Edgar Filing: NATURAL RESOURCE PARTNERS LP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q



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

For the quarterly period ended June 30, 2018



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

Commission file number: 001-31465

______________________________________________________

NATURAL RESOURCE PARTNERS L.P.

(Exact name of registrant as specified in its charter)

______________________________________________________



Delaware		35-2164875
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1201 Louisiana Street, Suite 3400

Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

(713) 751-7507

(Registrant’s telephone number, including area code)

______________________________________________________

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 ý 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 ý No ¨

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



Large Accelerated Filer	¨	Accelerated Filer	ý
Non-accelerated Filer	¨ (Do not check if a smaller reporting company)	Smaller Reporting Company	¨
		Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

At August 6, 2018 there were 12,245,920 Common Units outstanding.

NATURAL RESOURCE PARTNERS, L.P.

TABLE OF CONTENTS



		Page
Part I. Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Statements of Partners’ Capital	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	49
Part II. Other Information
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosure	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
	Signatures	52

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS



	June 30,			December 31,
(In thousands, except unit data)	2018			2017
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents	$	52,975		$	29,827
Accounts receivable, net	59,312			47,026
Accounts receivable—affiliates	140			161
Inventory	8,048			7,553
Prepaid expenses and other	4,391			5,838
Current assets of discontinued operations	988			991
Total current assets	125,854			91,396
Land	24,809			25,247
Plant and equipment, net	47,917			46,170
Mineral rights, net	873,716			883,885
Intangible assets, net	47,924			49,554
Equity in unconsolidated investment	245,524			245,433
Long-term contracts receivable	39,878			40,776
Other assets	6,184			6,547
Other assets—affiliate	—			156
Total assets	$	1,411,806		$	1,389,164
LIABILITIES AND CAPITAL
Current liabilities
Accounts payable	$	7,801		$	6,957
Accounts payable—affiliates	1,453			562
Accrued liabilities	12,848			16,890
Accrued liabilities—affiliates	—			515
Accrued interest	14,609			15,484
Current portion of deferred revenue	2,732			—
Current portion of long-term debt, net	75,188			79,740
Current liabilities of discontinued operations	—			401
Total current liabilities	114,631			120,549
Deferred revenue	17,136			100,605
Long-term debt, net	723,147			729,608
Other non-current liabilities	2,385			2,808
Other non-current liabilities—affiliate	—			346
Total liabilities	857,299			953,916
Commitments and contingencies (see Note 15)
Class A Convertible Preferred Units (250,000 and 258,844 units issued and outstanding at June 30, 2018 and December 31, 2017, respectively, at $1,000 par value per unit; liquidation preference of $1,500 per unit)	164,587			173,431
Partners’ capital
Common unitholders’ interest (12,245,920 and 12,232,006 units issued and outstanding at June 30, 2018 and December 31, 2017, respectively)	326,125			199,851
General partner’s interest	4,427			1,857
Warrant holders’ interest	66,816			66,816
Accumulated other comprehensive loss	(4,872		)	(3,313		)
Total partners’ capital	392,496			265,211
Non-controlling interest	(2,576		)	(3,394		)
Total capital	389,920			261,817
Total liabilities and capital	$	1,411,806		$	1,389,164

The accompanying notes are an integral part of these consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per unit data)	2018			2017			2018			2017
Revenues and other income
Coal royalty and other	$	48,711		$	32,768		$	94,684		$	67,762
Coal royalty and other—affiliates	188			11,338			425			22,843
Transportation and processing services	5,002			4,146			10,385			4,146
Transportation and processing services—affiliate	—			1,374			—			6,013
Construction aggregates	34,233			27,363			60,657			52,846
Road construction and asphalt paving services	6,176			6,192			6,904			7,930
Equity in earnings of Ciner Wyoming	16,529			8,389			26,150			18,683
Gain on asset sales, net	210			3,361			870			3,405
Total revenues and other income	$	111,049		$	94,931		$	200,075		$	183,628
Operating expenses
Operating and maintenance expenses	$	38,301		$	31,020		$	68,269		$	60,648
Operating and maintenance expenses—affiliates	4,065			2,219			6,530			4,774
Depreciation, depletion and amortization	8,563			8,165			16,520			17,889
Amortization expense—affiliate	—			240			—			1,008
General and administrative	2,414			2,031			5,819			8,109
General and administrative—affiliates	849			852			1,780			1,976
Asset impairments	—			—			242			1,778
Total operating expenses	$	54,192		$	44,527		$	99,160		$	96,182

Income from operations	$	56,857		$	50,404		$	100,915		$	87,446
Other income (expense)
Interest expense, net	$	(17,734	)	$	(20,308	)	$	(35,704	)	$	(43,432	)
Debt modification expense	—			(132		)	—			(7,939		)
Loss on extinguishment of debt	—			(4,107		)	—			(4,107		)
Other expense, net	$	(17,734	)	$	(24,547	)	$	(35,704	)	$	(55,478	)

Net income from continuing operations	$	39,123		$	25,857		$	65,211		$	31,968
Income (loss) from discontinued operations	(34		)	133			(48		)	(74		)
Net income	$	39,089		$	25,990		$	65,163		$	31,894
Less: net income attributable to non-controlling interest	(869		)	—			(869		)	—
Net income attributable to NRP	$	38,220		$	25,990		$	64,294		$	31,894
Less: income attributable to preferred unitholders	(7,500		)	(7,538		)	(15,000		)	(10,038		)
Net income attributable to common unitholders and general partner	$	30,720		$	18,452		$	49,294		$	21,856

Net income attributable to common unitholders	$	30,105		$	18,015		$	48,308		$	21,419
Net income attributable to the general partner	$	615		$	437		$	986		$	437

Income from continuing operations per common unit (see Note 5)
Basic	$	2.46		$	1.46		$	3.95		$	1.76
Diluted	$	1.75		$	1.13		2.96			1.64
Net income per common unit (see Note 5)
Basic	$	2.46		$	1.47		$	3.95		$	1.75
Diluted	$	1.75		$	1.13		2.95			1.64

Net income	$	39,089		$	25,990		$	65,163		$	31,894
Add: comprehensive loss from unconsolidated investment and other	(434		)	(13		)	(1,559		)	(1,145		)
Comprehensive income	$	38,655		$	25,977		$	63,604		$	30,749
Less: comprehensive income attributable to non-controlling interest	(869		)	—			(869		)	—
Comprehensive income attributable to NRP	$	37,786		$	25,977		$	62,735		$	30,749

The accompanying notes are an integral part of these consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(Unaudited)



	Common Unitholders				General Partner			Warrant Holders		Accumulated Other Comprehensive Loss			Partners' Capital Excluding Non-Controlling Interest			Non-Controlling Interest			Total Capital
	Common Unitholders
(In thousands)	Units	Amounts
Balance at December 31, 2017	12,232	$	199,851		$	1,857		$	66,816	$	(3,313	)	$	265,211		$	(3,394	)	$	261,817
Cumulative effect of adoption of accounting standard (See Note 2)	—	88,448			1,805			—		—			90,253			—			90,253
Net income ⁽¹⁾	—	63,008			1,286			—		—			64,294			869			65,163
Distributions to common unitholders and general partner	—	(11,015		)	(225		)	—		—			(11,240		)	—			(11,240		)
Distributions to preferred unitholders	—	(14,960		)	(305		)	—		—			(15,265		)	—			(15,265		)
Issuance of unit-based awards	14	410			—			—		—			410			—			410
Unit-based awards amortization and vesting	—	333			—			—		—			333			—			333
Comprehensive loss from unconsolidated investment and other	—	50			9			—		(1,559		)	(1,500		)	(51		)	(1,551		)
Balance at June 30, 2018	12,246	$	326,125		$	4,427		$	66,816	$	(4,872	)	$	392,496		$	(2,576	)	$	389,920


(1)	Net income includes $15.0 million attributable to Preferred Unitholders that accumulated during the period, of which $14.7 million is allocated to the common unitholders and $0.3 million is allocated to the general partner.

The accompanying notes are an integral part of these consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended June 30,
(In thousands)	2018			2017
Cash flows from operating activities
Net income	$	65,163		$	31,894
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
Depreciation, depletion and amortization	16,520			17,889
Amortization expense—affiliate	—			1,008
Distributions from unconsolidated investment	22,403			22,112
Equity earnings from unconsolidated investment	(26,150		)	(18,683		)
Gain on asset sales, net	(870		)	(3,405		)
Debt modification expense	—			7,939
Loss on extinguishment of debt	—			4,107
Loss from discontinued operations	48			74
Asset impairments	242			1,778
Unit-based compensation expense	1,073			3
Amortization of debt issuance costs and other	1,973			3,344
Other—affiliates	(190		)	(1,173		)
Change in operating assets and liabilities:
Accounts receivable	(8,926		)	(4,530		)
Accounts receivable—affiliates	21			236
Accounts payable	175			46
Accounts payable—affiliates	890			2
Accrued liabilities	(3,381		)	(7,302		)
Accrued liabilities—affiliates	(515		)	—
Accrued interest	(875		)	3,405
Deferred revenue	6,037			4,489
Deferred revenue—affiliates	—			(10,166		)
Other items, net	952			2,527
Net cash provided by operating activities of continuing operations	$	74,590		$	55,594
Net cash used in operating activities of discontinued operations	(447		)	(531		)
Net cash provided by operating activities	$	74,143		$	55,063

Cash flows from investing activities
Distributions from unconsolidated investment in excess of cumulative earnings	$	2,097		$	2,388
Proceeds from sale of assets	911			1,268
Return of long-term contract receivable	1,016			1,207
Return of long-term contract receivable—affiliate	—			804
Acquisition of plant and equipment and other	(5,857		)	(4,998		)
Net cash provided by (used in) investing activities of continuing operations	$	(1,833	)	$	669
Net cash provided by investing activities of discontinued operations	—			202
Net cash provided by (used in) investing activities	$	(1,833	)	$	871

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended June 30,
(In thousands)	2018			2017
Cash flows from financing activities
Proceeds from issuance of preferred units and warrants, net	$	—		$	242,100
Proceeds from issuance of 2022 Senior Notes, net	—			103,688
Borrowings on credit facility	35,000			—
Repayments of loans	(48,072		)	(348,292		)
Redemption of preferred units paid-in-kind	(8,844		)	—
Distributions to common unitholders and general partner	(11,240		)	(11,234		)
Distributions to preferred unitholders	(15,265		)	(1,250		)
Contributions to discontinued operations	(447		)	(329		)
Debt issuance costs and other	(741		)	(40,534		)
Net cash used in financing activities of continuing operations	$	(49,609	)	$	(55,851	)
Net cash provided by financing activities of discontinued operations	447			329
Net cash used in financing activities	$	(49,162	)	$	(55,522	)

Net increase in cash and cash equivalents	$	23,148		$	412
Cash and cash equivalents at beginning of period	29,827			40,371
Cash and cash equivalents at end of period	$	52,975		$	40,783

Supplemental cash flow information:
Cash paid during the period for interest from continuing operations	$	33,155		$	34,880
Non-cash investing and financing activities:
Plant, equipment and mineral rights funded with accounts payable or accrued liabilities	$	894		$	—
Issuance of 2022 Senior Notes in exchange for 2018 Senior Notes	$	—		$	240,638

The accompanying notes are an integral part of these consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Nature of Business

Natural Resource Partners L.P. (the "Partnership") engages principally in the business of owning, operating, managing and leasing a diversified portfolio of mineral properties in the United States, including interests in coal, natural soda ash from trona, construction aggregates and other natural resources. As used in these Notes to Consolidated Financial Statements, the terms "NRP," "we," "us" and "our" refer to Natural Resource Partners L.P. and its subsidiaries, unless otherwise stated or indicated by context.

Principles of Consolidation and Reporting

The accompanying unaudited Consolidated Financial Statements of the Partnership have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management's opinion, all necessary adjustments to fairly present the Partnership's results of operations, financial position and cash flows for the periods presented have been made and all such adjustments were of a normal and recurring nature. Certain reclassifications have been made to prior period amounts on the Statements of Comprehensive Income and Statements of Cash Flows to conform with current period presentation. These reclassifications had no impact on previously reported net income or cash flows from operating, investing or financing activities.

Recently Adopted Accounting Standards

Revenue Recognition. On January 1, 2018, NRP adopted accounting standard ASC 606, Revenue from Contracts with Customers, and all the related amendments (the “new revenue standard” and "ASC 606") to all open contracts using the modified retrospective method. The adoption of the new revenue standard impacted royalty revenue from NRP's coal and aggregates royalty leases as further described below. NRP recognized a $90.3 million cumulative effect of adoption adjustment in the opening balance of partners' capital on January 1, 2018. Prior year information has not been restated and continues to be reported under the accounting standards in effect for those periods. The new revenue standard had no impact on revenues from NRP's Construction Aggregates or Soda Ash operating segments.

A majority of NRP’s coal and aggregates royalty revenue continues to be recognized over the lease term based on production. For coal and aggregates royalty leases for which NRP expects consideration from minimum payments to be greater than consideration from production over the lease term, royalty revenue is now recognized straight-line over the lease term based on the minimum payment consideration.

The cumulative effects of the changes made to our Consolidated Balance Sheet at January 1, 2018 for the adoption of the new revenue standard were as follows:



(In thousands)	Balance at December 31, 2017		Adjustments due to ASC 606			Balance at January 1, 2018
Assets
Accounts receivable, net	$	47,026	$	3,479		$	50,505

Liabilities
Current portion of deferred revenue	$	—	$	1,973		$	1,973
Deferred revenue	100,605		(88,747		)	11,858

Partners’ capital
Common unitholders’ interest	$	199,851	$	88,448		$	288,299
General partner’s interest	1,857		1,805			3,662
Total partners’ capital	265,211		90,253			355,464

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

The impact of adoption of the new revenue standard on NRP’s Consolidated Balance Sheet and Consolidated Statements of Comprehensive Income was as follows:



	As of June 30, 2018
(In thousands)	As Reported		Balances without Adoption of ASC 606		Effect of Change
Assets
Accounts receivable, net	$	59,312	$	55,325	$	3,987
Total assets	1,411,806		1,407,819		3,987

Liabilities and capital
Current portion of deferred revenue	$	2,732	$	—	$	2,732
Deferred revenue	17,136		102,244		(85,108		)
Total liabilities	857,299		939,675		(82,376		)
Partners’ capital
Common unitholders’ interest	326,125		241,489		84,636
General partner’s interest	4,427		2,700		1,727
Total partners’ capital	392,496		306,133		86,363
Total liabilities and capital	1,411,806		1,407,819		3,987



	For the Three Months Ended June 30, 2018
(In thousands)	As Reported		Amounts without Adoption of ASC 606		Effect of Change
Coal royalty and other revenues	$	48,711	$	50,710	$	(1,999	)
Net income from continuing operations	39,123		41,315		(2,192		)
Net income	39,089		41,281		(2,192		)
Net income per common unit (basic)	2.46		2.64		(0.18		)
Net income per common unit (diluted)	1.75		1.85		(0.10		)



	For the Six Months Ended June 30, 2018
(In thousands)	As Reported		Amounts without Adoption of ASC 606		Effect of Change
Coal royalty and other revenues	$	94,684	$	98,381	$	(3,697	)
Net income from continuing operations	65,211		69,101		(3,890		)
Net income	65,163		69,053		(3,890		)
Net income per common unit (basic)	3.95		4.26		(0.31		)
Net income per common unit (diluted)	2.95		3.13		(0.18		)

Recently Issued Accounting Standards

Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires a lessee to recognize assets and liabilities on the balance sheet for the present value of the rights and obligations created by all leases with terms of more than 12 months. This standard does not apply to leases that explore for or use minerals, oil, natural gas and similar non-regenerative resources, including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. The guidance also requires disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual and interim periods beginning after December 31, 2018 and is to be adopted using a modified retrospective approach. The Partnership is currently evaluating the impact of the provisions of this guidance on its consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

2. Revenue from Contracts with Customers

Coal Royalty and Other Segment

The following table represents the Partnership's Coal Royalty and Other segment revenues (including affiliates) by major source:



	Three Months Ended		Six Months Ended
(In thousands)	June 30, 2018
Coal royalty revenue	$	31,407	$	60,098
Production lease minimum revenue	102		527
Minimum lease straight-line revenue	6,769		13,529
Wheelage revenue	1,641		3,615
Coal overriding royalty revenue	3,702		6,574
Aggregates royalty revenue	1,572		2,663
Oil and gas royalty revenue	1,354		4,252
Property tax revenue	1,523		2,705
Other revenue	829		1,146
Coal royalty and other revenues⁽¹⁾	$	48,899	$	95,109
Transportation and processing services revenue ⁽²⁾	5,002		10,385
Total Coal royalty and other segment revenues	$	53,901	$	105,494


(1)	Represents revenue from contracts with customers as defined under ASC 606.

(2)

Revenue from contracts with customers as defined under ASC 606 was $3.1 million and $6.1 million for the three and six months ended June 30, 2018, respectively. The remaining transportation and processing services revenue of $1.9 million and $4.3 million for the three and six months ended June 30, 2018, respectively, relates to other NRP-owned infrastructure leased to and operated by third party operators accounted for under ASC 840, Leases.

Coal Royalty and Other segment revenues

Royalty-based leases. Approximately two-thirds of our royalty-based leases have initial terms of five to 40 years, with many lessees having the option to extend the lease for additional terms. For these types of leases, the lessees generally make payments to NRP based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral they mine or sell. Most of NRP’s coal and aggregates royalty leases require the lessee to pay annual or quarterly minimum amounts, either made in advance or arrears, which are generally recoupable through actual royalty production over certain time periods that generally range from three to five years.

In accordance with previous accounting standards in effect prior to January 1, 2018, NRP recognized all coal and aggregates royalty revenue over the lease term based on coal or aggregates production. The recognition of revenue from minimum payments was deferred until either recoupment occurred or the recoupment period expired. Upon expiration, unrecouped minimums were recognized as revenue.

Under the new revenue recognition standard, management has defined NRP's coal and aggregates royalty lease performance obligation as providing the lessee the right to mine and sell NRP's coal or aggregates over the lease term. The Partnership then evaluated the likelihood that consideration NRP received from its coal and aggregates lessees resulting from production would exceed consideration received from minimum payments over the lease term.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

As a result of this evaluation, revenue recognition from the Partnership's royalty-based leases is based on either production or minimum payments as follows:

•

Production Leases: Leases for which the Partnership expects that consideration from production will be greater than consideration from minimums over the lease term. Revenue recognition for these leases is recognized as Coal royalty revenue or Aggregates royalty revenue, as applicable, over time based on production. Deferred revenue, resulting from minimum consideration received, is recognized as royalty revenue either when recoupment occurs or as Production lease minimum revenue when either the recoupment period expires or when NRP determines that recoupment is remote (breakage).


•	Minimum Leases: Leases for which the Partnership expects that consideration from minimums will be greater than consideration from production over the lease term. Revenue recognition for these leases is recognized straight-line over the lease term based on the minimum consideration amount and is recognized in Minimum lease straight-line revenue.

Additionally, minimum payments contractually due are accrued and recognized in Accounts receivable, net, with an offset to Deferred revenue, and minimum payments received are recorded as Deferred revenue on NRP 's Consolidated Balance Sheets.

The Partnership also has overriding royalty revenue interests in certain oil and gas wells and coal reserves. Revenue from these interests is recognized over time based on when the respective commodities are sold.

Wheelage. Revenue related to fees collected per ton to transport foreign coal across property owned by the Partnership that is recognized over time as transportation across our property occurs.

Other revenue. Other revenue consists primarily of rental payments and surface damage fees related to certain land owned by the Partnership and is recognized straight-line over time as it is earned. Other revenues also include and property tax revenues, the majority of which are reimbursable by the lessee. Property taxes incurred on the Partnership's properties are recognized on a gross basis over time.

Transportation and processing services revenue. The Partnership owns transportation and processing infrastructure that is leased to third parties and collects throughput fees for which it recognizes revenue over time based on the coal tons transported over the beltlines or processed through the facilities.

Contract modifications

Contract modifications that impact the overall economics of the lease's potential future cash flows are evaluated in accordance with ASC 606. A majority of our contract modifications pertain to our coal and aggregates royalty contracts and include, but are not limited to, extending the lease term, changes to royalty rates, floor prices or minimum payments, assignment of the contract or termination due to the exhaustion of merchantable and mineable reserves. In accordance with the contract modification guidance in paragraphs 606-10-25-12 and 25-13, revenues from contracts that were modified before January 1, 2018 were not retrospectively restated for those modifications and instead reflected the aggregate effect of those modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligation.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Contract Assets and Liabilities

The following table details the Partnership's Coal Royalty and Other segment receivables from contracts with customers and contract liabilities:



	June 30,		January 1,
(In thousands)	2018		2018
Receivables
Total accounts receivable, net (including affiliates)	$	30,448	$	24,047
Prepaid expenses and other ⁽¹⁾	2,163		2,830

Contract liabilities
Current portion of deferred revenue	$	2,732	$	1,973
Deferred revenue	17,136		11,858


(1)	Prepaid expenses and other includes notes receivable from contracts with customers.

The following table shows the activity related to the Partnership's Coal Royalty and Other segment deferred revenue:



(In thousands)	Six Months Ended June 30, 2018
Balance at December 31, 2017	$	100,605
Cumulative adjustment for change in accounting principle recognized in partners' capital	(86,774		)
Balance at January 1, 2018 (current and non-current)	$	13,831
Production leases - revenue impact
Recoupments recognized in Coal and aggregates royalty revenue	(4,630		)
Production lease minimum revenue	(393		)
Minimum leases - revenue impact
Minimum lease amortization recognized in Minimum lease straight-line revenue	(1,958		)
Contractual minimums due	956
Cash received for minimum payments	12,062
Balance at June 30, 2018 (current and non-current)	$	19,868

The following table shows the Partnership's Coal Royalty and Other segment revenue recognized during the three months ended June 30, 2018 that was included in the deferred revenue balance at the beginning of the period:



(In thousands)
Production leases - revenue impact
Recoupments recognized in Coal and aggregates royalty revenue	(2,365	)
Production lease minimum revenue	(21	)
Minimum leases - revenue impact
Minimum lease amortization recognized in Minimum lease straight-line revenue	(1,005	)

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Remaining Performance Obligations

The Partnership's non-cancelable annual minimum payments due under the lease terms of its coal and aggregates royalty leases are as follows:



	Weighted Average Remaining Years as of June 30, 2018	Annual Minimum Payments (In thousands)
Lease Term ⁽¹⁾	Weighted Average Remaining Years as of June 30, 2018	Annual Minimum Payments (In thousands)
1 - 5 years	0.2	$	7,888
6 - 10 years	2.4	27,439
10+ years	8.2	44,166


(1)	The Partnership applied the practical expedient for disclosing remaining performance obligations for contracts with an expected duration of one year or less, and have excluded those contracts from this disclosure.

The Partnership's non-cancelable annual minimum payments on its coal and aggregates royalty leases are recognized as revenue as discussed above. In addition, the Partnership's non-cancelable annual minimum payments due under terms of its coal and aggregates overriding royalty agreements include a $1.8 million annual minimum that expires in 2023 and a $1.0 million minimum that expires upon exhaustion of the mineable and recoverable coal reserves, respectively.

Construction Aggregates Segment

The Partnership's Construction Aggregates segment revenues from contracts with customers by major source are as follows:



	Three Months Ended		Six Months Ended
(In thousands)	June 30, 2018
Crushed stone, sand and gravel	$	18,070	$	31,809
Delivery and fuel income	11,678		21,761
Other revenues	4,485		7,087
Total construction aggregates revenues	$	34,233	$	60,657
Road construction and asphalt paving services	6,176		6,904
Total construction aggregates segment revenues	$	40,409	$	67,561

Construction Aggregates segment revenues

The majority of the Construction Aggregates segment revenues is recognized at a point in time with the exception of revenue related to construction contracts recognized on the percentage-of-completion method as discussed below. The majority of the Partnership's construction contracts have an original expected duration of one year or less. As such, the Partnership has elected to apply the practical expedient and not disclose remaining performance obligations for contracts with an original expected duration of one year or less. Additional discussion of the Partnership's major sources of Construction Aggregates segment revenue are as follows:

Crushed stone, sand and gravel and other revenues. Revenue from the sale of crushed stone, sand, gravel and asphalt is recognized based on a fixed price when title is transferred to the buyer and collectibility of the sales proceeds is reasonably assured (typically occurs when products are picked up or delivered to the customer). Other revenues consist of brokered stone sales and barge and service revenues. Brokered stone sales include aggregates purchases from third party quarries, which are then sold and transported to customers and recorded as revenue at the time of delivery. The purchase price of the aggregates from the third party quarries are recorded as expenses. Barge and service revenues relate to loading and unloading services at marine terminals and are recorded as revenue at the time the service is performed.

Delivery and fuel income. Revenue related to pass through delivery and fuel costs the Partnership incurs to deliver its products is recognized on a gross basis and is subsequently reimbursed by the customer. The related costs are recognized when incurred and are included in Operating and maintenance expenses on the Consolidated Statements of Comprehensive Income.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Road construction and asphalt paving services revenue. Revenue related to construction contracts is recognized on the percentage-of-completion method, measured by the percentage of total costs incurred to date to the estimated total costs for each contract.

The Partnership had $24.7 million and $23.0 million in receivables from Construction Aggregates segment related contracts with customers included in Accounts receivable, net on its Consolidated Balance Sheets as of June 30, 2018 and January 1, 2018, respectively.

3. Class A Convertible Preferred Units

On March 2, 2017, NRP issued $250 million of Class A Convertible Preferred Units representing limited partner interests in NRP (the "Preferred Units") to certain entities controlled by funds affiliated with The Blackstone Group, L.P. (collectively referred to as "Blackstone") and certain affiliates of GoldenTree Asset Management LP (collectively referred to as "GoldenTree") (together the "Preferred Purchasers") pursuant to a Preferred Unit and Warrant Purchase Agreement. NRP issued 250,000 Preferred Units to the Preferred Purchasers at a price of $1,000 per Preferred Unit (the "Per Unit Purchase Price"), less a 2.5% structuring and origination fee. The Preferred Units entitle the Preferred Purchasers to receive cumulative distributions at a rate of 12% per year, up to one half of which NRP may pay in additional Preferred Units (such additional Preferred Units, the "paid-in-kind units" or "PIK Units"), subject to approval by the Board of Directors.

During the six months ended June 30, 2018, the Partnership redeemed all of the outstanding PIK Units, which resulted in an $8.8 million cash payment during the period.

Activity related to the Preferred Units is as follows from December 31, 2017 to June 30, 2018:



(In thousands, except unit data)	Units Outstanding		Financial Position
Balance at December 31, 2017	258,844		$	173,431
Redemption of PIK Units	(8,844	)	(8,844		)
Balance at June 30, 2018	250,000		$	164,587

4. Common and Preferred Unit Distributions

The Partnership makes cash distributions to common unitholders on a quarterly basis, subject to approval by the Board of Directors. As discussed in Note 3 above, the Partnership also makes distributions to the preferred unitholders.

Common Unit Distributions

Distributions made on the common units and the general partner's general partner ("GP") interest are made on a pro-rata basis in accordance with their relative percentage interests in the Partnership. The general partner is entitled to receive 2% of such distributions. The following table shows the distributions declared and paid to common unitholders during the six months ended June 30, 2018 and 2017, respectively:



				Total Distributions (in thousands)
Date Paid	Period Covered by Distribution	Distribution per Common Unit		Common Units		GP Interest		Total
2018
February 14, 2018	October 1 - December 31, 2017	$	0.45	$	5,505	$	112	$	5,617
May 14, 2018	January 1 - March 31, 2018	$	0.45	$	5,510	$	113	$	5,623

2017
February 14, 2017	October 1 - December 31, 2016	$	0.45	$	5,503	$	112	$	5,615
May 12, 2017	January 1 - March 31, 2017	$	0.45	$	5,506	$	113	$	5,619

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Preferred Unit Distributions

The following table shows the distributions declared and paid to Preferred Unitholders during the six months ended June 30, 2018 and 2017, respectively:



Date Paid	Period Covered by Distribution	Distribution per Preferred Unit		Total Distribution Declared (in thousands)
2018
February 7, 2018	October 1 - December 31, 2017	$	30.00	$	7,765
May 14, 2018	January 1 - March 31, 2018	$	30.00	$	7,500

2017
May 30, 2017	March 2 - March 31, 2017	$	5.00	$	2,500

Income available to common unitholders and the general partner is reduced by Preferred Unit distributions that accumulated during the period. During the three and six months ended June 30, 2018, NRP reduced net income attributable to common unitholders and the general partner by $7.5 million and $15.0 million, respectively, as a result of accumulated Preferred Unit distributions earned during the period. The $7.5 million Preferred Unit distribution earned during the three months ended June 30, 2018 will be paid on August 14, 2018.

5. Net Income Per Common Unit

Basic net income per common unit is computed by dividing net income, after considering income attributable to preferred unitholders and the general partner’s general partner interest, by the weighted average number of common units outstanding. Diluted net income per common unit includes the effect of NRP's Preferred Units and Warrants, if the inclusion of these items is dilutive.

The dilutive effect of the Preferred Units is calculated using the if-converted method. Under the if-converted method, the Preferred Units are assumed to be converted at the beginning of the period, and the resulting common units are included in the denominator of the diluted net income per unit calculation for the period being presented. Distributions declared in the period and undeclared distributions on the Preferred Units that accumulated during the period are added back to the numerator for purposes of the if-converted calculation.

The dilutive effect of the Warrants is calculated using the treasury stock method, which assumes that the proceeds from the exercise of these instruments are used to purchase common units at the average market price for the period. The calculation of the dilutive effect of the Warrants for the three and six months ended June 30, 2018 and 2017 did not include the net settlement of Warrants to purchase 2.25 million common units with a strike price of $34.00 because the impact would have been anti-dilutive.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

The following table reconciles the numerators and denominators of the basic and diluted net income per common unit computations and calculates basic and diluted net income per common unit:



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per unit data)	2018			2017			2018			2017
Allocation of net income:
Net income from continuing operations	$	39,123		$	25,857		$	65,211		$	31,968
Less: net income attributable to non-controlling interest	(869		)	—			(869		)	—
Less: income attributable to preferred unitholders	(7,500		)	(7,538		)	(15,000		)	(10,038		)
Net income from continuing operations attributable to common unitholders and general partner	$	30,754		$	18,319		$	49,342		$	21,930
Less: net income from continuing operations attributable to the general partner	(616		)	(434		)	(987		)	(438		)
Net income from continuing operations attributable to common unitholders	$	30,138		$	17,885		$	48,355		$	21,492

Net income (loss) from discontinued operations	$	(34	)	$	133		$	(48	)	$	(74	)
Less: net income (loss) from discontinued operations attributable to the general partner	1			(3		)	1			1
Net income (loss) from discontinued operations attributable to common unitholders	$	(33	)	$	130		$	(47	)	$	(73	)

Net income	$	39,089		$	25,990		$	65,163		$	31,894
Less: net income attributable to non-controlling interest	(869		)	—			(869		)	—
Less: income attributable to preferred unitholders	(7,500		)	(7,538		)	(15,000		)	(10,038		)
Net income attributable to common unitholders and general partner	$	30,720		$	18,452		$	49,294		$	21,856
Less: net income attributable to the general partner	(615		)	(437		)	(986		)	(437		)
Net income attributable to common unitholders	$	30,105		$	18,015		$	48,308		$	21,419

Basic income (loss) per common unit:
Weighted average common units—basic	12,246			12,232			12,242			12,232
Basic net income from continuing operations per common unit	$	2.46		$	1.46		$	3.95		$	1.76
Basic net income (loss) from discontinued operations per common unit	$	—		$	0.01		$	—		$	(0.01	)
Basic net income per common unit	$	2.46		$	1.47		$	3.95		$	1.75

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per unit data)	2018			2017			2018			2017
Diluted income (loss) per common unit:
Weighted average common units—basic	12,246			12,232			12,242			12,232
Plus: dilutive effect of Warrants	522			467			476			361
Plus: dilutive effect of Preferred Units	8,615			9,760			8,615			6,517
Weighted average common units—diluted	21,383			22,459			21,333			19,110

Net income from continuing operations	$	39,123		$	25,857		$	65,211		$	31,968
Less: net income attributable to non-controlling interest	(869		)	—			(869		)	—
Diluted net income from continuing operations attributable to common unitholders and general partner	$	38,254		$	25,857		$	64,342		$	31,968
Less: diluted net income from continuing operations attributable to the general partner	(766		)	(586		)	(1,287		)	(639		)
Diluted net income from continuing operations attributable to common unitholders	$	37,488		$	25,271		$	63,055		$	31,329

Diluted net income (loss) from discontinued operations attributable to common unitholders	$	(33	)	$	130		$	(47	)	$	(73	)

Net income	$	39,089		$	25,990		$	65,163		$	31,894
Less: net income attributable to non-controlling interest	(869		)	—			(869		)	—
Diluted net income attributable to common unitholders and general partner	$	38,220		$	25,990		$	64,294		$	31,894
Less: diluted net income attributable to the general partner	(765		)	(589		)	(1,286		)	(638		)
Diluted net income attributable to common unitholders	$	37,455		$	25,401		$	63,008		$	31,256

Diluted net income from continuing operations per common unit	$	1.75		$	1.13		$	2.96		$	1.64
Diluted net income (loss) from discontinued operations per common unit	$	—		$	—		$	—		$	—
Diluted net income per common unit	$	1.75		$	1.13		$	2.95		$	1.64

6. Segment Information

The Partnership's operating segments are strategic business units that offer distinct products and services to different customers in different geographies within the U.S. that are managed accordingly. NRP has the following three operating segments:

Coal Royalty and Other—consists primarily of coal royalty and coal-related transportation and processing assets. Other assets include aggregates royalty, industrial mineral royalty, oil and gas royalty and timber. The Partnership's coal reserves are primarily located in Appalachia, the Illinois Basin and the western United States. The Partnership's aggregates and industrial minerals properties are located in a number of states across the United States. The Partnership's oil and gas royalty assets are primarily located in Louisiana and Pennsylvania.

Soda Ash—consists of the Partnership's 49% non-controlling equity interest in Ciner Wyoming, a trona ore mining operation and soda ash refinery in the Green River Basin of Wyoming. Ciner Resources LP, the Partnership's operating partner, mines the trona, processes it into soda ash, and distributes the soda ash both domestically and internationally to the glass and chemicals industries. The Partnership receives regular quarterly distributions from Ciner Wyoming.

Construction Aggregates—consists of the Partnership's construction aggregates materials business that operates hard rock quarries, an underground limestone mine, sand and gravel plants, asphalt plants and marine terminals. Construction Aggregates operates in Pennsylvania, West Virginia, Tennessee, Kentucky and Louisiana.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Direct segment costs and certain other costs incurred at the corporate level that are identifiable and that benefit the Partnership's segments are allocated to the operating segments accordingly. These allocated costs generally include: insurance, taxes, legal, information technology and shared facilities services and are included in Operating and maintenance expenses and Operating and maintenance expenses—affiliates on the Consolidated Statements of Comprehensive Income. Intersegment sales are at prices that approximate market and are eliminated on the Partnership's Consolidated Statements of Comprehensive Income.

Corporate and Financing includes functional corporate departments that do not earn revenues. Costs incurred by these departments include interest and financing, corporate headquarters and overhead, centralized treasury and accounting and other corporate-level activity not specifically allocated to a segment and are included in General and administrative expenses and General and administrative expenses—affiliates on the Consolidated Statements of Comprehensive Income.

The following table summarizes certain financial information for each of the Partnership's operating segments:



	Operating Segments
(In thousands)	Coal Royalty and Other		Soda Ash		Construction Aggregates			Corporate and Financing			Total
Three Months Ended June 30, 2018
Revenues (including affiliates)	$	53,901	$	16,529	$	40,409		$	—		$	110,839
Intersegment revenues (expenses)	74		—		(74		)	—			—
Gain on asset sales, net	168		—		42			—			210
Operating and maintenance expenses (including affiliates)	8,117		—		34,249			—			42,366
Depreciation, depletion and amortization	5,376		—		3,187			—			8,563
General and administrative (including affiliates)	—		—		—			3,263			3,263
Other expense, net	—		—		—			17,734			17,734
Net income (loss) from continuing operations	40,650		16,529		2,941			(20,997		)	39,123
Loss from discontinued operations	—		—		—			—			(34		)

Three Months Ended June 30, 2017
Revenues (including affiliates)	$	49,626	$	8,389	$	33,555		$	—		$	91,570
Intersegment revenues (expenses)	68		—		(68		)	—			—
Gain on asset sales, net	3,184		—		177			—			3,361
Operating and maintenance expenses (including affiliates)	5,419		—		27,820			—			33,239
Depreciation, depletion and amortization (including affiliates)	5,375		—		3,030			—			8,405
General and administrative (including affiliates)	—		—		—			2,883			2,883
Other expense, net	—		—		178			24,369			24,547
Net income (loss) from continuing operations	42,084		8,389		2,636			(27,252		)	25,857
Income from discontinued operations	—		—		—			—			133

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)



	Operating Segments
(In thousands)	Coal Royalty and Other		Soda Ash		Construction Aggregates			Corporate and Financing			Total
Six Months Ended June 30, 2018
Revenues (including affiliates)	$	105,494	$	26,150	$	67,561		$	—		$	199,205
Intersegment revenues (expenses)	115		—		(115		)	—			—
Gain on asset sales, net	819		—		51			—			870
Operating and maintenance expenses (including affiliates)	14,332		—		60,467			—			74,799
Depreciation, depletion and amortization	10,476		—		6,044			—			16,520
General and administrative (including affiliates)	—		—		—			7,599			7,599
Asset impairment	242		—		—			—			242
Other expense, net	—		—		20			35,684			35,704
Net income (loss) from continuing operations	81,378		26,150		966			(43,283		)	65,211
Loss from discontinued operations	—		—		—			—			(48		)

Six Months Ended June 30, 2017
Revenues (including affiliates)	$	100,764	$	18,683	$	60,776		$	—		$	180,223
Intersegment revenues (expenses)	130		—		(130		)	—			—
Gain on asset sales, net	3,213		—		192			—			3,405
Operating and maintenance expenses (including affiliates)	12,803		—		52,619			—			65,422
Depreciation, depletion and amortization (including affiliates)	12,348		—		6,549			—			18,897
General and administrative (including affiliates)	—		—		—			10,085			10,085
Asset impairment	1,778		—		—			—			1,778
Other expense, net	—		—		573			54,905			55,478
Net income (loss) from continuing operations	77,178		18,683		1,097			(64,990		)	31,968
Loss from discontinued operations	—		—		—			—			(74		)

As of June 30, 2018
Total assets of continuing operations	$	967,627	$	245,524	$	193,721		$	3,946		$	1,410,818
Total assets of discontinued operations	—		—		—			—			988

As of December 31, 2017
Total assets of continuing operations	$	945,237	$	245,433	$	191,374		$	6,129		$	1,388,173
Total assets of discontinued operations	—		—		—			—			991

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

7. Equity Investment

The Partnership accounts for its 49% investment in Ciner Wyoming using the equity method of accounting. Activity related to this investment is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2018			2017			2018			2017
Balance at beginning of period	$	241,679		$	252,803		$	245,433		$	255,901
Income allocation to NRP’s equity interests	17,657			9,274			28,489			20,754
Amortization of basis difference	(1,128		)	(885		)	(2,339		)	(2,071		)
Comprehensive loss from unconsolidated investment	(434		)	(23		)	(1,559		)	(1,165		)
Distribution	(12,250		)	(12,250		)	(24,500		)	(24,500		)
Balance at end of period	$	245,524		$	248,919		$	245,524		$	248,919

The following table represents summarized financial information for Ciner Wyoming as derived from the respective unaudited financial statements for the three and six months ended June 30, 2018 and 2017, respectively:



	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2018		2017		2018		2017
Sales	$	91,882	$	119,737	$	213,101	$	246,309
Gross profit	14,022		24,219		42,244		52,916
Net Income	36,035		18,926		58,142		42,354

8. Plant and Equipment, Net

The Partnership’s plant and equipment consist of the following:



	June 30,		December 31,
(In thousands)	2018		2017
Plant and equipment	$	89,686	$	84,173
Construction in process	1,383		803