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Natural Resource Partners L.P. Reports 2007 Results

02/14/2008
    Fourth Quarter Highlights:

     -  Record distributable cash flow of $48.9 million, up 45% over 4Q06

     -  Record revenues of $57.3 million, up 37%

     -  Net income attributable to limited partners of $22.1 million, up 15%

     -  Net income per unit decreases 8% to $0.35

     -  Distribution increases for eighteenth consecutive quarter to $0.485
        per unit

    2007 Full Year Highlights:

     - Record distributable cash flow of $154.8 million, up 20% over 2006

     - Record revenues of $215 million, up 26%

     - Net income attributable to limited partners of $81.0 million, down 8%

     - Net income per unit decreases 28% to $1.26

HOUSTON, Feb. 14 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. (NYSE: NRP) today reported distributable cash flow, a non-GAAP measure, of $48.9 million, up 45% from the $33.7 million reported for the fourth quarter 2006. Net income attributable to the limited partners increased 15% to $22.1 million for the fourth quarter of 2007, compared to $19.3 million for the fourth quarter of 2006. Net income per unit decreased from $0.38 for the fourth quarter 2006 to $0.35 per unit in the fourth quarter 2007.

 



                                  Highlights
                                             4Q07         3Q07         4Q06
                                    (in thousands except per ton and per unit)
    Coal Production:                        15,442       14,708       11,905
    Coal Royalty Revenues:                 $45,259      $44,378      $35,213
    Average coal royalty revenue per ton:    $2.93        $3.02        $2.96
    Total revenues:                        $57,315      $56,366      $41,672
    Net income to limited partners:        $22,142      $22,902      $19,301
    Average units outstanding in quarter:   64,891       64,891       50,682
    Net income per unit:                     $0.35        $0.35        $0.38
    Distributable cash flow:               $48,916      $34,045      $33,749


"For NRP, 2007 was a year of growth and integration," said Nick Carter, President and Chief Operating Officer. "We are a much larger business today, having completed approximately $1.1 billion of acquisitions since becoming a public company five years ago, with nearly $600 million in deals closing since December 2006. We also have a more diverse and therefore more stable cash flow, which has allowed us to continue increasing distributions."

"We achieved record revenues and record distributable cash flow, the metric on which we are focused. We enter 2008 with a very strong coal market and all of our new operations on track to contribute their share of our guidance."

    Fourth Quarter and Full Year Results

    Revenues

    Fourth Quarter

Total revenues increased 37% to a record $57.3 million for the fourth quarter of 2007, compared to $41.7 million reported for the same period last year. Fourth quarter 2007 coal royalty revenues increased 29% to $45.3 million from $35.2 million last year. Total production for the partnership in the fourth quarter was a record 15.4 million tons, up 29% compared to the 11.9 million tons produced in the fourth quarter 2006. Aggregate royalties, coal processing fees and transportation fees generated approximately $4.7 million in the fourth quarter of 2007 versus $1.8 million in the same period last year. Aggregate royalties for 2006 included only one month of operations and no transportation fees were included in 2006 as these assets were acquired in 2007.

Full Year

Total revenues improved to a record $215.0 million, or 26% over 2006, while distributable cash flow increased 20% to $154.8 million over the same period. Coal royalty revenues increased 16% to $171.3 million, due to both increased production and improved pricing. Average royalty revenue per ton increased to $2.99 from $2.84, or 5%, while NRP's total production increased approximately 10% to 57.2 million tons over 2006 production. In 2007, approximately 23% of coal production and 29% of coal royalty revenues were generated from metallurgical coal used to make steel. Aggregate royalties, coal processing fees and transportation fees, generated approximately $16.2 million for 2007 versus $2.0 million in the same period last year. These increases are due to the same reasons discussed above.

Expenses

Fourth Quarter

Total expenses increased $7.7 million, or 55% to $21.8 million in the fourth quarter 2007. Depreciation, depletion and amortization, a non-cash item, accounted for $6.5 million, or approximately 84% of the increase, primarily as a result of acquisitions during the last year. Property, franchise and other taxes nearly doubled to $3.0 million mainly due to taxes on newly acquired property. The majority of the property taxes are offset by reimbursements from our lessees, which are reported in revenues.

Interest expense increased $1.9 million over the fourth quarter last year to $7.1 million due to additional borrowings associated with acquisitions completed in late 2006 and 2007.

Full Year

For the full year 2007, total expenses increased $31.8 million to $86.7 million, $21.7 million of which was associated with depreciation, depletion and amortization and $5.5 million was associated with property, franchise and other taxes, both due to the same reasons discussed earlier. In addition, general and administrative expenses increased $4.5 million mainly due to increases in personnel, salaries, and incentive compensation accruals and increased costs associated with reporting unitholders' tax information.

Interest expense for 2007 increased by $12.3 million due to increased borrowings associated with acquisitions.

Net Income Attributable to the Limited Partners

Fourth Quarter

While total revenues for the fourth quarter increased by $15.6 million over fourth quarter 2006, net income attributable to the limited partners only increased $2.8 million to $22.1 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 $0.03 to $0.35 per unit mainly due to the issuance of approximately 14.2 million additional units for acquisitions, and the increased allocation of net income to the general partner and the holders of incentive distribution rights. In addition, some of the properties we acquired were under development and did not generate their expected revenues.

Full Year

For the full year 2007, net income attributable to the limited partners decreased $7.2 million to $81.0 million. Net income per unit decreased $0.48 per unit to $1.26 from $1.74 reported in 2006 for the reasons discussed above.

    Distributable Cash Flow

Fourth Quarter

Distributable cash flow increased $15.2 million, or 45%, over the same quarter last year predominantly due to increases in net income, depreciation, depletion and amortization as well as positive changes in working capital. Fourth quarter 2007 reflects an additional reserve of $1.9 million for one quarter of the debt payment due in July 2008.

Full Year

For the full year 2007, distributable cash flow increased $25.5 million, or 20%, to a record $154.8 million predominantly due to increased revenues and non-cash expenses as well as increased minimums received from NRP's lessees, offset by $3.8 million of additional reserves for debt payments due in July 2008.

Current Market

Prices of metallurgical coal have been substantially higher than steam coal over the past few years, and NRP expects them to remain at high levels for the next several years. The current pricing environment for U.S. metallurgical coal is robust in both the domestic and export markets. Coal prices for both steam and metallurgical coal in Appalachia began to move in a positive direction during the second half of 2007, and the price movement accelerated at the end of 2007 and into 2008. The U.S. coal market, especially for coal from Appalachia and to a more limited extent the Illinois Basin, is being dramatically impacted by events in China, Australia and South Africa that are impacting world coal supply and demand. Many observers believe that the growing demand for coal worldwide may lead to an increasingly favorable pricing structure for all U.S. coal.

Distributions

As reported on January 16, the Board of Directors of NRP's general partner declared a quarterly distribution of $0.485 per unit, an increase of $0.01 per unit. This made the eighteenth consecutive increase in the quarterly distribution.

Acquisitions

In December, NRP completed two acquisitions for approximately $33.9 million. These acquisitions included the purchase of an overriding royalty interest on low-vol metallurgical coal reserves from Massey Energy for $6.6 million and the previously announced acquisition of approximately 17.5 million tons of low-vol metallurgical coal for $27.2 million from National Resources. In addition, NRP paid approximately $900 thousand on the construction contract for a previously announced coal preparation plant. NRP borrowed approximately $23.0 million under its credit facility and utilized excess cash for the remainder.

Borrowing Capacity and Capital Structure

The partnership has drawn $48.0 million on its existing credit facility of $300 million. The facility allows NRP to increase the borrowing capacity up to $450 million under the same terms. "With a debt to market capitalization of approximately 40%, NRP has significant borrowing capacity for future acquisitions without having to access the equity markets," said Dwight Dunlap, Chief Financial Officer.

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 H. Roberts at 713-751-7555 or kroberts@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 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)

                                 Three Months Ended     For the Year Ended
                                    December 31,           December 31,
                                   2007       2006        2007        2006
                                     (unaudited)             (unaudited)
    Coal Royalties:
    Coal royalty revenues:
            Appalachia
                Northern           $5,600     $1,900     $16,664     $10,231
                Central            29,571     25,534     117,820     100,487
                Southern            4,156      4,382      17,832      20,469
                  Total
                   Appalachia     $39,327    $31,816    $152,316    $131,187
            Illinois Basin          3,022        861       7,963       5,325
            Northern Powder
             River Basin            2,910      2,536      11,064      11,240

     Total                        $45,259    $35,213    $171,343    $147,752

    Coal royalty production
     (tons):
            Appalachia
                Northern            2,395        938       7,270       5,329
                Central             8,813      7,942      35,835      31,991
                Southern            1,089      1,091       4,603       5,347
                    Total
                     Appalachia    12,297      9,971      47,708      42,667
            Illinois Basin          1,402        369       3,709       2,877
            Northern Powder
             River Basin            1,743      1,565       5,815       6,548

     Total                         15,442     11,905      57,232      52,092

    Average royalty revenue
     per ton:
            Appalachia
                Northern            $2.34      $2.03       $2.29       $1.92
                Central              3.36       3.22        3.29        3.14
                Southern             3.82       4.02        3.87        3.83
                    Total
                     Appalachia      3.20       3.19        3.19        3.07
            Illinois Basin           2.16       2.33        2.15        1.85
            Northern Powder
             River Basin             1.67       1.62        1.90        1.72

      Combined average royalty
       revenue per ton              $2.93      $2.96       $2.99       $2.84

    Aggregates:
    Royalty revenues               $1,649       $538      $7,434        $538
    Production:                     1,242        412       5,698         412
    Average royalty revenue
     per ton:                       $1.33      $1.31       $1.30       $1.31



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

                                    Three Months Ended    For the Year Ended
                                       December 31,          December 31,
                                      2007       2006       2007       2006
                                        (Unaudited)     (Unaudited)
    Revenues:
      Coal royalties                  $45,259    $35,213  $171,343  $147,752
      Aggregate royalties               1,649        538     7,434       538
      Coal processing fees              1,420      1,249     4,824     1,452
      Transportation fees               1,678          -     3,984         -
      Oil and gas royalties             1,006        720     4,930     4,220
      Property taxes                    2,449      1,144    10,285     5,971
      Minimums recognized as revenue      253        828     1,951     2,082
      Override royalties                  800        190     3,794       957
      Other                             2,801      1,790     6,440     7,701
        Total revenues                 57,315     41,672   214,985   170,673
    Operating costs and expenses:
      Depreciation, depletion and
       amortization                    14,067      7,597    51,391    29,695
      General and administrative        4,168      4,510    20,048    15,520
      Property, franchise and other
       taxes                            2,995      1,626    13,613     8,122
      Transportation costs                149          -       298         -
      Coal royalty and override
       payments                           422        320     1,336     1,560

        Total operating costs
         and expenses                  21,801     14,053    86,686    54,897
    Income from operations             35,514     27,619   128,299   115,776
    Other income (expense)
      Interest expense                 (7,106)    (5,170)  (28,690)  (16,423)
      Interest income                     651        799     2,890     2,737
    Net income                        $29,059    $23,248  $102,499  $102,090

    Net income attributable to:
      General partner                  $4,303     $2,728   $14,315    $9,717
      Holders of incentive
       distribution rights             $2,614     $1,219    $7,216    $4,133
      Limited partners                $22,142    $19,301   $80,968   $88,240
    Basic and diluted net income
     per limited partner unit:
      Common                            $0.35      $0.38     $1.26     $1.74
      Subordinated                      $0.35      $0.38     $1.26     $1.74
    Weighted average number of
     units outstanding:
      Common                           59,214     36,490    54,582    34,366
      Subordinated                      5,677     14,192     9,923    16,316



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

                                     Three Months Ended   For the Year Ended
                                         December 31,         December 31,
                                       2007      2006        2007      2006
                                         (Unaudited)     (Unaudited)
    Cash flows from operating
     activities:
      Net income                       $29,059   $23,248  $102,499  $102,090
      Adjustments to reconcile net
       income to net cash provided
       by operating activities:
       Depreciation, depletion and
        amortization                    14,067     7,597    51,391    29,695
       Non-cash interest charge            117        61       443       349
       Gain from sale of assets         (1,236)     (837)   (1,236)   (3,471)
      Change in operating assets and
       liabilities:
       Accounts receivable               2,364     1,013    (5,270)   (1,426)
       Other assets                       (705)   (1,104)      178      (579)
       Accounts payable and accrued
        liabilities                       (247)      146      (464)      381
       Accrued interest                  2,596        75     2,430     2,312
       Deferred revenue                  4,825     4,770    15,632     5,803
       Accrued incentive plan
        expenses                           603       991       465     3,497
       Property, franchise and
        other taxes payable              1,781       339     2,085       192
             Net cash provided by
              operating activities      53,224    36,299   168,153   138,843

    Cash flows from investing
     activities:
      Acquisition of land, coal and
       other mineral rights            (33,881) (154,096)  (58,124) (240,517)
      Acquisition of plant and
       equipment                          (870)   (4,830)  (16,695)  (24,248)
      Proceeds from sale of timber
       assets                            1,425     2,290     1,425     7,051
      Cash placed in restricted account      -         -    (6,240)        -
             Net cash used in investing
              activities               (33,326) (156,636)  (79,634) (257,714)

    Cash flows from financing
     activities:
      Proceeds from loans               23,000   151,000   285,400   254,000
      Deferred financing costs               -       (64)   (1,292)      (64)
      Repayments of loans                    -         -  (235,942)  (24,350)
      Distributions to partners        (38,934)  (25,339) (147,033)  (92,362)
      Contributions by general partner       -         -     2,645         -
             Net cash (used in) provided
              by financing activities  (15,934)  125,597   (96,222)  137,224
    Net increase or (decrease) in
     cash and cash equivalents           3,964     5,260    (7,703)   18,353
    Cash and cash equivalents at
     beginning of period                54,377    60,784    66,044    47,691
    Cash and cash equivalents at end
     of period                         $58,341   $66,044   $58,341   $66,044

    SUPPLEMENTAL INFORMATION:
       Cash paid during the period
        for interest                    $4,392    $5,032   $25,771   $13,734
     Non-cash investing activities:
       Equity issued for business
        combinations                        $-        $-  $330,064        $-
       Assets contributed by
        general partner in business
        combination                          -         -     4,422         -
       Liability assumed in
        business combination                 -         -     1,989         -
       Equity issued for assets
        purchased                            -         -    16,255         -
       Utility improvement
        obligation acquired                  -     2,883         -     2,883



                        Natural Resource Partners L.P.
                         Consolidated Balance Sheets
                 (In thousands, except for unit information)

                                    ASSETS

                                                     December 31, December 31,
                                                         2007         2006
                                                     (unaudited)
    Current assets:
      Cash and cash equivalents                        $58,341       $66,044

      Restricted cash                                    6,240             -
      Accounts receivable, net of allowance for
       doubtful accounts                                27,643        23,357
      Accounts receivable - affiliate                    1,005            21
      Other                                              1,009         1,411

        Total current assets                            94,238        90,833
    Land                                                24,343        17,781
    Plant and equipment, net                            61,441        29,615
    Coal and other mineral rights, net               1,030,088       798,135
    Intangible assets                                  106,222          -
    Loan financing costs, net                            3,098         2,197
    Other assets, net                                      601           932

        Total assets                                $1,320,031      $939,493


                      LIABILITIES AND PARTNERS' CAPITAL

    Current liabilities:
      Accounts payable and accrued liabilities          $2,567         $1,041

      Accounts payable - affiliate                         104            105
      Current portion of long-term debt                 17,234          9,542
      Accrued incentive plan expenses - current
       portion                                           3,993          5,418
      Property, franchise and other taxes payable        6,415          4,330
      Accrued interest                                   6,276          3,846
        Total current liabilities                       36,589         24,282
    Deferred revenue                                    36,286         20,654
    Asset retirement obligation                             39              -
    Accrued incentive plan expenses                      6,469          4,579
    Long-term debt                                     496,057        454,291
    Partners' capital:
      Common units (outstanding: 64,891,136
       in 2007, 39,327,430 in 2006)                    731,113        338,912
      Subordinated units (outstanding: 11,353,634
       in 2006)                                              -         83,772
      General partner's interest                        14,177         12,138
      Holders of incentive distribution rights               -          1,616
      Accumulated other comprehensive loss                (699)          (751)

        Total partners' capital                        744,591        435,687

        Total liabilities and partners' capital     $1,320,031       $939,493



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

                                        Three Months Ended  For the Year Ended
                                           December 31,        December 31,
                                           2007    2006       2007      2006
                                           (unaudited)          (unaudited)
    Net cash provided by operating
     activities                          $53,224  $36,299  $168,153  $138,843
    Less scheduled principal payments          -        -    (9,350)   (9,350)
    Less reserves for future principal
     payments                             (4,308)  (2,550)  (13,388)   (9,600)
    Add reserves used for scheduled
     principal payments                        -        -     9,400     9,400
    Distributable cash flow              $48,916  $33,749  $154,815  $129,293

SOURCE
Natural Resource Partners L.P.

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

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