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EX-95.1 - EX-95.1 - Foresight Energy LPfelp-ex951_10.htm
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EX-31.2 - EX-31.2 - Foresight Energy LPfelp-ex312_11.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 June 30, 2016

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

 

x

 

 

 

 

Non-accelerated filer

 

¨  (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 August 5, 2016, the registrant had 66,096,093 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 June 30, 2016 and December 31, 2015

3

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015

4

Unaudited Condensed Consolidated Statement of Partners’ (Deficit) Capital for the Six Months Ended June 30, 2016

5

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

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

25

Item 3.Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.Controls and Procedures

36

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings

36

Item 1A.Risk Factors

36

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

38

Item 3.Defaults Upon Senior Securities

38

Item 4.Mine Safety Disclosures

38

Item 5.Other Information

38

Signatures

39

Item 6.Exhibits

40

 

 

2


PART I – FINANCIAL INFORMATION.

 

Item 1. Financial Statements.

Foresight Energy LP

Unaudited Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

 

(In Thousands)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

45,175

 

 

$

17,538

 

Accounts receivable

 

65,174

 

 

 

61,325

 

Due from affiliates

 

3,367

 

 

 

16,615

 

Financing receivables - affiliate

 

2,794

 

 

 

2,689

 

Inventories, net

 

53,756

 

 

 

50,652

 

Prepaid expenses

 

6,249

 

 

 

5,498

 

Prepaid royalties

 

1,230

 

 

 

5,386

 

Deferred longwall costs

 

18,573

 

 

 

18,476

 

Coal derivative assets

 

16,868

 

 

 

26,596

 

Other current assets

 

8,561

 

 

 

5,565

 

Total current assets

 

221,747

 

 

 

210,340

 

Property, plant, equipment and development, net

 

1,362,005

 

 

 

1,433,193

 

Due from affiliates

 

1,843

 

 

 

2,691

 

Financing receivables - affiliate

 

68,715

 

 

 

70,139

 

Prepaid royalties

 

72,142

 

 

 

70,300

 

Coal derivative assets

 

7,835

 

 

 

22,027

 

Other assets

 

12,264

 

 

 

12,493

 

Total assets

$

1,746,551

 

 

$

1,821,183

 

Liabilities and partners’ (deficit) capital

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt and capital lease obligations

$

1,404,133

 

 

$

1,434,566

 

Accrued interest

 

47,444

 

 

 

24,574

 

Accounts payable

 

46,489

 

 

 

55,192

 

Accrued expenses and other current liabilities

 

41,090

 

 

 

35,825

 

Due to affiliates

 

8,223

 

 

 

8,536

 

Total current liabilities

 

1,547,379

 

 

 

1,558,693

 

Sale-leaseback financing arrangements

 

193,434

 

 

 

193,434

 

Asset retirement obligations

 

44,750

 

 

 

43,277

 

Other long-term liabilities

 

6,917

 

 

 

6,896

 

Total liabilities

 

1,792,480

 

 

 

1,802,300

 

Limited partners' capital (deficit):

 

 

 

 

 

 

 

Common unitholders (66,096 and 65,192 units outstanding as of June 30, 2016 and December 31, 2015, respectively)

 

155,944

 

 

 

186,660

 

Subordinated unitholder (64,955 units outstanding as of June 30, 2016 and December 31, 2015)

 

(200,145

)

 

 

(166,061

)

Total limited partners' (deficit) capital

 

(44,201

)

 

 

20,599

 

Noncontrolling interests

 

(1,728

)

 

 

(1,716

)

Total partners' (deficit) capital

 

(45,929

)

 

 

18,883

 

Total liabilities and partners' (deficit) capital

$

1,746,551

 

 

$

1,821,183

 

 

See accompanying notes.

 

 

3


 

Foresight Energy LP

Unaudited Condensed Consolidated Statements of Operations

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

(In Thousands, Except per Unit Data)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal sales

$

224,093

 

 

$

249,900

 

 

$

387,190

 

 

$

488,815

 

Other revenues

 

1,907

 

 

 

1,322

 

 

 

4,895

 

 

 

1,322

 

Total revenues

 

226,000

 

 

 

251,222

 

 

 

392,085

 

 

 

490,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

112,070

 

 

 

121,987

 

 

 

201,246

 

 

 

232,575

 

Cost of coal purchased

 

 

 

 

1,902

 

 

 

551

 

 

 

2,008

 

Transportation

 

37,557

 

 

 

46,021

 

 

 

63,355

 

 

 

93,380

 

Depreciation, depletion and amortization

 

45,467

 

 

 

52,731

 

 

 

81,884

 

 

 

91,549

 

Accretion on asset retirement obligations

 

844

 

 

 

567

 

 

 

1,688

 

 

 

1,134

 

Selling, general and administrative

 

5,588

 

 

 

6,057

 

 

 

11,308

 

 

 

20,523

 

Transition and reorganization costs

 

950

 

 

 

12,251

 

 

 

6,889

 

 

 

12,251

 

Loss (gain) on commodity derivative contracts

 

10,760

 

 

 

5,905

 

 

 

11,283

 

 

 

(23,162

)

Other operating expense (income), net

 

179

 

 

 

(278

)

 

 

91

 

 

 

(14,258

)

Operating income

 

12,585

 

 

 

4,079

 

 

 

13,790

 

 

 

74,137

 

Other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

34,335

 

 

 

29,359

 

 

 

67,330

 

 

 

56,700

 

Debt restructuring costs

 

5,920

 

 

 

 

 

 

15,630

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

107

 

 

 

 

Net (loss) income

 

(27,670

)

 

 

(25,280

)

 

 

(69,277

)

 

 

17,437

 

Less: net income attributable to noncontrolling interests

 

116

 

 

 

123

 

 

 

214

 

 

 

534

 

Net (loss) income attributable to controlling interests

 

(27,786

)

 

 

(25,403

)

 

 

(69,491

)

 

 

16,903

 

Less: net income attributable to predecessor equity

 

 

 

 

 

 

 

 

 

 

23

 

Net (loss) income attributable to limited partner units

$

(27,786

)

 

$

(25,403

)

 

$

(69,491

)

 

$

16,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common unitholders

$

(13,995

)

 

$

(12,713

)

 

$

(34,886

)

 

$

8,444

 

Subordinated unitholder

$

(13,791

)

 

$

(12,690

)

 

$

(34,605

)

 

$

8,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per limited partner unit - basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common unitholders

$

(0.21

)

 

$

(0.20

)

 

$

(0.53

)

 

$

0.13

 

Subordinated unitholder

$

(0.21

)

 

$

(0.20

)

 

$

(0.53

)

 

$

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

65,917

 

 

 

65,071

 

 

 

65,555

 

 

 

65,021

 

Subordinated units

 

64,955

 

 

 

64,955

 

 

 

64,955

 

 

 

64,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions declared per limited partner unit

$

 

 

$

0.37

 

 

$

 

 

$

0.73

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

4


Foresight Energy LP

Unaudited Condensed Consolidated Statement of Partners’ (Deficit) Capital

 

 

Limited Partners

 

 

 

 

 

 

 

 

 

 

Common

 

 

Number of

 

 

Subordinated

 

 

Number of

 

 

Noncontrolling

 

 

Total Partners'

 

 

Unitholders

 

 

Common Units

 

 

Unitholder

 

 

Subordinated Units

 

 

Interests

 

 

Capital (Deficit)

 

 

(In Thousands, Except Unit Data)

 

Balance at January 1, 2016

$

186,660

 

 

 

65,192,389

 

 

$

(166,061

)

 

 

64,954,691

 

 

$

(1,716

)

 

$

18,883

 

Net (loss) income

 

(34,886

)

 

 

 

 

 

(34,605

)

 

 

 

 

 

214

 

 

 

(69,277

)

Cash distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

(226

)

 

 

(226

)

Capital contribution from Foresight Reserves LP

 

525

 

 

 

 

 

 

521

 

 

 

 

 

 

 

 

 

1,046

 

Equity-based compensation

 

4,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,427

 

Issuance of equity-based awards

 

 

 

 

903,704

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution equivalent rights on LTIP awards

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 

Net settlement of withholding taxes on issued LTIP awards

 

(810

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(810

)

Balance at June 30, 2016

$

155,944

 

 

 

66,096,093

 

 

$

(200,145

)

 

 

64,954,691

 

 

$

(1,728

)

 

$

(45,929

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

5


Foresight Energy LP

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

Six Months Ended

 

 

June 30,

 

 

2016

 

 

2015

 

 

(In Thousands)

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net (loss) income

$

(69,277

)

 

$

17,437

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

81,884

 

 

 

91,549

 

Equity-based compensation

 

4,427

 

 

 

11,637

 

Loss (gain) on commodity derivative contracts

 

11,283

 

 

 

(23,162

)

Settlements of commodity derivative contracts

 

9,921

 

 

 

40,632

 

Settlements of commodity derivative contracts included in investing activities

 

 

 

 

(19,073

)

Transition and reorganization expenses paid by Foresight Reserves (affiliate)

 

2,333

 

 

 

5,758

 

Other

 

5,948

 

 

 

4,467

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(3,849

)

 

 

2,417

 

Due from/to affiliates, net

 

13,783

 

 

 

(6,835

)

Inventories

 

(1,296

)

 

 

(24,657

)

Prepaid expenses and other current assets

 

(5,690

)

 

 

(1,384

)

Prepaid royalties

 

2,314

 

 

 

(954

)

Commodity derivative assets and liabilities

 

2,089

 

 

 

(2,174

)

Accounts payable

 

(8,703

)

 

 

(20,115

)

Accrued interest

 

22,870

 

 

 

(1,031

)

Accrued expenses and other current liabilities

 

5,135

 

 

 

(2,515

)

Other

 

440

 

 

 

(3,117

)

Net cash provided by operating activities

 

73,612

 

 

 

68,880

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investment in property, plant, equipment and development

 

(13,293

)

 

 

(55,124

)

Investment in financing arrangements with Murray Energy (affiliate)

 

 

 

 

(75,000

)

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

 

1,319

 

 

 

 

Settlements of certain coal derivatives

 

 

 

 

19,073

 

Proceeds from sale of equipment

 

83

 

 

 

 

Net cash used in investing activities

 

(11,891

)

 

 

(111,051

)

Cash flows from financing activities

 

 

 

 

 

 

 

Net change in borrowings under revolving credit facility

 

 

 

 

49,000

 

Net change in borrowings under A/R securitization program

 

(10,100

)

 

 

56,500

 

Proceeds from other long-term debt

 

 

 

 

59,325

 

Payments on other long-term debt and capital lease obligations

 

(22,726

)

 

 

(22,248

)

Payments on short-term debt

 

(250

)

 

 

 

Distributions paid

 

(226

)

 

 

(95,200

)

Debt issuance costs paid

 

 

 

 

(2,473

)

Other

 

(782

)

 

 

(1,217

)

Net cash (used in) provided by financing activities

 

(34,084

)

 

 

43,687

 

Net increase in cash and cash equivalents

 

27,637

 

 

 

1,516

 

Cash and cash equivalents, beginning of period

 

17,538

 

 

 

26,509

 

Cash and cash equivalents, end of period

$

45,175

 

 

$

28,025

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

$

41,110

 

 

$

54,476

 

Supplemental disclosures of non-cash financing activities:

 

 

 

 

 

 

 

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

$

1,046

 

 

$

9,079

 

Short-term insurance financing

$

603

 

 

$

2,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.


6


Foresight Energy LP

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization, Nature of Business and Basis of Presentation

 

Foresight Energy LLC (“FELLC”), a perpetual-term Delaware limited liability company, was formed in September 2006 for the development, mining, transportation and sale of coal. Prior to June 23, 2014, Foresight Reserves, LP (“Foresight Reserves”) owned 99.333% of FELLC and a member of FELLC’s management owned 0.667%. On June 23, 2014, in connection with the initial public offering (“IPO”) of Foresight Energy LP (“FELP”), Foresight Reserves and a member of management contributed their ownership interests in FELLC to FELP for which they were issued common and subordinated units in FELP. 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 Foresight Energy GP LLC (“FEGP”) subsequent to the IPO.

 

As used hereafter in this report, the terms “Foresight Energy LP,” “FELP,” the “Partnership,” “we,” “us” or like terms, refer to the combined consolidated results of Foresight Energy LP, 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 consolidated financial results of Foresight Energy LP, FELLC, and VIEs for which FELLC or its subsidiaries are the primary beneficiary.

 

The Partnership operates in a single reportable segment and currently has 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”). Mining operations at our Hillsboro complex have been idled since March 2015 due to a combustion event. In April 2016, we temporarily sealed the entire mine to reduce the oxygen flow paths into the mine. We are uncertain as to when production will resume at this operation. Our 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, 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, 2015 included in our Annual Report on Form 10-K filed with the SEC on March 15, 2016. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of results that can be expected for any future period, including the year ending December 31, 2016.

 

2. New Accounting Standards

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. We adopted ASU 2015-02 during the first quarter of 2016 and it did not have an impact on our historical consolidation conclusions.

 

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. We adopted ASU 2015-06 during the first quarter of 2016 and it did not have an effect on our condensed 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 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. We adopted ASU 2015-03 on a retrospective basis during the first quarter of 2016. The adoption of ASU 2015-03 did not affect our results of operations or cash flows, but it

7


required us to reclassify the deferred financing costs associated with certain of our long-term debt. We reclassified approximately $15.9 million of our deferred financing costs as of December 31, 2015 to long-term debt and capital lease obligations in our condensed consolidated financial statements to adhere to ASU 2015-03. The deferred financing costs associated with our revolving credit facility and trade AR securitization program continue to be presented as a current asset on the condensed consolidated balance sheets.

 

In February 2016, the FASB issued ASU 2016-02, Leases, which contains updated guidance regarding the accounting for leases. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which was issued to simplify the accounting for share-based payment transactions, including income tax consequences, the classification of awards as equity or liabilities, an option to recognize gross equity-based compensation expense with actual forfeitures recognized as they occur and the classification on the statement of cash flows. This pronouncement is effective for reporting periods beginning after December 15, 2016. The impact of the adoption of ASU 2016-09 has not yet been determined.

No other new accounting pronouncement issued or effective during the fiscal year which was 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. Debt Defaults and Liquidity

 

On December 4, 2015, the Delaware Court of Chancery issued a memorandum opinion concluding, among other things, that the purchase and sale agreement between Foresight Reserves and Murray Energy (see Note 13) constituted a “change of control” under the indenture (the “Indenture”) governing our 7.875% Senior Notes due 2021 (the “2021 Senior Notes”) and that an event of default occurred under the Indenture when we failed to offer to purchase the 2021 Senior Notes on or about May 18, 2015.  

 

Because of the existence of “change of control” provisions and cross-default or cross-event of default provisions in our debt agreements, the purchase and sale agreement between Foresight Reserves and Murray Energy also resulted, directly or indirectly, in events of default under FELLC’s credit agreement governing its senior secured credit facilities (the “Credit Agreement”), Foresight Receivables LLC’s receivables securitization program and certain other financing arrangements, including our longwall financing arrangements. The existence of an event of default has prohibited us access to borrowings or other extensions of credit under our revolving credit facility (“Revolving Credit Facility”). In addition, we have not paid the $23.6 million of accrued interest owed to holders of the 2021 Senior Notes due on February 16, 2016, resulting in an additional event of default. Additionally, we do not expect to make the interest payment of $23.6 million in respect of the 2021 Senior Notes that is due on August 15, 2016.

 

On December 18, 2015, we entered into a forbearance agreement (as amended, the “Notes Forbearance Agreement”) with Wilmington Savings Fund Society, FSB, as successor indenture trustee (the “Trustee”), and certain holders of the 2021 Senior Notes, who collectively beneficially owned or managed in excess of 75% of the aggregate principal amount of the 2021 Senior Notes. Under the Notes Forbearance Agreement, the noteholders and the Trustee agreed to forbear from exercising certain rights and remedies to which they may be entitled in respect of the 2021 Senior Notes or under the Indenture. The Notes Forbearance Agreement has been extended through August 31, 2016, unless extended by the noteholders in their sole discretion. There can be no assurances that the noteholders party thereto will agree to any further extensions or that if such Amended and Restated Support Agreement is terminated early or otherwise expires or terminates pursuant to its terms, that the requisite noteholders under the Indenture will not pursue any and all remedies available to them under the Indenture or otherwise.

 

On January 27, 2016, we entered into a forbearance agreement in respect of our securitization program (as amended, the “Securitization Forbearance Agreement”), pursuant to which the agent under that facility and the lenders under the securitization program agreed to forbear from exercising certain rights and remedies to which they may be entitled. The Securitization Forbearance Agreement currently remains in effect through August 31, 2016, unless extended by the securitization lenders in their sole discretion. There can be no assurances that the securitization lenders will agree to any extension of the Securitization Forbearance Agreement or that if such forbearance agreement is terminated early or expires, that the securitization lenders will not pursue any and all remedies available to them. Also under the Securitization Forbearance Agreement, the receivables facility was amended to permanently reduce commitments to $50.0 million in total.

 

8


We have not entered into forbearance agreements with the lenders under our equipment financing arrangements (with the exception of one such lender). Therefore, most of the lenders under the equipment financing arrangements may exercise any remedies available to them at any time. The remedies available to these lenders include acceleration of the indebtedness owed thereunder and exercising remedies with respect to our collateral securing such indebtedness. There can be no assurances that our creditors will not accelerate the indebtedness under their respective facilities or exercise any rights or remedies to which they are entitled.

 

We are actively negotiating an out-of-court restructuring with certain holders of the 2021 Senior Notes, who collectively beneficially own or manage in excess of 75% of the aggregate principal amount of the 2021 Senior Notes, and our other creditors.  

 

On April 18, 2016, we entered into a Transaction Support Agreement (as amended, the “Lender TSA”), with certain of the lenders (the “Consenting Lenders”) under the Credit Agreement, pursuant to which the Consenting Lenders agreed, subject to the terms and conditions within the Lender TSA, to support a proposed global restructuring of the Partnership’s indebtedness (the “Restructuring”), including a proposed amendment and restatement (the “Amendment”) of the Credit Agreement. On May 17, 2016, we entered into a similar Noteholder Transaction Support Agreement (the “Noteholder TSA”) with certain noteholders (the “Consenting Noteholders”) of our 2021 Senior Notes pursuant to which the Consenting Noteholders agreed, subject to the terms and conditions within the Noteholder TSA, to support a proposed global restructuring of the Partnership’s indebtedness and certain governance and equity matters relating to the Partnership.

 

On July 22, 2016, we entered into an Amended and Restated Transaction Support Agreement (the “A&R Notes Transaction Support Agreement”) with certain Consenting Noteholders of the 2021 Senior Notes and certain equityholders of the Partnership, including Chris Cline, Foresight Reserves LP and certain of its related parties ( the “Cline Group”) and Murray Energy, pursuant to which the parties thereto have agreed (subject to the terms and conditions set forth therein) to modified terms of the Restructuring of the Partnerships indebtedness and certain governance and equity matters relating to the Partnership. Additionally, on July 22, 2016, the Partnership entered into an Amended and Restated Transaction Support Agreement (the “A&R Lender Support Agreement” and together with the A&R Notes Transaction Support Agreement, the “A&R Support Agreements”) with certain of the Consenting Lenders under the Partnerships Credit Agreement, the Cline Group and Murray Energy, pursuant to which the Consenting Lenders, the Cline Group and Murray Energy have agreed (subject to the terms and conditions set forth therein) to support modified terms of the Restructuring, including the proposed Amendment of the Credit Agreement. See Note 19 for additional information.

 

The successful consummation of the transactions contemplated by the A&R Support Agreements is subject to various conditions, including the successful negotiation of definitive documentation and other conditions that are not within the control of the Partnership or its affiliates. There can be no assurances that we will be able to successfully negotiate or implement any of the proposed restructuring transactions contemplated by the A&R Support Agreements, or if we are able to do so, that such negotiation or implementation will be consistent with the terms described herein. Our other creditors and stakeholders not party to the A&R Support Agreements have not approved nor agreed (either implicitly or explicitly) to the terms of the Restructuring and are not bound to take (or refrain from taking) any actions as a result of the execution of the A&R Support Agreements.

 

During the three and six months ended June 30, 2016, we incurred legal and financial advisor fees of $5.9 million and $15.6 million, respectively, related to the above issues, which have been recorded as debt restructuring costs in the condensed consolidated statements of operations. We expect financial and legal advisor fees to continue to be substantial until such time as the above issues are remedied, if at all.

 

Our primary cash requirements include, but are not limited to, working capital needs, capital expenditures, and debt service costs (interest and principal). Historically, our cash flows from operations and available capacity under our Revolving Credit Facility supported our cash requirements. However, our not having access to borrowings or other extensions of credit under our Revolving Credit Facility is having an adverse effect on our liquidity. Also, the recent losses incurred by the Partnership have had a significant negative impact on our compliance with the financial debt covenants under our Credit Agreement, which are calculated based on the rolling prior four quarters’ financial results. Our Credit Agreement requires that we maintain a consolidated interest coverage ratio of at least 2.00x and a consolidated net senior secured leverage ratio of no greater than 2.75x.  Based on our current forecasts, we are seeking financial covenant relief from our lenders under the Credit Agreement, which has been provided for in the terms of the proposed amendment and restatement to the Credit Agreement contemplated within the A&R Lender Support Agreement.  However, there can be no assurances that the proposed amendment and restatement of the Credit Agreement will be successful.

 

If an out-of-court restructuring is not accomplished, it may be necessary for us to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring, or our creditors could force us into an involuntary bankruptcy or liquidation. If a plan of reorganization is implemented in a bankruptcy proceeding, it is likely that holders of claims and interests with respect to, or rights to acquire our equity securities, would likely be entitled to little or no recovery, and those claims and interests would likely be canceled for little or no consideration. If that were to occur, we anticipate that all, or substantially all, of the value of all investments in our partnership units would be lost and that our unitholders would lose all or substantially all of their investment. It is also likely that our other stakeholders, including our secured and unsecured creditors, would receive substantially less than the amount of their claims.

9


 

Based on the facts and circumstances above, we have classified all of our debt as current liabilities in our condensed consolidated balance sheets, which has created substantial working capital deficiencies. The conditions and circumstances above raise substantial doubt about the Partnership’s ability to continue as a going concern. Our auditor’s opinion in connection with our 2015 consolidated financial statements included a “going concern” uncertainty explanatory paragraph, which has resulted or will result in an additional default and/or event of default (and may in the future result in additional defaults and/or events of default) under the terms of the Credit Agreement, the Indenture governing the 2021 Senior Notes, Foresight Receivables LLC’s securitization agreement and the credit agreements governing certain equipment financings of certain of our other subsidiaries, because of requirements in such agreements for the delivery of financial statements without a going concern explanatory paragraph in the auditor opinion and/or cross-default provisions. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of and classification of liabilities that may result should the Partnership be unable to continue as a going concern.

 

 

4. Transition and Reorganization Costs

 

In connection with Murray Energy acquiring an ownership interest in the Partnership and its general partner, we entered into a Management Services Agreement (“MSA”) with Murray American Coal Inc., a subsidiary 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 (see Note 13). The costs are primarily comprised of retention compensation to certain employees during the transition period and termination benefits to employees whose positions were replaced by Murray Energy employees under the MSA. Transition and reorganization costs were comprised of the following for the three and six months ended June 30, 2016 and 2015:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 2016

 

 

June 30, 2015

 

 

June 30, 2016

 

 

June 30, 2015

 

 

(In Thousands)

 

Retention compensation paid by Foresight Reserves and pushed down to FELP

$

334

 

 

$

5,758

 

 

$

2,333

 

 

$

5,758

 

Equity-based compensation

 

616

 

 

 

2,648

 

 

 

4,315

 

 

 

2,648

 

Cash retention and termination benefits

 

 

 

 

3,398

 

 

 

 

 

 

3,398

 

Legal and other charges

 

 

 

 

447

 

 

 

241

 

 

 

447

 

Transition and reorganization costs

$

950

 

 

$

12,251

 

 

$

6,889

 

 

$

12,251

 

 

5. Commodity Derivative Contracts

The Partnership has commodity price risk for its coal sales as a result of changes in the market value of its coal. To minimize this risk, we enter into long-term, fixed price coal supply sales agreements and coal derivative swap contracts.

As of June 30, 2016 and December 31, 2015, we had outstanding coal derivative swap contracts to fix the selling price on 0.8 million tons and 1.1 million tons, respectively. Swaps are designed so that the Partnership receives or makes 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 imported into 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 condensed consolidated balance sheets (see Note 17).

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 June 30, 2016 and December 31, 2015, we had swap agreements outstanding for 2016 to hedge the variable cash flows related to 0.5 million and 1.0 million gallons, respectively, of diesel fuel. 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 agreements with all of our counterparties that allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default. We manage counterparty risk through the utilization of investment grade commercial banks, diversification of counterparties and our counterparty netting arrangements.

10


A summary of the settlements of commodity derivative contracts and (loss) gain on commodity derivative contracts for the three and six months ended June 30, 2016 and 2015 is as follows:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 2016

 

 

June 30, 2015

 

 

June 30, 2016

 

 

June 30, 2015

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlements of commodity derivative contracts

$

4,801

 

 

$

27,347

 

 

$

9,921

 

 

$

40,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) gain on commodity derivative contracts

$

(10,760

)

 

$

(5,905

)

 

$

(11,283

)

 

$

23,162

 

 

We received $19.1 million in proceeds during the six months ended June 30, 2015 from the settlement of derivatives that were reclassified from an operating cash flow activity to an investing activity in the 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:

 

 

June 30,

2016

 

 

December 31,

2015

 

 

(In Thousands)

 

Trade accounts receivable

$

58,730

 

 

$

56,013

 

Other receivables

 

6,444

 

 

 

5,312

 

Total accounts receivable

$

65,174

 

 

$

61,325

 

 

 

7. Inventories

Inventories consist of the following:

 

 

June 30,

2016

 

 

December 31,

2015

 

 

(In Thousands)

 

Parts and supplies

$

21,194

 

 

$

24,276

 

Raw coal

 

1,861

 

 

 

1,906

 

Clean coal

 

30,701

 

 

 

24,470

 

Total inventories

$

53,756

 

 

$

50,652

 

 

 

8. Property, Plant, Equipment and Development, Net

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

 

 

June 30,

2016

 

 

December 31,

2015

 

 

(In Thousands)

 

Land, land rights and mineral rights

$

99,751

 

 

$

99,676

 

Machinery and equipment

 

1,146,233

 

 

 

1,140,256

 

Machinery and equipment under capital leases

 

126,401

 

 

 

126,401

 

Buildings and structures

 

248,388

 

 

 

248,946

 

Development costs

 

756,816

 

 

 

750,177

 

Other

 

9,370

 

 

 

9,369

 

Property, plant, equipment and development

 

2,386,959

 

 

 

2,374,825

 

Less: accumulated depreciation, depletion and amortization

 

(1,024,954

)

 

 

(941,632

)

Property, plant, equipment and development, net

$

1,362,005

 

 

$

1,433,193

 

11


 

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

June 30,

2016

 

 

December 31,

2015

 

 

(In Thousands)

 

Employee compensation, benefits and payroll taxes

$

12,114

 

 

$

12,393

 

Taxes other than income

 

8,813

 

 

 

6,560

 

Liquidated damages

 

7,092

 

 

 

6,404

 

Royalties (non-affiliate)

 

4,074

 

 

 

3,707

 

Other

 

8,997

 

 

 

6,761

 

Total accrued expenses and other current liabilities

$

41,090

 

 

$

35,825

 

 

 

10. Long-Term Debt and Capital Lease Obligations

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

 

 

June 30,

2016

 

 

December 31,

2015

 

 

(In Thousands)

 

2021 Senior Notes

$

600,000

 

 

$

600,000

 

Revolving Credit Facility

 

352,500

 

 

 

352,500

 

Term Loan

 

297,750

 

 

 

297,750

 

Trade A/R Securitization

 

30,900

 

 

 

41,000

 

5.78% longwall financing arrangement

 

44,820

 

 

 

50,423

 

5.555% longwall financing arrangement

 

46,406

 

 

 

51,563

 

Capital lease obligations

 

50,742

 

 

 

62,710

 

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

 

1,423,118

 

 

 

1,455,946

 

Unamortized deferred financing costs and debt discounts

 

(18,985

)

 

 

(21,380

)

Total long-term debt and capital lease obligations

 

1,404,133

 

 

 

1,434,566

 

Less: current portion

 

(1,404,133

)

 

 

(1,434,566

)

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

$

 

 

$

 

 

As discussed in Notes 3 and 19, we were, and continue to be as of the filing date of these statements, in default under all of our long-term debt and capital lease obligations as of June 30, 2016 and December 31, 2015, and therefore, all outstanding long-term debt and capital lease obligations are reflected as a current liability in the condensed consolidated balance sheets.

 

In January 2016, we received notice from the administrative agent to the Credit Agreement that borrowings under our Credit Agreement would be subject to the default interest rate, as defined in the Credit Agreement, which has resulted in a 2% increase to our borrowing rates. As of June 30, 2016, the weighted-average interest rate on borrowings under the Revolving Credit Facility was 6.1% and the interest rate on borrowings under the Term Loan was 7.5%. At June 30, 2016, we had $6.5 million outstanding in letters of credit.

 

In January 2016, we entered into a Securitization Forbearance Agreement pursuant to which the agent and the lenders under the Trade A/R Securitization program agreed to forbear from exercising certain rights and remedies to which they may be entitled. The Securitization Forbearance Agreement has been extended through August 31, 2016. There can be no assurances that the securitization lenders will agree to any extension of the Securitization Forbearance Agreement or that if such forbearance agreement is terminated early or expires, that the securitization lenders will not pursue any and all remedies available to them. Also under the Securitization Forbearance Agreement, the Trade A/R Securitization facility was amended to permanently reduce commitments to $50.0 million in total, and we may borrow up to an amount such that the aggregate amount outstanding plus any adjusted LC participation amount at such time does not exceed the least of (i) $41.0 million, (ii) the borrowing base at such time and (iii) an amount equal to 70% of the outstanding balance of the eligible receivables. Any extensions of credit by the lenders during the forbearance period are at the sole and absolute discretion of the lenders. As a result of the permanent reduction in capacity under this facility, we recorded a loss on extinguishment of debt charge of $0.1 million to write-off a portion of the deferred debt issue costs incurred to obtain this facility. As of June 30, 2016, we are paying the default interest rate of 6.2% on outstanding borrowings under this facility.

 

12


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. Macoupin is currently in dispute with WPP in regards to the application of the recoupment provision of its lease (see Note 18).

As of June 30, 2016, 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 June 30, 2016 on the Macoupin sale-leaseback financing arrangement and the Sugar Camp sale-leaseback financing arrangement was 13.9% and 13.1%, 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 $5.1 million and $4.9 million for the three months ended June 30, 2016 and 2015, respectively, and $9.5 million and $10.0 million for the six months ended June 30, 2016 and 2015, respectively. Interest expense recorded on the Sugar Camp sale-leaseback was $1.4 million and $1.5 million for the three months ended June 30, 2016 and 2015, respectively, and $2.9 million and $3.0 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and December 31, 2015, interest totaling $3.7 million and $2.1 million, respectively, was accrued in the condensed consolidated balance sheets for the Macoupin and Sugar Camp sale-leaseback financing arrangements.

 

12. Asset Retirement Obligations

The change in the carrying amount of our asset retirement obligations was as follows for the six months ended June 30, 2016:

 

 

June 30, 2016

 

 

(In Thousands)

 

Balance at January 1, 2016 (including current portion)

$

43,295

 

Accretion expense

 

1,688

 

Expenditures for reclamation activities

 

(215

)

Balance at June 30, 2016 (including current portion)

 

44,768

 

Less: current portion of asset retirement obligations

 

(18

)

Noncurrent portion of asset retirement obligations

$

44,750

 

 

 

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 Natural Resource Partners LP (“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 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. Also, in connection with the reorganization of the Partnership pursuant to the execution of the MSA, Foresight Reserves paid retention bonuses to certain Partnership employees which were recorded as capital contributions during the period of payment (see Note 4).

 

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 100% of the outstanding subordinated units in FELP. FEGP has continued 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. The proposed Restructuring would modify certain of the terms above (see Note 19 for additional discussion).      

 

13


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 months ended June 30, 2016 and 2015 was $2.5 million and $1.5 million, respectively, and for the six months ended June 30, 2016 and 2015 was $4.6 million and $1.5 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 $95.2 million at June 30, 2016, with unearned income equal to $35.5 million. The unearned income will be reflected as other revenue over the term of the lease using the effective interest method. Any amounts in excess of the contractual minimums will be recorded as other revenue when earned. As of June 30, 2016, the outstanding Transport Lease financing receivable was $59.8 million, of which $2.6 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 $33.1 million at June 30, 2016, with unearned income equal to $21.3 million. As of June 30, 2016, the outstanding ORRA financing receivable was $11.7 million, of which $0.2 million was classified as current in the condensed consolidated balance sheet.

 

Other Murray Transactions

 

During the three and six months ended June 30, 2016, we purchased $1.3 million and $1.7 million, respectively, in equipment, supplies and rebuild services from affiliates of Murray Energy. During the three and six months ended June 30, 2015, we purchased $0.3 million in equipment, supplies and rebuild services from affiliates of Murray Energy. During the three and six months ended June 30, 2016, our affiliate, Coalfield Construction, provided $0.3 million and $0.5 million, respectively, in equipment, supplies and rebuild services to affiliates of Murray Energy.

 

During the three and six months ended June 30, 2016, we purchased $0 and $0.6 million, respectively, in coal from Murray Energy and its affiliates to meet quality specifications under certain customer contracts.

 

During the three and six months ended June 30, 2016, 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 $0.2 million and $3.8 million, respectively. These usage fees were billed to Murray Energy, resulting in no impact to our condensed consolidated statement of operations. The usage of the railway by Murray Energy counts toward the minimum annual throughput volume requirement with the third-party rail company, thereby reducing the Partnership’s exposure to contractual liquidated damage charges.

 

During the three and six months ended June 30, 2016, we earned $0.3 million and $0.8 million, respectively, in other revenues for Murray Energy’s usage of our Sitran terminal.

 

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2021 Senior Notes

 

On August 23, 2013, Cline Resource and Development Company (“CRDC”) acquired $16.5 million of outstanding principal amount of our 2021 Senior Notes (the “Original Purchase”). During September and October 2013, CRDC sold the Original Purchase primarily to affiliates, including $8.0 million to Chris Cline, $4.0 million to an entity controlled by John F. Dickinson, a director of our general partner’s board of directors until December 31, 2015, and $3.2 million to Michael Beyer, the former chief executive officer of the Partnership. Additional amounts were acquired independently in 2015 by Chris Cline and The Cline Trust Company LLC, as discussed below.

 

As of June 30, 2016 and December 31, 2015, Chris Cline owned $44.5 million of the outstanding principal on our 2021 Senior Notes. Chris Cline acquired $8.0 million in principal of the Original Purchase and, during the year ended December 31, 2015, acquired an additional $36.5 million in principal from third parties in open market transactions. During the three months ended June 30, 2016 and 2015, no interest on the 2021 Senior Notes was paid to Chris Cline and during the six months ended June 30, 2016 and 2015, $0 and $0.6 million, respectively, of interest on the 2021 Senior Notes was paid to Chris Cline. As of June 30, 2016 and December 31, 2015, $3.1 million and $1.3 million, respectively, of interest on the 2021 Senior Notes was accrued to the benefit of Chris Cline.

 

As of June 30, 2016 and December 31, 2015, The Cline Trust Company LLC owned $10.0 million in principal of our 2021 Senior Notes, all of which was acquired during the year ended December 31, 2015. No interest has been paid to The Cline Trust Company LLC. As of June 30, 2016 and December 31, 2015, $0.7 million and $0.3 million of interest on the 2021 Senior Notes was accrued to the benefit of The Cline Trust Company LLC.

 

The entity controlled by Mr. Dickinson, who resigned as a director of our general partner’s board of directors on December 31, 2015, owned $4.0 million of the outstanding principal on our 2021 Senior Notes as of December 31, 2015, all of which was acquired from the Original Purchase. During the three and six months ended June 30, 2015, $0 and $0.3 million, respectively, of interest on the 2021 Senior Notes was paid to Mr. Dickinson. As of December 31, 2015, $0.1 million of interest on the 2021 Senor Notes was accrued to the benefit of the entity controlled by Mr. Dickinson.

Also, Michael Beyer, who resigned in May 2015, acquired $3.2 million in principal from the Original Purchase. Mr. Beyer disposed of his 2021 Senior Notes in September of 2015. Mr. Beyer was no longer an affiliate of the Partnership subsequent to his termination date. For the three and six months ended June 30, 2015, $0 and $0.3 million, respectively, in interest was paid to Mr. Beyer.

 

Mineral Reserve Leases

 

Our mines have a series of mineral reserve leases with Colt, LLC (“Colt”) and Ruger, LLC (“Ruger”), subsidiaries of Foresight Reserves. Each of these leases have initial terms of 10 years with six renewal periods of five years each, at the election of the lessees, and generally require the lessees to pay the greater of $3.40 per ton or 8.0% of the gross sales price, as defined in the respective agreements, of such coal. We also have overriding royalty agreements with Ruger pursuant to which we pay royalties equal to 8.0% of the gross selling price, as defined in the agreements. Each of these mineral reserve leases generally requires a minimum annual royalty payment, which is recoupable only against actual production royalties from future tons mined during the period of 10 years following the date on which any such royalty is paid.

 

We also lease mineral reserves under lease agreements with subsidiaries of NRP, including WPP, HOD, and Independence Energy, LLC (“Independence”). The initial terms of these agreements vary, however, each carries an option by the lessee to extend the leases until all merchantable and mineable coal has been mined and removed. Royalty payments under these arrangements are generally determined based on the greater of a minimum per ton amount (ranging from $2.50 per ton to $5.40 per ton) or a percentage of the gross sales price (generally 8.0% - 9.0%), as defined in the respective agreements. We are also subject under certain of these mineral reserve agreements to overriding royalties and/or wheelage fees. Our mineral reserve leases with NRP subsidiaries generally also require minimum quarterly or annual royalties which are generally recoupable on future tons mined and sold during the preceding five-year period from the excess tonnage royalty payments on a first paid, first recouped basis.

 

In July 2015, we provided notice to WPP declaring a force majeure event at our Hillsboro mine due to elevated carbon monoxide levels as a result of a mine fire, which has required the stoppage of mining operations since March 2015. As a result of the force majeure event, we have not made $31.0 million in minimum deficiency payments to WPP in accordance with the force majeure provisions of the royalty agreement. WPP is asserting that the stoppage of mining operations as a result of the mine fire does not constitute an event of force majeure under the royalty agreement (see Note 18).

 

As of June 30, 2016 and December 31, 2015, we have established a $40.1 million and $46.3 million reserve, respectively, against contractual prepaid royalties between Hillsboro and WPP given that the recoupment of certain prior minimum royalty payments was improbable given the remaining recoupment period available and forecasted demand for Hillsboro coal based on current and forecasted near-term market conditions. During the three and six months ended June 30, 2016, the recoupment period of $3.1 million and $6.2 million, respectively, in prepaid royalties between Hillsboro and WPP expired, resulting in the write-off of the prepaid royalty and the corresponding reserve. We continually evaluate our ability to recoup prepaid royalty balances which includes, among

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other things, assessing mine production plans, sales commitments, current and forecasted future coal market conditions, and remaining years available for recoupment.

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 manage the day-to-day affairs of the Partnership’s business. The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses incurred or payments made by the general partner on behalf of the Partnership.

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

 

Affiliated Company