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Natural Resource Partners L.P. Reports Third Quarter 2009 Results

11/04/2009
Third Quarter 2009 Highlights:

HOUSTON, Nov. 4 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P.(NYSE: NRP) announced today distributable cash flow, a non-GAAP measure, of $30.1 million for the third quarter of 2009, down 44% from the prior year third quarter. Distributable cash flow is reconciled to net cash provided by operating activities, a GAAP measure, in a table attached. Net income attributable to the limited partners was $25.2 million, or $0.36 per unit, for the third quarter this year versus $36.2 million, or $0.55 per unit, for the same period last year.

    Highlights
    ----------
                                          3Q09         2Q09       3Q08
                                          ----         ----       ----
                                    (in thousands except per ton and per unit)
    Coal production:                      11,283      11,784      14,935
    Coal royalty revenues:               $49,307     $46,380     $58,323
    Average coal royalty revenue
     per ton:                              $4.37       $3.94       $3.91
    Total revenues:                      $63,962     $59,487     $76,196
    Net income to limited partners:      $25,161      $4,804     $36,154
    Average units outstanding in
     quarter:                             69,451      66,946      64,891
    Net income per unit:                   $0.36       $0.07       $0.55
    Distributable cash flow:             $30,061     $49,068     $53,965

"As reflected in our third quarter results as compared to second quarter of 2009, we are beginning to see improvements in the coal markets and particularly in the global metallurgical coal markets. These improvements yielded NRP improved price realizations across the board in all basins for both the quarter and year-to-date," said Nick Carter, President and Chief Operating Officer. "As the U.S. economy improves, natural gas prices increase and utility stockpiles burn down, we expect both production and prices to rebound."

Third Quarter 2009 versus Second Quarter 2009

Total revenues in the third quarter increased $4.5 million, or 8% from the second quarter of 2009, primarily due to higher coal royalty revenues as a result of increased realizations for coal royalty per ton. Coal production decreased 501,000 tons, or 4%, while average coal royalty revenue per ton increased $0.43, or approximately 11% this quarter. In the third quarter, metallurgical coal production by NRP's lessees increased by approximately 1 million tons over the second quarter of 2009; while steam coal decreased by approximately 1.5 million tons. The other increases in total revenues were predominantly related to override royalties and minimums recognized as royalties.

Net income attributable to the limited partners improved $20.4 million in the third quarter to $25.2 million, up from the $4.8 million reported in the second quarter. The improvement was due to several factors:

    --  Improvement in third quarter revenues of $4.5 million;
    --  Lower expenses in third quarter of approximately $9.3 million compared
        to the second quarter, primarily due to an $8.2 million non-cash
        write-off of a lease that occurred in the second quarter; and

    --  The holders of the incentive distribution rights, including the general
        partner, were allocated $7.35 million less due to the forgiveness of the
        highest splits for the third quarter distribution.  This equates to a
        $0.10 per unit improvement for the quarter.

Net income per unit improved by $0.29 per unit to $0.36 per unit in the third quarter, up from the $0.07 reported in the second quarter of 2009. Offsetting slightly the positive reasons listed above, the average number of units outstanding for the third quarter increased by approximately 4.6 million units due to units issued during the second quarter for an acquisition.

Distributable cash flow decreased 39% from the second quarter 2009 to $30.1 million due predominantly to changes in working capital that offset improvements in revenues. The largest change in working capital was $14.2 million in accrued interest due to interest payments on senior notes due semi-annually.

Third Quarter and Nine Month Results

Revenues

Third Quarter

Total revenues of $64.0 million for the third quarter of 2009 were $12.2 million, or 16%, less than the $76.2 million reported for the third quarter 2008, which was the highest ever reported by NRP. The decrease in total revenues included approximately $9 million related to coal royalty revenues, where production fell 3.6 million tons from 2008, offset somewhat by significantly higher average gross royalty revenue per ton. The average gross royalty revenue per ton rose $0.46, or 12%, from third quarter 2008 to the third quarter 2009 due to higher prices for steam coal and more production and sales of metallurgical coal, which garners a much higher price than steam coal. The remainder of the decrease was spread across all lines of revenue, including aggregates, infrastructure, oil and gas, overrides and other, all due to the current economy.

Nine Months

Total revenues for the first nine months of 2009 were $190.2 million, or 12% less than the $215.8 million reported for the comparable period last year. Coal royalty revenues accounted for $19.2 million of the decrease, mainly due to 10 million fewer tons of coal produced in 2009 than in 2008. The lower production occurred across all regions as production curtailments by NRP's lessees occurred for both steam and metallurgical coal in response to lower demand. The impact of the lower production was abated somewhat by a $0.49 improvement in the average gross royalty revenue per ton. The remainder of the decline was due predominantly to declines in aggregates, oil and gas, and overrides, all of which were impacted by lower demand that affected both production and price.

Expenses

Third Quarter

Total expenses of $22.6 million for the third quarter of 2009 were virtually flat compared to the third quarter of 2008. Depreciation, depletion and amortization expenses were down $4.1 million due to lower production in 2009, offset by $4.2 million in higher general and administrative expenses and property and franchise taxes. These expenses were higher due to fluctuations in NRP's long-term incentive plan accrual, as well as higher property taxes in several states.

Interest expenses increased $3.9 million in the third quarter 2009 due to additional debt incurred to fund acquisitions and higher interest rates.

Nine Months

Total expenses of $79.7 million for the first nine months of 2009 rose $5.6 million from the $74.1 million reported for the first nine months of 2008. Excluding the $8.2 million non-cash write-off of a terminated lease that occurred in the second quarter of 2009, NRP would have seen an overall net reduction in expenses of $2.6 million. Normal depreciation, depletion and amortization were down due to lower production and general and administrative expenses increased due to incentive compensation accruals.

Net Income Attributable to the Limited Partners

Third Quarter

Net income attributable to the limited partners of $25.2 million declined $11.0 million from the $36.2 million reported for the third quarter of 2008. Partially offsetting the lower revenues and higher interest costs, the holders of the incentive distribution rights agreed, as a part of a recent acquisition, to forego the distribution for the highest splits for the third quarter of 2009.

Net income per limited partner unit declined to $0.36 per unit in the third quarter 2009 from the $0.55 per unit reported in the third quarter 2008. In addition to the discussion above on net income attributable to the limited partners, the net income per unit was impacted by the issuance of an additional 4.6 million units for an acquisition in 2009.

Nine Months

Net income attributable to the limited partners declined $39.3 million to $51.6 million or $0.77 per unit for the third quarter 2009 from $90.8 million or $1.40 per unit for the first nine months of 2008 due to all the items discussed previously.

Distributable Cash Flow

Third Quarter

Distributable cash flow for the third quarter of 2009 declined to $30.1 million from the $54.0 million reported in the same period last year. In addition to the operating items discussed above, distributable cash flow was impacted by higher semi-annual interest payments that were made in the third quarter and an increase of $3.8 million in the accrual for future principal payments.

Nine Months

Distributable cash flow for the nine months decreased by $31.6 million to $114.6 million. The first nine months of distributable cash flow was reduced for accruals for future principal payments in the amount of $11.3 million for the first nine months of 2009 versus the first nine months of 2008.

Current Market

Coal markets for metallurgical coal are improving. While utilization for U.S. steel plants has averaged less than 50% over the course of the year, the current utilization rate is up to approximately 60%. While this rate is still lower than the 70% utilization rate in October 2008, monthly raw steel production has increased every month since April. The coal producers are also exporting more metallurgical coal. Exports of metallurgical coal for the month of August, the latest data available, were 30% higher than August of 2008.

While the metallurgical coal markets have improved, there is still significant steam coal inventory at utilities. Overall demand for electricity is down approximately 4% year-to-date, and steam coal demand is down even further due to weak industrial demand and low natural gas prices.

Acquisitions and Liquidity

In the third quarter of 2009, NRP completed its 38th acquisition since its initial public offering. NRP acquired coal reserves associated with the Deer Run mine in the Illinois Basin for an initial payment of $10 million, with future acquisitions of reserves at Deer Run, totaling $245 million, to be completed over the next 27 months. Following the initial acquisition at Deer Run, NRP has $22.0 million outstanding on it credit facility with an additional $278 million available.

Even after making $25.2 million in annual principal and semi-annual interest payments during the third quarter, NRP had $60.9 million in cash and cash equivalents at September 30, 2009.

Distributions

As reported on October 21, the Board of Directors of NRP's general partner declared a quarterly distribution of $0.54 per unit. This represents a 2.9% increase over the third quarter 2008 and is unchanged from the second quarter 2009. Simultaneous with the announcement of the Deer Run acquisition, the holders of the incentive distribution rights opted to forego the highest splits for the third and fourth quarter distributions of 2009. This equates to a savings of $7.35 million in distributions per quarter to the partnership.

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 mineral reserve properties. NRP owns coal reserves 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 owns and manages aggregate reserves in Texas, West Virginia and Washington.

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   For the Nine Months
                                              Ended              Ended
                                           September 30,     September 30,
                                           -------------     -------------
                                           2009     2008     2009     2008
                                           ----     ----     ----     ----
                                            (unaudited)       (unaudited)
    Coal Royalties:
    Coal royalty revenues:
      Appalachia
        Northern                         $3,998   $3,433    $9,931   $11,838
        Central                          33,688   40,371   101,874   117,642
        Southern                          4,849    5,397    14,755    14,697
                                          -----    -----    ------    ------
          Total Appalachia              $42,535  $49,201  $126,560  $144,177
      Illinois Basin                      5,413    6,438    16,234    14,995
      Northern Powder River Basin         1,359    2,684     5,500     8,329
                                          -----    -----     -----     -----
    Total                               $49,307  $58,323  $148,294  $167,501
                                        =======  =======  ========  ========

    Coal royalty production (tons):
      Appalachia
        Northern                          1,238    1,172     3,304     4,436
        Central                           6,984    8,859    21,962    27,430
        Southern                            799    1,015     2,438     3,239
                                            ---    -----     -----     -----
          Total Appalachia                9,021   11,046    27,704    35,105
      Illinois Basin                      1,723    2,441     5,005     5,899
      Northern Powder River Basin           539    1,448     2,840     4,493
                                            ---    -----     -----     -----
    Total                                11,283   14,935    35,549    45,497
                                         ======   ======    ======    ======

    Average royalty revenue per ton:
      Appalachia
        Northern                          $3.23    $2.93     $3.01     $2.67
        Central                            4.82     4.56      4.64      4.29
        Southern                           6.07     5.32      6.05      4.54
          Total Appalachia                 4.72     4.45      4.57      4.11
      Illinois Basin                       3.14     2.64      3.24      2.54
      Northern Powder River Basin          2.52     1.85      1.94      1.85

      Combined average royalty
       revenue per ton                    $4.37    $3.91     $4.17     $3.68

    Aggregates:
    Royalty revenues                     $1,400   $1,980    $3,377    $5,028
    Aggregate royalty bonus                $300     $300    $1,320    $2,544
    Production:                           1,148    1,484     2,629     3,876
    Average base royalty per ton:         $1.22    $1.33     $1.28     $1.30


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

                                          Three Months     For the Nine Months
                                             Ended               Ended
                                         September 30,       September 30,
                                         -------------       -------------
                                        2009       2008      2009      2008
                                        ----       ----      ----      ----
                                          (Unaudited)          (Unaudited)
    Revenues:
      Coal royalties                  $49,307    $58,323  $148,294   $167,501
      Aggregate royalties               1,700      2,280     4,697      7,575
      Coal processing fees              1,508      2,044     5,808      5,698
      Transportation fees               3,049      3,183     8,634      8,193
      Oil and gas royalties             1,203      2,201     3,649      5,579
      Property taxes                    3,311      2,263     9,036      7,760
      Minimums recognized as revenue      775        737     1,065      1,193
      Override royalties                2,077      3,133     5,961      7,638
      Other                             1,032      2,032     3,038      4,706
                                        -----      -----     -----      -----
        Total revenues                 63,962     76,196   190,182    215,843
    Operating costs and expenses:
      Depreciation, depletion and
       amortization                    12,952     17,042    48,026     48,849
      General and administrative        4,586      1,732    17,926     12,771
      Property, franchise and
       other taxes                      4,273      2,822    11,399     10,569
      Transportation costs                403        431     1,144        960
      Coal royalty and override
       payments                           353        287     1,214        939
                                          ---        ---     -----        ---
        Total operating costs
         and expenses                  22,567     22,314    79,709     74,088
                                       ------     ------    ------     ------
    Income from operations             41,395     53,882   110,473    141,755
    Other income (expense)
      Interest expense                (10,762)    (6,912)  (29,516)   (21,336)
      Interest income                      18        368       196      1,124
                                          ---        ---       ---      -----
    Net income                        $30,651    $47,338   $81,153   $121,543
                                      =======    =======   =======   ========
    Net income attributable to:
      General partner                    $513       $738    $1,052     $1,854
                                         ====       ====    ======     ======
      Holders of incentive
       distribution rights             $4,977    $10,446   $28,538    $28,845
                                       ======    =======   =======    =======
      Limited partners                $25,161    $36,154   $51,563    $90,844
                                      =======    =======   =======    =======

    Basic and diluted net income
     per limited partner unit:          $0.36      $0.55     $0.77      $1.40
                                        =====      =====     =====      =====

    Weighted average number of
     units outstanding:                69,451     64,891    67,113     64,891
                                       ======     ======    ======     ======

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

                                          Three Months    For the Nine Months
                                              Ended              Ended
                                          September 30,       September 30,
                                         2009      2008      2009      2008
                                         ----      ----      ----      ----
                                           (Unaudited)         (Unaudited)
    Cash flows from operating
     activities:
      Net income                       $30,651   $47,338   $81,153   $121,543
      Adjustments to reconcile net
       income to net cash provided
       by operating activities:
        Depreciation, depletion
         and amortization               12,952    17,042    48,026     48,849
        Non-cash interest charge           326        31     1,336        266
        Loss from disposition of
         assets                              -         -         -         32
      Change in operating assets
       and liabilities:
        Accounts receivable             (1,885)   (2,323)      (20)   (11,294)
        Other assets                       312       308       579        892
        Accounts payable and
         accrued liabilities               104        18      (143)       447
        Accrued interest                (7,123)   (2,934)   (3,214)    (3,199)
        Deferred revenue                 1,996     1,263    10,306      3,989
        Accrued incentive plan
         expenses                          840    (1,584)    2,408       (506)
        Property, franchise and
         other taxes payable               (53)     (886)   (1,632)    (1,876)
                                           ---      ----    ------     ------
            Net cash provided by
             operating activities       38,120    58,273   138,799    159,143
                                        ------    ------   -------    -------

    Cash flows from investing
     activities:
        Acquisition of land, coal
         and other mineral rights      (19,345)        -  (114,986)         -
        Acquisition or construction
         of plant and equipment              -    (2,498)   (1,157)    (9,952)
                                           ---   -------    ------     ------
            Net cash used in
             investing activities      (19,345)   (2,498) (116,143)    (9,952)
                                       -------    ------  --------     ------

    Cash flows from financing
     activities:
        Proceeds from loans             22,000         -   325,000          -
        Deferred financing costs             -         -      (661)         -
        Repayments of loans             (7,693)   (7,692) (168,235)   (17,235)
        Retirement of purchase
         obligation related to
         reserve and infrastructure     (3,000)        -   (63,000)         -
        Costs associated with
         issuance of units                   -         -       (21)         -
        Distributions to partners      (50,697)  (44,125) (144,787)  (125,885)
                                       -------   -------  --------   --------
            Net cash used in
             financing activities      (39,390)  (51,817)  (51,704)  (143,120)
                                       -------   -------   -------   --------
      Net increase or (decrease)
       in cash and cash equivalents    (20,615)    3,958   (29,048)     6,071
      Cash and cash equivalents at
       beginning of period              81,495    60,454    89,928     58,341
                                        ------    ------    ------     ------
      Cash and cash equivalents at
       end of period                   $60,880   $64,412   $60,880    $64,412
                                       =======   =======   =======    =======

      SUPPLEMENTAL INFORMATION:
        Cash paid during the
         period for interest           $17,556    $9,729   $31,316    $24,179
                                       =======    ======   =======    =======
    Non-cash investing activities:
        Equity issued for
         acquisitions                       $-        $-   $95,910         $-
        Liability assumed in
         acquisition                         -         -     1,170          -

    Non-cash financing activities:
        Purchase obligation
         related to reserve and
         infrastructure acquisition    $14,802        $-   $74,022         $-

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

                      ASSETS

                                                  September 30,   December 31,
                                                       2009           2008
                                                       ----           ----
                                                    (unaudited)
    Current assets:
        Cash and cash equivalents                    $60,880        $89,928
        Accounts receivable, net of allowance for
         doubtful accounts                            29,873         31,883
        Accounts receivable - affiliate                2,211          1,351
        Other                                            254            934
                                                         ---            ---
          Total current assets                        93,218        124,096
    Land                                              24,343         24,343
    Plant and equipment, net                          69,087         67,204
    Coal and other mineral rights, net             1,157,092        979,692
    Intangible assets                                162,779        102,828
    Loan financing costs, net                          3,005          2,679
    Other assets, net                                    599            498
                                                         ---            ---
         Total assets                             $1,510,123     $1,301,340
                                                  ==========     ==========

             LIABILITIES AND PARTNERS' CAPITAL

    Current liabilities:
        Accounts payable and accrued liabilities        $927           $861
        Accounts payable - affiliate                     156            365
        Obligation related to acquisitions            11,843              -
        Current portion of long-term debt             32,235         17,235
        Accrued incentive plan expenses - current
         portion                                       4,235          3,179
        Property, franchise and other taxes
         payable                                       4,490          6,122
        Accrued interest                               3,362          6,419
                                                       -----          -----
          Total current liabilities                   57,248         34,181
    Deferred revenue                                  51,060         40,754
    Accrued incentive plan expenses                    5,594          4,242
    Long-term debt                                   620,587        478,822
    Partners' capital:
        Common units (69,451,136 in 2009,
         64,891,136 in 2008)                         757,550        719,341
        General partner's interest                    13,717         13,579
        Holders of incentive distribution rights       4,977         11,069
        Accumulated other comprehensive loss            (610)          (648)
                                                        ----           ----
          Total partners' capital                    775,634        743,341
                                                     -------        -------
          Total liabilities and partners'
           capital                                $1,510,123     $1,301,340
                                                  ==========     ==========

                            Natural Resource Partners L.P.
                   Reconciliation of GAAP Financial Measurements to
                            Non-GAAP Financial Measurements
                                     (In thousands)

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

                                          Three Months    For the Nine Months
                                              Ended             Ended
                                           September 30,     September 30,
                                           ------------      ------------
                                           2009    2008      2009      2008
                                           ----    ----      ----      ----
                                            (unaudited)       (unaudited)

    Net cash provided by operating
     activities                          $38,120  $58,273  $138,799  $159,143
    Less scheduled principal payments     (7,693)  (7,691)  (17,235)  (17,234)
    Less reserves for future
     principal payments                   (8,059)  (4,308)  (24,177)  (12,924)
    Add reserves used for scheduled
     principal payments                    7,693    7,691    17,235    17,234
                                           -----    -----    ------    ------
    Distributable cash flow              $30,061  $53,965  $114,622  $146,219
                                         =======  =======  ========  ========

SOURCE Natural Resource Partners L.P.

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

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