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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended March 31, 2015

OR

¨

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

For the transition period from          to          

Commission File Number: 001-36503

 

Foresight Energy LP

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

80-0778894

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

211 North Broadway, Suite 2600, Saint Louis, MO

 

63102

(Address of principal executive offices)

 

(Zip code)

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

 

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

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of May 8, 2015, the registrant had 65,059,477 common units and 64,954,691 subordinated units outstanding.

 

 

 

 


 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014

3

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014

4

Unaudited Condensed Consolidated Statement of Partners’ Capital (Deficit) for the Three Months Ended March 31, 2015

5

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

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

20

Item 3.Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.Controls and Procedures

29

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings

29

Item 1A.Risk Factors

29

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

29

Item 3.Defaults Upon Senior Securities

29

Item 4.Mine Safety Disclosures

29

Item 5.Other Information

29

Signatures

30

Item 6.Exhibits

31

 

 

2


PART I – FINANCIAL INFORMATION.

 

Item 1. Financial Statements.

Foresight Energy LP

Unaudited Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(In Thousands)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

30,790

 

 

$

26,509

 

Accounts receivable

 

80,464

 

 

 

80,911

 

Due from affiliates

 

164

 

 

 

532

 

Inventories

 

131,862

 

 

 

92,075

 

Prepaid expenses

 

2,277

 

 

 

2,157

 

Prepaid royalties

 

6,901

 

 

 

8,380

 

Deferred longwall costs

 

24,063

 

 

 

23,224

 

Coal derivative assets

 

44,924

 

 

 

36,080

 

Other current assets

 

5,551

 

 

 

6,302

 

Total current assets

 

326,996

 

 

 

276,170

 

Property, plant, equipment and development, net

 

1,507,498

 

 

 

1,522,488

 

Prepaid royalties

 

62,215

 

 

 

59,967

 

Coal derivative assets

 

34,428

 

 

 

24,957

 

Other assets

 

32,181

 

 

 

32,070

 

Total assets

$

1,963,318

 

 

$

1,915,652

 

Liabilities and partners’ capital

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt and capital lease obligations

$

91,972

 

 

$

44,143

 

Accrued interest

 

14,229

 

 

 

25,136

 

Accounts payable

 

56,705

 

 

 

60,206

 

Accrued expenses and other current liabilities

 

33,181

 

 

 

37,820

 

Due to affiliates

 

10,831

 

 

 

15,107

 

Total current liabilities

 

206,918

 

 

 

182,412

 

Long-term debt and capital lease obligations

 

1,335,630

 

 

 

1,316,528

 

Sale-leaseback financing arrangements

 

193,434

 

 

 

193,434

 

Asset retirement obligations

 

31,389

 

 

 

31,373

 

Other long-term liabilities

 

5,874

 

 

 

5,508

 

Total liabilities

 

1,773,245

 

 

 

1,729,255

 

Limited partners' capital (deficit):

 

 

 

 

 

 

 

Common unitholders (65,059 and 64,831 units outstanding as of March 31, 2015 and December 31, 2014, respectively)

 

270,235

 

 

 

238,925

 

Subordinated unitholders (64,955 and 64,739 units outstanding as of March 31, 2015 and December 31, 2014, respectively)

 

(78,440

)

 

 

(111,169

)

Total limited partners' capital

 

191,795

 

 

 

127,756

 

Predecessor equity

 

 

 

 

50,710

 

Noncontrolling interests

 

(1,722

)

 

 

7,931

 

Total partners' capital

 

190,073

 

 

 

186,397

 

Total liabilities and partners' capital

$

1,963,318

 

 

$

1,915,652

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

3


Foresight Energy LP

Unaudited Condensed Consolidated Statements of Operations

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

 

(In Thousands, Except per Unit Data)

 

Coal sales

$

238,915

 

 

$

242,723

 

Costs and expenses:

 

 

 

 

 

 

 

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

 

110,588

 

 

 

92,948

 

Cost of coal purchased

 

106

 

 

 

205

 

Transportation

 

47,359

 

 

 

58,561

 

Depreciation, depletion and amortization

 

38,818

 

 

 

35,935

 

Accretion on asset retirement obligations

 

567

 

 

 

405

 

Selling, general and administrative

 

14,466

 

 

 

9,038

 

Gain on commodity derivative contracts

 

(29,067

)

 

 

(15,401

)

Other operating income, net

 

(13,979

)

 

 

(698

)

Operating income

 

70,057

 

 

 

61,730

 

Other expenses:

 

 

 

 

 

 

 

Interest expense, net

 

27,341

 

 

 

29,604

 

Net income

 

42,716

 

 

 

32,126

 

Less: net income attributable to noncontrolling interests

 

410

 

 

 

625

 

Net income attributable to controlling interests

 

42,306

 

 

$

31,501

 

Less: net income attributable to predecessor equity

 

23

 

 

 

 

 

Net income attributable to limited partner units

$

42,283

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income subsequent to initial public offering available to limited partner units - basic and diluted:

 

 

 

 

 

 

 

Common units

$

21,158

 

 

 

 

 

Subordinated units

$

21,125

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income subsequent to initial public offering per limited partner unit - basic and diluted:

 

 

 

 

 

 

 

Common units

$

0.33

 

 

 

 

 

Subordinated units

$

0.33

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic and diluted:

 

 

 

 

 

 

 

Common units

 

64,971

 

 

 

 

 

Subordinated units

 

64,871

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution declared per limited partner unit

$

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

4


Foresight Energy LP

Unaudited Condensed Consolidated Statement of Partners’ Capital (Deficit)

 

 

Limited Partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Number of

 

 

Subordinated

 

 

Number of

 

 

Predecessor

 

 

Noncontrolling

 

 

Total Partners'

 

 

Unitholders

 

 

Common Units

 

 

Unitholders

 

 

Subordinated Units

 

 

Equity

 

 

Interests

 

 

Capital

 

 

(In Thousands, Except Unit Data)

 

Balance at January 1, 2015

$

238,925

 

 

 

64,831,312

 

 

$

(111,169

)

 

 

64,738,895

 

 

$

50,710

 

 

$

7,931

 

 

$

186,397

 

Net income

 

21,158

 

 

 

 

 

 

21,125

 

 

 

 

 

 

23

 

 

 

410

 

 

 

42,716

 

Contribution of net assets to Foresight Energy LP

 

25,643

 

 

 

 

 

 

34,988

 

 

 

 

 

 

(50,733

)

 

 

(9,898

)

 

 

 

Cash distributions

 

(23,421

)

 

 

 

 

 

(23,384

)

 

 

 

 

 

 

 

 

(165

)

 

 

(46,970

)

Equity-based compensation

 

8,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,231

 

Issuance of equity-based awards

 

 

 

 

228,165

 

 

 

 

 

 

215,796

 

 

 

 

 

 

 

 

 

 

Distribution equivalent rights on LTIP awards

 

(193

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(193

)

Net settlement of withholding taxes on issued LTIP awards

 

(108

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(108

)

Balance at March 31, 2015

$

270,235

 

 

 

65,059,477

 

 

$

(78,440

)

 

 

64,954,691

 

 

$

 

 

$

(1,722

)

 

$

190,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


Foresight Energy LP

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

 

(In Thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

42,716

 

 

$

32,126

 

Adjustments to reconcile net income to net cash provided by operating

    activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

38,818

 

 

 

35,935

 

Equity-based compensation

 

8,231

 

 

 

375

 

Unrealized gain on commodity derivative contracts

 

(15,782

)

 

 

(12,910

)

Other

 

(1,114

)

 

 

3,012

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

447

 

 

 

(28,547

)

Due from/to affiliates, net

 

(3,908

)

 

 

5,678

 

Inventories

 

(30,078

)

 

 

(1,990

)

Prepaid expenses and other current assets

 

(208

)

 

 

3,357

 

Prepaid royalties

 

(769

)

 

 

(510

)

Commodity derivative contract assets and liabilities, net

 

(1,980

)

 

 

(1,782

)

Accounts payable

 

(3,501

)

 

 

687

 

Accrued interest

 

(10,907

)

 

 

(8,759

)

Accrued expenses and other current liabilities

 

(5,056

)

 

 

2,290

 

Other

 

(1,790

)

 

 

(27

)

Net cash provided by operating activities

 

15,119

 

 

 

28,935

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investment in property, plant, equipment and development

 

(33,277

)

 

 

(65,191

)

Settlement of coal derivative contracts

 

3,319

 

 

 

 

Net cash used in investing activities

 

(29,958

)

 

 

(65,191

)

Cash flows from financing activities

 

 

 

 

 

 

 

Net increase in borrowings under revolving credit facility

 

30,000

 

 

 

21,000

 

Net increase in borrowings under A/R securitization program

 

47,500

 

 

 

 

Proceeds from other long-term debt

 

 

 

 

29,719

 

Payments on other long-term debt and capital lease obligations

 

(10,860

)

 

 

(9,382

)

Distributions paid

 

(46,970

)

 

 

(2,304

)

Debt issuance costs paid

 

(439

)

 

 

(347

)

Other

 

(111

)

 

 

 

Net cash provided by financing activities

 

19,120

 

 

 

38,686

 

Net increase in cash and cash equivalents

 

4,281

 

 

 

2,430

 

Cash and cash equivalents, beginning of period

 

26,509

 

 

 

24,787

 

Cash and cash equivalents, end of period

$

30,790

 

 

$

27,217

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

36,620

 

 

$

36,481

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 


6


 

Foresight Energy LP

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization, Nature of Business and Basis of Presentation

Foresight Energy LLC (“FELLC”), a perpetual-term Delaware limited liability company, was formed in September 2006 for the development, mining, transportation and sale of coal. Prior to June 23, 2014, Foresight Reserves, LP (“Foresight Reserves”) owned 99.333% of FELLC and a member of management owned 0.667%. In January 2012, Foresight Energy LP (“FELP”), a Delaware limited partnership, and Foresight Energy GP LLC (“general partner” or “FEGP”), a Delaware limited liability company, were formed. FELP was formed to own FELLC and FEGP was formed to be the general partner of FELP. Prior to June 23, 2014, FELP had no operating or cash flow activity, and no recorded net assets.

On June 23, 2014, in connection with the initial public offering (“IPO”) of FELP, Foresight Reserves and a member of management contributed their ownership interests in FELLC to FELP for which they were issued common and subordinated units in FELP. Because this transaction was between entities under common control, the contributed assets and liabilities of FELLC were recorded in the combined consolidated financial statements at FELLC’s historical cost.  FELP has been managed by FEGP subsequent to the IPO.

During the first quarter of 2015 (the “Contribution Date”), Foresight Reserves and a member of management contributed (through their incentive distribution rights) their 100% equity interest in Sitran LLC (“Sitran”), Adena Resources LLC (“Adena”), Hillsboro Transport LLC (“Hillsboro Transport”) and Akin Energy LLC (“Akin Energy”) to FELP for no consideration (collectively, “the Contributed Companies”) (see Note 3).  Because Sitran, Akin Energy and FELP were under common control, FELP’s historical results prior to the Contribution Date have been recast to combine the financial position and results of operations of Sitran and Akin Energy. Hillsboro Transport and Adena were consolidated as variable interest entities prior to the Contribution Date (see Note 13) therefore the contribution did not result in a change in reporting entity. The equity values of Sitran and Akin Energy prior to the Contribution Date are included in Predecessor Equity in the statement of partners’ capital (deficit), and on the Contribution Date, the net book values of these entities were reclassified from predecessor equity to limited partners’ equity. Similarly, the equity values of Hillsboro Transport and Adena were reclassified from noncontrolling equity to limited partners’ equity on the Contribution Date.

As used hereafter in this report, the terms “Foresight Energy LP,” “FELP,” the “Partnership,” “we,” “us” or like terms, refer to the combined results of Foresight Energy LP, the Contributed Companies, and FELLC and its consolidated subsidiaries and affiliates, unless the context otherwise requires or where otherwise indicated. The information presented in this Quarterly Report on Form 10-Q contains, for all periods presented, the combined financial results of Foresight Energy LP, the Contributed Companies and FELLC, and VIEs for which FELLC or its subsidiaries are the primary beneficiary.

On April 16, 2015, Murray Energy Corporation (“Murray Energy”) and Foresight Reserves completed a transaction whereby Murray Energy acquired an economic interest in FEGP and FELP (see Note 18).

The Partnership operates in a single reportable segment and currently operates four underground mining complexes in the Illinois Basin: Williamson Energy, LLC (“Williamson”); Sugar Camp Energy, LLC (“Sugar Camp”); Hillsboro Energy, LLC (“Hillsboro”); and Macoupin Energy, LLC (“Macoupin”). Effective June 1, 2014, the second longwall system at our Sugar Camp complex transitioned from the development stage to the production stage and from that date forward was recognized in our results of operations. Mined coal is sold to a diverse customer base, including electric utility and industrial companies primarily in the eastern United States, as well as overseas markets. Intercompany transactions, including those between consolidated VIEs, the Contributed Companies, and FELP and its consolidated subsidiaries, are eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements contain all significant adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary to present fairly, the Partnership’s consolidated financial position, results of operations and cash flows for all periods presented. In preparing the unaudited condensed consolidated financial statements, management used estimates and assumptions that may affect reported amounts and disclosures. To the extent there are material differences between the estimates and actual results, the impact to the Partnership’s financial condition or results of operations could be material. The unaudited condensed consolidated financial statements do not include footnotes and certain financial information as required annually under U.S. generally accepted accounting principles (“U.S. GAAP”) and, therefore, should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on March 10, 2015. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of results that can be expected for any future period, including the year ending December 31, 2015.

 

7


2. New Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirements for reporting discontinued operations by updating the criteria for determining discontinued operations and modifies the disclosure requirements of both discontinued operations and certain other disposals not defined as discontinued operations. ASU 2014-08 was adopted during the current period quarter and did not have an impact on our condensed consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation.  ASU 2015-02 changes the requirements and analysis required when determining the reporting entity’s need to consolidate an entity, including modifying the evaluation of limited partnership variable interest status, presumption that a general partner should consolidate a limited partnership and the consolidation criterion applied by a reporting entity involved with variable interest entities.  ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and shall be applied retrospectively to each period presented.  Early adoption is permitted.  We are currently evaluating the effect of adopting ASU 2015-02.

 

In April 2015, the FASB issued ASU 2015-06, Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions.  ASU 2015-06 specifies that for purposes of calculating historical earnings per unit under the two-class method, the earnings of a transferred business before the date of a dropdown transaction should not be allocated to the limited partnership and therefore earnings per unit of the limited partners would not change as a result of the dropdown transaction.  ASU 2015-06 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and shall be applied retrospectively to each period presented.  We do not expect that ASU 2015-06 will have a significant impact on our consolidated financial statements or related disclosures.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.  ASU 2015-03 requires, effective for fiscal year and interim periods beginning after December 15, 2015, that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Retrospective application is required and early adoption is permitted.  The adoption of ASU 2015-03 is not expected to have a significant impact on our consolidated financial statements or related disclosures.

 

No other new accounting pronouncement issued or effective during the fiscal year which were not previously disclosed in our Annual Report on Form 10-K had or is expected to have a material impact on our consolidated financial statements or related disclosures.

 

 

3. Foresight Reserves Contributions

 

During the first quarter of 2015, Foresight Reserves and a member of management contributed to FELP, for no consideration, the following entities:

 

·

Sitran – a barge terminal on the Ohio River,

·

Hillsboro Transport - Hillsboro Energy’s coal loadout facility,

·

Adena - an entity that provides certain water and other miscellaneous rights to the FELP mines, and

·

Akin Energy - an entity holding certain permits and development costs for a natural gas power generation facility.

As previously noted, because Sitran and Akin Energy were under common control, the Partnership’s historical financial statements have been retrospectively adjusted to combine their financial position at historical cost and their results of operations. The equity values of Sitran and Akin Energy prior to the Contribution Date are included in predecessor equity in the statement of partners’ capital (deficit). Hillsboro Transport and Adena were previously consolidated by the Partnership as VIEs therefore the contribution did not trigger a change in reporting entity (see Note 13). On the Contribution Date, the net book values of the Contributed Companies were reclassified from either predecessor equity or noncontrolling interest equity, as applicable, to limited partners’ equity in the statement of partners’ capital (pro rata between the common and subordinated units based on the number of units held by the contributing parties on the Contribution Date). The aggregate net book value of the Contributed Companies on the Contribution Date was $60.6 million.

 

 

4. Commodity Derivative Contracts

We have commodity price risk for our coal sales as a result of changes in the market value of our coal. To minimize this risk, we enter into long-term, fixed price coal supply sales agreements and coal derivative contracts. As of March 31, 2015 and December 31, 2014, we had outstanding coal derivative contracts to fix the selling price on 3.1 million tons and 3.4 million tons, respectively. Swaps are designed so that we receive or make payments based on a differential between fixed and variable prices for coal. The coal derivative contracts are economic hedges to certain future unpriced (indexed) sales commitments and expected sales through 2017.  The coal

8


derivative contracts are indexed to the Argus API 2 price index, the benchmark price for coal exported to northwest Europe. The coal derivative contracts are accounted for as freestanding derivatives and any gains or losses resulting from adjusting these contracts to fair value are recorded into earnings. We record the fair value of all positions with a given counterparty on a gross basis in the consolidated balance sheets (see Note 16).

We have diesel fuel price exposure in our transportation and production processes and therefore are subject to commodity price risk as a result of changes in the market value of diesel fuel. To limit our exposure to diesel fuel price volatility, we have entered into swap agreements with financial institutions, which provides a fixed price per unit for the volume of purchases being hedged. As of March 31, 2015, we had swap agreements outstanding to hedge the variable cash flows related to 27% and 14% of anticipated diesel fuel exposure for the remainder of 2015 and calendar year 2016, respectively. The diesel fuel derivative contracts are accounted for as freestanding derivatives and any gains or losses resulting from adjusting these contracts to fair value are recorded into earnings. We record the fair value of all positions with a given counterparty on a gross basis in the condensed consolidated balance sheets (see Note 16).

We have master netting arrangements with all of our counterparties that allow for the settlement of contracts in an asset position with contracts in a liability position. We manage counterparty risk through the utilization of investment grade commercial banks, diversification of counterparties and our counterparty netting arrangements.

A summary of the unrealized and realized gains recorded on commodity derivative contracts for the three months ended March 31, 2015 and 2014 is as follows:

 

 

Three Months Ended

 

 

March 31, 2015

 

 

March 31, 2014

 

 

(In Thousands)

 

Unrealized gain on commodity derivative contracts

$

15,782

 

 

$

12,910

 

Realized gain on commodity derivative contracts

 

13,285

 

 

 

2,491

 

Gain on commodity derivative contracts

$

29,067

 

 

$

15,401

 

 

We received $3.3 million in proceeds during the three months ended March 31, 2015 from the settlement of derivatives that were recorded as an investing activity in the condensed consolidated statement of cash flows because the derivative contracts were settled prior to the delivery date of the underlying sales contracts.

 

 

5. Accounts Receivable

Accounts receivable consist of the following:

 

 

March 31,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Trade accounts receivable

$

58,976

 

 

$

72,835

 

Other receivables

 

21,488

 

 

 

8,076

 

Total accounts receivable

$

80,464

 

 

$

80,911

 

 

Other receivables include $10.8 million from a legal settlement with Murray Energy, of which $10.0 million was collected in April 2015 (see Note 17).

 

6. Inventories

Inventories consist of the following:

 

 

 

March 31,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Parts and supplies

$

33,282

 

 

$

32,156

 

Raw coal

 

7,408

 

 

 

6,200

 

Clean coal

 

91,172

 

 

 

53,719

 

Total inventories

$

131,862

 

 

$

92,075

 

 

9


 

 

7. Property, Plant, Equipment and Development, Net

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

 

 

March 31,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Land, land rights and mineral rights

$

110,992

 

 

$

108,892

 

Machinery and equipment

 

1,111,785

 

 

 

1,094,631

 

Machinery and equipment under capital leases

 

126,401

 

 

 

126,401

 

Buildings and structures

 

248,064

 

 

 

246,617

 

Development costs

 

724,875

 

 

 

713,301

 

Other

 

9,915

 

 

 

9,239

 

Property, plant, equipment and development

 

2,332,032

 

 

 

2,299,081

 

Less: accumulated depreciation, depletion and amortization

 

(824,534

)

 

 

(776,593

)

Property, plant, equipment and development, net

$

1,507,498

 

 

$

1,522,488

 

 

 

8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

March 31,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Employee compensation, benefits and payroll taxes

$

12,643

 

 

$

13,163

 

Taxes other than income

 

6,406

 

 

 

5,668

 

Asset retirement obligations

 

4,207

 

 

 

4,207

 

Royalties (non-affiliate)

 

3,296

 

 

 

2,975

 

Liquidated damages (non-affiliate)

 

1,328

 

 

 

7,315

 

Other

 

5,301

 

 

 

4,492

 

Total accrued expenses and other current liabilities

$

33,181

 

 

$

37,820

 

 

 

9. Long-Term Debt and Capital Lease Obligations

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

 

 

March 31,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

2021 Senior Notes

$

596,322

 

 

$

596,213

 

Term Loan

 

235,907

 

 

 

235,822

 

Revolving Credit Facility

 

349,500

 

 

 

319,500

 

Trade A/R Securitization

 

47,500

 

 

 

 

5.78% longwall financing arrangement

 

61,628

 

 

 

61,628

 

5.555% longwall financing arrangement

 

56,719

 

 

 

61,875

 

Capital lease obligations

 

80,026

 

 

 

85,633

 

Total long-term debt and capital lease obligations

 

1,427,602

 

 

 

1,360,671

 

Less: current portion

 

(91,972

)

 

 

(44,143

)

Long-term debt and capital lease obligations

$

1,335,630

 

 

$

1,316,528

 

10


 

Revolving Credit Facility

The Revolving Credit Facility has a total borrowing capacity of $500.0 million. At March 31, 2015, we had borrowings of $349.5 million outstanding under the Revolving Credit Facility and $6.5 million outstanding in letters of credit. There was $144.0 million of remaining capacity under the Revolving Credit Facility as of March 31, 2015 and the weighted-average effective interest rate on borrowings was 3.5%.

On May 7, 2015, we received a commitment letter from a participating lender in our credit agreement to increase the total commitments under the credit agreement by $100 million. We expect to close this transaction in the second quarter.

 

Trade A/R Securitization

 

In January 2015, Foresight Energy LP and certain of its wholly-owned subsidiaries, entered into a $70 million receivables securitization program (the “Securitization Program”).  Under this Securitization Program, our subsidiaries sell all of their customer trade receivables (the “Receivables”), on a revolving basis, to Foresight Receivables LLC, a wholly-owned and consolidated special purpose subsidiary of Foresight Energy LP (the “SPV”).  The SPV then pledges its interests in the Receivables to the securitization program lenders, which either make loans or issue letters of credit to, or on behalf of, the SPV.  The maximum amount of advances and letters of credit outstanding under the program may not exceed $70 million. The amount eligible for borrowing is determined by the qualified receivable balances outstanding.  The Securitization Program has a three-year maturity and expires on January 12, 2018.  The borrowings under the Securitization Program are variable-rate and the Securitization Program also carries a commitment fee for unutilized commitments. As of March 31, 2015, we had borrowings outstanding of $47.5 million under the Securitization Program included within the current portion of long-term debt.

 

10. Sale-Leaseback Financing Arrangements

In 2009, Macoupin sold certain of its coal reserves and rail facilities to WPP, LLC (“WPP”), a subsidiary of Natural Resource Partners, LP (“NRP”), and leased them back. The gross proceeds from this transaction were $143.5 million and were used for capital expenditures. In 2012, Sugar Camp sold certain rail facilities to HOD, LLC (“HOD”), a subsidiary of NRP, and leased them back. The gross proceeds from this transaction were $50.0 million and were used for capital expenditures, to pay down debt and for general corporate purposes. NRP is an affiliated entity to the Partnership (see Note 12). In both transactions, because we had continuing involvement in the assets sold, the transactions were treated as sale-leaseback financing arrangements. In 2013, an agreement was reached between FELLC, Foresight Reserves and HOD that allows for the existing agreement with Sugar Camp to be amended in the future to include coal produced from Sugar Camp’s second longwall on what is expected to be materially consistent terms as the original agreement. Pursuant to such an amendment occurring, the consideration paid by HOD for including coal produced by Sugar Camp’s second longwall was to be paid directly to Foresight Reserves. In April 2015, in connection with Murray Energy acquiring ownership interests in the Partnership and its general partner (see Note 18), Foresight Reserves assigned its right to receive the proceeds from HOD back to the Partnership (net of any taxes incurred by Foresight Reserves on the transaction).

As of March 31, 2015, the outstanding principal balance on the Macoupin and Sugar Camp sale-leaseback financing arrangements was $143.5 million and $50.0 million, respectively.

The implied effective interest rate as of March 31, 2015 on the Macoupin sale-leaseback financing arrangement and the Sugar Camp sale-leaseback financing arrangement were 13.9% and 13.8%, respectively. If there is a material change to the mine plans, the impact of a change in the effective interest rate to the condensed consolidated statements of operations could be significant. Interest expense recorded on the Macoupin sale-leaseback was $5.1 million and $4.7 million for the three months ended March 31, 2015 and 2014, respectively. Interest expense recorded on the Sugar Camp sale-leaseback was $1.5 million and $1.7 million for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015 and December 31, 2014, interest totaling $6.4 million and $5.6 million, respectively, was accrued in the condensed consolidated balance sheets for the Sugar Camp and Macoupin sale-leaseback financing arrangements.

 

11


11. Asset Retirement Obligations

The change in the carrying amount of asset retirement obligations was as follows for the three months ended March 31, 2015:

 

 

March 31,

2015

 

 

(In Thousands)

 

Balance at January 1, 2015 (including current portion)

$

35,580

 

Accretion expense

 

567

 

Expenditures for reclamation activities

 

(551

)

Balance at March 31, 2015 (including current portion)

 

35,596

 

Less: current portion of asset retirement obligations

 

(4,207

)

Noncurrent portion of asset retirement obligations

$

31,389

 

 

 

 

12. Related-Party Transactions

The chairman of our general partner’s board of directors and the controlling member of Foresight Reserves, Chris Cline, directly and indirectly beneficially owns a 31% and 4% interest in the general and limited partner interests of NRP, respectively. We routinely engage in transactions in the normal course of business with NRP and its subsidiaries and Foresight Reserves and its affiliates. These transactions include production royalties, transportation services, administrative arrangements, coal handling and storage services, supply agreements, service agreements, land leases and sale-leaseback financing arrangements (see Note 10, sale-leaseback financing arrangements are excluded from the discussion and tables below). We also acquire, from time to time, mining equipment from Foresight Reserves and affiliated entities.

In April 2015, Murray Energy acquired from Foresight Reserves and a member of management a 34% voting interest in the Partnership’s general partner, all of the Partnership’s subordinated units and a 77.5% ownership interest in the Partnership’s incentive distribution rights. In connection with this transaction, Murray Energy and the Partnership entered into a series of transactions and contractual relationships as related parties.  See Note 18 for further discussion.

Limited Partnership Agreement

The Partnership’s general partner manages the Partnership’s operations and activities as specified in the partnership agreement. The general partner of the Partnership is managed by its board of directors. Foresight Reserves and Murray Energy have the right to select the directors of the general partner. The members of the board of directors of the general partner are not elected by the unitholders and are not subject to reelection by the unitholders. The officers of the general partner govern the day-to-day affairs of the Partnership’s business. The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses incurred or payments made by the general partner on behalf of the Partnership. No amounts were incurred by the general partner or reimbursed under the partnership agreement during the three months ended March 31, 2015.

The following table presents the affiliate amounts included in our condensed consolidated balance sheets:

 

Affiliated Company

 

Balance Sheet Location

 

March 31,

2015

 

 

December 31,

2014

 

 

 

 

 

(In Thousands)

 

Foresight Reserves and affiliated entities

 

Due from affiliates

 

$

117

 

 

$

345

 

NRP and affiliated entities

 

Due from affiliates

 

 

47

 

 

 

187

 

Total

 

 

 

$

164

 

 

$

532

 

 

 

 

 

 

 

 

 

 

 

 

Foresight Reserves and affiliated entities

 

Due to affiliates

 

$

4,436

 

 

$

7,959

 

NRP and affiliated entities

 

Due to affiliates

 

 

6,395

 

 

 

7,148

 

Total

 

 

 

$

10,831

 

 

$

15,107

 

 

 

 

 

 

 

 

 

 

 

 

Foresight Reserves and affiliated entities

 

Prepaid royalties

 

$

51,924

 

 

$

53,671

 

NRP and affiliated entities

 

Prepaid royalties

 

 

13,164

 

 

 

11,071

 

Total

 

 

 

$

65,088

 

 

$

64,742

 

 

12


A summary of expenses (income) incurred with affiliated entities is as follows for the three months ended March 31, 2015 and 2014:

 

 

Three Months Ended

 

 

March 31, 2015

 

 

March 31, 2014

 

 

(In Thousands)

 

Royalty expense NRP and affiliated entities(1)

$

9,006

 

 

$

12,434

 

Royalty expense – Foresight Reserves and affiliated entities(1)

$

2,630

 

 

$

1,318

 

Loadout services – NRP and affiliated entities(1)

$

2,325

 

 

$

2,593

 

Terminal fees – Foresight Reserves and affiliated entities(2)

$

9,264

 

 

$

10,888

 

Administrative fee income – Foresight

   Reserves and affiliated entities(3)

$

(47

)

 

$

(75

)

 

Location in the condensed consolidated statements of operations:

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

(2) – Transportation

(3) – Other operating income, net

We also purchased $4.3 million and $3.4 million in mining supplies from an affiliated joint venture under a supply agreement during the three months ended March 31, 2015 and 2014, respectively (see Note 13).

 

13. Variable Interest Entities (VIEs)

Our financial statements include VIEs for which the Partnership or one of its subsidiaries is the primary beneficiary. Among those VIEs consolidated by the Partnership and its subsidiaries are Mach Mining, LLC; M-Class Mining, LLC; MaRyan Mining LLC; Patton Mining LLC; Viking Mining LLC; Coal Field Construction Company LLC; Coal Field Repair Services LLC; and LD Labor Company LLC  (collectively, the “Contractor VIEs”). Each of the Contractor VIEs holds a contract to provide one or more of the following services to a Partnership subsidiary: contract mining, processing and loading services, or construction and maintenance services. Each of the Contractor VIEs generally receives a nominal per ton fee ($0.01 to $0.02 per ton) above its cost of operations as compensation for services performed. All of these entities were determined not to have sufficient equity at risk and are therefore VIEs. The Partnership was determined to be the primary beneficiary of each of these entities given it controls these entities under a contractual cost-plus arrangement. During each of the three months ended March 31, 2015 and 2014, in aggregate, the Contractor VIEs earned income of $0.1 million under the contractual arrangements with the Partnership which was recorded as net income attributable to noncontrolling interests in the condensed consolidated statements of operations.

On August 23, 2013, FELLC effected a reorganization pursuant to which certain transportation assets were distributed to its members (the "2013 Reorganization”). Among the assets distributed were Adena and Hillsboro Transport. Subsequent to the 2013 Reorganization, both of these entities were identified as VIEs and continued to be consolidated by FELLC. During the first quarter of 2015, Adena and Hillsboro Transport were contributed to the Partnership by Foresight Reserves and a member of management (see Note 3) and are therefore no longer consolidated as VIEs. The aggregate net book values of Adena and Hillsboro Transport of $9.9  million were reclassified from noncontrolling interest equity to limited partners’ equity on the contribution date.

13


The liabilities recognized as a result of consolidating the VIEs do not necessarily represent additional claims on the general assets of the Partnership outside of the VIEs; rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consolidating these VIEs do not necessarily represent additional assets that could be used to satisfy claims against the Partnership’s general assets. There are no restrictions on the VIE assets that are reported in the Partnership’s general assets. The total consolidated VIE assets and liabilities reflected in the Partnership’s condensed consolidated balance sheets are as follows:

 

 

March 31,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

Current assets

$

2,628

 

 

$

4,939

 

Long-term assets

 

 

 

 

1,554

 

Total assets

$

2,628

 

 

$

6,493

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Current liabilities

$

13,581

 

 

$

10,145

 

Long-term liabilities

 

1,676

 

 

 

1,131

 

Total liabilities

$

15,257

 

 

$

11,276

 

 

In May 2013, an affiliate owned by Chris Cline and a third-party supplier of mining supplies formed a joint venture whose purpose is the manufacture and sale of supplies primarily for use by the Partnership in the conduct of its mining operations. The agreement obligates the Partnership’s coal mines to purchase at least 90% of their aggregate annual requirements for certain mining supplies from the supplier parties, subject to exceptions as set forth in the agreement. The initial term of the amended agreement is five years and expires in April 2018. The supplies sold under this arrangement result in an agreed-upon fixed profit percentage for the joint venture. This joint venture was determined to be a VIE given that the equity holders do not have the obligation to absorb the expected losses or the right to receive the expected residual returns of the joint venture as a result of the Partnership effectively guaranteeing a fixed-profit percentage on the supplies it purchases from the joint venture. We are not the primary beneficiary of this joint venture and, therefore, do not consolidate the joint venture, given that the power over the joint venture is conveyed through the board of directors of the joint venture and no party controls the board of directors.

 

14. Equity-Based Compensation

Long-Term Incentive Plan

The Partnership has a Long-Term Incentive Plan ("LTIP") for employees, directors, officers and certain key third-parties (collectively, the "Participants") which allows for the issuance of equity-based compensation.  The LTIP awards granted thus far are phantom units, which upon satisfaction of vesting requirements, entitle the LTIP participant to receive FELP units. The Board of Directors of the Partnership authorized 7.0 million common units to be granted under the LTIP, with 6.4 million units available for grant as of March 31, 2015.

In February 2015, the board of directors approved equity grants to the Partnership’s chief executive officer consisting of 215,954 common units and 215,796 subordinated units under the LTIP. The awards were fully-vested as of the grant date. As a result of the immediate vesting, compensation expense of $7.1 million was recorded and included in selling, general and administrative expenses in our unaudited condensed consolidated statement of operations during the three months ended March 31, 2015.

In March 2015, the Partnership granted 130,919 phantom awards to Participants under the LTIP which cliff-vest, subject to continued employment, at the end of the three-year service period.  Compensation expense for these awards is recognized on a straight-line basis over the requisite service period, net of estimated forfeitures. Upon vesting, the Participants will receive limited partner units plus accumulated distributions as set forth below.

14


During the three months ended March 31, 2015, our equity-based compensation expense was $8.2 million, net of estimated forfeitures.  Approximately 92% of the Partnership's equity-based compensation during this period was reported through selling, general and administrative expenses in the condensed consolidated statement of operations with the remaining 8% recorded through cost of coal produced. All non-vested phantom awards include tandem distribution incentive rights, which provide for the right to accrue quarterly cash distributions in an amount equal to the cash distributions the Partnership makes to unitholders during the vesting period and will be settled in cash upon vesting.  The Partnership has $0.4 million accrued for this liability as of March 31, 2015.  Any distributions accrued to a Participants’ account will be forfeited if the related phantom award fails to vest according to the relevant vesting conditions.  

A summary of LTIP award activity for the three months ended March 31, 2015 is as follows:

 

 

Number of Units

 

 

Weighted Average

Grant Date Fair Value

per Unit

 

Non-vested grants at January 1, 2015

 

601,109

 

 

$

19.99

 

Granted

 

562,669

 

 

$

16.36

 

Vested

 

(450,500

)

 

$

16.66

 

Forfeited

 

(3,304

)

 

$

20.00

 

Non-vested grants at March 31, 2015

 

709,974

 

 

$

19.23

 

 

15. Earnings per Limited Partner Unit

 

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

 

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

 

15


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

 

 

Common Unitholders

 

 

Subordinated Unitholders

 

 

Total

 

Three months ended March 31, 2015

(In Thousands, Except Per Unit Data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Net income available to limited partner units

$

21,158

 

 

$

21,125

 

 

$

42,283

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Weighted-average units to calculate basic EPU

 

64,971

 

 

 

64,871

 

 

 

129,842

 

Less: effect of dilutive securities (1)

 

 

 

 

 

 

 

 

Weighted-average units to calculate diluted EPU

 

64,971

 

 

 

64,871

 

 

 

129,842

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per unit

$

0.33

 

 

$

0.33

 

 

$

0.33

 

Diluted net income per unit

$

0.33

 

 

$

0.33

 

 

$

0.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) -

Diluted EPU gives effect to all dilutive potential common units outstanding during the period using the treasury stock method. Diluted EPU excludes all dilutive potential units calculated under the treasury stock method if their effect is anti-dilutive. For the three months ended March 31, 2015, approximately 0.7 million phantom units were anti-dilutive, and therefore excluded from the diluted EPU calculation.

 

 

16. Fair Value of Financial Instruments

The table below sets forth, by level, the Partnership’s net financial assets and liabilities for which fair value is measured on a recurring basis:

 

 

Fair Value at March 31, 2015

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

(In Thousands)

 

Coal derivative contracts

$

79,352

 

 

$

 

 

$

79,352

 

 

$

 

Diesel derivative contracts

 

(553

)

 

 

 

 

 

(553

)

 

 

 

Total

$

78,799

 

 

$

 

 

$

78,799

 

 

$

 

 

 

Fair Value at December 31, 2014

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

(In Thousands)

 

Coal derivative contracts

$

61,037

 

 

$

 

 

$

61,037

 

 

$

 

Total

$

61,037

 

 

$

 

 

$

61,037

 

 

$

 

 

The Partnership’s commodity derivative contracts are valued based on direct broker quotes and corroborated with market pricing data.

The classification and amount of the Partnership’s financial instruments measured at fair value on a recurring basis, which are presented on a gross basis in the condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014, are as follows:

 

 

Fair Value at March 31, 2015

 

 

Current Coal Derivative Assets