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Natural Resource Partners L.P. Reports Third Quarter 2007 Results

11/01/2007
     Third Quarter Highlights:
     - Distributable cash flow of $34.0 million, up 10% over 3Q06
     - Record revenues of $56.4 million, up 36%
     - Net income attributable to limited partners of $22.9 million, up 7%
     - Net income per unit decreases 17% to $0.35
     - Distribution increases for seventeenth consecutive quarter to
       $0.475 per unit
     - Guidance reaffirmed for 2007

HOUSTON, Nov. 1 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. (NYSE: NRP; NSP) today reported distributable cash flow, a non-GAAP measure, of $34.0 million, up 10% from the $31.0 million reported for the third quarter 2006. Net income attributable to the limited partners increased to $22.9 million for the third quarter of 2007, compared to $21.5 million for the third quarter of 2006. Net income per unit decreased from $0.42 for the third quarter 2006 to $0.35 per unit in the third quarter 2007.

                                  Highlights

                                      3Q07           2Q07           3Q06
                                  (in thousands except per ton and per unit)
    Coal Production:                 14,708          13,573        12,798
    Coal Royalty Revenues:          $44,378         $40,733       $36,902
    Average coal royalty revenue
     per ton:                         $3.02           $3.00         $2.88
    Total revenues:                 $56,366         $51,097       $41,491
    Net income to limited partners: $22,902         $18,145       $21,483
    Average units outstanding in
     quarter:                        64,891          64,886        50,681
    Net income per unit:              $0.35           $0.28         $0.42
    Distributable cash flow:        $34,045         $43,511       $31,034


"Our third quarter results demonstrated improvement over our second quarter performance, largely due to the strengthening price environment for both metallurgical and steam coal," said Nick Carter, President and Chief Operating Officer. "We are pleased with the operating performance of our lessees in the third quarter, and as a whole they have met our expectations for the quarter."

"Distributable cash flow for the third quarter was down from second quarter due to changes in working capital and the allocation of $1.9 million to our quarterly debt service reserve in recognition of additional scheduled principal payments on another series of senior notes that will begin amortizing in July 2008," said Dwight Dunlap, Chief Financial Officer.

    Third Quarter and Nine Month Results

    Revenues
    Third Quarter

Total revenues increased 36% to a record $56.4 million for the third quarter of 2007, compared to $41.5 million reported for the same period last year. Third quarter 2007 coal royalty revenues increased 20% to $44.4 million from $36.9 million last year as the partnership continued to experience increased coal royalty revenues per ton in all regions, with an overall average coal royalty revenue per ton of $3.02. Total production for the partnership in the third quarter was 14.7 million tons compared to 12.8 million tons in 2006. Aggregate royalties, coal processing fees and transportation fees generated approximately $4.5 million in the third quarter of 2007 versus $0.2 million in the same period last year, the first quarter for these operations.

Nine Months

Total revenues improved to $157.7 million, or 22% over the first nine months of 2006, while distributable cash flow increased 11% to $105.9 million over the same period. Coal royalty revenues increased 12% to $126.1 million, largely the result of improved pricing. Average royalty revenue per ton increased to $3.02 from $2.80, or 8%, while NRP's total production increased approximately 4% to 41.8 million tons over the nine month comparative period. Aggregate royalties, coal processing fees and transportation fees, generated approximately $11.5 million for the first nine months of 2007 versus $0.2 million in the same period last year.

Expenses

Third Quarter

Total expenses increased $8.2 million to $21.1 million in the third quarter. Depreciation, depletion and amortization, a non-cash item, accounted for $6.0 million, or approximately 73% of the increase, primarily as a result of acquisitions over the last year. Property, franchise and other taxes nearly doubled to $4.0 million mainly due to taxes on acquisitions acquired since last year, of which the majority of the property taxes are offset by reimbursements from our lessees, which are recorded in revenues. The remainder is due to additional franchise taxes.

Interest expense increased $3.1 million over the third quarter last year to $7.1 million due to additional borrowings associated with acquisitions completed during the last year.

Nine Months

For the nine month period, total expenses increased $24.1 million to $64.9 million, $15.2 million of which was associated with depreciation, depletion and amortization and $4.1 million was associated with property, franchise and other taxes, both due to the same reasons discussed earlier. In addition, general and administrative expenses increased $4.9 million mainly due to increases in personnel, salaries, and incentive compensation accruals; increased costs associated with reporting partners' tax information; and increases in the allowance for doubtful accounts.

Interest expense for the nine month period increased by $10.3 million due to increased borrowings associated with acquisitions.

Net Income

Third quarter

While total revenues for the third quarter increased by $14.9 million over third quarter 2006, net income attributable to the limited partners only increased $1.4 million to $22.9 million. The increase in revenues was largely offset by increases in expenses primarily due to increases in depreciation, depletion and amortization as well as interest on debt incurred to finance NRP's recent acquisitions. Net income per unit decreased $0.07 to $0.35 per unit mainly due to approximately 14.2 million additional units that have been issued for acquisitions, some of which are under development and not yet generating significant revenues, since the third quarter 2006.

Nine months

For the nine month period, net income attributable to the limited partners decreased $10.1 million to $58.8 million, or $0.91 per unit for the reasons discussed previously.

Distributable Cash Flow

Third quarter

Distributable cash flow increased $3.0 million, or 10%, over the same quarter last year predominantly due to increases in net income. In the third quarter 2007, NRP reserved $1.9 million for one quarter of the debt payment due in July 2008.

Nine months

For the nine month period distributable cash flow increased $10.4 million, or 11%, predominantly due to increases in deferred revenue and depreciation, depletion and amortization, offset by a decline in net income.

Update on Acquired Properties and Outlook

The Gatling WV property has continued to experience operational issues while ramping up to full production but the mining conditions and operating results are steadily improving.

The Williamson operation in Illinois is currently at full production during the development phase of the longwall. The longwall is expected to be operational sometime in the first quarter of 2008. Coal is currently being shipped and the stockpile is also being reduced, which will generate increased coal royalty revenues and transportation fees for NRP in the fourth quarter. We anticipate those revenue streams will significantly increase in 2008 as longwall production commences.

While the properties acquired in the Dingess-Rum acquisition have contributed significantly to NRP's 2007 coal royalty revenues, the properties continue to substantially underperform expectations as a result of continued geological and operational issues. However, recent mine plan changes at one of the operations should improve production over current levels.

Because NRP's other lessees are collectively producing and selling coal as forecasted and prices are improving, NRP is reaffirming the guidance issued in August 2007 and anticipates issuing next year's guidance in January 2008.

Current Market

"This quarter we have seen improvements in prices in all regions over the second quarter of this year. These increases more than offset some modest declines in sales in Northern and Southern Appalachia as some of our lessees have coal ready for export and awaiting ships. We are seeing significantly stronger export markets for both metallurgical coal as well as steam coal, which will bode well for improved pricing going into 2008," said Nick Carter. "We continue to believe that our concentration in metallurgical coal, with approximately 25% of our reserves and 23% of our current production, could benefit us significantly in the future."

Distributions

As reported on October 17, the Board of Directors of NRP's general partner declared a quarterly distribution of $0.475 per unit, an increase of $0.01 per unit, for both the common units traded under the symbol NRP and the subordinated units traded as NSP. This made the seventeenth consecutive increase in the quarterly distribution and represented a 2.2% increase over the second quarter distribution and an 11.8% increase over the third quarter last year.

Capital Structure

Following the payment of the third quarter distribution, all financial conditions precedent to the conversion of the subordinated units into common units required by the partnership agreement, will have been satisfied. After the close of trading on November 14, all outstanding subordinated units will convert, in a tax free conversion, on a one-for-one basis into common units. Following this transaction, the subordinated units will no longer exist and NRP will be the only remaining security that trades on the NYSE for Natural Resource Partners L.P.

Company Profile

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 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.

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.

Forward-Looking Statements

This press release may include "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements include the 2007 outlook and current coal market conditions. 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)
                                 (Unaudited)

                             Three Months Ended    For the Nine Months Ended
                               September 30,             September 30,
                             2007         2006        2007          2006
    Coal Royalties:
    Coal royalty revenues:
      Appalachia
         Northern           $3,941       $2,292      $11,064       $8,330
         Central            29,662       24,568       88,248       74,953
         Southern            4,649        5,471       13,677       16,088
           Total
            Appalachia     $38,252      $32,331     $112,989      $99,371
      Illinois Basin         2,462          808        4,941        4,465
      Northern Powder
       River Basin           3,664        3,763        8,154        8,703

    Total                  $44,378      $36,902     $126,084     $112,539

    Coal royalty production
     (tons):
      Appalachia
         Northern            1,640        1,177        4,875        4,391
         Central             8,927        7,873       27,022       24,050
         Southern            1,184        1,395        3,514        4,256
           Total
            Appalachia      11,751       10,445       35,411       32,697
      Illinois Basin         1,147          368        2,307        2,507
      Northern Powder
       River Basin           1,810        1,985        4,072        4,983

    Total                   14,708       12,798       41,790       40,187

    Average royalty revenue
     per ton:
      Appalachia
         Northern            $2.40        $1.95        $2.27        $1.90
         Central              3.32         3.12         3.27         3.12
         Southern             3.93         3.92         3.89         3.78
          Total Appalachia    3.26         3.10         3.19         3.04
      Illinois Basin          2.15         2.20         2.14         1.78
      Northern Powder
       River Basin            2.02         1.90         2.00         1.75

      Combined average
       royalty revenue
       per ton               $3.02        $2.88        $3.02        $2.80

    Aggregates:
    Royalty revenues        $2,096            -       $5,785            -
    Production:              1,583            -        4,455            -
    Average base royalty
     per ton:                $1.32            -        $1.30            -



                        Natural Resource Partners L.P.
                      Consolidated Statements of Income
                     (In thousands, except per unit data)

                            Three Months Ended     For the Nine Months Ended
                               September 30,            September 30,
                             2007         2006        2007         2006
                                (Unaudited)              (Unaudited)
    Revenues:
      Coal royalties       $44,378      $36,902     $126,084     $112,539
      Aggregate royalties    2,096            -        5,785            -
      Coal processing fees   1,374          203        3,404          203
      Transportation fees    1,000            -        2,306            -
      Oil and gas royalties  1,388          853        3,924        3,500
      Property taxes         2,963        1,532        7,836        4,827
      Minimums recognized
       as revenue              913          633        1,698        1,254
      Override royalties       953          283        2,994          767
      Other                  1,301        1,085        3,639        5,911
         Total revenues     56,366       41,491      157,670      129,001
    Operating costs and
     expenses:
      Depreciation,
       depletion and
       amortization         13,045        7,009       37,324       22,098
      General and
       administrative        3,687        3,475       15,880       11,010
      Property, franchise
       and other taxes       3,993        2,142       10,618        6,486
      Transportation costs      79            -          149            -

      Coal royalty and
       override payments       246          296          914        1,250
         Total operating
          costs and
          expenses          21,050       12,922       64,885       40,844
    Income from operations  35,316       28,569       92,785       88,157
    Other income (expense)
      Interest expense      (7,124)      (3,960)     (21,584)     (11,253)
      Interest income          736          665        2,239        1,938
    Net income             $28,928      $25,274      $73,440      $78,842
    Net income
     attributable to: (1)
      General partner       $4,119       $2,641      $10,012       $6,989
      Holders of incentive
       distribution rights  $1,907       $1,150       $4,602       $2,914
      Limited partners     $22,902      $21,483      $58,826      $68,939
    Basic and diluted net
     income per limited
     partner unit:
      Common                 $0.35        $0.42        $0.91        $1.36
      Subordinated           $0.35        $0.42        $0.91        $1.36
    Weighted average number
     of units outstanding:
      Common                53,537       33,651       53,009       33,651
      Subordinated          11,354       17,030       11,354       17,030


    (1) Net income is allocated among the limited partners, the general
        partner and holders of the incentive distribution rights (IDRs) based
        upon their pro rata share of distributions.  The IDRs are allocated
        65% to the general partner and the remaining 35% to affiliates of the
        general partner.  The IDRs allocated to the general partner are
        included in the net income attributable to the general partner.



                        Natural Resource Partners L.P.
                           Statements of Cash Flows
                                (In thousands)

                                 Three Months Ended  For the Nine Months Ended
                                    September 30,         September 30,
                                   2007       2006        2007     2006
                                     (Unaudited)           (Unaudited)
    Cash flows from
     operating activities:
     Net income                   $28,928    $25,274     $73,440  $78,842
     Adjustments to reconcile net
      income to net cash provided
      by operating activities:
        Depreciation, depletion
         and amortization          13,045      7,009      37,324   22,098
        Non-cash interest charge      117         97         326      288
        Gain from sale of assets        -          -           -   (2,634)
     Change in operating
      assets and liabilities:
        Accounts receivable        (4,835)    (2,332)     (7,634)  (2,439)
        Other assets                  326        282         883      525
        Accounts payable and
         accrued liabilities           77        255        (217)     235
        Accrued interest           (2,763)     1,020        (166)   2,237
        Deferred revenue            2,890        625      10,807    1,033
        Accrued incentive plan
         expenses                     495        996        (138)   2,506
        Property, franchise and
         other taxes payable           45        158         304     (147)
          Net cash provided by
           operating activities    38,325     33,384     114,929  102,544

    Cash flows from investing
     activities:
        Acquisition of land, plant
         and equipment, coal
         and other mineral rights  (7,435)   (54,401)    (40,068)(105,839)
        Proceeds from sale of
         timber assets                  -          -           -    4,761
        Cash placed in restricted
         accounts                      74          -      (6,240)       -
          Net cash used in
           investing activities    (7,361)   (54,401)    (46,308)(101,078)

    Cash flows from financing
     activities:
        Proceeds from loans         7,000     53,000     262,400  103,000
        Deferred financing costs       (6)         -      (1,292)       -

        Repayments of loans          (400)         -    (235,942) (24,350)
        Distributions to
         partners                 (37,635)   (23,819)   (108,099) (67,023)
        Contribution by general
         partner                        -          -       2,645        -
          Net cash used in
           financing activities   (31,041)    29,181     (80,288)  11,627
    Net (decrease) or increase in
     cash and cash equivalents        (77)     8,164     (11,667)  13,093
    Cash and cash equivalents at
     beginning of period           54,454     52,620      66,044   47,691
    Cash and cash equivalents at
     end of period                $54,377    $60,784     $54,377  $60,784

    SUPPLEMENTAL INFORMATION:
         Cash paid during the
          period for interest      $9,752     $2,841     $21,379   $8,702
     Non-cash investing activities:
         Units issued for assets
          and liabilities              $-         $-    $350,741       $-
         Liability assumed
          in business combination      39          -       1,989        -



                        Natural Resource Partners L.P.
                         Consolidated Balance Sheets
                                (In thousands)

                                    ASSETS
                                                  September 30,  December 31,
                                                      2007           2006
                                                  (Unaudited)
    Current assets:
      Cash and cash equivalents                     $54,377        $66,044
      Restricted cash                                 6,240              -
      Accounts receivable, net of allowance for
       doubtful accounts                             30,003         23,357
      Accounts receivable - affiliate                 1,009             21
      Other                                             237          1,411
         Total current assets                        91,866         90,833
    Land                                             24,532         17,781
    Plant and equipment, net                         61,650         29,615
    Coal and other mineral rights, net            1,004,081        798,135
    Intangible assets                               111,179              -
    Loan financing costs, net                         3,202          2,197
    Other assets, net                                   825            932
         Total assets                            $1,297,335       $939,493

    LIABILITIES AND PARTNERS' CAPITAL

    Current liabilities:
      Accounts payable                               $2,550         $1,041
      Accounts payable - affiliate                      368            105
      Current portion of long-term debt              17,234          9,542
      Accrued incentive plan expenses - current
       portion                                        4,260          5,418
      Property, franchise and other taxes payable     4,634          4,330
      Accrued interest                                3,680          3,846
         Total current liabilities                   32,726         24,282
    Deferred revenue                                 31,461         20,654
    Asset retirement obligation                          39              -
    Accrued incentive plan expenses                   5,599          4,579
    Long-term debt                                  473,057        454,291
    Partners' capital:
      Common units                                  661,094        338,912
      Subordinated units                             78,701         83,772
      General partner's interest                     15,418         12,138
      Holders of incentive distribution rights          (48)         1,616
      Accumulated other comprehensive loss             (712)          (751)
         Total partners' capital                    754,453        435,687
         Total liabilities and partners' capital $1,297,335       $939,493



                        Natural Resource Partners L.P.
      Reconciliation of GAAP "Net cash provided by operating activities"
                    To Non-GAAP "Distributable cash flow"
                                (In thousands)
                                 (Unaudited)

                            Three Months Ended    For the Nine Months Ended
                               September 30,            September 30,
                             2007         2006        2007         2006

    Cash flow from
     operations            $38,325      $33,384     $114,929     $102,544
    Less scheduled
     principal payments          -            -       (9,350)      (9,350)
    Less reserves for
     future principal
     payments               (4,280)      (2,350)      (9,080)      (7,050)
    Add reserves used for
     scheduled principal
     payments                    -            -        9,400        9,400
    Distributable cash
     flow                  $34,045      $31,034     $105,899      $95,544

SOURCE
Natural Resource Partners L.P.

CONTACT:
Kathy Hager of Natural Resource Partners L.P., +1-713-751-7555, khager@nrplp.com

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