             $10.0 -  $10.4

    Net income                                           $52.0 -  $60.0

    Net income per unit                                  $2.10 -  $2.25

    Scheduled principal payments                          $9.4 -   $9.4

    Distributable cash flow (C)                          $75.0 -  $80.0

     (A)  Other revenues consist of property taxes, minimums, oil & gas,
          timber, overrides, wheelage and rentals.
     (B)  Other expenses include taxes other than income, override payments,
          coal royalty payments, and non-participating royalty interests.
     (C)  Distributable cash flow represents net income plus depletion and
          amortization minus scheduled principal payments on NRP 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 which 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.  We believe that "net cash provided by operating
          activities" would be the most comparable financial measure to
          distributable cash.  However, due to the substantial uncertainties
          associated with forecasting future changes to operating assets and
          liabilities, we cannot provide guidance on forward-looking net cash
          provided by operating activities or provide reconciliations of
          distributable cash flow to that measure.

SOURCE Natural Resource Partners L.P.

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