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Section 1: 10-Q (10-Q)

felp-10q_20190930.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 September 30, 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

 

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”)*

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 November 1, 2019, the registrant had 80,996,773 common units and 64,954,691 subordinated units outstanding.

*On November 8, 2019, Foresight Energy LP was notified by the NYSE that its common units will be delisted. On November 12, 2019, the common units commenced trading on the OTCQX® Best Market under the symbol “FELPU.”

 

 

 

 


 

 

 

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

25

Item 3.Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.Controls and Procedures

36

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings

37

Item 1A.Risk Factors

37

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

38

Item 3.Defaults Upon Senior Securities

38

Item 4.Mine Safety Disclosures

38

Item 5.Other Information

38

Item 6. Exhibits

39

Signatures

40

 

 

2


PART I – FINANCIAL INFORMATION.

 

Item 1. Financial Statements.

 

Foresight Energy LP

Unaudited Condensed Consolidated Balance Sheets

(In Thousands)

 

September 30,

 

 

 

December 31,

 

 

2019

 

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

42,256

 

 

 

$

269

 

Accounts receivable

 

26,394

 

 

 

 

32,248

 

Due from affiliates

 

21,646

 

 

 

 

49,613

 

Financing receivables - affiliate

 

3,597

 

 

 

 

3,392

 

Inventories, net

 

94,644

 

 

 

 

56,524

 

Prepaid royalties - affiliate

 

 

 

 

 

2,000

 

Deferred longwall costs

 

23,627

 

 

 

 

14,940

 

Other prepaid expenses and current assets

 

8,827

 

 

 

 

10,872

 

Contract-based intangibles

 

637

 

 

 

 

1,326

 

Total current assets

 

221,628

 

 

 

 

171,184

 

Property, plant, equipment and development, net

 

2,084,596

 

 

 

 

2,148,569

 

Financing receivables - affiliate

 

57,981

 

 

 

 

60,705

 

Prepaid royalties, net

 

9,211

 

 

 

 

2,678

 

Other assets

 

11,965

 

 

 

 

4,311

 

Contract-based intangibles

 

182

 

 

 

 

726

 

Total assets

$

2,385,563

 

 

 

$

2,388,173

 

Liabilities and partners’ capital

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt and finance lease obligations

$

4,859

 

 

 

$

53,709

 

Current portion of sale-leaseback financing arrangements

 

6,444

 

 

 

 

6,629

 

Accrued interest

 

32,976

 

 

 

 

24,304

 

Accounts payable

 

128,804

 

 

 

 

99,735

 

Accrued expenses and other current liabilities

 

55,936

 

 

 

 

67,466

 

Asset retirement obligations

 

6,578

 

 

 

 

6,578

 

Due to affiliates

 

15,220

 

 

 

 

17,740

 

Contract-based intangibles

 

6,688

 

 

 

 

8,820

 

Total current liabilities

 

257,505

 

 

 

 

284,981

 

Long-term debt and finance lease obligations

 

1,316,551

 

 

 

 

1,194,394

 

Sale-leaseback financing arrangements

 

185,983

 

 

 

 

189,855

 

Asset retirement obligations

 

39,568

 

 

 

 

38,966

 

Other long-term liabilities

 

15,845

 

 

 

 

16,428

 

Contract-based intangibles

 

62,176

 

 

 

 

66,834

 

Total liabilities

 

1,877,628

 

 

 

 

1,791,458

 

Limited partners' capital:

 

 

 

 

 

 

 

 

Common unitholders (80,997 and 80,844 units outstanding as of September 30, 2019 and December 31, 2018, respectively)

 

328,927

 

 

 

 

377,880

 

Subordinated unitholder (64,955 units outstanding as of September 30, 2019 and December 31, 2018)

 

179,008

 

 

 

 

218,835

 

Total partners' capital

 

507,935

 

 

 

 

596,715

 

Total liabilities and partners' capital

$

2,385,563

 

 

 

$

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

September 30, 2019

 

 

Three Months Ended

September 30, 2018

 

 

 

Nine Months Ended

September 30, 2019

 

 

Nine Months Ended

September 30, 2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal sales

$

181,455

 

 

$

291,987

 

 

 

$

673,280

 

 

$

800,366

 

Other revenues

 

1,627

 

 

 

1,949

 

 

 

 

5,790

 

 

 

5,718

 

Total revenues

 

183,082

 

 

 

293,936

 

 

 

 

679,070

 

 

 

806,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

93,655

 

 

 

133,670

 

 

 

 

349,852

 

 

 

391,222

 

Cost of coal purchased

 

1,990

 

 

 

6,312

 

 

 

 

6,455

 

 

 

11,969

 

Transportation

 

34,106

 

 

 

61,239

 

 

 

 

142,730

 

 

 

166,716

 

Depreciation, depletion and amortization

 

43,850

 

 

 

52,780

 

 

 

 

133,642

 

 

 

159,512

 

Contract amortization and write-off

 

(2,034

)

 

 

(4,855

)

 

 

 

(5,556

)

 

 

(76,699

)

Accretion on asset retirement obligations

 

551

 

 

 

558

 

 

 

 

1,654

 

 

 

1,848

 

Selling, general and administrative

 

6,724

 

 

 

10,465

 

 

 

 

23,379

 

 

 

28,774

 

Long-lived asset impairments

 

 

 

 

 

 

 

 

 

 

 

110,689

 

Other operating (income) expense, net

 

(55

)

 

 

24,849

 

 

 

 

(216

)

 

 

(18,782

)

Operating income

 

4,295

 

 

 

8,918

 

 

 

 

27,130

 

 

 

30,835

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

37,225

 

 

 

36,619

 

 

 

 

110,553

 

 

 

109,327

 

Debt restructuring costs

 

1,176

 

 

 

 

 

 

 

1,176

 

 

 

 

Net loss

$

(34,106

)

 

$

(27,701

)

 

 

$

(84,599

)

 

$

(78,492

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common unitholders

$

(18,923

)

 

$

(13,298

)

 

 

$

(44,772

)

 

$

(37,177

)

Subordinated unitholder

$

(15,183

)

 

$

(14,403

)

 

 

$

(39,827

)

 

$

(41,315

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per limited partner unit - basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common unitholders

$

(0.23

)

 

$

(0.17

)

 

 

$

(0.55

)

 

$

(0.47

)

Subordinated unitholder

$

(0.23

)

 

$

(0.22

)

 

 

$

(0.61

)

 

$

(0.64

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

80,959

 

 

 

80,505

 

 

 

 

80,938

 

 

 

79,737

 

Subordinated units

 

64,955

 

 

 

64,955

 

 

 

 

64,955

 

 

 

64,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared per limited partner unit

$

 

 

$

0.0565

 

 

 

$

0.0600

 

 

$

0.1695

 

 

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

 

Net loss

 

(18,681

)

 

 

 

 

 

(14,991

)

 

 

 

 

 

(33,672

)

Equity-based compensation

 

234

 

 

 

 

 

 

 

 

 

 

 

 

234

 

Balance at June 30, 2019

$

347,617

 

 

 

80,939,221

 

 

$

194,191

 

 

 

64,954,691

 

 

$

541,808

 

Net loss

 

(18,923

)

 

 

 

 

 

(15,183

)

 

 

 

 

 

(34,106

)

Equity-based compensation

 

233

 

 

 

 

 

 

 

 

 

 

 

 

233

 

Issuance of equity-based awards

 

 

 

 

57,552

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

$

328,927

 

 

 

80,996,773

 

 

$

179,008

 

 

 

64,954,691

 

 

$

507,935

 

 

 

 

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

 

Net loss

 

(14,090

)

 

 

 

 

 

(15,132

)

 

 

 

 

 

(29,222

)

Cash distributions

 

(4,510

)

 

 

 

 

 

 

 

 

 

 

 

(4,510

)

Conversion of warrants, net

 

 

 

 

94,527

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

175

 

 

 

 

 

 

 

 

 

 

 

 

175

 

Distribution equivalent rights on LTIP awards

 

(18

)

 

 

 

 

 

 

 

 

 

 

 

(18

)

Balance at June 30, 2018

$

388,575

 

 

 

79,921,065

 

 

$

227,753

 

 

 

64,954,691

 

 

$

616,328

 

Net loss

 

(13,298

)

 

 

 

 

 

(14,403

)

 

 

 

 

 

(27,701

)

Cash distributions

 

(4,554

)

 

 

 

 

 

 

 

 

 

 

 

(4,554

)

Conversion of warrants, net

 

 

 

 

877,931

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

178

 

 

 

 

 

 

 

 

 

 

 

 

178

 

Issuance of equity-based awards

 

 

 

 

45,323

 

 

 

 

 

 

 

 

 

 

Distribution equivalent rights on LTIP awards

 

(17

)

 

 

 

 

 

 

 

 

 

 

 

(17

)

Balance at September 30, 2018

$

370,884

 

 

 

80,844,319

 

 

$

213,350

 

 

 

64,954,691

 

 

$

584,234

 

 

See accompanying notes.

 

 

5


Foresight Energy LP

Unaudited Condensed Consolidated Statements of Cash Flows

(In Thousands)

 

 

Nine Months Ended

September 30, 2019

 

 

Nine Months Ended

September 30, 2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(84,599

)

 

$

(78,492

)

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

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

133,642

 

 

 

159,512

 

Amortization of debt discount

 

2,157

 

 

 

2,015

 

Contract amortization and write-off

 

(5,556

)

 

 

(76,699

)

Accretion on asset retirement obligations

 

1,654

 

 

 

1,848

 

Equity-based compensation

 

700

 

 

 

530

 

Long-lived asset impairments

 

 

 

 

110,689

 

Insurance proceeds included in investing activities

 

 

 

 

(42,947

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

5,854

 

 

 

(3,425

)

Due from/to affiliates, net

 

25,447

 

 

 

16,637

 

Inventories

 

(26,927

)

 

 

(10,307

)

Prepaid expenses and other assets

 

(5,764

)

 

 

(244

)

Prepaid royalties

 

(4,533

)

 

 

2,955

 

Accounts payable

 

29,069

 

 

 

19,626

 

Accrued interest

 

8,672

 

 

 

12,932

 

Accrued expenses and other current and long-term liabilities

 

(16,062

)

 

 

18,667

 

Other

 

(517

)

 

 

307

 

Net cash provided by operating activities

 

63,237

 

 

 

133,604

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investment in property, plant, equipment and development

 

(80,862

)

 

 

(50,872

)

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

 

2,519

 

 

 

2,394

 

Insurance proceeds

 

 

 

 

42,947

 

Net cash used in investing activities

 

(78,343

)

 

 

(5,531

)

Cash flows from financing activities

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

133,000

 

 

 

50,000

 

Payments on revolving credit facility

 

(13,000

)

 

 

(22,000

)

Payments on long-term debt and finance lease obligations

 

(48,850

)

 

 

(93,877

)

Distributions paid

 

(4,856

)

 

 

(13,574

)

Payments on sale-leaseback and short-term financing arrangements

 

(9,201

)

 

 

(7,731

)

Net cash provided by (used in) financing activities

 

57,093

 

 

 

(87,182

)

Net increase in cash and cash equivalents

 

41,987

 

 

 

40,891

 

Cash and cash equivalents, beginning of period

 

269

 

 

 

2,179

 

Cash and cash equivalents, end of period

$

42,256

 

 

$

43,070

 

 

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 subsidiaries and 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 and development activities 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.

Liquidity, Capital Resources, Debt Obligations, and Potential Going Concern Considerations

The Partnership’s primary sources of liquidity consist of cash generated from operations, cash on hand, and a $170.0 million revolving credit facility (the “Revolving Credit Facility”).  As of September 30, 2019, we had $42.3 million of cash on hand and no meaningful borrowing availability under the Revolving Credit Facility.  Outstanding borrowings and letters of credit under the Revolving Credit Facility were $157.0 million and $12.3 million, respectively, as of September 30, 2019.

On October 1, 2019, FELLC and Foresight Energy Finance Corporation (together, the “Issuers”), wholly owned subsidiaries of the Partnership, elected to exercise the grace period with respect to the interest payment due under the indenture (the “Indenture”) governing the Issuers’ 11.50% Second Lien Senior Secured Notes due 2023 (the “Second Lien Notes due 2023”).  The election to exercise the grace period extended the time period the Issuers have to make the approximately $24.4 million interest payment without triggering an event of default under the Indenture.  

 

On October 23, 2019, the Issuers sought the consent of the holders (the “Holders”) of the Second Lien Notes due 2023 to amend (such amendments, the “Amendments”) the Indenture and sought the consent of the Holders to waive (such waiver, the “Waivers”) certain Defaults or Events of Defaults arising under the Indenture, in each case, as more fully described below.

As of October 30, 2019, the Issuers received consents to the amendments from Holders of at least a majority in aggregate principal amount of the outstanding Second Lien Notes due 2023 not owned by the Issuers or their affiliates. As a result, on October 30, 2019,

7


the Issuers, the guarantors party thereto and Wilmington Trust, National Association, the trustee for the Second Lien Notes due 2023, entered into a supplemental indenture (the “Supplemental Indenture”) providing for the Amendments to the Indenture.

The Amendments (i) amend Section 6.01(b) of the Indenture to extend the grace period for payment of interest due on the Second Lien Notes due 2023 from 30 days to 90 days and (ii) amend Section 4.03(d) of the Indenture to exclude the fiscal period ended September 30, 2019 from the requirement that the Issuers hold a publicly accessible conference call to discuss the Issuers’ financial information for the relevant fiscal period.

As of October 30, 2019, Holders of at least a majority in aggregate principal amount of the outstanding Second Lien Notes due 2023 not owned by the Issuers or their affiliates also delivered Waivers that waived any Default or Event of Default, including under Section 6.01(b) of the Indenture, arising as a result of the Issuers’ failure to make the interest payment that was due to be paid by the Issuers on October 1, 2019.  The Waivers did not waive any obligation of the Issuers to make such payment of interest, or the right of any Holder to receive such payment (including as contemplated by Section 6.07 of the Indenture).  

The credit agreement governing our Credit Facilities requires that we comply on a quarterly basis with a maximum net first lien secured leverage ratio, currently 3.50:1.00 and stepping down by 0.25x in the first quarter 2021, which financial covenant is solely for the benefit of the lenders under the Revolving Credit Facility.  We were in compliance with the maximum net first lien secured leverage ratio as of September 30, 2019.  However, if current economic and market conditions persist, we can offer no assurance that we will be in compliance with all obligations and covenants measured as of future quarterly periods within the next 12 months or that we will be able to obtain waivers or other relief from the applicable lenders under the Credit Facilities, as necessary.  If we are unable to obtain waivers or other relief, the Partnership would be in default under the Revolving Credit Facility.  In such event, the lenders under the Revolving Credit Facility may immediately declare all outstanding indebtedness under the Revolving Credit Facility due and payable.  After such declaration, the lenders under the Term Loan due 2022 could immediately declare all indebtedness under the Term Loan due 2022 due and payable.  

The Partnership continues to engage in discussions with its creditor constituencies and is exploring potential restructuring alternatives.  As a result of these discussions and potential restructuring efforts, it may be necessary for us to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring, or our creditors, under certain circumstances, could force us into an involuntary bankruptcy or liquidation. If a plan of reorganization is implemented in a bankruptcy proceeding, it is likely that holders of claims and interests with respect to, or rights to acquire our equity securities, would likely be entitled to little or no recovery, and those claims and interests would likely be canceled for little or no consideration. If that were to occur, we anticipate that all, or substantially all, of the value of all investments in our partnership units would be lost and that our unitholders would lose all or substantially all of their investment. It is also likely that our other stakeholders, including our secured and unsecured creditors, could receive substantially less than the amount of their claims.

During the three and nine months ended September 30, 2019, we incurred legal and financial advisor fees of $1.2 million related to the above issues, which have been recorded as debt restructuring costs in the condensed consolidated statements of operations.  We expect legal and financial advisor fees to continue to be substantial until such time as the above issues are remediated, if at all.  

The conditions and circumstances above raise substantial doubt about the Partnership’s ability to continue as a going concern.  The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of and classification of liabilities that may result should the Partnership be unable to continue as a going concern.

 


8


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.

 

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

September 30, 2019

 

 

Three Months Ended

September 30, 2018

 

 

Nine Months Ended

September 30, 2019

 

 

Nine Months Ended

September 30, 2018

 

 

(In Thousands)

 

 

(In Thousands)

 

Coal sales - Domestic

$

146,671

 

 

$

151,196

 

 

$

418,832

 

 

$

440,593

 

Coal sales - International

 

34,784

 

 

 

140,791

 

 

 

254,448

 

 

 

359,773

 

Total coal sales

$

181,455

 

 

$

291,987

 

 

$

673,280

 

 

$

800,366

 

 


9


Contract Balances

 

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

 

 

September 30,

2019

 

 

December 31,

2018

 

 

 

 

 

 

(In Thousands)

 

 

 

 

 

Receivables - Included in 'Accounts receivable'

$

23,384

 

 

$

27,521

 

 

 

 

 

Receivables - Included in 'Due from affiliates'

 

19,105

 

 

 

42,234

 

 

 

 

 

Total contract balances

$

42,489

 

 

$

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.

 

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:

 

 

Nine Months Ended

September 30, 2019

 

 

Nine Months Ended

September 30, 2018

 

 

(In Thousands)

 

Supplemental disclosures of non-cash investing activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization capitalized into development costs

$

9,284

 

 

$

 

Short-term insurance financing

$

1,202

 

 

$

985

 

 

 

5. Accounts Receivable

 

Accounts receivable consist of the following:

 

 

September 30,

2019

 

 

 

December 31,

2018

 

 

(In Thousands)

 

Trade accounts receivable

$

23,384

 

 

 

$

27,521

 

Other receivables

 

3,010

 

 

 

 

4,727

 

Total accounts receivable

$

26,394

 

 

 

$

32,248

 

 

 

6. Inventories, Net

Inventories, net consist of the following:

 

 

September 30,

2019

 

 

 

December 31,

2018

 

 

(In Thousands)

 

Parts and supplies

$

19,162

 

 

 

$

16,665

 

Raw coal

 

3,535

 

 

 

 

6,919

 

Clean coal

 

71,947

 

 

 

 

32,940

 

Total inventories

$

94,644

 

 

 

$

56,524

 

 

10


 

7. Property, Plant, Equipment and Development, Net

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

 

 

September 30,

2019

 

 

 

December 31,

2018

 

 

(In Thousands)

 

Land, land rights and mineral rights

$

1,638,853

 

 

 

$

1,631,939

 

Machinery and equipment

 

624,448

 

 

 

 

589,113

 

Machinery and equipment under finance leases

 

127,064

 

 

 

 

127,064

 

Buildings and structures

 

229,483

 

 

 

 

223,111

 

Development costs

 

83,222

 

 

 

 

41,717

 

Other

 

3,469

 

 

 

 

3,449

 

Property, plant, equipment and development

 

2,706,539

 

 

 

 

2,616,393

 

Less: accumulated depreciation, depletion and amortization

 

(621,943

)

 

 

 

(467,824

)

Property, plant, equipment and development, net

$

2,084,596

 

 

 

$

2,148,569

 

 

 

8. Long-Term Debt and Finance Lease Obligations

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

 

 

September 30,

2019

 

 

 

December 31,

2018

 

 

(In Thousands)

 

Term Loan due 2022

$

743,286

 

 

 

$

762,906

 

Second Lien Notes due 2023

 

425,000

 

 

 

 

425,000

 

Revolving Credit Facility ($170.0 million capacity)

 

157,000

 

 

 

 

37,000

 

5.78% longwall financing arrangement