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Section 1: 10-Q (10-Q)

felp-10q_20180331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission File Number: 001-36503

 

Foresight Energy LP

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

80-0778894

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

211 North Broadway, Suite 2600, Saint Louis, MO

 

63102

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (314) 932-6160

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer           Non-accelerated filer  

  

Smaller reporting company        

 

 

 

 

 

 

 

 

 (do not check if a smaller reporting company)

  

Emerging growth company  

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No    

As of May 1, 2018, the registrant had 79,826,538 common units and 64,954,691 subordinated units outstanding.

 

 

 

 


 

 

 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets

3

Unaudited Condensed Consolidated Statements of Operations

4

Unaudited Condensed Consolidated Statement of Partners’ Capital

5

Unaudited Condensed Consolidated Statements of Cash Flows

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.Controls and Procedures

27

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings

28

Item 1A.Risk Factors

28

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.Defaults Upon Senior Securities

28

Item 4.Mine Safety Disclosures

28

Item 5.Other Information

28

Item 6. Exhibits

29

Signatures

30

 

 

2


PART I – FINANCIAL INFORMATION.

 

Item 1. Financial Statements.

 

Foresight Energy LP

Unaudited Condensed Consolidated Balance Sheets

(In Thousands)

 

 

(Successor)

 

 

 

(Successor)

 

 

March 31,

 

 

 

December 31,

 

 

2018

 

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

18,553

 

 

 

$

2,179

 

Accounts receivable

 

28,611

 

 

 

 

35,158

 

Due from affiliates

 

26,315

 

 

 

 

37,685

 

Financing receivables - affiliate

 

3,200

 

 

 

 

3,138

 

Inventories, net

 

56,557

 

 

 

 

40,539

 

Prepaid royalties

 

1,579

 

 

 

 

4,000

 

Deferred longwall costs

 

19,135

 

 

 

 

9,520

 

Other prepaid expenses and current assets

 

8,579

 

 

 

 

10,844

 

Contract-based intangibles

 

6,145

 

 

 

 

11,268

 

Total current assets

 

168,674

 

 

 

 

154,331

 

Property, plant, equipment and development, net

 

2,340,623

 

 

 

 

2,378,605

 

Due from affiliates

 

 

 

 

 

947

 

Financing receivables - affiliate

 

63,257

 

 

 

 

64,097

 

Prepaid royalties, net

 

1,667

 

 

 

 

1,250

 

Other assets

 

4,432

 

 

 

 

5,358

 

Contract-based intangibles

 

1,721

 

 

 

 

2,052

 

Total assets

$

2,580,374

 

 

 

$

2,606,640

 

Liabilities and partners’ capital

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt and capital lease obligations

$

99,623

 

 

 

$

109,532

 

Current portion of sale-leaseback financing arrangements

 

4,731

 

 

 

 

4,148

 

Accrued interest

 

26,725

 

 

 

 

13,410

 

Accounts payable

 

85,876

 

 

 

 

76,658

 

Accrued expenses and other current liabilities

 

62,684

 

 

 

 

62,442

 

Asset retirement obligations

 

4,416

 

 

 

 

4,416

 

Due to affiliates

 

12,399

 

 

 

 

13,324

 

Contract-based intangibles

 

24,006

 

 

 

 

28,688

 

Total current liabilities

 

320,460

 

 

 

 

312,618

 

Long-term debt and capital lease obligations

 

1,202,956

 

 

 

 

1,205,000

 

Sale-leaseback financing arrangements

 

195,621

 

 

 

 

196,496

 

Asset retirement obligations

 

40,011

 

 

 

 

39,655

 

Other long-term liabilities

 

28,901

 

 

 

 

32,330

 

Contract-based intangibles

 

142,522

 

 

 

 

144,715

 

Total liabilities

 

1,930,471

 

 

 

 

1,930,814

 

Limited partners' capital:

 

 

 

 

 

 

 

 

Common unitholders (79,827 and 77,644 units outstanding as of March 31, 2018 and December 31, 2017, respectively)

 

407,018

 

 

 

 

421,161

 

Subordinated unitholder (64,955 units outstanding as of March 31, 2018 and December 31, 2017)

 

242,885

 

 

 

 

254,665

 

Total partners' capital

 

649,903

 

 

 

 

675,826

 

Total liabilities and partners' capital

$

2,580,374

 

 

 

$

2,606,640

 

 

See accompanying notes.

3


 

Foresight Energy LP

Unaudited Condensed Consolidated Statements of Operations

(In Thousands, Except per Unit Data)

 

 

(Successor)

 

 

(Predecessor)

 

 

Three Months Ended

March 31, 2018

 

 

Three Months Ended

March 31, 2017

 

Revenues

 

 

 

 

 

 

 

Coal sales

$

238,387

 

 

$

227,813

 

Other revenues

 

2,339

 

 

 

2,581

 

Total revenues

 

240,726

 

 

 

230,394

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of coal produced (excluding depreciation, depletion and amortization)

 

120,570

 

 

 

117,762

 

Cost of coal purchased

 

1,751

 

 

 

7,973

 

Transportation

 

46,443

 

 

 

37,726

 

Depreciation, depletion and amortization

 

51,420

 

 

 

39,298

 

Contract amortization

 

(1,420

)

 

 

 

Accretion on asset retirement obligations

 

731

 

 

 

710

 

Selling, general and administrative

 

7,775

 

 

 

6,554

 

Loss on commodity derivative contracts

 

 

 

 

1,492

 

Other operating (income) expense, net

 

(648

)

 

 

451

 

Operating income

 

14,104

 

 

 

18,428

 

Other expenses:

 

 

 

 

 

 

 

Interest expense, net

 

35,673

 

 

 

43,380

 

Change in fair value of warrants

 

 

 

 

(9,278

)

Loss on early extinguishment of debt

 

 

 

 

95,510

 

Net loss

$

(21,569

)

 

$

(111,184

)

 

 

 

 

 

 

 

 

Net loss available to limited partner units - basic and diluted:

 

 

 

 

 

 

 

Common unitholders

$

(9,789

)

 

$

(56,259

)

Subordinated unitholder

$

(11,780

)

 

$

(54,925

)

 

 

 

 

 

 

 

 

Net loss per limited partner unit - basic and diluted:

 

 

 

 

 

 

 

Common unitholders

$

(0.12

)

 

$

(0.85

)

Subordinated unitholder

$

(0.18

)

 

$

(0.85

)

 

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic and diluted:

 

 

 

 

 

 

 

Common units

 

78,846

 

 

 

66,533

 

Subordinated units

 

64,955

 

 

 

64,955

 

 

 

 

 

 

 

 

 

Distributions declared per limited partner unit

$

0.0565

 

 

$

 

 

See accompanying notes.

 

4


Foresight Energy LP

Unaudited Condensed Consolidated Statement of Partners’ Capital

(In Thousands, Except Unit Data)

 

 

Limited Partners

 

 

 

 

 

 

Common

 

 

Number of

 

 

Subordinated

 

 

Number of

 

 

Total Partners'

 

 

Unitholders

 

 

Common Units

 

 

Unitholder

 

 

Subordinated Units

 

 

Capital (Deficit)

 

Successor balance at January 1, 2018

$

421,161

 

 

 

77,644,489

 

 

$

254,665

 

 

 

64,954,691

 

 

$

675,826

 

Net loss attributable to successor

 

(9,789

)

 

 

 

 

 

(11,780

)

 

 

 

 

 

(21,569

)

Cash distributions

 

(4,510

)

 

 

 

 

 

 

 

 

 

 

 

(4,510

)

Conversion of warrants, net

 

 

 

 

2,135,493

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

177

 

 

 

 

 

 

 

 

 

 

 

 

177

 

Issuance of equity-based awards

 

 

 

 

46,556

 

 

 

 

 

 

 

 

 

 

Distribution equivalent rights on LTIP awards

 

(21

)

 

 

 

 

 

 

 

 

 

 

 

(21

)

Successor balance at March 31, 2018

$

407,018

 

 

 

79,826,538

 

 

$

242,885

 

 

 

64,954,691

 

 

$

649,903

 

 

See accompanying notes.

 

5


Foresight Energy LP

Unaudited Condensed Consolidated Statements of Cash Flows

(In Thousands)

 

(Successor)

 

 

(Predecessor)

 

 

Three Months Ended

March 31, 2018

 

 

Three Months Ended

March 31, 2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(21,569

)

 

$

(111,184

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

51,420

 

 

 

39,298

 

Amortization of debt discount and deferred issuance costs

 

655

 

 

 

6,365

 

Contract amortization

 

(1,420

)

 

 

 

Equity-based compensation

 

177

 

 

 

318

 

Loss on commodity derivative contracts

 

 

 

 

1,492

 

Settlements of commodity derivative contracts

 

 

 

 

3,724

 

Realized gains on coal derivatives included in investing activities

 

 

 

 

(3,520

)

Change in fair value of warrants

 

 

 

 

(9,278

)

Debt extinguishment expense

 

 

 

 

95,510

 

Other

 

 

 

 

1,321

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

6,547

 

 

 

19,695

 

Due from/to affiliates, net

 

11,392

 

 

 

(13,157

)

Inventories

 

(12,927

)

 

 

(917

)

Prepaid expenses and other assets

 

(6,424

)

 

 

(5,117

)

Prepaid royalties

 

2,004

 

 

 

(241

)

Commodity derivative assets and liabilities

 

 

 

 

(532

)

Accounts payable

 

9,218

 

 

 

7,324

 

Accrued interest

 

13,315

 

 

 

(9,803

)

Accrued expenses and other current liabilities

 

(1,466

)

 

 

(3,430

)

Other

 

784

 

 

 

1,782

 

Net cash provided by operating activities

 

51,706

 

 

 

19,650

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investment in property, plant, equipment and development

 

(16,531

)

 

 

(19,908

)

Return of investment on financing arrangements with Murray Energy (affiliate)

 

778

 

 

 

705

 

Settlement of certain coal derivatives

 

 

 

 

3,520

 

Proceeds from sale of property, plant and equipment

 

 

 

 

1,898

 

Net cash used in investing activities

 

(15,753

)

 

 

(13,785

)

Cash flows from financing activities

 

 

 

 

 

 

 

Net change in borrowings under revolving credit facility

 

 

 

 

(352,500

)

Net change in borrowings under A/R securitization program

 

 

 

 

7,000

 

Proceeds from long-term debt and capital lease obligations

 

 

 

 

1,234,438

 

Payments on long-term debt and capital lease obligations

 

(12,608

)

 

 

(970,721

)

Payments on short-term debt

 

(2,147

)

 

 

 

Proceeds from issuance of common units to Murray Energy (affiliate)

 

 

 

 

60,586

 

Distributions paid

 

(4,510

)

 

 

 

Debt extinguishment costs

 

 

 

 

(57,645

)

Debt issuance costs paid

 

 

 

 

(27,328

)

Other

 

(314

)

 

 

(1,892

)

Net cash used in financing activities

 

(19,579

)

 

 

(108,062

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

16,374

 

 

 

(102,197

)

Cash, cash equivalents, and restricted cash, beginning of period

 

2,179

 

 

 

116,921

 

Cash, cash equivalents, and restricted cash, end of period

$

18,553

 

 

$

14,724

 

 

See accompanying notes.

6


Foresight Energy LP

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization, Nature of Business and Basis of Presentation

 

Foresight Energy LLC (“FELLC”), a perpetual-term Delaware limited liability company, was formed in September 2006 for the development, mining, transportation and sale of coal. Prior to June 23, 2014, Foresight Reserves LP (“Foresight Reserves”) owned 99.333% of FELLC and a member of FELLC’s management owned 0.667%. On June 23, 2014, in connection with the initial public offering (“IPO”) of Foresight Energy LP (“FELP”), Foresight Reserves and a member of management contributed their ownership interests in FELLC to FELP for which they were issued common and subordinated units in FELP. Because this transaction was between entities under common control, the contributed assets and liabilities of FELLC were recorded in the combined consolidated financial statements of FELP at FELLC’s historical cost. FELP has been managed by Foresight Energy GP LLC (“FEGP”) subsequent to the IPO.

 

On April 16, 2015, Murray Energy Corporation and its affiliates (“Murray Energy”) and Foresight Reserves completed a transaction whereby Murray Energy acquired a 34% voting interest in FEGP and all of the outstanding subordinated units of FELP, representing a 50% ownership of the Partnership’s limited partner units outstanding at that time. On March 28, 2017, following the completion of a debt refinancing (the “March 2017 Refinancing Transactions”), Murray Energy exercised its option (the “FEGP Option”) to acquire an additional 46% voting interest in FEGP from Foresight Reserves and a former member of management pursuant to the terms of an option agreement, dated April 16, 2015, among Murray Energy, Foresight Reserves and a former member of management, as amended, thereby increasing Murray Energy’s voting interest in FEGP to 80%. The aggregate exercise price of the FEGP Option was $15 million. Murray Energy’s acquisition of the incremental ownership in FEGP resulted in its obtaining control of FELP. Per Accounting Standards Codification (“ASC”) 805-50-25-4, Murray Energy, as the acquirer of FELP through FEGP, has the option to apply pushdown accounting in the separate financial statements of the acquiree. Murray Energy elected to adopt pushdown accounting in our stand alone financial statements and therefore we have reflected the adjustment of our assets and liabilities to fair value required by pushdown accounting in our consolidated financial statements.

 

Due to the application of pushdown accounting, our condensed consolidated financial statements and certain footnote disclosures are presented in two distinct periods to indicate the application of two different bases of accounting between the periods presented. The periods prior to the acquisition date are identified as “Predecessor” and the period after the acquisition date is identified as “Successor”. For accounting purposes, management has designated the acquisition date as March 31, 2017 (the “Acquisition Date”), as the operating results and change in financial position for the intervening period was not material.

 

As used hereafter in this report, the terms “Foresight Energy LP,” “FELP,” the “Partnership,” “we,” “us” or like terms, refer to the consolidated results of Foresight Energy LP and its consolidated subsidiaries and affiliates, unless the context otherwise requires or where otherwise indicated.

 

The Partnership operates in a single reportable segment and currently owns four underground mining complexes in the Illinois Basin: Williamson Energy, LLC (“Williamson”); Sugar Camp Energy, LLC (“Sugar Camp”); Hillsboro Energy, LLC (“Hillsboro”); and Macoupin Energy, LLC (“Macoupin”). Mining operations at our Hillsboro complex have been idled since March 2015 due to a combustion event. On April 11, 2018, we announced that our Hillsboro operation will be permanently closed (see Note 13). Our mined coal is sold to a diverse customer base, including electric utility and industrial companies primarily in the eastern United States, as well as overseas markets.

The accompanying condensed consolidated financial statements contain all significant adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary to present fairly, the Partnership’s condensed consolidated financial position, results of operations and cash flows for all periods presented. In preparing the condensed consolidated financial statements, management used estimates and assumptions that may affect reported amounts and disclosures. To the extent there are material differences between the estimates and actual results, the impact to the Partnership’s financial condition or results of operations could be material. The unaudited condensed consolidated financial statements do not include footnotes and certain financial information as required annually under U.S. generally accepted accounting principles (“U.S. GAAP”) and, therefore, should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K filed with the SEC on March 7, 2018. The results of operations for interim periods are not necessarily indicative of results that can be expected for any future period, including the year ending December 31, 2018. Intercompany transactions are eliminated in consolidation.

 

7


2. New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. We adopted ASC 606 as of January 1, 2018 using the modified retrospective approach; therefore, the comparative information has not been adjusted and continues to be reported under previous revenue recognition guidance.  The adoption did not have a material effect on our financial position and results of operations as the timing of revenue recognition related to coal sales remains consistent between ASC 606 and previous revenue recognition guidance. Additionally, there was no cumulative adjustment to partners’ capital as of January 1, 2018. Refer to Note 3 for the additional financial statement disclosures required by ASC 606.

In November 2016, the FASB issued ASU 2016-18 which clarified the presentation requirements of restricted cash within the statement of cash flows. Under ASU 2016-18, the changes in restricted cash and restricted cash equivalents during the period should be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. When cash, cash equivalents, restricted cash or restricted cash equivalents are presented in more than one line item within the statement of financial position, an entity shall calculate a total cash amount in a narrative or tabular format that agrees to the amount shown on the statement of cash flows. Details on the nature and amounts of restricted cash should also be disclosed. This standard is effective for fiscal years beginning after December 15, 2017, and is to be applied retrospectively. We adopted this update during the first quarter of 2018 and this new guidance to required adjustments to the presentation of our condensed consolidated statement of cash flows. Refer to Note 4 for the additional financial statement disclosures required by this update.

In February 2016, the FASB updated guidance regarding the accounting for leases. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements and related disclosures. We disclosed our future minimum payments on our contractual royalty obligations and operating lease obligations in our Annual Report on Form 10-K filed with the SEC on March 7, 2018 and we will evaluate those contracts as well as other existing arrangements to determine if they qualify for lease accounting under the new standard 

 

3. Revenue from Contracts with Customers

 

Significant Accounting Policy

 

Revenue is measured based on consideration specified in a contract with a customer. The Partnership recognizes revenue when it satisfies a performance obligation by transferring control over goods and services to a customer.

 

Shipping and handling costs (e.g., the application of anti-freezing agents) are accounted for as fulfillment costs. The Partnership includes any fulfillment costs billed to customers in revenue, with the corresponding expenses included in cost of coal produced and transportation.

 

Nature of Goods and Services

 

The Partnership’s primary source of revenue is from the sale of coal to domestic and international customers through short-term and long-term coal sales contracts. Coal sales revenue includes the sale to customers of coal produced and, from time to time, the re-sale of coal purchased from third-parties or from one of our affiliates. Performance obligations, consisting of individual tons of coal, are satisfied at a point in time when control is transferred to a customer.  For domestic coal sales, this generally occurs when coal is loaded onto railcars at the mine or onto barges at terminals.  For coal sales to international markets, this generally occurs when coal is loaded onto an ocean vessel.  

 

The Partnership’s coal sales contracts typically range in length from one to three years, however some agreements have terms of as little as one month. Coal sales contracts generally provide for either a fixed base price or a base price determined by a market index. The base price is subject to quality and weight adjustments. Quality and weight adjustments are recorded as necessary based on coal sales contract specifications as a reduction or increase to coal sales revenue. The coal sales contracts also typically give the customer

8


the option to vary volumes, subject to certain minimums. Coal sales are generally invoiced upon shipment and payment is due from customers within standard industry credit timeframes.  

 

Disaggregation of Revenue

The following table disaggregates revenue by domestic and international markets:

 

 

(Successor)

 

 

Three Months Ended

March 31, 2018

 

 

(In Thousands)

 

Coal sales - Domestic

$

142,715

 

Coal sales - International

 

95,672

 

Total coal sales

$

238,387

 

 

Contract Balances

 

The following table provides information about balances associated with contracts with customers:

 

 

(Successor)

 

 

March 31,

2018

 

 

(In Thousands)

 

Receivables - Included in 'Accounts receivable'

$

25,179

 

Receivables - Included in 'Due from affiliates - current'

 

20,395

 

Total contract balances

$

45,574

 

 

Contract Costs

 

The Partnership applies the practical expedient in ASC 340-40-25-4, whereby the Partnership recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Partnership would have recognized is one year or less. These costs are included in selling, general and administrative expenses.

 

Other Revenues

 

Other revenues consist primarily of a transport lease and overriding royalty agreements with Murray Energy (see Note 9). These arrangements are accounted for under guidance contained in ASC 310 Receivables, ASC 360 Property, Plant, and Equipment, and ASC 840 Leases and therefore are outside the scope of ASC 606.

 

 

 


9


4. Supplemental Cash Flow Information

 

The following is supplemental information to the condensed consolidated statement of cash flows (in thousands):

 

 

(Successor)

 

 

(Predecessor)

 

 

Three Months Ended

March 31, 2018

 

 

Three Months Ended

March 31, 2017

 

Supplemental disclosures of non-cash financing activities:

 

 

 

 

 

 

 

Reclassification of warrant liability to partners' capital

$

 

 

$

41,888

 

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total of the same such amounts shown in the condensed consolidated statement of cash flows (in thousands):

 

 

(Successor)

 

 

(Successor)

 

 

(Successor)

 

 

 

(Predecessor)

 

 

March 31,

2018

 

 

December 31,

2017

 

 

March 31,

2017

 

 

 

December 31,

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

18,553

 

 

$

2,179

 

 

$

4,235

 

 

 

$

103,690

 

Restricted cash - Included in 'Other prepaid expenses and current assets'

 

 

 

 

 

 

 

10,489

 

 

 

 

10,731

 

Restricted cash - Included in 'Other assets'

 

 

 

 

 

 

 

 

 

 

 

2,500

 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

$

18,553

 

 

$

2,179

 

 

$

14,724

 

 

 

$

116,921

 

 

Restricted cash included in other prepaid expenses and current assets were amounts that were required to be temporarily held in a restricted cash account for a short duration related to our trade accounts receivable securitization program. The accounts receivable securitization program terminated in December 2017.  

 

Restricted cash included in other assets was cash collateral used to secure a letter of credit for one of our surety bond providers. During the three months ended March 31, 2017, the restriction was released.

 

5. Accounts Receivable

 

Accounts receivable consist of the following:

 

 

(Successor)

 

 

 

(Successor)

 

 

March 31,

2018

 

 

 

December 31,

2017

 

 

(In Thousands)

 

Trade accounts receivable

$

25,179

 

 

 

$

31,225

 

Other receivables

 

3,432

 

 

 

 

3,933

 

Total accounts receivable

$

28,611

 

 

 

$

35,158

 

 

 

 

 

 


10


6. Inventories, Net

Inventories, net consist of the following:

 

 

 

(Successor)

 

 

 

(Successor)

 

 

March 31,

2018

 

 

 

December 31,

2017

 

 

(In Thousands)

 

Parts and supplies

$

17,366

 

 

 

$

17,196

 

Raw coal

 

3,777

 

 

 

 

5,577

 

Clean coal

 

35,414

 

 

 

 

17,766

 

Total inventories

$

56,557

 

 

 

$

40,539

 

 

 

 

7. Property, Plant, Equipment and Development, Net

Property, plant, equipment and development, net consist of the following:

 

 

(Successor)

 

 

 

(Successor)

 

 

March 31,

2018

 

 

 

December 31,

2017

 

 

(In Thousands)

 

Land, land rights and mineral rights

$

1,639,980

 

 

 

$

1,639,980

 

Machinery and equipment

 

545,570

 

 

 

 

580,649

 

Machinery and equipment under capital lease

 

127,064

 

 

 

 

127,064

 

Buildings and structures

 

221,625

 

 

 

 

221,625

 

Development costs

 

20,450

 

 

 

 

16,644

 

Other

 

3,449

 

 

 

 

3,449

 

Property, plant, equipment and development

 

2,558,138

 

 

 

 

2,589,411

 

Less: accumulated depreciation, depletion and amortization

 

(217,515

)

 

 

 

(210,806

)

Property, plant, equipment and development, net

$

2,340,623

 

 

 

$

2,378,605

 

 

 

8. Long-Term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consist of the following:

 

 

(Successor)

 

 

 

(Successor)

 

 

March 31,

2018

 

 

 

December 31,

2017

 

 

(In Thousands)

 

Term Loan due 2022

$

816,750

 

 

 

$

818,813

 

Second Lien Notes due 2023

 

425,000

 

 

 

 

425,000

 

Revolving Credit Facility ($170.0 million capacity)

 

 

 

 

 

 

5.78% longwall financing arrangement

 

28,012

 

 

 

 

28,012

 

5.555% longwall financing arrangement

 

23,204

 

 

 

 

30,937

 

Capital lease obligations

 

22,566

 

 

 

 

25,378

 

Subtotal - Total long-term debt and capital lease obligations principal outstanding

 

1,315,532

 

 

 

 

1,328,140

 

Unamortized debt discounts

 

(12,953

)

 

 

 

(13,608

)

Total long-term debt and capital lease obligations

 

1,302,579

 

 

 

 

1,314,532

 

Less: current portion

 

(99,623

)

 

 

 

(109,532

)

Non-current portion of long-term debt and capital lease obligations

$

1,202,956

 

 

 

$

1,205,000

 

 

Term Loan due 2022

 

The Term Loan due 2022 bears interest at the borrower’s option of (a) LIBOR (subject to a LIBOR floor of 1.00%) plus 5.75% per annum; or (b) a base rate plus 4.75% per annum. The Term Loan due 2022 also requires us to prepay outstanding borrowings (the

11


“Excess Cash Flow Provisions”), subject to certain exceptions. The Excess Cash Flow Provisions are calculated annually and are payable 95 days after year-end.  We are required to prepay $53.8 million of outstanding borrowings under the Excess Cash Flow Provisions for the annual period ending December 31, 2017.  Accordingly, this amount has been included in the current portion of long-term debt and capital lease obligations on our condensed consolidated balance sheets as of March 31, 2018.

 

Second Lien Notes due 2023

 

The Second Lien Notes due 2023 have a maturity date of April 1, 2023 and bear interest at a rate of 11.50% per annum, payable in cash semi-annually on April 1 and October 1.

 

Revolving Credit Facility

 

The Revolving Credit Facility has a total borrowing capacity of $170.0 million and bears interest at the borrower’s option of (a) LIBOR (subject to a floor of zero) plus an applicable margin ranging from 5.25% to 5.50% per annum or (b) a base rate plus an applicable margin ranging from 4.25% to 4.50% per annum. We are required to pay a quarterly commitment fee with respect to the unused portions of our Revolving Credit Facility and customary letter of credit fees.

 

As of March 31, 2018, there were no outstanding borrowings under our Revolving Credit Facility and available borrowing capacity under the Revolving Credit Facility, net of outstanding letters of credit of $9.0 million, was $161.0 million.  

 

9. Related-Party Transactions

 

Overview

 

Affiliated entities of FELP principally include: (a) Murray Energy, owner of a 80% interest in our general partner (effective March 28, 2017) and owner of all of the outstanding subordinated limited partner units, (b) Entities owned and controlled by Chris Cline, the former majority owner and former chairman of our general partner and (c) through May 8, 2017, Natural Resource Partners LP (“NRP”) and its affiliates, for which Chris Cline directly and indirectly beneficially owned a 31% and 4% interest in the general and limited partner interests of NRP, respectively. On May 9, 2017, the affiliate owned by Chris Cline sold its holdings in NRP’s general partner.  As a result, NRP and its affiliates were not treated as related parties after May 8, 2017. We routinely engage in transactions in the normal course of business with Murray Energy and its subsidiaries, NRP and its subsidiaries and Foresight Reserves and its affiliates. These transactions include, among others, production royalties, transportation services, administrative arrangements, coal handling and storage services, supply agreements, service agreements, land leases and sale-leaseback financing arrangements. We also acquire mining equipment from subsidiaries of Murray Energy.

 

Murray Investments

 

In April 2015, Foresight Reserves and Murray Energy executed a purchase and sale agreement whereby Murray Energy paid Foresight Reserves $1.37 billion to acquire a 34% voting interest in FEGP, 77.5% of FELP’s incentive distribution rights (“IDRs”) and nearly 50% of the outstanding limited partner units in FELP, including all of the outstanding subordinated units. On March 27, 2017, Murray Energy contributed $60.6 million in cash (the “Murray Investment”) to us in exchange for 9,628,108 common units of FELP. On March 28, 2017, following completion of the March 2017 Refinancing Transactions, Murray Energy exercised its FEGP Option to acquire an additional 46% voting interest in FEGP from Foresight Reserves and a former member of management pursuant to the terms of an option agreement, dated April 16, 2015, among Murray Energy, Foresight Reserves and a former member of management, as amended, thereby increasing Murray Energy’s voting interest in FEGP to 80%. The aggregate exercise price of the FEGP Option was $15 million. FEGP has continued to govern the Partnership subsequent to this transaction. Murray Energy was also a holder of 17,556 of FELP’s outstanding warrants. All outstanding warrants held by Murray Energy were exercised in 2017 and Murray Energy held no outstanding warrants as of March 31, 2018.

 

Following the exercise of the FEGP Option, certain changes to the operating agreement of FEGP went into effect, pursuant to which Murray Energy is entitled to appoint a majority of the board of directors of FEGP (the “Board”). On March 28, 2017, Chris Cline resigned from the Board and from his role as Principal Strategy Advisor. In connection with the departure of Mr. Cline, Robert D. Moore now serves as Chairman of the Board and Mr. Robert Edward Murray became a member of the Board. Mr. Murray currently serves as the Executive Vice President of Marketing and Sales at Murray Energy. All members of the Board, other than Paul Vining, are deemed appointed by Murray Energy and can be removed and replaced by Murray Energy at its sole discretion.

 

12


Murray Energy Management Services Agreement

 

In April 2015, a management services agreement (“MSA”) was executed between FEGP and Murray American Coal, Inc. (the ”Manager”), a wholly-owned subsidiary of Murray Energy, pursuant to which the Manager provided certain management and administration services to FELP for a quarterly fee of $3.5 million ($14.0 million on an annual basis), subject to contractual adjustments. To the extent that FELP or FEGP directly incurs costs for any services covered under the MSA, then the Manager’s quarterly fee is reduced accordingly. Also, to the extent that the Manager utilizes outside service providers to perform any of the services under the MSA, then the Manager is responsible for those outside service provider costs. The initial term of the MSA extends through December 31, 2022 and is subject to termination provisions. Upon the exercise of the FEGP Option, FEGP entered into an amended and restated MSA pursuant to which the quarterly fee for the Manager to provide certain management and administration services to FELP was increased to $5.0 million ($20.0 million on an annual basis) and is subject to future contractual escalations and adjustments. After taking into account the contractual escalations and adjustments for direct costs incurred by FELP, the amount of net expense due to the Manager for the three months ended March 31, 2018 and 2017 was $4.0 million and $2.5 million, respectively.

 

Murray Energy Transport Lease and Overriding Royalty Agreements

 

For the three months ended March 31, 2018 and 2017, we recorded other revenues of $1.6 million and $1.6 million, respectively, under the transport lease (the “Transport Lease”) with American Energy Corporation (“American Energy”), a subsidiary of Murray Energy.  The total remaining minimum payments under the Transport Lease were $83.1 million at March 31, 2018, with unearned income equal to $28.1 million. As of March 31, 2018, the outstanding Transport Lease financing receivable was $55.0 million, of which $3.0 million was classified as current in the condensed consolidated balance sheet.

 

For the three months ended March 31, 2018 and 2017, we recorded other revenues of $0.7 million and $0.8 million, respectively, under the overriding royalty agreement (the “ORRA”) with Murray Energy subsidiaries’ American Energy and Consolidated Land Company. The total remaining minimum payments under the ORRA were $29.6 million at March 31, 2018, with unearned income equal to $18.2 million. As of March 31, 2018, the outstanding ORRA financing receivable was $11.4 million, of which $0.2 million was classified as current in the condensed consolidated balance sheet.

 

Other Murray Energy Transactions

 

During the three months ended March 31, 2018 and 2017, we purchased $4.1 million and $2.1 million, respectively, in equipment, supplies and rebuild services from affiliates of Murray Energy.  During the three months ended March 31, 2018 and 2017, we provided $0.1 million and $0.1 million, respectively, in equipment, supplies and rebuild services to affiliates of Murray Energy.

 

From time to time, we purchase and sell coal to Murray Energy and its affiliates to, among other things, meet customer contractual obligations. We also sell coal to Javelin Global Commodities Limited (“Javelin”), an international commodities marketing and trading joint venture owned by Murray Energy, Uniper, and management of Javelin, as our primary outlet for export sales. During the three months ended March 31, 2018 and 2017, we purchased $1.8 million and $8.0 million, respectively of coal from Murray Energy and its affiliates and we sold $85.1 million and $60.7 million, respectively, of coal to Murray Energy and its affiliates, including Javelin.

 

During the three months ended March 31, 2018 and 2017, we paid Javelin $1.0 million and $0.5 million, respectively, in transportation costs related to certain export sales.

 

During the three months ended March 31, 2018 and 2017, we also paid Javelin $1.3 million and $0.7 million, respectively, in sales and marketing expenses.

 

During the three months ended March 31, 2018 and 2017, we earned less than $0.1 million and $0.2 million, respectively, in other revenues for Murray Energy’s usage of our Sitran terminal.

 

During the three months ended March 31, 2018, we utilized capacity on a Murray Energy transloading contract with a third party, thereby allowing Murray Energy to reduce its exposure to certain contractual liquidated damage charges.  To compensate the Partnership for the reduced contractual liquidated damage charges, Murray Energy reimbursed the Partnership $2.5 million of transportation expenses during the three months ended March 31, 2018.

 

During the three months ended March 31, 2018, Murray Energy utilized our capacity within our transportation agreement with a third party, thereby allowing us to reduce our exposure to certain contractual liquidated damage charges.  To compensate Murray Energy for our reduced contractual liquidated damage charges, we reimbursed Murray Energy $0.2 million of transportation expenses during the three months ended March 31, 2018.  

 

From time to time, we also reimburse Murray Energy for costs paid by them on our behalf, including certain insurance premiums.

 

13


Reserves Investor Group

 

The Reserves Investor Group includes Christopher Cline, the Cline Resource and Development Company (“CRDC”), the four trusts established for the benefit of Mr. Cline’s children (the “Cline Trust”), and certain other limited liability companies owned or controlled by individuals with limited partner interests in Foresight Reserves through indirect ownership. Concurrent with and subsequent to the March 2017 Refinancing Transactions, CRDC and the Cline Trust acquired investments in our Term Loan due 2022 and our Second Lien Notes due 2023 on consistent terms as the unaffiliated owners of these notes.

 

As of March 31, 2018, CRDC owned $9.9 million and $5.0 million of the outstanding principal on our Term Loan due 2022 and our Second Lien Notes due 2023, respectively.

 

As of March 31, 2018, the Cline Trust owned $9.9 million and $20.0 million of the outstanding principal on our Term Loan due 2022 and our Second Lien Notes due 2023, respectively. The Cline Trust is also a holder of 17,556 of FELP’s outstanding warrants as of March 31, 2018.

Mineral Reserve Leases

 

Our mines have a series of mineral reserve leases with Colt, LLC and Ruger, LLC (“Ruger”), subsidiaries of Foresight Reserves. Each of these leases have initial terms of 10 years with six renewal periods of five years each, at the election of the lessees, and generally require the lessees to pay the greater of $3.40 per ton or 8.0% of the gross sales price, as defined in the respective agreements, of such coal. We also have overriding royalty agreements with Ruger pursuant to which we pay royalties equal to 8.0% of the gross selling prices, as defined in the agreements. Each of these mineral reserve leases generally require a minimum annual royalty payment, which is recoupable only against actual production royalties from future tons mined during the period of ten years following the date on which any such royalty is paid.

 

Limited Partnership Agreement

The general partner manages the Partnership’s operations and activities as specified in the partnership agreement. The general partner of the Partnership is managed by its board of directors. Murray Energy and Foresight Reserves have the right to appoint the directors of the general partner. The members of the board of directors of the general partner are not elected by the unitholders and are not subject to reelection by the unitholders. The officers of the general partner manage the day-to-day affairs of the Partnership’s business. The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses incurred or payments made by the general partner on behalf of the Partnership.

14


 

The following table summarizes certain affiliate amounts included in our condensed consolidated balance sheets:

 

 

 

 

 

(Successor)

 

 

 

(Successor)

 

Affiliated Company

 

Balance Sheet Location

 

March 31,

2018

 

 

 

December 31,

2017

 

 

 

 

 

(In Thousands)

 

Murray Energy and affiliated entities (1)

 

Due from affiliates - current

 

$

26,315

 

 

 

$

37,685

 

Total

 

 

 

$

26,315

 

 

 

$

37,685

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy and affiliated entities

 

Financing receivables - affiliate - current

 

$

3,200

 

 

 

$

3,138

 

Total

 

 

 

$

3,200

 

 

 

$

3,138

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy and affiliated entities

 

Due from affiliates - noncurrent

 

$

 

 

 

$

947

 

Total

 

 

 

$

 

 

 

$

947

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy and affiliated entities

 

Financing receivables - affiliate - noncurrent

 

$

63,257

 

 

 

$

64,097

 

Total

 

 

 

$

63,257

 

 

 

$

64,097

 

 

 

 

 

 

 

 

 

 

 

 

 

Foresight Reserves and affiliated entities

 

Prepaid royalties - current and noncurrent

 

$

1,579

 

 

 

$

4,000

 

Total

 

 

 

$

1,579

 

 

 

$

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy and affiliated entities (1)

 

Due to affiliates - current

 

$

11,384

 

 

 

$

11,591

 

Foresight Reserves and affiliated entities

 

Due to affiliates - current

 

 

1,015

 

 

 

 

1,733

 

Total

 

 

 

$

12,399

 

 

 

$

13,324

 

(1) – Includes amounts due to/from Javelin, a joint venture partially owned by Murray Energy.

 

A summary of certain expenditures and expenses (revenues) incurred with affiliated entities is as follows for the three months ended  March 31, 2018 and 2017 (in thousands):

 

(Successor)

 

 

(Predecessor)

 

 

Three Months Ended

March 31, 2018

 

 

Three Months Ended

March 31, 2017

 

Coal sales – Murray Energy and affiliated entities (including Javelin) (1)

$

(85,082

)

 

$

(60,749

)

Overriding royalty and lease revenues – Murray Energy and affiliated entities (2)

$

(2,296

)

 

$

(2,355

)

Terminal revenues - Murray Energy and affiliated entities (2)

$

(44

)

 

$

(226

)

Royalty expense – NRP and affiliated entities (3) — through April 30, 2017

n/a

 

 

$

3,669

 

Royalty expense – Foresight Reserves and affiliated entities (3)

$

5,387

 

 

$

1,521

 

Loadout services – NRP and affiliated entities (3) — through April 30, 2017

n/a

 

 

$

2,134

 

Transportation services - Murray Energy and affiliated entities (including Javelin) (4)

$

978

 

 

$

525

 

Purchased goods and services – Murray Energy and affiliated entities (5)

$

4,118

 

 

$

2,061

 

Purchased coal - Murray Energy and affiliated entities (6)

$

1,751

 

 

$

7,973

 

Land leases - Foresight Reserves and affiliated entities (3), (4)

$

60

 

 

$

57

 

Sales and marketing expenses - Murray Energy and affiliated entities (including Javelin)(7)

$

1,266

 

 

$

692

 

Management services, net  – Murray Energy and affiliated entities (7)

$

3,983

 

 

$

2,547

 

Sales-leaseback interest expense - NRP and affiliated entities (8) — through April 30, 2017

n/a

 

 

$

6,244

 

Principal location in the condensed consolidated financial statements:

(1) – Coal sales

(2) – Other revenues

(3) – Cost of coal produced (excluding depreciation, depletion and amortization)

15


(4) – Transportation  

(5) – Cost of coal produced (excluding depreciation, depletion and amortization) and property, plant and equipment and development, net, as applicable

(6) – Cost of coal purchased  

(7) – Selling, general and administrative

(8) – Interest expense, net

 

Transactions with NRP and affiliated entities are only included in the table above through April 30, 2017 as a result of NRP no longer being an affiliate subsequent to Chris Cline’s affiliate selling its interest in NRP’s general partner on May 9, 2017.

 

We also purchased $3.0 million in mining supplies from an affiliated joint venture under a supply agreement during the three months ended March 31, 2017. This joint venture was no longer an affiliate subsequent to March 31, 2017, due to The Cline Group disposing of its interest in the joint venture.

 

10. Earnings per Limited Partner Unit

 

We compute earnings per unit (“EPU”) using the two-class method for master limited partnerships as prescribed in ASC 260, Earnings Per Share. The two-class method requires that securities that meet the definition of a participating security be considered for inclusion in the computation of basic EPU. In addition to the common and subordinated units, we have also identified the general partner interest and our incentive distribution rights (“IDR”) as participating securities. Under the two-class method, EPU is calculated as if all of the earnings for the period were distributed under the terms of the partnership agreement, regardless of whether the general partner has discretion over the amount of distributions to be made in any particular period, whether those earnings would actually be distributed during a particular period from an economic or practical perspective, or whether the general partner has other legal or contractual limitations on its ability to pay distributions that would prevent it from distributing all of the earnings for a particular period.

 

The Partnership’s net loss is allocated to the limited partners, including the holders of the subordinated units, in accordance with the partnership agreement on their respective ownership percentages, after giving effect to any special income or expense allocations and incentive distributions paid to the general partner, if any. The holders of our IDRs have the right to receive increasing percentages of quarterly distributions from operating surplus after certain distribution levels defined in the partnership agreement have been achieved. The general partner has no obligation to make distributions; therefore, undistributed earnings of the Partnership are not allocated to the IDRs. Basic EPU is computed by dividing net earnings attributable to unitholders by the weighted-average number of units outstanding during each period. Diluted EPU reflects the potential dilution of common equivalent units that could occur if equity participation units are converted into common units.

 

The following table illustrates the Partnership’s calculation of net loss per common and subordinated unit for the three month periods indicated:

 

 

 

(Successor)

 

 

(Predecessor)

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

Common Units

 

 

Subordinated Units

 

 

Total

 

 

Common Units

 

 

Subordinated Units

 

 

Total

 

 

 

(In Thousands, Except Per Unit Data)

 

 

(In Thousands, Except Per Unit Data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available to limited partner units

 

$

(9,789

)

 

$

(11,780

)

 

$

(21,569

)

 

$

(56,259

)

 

$

(54,925

)

 

$

(111,184

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average units to calculate basic EPU

 

 

78,846

 

 

 

64,955

 

 

 

143,801

 

 

 

66,533

 

 

 

64,955

 

 

 

131,488

 

Less: effect of dilutive securities (1)