Introduction
The following discussion and analysis presents management's view of our business, financial condition and overall performance and should be read in conjunction with our consolidated financial statements and footnotes included elsewhere in this filing. Our discussion and analysis consists of the following subjects: •Executive Overview •Results of Operations •Liquidity and Capital Resources •Off-Balance Sheet Transactions •Inflation •Environmental Regulation •Related Party Transactions •Summary of Critical Accounting Estimates •Recent Accounting Standards As used in this Item 7, unless the context otherwise requires: "we," "our," "us" and the "Partnership" refer toNatural Resource Partners L.P. and, where the context requires, our subsidiaries. References to "NRP" and "Natural Resource Partners " refer toNatural Resource Partners L.P. only, and not toNRP (Operating) LLC or any ofNatural Resource Partners L.P.'s subsidiaries. References to "Opco" refer toNRP (Operating) LLC , a wholly owned subsidiary of NRP, and its subsidiaries.NRP Finance Corporation ("NRP Finance") is a wholly owned subsidiary of NRP and a co-issuer with NRP on the 9.125% senior notes due 2025 (the "2025 Senior Notes").
Non-GAAP Financial Measures
Distributable Cash Flow
Distributable cash flow ("DCF") represents net cash provided by (used in) operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings, proceeds from asset sales and disposals, including sales of discontinued operations, and return of long-term contract receivables; less maintenance capital expenditures. DCF is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. DCF may not be calculated the same for us as for other companies. In addition, DCF presented below is not calculated or presented on the same basis as distributable cash flow as defined in our partnership agreement, which is used as a metric to determine whether we are able to increase quarterly distributions to our common unitholders. DCF is a supplemental liquidity measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to asses our ability to make cash distributions and repay debt. Free Cash Flow Free cash flow ("FCF") represents net cash provided by (used in) operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings and return of long-term contract receivables; less maintenance and expansion capital expenditures and cash flow used in acquisition costs classified as investing or financing activities. FCF is calculated before mandatory debt repayments. FCF is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. FCF may not be calculated the same for us as for other companies. FCF is a supplemental liquidity measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess our ability to make cash distributions and repay debt. 34
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Table of Contents Cash Flow Cushion Cash flow cushion represents net cash provided by (used in) operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings and return of long-term contract receivables; less maintenance and expansion capital expenditures, cash flow used in acquisition costs classified as investing or financing activities, one-time beneficial items, mandatory Opco debt repayments, preferred unit distributions and redemption of PIK units and common unit distributions. Cash flow cushion is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. Cash flow cushion is a supplemental liquidity measure used by our management to assess our ability to make or raise cash distributions to our common and preferred unitholders and our general partner and repay debt or redeem preferred units. Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) from continuing operations less equity earnings from unconsolidated investment, net income attributable to non-controlling interest and gain on reserve swap; plus total distributions from unconsolidated investment, interest expense, net, debt modification expense, loss on extinguishment of debt, depreciation, depletion and amortization and asset impairments. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income or loss, net income or loss attributable to partners, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. There are significant limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the effect of certain recurring items that materially affect our net income (loss), the lack of comparability of results of operations of different companies and the different methods of calculating Adjusted EBITDA reported by different companies. In addition, Adjusted EBITDA presented below is not calculated or presented on the same basis as Consolidated EBITDA as defined in our partnership agreement or Consolidated EBITDDA as defined in Opco's debt agreements. See " Item 8. Financial Statements and Supplementary Data-Note 11. Debt, Net " included elsewhere in this Annual Report on Form 10-K for a description of Opco's debt agreements. Adjusted EBITDA is a supplemental performance measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis. 35
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Table of Contents Executive Overview We are a diversified natural resource company engaged principally in the business of owning, managing and leasing a diversified portfolio of mineral properties inthe United States , including interests in coal and other natural resources and own a non-controlling 49% interest inCiner Wyoming LLC ("CinerWyoming "), a trona ore mining and soda ash production business. Our common units trade on theNew York Stock Exchange under the symbol "NRP." Our business is organized into two operating segments: Coal Royalty and Other-consists primarily of coal royalty properties and coal-related transportation and processing assets. Other assets include industrial mineral royalty properties, aggregates royalty properties, oil and gas royalty properties and timber. Our coal reserves are primarily located in Appalachia, theIllinois Basin and theNorthern Powder River Basin inthe United States . Our industrial minerals and aggregates properties are located in various states acrossthe United States , our oil and gas royalty assets are primarily located inLouisiana and our timber assets are primarily located inWest Virginia . Soda Ash-consists of our 49% non-controlling equity interest in Ciner Wyoming, a trona ore mining and soda ash production business located in theGreen River Basin ofWyoming . Ciner Wyoming mines trona and processes it into soda ash that is sold both domestically and internationally into the glass and chemicals industries. We expect royalties generated from coal mining operations on our properties and our interest in the Ciner Wyoming soda ash business to generate the substantial majority of our cash flow over the next years. However, over the past year, we have been evaluating our existing portfolio of assets for opportunities to generate alternative sources of revenues without substantial capital investment by us. For example, our surface and mineral acreage owned acrossthe United States may contain geologic formations that are suitable for the long-term sequestration and storage of carbon. To the extent a viable carbon sequestration project is developed on or near our property, we may be able to lease that property as storage in exchange for rent payments. We are also exploring opportunities to lease our surface acreage for renewable energy projects, such as solar arrays and wind farms. In addition, we are assessing our forest timber assets for carbon sequestration project potential whereby we would obtain and sell carbon offset credits in exchange for agreements for long-term forest preservation. There can be no assurance, however, that any of these potential projects will succeed or generate substantial cash flow to NRP. 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, legal and accounting and other corporate-level activity not specifically allocated to a segment. 36
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Table of Contents Our financial results by segment for the year endedDecember 31, 2020 are as follows: Operating Segments Coal Royalty and Corporate and (In thousands) Other Soda Ash Financing Total Revenues and other income$ 129,592
$ (40,180)
135,885 - - 135,885 Net income (loss) from continuing operations excluding asset impairments$ 95,705
$ 104,982
Cash flow provided by (used in) continuing operations Operating activities$ 124,737
$ 1,745
$ - $ -
$ -
$ -
$ 127,482 $ 14,037 $ (51,206) $ 90,248 Free cash flow (1)$ 125,859 $ 14,037 $ (51,206) $ 88,690 Cash flow cushion (1) N/A N/A N/A$ (739)
(1)See "-Results of Operations" below for reconciliations to the most comparable GAAP financial measures.
Current Results/Market Commentary
Business Outlook and Quarterly Distributions
The global COVID-19 pandemic has had a significant negative impact on demand for steel, electricity and glass, which translates to lower demand for the coal and soda ash that our properties produce. While demand for metallurgical and thermal coals and soda ash began to rebound during the second half of 2020, prices remain below pre-pandemic levels, and the coal and soda ash markets remain challenged. We are unable to predict the ultimate severity or duration of the COVID-19 pandemic or its impact on our or Ciner Wyoming's business. We ended the year with$199.8 million of liquidity consisting of$99.8 million of cash and cash equivalents and$100.0 million of borrowing capacity under our Opco Credit Facility and generated$88.7 million of free cash flow during the year endedDecember 31, 2020 . As a result, we believe we have the financial flexibility to navigate the effects of the pandemic on our business. We continue to employ remote work protocols and are conducting business as usual despite the pandemic. Despite our liquidity level at the end of the year, our consolidated leverage ratio has risen since early 2020 and was 4.6x atDecember 31, 2020 . The indenture governing our 2025 parent company notes restricts us from paying more than one-half of the quarterly distribution on our preferred units in cash if our consolidated leverage ratio exceeds 3.75x. Accordingly, the Board of Directors of our general partner has declared a distribution on our preferred units to be paid one-half in kind through the issuance of additional preferred units ("PIK units") for the past two quarters. To the extent our leverage ratio continues to exceed 3.75x, which we expect for the foreseeable future, we will be required to continue to pay one-half of the required preferred distributions in kind and will be unable to redeem any PIK units until our consolidated leverage ratio falls below 3.75x. Distributions on the outstanding PIK units will accrue and accumulate at 12% per year until such PIK units are redeemed. In addition, pursuant to the terms of our partnership agreement, to the extent we have any PIK units outstanding afterJanuary 1, 2022 , we will be prohibited from paying any common unit distributions until the PIK units are redeemed in full. Future distributions on NRP's common and preferred units will be determined on a quarterly basis by the Board of Directors. The Board of Directors considers numerous factors each quarter in determining cash distributions, including profitability, cash flow, debt service obligations, covenants in our debt and partnership agreements, market conditions and outlook, estimated unitholder income tax liability and the level of cash reserves that the Board determines is necessary for future operating and capital needs. 37
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Coal Royalty and Other Business Segment Demand for steel and electricity began to rebound in the third quarter and the outlook for our coal businesses has improved, though sales volumes and prices for coal sold from our properties in the fourth quarter remained below pre-pandemic levels. We expect coal markets to remain volatile during 2021, in part as a result of ongoing uncertainties with the COVID-19 pandemic. Our lessees sold 16.8 million tons of coal from our properties in 2020 and we derived approximately 70% of our coal royalty revenues and approximately 60% of our coal royalty sales volumes from metallurgical coal during the same period. Revenues and other income in 2020 were lower by$87.3 million as compared to the prior year. This decrease is primarily a result of a weakened market for metallurgical coal as compared to the prior year due to a decline in global steel demand. As a result, both sales volumes and prices for metallurgical coal sold were lower in 2020 compared to the prior year. Prices for metallurgical coal have rebounded from the lows seen in the second quarter, but are not currently above pre-pandemic levels. In addition, weaker domestic and export thermal coal markets compared to the prior year period resulted in lower revenues from our thermal coal properties. Domestic and export thermal coal markets remained challenged by lower utility demand, continued low natural gas prices and the secular shift to renewable energy. Our thermal coal business results are largely dependent on our various lease agreements with Foresight. InJune 2020 , we entered into lease amendments with Foresight pursuant to which Foresight agreed to pay us fixed cash payments of$48.75 million in 2020 and$42.0 million in 2021 to satisfy all obligations arising out of the existing various coal mining leases and transportation infrastructure fee agreements between us and Foresight for calendar years 2020 and 2021. These amendments provide us cash flow certainty for our thermal coal business through 2021. During 2020 we received all of the$48.75 million due to us from Foresight. Soda Ash Business Segment Ciner Wyoming has been negatively impacted by the COVID-19 pandemic as lower demand for glass in the global auto, beverage container, and construction industries reduced demand for soda ash. Revenues and other income in 2020 were lower by$36.4 million compared to the prior year primarily due to a combination of lower pricing and volumes sold. However, demand for glass began to rebound in the third quarter and the outlook for our soda ash business has improved. While Ciner Wyoming's business has yet to recover to pre-COVID levels, overall sales volumes increased and overall production volumes increased over second quarter 2020 lows, though global prices remain depressed. While we believe our facility is competitively positioned as one of the lowest cost producers of soda ash in the world, we expect the market to remain volatile as a result of ongoing uncertainties with the COVID-19 pandemic. In order to have financial flexibility during the COVID-19 pandemic, CinerWyoming suspended quarterly distributions in the third quarter of 2020. CinerWyoming will continue to evaluate, on a quarterly basis, whether to reinstate the distribution. Ciner Wyoming's ability to pay future quarterly distributions will be dependent in part on its cash reserves, liquidity, total debt levels and anticipated capital expenditures. When considering the significant investment required by Ciner Wyoming's previously announced expansion project and the infrastructure improvements designed to increase overall efficiency, combined with the COVID-19 pandemic's negative impact on Ciner Wyoming's financial results, Ciner Wyoming has reprioritized the timing of the significant capital expenditure items in order to increase financial and liquidity flexibility until it has more clarity and visibility into the ongoing impact of the COVID-19 pandemic on its business. 38
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Table of Contents Results of Operations
Years Ended
Revenues and Other Income
The following table includes our revenues and other income by operating segment:
For the Year Ended December
31,
Operating Segment (In thousands) 2020 2019 Decrease Percentage Change Coal Royalty and Other$ 129,592 $ 216,846 $ (87,254) (40) % Soda Ash 10,728 47,089 (36,361) (77) % Total$ 140,320 $ 263,935 $ (123,615) (47) %
The changes in revenues and other income is discussed for each of the operating segments below:
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Table of Contents Coal Royalty and Other
The following table presents coal sales volumes, coal royalty revenue per ton and coal royalty revenues by major coal producing region, the significant categories of other revenues and other income:
For the Year Ended December 31, Increase Percentage (In thousands, except per ton data) 2020 2019 (Decrease) Change Coal sales volumes (tons) Appalachia Northern 647 3,460 (2,813) (81) % Central 10,111 13,377 (3,266) (24) % Southern 889 1,670 (781) (47) % Total Appalachia 11,647 18,507 (6,860) (37) % Illinois Basin 3,381 2,201 1,180 54 % Northern Powder River Basin 1,738 3,036 (1,298) (43) % Total coal sales volumes 16,766 23,744 (6,978) (29) % Coal royalty revenue per ton Appalachia Northern$ 2.36 $ 1.96 $ 0.40 20 % Central 4.17 5.53 (1.36) (25) % Southern 4.75 6.69 (1.94) (29) % Illinois Basin 2.36 4.66 (2.30) (49) % Northern Powder River Basin 3.50 2.90 0.60 21 % Combined average coal royalty revenue per ton 3.70 4.67 (0.97) (21) % Coal royalty revenues Appalachia Northern$ 1,526 $ 6,775 $ (5,249) (77) % Central 42,207 73,960 (31,753) (43) % Southern 4,221 11,169 (6,948) (62) % Total Appalachia 47,954 91,904 (43,950) (48) % Illinois Basin 7,973 10,255 (2,282) (22) % Northern Powder River Basin 6,086 8,809 (2,723) (31) % Unadjusted coal royalty revenues 62,013 110,968 (48,955) (44) % Coal royalty adjustment for minimum leases (1) (10,145) (1,356) (8,789) (648) % Total coal royalty revenues$ 51,868 $ 109,612 $ (57,744) (53) % Other revenues Production lease minimum revenues (1)$ 21,749 $ 24,068 $ (2,319) (10) % Minimum lease straight-line revenues (1) 16,796 14,910 1,886 13 % Property tax revenues 5,786 6,287 (501) (8) % Wheelage revenues 7,025 5,880 1,145 19 % Coal overriding royalty revenues 4,977 13,496 (8,519) (63) % Lease amendment revenues 3,450 7,991 (4,541) (57) % Aggregates royalty revenues 1,717 4,265 (2,548) (60) % Oil and gas royalty revenues 5,816 3,031 2,785 92 % Other revenues 982 1,529 (547) (36) % Total other revenues$ 68,298 $ 81,457 $ (13,159) (16) % Coal royalty and other$ 120,166 $ 191,069 $ (70,903) (37) % Transportation and processing services revenues 8,845 19,279 (10,434) (54) % Gain on asset sales and disposals 581 6,498 (5,917) (91) % Total Coal Royalty and Other segment revenues and other income$ 129,592 $ 216,846 $ (87,254) (40) % (1)EffectiveJanuary 1, 2020 , certain revenues previously classified as coal royalty revenues are classified as production lease minimum revenues or minimum lease straight-line revenues due to contract modifications withForesight Energy Resources LLC ("Foresight") that fixed consideration paid to us over a two-year period. 40
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Table of Contents Coal Royalty Revenues Total coal royalty revenues decreased$57.7 million from 2019 to 2020 driven by weakened coal markets that resulted in lower coal sales volumes and pricing. The discussion of these decreases by region is as follows: •Appalachia: Sales volumes decreased 37% and coal royalty revenues decreased$44.0 million primarily due to weakened coal demand compounded by the COVID-19 pandemic. •Illinois Basin: Sales volumes increased 54% due to increased activity at theHillsboro andWilliamson mines, while coal royalty revenues decreased$2.3 million primarily due to the idling of ourMacoupin property. Additionally, during the year endedDecember 31, 2020 , certain revenues previously classified as coal royalty revenues are classified as production lease minimum revenues or minimum lease straight-line revenues due to contract modifications with Foresight that fixed consideration paid to us over a two-year period. •Northern PowderRiver Basin : Sales volumes decreased 43% and coal royalty revenues decreased$2.7 million primarily due to our lessee mining off of our property in accordance with its mine plan in 2020, partially offset by a 21% increase in sales prices year-over-year. Other Revenues Other revenues decreased$13.2 million from 2019 to 2020 primarily due to the following: •A$8.5 million decrease in coal overriding royalty revenues primarily as a result of production at theWilliamson mine moving off of non-NRP owned coal (on which we receive overriding royalties) and back onto NRP-owned coal reserves. As a result, this decrease in coal overriding royalty revenues was offset by an increase in coal royalty revenues; and •A$4.5 million decrease in lease amendment revenues year-over-year. Transportation and Processing Services Revenues Transportation and processing services revenues decreased$10.4 million primarily due to the temporary cessation of production at theMacoupin mine where we own loadout and other transportation assets in addition to decreased production of non-NRP-owned coal at theWilliamson mine where we also own loadout and other transportation assets. Gain on Asset Sales and Disposals Gain on asset sales and disposals decreased$5.9 million primarily due to the disposal of certain mineral rights assets during the third quarter of 2019. Soda Ash Revenues and other income related to our Soda Ash segment decreased$36.4 million primarily due to a combination of lower pricing and volumes sold. CinerWyoming was negatively impacted by the COVID-19 pandemic as lower demand for glass in the global auto, beverage container, and construction industries reduced demand for soda ash. 41
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Table of Contents Operating and Other Expenses The following table presents the significant categories of our consolidated operating and other expenses: For the Year Ended December 31, (In thousands) 2020 2019 Decrease Percentage Change Operating expenses Operating and maintenance expenses$ 24,795 $ 32,738 $ (7,943) (24) % Depreciation, depletion and amortization 9,198 14,932 (5,734) (38) % General and administrative expenses 14,293 16,730 (2,437) (15) % Asset impairments 135,885 148,214 (12,329) (8) % Total operating expenses$ 184,171 $ 212,614 $ (28,443) (13) % Other expenses, net Interest expense, net$ 40,968 $ 47,453 $ (6,485) (14) % Loss on extinguishment of debt - 29,282 (29,282) (100) % Total other expenses, net$ 40,968 $ 76,735 $ (35,767) (47) % Total operating expenses decreased by$28.4 million primarily due to the following: •Asset impairments decreased$12.3 million from 2019 to 2020. Asset impairments in the year endedDecember 31, 2020 were primarily due to weakened coal markets that resulted in termination of certain coal leases, changes to lessee mine plans resulting in permanent moves off certain of our coal properties and decreased oil and gas drilling activity which negatively impacted the outlook for NRP's frac sand properties. Asset impairments in the year endedDecember 31, 2019 primarily resulted from deterioration in thermal coal markets, lessee capital constraints, thermal coal lease terminations, and expectations of further reductions in global and domestic thermal coal demand due to low natural gas prices and continued pressure on the electric power generation industry over emissions and climate change, resulting in reductions in expected cash flows (combination of lower expected coal sales volumes, sales prices, minimums and/or life of mine assumptions) on certain of our mineral rights and intangible assets. •Operating and maintenance expenses include costs to manage the Coal Royalty and Other and Soda Ash segments and primarily consist of royalty, tax, employee-related and legal costs and bad debt expense. These costs decreased$7.9 million primarily due to a decrease in bad debt expense in addition to lower costs related to an overriding royalty agreement withWestern Pocahontas Properties Limited Partnership ("WPPLP"). The coal royalty expense NRP pays to WPPLP is fully offset by the coal royalty revenue NRP receives from this property. •Depreciation, depletion and amortization expense decreased$5.7 million due to lower coal sales volumes at certain properties. •General and administrative expenses decreased$2.4 million primarily due to decreased legal expenses year-over-year. Total other expenses, net decreased$35.8 million primarily due to the following: •Loss on extinguishment of debt of$29.3 million in 2019 related to the 105.25% premium paid to redeem the 2022 Senior Notes in the second quarter of 2019 as well as the write-off of unamortized debt issuance costs and debt discount related to the 2022 Senior Notes. •Interest expense, net decreased$6.5 million primarily due to lower debt balances in 2020 as a result of debt repayments made over the past twelve months. 42
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Adjusted EBITDA (Non-GAAP Financial Measure) The following table reconciles net income (loss) from continuing operations (the most comparable GAAP financial measure) to Adjusted EBITDA by business segment: Operating Segments Coal Royalty and Corporate and For the Year Ended (In thousands) Other Soda Ash Financing TotalDecember 31, 2020 Net income (loss) from continuing operations$ (40,180) $ 10,543 $ (55,182) $ (84,819) Less: equity earnings from unconsolidated investment - (10,728) - (10,728) Add: total distributions from unconsolidated investment - 14,210 - 14,210 Add: interest expense, net 79 - 40,889 40,968 Add: depreciation, depletion and amortization 9,198 - - 9,198 Add: asset impairments 135,885 - - 135,885 Adjusted EBITDA$ 104,982 $ 14,025 $ (14,293) $ 104,714 December 31, 2019 Net income (loss) from continuing operations$ 21,211 $ 46,840 $ (93,465) $ (25,414) Less: equity earnings from unconsolidated investment - (47,089) - (47,089) Add: total distributions from unconsolidated investment - 31,850 - 31,850 Add: interest expense, net - - 47,453 47,453 Add: loss on extinguishment of debt - - 29,282 29,282 Add: depreciation, depletion and amortization 14,932 - - 14,932 Add: asset impairments 148,214 - - 148,214 Adjusted EBITDA$ 184,357 $ 31,601 $ (16,730) $ 199,228 Adjusted EBITDA decreased$94.5 million primarily due to the following: •Coal Royalty and Other Segment •Adjusted EBITDA decreased$79.4 million primarily as a result of weaker coal markets in the year endedDecember 31, 2020 . •Soda Ash Segment •Adjusted EBITDA decreased$17.6 million as a result of lower cash distributions received from Ciner Wyoming during the year endedDecember 31, 2020 . 43
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Distributable Cash Flow ("DCF"), Free Cash Flow ("FCF") and Cash Flow Cushion (Non-GAAP Financial Measures)
The following table presents the three major categories of the statement of cash flows by business segment: Operating Segments Coal Royalty and Corporate and For the Year Ended (In thousands) Other Soda Ash Financing TotalDecember 31, 2020 Cash flow provided by (used in) continuing operations Operating activities$ 124,737 $ 14,037 $ (51,206) $ 87,568 Investing activities 1,745 - - 1,745 Financing activities - - (87,788) (87,788) December 31, 2019 Cash flow provided by (used in) continuing operations Operating activities$ 178,863 $ 31,601 $ (73,145) $ 137,319 Investing activities 8,221 - - 8,221 Financing activities - - (253,305) (253,305)
The following tables reconcile net cash provided by (used in) operating activities (the most comparable GAAP financial measure) by business segment to DCF, FCF and cash flow cushion:
Operating
Segments
Coal Royalty and Corporate and For the Year Ended (In thousands) Other Soda Ash Financing TotalDecember 31, 2020 Net cash provided by (used in) operating activities of continuing operations$ 124,737
Add: proceeds from asset sales and disposals 623 - - 623 Add: proceeds from sale of discontinued operations - - - (65) Add: return of long-term contract receivable 2,122 - - 2,122 Distributable cash flow$ 127,482 $ 14,037 $ (51,206) $ 90,248 Less: proceeds from asset sales and disposals (623) - - (623) Less: proceeds from sale of discontinued operations - - - 65 Less: acquisition costs (1,000) - - (1,000) Free cash flow$ 125,859 $ 14,037 $ (51,206) $ 88,690 Less: mandatory Opco debt repayments (46,176) Less: preferred unit distributions (26,363) Less: common unit distributions (16,890) Cash flow cushion$ (739) 44
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Table of Contents Operating Segments Coal Royalty and Corporate and For the Year Ended (In thousands) Other Soda Ash Financing Total December 31, 2019 Net cash provided by (used in) operating activities of continuing operations$ 178,863
Add: proceeds from asset sales and disposals 6,500 - - 6,500 Add: proceeds from sale of discontinued operations - - - (629) Add: return of long-term contract receivable 1,743 - - 1,743 Distributable cash flow$ 187,106 $ 31,601 $ (73,145) $ 144,933 Less: proceeds from asset sales and disposals (6,500) - - (6,500) Less: proceeds from sale of discontinued operations - - - 629 Less: expansion capital expenditures (22) - - (22) Free cash flow$ 180,584 $ 31,601 $ (73,145) $ 139,040 Less: mandatory Opco debt repayments (68,128) Less: preferred unit distributions (30,000) Less: common unit distributions (33,150) Cash flow cushion$ 7,762 DCF and FCF decreased$54.7 million and$50.4 million , respectively, primarily due to the following: •Coal Royalty and Other Segment •DCF and FCF decreased$59.6 million and$54.7 million , respectively, primarily as a result of the weakened coal markets in the year endedDecember 31, 2020 . DCF was also impacted by a$5.9 million decrease in proceeds from asset sales and disposals compared to the year endedDecember 31, 2019 . •Soda Ash Segment •DCF and FCF decreased$17.6 million as a result of lower cash distributions received from Ciner Wyoming during the year endedDecember 31, 2020 . •Corporate and Financing Segment •DCF and FCF increased$21.9 million primarily due to lower cash paid for interest as a result of less debt outstanding in 2020. Cash flow cushion decreased$8.5 million as a result of the decrease in FCF discussed above, partially offset by a decrease in mandatory Opco debt repayments and lower preferred unit and common unit distributions made during the year endedDecember 31, 2020 . For discussion of our Results of Operations comparing 2019 to 2018, refer to our 2019 Annual Report on Form 10-K filedFebruary 27, 2020 under Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." 45
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Liquidity and Capital Resources
Current Liquidity
As ofDecember 31, 2020 , we had total liquidity of$199.8 million , consisting of$99.8 million of cash and cash equivalents and$100.0 million in borrowing capacity under our Opco Credit Facility. We have significant debt service obligations, including approximately$40 million of principal repayments on Opco's senior notes in 2021. We believe our liquidity position provides us with the flexibility to continue paying down debt and manage our business through the current market environment. Cash Flows
Years Ended
Cash flows provided by operating activities decreased$48.0 million , from$137.3 million in the year endedDecember 31, 2019 to$89.3 million in the year endedDecember 31, 2020 primarily related to lower operating cash flow as a result of the weakened coal markets in addition to lower cash distributions received from Ciner Wyoming in 2020, partially offset by less cash paid for interest in 2020 due to less debt outstanding. Cash flows provided by investing activities decreased$5.9 million , from$7.6 million in the year endedDecember 31, 2019 to$1.7 million in the year endedDecember 31, 2020 primarily due to a$5.9 million decrease in proceeds from asset sales and disposals year-over-year. Cash flows used in financing activities decreased$163.2 million , from$252.7 million in the year endedDecember 31, 2019 to$89.4 million in the year endedDecember 31, 2020 primarily due to the following: •$345.6 million used for the redemption of our 2022 Senior Notes in the second quarter of 2019; •The$49.3 million prepayment of our Opco Senior Notes in the first quarter of 2019 made using proceeds from the sale of our construction aggregates business; •$26.4 million in debt issuance costs and other primarily in 2019 primarily related to the 2019 debt refinancings; •$16.3 million in lower common unit distributions in the year endedDecember 31, 2020 as a result of the special common unit distribution paid in 2019 to cover common unitholders' tax liability resulting from the sale of NRP's construction aggregates business inDecember 2018 , and the suspension of the distribution on NRP's common units with respect to the first quarter of 2020. •$3.6 million in lower preferred unit distributions in the year endedDecember 31, 2020 as a result of paying half of the distribution in kind through the issuance of additional preferred units during the fourth quarter of 2020. These increases in cash flows used in financing activities were partially offset by the following: •$300 million provided by the issuance of the 2025 Senior Notes in the second quarter of 2019. For discussion of our Cash Flows comparing 2019 to 2018, refer to our 2019 Annual Report on Form 10-K filedFebruary 27, 2020 under Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Capital Resources and Obligations
Debt, Net
We had the following debt outstanding as of
December 31, (In thousands) 2020 2019 Current portion of long-term debt, net$ 39,055 $ 45,776 Long-term debt, net 432,444 470,422 Total debt, net$ 471,499 $ 516,198 46
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We have been and continue to be in compliance with the terms of the financial covenants contained in our debt agreements. For additional information regarding our debt and the agreements governing our debt, including the covenants contained therein, see " Item 8. Financial Statements and Supplementary Data-Note 11. Debt, Net " in this Annual Report on Form 10-K. Debt Obligations
The following table reflects our long-term, non-cancelable debt obligations as
of
Payments Due by Period Debt Obligations (In thousands) Total 2021 2022 2023 2024 2025 Thereafter NRP: Debt principal payments (1)$ 300,000 $ - $ - $ - $ -$ 300,000 $ - Debt interest payments (1) 123,188 27,375 27,375 27,375 27,375 13,688 - Opco: Debt principal payments (including current maturities) (2) 177,880 39,396 39,396 39,396 31,028 14,332 14,332 Debt interest payments (3) 27,418 9,868 7,631 5,020 2,724 1,450 725 Total$ 628,486 $ 76,639 $ 74,402 $ 71,791 $ 61,127 $ 329,470 $ 15,057 (1)The amounts indicated in the table include principal and interest due on NRP's 2025 Senior Notes. (2)The amounts indicated in the table include principal due on Opco's senior notes. (3)The amounts indicated in the table include interest due on Opco's senior notes and the 0.50% annual commitment fee on the unused portion of the Opco Credit Facility, which matures inApril 2023 . AtDecember 31, 2020 we did not have any borrowings outstanding under the Opco Credit Facility and had$100 million in available borrowing capacity.
Off-Balance Sheet Transactions
We do not have any off-balance sheet arrangements with unconsolidated entities or related parties and accordingly, there are no off-balance sheet risks to our liquidity and capital resources from unconsolidated entities.
Inflation
Inflation inthe United States has been relatively low in recent years and did not have a material impact on operations for the years endedDecember 31, 2020 , 2019 and 2018. Environmental Regulation
For additional information on environmental regulation that may have a material impact on our business, see " Items 1. and 2. Business and Properties-Regulation and Environmental Matters ."
Related Party Transactions
The information required by this Item is included under " Item 8. Financial Statements and Supplementary Data-Note 13. Related Party Transactions " and " Item 13. Certain Relationships and Related Transactions, and Director Independence " in this Annual Report on Form 10-K and is incorporated by reference herein. 47
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Summary of Critical Accounting Estimates
Preparation of the accompanying financial statements in conformity with accounting principles generally accepted inthe United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. See " Item 8. Financial Statements and Supplementary Data-Note 2. Summary of Significant Accounting Policies " in the audited Consolidated Financial Statements of this Form 10-K for discussion of our significant accounting policies. The following critical accounting policies are affected by estimates and assumptions used in the preparation of Consolidated Financial Statements. We evaluate our estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Revenues
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 substantially all lessees having the option to extend the lease for additional terms. For these types of leases, the lessees generally make payments to us based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral mined and sold. Most of our coal and aggregates royalty leases require the lessee to pay quarterly or annual 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. We have defined our coal and aggregates royalty lease performance obligation as providing the lessee the right to mine and sell our coal or aggregates over the lease term. We then evaluated the likelihood that consideration we expected to receive from our lessees resulting from production would exceed consideration expected to be received from minimum payments over the lease term. As a result of this evaluation, revenue recognition from our royalty-based leases is based on either production or minimum payments as follows: •Production Leases: Leases for which we expect that consideration from production will be greater than consideration from minimums over the lease term. Revenue recognition for these leases is recognized over time based on production as coal royalty revenues or aggregates royalty revenues, as applicable. Deferred revenue from minimums is recognized as royalty revenues when recoupment occurs or as production lease minimum revenues when the recoupment period expires. In addition, we recognize breakage revenue from minimums when we determine that recoupment is remote. This breakage revenue is included in production lease minimum revenues. •Minimum Leases: Leases for which we expect 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 as minimum lease straight-line revenues. This evaluation is performed at the inception of the lease and only reassessed upon modification or renewal of the lease. Oil and gas related revenues consist of revenues from royalties and overriding royalties and are recognized on the basis of volume of hydrocarbons sold by lessees and the corresponding revenues from those sales. Also included within oil and gas royalty revenues are lease bonus payments, which are generally paid upon the execution of a lease. We also have overriding royalty revenue interests in coal reserves. Revenues from these interests is recognized over time based on when the coal is sold. Wheelage revenues. Revenues related to fees collected per ton to transport foreign coal across property we own that is recognized over time as transportation across our property occurs. Other revenues. Other revenues consists primarily of rental payments and surface damage fees related to certain land we own and is recognized straight-line over time as it is earned. Other revenues also include property tax revenues. The majority of property taxes paid on our properties are reimbursable by the lessee and are recognized on a gross basis over time which reflects the reimbursement of property taxes by the lessee. Property taxes we pay are included in operating and maintenance expenses on our Consolidated Statements of Comprehensive Income (Loss). 48
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Transportation and processing services revenues. We own transportation and processing infrastructure that is leased to third parties for throughput fees. Revenue is recognized over time based on the coal tons transported over the beltlines or processed through the facilities. Contract Modifications Contract modifications that impact goods or services or the transaction price 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 consideration, assignment of the contract or forfeiture of recoupment rights. Consideration received in conjunction with a modification of an ongoing lease will be deferred and recognized straight-line over the remaining term of the contract. Consideration received to assign a lease to another party and related forfeited minimums will be recognized immediately upon the termination of the contract. Fees from contract modifications are recognized in lease amendment revenues within coal royalty and other revenues on our Consolidated Statements of Comprehensive Income (Loss) while modifications in royalty rates and minimums will be recognized prospectively in accordance with the above lease classification. Contract Assets and Liabilities from Contracts with Customers Contract assets include receivables from contracts with customers and are recorded when the right to consideration becomes unconditional. Receivables are recognized when the minimums are contractually owed, production occurs or minimums are accrued for based on the passage of time. Contract liabilities represent minimum consideration received, contractually owed or earned based on the passage of time. The current portion of deferred revenue relates to deferred revenue on minimum leases and lease amendment fees that are to be recognized as revenue on a straight-line basis over the next twelve months. The long-term portion of deferred revenue relates to deferred revenue on production leases and lease amendment fees that are to be recognized as revenue on a straight-line basis beyond the next twelve months. Due to uncertainty in the amount of deferred revenue that will be recouped and recognized as coal royalty revenues from production leases over the next twelve months, we are unable to estimate the current portion of deferred revenue. Equity in Earnings of Ciner Wyoming. We account for non-marketable equity investments using the equity method of accounting if the investment gives it the ability to exercise significant influence over, but not control of, an investee. Our 49% investment in CinerWyoming is accounted for using this method. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the proportionate share of earnings or losses and distributions. The basis difference between the investment and the proportional share of investee's net assets is attributed to net tangible assets and is amortized over its estimated useful life. The carrying value in CinerWyoming is recognized in equity in unconsolidated investment on our Consolidated Balance Sheets. Our adjusted share of the earnings or losses of Ciner Wyoming and amortization of the basis difference is recognized in equity in earnings of Ciner Wyoming on the Consolidated Statements of Comprehensive Income (Loss). We decrease our investment for our proportional share of distributions received from Ciner Wyoming. These cash flows are reported utilizing the cumulative earnings approach. Under this approach, distributions received are considered returns on investment and classified as operating cash inflows unless the cumulative distributions received exceed our cumulative equity in earnings. The excess of cumulative distributions received over our cumulative equity in earnings are considered returns of investment and classified as investing cash inflows. Mineral Rights Mineral rights owned and leased are recorded at its original cost of construction or, upon acquisition, at fair value of the assets acquired. Coal and aggregates mineral rights are depleted on a unit-of-production basis by lease, based upon minerals mined in relation to the net cost of the mineral properties and estimated proven and probable tonnage as defined by theSEC's Industry Guide 7 and estimated by our internal reserve engineers. The technologies and economic data used by our internal reserve engineers in the estimation of our proved reserves include, but are not limited to, drill logs, geophysical logs, geologic maps including isopach, mine, and coal quality, cross sections, statistical analysis, and available public production data. There are numerous uncertainties inherent in estimating the quantities and qualities of recoverable reserves, including many factors 49
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beyond our control. Estimates of economically recoverable coal reserves depend upon a number of variable factors and assumptions, any one of which may, if incorrect, result in an estimate that varies considerably from actual results. Asset Impairment We have developed procedures to evaluate our long-lived assets, including intangible assets, for possible impairment periodically or whenever events or changes in circumstances indicate an asset's net book value may not be recoverable. Potential events or circumstances include, but are not limited to, specific events such as a reduction in economically recoverable reserves or production ceasing on a property for an extended period. A long-lived asset is deemed impaired when the future expected undiscounted cash flows from its use and disposition is less than the asset's net book value. Impairment is measured based on the estimated fair value, which is usually determined based upon the present value of the projected future cash flow compared to the asset's net book value. We believe our estimates of cash flows and discount rates are consistent with those of principal market participants. We evaluate our equity investment for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such investment may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of the investment to determine whether impairment has occurred. If the estimated fair value is less than the carrying value and management considers the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment loss. The fair value of the impaired investment is based on quoted market prices, or upon the present value of expected cash flows using discount rates believed to be consistent with those used by principal market participants, plus market analysis of comparable assets owned by the investee, if appropriate.
Recent Accounting Standards
For a discussion of recent accounting pronouncements, see the applicable section of " Item 8. Financial Statements and Supplementary Data-Note 2. Summary of Significant Accounting Policies " in the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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