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Natural Resource Partners L.P. Reports Third Quarter Results

11/03/2010
Third Quarter 2010 Highlights:
- Record revenues of $80.8 million, up 26% from 3Q09
- Distributable cash flow of $54.2 million, up 80% from 3Q09
- Net income attributable to the limited partners of $39.4 million, up 56% from 3Q09
- Net income per unit of $0.51, up 42% from 3Q09
- Excluding the impact of the elimination of the incentive distribution rights, adjusted net income attributable to the limited partners of $26.6 million or $0.36 per unit, unchanged from 3Q09
- Distribution of $0.54 per unit

HOUSTON, Nov. 3, 2010 /PRNewswire via COMTEX/ --

Natural Resource Partners L.P. (NYSE: NRP) today reported that for the second consecutive quarter, improved coal markets led to record revenues and higher third quarter 2010 results. Distributable cash flow, a non-GAAP measure, increased 80% over the third quarter of 2009 to $54.2 million. Net income attributable to the limited partners of $39.4 million increased 56% over the same period last year. Net income per unit improved 42% to $0.51 from the $0.36 per unit reported for the third quarter 2009. Excluding the impact of the elimination of the incentive distribution rights, adjusted net income per unit was $0.36 in the third quarter 2010, or flat with the same period in 2009. Reconciliations of distributable cash flow to GAAP and adjusted net income per unit are provided in the tables at the end of the release.

"NRP's lessees have continued to receive much higher prices for coal leading to another great quarter," said Nick Carter, President and Chief Operating Officer. "The gradual improvements in the economy evidenced by improving commercial/industrial electricity usage, coupled with the continuing strength of the steel sector, led to our record revenue and an improving outlook."


Highlights

Three Months Ended Sep. 30, 2010

Three Months Ended Sep. 30, 2009

%
Change
ThreeMonths


Nine Months Ended Sep. 30, 2010

Nine Months Ended Sep. 30, 2009

% Change
NineMonths


(in thousands except per unit, per ton and %)

Revenues








Total revenues:

$ 80,752

$ 63,962

26%


$ 223,859

$ 190,182

18%

Coal production:

12,367

11,283

10%


34,936

35,549

(2%)

Coal royalty revenues:

$ 60,142

$ 49,307

22%


$ 165,135

$ 148,294

11%

Average coal royalty revenue per ton:

$ 4.86

$ 4.37

11%


$ 4.73

$ 4.17

13%

Revenues other than coal royalties

$ 20,610

$ 14,655

41%


$ 58,724

$41,888

40%









Net income








Net income to limited partners:

$ 39,350

$ 25,161

56%


$ 84,269

$ 51,563

63%

Net income per unit:

$ 0.51

$ 0.36

42%


$ 1.14

$ 0.77

48%

Average units outstanding:

77,896

69,451

12%


73,792

67,113

10%









Distributable cash flow:

$ 54,197

$ 30,061

80%


$ 151,841

$ 114,622

32%


Revenues

Third Quarter

NRP reported record quarterly revenues of $80.8 million for the third quarter 2010, a 26% rise over the third quarter 2009 due to increases in both the production of and realized prices for coal. Production in the third quarter 2010 was up 10% to 12.4 million tons and the average coal royalty revenue per ton increased 11% over the same quarter last year to $4.86. NRP's lessees realized higher prices for both steam and metallurgical coal in the third quarter.

Revenues other than coal royalties increased 41%, or approximately $6.0 million, from the third quarter 2009 mainly due to:

  • increased throughput on the coal processing and transportation assets generating a $2.1 million increase in fees; and
  • a $3.1 million quarterly non-recoupable minimum recognized as income for each quarter of 2010, which after this year, will only be recognized as revenues when recouped through production;

Nine Months

The improvements seen in the third quarter are reflected in the nine month numbers. The increases in realized prices for coal more than offset the slight decline in production for the nine month period. Metallurgical coal accounted for 33% of NRP's production and 39% of its coal royalty revenues for the first nine months of 2010.

Operating Expenses

Third Quarter

NRP incurred total operating costs and expenses of $30.4 million in the third quarter of 2010, up by $7.8 million mainly due to a $3.2 million increase in depreciation, depletion and amortization and a $4.2 million increase in general and administrative expenses. The $4.2 million increase in third quarter 2010 general and administrative expenses over third quarter 2009 included $2.7 million for increased accruals on the long term incentive plan associated with the increase in NRP's unit price and additional expenses related to the venture with International Paper.

Nine Months

Operating costs for the first nine months of 2010 increased by $941 thousand due to increased general and administrative expenses offset by decreased depreciation, depletion and amortization due to lower production in the nine month period of 2010 versus the same period last year.

Net income

Third Quarter

Net income to the limited partners increased $14.2 million to $39.4 in the third quarter 2010 over the third quarter 2009 net income of $25.2 million. Nearly 65% of this increase was associated with increased revenues while $5.0 million was associated with the elimination of the incentive distribution rights announced by NRP in late September 2010. Net income per unit increased to $0.51 per unit even though there was a 12% increase in the average number of units outstanding in the third quarter 2010 versus the same period last year. Adjusting for the elimination of the incentive distribution rights, the net income per unit remained flat with that of the third quarter 2009 at $0.36 per unit.

Nine Months

Net income to the limited partners increased $32.7 million, or 63%, for the first nine months of 2010 when compared to the same period in 2009 due to improved revenues. Net income per unit rose by $0.37 per unit, to $1.14 per unit, despite a 10% increase in the number of units outstanding during the respective time periods. Excluding the impact of the elimination of incentive distribution rights, adjusted net income per unit rose by $0.10 per unit.

Distributable cash flow

Third Quarter

Distributable cash flow rose $24.2 million, or 80%, to $54.2 million over the second quarter of 2009, mainly due to the improved revenues of $16.8 million and a $6.6 million increase in receipts of minimum royalties period over period.

Nine Months

Distributable cash flow increased $37.2 million, or 32% during the nine months ended September 30, 2010 versus the same period last year predominantly due to improved revenues.

Third Quarter 2010 compared to Second Quarter 2010




3Q10

2Q10

% Change



(in thousands, except per ton and per unit)


Total revenues:


$ 80,752

$ 79,587

1%

Coal production:


12,367

11,767

5%

Coal royalty revenues:


$ 60,142

$ 57,832

4%

Average coal royalty revenue per ton:


$ 4.86

$ 4.91

(1%)

Revenues other than coal royalty:


$ 20,610

$ 21,755

(5%)

Net income to limited partners:


$ 39,350

$ 28,054

40%

Net income per unit:


$ 0.51

$ 0.38

34%

Average units outstanding:


77,896

74,028

5%

Distributable cash flow:


$ 54,227

$ 63,792

(15%)


Revenues

Total revenues for the third quarter 2010 increased modestly over the second quarter 2010, to a record $80.8 million, mainly due to increased shipments of coal offset somewhat by a slight decrease in the realized coal royalty revenue per ton. Coal production increased 5% while average coal royalty revenue per ton decreased 1% to $4.86. NRP experienced increased production in all regions except Northern and Southern Appalachia. The largest increase occurred in the Illinois Basin where, for the second consecutive quarter, production increased approximately 600 thousand tons. The increase in the Illinois Basin was due to increased shipments of coal at both the Williamson and Macoupin properties. Revenues other than coal royalty decreased $1.1 million primarily due to $1.9 million received in the second quarter from a right of way easement offset by minor improvements across several categories.

Operating Expenses

Operating expenses for the third quarter of 2010 increased $2.8 million over the second quarter mainly due to general and administrative expenses. General and administrative costs for the third quarter increased $2.0 million which included an increase in the long-term incentive plan accrual for both additional grants for new employees and the additional accrual associated with a 13% increase in NRP's unit price during the third quarter.

Net income

Net income to the limited partners increased $11.3 million in the third quarter to $39.4 million, mainly due to the elimination of the incentive distribution rights in the third quarter. Excluding the impact of the elimination of the incentive distribution rights, the net income to the limited partners would have been $26.6 million or $0.36 per unit compared to $28.1 million or $0.38 per unit in the second quarter 2010.

Distributable cash flow

Distributable cash flow decreased $9.6 million, or 15% to $54.2 million from last quarter due solely to a scheduled interest payment that was made on NRP's senior notes that offset the improvements in revenue.

Current Market

The coal markets continue to improve. Metallurgical coal prices increased substantially in the first half of the year and have now stabilized at prices approximately twice that of a year ago. In addition, we have seen record coal burns at the utilities, causing stockpiles to be significantly lower than six to nine months ago. The weather over the last nine months in the coal consuming region, coupled with steadily improving commercial/industrial usage, has contributed significantly to the lowering of these stockpiles. Demand for steam coal and for metallurgical coal has improved significantly over the last year.

Guidance - Update

NRP updated its guidance at the end of the second quarter both increasing and narrowing the ranges. In the third quarter, NRP has continued to see improvements in prices and is now anticipating meeting or exceeding the upper limits of all the ranges except production which is anticipated to be near the middle of the previously announced range. In addition, net income per unit is now anticipated to be in a range of $1.40 to $1.50 per unit, an increase of $0.30 to $0.40 per unit, of which approximately $0.15 to $0.20 is due to the elimination of the incentive distribution rights that occurred during the third quarter.

Acquisitions and Liquidity

In the third quarter, NRP took a major step in simplifying its corporate structure. On September 20, NRP issued 32 million units to the holders of the incentive distribution rights in exchange for the permanent retirement of those rights. This transaction not only simplifies NRP's structure but it also lowers NRP's cost of capital, which is critical to completion of acquisitions and growing the partnership's cash flows and distributions.

Early in the fourth quarter, NRP completed the third acquisition of the coal reserves associated with the Deer Run mine in the Illinois Basin. This property, currently under development, will increase coal royalty production for NRP in 2011 and dramatically increase production in 2012 as the longwall production commences.

"With the improvements in the coal markets leading to increased revenues, the cash balance of $72.2 million and the $261.0 million that we had available on our credit facility at the end of the quarter, NRP has the capital available to fund its committed capital obligations and pursue additional acquisitions," said Dwight Dunlap, Chief Financial Officer. "Our capital structure has been strengthened throughout the year due to our improved financial performance, our equity issuance at the beginning of the second quarter as well as the elimination of the incentive distribution rights during the third quarter. The elimination of the incentive distribution rights will enhance our ability to continue to make accretive acquisitions and grow our distribution."

Distributions

As reported on October 22, the Board of Directors of NRP's general partner declared a quarterly distribution of $0.54 per unit, unchanged from the second quarter 2010.

Company Profile

Natural Resource Partners L.P. is a master limited partnership headquartered in Houston, TX, with its operations headquarters in Huntington, WV. NRP is principally engaged in the business of owning and managing mineral reserve properties. NRP primarily owns coal, aggregate and oil and gas reserves across the United States that generate royalty income for the partnership.

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 Nine Months Ended


September 30,


September 30,


2010


2009


2010


2009


(unaudited)


(unaudited)

Coal Royalties:








Coal royalty revenues:








Appalachia








Northern

$ 4,883


$ 3,998


$ 14,224


$ 9,931

Central

38,418


33,688


108,751


101,874

Southern

5,530


4,849


15,805


14,755

Total Appalachia

$ 48,831


$ 42,535


$ 138,780


$ 126,560

Illinois Basin

9,278


5,413


20,307


16,234

Northern Powder River Basin

2,033


1,359


6,048


5,500









Total

$ 60,142


$ 49,307


$ 165,135


$ 148,294









Coal royalty production (tons):








Appalachia








Northern

1,177


1,238


3,676


3,304

Central

7,051


6,984


20,417


21,962

Southern

763


799


2,297


2,438

Total Appalachia

8,991


9,021


26,390


27,704

Illinois Basin

2,389


1,723


5,287


5,005

Northern Powder River Basin

987


539


3,259


2,840









Total

12,367


11,283


34,936


35,549









Average royalty revenue per ton:








Appalachia








Northern

$ 4.15


$ 3.23


$ 3.87


$ 3.01

Central

5.45


4.82


5.33


4.64

Southern

7.25


6.07


6.88


6.05

Total Appalachia

5.43


4.72


5.26


4.57

Illinois Basin

3.88


3.14


3.84


3.24

Northern Powder River Basin

2.06


2.52


1.86


1.94









Combined average royalty revenue per ton

$ 4.86


$ 4.37


$ 4.73


$ 4.17









Aggregates:








Royalty revenues

$ 1,606


$ 1,400


$ 3,486


$ 3,377

Aggregate royalty bonus

$ -


$ 300


$ (639)


$ 1,320

Production:

973


1,148


2,356


2,629

Average base royalty per ton:

$ 1.65


$ 1.22


$ 1.48


$ 1.28


Natural Resource Partners L.P.

Consolidated Statements of Income

(In thousands, except per unit data)



Three Months Ended

September 30,

For the Nine Months Ended

September 30,


2010

2009

2010

2009


(Unaudited)

(Unaudited)

Revenues:





Coal royalties

$ 60,142

$ 49,307

$ 165,135

$ 148,294

Aggregate royalties

1,606

1,700

2,847

4,697

Coal processing fees

2,343

1,508

6,680

5,808

Transportation fees

4,285

3,049

11,103

8,634

Oil and gas royalties

1,013

1,203

4,200

3,649

Property taxes

3,552

3,311

8,985

9,036

Minimums recognized as revenue

3,782

775

10,574

1,065

Override royalties

2,625

2,077

8,749

5,961

Other

1,404

1,032

5,586

3,038

Total revenues

80,752

63,962

223,859

190,182

Operating costs and expenses:





Depreciation, depletion and amortization

16,195

12,952

44,048

48,026

General and administrative

8,761

4,586

22,103

17,926

Property, franchise and other taxes

4,580

4,273

11,812

11,399

Transportation costs

614

403

1,436

1,144

Coal royalty and override payments

258

353

1,251

1,214

Total operating costs and expenses

30,408

22,567

80,650

79,709

Income from operations

50,344

41,395

143,209

110,473

Other income (expense)





Interest expense

(10,204)

(10,762)

(31,279)

(29,516)

Interest income

13

18

25

196

Income before non-controlling interest

40,153

$ 30,651

111,955

$ 81,153

Non-controlling interest

--

--

--

--

Net income

$ 40,153

$ 30,651

$ 111,955

$ 81,153

Net income attributable to:





General partner

$ 803

$ 513

$ 1,720

$ 1,052

Holders of incentive distribution rights

$ -

$ 4,977

$ 25,966

$ 28,538

Limited partners

$ 39,350

$ 25,161

$ 84,269

$ 51,563






Basic and diluted net income per limited partner unit:

$ 0.51

$ 0.36

$ 1.14

$ 0.77






Weighted average number of units outstanding:

77,896

69,451

73,792

67,113












Natural Resource Partners L.P.

Statements of Cash Flows

(In thousands)



Three Months Ended

September 30,

For the Nine Months Ended

September 30,


2010

2009

2010

2009


(Unaudited)

(Unaudited)

Cash flows from operating activities:





Net income

$ 40,153

$ 30,651

$ 111,955

$ 81,153

Adjustments to reconcile net income to net





cash provided by operating activities:





Depreciation, depletion and amortization

16,195

12,952

44,048

48,026

Non-cash interest charge, net

124

326

415

1,336

Change in operating assets and liabilities:





Accounts receivable

(256)

(1,885)

(5,341)

(20)

Other assets

501

312

620

579

Accounts payable and accrued liabilities

205

104

303

(143)

Accrued interest

(7,136)

(7,123)

(7,458)

(3,214)

Deferred revenue

8,613

1,996

29,254

10,306

Accrued incentive plan expenses

3,765

840

2,425

2,408

Property, franchise and other taxes payable

(58)

(53)

(561)

(1,632)

Net cash provided by operating activities

62,107

38,120

175,660

138,799






Cash flows from investing activities:





Acquisition of land, coal and other mineral rights

(365)

(19,345)

(111,176)

(114,986)

Acquisition or construction of plant and equipment

(2,218)

--

(4,320)

(1,157)

Disposition of assets

408

--

808

--

Net cash used in investing activities

(2,175)

(19,345)

(114,688)

(116,143)






Cash flows from financing activities:





Proceeds from loans

4,000

22,000

85,000

325,000

Proceeds from issuance of units

--

--

110,436

--

Capital contribution by general partner

--

--

2,350

--

Deferred financing costs

--

--

--

(661)

Repayments of loans

(7,692)

(7,693)

(106,234)

(168,235)

Retirement of obligation related to acquisitions

(6,200)

(3,000)

(9,169)

(63,000)

Costs associated with issuance of units

--

--

(152)

(21)

Fees associated with the elimination of the IDRs

(2,170)

--

(2,170)

--

Distributions to partners

(54,040)

(50,697)

(151,427)

(144,787)

Net cash (used in) provided by financing activities

(66,102)

(39,390)

(71,366)

(51,704)

Net increase or (decrease) in cash and cash equivalents

(6,170)

(20,615)

(10,394)

(29,048)

Cash and cash equivalents at beginning of period

78,410

81,495

82,634

89,928

Cash and cash equivalents at end of period

$ 72,240

$ 60,880

$ 72,240

$ 60,880






SUPPLEMENTAL INFORMATION:





Cash paid during the period for interest

$ 17,222

$ 17,556

$ 38,292

$ 31,316


Non-cash investing activities:





Mineral rights to be received

$ --

$ --

$ 13,249

$ --

Liability associated with acquisitions

1,268

--

1,268

1,170

Equity issued for acquisitions

--

--

--

95,910

Non-controlling interest

--

--

(7,355)

--

Non-cash financing activities:

Obligation related to purchase of reserves and infrastructure

$ --

$ 14,802

$ 6,200

$ 74,022


Natural Resource Partners L.P.

Consolidated Balance Sheets

(In thousands, except for unit information)



ASSETS



September 30,

December 31,


2010

2009


(unaudited)


Current assets:



Cash and cash equivalents

$ 72,240

$ 82,634

Accounts receivable, net of allowance for doubtful accounts

28,974

27,141

Accounts receivable - affiliate

7,850

4,342

Other

197

930

Total current assets

109,261

115,047

Land

24,343

24,343

Plant and equipment, net

63,701

64,351

Coal and other mineral rights, net

1,241,714

1,151,835

Intangible assets

160,751

164,554

Loan financing costs, net

2,550

2,891

Other assets, net

682

569

Total assets

$1,603,002

$1,523,590


LIABILITIES AND PARTNERS' CAPITAL


Current liabilities:



Accounts payable and accrued liabilities

$ 2,486

$ 914

Accounts payable - affiliates

178

179

Obligation related to acquisitions

--

2,969

Current portion of long-term debt

31,518

32,235

Accrued incentive plan expenses - current portion

5,734

4,627

Property, franchise and other taxes payable

5,603

6,164

Accrued interest

2,842

10,300

Total current liabilities

48,361

57,388

Deferred revenue

96,272

67,018

Accrued incentive plan expenses

8,689

7,371

Long-term debt

606,070

626,587

Partners' capital:



Common units (106,027,836 in 2010, 69,451,136 in 2009)

822,365

747,437

General partner's interest

14,450

13,409

Holders of incentive distribution rights

--

4,977

Non-controlling interest

7,355

--

Accumulated other comprehensive loss

(560)

(597)

Total partners' capital

843,610

765,226

Total liabilities and partners' capital

$1,603,002

$1,523,590


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 Ended

September 30,

For the Nine Months Ended

September 30,


2010

2009

2010

2009


(unaudited)

(unaudited)






Net cash provided by operating activities

$ 62,107

$ 38,120

$ 175,660

$ 138,799

Less scheduled principal payments

(7,692)

(7,693)

(32,234)

(17,235)

Less reserves for future principal payments

(7,880)

(8,059)

(23,819)

(24,177)

Add reserves used for scheduled principal payments

7,692

7,693

32,234

17,235

Distributable cash flow

$ 54,227

$ 30,061

$ 151,841

$ 114,622


Reconciliation of GAAP "Net income attributable to the limited partners"

To Non-GAAP "Adjusted net income attributable to the limited partners"


Three Months Ended

September 30,

For the Nine Months Ended

September 30,


2010

2009

2010

2009


(unaudited)

(unaudited)






Non-GAAP





GAAP net income

$ 40,153

$ 30,651

$ 111,955

$ 81,153

Add write-off of property due to mine closure

--

--

--

8,195

Adjusted net income

$ 40,153

$ 30,651

$ 111,955

$ 89,348

Adjusted net income attributable to:





General partner

$ 543

$ 513

$ 1,460

$ 1,216

Holders of incentive distribution rights:

$ 12,983

$ 4,977

$ 38,949

$ 28,538

Limited partners

$ 26,627

$ 25,161

$ 71,546

$ 59,594






GAAP basic and diluted net income per limited partner unit

$ 0.51

$ 0.36

$ 1.14

$ 0.77

Adjusted basic and diluted net income per limited partner unit

$ 0.36

$ 0.36

$ 0.99

$ 0.89






GAAP weighted average number of units outstanding:

77,896

69 451

73,792

67,113

Adjustment for units issued during the third quarter in exchange for the elimination of the incentive distribution rights

(3,868)

--

(1,289)

--

Adjusted weighted average number of units outstanding:

74,028

69,451

72,503

67,113


Reconciliation of GAAP "Net income attributable to the limited partners"

To Non-GAAP "Adjusted net income attributable to the limited partners"


Three Months Ended


September 30,

2010

June 30,

2010


(unaudited)

Non-GAAP



GAAP net income

$ 40,153

$ 41,610

Adjusted net income attributable to:



General partner

$ 543

$ 573

Holders of incentive distribution rights:

$ 12,983

$ 12,983

Limited partners

$ 26,627

$ 28,054




GAAP basic and diluted net income per limited partner unit

$ 0.51

$ 0.38

Adjusted basic and diluted net income per limited partner unit

$ 0.36

$ 0.38




GAAP weighted average number of units outstanding:

77,896

74,028

Adjustment for units issued during third quarter in exchange for the elimination of the incentive distribution rights

(3,868)

--

Adjusted weighted average number of units outstanding

74,028

74,028


SOURCE Natural Resource Partners L.P.

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