ST. LOUIS--(BUSINESS WIRE)--Foresight Energy LP (“Foresight” or the “Partnership”) (NYSE: FELP), today reported financial and operating results for the quarter ended September 30, 2014, setting new records for coal production, sales volume, sales revenue, and Adjusted EBITDA. Sales revenue for the quarter was $300.0 million, up 25% from the third quarter 2013. Increased sales revenue drove record Adjusted EBITDA of $105.0 million and net income attributable to the Partnership of $45.4 million, or $0.35 per unit. Net income included $16.0 million, or $0.12 per unit, of unrealized gains from its portfolio of coal sales derivatives.
Foresight also announced that the Board of Directors of its general partner approved a quarterly cash distribution for the third quarter 2014 of $0.35 per unit (an annualized rate of $1.40 per unit). The distribution represents an increase of 2.5% from the second quarter 2014 distribution of $0.3413 per unit (calculated based on the pro rata distribution of $0.03 per unit paid for the 8 days the Partnership was public in the second quarter). The distribution is payable on November 25, 2014 for unitholders of record on November 14, 2014.
“We are pleased to report third quarter results with new records for production, sales volumes, sales revenue, and Adjusted EBITDA,” said Michael Beyer, President and Chief Executive Officer. “The successful quarter was driven by continued strong performance at our mining operations including the contribution from Viking, our newest longwall, in its first full quarter of operation. Our high level of productivity continued as our Williamson, Hillsboro and Sugar Camp operations were the three most productive underground coal mines in the United States during the third quarter based on MSHA data for clean tons produced per man hour worked. Based on our ability to maintain our high productivity and low cost position, we have increased our distribution.”
Consolidated Financial Results
Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Sales revenue was $300.0 million for the three months ended September 30, 2014, an increase of 25% compared to the same period in the prior year. Sales volumes increased to a record 6.0 million tons during the quarter driven primarily by increased coal production at its Sugar Camp complex. Sugar Camp’s second longwall system, Viking, emerged from development on June 1, 2014 so the third quarter represented its first full quarter of operation. Domestic sales volumes during the third quarter of 2014 increased 0.6 million tons to 4.3 million tons, compared to the third quarter of 2013 while sales volumes to international markets increased 0.5 million tons to 1.7 million tons compared to the comparable prior year period.
Cost of coal produced (excluding depreciation, depletion, and amortization) increased $26.2 million for the three months ended September 30, 2014 to $123.5 million primarily due to a 17.9% increase in sales volume compared to the same period in 2013. Unit costs also increased during the third quarter due to a $1.53 per ton increase in the overall cash cost per ton sold due primarily to increased production costs at its Hillsboro and Sugar Camp operations. The increased costs at its Hillsboro mine were primarily a result of an underground fire which halted production for nearly a month and resulted in direct incremental costs of $2.5 million. Additionally, Hillsboro incurred higher subsidence, repairs and maintenance costs during the third quarter of 2014 as compared to the prior year period. Unit costs at Sugar Camp were higher in the third quarter of 2014 compared to the same quarter in 2013 primarily due to the introduction of an additional continuous miner development unit as well as higher roof control and water handling costs.
Selling, general and administrative expenses of $6.4 million for the three months ended September 30, 2014 decreased $4.4 million from the third quarter of 2013 due to reduced executive compensation accruals and expenses. Partially offsetting these declines was equity-based compensation expense recorded during the current year third quarter and higher medical and professional services expenses as compared to the three months ended September 30, 2013.
Adjusted EBITDA increased $16.5 million, or 18.6%, to $105.0 million during the three months ended September 30, 2014 due to the factors mentioned above.
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
Coal sales increased $120.0 million to $809.4 million for the nine months ended September 30, 2014 compared to the same period in 2013 due primarily to an increase in sales volume of 2.7 million tons. This increase was partially offset by a $1.28 per ton, or 2.5%, decrease in coal sales realization per ton. The increase in sales volume was driven by increased production at its mines. Domestic sales volumes increased by 2.2 million tons to 11.4 million tons over the nine months ended September 30, 2013 while international tons shipped increased 0.5 million tons to 4.8 million tons. The mix of incremental sales volumes reflects the strength of the domestic market in 2014 compared to the international market. The decline in coal sales realization as compared to the prior year period is due to a lower mix of international shipments during the nine months ended September 30, 2014 as well as to an overall decline in realization per ton on both domestic and international sales.
Cost of coal produced (excluding depreciation, depletion, and amortization) increased $67.2 million for the nine months ended September 30, 2014 primarily due to an additional 2.5 million tons sold compared to the nine months ended September 30, 2013. Cost of coal produced (excluding depreciation, depletion and amortization) for the nine months ended September 30, 2014 also increased due to a $1.24 per ton increase in the overall cash cost per ton sold due primarily to increased production costs at its Hillsboro and Sugar Camp operations. The increased costs at its Hillsboro mine were primarily a result of an underground fire which halted production for nearly a month and resulted in direct incremental cost of $2.5 million. Additionally, Hillsboro incurred higher subsidence, longwall and roof control costs during the nine months ended September 30, 2014 as compared to the comparable prior year period. Unit costs at Sugar Camp were higher for the nine months ended September 30, 2014 compared to the same period in 2013 primarily due to the introduction of an additional continuous miner development unit as well as higher roof control, water handling and longwall costs.
Adjusted EBITDA increased $29.3 million, or 11.2%, to $291.9 million for the nine months ended September 30, 2014 due primarily to the 2.7 million ton increase in sales volume as compared to the prior year, offset partially by lower coal sales realization and higher production costs during the nine months ended September 30, 2014.
Liquidity and Financing
As of September 30, 2014, the Partnership had $175.2 million of liquidity comprised of $24.8 million in cash and $150.4 million of availability for borrowings under its revolving credit facility.
Safe Harbor Provisions Regarding Forward-Looking Statements
This press release contains “forward-looking” statements within the meaning of the federal securities laws. These statements contain words such as “possible,” “intend,” “will,” “if” and “expect” and can be impacted by numerous factors, including risks relating to the securities markets generally, the impact of adverse market conditions affecting business of the Partnership, adverse changes in laws including with respect to tax and regulatory matters and other risks. There can be no assurance that actual results will not differ from those expected by management of the Partnership. The Partnership undertakes no obligation to update or revise such forward-looking statements to reflect events or circumstances that occur, or which Foresight becomes aware of, after the date hereof.
Non-GAAP Financial Measures
Adjusted EBITDA and distributable cash flow (“DCF”) are non-GAAP supplemental financial measures that management and external users of the Partnership’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:
- the Partnership’s operating performance as compared to other publicly traded partnerships, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;
- the ability of the Partnership’s assets to generate sufficient cash flow to make distributions to its unitholders;
- the Partnership’s ability to incur and service debt and fund capital expenditures; and
- the viability of acquisitions and other capital expenditure projects and the returns on investment of various expansion and growth opportunities.
The Partnership defines Adjusted EBITDA as net income attributable to controlling interests before interest, income taxes, depreciation, depletion, amortization and accretion. Adjusted EBITDA is also adjusted for equity-based compensation, unrealized gains or losses on derivatives, early debt extinguishment costs and material nonrecurring or other items which may not reflect the trend of future results. The Partnership defines DCF as Adjusted EBITDA less cash interest expense, net and estimated maintenance capital expenditures.
The Partnership believes that the presentation of Adjusted EBITDA and DCF provides useful information to investors in assessing its financial condition and results of operations. Adjusted EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash from operations or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP, nor should Adjusted EBITDA and DCF be considered alternatives to operating surplus, adjusted operating surplus or other definitions in its partnership agreement. Adjusted EBITDA and DCF have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. Neither Adjusted EBITDA nor DCF will be impacted by changes in working capital balances that are reflected in operating cash flow. Additionally, because Adjusted EBITDA and DCF may be defined differently by other companies in the industry, its definition of Adjusted EBITDA and DCF may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. For a reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, please see the table below.
About Foresight Energy LP
Foresight Energy is a leading coal producer in the Illinois Basin region of the United States controlling over three billion tons of coal reserves currently supporting four mining complexes. Its logistics give each of these mining complexes multiple modes of transportation to reach the end-users of our coal, including rail, barge and truck. Foresight Energy serves both the domestic and international markets.
Foresight Energy LP
Unaudited Condensed Consolidated Statements of Operations
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|(In Thousands, Except per Unit Data)|
|Costs and expenses:|
|Cost of coal produced (excluding depreciation, depletion and amortization)||123,535||97,376||323,064||255,825|
|Cost of coal purchased||11,940||—||12,672||2,163|
|Depreciation, depletion and amortization||45,953||40,639||121,903||115,065|
|Accretion on asset retirement obligations||405||382||1,215||1,145|
|Selling, general and administrative||6,398||10,767||26,632||28,984|
|Gain on coal derivatives||(18,990||)||(1,200||)||(41,419||)||(1,880||)|
|Other operating loss (income), net||875||75||(1,414||)||264|
|Loss on early extinguishment of debt||—||77,755||4,979||77,755|
|Interest expense, net||28,202||29,566||88,156||85,527|
|Net income (loss)||46,155||(57,833||)||108,916||(14,446||)|
|Less: net income attributable to noncontrolling interests||789||804||2,772||1,010|
|Net income (loss) attributable to controlling interests||$||45,366||$||(58,637||)||$||106,144||$||(15,456||)|
|Less: predecessor net income attributable to controlling interests prior to initial public offering||65,008|
|Net income subsequent to initial public offering attributable to limited partner units (June 23, 2014 through September 30, 2014)||$||41,136|
|Net income subsequent to initial public offering available to limited partner units - basic and diluted:|
|Net income subsequent to initial public offering per limited partner unit - basic and diluted:|
|Weighted average limited partner units outstanding - basic and diluted:|
|Distribution declared per limited partner unit||$||0.03||$||0.03|
Foresight Energy LP
Condensed Consolidated Balance Sheets
|September 30,||December 31,|
|Cash and cash equivalents||$||24,771||$||23,284|
|Due from affiliates||259||368|
|Deferred longwall costs||24,025||14,265|
|Coal derivative assets||19,942||1,976|
|Other current assets||6,809||6,568|
|Total current assets||282,442||186,096|
|Property, plant, equipment and development, net||1,447,725||1,414,074|
|Coal derivative assets||17,228||912|
|Liabilities and partners’ capital (deficit)|
|Current portion of long-term debt and capital lease obligations||$||34,471||$||70,034|
|Accrued expenses and other current liabilities||38,560||37,515|
|Due to affiliates||15,665||9,572|
|Total current liabilities||175,751||194,921|
|Long-term debt and capital lease obligations||1,302,714||1,449,179|
|Sale-leaseback financing arrangements||193,434||193,434|
|Asset retirement obligations||20,859||20,416|
|Other long-term liabilities||3,876||337|
|Limited partners' capital (deficit):|
|Common unitholders (64,786 units outstanding as of September 30, 2014)||245,864||—|
|Subordinated unitholders (64,739 units outstanding as of September 30, 2014)||(103,032||)||—|
|Total limited partners' capital||142,832||—|
|Predecessor members' deficit||—||(157,356||)|
|Total partners' capital (deficit)||149,849||(148,116||)|
|Total liabilities and partners' capital (deficit)||$||1,846,483||$||1,710,171|
Foresight Energy LP
Unaudited Condensed Consolidated Statements of Cash Flows
|Nine Months Ended|
|Cash flows from operating activities|
|Net income (loss)||$||108,916||$||(14,446||)|
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:|
|Depreciation, depletion and amortization||121,903||115,065|
|Amortization of debt issuance costs and debt premium/discount||5,388||5,582|
|Unrealized gain on coal derivatives||(33,711||)||(1,428||)|
|Deferred revenue recognized||(174||)||(3,907||)|
|Non-cash loss on early extinguishment of debt||4,681||5,625|
|Changes in operating assets and liabilities:|
|Due from/to affiliates, net||6,219||(2,115||)|
|Prepaid expenses and other current assets||(10,467||)||(10,475||)|
|Coal derivative assets and liabilities||(908||)||(893||)|
|Accrued expenses and other current liabilities||4,148||15,066|
|Net cash provided by operating activities||164,162||116,720|
|Cash flows from investing activities|
|Investment in property, plant, equipment and development||(173,609||)||(128,894||)|
|Acquisition of an affiliate||(3,822||)||—|
|Proceeds from sale of equipment||1,619||393|
|Settlement of coal derivatives||—||986|
|Net cash used in investing activities||(175,812||)||(127,515||)|
|Cash flows from financing activities|
|Net increase in borrowings under revolving credit facility||83,500||23,000|
|Proceeds from other long-term debt||29,719||1,041,156|
|Payments on other long-term debt and capital lease obligations||(297,908||)||(619,922||)|
|Proceeds from issuance of common units (net of underwriters' discount)||329,875||—|
|Initial public offering costs paid (other than underwriters' discount)||(6,976||)||(72||)|
|Debt issuance costs paid||(297||)||(23,259||)|
|Net settlement of withholding taxes on issued unit awards||(551||)||—|
|Net cash provided by financing activities||13,137||10,542|
|Net increase (decrease) in cash and cash equivalents||1,487||(253||)|
|Cash and cash equivalents, beginning of period||23,284||27,888|
|Cash and cash equivalents, end of period||$||24,771||$||27,635|
|Interest paid, net of amounts capitalized||$||93,437||$||89,613|
|Supplemental disclosures of non-cash financing activities:|
Reconciliation of GAAP Net Income (Loss) Attributable to Controlling Interests to Adjusted EBITDA and DCF:
|Three Months Ended||Nine Months Ended||Three Months Ended|
|Net income (loss) attributable to controlling interests||$||45,366||$||(58,637||)||$||106,144||$||(15,456||)||$||29,475|
|Interest expense, net||28,202||29,566||88,156||85,527||30,350|
|Depreciation, depletion and amortization||45,953||40,639||121,903||115,065||40,692|
|Accretion on asset retirement obligations||405||382||1,215||1,145||405|
|Noncash equity compensation||1,077||-||3,257||-||1,805|
|Unrealized gain on coal derivatives||(16,001||)||(1,200||)||(33,711||)||(1,428||)||(4,800||)|
|Loss on early extinguishment of debt||—||77,755||4,979||77,755||4,979|
|Less: estimated maintenance capital expenditures(1)||19,300||18,000|
|Less: cash interest expense, net(2)||26,547||28,760|
|Distributable cash flow||$||59,155||$||56,146|
(1) - Amount represents the average estimated quarterly maintenance capital expenditures required to maintain our assets over the long-term.
(2) - Cash interest expense is calculated as GAAP interest expense for the period excluding the amortization expense recorded during the period for deferred debt issuance costs and debt discounts.