Attached files

file filename
EX-32.2 - EX-32.2 - Foresight Energy LPfelp-ex322_8.htm
EX-95.1 - EX-95.1 - Foresight Energy LPfelp-ex951_7.htm
EX-31.2 - EX-31.2 - Foresight Energy LPfelp-ex312_9.htm
EX-32.1 - EX-32.1 - Foresight Energy LPfelp-ex321_10.htm
EX-31.1 - EX-31.1 - Foresight Energy LPfelp-ex311_6.htm

 

 

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 September 30, 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 November 6, 2015, the registrant had 65,190,676 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 September 30, 2015 and December 31, 2014

3

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014

4

Unaudited Condensed Consolidated Statement of Partners’ Capital (Deficit) for the Nine Months Ended September 30, 2015

5

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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

24

Item 3.Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.Controls and Procedures

35

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings

35

Item 1A.Risk Factors

35

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

37

Item 3.Defaults Upon Senior Securities

37

Item 4.Mine Safety Disclosures

37

Item 5.Other Information

37

Signatures

38

Item 6.Exhibits

39

 

 

2


PART I – FINANCIAL INFORMATION.

 

Item 1. Financial Statements.

Foresight Energy LP

Unaudited Condensed Consolidated Balance Sheets

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(In Thousands)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

24,993

 

 

$

26,509

 

Accounts receivable

 

58,235

 

 

 

80,911

 

Due from affiliates

 

18,596

 

 

 

532

 

Financing receivables - affiliate

 

2,638

 

 

 

-

 

Inventories

 

89,104

 

 

 

92,075

 

Prepaid expenses

 

6,354

 

 

 

2,157

 

Prepaid royalties

 

3,957

 

 

 

8,380

 

Deferred longwall costs

 

26,012

 

 

 

23,224

 

Coal derivative assets

 

29,581

 

 

 

36,080

 

Other current assets

 

262

 

 

 

6,302

 

Total current assets

 

259,732

 

 

 

276,170

 

Property, plant, equipment and development, net

 

1,454,518

 

 

 

1,522,488

 

Due from affiliates

 

2,691

 

 

 

 

Financing receivables - affiliate

 

70,831

 

 

 

 

Prepaid royalties

 

66,210

 

 

 

59,967

 

Coal derivative assets

 

24,026

 

 

 

24,957

 

Other assets

 

29,415

 

 

 

32,070

 

Total assets

$

1,907,423

 

 

$

1,915,652

 

Liabilities and partners’ capital

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt and capital lease obligations

$

94,567

 

 

$

44,143

 

Accrued interest

 

10,685

 

 

 

25,136

 

Accounts payable

 

38,581

 

 

 

60,206

 

Accrued expenses and other current liabilities

 

35,427

 

 

 

37,820

 

Due to affiliates

 

6,481

 

 

 

15,107

 

Total current liabilities

 

185,741

 

 

 

182,412

 

Long-term debt and capital lease obligations

 

1,401,080

 

 

 

1,316,528

 

Sale-leaseback financing arrangements affiliate

 

193,434

 

 

 

193,434

 

Asset retirement obligations

 

31,878

 

 

 

31,373

 

Other long-term liabilities

 

6,131

 

 

 

5,508

 

Total liabilities

 

1,818,264

 

 

 

1,729,255

 

Limited partners' capital (deficit):

 

 

 

 

 

 

 

Common unitholders (65,191 and 64,831 units outstanding as of September 30, 2015 and December 31, 2014, respectively)

 

221,446

 

 

 

238,925

 

Subordinated unitholders (64,955 and 64,739 units outstanding as of

September 30, 2015 and December 31, 2014, respectively)

 

(130,569

)

 

 

(111,169

)

Total limited partners' capital

 

90,877

 

 

 

127,756

 

Predecessor equity

 

 

 

 

50,710

 

Noncontrolling interests

 

(1,718

)

 

 

7,931

 

Total partners' capital

 

89,159

 

 

 

186,397

 

Total liabilities and partners' capital

$

1,907,423

 

 

$

1,915,652

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

3


 

Foresight Energy LP

Unaudited Condensed Consolidated Statements of Operations

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

(In Thousands, Except per Unit Data)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal sales

$

251,125

 

 

$

299,964

 

 

$

739,940

 

 

$

809,364

 

Other revenues

 

1,941

 

 

 

 

 

 

3,263

 

 

 

 

Total revenues

 

253,066

 

 

 

299,964

 

 

 

743,203

 

 

 

809,364

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

128,195

 

 

 

123,535

 

 

 

360,769

 

 

 

323,064

 

Cost of coal purchased

 

5,055

 

 

 

11,940

 

 

 

7,063

 

 

 

12,672

 

Transportation

 

34,377

 

 

 

54,454

 

 

 

127,757

 

 

 

161,188

 

Depreciation, depletion and amortization

 

54,152

 

 

 

46,638

 

 

 

145,701

 

 

 

123,944

 

Accretion on asset retirement obligations

 

567

 

 

 

405

 

 

 

1,700

 

 

 

1,215

 

Selling, general and administrative

 

4,761

 

 

 

6,401

 

 

 

25,285

 

 

 

26,634

 

Transition and reorganization costs

 

5,037

 

 

 

 

 

 

17,288

 

 

 

 

Gain on commodity derivative contracts

 

(17,541

)

 

 

(18,990

)

 

 

(40,703

)

 

 

(41,419

)

Other operating loss (income), net

 

384

 

 

 

859

 

 

 

(13,872

)

 

 

(1,460

)

Operating income

 

38,079

 

 

 

74,722

 

 

 

112,215

 

 

 

203,526

 

Other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

4,979

 

Interest expense, net

 

29,891

 

 

 

28,202

 

 

 

86,591

 

 

 

88,156

 

Net income

 

8,188

 

 

 

46,520

 

 

 

25,624

 

 

 

110,391

 

Less: net income attributable to noncontrolling interests

 

118

 

 

 

804

 

 

 

652

 

 

 

2,819

 

Net income attributable to controlling interests

 

8,070

 

 

 

45,716

 

 

 

24,972

 

 

 

107,572

 

Less: net income attributable to predecessor equity

 

 

 

 

350

 

 

 

23

 

 

 

66,436

 

Net income attributable to limited partner units

$

8,070

 

 

$

45,366

 

 

$

24,949

 

 

$

41,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

$

4,041

 

 

$

22,691

 

 

$

12,486

 

 

$

20,619

 

Subordinated units

$

4,029

 

 

$

22,675

 

 

$

12,463

 

 

$

20,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

$

0.06

 

 

$

0.35

 

 

$

0.19

 

 

$

0.32

 

Subordinated units

$

0.06

 

 

$

0.35

 

 

$

0.19

 

 

$

0.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

65,156

 

 

 

64,786

 

 

 

65,067

 

 

 

64,786

 

Subordinated units

 

64,955

 

 

 

64,739

 

 

 

64,927

 

 

 

64,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared per limited partner unit

$

0.38

 

 

$

0.03

 

 

$

1.11

 

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

12,486

 

 

 

 

 

 

12,463

 

 

 

 

 

 

23

 

 

 

652

 

 

 

25,624

 

Capital contribution from Foresight Reserves LP

 

5,259

 

 

 

 

 

 

5,248

 

 

 

 

 

 

 

 

 

 

 

 

10,507

 

Contribution of net assets to Foresight Energy LP

 

25,643

 

 

 

 

 

 

34,988

 

 

 

 

 

 

(50,733

)

 

 

(9,898

)

 

 

 

Cash distributions

 

(72,246

)

 

 

 

 

 

(72,099

)

 

 

 

 

 

 

 

 

(403

)

 

 

(144,748

)

Equity-based compensation

 

12,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,897

 

Issuance of equity-based awards

 

 

 

 

359,364

 

 

 

 

 

 

215,796

 

 

 

 

 

 

 

 

 

 

Distribution equivalent rights on LTIP awards

 

(640

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(640

)

Net settlement of withholding taxes on issued LTIP awards

 

(878

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(878

)

Balance at September 30, 2015

$

221,446

 

 

 

65,190,676

 

 

$

(130,569

)

 

 

64,954,691

 

 

$

 

 

$

(1,718

)

 

$

89,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


Foresight Energy LP

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

Nine Months Ended

 

 

September 30,

 

 

2015

 

 

2014

 

 

(In Thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

25,624

 

 

$

110,391

 

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

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

145,701

 

 

 

123,944

 

Equity-based compensation

 

12,897

 

 

 

3,257

 

Unrealized losses (gains) on commodity derivative contracts and cumulative prior unrealized gains realized during the period

 

10,853

 

 

 

(33,711

)

Realized gains on commodity derivative contracts included in investing activities

 

(19,073

)

 

 

 

Transition and reorganization expenses paid by Foresight Reserves LP (affiliate)

 

8,031

 

 

 

 

Noncash loss on early extinguishment of debt

 

 

 

 

4,681

 

Other

 

6,822

 

 

 

7,546

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

22,676

 

 

 

(33,655

)

Due from/to affiliates, net

 

(25,406

)

 

 

6,013

 

Inventories

 

(3,806

)

 

 

(18,929

)

Prepaid expenses and other current assets

 

2,265

 

 

 

(10,485

)

Prepaid royalties

 

(1,820

)

 

 

(3,443

)

Commodity derivative contract assets and liabilities, net

 

(2,447

)

 

 

(1,439

)

Accounts payable

 

(21,625

)

 

 

19,634

 

Accrued interest

 

(14,451

)

 

 

(10,667

)

Accrued expenses and other current liabilities

 

(4,085

)

 

 

5,164

 

Other

 

(2,390

)

 

 

(650

)

Net cash provided by operating activities

 

139,766

 

 

 

167,651

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investment in property, plant, equipment and development

 

(69,502

)

 

 

(173,946

)

Investment in financing arrangements with Murray Energy (affiliate)

 

(75,000

)

 

 

 

Settlement of certain commodity derivative contracts

 

19,073

 

 

 

 

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

 

1,112

 

 

 

 

Acquisition of an affiliate

 

 

 

 

(3,822

)

Proceeds from sale of equipment

 

 

 

 

1,619

 

Net cash used in investing activities

 

(124,317

)

 

 

(176,149

)

Cash flows from financing activities

 

 

 

 

 

 

 

Net increase in borrowings under revolving credit facility

 

58,000

 

 

 

83,500

 

Net increase in borrowings under A/R securitization program

 

50,000

 

 

 

 

Proceeds from other long-term debt

 

59,325

 

 

 

29,719

 

Payments on other long-term debt and capital lease obligations

 

(33,274

)

 

 

(297,908

)

Payments on short-term debt

 

(2,010

)

 

 

 

Distributions paid

 

(144,748

)

 

 

(124,267

)

Proceeds from issuance of common units (net of underwriters' discount)

 

 

 

 

329,875

 

Initial public offering costs paid (other than underwriters' discount)

 

 

 

 

(6,976

)

Debt issuance costs paid

 

(2,751

)

 

 

(297

)

Other

 

(1,507

)

 

 

(551

)

Net cash (used in) provided by financing activities

 

(16,965

)

 

 

13,095

 

Net (decrease) increase in cash and cash equivalents

 

(1,516

)

 

 

4,597

 

Cash and cash equivalents, beginning of period

 

26,509

 

 

 

24,787

 

Cash and cash equivalents, end of period

$

24,993

 

 

$

29,384

 

 

 

 

 

 

 

 

 

Supplemental information and disclosures of non-cash financing activities:

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

96,050

 

 

$

93,437

 

Non-cash distribution

$

 

 

$

12,187

 

Non-cash capital contribution from Foresight Reserves LP (affiliate)

$

10,507

 

 

$

 

Short-term insurance financing

$

2,809

 

 

$

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 


6


Foresight Energy LP

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization, Nature of Business and Basis of Presentation

Foresight Energy LLC (“FELLC”), a perpetual-term Delaware limited liability company, was formed in September 2006 for the development, mining, transportation and sale of coal. Prior to June 23, 2014, Foresight Reserves, LP (“Foresight Reserves”) owned 99.333% of FELLC and a member of FELLC’s management owned 0.667%. 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 of FELP 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 4). 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 (“VIEs”) prior to the Contribution Date (see Note 14), 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’ capital. Similarly, the equity values of Hillsboro Transport and Adena were reclassified from noncontrolling interests to limited partners’ capital on the Contribution Date.

The controlling interest net income of the Contributed Companies prior to the Contribution Date and the controlling interest net income of FELLC prior to the IPO are included in net income attributable to predecessor equity in the condensed consolidated statements of operations.

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 a noncontrolling economic interest in FEGP and FELP (see Note 13).

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”). On 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 condensed consolidated financial statements contain all significant adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary to present fairly, the Partnership’s condensed consolidated financial position, results of operations and cash flows for all periods presented. In preparing the condensed consolidated financial statements, management used estimates and assumptions that may affect reported amounts and disclosures. To the extent there are material differences between the estimates and actual results, the impact to the Partnership’s financial condition or results of operations could be material. The unaudited condensed consolidated financial statements do not include footnotes and certain financial information as required annually under U.S. generally accepted accounting principles (“U.S. GAAP”) and, therefore, should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 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 and nine months ended September 30, 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 first quarter of 2015 and did not have an effect on our condensed consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue. The initial effective date for ASU 2014-09 was scheduled for annual and interim periods beginning after December 15, 2016. In July 2015, the FASB delayed the effective date until annual and interim periods beginning after December 31, 2017. We are in the process of evaluating the effects, if any, the adoption of this guidance will have on our consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. 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, the 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. At this time, we do not expect that ASU 2015-06 will have a significant effect on our consolidated financial statements or related disclosures.

 

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires, effective for fiscal years 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 only impacts balance sheet classification; therefore, it will not have a significant effect on our consolidated financial statements or related disclosures.

 

In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory, which simplifies the measurement of inventories valued under most methods. Under this new guidance, inventories valued under these methods would be valued at the lower of cost and net realizable value, with net realizable value defined as the estimated selling price less reasonable costs to sell the inventory. The new guidance is effective prospectively for fiscal periods starting after December 15, 2016 and early adoption is permitted. We do not expect the adoption of ASU 2015-11 to have a significant effect 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. Transition and Reorganization Costs

 

Transition and reorganization costs were $5.0 million and $17.3 million for the three and nine months ended September 30, 2015, respectively. In connection with Murray Energy acquiring a noncontrolling ownership interest in the Partnership and its general partner (see Note 13), we entered into a management services agreement (“MSA”) with Murray American Coal Inc., an affiliate of Murray Energy, with the intent of optimizing and reorganizing certain corporate administrative functions and generating synergies between the two companies through the elimination of headcount and duplicate selling, general and administrative expenses. The costs are comprised of retention compensation to certain employees during the transition period and termination benefits to employees whose positions were replaced during the current period by Murray Energy employees under the MSA. Included in these costs for the nine months ended September 30, 2015 were $8.0 million of costs paid by Foresight Reserves which were recorded as capital contributions (an additional $2.5 million was paid and deferred and will be expensed over the required remaining retention period),

8


$3.9 million of equity-based compensation for the accelerated vesting of certain equity awards and $0.6 million of legal and various other one-time charges related to the Murray Energy transaction.

 

4. Contributions by Foresight Reserves

 

During the nine months ended September 30, 2015, Foresight Reserves paid $10.5 million of one-time employee compensation costs classified as transition and reorganization costs for which it will not seek reimbursement from the Partnership. The noncash contribution from Foresight Reserves increased the Partnership’s limited partners’ capital accounts. Of the $10.5 million contribution amount, $2.5 million was deferred as a prepaid expense and will be amortized over the required retention period.

 

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’s coal loadout facility,

 

·

Adena – an entity that provides certain water and other miscellaneous rights to FELP’s mines, and

 

·

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

As described in Note 1, 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 result in a change in reporting entity (see Note 14). On the Contribution Date, the net book values of the Contributed Companies were reclassified from either predecessor equity or noncontrolling interest, as applicable, to limited partners’ capital 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.

 

 

5. 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 swap contracts. As of September 30, 2015 and December 31, 2014, we had outstanding coal derivative contracts to fix the selling price on 1.4 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 through 2017. The coal 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 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. Beginning in 2015, to limit our exposure to diesel fuel price volatility, we entered into swap agreements with financial institutions which provide a fixed price per unit for the volume of purchases being hedged. As of September 30, 2015, we had swap agreements outstanding to hedge the variable cash flows related to 19% of anticipated diesel fuel exposure for the remainder of 2015 and calendar year 2016. 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 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. We record the fair value of all derivative positions with a given counterparty on a gross basis in the condensed consolidated balance sheets (see Note 17).

9


A summary of the unrealized and realized (gains) losses recorded on commodity derivative contracts for the three and nine months ended September 30, 2015 and 2014 is as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30, 2015

 

 

September 30, 2014

 

 

September 30, 2015

 

 

September 30, 2014

 

 

(In Thousands)

 

Unrealized (gain) loss on commodity derivative contracts and prior cumulative unrealized gains realized during the period

$

(6,616

)

 

$

(16,001

)

 

$

10,853

 

 

$

(33,711

)

Realized (gain) loss on commodity derivative contracts

 

(10,925

)

 

 

(2,989

)

 

 

(51,556

)

 

 

(7,708

)

Gain on commodity derivative contracts

$

(17,541

)

 

$

(18,990

)

 

$

(40,703

)

 

$

(41,419

)

 

We received $19.1 million in proceeds during the nine months ended September 30, 2015 from the settlement of derivatives that were reclassified from an operating cash flow activity to an investing activity in the condensed consolidated statement of cash flows because the derivative contracts were settled prior to the expiration of their contractual maturities and prior to the delivery date of the underlying sales contracts.

 

6. Accounts Receivable

Accounts receivable consist of the following:

 

 

September 30,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Trade accounts receivable

$

51,802

 

 

$

72,835

 

Other receivables

 

6,433

 

 

 

8,076

 

Total accounts receivable

$

58,235

 

 

$

80,911

 

 

 

7. Inventories

Inventories consist of the following:

 

 

September 30,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Parts and supplies

$

27,448

 

 

$

32,156

 

Raw coal

 

4,189

 

 

 

6,200

 

Clean coal

 

57,467

 

 

 

53,719

 

Total inventories

$

89,104

 

 

$

92,075

 

 

10


 

 

8. Property, Plant, Equipment and Development, Net

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

 

 

September 30,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Land, land rights and mineral rights

$

100,384

 

 

$

108,892

 

Machinery and equipment

 

1,132,391

 

 

 

1,094,631

 

Machinery and equipment under capital leases

 

126,401

 

 

 

126,401

 

Buildings and structures

 

248,450

 

 

 

246,617

 

Development costs

 

737,262

 

 

 

713,301

 

Other

 

9,619

 

 

 

9,239

 

Property, plant, equipment and development

 

2,354,507

 

 

 

2,299,081

 

Less: accumulated depreciation, depletion and amortization

 

(899,989

)

 

 

(776,593

)

Property, plant, equipment and development, net

$

1,454,518

 

 

$

1,522,488

 

 

 

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

September 30,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

Employee compensation, benefits and payroll taxes

$

12,018

 

 

$

13,163

 

Taxes other than income

 

5,684

 

 

 

5,668

 

Asset retirement obligations

 

4,207

 

 

 

4,207

 

Royalties (non-affiliate)

 

4,087

 

 

 

2,975

 

Short-term insurance financing

 

797

 

 

 

 

Liquidated damages (non-affiliate)

 

2,836

 

 

 

7,315

 

Other

 

5,798

 

 

 

4,492

 

Total accrued expenses and other current liabilities

$

35,427

 

 

$

37,820

 

 

 

10. Long-Term Debt and Capital Lease Obligations

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

 

 

September 30,

2015

 

 

December 31,

2014

 

 

(In Thousands)

 

2021 Senior Notes

$

596,548

 

 

$

596,213

 

Term Loan

 

295,446

 

 

 

235,822

 

Revolving Credit Facility

 

377,500

 

 

 

319,500

 

Trade A/R Securitization

 

50,000

 

 

 

 

5.78% longwall financing arrangement

 

56,025

 

 

 

61,628

 

5.555% longwall financing arrangement

 

51,562

 

 

 

61,875

 

Capital lease obligations

 

68,566

 

 

 

85,633

 

Total long-term debt and capital lease obligations

 

1,495,647

 

 

 

1,360,671

 

Less: current portion

 

(94,567

)

 

 

(44,143

)

Long-term debt and capital lease obligations

$

1,401,080

 

 

$

1,316,528

 

11


 

In May 2015, we entered into the Incremental Amendment No. 1 to the Second Amended and Restated Credit Agreement (the “Credit Agreement”), which increased lender commitments under the Revolving Credit Facility by $50.0 million and provided $60.0 million of incremental Term Loan borrowings. The additional commitments under the Revolving Credit Facility and the Term Loan borrowings have the same terms as the existing borrowings under the Credit Agreement.

The Revolving Credit Facility, as amended, has a total borrowing capacity of $550.0 million. At September 30, 2015, we had borrowings of $377.5 million outstanding under the Revolving Credit Facility and $6.5 million outstanding in letters of credit. There was $166.0 million of remaining capacity under the Revolving Credit Facility as of September 30, 2015 and the weighted-average effective interest rate on borrowings was 2.9%.

 

As of September 30, 2015 and December 31, 2014, Chris Cline, the Cline Trust Company, LLC and another director of the Partnership’s general partner had independently acquired and owned, in aggregate, $58.5 million and $12.0 million, respectively, of the outstanding notional principal on the Partnership’s 2021 Senior Notes.  See Note 13.

 

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 which expires on January 12, 2018. The borrowings under the Securitization Program are variable-rate and also carry a commitment fee for unutilized commitments. As of September 30, 2015, we had borrowings outstanding of $50.0 million under the Securitization Program included within the current portion of long-term debt and capital lease obligations.

 

11. Sale-Leaseback Financing Arrangements – Affiliate

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. 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. NRP is an affiliated entity to the Partnership (see Note 13). 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 a noncontrolling ownership interest in the Partnership and its general partner (see Note 13), 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 September 30, 2015, the outstanding principal balance on the Macoupin and Sugar Camp sale-leaseback financing arrangements were $143.5 million and $50.0 million, respectively.

The implied effective interest rate as of September 30, 2015 on the Macoupin sale-leaseback financing arrangement and the Sugar Camp sale-leaseback financing arrangement was 14.0% and 13.3%, 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 statement of operations could be significant. Interest expense recorded on the Macoupin sale-leaseback was $5.9 million and $5.2 million for each of the three months ended September 30, 2015 and 2014, respectively, and $15.9 million and $14.8 million for the nine months ended September 30, 2015 and 2014, respectively. Interest expense recorded on the Sugar Camp sale-leaseback was $0.9 million and $1.4 million for the three months ended September 30, 2015 and 2014, respectively, and $3.9 million and $4.9 million for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and December 31, 2014, interest totaling $3.1 million and $5.6 million, respectively, was accrued in the condensed consolidated balance sheets for the Macoupin and Sugar Camp sale-leaseback financing arrangements.

 

12


12. Asset Retirement Obligations

The change in the carrying amount of our asset retirement obligations was as follows for the nine months ended September 30, 2015:

 

 

September 30,

2015

 

 

(In Thousands)

 

Balance at January 1, 2015 (including current portion)

$

35,580

 

Accretion expense

 

1,700

 

Expenditures for reclamation activities

 

(1,195

)

Balance at September 30, 2015 (including current portion)

 

36,085

 

Less: current portion of asset retirement obligations

 

(4,207

)

Noncurrent portion of asset retirement obligations

$

31,878

 

 

 

 

13. 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. Additionally, Donald R. Holcomb, who serves as a director on NRP’s board, is the member for the Cline Trust Company LLC, which owns 20.3 million of the Partnership’s common limited partner units. 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 11, 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.

 

On April 16, 2015, Foresight Reserves and Murray Energy executed a purchase and sale agreement whereby Murray Energy paid Foresight Reserves $1.37 billion to acquire a 34% voting interest in FEGP, 77.5% of FELP’s incentive distribution rights (“IDR”) and nearly 50% of the outstanding limited partner units in FELP, including all of the outstanding subordinated units. FEGP will continue to govern the Partnership subsequent to this transaction. As part of the transaction, Murray Energy obtained an option, subject to certain conditions described below, to purchase an additional 46% of the voting interests in FEGP for $25 million during a five-year period. Murray Energy’s ability to exercise the option is conditioned upon (i) the exercise of the call option with respect to Colt LLC, a wholly-owned subsidiary of Foresight Reserves and (ii) the refinancing of the FELP notes and FELP’s existing credit facilities on terms reasonably acceptable to Foresight Reserves, or any other transaction (whether by amendment, waiver or a consent solicitation) that would have the effect of eliminating the “change of control” provisions of the FELP notes and FELP’s existing credit facilities with respect to the exercise of the option.

 

Murray Management Services Agreement

 

On April 16, 2015, a MSA was executed between FEGP and Murray American Coal, Inc. (the ”Manager”), a wholly-owned subsidiary of Murray Energy, pursuant to which the Manager will provide certain management and administration services to FELP for a quarterly fee of $3.5 million ($14.0 million on an annual basis), subject to contractual adjustments. To the extent that FELP or FEGP directly incurs costs for any services covered under the MSA, then the Manager’s quarterly fee is reduced accordingly. Also, to the extent that the Manager utilizes outside service providers to perform any of the services under the MSA, then the Manager is responsible for those outside service provider costs. The initial term of the MSA extends through December 31, 2022 and is subject to termination provisions. After taking into account the contractual adjustments for direct costs incurred by FELP, the amount of net expense due to the Manager for the three and nine months ended September 30, 2015 was $1.9 million and $3.4 million, respectively.

 

Murray Energy Transport Lease and Overriding Royalty Agreements

 

On April 16, 2015, American Century Transport LLC (“American Transport”), a newly created subsidiary of the Partnership, entered into a purchase and sale agreement (the “PSA”) with American Energy Corporation (“American Energy”), a subsidiary of Murray Energy, pursuant to which American Energy sold to American Transport certain mining and transportation assets for $63.0 million. Concurrent with the PSA, American Transport entered into a lease agreement (the “Transport Lease”) with American Energy pursuant to which (i) American Transport will lease to American Energy a tract of real property, two coal preparation plants and related coal handling facilities at the Transport Mine situated in Belmont and Monroe Counties, Ohio and (ii) American Transport will receive from American Energy a fee ranging from $1.15 to $1.75 for every ton of coal mined, processed and/or transported using such assets, subject to a quarterly recoupable minimum fee of $1.7 million. The Transport Lease is being accounted for as a direct financing lease. The total remaining minimum payments under the Transport Lease was $100.4 million at September 30, 2015, with unearned income equal to $38.8 million. The unearned income will be reflected as other revenue over the term of the lease using the effective interest

13


method. Any amounts in excess of the contractual minimums will be recorded as other revenue when earned. As of September 30, 2015, the outstanding Transport Lease financing receivable was $61.6 million, of which $2.5 million was classified as current in the condensed consolidated balance sheet.

 

Also, on April 16, 2015, American Century Minerals LLC (“Minerals”), a newly created subsidiary of the Partnership, entered into an overriding royalty agreement (“ORRA”) with Murray Energy subsidiaries’ American Energy and Consolidated Land Company (collectively, “AEC”), pursuant to which AEC granted to Minerals an overriding royalty interest ranging from $0.30 to $0.50 for each ton of coal mined, removed and sold from certain coal reserves situated near the Century Mine in Belmont and Monroe Counties, Ohio for $12.0 million. The ORRA is subject to a minimum recoupable quarterly fee of $0.5 million. This overriding royalty was accounted for as a financing arrangement. The payments the Partnership receives with respect to the ORRA will be reflected partially as a return of the initial investment (reduction in the affiliate financing receivable) and partially as other revenue over the life of the agreement using the effective interest method. Any amounts in excess of the contractual minimums will be recorded as other revenue when earned. The total remaining minimum payments under the ORRA was $34.5 million at September 30, 2015, with unearned income equal to $22.7 million. As of September 30, 2015, the outstanding ORRA financing receivable was $11.8 million, of which $0.1 million was classified as current in the condensed consolidated balance sheet.

 

Other Murray Transactions

 

During the three and nine months ended September 30, 2015, we purchased $1.2 million and $1.6 million, respectively, in equipment, supplies and rebuild services from affiliates of Murray Energy.

 

During the three and nine months ended September 30, 2015, we purchased $5.1 million and $7.0 million, respectively, in coal from Murray Energy to meet quality specifications under certain customer contracts and we sold $8.7 million of coal to Murray Energy during the three and nine months ended September 30, 2015.

 

During the three and nine months ended September 30, 2015, Murray Energy transported coal under our transportation agreement with a third party rail company resulting in usage fees owed to the third-party rail company of $7.5 million and $7.7 million, respectively.  These usage fees have been fully billed to Murray Energy, resulting in no impact to our condensed consolidated statement of operations. The usage of the railway line with this third-party rail company by Murray Energy counts towards the minimum annual throughput volumes with the third-party rail company, thereby reducing the Partnership’s exposure to contractual liquidated damage charges.

 

Convent Marine Terminal Amendment

 

Effective May 1, 2015, the Partnership amended its material handling agreement with Raven Energy LLC, a former affiliate of The Cline Group, to reduce the minimum annual throughput v