NATURAL RESOURCE PARTNERS L.P.
2017
ANNUAL REPORT
2017 Financial HighlightsFOR THE YEARS ENDED DECEMBER 31(in thousands, except per unit) 2017 2016 2015 2014 2013Total revenues and other income $ 378,017 $ 400,059 $ 439,648 $ 350,918 $ 352,739Asset impairments $ 3,031 $ 16,926 $ 384,545 $ 26,209 $ 734Income (loss) from operations $ 183,975 $ 185,745 $ (170,427) $ 176,140 $ 233,740Net income (loss) from continuing operations $ 89,208 $ 95,214 $ (260,171) $ 96,713 $ 169,621Net income from continuing operations $ 92,239 $ 112,140 $ 124,374 $ 122,922 $ 170,355 excluding impairmentsNet income (loss) from discontinued operations $ (541) $ 1,678 $ (311,549) $ 12,117 $ 2,457Net income (loss) $ 88,667 $ 96,892 $ (571,720) $ 108,830 $ 172,078PER COMMON UNIT AMOUNTS (BASIC) Net income (loss) from continuing operations $ 5.11 $ 7.65 $ (20.78) $ 8.37 $ 15.17 Net income (loss) from discontinued operations $ (0.04) $ 0.13 $ (24.97) $ 1.05 $ 0.22 Net income (loss) $ 5.06 $ 7.78 $ (45.75) $ 9.42 $ 15.39 PER COMMON UNIT AMOUNTS (DILUTED) Net income (loss) from continuing operations $ 3.98 $ 7.65 $ (20.78) $ 8.37 $ 15.17 Net income (loss) from discontinued operations $ (0.02) $ 0.13 $ (24.97) $ 1.05 $ 0.22 Net income (loss) $ 3.96 $ 7.78 $ (45.75) $ 9.42 $ 15.39 Distributions paid per common unit $ 1.80 $ 1.80 $ 2.70 $ 14.00 $ 22.00Average number of common units outstanding – basic 12,232 12,232 12,232 11,326 10,958Average number of common units outstanding – diluted 21,950 12,232 12,232 11,326 10,958NET CASH PROVIDED BY (USED IN) Operating activities of continuing operations $ 127,838 $ 100,643 $ 168,512 $ 192,164 $ 246,891 Investing activities of continuing operations $ 3,337 $ 59,943 $ 6,985 $ (169,512) $ (230,436) Financing activities of continuing operations $ (141,719) $ (161,419) $ (183,264) $ (65,986) $ (73,574)Distributable cash flow(1) $ 132,142 $ 271,415 $ 176,617 $ 196,929 $ 306,690Adjusted EBITDA(1) $ 231,542 $ 255,432 $ 262,621 $ 263,775 $ 328,452Cash and cash equivalents $ 29,827 $ 40,371 $ 41,204 $ 48,971 $ 92,305Total assets $ 1,389,164 $ 1,448,649 $ 1,674,865 $ 2,431,549 $ 1,981,432Current portion of long-term debt, net $ 79,740 $ 140,037 $ 80,745 $ 80,745 $ 80,745Long-term debt, net $ 729,608 $ 990,234 $ 1,130,696 $ 1,190,558 $ 993,295Class A Convertible Preferred Units $ 173,431 $ – $ – $ – $ –Partners’ capital $ 265,211 $ 151,530 $ 76,336 $ 720,155 $ 616,789(1) See “Non-GAAP Financial Measures” in the enclosed Form 10-K. Partnership Headquarters1201 Louisiana Street Suite 3400 Houston, TX 77002 713.751.7507Regional OfficesCoal and Hard Minerals 5260 Irwin Road Huntington, WV 25705VantaCore Headquarters 1600 Market Street 38th Floor Philadelphia, PA 19103Investor RelationsKathy Roberts 1201 Louisiana Street Suite 3400 Houston, TX 77002 713.751.7555 Email: kroberts@nrplp.comStock ExchangeOur units are listed on the New York Stock Exchange under the symbol NRP.Independent AuditorsErnst & Young LLP 5 Houston Center 1401 McKinney, Suite 1200 Houston, TX 77001-2007Transfer Agent and RegistrarAmerican Stock Transfer and Trust Company Client Operations 6201 15th Avenue Brooklyn, NY 11219 Website: www.amstock.com Email: info@amstock.com 800.937.5449Websitewww.nrplp.comInformation regarding Natural Resource Partners L.P. is located on the partnership’s website. On the site is operational and financial information as well as all SEC filings and our corporate governance documents, including our Code of Business Conduct and Ethics, our Corporate Governance Guidelines and Board of Directors’ Audit Committee Charter. Requests for copies of the annual report or other data may be made through the website or by contacting Investor Relations. These requests will be provided free of charge.Contact NRP BoardWe have established procedures for contacting the non-management members of the NRP Board of Directors. To communicate any concerns or issues to the Board of Directors, please direct any correspondence to:Chairman of the CNG Committee NRP Board of Directors 1201 Louisiana Street, Suite 3400 Houston, TX 77002 888.252.2396Schedule K-1Unitholders receive Schedule K-1 packages that summarize their allocated share of the partnership’s reportable tax items for the calendar year. Generally, these K-1s are available on NRP’s website no later than mid-March. Unitholders should refer questions regarding their Schedule K-1 to the following:Natural Resource Partners L.P. Tax Package Support P.O. Box 799060 Dallas, TX 75379-9060 Fax: 1.866.554.3842 Toll Free: 1.888.334.7102Forward-Looking StatementsStatements included in this annual report may constitute forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements which are also forward-looking statements.Such forward-looking statements include, among other things, statements regarding capital expenditures and acquisitions, expected commencement dates of mining, projected quantities of future production by our lessees producing from our reserves, and projected demand or supply for coal, trona, soda ash and aggregates that will affect sales levels, prices and royalties realized by us.These forward-looking statements speak only as of the date hereof and are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.You should not put undue reliance on any forward-looking statements. Please read “Item 1A. Risk Factors” of the Form 10-K for important factors that could cause our actual results of operations or our actual financial condition to differ.Unitholder Information2017 Financial HighlightsFOR THE YEARS ENDED DECEMBER 31(in thousands, except per unit) 2017 2016 2015 2014 2013Total revenues and other income $ 378,017 $ 400,059 $ 439,648 $ 350,918 $ 352,739Asset impairments $ 3,031 $ 16,926 $ 384,545 $ 26,209 $ 734Income (loss) from operations $ 183,975 $ 185,745 $ (170,427) $ 176,140 $ 233,740Net income (loss) from continuing operations $ 89,208 $ 95,214 $ (260,171) $ 96,713 $ 169,621Net income from continuing operations $ 92,239 $ 112,140 $ 124,374 $ 122,922 $ 170,355 excluding impairmentsNet income (loss) from discontinued operations $ (541) $ 1,678 $ (311,549) $ 12,117 $ 2,457Net income (loss) $ 88,667 $ 96,892 $ (571,720) $ 108,830 $ 172,078PER COMMON UNIT AMOUNTS (BASIC) Net income (loss) from continuing operations $ 5.11 $ 7.65 $ (20.78) $ 8.37 $ 15.17 Net income (loss) from discontinued operations $ (0.04) $ 0.13 $ (24.97) $ 1.05 $ 0.22 Net income (loss) $ 5.06 $ 7.78 $ (45.75) $ 9.42 $ 15.39 PER COMMON UNIT AMOUNTS (DILUTED) Net income (loss) from continuing operations $ 3.98 $ 7.65 $ (20.78) $ 8.37 $ 15.17 Net income (loss) from discontinued operations $ (0.02) $ 0.13 $ (24.97) $ 1.05 $ 0.22 Net income (loss) $ 3.96 $ 7.78 $ (45.75) $ 9.42 $ 15.39 Distributions paid per common unit $ 1.80 $ 1.80 $ 2.70 $ 14.00 $ 22.00Average number of common units outstanding – basic 12,232 12,232 12,232 11,326 10,958Average number of common units outstanding – diluted 21,950 12,232 12,232 11,326 10,958NET CASH PROVIDED BY (USED IN) Operating activities of continuing operations $ 127,838 $ 100,643 $ 168,512 $ 192,164 $ 246,891 Investing activities of continuing operations $ 3,337 $ 59,943 $ 6,985 $ (169,512) $ (230,436) Financing activities of continuing operations $ (141,719) $ (161,419) $ (183,264) $ (65,986) $ (73,574)Distributable cash flow(1) $ 132,142 $ 271,415 $ 176,617 $ 196,929 $ 306,690Adjusted EBITDA(1) $ 231,542 $ 255,432 $ 262,621 $ 263,775 $ 328,452Cash and cash equivalents $ 29,827 $ 40,371 $ 41,204 $ 48,971 $ 92,305Total assets $ 1,389,164 $ 1,448,649 $ 1,674,865 $ 2,431,549 $ 1,981,432Current portion of long-term debt, net $ 79,740 $ 140,037 $ 80,745 $ 80,745 $ 80,745Long-term debt, net $ 729,608 $ 990,234 $ 1,130,696 $ 1,190,558 $ 993,295Class A Convertible Preferred Units $ 173,431 $ – $ – $ – $ –Partners’ capital $ 265,211 $ 151,530 $ 76,336 $ 720,155 $ 616,789(1) See “Non-GAAP Financial Measures” in the enclosed Form 10-K. Partnership Headquarters1201 Louisiana Street Suite 3400 Houston, TX 77002 713.751.7507Regional OfficesCoal and Hard Minerals 5260 Irwin Road Huntington, WV 25705VantaCore Headquarters 1600 Market Street 38th Floor Philadelphia, PA 19103Investor RelationsKathy Roberts 1201 Louisiana Street Suite 3400 Houston, TX 77002 713.751.7555 Email: kroberts@nrplp.comStock ExchangeOur units are listed on the New York Stock Exchange under the symbol NRP.Independent AuditorsErnst & Young LLP 5 Houston Center 1401 McKinney, Suite 1200 Houston, TX 77001-2007Transfer Agent and RegistrarAmerican Stock Transfer and Trust Company Client Operations 6201 15th Avenue Brooklyn, NY 11219 Website: www.amstock.com Email: info@amstock.com 800.937.5449Websitewww.nrplp.comInformation regarding Natural Resource Partners L.P. is located on the partnership’s website. On the site is operational and financial information as well as all SEC filings and our corporate governance documents, including our Code of Business Conduct and Ethics, our Corporate Governance Guidelines and Board of Directors’ Audit Committee Charter. Requests for copies of the annual report or other data may be made through the website or by contacting Investor Relations. These requests will be provided free of charge.Contact NRP BoardWe have established procedures for contacting the non-management members of the NRP Board of Directors. To communicate any concerns or issues to the Board of Directors, please direct any correspondence to:Chairman of the CNG Committee NRP Board of Directors 1201 Louisiana Street, Suite 3400 Houston, TX 77002 888.252.2396Schedule K-1reportable tax items for the calendar year. Generally, these K-1s are available on NRP’s website no later than mid-March. Unitholders should refer questions regarding their Schedule K-1 to the following:Natural Resource Partners L.P. Tax Package Support P.O. Box 799060 Dallas, TX 75379-9060 Fax: 1.866.554.3842 Toll Free: 1.888.334.7102Forward-Looking StatementsStatements included in this annual report may constitute forward-looking statements. In addition, also forward-looking statements.Such forward-looking statements include, among other things, statements regarding capital expenditures and acquisitions, expected commencement dates of mining, projected quantities of future production by our lessees producing from our reserves, and projected demand or supply for coal, trona, soda ash and aggregates that will affect sales levels, prices and royalties realized by us.These forward-looking statements speak only as of the date hereof and are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.You should not put undue reliance on any forward-looking statements. Please read “Item 1A. Risk Factors” of the Form 10-K for important factors that could cause our actual results of operations or our actual financial condition to differ.Unitholder Information To Our Unitholders,
In April 2015, NRP announced a strategic plan to reduce our debt and strengthen
our balance sheet. We have worked diligently since then and much of what we
accomplished occurred in 2017. Since the April 2015 announcement, we have:
• reduced our debt by more than 40%, or $634 million;
• lowered our debt-to-EBITDA ratio from a high of 5.3x to 3.6x;
• extended the maturities of over $575 million of debt that would have matured in 2018
out to 2020 and 2022;
• brought in equity partners who made a $250 million preferred equity investment in us;
• managed our business with internally generated cash flow and reduced costs across
all of our business segments; and
• continued to pay distributions on our common units and maintain a strong distribution
coverage ratio.
We continue to execute on the goals announced three years ago and remain committed
to creating long-term value for our stakeholders by de-risking our capital structure.
Our Operations
We continue to benefit from the royalty nature of our coal business, which generated
substantial cash flow in 2017. Our diversified portfolio includes a mix of metallurgical
and thermal coal reserves that can be leveraged to take advantage of market cycles.
Metallurgical coal prices remained well above the lows seen in 2016 due to stronger
export demand and steel industry fundamentals. Reductions in domestic utility coal
stockpiles and a robust export market helped sustain thermal coal prices during the year.
“ We continue to execute on the goals
announced three years ago and remain
committed to creating long-term value
for our stakeholders by de-risking our
capital structure.”
N AT U R A L R E S O U R C E PA R T N E R S L . P. 2 0 17 A N N UA L R E P O R T
1
“ Our actions over the last
three years and solid 2017
results demonstrate our
dedication to our long-
term strategy.”
Our 49% interest in the Ciner Wyoming trona mine and soda ash production business
continues to perform well and paid close to $50 million in cash distributions to us in
2017. This business is one of the largest and lowest cost natural soda ash producers
in the world and is well positioned for the future.
Our construction aggregates business consists of four separate operations from
Louisiana to Pennsylvania that have long-life reserves and strong positions in the local
markets they serve. The business posted solid results during 2017 despite continued
reduced demand at the largest of the four operations, which supplies materials to
natural gas producers in West Virginia and Pennsylvania.
Looking Ahead
Our assets continue to perform well and our financial condition is sound. While the
abundance of low-cost natural gas will continue to affect demand for thermal coal by
power generating facilities, our substantial metallurgical coal reserves position us well
for the future. We will maintain our focus on strengthening our balance sheet and
maximizing the intrinsic value of our assets. Our actions over the last three years and
solid 2017 results demonstrate our dedication to our long-term strategy, and we thank
all of our stakeholders for their continued support of NRP. With 35% of the outstanding
common units owned by insiders, management’s interests are closely aligned with
all stakeholders.
Corbin J. Robertson, Jr.
Chairman and Chief Executive Officer
2
N AT U R A L R E S O U R C E PA R T N E R S L . P. 2 0 17 A N N UA L R E P O R T
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2017 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: 1-31465
NATURAL RESOURCE PARTNERS L.P.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
35-2164875
(I.R.S. Employer Identification Number)
1201 Louisiana Street, Suite 3400, Houston, Texas 77002
(Address of principal executive offices)
Registrant's telephone number, including area code (713) 751-7507
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Units representing limited partner interests
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See definition of "accelerated filer", "large accelerated filer", "smaller reporting company," and "emerging
growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated Filer
(Do not check if a smaller reporting company)
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 Exchange Act Rule 12b-2) Yes
No
The aggregate market value of the common units held by non-affiliates of the registrant on June 30, 2017, was $218.0 million based on a closing
price on that date of $27.55 per unit as reported on the New York Stock Exchange.
As of February 23, 2018, there were 12,241,602 common units outstanding.
Documents incorporated by reference: None.
Items 1. and 2. Business and Properties
TABLE OF CONTENTS
PART I
Item 1A.
Item 1B.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Risk Factors
Unresolved Staff Comments
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors and Executive Officers of the Managing General Partner and Corporate Governance
PART III
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Signatures
Exhibits, Financial Statement Schedules
PART IV
1
24
37
38
38
39
40
44
67
69
111
111
113
114
120
131
132
139
142
147
i
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
Statements included in this 10-K may constitute forward-looking statements. In addition, we and our representatives may
from time to time make other oral or written statements which are also forward-looking statements. Such forward-looking statements
include, among other things, statements regarding: our business strategy; our liquidity and access to capital and financing sources;
our financial strategy; prices of and demand for coal, trona and soda ash, construction aggregates and other natural resources;
estimated revenues, expenses and results of operations; the amount, nature and timing of capital expenditures; projected production
levels by our lessees and our construction aggregates business; Ciner Wyoming LLC’s ("Ciner Wyoming") trona mining and soda
ash refinery operations; the impact of governmental policies, laws and regulations, as well as regulatory and legal proceedings
involving us, and of scheduled or potential regulatory or legal changes; and global and U.S. economic conditions.
These forward-looking statements speak only as of the date hereof and are made based upon our current plans, expectations,
estimates, assumptions and beliefs concerning future events impacting us and involve a number of risks and uncertainties. We
caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or
implied in the forward-looking statements. You should not put undue reliance on any forward-looking statements. See "Item 1A.
Risk Factors" in this Annual Report on Form 10-K for important factors that could cause our actual results of operations or our
actual financial condition to differ.
ii
PART I
As used in this Part I, unless the context otherwise requires: "we," "our," "us" and the "Partnership" refer to Natural Resource
Partners L.P. and, where the context requires, our subsidiaries. References to "NRP" and "Natural Resource Partners" refer to
Natural Resource Partners L.P. only, and not to NRP (Operating) LLC or any of Natural Resource Partners L.P.’s subsidiaries.
References to "Opco" refer to NRP (Operating) LLC, a wholly owned subsidiary of NRP, and its subsidiaries. NRP Finance
Corporation ("NRP Finance") is a wholly owned subsidiary of NRP and a co-issuer with NRP on the 10.50% senior notes due
2022 (the "2022 Notes").
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Partnership Structure and Management
We are a publicly traded Delaware limited partnership formed in 2002. We own, operate, manage and lease a diversified
portfolio of mineral properties in the United States, including interests in coal, trona and soda ash, construction aggregates and
other natural resources. Our business is organized into three operating segments:
Coal Royalty and Other—consists primarily of coal royalty properties and coal-related transportation and processing assets.
Other assets include aggregates royalty, industrial mineral royalty, oil and gas royalty and timber. Our coal reserves are primarily
located in Appalachia, the Illinois Basin and the Western United States. Our aggregates and industrial minerals properties are
located in a number of states across the United States. Our oil and gas royalty assets are primarily located in Louisiana.
Soda Ash—consists of our 49% non-controlling equity interest in a trona ore mining operation and soda ash refinery in the
Green River Basin, Wyoming. We recognize our portion of equity earnings and receive regular quarterly distributions from this
business.
Construction Aggregates—consists of our construction materials business that operates hard rock quarries, an underground
limestone mine, sand and gravel plants, asphalt plants and marine terminals. Our construction aggregates business operates in
Pennsylvania, West Virginia, Tennessee, Kentucky and Louisiana.
Our operations are conducted through Opco, and our operating assets are owned by our subsidiaries. NRP (GP) LP, our
general partner, has sole responsibility for conducting our business and for managing our operations. Because our general partner
is a limited partnership, its general partner, GP Natural Resource Partners LLC, conducts its business and operations, and the Board
of Directors and officers of GP Natural Resource Partners LLC make decisions on our behalf. Robertson Coal Management LLC,
a limited liability company wholly owned by Corbin J. Robertson, Jr., owns all of the membership interest in GP Natural Resource
Partners LLC. Subject to the Board Representation and Observation Rights Agreement with certain entities controlled by funds
affiliated with The Blackstone Group, L.P. (collectively referred to as "Blackstone") and affiliates of GoldenTree Asset Management
LP (collectively referred to as "GoldenTree"), Mr. Robertson, Jr. is entitled to appoint the members of the Board of Directors of
GP Natural Resource Partners LLC. Mr. Robertson, Jr. has delegated the right to appoint one director to Blackstone.
The senior executives and other officers who manage NRP are employees of Western Pocahontas Properties Limited
Partnership and Quintana Minerals Corporation, companies controlled by Mr. Robertson, Jr., and they allocate varying percentages
of their time to managing our operations. Neither our general partner, GP Natural Resource Partners LLC, nor any of their affiliates
receive any management fee or other compensation in connection with the management of our business, but they are entitled to
be reimbursed for all direct and indirect expenses incurred on our behalf.
We have regional offices through which we conduct our operations, the largest of which is located at 5260 Irwin Road,
Huntington, West Virginia 25705 and the telephone number is (304) 522-5757. Our principal executive office is located at 1201
Louisiana Street, Suite 3400, Houston, Texas 77002 and our telephone number is (713) 751-7507.
1
2017 Recapitalization Transactions and Debt Reduction
During the first quarter of 2017, we completed recapitalization transactions that improved our liquidity and strengthened
our balance sheet. These recapitalization transactions included the issuance of $250 million of Class A Preferred Units and Warrants
to purchase Common Units, and the extension of the majority of our 2018 debt maturities to 2020 and 2022. For more information
on these transactions, see Note 3. Class A Convertible Preferred Units and Warrants and Note 13. Debt in the Notes to Consolidated
Financial Statements under Item 8 in this Annual Report on Form 10-K, which is incorporated herein by reference.
During 2017, we reduced our debt by $311.1 million. See "Liquidity and Capital Resources" below for additional information
on our debt reduction. We remain focused on further reducing our debt and improving our credit metrics and creating long-term
value for our stakeholders.
Segment and Geographic Information
The amount of 2017 revenue and net income from continuing operations for each of our operating business segments is
shown below. These amounts exclude corporate and finance activities. For additional operating segment information, please see
Note 6. Segment Information in the Notes to Consolidated Financial Statements under Item 8 in this Annual Report on Form 10-
K and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" under
Item 7 in this Annual Report on Form 10-K, which are both incorporated herein by reference.
Operating Segment (In thousands)
Coal Royalty and Other
Soda Ash
Construction Aggregates
Total
Coal Royalty and Other Segment
2017 Revenues
2017 Net income from
Continuing Operations
Amount
% of Total
Amount
% of Total
$
$
205,868
40,457
131,692
378,017
54%
11%
35%
100%
$
$
154,899
40,457
6,428
201,784
77%
20%
3%
100%
We own coal reserves in the three major producing regions of the United States: the Appalachia Basin, the Illinois Basin, the
Powder River Basin and the Gulf Coast. We do not operate any coal mines, but lease our reserves to experienced mine operators
under long-term leases that grant the operators the right to mine and sell our reserves in exchange for royalty payments.
Approximately two-thirds of our leases have a term between five to forty years, with many leases having an option by the operators
to extend the lease for additional terms. Leases may include the right to renegotiate rents and royalties for the extended term. We
also own and manage coal-related infrastructure assets that generate additional revenues in the Illinois Basin. In addition, we own
aggregates and industrial mineral reserves located in a number of states across the country. As described in the "Other Assets"
section below, we also own natural gas, aggregate and industrial mineral reserves that generate a small portion of coal royalty and
other segment revenues.
Under our standard lease, lessees calculate royalty payments due to us and are required to report tons of minerals removed
as well as the sales prices of the extracted minerals. Therefore, to a great extent, amounts reported as royalty revenue are based
upon the reports of our lessees. We periodically audit this information by examining certain records and internal reports of our
lessees, and we perform periodic mine inspections to verify that the information that our lessees have submitted to us is accurate.
Our audit and inspection processes are designed to identify material variances from lease terms as well as differences between the
information reported to us and the actual results from each property.
In addition to their royalty obligations, our lessees are often subject to pre-established minimum quarterly or annual payments.
These minimum rentals reflect amounts we are entitled to receive even if no mining activity occurred during the period. Minimum
rentals are usually credited against future royalties that are earned as minerals are produced. Typically, the lessee is time limited
on the period available for recouping minimum rentals.
2
Because we do not operate any coal mines, our coal royalty business does not bear ordinary operating costs and has limited
direct exposure to environmental, permitting and labor risks. Our lessees, as operators, are subject to environmental laws, permitting
requirements and other regulations adopted by various governmental authorities. In addition, the lessees generally bear all labor-
related risks, including retiree health care legacy costs, black lung benefits and workers’ compensation costs associated with
operating the mines on our coal and aggregates properties. We typically pay property taxes on our properties, which are largely
reimbursed by our lessees pursuant to the terms of the various lease agreements.
Coal Production and Reserves Information
The following table presents coal production for the year ended December 31, 2017 and coal reserves information as of
December 31, 2017 for the properties that we own by major coal region:
(Tons in thousands)
Appalachia Basin
Northern
Central
Southern
Total Appalachia Basin
Illinois Basin
Northern Powder River Basin
Gulf Coast
Total
Production
Underground
Surface
Total
Proven and Probable Reserves (1)
2,136
14,735
2,256
19,127
4,373
4,386
—
375,220
741,983
72,541
1,189,744
304,590
—
—
27,886
1,494,334
2,934
240,865
20,020
263,819
5,211
170,904
1,957
441,891
378,154
982,848
92,561
1,453,563
309,801
170,904
1,957
1,936,225
(1) In excess of 96% of the reserves presented in this table are currently leased to third parties.
The following table presents the type of coal reserves by major coal region as of December 31, 2017:
(Tons in thousands)
Appalachia Basin
Northern
Central
Southern
Total Appalachia Basin
Illinois Basin
Northern Powder River Basin
Gulf Coast
Total
Type of Coal
Thermal
Metallurgical (1)
Total
316,031
546,517
70,801
933,349
309,801
170,904
1,875
62,123
436,331
21,760
520,214
—
—
82
378,154
982,848
92,561
1,453,563
309,801
170,904
1,957
1,415,929
520,296
1,936,225
(1) For purposes of this table, we have defined metallurgical coal reserves as reserves located in seams that historically have
been of sufficient quality and characteristics to be able to be used in the steel making process. Some of the reserves in the
metallurgical category can also be used as thermal coal. In 2017, approximately 58% of our coal royalty revenues and
approximately 45% of the related production came from production of metallurgical coal.
3
The following table presents the sulfur content and the typical quality of our coal reserves by major coal region as of
December 31, 2017:
(Tons in thousands)
Appalachia Basin
Northern
Central
Southern
Total Appalachia Basin
Illinois Basin
Northern Powder River Basin
Gulf Coast
Total
Compliance
Coal (2)
Low
(<1.0%)
Sulfur Content
Typical Quality (1)
Medium
(1.0%
to
1.5%)
High
(>1.5%)
Total
Heat
Content
(Btu per
pound)
Sulfur
(%)
47,010
464,840
58,632
570,482
—
—
82
47,210
681,784
71,370
800,364
905
330,039
46,690
4,634
378,154
982,848
92,561
381,363
1,453,563
254,374
16,557
271,836
—
2,152
307,649
170,904
1,957
—
—
—
—
309,801
170,904
1,957
570,564
973,225
273,988
689,012
1,936,225
12,871
13,235
13,345
13,147
11,472
8,800
6,964
2.90
0.90
0.85
1.42
3.29
0.65
0.69
(1) Unless otherwise indicated, the coal quality information in this Annual Report and on the Form 10-K is reported on an as-
received basis with an assumed moisture of 6% for Appalachian reserves, and site specific moisture values for Illinois
(typically 12% moisture) and Northern Powder River Basin (typically 25% moisture).
(2) Compliance coal, when burned, emits less than 1.2 pounds of sulfur dioxide per million Btu and meets the sulfur dioxide
emission standards imposed by Phase II of the Clean Air Act without blending with other coals or using sulfur dioxide
reduction technologies. Compliance coal is a subset of low sulfur coal and is, therefore, also reported within the amounts
for low sulfur coal.
Methodologies Used in Mineral Reserve Estimation
All of the reserves reported above are recoverable proven or probable reserves as determined by the SEC’s Industry Guide
7 and are estimated by our internal reserve geologist. The technologies and economic data used by our internal reserve geologist
in the estimation of our proven or probable reserves include, but are not limited to, drill logs, geophysical logs, geologic maps
including isopach, mine, and coal quality, cross sections, statistical analysis, and available public production data. There are
numerous uncertainties inherent in estimating the quantities and qualities of recoverable reserves, including many factors beyond
our control. Estimates of economically recoverable coal reserves depend upon a number of variable factors and assumptions, any
one of which may, if incorrect, result in an estimate that varies considerably from actual results. See "Item 1A. Risk Factors—
Risks Related to Our Business—Our reserve estimates depend on many assumptions that may be inaccurate, which could materially
adversely affect the quantities and value of our reserves."
4
Major Coal Producing Properties
The following table provides a summary of our major coal royalty properties and is followed by additional information for
each property or lease name:
Region
Property/Lease Name
Operator
Coal Type
2017 Production
(Millions of Tons)
Appalachia Basin
Northern
Northern
Central
Central
Central
Central
Central
Central
Central
Southern
Illinois Basin
Illinois Basin
Illinois Basin
Hibbs Run
Carter Roag
Contura-CAPP
Resource
Development
Aracoma
Pinnacle
Murray Energy Corporation
Thermal
Metinvest
Contura Energy, Inc.
Met
Met
Blackjewel LLC
Met/Thermal
Alpha Natural Resources
Met/Thermal
Seneca Resources, LLC
Met
Coal Mountain
CM Energy Properties, LP
Met/Thermal
National Mines Corp.
South Fork Coal
Oak Grove
Macoupin
Williamson
Hillsboro
Alpha Natural Resources
Xinergy Corp.
Seneca Resources, LLC
Foresight Energy LP
Foresight Energy LP
Foresight Energy LP
Met
Met
Met
Thermal
Thermal
Thermal
Thermal
1.3
0.3
3.3
2.6
1.6
1.1
0.7
0.7
0.3
1.3
2.1
1.7
—
4.4
Powder River Basin
Western Energy
Westmoreland Coal Company
5
Appalachia Basin—Northern Appalachia
Hibbs Run. The Hibbs Run property is located in Marion County, West Virginia. In 2017, approximately 1.3 million tons
were produced from this property. We lease this property to Ohio Valley Resources, Inc., a subsidiary of Murray Energy Corporation.
Coal from this property is produced from longwall mines. The royalty rate for this property is a low fixed rate per ton and has a
significant effect on the per ton revenue for the region. The coal from this property is shipped by rail to utility customers.
Carter Roag. The Carter Roag property is located in Randolph and Upshur Counties, West Virginia. In 2017, approximately
0.3 million tons were produced from this metallurgical coal property. We lease this property to Carter Roag Coal Company, a
subsidiary of United Coal Company, LLC (owned by Metinvest). Production comes from the Morgan Camp and Pleasant Hill
deep mines and is trucked to Carter Roag’s preparation plant situated at Star Bridge, West Virginia. The coal produced from this
property is shipped via the CSX railroad to Baltimore and then by ocean vessel to Metinvest's steel mills in the Ukraine.
The map below shows the location of our major properties in Northern Appalachia:
6
Appalachia Basin—Central Appalachia
Contura-CAPP. The Contura-CAPP property is located in Wise, Dickenson, Russell and Buchanan Counties, Virginia. In
2017, approximately 3.3 million tons were produced from this property, substantially all of which was metallurgical coal. We lease
this property to subsidiaries of Contura Energy, Inc. Production comes from both underground and surface mines and is trucked
to one of two preparation plants. Coal is shipped via both the CSX and Norfolk Southern railroads to utility and metallurgical
customers.
Resource Development. The Resource Development property is located in Harlan and Letcher Counties, Kentucky and
Wise County, Virginia. In September 2017, the operator acquired the adjacent Lone Mountain and Cumberland River operations
from Arch Coal, Inc. In 2017, approximately 2.6 million tons were produced from this property. We lease this property to Blackjewel,
LLC. Production comes from both underground and surface mines. This property has the ability to ship coal on both the CSX and
Norfolk Southern railroads to utility and metallurgical customers.
Aracoma. The Aracoma property is located in Logan County, West Virginia. This property is leased to subsidiaries of Alpha
Natural Resources, Inc. In 2017, approximately 1.6 million tons of metallurgical coal were produced from the property. Both
thermal and metallurgical coal are produced from underground mines and transported by belt or truck to the preparation plant on
the property. Coal is shipped via the CSX railroad to utility customers and to various domestic and export metallurgical customers.
Pinnacle. The Pinnacle property is located in Wyoming and McDowell Counties, West Virginia. In 2017, approximately
1.1 million tons of metallurgical coal were produced from our reserves on this property. We also own an overriding royalty interest
on coal produced from the reserves that we do not own at this property, from which we derive additional revenues. We lease the
property to a subsidiary of Seneca Resources, LLC. Production comes from a longwall mine and is transported by beltline to a
preparation plant on the property and is then shipped via Norfolk Southern railroad to both domestic and export customers.
Coal Mountain. The Coal Mountain property is located in Wyoming County, West Virginia. In 2017, approximately 0.7
million tons were produced from the property. We lease this property to CM Energy Properties, LP. Metallurgical coal is produced
using the surface mining method and is transported by truck to a preparation plant on the property. Coal is shipped via the Norfolk
Southern railroad to various utility and domestic or export metallurgical customers.
National Mines Corp. The National Mines Corp. property is located in Wyoming County, West Virginia. In 2017,
approximately 0.7 million tons were produced from the property. We lease this property to a subsidiary of Alpha Natural Resources,
Inc. Metallurgical coal is produced from two underground mines that is transported by belt and truck to a preparation plant on the
property. Coal is shipped via the Norfolk Southern railroad to various metallurgical customers.
South Fork Coal. The South Fork Coal property is located in Greenbrier County, West Virginia. In 2017, approximately
0.3 million tons were produced from the property. This property is leased to South Fork Coal Company, LLC, a subsidiary of
Xinergy Corp. Metallurgical coal is produced from surface mines and transported by truck to a preparation plant. Coal is shipped
via the CSX railroad to various export metallurgical customers.
7
The map below shows the location of our major properties in Central Appalachia:
8
Appalachia Basin—Southern Appalachia
Oak Grove. The Oak Grove property is located in Jefferson County, Alabama. In 2017, approximately 1.3 million tons of
metallurgical coal were produced from this property. We lease the property to a subsidiary of Seneca Coal Resources, LLC.
Production comes from an underground longwall mine and is transported primarily by beltline to a preparation plant. Metallurgical
products are then shipped via railroad and barge to both domestic and export customers.
The map below shows the location of our major property in Southern Appalachia:
9
Illinois Basin
Macoupin. The Macoupin property is located in Macoupin County, Illinois. The property is under lease to a subsidiary of
Foresight Energy LP ("Foresight Energy"). In 2017, approximately 2.1 million tons were sold from the property. Production is
from an underground mine and is shipped via the Norfolk Southern or Union Pacific railroads or by barge to utility customers or
loaded into barges for shipment to export customers.
Williamson. The Williamson property is located in Franklin and Williamson Counties, Illinois. The property is under lease
to a subsidiary of Foresight Energy. In 2017, approximately 1.7 million tons were sold from the property. This production uses
longwall mining methods and is shipped primarily via the Canadian National railroad to domestic utility customers and to various
export customers.
Hillsboro. The Hillsboro property is located in Montgomery and Bond Counties, Illinois. The property is under lease to
Hillsboro Energy, a subsidiary of Foresight Energy and has been idled since March 2015. When active, production at the Deer
Run mine on our Hillsboro property is from an underground longwall mine and is shipped via either the Union Pacific, Norfolk
Southern or Canadian National railroads, or by barges to domestic utilities or export customers. We are currently in a lawsuit
against Hillsboro Energy as well as Foresight Energy and certain of its other subsidiaries related to the Deer Run mine. For more
information, see "Item 3. Legal Proceedings" included elsewhere in this Annual Report on Form 10-K.
In addition to these properties, we own loadout and other transportation assets at the Williamson, Macoupin and at the Sugar
Camp mines, which are mines operated by Foresight Energy. See "Coal Processing and Transportation Assets" below for additional
information on these assets.
The map below shows the location of our major properties in the Illinois Basin:
10
11
Northern Powder River Basin
Western Energy. The Western Energy property is located in Rosebud and Treasure Counties, Montana. In 2017,
approximately 4.4 million tons were produced from our property by a subsidiary of Westmoreland Coal Company. Coal is produced
by surface dragline mining, and the coal is transported by either truck or beltline to the four-unit 2,200-megawatt Colstrip generation
station located at the mine mouth.
The map below shows the location of our property in the Northern Powder River Basin:
12
Coal Transportation and Processing Assets
We own transportation and processing infrastructure related to certain of our coal properties and recorded $20.5 million in
revenue related to these assets during the year ended December 31, 2017. We own loadout and other transportation assets at the
Williamson and Macoupin mines in the Illinois Basin. In addition, we own rail loadout and associated infrastructure at the Sugar
Camp mine, an Illinois Basin mine also operated by a subsidiary of Foresight Energy. While we own coal reserves at the Williamson
and Macoupin mines, we do not own coal reserves at the Sugar Camp mine. We typically lease this infrastructure to third parties
and collect throughput fees; however, at the loadout facility at the Williamson mine, we operate the coal handling and transportation
infrastructure and have subcontracted out that responsibility to a third party.
Other Assets
As of December 31, 2017, we owned an estimated 174 million tons of aggregates reserves primarily located in Kentucky
and Indiana. We lease a portion of these reserves to third parties in exchange for royalty payments. Of the 174 million tons owned,
we lease approximately 108 million tons of these reserves to our Construction Aggregates Grand Rivers operation. In addition,
we hold an override royalty interest in frac sand opportunities in Wisconsin and Texas and an override royalty interest in sand and
gravel in Washington. The override royalty interests total approximately 101 million tons. The structure of these leases is similar
to our coal leases, and these leases typically also require minimum rental payments in addition to royalties. During 2017, our
aggregates lessees produced 4.4 million tons of aggregates from these properties and we received $4.2 million in aggregates royalty
revenues, including overriding royalty revenues.
Through our 51% ownership of BRP LLC ("BRP"), a joint venture with International Paper Company, we own approximately
10 million mineral acres in 31 states that include the following assets:
•
•
•
•
•
•
approximately 300,000 gross acres of oil and natural gas mineral rights in Louisiana, of which over 53,000 acres were
leased as of December 31, 2017;
approximately 50 million tons of aggregate reserves primarily located in Arkansas, North Carolina and South Carolina
and approximately 16 million tons of override royalty interest in North Carolina and Georgia;
approximately 95,000 net mineral acres of coal rights (primarily lignite and some bituminous coal) in the Gulf Coast
region, of which approximately 5,600 acres are leased in Louisiana, Mississippi and Texas;
an overriding royalty interest of 1% on approximately 25,000 mineral acres in Louisiana;
copper rights in Michigan’s Upper Peninsula that are subject to a development agreement with a copper development
company; and
various other mineral rights including coalbed methane, metals, aggregates, water and geothermal, in several states
throughout the United States.
While the vast majority of the 10 million acres remain largely undeveloped, BRP has an ongoing program to identify additional
opportunities to lease its minerals to operating parties.
13
Soda Ash Segment
We own a 49% non-controlling equity interest in Ciner Wyoming. Ciner Resources LP, our operating partner, controls and
operates Ciner Wyoming. Ciner Resources LP mines the trona, processes it into soda ash, and distributes the soda ash both
domestically and internationally into the glass and chemicals industries. Ciner Resources LP is a publicly traded master limited
partnership that depends on distributions from Ciner Wyoming in order to make distributions to its public unitholders.
Ciner Wyoming is one of the largest and lowest cost producers of soda ash in the world, serving a global market from its
facility located in the Green River Basin of Wyoming. The Green River Basin geological formation holds the largest, and one of
the highest purity, known deposits of trona ore in the world. Trona, a naturally occurring soft mineral, is also known as sodium
sesquicarbonate and consists primarily of sodium carbonate, or soda ash, sodium bicarbonate and water. Ciner Wyoming processes
trona ore into soda ash, which is an essential raw material in flat glass, container glass, detergents, chemicals, paper and other
consumer and industrial products. The vast majority of the world’s accessible trona reserves are located in the Green River Basin.
According to historical production statistics, approximately one-quarter of global soda ash is produced by processing trona, with
the remainder being produced synthetically through chemical processes. The costs associated with procuring the materials needed
for synthetic production are greater than the costs associated with mining trona for trona-based production. In addition, trona-
based production consumes less energy and produces fewer undesirable by-products than synthetic production.
Ciner Wyoming’s Green River Basin surface operations are situated on approximately 880 acres in Wyoming, and its mining
operations consist of approximately 23,500 acres of leased and licensed subsurface mining area. The facility is accessible by both
road and rail. Ciner Wyoming uses seven large continuous mining machines and 14 underground shuttle cars in its mining operations.
Its processing assets consist of material sizing units, conveyors, calciners, dissolver circuits, thickener tanks, drum filters,
evaporators and rotary dryers. The following map provides an aerial overview of Ciner Wyoming’s surface operations:
14
In trona ore processing, insoluble materials and other impurities are removed by thickening and filtering the liquor, a solution
consisting of sodium carbonate dissolved in water. Ciner Wyoming then adds activated carbon to filters to remove organic impurities,
which can cause color contamination in the final product. The resulting clear liquid is then crystallized in evaporators, producing
sodium carbonate monohydrate. The crystals are then drawn off and passed through a centrifuge to remove excess water. The
resulting material is dried in a product dryer to form anhydrous sodium carbonate, or soda ash. The resulting processed soda ash
is then stored in on-site storage silos to await shipment by bulk rail or truck to distributors and end customers. Ciner Wyoming’s
storage silos can hold up to 65,000 short tons of processed soda ash at any given time. The facility is in good working condition
and has been in service for over 50 years.
Deca Rehydration. The evaporation stage of trona ore processing produces a precipitate and natural by-product called deca.
"Deca," short for sodium carbonate decahydrate, is one part soda ash and ten parts water. Solar evaporation causes deca to crystallize
and precipitate to the bottom of the four main surface ponds at the Green River Basin facility. The deca rehydration process enables
Ciner Wyoming to recover soda ash from the deca-rich purged liquor as a by-product of the refining process. The soda ash contained
in deca is captured by allowing the deca crystals to evaporate in the sun and separating the dehydrated crystals from the soda ash.
15
The separated deca crystals are then blended with partially processed trona ore in the dissolving stage of the production process.
This process enables Ciner Wyoming to reduce waste storage needs and convert what is typically a waste product into a usable
raw material. As a result of this process, Ciner Wyoming has been able to reduce the amount of short tons of trona ore it takes to
produce one short ton of soda ash.
Shipping and Logistics. All of the soda ash produced is shipped by rail or truck from the Green River Basin facility. Ciner
Wyoming leases a fleet of more than 2,000 hopper cars that serve as dedicated modes of shipment to its domestic customers. For
export, Ciner Wyoming ships soda ash on unit trains consisting of approximately 100 cars to two primary ports: Port Arthur, Texas
and Portland, Oregon. From these ports, the soda ash is loaded onto ships for delivery to ports all over the world. American Natural
Soda Ash Corporation ("ANSAC") provides logistics and support services for all of Ciner Wyoming’s export sales. For domestic
sales, Ciner Resources Corporation provides similar services.
Customers. Ciner Wyoming’s largest customer is ANSAC, which buys soda ash (through Ciner Wyoming’s sales agent) and
other of its member companies for further export to its customers. ANSAC accounted for approximately 45% of Ciner Wyoming’s
net sales in 2017. ANSAC takes soda ash orders directly from its overseas customers and then purchases soda ash for resale from
its member companies pro rata based on each member’s production volumes. ANSAC is the exclusive distributor for its members
to the markets it serves. However, Ciner Resources Corporation, on Ciner Wyoming’s behalf, negotiates directly with, and Ciner
Wyoming exports to, customers in markets not served by ANSAC. During 2017, approximately 27% of Ciner Wyoming’s net sales
were to an affiliate of Ciner Resources Corporation that sold soda ash into international markets not served by ANSAC. During
2017, Ciner Wyoming had approximately 70 domestic customers.
Leases and License. Ciner Wyoming is party to several mining leases and one license for its subsurface mining rights. Some
of the leases are renewable at Ciner Wyoming’s option upon expiration. Ciner Wyoming pays royalties to the State of Wyoming,
the U.S. Bureau of Land Management and Rock Springs Royalty Company, an affiliate of Anadarko Petroleum, which are calculated
based upon a percentage of the quantity or gross value of soda ash and related products at a certain stage in the mining process,
or a certain sum per ton of such products. These royalty payments are typically subject to a minimum domestic production volume
from the Green River Basin facility, although Ciner Wyoming is obligated to pay minimum royalties or annual rentals to its lessors
and licensor regardless of actual sales. The royalty rates paid to Ciner Wyoming’s lessors and licensor may change upon renewal
of such leases and license. Under the license with Rock Springs, the applicable royalty rate may vary based on a most favored
nation clause in the license which is currently the subject of litigation in Wyoming.
As a minority interest owner in Ciner Wyoming, we do not operate and are not involved in the day-to-day operation of the
trona ore mine or soda ash production plant. Our partner, Ciner Resources LP manages the mining and plant operations. We appoint
three of the seven members of the Board of Managers of Ciner Wyoming and have certain limited negative controls relating to the
company.
Construction Aggregates Segment
Our Construction Aggregates segment consists of our construction materials business that was acquired on October 1, 2014.
The business operates four limestone quarries, one underground limestone mine, five sand and gravel plants, two asphalt plants
and two marine terminals. As of December 31, 2017, Construction Aggregates controlled approximately 400 million tons of
estimated aggregates reserves, including approximately 108 million tons of reserves leased at the Grand Rivers operation from
the Coal Royalty and Other segment. The reserve estimates for each of Construction Aggregates’ properties were prepared internally
and audited by an independent third party advisor. During the year ended December 31, 2017, Construction Aggregates sold
approximately 6.3 million tons of crushed stone and gravel, including brokered stone, 1.3 million tons of sand and 0.3 million tons
of asphalt. Our Construction Aggregates business is seasonal, with production typically lower in the first quarter of each year due
to winter weather.
16
Construction Aggregates’ four operating businesses are Laurel Aggregates, located in Lake Lynn, Pennsylvania, Winn
Materials/McIntosh Construction, located in Clarksville, Tennessee, Grand Rivers, located in Grand Rivers, Kentucky and Southern
Aggregates, located near Baton Rouge, Louisiana. The following map shows the locations of each of Construction Aggregates’
operations:
Laurel Aggregates
Laurel Aggregates ("Laurel") is a limestone mining company located in Lake Lynn, Pennsylvania. Its operations consist of
a surface and underground mines and use conventional drilling, blasting and crushing methods. The surface mine is located on
approximately 100 acres of owned property, and the underground reserves are located on approximately 670 acres of leased
property. Laurel Aggregates pays royalties for material mined and sold from its leased property. Laurel also brokers stone for third
party quarries located in Ohio and Pennsylvania. Crushed stone is loaded into third party trucks for delivery to customers located
in southwestern Pennsylvania, northeastern West Virginia and eastern Ohio. Laurel’s customers consist of oilfield service
companies, natural gas exploration and production companies and construction and contracting companies.
Winn Materials/McIntosh Construction
Winn Materials’ ("Winn") operations consist of two crushed stone quarries and a river terminal, while McIntosh Construction
("McIntosh") is a complementary asphalt producer and paving company. Together, the two companies function as a vertically
integrated unit. The operations of Winn/McIntosh are located in Clarksville, Tennessee, which is located approximately 45 miles
northwest of Nashville.
Winn mines and produces hard rock limestone using conventional drilling, blasting and crushing methods. Winn primarily
leases its properties at its two quarries located in Clarksville and in Trenton, Kentucky and pays royalties for material produced
and sold from the leased properties. Winn’s marine terminal business is located on the Cumberland River, adjacent to Winn’s
Clarksville quarry. Its dock transloads various materials by barge. Through the river terminal, Winn loads out crushed stone and
also imports products such as river and granite sand, fertilizer, and agricultural products for the local and regional markets. The
river terminal is currently being expanded to meet growing demand for additional imported product into these markets. Crushed
stone produced at Winn’s quarries and products imported from the river terminal are loaded onto third party trucks for delivery to
Winn’s customers.
17
McIntosh sells asphalt to third parties and also operates its own paving business. Winn supplies most of McIntosh’s crushed
stone and sand used for both its asphalt production and construction needs. The Winn/McIntosh businesses sell to and provide
services for residential, commercial and industrial customers. These businesses also supply and provide construction services for
infrastructure and highway construction projects primarily within Montgomery County, Tennessee, including for Fort Campbell,
one of the largest Army bases in the United States.
Southern Aggregates
Southern Aggregates ("Southern") is a sand and gravel mining company based in Denham Springs, Louisiana, approximately
25 miles northeast of Baton Rouge, Louisiana. Southern operates six sand and gravel operations. Suction dredges extract sand and
gravel, and the mined material is processed at plants generally located at each site. The plants separate gravel and saleable sand
from waste sand and clays, with the waste returned to mined-out sections of pits. The saleable sand and gravel material is loaded
onto third party trucks for delivery to Southern’s customers. Southern leases its mineral reserves and pays royalties for material
produced and sold from the leased properties. Southern’s markets extend approximately 100 miles west and south from its operating
locations, including to the cities of Baton Rouge, Lafayette and New Orleans. Southern’s customers consist primarily of ready
mix concrete companies, asphalt producers and contractors.
Grand Rivers
The Construction Aggregates segment purchased a 514 acre hard rock quarry operation located on the Tennessee River near
Grand Rivers, Kentucky from one of NRP’s aggregates lessees that had previously idled the operation. This operation continues
to lease reserves from NRP and sell its limestone aggregates in both the local market, loaded onto third party trucks, and to river-
based markets through a barge load out terminal.
The Grand Rivers quarry produces various grades of crushed limestone products mined through its open pit using conventional
drilling, blasting and crushing methods performed by a third party mining contractor. Grand Rivers pays royalties for material
produced and sold from the leased property to a subsidiary of NRP. Crushed stone is loaded into third party trucks for delivery to
customers in Kentucky and barges for delivery to customers along the Mississippi River Basin and related waterways. Grand
Rivers customers currently consist primarily of ready mix concrete companies and construction and contracting companies.
Significant Customers
We have a significant concentration of revenues with Foresight Energy and its subsidiaries, with total revenues of $70.5
million in 2017 from three different mining operations. For additional information on significant customers, refer to Note 16.
Major Customers in the Notes to Consolidated Financial Statements under "Item 8. Financial Statements and Supplementary Data."
We have a lawsuit pending against Foresight Energy and certain of its subsidiaries, including Hillsboro Energy, relating to
the wrongful declaration of force majeure at the Deer Run mine. We also have a lawsuit pending against Macoupin Energy for
breach of contract for wrongful recoupment of previously paid minimum royalties. For additional information on these lawsuits,
see Note 17. Commitments and Contingencies in the Notes to Consolidated Financial Statements under "Item 8. Financial
Statements and Supplementary Data" and "Item 3. Legal Proceedings" included elsewhere in this Annual Report on Form 10-K.
Competition
We face competition from land companies, coal producers, international steel companies and private equity firms in purchasing
coal reserves and royalty producing properties. Numerous producers in the coal industry make coal marketing intensely competitive.
Our lessees compete among themselves and with coal producers in various regions of the United States for domestic sales. Lessees
compete with both large and small producers nationwide on the basis of coal price at the mine, coal quality, transportation cost
from the mine to the customer and the reliability of supply. Continued demand for our coal and the prices that our lessees obtain
are also affected by demand for electricity and steel, as well as government regulations, technological developments and the
availability and the cost of generating power from alternative fuel sources, including nuclear, natural gas and hydroelectric power.
Ciner Wyoming's trona mining and soda ash refinery business faces competition from a number of soda ash producers in the
United States, Europe and Asia, some of which have greater market share and greater financial, production and other resources
than Ciner Wyoming does. Some of Ciner Wyoming’s competitors are diversified global corporations that have many lines of
18
business and some have greater capital resources and may be in a better position to withstand a long-term deterioration in the soda
ash market. Other competitors, even if smaller in size, may have greater experience and stronger relationships in their local markets.
Competitive pressures could make it more difficult for Ciner Wyoming to retain its existing customers and attract new customers,
and could also intensify the negative impact of factors that decrease demand for soda ash in the markets it serves, such as adverse
economic conditions, weather, higher fuel costs and taxes or other governmental or regulatory actions that directly or indirectly
increase the cost or limit the use of soda ash.
The construction aggregates industry is highly competitive and fragmented with a large number of independent local producers
operating in the local markets we serve. Additionally, our construction aggregates business also competes against large private
and public companies, some of which are significantly vertically integrated. This significant competition could lead to lower prices
and lower sales volumes in some markets, negatively affecting our earnings and cash flows.
Title to Property
We own a significant percentage of our coal and aggregates reserves in fee as of December 31, 2017. We lease the remainder
from unaffiliated third parties, including leasing aggregates reserves for Construction Aggregates' construction materials business.
Ciner Wyoming also leases or licenses its trona reserves. We believe that we have satisfactory title to all of our mineral properties,
but we have not had a qualified title company confirm this belief. Although title to these properties is subject to encumbrances in
certain cases, such as customary easements, rights-of-way, interests generally retained in connection with the acquisition of real
property, licenses, prior reservations, leases, liens, restrictions and other encumbrances, we believe that none of these burdens will
materially detract from the value of our properties or from our interest in them or will materially interfere with their use in the
operation of our business.
For most of our properties, the surface, oil and gas and mineral or coal estates are not owned by the same entities. Some of
those entities are our affiliates. State law and regulations in most of the states where we do business require the oil and gas owner
to coordinate the location of wells so as to minimize the impact on the intervening coal seams. We do not anticipate that the
existence of the severed estates will materially impede development of the minerals on our properties.
Regulation and Environmental Matters
General
Operations on our properties must be conducted in compliance with all applicable federal, state and local laws and regulations.
These laws and regulations include matters involving the discharge of materials into the environment, employee health and safety,
mine permits and other licensing requirements, reclamation and restoration of mining properties after mining is completed,
management of materials generated by mining operations, surface subsidence from underground mining, water pollution,
legislatively mandated benefits for current and retired coal miners, air quality standards, protection of wetlands, plant and wildlife
protection, limitations on land use, storage of petroleum products and substances which are regarded as hazardous under applicable
laws and management of electrical equipment containing polychlorinated biphenyls (PCBs). Because of extensive, comprehensive
and often ambiguous regulatory requirements, violations during natural resource extraction operations are not unusual and,
notwithstanding compliance efforts, we do not believe violations can be eliminated entirely.
While it is not possible to quantify the costs of compliance with all applicable federal, state and local laws and regulations,
those costs have been and are expected to continue to be significant. Our lessees in our coal and aggregates royalty businesses are
required to post performance bonds pursuant to federal and state mining laws and regulations for the estimated costs of reclamation
and mine closures, including the cost of treating mine water discharge when necessary. In many states our lessees also pay taxes
into reclamation funds that states use to achieve reclamation where site specific performance bonds are inadequate to do so.
Determinations by federal or state agencies that site specific bonds or state reclamation funds are inadequate could result in increased
bonding costs for our lessees or even a cessation of operations if adequate levels of bonding cannot be maintained. We do not
accrue for reclamation costs because our lessees are both contractually liable and liable under the permits they hold for all costs
relating to their mining operations, including the costs of reclamation and mine closures. Although the lessees typically accrue
adequate amounts for these costs, their future operating results would be adversely affected if they later determined these accruals
to be insufficient. In recent years, compliance with these laws and regulations has substantially increased the cost of coal mining
for all domestic coal producers.
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In addition, the electric utility industry, which is the most significant end-user of thermal coal, is subject to extensive regulation
regarding the environmental impact of its power generation activities, which has affected and is expected to continue to affect
demand for coal mined from our properties. Current and future proposed legislation and regulations could be adopted that will
have a significant additional impact on the mining operations of our lessees or their customers’ ability to use coal and may require
our lessees or their customers to change operations significantly or incur additional substantial costs that would negatively impact
the coal industry.
Many of the statutes discussed below also apply to our Construction Aggregates mining and production operations and Ciner
Wyoming’s trona mining and soda ash production operations, and therefore we do not present a separate discussion of statutes
related to those activities, except where appropriate.
Air Emissions
The Clean Air Act and corresponding state and local laws and regulations affect all aspects of our business. The Clean Air
Act directly impacts our lessees’ coal mining and processing operations by imposing permitting requirements and, in some cases,
requirements to install certain emissions control equipment, on sources that emit various hazardous and non-hazardous air pollutants.
The Clean Air Act also indirectly affects coal mining operations by extensively regulating the air emissions of coal-fired electric
power generating plants. There have been a series of federal rulemakings that are focused on emissions from coal-fired electric
generating facilities, including the Cross-State Air Pollution Rule (CSAPR), regulating emissions of nitrogen oxide and sulfur
dioxide, and the Mercury and Air Toxics Rule (MATS), regulating emissions of hazardous air pollutants. Installation of additional
emissions control technologies and other measures required under these and other U.S. Environmental Protection Agency (EPA)
regulations, including EPA’s proposed rules to regulate greenhouse gas (GHG) emissions from new and existing fossil fuel-fired
power plants, will make it more costly to operate coal-fired power plants and could make coal a less attractive or even effectively
prohibited fuel source in the planning, building and operation of power plants in the future. These rules and regulations have
resulted in a reduction in coal’s share of power generating capacity, which has negatively impacted our lessees’ ability to sell coal
and our coal-related revenues. Further reductions in coal’s share of power generating capacity as a result of compliance with
existing or proposed rules and regulations would have a material adverse effect on our coal-related revenues.
Carbon Dioxide and Greenhouse Gas Emissions
In December 2009, EPA determined that emissions of carbon dioxide, methane, and other GHGs present an endangerment
to public health and welfare because emissions of such gases are, according to EPA, contributing to warming of the Earth’s
atmosphere and other climatic changes. Based on its findings, EPA began adopting and implementing regulations to restrict
emissions of GHGs under various provisions of the Clean Air Act.
In August 2015, EPA published its final Clean Power Plan Rule, a multi-factor plan designed to cut carbon pollution from
existing power plants, including coal-fired power plants. The rule requires improving the heat rate of existing coal-fired power
plants and substituting lower carbon-emission sources like natural gas and renewables in place of coal. As promulgated, the rule
would force many existing coal-fired power plants to incur substantial costs in order to comply or alternatively result in the closure
of some of these plants, likely resulting in a material adverse effect on the demand for coal by electric power generators. The rule
is being challenged by several states, industry participants and other parties in the United States Court of Appeals for the District
of Columbia Circuit. In February 2016, the Supreme Court of the United States stayed the Clean Power Plan Rule pending a
decision by the District of Columbia Circuit as well as any subsequent review by the Supreme Court. In April 2017, the United
States Court of Appeals for the District of Columbia Circuit granted EPA’s motion to hold the litigation in abeyance. In December
2017, EPA issued a proposed rule repealing the Clean Power Plan Rule and issued an Advance Notice of Proposed Rulemaking
soliciting information regarding a potential replacement rule to the Clean Power Plan Rule.
In October 2015, EPA published its final rule on performance standards for greenhouse gas emissions from new, modified,
and reconstructed electric generating units. The final rule requires new steam generating units to use highly efficient supercritical
pulverized coal boilers that use partial post-combustion carbon capture and storage technology. The final emission standard is less
stringent than EPA had originally proposed due to updated cost assumptions, but could still have a material adverse effect on new
coal-fired power plants. The final rule has been challenged by several states, industry participants and other parties in the United
States Court of Appeals for the District of Columbia Circuit, but is not subject to a stay. In April 2017, the court granted EPA’s
motion to hold the litigation in abeyance while EPA reviews the rule.
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President Obama also announced an emission reduction agreement with China’s President Xi Jinping in November 2014.
The United States pledged that by 2025 it would cut climate pollution by 26 to 28% from 2005 levels. China pledged it would
reach its peak carbon dioxide emissions around 2030 or earlier, and increase its non-fossil fuel share of energy to around 20% by
2030. In December 2015, the United States was one of 196 countries that participated in the Paris Climate Conference, at which
the participants agreed to limit their emissions in order to limit global warming to 2°C above pre-industrial levels, with an aspirational
goal of 1.5°C. While there is no way to estimate the impact of these climate pledges and agreements, they could ultimately have
an adverse effect on the demand for coal, both nationally and internationally, if implemented. President Trump has expressed a
desire for the United States to withdraw from the Paris Climate Agreement or to re-negotiate its terms.
EPA has also adopted rules requiring the reporting of GHG emissions from specified large GHG emission sources in the
United States, including coal-fired electric power plants, on an annual basis.
Hazardous Materials and Waste
The Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or the Superfund law)
and analogous state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons
that are considered to have contributed to the release of a “hazardous substance” into the environment. We could become liable
under federal and state Superfund and waste management statutes if our lessees are unable to pay environmental cleanup costs
relating to hazardous substances. In addition, we may have liability for environmental clean-up costs in connection with our
Construction Aggregates and Ciner Wyoming soda ash businesses.
Water Discharges
Operations conducted on our properties can result in discharges of pollutants into waters. The Clean Water Act and analogous
state laws and regulations create two permitting programs for mining operations. The National Pollutant Discharge Elimination
System (NPDES) program under Section 402 of the statute is administered by the states or EPA and regulates the concentrations
of pollutants in discharges of waste and storm water from a mine site. The Section 404 program is administered by the Army Corps
of Engineers and regulates the placement of overburden and fill material into channels, streams and wetlands that comprise “waters
of the United States.” The scope of waters that may fall within the jurisdictional reach of the Clean Water Act is expansive and
may include land features not commonly understood to be a stream or wetlands. In June 2015, EPA issued a new rule defining the
scope of “Waters of the United States” (WOTUS) that are subject to regulation. The WOTUS rule was challenged by a number
of states and private parties in federal district and circuit courts, and the rule was stayed on a nationwide basis by the Sixth Circuit
Court of Appeals in October 2015. In January 2018, the United States Supreme Court ruled that challenges to the WOTUS rule
are properly within the jurisdiction of the federal district courts rather than the Sixth Circuit or other federal appellate courts. In
light of the Supreme Court's ruling, the nationwide stay will likely be lifted, which could result in further district court litigation
regarding stays of the rule in districts where challenges to the rule have been filed. A challenge to the Sixth Circuit’s determination
that it has exclusive jurisdiction over the matter is currently before the Supreme Court of the United States. In December 2017,
EPA and the Corps proposed a rule to repeal the WOTUS rule and are scheduled to propose a replacement to the WOTUS rule in
May 2018. The Clean Water Act and its regulations prohibit the unpermitted discharge of pollutants into such waters, including
those from a spill or leak. Similarly, Section 404 also prohibits discharges of fill material and certain other activities in waters
unless authorized by the issued permit.
In connection with its review of permits, EPA has at times sought to reduce the size of fills and to impose limits on specific
conductance (conductivity) and sulfate at levels that can be unachievable absent treatment at many mines. Such actions by EPA
could make it more difficult or expensive to obtain or comply with such permits, which could, in turn, have an adverse effect on
our coal-related revenues.
In addition to government action, private citizens’ groups have continued to be active in bringing lawsuits against operators
and landowners. Since 2012, several citizen group lawsuits have been filed against mine operators for allegedly violating conditions
in their National Pollutant Discharge Elimination System (“NPDES”) permits requiring compliance with West Virginia’s water
quality standards. Some of the lawsuits allege violations of water quality standards for selenium, whereas others allege that
discharges of conductivity and sulfate are causing violations of West Virginia’s narrative water quality standards, which generally
prohibit adverse effects to aquatic life. The citizen suit groups have sought penalties as well as injunctive relief that would limit
future discharges of selenium, conductivity or sulfate. The federal district court for the Southern District of West Virginia has ruled
in favor of the citizen suit groups in multiple suits alleging violations of the water quality standard for selenium and in two suits
alleging violations of water quality standards due to discharges of conductivity (one of which was upheld on appeal by the United
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States Court of Appeals for the Fourth Circuit in January 2017). Additional rulings requiring operators to reduce their discharges
of selenium, conductivity or sulfate could result in large treatment expenses for our lessees.
Since 2013, several citizen group lawsuits have been filed against landowners alleging ongoing discharges of pollutants,
including selenium and conductivity, from valley fills located at reclaimed mountaintop removal mining sites in West Virginia. In
each case, the mine on the subject property has been closed, the property has been reclaimed, and the state reclamation bond has
been released. Any determination that a landowner or lessee has liability for discharges from a previously reclaimed mine site
could result in substantial compliance costs or fines and would result in uncertainty as to continuing liability for completed and
reclaimed coal mine operations.
Other Regulations Affecting the Mining Industry
Mine Health and Safety Laws
The operations of our coal lessees, our Construction Aggregates business, and Ciner Wyoming are subject to stringent health
and safety standards that have been imposed by federal legislation since the adoption of the Mine Health and Safety Act of 1969.
The Mine Health and Safety Act of 1969 resulted in increased operating costs and reduced productivity. The Mine Safety and
Health Act of 1977, which significantly expanded the enforcement of health and safety standards of the Mine Health and Safety
Act of 1969, imposes comprehensive health and safety standards on all mining operations. In addition, the Black Lung Acts require
payments of benefits by all businesses conducting current mining operations to coal miners with black lung or pneumoconiosis
and to some beneficiaries of miners who have died from this disease.
Mining accidents in recent years have received national attention and instigated responses at the state and national level that
have resulted in increased scrutiny of current safety practices and procedures at all mining operations, particularly underground
mining operations. Since 2006, heightened scrutiny has been applied to the safe operations of both underground and surface mines.
This increased level of review has resulted in an increase in the civil penalties that mine operators have been assessed for non-
compliance. Operating companies and their supervisory employees have also been subject to criminal convictions. The Mine Safety
and Health Administration (MSHA) has also advised mine operators that it will be more aggressive in placing mines in the Pattern
of Violations program, if a mine’s rate of injuries or significant and substantial citations exceed a certain threshold. A mine that is
placed in a Pattern of Violations program will receive additional scrutiny from MSHA.
Surface Mining Control and Reclamation Act of 1977
The Surface Mining Control and Reclamation Act of 1977 (SMCRA) and similar statutes enacted and enforced by the states
impose on mine operators the responsibility of reclaiming the land and compensating the landowner for types of damages occurring
as a result of mining operations. To ensure compliance with any reclamation obligations, mine operators are required to post
performance bonds. Our coal lessees are contractually obligated under the terms of our leases to comply with all federal, state and
local laws, including SMCRA. Upon completion of the mining, reclamation generally is completed by seeding with grasses or
planting trees for use as pasture or timberland, as specified in the reclamation plan approved by the state regulatory authority. In
addition, higher and better uses of the reclaimed property are encouraged.
Mining Permits and Approvals
Numerous governmental permits or approvals such as those required by SMCRA and the Clean Water Act are required for
mining operations. In connection with obtaining these permits and approvals, our lessees may be required to prepare and present
to federal, state or local authorities data pertaining to the effect or impact that any proposed production of coal may have upon the
environment. The requirements imposed by any of these authorities may be costly and time consuming and may delay
commencement or continuation of mining operations.
In order to obtain mining permits and approvals from state regulatory authorities, mine operators, including our lessees, must
submit a reclamation plan for reclaiming the mined property upon the completion of mining operations. Our lessees have obtained
or applied for permits to mine a majority of the reserves that are currently planned to be mined over the next five years. Our lessees
are also in the planning phase for obtaining permits for the additional reserves planned to be mined over the following five years.
However, given the imposition of new requirements in the permits in the form of policies and the increased oversight review that
has been exercised by EPA, there are no assurances that they will not experience difficulty and delays in obtaining mining permits
22
in the future. In addition, EPA has used its authority to create significant delays in the issuance of new permits and the modification
of existing permits, which has led to substantial delays and increased costs for coal operators.
Regulations under SMCRA include a “stream buffer zone” rule that prohibits certain mining activities near streams. In 2008,
the federal Office of Surface Mining (OSM), which implements SMCRA, revised the stream buffer zone rule, making it more
clear that valley fills are not prohibited by the rule. Environmental groups challenged the revision to the buffer zone rule in federal
court. In February 2014, the federal court vacated the 2008 rule and in December 2014, OSM reinstated the previous version of
the rule, without clarifying whether the previous version of the rule impacts the ability to construct excess fills. In December 2016,
OSM finalized the “Stream Protection Rule,” a re-written version of the stream buffer zone rule which requires coal operators to
restrict mining within 100 feet of waterways. The rule also requires states to impose additional information gathering and monitoring
at and around coal mining sites and mandates new financial assurance and reclamation requirements. The rule was repealed by
Congress in February 2017; however, to the extent the rule is ever reinstated, it could restrict our lessees’ ability to develop new
mines, or could require our lessees to modify existing operations, which could have an adverse effect on our coal-related revenues.
Employees and Labor Relations
As of December 31, 2017, affiliates of our general partner employed 64 people who directly supported our operations. None
of these employees were subject to a collective bargaining agreement. We employed 243 people who supported the construction
aggregates mining and production operations. None of these employees were subject to a collective bargaining agreement.
Website Access to Partnership Reports
Our Internet address is www.nrplp.com. We make available free of charge on or through our Internet website our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission. Information on our website is not
a part of this report. In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information
statements and other information filed by us. The public may read and copy materials that we file with the SEC at the SEC’s Public
Reference Room located at 100 F Street, NE, Washington, DC 20549. Information regarding the operation of the Public Reference
Room can be obtained by calling the SEC at 1 800 SEC 0330.
Corporate Governance Matters
Our Code of Business Conduct and Ethics, our Disclosure Controls and Procedures Policy and our Corporate Governance
Guidelines adopted by our Board of Directors, as well as the charter for our Audit Committee are available on our website at
www.nrplp.com. Copies of our annual report, our Code of Business Conduct and Ethics, our Disclosure Controls and Procedures
Policy, our Corporate Governance Guidelines and our committee charters will be made available upon written request to our
principal executive office at 1201 Louisiana St., Suite 3400, Houston, Texas 77002.
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ITEM 1A.
RISK FACTORS
Risks Related to Our Business
To the extent our board of directors deems appropriate, it may determine to decrease the amount of our quarterly distribution
or suspend or eliminate the distribution altogether. In addition, our debt agreements and our partnership agreement place
restrictions on our ability to pay the quarterly distribution under certain circumstances.
Because distributions on the common units are dependent on the amount of cash we generate, distributions fluctuate based
on our performance. The actual amount of cash that is available to be distributed each quarter depends on numerous factors, some
of which are beyond our control and the control of the general partner. Cash distributions are dependent primarily on cash flow,
and not solely on profitability, which is affected by non-cash items. Therefore, cash distributions might be made during periods
when we record losses and might not be made during periods when we record profits. The actual amount of cash we have to
distribute each quarter is reduced by payments in respect of debt service and other contractual obligations, including distributions
on the preferred units, fixed charges, maintenance capital expenditures and reserves for future operating or capital needs that the
board of directors may determine are appropriate. We still have significant debt service obligations and obligations to pay cash
distributions on our preferred units. To the extent our board of directors deems appropriate, it may determine to decrease the amount
of the quarterly distribution on our common units or suspend or eliminate the distribution on our common units altogether. In
addition, because our unitholders are required to pay income taxes on their respective shares of our taxable income, our unitholders
may be required to pay taxes in excess of any future distributions we make. Our unitholders' share of our portfolio income may
be taxable to them even though they receive other losses from our activities. See "—Tax Risks to Our Unitholders—Our unitholders
are required to pay taxes on their share of our income even if they do not receive any cash distributions from us. Our unitholders'
share of our portfolio income may be taxable to them even though they receive other losses from our activities."
The agreements governing our indebtedness and preferred units restrict our ability to raise, and in some cases continue to
pay, distributions on our common units. Opco’s revolving credit agreement, the indenture governing our 2022 Notes and our
partnership agreement each require that we meet certain consolidated leverage tests in order to raise our quarterly distribution on
the common units above the current level of $0.45 per quarter. The maximum leverage covenant under Opco’s revolving credit
facility will step down permanently from 4.0x to 3.0x if we increase the common unit distribution above the current level. In
addition, under our partnership agreement, to the extent we have paid any distributions on the preferred units in kind ("PIK units"),
and such PIK units are still outstanding at any time after January 1, 2022, we will be prohibited from making any distributions
with respect to our common units until we have redeemed all such PIK units in cash. For more information on restrictions on our
ability to make distributions on our common units, see "Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Liquidity and Capital Resources" and "Item 8. Financial Statements and Supplementary Data—Note 13. Debt."
Our leverage and debt service obligations may adversely affect our financial condition, results of operations and business
prospects.
As of December 31, 2017, we and our subsidiaries had approximately $827.8 million of total indebtedness. The terms and
conditions governing the indenture for NRP’s 2022 Notes and Opco’s revolving credit facility and senior notes:
•
•
•
•
•
require us to meet certain leverage and interest coverage ratios;
require us to dedicate a substantial portion of our cash flow from operations to service our existing debt, thereby reducing
the cash available to finance our operations and other business activities and could limit our flexibility in planning for
or reacting to changes in our business and the industries in which we operate;
increase our vulnerability to economic downturns and adverse developments in our business;
limit our ability to access the bank and capital markets to raise capital on favorable terms or to obtain additional financing
for working capital, capital expenditures or acquisitions or to refinance existing indebtedness;
place restrictions on our ability to obtain additional financing, make investments, lease equipment, sell assets and engage
in business combinations;
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•
place us at a competitive disadvantage relative to competitors with lower levels of indebtedness in relation to their overall
size or less restrictive terms governing their indebtedness;
• make it more difficult for us to satisfy our obligations under our debt agreements and increase the risk that we may
default on our debt obligations; and
•
limit management’s discretion in operating our business.
Our ability to meet our expenses and debt obligations will depend on our future performance, which will be affected by
financial, business, economic, regulatory and other factors. We will not be able to control many of these factors, such as economic
conditions and governmental regulation. We cannot be certain that our cash flow will be sufficient to allow us to pay the principal
and interest on our debt and meet our other obligations, including payment of distributions on the preferred units. If we do not
have sufficient funds, we may be required to refinance all or part of our existing debt, borrow more money, or sell assets or raise
equity at unattractive prices. We are required to make substantial principal repayments each year in connection with Opco’s senior
notes, with approximately $81 million due thereunder during 2018. To the extent we borrow to make some of these payments, we
may not be able to refinance these amounts on terms acceptable to us, if at all. We may not be able to refinance our debt, sell assets,
borrow more money or access the bank and capital markets on terms acceptable to us, if at all. Our ability to comply with the
financial and other restrictive covenants in our debt agreements will be affected by the levels of cash flow from our operations
and future events and circumstances beyond our control. Failure to comply with these covenants would result in an event of default
under our indebtedness, and such an event of default could adversely affect our business, financial condition and results of operations.
Ongoing disputes with Foresight Energy could have an adverse effect on our financial condition and results of operations. In
addition, if the Deer Run mine remains idled for an extended period or does not resume operations, our financial condition
and results of operations could be adversely affected.
Foresight Energy is our largest lessee, and in 2017, we derived approximately 19% of our revenues from them. We are
currently in disputes with them with respect to two of their four mining operations in which we have an interest. Foresight Energy’s
Deer Run mine (which we also refer to as our Hillsboro property) has been idled for almost three years. Foresight Energy has
declared a force majeure event at the Deer Run mine and failed to make $76.0 million in required minimum deficiency payments
to us as of the date hereof. Such amount is expected to increase by $7.5 million for each quarter with respect to which Foresight
Energy fails to make the required minimum payment. We have a lawsuit pending against Foresight Energy and Hillsboro Energy
to recover the amounts owed to us and compel them to make the required minimum deficiency payments under the lease. We do
not currently have an estimate as to when the mine will resume coal production. If the mine remains idled for an extended period,
if the mine is permanently closed or if Hillsboro continues to fail to pay its required contractual minimums, our financial condition
could be adversely affected.
In addition, we have also filed a lawsuit against Foresight Energy’s Macoupin subsidiary, which has failed to comply with
the terms of the coal mining, rail loadout and rail loop leases at the Macoupin mine by incorrectly recouping previously paid
minimum royalties. The amount owed to us by Macoupin through December 31, 2017 is approximately $9.5 million. See "Item
3. Legal Proceedings" included elsewhere in this Annual Report on Form 10-K for more information on our lawsuits against
Foresight Energy. These ongoing disputes and further deterioration of our relationship with our largest lessee could have a material
adverse effect on our financial condition and results of operations.
Prices for both metallurgical and thermal coal are volatile and depend on a number of factors beyond our control. Declines
in prices could have a material adverse effect on our business and results of operations.
Coal prices remain at relatively low levels and continue to be volatile. Although metallurgical coal prices have improved
since 2016 lows, the current pricing environment may not be sustained, and prices could decline substantially. Thermal coal prices
remain relatively steady, but production by some of our lessees may not be economic if the prices decline further or remain at
current levels. The prices our lessees receive for their coal depend upon factors beyond their or our control, including:
•
•
•
•
the supply of and demand for domestic and foreign coal;
domestic and foreign governmental regulations and taxes;
changes in fuel consumption patterns of electric power generators;
the price and availability of alternative fuels, especially natural gas;
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•
global economic conditions, including the strength of the U.S. dollar relative to other currencies and the demand for
steel;
•
the proximity to and capacity of transportation facilities;
• weather conditions; and
•
the effect of worldwide energy conservation measures.
Natural gas is the primary fuel that competes with thermal coal for power generation. Relatively low natural gas prices have
resulted in a number of utilities switching from thermal coal to natural gas to the extent that it is practical to do so. This switching
has resulted in a decline in thermal coal prices, and to the extent that natural gas prices remain low, thermal coal prices will also
remain low. The closure of coal-fired power plants as a result of increased governmental regulations or the inability to comply
with such regulations has also resulted in a decrease in the demand for thermal coal.
Our lessees produce a significant amount of the metallurgical coal that is used in both the U.S. and foreign steel industries.
Since the amount of steel that is produced is tied to global economic conditions, declines in those conditions could result in the
decline of steel, coke and metallurgical coal production. Since metallurgical coal is priced higher than thermal coal, some mines
on our properties may only operate profitably if all or a portion of their production is sold as metallurgical coal. If these mines are
unable to sell metallurgical coal, they may not be economically viable and may be temporarily idled or closed. Any potential future
lessee bankruptcy filings could create additional uncertainty as to the future of operations on our properties and could have a
material adverse effect on our business and results of operations.
To the extent our lessees are unable to economically produce coal over the long term, the carrying value of our reserves could
be adversely affected. A long term asset generally is deemed impaired when the future expected cash flow from its use and
disposition is less than its book value. Future impairment analyses could result in additional downward adjustments to the carrying
value of our assets.
Mining operations are subject to operating risks that could result in lower revenues to us.
Our revenues are largely dependent on the level of production of minerals from our properties, and any interruptions to the
production from our properties would reduce our revenues. The level of production is subject to operating conditions or events
beyond our or our lessees’ control including:
•
•
the inability to acquire necessary permits or mining or surface rights;
changes or variations in geologic conditions, such as the thickness of the mineral deposits and, in the case of coal, the
amount of rock embedded in or overlying the coal deposit;
• mining and processing equipment failures and unexpected maintenance problems;
•
•
•
•
•
the availability of equipment or parts and increased costs related thereto;
the availability of transportation facilities and interruptions due to transportation delays;
adverse weather and natural disasters, such as heavy rains and flooding;
labor-related interruptions; and
unexpected mine safety accidents, including fires and explosions.
Under the current regulatory environment, there is substantial uncertainty relating to the ability of our coal lessees to be
issued permits necessary to conduct mining operations. The non-issuance of permits has limited the ability of our coal lessees to
open new operations, expand existing operations, and may preclude new acquisitions in which we might otherwise be involved.
We and our lessees may also incur costs and liabilities resulting from claims for damages to property or injury to persons arising
from our or their operations. If we or our lessees are pursued for these sanctions, costs and liabilities, mining operations and, as a
result, our revenues could be adversely affected.
The Construction Aggregates segment currently operates four hard rock quarries, one underground limestone mine, six sand
and gravel plants, two asphalt plants and two marine terminals. As an operator of these assets, we are exposed to risks that we
have not historically been exposed to in our mineral rights and royalties business. Such risks include, but are not limited to, prices
and demand for construction aggregates, capital and operating expenses necessary to maintain operations, production levels, general
26
economic conditions, conditions in the local markets that we serve, inclement or hazardous weather conditions and typically lower
production levels in the winter months, permitting risk, fire, explosions or other accidents, and unanticipated geologic conditions.
Any of these risks could result in damage to, or destruction of, our construction aggregates mining properties or production facilities,
personal injury, environmental damage, delays in mining or processing, reduced revenue or losses or possible legal liability. In
addition, not all of these risks are reasonably insurable, and our insurance coverage contains limits, deductibles, exclusions and
endorsements. Our insurance coverage may not be sufficient to meet our needs in the event of loss. Any prolonged downtime or
shutdowns at our construction aggregates mining properties or production facilities or material loss could have an adverse effect
on our results of operations.
Changes in fuel consumption patterns by electric power generators resulting in a decrease in the use of coal have resulted in
and will continue to result in lower coal production by our lessees and reduced coal-related revenues.
The amount of coal consumed for domestic electric power generation is affected primarily by the overall demand for electricity,
the price and availability of competing fuels for power plants and environmental and other governmental regulations. We expect
that substantially all newly constructed power plants in the United States will be fired by natural gas because of lower construction
and compliance costs compared to coal-fired plants and because natural gas is a cleaner burning fuel. The increasingly stringent
requirements of rules and regulations promulgated under the federal Clean Air Act have resulted in more electric power generators
shifting from coal to natural-gas-fired power plants, or to other alternative energy sources such as solar and wind. In addition, the
proposed rules promulgated by the EPA on greenhouse gas emissions from new and existing power plants are expected to further
limit the construction of new coal-fired generation plants in favor of alternative sources of energy and negatively affect the viability
of coal-fired power generation. These changes have resulted in reduced coal consumption and the production of coal from our
properties and are expected to continue to have an adverse effect on our coal-related revenues.
The adoption of climate change legislation or regulations restricting emissions of "greenhouse gases" and other hazardous
air pollutants have resulted in and will continue to result in reduced demand for our coal, oil and natural gas.
In December 2009, EPA determined that emissions of carbon dioxide, methane, and other GHGs, present an endangerment
to public health and welfare because emissions of such gases are, according to EPA, contributing to warming of the Earth’s
atmosphere and other climatic changes. Based on its findings, EPA has begun adopting and implementing regulations to restrict
emissions of GHGs under various provisions of the Clean Air Act.
In August 2015, EPA published its final Clean Power Plan Rule, a multi-factor plan designed to cut carbon pollution from
existing power plants, including coal-fired power plants. The rule requires improving the heat rate of existing coal-fired power
plants and substituting lower carbon-emission sources like natural gas and renewables in place of coal. The rule will force many
existing coal-fired power plants to incur substantial costs in order to comply or alternatively result in the closure of some of these
plants. This rule is being challenged by industry participants and other parties. In February, 2016, the Supreme Court of the United
States stayed the Clean Power Plan Rule pending a decision by the District of Columbia Circuit as well as any subsequent review
by the Supreme Court.
In October 2015, EPA published its final rule on performance standards for greenhouse gas emissions from new, modified,
and reconstructed electric generating units. The final rule requires new steam generating units to use highly efficient supercritical
pulverized coal boilers that use partial post-combustion carbon capture and storage technology. The final emission standard is less
stringent than EPA had originally proposed due to updated cost assumptions, but could still have a material adverse effect on new
coal-fired power plants. The final rule has been challenged by several states, industry participants and other parties in the United
States Court of Appeals for the District of Columbia Circuit, but is not subject to a stay. Oral arguments are currently scheduled
for April 2017.
In addition to EPA’s GHG initiatives, there are several other federal rulemakings that are focused on emissions from coal-
fired electric generating facilities, including the Cross-State Air Pollution Rule (CSAPR), regulating emissions of nitrogen oxide
and sulfur dioxide, and the Mercury and Air Toxics Rule (MATS), regulating emissions of hazardous air pollutants. Installation
of additional emissions control technologies and other measures required under these and other EPA regulations have made it more
costly to operate many coal-fired power plants and have resulted in and are expected to continue to result in plant closures. Further
reductions in coal’s share of power generating capacity as a result of compliance with existing or proposed rules and regulations
would have a material adverse effect on our coal-related revenues.
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In addition to climate change and other Clean Air Act legislation, our businesses are subject to numerous other federal, state
and local laws and regulations that may limit production from our properties and our profitability.
The operations of our lessees, our Construction Aggregates business and Ciner Wyoming are subject to stringent health and
safety standards under increasingly strict federal, state and local environmental, health and safety laws, including mine safety
regulations and governmental enforcement policies. The oil and gas industry is also subject to numerous laws and regulations.
Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the
imposition of cleanup and site restoration costs and liens, the issuance of injunctions to limit or cease operations, the suspension
or revocation of permits and other enforcement measures that could have the effect of limiting production from our properties.
New environmental legislation, new regulations and new interpretations of existing environmental laws, including regulations
governing permitting requirements, could further regulate or tax the mining and oil and gas industries and may also require
significant changes to operations, the incurrence of increased costs or the requirement to obtain new or different permits, any of
which could decrease our revenues and have a material adverse effect on our financial condition or results of operations. Under
SMCRA, our coal lessees have substantial reclamation obligations on properties where mining operations have been completed
and are required to post performance bonds for their reclamation obligations. To the extent an operator is unable to satisfy its
reclamation obligations or the performance bonds posted are not sufficient to cover those obligations, regulatory authorities or
citizens groups could attempt to shift reclamation liability onto the ultimate landowner, which if successful, could have a material
adverse effect on our financial condition.
In addition to governmental regulation, private citizens’ groups have continued to be active in bringing lawsuits against coal
mine operators and land owners that allege violations of water quality standards resulting from ongoing discharges of pollutants
from reclaimed mining operations, including selenium and conductivity. Any determination that a landowner or lessee has liability
for discharges from a previously reclaimed mine site would result in uncertainty as to continuing liability for completed and
reclaimed coal mine operations and could result in substantial compliance costs or fines.
Prices for soda ash are volatile. Any substantial or extended decline in soda ash prices could have an adverse effect on our
results of operations.
The market price of soda ash directly affects the profitability of Ciner Wyoming’s soda ash production operations. If the
market price for soda ash declines, Ciner Wyoming’s sales will decrease. Historically, the global market and, to a lesser extent,
the domestic market for soda ash have been volatile, and those markets are likely to remain volatile in the future. The prices Ciner
Wyoming receives for its soda ash depend on numerous factors beyond Ciner Wyoming’s control, including worldwide and regional
economic and political conditions impacting supply and demand. Glass manufacturers and other industrial customers drive most
of the demand for soda ash, and these customers experience significant fluctuations in demand and production costs. Competition
from increased use of glass substitutes, such as plastic and recycled glass, has had a negative effect on demand for soda ash.
Substantial or extended declines in prices for soda ash could have a material adverse effect on our results of operations. In addition,
Ciner Wyoming relies on natural gas as the main energy source in its soda ash production process. Accordingly, high natural gas
prices increase Ciner Wyoming’s cost of production and affect its competitive cost position when compared to other foreign and
domestic soda ash producers.
An adverse outcome in our contingent consideration payment dispute with Anadarko could have an adverse effect on our
business and liquidity.
In July 2017, Anadarko Holding Company and its subsidiary, Big Island Trona Company (together, “Anadarko”) filed a
lawsuit against Opco and NRP Trona LLC alleging that a July 2013 simplification of OCI Wyoming’s ownership structure triggered
an acceleration of an obligation under the purchase agreement with Anadarko to pay additional contingent consideration in full
and demanded immediate payment of such amount, together with interest, court costs and attorneys’ fees. While this matter is in
the very early stages, we would be required to pay up to $40 million, plus interest, court costs and attorneys’ fees if Anadarko
prevails and is awarded the full damages it seeks. Any such payment could have a material adverse effect on our financial condition.
For more information, see “Item 3. Legal Proceedings—Anadarko Contingent Consideration Payment Dispute.”
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The Construction Aggregates segment operates in a highly competitive and fragmented industry, which may negatively impact
prices, volumes and costs. In addition, both commercial and residential construction are dependent upon the overall U.S.
economy.
The construction aggregates industry is highly fragmented with a large number of independent local producers operating in
local markets. Additionally, our construction aggregates business also competes against large private and public companies, some
of which are significantly vertically integrated. Therefore, there is intense competition in a number of markets in which the
construction aggregates business operates. This significant competition could lead to lower prices and lower sales volumes in some
markets, negatively affecting our earnings and cash flows.
In addition, commercial and residential construction levels generally move with economic cycles. When the economy is
strong, construction levels rise and when the economy is weak, construction levels fall. The U.S. economy is recovering from the
2008-2009 recession, but the pace of recovery is slow. Since construction activity generally lags the recovery after down cycles,
construction projects have not returned to their pre-recession levels.
If our lessees do not manage their operations well, their production volumes and our royalty revenues could decrease.
We depend on our lessees to effectively manage their operations on our properties. Our lessees make their own business
decisions with respect to their operations within the constraints of their leases, including decisions relating to:
•
the payment of minimum royalties;
• marketing of the minerals mined;
• mine plans, including the amount to be mined and the method of mining;
•
•
•
•
•
•
•
•
•
processing and blending minerals;
expansion plans and capital expenditures;
credit risk of their customers;
permitting;
insurance and surety bonding;
acquisition of surface rights and other mineral estates;
employee wages;
transportation arrangements;
compliance with applicable laws, including environmental laws; and
• mine closure and reclamation.
A failure on the part of one of our lessees to make royalty payments, including minimum royalty payments, could give us
the right to terminate the lease, repossess the property and enforce payment obligations under the lease. If we repossessed any of
our properties, we would seek a replacement lessee. We might not be able to find a replacement lessee and, if we did, we might
not be able to enter into a new lease on favorable terms within a reasonable period of time. In addition, the existing lessee could
be subject to bankruptcy proceedings that could further delay the execution of a new lease or the assignment of the existing lease
to another operator. If we enter into a new lease, the replacement operator might not achieve the same levels of production or sell
minerals at the same price as the lessee it replaced. In addition, it may be difficult for us to secure new or replacement lessees for
small or isolated mineral reserves.
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We have limited control over the activities on our properties that we do not operate and are exposed to operating risks that we
do not experience in the royalty business.
We do not have control over the operations of Ciner Wyoming. We have limited approval rights with respect to Ciner Wyoming,
and our partner controls most business decisions, including decisions with respect to distributions and capital expenditures. Adverse
developments in Ciner Wyoming’s business would result in decreased distributions to NRP. In addition, we are ultimately
responsible for operating the transportation infrastructure at Foresight Energy’s Williamson mine, and have assumed the capital
and operating risks associated with that business. As a result of these investments, we could experience increased costs as well as
increased liability exposure associated with operating these facilities.
Fluctuations in transportation costs and the availability or reliability of transportation could reduce the production of coal,
soda ash, construction aggregates, and other minerals from our properties.
Transportation costs represent a significant portion of the total delivered cost for the customers of our lessees. Increases in
transportation costs could make coal a less competitive source of energy or could make minerals produced by some or all of our
lessees less competitive than coal produced from other sources. On the other hand, significant decreases in transportation costs
could result in increased competition for our lessees from producers in other parts of the country.
Our lessees depend upon railroads, barges, trucks and beltlines to deliver minerals to their customers. Disruption of those
transportation services due to weather-related problems, mechanical difficulties, strikes, lockouts, bottlenecks and other events
could temporarily impair the ability of our lessees to supply minerals to their customers. Our lessees’ transportation providers may
face difficulties in the future that may impair the ability of our lessees to supply minerals to their customers, resulting in decreased
royalty revenues to us.
In addition, Ciner Wyoming transports its soda ash by rail or truck and ocean vessel. As a result, its business and financial
results are sensitive to increases in rail freight, trucking and ocean vessel rates. Increases in transportation costs, including increases
resulting from emission control requirements, port taxes and fluctuations in the price of fuel, could make soda ash a less competitive
product for glass manufacturers when compared to glass substitutes or recycled glass, or could make Ciner Wyoming’s soda ash
less competitive than soda ash produced by competitors that have other means of transportation or are located closer to their
customers. Ciner Wyoming may be unable to pass on its freight and other transportation costs in full because market prices for
soda ash are generally determined by supply and demand forces. In addition, rail operations are subject to various risks that may
result in a delay or lack of service at Ciner Wyoming’s facility, and alternative methods of transportation are impracticable or cost-
prohibitive. Any substantial interruption in or increased costs related to the transportation of Ciner Wyoming’s soda ash or the
failure to renew the rail contract on favorable terms could have a material adverse effect on our financial condition and results of
operations.
Our reserve estimates depend on many assumptions that may be inaccurate, which could materially adversely affect the quantities
and value of our reserves.
Coal, aggregates and industrial minerals, reserve engineering requires subjective estimates of underground accumulations
of coal, aggregates and industrial minerals, and assumptions and are by nature imprecise. Our reserve estimates may vary
substantially from the actual amounts of coal, aggregates and industrial minerals recovered from our reserves. There are numerous
uncertainties inherent in estimating quantities of reserves, including many factors beyond our control. Estimates of reserves
necessarily depend upon a number of variables and assumptions, any one of which may, if incorrect, result in an estimate that
varies considerably from actual results. These factors and assumptions relate to:
•
•
•
•
•
future prices, operating costs, capital expenditures, severance and excise taxes, and development and reclamation costs;
production levels;
future technology improvements;
the effects of regulation by governmental agencies; and
geologic and mining conditions, which may not be fully identified by available exploration data.
Actual production, revenue and expenditures with respect to our reserves will likely vary from estimates, and these variations
may be material. As a result, undue reliance should not be placed on our reserve data that is included in this report.
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Our lessees could satisfy obligations to their customers with minerals from properties other than ours, depriving us of the ability
to receive amounts in excess of minimum royalty payments.
Mineral supply contracts generally do not require operators to satisfy their obligations to their customers with resources
mined from specific reserves. Several factors may influence a lessee’s decision to supply its customers with minerals mined from
properties we do not own or lease, including the royalty rates under the lessee’s lease with us, mining conditions, mine operating
costs, cost and availability of transportation, and customer specifications. In addition, lessees move on and off of our properties
over the course of any given year in accordance with their mine plans. If a lessee satisfies its obligations to its customers with
minerals from properties we do not own or lease, production on our properties will decrease, and we will receive lower royalty
revenues.
A lessee may incorrectly report royalty revenues, which might not be identified by our lessee audit process or our mine inspection
process or, if identified, might be identified in a subsequent period.
We depend on our lessees to correctly report production and royalty revenues on a monthly basis. Our regular lessee audits
and mine inspections may not discover any irregularities in these reports or, if we do discover errors, we might not identify them
in the reporting period in which they occurred. Any undiscovered reporting errors could result in a loss of royalty revenues and
errors identified in subsequent periods could lead to accounting disputes as well as disputes with our lessees.
Risks Related to Our Structure
Unitholders may not be able to remove our general partner even if they wish to do so.
Our general partner manages and operates NRP. Unlike the holders of common stock in a corporation, unitholders have only
limited voting rights on matters affecting our business. Unitholders have no right to elect the general partner or the directors of
the general partner on an annual or any other basis.
Furthermore, if unitholders are dissatisfied with the performance of our general partner, they currently have little practical
ability to remove our general partner or otherwise change its management. Our general partner may not be removed except upon
the vote of the holders of at least 66 2/3% of our outstanding common units (including common units held by our general partner
and its affiliates and including common units deemed to be held by the holders of the preferred units who vote along with the
common unitholders on an as-converted basis). Because of their substantial ownership in us, the removal of our general partner
would be difficult without the consent of both our general partner and its affiliates and the holders of the preferred units
In addition, the following provisions of our partnership agreement may discourage a person or group from attempting to
remove our general partner or otherwise change our management:
•
•
generally, if a person (other than the holders of preferred units) acquires 20% or more of any class of units then outstanding
other than from our general partner or its affiliates, the units owned by such person cannot be voted on any matter; and
our partnership agreement contains limitations upon the ability of unitholders to call meetings or to acquire information
about our operations, as well as other limitations upon the unitholders’ ability to influence the manner or direction of
management.
As a result of these provisions, the price at which the common units will trade may be lower because of the absence or
reduction of a takeover premium in the trading price.
The preferred units are senior in right of distributions and liquidation and upon conversion, would result in the issuance of
additional common units in the future, which could result in substantial dilution of our common unitholders’ ownership
interests.
The preferred units rank senior to our common units with respect to distribution rights and rights upon liquidation. We are
required to pay quarterly distributions on the preferred units (plus any PIK Units issued in lieu of preferred units) in an amount
equal to 12.0% per year prior to paying any distributions on our common units. The preferred units also rank senior to the common
units in right of liquidation, and will be entitled to receive a liquidation preference in any such case.
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The preferred units may also be converted into common units under certain circumstances. The number of common units
issued in any conversion will be based on the then-current trading price of the common units at the time of conversion. Accordingly,
the lower the trading price of our common units at the time of conversion, the greater the number of common units that will be
issued upon conversion of the preferred units, which would result in greater dilution to our existing common unitholders. Dilution
has the following effects on our common unitholders:
•
•
•
an existing unitholder’s proportionate ownership interest in NRP will decrease;
the amount of cash available for distribution on each unit may decrease; and
the relative voting strength of each previously outstanding unit may be diminished; and the market price of the common
units may decline.
In addition, to the extent the preferred units are converted into more than 66 2/3% of our common units, the holders of the
preferred will have the right to remove our general partner.
We may issue additional common units or preferred units without common unitholder approval, which would dilute a
unitholder’s existing ownership interests.
Our general partner may cause us to issue an unlimited number of common units, without common unitholder approval
(subject to applicable New York Stock Exchange (NYSE) rules). We may also issue at any time an unlimited number of equity
securities ranking junior or senior to the common units (including additional preferred units) without common unitholder approval
(subject to applicable NYSE rules). In addition, we may issue additional common units upon the exercise of the outstanding
warrants held by Blackstone and Goldentree. The issuance of additional common units or other equity securities of equal or senior
rank will have the following effects:
•
•
•
an existing unitholder’s proportionate ownership interest in NRP will decrease;
the amount of cash available for distribution on each unit may decrease; and
the relative voting strength of each previously outstanding unit may be diminished; and the market price of the common
units may decline.
Our general partner has a limited call right that may require unitholders to sell their units at an undesirable time or price.
If at any time our general partner and its affiliates own 80% or more of the common units, the general partner will have the
right, but not the obligation, which it may assign to any of its affiliates, to acquire all, but not less than all, of the remaining common
units held by unaffiliated persons at a price generally equal to the then current market price of the common units. As a result,
unitholders may be required to sell their common units at a time when they may not desire to sell them or at a price that is less
than the price they would like to receive. They may also incur a tax liability upon a sale of their common units.
Cost reimbursements due to our general partner may be substantial and will reduce our cash available for distribution to
unitholders.
Prior to making any distribution on the common units, we reimburse our general partner and its affiliates, including officers
and directors of the general partner, for all expenses incurred on our behalf. The reimbursement of expenses and the payment of
fees could adversely affect our ability to make distributions. The general partner has sole discretion to determine the amount of
these expenses. In addition, our general partner and its affiliates may provide us services for which we will be charged reasonable
fees as determined by the general partner.
Unitholders may not have limited liability if a court finds that unitholder actions constitute control of our business.
Our general partner generally has unlimited liability for our obligations, such as our debts and environmental liabilities,
except for those contractual obligations that are expressly made without recourse to our general partner. Under Delaware law,
however, a unitholder could be held liable for our obligations to the same extent as a general partner if a court determined that the
right of unitholders to remove our general partner or to take other action under our partnership agreement constituted participation
in the "control" of our business. In addition, Section 17-607 of the Delaware Revised Uniform Limited Partnership Act provides
that under some circumstances, a unitholder may be liable to us for the amount of a distribution for a period of three years from
the date of the distribution.
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Conflicts of interest could arise among our general partner and us or the unitholders.
These conflicts may include the following:
• Excluding our construction aggregates business, we do not have any employees and we rely solely on employees of affiliates
of the general partner;
•
•
•
•
•
under our partnership agreement, we reimburse the general partner for the costs of managing and for operating the
partnership;
the amount of cash expenditures, borrowings and reserves in any quarter may affect cash available to pay quarterly
distributions to unitholders;
the general partner tries to avoid being liable for partnership obligations. The general partner is permitted to protect its
assets in this manner by our partnership agreement. Under our partnership agreement the general partner would not breach
its fiduciary duty by avoiding liability for partnership obligations even if we can obtain more favorable terms without
limiting the general partner’s liability;
under our partnership agreement, the general partner may pay its affiliates for any services rendered on terms fair and
reasonable to us. The general partner may also enter into additional contracts with any of its affiliates on behalf of us.
Agreements or contracts between us and our general partner (and its affiliates) are not necessarily the result of arm’s-length
negotiations; and
the general partner would not breach our partnership agreement by exercising its call rights to purchase limited partnership
interests or by assigning its call rights to one of its affiliates or to us.
In addition, as a result of the purchase of the Preferred Units, Blackstone has certain consent rights and board appointment
and observation rights. GoldenTree also has more limited consent rights. In the exercise of their applicable consent rights and/or
board rights, conflicts of interest could arise between us and our general partner on the one hand, and Blackstone or GoldenTree
on the other hand.
The control of our general partner may be transferred to a third party without unitholder consent. A change of control may
result in defaults under certain of our debt instruments and the triggering of payment obligations under compensation
arrangements.
Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all
of its assets without the consent of our unitholders. Furthermore, there is no restriction in our partnership agreement on the ability
of the general partner of our general partner from transferring its general partnership interest in our general partner to a third party.
The new owner of our general partner would then be in a position to replace the Board of Directors and officers with its own
choices and to control their decisions and actions.
In addition, a change of control would constitute an event of default under our debt agreements. During the continuance of
an event of default under our debt agreements, the administrative agent may terminate any outstanding commitments of the lenders
to extend credit to us and/or declare all amounts payable by us immediately due and payable. In addition, upon a change of control,
the holders of the preferred units would have the right to require us to redeem the preferred units at the liquidation preference or
convert all of their preferred units into common units. A change of control also may trigger payment obligations under various
compensation arrangements with our officers.
Tax Risks to Our Unitholders
Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes as well as our not being subject
to a material amount of entity-level taxation by individual states. If the Internal Revenue Service ("IRS") were to treat us as
a corporation for federal income tax purposes or we were to become subject to material additional amounts of entity-level
taxation for state tax purposes, then our cash available for distribution to unitholders would be substantially reduced.
The anticipated after-tax economic benefit of an investment in our units depends largely on our being treated as a partnership
for U.S. federal income tax purposes. Despite the fact that we are organized as a limited partnership under Delaware law, we would
be treated as a corporation for U.S. federal income tax purposes unless we satisfy a "qualifying income" requirement. Based on
our current operations, we believe we satisfy the qualifying income requirement. However, we have not requested, and do not plan
to request, a ruling from the IRS on this or any other matter affecting us. Failing to meet the qualifying income requirement or a
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change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us
to taxation as an entity.
If we were treated as a corporation for U.S. federal income tax purposes, we would pay federal income tax on our taxable
income at the corporate tax rate and would likely be liable for state income tax at varying rates. Distributions to our unitholders
would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through
to our unitholders. Because tax would be imposed upon us as a corporation, our cash available for distribution to our unitholders
would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated
cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our units.
At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the
imposition of state income, franchise and other forms of taxation. Imposition of a similar tax on us in a jurisdiction in which we
operate or in other jurisdictions to which we may expand could substantially reduce the cash available for distribution to our
unitholders.
The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial
or administrative changes or differing interpretations, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our units
may be modified by administrative, legislative or judicial changes or differing interpretations at any time. From time to time,
members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that affect publicly
traded partnerships. Although there is no current legislative proposal, a prior legislative proposal would have eliminated the
qualifying income exception to the treatment of all publicly traded partnerships as corporations upon which we rely for our treatment
as a partnership for U.S. federal income tax purposes.
In addition, on January 24, 2017, final regulations regarding which activities give rise to qualifying income within the
meaning of Section 7704 of the Internal Revenue Code of 1986, as amended (the "Final Regulations") were published in the Federal
Register. The Final Regulations are effective as of January 19, 2017, and apply to taxable years beginning on or after January 19,
2017. We anticipate that we will continue to meet the qualifying income exception for publicly traded partnership under the Final
Regulations.
However, any interpretation of or modification to the U.S. federal income tax laws may be applied retroactively and could
make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships
for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be
enacted. Any similar or future legislative changes could negatively impact the value of an investment in our units.
Certain federal income tax preferences currently available with respect to coal exploration and development may be eliminated
as a result of future legislation.
Changes to U.S. federal income tax laws have been proposed in a prior session of Congress that would eliminate certain key
U.S. federal income tax preferences relating to coal exploration and development. These changes include, but are not limited to
(i) repealing capital gains treatment of coal and lignite royalties, (ii) eliminating current deductions and 60-month amortization
for exploration and development costs relating to coal and other hard mineral fossil fuels, and (iii) repealing the percentage depletion
allowance with respect to coal properties. If enacted, these changes would limit or eliminate certain tax deductions that are currently
available with respect to coal exploration and development, and any such change could increase the taxable income allocable to
our unitholders and negatively impact the value of an investment in our units. We are not aware of any current proposals with
regard to these changes.
Our unitholders are required to pay taxes on their share of our income even if they do not receive any cash distributions from
us. Our unitholders' share of our portfolio income may be taxable to them even though they receive other losses from our
activities.
Because our unitholders are treated as partners to whom we allocate taxable income that could be different in amount than
the cash we distribute, our unitholders are required to pay any federal income taxes and, in some cases, state and local income
taxes on their share of our taxable income even if they receive no cash distributions from us. Our unitholders may not receive cash
distributions from us equal to their share of our taxable income or even equal to the actual tax due from them with respect to that
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income.
For our unitholders subject to the passive loss rules, our current operations include portfolio activities (such as our coal and
mineral royalties business) and passive activities (such as our soda ash and aggregates businesses). Any passive losses we generate
will only be available to offset our passive income generated in the future and will not be available to offset (i) our portfolio income,
including income related to our coal and mineral royalties business, (ii) a unitholder’s income from other passive activities or
investments, including investments in other publicly traded partnerships, or (iii) a unitholder’s salary or active business income.
Thus, our unitholders' share of our portfolio income may be subject to federal income tax, regardless of other losses they may
receive from us.
We may engage in transactions to reduce our indebtedness and manage our liquidity that generate taxable income (including
income and gain from the sale of properties and cancellation of indebtedness income) allocable to our unitholders, and income
tax liabilities arising therefrom may exceed any distributions made with respect to their units.
In response to current market conditions, we may engage in transactions to reduce our leverage and manage our liquidity
that would result in income and gain to our unitholders without a corresponding cash distribution. For example, we may sell assets
and use the proceeds to repay existing debt, in which case, our unitholders could be allocated taxable income and gain resulting
from the sale without receiving a cash distribution. Further, we may pursue opportunities to reduce our existing debt, such as debt
exchanges, debt repurchases, or modifications of our existing debt that would result in “cancellation of indebtedness income” (also
referred to as “COD income”) being allocated to our unitholders as ordinary taxable income. Our unitholders may be allocated
income and gain from these transactions, and income tax liabilities arising therefrom may exceed any distributions we make to
our unitholders. The ultimate tax effect of any such income allocations will depend on the unitholder's individual tax position,
including, for example, the availability of any suspended passive losses that may offset some portion of the allocable income. Our
unitholders may, however, be allocated substantial amounts of ordinary income subject to taxation, without any ability to offset
such allocated income against any capital losses attributable to the unitholder’s ultimate disposition of its units. Our unitholders
are encouraged to consult their tax advisors with respect to the consequences to them
If the IRS contests the federal income tax positions we take, the market for our units may be adversely impacted and the cost
of any IRS contest will reduce our cash available for distribution to our unitholders.
We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes
or any other matter affecting us. The IRS may adopt positions that differ from the positions we take. It may be necessary to resort
to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of
the positions we take. Any contest by the IRS may materially and adversely impact the market for our units and the price at which
they trade. In addition, our costs of any contest by the IRS will be borne indirectly by our unitholders and our general partner
because the costs will reduce our cash available for distribution.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some
states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit
adjustment directly from us, in which case our cash available for distribution to our unitholders might be substantially reduced
and our current and former unitholders may be required to indemnify us for any taxes (including applicable penalties and
interest) resulting from such audit adjustments that were paid on such unitholders’ behalf.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit
adjustments to our income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties
and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, our general partner
may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a
revised information statement to each unitholder with respect to an audited and adjusted return. Although our general partner may
elect to have our unitholders take such audit adjustment into account in accordance with their interests in us during the tax year
under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result,
our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did
not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments
of taxes, penalties and interest, our cash available for distribution to our unitholders might be substantially reduced and our current
and former unitholders may be required to indemnify us for any taxes (including any applicable penalties and interest) resulting
from such audit adjustments that were paid on such unitholders’ behalf. These rules are not applicable for tax years beginning on
or prior to December 31, 2017.
35
Tax gain or loss on the disposition of our common units could be more or less than expected.
If our unitholders sell their common units, they will recognize a gain or loss equal to the difference between the amount
realized and their tax basis in those common units. Because distributions in excess of our common unitholder's allocable share of
our net taxable income result in a decrease in their tax basis in unitholder's common units, the amount, if any, of such prior excess
distributions with respect to the common units they sell will, in effect, become taxable income to our common unitholders if they
sell such common units at a price greater than their tax basis in those common units, even if the price they receive is less than their
original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary
income due to potential recapture items, including depletion and depreciation recapture. In addition, because the amount realized
includes a unitholder’s share of our nonrecourse liabilities, if our unitholders sell their common units, they may incur a tax liability
in excess of the amount of cash they receive from the sale.
Our unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
In general, we are entitled to a deduction for interest paid or accrued on indebtedness properly allocable to our trade or
business during our taxable year. However, under the Tax Cuts and Jobs Act, for taxable years beginning after December 31, 2017,
our deduction for “business interest” is limited to the sum of our business interest income and 30% of our “adjusted taxable income.”
For the purposes of this limitation, our adjusted taxable income is computed without regard to any business interest expense or
business interest income, and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation,
amortization, or depletion.
Tax-exempt entities face unique tax issues from owning our units that may result in adverse tax consequences to them.
Investment in our units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known
as IRAs) raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from
U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable
to them. Further, under the Tax Cuts and Jobs Act, for taxable years beginning after December 31, 2017, a tax-exempt entity with
more than one unrelated trade or business (including by attribution from investment in a partnership such as ours that is engaged
in one or more unrelated trade or business) is required to compute the unrelated business taxable income of such tax-exempt entity
separately with respect to each such trade or business (including for purposes of determining any net operating loss deduction).
As a result, for years beginning after December 31, 2017, it may not be possible for tax-exempt entities to utilize losses from an
investment in our partnership to offset unrelated business taxable income from another unrelated trade or business and vice versa.
Tax-exempt entities should consult a tax advisor before investing in our units.
Non-U.S. Unitholders will be subject to U.S. taxes and withholding with respect to their income and gain from owning our
units.
Non-U.S. unitholders are generally taxed and subject to income tax filing requirements by the United States on income
effectively connected with a U.S. trade or business (“effectively connected income”). Income allocated to our unitholders and any
gain from the sale of our units will generally be considered to be “effectively connected” with a U.S. trade or business. As a result,
distributions to a Non-U.S. unitholder will be subject to withholding at the highest applicable effective tax rate and a Non-U.S.
unitholder who sells or otherwise disposes of a unit will also be subject to U.S. federal income tax on the gain realized from the
sale or disposition of that unit.
The Tax Cuts and Jobs Act imposes a withholding obligation of 10% of the amount realized upon a Non-U.S. unitholder’s
sale or exchange of an interest in a partnership that is engaged in a U.S. trade or business. However, due to challenges of administering
a withholding obligation applicable to open market trading and other complications, the IRS has temporarily suspended the
application of this withholding rule to open market transfers of interests in publicly traded partnerships pending promulgation of
regulations or other guidance that resolves the challenges. It is not clear if or when such regulations or other guidance will be
issued. Non-U.S. unitholders should consult a tax advisor before investing in our units.
We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common units
purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
Because we cannot match transferors and transferees of our common units and for other reasons, we have adopted depreciation
and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to
36
those positions could adversely affect the amount of tax benefits available to our unitholders. It also could affect the timing of
these tax benefits or the amount of gain from the sale of common units and could have a negative impact on the value of our
common units or result in audit adjustments to our unitholders' tax returns.
We prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month
based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular
unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss
and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units
each month based upon the ownership of our common units on the first day of each month (the "Allocation Date"), instead of on
the basis of the date a particular unit is transferred. Similarly, we generally allocate certain deductions for depreciation of capital
additions, gain or loss realized on a sale or other disposition of our assets and, in the discretion of the general partner, any other
extraordinary item of income, gain, loss or deduction based upon ownership on the Allocation Date. Treasury Regulations allow
a similar monthly simplifying convention, but such regulations do not specifically authorize the use of the proration method we
have adopted. If the IRS were to challenge our proration method, we may be required to change the allocation of items of income,
gain, loss and deduction among our unitholders.
A unitholder whose units are the subject of a securities loan (e.g., a loan to a "short seller" to cover a short sale of units) may
be considered as having disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect
to those units during the period of the loan and may recognize gain or loss from the disposition.
Because there are no specific rules governing the U.S. federal income tax consequences of loaning a partnership interest, a
unitholder whose units are the subject of a securities loan may be considered as having disposed of the loaned units. In that case,
the unitholder may no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and
the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain,
loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the
unitholder as to those units could be fully taxable as ordinary income. Our unitholders desiring to assure their status as partners
and avoid the risk of gain recognition from a loan of their units are urged to modify any applicable brokerage account agreements
to prohibit their brokers from borrowing their units.
As a result of investing in our units, our unitholders are subject to state and local taxes and return filing requirements in
jurisdictions where we operate or own or acquire property.
In addition to federal income taxes, our unitholders are likely subject to other taxes, including state and local taxes,
unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we
conduct business or own property now or in the future, even if our unitholders do not live in any of those jurisdictions. Our
unitholders are likely required to file state and local income tax returns and pay state and local income taxes in some or all of these
various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements. We own
property and conduct business in a number of states in the United States. Most of these states impose an income tax on individuals,
corporations and other entities. As we make acquisitions or expand our business, we may own assets or conduct business in
additional states that impose a personal income tax. It is the unitholder's responsibility to file all U.S. federal, state and local tax
returns.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
37
ITEM 3. LEGAL PROCEEDINGS
We are involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate
results of these proceedings cannot be predicted with certainty, we believe these claims will not have a material effect on our
financial position, liquidity or operations. We are currently involved in the litigation proceedings described below.
Foresight Energy Disputes
In November 2015, we filed a lawsuit against Foresight Energy’s subsidiary, Hillsboro Energy LLC ("Hillsboro"), in the
Circuit Court of the Fourth Judicial Circuit in Montgomery County, Illinois. We have subsequently named Foresight Energy and
certain of its subsidiaries in the suit. The lawsuit alleges, among other items, breach of contract by Hillsboro resulting from a
wrongful declaration of force majeure at Hillsboro’s Deer Run mine, as well as alter-ego and tortious interference claims against
Foresight Energy. In late March 2015, elevated carbon monoxide readings were detected at the Deer Run mine, and coal production
at the mine was idled. In July 2015, Hillsboro declared a force majeure event under its lease with us, and Hillsboro has failed to
make its contractually obligated minimum quarterly payments of $7.5 million since then. We believe the force majeure declaration
has no merit and we are vigorously pursuing recovery against Hillsboro, as well as against Foresight Energy and certain of its
other subsidiaries. Hillsboro has failed to make $76.0 million of deficiency payments to us to date, and such amount will continue
to increase for each quarter with respect to which the payment is not made.
In April 2016, we filed a lawsuit against Macoupin Energy, LLC ("Macoupin"), a subsidiary of Foresight Energy, in Macoupin
County, Illinois. The lawsuit alleges that Macoupin has failed to comply with the terms of its coal mining, rail loadout and rail
loop leases by incorrectly recouping previously paid minimum royalties. As a result, Macoupin owes NRP approximately $9.5
million in improperly recouped minimums through December 31, 2017.
Anadarko Contingent Consideration Payment Dispute
In January 2013, we acquired a non-controlling 48.51% general partner interest in OCI Wyoming, L.P. ("OCI LP") and all
of the preferred stock and a portion of the common stock of OCI Wyoming Co. ("OCI Co") (which in turn owned a 1% limited
partner interest in OCI LP) from Anadarko Holding Company and its subsidiary, Big Island Trona Company (together, "Anadarko").
The remaining general partner interest in OCI LP and common stock of OCI Co were owned by subsidiaries of OCI Chemical
Corporation.
The acquisition agreement provided for additional contingent consideration of up to $50 million to be paid by us if certain
performance criteria were met at OCI LP as defined in the purchase and sale agreement in any of the years 2013, 2014 or 2015.
For those years, we paid an aggregate of $11.5 million to Anadarko in full satisfaction of these contingent consideration payment
obligations.
In July 2013, pursuant to a series of transactions in connection with an initial public offering by a subsidiary of OCI Chemical
Corporation, the ownership structure in OCI LP was simplified. In connection with such reorganization, we exchanged the stock
of OCI Co for a limited partner interest in OCI LP. Following the reorganization, our interest in OCI LP increased to 49%, consisting
of both limited and general partner interests. The restructuring did not have any impact on the operations, revenues, management
or control of OCI LP.
In July 2017, Anadarko filed a lawsuit against Opco and NRP Trona LLC in the District Court of Harris County, Texas, 157th
Judicial District, alleging that the transactions conducted in 2013 triggered an acceleration of our obligation under the purchase
agreement with Anadarko to pay additional contingent consideration in full and demanded immediate payment of such amount,
together with interest, court costs and attorneys’ fees. We do not believe the reorganization transactions triggered an obligation
to pay any additional contingent consideration, and we intend to vigorously defend this lawsuit. However, the ultimate outcome
cannot be predicted with certainty given the early stage of this matter and we estimate a possible range of loss between $0, if we
prevail, and approximately $40 million, plus interest, court costs and attorneys’ fees if Anadarko prevails and is awarded the full
damages it seeks.
ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by SEC regulations is included in
Exhibit 95.1 to this Annual Report on Form 10-K.
38
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED UNITHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
NRP Common Units and Cash Distributions
Our common units are listed and traded on the NYSE under the symbol "NRP". As of February 1, 2018, there were
approximately 20,225 beneficial and registered holders of our common units. The computation of the approximate number of
unitholders is based upon a broker survey.
The following table sets forth the high and low sales prices per common unit, as reported on the NYSE Composite Transaction
Tape from January 1, 2016 to December 31, 2017, and the quarterly cash distribution declared and paid per common unit with
respect to each quarter.
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016 Distributions
2017 Distributions
Price Range
Cash Distribution History
High
Low
Per
Unit
Record
Date
Payment
Date
$
$
$
$
$
$
$
$
13.86
18.92
29.85
40.00
45.60
37.65
29.25
27.85
$
$
$
$
$
$
$
$
5.00
7.13
13.97
25.11
32.15
26.50
22.81
23.75
$
$
$
$
$
$
$
$
Cash Distributions to Partners
0.45
0.45
0.45
0.45
0.45
0.45
0.45
0.45
5/5/2016
8/5/2016
11/7/2016
2/7/2017
5/5/2017
8/7/2017
11/7/2017
2/7/2018
5/13/2016
8/12/2016
11/14/2016
2/14/2017
5/12/2017
8/14/2017
11/14/2017
2/14/2018
General
Partner (1)
Common
Unitholders (2)
Preferred
Unitholders (3)
Total
Distributions
$
$
451
449
$
$
(in thousands)
22,014
22,018
$
$
— $
$
8,844
22,465
31,311
(1) Represents distributions on our general partner’s general partner interest in us.
(2) Includes $0.3 million distributions to our general partner on 156,000 common units beneficially owned by our general
partner in both 2016 and 2017.
(3) During 2017, we declared $17.7 million in total distributions on the Preferred Units, half of which were paid in cash and
the other half were paid in additional Preferred Units.
39
ITEM 6. SELECTED FINANCIAL DATA
The following table shows selected historical financial data for Natural Resource Partners L.P. for the periods and as of the
dates indicated. We derived the information in the following tables from, and the information should be read together with and is
qualified in its entirety by reference to, the historical financial statements and the accompanying notes included in "Item 8. Financial
Statements and Supplementary Data" in this and previously filed Annual Reports on Form 10-K. These tables should be read
together with "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations."
40
Total revenues and other income
Asset impairments
Income (loss) from operations
Net income (loss) from continuing
operations
Net income from continuing operations
excluding impairments
Net income (loss) from discontinued
operations
Net income (loss)
Per common unit amounts (basic)
Net income (loss) from continuing
operations
Net income (loss) from discontinued
operations
Net income (loss)
Per common unit amounts (diluted)
Net income (loss) from continuing
operations
Net income (loss) from discontinued
operations
Net income (loss)
Distributions paid per common unit
Average number of common units
outstanding - basic
Average number of common units
outstanding - diluted
Net cash provided by (used in)
Operating activities of continuing
operations
Investing activities of continuing
operations
Financing activities of continuing
operations
Distributable Cash Flow (1)
Adjusted EBITDA (1)
Cash and cash equivalents
Total assets
Current portion of long-term debt, net
Long-term debt, net
Class A Convertible Preferred Units
Partners’ capital
For the Years Ended December 31,
2017
2016
2015
2014
2013
(In thousands, except per unit data)
378,017
3,031
183,975
89,208
92,239
$
$
$
$
$
400,059
16,926
185,745
95,214
112,140
(541) $
88,667
$
1,678
96,892
5.11
$
(0.04) $
5.06
$
3.98
$
(0.02) $
3.96
1.80
$
$
7.65
0.13
7.78
7.65
0.13
7.78
1.80
$
$
$
$
$
$
$
$
$
$
$
$
$
$
439,648
$
350,918
$
384,545
(170,427) $
26,209
176,140
(260,171) $
96,713
124,374
$
122,922
(311,549) $
(571,720) $
12,117
108,830
(20.78) $
(24.97) $
(45.75) $
8.37
1.05
9.42
(20.78) $
8.37
(24.97) $
(45.75) $
$
2.70
1.05
9.42
14.00
$
$
$
$
$
$
$
$
$
$
$
$
$
$
352,739
734
233,740
169,621
170,355
2,457
172,078
15.17
0.22
15.39
15.17
0.22
15.39
22.00
12,232
12,232
12,232
11,326
10,958
21,950
12,232
12,232
11,326
10,958
127,838
3,337
$
$
100,643
59,943
$
$
168,512
6,985
$
$
192,164
$
246,891
(169,512) $
(230,436)
(141,719) $
132,141
231,542
29,827
1,389,164
79,740
729,608
173,431
265,211
$
$
$
$
$
$
$
$
(161,419) $
$
271,415
(183,264) $
$
176,617
(65,986) $
$
196,929
255,432
40,371
1,448,649
140,037
990,234
$
$
$
$
$
262,621
41,204
1,674,865
80,745
1,130,696
$
$
$
$
$
263,775
48,971
2,431,549
80,745
1,190,558
$
$
$
$
$
— $
— $
— $
(73,574)
306,690
328,452
92,305
1,981,432
80,745
993,295
—
151,530
$
76,336
$
720,155
$
616,789
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(1) See "Non-GAAP Financial Measures" below.
41
Non-GAAP Financial Measures
Distributable Cash Flow
Our Distributable Cash Flow ("DCF") represents net cash provided by operating activities of continuing operations plus
returns of equity from unconsolidated investment, proceeds from sales of assets, including those included in discontinued operations,
and return of long-term contract receivables (including affiliate); less maintenance capital expenditures and distributions to non-
controlling interest. DCF is not a measure of financial performance under GAAP and should not be considered as an alternative
to cash flows from operating, investing or financing activities. DCF may not be calculated the same for us as for other companies.
In addition, DCF presented below is not calculated or presented on the same basis as Distributable Cash Flow as defined in our
partnership agreement, which is used as a metric to determine whether we are able to increase quarterly distributions to our common
unitholders. DCF is a supplemental liquidity measure used by our management and by external users of our financial statements,
such as investors, commercial banks, research analysts and others to assess the Partnership's ability to make cash distributions to
our common and preferred unitholders and our general partner and repay debt. The following table reconciles net cash provided
by operating activities of continuing operations (the most comparable GAAP financial measure) to Distributable Cash Flow for
the years ended December 31, 2017, 2016, 2015, 2014, and 2013:
(In thousands)
Net cash provided by operating
activities of continuing operations
Add: return of equity from
unconsolidated investment
Add: proceeds from sale of PP&E
Add: proceeds from sale of mineral
rights
Add: proceeds from sale of assets
included in discontinued operations
Add: return of long-term contract
receivables (including affiliates)
Less: maintenance capital
expenditures (1)
Less: distributions to non-controlling
interest
2017
2016
2015
2014
2013
Year Ended December 31,
$
127,838
$
100,643
$
168,512
$
192,164
$
246,891
5,646
1,008
974
—
—
1,350
61,033
109,872
3,010
2,968
—
11,024
3,505
—
2,463
3,633
1,006
412
—
1,904
(6,335)
(4,451)
(6,143)
(1,216)
48,833
—
10,929
—
2,558
—
Distributable Cash Flow
$
132,141
$
271,415
$
—
—
(2,744)
176,617
$
(974)
196,929
$
(2,521)
306,690
(1) Maintenance capital expenditures primarily consist of costs to maintain the long-term productive capacity of our
Construction Aggregates segment.
42
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) from continuing operations less
equity earnings from unconsolidated investment and gain on reserve swap; plus distributions from unconsolidated investment,
interest expense, net, debt modification expense, loss on extinguishment of debt, depreciation, depletion and amortization and
asset impairments.
Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income or loss, net income or
loss attributable to partners, operating income, cash flows from operating activities or any other measure of financial performance
presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. There
are significant limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the effect of
certain recurring items that materially affect our net income (loss), the lack of comparability of results of operations of different
companies and the different methods of calculating Adjusted EBITDA reported by different companies. In addition, Adjusted
EBITDA presented below is not calculated or presented on the same basis as Consolidated EBITDA as defined in our partnership
agreement or Consolidated EBITDDA as defined in Opco's debt agreements. See Note 13. Debt included in the Notes to Consolidated
Financial Statements in Item 8. "Financial Statements and Supplementary Data" included elsewhere in this Annual Report on Form
10-K for a description of Opco’s debt agreements.
Adjusted EBITDA is a supplemental performance measure used by our management and by external users of our financial
statements, such as investors, commercial banks, research analysts and others to assess the financial performance of our assets
without regard to financing methods, capital structure or historical cost basis.
The following table reconciles net income (loss) from continuing operations (the most comparable GAAP financial measure)
to Adjusted EBITDA for the years ended December 31, 2017, 2016, 2015, 2014, and 2013:
(In thousands)
Net income (loss) from continuing
operations
Less: equity earnings from
unconsolidated investment
Less: gain on reserve swap
Add: distributions from
unconsolidated investment
Add: interest expense, net
Add: debt modification expense
Add: loss on extinguishment of debt
Add: depreciation, depletion and
amortization
Add: asset impairments
Adjusted EBITDA
2017
2016
2015
2014
2013
Year Ended December 31,
$
89,208
$
95,214
$
(260,171) $
96,713
$
169,621
(40,457)
—
(40,061)
—
49,000
82,721
7,939
4,107
35,993
3,031
46,550
90,531
—
—
46,272
16,926
(49,918)
(9,290)
46,795
89,744
—
—
60,916
384,545
(41,416)
(5,690)
(34,186)
(8,149)
46,638
79,427
—
—
61,894
26,209
72,946
64,119
—
—
63,367
734
$
231,542
$
255,432
$
262,621
$
263,775
$
328,452
43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Introduction
The following discussion and analysis presents management’s view of our business, financial condition and overall
performance and should be read in conjunction with our consolidated financial statements and footnotes included elsewhere in
this filing. Our discussion and analysis consists of the following subjects:
• Executive Overview
• Results of Operations
• Liquidity and Capital Resources
• Off-Balance Sheet Transactions
• Inflation
• Environmental Regulation
• Related Party Transactions
• Summary of Critical Accounting Estimates
• Recent Accounting Standards
As used in this Item 7, unless the context otherwise requires: "we," "our," "us" and the "Partnership" refer to Natural Resource
Partners L.P. and, where the context requires, our subsidiaries. References to "NRP" and "Natural Resource Partners" refer to
Natural Resource Partners L.P. only, and not to NRP (Operating) LLC or any of Natural Resource Partners L.P.’s subsidiaries.
References to "Opco" refer to NRP (Operating) LLC, a wholly owned subsidiary of NRP, and its subsidiaries. References to NRP
Oil and Gas refer to NRP Oil and Gas LLC, a wholly owned subsidiary of NRP. NRP Finance Corporation ("NRP Finance") is a
wholly owned subsidiary of NRP and a co-issuer with NRP on the 10.50% senior notes due 2022 (the "2022 Notes").
44
Executive Overview
We are a diversified natural resource company engaged principally in the business of owning, operating, managing and
leasing a diversified portfolio of mineral properties in the United States, including interests in coal, trona and soda ash, construction
aggregates and other natural resources. Our common units trade on the New York Stock Exchange under the symbol "NRP".
Our business is organized into three operating segments:
Coal Royalty and Other—consists primarily of coal royalty properties and coal-related transportation and processing assets.
Other assets include aggregate, industrial mineral and oil and gas royalty properties and timber. Our coal reserves are primarily
located in Appalachia, the Illinois Basin and the Western United States. Our aggregates and industrial minerals are primarily located
in Pennsylvania, West Virginia, Tennessee, Kentucky and Louisiana. Our oil and gas royalty assets are primarily located in Louisiana.
Soda Ash—consists of our 49% non-controlling equity interest in a trona ore mining operation and soda ash refinery in the
Green River Basin, Wyoming. Ciner Resources LP, our operating partner, mines the trona, processes it into soda ash, and distributes
the soda ash both domestically and internationally into the glass and chemicals industries. We receive regular quarterly distributions
from this business.
Construction Aggregates—consists of our construction materials business that operates hard rock quarries, an underground
limestone mine, sand and gravel plants, asphalt plants and marine terminals. The construction aggregates business operates in
Pennsylvania, West Virginia, Tennessee, Kentucky and Louisiana.
For the year ended December 31, 2017, our consolidated financial results included:
(In thousands)
Revenues and other income
Net income from continuing operations
Adjusted EBITDA (1)
Operating cash flow provided by continuing operations
Investing cash flow provided by continuing operations
Financing cash flow (used in) continuing operations
Distributable Cash Flow ("DCF") (1)
$
$
$
$
$
$
$
378,017
89,208
231,542
127,838
3,337
(141,719)
132,141
(1) See "Results of Operations" below for additional information regarding non-GAAP financial measures and reconciliations
to the most comparable GAAP financial measures.
2017 Recapitalization Transactions and Debt Reduction
During the first quarter of 2017, we completed the recapitalization transactions that improved our liquidity and strengthened
our balance sheet. These recapitalization transactions included the issuance of $250 million of Class A Preferred Units and the
issuance of Warrants to purchase Common Units, and the extension of the majority of our 2018 debt maturities to 2020 and 2022.
For more information on these transactions, see Note 3. Class A Convertible Preferred Units and Warrants and Note 13. Debt in
the Notes to Consolidated Financial Statements under Item 8 in this Annual Report on Form 10-K, which is incorporated herein
by reference.
During 2017, we reduced our debt by $311.1 million. See "Liquidity and Capital Resources" below for additional information
on our debt reduction. We remain focused on further reducing our debt, improving our credit metrics and creating long-term value
for our stakeholders.
45
Current Results/Market Commentary
Coal Royalty and Other Business Segment
For the year ended December 31, 2017, our Coal Royalty and Other business segment financial results included the following:
(In thousands)
Revenues and other income
Net income from continuing operations
Adjusted EBITDA (1)
Operating cash flow provided by continuing operations
Investing cash flow provided by continuing operations
Financing cash flow provided by continuing operations
DCF (1)
$
$
$
$
$
$
$
205,868
154,899
181,280
166,138
4,161
517
170,299
(1) See "—Results of Operations" below for additional information regarding non-GAAP financial measures and
reconciliations to the most comparable GAAP financial measures.
Metallurgical coal prices were significantly higher during 2017 as compared to the prior year driven by supply constraints
and a 5% increase in worldwide steel production, according to data published by the World Steel Association. Increased steel
demand combined with a reduction in Chinese steel exports led to higher steel prices and steel producer profit margins
internationally, which supports higher prices for raw material inputs such as metallurgical coal and coke. Declines in Australian
metallurgical exports due to impacts from Cyclone Debbie, logistical constraints and industry-wide operational challenges led to
positive metallurgical coal supply and demand fundamentals. While domestic metallurgical coal production increased in 2017,
domestic supply response was impacted by a lack of capital investment and workforce constraints. As a result of these market
conditions, metallurgical prices in 2017 reached the highest levels since 2012. Benefiting from higher metallurgical coal prices,
we derived approximately 58% of our coal royalty revenues and approximately 45% of our coal royalty production from
metallurgical coal during 2017. For 2018, we expect metallurgical coal markets to remain tight due to continued global economic
growth and supportive steel industry fundamentals combined with logistical and operational supply constraints across the industry.
Thermal coal prices in Appalachia improved over the prior year primarily as a result of increased export demand from Asia
and northern Europe whereas Illinois Basin thermal prices remained relatively flat year over year. According to the U.S. Energy
Information Administration, domestic electricity generation from coal decreased 3% during 2017 and was negatively impacted by
mild weather in coal heavy regions, coal plant retirements and continued gains by renewables in the electricity generation mix.
During 2017, thermal coal benefited from higher average natural gas prices, which increased 18%, from $2.55/mmBtu in 2016 to
$3.02/mmBtu in 2017. Coal’s relative share of the electricity generation mix in 2017 was roughly flat at 30% of the total, while
the relative share of natural gas declined from 34% in 2016 to 32% in 2017. As a result, domestic thermal markets were oversupplied
in 2017 despite the relative strength in export demand and shrinking utility inventory stockpiles. During 2018, we expect domestic
thermal coal markets to remain challenged. Long term, domestic thermal production and prices will continue to be negatively
impacted by low natural gas prices, coal fired power plant retirements and the availability of renewable generation.
46
Soda Ash Business Segment
For the year ended December 31, 2017, our Soda Ash business segment financial results included the following:
(In thousands)
Revenues and other income
Net income from continuing operations
Adjusted EBITDA (1)
Operating cash flow provided by continuing operations
Investing cash flow provided by continuing operations
DCF (1)
$
$
$
$
$
$
40,457
40,457
49,000
43,354
5,646
49,000
(1) See "—Results of Operations" below for additional information regarding non-GAAP financial measures and
reconciliations to the most comparable GAAP financial measures.
During the year ended December 31, 2017, international prices for soda ash, particularly in Asia, continued to be strong, and
domestic prices have improved slightly over 2016. Income from this segment was slightly higher in the year ended December 31,
2017 compared to the prior year as the effect of the increased prices noted above were offset by temporary production issues that
were resolved in the fourth quarter of 2017. During the year ended December 31, 2017, we received distributions totaling $49.0
million.
We expect the international market to remain strong in 2018 as a result of continued strength in Asia and a smaller than
expected impact from the new soda ash production capacity coming on line in Turkey. Prices, both internationally and domestically,
are expected to remain around current levels during the year.
Construction Aggregates Business Segment
For the year ended December 31, 2017, our Construction Aggregates business segment financial results included the
following:
(In thousands)
Revenues and other income
Net income from continuing operations
Adjusted EBITDA (1)
Operating cash flow provided by continuing operations
Investing cash flow used by continuing operations
Financing cash flow used by continuing operations
DCF (1)
$
$
$
$
$
$
$
131,692
6,428
19,764
15,687
(6,470)
(1,293)
10,183
(1) See "—Results of Operations" below for additional information regarding non-GAAP financial measures and
reconciliations to the most comparable GAAP financial measures.
Our overall construction aggregates performance in the year ended December 31, 2017 improved compared to the prior year
primarily due to a higher production and sales of crushed stone, gravel and sand, higher delivery and haul income and increased
road construction and asphalt paving projects. Our construction aggregates business is largely dependent on the strength of the
local markets that it serves. In particular, key drivers of performance in the regions of our operations include: 1) natural gas drilling
customers in the Marcellus shale, 2) traditional construction markets of Southwest Pennsylvania and Northern West Virginia, 3)
energy-related and infrastructure spending in the Louisiana market, and 4) military spending in the Clarksville, Tennessee market.
47
Results of Operations
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenues and Other Income
Revenues and other income decreased $22.0 million, or 6%, from $400.1 million in the year ended December 31, 2016 to
$378.0 million in the year ended December 31, 2017. The following table shows our revenues and other income by business
segment for the year ended December 31, 2017 and 2016:
(In thousands)
2017
Revenues and other income
Percentage of total
2016
Revenues and other income
Percentage of total
Coal Royalty and
Other
Soda Ash
Construction
Aggregates
Total
$
$
205,868
$
40,457
$
131,692
$
378,017
54%
11%
35%
239,183
$
40,061
$
120,815
$
400,059
60%
10%
30%
The changes in revenue and other income are discussed for each of the business segments below:
48
Coal Royalty and Other
Revenues and other income related to our Coal Royalty and Other segment decreased $33.3 million, or 14%, from $239.2
million in the year ended December 31, 2016 to $205.9 million in the year ended December 31, 2017. The table below presents
coal production and coal royalty revenues (including affiliates) derived from our major coal producing regions and the significant
categories of other coal royalty and other revenues:
For the Year Ended December 31,
2017
2016
Increase
(Decrease)
Percentage
Change
(In thousands, except per ton data)
Coal production (tons)
Appalachia
Northern
Central
Southern
Total Appalachia
Illinois Basin
Northern Powder River Basin
Gulf Coast
Total coal production
Coal royalty revenue per ton
Appalachia
Northern
Central
Southern
Illinois Basin
Northern Powder River Basin
Gulf Coast
Combined average coal royalty revenue per ton
Coal royalty revenues
Appalachia
Northern
Central
Southern
Total Appalachia
Illinois Basin
Northern Powder River Basin
Gulf Coast
Total coal royalty revenue
Other revenues
Minimums recognized as revenue
Property tax revenue
Wheelage
Coal overriding royalty revenue
Lease assignment fee
Hard mineral royalty revenues
Oil and gas royalty revenues
Other
Total other revenues
Coal royalty and other income
Transportation and processing
Gain on coal royalty and other segment asset sales
Total coal royalty and other segment revenues and other income
$
49
2,136
14,735
2,256
19,127
4,373
4,386
—
27,886
1.53
5.12
5.94
3.88
2.65
—
4.33
3,271
75,489
13,399
92,159
16,989
11,642
—
120,790
30,822
5,124
4,734
9,836
1,000
4,241
4,225
1,029
61,011
181,801
20,522
3,545
205,868
$
$
$
$
$
$
2,312
13,222
2,776
18,310
8,116
3,781
0.4
30,207
1.15
3.64
3.84
3.66
2.81
3.28
3.37
2,667
48,119
10,660
61,446
29,680
10,637
1
101,764
64,591
10,457
2,374
2,281
—
3,163
3,537
2,612
89,015
190,779
19,336
29,068
239,183
$
$
$
$
$
$
(176)
1,513
(520)
817
(3,743)
605
—
(2,321)
0.38
1.48
2.10
0.22
(0.16)
(3.28)
0.96
604
27,370
2,739
30,713
(12,691)
1,005
(1)
19,026
(33,769)
(5,333)
2,360
7,555
1,000
1,078
688
(1,583)
(28,004)
(8,978)
1,186
(25,523)
(33,315)
(8)%
11 %
(19)%
4 %
(46)%
16 %
— %
(8)%
33 %
41 %
55 %
6 %
(6)%
(100)%
28 %
23 %
57 %
26 %
50 %
(43)%
9 %
(100)%
19 %
(52)%
(51)%
99 %
331 %
100 %
34 %
19 %
(61)%
(31)%
(5)%
6 %
(88)%
(14)%
$
$
$
$
$
Coal royalty revenues increased $19.0 million, or 19%, from $101.8 million in the year ended December 31, 2016 to $120.8
million in the year ended December 31, 2017. Further discussion of the key drivers for the increase follows:
• Appalachia: Coal royalty revenue increased $30.7 million as a result of increased metallurgical coal prices and production.
•
Illinois Basin: Lower production partially offset by higher royalty revenue per ton led to a $12.7 million decrease in coal
royalty revenue. The decreased production was primarily a result of the temporary relocation of certain production off
of NRP's coal reserves, which resulted in a $7.5 million increase in coal overriding royalty revenue and wheelage
associated with the production of non-NRP coal.
Total other revenues decreased $28.0 million in 2017 compared to 2016 primarily as a result of a $33.8 million decrease in
minimums recognized as revenue due to certain lease modifications and terminations in the second quarter 2016 and a $5.3 million
decrease in property tax reimbursements. However, the decrease in property tax revenue was fully offset by lower property tax
expenses as described in operating and maintenance expenses below. These decreases were partially offset by an increase in coal
override revenue as discussed above.
Gain on coal royalty and other segment asset sales decreased $25.5 million year-over-year primarily as a result of numerous
asset sales completed during the year ended December 30, 2016.
Construction Aggregates
The table below presents the significant categories of Construction Aggregates revenues:
(In thousands)
Crushed stone, sand & gravel
Delivery and fuel income
Road construction and asphalt paving
Other
Total construction aggregates revenues
Gain on asset sales, net
Years Ended December 31,
2017
2016
Increase
(Decrease)
Percentage
Change
$
60,822
$
55,623
$
38,941
18,411
13,207
131,381
311
36,017
17,047
12,115
120,802
13
5,199
2,924
1,364
1,092
10,579
298
9%
8%
8%
9%
9%
2,292%
9%
Total construction aggregates revenues and other income
$
131,692
$
120,815
$
10,877
Revenues and other income related to our Construction Aggregates segment increased $10.9 million, or 9%, from $120.8
million in the year ended December 31, 2016 to $131.7 million in the year ended December 31, 2017. The increase was primarily
due to higher sales volumes.
Operating and Maintenance Expenses (including affiliates)
Operating and maintenance expenses (including affiliates) increased $6.0 million, or 5%, from $130.5 million in the year
ended December 31, 2016 to $136.5 million in the year ended December 31, 2017. This increase is primarily related to increased
costs within our Construction Aggregates segment, partially offset by decreased costs within the Coal Royalty and Other segment.
• Construction Aggregates segment costs increased $11.0 million, or 11% from $100.7 million in the year ended
December 31, 2016 to $111.6 million in the year ended December 31, 2017. This increase is primarily related to an
increase in production costs, repairs and maintenance and labor costs due to the increase in production and sales as
discussed above.
• Coal Royalty and Other segment costs decreased $5.0 million, or 17% from $29.9 million in the year ended December 31,
2016 to $24.9 million the year ended December 31, 2017. This decrease is primarily related to $5.8 million lower property
tax expense as a result of lower property tax rates and property tax values primarily in Kentucky and West Virginia and
lower employee-related costs.
50
Depreciation, Depletion and Amortization ("DD&A") Expense
DD&A expense decreased $10.3 million, or 22%, from $46.3 million in the year ended December 31, 2016 to $36.0 million
in the year ended December 31, 2017. This decrease is primarily driven by lower coal production in the Illinois Basin and $1.9
million lower depreciation expense of construction aggregate assets due to fully depreciated assets.
General and Administrative ("G&A") Expense (including affiliates)
Corporate and financing G&A expense (including affiliates) includes corporate headquarters, financing and centralized
treasury and accounting. These costs decreased $2.1 million, or 10%, from $20.6 million in the year ended December 31, 2016 to
$18.5 million in the year ended December 31, 2017. This decrease is primarily due to decreased legal, consulting and advisory
fees incurred in 2016 as a result of the recapitalization transactions completed in March 2017.
Asset Impairments
Asset impairments decreased $13.9 million, or 82%, from $16.9 million in the year ended December 31, 2016 to $3.0 million
in the year ended December 31, 2017. Asset impairments in the year ended December 31, 2017 primarily consisted of certain coal,
aggregates and timber properties. Asset impairments in the year ended December 31, 2016 primarily consisted of certain coal and
hard mineral properties.
Interest Expense (including affiliates)
Interest expense (including affiliates) decreased $7.7 million, or 8%, from $90.6 million in the year ended December 31,
2016 to $82.9 million in the year ended December 31, 2017. This decrease is primarily related to lower debt balances during 2017
as a result of the recapitalization transactions entered into in March 2017.
Debt Modification Expense
Debt modification expense was $7.9 million for the year ended December 31, 2017 and related to costs incurred as a result
of the exchange of $241 million of our 2018 Senior Notes for 2022 Senior Notes in March 2017.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $4.1 million for the year ended December 31, 2017 and related to the 4.563% premium
paid to redeem the 2018 Senior Notes in April 2017.
Income (Loss) from Discontinued Operations
Income from discontinued operations decreased $2.2 million, from income of $1.7 million in the year ended December 31,
2016 to a loss of $0.5 million in the year ended December 31, 2017. The decrease is primarily a result of the sale of the discontinued
non-operated oil and gas working interest assets in July 2016.
51
$
6,428
$ (112,576) $
Total
89,208
(40,457)
49,000
82,721
7,939
4,107
—
—
82,028
7,939
4,107
—
—
35,993
3,031
$ (18,502) $ 231,542
—
—
90,531
—
95,214
(40,061)
46,550
90,531
46,272
—
16,926
$ (20,570) $ 255,432
—
—
693
—
—
12,579
64
—
—
—
14,506
1,065
Adjusted EBITDA (Non-GAAP Financial Measure)
The following table reconciles net income (loss) from continuing operations (the most comparable GAAP financial measure)
to Adjusted EBITDA by business segment for the years ended December 31, 2017 and 2016:
For the Year Ended (In thousands)
December 31, 2017
Operating Segments
Coal Royalty
and Other
Soda Ash
Construction
Aggregates
Corporate
and
Financing
Net income (loss) from continuing operations
$ 154,899
$
Less: equity earnings from unconsolidated investment
Add: distributions from unconsolidated investment
Add: interest expense, net
Add: debt modification expense
Add: loss on extinguishment of debt
Add: depreciation, depletion and amortization
Add: asset impairments
—
—
—
—
—
23,414
2,967
40,457
(40,457)
49,000
—
—
—
—
—
Adjusted EBITDA
$ 181,280
$
49,000
$
19,764
December 31, 2016
Net income (loss) from continuing operations
$ 161,816
$
$
4,438
$ (111,101) $
Less: equity earnings from unconsolidated investment
Add: distributions from unconsolidated investment
Add: interest expense, net
Add: depreciation, depletion and amortization
Add: asset impairments
Adjusted EBITDA
—
—
—
31,766
15,861
40,061
(40,061)
46,550
—
—
—
$ 209,443
$
46,550
$
20,009
Adjusted EBITDA decreased $23.9 million, or 9%, from $255.4 million in the year ended December 31, 2016 to $231.5
million in the year ended December 31, 2017. The decrease is primarily a result of the following:
• Coal Royalty and Other segment Adjusted EBITDA decreased $28.2 million. While performance of our coal-related
assets improved as described above, the prior year amount included $40.5 million of revenue resulting from one-time
lease modifications and $25.5 million higher gains on asset sales.
•
Soda Ash segment Adjusted EBITDA increased $2.5 million as a result of increased cash distributions received in the
year ended December 31, 2017.
• Construction Aggregates segment Adjusted EBITDA was flat in the year ended December 31, 2017 compared to 2016.
Increased production and sales volume, increased marine terminal activity and higher margins on road construction and
asphalt paving projects were offset by increased production costs and repairs and maintenance expenses.
• Corporate and financing Adjusted EBITDA increased primarily due to legal and consulting fees related to the
recapitalization activities incurred in 2016.
See "Item 6. Selected Financial Data—Non-GAAP Financial Measures—Adjusted EBITDA" for an explanation of Adjusted
EBITDA.
52
Distributable Cash Flow (Non-GAAP Financial Measure)
The following table presents the three major categories of the statement of cash flows by business segment for the years
ended December 31, 2017 and 2016:
For the Year Ended (In thousands)
December 31, 2017
Net cash provided by (used in) operating activities of
continuing operations
Net cash provided by (used in) investing activities of
continuing operations
Net cash provided by (used in) financing activities of
continuing operations
December 31, 2016
Net cash provided by (used in) operating activities of
continuing operations
Net cash provided by (used in) investing activities of
continuing operations
Net cash provided by (used in) financing activities of
continuing operations
Operating Segments
Coal
Royalty
and Other
Soda Ash
Construction
Aggregates
Corporate
and
Financing
Total
$ 166,138
$
43,354
$
15,687
$ (97,341) $ 127,838
4,161
5,646
(6,470)
—
3,337
517
—
(1,293)
(140,943)
(141,719)
$ 134,490
$
46,550
$
20,400
$ (100,797) $ 100,643
65,057
—
(5,114)
—
59,943
16
(7,229)
(1,825)
(152,381)
(161,419)
53
The following table reconciles net cash provided by operating activities (the most comparable GAAP financial measure) by
business segment to DCF for the years ended December 31, 2017 and 2016:
For the Year Ended (In thousands)
December 31, 2017
Net cash provided by (used in) operating activities of
continuing operations
Add: return of equity from unconsolidated investment
Add: proceeds from sale of PP&E
Add: proceeds from sale of mineral rights
Add: return of long-term contract receivables
(including affiliates)
Less: maintenance capital expenditures
Operating Segments
Coal Royalty
and Other
Soda Ash
Construction
Aggregates
Corporate
and
Financing
Total
$ 166,138
$
43,354
$
15,687
—
177
974
3,010
—
5,646
—
—
—
—
$ (97,341) $ 127,838
5,646
—
—
—
1,008
974
—
3,010
(6,335)
$ (97,341) $ 132,141
—
—
831
—
—
(6,335)
10,183
Distributable Cash Flow
$ 170,299
$
49,000
$
December 31, 2016
Net cash provided by (used in) operating activities of
continuing operations
Add: proceeds from sale of PP&E
Add: proceeds from sale of mineral rights
Add: proceeds from sale of assets included in
discontinued operations
Add: return of long-term contract receivables—
affiliate
Less: maintenance capital expenditures
Distributable Cash Flow
$ 134,490
$
46,550
$
20,400
1,084
61,033
—
2,968
(28)
$ 199,547
—
—
—
—
—
$
46,550
$
266
—
—
—
(4,423)
16,243
$ (100,797) $ 100,643
1,350
—
—
—
61,033
109,872
—
2,968
(4,451)
$ (100,797) $ 271,415
—
DCF decreased $139.3 million, or 51%, from $271.4 million in the year ended December 31, 2016 to $132.1 million in the
year ended December 31, 2017. This decrease is due primarily to the following:
•
$109.9 million net cash proceeds from the sale of assets included in discontinued operations in the year ended December
31, 2016.
• Coal Royalty and Other segment: DCF decreased $29.2 million primarily due to $61.0 million higher cash flow from
asset sales in the year ended December 31, 2016 as compared to 2017, partially offset by $31.8 million improved
performance of segment assets which increased DCF in the year ended December 31, 2017.
• Construction Aggregates segment: While operating performance was flat as described in Adjusted EBITDA above, DCF
decreased $6.1 million due to lower operating cash flows primarily related to timing of cash receipts coupled with higher
maintenance capital expenditures.
• Corporate and Financing: DCF increased $3.5 million primarily as a result of lower interest, legal, consulting and advisory
fees following the completion of the recapitalization transactions in March 2017.
See "Item 6. Selected Financial Data—Non-GAAP Financial Measures—Distributable Cash Flow" for an explanation of
Distributable Cash Flow.
54
Results of Operations
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenues and Other Income
Revenues and other income decreased $39.5 million, or 9%, from $439.6 million in the year ended December 31,
2015 to $400.1 million in the year ended December 31, 2016. The following table shows our diversified sources of natural resource
revenues and other income by business segment for the year ended December 31, 2016 and 2015:
(In thousands)
2016
Revenues
Percentage of total
2015
Revenues
Percentage of total
Coal Royalty and
Other
Soda Ash
Construction
Aggregates
Total
$
$
239,183
$
40,061
$
120,815
$
400,059
60%
10%
30%
250,717
$
49,918
$
139,013
$
439,648
57%
11%
32%
The changes in revenue and other income are discussed for each of the business segments below:
55
Coal Royalty and Other
Revenues and other income related to our Coal Royalty and Other segment decreased $11.5 million, or 5%, from $250.7
million in the year ended December 31, 2015 to $239.2 million in the year ended December 31, 2016. The table below presents
coal production and coal royalty revenues (including affiliates) derived from our major coal producing regions and the significant
categories of other coal royalty and other revenues:
(In thousands, except per ton data)
Coal production (tons)
Appalachia
Northern
Central
Southern
Total Appalachia
Illinois Basin
Northern Powder River Basin
Gulf Coast
Total coal production
Coal royalty revenue per ton
Appalachia
Northern
Central
Southern
Illinois Basin
Northern Powder River Basin
Gulf Coast
Combined average coal royalty revenue per ton
Coal royalty revenues
Appalachia
Northern
Central
Southern
Total Appalachia
Illinois Basin
Northern Powder River Basin
Gulf Coast
Total coal royalty revenue
Other revenues
Minimums recognized as revenue
Property tax revenue
Wheelage
Coal overriding royalty revenue
Lease assignment fee
Gain on reserve swap
Hard mineral royalty revenues
Oil and gas royalty revenues
Other
Total other revenues
Coal royalty and other income
Transportation and processing
Gain on coal royalty and other segment asset sales
Total coal royalty and other segment revenues and other income
For the Years Ended
December 31,
2016
2015
Increase
(Decrease)
Percentage
Change
2,312
13,222
2,776
18,310
8,116
3,781
0.4
30,207
1.15
3.64
3.84
3.66
2.81
3.28
3.37
2,667
48,119
10,660
61,446
29,680
10,637
1
101,764
64,591
10,457
2,374
2,281
—
—
3,163
3,537
2,612
89,015
190,779
19,336
29,068
239,183
$
$
$
$
$
$
9,562
16,862
3,803
30,227
11,173
4,905
740
47,045
0.28
3.85
4.57
3.94
2.54
3.47
3.06
2,672
64,877
17,390
84,939
44,063
12,443
2,570
144,015
15,489
11,258
3,166
2,920
21,000
9,290
8,090
4,364
2,156
77,733
221,748
22,033
6,936
250,717
$
$
$
$
$
$
$
$
$
$
$
$
(7,250)
(3,640)
(1,027)
(11,917)
(3,057)
(1,124)
(740)
(16,838)
0.87
(0.21)
(0.73)
(0.28)
0.27
(0.19)
0.31
(5)
(16,758)
(6,730)
(23,493)
(14,383)
(1,806)
(2,569)
(42,251)
49,102
(801)
(792)
(639)
(21,000)
(9,290)
(4,927)
(827)
456
11,282
(30,969)
(2,697)
22,132
(8,837)
(76)%
(22)%
(27)%
(39)%
(27)%
(23)%
(100)%
(36)%
311 %
(5)%
(16)%
(7)%
11 %
(5)%
10 %
— %
(26)%
(39)%
(28)%
(33)%
(15)%
(100)%
(29)%
317 %
(7)%
(25)%
(22)%
(100)%
(100)%
(61)%
(19)%
21 %
15 %
(14)%
(12)%
319 %
(4)%
Total coal production decreased 16.8 million tons, or 36%, from 47.0 million tons in the year ended December 31,
2015 to 30.2 million tons in the year ended December 31, 2016. Total coal royalty revenues decreased $42.3 million, or 29%,
from $144.0 million in the year ended December 31, 2015 to $101.8 million in the year ended December 31, 2016. Total coal
56
production and coal royalty revenue decreases were driven by downward pressure in the coal markets as described above, with
Central Appalachian thermal coal producers in particular continuing to face challenges, as their production costs remain high
relative to sales prices.
Total other revenues increased $8.6 million in 2016 compared to 2015 primarily as a result of the agreements with certain
lessees to either modify or terminate existing coal-related leases that resulted in the recognition of $40.5 million of deferred revenue.
This increase was partially offset by non-recurring revenue transactions in 2015 that included $21.0 million in lease assignment
fees and $9.3 million gain on reserve swap. Other revenues were also decreased $4.9 million in 2016 primarily as a result of the
sale of our aggregates royalty assets in the first quarter of 2016.
Gain on coal royalty and other segment asset sales increased $22.1 million primarily as a result of the following asset sales
during the first quarter of 2016:
1) Oil and gas royalty and overriding royalty interests in several producing properties located in the Appalachian Basin for
$36.4 million gross sales proceeds. The effective date of the sale was January 1, 2016, and we recorded an $18.6 million
gain from this sale.
2) Aggregate reserves and related royalty rights in the Coal Royalty and Other segment at three aggregates operations located
in Texas, Georgia and Tennessee for $10.0 million gross sales proceeds. The effective date of the sale was February 1,
2016, and we recorded a $1.5 million gain from this sale.
Soda Ash
Revenues and other income related to our equity investment in Ciner Wyoming decreased $9.8 million, or 20%, from $49.9
million in the year ended December 31, 2015 to $40.1 million in the year ended December 31, 2016. This decrease is primarily
related to lower international prices compared to the prior year, in addition to higher royalty and G&A costs. These decreases were
partially offset by an increase in soda ash volumes sold compared to the prior year.
Construction Aggregates
The table below presents the significant categories of Construction Aggregates revenues:
(In thousands, except per ton data)
Crushed stone, sand & gravel
Delivery and fuel income
Road construction and asphalt paving
Other
Total revenues
Gain (loss) on asset sales, net
$
Total construction aggregates revenues and other income
$
Years Ended December 31,
2016
2015
Increase
(Decrease)
Percentage
Change
55,623
36,017
17,047
12,115
120,802
13
120,815
$
$
57,587
42,626
14,964
23,872
139,049
(36)
139,013
$
$
(1,964)
(6,609)
2,083
(11,757)
(18,247)
49
(18,198)
(3)%
(16)%
14 %
(49)%
(13)%
136 %
(13)%
Revenues and other income related to our Construction Aggregates segment decreased $18.2 million, or 13%, from $139.0
million in the year ended December 31, 2015 to $120.8 million in the year ended December 31, 2016. This decrease is primarily
due to a decrease in construction aggregates and brokered stone revenue as well as lower delivery and fuel income year-over-year.
Tonnage sold by the Construction Aggregates segment decreased 0.4 million tons, or 5% from 7.4 million tons in the year
ended December 31, 2015 to 7.0 million tons in the year ended December 31, 2016 as a result of decreased construction aggregates
demand in the oil and gas services sector that was partially offset by increased aggregates sales into the construction market.
Operating and Maintenance Expenses (including affiliates)
Operating and maintenance expenses (including affiliates) decreased $21.8 million, or 14%, from $152.3 million in the year
ended December 31, 2015 to $130.5 million in the year ended December 31, 2016. Operating and maintenance expenses
(including affiliates) in our Construction Aggregates segment decreased $16.2 million, or 14% from $116.9 million in the year
ended December 31, 2015 to $100.7 million in the year ended December 31, 2016. This decrease is primarily due to the decline
in materials cost as a result of the decrease in construction aggregates and brokered stone volume year-over-year due to reduced
demand in the oil and gas sector and a decrease in delivery and fuel costs due to the lower construction aggregates production and
brokered stone purchases year-over-year partially and effective variable cost management.
57
Depreciation, Depletion and Amortization ("DD&A") Expense
DD&A expense decreased $14.6 million, or 24%, from $60.9 million in the year ended December 31, 2015 to $46.3
million in the year ended December 31, 2016. This decrease is primarily related to the reduced cost basis of our coal and aggregates
royalty mineral rights due to the asset impairments recorded in the third and fourth quarters of 2015 and the decline in coal royalty
production year-over-year.
General and Administrative ("G&A") Expense (including affiliates)
Corporate and financing G&A expense (including affiliates) includes corporate headquarters, financing and centralized
treasury and accounting. These costs increased $8.3 million, or 67%, from $12.3 million in the year ended December 31,
2015 to $20.6 million in the year ended December 31, 2016. This increase is primarily related to increased legal and consulting
fees associated with the implementation of our long-term plan to strengthen our balance sheet, reduce debt and enhance our liquidity
and increased LTIP expense as a result of our unit price increasing in 2016 compared to decreasing unit price in 2015 and the
accelerated recognition of our LTIP awards granted in 2016
Asset Impairment
Asset impairments decreased $367.6 million, or 96%, from $384.5 million in the year ended December 31, 2015 to $16.9
million in the year ended December 31, 2016. We recorded the following asset impairments during the years ended December 31,
2016 and 2015:
(In thousands)
Coal Royalty and Other
Mineral Rights
Plant and Equipment
Total Coal Royalty and Other Impairment
Construction Aggregates
Plant and Equipment
Goodwill
Total Construction Aggregates Impairment
Total impairment
Coal Royalty and Other
For the Year Ended
December 31,
2016
2015
13,801
2,060
15,861
$ 371,397
6,930
$ 378,327
1,065
—
1,065
$
$
692
5,526
6,218
16,926
$ 384,545
$
$
$
$
$
Asset impairments decreased $362.4 million, or 96%, from $378.3 million in the year ended December 31, 2015 to $15.9
to $257.5 million in coal property
million in the year ended December 31, 2016. This decrease is primarily related
impairment, $70.5 million in oil and gas property impairment and $43.4 million in aggregate property impairment recorded
during the year ended December 31, 2015 as compared to $12.1 million in coal property impairment and $1.7 million in aggregate
property impairment recorded during the year ended December 31, 2016. The impairments in 2015 primarily resulted from the
continued deterioration and expectations of further reductions in global and domestic coal demand due to reduced global steel
demand, sustained low natural gas prices, and continued regulatory pressure on the electric power generation industry.
Construction Aggregates
Asset impairments decreased $5.1 million, or 82%, from $6.2 million in the year ended December 31, 2015 to $1.1
million in the year ended December 31, 2016. This decrease is primarily related to the $5.5 million write off of goodwill during
the year ended December 31, 2015.
58
Income (Loss) from Discontinued Operations
Income from discontinued operations increased $313.2 million, from a loss of $311.5 million in the year ended December 31,
2015 to income of $1.7 million in the year ended December 31, 2016. The change in income (loss) from discontinued operations
is primarily related to the $297.0 million asset impairments recorded in 2015, the sale of our non-operated oil and gas working
interest assets that was completed in July 2016 with an effective date of April 1, 2016 and the $8.3 million gain on sale for the
year ended December 31, 2016.
Adjusted EBITDA (Non-GAAP Financial Measure)
The following table reconciles net income (loss) from continuing operations (the most comparable GAAP financial measure)
to Adjusted EBITDA by business segment for the years ended December 31, 2016 and 2015:
For the Year Ended (In thousands)
December 31, 2016
Operating Segments
Coal Royalty
and Other
Soda Ash
Construction
Aggregates
Corporate
and
Financing
Net income (loss) from continuing operations
$ 161,816
$
Less: equity earnings from unconsolidated investment
Add: distributions from unconsolidated investment
Add: interest expense, net
Add: depreciation, depletion and amortization
Add: asset impairments
—
—
—
31,766
15,861
40,061
(40,061)
46,550
—
—
—
$
4,438
$ (111,101) $
—
—
—
14,506
1,065
—
—
90,531
—
Adjusted EBITDA
$ 209,443
$
46,550
$
20,009
Total
95,214
(40,061)
46,550
90,531
46,272
December 31, 2015
Net income (loss) from continuing operations
$ (208,248) $
Less: equity earnings from unconsolidated investment
Less: gain on reserve swap
Add: distributions from unconsolidated investment
Add: interest expense, net
Add: depreciation, depletion and amortization
Add: asset impairments
Adjusted EBITDA
—
(9,290)
—
—
45,338
378,327
49,918
(49,918)
—
46,795
—
—
—
$
251
—
—
—
—
15,578
6,218
$ 206,127
$
46,795
$
22,047
—
16,926
$ (20,570) $ 255,432
—
$ (102,092) $ (260,171)
(49,918)
(9,290)
46,795
—
—
89,744
—
89,744
60,916
—
384,545
$ (12,348) $ 262,621
Adjusted EBITDA decreased $7.1 million, or 3%, from $262.6 million in the year ended December 31, 2015 to $255.5
million in the year ended December 31, 2016. The decrease is primarily a result of $42.3 million in reduced coal royalty revenue
resulting from decreased coal production and coal royalty revenue per ton driven by the continued pressure on U.S. coal producers
as described above, $21.0 million in non-recurring 2015 lease assignment fees, $4.9 million of reduced aggregates royalty revenue
in 2016 due to decreased 2016 aggregates production and sales and $8.3 million of additional G&A expense in 2016 compared to
2015 as described above. These decreases were partially offset by a $49.1 million increase in minimums recognized as revenue
primarily as a result of coal lease modifications or terminations that resulted in our lessee forfeiting their minimum royalty balances
and $22.2 million of additional gains on asset sales as compared to the same period in 2015. See "Item 6. Selected Financial Data
—Non-GAAP Financial Measures—Adjusted EBITDA" for an explanation of Adjusted EBITDA.
59
Distributable Cash Flow (Non-GAAP Financial Measure)
The following table presents the three major categories of the statement of cash flows by business segment for the years
ended December 31, 2016 and 2015:
For the Year Ended (In thousands)
December 31, 2016
Net cash provided by (used in) operating activities of
continuing operations
Net cash provided by (used in) investing activities of
continuing operations
Net cash provided by (used in) financing activities of
continuing operations
December 31, 2015
Net cash provided by (used in) operating activities of
continuing operations
Net cash provided by (used in) investing activities of
continuing operations
Net cash used in financing activities of continuing
operations
Operating Segments
Coal Royalty
and Other
Soda Ash
Construction
Aggregates
Corporate
and
Financing
Total
$ 134,490
$
46,550
$
20,400
$ (100,797) $ 100,643
65,057
—
(5,114)
—
59,943
16
(7,229)
(1,825)
(152,381)
(161,419)
$ 204,934
$
43,029
$
23,605
$ (103,056) $ 168,512
15,805
(2,744)
—
—
(8,820)
—
6,985
— (180,520)
(183,264)
60
The following table reconciles net cash provided by operating activities (the most comparable GAAP financial measure) by
business segment to DCF for the years ended December 31, 2016 and 2015:
(In thousands)
Operating Segments
For the Year Ended
December 31, 2016
Coal Royalty
and Other
Soda Ash
Construction
Aggregates
Corporate
and
Financing
Total
Net cash provided by (used in) operating activities of
continuing operations
$ 134,490
$
46,550
$
20,400
Add: proceeds from sale of PP&E
Add: proceeds from sale of mineral rights
Add: proceeds from sale of assets included in
discontinued operations
Add: return of long-term contract receivables—
affiliate
Less: maintenance capital expenditures
Distributable Cash Flow
1,084
61,033
—
2,968
(28)
$ 199,547
—
—
—
—
—
$
46,550
$
266
—
—
—
(4,423)
16,243
December 31, 2015
Net cash provided by (used in) operating activities of
continuing operations
Add: proceeds from sale of PP&E
Add: proceeds from sale of mineral rights
Add: return of long-term contract receivables—
affiliate
Less: maintenance capital expenditures
Less: distributions to non-controlling interest
Distributable Cash Flow
$ 204,934
$
43,029
$
23,605
10,100
3,505
2,463
(416)
(2,744)
$ 217,842
—
—
—
—
—
924
—
—
(5,727)
—
$
43,029
$
18,802
$ (100,797) $ 100,643
1,350
—
—
—
61,033
109,872
—
2,968
(4,451)
$ (100,797) $ 271,415
—
$ (103,056) $ 168,512
11,024
—
—
3,505
—
—
2,463
(6,143)
(2,744)
$ (103,056) $ 176,617
—
DCF increased $94.8 million, or 54%, from $176.6 million in the year ended December 31, 2015 to $271.4 million in the
year ended December 31, 2016. This increase is due primarily to the $109.9 million net cash proceeds from the sale of our
discontinued operation in addition to $61.0 million in net cash proceeds from sales of mineral rights in 2016. These increases were
partially offset by lower coal royalty production, lower coal royalty revenue per ton and less minimum payments received from
our coal leases. These decreases are driven by the continued pressure on U.S. coal producers as described above. See "Item 6.
Selected Financial Data—Non-GAAP Financial Measures—Distributable Cash Flow" for an explanation of Distributable Cash
Flow.
61
Liquidity and Capital Resources
Current Liquidity
The principal indicators of our liquidity are our cash on hand and our available borrowing capacity. As of December 31,
2017, we had a total of $29.8 million of cash and cash equivalents and $90.0 million in borrowing capacity under our Opco Credit
Facility. During the year ended December 31, 2017, we reduced our debt by approximately $311.1 million as summarized in the
table below:
Debt Instrument (In thousands)
NRP LP Debt
2018 Senior Notes
2022 Senior Notes
Opco debt
Revolving credit facility
Senior Notes
Other
Total
As of December 31,
2017
2016
Difference
$
— $
425,000
$
345,638
—
60,000
422,206
—
210,000
502,971
961
$
827,844
$
1,138,932
$
(425,000)
345,638
(150,000)
(80,765)
(961)
(311,088)
Additionally, in March 2017, we issued $250 million of Class A Convertible Preferred Units representing limited partner
interests in NRP (the "Preferred Units"). The Preferred Units entitle the Preferred Purchasers to receive cumulative distributions
at a rate of 12% per year, up to one half of which we may pay in additional Preferred Units (such additional Preferred Units, the
"PIK Units"). For more information on the terms of the Preferred Units, see Note 3. Class A Convertible Preferred Units and
Warrants in the Notes to Consolidated Financial Statements under Item 8 in this Annual Report on Form 10-K, which is incorporated
herein by reference. During 2017, we declared $17.7 million in distributions on the Preferred Units, one-half of which were paid
in cash. In February 2018, we paid the entire $7.8 million distribution on the Preferred Units in cash and redeemed all of the
outstanding PIK Units, which resulted in an additional $8.8 million cash payment.
The March 2017 recapitalization transactions increased our liquidity and extended the majority of our 2018 debt maturities
to 2020 and 2022. Even with these meaningful improvements to our liquidity and balance sheet, we continue to have substantial
debt outstanding and intend to continue to use cash from operations to deleverage our balance sheet over time. While we have a
diversified portfolio of assets, we face challenges in coal and other commodity markets and other factors, some of which are beyond
our control.
Cash Flows
Cash flow provided by operating activities increased $19.2 million, from $108.0 million in the year ended December 31,
2016 to $127.1 million in the year ended December 31, 2017. Cash flows from continuing operations increased $27.2
million primarily from increased operational performance from our Coal Royalty and Other segment assets year-over-year. This
increase was partially offset by an $8.0 million decrease in operating cash flow from discontinued operations. Cash flows from
discontinued operations represent cash flow from operations of these assets prior to the sale date.
Cash flow provided by operating activities decreased $95.4 million, from $203.4 million in the year ended December 31,
2015 to $108.0 million in the year ended December 31, 2016. Operating cash flow from continuing operations decreased $70.4
million in our Coal Royalty and Other segment year-over-year primarily as a result of the reduction in coal royalty revenue and
reduction of coal royalty minimum cash payments received on certain leases. Cash flow provided by operating activities of
discontinued operations decreased $27.6 million, from $34.9 million in the year ended December 31, 2015 to $7.3 million in the
year ended December 31, 2016 primarily as a result of completing the sale of our non-operated oil and gas working interest assets
in July 2016 that had an effective date of April 1, 2016.
Cash flow provided by investing activities decreased $163.3 million, from $166.8 million in the year ended December 31,
2016 to $3.5 million in the year ended December 31, 2017. Investing cash flows from discontinued operations decreased $106.7
million primarily as a result of the sale of our non-operated oil and gas working interest assets in 2016 for $109.9 million in net
62
cash proceeds. Investing cash flows from continuing operations decreased $56.6 million primarily as a result of the proceeds
received in 2016 from the sales of our oil and gas and aggregates royalty properties.
Cash flow provided by investing activities increased $197.1 million, from $30.3 million used in the year ended December
31, 2015 to $166.8 million provided in the year ended December 31, 2016. Investing cash flows from discontinued operations
increased $144.2 million primarily as a result of the sale of our non-operated oil and gas working interest assets in July 2016
for $109.9 million in net cash proceeds in addition to a $37.8 million decrease in cash flow used as a result of lower oil and gas
drilling activity and the non-operated working interest asset sale in July 2016. Investing cash flows from continuing operations
increased $52.9 million primarily as a result of 2016 sales of oil and gas and aggregate royalty properties.
Cash flow used in financing activities decreased $145.0 million from $286.2 million in the year ended December 31, 2016
to $141.2 million in the year ended December 31, 2017. This decrease in cash flow used is primarily due to the proceeds received
from the issuance of Preferred Units and warrants and 2022 Senior Notes. These proceeds were partially offset by additional debt
repayments year-over-year and the fees paid related to the March 2017 recapitalization transactions.
Cash flow used in financing activities increased $114.7 million, from $171.5 million in the year ended December 31, 2015
to $286.2 million in the year ended December 31, 2016. Cash used in financing activities of discontinued operations
increased $136.6 million primarily as a result of using $85.0 million to repay the RBL Credit Facility and contributing the $39.4
million of discontinued asset sales proceeds that remained after repayment of the RBL Facility in full to continuing operations.
This increase in cash flow used in financing activities was partially offset by a $21.9 million decrease in cash flow used in financing
activities from continuing operations primarily a result of distributing $49.3 million less cash to partners and receiving the remaining
net proceeds from discontinuing operations after repayment as described above.
Capital Expenditures
A portion of the capital expenditures associated with our construction aggregates segment are maintenance capital
expenditures, which are capital expenditures made to maintain the long-term production capacity of those businesses. Expansion
capital expenditures are made to increase productive capacity. We deduct maintenance capital expenditures when calculating DCF.
Capital Resources and Obligations
Indebtedness
As of December 31, 2017 and 2016, we had the following indebtedness:
(In thousands)
Current portion of long-term debt, net
Long-term debt and debt, net
Total debt and debt, net
December 31,
2017
79,740
729,608
809,348
$
$
2016
140,037
990,234
1,130,271
$
$
We have been and continue to be in compliance with the terms of the financial covenants contained in our debt agreements.
For additional information regarding our debt and the agreements governing our debt, including the covenants contained therein,
see and "—Executive Overview—2017 Recapitalization Transactions and Debt Reduction" above and "Item 8. Financial Statements
and Supplementary Data—Note 13. Debt" in this Annual Report on Form 10-K.
63
Long-Term Contractual Obligations
The following table reflects our long-term, non-cancelable contractual obligations as of December 31, 2017:
Contractual Obligations (In millions)
NRP:
Long-term debt principal payments
(including current maturities) (1)
Long-term debt interest payments (1)
Opco:
Long-term debt principal payments
(including current maturities) (2)
Long-term debt interest payments (3)
Rental leases (4)
Total
Total
2018
2019
2020
2021
2022
Thereafter
Payments Due by Period
$ 345.6
$
— $
— $
— $
— $ 345.6
$
163.3
36.3
36.3
36.3
36.3
18.1
482.2
86.5
80.4
23.0
75.8
18.1
114.5
14.1
4.2
$ 1,081.8
1.7
$ 141.4
0.2
$ 130.4
0.2
$ 165.1
$
46.8
11.1
0.1
94.3
46.8
8.5
0.1
$ 419.1
$
—
—
117.9
11.7
1.9
131.5
(1) The amounts indicated in the table include principal and interest due on NRP’s 2022 Notes.
(2) The amounts indicated in the table include principal due on Opco’s senior notes and credit facility.
(3) The amounts indicated in the table include interest due on Opco’s senior notes.
(4) The rental lease amounts primarily consist of office space and Construction Aggregates equipment leases.
Shelf Registration Statement
In September 2015, we filed a registration statement on Form S-3 with the SEC that is available for registered offerings of
common units. In April 2017, we filed a shelf registration statement on Form S-3 with the SEC to register the common units
issuable upon conversion of the warrants, as described above.
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements with unconsolidated entities or related parties and accordingly, there are
no off-balance sheet risks to our liquidity and capital resources from unconsolidated entities.
Inflation
Inflation in the United States has been relatively low in recent years and did not have a material impact on operations for
the years ended December 31, 2017, 2016 and 2015.
Environmental Regulation
For additional information on environmental regulation that may have a material impact on our business, see "Item 1. Business
and Properties—Regulation and Environmental Matters."
Related Party Transactions
The information required by this Item is included under "Item 8. Financial Statements and Supplementary Data—Note 15.
Related Party Transactions" and "Item 13. Certain Relationships and Related Transactions, and Director Independence" in this
Annual Report on Form 10-K and is incorporated by reference herein.
64
Summary of Critical Accounting Estimates
Preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. See Note 2. Summary of Significant Accounting Policies to the audited consolidated financial statements
under Item 8 of this Form 10-K for discussion of our significant accounting policies. The following critical accounting policies
are affected by estimates and assumptions used in the preparation of Consolidated Financial Statements. We evaluate our estimates
and assumptions on a regular basis. Actual results could differ from those estimates.
Revenues
Coal Royalty and Other Revenues. Coal royalty and other revenues are recognized on the basis of tons of mineral sold by
our lessees and the corresponding revenue from those sales. Generally, the lessees make payments to us based on the greater of a
percentage of the gross sales price or a fixed price per ton of mineral they sell. While we may have multiple contracts with a single
lessee, they are accounted for as separate arrangements.
Most of our coal and aggregates lessees must make minimum annual or quarterly payments which are generally recoupable
over certain time periods. These minimum payments are recorded as a deferred revenue liability when received. The deferred
revenue attributable to the minimum payment is recognized as revenue based upon the underlying mineral lease when the lessee
recoups the minimum payment through production or in the period immediately following the expiration of the lessee’s ability to
recoup the payments.
Oil and gas related revenues consist of revenues from royalties and overriding royalties. Oil and gas royalty revenues are
recognized on the basis of volume of hydrocarbons sold by lessees and the corresponding revenue from those sales.
Transportation and Processing. Transportation fees are recognized on the basis of tons of material transported over the
beltlines. Under the terms of the transportation contracts, we receive a fixed price per ton for all material transported on the beltlines.
Processing fees are recognized on the basis of tons of material processed through the facilities by our lessees and the corresponding
revenue from those sales. Generally, the lessees of the processing facilities make payments to us based on the greater of a percentage
of the gross sales price or a fixed price per ton of material that is processed and sold from the facilities. The processing leases are
structured in a manner so that the lessees are responsible for operating and maintenance expenses associated with the facilities.
These fees are recorded in Transportation and processing fees (or Transportation and processing fees-affiliate) in the Consolidated
Statements of Comprehensive Income (Loss).
Equity in Earnings of Ciner Wyoming. We account for non-marketable equity investments using the equity method of
accounting if the investment gives us the ability to exercise significant influence over, but not control of, an investee. Significant
influence generally exists if we have an ownership interest representing between 20% and 50% of the voting stock of the investee.
We account for our investment in Ciner Wyoming using this method.
Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional
investments and the proportionate share of earnings or losses and distributions. The basis difference between the investment and
the proportional share of the investee's net assets is hypothetically allocated first to identified tangible assets and liabilities, then
to finite-lived intangibles or indefinite-lived intangibles and the remaining balance is attributed to goodwill. The portion of the
basis difference attributed to net tangible assets and finite-lived intangibles is amortized over its estimated useful life while
indefinite-lived intangibles, if any, and goodwill are not amortized. The amortization of the basis difference is recorded as a
reduction of earnings from the equity investment in the Consolidated Statements of Comprehensive Income (Loss).
Our carrying value in an equity method investee company is reflected in the caption "Equity in unconsolidated investment"
in our Consolidated Balance Sheets. Our adjusted share of the earnings or losses of the investee company is reflected in the
Consolidated Statements of Comprehensive Income (Loss) as revenues and other income under the caption ‘‘Equity in earnings
of Ciner Wyoming." Our share of investee earnings are adjusted to reflect the amortization of any difference between the cost basis
of the equity investment and the proportionate share of the investee’s net assets, which has been allocated to the fair value of net
identified tangible and finite-lived intangible assets and amortized over the estimated lives of those assets.
Construction Aggregates Revenues. Revenues from the sale of aggregates, gravel, sand and asphalt are recorded based
upon the transfer of product at delivery to customers, which generally occurs at the quarries or asphalt plants.
65
Road Construction and Asphalt Paving. Revenues from long-term construction contracts are recognized on the percentage-
of-completion method, measured by the percentage of total costs incurred to date to the estimated total costs for each contract.
That method is used since we consider total cost to be the best available measure of progress on the contracts. Provisions for
estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance,
job conditions and estimated profitability, including those arising from final contract settlements, which result in revisions to job
costs and profits are recognized in the period in which the revisions are determined. Contract costs include all direct job costs and
those indirect costs related to contract performance, such as indirect labor, supplies, insurance, equipment maintenance and
depreciation.
Impact of New Revenue Recognition Standard Adoption. We concluded that the new revenue recognition standard (Topic
606) will have no impact on revenue from our Construction Aggregates or Soda Ash operating segments. However, we determined
that adoption of the new revenue recognition standard will impact certain revenue from our coal royalty leases as further described
below. The other revenue streams within the Coal Royalty and Other segment will not be impacted.
Under the new revenue recognition standard (Topic 606), we have defined our coal royalty lease performance obligation as
providing the lessee the right to mine and sell our coal over the lease term. We then evaluated the likelihood that consideration we
received from our lessees resulting from coal production would exceed consideration received from minimum payments over the
lease term. As a result of this evaluation, revenue recognition from our leases will now be based on either production or minimum
payments as follows:
1. Production Leases: Leases for which we expect that consideration from coal production will be greater than
consideration from minimums over the lease term. Revenue recognition for these leases will be recognized over time
based on coal production and minimum payments will continue to be deferred until recoupment occurs or the recoupment
becomes remote. However, if we receive minimum payments from these coal royalty leases, we will begin to evaluate
the likelihood of recoupment and recognize deferred revenue prior to expiration of the recoupment period if it concludes
that recoupment is remote.
2. Minimum Leases: Leases for which we expect that consideration from minimums will be greater than
consideration from coal production over the lease term. Revenue recognition for these leases will now be recognized
straight line over the lease term based on the minimum payment consideration amount.
Mineral Rights
Mineral rights owned and leased are recorded at its original cost of construction or, upon acquisition, at fair value of the
assets acquired. Coal and aggregate mineral rights are depleted on a unit-of-production basis by lease, based upon minerals mined
in relation to the net cost of the mineral properties and estimated proven and probable tonnage as defined by the SEC’s Industry
Guide 7 and estimated by our internal reserve engineers. The technologies and economic data used by our internal reserve engineers
in the estimation of our proved reserves include, but are not limited to, drill logs, geophysical logs, geologic maps including
isopach, mine, and coal quality, cross sections, statistical analysis, and available public production data. There are numerous
uncertainties inherent in estimating the quantities and qualities of recoverable reserves, including many factors beyond our control.
Estimates of economically recoverable coal reserves depend upon a number of variable factors and assumptions, any one of which
may, if incorrect, result in an estimate that varies considerably from actual results.
Asset Impairment
We have developed procedures to periodically evaluate our long-lived assets for possible impairment. These procedures are
performed throughout the year and are based on historic, current and future performance and are designed to be early warning
tests. If an asset fails one of the early warning tests, additional evaluation is performed for that asset that considers both quantitative
and qualitative information. A long-lived asset is deemed impaired when the future expected undiscounted cash flows from its use
and disposition is less than the assets’ carrying value. Impairment is measured based on the estimated fair value, which is usually
determined based upon the present value of the projected future cash flow compared to the assets’ carrying value. We believe our
estimates of cash flows and discount rates are consistent with those of principal market participants. In addition to the evaluations
discussed above, specific events such as a reduction in economically recoverable reserves or production ceasing on a property for
an extended period may require a separate impairment evaluation be completed on a significant property.
66
We evaluate our equity investment for impairment when events or changes in circumstances indicate, in management’s
judgment, that the carrying value of such investment may have experienced an other-than-temporary decline in value. When
evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of
the investment to determine whether impairment has occurred. If the estimated fair value is less than the carrying value and
management considers the decline in value to be other than temporary, the excess of the carrying value over the estimated fair
value is recognized in the financial statements as an impairment loss. The fair value of the impaired investment is based on quoted
market prices, or upon the present value of expected cash flows using discount rates believed to be consistent with those used by
principal market participants, plus market analysis of comparable assets owned by the investee, if appropriate.
Recent Accounting Standards
For a discussion of recent accounting pronouncements, see the applicable section of "Item 8. Financial Statements and
Supplementary Data—Note 2. Summary of Significant Accounting Policies" to the audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, which includes adverse changes in commodity prices and interest rates as discussed below:
Commodity Price Risk
We are dependent upon the effective marketing of the coal mined by our lessees. Our lessees sell the coal under various
long-term and short-term contracts as well as on the spot market. Current conditions in the coal industry may make it difficult for
our lessees to extend existing contracts or enter into supply contracts with terms of one year or more. Our lessees’ failure to negotiate
long-term contracts could adversely affect the stability and profitability of our lessees’ operations and adversely affect our coal
royalty revenues. If more coal is sold on the spot market, coal royalty revenues may become more volatile due to fluctuations in
spot coal prices.
We have market risk related to prices for our aggregates products. Aggregates prices are primarily driven by economic
conditions in the local markets in which the products are sold.
The market price of soda ash directly affects the profitability of Ciner Wyoming’s operations. If the market price for soda
ash declines, Ciner Wyoming’s sales will decrease. Historically, the global market and, to a lesser extent, the domestic market for
soda ash have been volatile, and those markets are likely to remain volatile in the future.
Interest Rate Risk
Our exposure to changes in interest rates results from our borrowings under the Opco Credit Facility, which is subject to
variable interest rates based upon LIBOR. At December 31, 2017, we had $60.0 million outstanding in variable interest rate debt.
If interest rates were to increase by 1%, annual interest expense would increase approximately $0.6 million, assuming the same
principal amount remained outstanding during the year.
67
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, accounts receivable, contracts receivable, accounts payable,
debt, Preferred Units and warrants. The carrying amounts reported on the Consolidated Balance Sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to their short-term nature.
We use available market data and valuation methodologies to estimate the fair value of debt. The fair value of debt is the
estimated amount we would have to pay a third party to assume the debt, including a credit spread for the difference between the
issue rate and the period end market rate. The credit spread is our default or repayment risk. The following table shows the carrying
amount and estimated fair value of our debt and contracts receivable (including affiliates):
(In thousands)
Debt:
NRP 2018 Senior Notes (1)
NRP 2022 Senior Notes (1)
Opco Senior Notes and utility local improvement
obligation (2)
Opco Revolving Credit Facility (3)
Assets:
Contracts receivable (including affiliates), current and
long-term (4)
December 31, 2017
December 31, 2016
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
$
— $
— $
420,097
$
412,250
330,404
366,376
—
—
418,944
60,000
447,538
60,000
500,174
210,000
488,814
210,000
$
43,826
$
30,517
$
46,742
$
32,554
(1) The Level 1 fair value is based upon quotations obtained for identical instruments on the closing trading prices near period
end.
(2) Due to no observable quoted prices on these instruments, the Level 3 fair value is estimated by management using quotations
obtained for the NRP Senior Notes on the closing trading prices near period end.
(3) The Level 3 fair value approximates the outstanding borrowing amount because the interest rates are variable and reflective
of market rates and the terms of the credit facility allow the Partnership to repay this debt at any time without penalty.
(4) The Level 3 fair value is determined based on the present value of future cash flow projections related to the underlying
assets.
68
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, independent registered public accounting firm
Report of Deloitte & Touche, LLP, independent registered public accounting firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Partners’ Capital for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page
70
71
72
73
74
75
77
69
Report of Independent Registered Public Accounting Firm
The Partners of Natural Resource Partners L.P.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Natural Resource Partners L.P. (the Partnership) as of December
31, 2017 and 2016, and the related consolidated statements of comprehensive income (loss), partners’ capital and cash flows for
each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Partnership at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We did not audit the financial statements of Ciner Wyoming LLC (Ciner Wyoming), a Limited Liability Company in which the
Partnership has a 49% interest. In the consolidated financial statements, the Partnership’s investment in Ciner Wyoming is stated
at $245 million and $256 million as of December 31, 2017 and 2016, respectively, and the Partnership’s equity in the net income
of Ciner Wyoming is stated at $40 million in 2017, $40 million in 2016 and $50 million in 2015. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Ciner
Wyoming, is based on the report of the other auditors.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Partnership's internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated March 1, 2018 expressed an unqualified opinion thereon.
Adoption of ASU 2017-11
As discussed in Note 2 to the consolidated financial statements, the Partnership changed its method for accounting for warrants
to purchase common units as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting
from Accounting Standards Update No. 2017-11, “Earnings Per Share.”
Basis for Opinion
These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on
the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Partnership’s auditor since 2002.
Houston, Texas
March 1, 2018
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers and Members of
Ciner Wyoming LLC
Atlanta, Georgia
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Ciner Wyoming LLC (“the Company”) as of December 31, 2017 and 2016,
and the related statements of operations and comprehensive income, members’ equity, and cash flows for each of the three years
in the period ended December 31, 2017 and the related notes included in Exhibit 99.1 (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 1, 2018
We have served as the Company’s auditor since 2008.
71
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net
Accounts receivable—affiliates, net
Inventory
Prepaid expenses and other
Current assets of discontinued operations (see Note 7)
Total current assets
Land
Plant and equipment, net
Mineral rights, net
Intangible assets, net
Intangible assets, net—affiliate
Equity in unconsolidated investment
Long-term contracts receivable
Long-term contracts receivable—affiliate
Other assets
Other assets—affiliate
Total assets
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable
Accounts payable—affiliates
Accrued liabilities
Accrued liabilities—affiliates
Accrued interest
Current portion of long-term debt, net
Current liabilities of discontinued operations (see Note 7)
Total current liabilities
Deferred revenue
Deferred revenue—affiliates
Long-term debt, net
Other non-current liabilities
Other non-current liabilities—affiliate
Total liabilities
Commitments and contingencies (see Note 17)
Class A Convertible Preferred Units (258,844 units issued and outstanding at $1,000 par
value per unit; liquidation preference of $1,500 per unit)
Partners’ capital:
Common unitholders’ interest (12,232,006 units issued and outstanding)
General partner’s interest
Warrant holders’ interest
Accumulated other comprehensive loss
Total partners’ capital
Non-controlling interest
Total capital
Total liabilities and capital
December 31,
2017
2016
$
$
$
29,827
47,026
161
7,553
5,838
991
91,396
25,247
46,170
883,885
49,554
—
245,433
40,776
—
6,547
156
1,389,164
6,957
562
16,890
515
15,484
79,740
401
120,549
100,605
—
729,608
2,808
346
953,916
40,371
43,202
6,658
6,893
7,271
991
105,386
25,252
49,443
908,192
3,236
49,811
255,901
—
43,785
6,625
1,018
1,448,649
6,234
940
25,999
—
15,588
140,037
353
189,151
44,931
71,632
990,234
4,565
—
1,300,513
173,431
—
199,851
1,857
66,816
(3,313)
265,211
(3,394)
261,817
1,389,164
$
152,309
887
—
(1,666)
151,530
(3,394)
148,136
1,448,649
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
72
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per unit data)
Revenues and other income:
Coal royalty and other
Coal royalty and other—affiliates
Transportation and processing
Transportation and processing—affiliates
Construction aggregates
Road construction and asphalt paving
Equity in earnings of Ciner Wyoming
Gain on asset sales, net
Total revenues and other income
Operating expenses:
Operating and maintenance expenses
Operating and maintenance expenses—affiliates, net
Depreciation, depletion and amortization
Amortization expense—affiliate
General and administrative
General and administrative—affiliates
Asset impairments
Total operating expenses
Income (loss) from operations
Other income (expense)
Interest expense
Interest expense—affiliate
Debt modification expense
Loss on extinguishment of debt
Interest income
Other expense, net
Net income (loss) from continuing operations
Income (loss) from discontinued operations (see Note 7)
Net income (loss)
Less: income attributable to preferred unitholders
Net income (loss) attributable to common unitholders and general
partner
Net income (loss) attributable to common unitholders
Net income (loss) attributable to the general partner
Income (loss) from continuing operations per common unit (see
Note 5)
Basic
Diluted
Net income (loss) per common unit (see Note 5)
Basic
Diluted
Net income (loss)
Add: comprehensive income (loss) from unconsolidated investment
and other
Comprehensive income (loss)
For the Years Ended December 31,
2016
2015
2017
158,399
23,402
14,510
6,012
112,970
18,411
40,457
3,856
378,017
126,982
9,534
34,985
1,008
13,513
4,989
3,031
194,042
183,975
$
$
$
$
$
(82,902) $
—
(7,939)
(4,107)
181
(94,767) $
89,208
(541)
88,667
(25,453)
63,214
61,950
1,264
5.11
3.98
5.06
3.96
$
$
$
$
$
$
144,520
46,259
—
19,336
103,755
17,047
40,061
29,081
400,059
119,621
10,925
43,087
3,185
16,979
3,591
16,926
214,314
185,745
$
$
$
$
$
(90,047) $
(523)
—
—
39
(90,531) $
95,214
1,678
96,892
—
96,892
95,229
1,663
7.65
7.65
7.78
7.78
$
$
$
$
$
$
154,066
67,682
—
22,033
124,085
14,964
49,918
6,900
439,648
136,943
15,323
57,295
3,621
7,036
5,312
384,545
610,075
(170,427)
(87,911)
(1,851)
—
—
18
(89,744)
(260,171)
(311,549)
(571,720)
—
(571,720)
(559,492)
(12,228)
(20.78)
(20.78)
(45.75)
(45.75)
88,667
$
96,892
$
(571,720)
(1,647)
87,020
$
486
97,378
$
(1,693)
(573,413)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
73
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(In thousands)
Balance at December 31, 2014
Net Loss
Cost associated with equity
transactions
Distributions to common
unitholders and general partner
Distributions to non-controlling
interests
Non-cash contributions
Comprehensive loss from
unconsolidated investment and
other
Balance at December 31, 2015
Net income
Distributions to common
unitholders and general partner
Non-cash contributions
Comprehensive income from
unconsolidated investment and
other
Common Unitholders
Units
Amounts
General
Partner
Warrant
Holders
Accumulated
Other
Comprehensive
Income (Loss)
Partners'
Capital
Excluding
Non-
Controlling
Interest
Non-
Controlling
Interest
Total
Capital
12,232
$709,019
$ 12,245
$
— $
(459) $ 720,805
$
(650) $ 720,155
— (559,492)
(12,228)
—
(109)
—
— (70,324)
(1,434)
—
811
—
—
—
—
—
—
—
—
—
—
—
—
— (571,720)
— (571,720)
—
—
—
—
(109)
—
(109)
(71,758)
— (71,758)
—
811
(2,744)
(2,744)
—
811
(1,693)
(1,693)
—
(1,693)
12,232
—
$ 79,094
95,229
$
(606) $
1,663
— $
—
(2,152) $
—
76,336
96,892
$
(3,394) $ 72,942
96,892
—
— (22,014)
—
—
—
—
(451)
281
—
—
—
—
—
—
(22,465)
281
486
486
— (22,465)
—
—
281
486
Balance at December 31, 2016
12,232
$152,309
$
887
$
— $
(1,666) $ 151,530
$
(3,394) $ 148,136
Net income (1)
Distributions to common
unitholders and general partner
Distributions to preferred
unitholders
Issuance of Warrants
Comprehensive loss from
unconsolidated investment and
other
—
86,894
1,773
— (22,018)
(449)
— (17,334)
(354)
—
—
—
—
—
—
—
66,816
—
—
—
—
88,667
—
88,667
(22,467)
— (22,467)
(17,688)
66,816
— (17,688)
—
66,816
—
—
(1,647)
(1,647)
—
(1,647)
Balance at December 30, 2017
12,232
$199,851
$ 1,857
$ 66,816
$
(3,313) $ 265,211
$
(3,394) $ 261,817
(1) Net income includes $25.5 million attributable to Preferred Unitholders that accumulated during the period, of which $24.9
million is allocated to the common unitholders and $0.5 million is allocated to the general partner.
The accompanying notes are an integral part of these consolidated financial statements.
74
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2017
Years Ended December 31,
2016
2015
$
88,667
$
96,892
$
(571,720)
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities of continuing operations:
Depreciation, depletion and amortization
Amortization expense—affiliates
Return on earnings from unconsolidated investment
Equity earnings from unconsolidated investment
Gain on asset sales, net
Debt modification expense
Loss on extinguishment of debt
(Income) loss from discontinued operations
Asset impairments
Gain on reserve swap
Amortization of debt issuance costs and other
Other, net—affiliates
Change in operating assets and liabilities:
Accounts receivable
Accounts receivable—affiliates
Accounts payable
Accounts payable—affiliates
Accrued liabilities
Accrued liabilities—affiliates
Accrued interest
Accrued interest—affiliates
Deferred revenue
Deferred revenue—affiliates
Other items, net
Net cash provided by operating activities of continuing operations
Net cash provided by (used in) operating activities of discontinued
operations
Net cash provided by operating activities
Cash flows from investing activities:
Return of equity from unconsolidated investment
Proceeds from sale of assets
Return of long-term contract receivable
Return of long-term contract receivables—affiliate
Acquisition of plant and equipment and other
Acquisition of mineral rights
Net cash provided by investing activities of continuing operations
Net cash provided by (used in) investing activities of discontinued
operations
Net cash provided by (used in) investing activities
$
$
$
$
$
75
34,985
1,008
43,354
(40,457)
(3,856)
7,939
4,107
541
3,031
—
8,005
1,207
2,305
367
1,361
(377)
(8,443)
515
(105)
—
(5,791)
(10,166)
(359)
127,838
(699)
127,139
5,646
1,982
2,206
804
(7,301)
—
$
$
$
43,087
3,185
46,550
(40,061)
(29,081)
—
—
(1,678)
16,926
—
8,284
993
431
(313)
707
139
5,397
—
(779)
(456)
(35,881)
(11,222)
(2,477)
100,643
7,318
107,961
$
$
— $
62,383
—
2,968
(5,408)
—
3,337
$
59,943
$
206
3,543
$
106,872
166,815
$
57,295
3,621
46,795
(49,918)
(6,900)
—
—
311,549
384,545
(9,290)
(7,109)
(912)
7,705
3,149
(3,625)
(32)
2,656
—
(1,236)
—
7,605
(4,200)
(1,466)
168,512
34,912
203,424
—
14,529
—
2,463
(9,607)
(400)
6,985
(37,256)
(30,271)
NATURAL RESOURCE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from financing activities:
Proceeds from issuance of Class A Convertible Preferred Units and
Warrants, net
Proceeds from issuance of 2022 Senior Notes, net
Proceeds from loans
Repayments of loans
Distributions to common unitholders and general partner
Distributions to preferred unitholders
Distributions to non-controlling interest
Proceeds from (contributions to) discontinued operations
Debt issue costs and other
Net cash used in financing activities of continuing operations
Net cash provided by (used in) financing activities of discontinued
operations
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents of continuing operations at beginning of period
Cash and cash equivalents of discontinued operations at beginning of period
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Less: cash and cash equivalents of discontinued operations at end of period
Cash and cash equivalents of continuing operations at end of period
Supplemental cash flow information:
Cash paid during the period for interest from continuing operations
Cash paid during the period for interest from discontinued operations
Non-cash investing and financing activities:
Plant, equipment and mineral rights funded with accounts payable or
accrued liabilities
Issuance of 2022 Senior Notes in exchange for 2018 Senior Notes
$
$
$
$
$
$
$
$
$
$
$
$
2017
Years Ended December 31,
2016
2015
$
242,100
103,688
77,000
(492,319)
(22,467)
(8,844)
—
(493)
(40,384)
(141,719) $
— $
—
20,000
(183,141)
(22,465)
—
—
39,421
(15,234)
(161,419) $
493
(141,226) $
(124,759)
(286,178) $
—
—
100,000
(165,983)
(71,758)
—
(2,744)
(36,725)
(6,054)
(183,264)
11,808
(171,456)
(10,544) $
(11,402) $
1,697
40,371
—
40,371
29,827
—
29,827
$
$
$
$
72,850
$
— $
41,204
10,569
51,773
40,371
—
40,371
84,380
1,906
$
$
$
$
$
$
294
240,638
$
$
— $
— $
48,971
1,105
50,076
51,773
10,569
41,204
85,738
2,755
4,304
—
The accompanying notes are an integral part of these consolidated financial statements.
76
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
Natural Resource Partners L.P. (the "Partnership"), a Delaware limited partnership, was formed in April 2002. The general
partner of the Partnership is NRP (GP) LP ("NRP GP"), a Delaware limited partnership, whose general partner is GP Natural
Resource Partners LLC, a Delaware limited liability company. The Partnership engages principally in the business of owning,
operating, managing and leasing a diversified portfolio of mineral properties in the United States, including interests in coal, trona
and soda ash, construction aggregates and other natural resources and is organized into three operating segments further described
in Note 6. Segment Information. As used in these Notes to Consolidated Financial Statements, the terms "NRP," "we," "us" and
"our" refer to Natural Resource Partners L.P. and its subsidiaries, unless otherwise stated or indicated by context.
The Partnership’s operations are conducted through, and its operating assets are owned by, its subsidiaries. The Partnership
owns its subsidiaries through one wholly owned operating company, NRP (Operating) LLC ("Opco"). NRP GP has sole
responsibility for conducting the Partnership's business and for managing its operations. Because NRP GP is a limited partnership,
its general partner, GP Natural Resource Partners LLC, conducts its business and operations, and the board of directors and officers
of GP Natural Resource Partners LLC makes decisions on its behalf. Robertson Coal Management LLC ("RCM"), a limited liability
company wholly owned by Corbin J. Robertson, Jr., owns all of the membership interest in GP Natural Resource Partners LLC.
Subject to the Board Representation and Observation Rights Agreement with certain entities controlled by funds affiliated with
The Blackstone Group, L.P. (collectively referred to as "Blackstone") and affiliates of GoldenTree Asset Management LP
(collectively referred to as "GoldenTree"), RCM is entitled to appoint the directors of the Board of Directors of GP Natural Resource
Partners LLC. RCM has delegated the right to appoint one director to Blackstone.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements of the Partnership have been prepared in accordance with generally
accepted accounting principles in the United States of America ("GAAP"). The consolidated financial statements include the
accounts of Natural Resource Partners L.P. and its wholly owned subsidiaries, as well as BRP LLC ("BRP"), a joint venture with
International Paper Company controlled by the Partnership. The Partnership has an equity investment through which it is able to
exercise significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities
and is accounted for using the equity method. Intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior year amounts on the Consolidated Balance Sheets, Consolidated Statements of
Comprehensive Income (Loss) and Statements of Cash Flows to conform with current year presentation. These reclassifications
have no impact on previously reported assets, liabilities, total revenues and other income, net income (loss), or cash flows from
operations, investing or financing.
Use of Estimates
Preparation of the accompanying financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities in the accompanying Consolidated Balance Sheets, the
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss) during the reporting period. Actual
results could differ from those estimates. The most significant estimates pertain to coal and aggregate reserves and related cash
flow estimates which are used to compute depreciation, depletion and amortization and impairments of coal and aggregate properties
and commitments and contingencies.
77
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Fair Value
The Partnership discloses certain assets and liabilities using fair value as defined by authoritative guidance. Fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. See Note 14. Fair Value Measurements.
There are three levels of inputs that may be used to measure fair value:
• Level 1—Quoted prices in active markets for identical assets or liabilities.
• Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the
determination of fair value requires significant management judgment or estimation.
Cash and Cash Equivalents
The Partnership considers all highly liquid short-term investments with an original maturity of three months or less to be
cash equivalents.
Allowance for Doubtful Accounts
Accounts receivable are recorded net of the allowance for doubtful accounts. The Partnership records an allowance for
doubtful accounts for receivables which it determines to be uncollectible based on the specific identification method. Accounts
are written off when collection efforts are exhausted and future recovery is doubtful. The allowance for doubtful accounts included
in the Partnership's net accounts receivable balance (including affiliates) was $5.1 million and $4.6 million at December 31, 2017
and December 31, 2016, respectively. A significant amount of the Partnership's allowance for doubtful accounts relates to coal-
related receivables. The Partnership recorded bad debt expense of $2.4 million, $0.4 million and $4.9 million, respectively, included
in Operating and maintenance expense (including affiliates) on its Consolidated Statements of Comprehensive Income (Loss) for
the years ended December 31, 2017, 2016 and 2015, respectively.
Inventory
Inventories are comprised of aggregates and supplies and parts and are stated at the lower of cost or net realizable value.
The cost of aggregates and asphalt components such as stone, sand, and recycled and liquid asphalt is determined by the first-in,
first-out (FIFO) method. Cost includes all direct materials, direct labor and related production overheads based on normal operating
capacity. The cost of supplies and parts inventory is determined by the average cost method and includes operating and maintenance
supplies to be used in the Partnership’s aggregates operations.
Plant and Equipment
Plant and equipment is recorded at its original cost of construction or, upon acquisition, at fair value of the asset acquired
and consists of coal preparation plants, related coal handling facilities, and other coal and aggregate transportation and processing
infrastructure. Expenditures for new facilities or that substantially increase the useful life of property, including interest during
construction, are capitalized and reported in the Consolidated Statements of Cash Flows. These assets are depreciated on a straight-
line basis over their useful lives generally as follows:
Buildings and improvements
Machinery and equipment
Leasehold improvements
Years
20 to 40
5 to 12
Life of Lease
78
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
The Partnership begins capitalizing costs for construction in process and mine development at its aggregates operations at
a point when reserves are determined to be proven or probable, economically mineable and when demand supports investment in
the market. Once production commences, capitalization of such costs ceases. Mine development costs are amortized based on
production over the estimated life of mineral reserves and amortization is included as a component of depreciation expense.
Mineral Rights
Mineral rights owned and leased are recorded at its original cost of construction or, upon acquisition, at fair value of the
assets acquired. Coal and aggregate mineral rights are depleted on a unit-of-production basis by lease, based upon minerals mined
in relation to the net cost of the mineral properties and estimated proven and probable tonnage therein.
Intangible Assets
The Partnership’s intangible assets consist primarily of contracts that at acquisition were more favorable for the Partnership
than prevailing market rates, known as above-market contracts. The estimated fair values of the above-market rate contracts are
determined based on the present value of future cash flow projections related to the underlying assets acquired. Intangible assets
are amortized on a unit-of-production basis except that a minimum amortization is calculated on a straight-line basis over the
remaining term of the underlying lease for temporarily idled assets.
Asset Impairment
The Partnership has developed procedures to evaluate its long-lived assets for possible impairment periodically or whenever
events or changes in circumstances indicate an asset's carrying amount may not be recoverable. These procedures are performed
throughout the year and are based on historic, current and future performance and consider both quantitative and qualitative
information. A long-lived asset is deemed impaired when the future expected undiscounted cash flows from its use and disposition
is less than the assets’ carrying value. Impairment is measured based on the estimated fair value, which is usually determined based
upon the present value of the projected future cash flow compared to the assets’ carrying value. The Partnership believes its
estimates of cash flows and discount rates are consistent with those of principal market participants. In addition to the evaluations
discussed above, specific events such as a reduction in economically recoverable reserves or production ceasing on a property for
an extended period may require a separate impairment evaluation be completed on a property.
The Partnership evaluates its equity investment for impairment when events or changes in circumstances indicate, in
management’s judgment, that the carrying value of such investment may have experienced an other-than-temporary decline in
value. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying
value of the investment to determine whether potential impairment has occurred. If the estimated fair value is less than the carrying
value and management considers the decline in value to be other than temporary, the excess of the carrying value over the estimated
fair value is recognized in the financial statements as an impairment loss. The fair value of the impaired investment is based on
quoted market prices, or upon the present value of expected cash flows using discount rates believed to be consistent with those
used by principal market participants, plus market analysis of comparable assets owned by the investee, if appropriate.
Revenue Recognition
Coal Royalty and Other Revenues. Coal royalty and other revenues are recognized on the basis of tons of mineral mined
or sold by the Partnership's lessees and the corresponding revenue from those sales. Generally, the lessees make payments to the
Partnership based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral they mine or sell. While
the Partnership may have multiple contracts with a single lessee, such contracts are accounted for as separate arrangements.
Most of the Partnership’s coal and aggregates lessees must pay the Partnership minimum annual or quarterly amounts which
are generally recoupable out of actual production over certain time periods. These minimum payments are recorded as deferred
revenue liability when received. The deferred revenue attributable to the minimum payment is recognized as coal royalty revenue
when the underlying mineral lease recoups the minimum payment through production or is recognized as minimums recognized
as revenue in the period immediately following the expiration of the lessee’s ability to recoup the payments.
79
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
The Partnership periodically audits lessee information by examining certain records and internal reports of its lessees. The
Partnership’s regional managers also perform periodic mine inspections to verify that the information that has been reported to
the Partnership is accurate. The audit and inspection processes are designed to identify material variances from lease terms as well
as differences between the information reported to the Partnership and the actual results from each property. Audits and inspections,
however, are in periods subsequent to when the revenue is reported and any adjustment identified by these processes might be in
a reporting period different from when the revenue was initially recorded. Typically there are no material adjustments from this
process.
Oil and gas related revenues consist of revenues from royalties and overriding royalties and are recognized on the basis of
volume of hydrocarbons sold by lessees and the corresponding revenue from those sales. Also, included within oil and gas royalties
are lease bonus payments, which are generally paid upon the execution of a lease.
Transportation and Processing. Transportation fees are recognized on the basis of tons of material transported over the
beltlines. Under the terms of the transportation contracts, the Partnership receives a fixed price per ton for all material transported
on the beltlines. Processing fees are recognized on the basis of tons of material processed through the facilities by the lessees and
the corresponding revenue from those sales. Generally, the lessees of the processing facilities make payments to the Partnership
based on the greater of a percentage of the gross sales price or a fixed price per ton of material that is processed and sold from the
facilities. The processing leases are structured in a manner so that the lessees are responsible for operating and maintenance
expenses associated with the facilities. These fees are included in Transportation and processing fees (or Transportation and
processing fees-affiliate) in the Consolidated Statements of Comprehensive Income (Loss).
Equity in Earnings from Ciner Wyoming. The Partnership accounts for non-marketable equity investments using the equity
method of accounting if the investment gives it the ability to exercise significant influence over, but not control of, an investee.
Significant influence generally exists if the Partnership has an ownership interest representing between 20% and 50% of the voting
stock of the investee. The Partnership accounts for its investment in Ciner Wyoming, of which it owns 49%, using this method.
Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional
investments and the proportionate share of earnings or losses and distributions. The basis difference between the investment and
the proportional share of investee's net assets is hypothetically allocated first to identified tangible assets and liabilities, then to
finite-lived intangibles or indefinite-lived intangibles and the balance is attributed to goodwill. The portion of the basis difference
attributed to net tangible assets and finite-lived intangibles is amortized over its estimated useful life while indefinite-lived
intangibles, if any, and goodwill are not amortized. The amortization of the basis difference is recorded as a reduction of earnings
from the equity investment in the Consolidated Statements of Comprehensive Income (Loss).
The carrying value in Ciner Wyoming is reflected in the caption "Equity in unconsolidated investment" in the Partnership's
Consolidated Balance Sheets. The Partnership's adjusted share of the earnings or losses of Ciner Wyoming is reflected in the
Consolidated Statements of Comprehensive Income (Loss) as revenues and other income under the caption ‘‘Equity in earnings
of Ciner Wyoming." The Partnership's share of investee earnings are adjusted to reflect the amortization of any difference between
the cost basis of the equity investment and the proportionate share of the investee’s net assets, which has been allocated to the fair
value of net identified tangible and finite-lived intangible assets and amortized over the estimated lives of those assets. In reporting
cash flows of its equity method investment in Ciner Wyoming, the Partnership utilizes the cumulative earnings approach in which
distributions received are considered returns on investment and classified as cash inflows from operating activities unless the
cumulative distributions received exceed cumulative equity in earnings recognized by the Partnership, in which case the excess
cumulative distributions received would be classified as cash inflows from investing activities as a return of investment.
Construction Aggregates Revenues. Revenues from the sale of aggregates, gravel, sand and asphalt are recorded based
upon the transfer of product at delivery to customers, which generally occurs at the quarries or asphalt plants.
Road Construction and Asphalt Paving. Revenues from long-term construction contracts are recognized on the percentage-
of-completion method, measured by the percentage of total costs incurred to date to the estimated total costs for each contract.
That method is used since the Partnership considers total cost to be the best available measure of progress on the contracts.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions and estimated profitability, including those arising from final contract settlements, which result
in revisions to job costs and profits are recognized in the period in which the revisions are determined. Contract costs include all
direct job costs and those indirect costs related to contract performance, such as indirect labor, supplies, insurance, equipment
maintenance and depreciation.
80
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
See "—Recently Issued Accounting Standards - Revenue Recognition" below for information regarding the impact of
adopting the new revenue recognition standard in January 2018.
Property Taxes
The Partnership is responsible for paying property taxes on the properties it owns. Typically, the lessees are contractually
responsible for reimbursing the Partnership for property taxes on the leased properties. The payment of and reimbursement of
property taxes is included in Operating and maintenance expenses and in Coal Royalty and Other revenues, respectively, in the
Consolidated Statements of Comprehensive Income (Loss).
Transportation Revenue and Expense
The Partnership records transportation revenue and pays transportation costs to a Foresight Energy LP ("Foresight Energy")
affiliate to operate equipment on behalf of the Partnership. The revenue and expenses related to these transactions are recorded as
Transportation and processing revenues (or Transportation and processing revenues—affiliates) and Operating and maintenance
expenses or (Operating and maintenance expenses—affiliates), respectively, in the Consolidated Statements of Comprehensive
Income (Loss). Subsequent to May 9, 2017, Foresight Energy is no longer deemed a related party; refer to Note 15. Related Party
Transactions for further details.
Shipping and handling costs invoiced to aggregate customers and paid to third-party carriers are recorded as Construction
Aggregates revenues and Operating and maintenance expenses in the Consolidated Statements of Comprehensive Income (Loss).
Shipping and handling revenue included in Construction Aggregates revenues was $38.9 million, $36.0 million and $42.6 million
for the years ended December 31, 2017, 2016 and 2015, respectively. Shipping and handling costs included in Operating and
maintenance expenses was $36.3 million, $35.9 million and $42.1 million for the years ended December 31, 2017, 2016, and 2015,
respectively.
Unit-Based Compensation
The Partnership has awarded unit-based compensation in the form of phantom units and accounts for such awards using the
fair value method, which requires the Partnership to estimate compensation costs based on the fair value of the grant and remeasure
each reporting period based on the Partnership’s common unit price over the requisite service, which is generally vesting period
of the grant. In addition, estimated forfeitures are included in the periodic computation of the fair value of the liability. Unit-based
compensation expense is recognized in General and administrative expense in the Consolidated Statements of Comprehensive
Income.
Deferred Financing Costs
Deferred financing costs consist of legal and other costs related to the issuance of the Partnership’s long-term debt. These
costs are amortized over the term of the line-of-credit or debt arrangements. Deferred financing costs related to the Partnership's
revolving credit facility are included in other assets (long-term) and deferred financing costs related to the Partnership's note
agreements are included as a direct deduction from the carrying amount of the debt liability in Long-term debt, net on the
Partnership's Consolidated Balance Sheets.
Income Taxes
The Partnership is not subject to federal or material state income taxes, as the partners are taxed individually on their allocable
share of taxable income. Net income for financial statement purposes may differ significantly from taxable income reportable to
unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities. In the event of an
examination of the Partnership’s tax return, the tax liability of the partners could be changed if an adjustment in the Partnership’s
income is ultimately sustained by the taxing authorities.
81
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Recently Adopted Accounting Standards
Statement of Cash Flows. In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230), which is intended to clarify how certain cash receipts and cash
payments are presented and classified in the statement of cash flows in order to reduce current and potential future diversity in
practice. The guidance addresses eight specific cash flow issues for which current GAAP is either unclear or does not include
specific guidance. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within
those annual periods.
The Partnership elected to early adopt this guidance in the second quarter of 2017 and elected to continue to classify
distributions it received from its equity method investees under the cumulative earnings approach in which distributions received
are considered returns on investment and classified as cash inflows from operating activities unless the cumulative distributions
received exceed cumulative equity in earnings recognized by the Partnership. The early adoption of this guidance in the second
quarter of 2017 did not have a material effect on its consolidated financial statements.
Accounting Changes and Error Corrections. In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and
Error Corrections (Topic 250) and Investments - Equity Method and Joint Venture (Topic 323), which states that registrants should
consider additional qualitative disclosures if the impact of an issued but not yet adopted ASU is unknown or cannot be reasonably
estimated and to include a description of the effect of the accounting policies that the registrant expects to apply, if determined.
Transition guidance in certain issued but not yet adopted ASUs, including Leases and Revenue Recognition, was also updated to
reflect this amendment. This guidance is effective immediately. The Partnership adopted this guidance during the first quarter of
2017. The adoption of this guidance impacted the Partnership's disclosures but had no effect on its financial position, results of
operations or cash flows.
Earnings per Share. In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing
Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments
with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments
of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The guidance
eliminates the requirement to consider "down-round" features when determining whether certain equity-linked financial instruments
or embedded features are indexed to an entity’s own stock. The guidance requires entities that present earnings per share ("EPS")
under ASC 260 to recognize the effect of a down-round feature in a freestanding equity-classified financial instrument only when
it is triggered. The effect of triggering such a feature will be recognized as a dividend and a reduction to income available to
common shareholders in basic EPS. Entities will also have to make new disclosures for financial instruments with down-round
features and other terms that change conversion or exercise prices. The guidance is effective for annual and interim periods ending
after December 31, 2018 and early adoption is permitted. The Partnership early adopted this guidance in the third quarter of 2017.
Refer to Note 2. Change in Method of Accounting for NRP's Warrants in the Partnerships September 30, 2017 Form 10-Q for
disclosure of the effects of adoption on its quarterly consolidated financial statements. There was no impact to the consolidated
financial statements for the years ended December 31, 2017, 2016 and 2015.
Recently Issued Accounting Standards
Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new
Topic, ASC Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and
how revenue is recognized. The core principle of this guidance is that 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. The guidance also requires enhanced disclosures, provide more comprehensive guidance
for transactions such as service revenue and contract modifications, and enhance guidance for multiple-element arrangements. In
August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the
effective date of ASU No. 2014-09 by one year, making the new standard effective for interim and annual periods beginning after
December 15, 2017. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
Additionally, in March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606):
Principal versus agent considerations (reporting revenue gross versus net), which clarifies the implementation guidance on principal
versus agent considerations on such matters. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with
Customers (Topic 606): Identifying performance obligations and licensing, which clarifies guidance related to identifying
performance obligations and licensing implementation guidance contained in the new revenue recognition standard. In May 2016,
82
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-scope improvements and
practical expedients, which addresses narrow-scope improvements to the guidance on collectibility, non-cash consideration, and
completed contracts at transition. Additionally, the amendments in this update provide a practical expedient for contract
modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes
collected from customers. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to
Topic 606, Revenue from Contracts with Customers, which clarifies the guidance or corrects unintended application of guidance.
The Partnership adopted the new standard on January 1, 2018 and has elected to use the modified retrospective adoption
method. Adopting this guidance will result in increased disclosures related to revenue recognition policies and disaggregation of
revenue.
The Partnership identified the contracts for all of its revenue streams and utilized the practical expedient of grouping contracts
or performance obligations with similar characteristics as prescribed by the new standard. As a result of the analysis performed,
the Partnership concluded that the new revenue recognition standard will have no impact on revenue from NRP's Construction
Aggregates or Soda Ash operating segments. However, the Partnership determined that adoption of the new revenue recognition
standard will impact certain revenue from NRP's coal royalty leases as further described below. The other revenue streams within
the Coal Royalty and Other segment will not be impacted.
Historically, NRP has recognized all coal royalty revenue over the lease term based on coal production and minimum payments
were deferred until either recoupment occurred or the recoupment period expired. Under the new revenue recognition standard,
management has defined NRP's coal royalty lease performance obligation as providing the lessee the right to mine and sell NRP's
coal over the lease term. The Partnership then evaluated the likelihood that consideration NRP received from its lessees resulting
from coal production would exceed consideration received from minimum payments over the lease term. As a result of this
evaluation, revenue recognition from the Partnership's leases will now be based on either production or minimum payments as
follows:
1. Production Leases: Leases for which the Partnership expects that consideration from coal production will be
greater than consideration from minimums over the lease term. Revenue recognition for these leases will be recognized
over time based on coal production and minimum payments will continue to be deferred until recoupment occurs or the
recoupment becomes remote. If the Partnership does receive minimum payments from these coal royalty leases, it will
begin to evaluate the likelihood of recoupment and recognize deferred revenue prior to expiration of the recoupment
period if it concludes that recoupment is remote.
2. Minimum Leases: Leases for which the Partnership expects that consideration from minimums will be greater
than consideration from coal production over the lease term. Revenue recognition for these leases will now be recognized
straight line over the lease term based on the minimum payment consideration amount.
As a result of implementation of the new standard for the Partnership's coal lease contracts, NRP expects to record
approximately $80 million to $90 million reduction to deferred revenue and a corresponding increase in retained earnings on
January 1, 2018. The Partnership will perform this contract evaluation at the end of each reporting period going forward.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases, as a new Topic, ASC Topic 842. The new lease
guidance supersedes Topic 840. Lessees are to recognize assets and liabilities on the balance sheet for the present value of the
rights and obligations created by all leases with terms of more than 12 months. This ASU does not apply to leases to explore for
or use minerals, oil, natural gas and similar non-regenerative resources, including the intangible right to explore for those natural
resources and rights to use the land in which those natural resources are contained. The guidance also requires disclosures designed
to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The guidance
is effective for annual and interim periods beginning after December 31, 2018. The Partnership is currently evaluating the impact
of the provisions of this guidance on its consolidated financial statements.
83
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
3. Class A Convertible Preferred Units and Warrants
On March 2, 2017, NRP issued $250 million of Class A Convertible Preferred Units representing limited partner interests in
NRP (the "Preferred Units") to certain entities controlled by funds affiliated with The Blackstone Group, L.P. (collectively referred
to as "Blackstone") and certain affiliates of GoldenTree Asset Management LP (collectively referred to as "GoldenTree") (together
the "Preferred Purchasers") pursuant to a Preferred Unit and Warrant Purchase Agreement. NRP issued 250,000 Preferred Units
to the Preferred Purchasers at a price of $1,000 per Preferred Unit (the "Per Unit Purchase Price"), less a 2.5% structuring and
origination fee. The Preferred Units entitle the Preferred Purchasers to receive cumulative distributions at a rate of 12% per year,
up to one half of which NRP may pay in additional Preferred Units (such additional Preferred Units, the "PIK Units"). The Preferred
Units have a perpetual term, unless converted or redeemed as described below.
NRP also issued two tranches of warrants (the "Warrants") to purchase common units to the Preferred Purchasers (Warrants
to purchase 1.75 million common units with a strike price of $22.81 and Warrants to purchase 2.25 million common units with a
strike price of $34.00). The Warrants may be exercised by the holders thereof at any time before the eighth anniversary of the
closing date. Upon exercise of the Warrants, NRP may, at its option, elect to settle the Warrants in common units or cash, each on
a net basis.
After March 2, 2022 and prior to March 2, 2025, the holders of the Preferred Units may elect to convert up to 33% of the
outstanding Preferred Units in any 12-month period into common units if the volume weighted average trading price of our common
units (the "VWAP") for the 30 trading days immediately prior to date notice is provided is greater than $51.00. In such case, the
number of common units to be issued upon conversion would be equal to the Per Unit Purchase Price plus the value of any accrued
and unpaid distributions divided by an amount equal to a 7.5% discount to the VWAP for the 30 trading days immediately prior
to the notice of conversion. Rather than have the Preferred Units convert to common units in accordance with the provisions of
this paragraph, NRP would have the option to elect to redeem the Preferred Units proposed to be converted for cash at a price
equal to Per Unit Purchase Price plus the value of any accrued and unpaid distributions.
On or after March 2, 2025, the holders of the Preferred Units may elect to convert the Preferred Units to common units at a
conversion rate equal to the Liquidation Value divided by an amount equal to a 10% discount to the VWAP for the 30 trading days
immediately prior to the notice of conversion. The “Liquidation Value” will be an amount equal to the greater of: (1) (a) the Per
Unit Purchase Price multiplied by (i) prior to March 2, 2020, 1.50, (ii) on or after March 2, 2020 and prior to March 2, 2021, 1.70
and (iii) on or after March 2, 2021, 1.85, less (b)(i) all Preferred Unit distributions previously made by NRP and (ii) all cash
payments previously made in respect of redemption of any PIK Units; and (2) the Per Unit Purchase Price plus the value of all
accrued and unpaid distributions.
To the extent the holders of the Preferred Units have not elected to convert their Preferred Units before March 2, 2029, NRP
has the right to force conversion of the Preferred Units at a price equal to the Liquidation Value divided by an amount equal to a
10% discount to the VWAP for the 30 trading days immediately prior to the notice of conversion.
In addition, NRP has the ability to redeem at any time (subject to compliance with its debt agreements) all or any portion of
the Preferred Units and any outstanding PIK Units for cash. The redemption price for each outstanding PIK Unit is $1,000 plus
the value of any accrued and unpaid distributions per PIK Unit. The redemption price for each Preferred Unit is the Liquidation
Value divided by the number of outstanding Preferred Units. The Preferred Units are redeemable at the option of the Preferred
Purchasers only upon a change in control.
The terms of the Preferred Units contain certain restrictions on NRP's ability to pay distributions on its common units. To
the extent that either (i) NRP's consolidated Leverage Ratio, as defined in the Partnership's Fifth Amended and Restated Partnership
Agreement dated March 2, 2017 (the "Restated Partnership Agreement"), is greater than 3.25x, or (ii) the ratio of NRP's Distributable
Cash Flow (as defined in the Restated Partnership Agreement) to cash distributions made or proposed to be made is less than 1.2x
(in each case, with respect to the most recently completed four-quarter period), NRP may not increase the quarterly distribution
above $0.45 per quarter without the approval of the holders of a majority of the outstanding Preferred Units. In addition, if at any
time after January 1, 2022, any PIK Units are outstanding, NRP may not make distributions on its common units until it has
redeemed all PIK Units for cash.
The holders of the Preferred Units have the right to vote with holders of NRP’s common units on an as-converted basis and
have other customary approval rights with respect to changes of the terms of the Preferred Units. In addition, Blackstone has certain
approval rights over certain matters as identified in the Restated Partnership Agreement. GoldenTree also has more limited approval
84
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
rights that will expand once Blackstone's ownership goes below the Minimum Preferred Unit Threshold (as defined below). These
approval rights are not transferrable without NRP's consent. In addition, the approval rights held by Blackstone and GoldenTree
will terminate at such time that Blackstone (together with their affiliates) or GoldenTree (together with their affiliates), as applicable,
no longer own at least 20% of the total number of Preferred Units issued on the closing date, together with all PIK Units that have
been issued but not redeemed (the "Minimum Preferred Unit Threshold").
At the closing, pursuant to the Board Representation and Observation Rights Agreement, the Preferred Purchasers received
certain board appointment and observation rights, and Blackstone appointed one director and one observer to the Board of Directors
of GP Natural Resource Partners LLC.
NRP also entered into a registration rights agreement (the "Preferred Unit and Warrant Registration Rights Agreement") with
the Preferred Purchasers, pursuant to which NRP is required to file (i) a shelf registration statement to register the common units
issuable upon exercise of the Warrants and to cause such registration statement to become effective not later than 90 days following
the closing date and (ii) a shelf registration statement to register the common units issuable upon conversion of the Preferred Units
and to cause such registration statement to become effective not later than the earlier of the fifth anniversary of the closing date
or 90 days following the first issuance of any common units upon conversion of Preferred Units (the "Registration Deadlines").
In addition, the Preferred Unit and Warrant Registration Rights Agreement gives the Preferred Purchasers piggyback registration
and demand underwritten offering rights under certain circumstances. The shelf registration statement to register the common units
issuable upon exercise of the Warrants became effective on April 20, 2017. If the shelf registration statement to register the common
units issuable upon conversion of the Preferred Units is not effective by the applicable Registration Deadline, NRP will be required
to pay the Preferred Purchasers liquidated damages in the amounts and upon the term set forth in the Preferred Unit and Warrant
Registration Rights Agreement.
Accounting for the Preferred Units and Warrants
Classification
The Preferred Units are accounted for on NRP's consolidated balance sheets as temporary equity due to certain contingent
redemption rights that may be exercised at the election of Preferred Purchasers. The Warrants are accounted for on NRP's
consolidated balance sheets as equity. Prior to July 1, 2017, the Warrants were previously classified as a liability because of a
"down-round" anti-dilution price protection provision that would reduce the Warrant holders' exercise price if NRP were to sell
common units at a price less than the current strike price (subject to certain exceptions). The Partnership retrospectively adopted
ASU No. 2017-11, Earnings Per Share (Topic 260) in the third quarter of 2017 and reclassified the Warrants on its Consolidated
Balance Sheets. Refer to Note 2. Summary of Significant Accounting Policies for more discussion.
Initial Measurement
The net transaction price as shown below was allocated to the Preferred Units and Warrants based on their relative fair values
at inception date. NRP allocated the transaction issuance costs to the Preferred Units and Warrants primarily on a pro-rata basis
based on their relative inception date allocated values. The Preferred Units and Warrants were initially recognized as follows:
(In thousands)
Transaction price, gross
Structuring, origination and other fees to Preferred Purchasers
Transaction costs to other third parties
Transaction price, net
Allocation of net transaction price
Preferred Units, net
Warrant holders interest, net
Transaction price, net
85
March 2, 2017
250,000
(7,900)
(10,697)
231,403
164,587
66,816
231,403
$
$
$
$
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Subsequent Measurement
Subsequent adjustment of the Preferred Units will not occur until NRP has determined that the conversion or redemption of
all or a portion of the Preferred Units is probable of occurring. Once conversion or redemption becomes probable of occurring,
the carrying amount of the Preferred Units will be accreted to their redemption value over the period from the date the feature is
probable of occurring to the date the Preferred Units can first be converted or redeemed.
Subsequent adjustment of the Warrants will not occur until the Warrants are exercised, at which time, NRP may, at its option,
elect to settle the Warrants in common units or cash, each on a net basis. The net basis will be equal to the difference between the
Partnership's common unit price and the strike price of the Warrant. Once Warrant exercise occurs, the difference between the
carrying amount of the Warrants and the net settlement amount will be allocated on a pro-rata basis to the common unitholders
and general partner.
Certain embedded features within the Preferred Unit and Warrant purchase agreement are accounted for at fair value and are
remeasured each quarter. See Note 14. Fair Value Measurements for further information regarding valuation of these embedded
derivatives.
4. Common and Preferred Unit Distributions
The Partnership makes cash distributions to common unit holders on a quarterly basis, subject to approval by the Board of
Directors. The Partnership also makes distributions to the preferred unitholders at a rate of 12% per year, up to one half of which
NRP may pay in additional Preferred Units (such additional Preferred Units, the "PIK Units"), subject to approval by the Board
of Directors. NRP recognizes both Common and Preferred Unit distributions on the date the distribution is declared.
Common Unit Distributions
Distributions made on the common units and the general partner's general partner interest are made on a pro-rata basis in
accordance with their relative percentage interests in the Partnership. The general partner is entitled to receive 2% of such
distributions. The following table shows the distributions paid by the Partnership on its common units and general partner's general
partner interest during the years ended December 31, 2017, 2016 and 2015:
(In thousands, except per unit data)
Total Distributions
Date Paid
Period Covered by Distribution
Distribution per
Common Unit
Common Units
GP Interest
Total
2017
February 14, 2017
October 1 - December 31, 2016
$
May 12, 2017
August 14, 2017
January 1 - March 31, 2017
April 1 - June 30, 2017
November 14, 2017
July 1 - September 30, 2017
2016
February 12, 2016
October 1 - December 31, 2015
$
May 13, 2016
August 12, 2016
January 1 - March 31, 2016
April 1 - June 30, 2016
November 14, 2016
July 1 - September 30, 2016
2015
February 13, 2015
October 1 - December 31, 2014
$
May 14, 2015
August 14, 2015
January 1 - March 31, 2015
April 1 - June 30, 2015
November 13, 2015
July 1 - September 30, 2015
86
0.45
0.45
0.45
0.45
0.45
0.45
0.45
0.45
3.50
0.90
0.90
0.45
$
5,503
$
5,506
5,504
5,505
$
5,503
$
5,503
5,505
5,503
$
42,804
$
11,007
11,009
5,504
$
$
$
112
113
112
112
113
113
112
113
874
225
223
112
5,615
5,619
5,616
5,617
5,616
5,616
5,617
5,616
43,678
11,232
11,232
5,616
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Preferred Unit Distributions
The following table shows the cash and paid-in-kind distributions declared and paid to Preferred Unitholders by the
Partnership during the year ended December 31, 2017:
(In thousands, except per unit data)
Date Paid
Period Covered by Distribution
Distribution per
Preferred Unit
Paid-in-Kind
Preferred
Units
Cash
Distributions
Total
Distribution
Declared
May 30, 2017
August 29, 2017
March 2 - March 31, 2017
April 1 - June 30, 2017
November 29, 2017
July 1 - September 30, 2017
$
$
$
5.00
15.00
15.00
1,250
$
1,250
$
3,769
3,825
3,769
3,825
2,500
7,538
7,650
8,844
$
8,844
$
17,688
The following table shows the units outstanding and financial position of the Preferred Units from initial measurement at
March 2, 2017 to December 31, 2017:
(In thousands)
Balance at December 31, 2016
Issuance of Preferred Units, net
Distribution paid-in-kind
Balance at December 31, 2017
Units outstanding
Financial position
— $
250,000
8,844
258,844
$
—
164,587
8,844
173,431
Income available to common unitholders and the general partner is reduced by Preferred Unit distributions that accumulated
during the period. During the year ended December 31, 2017, NRP reduced net income attributable to common unitholders and
the general partner by $25.5 million as a result of accumulated Preferred Unit distributions.
Subsequent Event
On February 14, 2018, the Partnership paid a distribution of $0.45 per unit to unitholders of record on February 7, 2018. In
addition, the Partnership paid a distribution on NRP's 12.0% Class A Convertible Preferred Units with respect to the fourth quarter.
The entire $7.8 million distribution on the Preferred Units was paid in cash. Additionally, the Partnership redeemed all of the
outstanding PIK Units, which resulted in an $8.8 million cash payment.
5. Net Income Per Common Unit
Basic net income per common unit is computed by dividing net income, after considering income attributable to preferred
unitholders and the general partner’s interest, by the weighted average number of common units outstanding. Diluted net income
per common unit includes the effect of NRP's Warrants and Preferred Units (see Note 3. Class A Convertible Preferred Units and
Warrants), if the inclusion of these items is dilutive.
The dilutive effect of the Warrants is calculated using the treasury stock method, which assumes that the proceeds from the
exercise of these instruments are used to purchase common units at the average market price for the period. The calculation of the
dilutive effect of the Warrants for the three and twelve months ended December 31, 2017, did not include the net settlement of
Warrants to purchase 2.25 million common units with a strike price of $34.00 because the impact would have been anti-dilutive.
The dilutive effect of the Preferred Units is calculated using the if-converted method. Under the if-converted method, the
Preferred Units are assumed to be converted at the beginning of the period, and the resulting common units are included in the
denominator of the diluted net income per unit calculation for the period being presented. Interest recognized during the period
(including the effect of accretion of discounts and amortization of issuance costs, if any), distributions declared in the period and
undeclared distributions on the Preferred Units that accumulated during the period are added back to the numerator for purposes
of the if-converted calculation.
87
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
The following table reconciles net income and weighted average units used in computing basic and diluted net income per
common unit is as follows (in thousands, except per unit data):
(In thousands, except per unit data)
Allocation of net income:
Net income (loss) from continuing operations
Less: income attributable to preferred unitholders
Less: net income (loss) from continuing operations and income attributable to
preferred unitholders allocated to the general partner
Net income (loss) from continuing operations attributable to common
unitholders
Net income (loss) from discontinued operations
Less: net income (loss) from discontinued operations attributable to the general
partner
Net income (loss) from discontinued operations attributable to common
unitholders
Net income (loss)
Less: income attributable to preferred unitholders
Less: net income (loss) and income attributable to preferred unitholders allocated to
the general partner
Net income (loss) attributable to common unitholders
Basic Income (Loss) per Unit:
Weighted average common units—basic
Basic net income (loss) from continuing operations per common unit
Basic net income (loss) from discontinued operations per common unit
Basic net income (loss) per common unit
Diluted Income (Loss) per Unit:
Weighted average common units—basic
Plus: dilutive effect of Warrants
Plus: dilutive effect of Preferred Units
Weighted average common units—diluted
Net income (loss) from continuing operations
Less: net income (loss) from continuing operations allocated to the general partner
Diluted net income (loss) from continuing operations attributable to common
unitholders
Diluted net income (loss) from discontinued operations attributable to common
unitholders
Net income (loss)
Less: net income (loss) allocated to the general partner
Diluted net income (loss) attributable to common unitholders
Diluted net income (loss) from continuing operations per common unit
Diluted net income (loss) from discontinued operations per common unit
Diluted net income (loss) per common unit
88
Years Ended December 31,
2017
2016
2015
$
89,208
$
95,214
$
(260,171)
25,453
1,275
—
—
1,629
(5,998)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
62,480
$
93,585
(541) $
1,678
(11)
34
(530) $
1,644
88,667
$
96,892
$
$
$
$
—
25,453
1,264
(254,173)
(311,549)
(6,230)
(305,319)
(571,720)
—
1,663
(12,228)
61,950
$
95,229
$
(559,492)
12,232
12,232
5.11
$
(0.04) $
5.06
$
7.65
0.13
7.78
$
$
$
12,232
(20.78)
(24.97)
(45.75)
12,232
300
9,418
21,950
12,232
12,232
—
—
—
—
12,232
12,232
89,208
$
95,214
$
(260,171)
1,784
1,629
(5,998)
87,424
$
93,585
$
(254,173)
(530) $
1,644
88,667
1,773
86,894
3.98
$
$
$
(0.02) $
3.96
$
96,892
1,663
95,229
7.65
0.13
7.78
$
$
$
$
$
$
(305,319)
(571,720)
(12,228)
(559,492)
(20.78)
(24.97)
(45.75)
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
6. Segment Information
The Partnership's segments are strategic business units that offer products and services to different customers in different
geographies within the U.S. and that are managed accordingly. NRP has the following three operating segments:
Coal Royalty and Other—consists primarily of coal royalty and coal-related transportation and processing assets. Other
assets include aggregates royalty, industrial mineral royalty, oil and gas royalty and timber. The Partnership's coal reserves are
primarily located in Appalachia, the Illinois Basin and the Western United States. The Partnership's aggregates and industrial
minerals properties are located in a number of states across the United States. The Partnership's oil and gas royalty assets are
primarily located in Louisiana.
Soda Ash—consists of the Partnership's 49% non-controlling equity interest in a trona ore mining operation and soda ash
refinery in the Green River Basin, Wyoming. Ciner Resources LP, the Partnership's operating partner, mines the trona, processes
it into soda ash, and distributes the soda ash both domestically and internationally into the glass and chemicals industries. The
Partnership receives regular quarterly distributions from this business.
Construction Aggregates—consists of the Partnership's construction materials business that operates hard rock quarries,
an underground limestone mine, sand and gravel plants, asphalt plants and marine terminals. Construction Aggregates operates in
Pennsylvania, West Virginia, Tennessee, Kentucky and Louisiana.
Direct segment costs and certain costs incurred at the corporate level that are identifiable and that benefit the Partnership's
segments are allocated to the operating segments. These allocated costs include costs of: taxes, legal, information technology and
shared facilities services and are included in Operating and maintenance expenses and Operating and maintenance expenses—
affiliates on the Consolidated Statements of Comprehensive Income (Loss). Intersegment sales are at prices that approximate
market.
Corporate and Financing includes functional corporate departments that do not earn revenues. Costs incurred by these
departments include interest and financing, corporate headquarters and overhead, centralized treasury and accounting and other
corporate-level activity not specifically allocated to a segment and are included in General and administrative expenses and General
and administrative expenses—affiliates on the Consolidated Statements of Comprehensive Income (Loss).
The following table summarizes certain financial information for each of the Partnership's operating segments:
(In thousands)
For the Year Ended December 31, 2017
Revenues (including affiliates)
Intersegment revenues (expenses)
Gain on asset sales, net
Operating and maintenance expenses
(including affiliates)
General and administrative (including affiliates)
Depreciation, depletion and amortization
(including affiliates)
Asset impairment
Other expense, net
Net income (loss) from continuing operations
Net income from discontinued operations
Capital expenditures
As of December 31, 2017
Total assets of continuing operations
Total assets of discontinued operations
Trade accounts receivable (including affiliates)
Property taxes and other receivable (including
affiliates)
Operating Segments
Coal Royalty
and Other
Soda Ash
Construction
Aggregates
Corporate
and
Financing
Total
$
$ 202,323
295
3,545
40,457
—
—
$ 131,381
(295)
311
$
— $ 374,161
—
—
3,856
—
24,883
—
23,414
2,967
—
154,899
—
—
—
—
111,633
—
—
18,502
136,516
18,502
—
—
—
40,457
—
—
12,579
64
693
6,428
—
7,595
—
—
94,074
(112,576)
—
—
35,993
3,031
94,767
89,208
(541)
7,595
$ 945,237
—
16,355
$ 245,433
—
—
$ 191,374
—
22,976
$
6,129
—
—
$1,388,173
991
39,331
7,856
—
—
—
7,856
89
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In thousands)
For the Year Ended December 31, 2016
Revenues (including affiliates)
Intersegment revenues (expenses)
Gain on asset sales, net
Operating and maintenance expenses
(including affiliates)
General and administrative (including affiliates)
Depreciation, depletion and amortization
(including affiliates)
Asset impairment
Other expense, net
Net income (loss) from continuing operations
Net income from discontinued operations
Capital expenditures
As of December 31, 2016
Total assets of continuing operations
Total assets of discontinued operations
Trade accounts receivable (including affiliates)
Property taxes and other receivable (including
affiliates)
For the Year Ended December 31, 2015
Revenues (including affiliates)
Intersegment revenues (expenses)
Gain (loss) on asset sales, net
Operating and maintenance expenses
(including affiliates)
General and administrative (including affiliates)
Depreciation, depletion and amortization
(including affiliates)
Asset impairment
Other expense, net
Net income (loss) from continuing operations
Net loss from discontinued operations
Capital expenditures
Operating Segments
Coal Royalty
and Other
Soda Ash
Construction
Aggregates
Corporate
and
Financing
Total
$
$ 210,115
150
29,068
40,061
—
—
$ 120,802
(150)
13
$
— $ 370,978
—
—
29,081
—
29,890
—
31,766
15,861
—
161,816
—
5
—
—
100,656
—
—
20,570
130,546
20,570
—
—
—
40,061
—
—
14,506
1,065
—
4,438
—
5,380
—
—
90,531
(111,101)
—
—
46,272
16,926
90,531
95,214
1,678
5,385
$ 990,172
—
18,791
$ 255,901
—
—
$ 190,615
—
19,168
$
10,970
—
—
$1,447,658
991
37,959
11,661
—
208
32
11,901
$
$ 243,781
21
6,936
49,918
—
—
$ 139,049
(21)
(36)
$
— $ 432,748
—
—
6,900
—
35,321
—
45,338
378,327
—
(208,248)
—
428
—
—
116,945
—
—
12,348
152,266
12,348
—
—
—
49,918
—
—
15,578
6,218
—
251
—
14,039
—
—
89,744
(102,092)
60,916
384,545
89,744
(260,171)
— (311,549)
14,467
—
90
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
7. Discontinued Operations
In July 2016, NRP Oil and Gas sold its non-operated oil and gas working interest assets for $116.1 million in gross sales
proceeds. The sale had an effective date of April 1, 2016.
The Partnership's exit from its non-operated oil and gas working interest business represented a strategic shift to reduce debt
and focus on its coal royalty, soda ash and construction aggregates business segments. As a result, the Partnership classified the
operating results, cash flows and assets and liabilities of its non-operated oil and gas working interest assets as discontinued
operations in its Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income and Consolidated Statements
of Cash Flows for all periods presented. The Partnership transitioned the remaining investments in royalty interests in oil and
natural gas properties into the Coal Royalty and Other operating segment during the third quarter of 2016.
The following table presents the carrying amounts of the Partnership's assets and liabilities of discontinued operations in the
Consolidated Balance Sheets:
(In thousands)
Current assets:
ASSETS
Accounts receivable, net (including affiliates) (1)
Total assets of discontinued operations
LIABILITIES
Current liabilities:
Other (including affiliates) (1)
Total liabilities of discontinued operations
December 31,
2017
2016
$
$
$
$
991
991
401
401
$
$
$
$
991
991
353
353
(1) See Note 15. Related Party Transactions for additional information on the Partnership's related party assets and liabilities.
The following table presents summarized financial results of the Partnership's discontinued operations in the Consolidated
Statements of Comprehensive Income (Loss):
(In thousands)
Revenues and other income:
Oil and gas
Gain on asset sales
Total revenues and other income
Operating expenses:
Operating and maintenance expenses (including affiliates)
Depreciation, depletion and amortization
Asset impairments
Total operating expenses
Interest expense
Income (loss) from discontinued operations
For the Years Ended December 31,
2017
2016
2015
$
$
$
$
$
$
38
(289)
(251) $
16,486
8,274
24,760
$
$
290
$
11,503
$
—
—
7,527
564
290
$
19,594
$
48,750
451
49,201
19,724
39,912
297,049
356,685
—
(541) $
(3,488)
1,678
$
(4,065)
(311,549)
91
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
The following table presents supplemental cash flow information of the Partnership's discontinued operations:
(In thousands)
Cash paid for interest
Years Ended December 31,
2017
2016
2015
$
— $
1,906
$
Plant, equipment and mineral rights funded with accounts payable or
accrued liabilities
—
—
2,755
1,645
Capital expenditures related to the Partnership's discontinued operations were $1.4 million and $30.6 million during the years
months ended December 31, 2016 and 2015, respectively.
8. Equity Investment
The Partnership accounts for its 49% investment in Ciner Wyoming using the equity method of accounting. Ciner Wyoming
distributed $49.0 million, $46.6 million and $46.8 million to the Partnership in the year ended December 31, 2017, 2016 and 2015,
respectively.
The difference between the amount at which the investment in Ciner Wyoming is carried and the amount of underlying
equity in Ciner Wyoming's net assets was $145.6 million and $150.0 million as of December 31, 2017 and 2016, respectively. This
excess basis relates to plant, property and equipment and right to mine assets. The excess basis difference that relates to property,
plant and equipment is being amortized into income using the straight-line method over a weighted average of 28 years. The excess
basis difference that relates to right to mine assets is being amortized into income using the units of production method.
The Partnership's equity in the earnings of Ciner Wyoming is summarized as follows:
(In thousands)
Income allocation to NRP’s equity interests (1)
Amortization of basis difference
Equity in earnings of unconsolidated investment
For the Year Ended December 31,
2017
2016
2015
$
$
44,846
(4,389)
40,457
$
$
44,882
(4,821)
40,061
$
$
54,709
(4,791)
49,918
(1) Includes reclassifications of accumulated other comprehensive loss to income allocation to NRP equity interest of $0.7
million, $0.9 million and $0.7 million for the year ended December 31, 2017, 2016 and 2015, respectively.
The results of Ciner Wyoming’s operations are summarized as follows:
(In thousands)
Sales
Gross profit
Net Income
The financial position of Ciner Wyoming is summarized as follows:
(In thousands)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
For the Year Ended December 31,
2017
2016
2015
$
497,340
$
475,187
$
114,202
91,523
114,232
91,596
486,393
131,493
111,650
December 31,
2017
2016
$
180,433
$
228,002
56,219
148,401
134,616
235,427
55,396
98,425
92
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
The purchase agreement for the acquisition of the Partnership’s interest in Ciner Wyoming required the Partnership to pay
additional contingent consideration to Anadarko to the extent certain performance criteria described in the purchase agreement
were met by Ciner Wyoming in any of the years 2013, 2014 or 2015. During the first quarters of 2016, 2015 and 2014, the Partnership
paid contingent consideration of $7.2 million, $3.8 million and $0.5 million, respectively, in contingent consideration to Anadarko
for performance criteria met by Ciner Wyoming in 2015, 2014 and 2013, respectively.
9. Inventory
The components of inventories are as follows:
(In thousands)
Aggregates
Supplies and parts
Total inventory
10. Plant and Equipment
The Partnership’s plant and equipment consist of the following:
(In thousands)
Plant and equipment at cost
Construction in process
Less accumulated depreciation
Total plant and equipment, net
December 31,
2017
2016
6,209
1,344
7,553
$
$
6,037
856
6,893
December 31,
2017
2016
84,173
$
803
(38,806)
46,170
$
79,171
557
(30,285)
49,443
$
$
$
$
Depreciation expense related to the Partnership's plant and equipment totaled $10.3 million, $12.4 million and $15.9 million
for the year ended December 31, 2017, 2016 and 2015, respectively.
Impairment expense related to the Partnership's plant and equipment totaled $0.1 million, $3.1 million, and $7.7 million and
are included in Asset impairments in the Consolidated Statements of Comprehensive Income (Loss) for the year ending
December 31, 2017, 2016 and 2015, respectively. During 2016, the Partnership recorded a $2.0 million impairment expense in its
Coal Royalty and Other segment primarily related to a coal preparation plant and a $1.1 million impairment expense in its
Construction Aggregates segment primarily related to equipment write-downs. During 2015, the Partnership recorded $7.0 million
in impairment expense in its Coal Royalty and Other segment related to a coal preparation plant, transportation and processing
assets and obsolete equipment. Additionally, the Partnership recorded a $0.7 million impairment expense related to obsolete plant
and equipment in its Construction Aggregates segment.
11. Mineral Rights
The Partnership’s mineral rights consist of the following:
(In thousands)
Coal properties
Aggregates properties
Oil and gas royalty properties
Other
Total mineral rights, net
December 31, 2017
Accumulated
Depletion
Carrying Value
Net Book Value
$ 1,170,104
$
150,642
12,395
13,168
$ 1,346,309
$
(436,964) $
(16,836)
(7,158)
(1,466)
(462,424) $
733,140
133,806
5,237
11,702
883,885
93
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In thousands)
Coal properties
Aggregates properties
Oil and gas royalty properties
Other
Total mineral rights, net
December 31, 2016
Accumulated
Depletion
Carrying Value
Net Book Value
$ 1,170,904
$
176,774
12,395
14,946
$ 1,375,019
$
(420,032) $
(39,056)
(6,289)
(1,450)
(466,827) $
750,872
137,718
6,106
13,496
908,192
Depletion expense related to the Partnership’s mineral rights totaled $22.2 million, $29.8 million and $40.4 million for the
year ended December 31, 2017, 2016 and 2015, respectively.
Asset Divestitures
During the year ended December 31, 2017, the Partnership sold mineral reserves in its Coal Royalty and Other segment in
multiple transactions for cumulative $1.0 million of gross sales proceeds and recorded a $3.5 million gain on asset sales included
in Gain on asset sales, net on its Consolidated Statement of Comprehensive Income (Loss).
During the year ended December 31, 2016, the Partnership completed the sale of the following assets:
1) Oil and gas royalty and overriding royalty interests in the Coal Royalty and Other segment in several producing properties
located in the Appalachian Basin for $36.4 million gross sales proceeds. The effective date of the sale was January 1, 2016, and
the Partnership recorded an $18.6 million gain from this sale included in Gain on asset sales, net on its Consolidated Statement of
Comprehensive Income (Loss).
2) Aggregates reserves and related royalty rights in the Coal Royalty and Other segment at three aggregates operations
located in Texas, Georgia and Tennessee for $10.0 million gross sales proceeds. The effective date of the sale was February 1,
2016, and the Partnership recorded a $1.5 million gain from this sale included in Gain on asset sales, net on its Consolidated
Statement of Comprehensive Income (Loss).
In addition to the two asset sales described above, during the year ended December 31, 2016, the Partnership sold mineral
reserves within its Coal Royalty and Other segment in multiple sale transactions for cumulative $17.3 million of gross sales
proceeds and recorded $8.6 million of cumulative gain from these sale transactions that are included in Gain on asset sales, net
on its Consolidated Statement of Comprehensive Income (Loss). These amounts primarily relate to eminent domain transactions
with governmental agencies and the sale of additional oil and gas royalty interests.
During the year ended December 31, 2015, the Partnership sold mineral reserves in its Coal Royalty and Other segment in
multiple transactions for cumulative $3.5 million of gross sales proceeds and recorded a $3.3 million gain on asset sales included
in Gain on asset sales, net on its Consolidated Statement of Comprehensive Income (Loss).
Impairment of Mineral Rights
For the evaluation of the Partnership's long-lived assets for possible impairment, inputs used by management for fair value
measurements include significant inputs that are not observable in the market and thus represent a Level 3 fair value measurement
for these types of assets. In addition to the evaluations discussed above, specific events such as a reduction in economically
recoverable reserves or production ceasing on a property for an extended period may require that a separate impairment evaluation
be completed on a significant property.
94
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
During the years ended December 31, 2017, 2016 and 2015, the Partnership identified facts and circumstances that indicated
that the carrying value of certain of its mineral rights exceed future cash flows from those assets and recorded non-cash impairment
expense as follows:
(In thousands)
Coal properties (1)
Oil and gas properties (2)
Aggregates and timber royalty properties (3)
Total
For the years ended December 31,
2017
2016
2015
$
$
595
$
12,088
$
257,468
—
2,372
36
1,677
70,527
43,402
2,967
$
13,801
$
371,397
(1) The Partnership recorded $0.6 million of coal property impairments during the year ended December 31, 2017. The
Partnership recorded $12.1 million of coal property impairments during the year ended December 31, 2016, primarily as
a result of lease surrender and termination. The Partnership recorded $3.8 million of coal property impairment during the
three months ended September 30, 2016 and the fair value of the impaired asset was reduced to $4.0 million at September
30, 2016. The Partnership recorded $8.2 million of coal property impairment during the three months ended December 31,
2016 and the fair value of the impaired asset was reduced to $0.0 million at December 31, 2016. Total coal property
impairment expense for the year ended December 31, 2015 was $257.5 million. The Partnership recorded $1.5 million of
coal property impairment during the three months ended June 30, 2015 and the fair value measurement of these impaired
assets was reduced to $0.0 million at June 30, 2015. The Partnership recorded $247.8 million of coal property impairment
during the three months ended September 30, 2015 and the fair value of these impaired assets was reduced to $28.4 million
at September 30, 2015. The Partnership recorded the remaining $8.2 million of coal property impairment during the three
months ended December 31, 2015 and the fair value of these impaired assets was reduced to $0.4 million at December 31,
2015. These impairments primarily resulted from the continued deterioration and expectations of further reductions in
global and domestic coal demand due to reduced global steel demand, sustained low natural gas prices, and continued
regulatory pressure on the electric power generation industry. NRP compared net capitalized costs of its coal properties to
estimated undiscounted future net cash flows. If the net capitalized cost exceeded the undiscounted future cash flows, the
Partnership recorded an impairment for the excess of net capitalized cost over fair value. Significant inputs used to determine
fair value include estimates of future cash flow, discount rate and useful economic life. Estimated cash flows are the product
of a process that began with current realized pricing as of the measurement date and included an adjustment for risk related
to the future realization of cash flows.
(2) The Partnership recorded $36 thousand of oil and gas royalty asset impairment during the year ended December 31, 2016.
The total oil and gas royalty impairment for the year ended December 31, 2015 was $70.5 million. The Partnership recorded
this impairment during the three months ended September 30, 2015. The fair value measurement of these impaired assets
was reduced to $13.0 million at September 30, 2015. This impairment primarily resulted from declines in future expected
realized commodity prices and reduced expected drilling activity on its acreage. NRP compared net capitalized costs of
its oil and gas royalty properties to estimated undiscounted future net cash flows. If the net capitalized cost exceeded the
undiscounted future net cash flows, the Partnership recorded an impairment for the excess of net capitalized cost over fair
value. A discounted cash flow method was used to estimate fair value. Significant inputs used to determine the fair value
include estimates of: (i) oil and gas reserves and risk-adjusted probable and possible reserves; (ii) future commodity prices;
(iii) production costs, (iv) capital expenditures, (v) production and (vi) discount rates. The underlying commodity prices
embedded in the Partnership's estimated cash flows are the product of a process that begins with NYMEX forward curve
pricing as of the measurement date, adjusted for estimated location and quality differentials.
(3) The Partnership recorded $2.4 million of aggregates and timber royalty property impairments during the year ended
December 31, 2017. The Partnership recorded $1.7 million of aggregates royalty property impairments during the year
ended December 31, 2016. Total aggregates property impairment expense for the year ended December 31, 2015 was $43.4
million. This impairment was recorded during the three months ended September 30, 2015. The fair value measurement
of these impaired assets was reduced to $13.1 million at September 30, 2015. This impairment primarily resulted from
greenfield development projects that have not performed as projected, leading to recent lease concessions on minimums
and royalties combined with the continued regional market decline for certain properties. NRP compared net capitalized
costs of its aggregates properties to estimated undiscounted future net cash flows. If the net capitalized cost exceeded the
undiscounted cash flows, the Partnership recorded an impairment for the excess of net capitalized cost over fair value. A
discounted cash flow model was used to estimate fair value. Significant inputs used to determine fair value include estimates
95
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
of future cash flow, discount rate and useful economic life. Estimated cash flows are the product of a process that began
with current realized pricing as of the measurement date and included an adjustment for risk related to the future realization
of cash flows.
12. Goodwill and Intangible Assets (Including Affiliate)
The Partnership's intangible assets (including affiliate) primarily consists of above market coal transportation contracts with
subsidiaries of Foresight Energy in which the Partnership receives throughput fees for the handling and transportation of coal. As
of May 9, 2017, Foresight Energy is no longer deemed to be an affiliate of the Partnership. Refer to Note 15. Related Party
Transactions for additional details. The Partnership's intangible assets include permits, aggregates-related trade names and other
agreements. The Partnership's intangible assets (including affiliate) included in the Partnership's Consolidated Balance Sheets are
as follows:
(In thousands)
Intangible assets (including affiliate)
Less accumulated amortization (including affiliate)
Total intangible assets, net (including affiliate)
December 31,
2017
2016
$
$
86,336
(36,782)
49,554
$
$
86,336
(33,289)
53,047
Amortization expense related to the Partnership's intangible assets—affiliate totaled $1.0 million, $3.2 million and $3.6
million for the years ended December 31, 2017, 2016 and 2015, respectively. Amortization expense related to the Partnership's
intangible assets totaled $2.5 million, $0.8 million and $1.0 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
The estimates of amortization expense for the years ended December 31, as indicated below, are based on current mining
plans and are subject to revision as those plans change in future periods.
(In thousands)
2018
2019
2020
2021
2022
$
Estimated
Amortization
Expense
3,123
2,921
3,492
3,351
3,351
The weighted average remaining amortization period for contract intangibles and other intangibles was 25 years and 14
years, respectively.
During 2014, $52.0 million of goodwill was added relating to the Construction Aggregates acquisition. This amount
represented the preliminary residual value. During 2015, the purchase price allocation was adjusted as more detailed analysis was
completed and additional information was obtained about the facts and circumstances for Construction Aggregates’ property, plant
and equipment, right to mine assets and asset retirement obligations that existed as of the acquisition date. These adjustments
decreased goodwill by $46.5 million and resulted in an acquisition date goodwill of $5.5 million. During 2015, the Partnership
evaluated goodwill for impairment and compared the estimated fair value of the Construction Aggregates reporting unit to its
carrying amount. The carrying amount exceeded fair value and the Partnership recorded a $5.5 million goodwill impairment
expense include in Asset impairments on the Partnership's Consolidated Statements of Comprehensive Income (Loss). The lower
fair value was primarily a result of the deterioration in certain regional markets in which Construction Aggregates operates causing
a decline in future performance levels compared to levels estimated during the purchase price allocation process. A discounted
cash flow model was used to estimate fair value. Significant inputs used to determine fair value include estimates of future cash
flow, discount rate and useful economic life. These estimates were based on current conditions and historical experience applied
to develop projections of future operating performance.
96
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
13. Debt
The Partnership's debt consisted of the following:
(In thousands)
NRP LP debt:
10.500% senior notes, with semi-annual interest payments in March and September,
due March 2022, $241 million issued at par and $105 million issued at 98.75%
9.125% senior notes, with semi-annual interest payments in April and October, due
October 2018, $300 million issued at 99.007% and $125 million issued at 99.5%
Opco debt:
Revolving credit facility
Senior notes
4.91% with semi-annual interest payments in June and December, with annual
principal payments in June, due June 2018
8.38% with semi-annual interest payments in March and September, with annual
principal payments in March, due March 2019
5.05% with semi-annual interest payments in January and July, with annual
principal payments in July, due July 2020
5.55% with semi-annual interest payments in June and December, with annual
principal payments in June, due June 2023
4.73% with semi-annual interest payments in June and December, with annual
principal payments in December, due December 2023
5.82% with semi-annual interest payments in March and September, with annual
principal payments in March, due March 2024
8.92% with semi-annual interest payments in March and September, with annual
principal payments in March, due March 2024
5.03% with semi-annual interest payments in June and December, with annual
principal payments in December, due December 2026
5.18% with semi-annual interest payments in June and December, with annual
principal payments in December, due December 2026
5.31% utility local improvement obligation, with annual principal and interest
payments in February, due March 2021
Total debt at face value
Net unamortized debt discount
Net unamortized debt issuance costs
Total debt, net
Less: current portion of long-term debt
Total long-term debt, net
December 31,
2017
2016
$
345,638
$
—
—
425,000
60,000
210,000
4,586
42,670
22,946
16,115
44,693
9,187
64,029
30,633
18,825
52,204
104,520
119,524
31,733
36,272
120,547
134,035
34,396
38,262
—
827,844
(1,661)
(16,835)
809,348
79,740
729,608
$
$
$
961
1,138,932
(1,322)
(7,339)
1,130,271
140,037
990,234
$
$
$
97
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
NRP LP Debt
NRP 2018 Senior Notes
In March 2017, the Partnership and NRP Finance exchanged $241 million aggregate principal amount of the 2018 Senior
Notes for $241 million aggregate principal amount of a new series of 10.500% Senior Notes due 2022 (the “2022 Senior Notes”).
In April 2017, the Partnership and NRP Finance redeemed $90 million in aggregate principal amount of the 2018 Senior Notes at
a redemption price of 104.563%, and paid all accrued and unpaid interest thereon. In addition, pursuant to the 2022 Indenture (as
defined below), the Partnership and NRP Finance redeemed the remaining outstanding $94.4 million of 2018 Senior Notes at par
(and paid accrued and unpaid interest thereon) on October 2, 2017 using a combination of cash on hand and borrowings from the
Opco Credit Facility.
2022 Senior Notes
In March 2017, NRP and NRP Finance issued $346 million aggregate principal amount of 2022 Senior Notes to several
holders of their 2018 Senior Notes. Of the $346 million of 2022 Senior Notes issued, $241 million in aggregate principal amount
were issued in exchange for $241 million in aggregate principal amount of 2018 Senior Notes, and $105 million of the 2022 Senior
Notes were issued to the holders for cash. The 2022 Senior Notes are issued under an Indenture dated as of March 2, 2017 (the
"2022 Indenture"), bear interest at 10.500% per year, are payable semi-annually on March 15 and September 15, beginning
September 15, 2017, and mature on March 15, 2022. The $105.0 million in 2022 Senior Notes purchased for cash were issued at
a price of 98.75% (original issue discount of 1.25%), and each holder exchanging 2018 Senior Notes received a fee of 5.813% of
the aggregate principal amount of all 2018 Senior Notes tendered for exchange by such holder, as well as all accrued and unpaid
interest thereon. The 5.813% fee included a 4.563% call premium on the early repayment of the 2018 Senior Notes and a 1.25%
fee on the exchange of the 2018 Notes for 2022 Senior Notes. This fee is accounted for as a debt issue cost, capitalized and shown
net of the debt liability on our consolidated balance sheets.
NRP and NRP Finance have the option to redeem the 2022 Senior Notes, in whole or in part, at any time on or after March
15, 2019, at the redemption prices (expressed as percentages of principal amount) of 105.25% for the 12-month period beginning
March 15, 2019, 102.625% for the 12-month period beginning March 15, 2020, and thereafter at 100.000%, together, in each case,
with any accrued and unpaid interest to the date of redemption. Furthermore, before March 15, 2019, NRP may on any one or
more occasions redeem up to 35% of the aggregate principal amount of the 2022 Senior Notes with the net proceeds of certain
public or private equity offerings at a redemption price of 110.500% of the principal amount of 2022 Senior Notes, plus any accrued
and unpaid interest, if any, to the date of redemption, if at least 65% of the aggregate principal amount of the 2022 Senior Notes
issued under the 2022 Indenture remains outstanding immediately after such redemption and the redemption occurs within 180
days of the closing date of such equity offering. In the event of a change of control, as defined in the 2022 Indenture, the holders
of the 2022 Senior Notes may require the Partnership to purchase their 2022 Senior Notes at a purchase price equal to 101% of
the principal amount of the 2022 Senior Notes, plus accrued and unpaid interest, if any.
The 2022 Indenture contains restrictive covenants that are substantially similar to those contained in the Indenture governing
the 2018 Senior Notes, except that the debt incurrence and restricted payments covenants contain additional restrictions. Under
the debt incurrence covenant, NRP's non-guarantor restricted subsidiaries will not be permitted to incur additional indebtedness
unless their consolidated leverage ratio is less than 3.00x (measured on a pro forma basis and assuming that the greater of (i) $150.0
million of debt (or, if less, at NRP's election, the amount of total lending commitments under any revolving credit facility) and (ii)
the actual amount of debt outstanding is outstanding under any revolving credit facility); provided, however, that such non-guarantor
restricted subsidiaries will be permitted to make up to $150 million in borrowings under a revolving credit facility (which amount
will be reduced on a dollar-for-dollar basis to the extent NRP has made the election described in clause (i) above). Under the
restricted payments covenant, NRP will not be able to increase the quarterly distribution on its common units or elect to pay more
than 50% of the distributions required to be made on the Preferred Units in cash, unless, in each case, its consolidated leverage
ratio is less than 4.00x. The 2022 Indenture also contains restrictions on NRP's ability to redeem the Preferred Units.
The 2022 Senior Notes are the senior unsecured obligations of NRP and NRP Finance. The 2022 Senior Notes rank equal
in right of payment to all existing and future senior unsecured debt of NRP and NRP Finance and senior in right of payment to
any of NRP's subordinated debt. The 2022 Senior Notes are effectively subordinated in right of payment to all future secured debt
of NRP and NRP Finance to the extent of the value of the collateral securing such indebtedness and are structurally subordinated
in right of payment to all existing and future debt and other liabilities of our subsidiaries, including the Opco Credit Facility and
each series of Opco’s existing senior notes. None of NRP's subsidiaries guarantee the 2022 Senior Notes.
98
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
As of December 31, 2017 and December 31, 2016, NRP and NRP Finance were in compliance with the terms of its debt
agreements.
Opco Debt
All of Opco’s debt is guaranteed by its wholly owned subsidiaries and is secured by certain of the assets of Opco and its
wholly owned subsidiaries other than NRP Trona LLC, as further described below. As of December 31, 2017 and 2016, Opco was
in compliance with the terms of the financial covenants contained in its debt agreements.
Opco Credit Facility
Opco’s Third Amended and Restated Credit Agreement, as amended (the "Opco Credit Facility"), matures on April 30, 2020.
Commitments under the Opco Credit Facility were reduced to $150 million at December 31, 2017 and will be further reduced to
$100 million at December 31, 2018 through maturity in April 2020.
Indebtedness under the Opco Credit Facility bears interest, at Opco's option, at:
•
the higher of (i) the prime rate as announced by the agent bank; (ii) the federal funds rate plus 0.50%; or (iii) LIBOR
plus 1%, in each case plus an applicable margin ranging from 2.50% to 3.50%; or
•
a rate equal to LIBOR plus an applicable margin ranging from 3.50% to 4.50%.
The weighted average interest rates for the borrowings outstanding under the Opco Credit Facility for the years ended
December 31, 2017 and 2016 were 5.32% and 4.46%, respectively. Debt issue cost related to the OpCo credit facility were $4.6
million and $4.0 million at December 31, 2017 and December 31, 2016, respectively and have been capitalized and included in
Other assets on the Partnership's Consolidated Balance Sheets. Opco will incur a commitment fee on the unused portion of the
revolving credit facility at a rate of 0.50% per annum. Opco may prepay all amounts outstanding under the Opco Credit Facility
at any time without penalty. As of December 31, 2017, Opco had $60.0 million of indebtedness outstanding and $90.0 million in
borrowing capacity under our Opco Credit Facility.
The Opco Credit Facility contains financial covenants requiring Opco to maintain:
•
•
a leverage ratio of consolidated indebtedness to EBITDDA (as defined in the Opco Credit Facility) not to exceed 4.0x;
provided, however, that if NRP increases its quarterly distribution to its common unitholders above $0.45 per common
unit, the maximum leverage ratio under the Opco Credit Facility will permanently decrease from 4.0x to 3.0x; and
a fixed charge coverage ratio of consolidated EBITDDA to consolidated fixed charges (consisting of consolidated interest
expense and consolidated lease expense) of not less than 3.5 to 1.0.
The Opco Credit Facility contains certain additional customary negative covenants that, among other items, restrict Opco’s
ability to incur additional debt, grant liens on its assets, make investments, sell assets and engage in business combinations. Included
in the investment covenant are restrictions upon Opco’s ability to acquire assets where Opco does not maintain certain levels of
liquidity. In addition, Opco is required to use 75% of the net cash proceeds of certain non-ordinary course asset sales to repay the
Opco Credit Facility (without any corresponding commitment reduction) and use the remaining 25% of the net cash proceeds to
offer to repay its senior notes on a pro-rata basis, as described below under “—Opco Senior Notes.” The Opco Credit Facility also
contains customary events of default, including cross-defaults under Opco’s senior notes.
The Opco Credit Facility is collateralized and secured by liens on certain of Opco’s assets with carrying values of $649.7
million and $673.0 million classified as Land, Plant and equipment and Mineral rights on the Partnership’s Consolidated Balance
Sheets as of December 31, 2017 and 2016, respectively. The collateral includes (1) the equity interests in all of Opco’s wholly
owned subsidiaries, other than NRP Trona LLC (which owns a 49% non-controlling equity interest in Ciner Wyoming), (2) the
personal property and fixtures owned by Opco’s wholly owned subsidiaries, other than NRP Trona LLC, (3) Opco’s material coal
royalty revenue producing properties, (4) real property associated with certain of Construction Aggregates’ construction aggregates
mining operations, and (5) certain of Opco’s coal-related infrastructure assets.
99
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Opco Senior Notes
Opco has issued several series of private placement senior notes (the "Opco Senior Notes") with various interest rates and
principal due dates. As of December 31, 2017 and 2016, the Opco Senior Notes had cumulative principal balances of $422.2
million and $503.0 million, respectively. Opco made mandatory principal payments on the Opco Senior Notes of $80.8 million
$82.9 million and $80.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The Note Purchase Agreements relating to the Opco Senior Notes contain covenants requiring Opco to:
• maintain a ratio of consolidated indebtedness to consolidated EBITDDA (as defined in the note purchase agreement) of
no more than 4.0 to 1.0 for the four most recent quarters;
•
not permit debt secured by certain liens and debt of subsidiaries to exceed 10% of consolidated net tangible assets (as
defined in the note purchase agreement); and
• maintain the ratio of consolidated EBITDDA (as defined in the note purchase agreement) to consolidated fixed charges
(consisting of consolidated interest expense and consolidated operating lease expense) at not less than 3.5 to 1.0.
In addition, the Note Purchase Agreements include a covenant that provides that, in the event NRP Operating or any of its
subsidiaries is subject to any additional or more restrictive covenants under the agreements governing its material indebtedness
(including the Opco Credit Facility and all renewals, amendments or restatements thereof), such covenants shall be deemed to be
incorporated by reference in the Note Purchase Agreements and the holders of the Notes shall receive the benefit of such additional
or more restrictive covenants to the same extent as the lenders under such material indebtedness agreement.
The 8.38% and 8.92% Opco Senior Notes also provide that in the event that Opco’s leverage ratio of consolidated indebtedness
to consolidated EBITDDA (as defined in the Note Purchase Agreements) exceeds 3.75 to 1.00 at the end of any fiscal quarter, then
in addition to all other interest accruing on these notes, additional interest in the amount of 2.00% per annum shall accrue on the
notes for the two succeeding quarters and for as long thereafter as the leverage ratio remains above 3.75 to 1.00. Opco has not
exceeded the 3.75 to 1.00 ratio at the end of any fiscal quarter through December 31, 2017.
In September 2016, Opco amended the Opco Senior Notes. Under this amendment, Opco agreed to use certain asset sale
proceeds to make mandatory prepayment offers on the Opco Senior Notes as follows:
•
•
until the earlier of the time that (1) Opco has sold $300 million of assets and (2) June 30, 2020, Opco will be required
to make prepayment offers to the holders of the Opco Senior Notes using 25% of the net cash proceeds from certain
asset sales; and
after the earlier to occur of the dates above, Opco will be required to make prepayment offers to the holders of the Opco
Senior Notes using an amount of net cash proceeds from certain asset sales that will be calculated pro-rata based on the
amount of Opco Senior Notes then outstanding compared to the other total Opco senior debt outstanding that is being
prepaid.
The mandatory prepayment offers described above will be made pro-rata across each series of outstanding Opco Senior
Notes and will not require any make-whole payment by Opco. In addition, the remaining principal and interest payments on the
Opco Senior Notes will be adjusted accordingly based on the amount of Opco Senior Notes actually prepaid. The prepayments do
not affect the maturity dates of any series of the Opco Senior Notes.
100
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Consolidated Principal Payments
The consolidated principal payments due are set forth below:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
NRP LP
Senior Notes (1)
Opco
Senior Notes
Credit Facility
Total
$
— $
80,385
$
—
—
—
345,638
75,799
54,464
46,815
46,815
—
117,928
— $
—
60,000
—
—
—
80,385
75,799
114,464
46,815
392,453
117,928
$
345,638
$
422,206
$
60,000
$
827,844
(1) The 10.500% senior notes due 2022 were issued at a discount and were carried at $344.0 million as of December 31, 2017.
14. Fair Value Measurements
Fair Value of Financial Instruments
The Partnership’s financial instruments consist of cash and cash equivalents, accounts receivable, contracts receivable,
accounts payable, debt, Preferred Units and warrants. The carrying amounts reported on the Consolidated Balance Sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. There were
no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the years ended December 31, 2017 or 2016.
The Partnership uses available market data and valuation methodologies to estimate the fair value of debt. The fair value of
debt is the estimated amount the Partnership would have to pay a third party to assume the debt, including a credit spread for the
difference between the issue rate and the period end market rate. The credit spread is the Partnership's default or repayment risk.
The following table shows the carrying amount and estimated fair value of the Partnership's debt and contracts receivable (including
affiliates):
(In thousands)
Debt
NRP 2018 Senior Notes (1)
NRP 2022 Senior Notes (1)
Opco Senior Notes and utility local improvement
obligation (2)
Opco Revolving Credit Facility (3)
Assets:
Contracts receivable (including affiliates), current and
long-term (4)
December 31, 2017
December 31, 2016
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
$
— $
— $
420,097
$
412,250
330,404
366,376
—
—
418,944
60,000
447,538
60,000
500,174
210,000
488,814
210,000
$
43,826
$
30,517
$
46,742
$
32,554
(1) The Level 1 fair value is based upon quotations obtained for identical instruments on the closing trading prices near period
end.
(2) Due to no observable quoted prices on these instruments, the Level 3 fair value is estimated by management using quotations
obtained for the NRP Senior Notes on the closing trading prices near period end.
(3) The Level 3 fair value approximates the outstanding borrowing amount because the interest rates are variable and reflective
of market rates and the terms of the credit facility allow the Partnership to repay this debt at any time without penalty.
101
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(4) The Level 3 fair value is determined based on the present value of future cash flow projections related to the underlying
assets.
NRP has embedded derivatives in the Preferred Units related to certain conversion options, redemption features and the
change of control provision that are accounted for separately from the Preferred Units as assets and liabilities at fair value in NRP's
consolidated balance sheets. Level 3 valuation of the embedded derivatives are based on numerous factors including the likelihood
of the event occurring. The embedded derivatives are revalued at each reporting period, and changes in their fair value would be
recorded in Other income (expense) in NRP's Consolidated Statements of Comprehensive Income (Loss). The embedded derivatives
had zero value at inception and as of December 31, 2017.
Fair Value of Non-Financial Assets
The Partnership discloses or recognizes its non-financial assets, such as impairments of coal and aggregate properties and
other assets, at fair value on a nonrecurring basis. Refer to Note 10. Plant and Equipment and Note 11. Mineral Rights for additional
disclosures related to the fair value associated with the impaired assets.
15. Related Party Transactions
Cline Affiliates and Foresight Energy
Mr. Chris Cline, both individually and through another affiliate, Adena Minerals, LLC ("Adena"), owned a 31% interest in
NRP's general partner, as well as approximately 0.5 million of NRP's common units through May 9, 2017. On May 9, 2017, Adena
sold its 31% limited partner interest in NRP (GP) LP (the Partnership’s general partner) (“NRP GP”) to Great Northern Properties
Limited Partnership (“GNPLP”) and Western Pocahontas Properties Limited Partnership ("WPPLP") (the “Adena Sale”). GNPLP
and WPPLP are companies controlled by Corbin J. Robertson, the Chairman and Chief Executive Officer of GP Natural Resource
Partners LLC (the general partner of NRP GP) (“GP LLC”). Upon closing of this transaction, NRP no longer considers the various
companies affiliated with Chris Cline, including Foresight Energy to be affiliates of NRP. As a result, all transactions (including
revenues, expenses and cash flows) after May 9, 2017, with the various companies affiliated with Chris Cline, including Foresight
Energy, are considered to be third party transactions.
Various subsidiaries of Foresight Energy lease coal reserves from the Partnership, and the Partnership also leases coal
transportation assets to them for a fee. Revenues related to these transactions with Foresight Energy are included in the Partnership's
Consolidated Statement of Comprehensive Income (Loss) as follows:
(In thousands)
Coal royalty and other revenue
Coal royalty and other—affiliates revenue
Total
For the Years Ended December 31,
2017
2016
2015
$
$
43,273
27,216
70,489
$
$
— $
63,355
63,355
$
—
86,614
86,614
During the year ended December 31, 2015, the Partnership recognized a gain of $9.3 million on a reserve swap at Foresight
Energy's Williamson mine. The gain is included in Coal royalty and other—affiliates revenues on the Consolidated Statements of
Comprehensive Income (Loss). The Level 3 fair value of the reserves was estimated using a discounted cash flow model. The
expected cash flows were developed using estimated annual sales tons, forecasted sales prices and anticipated market royalty rates.
In addition, NRP owns and leases a rail load out facility and owns a contractual overriding royalty interest at Foresight
Energy's Sugar Camp mine. NRP's rail load out lease with a subsidiary of Foresight Energy is accounted for as a direct financing
lease. Minimum lease payments are $5.0 million per year for the next five years and represent a $1.25 million per quarter in
deficiency payment. NRP's contractual overriding royalty interest from a subsidiary of Foresight Energy provides for payments
based upon production from specific tons at Foresight Energy's Sugar Camp operations. This overriding royalty is accounted for
as a financing arrangement. Revenues from these transactions are included in Coal royalty and other revenues, including affiliates,
in the table above.
102
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Lastly, NRP owns rail load out transportation assets and subcontracts out the operating responsibilities to a subsidiary of
Foresight Energy at Foresight's Williamson mine. Expenses related to these transactions with Foresight Energy are included in the
Partnership's Consolidated Statement of Comprehensive Income (Loss) as follows:
(In thousands)
Operating and maintenance expense
Operating and maintenance expense—affiliates, net
Total
For the Years Ended December 31,
2017
2016
2015
$
$
1,066
452
1,518
$
$
— $
1,347
1,347
$
—
1,413
1,413
The following table shows certain amounts related to NRP's Sugar Camp rail load out facility direct financing lease and
amounts of all other transactions with subsidiaries of Foresight Energy reflected on NRP's Consolidated Balance Sheets:
(In thousands)
Sugar Camp rail load out direct financing lease amounts
Projected remaining payments
Unearned Income
ASSETS
Accounts receivable
Accounts receivable—affiliates, net
Long-term contracts receivable
Long-term contracts receivable—affiliates
LIABILITIES
Deferred revenue
Deferred revenue—affiliates
Reimbursements to Affiliates of our General Partner
$
$
December 31,
2017
2016
$
71,452
28,366
76,424
31,803
6,127
$
—
40,776
—
—
6,496
—
43,785
$
53,778
—
— $
71,632
The Partnership’s general partner does not receive any management fee or other compensation for its management of Natural
Resource Partners L.P. However, in accordance with the partnership agreement, the general partner and its affiliates are reimbursed
for services provided to the Partnership and for expenses incurred on the Partnership’s behalf. Employees of Quintana Minerals
Corporation ("QMC") and WPPLP, affiliates of the Partnership, provide their services to manage the Partnership's business. QMC
and WPPLP charge the Partnership the portion of their employee salary and benefits costs related to their employee services
provided to NRP. These QMC and WPPLP employee management service costs and non-cash equity compensation expenses are
presented as Operating and maintenance expenses—affiliates, net and General and administrative—affiliates on the Consolidated
Statements of Comprehensive Income (Loss). NRP also reimburses overhead costs incurred by its affiliates to manage the
Partnership's business. These overhead costs include certain rent, legal, accounting, treasury, information technology, insurance,
administration of employee benefits and other corporate services incurred by or on behalf of the Partnership’s general partner and
its affiliates and are presented as Operating and maintenance expenses—affiliates, net and General and administrative—affiliates
on the Consolidated Statements of Comprehensive Income (Loss).
The Partnership had Accounts payable—affiliates to QMC of $0.4 million on its Consolidated Balance Sheets at both
December 31, 2017 and 2016. Included in Current liabilities of discontinued operations on the Partnership's Consolidated Balance
Sheets is less than $0.1 million in accounts payable due to QMC at both December 31, 2017 and 2016. The Partnership had
Accounts payable—affiliates to WPPLP of $0.1 million and $0.6 million on its Consolidated Balance Sheets at December 31,
2017 and 2016, respectively.
103
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Direct general and administrative expenses charged to the Partnership by WPPLP and QMC are as follows:
(In thousands)
Operating and maintenance expenses—affiliates, net
General and administrative—affiliates
For the Years Ended December 31,
2017
2016
2015
$
$
7,606
4,989
$
$
9,891
3,591
$
$
10,063
5,312
Included in Income (loss) from discontinued operations on the Partnership's Consolidated Statements of Income (Loss) are
$1.3 million and $0.7 million of operating and maintenance expenses charged by QMC for the year ended December 31, 2016 and
2015, respectively.
Quintana Capital Group GP, Ltd.
Corbin J. Robertson, Jr. is a principal in Quintana Capital Group GP, Ltd. ("Quintana Capital"), which controls several private
equity funds focused on investments in the energy business. In connection with the formation of Quintana Capital, the Partnership
adopted a formal conflicts policy that establishes the opportunities that will be pursued by the Partnership and those that will be
pursued by Quintana Capital. The governance documents of Quintana Capital’s affiliated investment funds reflect the guidelines
set forth in the Partnership's conflicts policy. At December 31, 2017, a fund controlled by Quintana Capital owned a substantial
interest in Corsa Coal Corp. ("Corsa"), a coal mining company traded on the TSX Venture Exchange that is one of the Partnership’s
lessees in Tennessee. Corbin J. Robertson III, one of the Partnership’s directors, was Chairman of the Board of Corsa through May
10, 2017.
Coal-related revenues from Corsa totaled $1.3 million, $2.2 million and $3.1 million for the years ended December 31, 2017,
2016 and 2015, respectively and are included in Coal royalty and other—affiliates revenue in the Partnership's Statements of
Comprehensive Income (Loss). The Partnership had Accounts receivable—affiliates totaling $0.2 million from Corsa at both
December 31, 2017 and 2016 on the Consolidated Balance Sheets.
WPPLP Production Royalty and Overriding Royalty
During the year ended December 31, 2017, 2016 and 2015, the Partnership recorded $1.5 million, $0.7 million and $0.4
million in Operating and maintenance expenses—affiliates, respectively, on the Statements of Comprehensive Income (Loss)
related to a non-participating production royalty payable to WPPLP pursuant to a conveyance agreement entered into in 2007. The
Partnership had Other assets—affiliate from WPPLP of $0.2 million and $1.0 million at December 31, 2017 and December 31,
2016, respectively on the Consolidated Balance Sheets related to a non-production royalty receivable from WPPLP for overriding
royalty interest on a mine.
Quinwood Coal Company Royalty
In May 2017, a subsidiary of Alpha Natural Resources assigned two coal leases with the Partnership to Quinwood Coal
Partners LP ("Quinwood"), an entity controlled by Corbin J. Robertson III. In connection with this lease assignment, Quinwood
forfeited the historical recoupable balance related to this property. As a result, NRP recognized $0.9 million of deferred minimum
payments received in prior periods from the subsidiary of Alpha as Coal royalty and other—affiliates revenue on the Statements
of Comprehensive Income (Loss) during the year ended December 31, 2017. There were no deferred minimum payments received
in prior periods from the subsidiary of Alpha recognized as Coal royalty and other—affiliates revenue on the Statements of
Comprehensive Income (Loss) during the year ended December 31, 2017.
104
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
16. Major Customers
Revenues from customers that exceeded 10 percent of total revenues and other income for any of the periods presented below
are as follows:
(In thousands)
Foresight Energy
For the Years Ended December 31,
2017
2016
2015
Revenues
Percent
Revenues
Percent
Revenues
Percent
$
70,489
18.6% $
63,355
15.8% $
86,614
19.7%
Revenues from Foresight Energy are included within the Partnership's Coal Royalty and Other segment.
17. Commitments and Contingencies
Legal
NRP is involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate
results of these proceedings cannot be predicted with certainty, Partnership management believes these claims will not have a
material effect on the Partnership’s financial position, liquidity or operations. NRP is also currently involved in the legal proceedings
described below.
Anadarko Contingent Consideration Payment Dispute
In January 2013, NRP acquired a non-controlling 48.51% general partner interest in OCI Wyoming, L.P. ("OCI LP") and all
of the preferred stock and a portion of the common stock of OCI Wyoming Co. ("OCI Co") (which in turn owned a 1% limited
partner interest in OCI LP) from Anadarko Holding Company and its subsidiary, Big Island Trona Company (together, "Anadarko").
The remaining general partner interest in OCI LP and common stock of OCI Co were owned by subsidiaries of OCI Chemical
Corporation.
The acquisition agreement provided for additional contingent consideration of up to $50 million to be paid by the NRP if
certain performance criteria were met at OCI LP as defined in the purchase and sale agreement in any of the years 2013, 2014 or
2015. For those years, NRP paid an aggregate of $11.5 million to Anadarko in full satisfaction of these contingent consideration
payment obligations.
In July 2013, pursuant to a series of transactions in connection with an initial public offering by a subsidiary of OCI Chemical
Corporation, the ownership structure in OCI LP was simplified. In connection with such reorganization, NRP exchanged the stock
of OCI Co for a limited partner interest in OCI LP. Following the reorganization, NRP's interest in OCI LP increased to 49%,
consisting of both limited and general partner interests. The restructuring did not have any impact on the operations, revenues,
management or control of OCI LP.
In July 2017, Anadarko filed a lawsuit against Opco and NRP Trona LLC alleging that the transactions conducted in 2013
triggered an acceleration of NRP's obligation under the purchase agreement with Anadarko to pay additional contingent
consideration in full and demanded immediate payment of such amount, together with interest, court costs and attorneys’ fees. NRP
does not believe the reorganization transactions triggered an obligation to pay any additional contingent consideration, and intends
to vigorously defend this lawsuit. However, the ultimate outcome cannot be predicted with certainty given the early stage of this
matter, and the Partnership estimates a possible range of loss between $0, if it prevails, and approximately $40 million, plus interest,
court costs and attorneys’ fees if Anadarko prevails and is awarded the full damages it seeks.
105
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Foresight Energy Disputes
In November 2015, NRP filed a lawsuit against Foresight Energy’s subsidiary, Hillsboro Energy LLC ("Hillsboro") and has
subsequently named Foresight Energy and certain of its other subsidiaries in that lawsuit. The lawsuit alleges, among other items,
breach of contract by Hillsboro resulting from a wrongful declaration of force majeure at Hillsboro’s Deer Run mine, as well as
alter-ego and tortious interference claims against Foresight Energy. In late March 2015, elevated carbon monoxide readings were
detected at the Deer Run mine, and coal production at the mine was idled. In July 2015, Hillsboro declared a force majeure event
under its lease with us, and Hillsboro has failed to make its contractually obligated minimum quarterly payments of $7.5 million
since then. NRP believes the force majeure declaration by Hillsboro has no merit, and is vigorously pursuing recovery against
Hillsboro as well as against Foresight Energy and certain of its other subsidiaries. Hillsboro has failed to make $76.0 million of
required quarterly payments to NRP to date and such amount will continue to increase by $7.5 million for each quarter with respect
to which payment is not made.
In April 2016, NRP filed a lawsuit against Macoupin Energy, LLC ("Macoupin"), a subsidiary of Foresight Energy, in
Macoupin County, Illinois. The lawsuit alleges that Macoupin has failed to comply with the terms of its coal mining, rail loadout
and rail loop leases by incorrectly recouping previously paid minimum royalties. As a result, Macoupin owes NRP approximately
$9.5 million in improperly recouped minimum royalties through December 31, 2017.
Environmental Compliance
The operations the Partnership’s lessees conduct on its properties, as well as the aggregates/industrial minerals and oil and
gas operations in which the Partnership has interests, are subject to federal and state environmental laws and regulations. See "Item
1. Business—Regulation and Environmental Matters." As an owner of surface interests in some properties, the Partnership may
be liable for certain environmental conditions occurring on the surface properties. The terms of substantially all of the Partnership’s
coal leases require the lessee to comply with all applicable laws and regulations, including environmental laws and regulations.
Lessees post reclamation bonds assuring that reclamation will be completed as required by the relevant permit, and substantially
all of the leases require the lessee to indemnify the Partnership against, among other things, environmental liabilities. Some of
these indemnifications survive the termination of the lease. The Partnership makes regular visits to the mines to ensure compliance
with lease terms, but the duty to comply with all regulations rests with the lessees. The Partnership believes that its lessees will
be able to comply with existing regulations and does not expect that any lessee’s failure to comply with environmental laws and
regulations to have a material impact on the Partnership’s financial condition or results of operations. The Partnership has neither
incurred, nor is aware of, any material environmental charges imposed on the Partnership related to its properties for the period
ended December 31, 2017. The Partnership is not associated with any material environmental contamination that may require
remediation costs. However, the Partnership’s lessees do conduct reclamation work on the properties under lease to them. Because
the Partnership is not the permittee of the mines being reclaimed, the Partnership is not responsible for the costs associated with
these reclamation operations.
The Partnership is also responsible for losses and liabilities, including environmental liabilities that may arise from uninsured
and underinsured events at its Construction Aggregates operations. Additionally, as a former owner of working interests in oil and
natural gas operations, the Partnership is responsible for its proportionate share of any losses and liabilities, including environmental
liabilities, arising from uninsured and underinsured events during the period it was an owner.
106
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
18. Deferred Revenue and Deferred Revenue—Affiliate
Most of the Partnership’s coal and aggregates lessees must pay the Partnership minimum annual or quarterly amounts which
are generally recoupable out of actual production over certain time periods. These minimum payments are recorded as a deferred
revenue liability when received. The deferred revenue attributable to the minimum payment is recognized as revenue based upon
the underlying mineral lease when the lessee recoups the minimum payment through production or in the period immediately
following the expiration of the lessee’s ability to recoup the payments. The Partnership’s deferred revenue (including affiliate)
consists of the following:
(In thousands)
Deferred revenue
Deferred revenue—affiliate
Total deferred revenue (including affiliate)
December 31,
2017
2016
$
$
100,605
—
100,605
$
$
44,931
71,632
116,563
The Partnership recognized the following amounts of deferred revenue (including affiliate) attributable to previously paid
minimums resulting from the expiration of the lessee’s ability to recoup the payments as Coal royalty and other revenue:
(In thousands)
Coal royalty and other
Coal royalty and other—affiliates
Total coal royalty and other (including affiliates)
For the Years Ended December 31,
2017
2016
2015
$
$
16,767
14,055
30,822
$
$
49,284
15,307
64,591
$
$
3,451
12,038
15,489
Lease Modifications, Termination and Forfeitures of Minimum Royalty Balances
During the years ended December 31, 2017, 2016 and 2015, the Partnership entered into agreements with certain lessees to
either modify or terminate existing coal-related leases that resulted in the Partnership recognizing $3.4 million, $40.5 million, and
less than $0.1 million of deferred revenue as revenue, respectively.
19. Unit-Based Compensation
GP Natural Resource Partners LLC adopted the Natural Resource Partners Long-Term Incentive Plan (the "Long-Term
Incentive Plan") for directors of GP Natural Resource Partners LLC and employees of its affiliates who perform services for the
Partnership. The Compensation, Nominating and Governance Committee ("CNG Committee") of GP Natural Resource Partners
LLC’s board of directors (the "Board") administers the Long-Term Incentive Plan. Subject to the rules of the exchange upon which
the common units are listed at the time, the Board and the CNG Committee have the right to alter or amend the Long-Term Incentive
Plan or any part of the Long-Term Incentive Plan from time to time. Except upon the occurrence of unusual or nonrecurring events,
no change in any outstanding grant may be made that would materially reduce the benefit intended to be made available to a
participant without the consent of the participant.
Phantom units are incentive based equity awards issued to employees over a vesting period that entitle the grantee to receive
the cash equivalent to the value of a unit of the Parent common units upon each vesting. The Partnership records compensation
cost equal to the fair value of the award at the measurement date, which is determined to be the earlier of the performance
commitment date or the service completion date. In addition, compensation cost for unvested phantom unit awards is adjusted
each reporting period for any changes in the Partnership’s unit price. Under the plan a grantee will receive the market value of a
common unit in cash upon vesting. Market value is defined as the average closing price over the 20 trading days prior to the vesting
date. The compensation committee may make grants under the Long-Term Incentive Plan to employees and directors containing
such terms as it determines, including the vesting period. Outstanding grants vest upon a change in control of the Partnership, the
general partner, or GP Natural Resource Partners LLC. If a grantee’s employment or membership on the board of directors terminates
for any reason, outstanding grants will be automatically forfeited unless and to the extent the compensation committee provides
otherwise.
107
NATURAL RESOURCE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
In connection with the phantom unit awards, the CNG Committee also granted tandem Distribution Equivalent Rights
("DERs"), which entitle the holders to receive distributions equal to the distributions paid on the Partnership’s common units
between the date the units are granted and the vesting date. The DERs are payable in cash upon vesting but may be subject to
forfeiture if the grantee ceases employment prior to vesting.
A summary of activity in the outstanding grants during 2017 is as follows:
(In thousands)
Outstanding grants at January 1, 2017
Grants during the period
Grants vested and paid during the period
Forfeitures during the period
Outstanding grants at December 31, 2017
Phantom Units
86
—
(28)
(5)
53
Grants typically vest at the end of a four-year period and are paid in cash upon vesting. The grant date fair value was $4.2
million for awards in 2015. There were no new awards issued in 2016 or 2017. The Partnership recognized compensation expense
(benefit) of $0.3 million, $1.4 million and $(3.4) million included in Operating and maintenance expenses and General and
administrative expenses on its Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017,
2016 and 2015, respectively. Compensation expense includes the amortization of the awards over the vesting period and changes
in the market price of the Partnership's common units during the period. The unamortized cost associated with unvested outstanding
grants and related DERs at December 31, 2017 and December 31, 2016, was $0.2 million and $0.8 million, respectively.
In connection with the Long-Term Incentive Plans, cash payments are typically made during the first quarter of the year.
Payments of $1.8 million, $1.5 million and $4.4 million were made during the years ended December 31, 2017, 2016, and 2015,
respectively.
108
NATURAL RESOURCE PARTNERS L.P.
SUPPLEMENTAL QUARTERLY INFORMATION
(Unaudited)
Quarterly Financial Data
The following table summarizes quarterly financial data for 2017:
(In thousands, except per unit data)
Revenues (including affiliates)
Gain on asset sales
Asset impairments
Income from operations
Debt modification expense
Loss on extinguishment of debt
Net income from continuing operations
Net income (loss) from discontinued operations
Net income
Net income attributable to common unitholders and
general partner
Net income per common unit (basic)
Net income per common unit (diluted)
Weighted average number of common units outstanding
(basic)
Weighted average number of common units outstanding
(diluted)
First
Quarter (1)
88,653
$
Second
Quarter (2)
91,570
$
Third
Quarter
$
93,116
Fourth
Quarter
$ 100,822
Total
2017
$ 374,161
44
1,778
37,042
7,807
—
6,111
(207)
5,904
3,404
0.28
0.28
3,361
—
50,404
132
4,107
25,857
133
25,990
171
—
280
1,253
3,856
3,031
46,531
49,998
183,975
—
—
26,499
(433)
26,066
—
—
30,741
(34)
30,707
7,939
4,107
89,208
(541)
88,667
18,452
18,416
22,942
63,214
1.47
1.13
1.48
1.07
1.84
1.26
5.06
3.96
12,232
12,232
12,232
12,232
12,232
14,945
22,459
23,980
23,874
21,950
(1) During the first quarter of 2017 the Partnership incurred $7.8 million of debt modification costs as a result of the exchange
of $241 million of our 2018 Senior Notes for 2022 Senior Notes.
(2) During the second quarter of 2017 the Partnership incurred a $4.1 million loss on extinguishment of debt related to the
4.563% premium paid to redeem the 2018 Senior Notes in April 2017.
109
NATURAL RESOURCE PARTNERS L.P.
SUPPLEMENTAL QUARTERLY INFORMATION
(Unaudited)
The following table summarizes quarterly financial data for 2016:
(In thousands, except per unit data)
Revenues (including affiliates)
Gain (loss) on asset sales
Asset impairments (4)
Income from operations
Net income from continuing operations
Net income (loss) from discontinued operations
Net income
Net income attributable to common unitholders and
general partner
Net income per common unit (basic and diluted)
Weighted average number of common units outstanding
(basic and diluted)
First
Quarter (1)
73,902
$
21,925
1,893
48,991
26,351
(2,924)
23,427
23,427
1.88
Second
Quarter (2)
$ 119,317
(1,071)
91
70,741
48,633
(2,187)
46,446
46,446
3.73
Third
Quarter (3)
91,448
$
Fourth
Quarter
$
86,311
Total
2016
$ 370,978
6,426
5,697
38,907
16,419
7,112
23,531
23,531
1.89
1,801
9,245
29,081
16,926
27,106
185,745
3,811
(323)
3,488
3,488
0.28
95,214
1,678
96,892
96,892
7.78
12,232
12,232
12,232
12,232
12,232
(1) During the first quarter of 2016 the Partnership sold oil and gas royalty and aggregates royalty assets for a cumulative gain
of $21.9 million.
(2) During the second quarter of 2016 the Partnership entered into agreements with certain lessees to either modify or terminate
existing coal-related leases that resulted in the Partnership recognizing $35 million of deferred revenue.
(3) During the third quarter of 2016 the Partnership sold assets in multiple sale transactions for a net gain of $6.4 million
primarily related to eminent domain transactions with governmental agencies.
(4) See Note 11. Mineral Rights for asset impairment discussion.
110
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2017. This evaluation was performed under the supervision
and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer of GP Natural
Resource Partners LLC, our managing general partner. Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that these disclosure controls and procedures were effective as of December 31, 2017 at the reasonable assurance
level in producing the timely recording, processing, summary and reporting of information and in accumulation and communication
of information to management to allow for timely decisions with regard to required disclosures.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer of GP Natural Resource Partners LLC, our managing general
partner, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017
based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission "2013 Framework" (COSO). Based on that evaluation, as of December 31, 2017, our management
concluded that our internal control over financial reporting was effective at a reasonable assurance level based on those criteria.
No changes were made to our internal control over financial reporting during the last fiscal quarter that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Ernst & Young, LLP, the independent registered public accounting firm who audited the Partnership’s consolidated financial
statements included in this Annual Report on Form 10-K, has issued a report on the Partnership’s internal control over financial
reporting, which is included herein.
111
Report of Independent Registered Public Accounting Firm
The Partners of Natural Resource Partners L.P.
Opinion on Internal Control over Financial Reporting
We have audited Natural Resource Partners L.P.’s internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Natural Resource Partners L.P. (the Partnership)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Natural Resource Partners L.P. as of December 31, 2017 and 2016, and the related
consolidated statements of comprehensive income (loss), partners’ capital and cash flows for each of the three years in the period
ended December 31, 2017, and related notes and our report dated March 1, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Houston, Texas
March 1, 2018
112
ITEM 9B. OTHER INFORMATION
None.
113
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER AND
CORPORATE GOVERNANCE
As a master limited partnership we do not employ any of the people responsible for the management of our properties.
Instead, we reimburse affiliates of our managing general partner, GP Natural Resource Partners LLC, for their services. The
following table sets forth information concerning the directors and officers of GP Natural Resource Partners LLC as of the date
of this Annual Report on Form 10-K. Each officer and director is elected for their respective office or directorship on an annual
basis. Subject to Board Representation and Observation Rights Agreement with Blackstone and GoldenTree, Mr. Robertson is
entitled to appoint the members of the Board of Directors of GP Natural Resource Partners LLC. Mr. Robertson has delegated the
right to appoint one director to Blackstone.
Name
Corbin J. Robertson, Jr.
Craig W. Nunez
Christopher J. Zolas
Jennifer L. Odinet
Kevin J. Craig
Kathy H. Roberts
Kathryn S. Wilson
Gregory F. Wooten
Perry W. Donahoo
Russell D. Gordy
Jasvinder S. Khaira
S. Reed Morian
Richard A. Navarre
Corbin J. Robertson, III
Stephen P. Smith
Leo A. Vecellio, Jr.
Age
Position with the General
Partner
70 Chairman of the Board and Chief Executive Officer
56 President and Chief Operating Officer
43 Chief Financial Officer and Treasurer
39 Chief Accounting Officer
49 Executive Vice President, Coal
66 Vice President, Investor Relations
43 Vice President, General Counsel and Secretary
61 Vice President, Chief Engineer
63 Chief Executive Officer, VantaCore Partners LLC
67 Director
36 Director
72 Director
57 Director
47 Director
57 Director
71 Director
Corbin J. Robertson, Jr. has served as Chief Executive Officer and Chairman of the Board of Directors of GP Natural Resource
Partners LLC since 2002. Mr. Robertson has vast business experience having founded and served as a director and as an officer
of multiple companies, both private and public, and has served on the boards of numerous non-profit organizations. He has served
as the Chief Executive Officer and Chairman of the Board of the general partner of Great Northern Properties Limited Partnership
since 1992 and Quintana Minerals Corporation since 1978, as Chairman of the Board of Directors of New Gauley Coal Corporation
since 1986, and the general partner of Western Pocahontas Properties Limited Partnership since 1986. In addition, Mr. Robertson
served as Chief Executive Officer of the general partner of Western Pocahontas Properties Limited Partnership from 1986 until
2008 and currently serves on the Board of Managers of Premium Resources, LLC. He also serves as a Principal with Quintana
Capital Group, Chairman of the Board of the Cullen Trust for Higher Education and on the boards of the American Petroleum
Institute, the National Petroleum Council, the Baylor College of Medicine and the Spirit Golf Association. In 2006, Mr. Robertson
was inducted into the Texas Business Hall of Fame. Mr. Robertson is the father of Corbin J. Robertson, III.
Craig W. Nunez has served as President and Chief Operating Officer of GP Natural Resource Partners LLC since August
2017 and previously served as Chief Financial Officer and Treasurer of GP Natural Resource Partners LLC from January 2015 to
August 2017. Prior to joining NRP, Mr. Nunez was an owner and Chief Executive Officer of Bocage Group, a private investment
company specializing in energy, natural resources and master limited partnerships since March 2012. In addition, until joining
NRP, he was a FINRA-registered Investment Advisor Representative with Searle & Co since July 2012 and served as an Executive
Advisor to Capital One Asset Management since January 2014. From September 2011 through March 2012, Mr. Nunez served as
the Executive Vice President and Chief Financial Officer of Quicksilver Resources Canada, Inc. Mr. Nunez was Senior Vice
President and Treasurer of Halliburton Company from January 2007 until September 2011, and Vice President and Treasurer of
Halliburton Company from February 2006 to January 2007. Prior to that, he was Treasurer of Colonial Pipeline Company from
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November 1995 to February 2006. Mr. Nunez has been involved in numerous charitable organizations and currently serves on the
boards of Goodwill Industries of Houston and Medical Bridges, Inc.
Christopher J. Zolas has served as Chief Financial Officer and Treasurer of GP Natural Resource Partners LLC since August
2017 and previously served as Chief Accounting Officer of GP Natural Resource Partners from March 2015 to August 2017. Prior
to joining NRP, Mr. Zolas served as Director of Financial Reporting at Cheniere Energy, Inc., a publicly traded energy company,
where he performed financial statement preparation and analysis, technical accounting and SEC reporting for five separate SEC
registrants, including a master limited partnership. Mr. Zolas joined Cheniere Energy, Inc. in 2007 as Manager of SEC Reporting
and Technical Accounting and was promoted to Director in 2009. Prior to joining Cheniere Energy, Inc., Mr. Zolas worked in
public accounting with KPMG LLP from 2002 to 2007.
Jennifer L. Odinet joined GP Natural Resource Partners LLC as Chief Accounting Officer in October 2017. Ms. Odinet most
recently served as Director, Financial Reporting for Cabot Oil & Gas Corporation, a publicly traded energy company, where she
was responsible for SEC and internal reporting, complex technical accounting matters and financial statement preparation and
analysis. Prior to joining Cabot, Ms. Odinet was a Senior Manager in the Assurance practice for PricewaterhouseCoopers LLC
from June 2000 to April 2010.
Kevin J. Craig has served as Executive Vice President, Coal of GP Natural Resource Partners since September 2014. Mr.
Craig was the Vice President of Business Development for GP Natural Resource Partners LLC since 2005. Mr. Craig also represents
NRP as one of its appointees to the Board of Managers of Ciner Wyoming LLC. Mr. Craig joined NRP in 2005 from CSX
Transportation, where he served as Terminal Manager for the West Virginia Coalfields. He has extensive marketing, finance and
operations experience within the energy industry. Mr. Craig served as a member of the West Virginia House of Delegates having
been elected in 2000 and re-elected in 2002, 2004, 2006, 2008, 2010 and 2012. In addition to other leadership positions, Delegate
Craig served as Chairman of the Committee on Energy. Mr. Craig did not seek re-election in 2014 and his term ended January
2015. Prior to joining CSX, he served as a Captain in the United States Army. Mr. Craig has served as the Chairman of the
Huntington Regional Chamber of Commerce Board of Directors and continues as a member of both the West Virginia Chamber
of Commerce and the Huntington Regional Chamber of Commerce’s respective board of directors. He is involved in numerous
state coal associations and serves as a member of the Board of Directors of BrickStreet Mutual Insurance Company.
Kathy H. Roberts is Vice President, Investor Relations of GP Natural Resource Partners LLC. Ms. Roberts joined NRP in
July 2002. She was the Principal of IR Consulting Associates from 2001 to July 2002 and from 1980 through 2000 held various
financial and investor relations positions with Santa Fe Energy Resources, most recently as Vice President-Public Affairs. She is
a Certified Public Accountant. Ms. Roberts currently serves on the Board of Directors of the Master Limited Partnership Association
and has served on the local board of directors of the National Investor Relations Institute. She has also served on the Executive
Committee and as a National Vice President of the Institute of Management Accountants.
Kathryn S. Wilson has served as Vice President, General Counsel and Secretary of GP Natural Resource Partners LLC since
December 2013. Ms. Wilson served as Associate General Counsel from March 2013 to December 2013. Since October 2013, Ms.
Wilson has also served as General Counsel and Secretary of each of Quintana Minerals Corporation, New Gauley Coal Corporation,
the general partner of Western Pocahontas Properties Limited Partnership, and the general partner of Great Northern Properties
Limited Partnership. Ms. Wilson practiced corporate and securities law with Vinson & Elkins L.L.P. from September 2001 to
February 2010 and from November 2011 to February 2013. Ms. Wilson served as General Counsel of Antero Resources Corporation
from March 2010 to June 2011.
Gregory F. Wooten has served as Vice President, Chief Engineer of GP Natural Resource Partners LLC since December 2013.
Mr. Wooten joined NRP in 2007, serving as Regional Manager. Prior to joining NRP, Mr. Wooten served as Vice President, COO
and Chief Engineer of Dingess Rum Properties, Inc., where he managed coal, oil, gas and timber properties from 1982 until 2007.
Prior to 1982, Mr. Wooten worked as a planning and production engineer in the coal industry and is a member of the American
Institute of Mining, Metallurgical, and Petroleum Engineers. Mr. Wooten has served as Chairman of the National Council of Coal
Lessors since 2015.
Perry W. Donahoo was named Chief Executive Officer of VantaCore Partners LLC, NRP’s construction aggregates subsidiary,
in July 2017. Mr. Donahoo previously served as VantaCore’s Chief Operating Officer beginning in 2010. Mr. Donahoo also
represents NRP as one of its appointees to the Board of Managers of Ciner Wyoming LLC. Mr. Donahoo has extensive operations,
marketing, sales, business development and mergers and acquisition experience. His operational experience predominantly includes
mining of granite, limestone, sand and gravel, as well as calcium carbonate using both surface and underground mining. Previously
115
Mr. Donahoo served as a senior executive with three major construction aggregates companies.
Russell D. Gordy joined the Board of Directors of GP Natural Resource Partners in October 2013. Mr. Gordy brings extensive
oil and gas industry, mineral interest and land ownership and financial experience to the Board. Mr. Gordy is currently managing
partner and majority owner in SG Interests, a producer of oil and coal bed methane gas, RGGS, which controls mineral acres
currently producing oil and gas, coal, iron ore, limestone, and copper, and Rock Creek Ranch. He is also President of Gordy Oil
Company, an oil and gas exploration company in the Gulf Coast of Texas and Louisiana, and Gordy Gas Corporation, an oil and
gas exploration company in the San Juan Basin of Colorado and New Mexico. Prior to forming SG Interests in 1989, Mr. Gordy
was a founding partner of Northwind Exploration Company an exploration company created in 1981 with former Houston Oil and
Minerals employees. Mr. Gordy served on the board of directors of Houston Exploration Company from 1987 until 2001.
Jasvinder S. Khaira joined the Board of Directors of GP Natural Resource Partners LLC in March 2017. Mr. Khaira brings
extensive financial and investing experience to the Board of Directors. Mr. Khaira currently is a Senior Managing Director in the
Tactical Opportunities group at The Blackstone Group L.P. Mr. Khaira joined Blackstone as a member of its Private Equity Group
in 2004. Mr. Khaira has been designated to serve as a director of GP Natural Resource Partners LLC by Blackstone Tactical
Opportunities, pursuant to its right to designate a director to the Board of Directors of GP Natural Resource Partners LLC. Since
joining Blackstone, Mr. Khaira has been involved in a variety of investments and strategic business initiatives at Blackstone.
S. Reed Morian joined the Board of Directors of GP Natural Resource Partners LLC in 2002. Mr. Morian has vast executive
business experience having served as Chairman and Chief Executive Officer of several companies since the early 1980s and serving
on the board of other companies. Mr. Morian has served as a member of the Board of Directors of the general partner of Western
Pocahontas Properties Limited Partnership since 1986, New Gauley Coal Corporation since 1992 and the general partner of Great
Northern Properties Limited Partnership since 1992. Mr. Morian also serves on the Board of Managers of Premium Resources,
LLC since 2006. Mr. Morian worked for Dixie Chemical Company from 1971 to 2006 and served as its Chairman and Chief
Executive Officer from 1981 to 2006. He has also served as Chairman, Chief Executive Officer and President of DX Holding
Company since 1989. He formerly served on the Board of Directors for the Federal Reserve Bank of Dallas-Houston Branch from
April 2003 until December 2008 and as a Director of Prosperity Bancshares, Inc. from March 2005 until April 2009.
Richard A. Navarre joined the Board of Directors of GP Natural Resource Partners LLC in October 2013. Mr. Navarre brings
extensive financial, strategic planning, public company and coal industry experience to the Board of Directors. From 1993 until
2012, Mr. Navarre held several executive positions with Peabody Energy Corporation, including President-Americas from March
2012 to June 2012, President and Chief Commercial Officer from January 2008 to March 2012, Executive Vice President of
Corporate Development and Chief Financial Officer from July 2006 to January 2008 and Chief Financial Officer from October
1999 to June 2008. Since his retirement from Peabody Energy in 2012, Mr. Navarre has provided advisory services to the coal
industry and private equity firms. Mr. Navarre serves on the Board of Directors of Civeo Corporation, where he serves as Chairman
of the Board, and Arch Coal, where he serves on the Audit committee. He is a member of the Hall of Fame of the College of
Business and a member of the Board of Advisors of the College of Business and Administration of Southern Illinois University
Carbondale. He is a member of the Board of Directors of the Foreign Policy Association and is the former Chairman of the
Bituminous Coal Operators’ Association and former advisor to the New York Mercantile Exchange. Mr. Navarre is a Certified
Public Accountant. Mr. Navarre also has been involved in numerous civic and charitable organizations throughout his career.
Corbin J. Robertson, III joined the Board of Directors of GP Natural Resource Partners LLC in May 2013. Mr. Robertson
has experience with investments in a variety of energy businesses, having served both in management of private equity firms and
having served on several boards of directors. Mr. Robertson has served as a Co-Managing Partner of LKCM Headwater Investments
GP, LLC and LKCM Headwater Investments I, L.P., a private equity fund, since June 2011. He has served as the Chief Executive
Officer of the general partner of Western Pocahontas Properties Limited Partnership since May 2008, and has served on the Board
of Directors of Quintana Minerals Corporation since 2007 and Western Pocahontas since October 2012. Mr. Robertson also has
served on the Board of Managers of Premium Resources, LLC since 2016. Mr. Robertson also co-founded Quintana Energy
Partners, an energy-focused private equity firm in 2006, and served as a Managing Director thereof from 2006 until December
2010. Mr. Robertson has served on the Board of Directors for Quintana Minerals Corporation since October 2007, and previously
served as Vice President-Acquisitions for GP Natural Resource Partners LLC from 2003 until 2005. Mr. Robertson also serves on
the Board of Directors of Buckhorn Energy Services and LL&B Minerals, each of which is in the energy business. Mr. Robertson
is the son of Corbin J. Robertson, Jr.
Stephen P. Smith joined the Board of Directors of GP Natural Resource Partners LLC in 2004. Mr. Smith brings extensive
public company financial experience in the power and energy industries to the Board of Directors. Mr. Smith formerly served as
116
Chief Financial Officer and Chief Accounting Officer of the general partner of Columbia Pipeline Partners L.P. from December
2014 and as a Director from September 2014 until June 2016. Mr. Smith also formerly served as Executive Vice President and
Chief Financial Officer of Columbia Pipeline Group. Mr. Smith served as Executive Vice President and Chief Financial Officer
for NiSource, Inc. from June 2008 to June 2015. Prior to joining NiSource, he held several positions with American Electric Power
Company, Inc, including Senior Vice President - Shared Services from January 2008 to June 2008, Senior Vice President and
Treasurer from January 2004 to December 2007, and Senior Vice President - Finance from April 2003 to December 2003. From
November 2000 to January 2003, Mr. Smith served as President and Chief Operating Officer - Corporate Services for NiSource
Inc. Prior to joining NiSource, Mr. Smith served as Deputy Chief Financial Officer for Columbia Energy Group from November
1999 to November 2000 and Chief Financial Officer for Columbia Gas Transmission Corporation and Columbia Gulf Transmission
Company from 1996 to 1999.
Leo A. Vecellio, Jr. joined the Board of Directors of GP Natural Resource Partners LLC in May 2007. Mr. Vecellio brings
extensive experience in the aggregates and coal mine development industry to the Board of Directors. Mr. Vecellio and his family
have been in the aggregates materials and construction business since the late 1930s. Since November 2002, Mr. Vecellio has
served as Chairman and Chief Executive Officer of Vecellio Group, Inc, a major aggregates producer, contractor and oil terminal
developer/operator in the Mid-Atlantic and Southeastern states. For nearly 30 years prior to that time Mr. Vecellio served in various
capacities with Vecellio & Grogan, Inc., having most recently served as Chairman and Chief Executive Officer from April 1996
to November 2002. Mr. Vecellio is the former Chairman of the American Road and Transportation Builders and is a longtime
member of the Florida Council of 100, as well as many other civic and charitable organizations.
Corporate Governance
Changes to Board of Directors and Committees During 2017
During the year ended December 31, 2017, there were a number of changes to the Board and the committees thereof:
• Effective March 2, 2017, Jasvinder S. Khaira joined the Board as the designee of Blackstone pursuant to the Board
Representation and Observation Rights Agreement;
• Effective April 1, 2017, Mr. Karn resigned as Chairman of the Audit Committee, and Stephen P. Smith became Chairman
of that Committee;
• Effective April 1, 2017, Mr. Blakely resigned as Chairman of the Compensation, Nominating and Governance Committee,
and Leo A. Vecellio, Jr. became Chairman of that Committee;
• Effective May 9, 2017, Trey Jackson, resigned from the Board in connection with the sale by Adena Minerals, LLC of its
31% interest in our general partner to affiliates of ours; and
• Effective December 31, 2017, Robert T. Blakely and Robert B. Karn, III each retired from the Board and all committees
thereof in accordance with the age requirements of NRP’s Corporate Governance Guidelines.
Board Meetings and Executive Sessions
The Board met 10 times in 2017. During 2017, our non-management directors met in executive session several times. The
presiding director was Mr. Vecellio, the Chairman of our Compensation, Nominating and Governance Committee, or CNG
Committee. In addition, our independent directors met one time in executive session in December 2017. Mr. Vecellio was the
presiding director at that meeting. Interested parties may communicate with our non-management directors by writing a letter to
the Chairman of the CNG Committee, NRP Board of Directors, 1201 Louisiana Street, Suite 3400, Houston, Texas 77002.
Independence of Directors
The Board of Directors has affirmatively determined that Messrs. Blakely, Gordy, Karn, Navarre, Smith and Vecellio are
independent based on all facts and circumstances considered by the Board, including the standards set forth in Section 303A.02(a)
of the NYSE’s listing standards. Although we had a majority of independent directors in 2017, because we are a limited partnership
as defined in Section 303A of the NYSE’s listing standards, we are not required to do so. The Board has an Audit Committee, a
Compensation, Nominating and Governance Committee, and a Conflicts Committee, each of which is staffed solely by independent
directors.
117
Audit Committee
Our Audit Committee is currently comprised of Mr. Smith, who serves as chairman, Mr. Gordy and Mr. Navarre. Mr. Smith
and Mr. Navarre are "Audit Committee Financial Experts" as determined pursuant to Item 407 of Regulation S-K. During 2017,
the Audit Committee met seven times. Mr. Gordy joined the Audit Committee effective January 1, 2018. Mr. Blakely and Mr. Karn
each served as members of the Audit Committee during the full calendar year of 2017. Both Mr. Blakley and Mr. Karn are "Audit
Committee Financial Experts" as determined pursuant to Item 407 of Regulation S-K.
Report of the Audit Committee
Our Audit Committee is composed entirely of independent directors. The members of the Audit Committee meet the
independence and experience requirements of the New York Stock Exchange. The Audit Committee has adopted, and annually
reviews, a charter outlining the practices it follows. The charter complies with all current regulatory requirements. The Audit
Committee Charter is available on our website at www.nrplp.com and is available in print upon request.
During 2017, at each of its meetings, the Audit Committee met with the senior members of our financial management team,
our general counsel and our independent auditors. The Audit Committee had private sessions at certain of its meetings with our
independent auditors and the senior members of our financial management team and the general counsel at which candid discussions
of financial management, accounting and internal control and legal issues took place.
The Audit Committee approved the engagement of Ernst & Young LLP as our independent auditors for the year ended
December 31, 2017 and reviewed with our financial managers and the independent auditors overall audit scopes and plans, the
results of internal and external audit examinations, evaluations by the auditors of our internal controls and the quality of our
financial reporting.
Management has reviewed the audited financial statements in the Annual Report with the Audit Committee, including a
discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant accounting
judgments and estimates, and the clarity of disclosures in the financial statements. In addressing the quality of management’s
accounting judgments, members of the Audit Committee asked for management’s representations and reviewed certifications
prepared by the Chief Executive Officer and Chief Financial Officer that our unaudited quarterly and audited consolidated financial
statements fairly present, in all material respects, our financial condition and results of operations, and have expressed to both
management and auditors their general preference for conservative policies when a range of accounting options is available.
The Committee also discussed with the independent auditors other matters required to be discussed by the auditors with the
Committee by PCAOB Auditing Standard No. 16, Communications With Audit Committees. The Committee received and discussed
with the auditors their annual written report on their independence from the partnership and its management, which is made under
Rule 3526, Communication With Audit Committees Concerning Independence, and considered with the auditors whether the
provision of non-audit services provided by them to the partnership during 2017 was compatible with the auditors’ independence.
In performing all of these functions, the Audit Committee acts only in an oversight capacity. The Audit Committee reviews
our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K prior to filing with the Securities and Exchange
Commission. In 2017, the Audit Committee also reviewed quarterly earnings announcements with management and representatives
of the independent auditor in advance of their issuance. In its oversight role, the Audit Committee relies on the work and assurances
of our management, which has the primary responsibility for financial statements and reports, and of the independent auditors,
who, in their report, express an opinion on the conformity of our annual financial statements with U.S. generally accepted accounting
principles.
In reliance on these reviews and discussions, and the report of the independent auditors, the Audit Committee has
recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in our
Annual Report on Form 10-K for the year ended December 31, 2017, for filing with the Securities and Exchange Commission.
Stephen P. Smith, Chairman
Russell D. Gordy
Richard A. Navarre
118
Compensation, Nominating and Governance Committee
Executive officer compensation is administered by the CNG Committee, which is currently comprised of three members:
Mr. Vecellio, as Chairman, Mr. Gordy and Mr. Smith. Mr. Smith joined the CNG Committee effective January 1, 2018. Messrs.
Blakely and Karn each served on the CNG Committee for the full calendar year of 2017. The CNG Committee has reviewed and
approved the compensation arrangements described in the Compensation Discussion and Analysis section of this Annual Report
on Form 10-K. During 2017, the CNG Committee met eight times. Our Board of Directors appoints the CNG Committee and
delegates to the CNG Committee responsibility for:
•
•
reviewing and approving the compensation for our executive officers in light of the time that each executive officer allocates
to our business;
reviewing and recommending the annual and long-term incentive plans in which our executive officers participate and
approving awards thereunder; and
•
reviewing and approving compensation for the Board of Directors.
Our Board of Directors has determined that each CNG Committee member is independent under the listing standards of the
NYSE and the rules of the SEC.
Pursuant to its charter, the CNG Committee is authorized to obtain at NRP’s expense compensation surveys, reports on the
design and implementation of compensation programs for directors and executive officers and other data that the CNG Committee
considers as appropriate. In addition, the CNG Committee has the sole authority to retain and terminate any outside counsel or
other experts or consultants engaged to assist it in the evaluation of compensation of our directors and executive officers. The
CNG Committee Charter is available in print upon request.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors, officers and persons who beneficially own more than ten percent of a
registered class of our equity securities to file with the SEC and the NYSE initial reports of ownership and reports of changes in
ownership of their equity securities. These people are also required to furnish us with copies of all Section 16(a) forms that they
file. Based solely upon a review of the copies of Forms 3, 4 and 5 furnished to us, or written representations from certain reporting
persons that no Forms 5 were required for transactions occurring in 2016, and we believe that, except as provided below, our
officers and directors and persons who beneficially own more than ten percent of a registered class of our equity securities complied
with all filing requirements with respect to transactions in our equity securities during 2017. On February 16, 2017, Mr. Blakely
filed a Form 4 reporting the vesting of 370 phantom units on February 13, 2017 that had not been previously reported on a timely
basis as a result of a technical issue with his Edgar filing codes.
Partnership Agreement
Investors may view our partnership agreement and the amendments to the partnership agreement on our website at
www.nrplp.com. The partnership agreement is also filed with the SEC and is available in print to any unitholder that requests them.
Corporate Governance Guidelines and Code of Business Conduct and Ethics
We have adopted Corporate Governance Guidelines. We have also adopted a Code of Business Conduct and Ethics that
applies to our management, and complies with Item 406 of Regulation S-K. Our Corporate Governance Guidelines and our Code
of Business Conduct and Ethics are available on our website at www.nrplp.com and are available in print upon request.
NYSE Certification
Pursuant to Section 303A of the NYSE Listed Company Manual, in 2017, Corbin J. Robertson, Jr. certified to the NYSE
that he was not aware of any violation by the Partnership of NYSE corporate governance listing standards.
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ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview
As a publicly traded partnership, we have a unique employment and compensation structure that is different from that of a
typical public corporation. Our executive officers based in Houston, Texas are employed by Quintana Minerals Corporation
(“Quintana”), and our executive officers based in Huntington, West Virginia are employed by Western Pocahontas Properties
Limited Partnership (“Western Pocahontas”). Quintana and Western Pocahontas are controlled by our Chairman and Chief
Executive Officer and are affiliates of NRP. While our executive officers are employed by affiliates of NRP, each of them has been
appointed to serve as an executive officer of GP Natural Resource Partners LLC (“GP LLC”), the general partner of NRP (GP)
LLC (“NRP GP”), the general partner of NRP. For a more detailed description of our structure, see “Item 1. Business—Partnership
Structure and Management” in this Annual Report on Form 10-K.
Although our executives’ salaries and bonuses are paid directly by the private companies that employ them, we reimburse
those companies based on the time allocated to NRP by each executive officer. Our reimbursement for the compensation of executive
officers is governed by our partnership agreement. For purposes of this Compensation Discussion and Analysis, our “named
executive officers” are:
• Corbin J. Robertson, Jr.—Chairman and Chief Executive Officer
• Craig W. Nunez—President and Chief Operating Officer (former Chief Financial Officer and Treasurer)
• Kathryn S. Wilson—Vice President, General Counsel and Secretary
• Christopher J. Zolas—Chief Financial Officer and Treasurer (former Chief Accounting Officer)
• Kevin J. Craig—Executive Vice President—Coal
• Wyatt L. Hogan—Former President and Chief Operating Officer
Effective as of August 8, 2017, Wyatt L. Hogan resigned from his position as President and Chief Operating Officer of GP
Natural Resource Partners LLC. Effective as of the same date, Craig W. Nunez, who previously served as Chief Financial Officer
and Treasurer of GP LLC, became President and Chief Operating Officer of GP LLC and Christopher J. Zolas, who previously
served as Chief Accounting Officer of GP LLC, became Chief Financial Officer and Treasurer of GP LLC.
Executive Officer Compensation Strategy and Philosophy
Under our partnership agreement, we are required to distribute all of our available cash each quarter. Historically, our primary
business objective was to generate cash flows at levels that could sustain long-term quarterly cash distributions to our investors.
However, given the difficult coal markets over the past few years, coupled with the limitations on our ability to access capital from
additional sources, our current objective is to preserve long-term equity value for our unitholders by using our excess free cash
flow to reduce our leverage. Our objective in determining the compensation of our executive officers is to retain qualified people
to manage the business through a difficult market cycle. Although we historically have not tied our compensation to achievement
of specific financial targets or fixed performance criteria, we have reevaluated that strategy in light of current market conditions.
See “—2016 Cash Long-Term Incentive Plan” and “—2017 Long-Term Incentive Plan” below.
The 2017 compensation for executive officers consisted of four primary components:
•
•
•
•
base salaries;
short-term cash incentive compensation;
long-term cash incentive compensation; and
perquisites and other benefits.
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In December 2016, our CNG Committee reviewed the performance of the executive officers and the amount of time expected
to be spent by each NRP officer on NRP business, and determined the salaries for each officer for 2017. All of our named executive
officers, other than Corbin J. Robertson, Jr., our Chairman and Chief Executive Officer, Kathryn S. Wilson, our Vice President,
General Counsel and Secretary, and Kevin J. Craig, our Executive Vice President —Coal, spent 100% of their time on NRP matters
during 2017, and NRP bears the proportionate cost of their time. Mr. Robertson does not receive a salary or an annual bonus in
his capacity as Chief Executive Officer. Rather, Mr. Robertson has historically been compensated exclusively through long-term
incentive awards.
Historically, in February of each year, the CNG Committee has approved the year-end bonuses for the year just ended and
long-term incentive awards for the executive officers. The CNG Committee considers the performance of the partnership, the
performance of the individuals and the outlook for the future in determining the amounts of the awards. Prior to 2016, we issued
phantom units, coupled with tandem distribution equivalent rights (“DERs”), to our executive officers that are paid in cash based
on the average closing price of our common units for the 20-day trading period prior to vesting. The phantom units and DERs
typically vest four years from the date of grant. In past years, these awards have served to align the executive officers’ interests
with those of our unitholders.
Prior to 2017, our general partner would use a portion of the annual cash distributions it received on the NRP common units
held by our general partner for awards to our executive officers. We referred to this as the “GP Bonus Award” program. Mr. Robertson
determined the awards allocated to each executive officer in his sole discretion, but the award amounts were reviewed by the CNG
Committee and taken into account when making officer compensation determinations. During 2017, Mr. Robertson determined
to discontinue the GP Bonus Award program beginning with respect to the year ended December 31, 2017.
In February 2016, the Board adopted a cash long-term incentive plan and made time-based and performance-based awards
to officers under the plan in March 2016. In March 2017, the Board determined that the conditions to the vesting of the performance
awards under the 2016 cash incentive plan had been met as a result of the completion of the 2017 recapitalization transactions.
See “—2016 Cash Long-Term Incentive Plan” below. Following completion of the recapitalization transactions, the Board
determined to evaluate options for a new long-term incentive plan that would result in officers and directors being awarded equity
in NRP. See “—2017 Long-Term Incentive Plan” below.
2016 Cash Long-Term Incentive Plan
In February 2016, the CNG Committee adopted a new cash-based long-term incentive plan (the “2016 Cash LTIP”) and
recommended the new plan and awards thereunder to the non-management members of the Board for approval. The Board approved
the 2016 Cash LTIP and the forms of long-term incentive award agreements in February 2016. Two types of cash incentive awards
were made to the executive officers in March 2016: (1) time vesting awards, 50% of which vested in February 2017 and 50% of
which vested in February 2018, and (2) performance-based awards that provided that such awards would vest 50% upon the
repayment, refinancing or rollover of the Opco revolving credit facility that would mature in April 2018 and 50% upon the
repayment, refinancing or rollover of NRP’s 9.125% Senior Notes that would be due in October 2018, in each case as determined
by the Board and depending upon the continued employment of the applicable executive officer. The performance-based awards
vested in full in 2017 upon the completion of the recapitalization transactions. The performance awards also provided that up to
an additional 100% of the amount of the performance-based awards may be awarded to the executive officers in the sole discretion
of the Board after considering additional performance criteria including, but not limited to, NRP’s common unit price, projected
EBITDA, and leverage ratio. As described in greater detail below under “—Evaluation of 2017 Performance; Components of
Compensation—Long-Term Incentive Cash Compensation,” an additional 100% of the performance-based awards was awarded
by the Board in March 2017.
2017 Long-Term Incentive Plan
Following completion of the recapitalization transactions, the Board directed the CNG Committee to evaluate a new long-
term incentive program that would continue to incentivize management while also align the long-term interests of management
with the interests of NRP’s unitholders. In December 2017, the CNG Committee approved and the Board adopted the Natural
Resource Partners 2017 Long-Term Incentive Plan (the “2017 LTIP”), subject to unitholder approval. On December 20, 2017,
unitholders holding the requisite percentage of votes necessary to approve the 2017 LTIP approved the 2017 LTIP by written
consent in lieu of a special meeting of unitholders. The 2017 LTIP became effective on January 16, 2018. On February 14, 2018,
the CNG Committee made awards of common units and phantom units to be settled in common units under the 2017 LTIP to
NRP’s officers and directors.
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Role of Compensation Experts
Historically, the CNG Committee periodically has utilized consultants to get a basic sense of the market, but has considered
the advice of the consultant as only one of many factors among the other items discussed in this compensation discussion and
analysis. Neither the Board, nor the CNG Committee retained any consultants to evaluate compensation of officers or directors in
2017.
Role of Our Executive Officers in the Compensation Process
With respect to 2017 salaries and vesting of the performance awards under the 2016 Cash LTIP, Mr. Hogan, our former
President and Chief Operating Officer, provided Mr. Robertson with recommendations relating to the executive officers other than
himself. Mr. Robertson considered those recommendations and provided the CNG Committee and Board with recommendations
for all of the executive officers other than himself. Mr. Robertson relied on his personal experience in setting compensation over
a number of years in determining the appropriate amounts for each employee, and considered each of the factors described elsewhere
in this compensation discussion and analysis. Mr. Robertson and Mr. Hogan attended the CNG Committee and Board meetings at
which the Committee deliberated and approved the 2017 salaries and performance award vesting, as applicable, but were excused
from the meetings when the CNG Committee and Board, as applicable, discussed their compensation.
With respect to 2017 short-term cash incentive compensation, Mr. Nunez, provided Mr. Robertson with recommendations
relating to the executive officers other than himself. Mr. Robertson considered those recommendations and provided the CNG
Committee with recommendations for all of the executive officers other than himself. Mr. Robertson relied on his personal
experience in setting compensation over a number of years in determining the appropriate amounts for each employee, and
considered each of the factors described elsewhere in this compensation discussion and analysis. Mr. Robertson and Mr. Nunez
attended the CNG Committee meetings at which the Committee deliberated and approved the short-term cash incentive
compensation, but were excused from the meetings when the CNG Committee discussed their compensation.
Components of Compensation
Base Salaries
With the exception of Mr. Robertson, who, as described above, does not receive a salary for his services as Chief Executive
Officer, our executive officers are paid an annual base salary by Quintana or Western Pocahontas for services rendered to us by
the executive officers during the fiscal year. We then reimburse Quintana and Western Pocahontas based on the time allocated by
each executive officer to our business. The base salaries of our named executive officers are reviewed on an annual basis as well
as at the time of a promotion or other material change in responsibilities. The CNG Committee reviews and approves the full
salaries paid to each executive officer by Quintana and Western Pocahontas, based on both the actual time allocations to NRP in
the prior year and the anticipated time allocations in the coming year. Adjustments in base salary are based on an evaluation of
individual performance, our partnership’s overall performance during the fiscal year and the individual’s contribution to our overall
performance.
In determining salaries for NRP’s executive officers for 2017, at the December 2016 meeting, the CNG Committee considered
the financial performance of NRP for the nine months ended September 30, 2016 as well as the projected financial performance
of NRP for the fourth quarter of 2016 and for the year ending December 31, 2017. The CNG Committee also considered the
individual performance of each member of the executive management team during 2016. Salaries for 2017 were held flat over
2016 salaries and are shown in the Summary Compensation Table below.
Short-Term Cash Incentive Compensation
Each named executive officer, with the exception of Mr. Robertson, received a discretionary short-term cash incentive award
approved in February 2018 by the CNG Committee based on similar criteria used to evaluate the annual base salaries. The amounts
awarded with respect to 2017 under this program are disclosed in the Summary Compensation Table under the Bonus column. As
with the base salaries, there are no formulas or specific performance targets related to these awards. The short-term cash incentive
awards with respect to 2017 were generally lower than 2016 amounts due to vesting of the cash performance awards during 2017,
as described below.
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Long-Term Cash Incentive Compensation
In March 2017, one-half of the time-based awards granted under the 2016 Cash LTIP vested and were paid. In addition,
following the completion of the March 2017 recapitalization transactions, on March 3, 2017, the Board determined that both vesting
conditions of the performance awards made under the 2016 Cash LTIP had been met and therefore the target performance award
grant amounts would be awarded to each executive officer. In addition, following consideration of additional performance criteria
including, but not limited to: (1) the performance of NRP’s common units over the past twelve months and subsequent to the
announcement of the transactions; (2) the 2016 and projected 2017 EBITDA for NRP; and (3) the current and projected leverage
ratios for NRP and its subsidiaries, the Board determined to award an additional 100% of the amount of the performance-based
awards to the executive officers. The amounts paid to the named executive officers were equal to 200% of the performance award
grant amounts. Amounts vested and paid under the 2016 Cash LTIP are shown in the Summary Compensation Table under the
Non-Equity Incentive Plan column.
Perquisites and Other Personal Benefits
Both Quintana and Western Pocahontas maintain employee benefit plans that provide our executive officers and other
employees with the opportunity to enroll in health, dental and life insurance plans. Each of these benefit plans require the employee
to pay a portion of the health and dental premiums, with the company paying the remainder. These benefits are offered on the same
basis to all employees of Quintana and Western Pocahontas, and the company costs are reimbursed by us to the extent the employee
allocates time to our business.
Quintana and Western Pocahontas also maintain tax-qualified 401(k) and defined contribution retirement plans. During 2017,
Quintana matched 100% of the first 4.5% of the employee contributions under the 401(k) plan and Western Pocahontas matched
the employee contributions at a level of 100% of the first 3% of the contribution and 50% of the next 3% of the contribution. In
addition, each company contributed 1/12 of each employee’s base salary to the defined contribution retirement plan. As with the
other contributions, any amounts contributed by Quintana and Western Pocahontas are reimbursed by us based on the time allocated
by the employee to our business. None of NRP, Quintana or Western Pocahontas maintains a pension plan or a defined benefit
retirement plan.
Unit Ownership Requirements
We have not historically had any policy or guidelines that require specified ownership of our common units by our directors
or executive officers or unit retention guidelines.
In December 2017, in connection with the adoption of the 2017 LTIP, the Board adopted the Natural Resource Partners L.P.
Unit Ownership and Retention Guidelines (the “ownership guidelines”), which will be administered by the CNG Committee. The
ownership guidelines require NRP’s officers who are required to file ownership reports under Section 16 of the Securities Exchange
Act of 1934 (the “Exchange Act”) and certain other officers as designated from time-to-time by the Board or the CNG Committee
to retain all common units awarded under any NRP incentive plan (net of any units withheld or sold to cover tax liabilities) until
certain ownership guidelines are met. The guideline for NRP’s President and Chief Operating Officer is for such individual to hold
common units having a value of four times his or her base salary at the date of measurement. The guideline for the other officers
subject to the ownership guidelines is for each such individual to hold common units having a value of three times his or her base
salary at the date of measurement. There is no minimum time period required to achieve the unit ownership guidelines. Due to his
substantial ownership in us, the ownership guidelines do not currently apply to our Chief Executive Officer.
The ownership guidelines also require directors who are not officers to retain common units with a value equal to three times
the amount of the annual cash retainer paid to directors. Directors are required to achieve the unit ownership guideline within five
years. Until the unit ownership guideline is achieved, each director is encouraged to retain all common units awarded under any
NRP incentive plan (net of any units sold to cover tax liabilities).
Units that count towards the satisfaction of the officer and director guidelines include common units held directly by the
executive officer or director, common units owned indirectly by the executive officer or director (e.g, by a spouse or other immediate
family member residing in the same household or a trust for the benefit of the executive officer or director or his or her family),
units granted under NRP’s long-term incentive plans (including phantom units representing the right to receive units), and units
purchased in the open market (whether purchased before or after the effective date of the ownership guidelines).
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Incentive Compensation Recoupment Policy
We have not historically had any policy or guidelines regarding recoupment or adjustment of compensation of our executive
officers. In December 2017, in connection with the adoption of the 2017 LTIP, the Board adopted the Natural Resource Partners
L.P. Incentive Compensation Recoupment Policy, which will be administered by the CNG Committee. The policy authorizes the
Board or committee thereof to recoup incentive compensation in the event of a restatement of financial statements due to material
non-compliance with securities laws, fraud or misconduct.
Securities Trading Policy
Our insider trading policy states that executive officers and directors may not purchase or sell puts or calls to sell or buy our
common units, engage in short sales with respect to our common units, or buy our securities on margin.
Report of the Compensation, Nominating and Governance Committee
The CNG Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-K with management. Based on the reviews and discussions referred to in the foregoing sentence, the CNG Committee
recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for
the year ended December 31, 2017.
Leo A. Vecellio, Jr., Chairman
Russell D. Gordy
Stephen P. Smith
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Summary Compensation Table
The following table sets forth the amounts reimbursed to affiliates of our general partner for compensation for 2015, 2016
and 2017:
Name and Principal Position (1)
Year
Salary ($)
Corbin J. Robertson, Jr.—Chief Executive Officer
—
—
—
2017
2016
2015
Cash Bonus
($)
Non-Equity
Incentive Plan
Compensation
($) (1)
Phantom Unit
Awards ($) (2)
All Other
Compensation
($) (3)
Total ($)
—
—
—
3,250,000
—
—
—
—
321,912
—
—
—
3,250,000
—
321,912
Craig W. Nunez—President and Chief Operating Officer (4)
2017
2016
2015
375,000
375,000
375,000
250,000
425,000
375,000
1,218,750
—
—
—
—
446,575
34,650
34,383
33,783
1,878,400
834,383
1,230,358
Kathryn S. Wilson—Vice President, General Counsel and Secretary (5)
2017
2016
2015
150,000
225,000
175,000
321,750
305,500
315,250
975,000
—
—
—
—
84,949
34,304
31,631
33,413
1,481,054
562,131
608,612
Christopher J. Zolas—Chief Financial Officer (6)
2017
2016
2015
300,000
300,000
244,932
180,000
200,000
150,000
375,000
—
—
—
—
239,295
34,650
34,383
30,858
889,650
534,383
665,085
Kevin J. Craig—Executive Vice President, Coal (7)
172,000
2017
145,600
375,000
—
22,427
715,027
Wyatt L. Hogan—Former President and Chief Operating Officer (8)
2017
2016
2015
250,000
450,000
400,000
437,500
400,000
400,000
1,625,000
—
—
—
—
160,956
34,650
34,383
33,783
2,347,150
884,383
994,739
(1) See “—Compensation Discussion and Analysis—Components of Compensation—Long-Term Incentive Cash Compensation” above.
(2) Amounts represent the grant date fair value of phantom unit awards determined in accordance with Accounting Standards Codification Topic 718
determined without regard to forfeitures. For information regarding the assumptions used in calculating these amounts, see Note 19 to the audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
(3)
Includes portions of 401(k) matching and retirement contributions allocated to Natural Resource Partners by Quintana and Western Pocahontas.
(4) Mr. Nunez served as NRP’s Chief Financial Officer and Treasurer from January 1, 2015 until August 8, 2017, at which time he became President and
Chief Operating Officer.
(5) Ms. Wilson allocated approximately 97%, 94% and 99% of her time to NRP during the years ended December 31, 2015, 2016 and 2017, respectively,
and amounts included in the table reflect this allocation.
(6) Mr. Zolas served as NRP’s Chief Accounting Officer from March 9, 2015 until August 8, 2017, at which time he became Chief Financial Officer and
Treasurer.
(7) Mr. Craig was not a named executive officer for purposes of this table during the years ended December 31, 2015 or 2016. Mr. Craig allocated approximately
80% of his time to NRP during the year ended December 31, 2017, and amounts included in the table reflect this allocation.
(8) Mr. Hogan resigned as President and Chief Operating Officer effective August 8, 2017. Upon his resignation, he entered into an employment agreement
with Quintana that provides for a salary and other benefits for Mr. Hogan the cost of which are borne by NRP. Such amounts paid with respect to 2017
are included in the table above. For more information, see “—Employment Agreements” below.
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Grants of Plan-Based Awards in 2017
No plan-based awards were granted during the year ended December 31, 2017.
Employment Agreements
Following his resignation as President and Chief Operating Officer, Mr. Hogan and Quintana entered into a two-year
employment agreement dated August 15, 2017, pursuant to which Mr. Hogan continued to be employed by Quintana and agreed
to continue to provide services to NRP. The employment agreement provides for Mr. Hogan to receive an annualized salary of
$500,000 beginning August 15, 2017 through the end of the two-year term and the same health benefits that he received during
his time as an officer of NRP, all of the costs of which are borne by NRP. Mr. Hogan’s employment with Quintana terminated in
February 2018, and Mr. Hogan received his 2017 bonus of $250,000 at that time pursuant to the terms of the employment agreement.
The employment agreement also provides that Mr. Hogan will continue to receive his salary for the remaining term of his
employment agreement, and that all of his outstanding phantom units and cash incentive awards will be vested on the date of
termination and settle in accordance with the terms of such awards.
None of our other named executive officers has an employment agreement.
Phantom Units Vested in 2017
The table below shows the phantom units that vested in 2017 with respect to each named executive officer, along with the
phantom unit value realized by each individual:
Named Executive Officer
Corbin J. Robertson, Jr.
Craig W. Nunez
Kathryn S. Wilson
Christopher J. Zolas
Kevin J. Craig
Wyatt L. Hogan
Phantom Units
Vested in 2017 (1)
Value Realized on
2017 Vesting
$
3,200
1,200
650
650
900
1,600
240,120
53,445
48,774
26,674
67,534
120,060
(1) The unit numbers in the table above give effect to NRP's one-for-ten (1:10) reverse common unit split that became effective
on February 17, 2016.
Outstanding Equity Awards at December 31, 2017
The table below shows the total number of outstanding phantom units held by each named executive officer at December 31,
2017. The phantom units shown below were awarded in February 2014 and 2015, with a portion of the phantom units having
vested in February 2018 and the remaining portion vesting in February 2019.
Named Executive Officer
Corbin J. Robertson, Jr.
Craig W. Nunez
Kathryn S. Wilson
Christopher J. Zolas
Kevin J. Craig
Wyatt L. Hogan
Unvested
Phantom Units (1)
Market Value
of Unvested
Phantom Units (2)
6,960 (3) $
2,700 (4)
1,633 (5)
1,750 (6)
1,895 (7)
3,480 (8)
180,960
70,200
42,458
45,500
49,270
90,480
(1) The unit numbers in the table above give effect to NRP's one-for-ten (1:10) reverse common unit split that became
effective on February 17, 2016.
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(2) Based on a unit price of $26.00, the closing price for the common units on December 29, 2017.
(3) 3,360 phantom units vested in February 2018 and 3,600 phantom units vesting in February 2019.
(4) 1,300 phantom units vested in February 2018, and 1,400 phantom units vesting in February 2019.
(5) 683 phantom units vested in February 2018, and 950 phantom units vesting in February 2019.
(6) 800 phantom units vested in February 2018, and 950 phantom units vesting in February 2019.
(7) 945 phantom units vested in February 2018, and 950 phantom units vesting in February 2019.
(8) 1,680 phantom units vested in February 2018, and 1,800 phantom units vesting in February 2019.
Potential Payments upon Termination or Change in Control
There are no severance benefits payable to any named executive officer upon the termination of their employment, other
than benefits payable to Mr. Hogan pursuant to his employment agreement. Upon the occurrence of a change in control of NRP,
our general partner, or GP Natural Resource Partners LLC, both the outstanding phantom unit awards and the outstanding cash
incentive awards held by each of our named executive officers would immediately vest and become payable. The table below
indicates the estimated payments to each named executive officer following a change in control at December 31, 2017.
Phantom Unit Awards
Market
Value of
Unvested
Phantom
Units(2)
173,130
67,163
40,621
43,531
47,138
86,565
Unvested
Phantom
Units (1)
6,960
2,700
1,633
1,750
1,895
3,480
Accumulated
DERs
87,756
20,345
19,115
10,238
24,316
43,878
Cash
Incentive
Awards
250,000
93,750
75,000
75,000
75,000
125,000
Salary
Bonus
—
—
—
—
—
812,500
—
—
—
—
—
250,000
Other
—
—
—
—
—
33,256
Total
Potential
Payments
510,886
181,258
134,736
128,769
146,454
1,351,199
Named Executive Officer
Corbin J. Robertson, Jr.
Craig W. Nunez
Kathryn S. Wilson
Christopher J. Zolas
Kevin J. Craig
Wyatt L. Hogan
(1) The unit numbers in the table above give effect to NRP's one-for-ten (1:10) reverse common unit split that became effective
on February 17, 2016.
(2) Calculated based on a per unit price of $24.875, the average closing price for our common units for the 20 trading days
ended December 29, 2017, as required by the terms of the phantom unit agreements.
Directors’ Compensation for the Year Ended December 31, 2017
During the year ended December 31, 2017, there were a number of changes to the Board and the committees thereof:
• Effective March 2, 2017, Jasvinder S. Khaira joined the Board as the designee of Blackstone pursuant to the Board
Representation and Observation Rights Agreement;
• Effective April 1, 2017, Mr. Karn resigned as Chairman of the Audit Committee, and Stephen P. Smith became Chairman
of that Committee;
• Effective April 1, 2017, Mr. Blakely resigned as Chairman of the Compensation, Nominating and Governance
Committee, and Leo A. Vecellio, Jr. became Chairman of that Committee;
• Effective May 9, 2017, Trey Jackson, resigned from the Board in connection with the sale by Adena Minerals, LLC of
its 31% interest in our general partner to affiliates of ours; and
• Effective December 31, 2017, Robert T. Blakely and Robert B. Karn, III each retired from the Board in accordance
with the age requirements of NRP’s Corporate Governance Guidelines.
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For more information regarding the Board and committees thereof, see “Item 10. Directors and Executive Officers of the
Managing General Partner and Corporate Governance” elsewhere in this Annual Report on Form 10-K.
In December 2016, the Board approved an annual cash retainer payment of $60,000 to each non-employee director, plus
annual committee fees equal to $10,000 in cash for each committee chairman and $5,000 in cash for each committee member.
Following completion of the 2017 recapitalization transactions, each non-employee director (other than Mr. Khaira) received a
bonus of $25,000 to compensate them for the additional time spent on NRP matters in connection with those transactions. In
October 2017, the Board reviewed total Board compensation and determined to increase the annual retainer to $150,000 effective
for the year ended December 31, 2017. Factors considered in increasing the annual retainer included the fact that the Board cash
retainer had remained at $60,000 since 2011, the fact that NRP had not issued any phantom units since 2015, market rates for
public company directorships, and the need to retain additional directors following the retirements of Messrs. Blakely and Karn
at the end of 2017.
The table below shows the directors’ compensation for the year ended December 31, 2017.
Name of Director
Robert T. Blakely (2)
Russell D. Gordy
L.G. ("Trey") Jackson, III (3)
Robert B. Karn, III (2)
Jasvinder S. Khaira (4)
S. Reed Morian
Richard A. Navarre
Corbin J. Robertson, III
Stephen P. Smith
Leo A. Vecellio, Jr.
$
Fees Earned or Paid in Cash (1)
192,500
180,000
55,000
192,500
—
175,000
205,000
175,000
190,000
190,000
(1) No phantom unit awards were made to directors in 2017. As of December 31, 2017, each director other than Messrs. Blakely,
Karn and Khaira held 799 phantom units, of which 389 vested in February 2018, and 410 phantom units will vest in
February 2019. The award amounts included in the foregoing sentence give effect to NRP’s one-for-ten (1:10) reverse common
unit split that became effective on February 17, 2016.
(2) Pursuant to the terms of the phantom unit awards, all outstanding phantom units held by Messrs. Blakely and Karn vested
effective December 31, 2017 following their retirements from the Board.
(3) Mr. Jackson resigned from the Board in May 2017.
(4) Mr. Khaira does not receive Board compensation as the Blackstone designee.
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The table below shows the phantom units that vested in 2017 with respect to each Director, along with the value realized by
each individual:
Director
Robert T. Blakely (1)
Russell D. Gordy
L.G. ("Trey") Jackson, III
Robert B. Karn, III (1)
Jasvinder S. Khaira
S. Reed Morian
Richard A. Navarre
Corbin J. Robertson, III
Stephen P. Smith
Leo A. Vecellio, Jr.
Phantom Units
Vested
Value Realized
on Vesting
$
1,169
370
—
1,169
—
370
370
370
370
370
59,293
23,694 (2)
—
59,293
—
27,764
23,694 (2)
25,729 (3)
27,764
27,764
(1) Includes 799 phantom units that vested for Messrs. Blakely and Karn effective December 31, 2017 following their
retirements from the Board.
(2) Includes DERs from October 31, 2013, the date that Messrs. Gordy and Navarre joined the Board.
(3) Includes DERs from May 21, 2013, the date that Mr. Robertson, III joined the Board.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2017, Messrs. Blakely, Gordy, Karn and Vecellio served on the CNG Committee. None
of Messrs. Blakely, Gordy, Karn or Vecellio has ever been an officer or employee of NRP or GP Natural Resource Partners LLC.
None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has any
executive officer serving as a member of our Board or CNG Committee.
Pay Ratio Disclosure
The Securities and Exchange Commission has adopted a rule requiring annual disclosure of the ratio of the median employee’s
total annual compensation to the total annual compensation of the CEO.
The personnel providing services to our Construction Aggregates business are employed by consolidated subsidiaries of
ours. Other personnel providing services to us, including our executive officers, are employed by Quintana or Western Pocahontas
and consequently, are not considered our employees for purposes of calculating the required pay ratio. We identified the median
employee by examining the 2017 total taxable compensation, as reflected in our payroll records as reported to the Internal Revenue
Service on Form W-2, for all individuals, who were employed by our consolidated subsidiaries on December 31, 2017. We included
all employees of our Construction Aggregates business, whether employed on a full-time, part-time, temporary or seasonal basis.
As of December 31, 2017, we employed 243 such persons. We did not make any assumptions, adjustments, or estimates with
respect to total cash compensation or equity compensation and we did not annualize the compensation for any employees that
were not employed for all of 2017.
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After identifying the median employee based on total compensation, we calculated annual 2017 compensation for the median
employee using the same methodology used to calculate the Chief Executive Officer’s total compensation as reflected in the
Summary Compensation Table above. The median employee’s annual 2017 compensation was as follows:
Name
Year
Salary
Bonus
Non-Equity
Incentive Plan
Compensation
Phantom
Unit Awards
All Other
Compensation
Total
Median Employee
2017
$
46,786
$
3,002
$
— $
— $
— $ 49,788
Our 2017 ratio of Chief Executive Officer total compensation to our median employee’s total compensation is reasonably
estimated to be 65:1.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 2018, the amount and percentage of our common units and Preferred Units
beneficially held by (1) each person known to us to beneficially own 5% or more of any class of our units, (2) by each of our
directors and named executive officers and (3) by all directors and executive officers as a group. Unless otherwise noted, each of
the named persons and members of the group has sole voting and investment power with respect to the units shown.
Name of Beneficial Owner
Corbin J. Robertson, Jr. (2)
Premium Resources LLC (3)
Maple Rock Capital Partners, Inc. (4)
JPMorgan Chase & Co. (5)
Craig W. Nunez
Kathryn S. Wilson
Christopher J. Zolas
Kevin J. Craig
Wyatt L. Hogan (6)
Russell D. Gordy (7)
Jasvinder S. Khaira
S. Reed Morian
Richard A. Navarre
Corbin J. Robertson III (8)
Stephen P. Smith
Leo A. Vecellio, Jr.
Directors and Officers as a Group
*
Less than one percent.
Common
Units
Percentage of
Common
Units (1)
4,128,605
4,128,599
827,710
724,081
—
—
—
950
1,250
9,399
—
2,399
1,000
175,189
355
4,399
4,329,501
33.7%
33.7%
6.8%
5.9%
—
—
—
—
*
*
*
*
*
1.4%
*
*
35.4%
(1) Percentages based upon 12,241,602 common units issued and outstanding as of March 1, 2018. Unless otherwise noted,
beneficial ownership is less than 1%.
(2) Mr. Robertson may be deemed to beneficially own the 4,128,599 common units owned by Premium Resources LLC.
Mr. Robertson’s address is 1415 Louisiana Street, Suite 2400, Houston, Texas 77002.
(3) These common units may be deemed to be beneficially owned by Mr. Robertson. The address of Premium Resources LLC
is 1415 Louisiana Street, Suite 2400, Houston, Texas 77002.
(4) According to a Schedule13G filing with the SEC on February 14, 2018, Maple Rock Capital Partners, Inc. holds sole voting
power and sole dispositive power with respect to 827,710 common units in the Partnership. The business address of Maple
Rock Capital Partners, Inc. is 45 St. Clair Avenue West, Suite 903, Toronto, A6 M4V 1K9.
(5) According to a Schedule 13G filing with the SEC on December 29, 2017, JPMorgan Chase & Co. holds sole voting power
and sole dispositive power with respect to 724,081 common units in the Partnership. The business address of JPMorgan
Chase & Co. is 270 Park Ave., New York, NY 10017.
(6) Mr. Hogan resigned as President and Chief Operating Officer in August 2017 and is one of our Named Executive Officers
for purposes of this Annual Report on Form 10-K. Of these common units, 50 common units are owned by the Anna
Margaret Hogan 2002 Trust, 50 common units are held by the Alice Elizabeth Hogan 2002 Trust, and 50 common units
are held by the Ellen Catlett Hogan 2005 Trust. Mr. Hogan is a trustee of each of these trusts.
(7) Mr. Gordy may be deemed to beneficially own 5,000 common units owned by Minion Trail, Ltd. and 2,000 common units
owned by Rock Creek Ranch 1, Ltd.
(8) Mr. Robertson III may be deemed to beneficially own 9,783 common units held CIII Capital Management, LLC, 10,000
common units held by BHJ Investments, 5,046 common units held by The Corbin James Robertson III 2009 Family Trust
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and 39 common units held by his spouse, Brooke Robertson. The address for CIII Capital Management, LLC is 1415
Louisiana Street, Suite 2400, Houston, Texas 77002, the address for BHJ Investments is 1415 Louisiana Street, Suite 2400,
Houston, Texas 77002 and the address for The Corbin James Robertson III 2009 Family Trust is 1415 Louisiana Street,
Suite 2400, Houston, Texas 77002. The following common units are pledged as collateral for loans: 29,542 common units
owned directly by Mr. Robertson III.
Name of Beneficial Owner
The Blackstone Group L.P. (1)
GoldenTree Asset Management, LP (2)
Preferred Units
Percentage of
Preferred Units
142,500
107,500
57%
43%
(1) The Preferred Units are owned by funds managed by The Blackstone Group L.P., whose address is 345 Park Ave, New
York, NY 10154. Blackstone Group Management L.L.C. is the general partner of The Blackstone Group L.P., and is wholly
owned by Blackstone’s senior managing directors and controlled by its founder, Stephen A. Schwarzman.
(2) The Preferred Units are owned by funds managed by GoldenTree Asset Management, LP, whose address is 300 Park Ave,
New York, NY 10022. Steven A. Tananbaum serves as senior managing member of GoldenTree Asset Management LLC,
the general partner of GoldenTree Asset Management, LP.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Western Pocahontas Properties Limited Partnership, New Gauley Coal Corporation and Great Northern Properties Limited
Partnership are three privately held companies that are primarily engaged in owning and managing mineral properties. We refer
to these companies collectively as the WPP Group. Corbin J. Robertson, Jr. owns the general partner of Western Pocahontas
Properties, 85% of the general partner of Great Northern Properties Limited Partnership and is the Chairman and Chief Executive
Officer of New Gauley Coal Corporation.
Omnibus Agreement
As part of the omnibus agreement entered into concurrently with the closing of our initial public offering, the WPP Group
and any entity controlled by Corbin J. Robertson, Jr., which we refer to in this section as the “GP affiliates,” each agreed that
neither they nor their affiliates will, directly or indirectly, engage or invest in entities that engage in the following activities (each,
a "restricted business") in the specific circumstances described below:
•
•
the entering into or holding of leases with a party other than an affiliate of the GP affiliate for any GP affiliate-owned
fee coal reserves within the United States; and
the entering into or holding of subleases with a party other than an affiliate of the GP affiliate for coal reserves within
the United States controlled by a paid-up lease owned by any GP affiliate or its affiliate.
"Affiliate" means, with respect to any GP affiliate or, any other entity in which such GP affiliate owns, through one or more
intermediaries, 50% or more of the then outstanding voting securities or other ownership interests of such entity. Except as described
below, the WPP Group and their respective controlled affiliates will not be prohibited from engaging in activities in which they
compete directly with us.
A GP affiliate may, directly or indirectly, engage in a restricted business if:
•
•
•
the GP affiliate was engaged in the restricted business at the closing of the offering; provided that if the fair market value
of the asset or group of related assets of the restricted business subsequently exceeds $10 million, the GP affiliate must
offer the restricted business to us under the offer procedures described below.
the asset or group of related assets of the restricted business have a fair market value of $10 million or less; provided
that if the fair market value of the assets of the restricted business subsequently exceeds $10 million, the GP affiliate
must offer the restricted business to us under the offer procedures described below.
the asset or group of related assets of the restricted business have a fair market value of more than $10 million and the
general partner (with the approval of the conflicts committee) has elected not to cause us to purchase these assets under
the procedures described below.
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•
its ownership in the restricted business consists solely of a non-controlling equity interest.
For purposes of this paragraph, "fair market value" means the fair market value as determined in good faith by the relevant
GP affiliate.
The total fair market value in the good faith opinion of the WPP Group of all restricted businesses engaged in by the WPP
Group, other than those engaged in by the WPP Group at closing of our initial public offering, may not exceed $75 million. For
purposes of this restriction, the fair market value of any entity engaging in a restricted business purchased by the WPP Group will
be determined based on the fair market value of the entity as a whole, without regard for any lesser ownership interest to be
acquired.
If the WPP Group desires to acquire a restricted business or an entity that engages in a restricted business with a fair market
value in excess of $10 million and the restricted business constitutes greater than 50% of the value of the business to be acquired,
then the WPP Group must first offer us the opportunity to purchase the restricted business. If the WPP Group desires to acquire a
restricted business or an entity that engages in a restricted business with a value in excess of $10 million and the restricted business
constitutes 50% or less of the value of the business to be acquired, then the GP affiliate may purchase the restricted business first
and then offer us the opportunity to purchase the restricted business within six months of acquisition. For purposes of this paragraph,
"restricted business" excludes a general partner interest or managing member interest, which is addressed in a separate restriction
summarized below. For purposes of this paragraph only, "fair market value" means the fair market value as determined in good
faith by the relevant GP affiliate.
If we want to purchase the restricted business and the GP affiliate and the general partner, with the approval of the conflicts
committee, agree on the fair market value and other terms of the offer within 60 days after the general partner receives the offer
from the GP affiliate, we will purchase the restricted business as soon as commercially practicable. If the GP affiliate and the
general partner, with the approval of the conflicts committee, are unable to agree in good faith on the fair market value and other
terms of the offer within 60 days after the general partner receives the offer, then the GP affiliate may sell the restricted business
to a third party within two years for no less than the purchase price and on terms no less favorable to the GP affiliate than last
offered by us. During this two-year period, the GP affiliate may operate the restricted business in competition with us, subject to
the restriction on total fair market value of restricted businesses owned in the case of the WPP Group.
If, at the end of the two year period, the restricted business has not been sold to a third party and the restricted business
retains a value, in the good faith opinion of the relevant GP affiliate, in excess of $10 million, then the GP affiliate must reoffer
the restricted business to the general partner. If the GP affiliate and the general partner, with the approval of the conflicts committee,
agree on the fair market value and other terms of the offer within 60 days after the general partner receives the second offer from
the GP affiliate, we will purchase the restricted business as soon as commercially practicable. If the GP Affiliate and the general
partner, with the concurrence of the conflicts committee, again fail to agree after negotiation in good faith on the fair market value
of the restricted business, then the GP affiliate will be under no further obligation to us with respect to the restricted business,
subject to the restriction on total fair market value of restricted businesses owned.
In addition, if during the two-year period described above, a change occurs in the restricted business that, in the good faith
opinion of the GP affiliate, affects the fair market value of the restricted business by more than 10 percent and the fair market value
of the restricted business remains, in the good faith opinion of the relevant GP affiliate, in excess of $10 million, the GP affiliate
will be obligated to reoffer the restricted business to the general partner at the new fair market value, and the offer procedures
described above will recommence.
If the restricted business to be acquired is in the form of a general partner interest in a publicly held partnership or a managing
member interest in a publicly held limited liability company, the WPP Group may not acquire such restricted business even if we
decline to purchase the restricted business. If the restricted business to be acquired is in the form of a general partner interest in a
non-publicly held partnership or a managing member of a non-publicly held limited liability company, the WPP Group may acquire
such restricted business subject to the restriction on total fair market value of restricted businesses owned and the offer procedures
described above.
The omnibus agreement may be amended at any time by the general partner, with the concurrence of the conflicts committee.
The respective obligations of the WPP Group under the omnibus agreement terminate when the WPP Group and its affiliates cease
to participate in the control of the general partner.
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Board Representation and Observation Rights Agreement
Effective on March 2, 2017 in connection with the closing of the issuance of the Preferred Units, pursuant to the Board
Representation and Observation Rights Agreement, Blackstone appointed Jasvinder S. Khaira to serve on the Board of Directors
of GP Natural Resource Partners LLC and also appointed one observer to attend meetings of the Board. Blackstone's rights to
appoint a member of the Board and an observer will terminate at such time as Blackstone, together with their affiliates, no longer
own at least 20% of the total number of Preferred Units issued on the closing date, together with all PIK Units that have been
issued but not redeemed (the "Minimum Preferred Unit Threshold"). Following the time that Blackstone (and their affiliates) no
longer own the Minimum Preferred Unit Threshold and until such time as GoldenTree (together with their affiliates) no longer
own the Minimum Preferred Unit Threshold, GoldenTree shall have the one time option to appoint either one person to serve as
a member of the Board or one person to serve as a Board observer. To the extent GoldenTree elects to appoint a Board member
and later remove such Board member, GoldenTree may then elect to appoint a Board observer. For more information on the
Preferred Units, including the rights of the holders thereof, see Note 3. Class A Convertible Preferred Units and Warrants in the
Notes to Consolidated Financial Statements under Item 8 in this Annual Report on Form 10-K.
Transactions with Cline Group and Affiliates
On May 9, 2017, Adena Minerals, LLC (“Adena”), an affiliate of Christopher Cline (“Cline”) sold its 31% limited partner
interest in our general partner to Great Northern Properties Limited Partnership and WPPLP (the “Adena Sale”). In connection
with the Adena Sale, on May 9, 2017, the Investor Rights Agreement effective as of January 4, 2007 by and among Adena, NRP
GP, GP LLC, and Robertson Coal Management (the “Investor Rights Agreement”) terminated pursuant to its terms. Also on May
9, 2017, the Restricted Business Contribution Agreement effective as of January 4, 2007, by and among Christopher Cline, Foresight
Reserves LP, Adena, NRP, NRP GP, and NRP (Operating) LLC (the “RBCA”) terminated pursuant to the terms thereof. In addition,
the rights of Adena and its affiliates under the Partnership’s partnership agreement are no longer in effect as a result of the Adena
Sale (other than customary rights to indemnification). The Investor Rights Agreement and RBCA are described below.
As a result of the Adena Sale, we no longer consider Cline or his affiliates, including Foresight Energy, affiliates of NRP.
Restricted Business Contribution Agreement
Christopher Cline, Foresight Reserves LP and Adena (collectively, the "Cline Parties") and NRP entered into a Restricted
Business Contribution Agreement in 2007. Pursuant to the terms of the Restricted Business Contribution Agreement, the Cline
Parties and their affiliates were obligated to offer to NRP any business owned, operated or invested in by the Cline Parties, subject
to certain exceptions, that either (a) owns, leases or invests in hard minerals or (b) owns, operates, leases or invests in transportation
infrastructure relating to future mine developments by the Cline Parties in Illinois. In addition, we created an area of mutual interest
(the "AMI") around certain of the properties that we have acquired from Cline affiliates. During the applicable term of the Restricted
Business Contribution Agreement, the Cline Parties were obligated to contribute any coal reserves held or acquired by the Cline
Parties or their affiliates within the AMI to us. In connection with the offer of mineral properties by the Cline Parties to NRP, the
parties to the Restricted Business Contribution Agreement agreed to negotiate and agree upon an area of mutual interest around
such minerals, which would supplement and become a part of the AMI. On May 9, 2017, Adena Minerals, LLC (“Adena”) sold
its 31% limited partner interest in NRP (GP) LP (the Partnership’s general partner) (“NRP GP”) to Great Northern Properties
Limited Partnership (“GNPLP”) and WPPLP (the “Adena Sale”).
For a summary of revenues that we have derived from the Cline relationship, including Foresight Energy LP, see "Item 8.
"Item 8. Financial Statements and Supplementary Data—Note 15. Related Party Transactions—Cline Affiliates" elsewhere in this
Annual Report on Form 10-K.
Investor Rights Agreement
NRP and certain affiliates and Adena executed an Investor Rights Agreement pursuant to which Adena was granted certain
management rights. Specifically, Adena had the right to name two directors (one of which must be independent) to the Board of
Directors of our managing general partner so long as Adena beneficially owned either 5% of our limited partnership interests or
5% of our general partner’s limited partnership interests and so long as certain rights under our managing general partner’s LLC
Agreement had not been exercised by Adena or Mr. Robertson. During 2017, Leo A. Vecellio and L.G. (Trey) Jackson III served
as Adena’s two directors. Mr. Jackson resigned from the Board in connection with the Adena Sale. Mr. Vecellio, who is an
134
independent director, remains on the Board. Adena also had the right, pursuant to the terms of the Investor Rights Agreement, to
withhold its consent to the sale or other disposition of any entity or assets contributed by Cline affiliates to NRP, and any such sale
or disposition would have been void without Adena’s consent.
Quintana Capital Group GP, Ltd.
Corbin J. Robertson, Jr. is a principal in Quintana Capital Group GP, Ltd., which controls several private equity funds focused
on investments in the energy business. NRP’s Board of Directors has adopted a formal conflicts policy that establishes the
opportunities that will be pursued by NRP and those that will be pursued by Quintana Capital. The basic tenets of the policy are
set forth below.
NRP’s business strategy has historically focused on:
• The ownership of natural resource properties in North America, including, but not limited to coal, aggregates and industrial
minerals, and oil and gas. NRP leases these properties to mining or operating companies that mine or produce the
resources and pay NRP a royalty.
• The ownership and operation of transportation, storage and related logistics activities related to extracted hard minerals.
The businesses and investments described in this paragraph are referred to as the "NRP Businesses."
NRP’s acquisition strategy also includes:
• The ownership of non-operating working interests in oil and gas properties.
• The ownership of non-controlling equity interests in companies involved in natural resource development and extraction.
• The operation of construction aggregates mining and production businesses.
The businesses and investments described in this paragraph are referred to as the "Shared Businesses."
NRP’s business strategy does not, and is not expected to, include:
• The ownership of equity interests in companies involved in the mining or extraction of coal.
•
•
Investments that do not generate "qualifying income" for a publicly traded partnership under U.S. tax regulations.
Investments outside of North America.
• Midstream or refining businesses that do not involve hard extracted minerals, including the gathering, processing,
fractionation, refining, storage or transportation of oil, natural gas or natural gas liquids.
The businesses and investments described in this paragraph are referred to as the "Non-NRP Businesses."
It is acknowledged that neither Quintana Capital nor Mr. Robertson will have any obligation to offer investments relating
to Non-NRP Businesses to NRP, and that NRP will not have any obligation to refrain from pursuing a Non-NRP Business if there
is a change in its business strategy.
For so long as Corbin Robertson, Jr. remains both an affiliate of Quintana Capital and an executive officer or director of
NRP or an affiliate of its general partner, before making an investment in an NRP Business, Quintana Capital has agreed to adhere
to the following procedures:
• Quintana Capital will first offer such opportunity in its entirety to NRP. NRP may elect to pursue such investment wholly
for its own account, to pursue the opportunity jointly with Quintana Capital or not to pursue such opportunity.
•
If NRP elects not to pursue an NRP Business investment opportunity, Quintana Capital may pursue the investment for
its own account on similar terms.
• NRP will undertake to advise Quintana Capital of its decision regarding a potential investment opportunity within 10
business days of the identification of such opportunity to the Conflicts Committee.
If the opportunity relates to the acquisition of a Shared Business, NRP and Quintana Capital will adhere to the following
procedures:
135
•
•
If the opportunity is generated by individuals other than Mr. Robertson, the opportunity will belong to the entity for
which those individuals are working.
If the opportunity is generated by Mr. Robertson and both NRP and Quintana Capital are interested in pursuing the
opportunity, it is expected that the Conflicts Committee will work together with the relevant Limited Partner Advisory
Committees for Quintana Capital to reach an equitable resolution of the conflict, which may involve investments by
both parties.
In all cases above in which Mr. Robertson has a conflict of interest, investment decisions will be made on behalf of NRP by
the Conflicts Committee and on behalf of Quintana Capital Group by the relevant Investment Committee, with Mr. Robertson
abstaining.
A fund controlled by Quintana Capital owns an interest in Corsa Coal Corp, a coal mining company traded on the TSX
Venture Exchange that is one of our lessees in Tennessee. Corbin J. Robertson, III, one of our directors, was Chairman of the Board
of Corsa through May 10, 2017. In addition, in May 2017, a subsidiary of Alpha Natural Resources assigned two coal leases with
us to Quinwood Coal Partners LP ("Quinwood"), an entity controlled by Mr. Robertson, III. In connection with this lease assignment,
Quinwood forfeited the historical recoupable balance related to this property.
For more information on our relationship with Corsa Coal and Quinwood, see "Item 8. Financial Statements and
Supplementary Data—Note 15. Related Party Transactions—Quintana Capital Group GP, Ltd."
Office Building in Huntington, West Virginia
We lease an office building in Huntington, West Virginia from Western Pocahontas Properties Limited Partnership. The
terms of the lease, including $0.6 million per year in lease payments, were approved by our conflicts committee.
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its
affiliates (including the WPP Group) on the one hand, and our partnership and our limited partners, on the other hand. The directors
and officers of GP Natural Resource Partners LLC have duties to manage GP Natural Resource Partners LLC and our general
partner in a manner beneficial to its owners. At the same time, our general partner has a duty to manage our partnership in a manner
beneficial to us and our unitholders. The Delaware Revised Uniform Limited Partnership Act, which we refer to as the Delaware
Act, provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the fiduciary
duties otherwise owed by a general partner to limited partners and the partnership. Pursuant to these provisions, our partnership
agreement contains various provisions modifying the fiduciary duties that would otherwise be owed by our general partner with
contractual standards governing the duties of the general partner and the methods of resolving conflicts of interest. Our partnership
agreement also specifically defines the remedies available to limited partners for actions taken that, without these defined liability
standards, might constitute breaches of fiduciary duty under applicable Delaware law.
Whenever a conflict arises between our general partner or its affiliates, on the one hand, and our partnership or any other
partner, on the other, our general partner will resolve that conflict. Our general partner may, but is not required to, seek the approval
of the conflicts committee of the Board of Directors of our general partner of such resolution. The partnership agreement contains
provisions that allow our general partner to take into account the interests of other parties in addition to our interests when resolving
conflicts of interest.
Our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or our unitholders
if the resolution of the conflict is considered to be fair and reasonable to us. Any resolution is considered to be fair and reasonable
to us if that resolution is:
•
•
•
approved by the conflicts committee, although our general partner is not obligated to seek such approval and our general
partner may adopt a resolution or course of action that has not received approval;
on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
fair to us, taking into account the totality of the relationships between the parties involved, including other transactions
that may be particularly favorable or advantageous to us.
136
In resolving a conflict, our general partner, including its conflicts committee, may, unless the resolution is specifically
provided for in the partnership agreement, consider:
•
•
•
•
the relative interests of any party to such conflict and the benefits and burdens relating to such interest;
any customary or accepted industry practices or historical dealings with a particular person or entity;
generally accepted accounting practices or principles; and
such additional factors it determines in its sole discretion to be relevant, reasonable or appropriate under the circumstances.
Blackstone has certain consent rights and board appointment and observation rights and may be deemed to be an affiliate
of our general partner. In addition, GoldenTree has certain limited consent rights. In the exercise of these consent rights and board
rights, conflicts of interest could arise between us on the one hand, and Blackstone or GoldenTree on the other hand.
Conflicts of interest could arise in the situations described below, among others.
Actions taken by our general partner may affect the amount of cash available for distribution to unitholders.
The amount of cash that is available for distribution to unitholders is affected by decisions of our general partner regarding
such matters as:
•
•
•
•
•
amount and timing of asset purchases and sales;
cash expenditures;
borrowings;
the issuance of additional common units; and
the creation, reduction or increase of reserves in any quarter.
In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our general partner to the
unitholders, including borrowings that have the purpose or effect of enabling our general partner to receive distributions.
For example, in the event we have not generated sufficient cash from our operations to pay the quarterly distribution on our
common units, our partnership agreement permits us to borrow funds which may enable us to make this distribution on all outstanding
common units.
The partnership agreement provides that we and our subsidiaries may borrow funds from our general partner and its affiliates.
Our general partner and its affiliates may not borrow funds from us or our subsidiaries.
We do not have any officers or employees other than in our Construction Aggregates business. We rely on officers and employees
of GP Natural Resource Partners LLC and its affiliates.
Excluding our Construction Aggregates business, we do not have any officers or employees and rely on officers and employees
of GP Natural Resource Partners LLC and its affiliates. Affiliates of GP Natural Resource Partners LLC conduct businesses and
activities of their own in which we have no economic interest. If these separate activities are significantly greater than our activities,
there could be material competition for the time and effort of the officers and employees who provide services to our general
partner. The officers of GP Natural Resource Partners LLC are not required to work full time on our affairs. Certain of these officers
devote significant time to the affairs of the WPP Group or its affiliates and are compensated by these affiliates for the services
rendered to them.
We reimburse our general partner and its affiliates for expenses.
We reimburse our general partner and its affiliates for costs incurred in managing and operating us, including costs incurred
in rendering corporate staff and support services to us. The partnership agreement provides that our general partner determines
the expenses that are allocable to us in any reasonable manner determined by our general partner in its sole discretion.
137
Our general partner intends to limit its liability regarding our obligations.
Our general partner intends to limit its liability under contractual arrangements so that the other party has recourse only to
our assets, and not against our general partner or its assets. The partnership agreement provides that any action taken by our general
partner to limit its liability or our liability is not a breach of our general partner’s fiduciary duties, even if we could have obtained
more favorable terms without the limitation on liability.
Common unitholders have no right to enforce obligations of our general partner and its affiliates under agreements with us.
Any agreements between us on the one hand, and our general partner and its affiliates, on the other, do not grant to the
unitholders, separate and apart from us, the right to enforce the obligations of our general partner and its affiliates in our favor.
Contracts between us, on the one hand, and our general partner and its affiliates, on the other, are not the result of arm’s-
length negotiations.
The partnership agreement allows our general partner to pay itself or its affiliates for any services rendered to us, provided
these services are rendered on terms that are fair and reasonable. Our general partner may also enter into additional contractual
arrangements with any of its affiliates on our behalf. Neither the partnership agreement nor any of the other agreements, contracts
and arrangements between us, on the one hand, and our general partner and its affiliates, on the other, are the result of arm’s-length
negotiations.
All of these transactions entered into after our initial public offerings are on terms that are fair and reasonable to us.
Our general partner and its affiliates have no obligation to permit us to use any facilities or assets of our general partner and
its affiliates, except as may be provided in contracts entered into specifically dealing with that use. There is no obligation of our
general partner or its affiliates to enter into any contracts of this kind.
We may not choose to retain separate counsel for ourselves or for the holders of common units.
The attorneys, independent auditors and others who have performed services for us in the past were retained by our general
partner, its affiliates and us and have continued to be retained by our general partner, its affiliates and us. Attorneys, independent
auditors and others who perform services for us are selected by our general partner or the conflicts committee and may also perform
services for our general partner and its affiliates. We may retain separate counsel for ourselves or the holders of common units in
the event of a conflict of interest arising between our general partner and its affiliates, on the one hand, and us or the holders of
common units, on the other, depending on the nature of the conflict. We do not intend to do so in most cases. Delaware case law
has not definitively established the limits on the ability of a partnership agreement to restrict such fiduciary duties.
Our general partner’s affiliates may compete with us.
The partnership agreement provides that our general partner is restricted from engaging in any business activities other than
those incidental to its ownership of interests in us. Except as provided in our partnership agreement and the Omnibus Agreement,
affiliates of our general partner will not be prohibited from engaging in activities in which they compete directly with us.
The Conflicts Committee Charter is available upon request.
Director Independence
For a discussion of the independence of the members of the Board of Directors of our managing general partner under
applicable standards, see "Item 10. Directors and Executive Officers of the Managing General Partner and Corporate Governance
—Corporate Governance—Independence of Directors," which is incorporated by reference into this Item 13.
Review, Approval or Ratification of Transactions with Related Persons
If a conflict or potential conflict of interest arises between our general partner and its affiliates (including the WPP Group
on the one hand, and our partnership and our limited partners, on the other hand, the resolution of any such conflict or potential
conflict is addressed as described under "—Conflicts of Interest."
138
Pursuant to our Code of Business Conduct and Ethics, conflicts of interest are prohibited as a matter of policy, except under
guidelines approved by the Board and as provided in the Omnibus Agreement and our partnership agreement. For the year ended
December 31, 2017, there were no transactions where such guidelines were not followed.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Audit Committee of the Board of Directors of GP Natural Resource Partners LLC recommended and we engaged Ernst &
Young LLP to audit our accounts and assist with tax work for fiscal 2017 and 2016. All of our audit, audit-related fees and tax
services have been approved by the Audit Committee of our Board of Directors. The following table presents fees for professional
services rendered by Ernst &Young LLP:
Audit Fees (1)
Tax Fees (2)
All Other Fees (3)
2017
2016
$
1,049,905
$
772,449
1,820
1,010,002
746,463
1,980
(1) Audit fees include fees associated with the annual integrated audit of our consolidated financial statements and internal
controls over financial reporting, separate audits of subsidiaries and reviews of our quarterly financial statement for inclusion
in our Form 10-Q and comfort letters; consents; work related to acquisitions; assistance with and review of documents
filed with the SEC.
(2) Tax fees include fees principally incurred for assistance with tax planning, compliance, tax return preparation and filing
of Schedules K-1.
(3) All other fees include the subscription to EY Online research tool.
Audit and Non-Audit Services Pre-Approval Policy
I. Statement of Principles
Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee of the Board of Directors is responsible for the
appointment, compensation and oversight of the work of the independent auditor. As part of this responsibility, the Audit Committee
is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that they do
not impair the auditor’s independence from the Partnership. To implement these provisions of the Act, the SEC has issued rules
specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee’s
administration of the engagement of the independent auditor. Accordingly, the Audit Committee has adopted, and the Board of
Directors has ratified, this Audit and Non-Audit Services Pre-Approval Policy (the "Policy"), which sets forth the procedures and
the conditions pursuant to which services proposed to be performed by the independent auditor may be pre-approved.
The SEC’s rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid.
Proposed services may either be pre-approved without consideration of specific case-by-case services by the Audit Committee
("general pre-approval") or require the specific pre-approval of the Audit Committee ("specific pre-approval"). The Audit
Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure
to pre-approve services performed by the independent auditor. As set forth in this Policy, unless a type of service has received
general pre-approval, it will require specific pre-approval by the Audit Committee if it is to be provided by the independent auditor.
Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the
Audit Committee.
For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC’s rules
on auditor independence. The Audit Committee will also consider whether the independent auditor is best positioned to provide
the most effective and efficient service for reasons such as its familiarity with our business, employees, culture, accounting systems,
risk profile and other factors, and whether the service might enhance the Partnership’s ability to manage or control risk or improve
audit quality. All such factors will be considered as a whole, and no one factor will necessarily be determinative.
139
The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether
to pre-approve any such services and may determine, for each fiscal year, the appropriate ratio between the total amount of fees
for audit, audit-related and tax services.
The appendices to this Policy describe the audit, audit-related and tax services that have the general pre-approval of the
Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee
considers a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that
may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee. The Audit
Committee will add or subtract to the list of general pre-approved services from time to time, based on subsequent determinations.
The purpose of this Policy is to set forth the procedures by which the Audit Committee intends to fulfill its responsibilities.
It does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the independent auditor to
management.
Ernst & Young LLP, our independent auditor has reviewed this Policy and believes that implementation of the policy will
not adversely affect its independence.
II. Delegation
As provided in the Act and the SEC’s rules, the Audit Committee has delegated either type of pre-approval authority to
Robert B. Karn III, the Chairman of the Audit Committee. Mr. Karn must report, for informational purposes only, any pre-approval
decisions to the Audit Committee at its next scheduled meeting.
III. Audit Services
The annual Audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee.
Audit services include the annual financial statement audit (including required quarterly reviews), subsidiary audits and other
procedures required to be performed by the independent auditor to be able to form an opinion on the Partnership’s consolidated
financial statements. These other procedures include information systems and procedural reviews and testing performed in order
to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review.
Audit services also include the attestation engagement for the independent auditor’s report on management’s report on internal
controls for financial reporting. The Audit Committee monitors the audit services engagement as necessary, but not less than on
a quarterly basis, and approves, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope,
partnership structure or other items.
In addition to the annual audit services engagement approved by the Audit Committee, the Audit Committee may grant
general pre-approval to other audit services, which are those services that only the independent auditor reasonably can provide.
Other audit services may include statutory audits or financial audits for our subsidiaries or our affiliates and services associated
with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection
with securities offerings.
IV. Audit-related Services
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review
of the Partnership’s financial statements or that are traditionally performed by the independent auditor. Because the Audit Committee
believes that the provision of audit-related services does not impair the independence of the auditor and is consistent with the
SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to audit-related services. Audit-related
services include, among others, due diligence services pertaining to potential business acquisitions/dispositions; accounting
consultations related to accounting, financial reporting or disclosure matters not classified as "Audit Services"; assistance with
understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; financial audits
of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to
respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting
requirements.
140
V. Tax Services
The Audit Committee believes that the independent auditor can provide tax services to the Partnership such as tax compliance,
tax planning and tax advice without impairing the auditor’s independence, and the SEC has stated that the independent auditor
may provide such services. Hence, the Audit Committee believes it may grant general pre-approval to those tax services that have
historically been provided by the auditor, that the Audit Committee has reviewed and believes would not impair the independence
of the auditor and that are consistent with the SEC’s rules on auditor independence. The Audit Committee will not permit the
retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the sole
business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue
Code and related regulations. The Audit Committee will consult with the Chief Financial Officer or outside counsel to determine
that the tax planning and reporting positions are consistent with this Policy.
VI. Pre-Approval Fee Levels or Budgeted Amounts
Pre-approval fee levels or budgeted amounts for all services to be provided by the independent auditor will be established
annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by
the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in
determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriate
ratio between the total amount of fees for audit, audit-related and tax services.
VII. Procedures
All requests or applications for services to be provided by the independent auditor that do not require specific approval by
the Audit Committee will be submitted to the Chief Financial Officer and must include a detailed description of the services to be
rendered. The Chief Financial Officer will determine whether such services are included within the list of services that have received
the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services
rendered by the independent auditor.
Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the
Audit Committee by both the independent auditor and the Chief Financial Officer, and must include a joint statement as to whether,
in their view, the request or application is consistent with the SEC’s rules on auditor independence.
141
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) and (2) Financial Statements and Schedules
See "Item 8. Financial Statements and Supplementary Data."
(a)(3) Ciner Wyoming LLC Financial Statements
The financial statements of Ciner Wyoming LLC required pursuant to Rule 3-09 of Regulation S-X are included in this filing
as Exhibit 99.1.
(a)(4) Exhibits
Exhibit
Number
2.1
2.2
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
Description
Purchase Agreement, dated as of January 23, 2013, by and among Anadarko Holding Company, Big Island Trona
Company, NRP Trona LLC and NRP (Operating) LLC (incorporated by reference to Exhibit 2.1 to Current Report
on Form 8-K filed on January 25, 2013).
Purchase and Sale Agreement dated as of June 13, 2016 by and between NRP Oil and Gas LLC and Lime Rock
Resources IV-A, L.P. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on June 15,
2016).
Fifth Amended and Restated Agreement of Limited Partnership of Natural Resource Partners L.P., dated as of March
2, 2017 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on March 6, 2017).
Fifth Amended and Restated Agreement of Limited Partnership of NRP (GP) LP, dated as of December 16, 2011
(incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on December 16, 2011).
Fifth Amended and Restated Limited Liability Company Agreement of GP Natural Resource Partners LLC, dated
as of October 31, 2013 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on October
31, 2013).
Amended and Restated Limited Liability Company Agreement of NRP (Operating) LLC, dated as of October 17,
2002 (incorporated by reference to Exhibit 3.4 of Annual Report on Form 10-K for the year ended December 31,
2002).
Certificate of Limited Partnership of Natural Resource Partners L.P.(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 filed April 19, 2002, File No. 333-86582).
Note Purchase Agreement dated as of June 19, 2003 among NRP (Operating) LLC and the Purchasers signatory
thereto (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed June 23, 2003).
First Amendment, dated as of July 19, 2005, to Note Purchase Agreement dated as of June 19, 2003 among NRP
(Operating) LLC and the purchasers signatory thereto (incorporated by reference to Exhibit 4.2 to Current Report
on Form 8-K filed on July 20, 2005).
Second Amendment, dated as of March 28, 2007, to Note Purchase Agreement dated as of June 19, 2003 among
NRP (Operating) LLC and the purchasers signatory thereto (incorporated by reference to Exhibit 4.2 to Current
Report on Form 8-K filed on March 29, 2007).
142
Exhibit
Number
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
Description
First Supplement to Note Purchase Agreement, dated as of July 19, 2005 among NRP (Operating) LLC and the
purchasers signatory thereto (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on July
20, 2005).
Second Supplement to Note Purchase Agreement, dated as of March 28, 2007 among NRP (Operating) LLC and
the purchasers signatory thereto (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on
March 29, 2007).
Third Supplement to Note Purchase Agreement, dated as of March 25, 2009 among NRP (Operating) LLC and the
purchasers signatory thereto (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on March
26, 2009).
Fourth Supplement to Note Purchase Agreement, dated as of April 20, 2011 among NRP (Operating) LLC and the
purchasers signatory thereto (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on April
21, 2011).
Subsidiary Guarantee of Senior Notes of NRP (Operating) LLC, dated June 19, 2003 (incorporated by reference to
Exhibit 4.5 to Current Report on Form 8-K filed June 23, 2003).
Form of Series A Note (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed June 23, 2003).
Form of Series B Note (incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed June 23, 2003).
Form of Series D Note (incorporated by reference to Exhibit 4.12 to Annual Report on Form 10-K filed February
28, 2007).
Form of Series E Note (incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed March 29,
2007).
Form of Series F Note (incorporated by reference to Exhibit 4.2 to Quarterly Report on Form 10-Q filed May 7,
2009).
Form of Series G Note (incorporated by reference to Exhibit 4.3 to Quarterly Report on Form 10-Q filed May 7,
2009).
Form of Series H Note (incorporated by reference to Exhibit 4.2 to Quarterly Report on Form 10-Q filed May 5,
2011).
Form of Series I Note (incorporated by reference to Exhibit 4.3 to Quarterly Report on Form 10-Q filed May 5,
2011).
Form of Series J Note (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on June 15,
2011).
Form of Series K Note (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on October
3, 2011).
Registration Rights Agreement, dated as of January 23, 2013, by and among Natural Resource Partners L.P. and the
Investors named therein (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on January
25, 2013).
Indenture, dated September 18, 2013, by and among Natural Resource Partners L.P. and NRP Finance Corporation,
as issuers, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Current
Report on Form 8-K filed on September 19, 2013).
Form of 9.125% Senior Notes due 2018 (contained in Exhibit 1 to Exhibit 4.20).
Third Amendment, dated as of June 16, 2015, to Note Purchase Agreements, dated as of June 19, 2003, among NRP
(Operating) LLC and the holders named therein (incorporated by reference to Exhibit 4.1 to Current Report on Form
8-K filed on June 18, 2015).
Fourth Amendment, dated as of September 9, 2016, to Note Purchase Agreements, dated as of June 19, 2003, among
NRP (Operating) LLC and the holders named therein (incorporated by reference to Exhibit 4.1 to Current Report
on Form 8-K filed on September 12, 2016).
Indenture, dated March 2, 2017, by and among Natural Resource Partners L.P. and NRP Finance Corporation, as
issuers, and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.3 to Current
Report on Form 8-K filed on March 6, 2017).
Form of 10.500% Senior Notes due 2018 (contained in Exhibit 1 to Exhibit 4.24).
143
Exhibit
Number
Description
4.26
4.27
4.28
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Registration Rights Agreement dated as of March 2, 2017, by and among Natural Resource Partners L.P., NRP
Finance Corporation, and the Initial Notes Purchasers named therein (incorporated by reference to Exhibit 4.5 to
Current Report on Form 8-K filed on March 6, 2017).
Registration Rights Agreement dated as of March 2, 2017, by and among Natural Resource Partners L.P. and the
Purchasers named therein (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on March
6, 2017).
Form of Warrant to Purchase Common Units (incorporated by reference to Exhibit 4.1 to Current Report on Form
8-K filed on March 6, 2017).
Third Amended and Restated Credit Agreement, dated as of June 16, 2015, by and among NRP (Operating) LLC,
the lenders party thereto, Citibank, N.A. as Administrative Agent and Collateral Agent, Citigroup Global Markets
Inc. and Wells Fargo Securities LLC as Joint Lead Arrangers and Joint Bookrunners, and Citibank, N.A., as
Syndication Agent (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on June 18, 2015).
First Amendment, dated as of June 3, 2016, to Third Amended and Restated Credit Agreement, dated as of June 16,
2015, by and among NRP (Operating) LLC, the lenders party thereto, Citibank, N.A. as Administrative Agent and
Collateral Agent, Citigroup Global Markets Inc. and Wells Fargo Securities LLC as Joint Lead Arrangers and Joint
Bookrunners, and Citibank, N.A., as Syndication Agent (incorporated by reference to Exhibit 10.1 to Current Report
on Form 8-K filed on June 7, 2016).
First Amended and Restated Omnibus Agreement, dated as of April 22, 2009, by and among Western Pocahontas
Properties Limited Partnership, Great Northern Properties Limited Partnership, New Gauley Coal Corporation,
Robertson Coal Management LLC, GP Natural Resource Partners LLC, NRP (GP) LP, Natural Resource Partners
L.P. and NRP (Operating) LLC (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed
May 7, 2009).
Restricted Business Contribution Agreement, dated January 4, 2007, by and among Christopher Cline, Foresight
Reserves LP, Adena Minerals, LLC, GP Natural Resource Partners LLC, NRP (GP) LP, Natural Resource Partners
L.P. and NRP (Operating) LLC (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on
January 4, 2007).
Investor Rights Agreement, dated January 4, 2007, by and among NRP (GP) LP, GP Natural Resource Partners LLC,
Robertson Coal Management and Adena Minerals, LLC (incorporated by reference to Exhibit 10.2 to Current Report
on Form 8-K filed on January 4, 2007).
Limited Liability Company Agreement of Ciner Wyoming LLC, dated June 30, 2014 (incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K filed by Ciner Resources LP on July 2, 2014).
Amendment No. 1 to the Limited Liability Company Agreement of Ciner Wyoming LLC dated November 5, 2015
(incorporated by reference to Exhibit 10.22 to Annual Report on Form 10-K filed by Ciner Resources LP on March
11, 2016).
Credit Agreement, dated as of August 12, 2013, among NRP Oil and Gas LLC, Wells Fargo Bank, N.A., as
Administrative Agent, and Wells Fargo Securities, LLC as Sole Bookrunner and Sole Lead Arranger (incorporated
by reference to Exhibit 10.1 to Current Report on Form 8-K filed on August 13, 2013).
First Amendment to Credit Agreement, dated effective as of December 19, 2013, among NRP Oil and Gas LLC,
Wells Fargo Bank, N.A., as Administrative Agent, and Wells Fargo Securities, LLC as Sole Bookrunner and Sole
Lead Arranger (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on December 20,
2013).
144
Exhibit
Number
10.10
10.11
10.12
10.13
10.14
10.15
Description
Second Amendment to Credit Agreement entered into effective as of November 12, 2014 among NRP Oil and Gas
LLC, each of the Lenders that is a signatory thereto, and Wells Fargo Bank, N.A., as administrative agent for the
Lenders (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on November 14, 2014).
Fourth Amendment to Credit Agreement entered into effective as of March 21, 2016 among NRP Oil and Gas LLC,
each of the Lenders that is a signatory thereto, and Wells Fargo Bank, N.A., as administrative agent for the Lenders
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on March 22, 2016).
Second Amendment, dated as of March 2, 2017, to Third Amended and Restated Credit Agreement, dated as of June
16, 2015, by and among NRP (Operating) LLC, the lenders party thereto, Citibank, N.A. as Administrative Agent
and Collateral Agent, Citigroup Global Markets Inc. and Wells Fargo Securities LLC as Joint Lead Arrangers and
Joint Bookrunners, and Citibank, N.A., as Syndication Agent (incorporated by reference to Exhibit 10.3 to Current
Report on Form 8-K filed on March 6, 2017).
Preferred Unit and Warrant Purchase Agreement, dated as of February 22, 2017, by and among Natural Resource
Partners L.P. and the Purchasers named therein (incorporated by reference to Exhibit 10.1 to Current Report on Form
8-K filed on March 6, 2017.
Exchange and Purchase Agreement, dated as of February 22, 2017, by and among Natural Resource Partners L.P.,
NRP Finance Corporation and the Consenting Holders named therein (incorporated by reference to Exhibit 10.4 to
Current Report on Form 8-K filed on March 6, 2017.
Board Representation and Observation Rights Agreement dated as of March 2, 2017, by and among Natural Resource
Partners L.P., Robertson Coal Management LLC, GP Natural Resource Partners LLC, NRP (GP) LP, BTO Carbon
Holdings L.P. and the GoldenTree Purchasers named therein (incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K filed on March 6, 2017)
10.16*** Natural Resource Partners Second Amended and Restated Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K filed on January 17, 2008).
10.17***
Form of Phantom Unit Agreement (incorporated by reference to Exhibit 10.4 to Annual Report on Form 10-K for
the year ended December 31, 2007).
10.18*** Natural Resource Partners L.P. 2016 Cash Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed on February 26, 2016).
10.19***
10.20***
Form of Cash Long-Term Incentive Award Agreement (incorporated by reference to Exhibit 10.2 to Current Report
on Form 8-K filed on February 26, 2016).
Form of Cash Long-Term Performance Award Agreement (incorporated by reference to Exhibit 10.3 to Current
Report on Form 8-K filed on February 26, 2016).
10.21*** Natural Resource Partners L.P. 2017 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed on January 17, 2018).
10.22***
10.23***
10.24***
21.1*
23.1*
Form of Phantom Unit Award Agreement (Employees and Service Providers) (incorporated by reference to Exhibit
4.5 to Registration Statement on Form S-8 filed on February 9, 2018).
Form of Phantom Unit Award Agreement (Directors) (incorporated by reference to Exhibit 4.6 to Registration
Statement on Form S-8 filed on February 9, 2018).
Employment Agreement dated August 16, 2017, between Quintana Minerals Corporation and Wyatt L. Hogan
(incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed on November 8, 2017).
List of subsidiaries of Natural Resource Partners L.P.
Consent of Ernst & Young LLP.
145
Exhibit
Number
23.2*
31.1*
31.2*
32.1**
32.2**
95.1*
99.1*
Description
Consent of Deloitte & Touche LLP.
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley.
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley.
Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.
Mine Safety Disclosure.
Financial Statements of Ciner Wyoming LLC as of December 31, 2017 and 2016 and for the years ended
December 31, 2017, 2016 and 2015.
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Labels Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
*
**
***
Filed herewith
Furnished herewith
Management compensatory plan or arrangement
146
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 1, 2018
Date: March 1, 2018
Date: March 1, 2018
NATURAL RESOURCE PARTNERS L.P.
By: NRP (GP) LP, its general partner
By: GP NATURAL RESOURCE
PARTNERS LLC, its general partner
By:
/s/ CORBIN J. ROBERTSON, JR.
Corbin J. Robertson, Jr.
Chairman of the Board, Director and
Chief Executive Officer
(Principal Executive Officer)
By:
By:
/s/ CHRISTOPHER J. ZOLAS
Christopher J. Zolas
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
/s/ JENNIFER L. ODINET
Jennifer L. Odinet
Chief Accounting Officer
(Principal Accounting Officer)
147
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 1, 2018
Date: March 1, 2018
Date: March 1, 2018
Date: March 1, 2018
Date: March 1, 2018
Date: March 1, 2018
Date: March 1, 2018
/s/ RUSSELL D. GORDY
Russell D. Gordy
Director
/s/ JASVINDER S. KHAIRA
Jasvinder S. Khaira
Director
/s/ S. REED MORIAN
S. Reed Morian
Director
/s/ RICHARD A. NAVARRE
Richard A. Navarre
Director
/s/ CORBIN J. ROBERTSON III
Corbin J. Robertson III
Director
/s/ STEPHEN P. SMITH
Stephen P. Smith
Director
/s/ LEO A. VECELLIO, JR.
Leo A. Vecellio, Jr.
Director
148
Exhibit 21.1
List of Subsidiaries of Natural Resource Partners L.P.
NRP (Operating) LLC
NRP Oil and Gas LLC
NRP Finance Corporation
WPP LLC
ACIN LLC
WBRD LLC
Hod LLC
Shepard Boone Coal Company LLC
Gatling Mineral, LLC
Independence Land Company, LLC
Williamson Transport, LLC
Little River Transport, LLC
Rivervista Mining, LLC
Deepwater Transportation, LLC
NRP Trona LLC
VantaCore Partners LLC
Laurel Aggregates Terminal Services of Delaware, LLC
Laurel Aggregates of Delaware, LLC
Laurel Aggregates of PA, LLC
Utica Resources LLC
Winn Materials, LLC
Winn Materials of Kentucky, LLC
Winn Marine, LLC
McIntosh Construction Company, LLC
McAsphalt. LLC
Southern Aggregates, LLC
Lake Lynn Transportation LLC
BRP LLC (51% interest)
CoVal Leasing Company, LLC (51% interest)
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-217205, 333-207034, and
333-187883) and on Form S-8 (No. 333-222970) of Natural Resource Partners L.P., and in the related Prospectus of our reports
dated March 1, 2018, with respect to the consolidated financial statements of Natural Resource Partners L.P., and the effectiveness
of internal control over financial reporting of Natural Resource Partners L.P., included in this Annual Report (Form 10-K) for the
year ended December 31, 2017.
/s/ Ernst & Young LLP
Houston, Texas
March 1, 2018
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements on Form S-3 (Nos. 333-217205, 333-207034, and
333-187883) and No. 333-222970 on Form S-8 of Natural Resource Partners L.P., of our report dated March 1, 2018, relating to
the financial statements of Ciner Wyoming LLC as of December 31, 2017 and 2016, and for the three years in the period ended
December 31, 2017, appearing in the Annual Report on Form 10-K of Natural Resource Partners L.P. for the year ended December
31, 2017.
Exhibit 23.2
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 1, 2018
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Corbin J. Robertson, Jr., certify that:
1
2
3
4
I have reviewed this report on Form 10-K of Natural Resource Partners L.P.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions);
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ Corbin J. Robertson, Jr.
Corbin J. Robertson, Jr.
Chief Executive Officer
Date: March 1, 2018
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Christopher J. Zolas, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Natural Resource Partners L.P.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions);
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
By:
/s/ Christopher J. Zolas
Christopher J. Zolas
Chief Financial Officer
Date: March 1, 2018
Exhibit 32.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
OF GP NATURAL RESOURCE PARTNERS LLC
PURSUANT TO 18 U.S.C. § 1350
In connection with the accompanying report on Form 10-K for the year ended December 31, 2017 filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Corbin J. Robertson, Jr., Chief Executive Officer of GP Natural
Resource Partners LLC, the general partner of the general partner of Natural Resource Partners L.P. (the “Company”), hereby
certify, to my knowledge, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
By:
/s/ Corbin J. Robertson, Jr.
Corbin J. Robertson, Jr.
Chief Executive Officer
Date: March 1, 2018
Exhibit 32.2
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
OF GP NATURAL RESOURCE PARTNERS LLC
PURSUANT TO 18 U.S.C. § 1350
In connection with the accompanying report on Form 10-K for the year ended December 31, 2017 filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Christopher J. Zolas, Chief Financial Officer of GP Natural
Resource Partners LLC, the general partner of the general partner of Natural Resource Partners L.P. (the “Company”), hereby
certify, to my knowledge, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
By:
/s/ Christopher J. Zolas
Christopher J. Zolas
Chief Financial Officer
Date: March 1, 2018
Exhibit 95.1
MINE SAFETY DISCLOSURE
Our mining operations are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under
the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). We have disclosed below information regarding certain citations
and orders issued by MSHA and related assessments and legal actions with respect to these mining operations. In evaluating the
below information regarding mine safety and health, investors should take into account factors such as: (i) the number of citations
and orders will vary depending on the size of a mine; (ii) the number of citations issued will vary from inspector to inspector and
mine to mine; and (iii) citations and orders can be contested and appealed, and in that process are often reduced in severity and
amount, and are sometimes dismissed or vacated. The tables below do not include any orders or citations issued to independent
contractors at our mines.
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires
issuers to include in periodic reports filed with the Securities and Exchange Commission (“SEC”) certain information relating to
citations and orders for violations of standards under the Mine Act. The following tables disclose information required under the
Dodd-Frank Act for the year ended December 31, 2017.
Mine Name / MSHA Identification Number
Section 104
S&S
Citations(1)
Section 104(b)
Orders (2)
Section 104(d)
Citations and
Orders (3)
Section 110(b)
(2)
Violations (4)
Section 107(a)
Orders (5)
Total Dollar
Value of MSHA
Assessments
Proposed (6)
Winn Materials-Clarksville/40-03094
Winn Materials of KY-Grand Rivers/
15-19561
Laurel Aggregates/36-08891
Southern Aggregates/Plant 1/16-01388
Southern Aggregates/Plant 6/16-00336
Southern Aggregates/Plant 7/16-01519
Southern Aggregates/Plant 7.2/16-01551
Southern Aggregates/Plant 9/16-01536
Southern Aggregates/Plant 10/16-01571
Southern Aggregates/Plant 11/16-01537
Southern Aggregates/Plant 12/16-01546
Southern Aggregates/Plant 15/16-01550
Southern Aggregates/Plant 16/16-01563
3
0
0
0
0
0
1
2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$4,545
$232
$1,333
$0
$0
$0
$709
$1,702
$0
$0
$232
$116
$464
(1) Mine Act section 104 S&S citations shown above are for alleged violations of mandatory health or safety standards that could significantly and
substantially contribute to a mine health and safety hazard. It should be noted that, for purposes of this table, S&S citations that are included in another
column, such as Section 104(d) citations, are not also included as Section 104 S&S citations in this column.
(2) Mine Act section 104(b) orders are for alleged failures to totally abate a citation within the time period specified in the citation.
(3) Mine Act section 104(d) citations and orders are for an alleged unwarrantable failure (i.e., aggravated conduct constituting more than ordinary negligence)
to comply with mandatory health or safety standards.
(4) Mine Act section 110(b)(2) violations are for an alleged “flagrant” failure (i.e., reckless or repeated) to make reasonable efforts to eliminate a known
violation of a mandatory safety or health standard that substantially and proximately caused, or reasonably could have been expected to cause, death
or serious bodily injury.
(5) Mine Act section 107(a) orders are for alleged conditions or practices which could reasonably be expected to cause death or serious physical harm
before such condition or practice can be abated and result in orders of immediate withdrawal from the area of the mine affected by the condition.
(6) Amounts shown include assessments proposed by MSHA during the year ended December 31, 2017 on all citations and orders, including those citations
and orders that are not required to be included within the above chart
(7) No. of vacated citations during 2017: Winn Materials Clarksville-One (1) vacated 104(a) citation; Laurel Aggregates-Three (3) vacated 104(a) citations;
Southern Aggregates-One (1) vacated 104(a) citations.
Mine Name / MSHA Identification Number
Winn Materials-Clarksville/40-03094
Winn Materials of KY-Grand Rivers/15-19561
Laurel Aggregates/36-08891
Southern Aggregates/Plant 1/16-01388
Southern Aggregates Plant 6/16-00336
Southern Aggregates Plant 7/16-01519
Southern Aggregates Plant 7.2/16-01551
Southern Aggregates Plant 9/16-01536
Southern Aggregates Plant 10/16-01571
Southern Aggregates/Plant 11/16-01537
Southern Aggregates Plant 12/16-01546
Southern Aggregates/Plant 15/16-01550
Southern Aggregates/Plant 16/16-01563
Total Number of
Mining Related
Fatalities
Received Notice of
Pattern of
Violations Under
Section 104(e)
(yes/no) (1)
Legal Actions
Pending as of Last
Day of Period
Legal Actions
Initiated During
Period
Legal Actions
Resolved During
Period
0
0
0
0
0
0
0
0
0
0
0
0
0
N
N
N
N
N
N
N
N
N
N
N
N
N
0
0
0
0
0
0
1
0
0
0
0
0
0
1
0
0
0
0
0
2
0
0
0
0
0
0
15
1
4
0
0
0
1
2
0
0
0
1
1
(1) Mine Act section 104(e) written notices are for an alleged pattern of violations of mandatory health or safety standards that could significantly and
substantially contribute to a mine safety or health hazard.
The number of legal actions pending before the Federal Mine Safety and Health Review Commission as of December 31,
2017, that fall into each of the following categories is as follows:
Mine Name / MSHA Identification Number
Contests of
Citations and
Orders
Contests of
Proposed
Penalties
Complaints for
Compensation
Complaints of
Discharge/
Discrimination/
Interference
Applications for
Temporary
Relief
Appeals of
Judges Rulings
Winn Materials-Clarksville/40-03094
Winn Materials of KY-Grand Rivers/
15-19561
Laurel Aggregates/36-08891
Southern Aggregates/Plant 1/16-01388
Southern Aggregates/Plant 6/16-00336
Southern Aggregates/Plant 7/16-01519
Southern Aggregates/Plant 7.2/16-01551
Southern Aggregates/Plant 9/16-01536
Southern Aggregates Plant 10/16-01571
Southern Aggregates/Plant 11/16-01537
Southern Aggregates/Plant 12/16-01546
Southern Aggregates/Plant 15/16-01550
Southern Aggregates/Plant 16/16-01563
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Exhibit 99.1
Ciner Wyoming LLC
(A Majority-Owned Subsidiary of Ciner Resources LP)
Financial Statements as of December 31, 2017 and 2016 and for the Years Ended
December 31, 2017, 2016, and 2015, and Report of Independent Registered Public
Accounting Firm
1
CINER WYOMING LLC
(A Majority Owned Subsidiary of Ciner Resources LP)
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BALANCE SHEETS AS OF DECEMBER 31, 2017 AND 2016
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED
DECEMBER 31, 2017, 2016 AND 2015
STATEMENTS OF MEMBERS' EQUITY FOR THE YEARS ENDED DECEMBER 2017, 2016 AND 2015
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
NOTES TO THE FINANCIAL STATEMENTS
Page
Number
3
4
5
6
7
8
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers and Members of
Ciner Wyoming LLC
Atlanta, Georgia
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Ciner Wyoming LLC (“the Company”) as of December 31, 2017 and 2016,
and the related statements of operations and comprehensive income, members’ equity, and cash flows for each of the three years
in the period ended December 31, 2017 and the related notes (collectively referred to as the "financial statements"). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and
2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 1, 2018
We have served as the Company’s auditor since 2008.
3
CINER WYOMING LLC
(A Majority Owned Subsidiary of Ciner Resources LP)
BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016
(In thousands of dollars)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable - affiliates
Accounts receivable, net
Inventory
Other current assets
Total current assets
PROPERTY, PLANT, AND EQUIPMENT, NET
OTHER NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
Accounts payable
Due to affiliates
Accrued expenses
Total current liabilities
LONG-TERM DEBT
OTHER NON-CURRENT LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES (See Note 12)
MEMBERS' EQUITY:
Members’ equity — Ciner Resources LP
Members’ equity — Natural Resource Partners LP
Accumulated other comprehensive loss
Total members' equity
2017
2016
$
$
26,749
98,512
34,186
19,793
1,193
18,728
61,820
33,394
19,014
1,660
180,433
134,616
208,369
214,455
19,633
20,972
$
408,435
$
370,043
$
$
11,400
14,426
3,084
27,309
8,600
14,953
4,207
27,636
56,219
55,396
138,000
89,400
10,401
9,025
204,620
153,821
107,622
103,402
(7,209)
111,945
107,556
(3,279)
203,815
216,222
TOTAL LIABILITIES AND MEMBERS' EQUITY
$
408,435
$
370,043
See notes to financial statements.
4
CINER WYOMING LLC
(A Majority Owned Subsidiary of Ciner Resources LP)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In thousands of dollars)
SALES - AFFILIATES
SALES - OTHERS
Total net sales
COST OF PRODUCTS SOLD
FREIGHT COSTS
Total cost of products sold
GROSS PROFIT
2017
2016
2015
$
$
304,497
192,843
497,340
$
271,274
203,913
475,187
237,445
145,693
241,353
119,602
265,289
221,104
486,393
232,853
122,047
383,138
360,955
354,900
114,202
114,232
131,493
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - AFFILIATES
16,520
17,575
13,904
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - OTHERS
LOSS ON DISPOSAL OF ASSETS, NET
OPERATING INCOME
OTHER INCOME (EXPENSE):
Interest income
Interest expense
Other income (expense), net
Total other income (expense)
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
1,543
1,569
1,258
271
1,315
202
94,570
95,128
116,072
1,663
(4,531)
(179)
48
(3,550)
(30)
31
(3,975)
(478)
(3,047)
(3,532)
(4,422)
91,523
91,596
111,650
Income (loss) on derivative financial instruments
(3,930)
912
(3,443)
COMPREHENSIVE INCOME
See notes to financial statements.
$
87,593
$
92,508
$
108,207
5
CINER WYOMING LLC
(A Majority Owned Subsidiary of Ciner Resources LP)
STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In thousands of dollars)
Ciner
Resources LP
Natural
Resource
Partners LP
Accumulated
Other
Comprehensive
Income (Loss)
Total
Members'
Equity
$
$
$
$
105,445
$
101,311
$
(748) $
206,008
56,941
(48,705)
—
54,709
(46,796)
—
—
—
(3,443)
111,650
(95,501)
(3,443)
113,681
$
109,224
$
(4,191) $
218,714
46,714
(48,450)
—
44,882
(46,550)
—
—
—
912
91,596
(95,000)
912
111,945
$
107,556
$
(3,279) $
216,222
46,677
(51,000)
—
44,846
(49,000)
—
—
—
(3,930)
91,523
(100,000)
(3,930)
107,622
$
103,402
$
(7,209) $
203,815
Balance at December 31, 2014
Allocation of net income
Capital distribution to members
Other comprehensive income (loss)
Balance at December 31, 2015
Allocation of net income
Capital distribution to members
Other comprehensive income (loss)
Balance at December 31, 2016
Allocation of net income
Capital distribution to members
Other comprehensive income (loss)
Balance at December 31, 2017
See notes to financial statements.
6
CINER WYOMING LLC
(A Majority Owned Subsidiary of Ciner Resources LP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
91,523
$
91,596
$
111,650
2017
2016
2015
Depreciation, depletion and amortization
Loss on disposal of assets, net
Other non-cash items
(Increase) decrease in:
Accounts receivable - affiliates
Accounts receivable, net
Inventory
Other current and non-current assets
Increase (decrease) in:
Accounts payable
Accrued expenses and other liabilities
Due to affiliates
26,827
1,569
299
(36,691)
(792)
498
(189)
1,679
(1,124)
(1,124)
25,697
271
422
2,716
394
6,968
524
1,131
3,618
(426)
22,870
202
755
25,362
1,668
(3,660)
(816)
1,792
(5,312)
(713)
Net cash provided by operating activities
82,475
132,911
153,798
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility
Repayments on revolving credit facility
Repayments on other long-term debt
Debt issuance costs
Cash distribution to members
(24,757)
(25,341)
(35,659)
(24,757)
(25,341)
(35,659)
88,500
(28,500)
(8,600)
(1,097)
(100,000)
15,000
(27,000)
—
—
(95,000)
5,000
(40,000)
—
—
(95,501)
Net cash used in financing activities
(49,697)
(107,000)
(130,501)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
8,021
570
(12,362)
CASH AND CASH EQUIVALENTS:
Beginning of year
End of year
SUPPLEMENTAL DISLCOSURE OF CASH FLOW INFORMATION:
Interest paid during the year
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES :
Capital expenditures on account
See notes to financial statements
18,728
18,158
30,520
26,749
$
18,728
$
18,158
4,097
$
3,213
$
4,059
1,034
$
3,938
$
3,033
$
$
$
7
CINER WYOMING LLC
(A Majority Owned Subsidiary of Ciner Resources LP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017 AND 2016 AND FOR THE YEARS ENDED DECEMBER 31, 2017, 2016, AND 2015
(Dollars in thousands)
1. Corporate Structure
A 51% membership interest in Ciner Wyoming LLC (the "Company," "we," "us," or "our") is owned by Ciner Resources
LP ("CINR" or the "Partnership"). NRP Trona LLC, a wholly owned subsidiary of Natural Resource Partners LP ("NRP")
owns a 49% membership interest in the Company. CINR is a master limited partnership traded on the New York Stock
Exchange and is currently owned approximately 75% by Ciner Wyoming Holding Co. ("CINWHCO") and approximately
25% by the general public. CINWHCO is 100% owned by Ciner Resources Corporation ("CRC") which is 100% owned
by Ciner Enterprises, Inc. ("CINE"). As of December 31, 2017, CINE was 100% owned by Akkan Enerji ve Madencilik
Anonim irketi ("Akkan"), which is 100% owned by Turgay Ciner, the Chairman of the Ciner Group, a Turkish
conglomerate of companies engaged in energy and mining (including soda ash mining), media and shipping markets. As
described in subsequent events footnote 15, effective February 22, 2018, Akkan transferred its 100% direct ownership in
CINE to WE Soda Ltd., a UK company, which is 100% owned by KEW Soda ltd., a UK company, which is owned 100%
by Akkan.
Completed sale transaction - On October 23, 2015, CINE acquired 100% of OCI Chemical Corporation in a stock
purchase transaction from OCI Enterprises Inc. ("OCIE") (the "Transaction"). OCI Chemical Corporation was
subsequently renamed Ciner Resources Corporation. CRC owns indirectly the Company through CINWHCOs
approximately 75% ownership interest in CINR. As a result of the closing of the Transaction, OCIE no longer has any
direct or indirect ownership interest in the Company.
In connection with the closing of the Transaction, CINE (as borrower), and CINWHCO and CRC (as guarantors), entered
into a credit facility (as amended and restated or otherwise modified, the “Ciner Enterprises Credit Facility”), which is
secured by certain assets, including the common units of CINR owned by CINWHCO.
2. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations - The Company operations consists of the mining of trona ore, which, when processed, becomes
soda ash. All our soda ash processed is sold to various domestic and European customers, and to Ciner Ic ve Dis Ticaret
Anonim Sirketi ("CIDT") and American Natural Soda Ash Corporation ("ANSAC") which are affiliates for export sales.
All mining and processing activities take place in one facility located in Green River, Wyoming.
Reclassifications - To conform to the presentation as of December 31, 2017, we made a reclassification in the balance
sheet as of December 31, 2016 to include $46,467 of “Accounts receivable - ANSAC”, $9,054 of “Accounts receivable -
other affiliate” and $6,299 of “Due from affiliates, net” within “Accounts receivable -affiliates”. This reclassification had
no effect on “Total current assets” as of December 31, 2016. We also made a corresponding reclassification in the
statements of cash flows for the years ended December 31, 2016 and 2015 to include changes within “Accounts
receivable -affiliates” to include the $5,744 and $18,199 changes in “Accounts receivable - ANSAC”, the ($9,054) and $0
changes in “Accounts receivable - other affiliate”, and the $6,026 and $7,163 changes in “Due from affiliates, net” to be
included within “Accounts receivable -affiliates” among the changes in operating assets and liabilities. These
reclassifications had no effect on net cash provided by operating activities for any period.
8
A summary of the significant accounting policies is as follows:
Basis of Presentation - The accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
Use of Estimates - The preparation of financial statements, in accordance with accounting principles generally accepted in
the United States of America, requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosure of contingent assets and liabilities at the dates of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition - We recognize revenue when the earnings process is complete, which is generally upon transfer of
title. This transfer typically occurs upon shipment to the customer, which is normally free on board (“FOB”) terms or
upon receipt by the customer. In all cases, we apply the following criteria in recognizing revenue: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed, determinable or reasonably estimated
sales price has been agreed with the customer; and (4) collectability is reasonably assured. Customer rebates and
discounts are accounted for as sales deductions. We record amounts billed for shipping and handling fees as revenue.
Costs incurred for shipping and handling are recorded as costs of products sold.
Freight Costs - The Company includes freight costs billed to customers for shipments administered by the Company in
gross sales. The related freight costs along with cost of products sold are deducted from gross sales to determine gross
profit.
Cash and Cash Equivalents - The Company considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents consist primarily of money market deposit accounts.
Accounts Receivable - Accounts receivable are carried at the original invoice amount less an estimate for doubtful
receivables. We generally do not require collateral against outstanding accounts receivable. The allowance for doubtful
accounts is based on specifically identified amounts that the Company believes to be uncollectible. An additional
allowance is recorded based on certain percentages of aged receivables, which are determined based on management’s
assessment of the general financial conditions affecting the Company's customer base. We determined that no allowance
for doubtful accounts was required against receivables from affiliates as of December 31, 2017 and 2016. If actual
collection experience changes, revisions to the allowance may be required. Accounts receivable are written off when
deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. During the
years ended 2017, 2016 and 2015 there were no significant accounts receivable bad debt expenses, write-offs or
recoveries.
Inventory - Inventory is carried at the lower of cost or market. Cost is determined using the first-in, first-out method for
raw material and finished goods inventory and the weighted average cost method for stores inventory. Costs include raw
materials, direct labor and manufacturing overhead. Market is based on current replacement cost for raw materials and net
realizable value for stores inventory and finished goods.
• Raw material inventory includes material, chemicals and natural resources being used in the mining and refining
process.
• Finished goods inventory is the finished product soda ash.
• Stores inventory includes parts, materials and operating supplies which are typically consumed in the production of
soda ash and currently available for future use. Inventory expected to be consumed within the year is classified as current
assets and remainder is classified as non-current assets.
9
Property, Plant, and Equipment - Property, plant, and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives of depreciable assets, using the straight-line method. The
estimated useful lives applied to depreciable assets are as follows:
Land improvements
Depletable land
Buildings and building improvements
Internal-use computer software
Machinery and equipment
Furniture and fixtures
Useful Lives
10 years
15-60 years
10-30 years
3-5 years
5-20 years
10 years
The Company's policy is to evaluate property, plant, and equipment for impairment whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. An indicator of potential impairment would
include situations when the estimated future undiscounted cash flows are less than the carrying value. The amount of any
impairment then recognized would be calculated as the difference between estimated fair value and the carrying value of
the asset.
Derivative Instruments and Hedging Activities - The Company may enter into derivative contracts from time to time to
manage exposure to the risk of exchange rate changes on its foreign currency transactions, the risk of changes in natural
gas prices, and the risk of the variability in interest rates on borrowings. Gains and losses on derivative contracts are
reported as a component of the underlying transactions. The Company follows hedge accounting for its hedging activities.
All derivative instruments are recorded on the balance sheet at their fair values. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and the resulting designation. The Company designates
its derivatives based upon criteria established for hedge accounting under generally accepted accounting principles. For a
derivative designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with
the offsetting gain or loss on the hedged item attributed to the risk being hedged. For a derivative designated as a cash
flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other
comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. Any
significant ineffective portion of the gain or loss is reported in earnings immediately. For derivatives not designated as
hedges, the gain or loss is reported in earnings in the period of change. The Company's natural gas physical forward
contracts are accounted for under the normal purchases and normal sales scope exception.
The Company has entered into interest rate swap contracts, designed as cash flow hedges, to mitigate the exposure to
possible increases in interest rates. These contracts will mature on July 18, 2018. These contracts had an aggregate
notional value of $70,000 and $72,000 at December 31, 2017 and December 31, 2016, respectively. At December 31,
2017, it was anticipated that approximately $2 of losses currently recorded in accumulated other comprehensive income
(loss) will be reclassified into earnings within the next 12 months.
The Company has entered into natural gas forward contracts, designed as cash flow hedges, to mitigate volatility in the
price of the natural gas the Company consumes. These contracts generally have various maturities through 2022. These
contracts had an aggregate notional value of $37,087 and $30,969 at December 31, 2017 and December 31, 2016,
respectively. At December 31, 2017, it was anticipated that $1,906 of losses currently recorded in accumulated other
comprehensive income (loss) will be reclassified into earnings within the next 12 months.
10
The following table presents the fair value of derivative assets and liabilities and the respective balance sheet locations as
of:
Assets
Liabilities
December 31,
2017
December 31,
2016
December 31,
2017
December 31,
2016
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
$
$
—
—
—
—
$
—
Accrued
Expenses
$
Accrued
Expenses
2
$
439
Other
current
assets
Accrued
Expenses
601
1,906
Other
non-
current
liabilities
—
Other
non-
current
liabilities
5,301
—
3,441
$
601
$
7,209
$
3,880
(In millions)
Derivatives designated as
hedges:
Interest rate swap contracts -
current
Natural gas forward contracts -
current
Natural gas forward contracts -
non-current
Total derivatives designated
as hedging instruments
Income Tax - The Company is organized as a pass-through entity for federal and most state income tax purposes. States
that do assess taxes on the Company are de minimis. As a result, the members are responsible for federal income taxes
based on their respective share of taxable income. Net income for financial statement purposes may differ significantly
from taxable income reportable to members as a result of differences between the tax bases and financial reporting bases
of assets and liabilities and the taxable income allocation requirements under the membership agreement.
Reclamation Costs - The Company is obligated to return the land beneath its refinery and tailings ponds to its natural
condition upon completion of operations and is required to return the land beneath its rail yard to its natural condition
upon termination of the various lease agreements.
The Company accounts for its land reclamation liability as an asset retirement obligation, which requires that obligations
associated with the retirement of a tangible long-lived asset be recorded as a liability when those obligations are incurred,
with the amount of the liability initially measured at fair value. Upon initially recognizing a liability for an asset
retirement obligation, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated
over the estimated useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for
its recorded amount or incurs a gain or loss upon settlement.
The estimated original liability calculated in 1996 for the refinery and tailing ponds was calculated based on the estimated
useful life of the mine, which was 80 years, and on external and internal estimates as to the cost to restore the land in the
future and state regulatory requirements. In 2018, the mining reserve will be amortized over a remaining life of 60 years.
During 2017, 2016 and 2015 the remaining life was 61 years, 67 years and 68 years, respectively. The liability was
discounted using a weighted average credit-adjusted risk free rate of approximately 6% and is being accreted throughout
the estimated life of the related assets to equal the total estimated costs with a corresponding charge being recorded to
cost of products sold.
During 2011, the Company constructed a rail yard to facilitate loading and switching of rail cars. The Company is
required to restore the land on which the rail yard is constructed to its natural conditions. The original estimated liability
for restoring the rail yard to its natural condition was calculated based on the land lease life of 30 years and on external
and internal estimates as to the cost to restore the land in the future. The liability is discounted using a credit-adjusted
risk-free rate of 4.25% and is being accreted throughout the estimated life of the related assets to equal the total estimated
costs with a corresponding charge being recorded to cost of products sold.
11
Fair Value of Financial Instruments - The following methods and assumptions were used to estimate the fair values of
each class of financial instruments:
Financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable
and accrued expenses approximate their fair value because of the nature of such instruments. Our long-term debt and
derivative financial instruments are measured at their fair values with Level 2 inputs based on quoted market values for
similar but not identical financial instruments.
Long-Term Debt - The carrying value of our long-term debt materially reflects the fair value of our long-term debt as
rates are variable and its key terms are similar to indebtedness with similar amounts, durations and credit risks.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair
value measurement. Fair value accounting requires that these financial assets and liabilities be classified into one of the
following three categories:
• Level 1-inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active
market.
• Level 2-inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or
model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or
liability.
• Level 3-inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset
or liability.
Subsequent Events - The Company has evaluated all subsequent events through March 1, 2018, the date the financial
statements were available to be issued.
Recently Issued Accounting Standards - In May 2014, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) that requires
companies to recognize revenue when a customer obtains control rather than when companies have transferred
substantially all risks and rewards of a good or service. The Company should apply the guidance in ASU 2014-09 to
annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting
period. The Company has completed its evaluation of the provisions of this ASU and does not expect our adoption of
ASU 2014-09 to materially change the amount or timing of revenues recognized by us, nor expect it to materially affect
our financial position. The majority of our revenues generated are recognized upon delivery and transfer of title to the
product to our customers. The time at which delivery and transfer of title occurs, for the majority of our contracts with
customers, is the point when the product leaves our facility, thereby rendering our performance obligation fulfilled. The
FASB issued various amendments to ASU 2014-09, one of which includes allowing entities to elect to account for
shipping and handling activities performed after the control of a good has been transferred to the customer as a fulfillment
cost versus an obligation of a promised service. The Company expects to make this an accounting policy election upon
adoption to account for shipping and handling activities as fulfillment costs, which is not expected to have a material
impact on our financial statements. The Company adopted this ASU effective January 1, 2018, as permitted by the ASU,
using the modified retrospective method.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The update amends existing standards for
accounting for leases by lessees, with accounting for leases by lessors remaining largely unchanged from current
guidance. The update requires that lessees recognize a lease liability and a right of use asset for all leases (with the
exception of short-term leases) at the commencement date of the lease and disclose key information about leasing
arrangements. The update is effective for interim and annual periods beginning after December 15, 2018 and must be
adopted using a modified retrospective transition. The ASU No. 2016-02 provides for certain practical expedients and
12
early adoption is permitted. The Company is evaluating the potential impact the adoption of ASU No. 2016-02 will have
on its financial statements.
In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging — Targeted Improvements to Accounting for
Hedging Activities. This ASU aims to improve the financial reporting of hedging relationships to better portray the
economic results of an entity’s risk management activities in its financial statements. In addition, this ASU make certain
targeted improvements to simplify the application of the existing hedge accounting guidance. This ASU is effective for us
beginning in the first quarter of 2019, with early application permitted. The Company is evaluating the effect the standard
will have on its consolidated financial statements.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net as of December 31, 2017 and 2016 consists of the following:
Trade receivables
Other receivables
Allowance for doubtful accounts
Total
4. INVENTORY
Inventory as of December 31, 2017 and 2016 consists of the following:
Raw materials
Finished goods
Stores inventory, current
Total
2017
2016
27,480
6,731
34,211
(25)
34,186
$
$
27,311
6,233
33,544
(150)
33,394
2017
2016
10,076
3,233
6,484
19,793
$
$
7,717
5,764
5,533
19,014
$
$
$
$
5. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment as of December 31, 2017 and 2016 consists of the following:
Land and land improvements
Depletable land
Buildings and building improvements
Internal-use computer software
Machinery and equipment
Total
Less accumulated depreciation, depletion and amortization
Total net book value
Construction in progress
Property, plant, and equipment, net
2017
192
2,957
134,974
5,346
624,415
767,884
(592,045)
175,839
32,530
208,369
$
$
2016
192
2,957
133,149
5,123
598,954
740,375
(570,342)
170,033
44,422
214,455
$
$
Depreciation, depletion and amortization expense on property, plant and equipment was $26,418, $25,345 and $22,519
for the years ended December 31, 2017, 2016 and 2015, respectively.
13
6. OTHER NON-CURRENT ASSETS
Other non-current assets as of December 31, 2017 and 2016 consists of the following:
Stores inventory, non-current
Deferred financing costs and other
Total
7. ACCRUED EXPENSES
Accrued expenses as of December 31, 2017 and 2016 consists of the following:
Accrued employee compensation
Accrued energy costs
Accrued royalty costs
Accrued other taxes
Accrued derivatives
Other accruals
Total
8. DEBT
Long-term debt as of December 31, 2017 and 2016 consists of the following:
Variable Rate Demand Revenue Bonds, principal due October 1, 2018, interest payable
monthly, bearing an interest rate of 1.82% at December 31, 2017 and 0.87% at December 31,
2016
Variable Rate Demand Revenue Bonds, principal due August 1, 2017, interest payable
monthly, bearing an interest rate of 0.87% at December 31, 2016
Former Ciner Wyoming Credit Facility, unsecured principal expiring on July 18, 2018,
variable interest rate as a weighted average rate of 2.36% at December 31, 2016
Ciner Wyoming Credit Facility, unsecured principal expiring on August 1, 2022, variable
interest rate as a weighted average rate of 3.08% at December 31, 2017
Total debt
Less current portion of long-term debt
Total long-term debt
Aggregate maturities required on long-term debt at December 31, 2017 are as follows:
2018
2019
2020
2021
2022
Total
14
2017
2016
18,589
1,044
19,633
$
$
20,671
301
20,972
2017
2016
6,551
5,245
4,533
4,753
1,908
4,319
27,309
$
$
6,993
5,582
4,619
4,812
439
5,191
27,636
$
$
$
$
2017
2016
$
11,400
$
11,400
—
—
138,000
149,400
11,400
138,000
$
$
$
$
8,600
78,000
—
98,000
8,600
89,400
11,400
—
—
—
138,000
149,400
Revenue Bonds
The Variable Rate Demand Revenue Bonds are held by CINWYLLC. These revenue bonds require the Company to
maintain standby letters of credit totaling $11,606 and $20,333 at December 31, 2017 and 2016, respectively. These
letters of credit require compliance with certain covenants, including minimum net worth, maximum debt to net worth,
and interest coverage ratios. As of December 31, 2017, the Company was in compliance with these debt covenants.
Ciner Wyoming Credit Facility
On August 1, 2017, the Company entered into a Credit Agreement (“Ciner Wyoming Credit Facility”) with each of the
lenders listed on the respective signature pages thereof and PNC Bank, National Association, as administrative agent,
swing line lender and a Letter of Credit ("L/C") issuer. The Ciner Wyoming Credit Facility replaces the former Credit
Facility, dated as of July 18, 2013, by and among the Company, the lenders party thereto and Bank of America, N.A., as
administrative agent, swing line lender and L/C issuer, as amended (the “Former Ciner Wyoming Credit Facility”), which
was terminated on August 1, 2017 upon entry into the Ciner Wyoming Credit Facility. This arrangement was accounted
for as a modification of debt in accordance with Accounting Standards Codification (“ASC”) 470-50.
The Ciner Wyoming Credit Facility is a $225,000 senior unsecured revolving credit facility with a syndicate of lenders,
which will mature on the fifth anniversary of the closing date of such credit facility. The Ciner Wyoming Credit Facility
provides for revolving loans to fund working capital requirements, capital expenditures, to consummate permitted
acquisitions and for all other lawful Company purposes. The Ciner Wyoming Credit Facility has an accordion feature that
allows Ciner Wyoming to increase the available revolving borrowings under the facility by up to an additional $75,000,
subject to the Company receiving increased commitments from existing lenders or new commitments from new lenders
and the satisfaction of certain other conditions. In addition, the Ciner Wyoming Credit Facility includes a sublimit up to
$20,000 for same-day swing line advances and a sublimit up to $40,000 for letters of credit.
The Ciner Wyoming Credit Facility contains various covenants and restrictive provisions that limit (subject to certain
exceptions) the Company’s ability to:
• make distributions on or redeem or repurchase units;
•
incur or guarantee additional debt;
• make certain investments and acquisitions;
•
incur certain liens or permit them to exist;
• enter into certain types of transactions with affiliates of the Company;
• merge or consolidate with another company; and
•
transfer, sell or otherwise dispose of assets.
The Ciner Wyoming Credit Facility also requires quarterly maintenance of a consolidated leverage ratio (as defined in the
Ciner Wyoming Credit Facility) of not more than 3.00 to 1.00 and a consolidated interest coverage ratio (as defined in the
Ciner Wyoming Credit Facility) of not less than 3.00 to 1.00.
The Ciner Wyoming Credit Facility contains events of default customary for transactions of this nature, including (i)
failure to make payments required under the Ciner Wyoming Credit Facility, (ii) events of default resulting from failure to
comply with covenants and financial ratios in the Ciner Wyoming Credit Facility,
(iii) the occurrence of a change of control, (iv) the institution of insolvency or similar proceedings against Ciner
Wyoming and (v) the occurrence of a default under any other material indebtedness the Company may have. Upon the
occurrence and during the continuation of an event of default, subject to the terms and
15
conditions of the Ciner Wyoming Credit Facility, the administrative agent at the request of shall, or with the consent of
the Required Lenders (as defined in the Ciner Wyoming Credit Facility) may terminate all outstanding commitments
under the Ciner Wyoming Credit Facility and may declare any outstanding principal
of the Ciner Wyoming Credit Facility debt, together with accrued and unpaid interest, to be immediately due and payable.
Under the Ciner Wyoming Credit Facility, a change of control is triggered if CRC and its wholly-owned subsidiaries,
directly or indirectly, cease to own all of the equity interests, or cease to have the ability to elect a majority of the board of
directors (or similar governing body) of the General Partner of CINR (or any entity that performs the functions of the
general partner of CINR). In addition, a change of control would be triggered if CINR ceases to own at least 50.1% of the
economic interests in the Company or cease to have the ability to elect a majority of the members of the Company's board
of managers.
Loans under the Ciner Wyoming Credit Facility bear interest at the Company’s option at either:
• a Base Rate, which equals the highest of (i) the federal funds rate in effect on such day plus 0.50%, (ii) the
administrative agent’s prime rate in effect on such day or (iii) one-month LIBOR plus 1.0%, in each case, plus
an applicable margin; or
• Eurodollar Rate plus an applicable margin.
The unused portion of the Ciner Wyoming Credit Facility is subject to an unused line fee ranging from 0.225% to 0.300%
per annum based on Ciner Wyoming’s then current leverage ratio.
At December 31, 2017, Ciner Wyoming was in compliance with all financial covenants of the Ciner Wyoming Credit
Facility.
Former Ciner Wyoming Credit Facility
At December 31, 2016, the Company had a $190,000 senior unsecured revolving credit facility, as amended on October
30, 2014 and May 25, 2016 (as amended, the "Former Ciner Wyoming Credit Facility"), with a syndicate of lenders,
which would mature in July 2018. The Former Ciner Wyoming Credit Facility provided for revolving loans to fund
working capital requirements, capital expenditures, to consummate permitted acquisitions and for all other lawful
Company purposes. The Former Ciner Wyoming Credit Facility had an accordion feature that allowed the Company to
increase the available revolving borrowings under the facility by up to an additional $75,000, subject to the Company
receiving increased commitments from existing lenders or new commitments from new lenders and the satisfaction of
certain other conditions. In addition, the Former Ciner Wyoming Credit Facility included a sublimit up to $20,000 for
same-day swing line advances and a sublimit up to $40,000 for letters of credit. The Company's obligations under the
Former Ciner Wyoming Credit Facility are unsecured.
The Former Ciner Wyoming Credit Facility contained various covenants and restrictive provisions that limited (subject to
certain exceptions) the Company's ability to:
• make distributions on or redeem or repurchase units;
•
incur or guarantee additional debt;
• make certain investments and acquisitions;
•
incur certain liens or permit them to exist;
• enter into certain types of transactions with affiliates of the Company;
• merge or consolidate with another Company; and
•
transfer, sell or otherwise dispose of assets.
16
The Former Ciner Wyoming Credit Facility also required quarterly maintenance of a leverage ratio (as defined in the
Former Ciner Wyoming Credit Facility) of not more than 3.00 to 1.00 and a fixed charge coverage ratio (as defined in the
Former Ciner Wyoming Credit Facility) of not less than 1.00 to 1.00. The Former Ciner Wyoming Credit Facility also
required that capital expenditures, as defined in the Former Ciner Wyoming Credit Facility, not exceed $50,000 in any
fiscal year.
In addition, the Former Ciner Wyoming Credit Facility contained events of default customary for transactions of this
nature, including (i) failure to make payments required under the Former Ciner Wyoming Credit Facility, (ii) events of
default resulting from failure to comply with covenants and financial ratios in the Former Ciner Wyoming Credit Facility,
(iii) the occurrence of a change of control, (iv) the institution of insolvency or similar proceedings against the Company
and (v) the occurrence of a default under any other material indebtedness the Company may have. Upon the occurrence
and during the continuation of an event of default, subject to the terms and conditions of the Former Ciner Wyoming
Credit Facility, the lenders may terminate all outstanding commitments under the Former Ciner Wyoming Credit Facility
and may declare any outstanding principal of the Former Ciner Wyoming Credit Facility debt, together with accrued and
unpaid interest, to be immediately due and payable.
Under the Former Ciner Wyoming Credit Facility, a change of control is triggered if CRC and its wholly-owned
subsidiaries, directly or indirectly, cease to own all of the equity interests, or cease to have the ability to elect a majority
of the board of directors (or similar governing body) of the general partner of CINR (or any entity that performs the
functions the general partner of CINR). In addition, a change of control would be triggered if CINR ceases to own at least
50.1% of the economic interests in the Company or cease to have the ability to elect a majority of the members of the
Company's board of managers.
The Company was in compliance with all terms under its long-term debt agreements as of December 31, 2016.
Loans under the Former Ciner Wyoming Credit Facility bore interest at the Company's option at either:
• a Base Rate, which equals the highest of (i) the federal funds rate in effect on such day plus 0.50%, (ii) the
administrative agent's prime rate in effect on such day or (iii) one-month LIBOR plus 1.0%, in each case, plus an
applicable margin; or
• a LIBOR Rate plus an applicable margin.
The unused portion of the Former Ciner Wyoming Credit Facility was subject to an unused line fee ranging from 0.275%
to 0.350% per annum based on the Company's then current leverage ratio.
Ciner Enterprises Credit Agreement
In addition, there are restrictions in the Ciner Enterprises Credit Agreement that affect the Company. Specifically, Ciner
Enterprises has agreed (subject to certain exceptions in addition to those described below) that it will not, and will not
permit any of its subsidiaries, including the Company to:
• make distributions on or redeem or repurchase equity interests, other than distributions to the Companies
members;
incur or guarantee additional debt, other than debt incurred under the Ciner Wyoming Credit Facility, among
•
certain other types of permitted debt;
• make certain investments and acquisitions, other than investments in the Company, in an amount not to
exceed $10,000 per calendar year and other exceptions set forth therein;
incur certain liens or permit them to exist, other than, with respect to the Companies liens, an aggregate
•
amount outstanding at any time equal to $1,000;
17
• enter into certain types of transaction with affiliates, other than transactions between Ciner Wyoming and
CINR;
• merge or consolidate with another company; or
transfer, sell or otherwise dispose of assets, other than the Companies disposition of assets with a net book
•
value not to exceed $2,500, in any given year.
9. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities as of December 31, 2017 and 2016 consists of the following:
Reclamation reserve
Derivative instruments and hedges, fair value liabilities
Other
Total
Details of the reclamation reserve shown above are as follows:
Reclamation reserve at beginning of year
Accretion expense
Reclamation adjustment
Reclamation reserve at end of year
2017
2016
5,080
5,301
20
10,401
2017
5,537
300
(757)
5,080
$
$
$
$
5,537
3,441
47
9,025
2016
4,457
262
818
5,537
$
$
$
$
The reclamation adjustments are primarily a result of changes in the self-bond agreement with the Wyoming Department
of Environmental Quality. See Note 12 "Commitments and Contingencies" for additional information.
10. EMPLOYEE BENEFIT PLANS
The Company participates in various benefit plans offered and administered by CRC (administered by OCIE prior to the
Transaction) and has allocated its portions of the annual costs related thereto. The specific plans are as follows:
Retirement Plans - Benefits provided under the Ciner Pension Plan for Salaried Employees and Ciner Pension Plan for
Hourly Employees are based upon years of service and average compensation for the highest 60 consecutive months of
the employee's last 120 months of service, as defined. Each plan covers substantially all full-time employees hired before
May 1, 2001. The retirement plans had an accumulated benefit obligation of $57,370 and $61,487 at December 31, 2017
and 2016, respectively. CRC's funding policy is to contribute an amount within the range of the minimum required and
the maximum tax-deductible contribution. The Company's allocated portion of net periodic pension cost was $1,358,
$2,015 and $7,731 for the years ended December 31, 2017, 2016 and 2015, respectively. The decrease in pension costs in
2017 was driven by improved discount rates.
Savings Plan - The Ciner 401(k) Retirement Plan covers all eligible hourly and salaried employees. Eligibility is limited
to all domestic residents and any foreign expatriates who are in the United States indefinitely. The plan permits
employees to contribute specified percentages of their compensation, while the Company makes contributions based upon
specified percentages of employee contributions. The Plan was amended such that participants hired on or subsequent to
May 1, 2001, will receive an additional contribution from the Company based on a percentage of the participant’s base
pay. Contributions made by the Company for the years ended December 31, 2017, 2016 and 2015 were $3,735, $1,625
and $2,582, respectively. The increase in 2017 was primarily due to the incremental contributions that were not made in
prior year's comparative period due to the acquisition of CRC from OCI and the accelerated payouts in 2015.
18
Postretirement Benefits - Most of the Company's employees are eligible for postretirement benefits other than pensions if
they reach retirement age while still employed.
CRC accounts for postretirement benefits on an accrual basis over an employee’s period of service. The postretirement
plan, excluding pensions, are not funded, and CRC has the right to modify or terminate the plan. The post-retirement
benefits had a benefits obligation of $11,465 and $20,586 for the years ended December 31, 2017 and 2016, respectively.
The decrease in the obligation as of December 31, 2017 compared to December 31, 2016 is due to the CRC amending its
postretirement benefit plan to increase eligibility requirements at which participants may begin receiving benefits,
implemented a subsidy rather than a premium for the benefit plan, and eliminating plan eligibility for individuals hired
after December 31, 2016. The Company's allocated portion of postretirement (benefit) costs was $(2,823), $1,400 and
$495 for the years ended December 31, 2017, 2016 and 2015, respectively. The postretirement benefit for the Company
in 2017 is due to the aforementioned changes made to the postretirement benefit plans during 2017.
11. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss as of December 31, 2017, 2016 and 2015 consists of the following:
BALANCE at December 31, 2014
Other comprehensive loss before reclassification
Amounts reclassified from accumulated other comprehensive loss
Interest Rate
Swap
Contract
Natural Gas
Forwards
Contracts
$
(748) $
— $
(1,098)
1,027
(3,722)
350
Total
(748)
(4,820)
1,377
Net current-period other comprehensive income (loss)
(71)
(3,372)
(3,443)
BALANCE at December 31, 2015
$
(819) $
(3,372) $
(4,191)
Other comprehensive loss before reclassification
Amounts reclassified from accumulated other comprehensive loss
Net current-period other comprehensive income (loss)
(401)
781
380
(544)
1,076
532
(945)
1,857
912
BALANCE at December 31, 2016
$
(439) $
(2,840) $
(3,279)
Other comprehensive income (loss) before reclassification
Amounts reclassified from accumulated other comprehensive loss
Net current-period other comprehensive income (loss)
61
376
437
(5,411)
1,044
(5,350)
1,420
(4,367)
(3,930)
BALANCE at December 31, 2017
$
(2) $
(7,207) $
(7,209)
The components of other comprehensive income/(loss), attributable to the Company, that have been reclassified out of
Accumulated other comprehensive loss consisted of the following:
2017
2016
2015
Affected Line Items on the
Statements of Operations and
Comprehensive Income
Details about other comprehensive income/(loss)
components:
Gains and losses on cash flow hedges:
Interest rate swap contracts
Commodity hedge contracts
Total reclassifications for the period
$
$
376
1,044
1,420
$
$
781
1,076
1,857
$
$
1,027
350
1,377
Interest expense
Cost of Products Sold
19
12. COMMITMENTS AND CONTINGENCIES
The Company leases mineral rights from the U.S. Bureau of Land Management, the state of Wyoming, Rock Springs
Royalty Corp., a wholly owned subsidiary of Anadarko Holding Company, and other private parties. All of these leases
provide for royalties based upon production volume. The remaining leases provide for minimum lease payments as
detailed in the table below. The Company has a perpetual right of first refusal with respect to these leases and intends to
continue renewing the leases as has been its practice.
The Company entered into a 10 year rail yard switching and maintenance agreement with a third party, Watco
Companies, LLC, on December 1, 2011. Under the agreement, Watco provides rail-switching services at the Company’s
rail yard. The Company's rail yard is constructed on land leased by Watco from Rock Springs Grazing Association and
Anadarko Land Corp; the Rock Springs Grazing Association land lease is renewable every 5 years for a total period of
30 years, while the Anadarko Land Corp. lease is perpetual. The Company has an option agreement with Watco to assign
these leases to the Company at any time during the land lease term.
The Company entered into two track lease agreements, collectively, not to exceed 10 years with Union Pacific Company
for certain rail tracks used in connection with the rail yard.
As of December 31, 2017, the total minimum rental commitments under the Company’s various operating leases,
including renewal periods are as follows:
2018
2019
2020
2021
2022
2023 and thereafter
Total
Leased Land
75
$
75
75
75
75
1,350
1,725
$
Track Leases
70
$
70
70
33
—
—
243
$
$
$
Total
145
145
145
108
75
1,350
1,968
CRC, on behalf of the Company, typically enters into operating lease contracts with various lessors for railcars to
transport product to customer locations and warehouses. Railcar leases under these contractual commitments range for
periods from 1 to 10 years. CRC's obligations related to these railcar leases are $12,086 in 2018, $11,137 in 2019, $8,481
in 2020, $5,869 in 2021, $3,805 in 2022 and $6,161 in 2023 and thereafter. Total lease expense allocated to the Company
was approximately $14,628, $14,476 and $12,415 for the years ended December 31, 2017, 2016 and 2015, respectively.
Purchase Commitments - The Company has natural gas supply contracts to mitigate volatility in the price of natural gas.
As of December 31, 2017, these contracts totaled $29,474 for the purchase of a portion of our gas requirements over
approximately the next three years. The supply purchase agreements have specific commitments of $14,253 in 2018,
$8,366 in 2019 and $6,855 in 2020. The Company has a separate contract that expires in 2021, for transportation of
natural gas with an average annual cost of approximately $3,870 per year.
Legal and Environmental - From time to time the Company is party to various claims and legal proceedings related to its
business. Although the outcome of these proceedings cannot be predicted with certainty, management does not currently
expect any of the legal proceedings the Company is involved in to have a material effect on its business, financial
condition and results of operations. The Company cannot predict the nature of any future claims or proceedings, nor the
ultimate size or outcome of existing claims and legal proceedings and whether any damages resulting from them will be
covered by insurance.
Off-Balance Sheet Arrangements - The Company has a self-bond agreement with the Wyoming Department of
Environmental Quality under which it commits to pay directly for reclamation costs at our Wyoming Plant site. As of
December 31, 2017 and 2016, the amount of the bond was $32,900 and $38,200, respectively, which is the amount we
20
would need to pay the State of Wyoming for reclamation costs if we cease mining operations currently. The amount of
this self-bond is subject to change upon periodic re-evaluation by the Land Quality Division.
13. AFFILIATES TRANSACTIONS
CRC is the exclusive sales agent for the Company and through its membership in ANSAC, CRC is responsible for
promoting and increasing the use and sale of soda ash and other refined or processed sodium products produced. ANSAC
operates on a cooperative service-at-cost basis to its members such that typically any annual profit or loss is passed
through to the members. In the event an ANSAC member exits or the ANSAC cooperative is dissolved, the exiting
members are obligated for their respective portion of the residual net assets or deficit of the cooperative. All actual sales
and marketing costs incurred by CRC are charged directly to the Company. Selling, general and administrative expenses
also include amounts charged to the Company by CRC principally consisting of salaries, benefits, office supplies,
professional fees, travel, rent and other costs of certain assets used by the Company. On October 23, 2015 the Company
entered into a Services Agreement (the “Services Agreement”) with CRC. Pursuant to the Services Agreement, CRC has
agreed to provide the Company with certain corporate, selling, marketing, and general and administrative services, in
return for which the Company has agreed to pay CRC an annual management fee and reimburse CRC for certain third-
party costs incurred in connection with providing such services. These transactions do not necessarily represent arm's
length transactions and may not represent all costs if the Company operated on a standalone basis. In November 2016,
CRC, on behalf of the Company, entered into a soda ash sales agreement with CIDT, an affiliate of Ciner Group, that sells
soda ash to international markets not served by ANSAC. The terms of our sales agreement with CIDT are similar to our
agreements with other international customers. The receivables associated with these sales are recorded in accounts
receivable - affiliates line item on the balance sheet and interest earned is recorded in the interest income line item in the
Statement of Operations and Comprehensive Income. CIDT is ultimately owned and controlled by the Ciner Group.
As a result of the closing of the Transaction discussed in Note 1 - "Corporate Structure," CINE owns indirectly and
controls the Company, therefore, OCIE and subsidiaries, including OCI Alabama LLC, are no longer related parties of the
Company as of the Transaction date. The following table includes transactions with OCIE and subsidiaries prior to the
Transaction date.
The total costs (recoveries) charged to the Company by affiliates for the years ended December 31, 2017, 2016 and 2015
are as follows:
OCI Enterprises Inc.
CRC
ANSAC (1)
CINR
Total selling, general and administrative expenses - affiliates
2017
2016
2015
$
$
— $
— $
13,549
2,487
484
16,520
$
13,754
3,821
—
17,575
$
4,535
5,587
3,793
(11)
13,904
(1) ANSAC allocates its expenses to its members using a pro rata calculation based on sales.
Cost of products sold includes logistics services charged by ANSAC. For the years ended December 31, 2017, 2016 and
2015 these costs were $19,573, $3,278 and $8,134, respectively. The increase in 2017 was driven by non-ANSAC export
sales volume, primarily CIDT because the Company elects to use ANSAC to provide freight services for our other non-
ANSAC international sales, and ANSAC separately and directly charges the Company for such services.
21
Net sales to affiliates for the years ended December 31, 2017, 2016 and 2015 are as follows:
ANSAC
CIDT
OCI Alabama LLC
Total
2017
222,231
82,266
—
304,497
$
$
2016
262,220
9,054
—
271,274
$
$
2015
261,023
—
4,266
265,289
$
$
As of December 31, 2017 and 2016, the Company had due from/to with affiliates as follows:
ANSAC
CIDT
CRC
Ciner Resources Europe NV
Other
Total
2017
2016
Due from
Affiliates
Due to
Affiliates
Due from
Affiliates
Due to
Affiliates
$
$
57,673
32,841
7,803
—
195
98,512
$
$
1,338
—
1,641
—
105
3,084
$
$
46,467
9,054
3,932
2,230
137
61,820
$
$
2,537
—
1,670
—
—
4,207
14. MAJOR CUSTOMERS AND SEGMENT REPORTING
Our operations are similar in nature of products we provide and type of customers we serve. As the Company earns
substantially all of its revenues through the sale of soda ash mined at a single location, we have concluded that we have
one operating segment for reporting purposes. The net sales by geographic area for the years ended December 31, 2017,
2016 and 2015 are as follows:
Domestic
International:
ANSAC
CIDT
Other
Total international
Total net sales
15. SUBSEQUENT EVENTS
2017
192,843
$
2016
192,550
$
2015
194,036
222,231
82,266
—
304,497
497,340
$
262,220
9,054
11,363
282,637
475,187
$
261,023
—
31,334
292,357
486,393
$
$
On February 1, 2018, the members of the Board of Managers of Ciner Wyoming, approved a cash distribution to the
members in the aggregate amount of $25,000. The distribution was paid on February 8, 2018.
Effective February 22, 2018, Akkan transferred its 100% direct ownership in CINE to WE Soda Ltd., a UK company,
which is 100% owned by KEW Soda ltd., a UK company, which is owned 100% by Akkan.
******
22
2017 Financial HighlightsFOR THE YEARS ENDED DECEMBER 31(in thousands, except per unit) 2017 2016 2015 2014 2013Total revenues and other income $ 378,017 $ 400,059 $ 439,648 $ 350,918 $ 352,739Asset impairments $ 3,031 $ 16,926 $ 384,545 $ 26,209 $ 734Income (loss) from operations $ 183,975 $ 185,745 $ (170,427) $ 176,140 $ 233,740Net income (loss) from continuing operations $ 89,208 $ 95,214 $ (260,171) $ 96,713 $ 169,621Net income from continuing operations $ 92,239 $ 112,140 $ 124,374 $ 122,922 $ 170,355 excluding impairmentsNet income (loss) from discontinued operations $ (541) $ 1,678 $ (311,549) $ 12,117 $ 2,457Net income (loss) $ 88,667 $ 96,892 $ (571,720) $ 108,830 $ 172,078PER COMMON UNIT AMOUNTS (BASIC) Net income (loss) from continuing operations $ 5.11 $ 7.65 $ (20.78) $ 8.37 $ 15.17 Net income (loss) from discontinued operations $ (0.04) $ 0.13 $ (24.97) $ 1.05 $ 0.22 Net income (loss) $ 5.06 $ 7.78 $ (45.75) $ 9.42 $ 15.39 PER COMMON UNIT AMOUNTS (DILUTED) Net income (loss) from continuing operations $ 3.98 $ 7.65 $ (20.78) $ 8.37 $ 15.17 Net income (loss) from discontinued operations $ (0.02) $ 0.13 $ (24.97) $ 1.05 $ 0.22 Net income (loss) $ 3.96 $ 7.78 $ (45.75) $ 9.42 $ 15.39 Distributions paid per common unit $ 1.80 $ 1.80 $ 2.70 $ 14.00 $ 22.00Average number of common units outstanding – basic 12,232 12,232 12,232 11,326 10,958Average number of common units outstanding – diluted 21,950 12,232 12,232 11,326 10,958NET CASH PROVIDED BY (USED IN) Operating activities of continuing operations $ 127,838 $ 100,643 $ 168,512 $ 192,164 $ 246,891 Investing activities of continuing operations $ 3,337 $ 59,943 $ 6,985 $ (169,512) $ (230,436) Financing activities of continuing operations $ (141,719) $ (161,419) $ (183,264) $ (65,986) $ (73,574)Distributable cash flow(1) $ 132,142 $ 271,415 $ 176,617 $ 196,929 $ 306,690Adjusted EBITDA(1) $ 231,542 $ 255,432 $ 262,621 $ 263,775 $ 328,452Cash and cash equivalents $ 29,827 $ 40,371 $ 41,204 $ 48,971 $ 92,305Total assets $ 1,389,164 $ 1,448,649 $ 1,674,865 $ 2,431,549 $ 1,981,432Current portion of long-term debt, net $ 79,740 $ 140,037 $ 80,745 $ 80,745 $ 80,745Long-term debt, net $ 729,608 $ 990,234 $ 1,130,696 $ 1,190,558 $ 993,295Class A Convertible Preferred Units $ 173,431 $ – $ – $ – $ –Partners’ capital $ 265,211 $ 151,530 $ 76,336 $ 720,155 $ 616,789(1) See “Non-GAAP Financial Measures” in the enclosed Form 10-K. Partnership Headquarters1201 Louisiana Street Suite 3400 Houston, TX 77002 713.751.7507Regional OfficesCoal and Hard Minerals 5260 Irwin Road Huntington, WV 25705VantaCore Headquarters 1600 Market Street 38th Floor Philadelphia, PA 19103Investor RelationsKathy Roberts 1201 Louisiana Street Suite 3400 Houston, TX 77002 713.751.7555 Email: kroberts@nrplp.comStock ExchangeOur units are listed on the New York Stock Exchange under the symbol NRP.Independent AuditorsErnst & Young LLP 5 Houston Center 1401 McKinney, Suite 1200 Houston, TX 77001-2007Transfer Agent and RegistrarAmerican Stock Transfer and Trust Company Client Operations 6201 15th Avenue Brooklyn, NY 11219 Website: www.amstock.com Email: info@amstock.com 800.937.5449Websitewww.nrplp.comInformation regarding Natural Resource Partners L.P. is located on the partnership’s website. On the site is operational and financial information as well as all SEC filings and our corporate governance documents, including our Code of Business Conduct and Ethics, our Corporate Governance Guidelines and Board of Directors’ Audit Committee Charter. Requests for copies of the annual report or other data may be made through the website or by contacting Investor Relations. These requests will be provided free of charge.Contact NRP BoardWe have established procedures for contacting the non-management members of the NRP Board of Directors. To communicate any concerns or issues to the Board of Directors, please direct any correspondence to:Chairman of the CNG Committee NRP Board of Directors 1201 Louisiana Street, Suite 3400 Houston, TX 77002 888.252.2396Schedule K-1Unitholders receive Schedule K-1 packages that summarize their allocated share of the partnership’s reportable tax items for the calendar year. Generally, these K-1s are available on NRP’s website no later than mid-March. Unitholders should refer questions regarding their Schedule K-1 to the following:Natural Resource Partners L.P. Tax Package Support P.O. Box 799060 Dallas, TX 75379-9060 Fax: 1.866.554.3842 Toll Free: 1.888.334.7102Forward-Looking StatementsStatements included in this annual report may constitute forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements which are also forward-looking statements.Such forward-looking statements include, among other things, statements regarding capital expenditures and acquisitions, expected commencement dates of mining, projected quantities of future production by our lessees producing from our reserves, and projected demand or supply for coal, trona, soda ash and aggregates that will affect sales levels, prices and royalties realized by us.These forward-looking statements speak only as of the date hereof and are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.You should not put undue reliance on any forward-looking statements. Please read “Item 1A. Risk Factors” of the Form 10-K for important factors that could cause our actual results of operations or our actual financial condition to differ.Unitholder Information2017 Financial HighlightsFOR THE YEARS ENDED DECEMBER 31(in thousands, except per unit) 2017 2016 2015 2014 2013Total revenues and other income $ 378,017 $ 400,059 $ 439,648 $ 350,918 $ 352,739Asset impairments $ 3,031 $ 16,926 $ 384,545 $ 26,209 $ 734Income (loss) from operations $ 183,975 $ 185,745 $ (170,427) $ 176,140 $ 233,740Net income (loss) from continuing operations $ 89,208 $ 95,214 $ (260,171) $ 96,713 $ 169,621Net income from continuing operations $ 92,239 $ 112,140 $ 124,374 $ 122,922 $ 170,355 excluding impairmentsNet income (loss) from discontinued operations $ (541) $ 1,678 $ (311,549) $ 12,117 $ 2,457Net income (loss) $ 88,667 $ 96,892 $ (571,720) $ 108,830 $ 172,078PER COMMON UNIT AMOUNTS (BASIC) Net income (loss) from continuing operations $ 5.11 $ 7.65 $ (20.78) $ 8.37 $ 15.17 Net income (loss) from discontinued operations $ (0.04) $ 0.13 $ (24.97) $ 1.05 $ 0.22 Net income (loss) $ 5.06 $ 7.78 $ (45.75) $ 9.42 $ 15.39 PER COMMON UNIT AMOUNTS (DILUTED) Net income (loss) from continuing operations $ 3.98 $ 7.65 $ (20.78) $ 8.37 $ 15.17 Net income (loss) from discontinued operations $ (0.02) $ 0.13 $ (24.97) $ 1.05 $ 0.22 Net income (loss) $ 3.96 $ 7.78 $ (45.75) $ 9.42 $ 15.39 Distributions paid per common unit $ 1.80 $ 1.80 $ 2.70 $ 14.00 $ 22.00Average number of common units outstanding – basic 12,232 12,232 12,232 11,326 10,958Average number of common units outstanding – diluted 21,950 12,232 12,232 11,326 10,958NET CASH PROVIDED BY (USED IN) Operating activities of continuing operations $ 127,838 $ 100,643 $ 168,512 $ 192,164 $ 246,891 Investing activities of continuing operations $ 3,337 $ 59,943 $ 6,985 $ (169,512) $ (230,436) Financing activities of continuing operations $ (141,719) $ (161,419) $ (183,264) $ (65,986) $ (73,574)Distributable cash flow(1) $ 132,142 $ 271,415 $ 176,617 $ 196,929 $ 306,690Adjusted EBITDA(1) $ 231,542 $ 255,432 $ 262,621 $ 263,775 $ 328,452Cash and cash equivalents $ 29,827 $ 40,371 $ 41,204 $ 48,971 $ 92,305Total assets $ 1,389,164 $ 1,448,649 $ 1,674,865 $ 2,431,549 $ 1,981,432Current portion of long-term debt, net $ 79,740 $ 140,037 $ 80,745 $ 80,745 $ 80,745Long-term debt, net $ 729,608 $ 990,234 $ 1,130,696 $ 1,190,558 $ 993,295Class A Convertible Preferred Units $ 173,431 $ – $ – $ – $ –Partners’ capital $ 265,211 $ 151,530 $ 76,336 $ 720,155 $ 616,789(1) See “Non-GAAP Financial Measures” in the enclosed Form 10-K. Partnership Headquarters1201 Louisiana Street Suite 3400 Houston, TX 77002 713.751.7507Regional OfficesCoal and Hard Minerals 5260 Irwin Road Huntington, WV 25705VantaCore Headquarters 1600 Market Street 38th Floor Philadelphia, PA 19103Investor RelationsKathy Roberts 1201 Louisiana Street Suite 3400 Houston, TX 77002 713.751.7555 Email: kroberts@nrplp.comStock ExchangeOur units are listed on the New York Stock Exchange under the symbol NRP.Independent AuditorsErnst & Young LLP 5 Houston Center 1401 McKinney, Suite 1200 Houston, TX 77001-2007Transfer Agent and RegistrarAmerican Stock Transfer and Trust Company Client Operations 6201 15th Avenue Brooklyn, NY 11219 Website: www.amstock.com Email: info@amstock.com 800.937.5449Websitewww.nrplp.comInformation regarding Natural Resource Partners L.P. is located on the partnership’s website. On the site is operational and financial information as well as all SEC filings and our corporate governance documents, including our Code of Business Conduct and Ethics, our Corporate Governance Guidelines and Board of Directors’ Audit Committee Charter. Requests for copies of the annual report or other data may be made through the website or by contacting Investor Relations. These requests will be provided free of charge.Contact NRP BoardWe have established procedures for contacting the non-management members of the NRP Board of Directors. To communicate any concerns or issues to the Board of Directors, please direct any correspondence to:Chairman of the CNG Committee NRP Board of Directors 1201 Louisiana Street, Suite 3400 Houston, TX 77002 888.252.2396Schedule K-1Unitholders receive Schedule K-1 packages that summarize their allocated share of the partnership’s reportable tax items for the calendar year. Generally, these K-1s are available on NRP’s website no later than mid-March. Unitholders should refer questions regarding their Schedule K-1 to the following:Natural Resource Partners L.P. Tax Package Support P.O. Box 799060 Dallas, TX 75379-9060 Fax: 1.866.554.3842 Toll Free: 1.888.334.7102Forward-Looking StatementsStatements included in this annual report may constitute forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements which are also forward-looking statements.Such forward-looking statements include, among other things, statements regarding capital expenditures and acquisitions, expected commencement dates of mining, projected quantities of future production by our lessees producing from our reserves, and projected demand or supply for coal, trona, soda ash and aggregates that will affect sales levels, prices and royalties realized by us.These forward-looking statements speak only as of the date hereof and are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.You should not put undue reliance on any forward-looking statements. Please read “Item 1A. Risk Factors” of the Form 10-K for important factors that could cause our actual results of operations or our actual financial condition to differ.Unitholder Information Natural Resource Partners L.P.
1201 Louisiana Street, 34th Floor
Houston, Texas 77002
www.nrplp.com