Natural Resource Partners L.P. Reports 2007 Results

HOUSTON, Feb. 14 /PRNewswire-FirstCall/ -- Natural Resource Partners L.P. today reported distributable cash flow, a non-GAAP measure, of $48.9 million, up 45% from the $33.7 million reported for the fourth quarter 2006. Net income attributable to the limited partners increased 15% to $22.1 million for the fourth quarter of 2007, compared to $19.3 million for the fourth quarter of 2006. Net income per unit decreased from $0.38 for the fourth quarter 2006 to $0.35 per unit in the fourth quarter 2007.

(Logo: http://www.newscom.com/cgi-bin/prnh/20060109/NRPLOGO) Highlights 4Q07 3Q07 4Q06 (in thousands except per ton and per unit) Coal Production: 15,442 14,708 11,905 Coal Royalty Revenues: $45,259 $44,378 $35,213 Average coal royalty revenue per ton: $2.93 $3.02 $2.96 Total revenues: $57,315 $56,366 $41,672 Net income to limited partners: $22,142 $22,902 $19,301 Average units outstanding in quarter: 64,891 64,891 50,682 Net income per unit: $0.35 $0.35 $0.38 Distributable cash flow: $48,916 $34,045 $33,749

"For NRP, 2007 was a year of growth and integration," said Nick Carter, President and Chief Operating Officer. "We are a much larger business today, having completed approximately $1.1 billion of acquisitions since becoming a public company five years ago, with nearly $600 million in deals closing since December 2006. We also have a more diverse and therefore more stable cash flow, which has allowed us to continue increasing distributions."

"We achieved record revenues and record distributable cash flow, the metric on which we are focused. We enter 2008 with a very strong coal market and all of our new operations on track to contribute their share of our guidance."

Fourth Quarter and Full Year Results Revenues Fourth Quarter

Total revenues increased 37% to a record $57.3 million for the fourth quarter of 2007, compared to $41.7 million reported for the same period last year. Fourth quarter 2007 coal royalty revenues increased 29% to $45.3 million from $35.2 million last year. Total production for the partnership in the fourth quarter was a record 15.4 million tons, up 29% compared to the 11.9 million tons produced in the fourth quarter 2006. Aggregate royalties, coal processing fees and transportation fees generated approximately $4.7 million in the fourth quarter of 2007 versus $1.8 million in the same period last year. Aggregate royalties for 2006 included only one month of operations and no transportation fees were included in 2006 as these assets were acquired in 2007.

Full Year

Total revenues improved to a record $215.0 million, or 26% over 2006, while distributable cash flow increased 20% to $154.8 million over the same period. Coal royalty revenues increased 16% to $171.3 million, due to both increased production and improved pricing. Average royalty revenue per ton increased to $2.99 from $2.84, or 5%, while NRP's total production increased approximately 10% to 57.2 million tons over 2006 production. In 2007, approximately 23% of coal production and 29% of coal royalty revenues were generated from metallurgical coal used to make steel. Aggregate royalties, coal processing fees and transportation fees, generated approximately $16.2 million for 2007 versus $2.0 million in the same period last year. These increases are due to the same reasons discussed above.

Expenses Fourth Quarter

Total expenses increased $7.7 million, or 55% to $21.8 million in the fourth quarter 2007. Depreciation, depletion and amortization, a non-cash item, accounted for $6.5 million, or approximately 84% of the increase, primarily as a result of acquisitions during the last year. Property, franchise and other taxes nearly doubled to $3.0 million mainly due to taxes on newly acquired property. The majority of the property taxes are offset by reimbursements from our lessees, which are reported in revenues.

Interest expense increased $1.9 million over the fourth quarter last year to $7.1 million due to additional borrowings associated with acquisitions completed in late 2006 and 2007.

Full Year

For the full year 2007, total expenses increased $31.8 million to $86.7 million, $21.7 million of which was associated with depreciation, depletion and amortization and $5.5 million was associated with property, franchise and other taxes, both due to the same reasons discussed earlier. In addition, general and administrative expenses increased $4.5 million mainly due to increases in personnel, salaries, and incentive compensation accruals and increased costs associated with reporting unitholders' tax information.

Interest expense for 2007 increased by $12.3 million due to increased borrowings associated with acquisitions.

Net Income Attributable to the Limited Partners Fourth Quarter

While total revenues for the fourth quarter increased by $15.6 million over fourth quarter 2006, net income attributable to the limited partners only increased $2.8 million to $22.1 million. The increase in revenues was largely offset by increases in expenses primarily due to increases in depreciation, depletion and amortization as well as interest on debt incurred to finance NRP's recent acquisitions. Net income per unit decreased $0.03 to $0.35 per unit mainly due to the issuance of approximately 14.2 million additional units for acquisitions, and the increased allocation of net income to the general partner and the holders of incentive distribution rights. In addition, some of the properties we acquired were under development and did not generate their expected revenues.

Full Year

For the full year 2007, net income attributable to the limited partners decreased $7.2 million to $81.0 million. Net income per unit decreased $0.48 per unit to $1.26 from $1.74 reported in 2006 for the reasons discussed above.

Distributable Cash Flow Fourth Quarter

Distributable cash flow increased $15.2 million, or 45%, over the same quarter last year predominantly due to increases in net income, depreciation, depletion and amortization as well as positive changes in working capital. Fourth quarter 2007 reflects an additional reserve of $1.9 million for one quarter of the debt payment due in July 2008.

Full Year

For the full year 2007, distributable cash flow increased $25.5 million, or 20%, to a record $154.8 million predominantly due to increased revenues and non-cash expenses as well as increased minimums received from NRP's lessees, offset by $3.8 million of additional reserves for debt payments due in July 2008.

Current Market

Prices of metallurgical coal have been substantially higher than steam coal over the past few years, and NRP expects them to remain at high levels for the next several years. The current pricing environment for U.S. metallurgical coal is robust in both the domestic and export markets. Coal prices for both steam and metallurgical coal in Appalachia began to move in a positive direction during the second half of 2007, and the price movement accelerated at the end of 2007 and into 2008. The U.S. coal market, especially for coal from Appalachia and to a more limited extent the Illinois Basin, is being dramatically impacted by events in China, Australia and South Africa that are impacting world coal supply and demand. Many observers believe that the growing demand for coal worldwide may lead to an increasingly favorable pricing structure for all U.S. coal.

Distributions

As reported on January 16, the Board of Directors of NRP's general partner declared a quarterly distribution of $0.485 per unit, an increase of $0.01 per unit. This made the eighteenth consecutive increase in the quarterly distribution.

Acquisitions

In December, NRP completed two acquisitions for approximately $33.9 million. These acquisitions included the purchase of an overriding royalty interest on low-vol metallurgical coal reserves from Massey Energy for $6.6 million and the previously announced acquisition of approximately 17.5 million tons of low-vol metallurgical coal for $27.2 million from National Resources. In addition, NRP paid approximately $900 thousand on the construction contract for a previously announced coal preparation plant. NRP borrowed approximately $23.0 million under its credit facility and utilized excess cash for the remainder.

Borrowing Capacity and Capital Structure

The partnership has drawn $48.0 million on its existing credit facility of $300 million. The facility allows NRP to increase the borrowing capacity up to $450 million under the same terms. "With a debt to market capitalization of approximately 40%, NRP has significant borrowing capacity for future acquisitions without having to access the equity markets," said Dwight Dunlap, Chief Financial Officer.

Company Profile

Natural Resource Partners L.P. is headquartered in Houston, TX, with its operations headquarters in Huntington, WV. NRP is a master limited partnership that is principally engaged in the business of owning and managing coal properties, and coal handling and transportation infrastructure in the three major coal producing regions of the United States: Appalachia, the Illinois Basin and the Powder River Basin. In addition, the partnership also manages aggregate reserves, oil and gas properties and timber assets across the United States.

For additional information, please contact Kathy H. Roberts at 713-751-7555 or kroberts@nrplp.com. Further information about NRP is available on the partnership's website at http://www.nrplp.com/.

Disclosure of Non-GAAP Financial Measures

Distributable cash flow represents cash flow from operations less actual principal payments and cash reserves set aside for scheduled principal payments on the senior notes. Distributable cash flow is a "non-GAAP financial measure" that is presented because management believes it is a useful adjunct to net cash provided by operating activities under GAAP. Distributable cash flow is a significant liquidity metric that is an indicator of NRP's ability to generate cash flows at a level that can sustain or support an increase in quarterly cash distributions paid to its partners. Distributable cash flow is also the quantitative standard used throughout the investment community with respect to publicly traded partnerships. Distributable cash flow 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. A reconciliation of distributable cash flow to net cash provided by operating activities is included in the tables attached to this release. Distributable cash flow may not be calculated the same for NRP as other companies.

Forward-Looking Statements

This press release may include "forward-looking statements" as defined by the Securities and Exchange Commission. Such statements include the current coal market conditions and borrowing capacity. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the partnership expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by the partnership based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the partnership. These risks include, but are not limited to, decreases in demand for coal; changes in operating conditions and costs; production cuts by our lessees; commodity prices; unanticipated geologic problems; changes in the legislative or regulatory environment and other factors detailed in Natural Resource Partners' Securities and Exchange Commission filings. Natural Resource Partners L.P. has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

-Financial statements follow- Natural Resource Partners L.P. Operating Statistics (In thousands except per ton data) Three Months Ended For the Year Ended December 31, December 31, 2007 2006 2007 2006 (unaudited) (unaudited) Coal Royalties: Coal royalty revenues: Appalachia Northern $5,600 $1,900 $16,664 $10,231 Central 29,571 25,534 117,820 100,487 Southern 4,156 4,382 17,832 20,469 Total Appalachia $39,327 $31,816 $152,316 $131,187 Illinois Basin 3,022 861 7,963 5,325 Northern Powder River Basin 2,910 2,536 11,064 11,240 Total $45,259 $35,213 $171,343 $147,752 Coal royalty production (tons): Appalachia Northern 2,395 938 7,270 5,329 Central 8,813 7,942 35,835 31,991 Southern 1,089 1,091 4,603 5,347 Total Appalachia 12,297 9,971 47,708 42,667 Illinois Basin 1,402 369 3,709 2,877 Northern Powder River Basin 1,743 1,565 5,815 6,548 Total 15,442 11,905 57,232 52,092 Average royalty revenue per ton: Appalachia Northern $2.34 $2.03 $2.29 $1.92 Central 3.36 3.22 3.29 3.14 Southern 3.82 4.02 3.87 3.83 Total Appalachia 3.20 3.19 3.19 3.07 Illinois Basin 2.16 2.33 2.15 1.85 Northern Powder River Basin 1.67 1.62 1.90 1.72 Combined average royalty revenue per ton $2.93 $2.96 $2.99 $2.84 Aggregates: Royalty revenues $1,649 $538 $7,434 $538 Production: 1,242 412 5,698 412 Average royalty revenue per ton: $1.33 $1.31 $1.30 $1.31 Natural Resource Partners L.P. Consolidated Statements of Income (In thousands, except per unit data) Three Months Ended For the Year Ended December 31, December 31, 2007 2006 2007 2006 (Unaudited) (Unaudited) Revenues: Coal royalties $45,259 $35,213 $171,343 $147,752 Aggregate royalties 1,649 538 7,434 538 Coal processing fees 1,420 1,249 4,824 1,452 Transportation fees 1,678 - 3,984 - Oil and gas royalties 1,006 720 4,930 4,220 Property taxes 2,449 1,144 10,285 5,971 Minimums recognized as revenue 253 828 1,951 2,082 Override royalties 800 190 3,794 957 Other 2,801 1,790 6,440 7,701 Total revenues 57,315 41,672 214,985 170,673 Operating costs and expenses: Depreciation, depletion and amortization 14,067 7,597 51,391 29,695 General and administrative 4,168 4,510 20,048 15,520 Property, franchise and other taxes 2,995 1,626 13,613 8,122 Transportation costs 149 - 298 - Coal royalty and override payments 422 320 1,336 1,560 Total operating costs and expenses 21,801 14,053 86,686 54,897 Income from operations 35,514 27,619 128,299 115,776 Other income (expense) Interest expense (7,106) (5,170) (28,690) (16,423) Interest income 651 799 2,890 2,737 Net income $29,059 $23,248 $102,499 $102,090 Net income attributable to: General partner $4,303 $2,728 $14,315 $9,717 Holders of incentive distribution rights $2,614 $1,219 $7,216 $4,133 Limited partners $22,142 $19,301 $80,968 $88,240 Basic and diluted net income per limited partner unit: Common $0.35 $0.38 $1.26 $1.74 Subordinated $0.35 $0.38 $1.26 $1.74 Weighted average number of units outstanding: Common 59,214 36,490 54,582 34,366 Subordinated 5,677 14,192 9,923 16,316 Natural Resource Partners L.P. Statements of Cash Flows (In thousands) Three Months Ended For the Year Ended December 31, December 31, 2007 2006 2007 2006 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $29,059 $23,248 $102,499 $102,090 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 14,067 7,597 51,391 29,695 Non-cash interest charge 117 61 443 349 Gain from sale of assets (1,236) (837) (1,236) (3,471) Change in operating assets and liabilities: Accounts receivable 2,364 1,013 (5,270) (1,426) Other assets (705) (1,104) 178 (579) Accounts payable and accrued liabilities (247) 146 (464) 381 Accrued interest 2,596 75 2,430 2,312 Deferred revenue 4,825 4,770 15,632 5,803 Accrued incentive plan expenses 603 991 465 3,497 Property, franchise and other taxes payable 1,781 339 2,085 192 Net cash provided by operating activities 53,224 36,299 168,153 138,843 Cash flows from investing activities: Acquisition of land, coal and other mineral rights (33,881) (154,096) (58,124) (240,517) Acquisition of plant and equipment (870) (4,830) (16,695) (24,248) Proceeds from sale of timber assets 1,425 2,290 1,425 7,051 Cash placed in restricted account - - (6,240) - Net cash used in investing activities (33,326) (156,636) (79,634) (257,714) Cash flows from financing activities: Proceeds from loans 23,000 151,000 285,400 254,000 Deferred financing costs - (64) (1,292) (64) Repayments of loans - - (235,942) (24,350) Distributions to partners (38,934) (25,339) (147,033) (92,362) Contributions by general partner - - 2,645 - Net cash (used in) provided by financing activities (15,934) 125,597 (96,222) 137,224 Net increase or (decrease) in cash and cash equivalents 3,964 5,260 (7,703) 18,353 Cash and cash equivalents at beginning of period 54,377 60,784 66,044 47,691 Cash and cash equivalents at end of period $58,341 $66,044 $58,341 $66,044 SUPPLEMENTAL INFORMATION: Cash paid during the period for interest $4,392 $5,032 $25,771 $13,734 Non-cash investing activities: Equity issued for business combinations $- $- $330,064 $- Assets contributed by general partner in business combination - - 4,422 - Liability assumed in business combination - - 1,989 - Equity issued for assets purchased - - 16,255 - Utility improvement obligation acquired - 2,883 - 2,883 Natural Resource Partners L.P. Consolidated Balance Sheets (In thousands, except for unit information) ASSETS December 31, December 31, 2007 2006 (unaudited) Current assets: Cash and cash equivalents $58,341 $66,044 Restricted cash 6,240 - Accounts receivable, net of allowance for doubtful accounts 27,643 23,357 Accounts receivable - affiliate 1,005 21 Other 1,009 1,411 Total current assets 94,238 90,833 Land 24,343 17,781 Plant and equipment, net 61,441 29,615 Coal and other mineral rights, net 1,030,088 798,135 Intangible assets 106,222 - Loan financing costs, net 3,098 2,197 Other assets, net 601 932 Total assets $1,320,031 $939,493 LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable and accrued liabilities $2,567 $1,041 Accounts payable - affiliate 104 105 Current portion of long-term debt 17,234 9,542 Accrued incentive plan expenses - current portion 3,993 5,418 Property, franchise and other taxes payable 6,415 4,330 Accrued interest 6,276 3,846 Total current liabilities 36,589 24,282 Deferred revenue 36,286 20,654 Asset retirement obligation 39 - Accrued incentive plan expenses 6,469 4,579 Long-term debt 496,057 454,291 Partners' capital: Common units (outstanding: 64,891,136 in 2007, 39,327,430 in 2006) 731,113 338,912 Subordinated units (outstanding: 11,353,634 in 2006) - 83,772 General partner's interest 14,177 12,138 Holders of incentive distribution rights - 1,616 Accumulated other comprehensive loss (699) (751) Total partners' capital 744,591 435,687 Total liabilities and partners' capital $1,320,031 $939,493 Natural Resource Partners L.P. Reconciliation of GAAP "Net cash provided by operating activities" To Non-GAAP "Distributable cash flow" (In thousands) Three Months Ended For the Year Ended December 31, December 31, 2007 2006 2007 2006 (unaudited) (unaudited) Net cash provided by operating activities $53,224 $36,299 $168,153 $138,843 Less scheduled principal payments - - (9,350) (9,350) Less reserves for future principal payments (4,308) (2,550) (13,388) (9,600) Add reserves used for scheduled principal payments - - 9,400 9,400 Distributable cash flow $48,916 $33,749 $154,815 $129,293