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Section 1: 10-Q (10-Q)

felp-10q_20190331.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, 2019

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 every Interactive Data File required to be submitted 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 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        

 

 

 

 

 

 

 

 

 

  

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, 2019, the registrant had 80,939,221 common units and 64,954,691 subordinated units outstanding.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common units representing limited partner interests

 

FELP

 

New York Stock Exchange (“NYSE”)

 

 

 

 

 


 

 

 

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 Statements 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

21

Item 3.Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.Controls and Procedures

28

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings

29

Item 1A.Risk Factors

29

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

29

Item 3.Defaults Upon Senior Securities

29

Item 4.Mine Safety Disclosures

29

Item 5.Other Information

29

Item 6. Exhibits

30

Signatures

31

 

 

2


PART I – FINANCIAL INFORMATION.

 

Item 1. Financial Statements.

 

Foresight Energy LP

Unaudited Condensed Consolidated Balance Sheets

(In Thousands)

 

March 31,

 

 

 

December 31,

 

 

2019

 

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

3,486

 

 

 

$

269

 

Accounts receivable

 

27,274

 

 

 

 

32,248

 

Due from affiliates

 

38,658

 

 

 

 

49,613

 

Financing receivables - affiliate

 

3,459

 

 

 

 

3,392

 

Inventories, net

 

63,625

 

 

 

 

56,524

 

Prepaid royalties - affiliate

 

1,619

 

 

 

 

2,000

 

Deferred longwall costs

 

26,401

 

 

 

 

14,940

 

Other prepaid expenses and current assets

 

8,603

 

 

 

 

10,872

 

Contract-based intangibles

 

1,031

 

 

 

 

1,326

 

Total current assets

 

174,156

 

 

 

 

171,184

 

Property, plant, equipment and development, net

 

2,134,244

 

 

 

 

2,148,569

 

Financing receivables - affiliate

 

59,815

 

 

 

 

60,705

 

Prepaid royalties, net

 

3,054

 

 

 

 

2,678

 

Other assets

 

12,431

 

 

 

 

4,311

 

Contract-based intangibles

 

545

 

 

 

 

726

 

Total assets

$

2,384,245

 

 

 

$

2,388,173

 

Liabilities and partners’ capital

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt and finance lease obligations

$

43,000

 

 

 

$

53,709

 

Current portion of sale-leaseback financing arrangements

 

6,807

 

 

 

 

6,629

 

Accrued interest

 

31,684

 

 

 

 

24,304

 

Accounts payable

 

116,797

 

 

 

 

99,735

 

Accrued expenses and other current liabilities

 

66,235

 

 

 

 

67,466

 

Asset retirement obligations

 

6,578

 

 

 

 

6,578

 

Due to affiliates

 

16,304

 

 

 

 

17,740

 

Contract-based intangibles

 

8,211

 

 

 

 

8,820

 

Total current liabilities

 

295,616

 

 

 

 

284,981

 

Long-term debt and finance lease obligations

 

1,203,094

 

 

 

 

1,194,394

 

Sale-leaseback financing arrangements

 

187,976

 

 

 

 

189,855

 

Asset retirement obligations

 

39,578

 

 

 

 

38,966

 

Other long-term liabilities

 

17,454

 

 

 

 

16,428

 

Contract-based intangibles

 

65,281

 

 

 

 

66,834

 

Total liabilities

 

1,808,999

 

 

 

 

1,791,458

 

Limited partners' capital:

 

 

 

 

 

 

 

 

Common unitholders (80,939 and 80,844 units outstanding as of March 31, 2019 and December 31, 2018, respectively)

 

366,064

 

 

 

 

377,880

 

Subordinated unitholder (64,955 units outstanding as of March 31, 2019 and December 31, 2018)

 

209,182

 

 

 

 

218,835

 

Total partners' capital

 

575,246

 

 

 

 

596,715

 

Total liabilities and partners' capital

$

2,384,245

 

 

 

$

2,388,173

 

 

See accompanying notes.

 

 

3


 

Foresight Energy LP

Unaudited Condensed Consolidated Statements of Operations

(In Thousands, Except per Unit Data)

 

 

Three Months Ended

March 31, 2019

 

 

Three Months Ended

March 31, 2018

 

Revenues:

 

 

 

 

 

 

 

Coal sales

$

267,337

 

 

$

238,387

 

Other revenues

 

1,735

 

 

 

2,339

 

Total revenues

 

269,072

 

 

 

240,726

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

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

 

133,981

 

 

 

120,570

 

Cost of coal purchased

 

2,375

 

 

 

1,751

 

Transportation

 

58,834

 

 

 

46,443

 

Depreciation, depletion and amortization

 

46,548

 

 

 

51,420

 

Contract amortization

 

(1,686

)

 

 

(1,420

)

Accretion on asset retirement obligations

 

551

 

 

 

731

 

Selling, general and administrative

 

8,647

 

 

 

7,775

 

Other operating (income) expense, net

 

(67

)

 

 

(648

)

Operating income

 

19,889

 

 

 

14,104

 

Other expenses

 

 

 

 

 

 

 

Interest expense, net

 

36,710

 

 

 

35,673

 

Net loss

$

(16,821

)

 

$

(21,569

)

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Common unitholders

$

(7,168

)

 

$

(9,789

)

Subordinated unitholder

$

(9,653

)

 

$

(11,780

)

 

 

 

 

 

 

 

 

Net loss per limited partner unit - basic and diluted:

 

 

 

 

 

 

 

Common unitholders

$

(0.09

)

 

$

(0.12

)

Subordinated unitholder

$

(0.15

)

 

$

(0.18

)

 

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic and diluted:

 

 

 

 

 

 

 

Common units

 

80,915

 

 

 

78,846

 

Subordinated units

 

64,955

 

 

 

64,955

 

 

 

 

 

 

 

 

 

Distributions declared per limited partner unit

$

0.0600

 

 

$

0.0565

 

 

See accompanying notes.

 

4


Foresight Energy LP

Unaudited Condensed Consolidated Statements 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

 

Balance at January 1, 2019

$

377,880

 

 

 

80,844,319

 

 

$

218,835

 

 

 

64,954,691

 

 

$

596,715

 

Net loss

 

(7,168

)

 

 

 

 

 

(9,653

)

 

 

 

 

 

(16,821

)

Cash distributions

 

(4,856

)

 

 

 

 

 

 

 

 

 

 

 

(4,856

)

Conversion of warrants, net

 

 

 

 

10,087

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

233

 

 

 

 

 

 

 

 

 

 

 

 

233

 

Issuance of equity-based awards

 

 

 

 

84,815

 

 

 

 

 

 

 

 

 

 

Distribution equivalent rights on LTIP awards

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

(25

)

Balance at March 31, 2019

$

366,064

 

 

 

80,939,221

 

 

$

209,182

 

 

 

64,954,691

 

 

$

575,246

 

 

Limited Partners

 

 

 

 

 

 

Common

 

 

Number of

 

 

Subordinated

 

 

Number of

 

 

Total Partners'

 

 

Unitholders

 

 

Common Units

 

 

Unitholder

 

 

Subordinated Units

 

 

Capital

 

Balance at January 1, 2018

$

421,161

 

 

 

77,644,489

 

 

$

254,665

 

 

 

64,954,691

 

 

$

675,826

 

Net loss

 

(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

)

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)

 

Three Months Ended

March 31, 2019

 

 

Three Months

Ended

March 31, 2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(16,821

)

 

$

(21,569

)

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

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

46,548

 

 

 

51,420

 

Amortization of debt discount

 

700

 

 

 

655

 

Contract amortization

 

(1,686

)

 

 

(1,420

)

Accretion on asset retirement obligations

 

551

 

 

 

731

 

Equity-based compensation

 

233

 

 

 

177

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

4,974

 

 

 

6,547

 

Due from/to affiliates, net

 

9,519

 

 

 

11,392

 

Inventories

 

(4,228

)

 

 

(12,927

)

Prepaid expenses and other assets

 

(9,235

)

 

 

(6,424

)

Prepaid royalties

 

5

 

 

 

2,004

 

Accounts payable

 

17,062

 

 

 

9,218

 

Accrued interest

 

7,380

 

 

 

13,315

 

Accrued expenses and other current liabilities

 

(6,157

)

 

 

(1,466

)

Other

 

322

 

 

 

53

 

Net cash provided by operating activities

 

49,167

 

 

 

51,706

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investment in property, plant, equipment and development

 

(35,096

)

 

 

(16,531

)

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

 

823

 

 

 

778

 

Net cash used in investing activities

 

(34,273

)

 

 

(15,753

)

Cash flows from financing activities

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

21,000

 

 

 

 

Payments on revolving credit facility

 

(13,000

)

 

 

 

Payments on long-term debt and finance lease obligations

 

(10,709

)

 

 

(12,608

)

Distributions paid

 

(4,856

)

 

 

(4,510

)

Payments on sale-leaseback and short-term financing arrangements

 

(4,112

)

 

 

(2,461

)

Net cash used in financing activities

 

(11,677

)

 

 

(19,579

)

Net increase in cash, cash equivalents, and restricted cash

 

3,217

 

 

 

16,374

 

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

 

269

 

 

 

2,179

 

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

$

3,486

 

 

$

18,553

 

 

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. 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, Murray Energy acquired an additional 46% voting interest in FEGP, thereby increasing Murray Energy’s voting interest in FEGP to 80%.

 

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”); Macoupin Energy, LLC (“Macoupin”); and Hillsboro Energy, LLC (“Hillsboro”). Mining operations at our Hillsboro complex had been idled since March 2015 due to a combustion event (the “Hillsboro Combustion Event”). In January 2019, we resumed production at our Hillsboro complex with one continuous miner unit.  Our mined coal is sold to a diverse customer base, including electric utility and industrial companies primarily in the eastern half of the 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, 2018 included in our Annual Report on Form 10-K filed with the SEC on February 27, 2019. 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, 2019. Intercompany transactions are eliminated in consolidation.

2. New Accounting Standards

In February 2016, the FASB updated guidance regarding the accounting for leases (the “New Lease Guidance”). The New Lease Guidance 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 New Lease Guidance also expands the required quantitative and qualitative disclosures surrounding leases. The New Lease Guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.

We adopted the New Lease Guidance as of January 1, 2019 using a modified retrospective transition approach for leases existing at, or entered into after, the adoption date.  Under this transition approach, comparative information for periods prior to January 1, 2019 is not adjusted. Upon adoption, we elected the package of practical expedients permitted under the New Lease Guidance, which allows for the carry forward of historical lease classification.  We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements.   

The adoption of the New Lease Guidance resulted in the addition of $7.6 million in lease right-of-use assets and lease liabilities on our consolidated balance sheet at January 1, 2019. The adoption of the New Lease Guidance did not have a material effect on our results of operations and had no impact on cash flows. Additionally, there was no cumulative adjustment to partners’ capital. Refer to Note 13 for the additional financial statement disclosures required by the New Lease Guidance.

 

7


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 as reductions to the corresponding expenses included in cost of coal produced and transportation expense.

 

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 may give the customer 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:

 

 

Three Months Ended

March 31, 2019

 

 

Three Months Ended

March 31, 2018

 

 

(In Thousands)

 

Coal sales - Domestic

$

140,949

 

 

$

142,715

 

Coal sales - International

 

126,388

 

 

 

95,672

 

Total coal sales

$

267,337

 

 

$

238,387

 

 

Contract Balances

 

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

 

 

March 31,

2019

 

 

December 31,

2018

 

 

(In Thousands)

 

Receivables - Included in 'Accounts receivable'

$

23,546

 

 

$

27,521

 

Receivables - Included in 'Due from affiliates'

 

34,725

 

 

 

42,234

 

Total contract balances

$

58,271

 

 

$

69,755

 

 

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.

 


8


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 842 Leases and therefore are outside the scope of ASC 606.

 

4. Supplemental Cash Flow Information

 

The following is supplemental information to the condensed consolidated statement of cash flows:

 

 

Three Months Ended

March 31, 2019

 

 

Three Months Ended

March 31, 2018

 

 

(In Thousands)

 

Supplemental disclosures of non-cash investing activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization capitalized into development costs

$

3,180

 

 

$

 

 

 

5. Accounts Receivable

 

Accounts receivable consist of the following:

 

 

March 31,

2019

 

 

 

December 31,

2018

 

 

(In Thousands)

 

Trade accounts receivable

$

23,546

 

 

 

$

27,521

 

Other receivables

 

3,728

 

 

 

 

4,727

 

Total accounts receivable

$

27,274

 

 

 

$

32,248

 

 

 

6. Inventories, Net

Inventories, net consist of the following:

 

 

March 31,

2019

 

 

 

December 31,

2018

 

 

(In Thousands)

 

Parts and supplies

$

17,386

 

 

 

$

16,665

 

Raw coal

 

11,276

 

 

 

 

6,919

 

Clean coal

 

34,963

 

 

 

 

32,940

 

Total inventories

$

63,625

 

 

 

$

56,524

 

 

 

7. Property, Plant, Equipment and Development, Net

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

 

 

March 31,

2019

 

 

 

December 31,

2018

 

 

(In Thousands)

 

Land, land rights and mineral rights

$

1,638,933

 

 

 

$

1,631,939

 

Machinery and equipment

 

605,790

 

 

 

 

589,113

 

Machinery and equipment under finance leases

 

127,064

 

 

 

 

127,064

 

Buildings and structures

 

223,183

 

 

 

 

223,111

 

Development costs

 

56,250

 

 

 

 

41,717

 

Other

 

3,449

 

 

 

 

3,449

 

Property, plant, equipment and development

 

2,654,669

 

 

 

 

2,616,393

 

Less: accumulated depreciation, depletion and amortization

 

(520,425

)

 

 

 

(467,824

)

Property, plant, equipment and development, net

$

2,134,244

 

 

 

$

2,148,569

 

 

 

9


8. Long-Term Debt and Finance Lease Obligations

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

 

 

March 31,

2019

 

 

 

December 31,

2018

 

 

(In Thousands)

 

Term Loan due 2022

$

762,906

 

 

 

$

762,906

 

Second Lien Notes due 2023

 

425,000

 

 

 

 

425,000

 

Revolving Credit Facility ($170.0 million capacity)

 

45,000

 

 

 

 

37,000

 

5.78% longwall financing arrangement

 

9,338

 

 

 

 

9,338

 

5.555% longwall financing arrangement

 

3,110

 

 

 

 

10,845

 

Finance lease obligations

 

10,932

 

 

 

 

13,906

 

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

 

1,256,286

 

 

 

 

1,258,995

 

Unamortized debt discounts

 

(10,192

)

 

 

 

(10,892

)

Total long-term debt and finance lease obligations

 

1,246,094

 

 

 

 

1,248,103

 

Less: current portion

 

(43,000

)

 

 

 

(53,709

)

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

$

1,203,094

 

 

 

$

1,194,394

 

 

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 “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 $19.6 million of outstanding borrowings under the Excess Cash Flow Provisions for the annual period ended December 31, 2018.  Accordingly, this amount has been included in the current portion of long-term debt and finance lease obligations on our condensed consolidated balance sheets as of March 31, 2019.

 

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, 2019, there was $45.0 million in outstanding borrowings under our Revolving Credit Facility and available borrowing capacity under the Revolving Credit Facility, net of outstanding letters of credit of $12.3 million, was $112.7 million.

10


9. Related-Party Transactions

 

Overview

 

Affiliated entities of FELP principally include: (a) Murray Energy, owner of a 80% interest in our general partner, owner of all of the outstanding subordinated limited partner units, and owner of approximately 12% of the outstanding common limited partner units and (b) Foresight Reserves, its affiliates, and other entities owned and controlled by Chris Cline, the former majority owner and former chairman of our general partner. We routinely engage in transactions in the normal course of business with Murray Energy 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, land purchases, and sale-leaseback financing arrangements. We also acquire mining equipment from subsidiaries of Murray Energy.

 

Limited Partnership Agreement

 

FEGP 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 select 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. No amounts were incurred by the general partner or reimbursed under the partnership agreement from the IPO date to March 31, 2019.

 

Transactions with Murray Energy and Affiliates

 

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 (currently $5.2 million per quarter as of March 31, 2019).

 

Murray Energy Transport Lease and Overriding Royalty Agreements

 

In April 2015, American Century Transport LLC (“American Transport”), a subsidiary of the Partnership, entered into a purchase and sale agreement (the “PSA”) with American Energy Corporation (“American Energy”), a subsidiary of Murray Energy, pursuant to which American Energy sold to American Transport certain mining and transportation assets for $63.0 million. Concurrent with the PSA, American Transport entered into a lease agreement (the “Transport Lease”) with American Energy pursuant to which (i) American Transport leased to American Energy a tract of real property, two coal preparation plants and related coal handling facilities at American Energy’s Century Mine situated in Belmont and Monroe Counties, Ohio and (ii) American Transport receives from American Energy a fee ranging from $1.15 to $1.75 for every ton of coal mined, processed and/or transported using such assets, subject to a quarterly recoupable minimum fee of $1.7 million. The Transport Lease is being accounted for as a direct financing lease.  The total remaining minimum payments under the Transport Lease was $76.2 million at March 31, 2019, with unearned income equal to $24.1 million. The unearned income is reflected as other revenue over the term of the lease using the effective interest method. Any amounts in excess of the contractual minimums are recorded as other revenue when earned. As of March 31, 2019, the outstanding Transport Lease financing receivable was $52.1 million, of which $3.2 million was classified as current in the consolidated balance sheet.

 

Also, in April 2015, American Century Minerals LLC (“American Century Minerals”), a newly created subsidiary of the Partnership, entered into an overriding royalty agreement (“ORRA”) with Murray Energy subsidiaries’ American Energy and Consolidated Land Company (collectively, “AEC”), pursuant to which AEC granted to American Century Minerals an overriding royalty interest ranging from $0.30 to $0.50 for each ton of coal mined, removed and sold from certain coal reserves situated near the Century Mine in Belmont and Monroe Counties, Ohio for $12.0 million. The ORRA is subject to a minimum recoupable quarterly fee of $0.5 million. This overriding royalty was accounted for as a financing arrangement.  The total remaining minimum payments under the ORRA was $27.7 million at March 31, 2019, with unearned income equal to $16.4 million. The payments the Partnership receives with respect to the ORRA are reflected partially as a return of the initial investment (reduction in the affiliate financing receivable) and partially as

11


other revenue over the life of the agreement using the effective interest method. Any amounts in excess of the contractual minimums are recorded as other revenue when earned.  As of March 31, 2019, the outstanding ORRA financing receivable was $11.3 million, of which $0.2 million was classified as current in the consolidated balance sheet.

 

Coals Sales and Purchases with Murray Energy and Affiliates

 

We sell coal to Javelin Global Commodities (“Javelin”), which is an international commodities marketing and trading joint venture owned by Murray Energy, Uniper (formerly E.ON Global Commodities SE), and management of Javelin. We incur sales and marketing expenses on export sales to Javelin.  In addition, we are responsible for transportation costs on certain export sales to Javelin.  

 

From time to time, we also purchase and sell coal to Murray Energy and its affiliates to, among other things, meet each of our customer contractual obligations.

 

Murray Energy Transportation Arrangements

 

Murray Energy may transport coal under our transportation agreement with a third-party rail company, resulting in usage fees owed to the third-party rail company by the Partnership.  These usage fees are billed to Murray Energy, resulting in no impact to our consolidated statements of operations. The usage of the railway line with this third-party rail company by Murray Energy counts towards the minimum annual throughput volumes with the third-party rail company, thereby reducing the Partnership’s exposure to contractual liquidated damage charges.  There were no usage fees during the three months ended March 31, 2019 and 2018, respectively.

 

We have an arrangement with Murray Energy whereby 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 damages, Murray Energy reimbursed the Partnership $1.9 million and $2.5 million for the three months ended March 31, 2019 and 2018, respectively. The amounts are included in transportation on the consolidated statements of operations.

 

Similarly, we have an arrangement in which Murray Energy utilized capacity within our transportation network, thereby reducing our exposure to certain contractual liquidated damage charges. No capacity was utilized during the three months ended March 31, 2019.  To compensate Murray Energy for our reduced contractual liquidated damages, we reimbursed Murray Energy $0.2 million for the three months ended March 31, 2018. The amounts are included in transportation on the consolidated statements of operations.

 

We earn terminal revenues for Murray Energy’s occasional usage of our Sitran transloading facility.

 

Other Murray Energy Transactions

 

We regularly purchase equipment, supplies, rebuild, and other services from affiliates of Murray Energy. On occasion, our subsidiaries provide similar services to affiliates of Murray Energy.  

 

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

 

Transactions with Foresight Reserves and Affiliates

 

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.

 

Other Foresight Reserves Transactions

 

We are party to two surface leases in relation to the coal preparation plant and rail loadout facility at Williamson with New River Royalty, a subsidiary of Foresight Reserves. The primary terms of the leases expire on October 15, 2021, but may be extended by New River Royalty for additional five-year terms under the same terms and conditions until all of the merchantable and mineable coal has

12


been mined and removed from Williamson. Williamson is required to pay aggregate rent of $100,000 per year to New River Royalty under the leases.

 

We are party to a surface lease at our Sitran terminal with New River Royalty. The annual lease amount is $50,000 and the primary term of the lease expires on December 31, 2020, but it may be extended at the election of Sitran for successive five year periods.

 

We are also party to various land easements and similar agreements with New River Royalty with varying terms and renewal options. Annual lease amounts on these arrangements are not significant individually or in aggregate.

 

In January 2019, we purchased two tracts of land from New River Royalty for total consideration of $6.1 million.

 

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 certain refinancing transactions in March 2017, 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, 2019, CRDC owned $9.9 million and $25.0 million of the outstanding principal on our Term Loan due 2022 and our Second Lien Notes due 2023, respectively.

 

As of March 31, 2019, the Cline Trust owned $9.9 million of the outstanding principal on our Term Loan due 2022. The Cline Trust is also a holder of 17,556 of FELP’s outstanding warrants as of March 31, 2019.

 

 

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

 

Affiliated Company

 

Balance Sheet Location

 

March 31,

2019

 

 

 

December 31,

2018

 

 

 

 

 

(In Thousands)

 

Murray Energy and affiliated entities (1)

 

Due from affiliates - current

 

$

38,658

 

 

 

$

49,613

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy and affiliated entities

 

Financing receivables - affiliate - current

 

$

3,459

 

 

 

$

3,392

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy and affiliated entities

 

Financing receivables - affiliate - noncurrent

 

$

59,815

 

 

 

$

60,705

 

 

 

 

 

 

 

 

 

 

 

 

 

Foresight Reserves and affiliated entities

 

Prepaid royalties - affiliate - current

 

$

1,619

 

 

 

$

2,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Murray Energy and affiliated entities (1)

 

Due to affiliates - current

 

$

14,668

 

 

 

$

15,924

 

Foresight Reserves and affiliated entities

 

Due to affiliates - current

 

 

1,636

 

 

 

 

1,816

 

Total - Due to affiliates - current

 

 

 

$

16,304

 

 

 

$

17,740

 

 

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

13


 

A summary of (income) expenses incurred with affiliated entities is as follows for the three months ended March 31, 2019 and 2018:

 

Three Months Ended

March 31, 2019

 

 

Three Months Ended

March 31, 2018

 

 

(In Thousands)

 

Transactions with Murray Energy and Affiliated Entities (including Javelin)

 

 

 

 

 

 

 

Coal sales (1)

$

(141,512

)

 

$

(85,082

)

Purchased coal (6)

$

2,375

 

 

$

1,751

 

Transport Lease revenues (2)

$

(1,215

)

 

$

(1,594

)

ORRA revenues (2)

$

(520

)

 

$

(701

)

Terminal revenues (2)

$

 

 

$

(44

)

Transportation services on certain export sales (4)

$

2,311

 

 

$

978

 

Sales and marketing expenses (7)

$

2,068

 

 

$

1,266

 

Goods and services purchased (5)

$

1,772

 

 

$

4,118

 

Goods and services provided (8)

$

(25

)

 

$

(100

)

Management services (7)

$

4,285

 

 

$

3,983

 

Transactions with Foresight Reserves and Affiliated Entities

 

 

 

 

 

 

 

Royalty expense (3)

$

6,507

 

 

$

5,387

 

Land leases (3), (4)

$

82

 

 

$

60

 

 

Principal location in the condensed consolidated financial statements:

(1) – Coal sales

(2) – Other revenues

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

(4) – Transportation  

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

(6) – Cost of coal purchased  

(7) – Selling, general and administrative

(8) – Other operating (income) expense, net

 

 

 


14


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:

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

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

 

$

(7,168

)

 

$

(9,653

)

 

$

(16,821

)

 

$

(9,789

)

 

$

(11,780

)

 

$

(21,569

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average units to calculate basic EPU

 

 

80,915

 

 

 

64,955

 

 

 

145,870

 

 

 

78,846

 

 

 

64,955

 

 

 

143,801

 

Plus: effect of dilutive securities (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average units to calculate diluted EPU

 

 

80,915

 

 

 

64,955

 

 

 

145,870

 

 

 

78,846

 

 

 

64,955

 

 

 

143,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per unit

 

$

(0.09

)

 

$

(0.15

)

 

$

(0.12

)

 

$

(0.12

)

 

$

(0.18

)

 

$

(0.15

)

Diluted net loss per unit

 

$

(0.09

)

 

$

(0.15

)

 

$

(0.12

)

 

$

(0.12

)

 

$

(0.18

)

 

$

(0.15

)

 

 

(1)

Diluted EPU gives effect to all dilutive potential common units outstanding during the period using the treasury stock method. Diluted EPU excludes all dilutive potential units calculated under the treasury stock method if their effect is anti-dilutive. For the three months ended March 31, 2019 and 2018, approximately 0.4 million and 0.3 million phantom units, respectively, were anti-dilutive, and therefore excluded from the diluted EPU calculation. Diluted EPU also is not impacted during any period by the Warrants (defined in Note 11) outstanding.

 

 

 

 


15


11. Fair Value of Financial Instruments

 

Warrants

In August 2016, FELP issued 516,825 warrants (the “Warrants”) to the unaffiliated owners of previously outstanding debt to purchase an amount of common units. Upon their issuance, the Warrants were recorded as a liability at fair value and remeasured to fair value at each balance sheet date. The resulting non-cash gain or loss on remeasurements was recorded as a non-operating loss in our consolidated statements of operations.

 

As a result of a series of refinancing transactions in March 2017, the establishment of a fixed exchange rate for the conversion of the Warrants to a number of common units resulted in the warrant liability being reclassified to partners’ capital. Therefore, the Warrants are no longer remeasured to fair value. As of March 31, 2019, there are 50,480 Warrants outstanding and exercisable into 14.3 common units of FELP at an exercise price of $0.7983 per common unit.

Long-Term Debt

The fair value of long-term debt as of March 31, 2019 and December 31, 2018 was $1,154.4 million and $1,166.6 million, respectively. The fair value of long-term debt was calculated based on (i) quoted prices in markets that are not active and (ii) the amount of future cash flows associated with each debt instrument discounted at the Partnership’s current estimated credit-adjusted borrowing rate for similar debt instruments with comparable terms.  These are considered Level 2 and Level 3 fair value measurements, respectively.

 

12. Contingencies

 

Litigation Matters

 

We are party to various litigation matters, in most cases involving ordinary and routine claims incidental to our business.

We cannot reasonably estimate the ultimate legal and financial liability with respect to all pending litigation matters. However, we believe, based on our examination of such matters, that the ultimate liability will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.  As of March 31, 2019, we have $1.3 million accrued, in aggregate, for various litigation matters.

 

Insurance Recoveries

 

We are currently in discussions with our insurance providers in regards to further potential recoveries under our policy related to the Hillsboro Combustion Event. From the date of the Hillsboro Combustion Event through March 31, 2019, we have recognized $91.0 million of insurance recoveries related to the recovery of mitigation costs, losses on machinery and equipment, and business interruption insurance proceeds.  We continue to pursue additional remedies under our insurance policies; however, there can be no assurances that we will receive any further insurance recoveries related to this incident.

 

Performance Bonds

 

We had outstanding surety bonds with third parties of $96.3 million as of March 31, 2019 to secure reclamation and other performance commitments.

 

16


13. Leases

Lease Overview

 

The Partnership leases certain mineral reserves. The mineral reserve leases can generally be renewed as long as the mineral reserves are being developed and mined until all economically recoverable reserves are depleted or until mining operations cease. The lease agreements typically require a production royalty at the greater amount of a base amount per ton or a percent of the gross selling price of the coal. Generally, the leases contain provisions that require the payment of minimum royalties regardless of the volume of coal produced or the level of mining activity. Certain of these minimum royalties are recoupable against production royalties over a contractually defined period of time (typically five to ten years). Some of these agreements also require overriding royalty and/or wheelage payments.

 

The Partnership also leases surface rights, water rights, barge fleeting rights, rail cars, mining equipment, and office space under lease agreements of varying expiration dates with affiliated entities and independent third parties in the normal course of business.  These leases generally require fixed regular payments based upon the specified agreements.  Certain of these leases provide for the option to renew and / or purchase of the underlying asset at various times during the life of the lease, generally at its then-fair market value.  In situations in which it is reasonably certain that the option to renew will be exercised, the Partnership includes the renewal period in the calculation of lease right-of-use asset and lease liability.  The discount rates used in determining the lease right-of-use assets and lease liabilities are based upon an average rate of interest that the Partnership would have to pay to borrow on a collateralized basis over a similar term.    

 

The following tables present information about the Partnership’s leases, excluding leases for mineral reserves (which are excluded in accordance with ASC 842-10-15-1b):

Leases

 

Balance Sheet Location

 

March 31,

2019

 

 

 

 

 

(In Thousands)

 

Assets

 

 

 

 

 

 

Operating lease right-of-use assets

 

Other assets

 

$

6,186

 

Operating lease right-of-use assets - affiliate

 

Other assets

 

 

1,891

 

Finance lease right-of-use assets (1)

 

Property, plant, equipment, and development, net

 

 

54,655

 

Total lease right-of-use assets

 

 

 

$

62,732

 

 

 

 

 

 

 

 

Liabilities