ITEM
2:
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Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
Unless
the context clearly indicates otherwise, references in this report to “we,” “our,” “us” or
similar terms refer to Royal Energy Resources, Inc (the “Company”)., Rhino Resource Partners LP and its subsidiaries,
in total. References to “Rhino” or “the Partnership” refer to Rhino Resource Partners, LP. References
to “General Partner” refer to Rhino GP LLC, General Partner of Rhino Resource Partners LP. The following discussion
of the historical financial condition and results of operations should be read in conjunction with the historical audited consolidated
financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2016 and
the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included
in such Annual Report on Form 10-K.
In
August 2016, we sold our Elk Horn coal leasing company (“Elk Horn”) to a third party for total cash consideration
of $12.0 million. Our unaudited condensed consolidated statements of operations and comprehensive income have been retrospectively
adjusted to reclassify our Elk Horn operations to discontinued operations for the three and nine months ended September 30, 2016.
Overview
The
Company previously pursued gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United
States. Commencing in January 2015, the Company began a series of transactions under which the Company would dispose of all of
its existing assets, undergo a change in ownership control and management, and repurpose itself as a North American energy recovery
company, with plans to purchase a group of synergistic, long-lived energy assets by taking advantage of favorable valuations for
mergers and acquisitions in the current energy markets. In April 2015, the Company completed its first acquisition in furtherance
of its change in principal operations, consisting of 40,976 net acres of coal and coalbed methane, located across 22 counties
in West Virginia. In June 2015, the Company completed the acquisition of Blue Grove Coal, LLC, a licensed operator of a coal mine
owned by GS Energy, LLC. See below regarding acquisition of majority control of Rhino Resource Partners, LP (“Rhino”).
See Notes 1 and 3 to the unaudited condensed consolidated financial statements for additional completed acquisitions.
Current
management of the Company acquired control of the Company in March 2015, with the goal of using the Company as a vehicle to acquire
undervalued natural resource assets. The Company has raised approximately $8.4 million through the sale of shares of common stock
in private placements, and is currently evaluating a number of possible acquisitions of operating coal mines and non-operating
coal assets. There are currently many coal assets for sale at attractive prices due to distressed conditions in the coal industry.
The distressed conditions are mainly due to new environmental regulations, which have increased operating costs for coal operators,
and have encouraged coal buyers to switch to less costly energy sources, such as natural gas. The resulting drop in demand from
coal buyers has caused the price of coal to decline considerably, and caused bankruptcy filings by many of the major coal operators.
Despite the current distress in the industry, industry experts still predict that coal will supply a significant percentage of
the nation’s energy needs for the foreseeable future, and thus overall demand for coal will remain significant. Management
believes there are a number of attractive acquisition candidates in the coal industry which can be operated profitably at current
prices and under the current regulatory environment.
Royal
Energy Resources, Inc. Purchase of Majority Control of Rhino Resource Partners, LP
On
January 21, 2016, Royal and Wexford Capital LP and certain of its affiliates (collectively, “Wexford”) entered into
a definitive agreement whereby Royal acquired 676,912 of Rhino’s issued and outstanding common units from Wexford. The definitive
agreement also included a commitment by Royal to acquire within 60 days from the date of the definitive agreement, or March 21,
2016, of all of the issued and outstanding membership interests of Rhino GP (Rhino GP”), Rhino’s General Partner,
as well as 945,526 of Rhino’s issued and outstanding subordinated units from Wexford.
On
March 17, 2016, Royal completed the acquisition of all of the issued and outstanding membership interests of Rhino GP as well
as the 945,526 issued and outstanding subordinated units from Wexford. Royal obtained control of, and a majority limited partner
interest in Rhino with the completion of this transaction.
Overview
after Rhino Acquisition
We
are a diversified energy company that is focused on coal and energy related assets and activities, including energy infrastructure
investments. We produce, process and sell high quality coal of various steam and metallurgical grades. We market our steam coal
primarily to electric utility companies as fuel for their steam powered generators. Customers for our metallurgical coal are primarily
steel and coke producers who use our coal to produce coke, which is used as a raw material in the steel manufacturing process.
In addition, we have expanded our business to include infrastructure support services, as well as other joint venture investments
to provide for the transportation of hydrocarbons and drilling support services in the Utica Shale region. We have also invested
in joint ventures that provide sand for fracking operations to drillers in the Utica Shale region and other oil and natural gas
basins in the United States.
We
have a geographically diverse asset base with coal reserves located in Central Appalachia, Northern Appalachia, the Illinois Basin
and the Western Bituminous region. As of December 31, 2016, we controlled an estimated 256.9 million tons of proven and probable
coal reserves, consisting of an estimated 203.5 million tons of steam coal and an estimated 53.4 million tons of metallurgical
coal. In addition, as of December 31, 2016, we controlled an estimated 196.5 million tons of non-reserve coal deposits.
We
operate underground and surface mines located in Kentucky, Ohio, West Virginia and Utah. The number of mines that we operate may
vary from time to time depending on a number of factors, including demand for and price of coal, depletion of economically recoverable
reserves and availability of experienced labor.
Our
principal business strategy is to safely, efficiently and profitably produce and sell both steam and metallurgical coal from our
diverse asset base. In addition, we intend to continue to expand and potentially diversify our operations through strategic acquisitions,
including the acquisition of long-term, cash generating natural resource assets. We believe that such assets will allow us to
grow our cash available for distribution and enhance stability of our cash flow.
For
the three and nine months ended September 30, 2017, we generated revenues of approximately $58.3 million and $168.4 million, respectively,
and we generated net loss of $0.1 million for the three months ended September 30, 2017 and net income of $105.6 million for the
nine months ended September 30, 2017. For the three months ended September 30, 2017, we produced and sold approximately 1.1 million
tons of coal, of which approximately 35% were sold pursuant to long-term supply contracts. For the nine months ended September
30, 2017, we produced and sold approximately 3.1 million tons of coal, of which approximately 65% were sold pursuant to long-term
supply contracts.
Current
Liquidity and Outlook
Since
our credit facility has an expiration date of December 31, 2017, we determined that our credit facility debt liability at September
30, 2017 and December 31, 2016 of $9.9 million and $10.0 million, respectively, should be classified as a current liability on
our unaudited condensed consolidated statements of financial position. The classification of our credit facility balance as a
current liability raises substantial doubt of our ability to continue as a going concern for the next twelve months.
We
are evaluating and negotiating alternative credit facilities. We currently anticipate repaying the debt outstanding under our
credit facility with the proceeds from one of these alternative facilities in the fourth quarter of 2017. If it becomes apparent
this refinancing will not occur prior to December 31, 2017, we may seek a short-term extension of the Partnership’s existing
credit facility. There can be no assurance that we will be able to refinance our credit facility or that the lenders will be willing
to grant an extension to provide us with additional time to refinance. If we are unable to secure a replacement facility, we will
lose a primary source of liquidity, and we may not be able to generate adequate cash flow from operations to fund our business,
including repaying amounts due under our credit facility upon expiration, which could cause us to further curtail our operations
and reduce our spending and to alter our business plan. We may also be required to consider other options, such as selling additional
assets, and depending on the urgency of our liquidity constraints, we may be required to pursue such an option at an inopportune
time. If we are not able to fund our liquidity requirements, we may not be able to continue as a going concern. For more information
about our liquidity and our credit facility, please read “—Liquidity and Capital Resources.”
Further,
even if we are able to refinance our credit facility, the replacement credit facility may include a significantly higher interest
rate, significant amortization payments, or liens on a substantial portion of our assets, all of which could adversely impact
our future plans and operations.
Since
the current maturity date of our credit facility is December 31, 2017, we are unable to demonstrate that we have sufficient liquidity
to operate our business over the next twelve months and thus substantial doubt is raised about our ability to continue as a going
concern. Accordingly, our independent registered public accounting firm has included an emphasis paragraph with respect to our
ability to continue as a going concern in its report on our consolidated financial statements for the year ended December 31,
2016. The presence of the going concern emphasis paragraph in our auditors’ report may have an adverse impact on our relationship
with third parties with whom we do business, including our customers, vendors, lenders and employees, making it difficult to raise
additional debt or equity financing to the extent needed and conduct normal operations. As a result, our business, results of
operations, financial condition and prospects could be materially adversely affected.
As
of September 30, 2017, our available liquidity was $9.6 million, including cash on hand of $1.4 million and $8.2 million available
under our amended and restated credit agreement. On May 13, 2016, we entered into a fifth amendment (the “Fifth Amendment”)
of our amended and restated agreement that initially extended the term of the senior secured credit facility to July 31, 2017.
Per the Fifth Amendment, the term of the credit facility automatically extended to December 31, 2017 when the revolving credit
commitments were reduced to $55 million or less as of December 31, 2016. The Fifth Amendment also immediately reduced the revolving
credit commitments under the credit facility to a maximum of $75 million and maintains the amount available for letters of credit
at $30 million. As of December 31, 2016, we met the requirements to extend the maturity date of the credit facility to December
31, 2017. In December 2016, we entered into a seventh amendment (the “Seventh Amendment”) of our amended and restated
credit agreement. The Seventh Amendment immediately reduced the revolving credit commitments by $11.0 million and provided for
additional revolving credit commitment reductions of $2.0 million each on June 30, 2017 and September 30, 2017. The Seventh Amendment
further reduces the revolving credit commitments over time on a dollar-for-dollar basis for the net cash proceeds received from
any asset sales after the Seventh Amendment date once the aggregate net cash proceeds received exceeds $2.0 million. For more
information about our amended and restated credit agreement, please read “—Recent Developments—Amended and Restated
Credit Agreement Amendments” below.
As
of September 30, 2017, beyond the operations of Rhino, the Company has no established sources of revenues sufficient to fund the
development of its business, or to pay projected operating expenses and commitments for the next year. Since the current maturity
date of our credit facility is December 31, 2017, we were unable to demonstrate that we had sufficient liquidity
to operate our business over the next twelve months from the date of filing our Annual Report on Form 10-K and thus substantial
doubt was raised by our auditors about our ability to continue as a going concern.
We
continue to take measures, including the suspension of cash distributions on our common and subordinated units and cost and productivity
improvements, to enhance and preserve our liquidity so that we can fund our ongoing operations and necessary capital expenditures
and meet our financial commitments and debt service obligations.
Recent
Developments
Sands
Hill Disposition
On
November 7, 2017, we closed an agreement with a third party to transfer 100% of the memberships interests and related assets and
liabilities in our Sands Hill Mining entity to the third party in exchange for a future override royalty for any mineral sold,
excluding coal, from Sands Hill Mining after the closing date. We expect to recognize a gain from the sale of Sands Hill since
the third party will assume the reclamation obligations associated with this operation.
Option
Agreement
On
December 30, 2016, Royal entered into the Option Agreement with Rhino, Rhino Resources Partners Holdings, LLC (“Rhino Holdings”)
and Rhino GP. Rhino Holdings is an entity wholly owned by certain investment partnerships managed by Yorktown Partners LLC (“Yorktown”),
and the General Partner. Upon execution of the Option Agreement, Rhino received a Call Option from Rhino Holdings to acquire substantially
all of the outstanding common stock of Armstrong Energy that is owned by investment partnerships managed by Yorktown, which currently
represent approximately 97% of the outstanding common stock of Armstrong Energy. Armstrong Energy is a coal producing company
with approximately 567 million tons of proven and probable reserves and five mines located in the Illinois Basin in western Kentucky
as of December 31, 2016. The Option Agreement stipulates that Rhino can exercise the Call Option no earlier than January 1, 2018
and no later than December 31, 2019. In exchange for Rhino Holdings granting the Call Option, Rhino issued 5.0 million Call Option
Premium Units to Rhino Holdings upon the execution of the Option Agreement. The Option Agreement stipulates Rhino can exercise
the Call Option and purchase the common stock of Armstrong Energy in exchange for a number of common units to be issued to Rhino
Holdings, which when added with the Call Option Premium Units, will result in Rhino Holdings owning 51% of the fully diluted common
units of Rhino. The purchase of Armstrong Energy through the exercise of the Call Option would also require Royal to transfer
a 51% ownership interest in Rhino GP to Rhino Holdings. The ability to exercise the Call Option is conditioned upon (i) sixty
(60) days having passed since the entry by Armstrong Energy into an agreement with its bondholders to restructure its bonds and
(ii) the amendment of our revolving credit facility to permit the acquisition of Armstrong Energy. The percentage ownership of
Armstrong Energy represented by the Armstrong Shares as of the date the Call Option is exercised is subject to dilution based
upon the terms under which Armstrong Energy restructures its indebtedness, the terms of which have not been determined.
The
Option Agreement also contains a Put Option granted by Rhino to Rhino Holdings whereby Rhino Holdings has the right, but not the
obligation, to cause Rhino to purchase substantially all of the outstanding common stock of Armstrong Energy from Rhino Holdings
under the same terms and conditions discussed above for the Call Option. The exercise of the Put Option is dependent upon (i)
the entry by Armstrong Energy into an agreement with its bondholders to restructure its bonds and (ii) the termination and repayment
of any outstanding balance under our revolving credit facility. In the event either the Partnership or Rhino GP fail to perform
their obligations in the event Rhino Holdings exercises the Put Option, then Rhino Holdings and the Partnership each have the
right to terminate the Option Agreement, in which event no party thereto shall have any liability to any other party under the
Option Agreement, although Rhino Holdings shall be allowed to retain the Call Option Premium Units.
The
Option Agreement contains customary covenants, representations and warranties and indemnification obligations for losses arising
from the inaccuracy of representations or warranties or breaches of covenants contained in the Option Agreement, the Seventh Amendment
(defined below) and the GP Amendment (defined below). Upon the request by Rhino Holdings, we will also enter into a registration
rights agreement that provides Rhino Holdings with the right to demand two shelf registration statements and registration statements
on Form S-1 by Rhino, as well as piggyback registration rights for as long as Rhino Holdings owns at least 10% of the outstanding
common units of Rhino.
Pursuant
to the Option Agreement, the Second Amended and Restated Limited Liability Company Agreement of General Partner was amended (“GP
Amendment”). Pursuant to the GP Amendment, Mr. Bryan H. Lawrence was appointed to the board of directors of the General
Partner as a designee of Rhino Holdings and Rhino Holdings has the right to appoint an additional independent director to the
General Partner. Rhino Holdings has the right to appoint two members to the board of directors of the General Partner for as long
as it continues to own 20% of the common units on an undiluted basis. The GP Amendment also provided Rhino Holdings with the authority
to consent to any delegation of authority to any committee of the board of the General Partner. Upon the exercise of the Call
Option or the Put Option, the Second Amended and Restated Limited Liability Company Agreement of General Partner, as amended,
will be further amended to provide that Royal and Rhino Holdings will each have the ability to appoint three directors and that
the remaining director will be the chief executive officer of our General Partner unless agreed otherwise. If the acquisition
transaction would close as contemplated herein, with Rhino Holdings owning 51% of both Rhino and Rhino GP, Rhino would no longer
be a consolidated subsidiary of Royal but would be an equity method investment.
On
October 31, 2017, Armstrong Energy filed Chapter 11 petitions in the Eastern District of Missouri’s United States Bankruptcy
Court. Per the Chapter 11 petitions, Armstrong Energy will file a detailed restructuring plan as part of the Chapter 11 proceedings.
Based on the uncertain facts and circumstances surrounding the current state of the Armstrong Energy Chapter 11 proceedings, which
includes the possibility that we will still exercise the Call Option as outlined in Note 1, we concluded that the value of the
Call Option was not impaired as of September 30, 2017.
Series
A Preferred Unit Purchase Agreement
On
December 30, 2016, Rhino entered into a Series A Preferred Unit Purchase Agreement (“Preferred Unit Agreement”) with
Weston Energy LLC (“Weston”), an entity wholly owned by certain investment partnerships managed by Yorktown, and Royal.
Under the Preferred Unit Agreement, Weston and Royal agreed to purchase 1,300,000 and 200,000, respectively, of Series A preferred
units representing limited partner interests in Rhino at a price of $10.00 per Series A preferred unit. The Series A preferred
units have the preferences, rights and obligations set forth in Rhino’s Fourth Amended and Restated Agreement of Limited
Partnership, which is described below. In exchange for the Series A preferred units, Weston and Royal paid cash of $11.0 million
and $2.0 million, respectively, to Rhino and Weston assigned to Rhino a $2.0 million note receivable from Royal originally dated
September 30, 2016.
The
Preferred Unit Agreement contains customary representations, warrants and covenants, which include among other things, that, for
as long as the Series A preferred units are outstanding, Rhino will cause CAM Mining, one of its subsidiaries, to conduct its
business in the ordinary course consistent with past practice and use reasonable best efforts to maintain and preserve intact
its current organization, business and franchise and to preserve the rights, franchises, goodwill and relationships of its employees,
customers, lenders, suppliers, regulators and others having business relationships with CAM Mining.
The
Preferred Unit Agreement stipulates that upon the request of the holder of the majority of Rhino’s common units following
their conversion from Series A preferred units, as outlined in its partnership agreement, Rhino will enter into a registration
rights agreement with such holder. Such majority holder has the right to demand two shelf registration statements and registration
statements on Form S-1 of Rhino, as well as piggyback registration rights.
On
January 27, 2017, Royal sold 100,000 of its Series A preferred units to Weston and its other 100,000 Series A preferred units
to another third party for their original cost.
Fourth
Amended and Restated Partnership Agreement of Rhino’s Limited Partnership
On
December 30, 2016, Rhino GP entered into the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership (“Amended
and Restated Partnership Agreement”) to create, authorize and issue the Series A preferred units.
The
Series A preferred units are a new class of equity security that rank senior to all classes or series of Rhino’s equity
securities with respect to distribution rights and rights upon liquidation. The holders of the Series A preferred units shall
be entitled to receive annual distributions equal to the greater of (i) 50% of the CAM Mining free cash flow (as defined below)
and (ii) an amount equal to the number of outstanding Series A preferred units multiplied by $0.80. “CAM Mining free cash
flow” is defined in Rhino’s partnership agreement as (i) the total revenue of its Central Appalachia business segment,
minus (ii) the cost of operations (exclusive of depreciation, depletion and amortization) for its Central Appalachia business
segment, minus (iii) an amount equal to $6.50, multiplied by the aggregate number of met coal and steam coal tons sold from the
Central Appalachia business segment. If Rhino fails to pay any or all of the distributions in respect of the Series A preferred
units, such deficiency will accrue until paid in full and Rhino will not be permitted to pay any distributions on its partnership
interests that rank junior to the Series A preferred units, including its common units. The Series A preferred units will be liquidated
by Rhino in accordance with their capital accounts and upon liquidation will be entitled to distributions of property and cash
in accordance with the balances of their capital accounts prior to such distributions to equity securities that rank junior to
the Series A preferred units.
The
Series A preferred units vote on an as-converted basis with Rhino’s common units, and Rhino will be restricted from taking
certain actions without the consent of the holders of a majority of the Series A preferred units, including: (i) the issuance
of additional Series A preferred units, or securities that rank senior or equal to the Series A preferred units; (ii) the sale
or transfer of CAM Mining or a material portion of its assets; (iii) the repurchase of common units, or the issuance of rights
or warrants to holders of common units entitling them to purchase common units at less than fair market value; (iv) consummation
of a spin off; (v) the incurrence, assumption or guaranty of indebtedness for borrowed money in excess of $50.0 million except
indebtedness relating to entities or assets that are acquired by Rhino or its affiliates that is in existence at the time of such
acquisition or (vi) the modification of CAM Mining’s accounting principles or the financial or operational reporting principles
of our Central Appalachia business segment, subject to certain exceptions.
The
Partnership will have the option to convert the outstanding Series A preferred units at any time on or after the time at which
the amount of aggregate distributions paid in respect of each Series A preferred unit exceeds $10.00 per unit. Each Series A preferred
unit will convert into a number of common units equal to the quotient (the “Series A Conversion Ratio”) of (i) the
sum of $10.00 and any unpaid distributions in respect of such Series A Preferred Unit divided by (ii) 75% of the volume-weighted
average closing price of the common units for the preceding 90 trading days (the “VWAP”); provided however, that the
VWAP will be capped at a minimum of $2.00 and a maximum of $10.00. On December 31, 2021, all outstanding Series A preferred units
will convert into common units at the then applicable Series A Conversion Ratio.
Amended
and Restated Credit Agreement Amendments
In
December 2016, Rhino entered into a Seventh Amendment, which allows for the Series A preferred units as outlined in the Fourth
Amended and Restated Agreement of Limited Partnership, which is further discussed in “—Fourth Amended and Restated
Partnership Agreement”. The Seventh Amendment immediately reduces the revolving credit commitments by $11.0 million and
provides for additional revolving credit commitment reductions of $2.0 million each on June 30, 2017 and September 30, 2017. The
Seventh Amendment further reduces the revolving credit commitments over time on a dollar-for-dollar basis for the net cash proceeds
received from any asset sales after the Seventh Amendment date once the aggregate net cash proceeds received exceeds $2.0 million.
The Seventh Amendment alters the maximum leverage ratio to 4.0 to 1.0 effective December 31, 2016 through May 31, 2017 and 3.5
to 1.0 from June 30, 2017 through December 31, 2017. The maximum leverage ratio shall be reduced by 0.50 to 1.0 for every $10.0
million of net cash proceeds, in the aggregate, received after the Seventh Amendment date from (i) the issuance of any equity
by us and/or (ii) the disposition of any assets in excess of $2.0 million in the aggregate, provided, however, that in no event
will the maximum leverage ratio be reduced below 3.0 to 1.0.
The
Seventh Amendment alters the minimum consolidated EBITDA, as calculated on a rolling twelve months basis, to $12.5 million from
December 31, 2016 through May 31, 2017 and $15.0 million from June 30, 2017 through December 31, 2017. The Seventh Amendment alters
the maximum capital expenditures allowed, as calculated on a rolling twelve months basis, to $20.0 million through the expiration
of the credit facility. A condition precedent to the effectiveness of the Seventh Amendment was the receipt of the $13.0 million
of cash proceeds received by us from the issuance of the Series A preferred units pursuant to the Preferred Unit Agreement, which
we used to repay outstanding borrowings under the revolving credit facility. Per the Seventh Amendment, the receipt of $13.0 million
cash proceeds fulfills the required Royal equity contributions as outlined in the previous amendments to our credit agreement.
On
March 23, 2017, Rhino entered into an eighth amendment (the “Eighth Amendment”) of its amended and restated credit
agreement that allows the annual auditor’s report for the years ending December 31, 2016 and 2015 to contain a qualification
with respect to the short-term classification of our credit facility balance without creating a default under the credit agreement.
On
June 9, 2017, we entered into a ninth amendment (the “Ninth Amendment”) of our amended and restated credit agreement
that permitted outstanding letters of credit to be replaced with different counterparties without affecting the revolving credit
commitments under the credit agreement. The Ninth Amendment also permits certain lease and sale leaseback transactions under the
credit agreement that do not affect the revolving credit commitments under the credit agreement for asset dispositions and also
do not factor in the calculation of the maximum capital expenditures allowed under the credit agreement.
As
of September 30, 2017 and December 31, 2016, we were in compliance with respect to all covenants contained in our credit agreement.
Factors
That Impact Our Business
Our
results of operations in the near term could be impacted by a number of factors, including (1) our ability to fund our ongoing
operations and necessary capital expenditures, (2) the availability of transportation for coal shipments, (3) poor mining conditions
resulting from geological conditions or the effects of prior mining, (4) equipment problems at mining locations, (5) adverse weather
conditions and natural disasters or (6) the availability and costs of key supplies and commodities such as steel, diesel fuel
and explosives.
On
a long-term basis, our results of operations could be impacted by, among other factors, (1) our ability to fund our ongoing operations
and necessary capital expenditures, (2) changes in governmental regulation, (3) the availability and prices of competing electricity-generation
fuels, (4) the world-wide demand for steel, which utilizes metallurgical coal and can affect the demand and prices of metallurgical
coal that we produce, (5) our ability to secure or acquire high-quality coal reserves and (6) our ability to find buyers for coal
under favorable supply contracts.
We
have historically sold a majority of our coal through supply contracts and anticipate that we will continue to do so. As of September
30, 2017, we had commitments under sales contracts to deliver annually scheduled base quantities of coal as follows:
Year
|
|
Tons
(in thousands)
|
|
|
Number
of customers
|
|
2017-Q4
|
|
|
1,329
|
|
|
|
14
|
|
2018
|
|
|
1,825
|
|
|
|
6
|
|
2019
|
|
|
700
|
|
|
|
2
|
|
Some
of the contracts have sales price adjustment provisions, subject to certain limitations and adjustments, based on a variety of
factors and indices.
Results
of Operations
Consolidated
Information
As
noted above, the Company completed the acquisition of control of Rhino on March 17, 2016. Accordingly, the Company began consolidating
the operations of Rhino on that date. The following summarizes the financial statements of Royal for the three and nine months
ended September 30, 2017 and 2016, which includes the results of operation of Rhino from the date that the Company acquired majority
control, as adjusted for changes in the fair value of certain Rhino assets as of the date of the transaction. During the three
and nine months ended September 30, 2017, the Company’s only operating activities consisted of Rhino.
Our
revenues for the three and nine months ended September 30, 2017 and 2016 are summarized as follows:
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
sales
|
|
$
|
56,460
|
|
|
$
|
40,992
|
|
|
$
|
162,951
|
|
|
$
|
86,675
|
|
Freight
and handling revenues
|
|
|
220
|
|
|
|
424
|
|
|
|
537
|
|
|
|
1,106
|
|
Other
revenues
|
|
|
1,666
|
|
|
|
1,999
|
|
|
|
4,944
|
|
|
|
3,406
|
|
Total
revenues
|
|
$
|
58,346
|
|
|
$
|
43,415
|
|
|
$
|
168,432
|
|
|
$
|
91,187
|
|
Our
costs and expenses for the three and nine months ended September 30, 2017 and 2016 are summarized as follows:
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
46,376
|
|
|
$
|
35,249
|
|
|
$
|
137,898
|
|
|
$
|
72,648
|
|
Freight
and handling costs
|
|
|
1,518
|
|
|
|
385
|
|
|
|
2,516
|
|
|
|
988
|
|
Depreciation,
depletion and amortization
|
|
|
6,954
|
|
|
|
1,639
|
|
|
|
37,071
|
|
|
|
3,029
|
|
Selling,
general and administrative (exclusive of depreciation, depletion and amortization shown separately above)
|
|
|
3,133
|
|
|
|
4,717
|
|
|
|
9,804
|
|
|
|
11,520
|
|
(Gain)
on sale/disposal of assets—net
|
|
|
(45
|
)
|
|
|
(100
|
)
|
|
|
25
|
|
|
|
(125
|
)
|
Total
costs and expenses
|
|
$
|
57,936
|
|
|
$
|
41,890
|
|
|
$
|
187,314
|
|
|
$
|
88,060
|
|
Interest
and other Income/(Expense) for the three and nine months ended September 30, 2017 and 2016 are summarized as follows:
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in
thousands)
|
|
INTEREST
AND OTHER (EXPENSE)/INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense - related party
|
|
$
|
(89
|
)
|
|
$
|
(3
|
)
|
|
$
|
(95
|
)
|
|
$
|
(9
|
)
|
Interest
expense - other
|
|
|
(1,079
|
)
|
|
|
(2,012
|
)
|
|
|
(3,307
|
)
|
|
|
(4,071
|
)
|
Interest
income - related party
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
5
|
|
Interest
income - other
|
|
|
86
|
|
|
|
-
|
|
|
|
87
|
|
|
|
-
|
|
Gain
on extinguishment of debt
|
|
|
|
|
|
|
1,663
|
|
|
|
|
|
|
|
1,663
|
|
Bargain
purchase gain
|
|
|
|
|
|
|
-
|
|
|
|
171,151
|
|
|
|
-
|
|
Equity
in net loss/(income) of unconsolidated affiliates
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
35
|
|
|
|
(92
|
)
|
Total
interest and other (Expense)/Income
|
|
$
|
(1,082
|
)
|
|
$
|
(377
|
)
|
|
$
|
167,871
|
|
|
$
|
(2,504
|
)
|
As
of September 30, 2017, we have four reportable business segments: Central Appalachia, Northern Appalachia, Rhino Western and Illinois
Basin. Additionally, we have an Other category that includes our ancillary businesses and our remaining oil and natural gas activities.
Our Central Appalachia segment consists of two mining complexes: Tug River and Rob Fork, which, as of September 30, 2017, together
included one underground mine, three surface mines and three preparation plants and loadout facilities in eastern Kentucky and
southern West Virginia. Our Northern Appalachia segment consists of the Hopedale mining complex, the Sands Hill mining complex,
and the Leesville field. The Hopedale mining complex, located in northern Ohio, included one underground mine and one preparation
plant and loadout facility as of September 30, 2017. Our Sands Hill mining complex, located in southern Ohio, included two surface
mines, a preparation plant and a river terminal as of September 30, 2017 (please read Note 22 for further discussion). Our Rhino
Western segment includes our underground mine in the Western Bituminous region at our Castle Valley mining complex in Utah. Our
Illinois Basin segment includes one underground mine, preparation plant and river loadout facility at our Pennyrile mining complex
located in western Kentucky, as well as our Taylorville field reserves located in central Illinois.
Evaluating
Our Results of Operations
Our
management uses a variety of financial measurements to analyze our performance, including (1) Adjusted EBITDA, (2) coal revenues
per ton and (3) cost of operations per ton.
Adjusted
EBITDA.
The discussion of our results of operations below includes references to, and analysis of, our segments’
Adjusted EBITDA results. Adjusted EBITDA, a Non-GAAP financial measure, represents net income before deducting interest expense,
income taxes and depreciation, depletion and amortization, while also excluding certain non-cash and/or non-recurring items. Adjusted
EBITDA is used by management primarily as a measure of our segments’ operating performance. Adjusted EBITDA should not be
considered an alternative to net income, income from operations, cash flows from operating activities or any other measure of
financial performance or liquidity presented in accordance with GAAP. Because not all companies calculate Adjusted EBITDA identically,
our calculation may not be comparable to similarly titled measures of other companies. Please read “—Reconciliations
of Adjusted EBITDA” for reconciliations of Adjusted EBITDA to net income by segment for each of the periods indicated.
Coal
Revenues Per Ton
.
Coal revenues per ton represents coal revenues divided by tons of coal sold. Coal revenues per
ton is a key indicator of our effectiveness in obtaining favorable prices for our product.
Cost
of Operations Per Ton
.
Cost of operations per ton sold represents the cost of operations (exclusive of depreciation,
depletion and amortization) divided by tons of coal sold. Management uses this measurement as a key indicator of the efficiency
of operations.
Summary
The
following table sets forth certain information regarding our revenues, operating expenses, other income and expenses, and operational
data for the three and nine months ended September 30, 2017 and 2016:
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
58.3
|
|
|
$
|
43.4
|
|
|
$
|
168.4
|
|
|
$
|
91.2
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
|
46.4
|
|
|
|
35.2
|
|
|
|
137.9
|
|
|
|
72.6
|
|
Freight
and handling costs
|
|
|
1.5
|
|
|
|
0.4
|
|
|
|
2.5
|
|
|
|
1.0
|
|
Depreciation,
depletion and amortization
|
|
|
7.0
|
|
|
|
1.6
|
|
|
|
37.1
|
|
|
|
3.0
|
|
Selling,
general and administrative (exclusive of depreciation, depletion and amortization shown separately above)
|
|
|
3.1
|
|
|
|
4.7
|
|
|
|
9.8
|
|
|
|
11.5
|
|
(Gain)
on sale/disposal of assets-net
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income/(loss)
from operations
|
|
|
0.4
|
|
|
|
1.5
|
|
|
|
(18.9
|
)
|
|
|
3.1
|
|
Interest
and other (expense)/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(1.2
|
)
|
|
|
(2.0
|
)
|
|
|
(3.4
|
)
|
|
|
(4.1
|
)
|
Interest
income
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
-
|
|
Gain
on bargain purchase
|
|
|
-
|
|
|
|
-
|
|
|
|
171.2
|
|
|
|
-
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
|
1.7
|
|
|
|
-
|
|
|
|
1.7
|
|
Income
taxes
|
|
|
0.6
|
|
|
|
|
|
|
|
(43.4
|
)
|
|
|
|
|
Equity
in net (loss)/income of unconsolidated affiliates
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
(0.1
|
)
|
Total
interest and other (expense)
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
124.5
|
|
|
|
(2.5
|
)
|
Net
(loss)/income from continuing operations
|
|
|
(0.1
|
)
|
|
|
1.1
|
|
|
|
105.6
|
|
|
|
0.6
|
|
Net
income from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.7
|
|
Net
(loss)/income
|
|
$
|
(0.1
|
)
|
|
$
|
1.1
|
|
|
$
|
105.6
|
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA from continuing operations
|
|
$
|
7.5
|
|
|
$
|
5.1
|
|
|
$
|
18.3
|
|
|
$
|
8.1
|
|
Adjusted
EBITDA from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
Total
Adjusted EBITDA
|
|
$
|
7.5
|
|
|
$
|
5.1
|
|
|
$
|
18.3
|
|
|
$
|
9.0
|
|
Three
Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Summary.
For the three months ended September 30, 2017, our total revenues increased to $58.3 million from $43.4 million for the
three months ended September 30, 2016, which is a 34.4% increase. We sold approximately 1.1 million tons of coal for the three
months ended September 30, 2017, which is a 28.8% increase compared to the tons of coal sold for the three months ended September
30, 2016. The increase in revenue and tons sold was primarily the result of increased production in Central Appalachia due to
recent increases in coal prices and demand for met and steam coal produced in this region. We anticipate the recent increase in
price and demand will continue to benefit our financial results for the remainder of 2017.
Net
loss from continuing operations was $0.1 million for the three months ended September 30, 2017 compared to net income from continuing
operations of $1.1 million for the three months ended September 30, 2016. The decrease in the results was primarily due to the
increase in depreciation during the three months ended September 30, 2017, which was the result of the fair value purchase accounting
adjustment made during the 2017 reporting period. For the three months ended September 30, 2016, our net income from continuing
operations was impacted by an impairment charge of $2.0 million related to the note receivable from the sale of our Deane mining
complex.
Adjusted
EBITDA from continuing operations increased to $7.5 million for the three months ended September 30, 2017 from $5.1 million for
the three months ended September 30, 2016. Adjusted EBITDA from continuing operations increased period over period primarily due
to the increase in coal revenues at our Central Appalachia segment as coal prices and demand increased in this region.
Tons
Sold.
The following table presents tons of coal sold by reportable segment for the three months ended September 30, 2017
and 2016:
|
|
Three
months
|
|
|
Three
months
|
|
|
Increase/
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
(Decrease)
|
|
|
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
Tons
|
|
|
%
*
|
|
|
|
(in
thousands, except %)
|
|
Central
Appalachia
|
|
|
381.6
|
|
|
|
179.7
|
|
|
|
201.9
|
|
|
|
112.4
|
%
|
Northern
Appalachia
|
|
|
114.5
|
|
|
|
149.1
|
|
|
|
(34.6
|
)
|
|
|
(23.3
|
%)
|
Rhino
Western
|
|
|
241.9
|
|
|
|
185.1
|
|
|
|
56.8
|
|
|
|
30.7
|
%
|
Illinois
Basin
|
|
|
315.8
|
|
|
|
304.5
|
|
|
|
11.3
|
|
|
|
3.7
|
%
|
Total
*
|
|
|
1,053.8
|
|
|
|
818.4
|
|
|
|
235.4
|
|
|
|
28.8
|
%
|
*
|
Calculated
percentages and the rounded totals presented are based upon on actual whole ton amounts and not the rounded amounts presented
in this table.
|
We
sold approximately 1.1 million tons of coal for the three months ended September 30, 2017, which was a 28.8% increase compared
to the three months ended September 30, 2016. The increase in tons sold period over period was primarily due to higher sales from
our Central Appalachia segment due to the increased demand for met and steam coal from this region.
Tons
of coal sold in our Central Appalachia segment increased by approximately 112.4% to approximately 0.4 million tons for the three
months ended September 30, 2017 compared to the three months ended September 30, 2016, primarily due to an increase in demand
for met and steam coal tons from this region.
For
our Northern Appalachia segment, tons of coal sold decreased by approximately 23.3% for the three months ended September 30, 2017
compared to the three months ended September 30, 2016, as we experienced a decrease in tons sold from our Sands Hill and Hopedale
operations due to weak demand for coal from this region.
Coal
sales from our Rhino Western segment increased by approximately 30.7% for the three months ended September 30, 2017 compared to
the same period in 2016 due to increased customer demand.
For
our Illinois Basin segment, tons of coal sold increased by approximately 3.7% for the three months ended September 30, 2017 compared
to the three months ended September 30, 2016 as we increased production and sales period over period from our Pennyrile mine in
western Kentucky to meet our contracted sales commitments.
Revenues.
The following table presents revenues and coal revenues per ton by reportable segment for the three months ended September
30, 2017 and 2016:
|
|
Three
months
|
|
|
Three
months
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Increase/(Decrease)
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
$
|
|
|
%*
|
|
|
|
(in
millions, except per ton data and %)
|
|
Central
Appalachia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
27.9
|
|
|
$
|
10.4
|
|
|
$
|
17.5
|
|
|
|
167.8
|
%
|
Freight
and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other
revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Total
revenues
|
|
$
|
27.9
|
|
|
$
|
10.4
|
|
|
$
|
17.5
|
|
|
|
167.8
|
%
|
Coal
revenues per ton*
|
|
$
|
73.02
|
|
|
$
|
57.91
|
|
|
$
|
15.11
|
|
|
|
26.1
|
%
|
Northern
Appalachia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
4.6
|
|
|
$
|
8.8
|
|
|
$
|
(4.2
|
)
|
|
|
(48.0
|
%)
|
Freight
and handling revenues
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
(0.2
|
)
|
|
|
(48.1
|
%)
|
Other
revenues
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
(0.2
|
)
|
|
|
(9.3
|
%)
|
Total
revenues
|
|
$
|
6.4
|
|
|
$
|
11.0
|
|
|
$
|
(4.6
|
)
|
|
|
(41.7
|
%)
|
Coal
revenues per ton*
|
|
$
|
39.81
|
|
|
$
|
58.75
|
|
|
$
|
(18.94
|
)
|
|
|
(32.2
|
%)
|
Rhino
Western
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
9.1
|
|
|
$
|
7.2
|
|
|
$
|
1.9
|
|
|
|
25.8
|
%
|
Freight
and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other
revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Total
revenues
|
|
$
|
9.1
|
|
|
$
|
7.2
|
|
|
$
|
1.9
|
|
|
|
25.8
|
%
|
Coal
revenues per ton*
|
|
$
|
37.53
|
|
|
$
|
39.00
|
|
|
$
|
(1.47
|
)
|
|
|
(3.8
|
%)
|
Illinois
Basin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
14.9
|
|
|
$
|
14.6
|
|
|
$
|
0.3
|
|
|
|
2.4
|
%
|
Freight
and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other
revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Total
revenues
|
|
$
|
14.9
|
|
|
$
|
14.6
|
|
|
$
|
0.3
|
|
|
|
2.4
|
%
|
Coal
revenues per ton*
|
|
$
|
47.37
|
|
|
$
|
47.97
|
|
|
$
|
(0.60
|
)
|
|
|
(1.2
|
%)
|
Other**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Freight
and handling revenues
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Other
revenues
|
|
|
-
|
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
(94.7
|
%)
|
Total
revenues
|
|
$
|
-
|
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
|
|
(94.7
|
%)
|
Coal
revenues per ton*
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
56.5
|
|
|
$
|
41.0
|
|
|
$
|
15.5
|
|
|
|
37.7
|
%
|
Freight
and handling revenues
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
(0.2
|
)
|
|
|
(48.1
|
%)
|
Other
revenues
|
|
|
1.6
|
|
|
|
2.0
|
|
|
|
(0.4
|
)
|
|
|
(16.6
|
%)
|
Total
revenues
|
|
$
|
58.3
|
|
|
$
|
43.4
|
|
|
$
|
14.9
|
|
|
|
34.4
|
%
|
Coal
revenues per ton*
|
|
$
|
53.58
|
|
|
$
|
50.09
|
|
|
$
|
3.49
|
|
|
|
7.0
|
%
|
*
Percentages and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
Our
coal revenues for the three months ended September 30, 2017 increased by approximately $15.5 million, or 37.7%, to approximately
$56.5 million from approximately $41.0 million for the three months ended September 30, 2016. The increase in coal revenues was
primarily due to an increase in met and steam coal tons sold in Central Appalachia as we saw increased demand for met and steam
coal from this region during the period. Coal revenues per ton was $53.58 for the three months ended September 30, 2017, an increase
of $3.49, or 7.0%, from $50.09 per ton for the three months ended September 30, 2016. This increase in coal revenues per ton was
primarily the result of a higher mix of higher priced met coal tons sold in Central Appalachia compared to the prior period.
For
our Central Appalachia segment, coal revenues increased by approximately $17.5 million, or 167.8%, to approximately $27.9 million
for the three months ended September 30, 2017 from approximately $10.4 million for the three months ended September 30, 2016.
This increase was primarily due to the increase in coal prices and demand for met and steam coal tons sold from this region. Coal
revenues per ton for our Central Appalachia segment increased by $15.11, or 26.1%, to $73.02 per ton for the three months ended
September 30, 2017 as compared to $57.91 for the three months ended September 30, 2016, which was primarily due to a higher mix
of higher priced met coal tons sold in Central Appalachia compared to the prior period.
For
our Northern Appalachia segment, coal revenues were approximately $4.6 million for the three months ended September 30, 2017,
a decrease of approximately $4.2 million, or 48.0%, from approximately $8.8 million for the three months ended September 30, 2016.
This decrease was primarily due to a decrease in tons sold from our Sands Hill and Hopedale operations in Northern Appalachia
due to weak demand for coal from the Northern Appalachia region during the three months ended September 30, 2017. Coal revenues
per ton decreased by $18.94 or 32.2% per ton to $39.81 for the three months ended September 30, 2017 as compared to $58.75 for
the three months ended September 30, 2016, which was primarily due to lower prices for tons sold from our Hopedale complex compared
to the prior year due to weak demand for coal from this region.
For
our Rhino Western segment, coal revenues increased by approximately $1.9 million, or 25.8%, to approximately $9.1 million for
the three months ended September 30, 2017 from approximately $7.2 million for the three months ended September 30, 2016 primarily
due to an increase in tons sold from the Castle Valley mine due to increased customer demand. Coal revenues per ton for our Rhino
Western segment decreased by $1.47 or 3.8% to $37.53 per ton for the three months ended September 30, 2017 as compared to $39.00
per ton for the three months ended September 30, 2016 due to lower contracted sales prices.
For
our Illinois Basin segment, coal revenues of approximately $14.9 million for the three months ended September 30, 2017 increased
by approximately $0.3 million, or 2.4%, compared to $14.6 million for the three months ended September 30, 2016. The increase
was due to increased sales from our Pennyrile mine in western Kentucky to fulfill our customer contracts. Coal revenues per ton
for our Illinois Basin segment were $47.37 for the three months ended September 30, 2017, a decrease of $0.60, or 1.2%, from $47.97
for the three months ended September 30, 2016. The decrease in coal revenues per ton was due to lower contracted prices for tons
sold.
Other
revenues for our Other category were relatively flat for the three months ended September 30, 2017 as compared to the three months
ended September 30, 2016.
Costs
and Expenses.
The following table presents costs and expenses (including the cost of purchased coal) and cost of operations
per ton by reportable segment for the three months ended September 30, 2017 and 2016:
|
|
Three
months
|
|
|
Three
months
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Increase/(Decrease)
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
$
|
|
|
%*
|
|
|
|
(in
millions, except per ton data and %)
|
|
Central
Appalachia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
20.8
|
|
|
$
|
8.9
|
|
|
$
|
11.9
|
|
|
|
133.7
|
%
|
Freight
and handling costs
|
|
|
1.2
|
|
|
|
-
|
|
|
|
1.2
|
|
|
|
n/a
|
|
Depreciation,
depletion and amortization
|
|
|
2.5
|
|
|
|
0.4
|
|
|
|
2.1
|
|
|
|
525.0
|
%
|
Selling,
general and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Cost of operations
per ton*
|
|
$
|
54.73
|
|
|
$
|
49.29
|
|
|
$
|
5.44
|
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern
Appalachia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
6.6
|
|
|
$
|
7.8
|
|
|
$
|
(1.2
|
)
|
|
|
(15.4
|
%)
|
Freight
and handling costs
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
|
|
(25.0
|
%)
|
Depreciation,
depletion and amortization
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
150.0
|
%
|
Selling,
general and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Cost of operations
per ton*
|
|
$
|
57.95
|
|
|
$
|
52.13
|
|
|
$
|
5.82
|
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhino
Western
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
6.6
|
|
|
$
|
5.3
|
|
|
$
|
1.3
|
|
|
|
24.5
|
%
|
Freight
and handling costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Depreciation,
depletion and amortization
|
|
|
1.5
|
|
|
|
0.3
|
|
|
|
1.2
|
|
|
|
400.0
|
%
|
Selling,
general and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Cost of operations
per ton*
|
|
$
|
27.48
|
|
|
$
|
28.82
|
|
|
$
|
(1.34
|
)
|
|
|
(4.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illinois
Basin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
13.0
|
|
|
$
|
13.4
|
|
|
$
|
(0.4
|
)
|
|
|
(3.0
|
%)
|
Freight
and handling costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Depreciation,
depletion and amortization
|
|
|
2.4
|
|
|
|
0.7
|
|
|
|
1.7
|
|
|
|
242.9
|
%
|
Selling,
general and administrative
|
|
|
-
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
n/a
|
|
Cost of operations
per ton*
|
|
$
|
41.40
|
|
|
$
|
43.99
|
|
|
$
|
(2.59
|
)
|
|
|
(5.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
(0.6
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.4
|
)
|
|
|
200.0
|
%
|
Freight
and handling costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Depreciation,
depletion and amortization
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
n/a
|
|
Selling,
general and administrative
|
|
|
3.1
|
|
|
|
4.6
|
|
|
|
(1.5
|
)
|
|
|
(32.6
|
%)
|
Cost of operations
per ton*
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
46.4
|
|
|
$
|
35.2
|
|
|
$
|
11.2
|
|
|
|
31.8
|
%
|
Freight
and handling costs
|
|
|
1.5
|
|
|
|
0.4
|
|
|
|
1.1
|
|
|
|
275.0
|
%
|
Depreciation,
depletion and amortization
|
|
|
7.0
|
|
|
|
1.6
|
|
|
|
5.4
|
|
|
|
337.5
|
%
|
Selling,
general and administrative
|
|
|
3.1
|
|
|
|
4.7
|
|
|
|
(1.6
|
)
|
|
|
(34.0
|
%)
|
Cost of operations
per ton*
|
|
$
|
44.08
|
|
|
$
|
43.07
|
|
|
$
|
1.01
|
|
|
|
2.3
|
%
|
*
Percentages and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
Cost
of operations per ton and related percentages are calculated using Rhino cost of operations only.
**
Cost of operations presented for our Other category includes costs incurred by our ancillary businesses and our oil and natural
gas investments. The activities performed by these ancillary businesses do not directly relate to coal production. As a result,
per ton measurements are not presented for this category.
Cost
of Operations.
Total cost of operations increased by $11.2 million or 31.8% to $46.4 million for the three months ended
September 30, 2017 as compared to $35.2 million for the three months ended September 30, 2016. Our cost of operations per ton
was $44.08 for the three months ended September 30, 2017, an increase of $1.01, or 2.3%, from the three months ended September
30, 2016. The increase in cost of operations was primarily due to the $11.9 million increase in cost of production at our Central
Appalachia operations as demand for met and steam coal increased in this region. Cost of operations per ton increased due to higher
maintenance costs and costs for outside services.
Our
cost of operations for the Central Appalachia segment increased by $11.9 million, or 133.7%, to $20.8 million for the three months
ended September 30, 2017 from $8.9 million for the three months ended September 30, 2016. Our cost of operations per ton of $54.73
for the three months ended September 30, 2017 was an increase of 11.0% compared to $49.29 per ton for the three months ended September
30, 2016. Total cost of operations increased period over period as we increased production in this region during the three months
ended September 30, 2017 due to increased demand for met and steam coal.
In
our Northern Appalachia segment, our cost of operations decreased by $1.2 million, or 15.4%, to $6.6 million for the three months
ended September 30, 2017 from $7.8 million for the three months ended September 30, 2016. Our cost of operations per ton was $57.95
for the three months ended September 30, 2017, an increase of $5.82, or 11.2%, compared to $52.13 for the three months ended September
30, 2016. The decrease in total cost of operations in Northern Appalachia was due to a decrease in sales in this region in response
to weak market demand. The increase in the cost of operations on a per ton basis was primarily due to fixed operating costs being
allocated to fewer tons of coal sold during the current period.
Our
cost of operations for the Rhino Western segment increased by $1.3 million, or 24.5%, to $6.6 million for the three months ended
September 30, 2017 from $5.3 million for the three months ended September 30, 2016. Total cost of operations increased for the
three months ended September 30, 2017 compared to the same period in 2016 due to increased tons produced and sold from our Castle
Valley operation. Our cost of operations per ton was $27.48 for the three months ended September 30, 2017, a decrease of $1.34,
or 4.6%, compared to $28.82 for the three months ended September 30, 2016. Cost of operations per ton decreased for the three
months ended September 30, 2017 compared to the same period in 2016 due to an increase in tons sold from our Castle Valley mine
in the current period.
Cost
of operations in our Illinois Basin segment was $13.0 million while cost of operations per ton was $41.40 for the three months
ended September 30, 2017, both of which related to our Pennyrile mining complex in western Kentucky. For the three months ended
September 30, 2016, cost of operations in our Illinois Basin segment was $13.4 million and cost of operations per ton was $43.99.
The decrease in cost of operations per ton was primarily the result of an increase in tons sold during the current period.
Freight
and Handling
Total freight and handling cost increased to $1.5 million for the three months ended September 30, 2017 as
compared to $0.4 million for the three months ended September 30, 2016. The increase in freight and handling costs was primarily
the result of rail transportation costs in our Central Appalachia operations as we completed more export coal sales in the current
period that require us to pay for railroad transportation to the port of export.
Depreciation,
Depletion and Amortization.
Total DD&A expense for the three months ended September 30, 2017 was $7.0 million as compared
to $1.6 million for the three months ended September 30, 2016.
For
the three months ended September 30, 2017, our depreciation cost increased to $6.8 million compared to $1.6 million for the three
months ended September 30, 2016. This increase in depreciation is primarily the result of the purchase accounting fair value adjustments
made in the first quarter of 2017 which increased the carrying value of the fixed assets.
For
the three months ended September 30, 2017, our depletion and amortization cost was $0.2 million.
Selling,
General and Administrative.
SG&A expense for the three months ended September 30, 2017 decreased to $3.1 million as
compared to $4.7 million for the three months ended September 30, 2016. This decrease was primarily attributable to the $2.0 million
impairment charge related to the note receivable from the sale of our Deane mining complex during the three months ended September
30, 2016.
Interest
Expense
.
Interest expense for the three months ended September 30, 2017 decreased to $1.2 million as compared to
$2.0 million for the three months ended September 30, 2016. This decrease was primarily due to lower outstanding balances on our
senior secured credit facility and reduced debt issuance costs during the three months ended September 30, 2017.
Net
Income (Loss) from Continuing Operations.
The following table presents net income (loss) from continuing operations by
reportable segment for the three months ended September 30, 2017 and 2016:
|
|
Three
months ended
|
|
|
Three
months ended
|
|
|
Increase
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
(Decrease)
|
|
|
|
(in
millions)
|
|
Central
Appalachia
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
-
|
|
Northern
Appalachia
|
|
|
(0.1
|
)
|
|
|
2.3
|
|
|
|
(2.4
|
)
|
Rhino
Western
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
(0.1
|
)
|
Illinois
Basin
|
|
|
(0.2
|
)
|
|
|
(0.5
|
)
|
|
|
0.3
|
|
Other
|
|
|
0.6
|
|
|
|
(0.4
|
)
|
|
|
1.0
|
|
Total
|
|
$
|
(0.1
|
)
|
|
$
|
1.1
|
|
|
$
|
(1.2
|
)
|
For
the three months ended September 30, 2017, net loss from continuing operations was approximately $0.1 million compared to net
income from continuing operations of approximately $1.1 million for the three months ended September 30, 2016. For the three months
ended September 30, 2017, our net loss from continuing operations was negatively impacted due to an increase in depreciation expense,
which was the result of the fair value purchase accounting adjustment made during the 2017 reporting period. For the three months
ended September 30, 2016, our net income from continuing operations was impacted by an impairment charge of $2.0 million related
to the note receivable from our Deane mining complex sale and positively impacted by a gain of $1.7 million for extinguishment
of debt, which resulted when we settled a $2.8 million note payable to a third party for $1.1 million.
For
our Central Appalachia segment, net loss from continuing operations was approximately $0.3 million for the three months ended
September 30, 2017, remaining flat compared to net loss from continuing operations for the three months ended September 30, 2016.
Net
loss from continuing operations in our Northern Appalachia segment was $0.1 million for the three months ended September 30, 2017
compared to net income from continuing operations of $2.3 million for the three months ended September 30, 2016. Net income for
the three months ended September 30, 2016 was positively impacted by a gain of $1.7 million for extinguishment of debt, which
resulted when we settled a $2.8 million note payable to a third party for $1.1 million.
Net
loss from continuing operations in our Rhino Western segment was $0.1 million for the three months ended September 30, 2017 and
remained fairly flat compared to the three months ended September 30, 2016.
For
our Illinois Basin segment, we generated net loss from continuing operations of $0.2 million for the three months ended September
30, 2017, which was an improvement of $0.3 million compared to the three months ended September 30, 2016. This increase in net
income was primarily the result of decreased costs as we continue to optimize production at our Pennyrile mining complex.
For
the Other category, we had net income from continuing operations of $0.6 million for the three months ended September 30, 2017
as compared to net loss from continuing operations of $0.4 million for the three months ended September 30, 2016, which was impacted
by an impairment charge of $2.0 million related to the note receivable from our Deane mining complex sale.
Adjusted
EBITDA from Continuing Operations.
The following table presents Adjusted EBITDA from continuing operations by reportable
segment for the three months ended September 30, 2017 and 2016:
|
|
Three
months ended
|
|
|
Three
months ended
|
|
|
Increase
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
(Decrease)
|
|
|
|
(in
millions)
|
|
Central
Appalachia
|
|
$
|
2.2
|
|
|
$
|
0.3
|
|
|
$
|
2.3
|
|
Northern
Appalachia
|
|
|
0.4
|
|
|
|
0.8
|
|
|
|
(0.4
|
)
|
Rhino
Western
|
|
|
1.4
|
|
|
|
0.4
|
|
|
|
0.9
|
|
Illinois
Basin
|
|
|
2.2
|
|
|
|
0.3
|
|
|
|
1.8
|
|
Other
|
|
|
1.3
|
|
|
|
3.2
|
|
|
|
(2.1
|
)
|
Total
*
|
|
$
|
7.5
|
|
|
$
|
5.1
|
|
|
$
|
2.4
|
|
*Totals
may not foot due to rounding
Adjusted
EBITDA from continuing operations for the three months ended September 30, 2017 increased by $2.4 million to $7.5 million from
$5.1 million for the three months ended September 30, 2016. Adjusted EBITDA from continuing operations increased period over period
primarily due to increase in coal sales revenue at our Central Appalachia segment, which was the result of an increase in met
and steam coal tons sold due to increased demand in coal produced from this region. Please read “—Reconciliations
of Adjusted EBITDA” for reconciliations of Adjusted EBITDA from continuing operations to net income/(loss) from continuing
operations on a segment basis.
Nine
Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
The
nine months ended 2017 versus 2016 amounts and percentages presented in the following tables and summaries are not comparative
since Royal acquired Rhino on March 17, 2016 and thus, only six and half months of Rhino’s financial data is included
in the 2016 reporting period. Total tons sold, revenue per ton and cost of operations per ton, however, are reported based on
Rhino’s total tons, revenues and cost of operations for the nine months ended September 30, 2016 as that information is
comparable to that for 2017 and eliminates the impact of seasonality on these metrics.
Summary.
For the nine months ended September 30, 2017, our total revenues were $168.4 million compared to $91.2 million for
the nine months ended September 30, 2016. We sold approximately 3.1 million tons of coal for the nine months ended September
30, 2017 compared to 2.4 million tons of coal sold for the nine months ended September 30, 2016. Total revenues of $168.4 million
was positively impacted by a substantial increase in revenue from our Central Appalachia segment as production and sales increased
due to the increase in coal prices and demand for met and steam coal produced in this region.
We
generated net income from continuing operations of approximately $105.6 million for the nine months ended September 30, 2017 compared
to a net income from continuing operations of approximately $0.6 million for the nine months ended September 30, 2016.
Our net income from continuing operations improved during the nine months ended September 30, 2017 compared to 2016 due primarily
to the bargain purchase gain recognized in the first quarter of 2017.
Adjusted
EBITDA from continuing operations increased to $18.3 million for the nine months ended September 30, 2017 from $8.1 million for
the nine months ended September 30, 2016. Adjusted EBITDA for the nine months ended September 30, 2017 benefited from the
increase in revenues in our Central Appalachia segment resulting from the increase in production and sales in this region. Adjusted
EBITDA for the nine months ended September 30, 2016 was positively impacted by the $3.9 million prior service cost benefit
resulting from the cancellation of the postretirement benefit plan at our Hopedale operation.
Including
the net income from discontinued operations of approximately $0.7 million, our total net loss and Adjusted EBITDA for the nine
months ended September 30, 2016 were $1.3 million and $9.0 million, respectively. We did not incur a gain or loss from discontinued
operations for the nine months ended September 30, 2017.
Tons
Sold.
The following table presents tons of coal sold by reportable segment for the nine months ended September 30, 2017
and 2016:
|
|
Nine
months
|
|
|
Nine
months
|
|
|
Increase/
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
(Decrease)
|
|
|
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016**
|
|
|
Tons
|
|
|
%
*
|
|
|
|
(in
thousands, except %)
|
|
Central
Appalachia
|
|
|
1,090.7
|
|
|
|
367.9
|
|
|
|
722.8
|
|
|
|
196.4
|
%
|
Northern
Appalachia
|
|
|
308.4
|
|
|
|
432.8
|
|
|
|
(124.4
|
)
|
|
|
(28.8
|
%)
|
Rhino
Western
|
|
|
661.7
|
|
|
|
652.1
|
|
|
|
9.6
|
|
|
|
1.5
|
%
|
Illinois
Basin
|
|
|
1,013.6
|
|
|
|
953.7
|
|
|
|
59.9
|
|
|
|
6.3
|
%
|
Total
|
|
|
3,074.4
|
|
|
|
2,406.5
|
|
|
|
667.9
|
|
|
|
27.8
|
%
|
*
Calculated percentages and the rounded totals presented are based upon on actual whole ton amounts and not the rounded amounts
presented in this table.
**
Total tons sold represents all tons sold by Rhino during the nine months ended September 30, 2016.
We
sold approximately 3.1 million tons of coal for the nine months ended September 30, 2017, which was a 27.8% increase compared
to the nine months ended September 30, 2016. The increase in tons sold year-to-year was primarily due to higher sales from our
Central Appalachia segment due to an increase in demand for met and steam coal from this region.
Tons
of coal sold in our Central Appalachia segment increased by approximately 196.4% to approximately 1.1 million tons for the nine
months ended September 30, 2017 compared to the nine months ended September 30, 2016, due to an increase in met and steam coal
tons sold in the nine months ended September 30, 2017 compared to 2016 resulting from increased market demand for coal from this
region.
For
our Northern Appalachia segment, tons of coal sold decreased by approximately 28.8% for the nine months ended September 30, 2017
compared to the nine months ended September 30, 2016 as we experienced a decrease in tons sold from our Northern Appalachia segment
due to weak demand for coal in this region.
Tons
of coal sold from our Rhino Western segment remained relatively flat at 0.7 million tons for the nine months ended September 30,
2017 compared to the same period in 2016.
For
our Illinois Basin segment, tons of coal sold increased by approximately 6.3% for the nine months ended September 30, 2017 compared
to the nine months ended September 30, 2016 as we increased production and sales year-to-year from our Pennyrile mine in western
Kentucky to meet our contracted sales commitments.
Revenues.
The following table presents revenues and coal revenues per ton by reportable segment for the nine months ended September
30, 2017 and 2016:
|
|
Nine
months
|
|
|
Nine
months
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Increase/(Decrease)
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
$
|
|
|
%*
|
|
|
|
(in
millions, except per ton data and %)
|
|
Central
Appalachia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
76.8
|
|
|
$
|
16.0
|
|
|
$
|
60.8
|
|
|
|
380.0
|
%
|
Freight
and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other
revenues
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
n/a
|
|
Total
revenues
|
|
$
|
76.9
|
|
|
$
|
16.0
|
|
|
$
|
60.9
|
|
|
|
380.6
|
%
|
Coal
revenues per ton*
|
|
$
|
70.38
|
|
|
$
|
58.62
|
|
|
$
|
11.76
|
|
|
|
20.1
|
%
|
Northern
Appalachia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
11.7
|
|
|
$
|
18.2
|
|
|
$
|
(6.5
|
)
|
|
|
(35.7
|
%)
|
Freight
and handling revenues
|
|
|
0.5
|
|
|
|
1.1
|
|
|
|
(0.6
|
)
|
|
|
(54.5
|
%)
|
Other
revenues
|
|
|
4.8
|
|
|
|
4.0
|
|
|
|
0.8
|
|
|
|
20.0
|
%
|
Total
revenues
|
|
$
|
17.0
|
|
|
$
|
23.3
|
|
|
$
|
(6.3
|
)
|
|
|
(27.0
|
%)
|
Coal
revenues per ton*
|
|
$
|
37.86
|
|
|
$
|
56.91
|
|
|
$
|
(19.05
|
)
|
|
|
(33.5
|
%)
|
Rhino
Western
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
25.1
|
|
|
$
|
18.4
|
|
|
$
|
6.7
|
|
|
|
36.4
|
%
|
Freight
and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other
revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Total
revenues
|
|
$
|
25.1
|
|
|
$
|
18.4
|
|
|
$
|
6.7
|
|
|
|
36.4
|
%
|
Coal
revenues per ton*
|
|
$
|
37.99
|
|
|
$
|
38.55
|
|
|
$
|
(0.56
|
)
|
|
|
(1.4
|
%)
|
Illinois
Basin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
49.4
|
|
|
$
|
33.3
|
|
|
$
|
16.1
|
|
|
|
48.3
|
%
|
Freight
and handling revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Other
revenues
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Total
revenues
|
|
$
|
49.4
|
|
|
$
|
33.3
|
|
|
$
|
16.1
|
|
|
|
48.3
|
%
|
Coal
revenues per ton*
|
|
$
|
48.71
|
|
|
$
|
47.65
|
|
|
$
|
1.06
|
|
|
|
2.2
|
%
|
Other**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Freight
and handling revenues
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Other
revenues
|
|
|
-
|
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
(100.0
|
%)
|
Total
revenues
|
|
$
|
-
|
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
|
|
(100.0
|
%)
|
Coal
revenues per ton*
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal
revenues
|
|
$
|
163.0
|
|
|
$
|
85.9
|
|
|
$
|
77.1
|
|
|
|
89.8
|
%
|
Freight
and handling revenues
|
|
|
0.5
|
|
|
|
1.1
|
|
|
|
(0.6
|
)
|
|
|
(54.5
|
%)
|
Other
revenues
|
|
|
4.9
|
|
|
|
4.2
|
|
|
|
0.7
|
|
|
|
16.7
|
%
|
Total
revenues
|
|
$
|
168.4
|
|
|
$
|
91.2
|
|
|
$
|
77.2
|
|
|
|
84.6
|
%
|
Coal
revenues per ton*
|
|
$
|
53.00
|
|
|
$
|
48.52
|
|
|
$
|
4.48
|
|
|
|
9.2
|
%
|
*
|
Percentages
and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
|
|
Coal
revenues per ton are based on Rhino’s total tons sold and total revenue during the nine months ended September 30, 2016.
|
|
|
**
|
The
Other category includes results for our ancillary businesses. The activities performed by these ancillary businesses also
do not directly relate to coal production. As a result, coal revenues and coal revenues per ton are not presented for the
Other category.
|
Our
coal revenues for the nine months ended September 30, 2017 were approximately $163.0 million compared to $85.9 million for
the nine months ended September 30, 2016 as we saw increased tons sold primarily due to increased market demand for coal from
our Central Appalachia region. Coal revenues per ton was $53.00 for the nine months ended September 30, 2017, an increase of $4.48,
or 9.2%, from $48.52 per ton for the nine months ended September 30, 2016. This increase in coal revenues per ton was primarily
due to a higher mix of higher priced met coal tons sold in Central Appalachia compared to the prior period.
For
our Central Appalachia segment, coal revenues were approximately $76.8 million for the nine months ended September 30, 2017 compared
to $16.0 million for the nine months ended September 30, 2016, as we saw increased market demand for coal from this segment.
Coal revenues per ton for our Central Appalachia segment increased by $11.76, or 20.1%, to $70.38 per ton for the nine months
ended September 30, 2017 as compared to $58.62 for the nine months ended September 30, 2016, which was primarily due to a higher
mix of higher priced met coal tons sold in Central Appalachia compared to the prior period.
For
our Northern Appalachia segment, coal revenues were approximately $11.7 million for the nine months ended September 30, 2017 compared
to $18.2 million for the nine months ended September 30, 2016. This decrease was primarily due to a decrease in tons sold
from our Sands Hill and Hopedale operations in Northern Appalachia due to weak demand for coal from the Northern Appalachia region
during the nine months ended September 30, 2017. Coal revenues per ton for our Northern Appalachia segment decreased by $19.05,
or 33.5%, to $37.86 per ton for the nine months ended September 30, 2017 as compared to $56.91 per ton for the nine months ended
September 30, 2016.
For
our Rhino Western segment, coal revenues were approximately $25.1 million for the nine months ended September 30, 2017
compared to $18.4 million for the nine months ended September 30, 2016 due primarily to an increase in tons sold from the Castle
Valley mine due to increased customer demand. Coal revenues per ton for our Rhino Western segment remained relatively flat at
$37.99 for the nine months ended September 30, 2017, compared to $38.55 for the nine months ended September 30, 2016.
For
our Illinois Basin segment, coal revenues were approximately $49.4 million for the nine months ended September 30, 2017, compared
to $33.3 million for the nine months ended September 30, 2016. The increase was due to increased sales from our Pennyrile
mine in western Kentucky to fulfill our customer contracts. Coal revenues per ton for our Illinois Basin segment were $48.71 for
the nine months ended September 30, 2017, an increase of $1.06, or 2.2%, from $47.65 for the nine months ended September 30, 2016.
The increase in coal revenues per ton was due to higher contracted prices for tons sold.
Costs
and Expenses.
The following table presents costs and expenses (including the cost of purchased coal) and cost of operations
per ton by reportable segment for the nine months ended September 30, 2017 and 2016:
|
|
Nine
months
|
|
|
Nine
months
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Increase/(Decrease)
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
$
|
|
|
%*
|
|
|
|
(in
millions, except per ton data and %)
|
|
Central
Appalachia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
59.7
|
|
|
$
|
16.1
|
|
|
$
|
43.6
|
|
|
|
270.8
|
%
|
Freight
and handling costs
|
|
|
1.8
|
|
|
|
-
|
|
|
|
1.8
|
|
|
|
n/a
|
|
Depreciation,
depletion and amortization
|
|
|
13.0
|
|
|
|
0.8
|
|
|
|
12.2
|
|
|
|
1525.0
|
%
|
Selling,
general and administrative
|
|
|
0.2
|
|
|
|
9.4
|
|
|
|
(9.2
|
)
|
|
|
(97.9
|
%)
|
Cost of operations
per ton*
|
|
$
|
54.76
|
|
|
$
|
59.23
|
|
|
$
|
(4.47
|
)
|
|
|
(7.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern
Appalachia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
18.2
|
|
|
$
|
13.7
|
|
|
$
|
4.5
|
|
|
|
32.8
|
%
|
Freight
and handling costs
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
(0.3
|
)
|
|
|
(30.0
|
%)
|
Depreciation,
depletion and amortization
|
|
|
2.9
|
|
|
|
0.4
|
|
|
|
2.5
|
|
|
|
625.0
|
%
|
Selling,
general and administrative
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.0
|
%
|
Cost of operations
per ton*
|
|
$
|
59.09
|
|
|
$
|
42.67
|
|
|
$
|
16.42
|
|
|
|
38.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhino
Western
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
20.1
|
|
|
$
|
14.7
|
|
|
$
|
5.4
|
|
|
|
36.7
|
%
|
Freight
and handling costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Depreciation,
depletion and amortization
|
|
|
7.7
|
|
|
|
0.7
|
|
|
|
7.0
|
|
|
|
1000.0
|
%
|
Selling,
general and administrative
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
n/a
|
|
Cost of operations
per ton*
|
|
$
|
30.30
|
|
|
$
|
30.47
|
|
|
$
|
(0.17
|
)
|
|
|
(0.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illinois
Basin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
41.8
|
|
|
$
|
29.5
|
|
|
$
|
12.3
|
|
|
|
41.7
|
%
|
Freight
and handling costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Depreciation,
depletion and amortization
|
|
|
12.8
|
|
|
|
1.0
|
|
|
|
11.8
|
|
|
|
1180.0
|
%
|
Selling,
general and administrative
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
n/a
|
|
Cost of operations
per ton*
|
|
$
|
41.26
|
|
|
$
|
41.81
|
|
|
$
|
(0.55
|
)
|
|
|
(1.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below) `
|
|
$
|
(1.8
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(0.4
|
)
|
|
|
28.6
|
%
|
Freight
and handling costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Depreciation,
depletion and amortization
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
600.0
|
%
|
Selling,
general and administrative
|
|
|
9.3
|
|
|
|
1.9
|
|
|
|
7.4
|
|
|
|
389.5
|
%
|
Cost of operations
per ton**
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of operations (exclusive of depreciation, depletion and amortization shown separately below)
|
|
$
|
138.0
|
|
|
$
|
72.6
|
|
|
$
|
65.4
|
|
|
|
90.1
|
%
|
Freight
and handling costs
|
|
|
2.5
|
|
|
|
1.0
|
|
|
|
1.5
|
|
|
|
150.0
|
%
|
Depreciation,
depletion and amortization
|
|
|
37.1
|
|
|
|
3.0
|
|
|
|
34.1
|
|
|
|
1136.7
|
%
|
Selling,
general and administrative
|
|
|
9.8
|
|
|
|
11.5
|
|
|
|
(1.7
|
)
|
|
|
(14.8
|
%)
|
Cost of operations
per ton*
|
|
$
|
44.91
|
|
|
$
|
40.77
|
|
|
$
|
4.14
|
|
|
|
10.2
|
%
|
*
Percentages and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.
**
Cost of operations presented for our Other category includes costs incurred by our ancillary businesses and our oil and natural
gas investments. The activities performed by these ancillary businesses do not directly relate to coal production. As a result,
per ton measurements are not presented for this category.
Cost
of Operations.
Total cost of operations was $138.0 million for the nine months ended September 30, 2017 as compared to
$72.6 million for the nine months ended September 30, 2016. The increase in cost of operations was primarily due to an
increase in production at our Central Appalachia operations as demand for met and steam coal increased in this region. Total cost
of operations per ton increased primarily due to higher costs in Central Appalachia due to an increase in coal production and
sales resulting from increased market demand in this region during the nine months ended September 30, 2017.
Our
cost of operations for the Central Appalachia segment was approximately $59.7 million compared to $16.1 million for the nine
months ended September 30, 2016. We increased production and sales during the current period due to increased met and steam
coal demand that resulted in higher cost of operations during the current period compared to the prior period. Our cost of operations
per ton of $54.76 for the nine months ended September 30, 2017 was a decrease of 7.6% compared to $59.23 per ton for the nine
months ended September 30, 2016. We increased sales during the current period due to increased met and steam coal demand that
resulted in lower cost of operations per ton compared to the prior period.
In
our Northern Appalachia segment, our cost of operations was approximately $18.2 compared to $13.7 million for the nine months
ended September 30, 2016. The increase year-over-year was due to Royal’s ownership period for the 2016 included only
six and one-half months of production cost. The increase in the cost of operations per ton was primarily due to fixed operating
costs being allocated to lower sales tons at our Northern Appalachia segment during the nine months ended September 30, 2017.
Our
cost of operations for the Rhino Western segment was approximately $20.1 million for the nine months ended September 30,
2017 compared to $14.7 million for the nine months ended September 30, 2016. Total cost of operations increased for the nine months
ended September 30, 2017 compared to 2016 primarily due to increased tons produced and sold from our Castle Valley operation.
Our cost of operations and cost of operations per ton for our Rhino Western segment were both relatively flat period over period.
Cost
of operations in our Illinois Basin segment was $41.8 million for the nine months ended September 30, 2017, which related
to our Pennyrile mining complex in western Kentucky. During the nine months ended September 30, 2016, cost of operations in our
Illinois Basin segment was $29.5 million. The increase year-over-year was due to Royal’s ownership period for the 2016 included
only six and one-half months of production cost. The increase in cost of operations per ton remained relatively flat.
Freight
and Handling.
Total freight and handling cost increased to $2.5 million for the nine months ended September 30, 2017 as
compared to $1.0 million for the nine months ended September 30, 2016. The increase in freight and handling costs was primarily
the result of rail transportation costs in our Central Appalachia operations as we executed more export coal sales in the current
period that require us to pay for railroad transportation to the port of export.
Depreciation,
Depletion and Amortization.
Total depreciation, depletion and amortization (“DD&A”) expense for the nine
months ended September 30, 2017 was $37.1 million as compared to $3.0 million for the nine months ended September 30, 2016.
For
the nine months ended September 30, 2017, our depreciation cost was $36.1 million compared to $3.0 million for the nine months
ended September 30, 2016 as the result of the fair value purchase adjustments made in the first quarter of 2017.
For
the nine months ended September 30, 2017, our depletion cost was $0.9 million and our amortization expense was $0.1 million.
Selling,
General and Administrative.
Selling, general and administrative (“SG&A”) expense for the nine months ended
September 30, 2017 was approximately $9.8 million compared to $11.5 million for the nine months ended September 30, 2016.
This decrease was primarily the result of a $2.0 million impairment charge related to the note receivable from the sale of our
Deane mining complex during the nine months ended September 30, 2016.
Interest
Expense
.
Interest expense for the nine months ended September 30, 2017 was $3.4 million as compared to $4.1 million
for the nine months ended September 30, 2016. This decrease was primarily due to lower outstanding balances on our senior
secured credit facility. See the discussion on our credit agreement in “Liquidity and Capital Resources - Amended and Restated
Credit Agreement.”
Net
Income (Loss) from Continuing Operations.
The following table presents net income/(loss) from continuing operations by
reportable segment for the nine months ended September 30, 2017 and 2016:
|
|
Nine
months Ended
|
|
|
Nine
months Ended
|
|
|
Increase
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
(Decrease)
|
|
|
|
(in
millions)
|
|
Central
Appalachia
|
|
$
|
(10.1
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(9.8
|
)
|
Northern
Appalachia
|
|
|
(2.2
|
)
|
|
|
1.2
|
|
|
|
(3.4
|
)
|
Rhino
Western
|
|
|
(3.3
|
)
|
|
|
-
|
|
|
|
(3.3
|
)
|
Illinois
Basin
|
|
|
(6.5
|
)
|
|
|
(0.2
|
)
|
|
|
(6.3
|
)
|
Other
|
|
|
127.7
|
|
|
|
(0.1
|
)
|
|
|
127.8
|
|
Total
|
|
$
|
105.6
|
|
|
$
|
0.6
|
|
|
$
|
105.0
|
|
For
the nine months ended September 30, 2017, total net income from continuing operations was approximately $105.6 million which includes
the $171.2 million bargain purchase gain and income tax expense of $43.4 million.
For
our Central Appalachia segment, net loss from continuing operations was approximately $10.1 million for the nine months ended
September 30, 2017, compared to a net loss from continuing operations of $0.3 million for the nine months ended September
30, 2016. The net loss for the nine months ended September 30, 2017 was negatively impacted by additional depreciation expense as the result of the purchase accounting fair value adjustments made in the first quarter of 2017.
Net
loss from continuing operations in our Northern Appalachia segment was $2.2 million for the nine months ended September 30, 2017
compared to net income of $1.2 million for the nine months ended September 30, 2016. The net income from continuing operations
for the 2016 reporting period was positively impacted by the prior service cost benefit of approximately $3.9 million resulting
from the cancellation of the postretirement benefit plan at our Hopedale operation. The net loss for the nine months ended September
30, 2017 was negatively impacted by additional depreciation expense as the result of the purchase accounting fair
value adjustments made in the first quarter of 2017.
Net
loss from continuing operations in our Rhino Western segment was $3.3 million for the nine months ended September 30, 2017,
compared to break-even for the nine months ended September 30, 2016. The net loss for the nine months ended September 30, 2017
was negatively impacted by additional depreciation expense as the result of the purchase accounting fair value
adjustments made in the first quarter of 2017.
For
our Illinois Basin segment, we generated net loss from continuing operations of $6.5 million for the nine months ended September
30, 2017, compared to net loss from continuing operations of $0.2 million for the nine months ended September 30, 2016.
The net loss for the nine months ended September 30, 2017 was negatively impacted by additional depreciation expense as the result of the purchase accounting fair value adjustments made in the first quarter of 2017.
For
the Other category, we had a net income from continuing operations of $127.7 million for the nine months ended September 30, 2017
which was impacted by the $171.2 million bargain purchase gain partially offset by income tax expense of $43.4 million.
Adjusted
EBITDA from Continuing Operations.
The following table presents Adjusted EBITDA from continuing operations by reportable
segment for the nine months ended September 30, 2017 and 2016:
|
|
Nine
months Ended
|
|
|
Nine
months Ended
|
|
|
Increase
|
|
Segment
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
(Decrease)
|
|
|
|
(in
millions)
|
|
Central
Appalachia
|
|
$
|
2.9
|
|
|
$
|
1.9
|
|
|
$
|
0.3
|
|
Northern
Appalachia
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
0.8
|
|
Rhino
Western
|
|
|
4.4
|
|
|
|
1.0
|
|
|
|
3.6
|
|
Illinois
Basin
|
|
|
6.3
|
|
|
|
1.4
|
|
|
|
5.4
|
|
Other
|
|
|
4.0
|
|
|
|
3.6
|
|
|
|
0.2
|
|
Total
*
|
|
$
|
18.3
|
|
|
$
|
8.1
|
|
|
$
|
10.2
|
|
*Total
may not foot due to rounding
Adjusted
EBITDA from continuing operations was $18.3 million for the nine months ended September 30, 2017 which was primarily the result
of the increase in revenues from coal sales at our Central Appalachia operation. Adjusted EBITDA for the nine months ended
September 30, 2016 was positively impacted by the $3.9 million prior service cost benefit resulting from the cancellation
of the postretirement benefit plan at our Hopedale operation.
Reconciliations
of Adjusted EBITDA
The following tables present reconciliations of Adjusted EBITDA to the most directly comparable GAAP
financial measures for each of the periods indicated:
|
|
Central
|
|
|
Northern
|
|
|
Rhino
|
|
|
Illinois
|
|
|
|
|
|
|
|
Three
months ended September 30, 2017
|
|
Appalachia
|
|
|
Appalachia
|
|
|
Western
|
|
|
Basin
|
|
|
Other
|
|
|
Total
|
|
|
|
(in
millions)
|
|
Net
income/(loss) from continuing operations
|
|
$
|
(0.3
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
0.6
|
|
|
$
|
(0.1
|
)
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DD&A
|
|
|
2.5
|
|
|
|
0.5
|
|
|
|
1.5
|
|
|
|
2.4
|
|
|
|
0.1
|
|
|
|
7.0
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.2
|
|
|
|
1.2
|
|
EBITDA
from continuing operations†
|
|
$
|
2.2
|
|
|
$
|
0.4
|
|
|
$
|
1.4
|
|
|
$
|
2.2
|
|
|
$
|
1.9
|
|
|
$
|
8.1
|
|
Plus:
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
Adjusted
EBITDA from continuing operations†
|
|
|
2.2
|
|
|
|
0.4
|
|
|
|
1.4
|
|
|
|
2.2
|
|
|
|
1.3
|
|
|
|
7.5
|
|
Adjusted
EBITDA from discontinued operations†
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted
EBITDA †
|
|
$
|
2.2
|
|
|
$
|
0.4
|
|
|
$
|
1.4
|
|
|
$
|
2.2
|
|
|
$
|
1.3
|
|
|
$
|
7.5
|
|
|
|
|
Central
|
|
|
|
Northern
|
|
|
|
Rhino
|
|
|
|
Illinois
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30, 2016
|
|
|
Appalachia
|
|
|
|
Appalachia
|
|
|
|
Western
|
|
|
|
Basin
|
|
|
|
Other
|
|
|
|
Total*
|
|
|
|
|
(in
millions)
|
|
Net
income/(loss) from continuing operations
|
|
$
|
(0.3
|
)
|
|
$
|
2.3
|
|
|
$
|
-
|
|
|
$
|
(0.5
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
1.1
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DD&A
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.7
|
|
|
|
|
|
|
|
1.6
|
|
Interest
expense
|
|
|
0.2
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
1.6
|
|
|
|
2.0
|
|
EBITDA
from continuing operations†
|
|
$
|
0.3
|
|
|
$
|
2.5
|
|
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
$
|
1.2
|
|
|
$
|
4.7
|
|
Plus:
Non-cash asset impairment (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2.0
|
|
|
|
2.0
|
|
Less:
Gain on extinguishment of debt (2)
|
|
|
-
|
|
|
|
(1.7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.7
|
)
|
Adjusted
EBITDA from continuing operations†
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
3.2
|
|
|
|
5.1
|
|
Adjusted
EBITDA from discontinued operations†
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted
EBITDA †
|
|
$
|
0.3
|
|
|
$
|
0.8
|
|
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
$
|
3.2
|
|
|
$
|
5.1
|
|
|
|
Central
|
|
|
Northern
|
|
|
Rhino
|
|
|
Illinois
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2017
|
|
Appalachia
|
|
|
Appalachia
|
|
|
Western
|
|
|
Basin
|
|
|
Other
|
|
|
Total
|
|
|
|
(in
millions)
|
|
Net
income/(loss) from continuing operations
|
|
$
|
(10.1
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(6.5
|
)
|
|
$
|
127.7
|
|
|
$
|
105.6
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DD&A
|
|
|
13.0
|
|
|
|
2.9
|
|
|
|
7.7
|
|
|
|
12.8
|
|
|
|
0.7
|
|
|
|
37.1
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.4
|
|
|
|
3.4
|
|
EBITDA
from continuing operations†
|
|
$
|
2.9
|
|
|
$
|
0.7
|
|
|
$
|
4.4
|
|
|
$
|
6.3
|
|
|
$
|
131.8
|
|
|
$
|
146.1
|
|
Plus:Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43.4
|
|
|
|
43.4
|
|
Less:Gain
on bargain purchase
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(171.2
|
)
|
|
|
(171.2
|
)
|
Adjusted
EBITDA from continuing operations†
|
|
|
2.9
|
|
|
|
0.7
|
|
|
|
4.4
|
|
|
|
6.3
|
|
|
|
4.0
|
|
|
|
18.3
|
|
Adjusted
EBITDA from discontinued operations†
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted
EBITDA †
|
|
$
|
2.9
|
|
|
$
|
0.7
|
|
|
$
|
4.4
|
|
|
$
|
6.3
|
|
|
$
|
4.0
|
|
|
$
|
18.3
|
|
|
|
Central
|
|
|
Northern
|
|
|
Rhino
|
|
|
Illinois
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2016
|
|
Appalachia
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|
|
Appalachia
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Western
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Basin
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Other
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Total*
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|
(in
millions)
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|
Net
income/(loss) from continuing operations
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$
|
(0.3
|
)
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|
$
|
1.2
|
|
|
$
|
-
|
|
|
$
|
(0.2
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)
|
|
$
|
(0.1
|
)
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|
$
|
0.6
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DD&A
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
3.0
|
|
Interest
expense
|
|
|
1.4
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
1.6
|
|
|
|
4.1
|
|
EBITDA
from continuing operations†
|
|
$
|
1.9
|
|
|
$
|
1.8
|
|
|
$
|
1.0
|
|
|
$
|
1.4
|
|
|
$
|
1.6
|
|
|
$
|
7.7
|
|
Plus:
Non-cash asset impairment (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2.0
|
|
|
|
2.0
|
|
Less:
Gain on extinguishment of debt (2)
|
|
|
-
|
|
|
|
(1.7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.7
|
)
|
Adjusted
EBITDA from continuing operations†
|
|
|
1.9
|
|
|
|
0.1
|
|
|
|
1.0
|
|
|
|
1.4
|
|
|
|
3.6
|
|
|
|
8.1
|
|
Adjusted
EBITDA from discontinued operations†
|
|
|
0.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
Adjusted
EBITDA †
|
|
$
|
2.8
|
|
|
$
|
0.1
|
|
|
$
|
1.0
|
|
|
$
|
1.4
|
|
|
$
|
3.6
|
|
|
$
|
9.0
|
|
|
*
|
Totals
may not foot due to rounding.
|
|
|
|
|
†
|
EBITDA
is calculated based on actual amounts and not the rounded amounts presented in this table.
|
(1)
|
During
the three and nine months ended September 30, 2016, we recorded a $2.0 million asset impairment related to a note receivable
that was recorded in 2015 related to the sale of the Deane mining complex discussed earlier. We believe that the isolation
and presentation of this specific item to arrive at Adjusted EBITDA is useful because it enhances investors’ understanding
of how we assess the performance of our business. We believe the adjustment of this item provides investors with additional
information that they can utilize in evaluating our performance. Additionally, we believe the isolation of this item provides
investors with enhanced comparability to prior and future periods of our operating results.
|
|
|
(2)
|
For
the three and nine months ended September 30, 2016, we recorded a gain of approximately $1.7 million for the extinguishment
of debt. We executed an agreement with the third party that held approximately $2.8 million of other notes payable to settle
the debt for $1.1 million of cash consideration, which resulted in an approximate $1.7 million gain from the extinguishment
of this debt. We believe that the isolation and presentation of this specific item to arrive at Adjusted EBITDA is useful
because it enhances investors’ understanding of how we assess the performance of our business. We believe the adjustment
of this item provides investors with additional information that they can utilize in evaluating our performance. Additionally,
we believe the isolation of this item provides investors with enhanced comparability to prior and future periods of our operating
results.
|
Liquidity
and Capital Resources
Liquidity
Our
business is capital intensive and requires substantial capital expenditures for purchasing, upgrading and maintaining equipment
used in developing and mining our reserves, as well as complying with applicable environmental and mine safety laws and regulations.
Our principal liquidity requirements are to finance current operations, fund capital expenditures, including acquisitions from
time to time, and service our debt. Historically, our sources of liquidity included cash generated by our operations, borrowings
under our credit agreement and issuances of equity securities. Our ability to access the capital markets on economic terms in
the future will be affected by general economic conditions, the domestic and global financial markets, our operational and financial
performance, the value and performance of our equity securities, prevailing commodity prices and other macroeconomic factors outside
of our control. Failure to obtain financing or to generate sufficient cash flow from operations could cause us to significantly
reduce our spending and to alter our short- or long-term business plan. We may also be required to consider other options, such
as selling assets or merger opportunities, and depending on the urgency of our liquidity constraints, we may be required to pursue
such an option at an inopportune time.
Our
principal indicators of our liquidity are our cash on hand and availability under our amended and restated credit agreement. As
of September 30, 2017, our available liquidity was $9.6 million, including cash on hand of $1.4 million and $8.2 million available
under our credit facility. On May 13, 2016, we entered into a Fifth Amendment of our amended and restated agreement that initially
extended the term of the senior secured credit facility to July 31, 2017. Per the Fifth Amendment, the term of the credit facility
automatically extended to December 31, 2017 when the revolving credit commitments were reduced to $55 million or less as of December
31, 2016. The Fifth Amendment also immediately reduced the revolving credit commitments under the credit facility to a maximum
of $75 million and maintained the amount available for letters of credit at $30 million. In December 2016, we entered into a Seventh
Amendment of our amended and restated credit agreement. The Seventh Amendment immediately reduced the revolving credit commitments
by $11.0 million and provided for additional revolving credit commitment reductions of $2.0 million each on June 30, 2017 and
September 30, 2017. The Seventh Amendment further reduced the revolving credit commitments over time on a dollar-for-dollar basis
for the net cash proceeds received from any asset sales after the Seventh Amendment date once the aggregate net cash proceeds
received exceeds $2.0 million. For more information about our amended and restated credit agreement, please read — “Amended
and Restated Credit Agreement.”
We
are evaluating and negotiating alternative credit facilities. We currently anticipate repaying the debt outstanding under our
credit facility with the proceeds from one of these alternative facilities in the fourth quarter of 2017. If it becomes apparent
this refinancing will not occur prior to December 31, 2017, we may seek a short-term extension of our existing credit facility.
There can be no assurance that we will be able to refinance our credit facility or that the lenders will be willing to grant an
extension to provide us with additional time to refinance. If we are unable to secure a replacement facility, we will lose a primary
source of liquidity, and we may not be able to generate adequate cash flow from operations to fund our business, including repaying
amounts due under our credit facility upon expiration, which could cause us to further curtail our operations and reduce our spending
and to alter our business plan. Further, even if we are able to refinance our credit facility, the replacement credit facility
may include a significantly higher interest rate, significant amortization payments, or liens on a substantial portion of our
assets, all of which could adversely impact our future plans and operations.
We
may also be required to consider other options, such as selling additional assets, and depending on the urgency of our liquidity
constraints, we may be required to pursue such an option at an inopportune time. We continue to take measures and cost and productivity
improvements, to enhance and preserve our liquidity so that we can fund our ongoing operations and necessary capital expenditures
and meet our financial commitments and debt service obligations.
At
September 30, 2017, beyond the operations of Rhino, the Company has not established sources of revenues sufficient to fund the
development of its business, or to pay projected operating expenses and commitments for the next year. Also the current maturity
date of Rhino’s credit facility is December 31, 2017, and without an extension of that facility or the successful negotiation
of a replacement credit facility, we are unable to demonstrate that we have sufficient liquidity to operate our business over
the next twelve months and thus substantial doubt is raised about our ability to continue as a going concern.
Cash
Flows
Net
cash provided by operating activities was $12.0 million for the nine months ended September 30, 2017 as compared to cash provided
by operating activities of $3.2 million for the nine months ended September 30, 2016. This increase in cash provided by
operating activities for the nine months ended September 30, 2017 was primarily the result of the increase in production and sales
in our Central Appalachia segment for the nine months ended September 30, 2017 as compared to 2016 due to increased met coal demand
from this region.
Net
cash used for investing activities was $10.7 million for the nine months ended September 30, 2017 as compared to cash provided
by investing activities of $3.5 million for the nine months ended September 30, 2016. Net cash used in investing activities
for the nine months ended September 30, 2017 was primarily related to capital expenditures necessary for maintaining our mining
operations. Net cash provided by investing activities during the nine months ended September 30, 2016 was significantly
impacted by non-recurring payments by the Company totaling $4.5 million to a third-party to acquire a majority interest in Rhino
during the period and by proceeds from the Elk Horn sale.
Net
cash provided by financing activities for the nine months ended September 30, 2017 was $0.0 million. Net cash used in financing
activities during the nine months ended September 30, 2016 was $13.7 million, which was attributable to net repayments
on Rhino’s revolving credit facility partially offset by $2.2 million in proceeds from convertible debt issued by Royal
during this period and proceeds from issuance of common stock of $1.2 million.
Capital
Expenditures
Our
mining operations require investments to expand, upgrade or enhance existing operations and to meet environmental and safety regulations.
Maintenance capital expenditures are those capital expenditures required to maintain our long term operating capacity. Examples
of maintenance capital expenditures include expenditures associated with the replacement of equipment and coal reserves, whether
through the expansion of an existing mine or the acquisition or development of new reserves to the extent such expenditures are
made to maintain our long term operating capacity. Expansion capital expenditures are those capital expenditures that we expect
will increase our operating capacity over the long term. Examples of expansion capital expenditures include the acquisition of
reserves, acquisition of equipment for a new mine or the expansion of an existing mine to the extent such expenditures are expected
to expand our long-term operating capacity.
Actual
maintenance capital expenditures for the nine months ended September 30, 2017 were approximately $9.2 million. These amounts were
primarily used to rebuild, repair or replace older mining equipment. Expansion capital expenditures for the nine months ended
September 30, 2017 were approximately $5.1 million and primarily related to purchases of additional equipment to be used to expand
our met coal production capacity in Central Appalachia.
Amended
and Restated Credit Agreement
On
July 29, 2011, we executed the Amended and Restated Credit Agreement. The maximum availability under the amended and restated
credit facility was $300.0 million, with a one-time option to increase the availability by an amount not to exceed $50.0 million.
Of the $300.0 million, $75.0 million was available for letters of credit. In April 2015, the Amended and Restated Credit Agreement
was amended and the borrowing commitment under the facility was reduced to $100.0 million and the amount available for letters
of credit was reduced to $50.0 million. As described below, in March 2016 and May 2016, the borrowing commitment under the facility
was further reduced to $80.0 million and $75.0 million, respectively, and the amount available for letters of credit was reduced
to $30.0 million. In addition, as described below, the borrowing commitment under the facility was further reduced by amendments
in July 2016 and December 2016 to $44.3 million as of September 30, 2017. The amount available for letters of credit was unchanged
from these amendments.
Loans
under the senior secured credit facility currently bear interest at a base rate equaling the prime rate plus an applicable margin
of 3.50%. The amended and restated credit agreement also contains letter of credit fees equal to an applicable margin of 5.00%
multiplied by the aggregate amount available to be drawn on the letters of credit, and a 0.15% fronting fee payable to the administrative
agent. In addition, we incur a commitment fee on the unused portion of the senior secured credit facility at a rate of 1.00% per
annum. Borrowings on the line of credit are collateralized by all of our unsecured assets.
Our
Amended and Restated Credit Agreement requires us to maintain certain minimum financial ratios and contains certain restrictive
provisions, including among others, restrictions on making loans, investments and advances, incurring additional indebtedness,
guaranteeing indebtedness, creating liens, and selling or assigning stock.
On
March 17, 2016, we entered into the Fourth Amendment (“Fourth Amendment”) of our amended and restated credit agreement.
The Fourth Amendment amended the definition of change of control in the amended and restated credit agreement to permit Royal
to purchase the membership interests of our General Partner. The Fourth Amendment reduced the borrowing capacity under the credit
facility to a maximum of $80 million and reduced the amount available for letters of credit to $30 million. The Fourth Amendment
eliminated the option to borrow funds utilizing the LIBOR rate plus an applicable margin and established the borrowing rate for
all borrowings under the facility to be based upon the current PRIME rate plus an applicable margin of 3.50%. The Fourth Amendment
eliminated the capability to make Swing Loans under the facility and eliminated our ability to pay distributions to our common
or subordinated unitholders. The Fourth Amendment altered the maximum leverage ratio, calculated as of the end of the most recent
month, on a trailing twelve-month basis, to 6.75 to 1.00. The leverage ratio shall be reduced by 0.50 to 1.00 for every $10 million
of net cash proceeds, in the aggregate, received by us after the date of the Fourth Amendment from a liquidity event; provided,
however, that in no event shall the maximum permitted leverage ratio be reduced below 3.00 to 1.00. A liquidity event is defined
in the Fourth Amendment as the issuance of any equity by us on or after the Fourth Amendment effective date (other than the Royal
equity contribution discussed above), or the disposition of any assets by us. The Fourth Amendment required us to maintain minimum
liquidity of $5 million and minimum EBITDA (as defined in the credit agreement), calculated as of the end of the most recent month,
on a trailing twelve month basis, of $8 million. The Fourth Amendment limited the amount of our capital expenditures to $15 million,
calculated as of end of the most recent month, on a trailing twelve-month basis. The Fourth Amendment required us to provide monthly
financial statements and a weekly rolling thirteen-week cash flow forecast to the Administrative Agent.
On
May 13, 2016, we entered into the Fifth Amendment of our amended and restated credit agreement that extended the term to July
31, 2017. Per the Fifth Amendment, the credit facility will be automatically extended to December 31, 2017 if revolving credit
commitments are reduced to $55 million or less on or before July 31, 2017. The Fifth Amendment immediately reduced the revolving
credit commitments under the credit facility to a maximum of $75 million and maintained the amount available for letters of credit
at $30 million. The Fifth Amendment further reduced the revolving credit commitments over time on a dollar-for-dollar basis in
amounts equal to each of the following: (i) the face amount of any letter of credit that expires or whose face amount is reduced
by any such dollar amount, (ii) the net proceeds received from any asset sales, (iii) the Royal scheduled capital contributions
(as outline below), (iv) the net proceeds from the issuance of any equity by us up to $20.0 million (other than equity issued
in exchange for any Royal contribution as outlined in the Securities Purchase Agreement or the Royal scheduled capital contributions
to us as outlined below), and (v) the proceeds from the incurrence of any subordinated debt. The first $11 million of proceeds
received from any equity issued by us described in clause (iv) above shall also satisfy the Royal scheduled capital contributions.
The
Fifth Amendment required that on or before March 31, 2017, we solicit bids for the potential sale of certain non-core assets,
satisfactory to the administrative agent, and provided the administrative agent, and any other lender upon its request, with a
description of the solicitation process, interested parties and any potential bids. The Fifth Amendment limits any payments by
us to our General Partner to: (i) the usual and customary payroll and benefits of the our management team so long as our management
team remains employees of our General Partner, (2) the usual and customary board fees of our General Partner, and (3) the usual
and customary general and administrative costs and expenses of our General Partner incurred in connection with the operation of
its business in an amount not to exceed $0.3 million per fiscal year. The Fifth Amendment limits asset sales to a maximum of $5.0
million unless we receive consent from the lenders. The Fifth Amendment removes the $5.0 million minimum liquidity requirement
and requires us to have any deposit, securities or investment accounts with a member of the lending group.
In
July 2016, we entered into the Sixth Amendment of our amended and restated senior secured credit facility that permitted the sale
of Elk Horn that was discussed earlier. The Sixth Amendment reduced the maximum commitment amount allowed under the credit facility
based on the initial cash proceeds of $10.5 million that were received for the Elk Horn sale. The Sixth Amendment further reduces
the maximum commitment amount allowed under the credit facility for the additional $1.5 million to be received from the Elk Horn
sale by $375,000 each quarterly period beginning September 30, 2016 through June 30, 2017.
In
December, 2016, we entered into a Seventh Amendment, which allows for the Series A preferred units as outlined in the Fourth Amended
and Restated Agreement of Limited Partnership of the Partnership, which is further discussed in “Recent Developments”.
The Seventh Amendment immediately reduces the revolving credit commitments by $11.0 million and provides for additional revolving
credit commitment reductions of $2.0 million each on June 30, 2017 and September 30, 2017. The Seventh Amendment further reduces
the revolving credit commitments over time on a dollar-for-dollar basis for the net cash proceeds received from any asset sales
after the Seventh Amendment date once the aggregate net cash proceeds received exceeds $2.0 million. The Seventh Amendment alters
the maximum leverage ratio to 4.0 to 1.0 effective December 31, 2016 through May 31, 2017 and 3.5 to 1.0 from June 30, 2017 through
December 31, 2017. The maximum leverage ratio shall be reduced by 0.50 to 1.0 for every $10.0 million of net cash proceeds, in
the aggregate, received after the Seventh Amendment date from (i) the issuance of any equity by us and/or (ii) the disposition
of any assets in excess of $2.0 million in the aggregate, provided, however, that in no event will the maximum leverage ratio
be reduced below 3.0 to 1.0. The Seventh Amendment alters the minimum consolidated EBITDA figure, as calculated on a rolling twelve
months basis, to $12.5 million from December 31, 2016 through May 31, 2017 and $15.0 million from June 30, 2017 through December
31, 2017. The Seventh Amendment alters the maximum capital expenditures allowed, as calculated on a rolling twelve months basis,
to $20.0 million through the expiration of the credit facility. A condition precedent to the effectiveness of the Seventh Amendment
was the receipt of the $13.0 million of cash proceeds received by us from the issuance of the Series A preferred units pursuant
to the Preferred Unit Agreement, which we used to repay outstanding borrowings under the revolving credit facility. Per the Seventh
Amendment, the receipt of $13.0 million cash proceeds fulfills the required Royal equity contributions as outlined in the previous
amendments to our credit agreement.
On
March 23, 2017, we entered into an Eighth Amendment (“Eighth Amendment”) of our amended and restated credit agreement
that allows the annual auditor’s report for the years ending December 31, 2016 and 2015 to contain a qualification with
respect to the short-term classification of our credit facility balance without creating a default under the credit agreement.
On
June 9, 2017, we entered into a ninth amendment (the “Ninth Amendment”) of our amended and restated credit agreement
that permitted outstanding letters of credit to be replaced with different counterparties without affecting the revolving credit
commitments under the credit agreement. The Ninth Amendment also permits certain lease and sale leaseback transactions under the
credit agreement that do not affect the revolving credit commitments under the credit agreement for asset dispositions and also
do into factor in the calculation of the maximum capital expenditures allowed under the credit agreement.
As
of and for the twelve months ended September 30, 2017, we are in compliance with respect to all covenants contained in the credit
agreement.
At
September 30, 2017, Rhino had borrowings outstanding (excluding letters of credit) of $9.9 million at a variable interest rate
of PRIME plus 3.50% (7.75% at September 30, 2017). In addition, the Operating Company had outstanding letters of credit of approximately
$26.1 million at a fixed interest rate of 5.00% at September 30, 2017. Based upon a maximum borrowing capacity of 3.50 times a
trailing twelve-month EBITDA calculation (as defined in the credit agreement), the Operating Company had available borrowing capacity
of approximately $8.2 million at September 30, 2017. During the three months ended September 30, 2017, we had average borrowings
outstanding of approximately $12.6 million under our credit agreement.
Off-Balance
Sheet Arrangements
In
the normal course of business, we are a party to certain off-balance sheet arrangements. These arrangements include guarantees
and financial instruments with off-balance sheet risk, such as bank letters of credit and surety bonds. No liabilities related
to these arrangements are reflected in our consolidated balance sheet, and we do not expect any material adverse effects on our
financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.
Federal
and state laws require us to secure certain long-term obligations related to mine closure and reclamation costs. We typically
secure these obligations by using surety bonds, an off-balance sheet instrument. The use of surety bonds is less expensive for
us than the alternative of posting a 100% cash bond or a bank letter of credit, either of which would require a greater use of
our amended and restated credit agreement. We then use bank letters of credit to secure our surety bonding obligations as a lower
cost alternative than securing those bonds with a committed bonding facility pursuant to which we are required to provide bank
letters of credit in an amount of up to 25% of the aggregate bond liability. To the extent that surety bonds become unavailable,
we would seek to secure our reclamation obligations with letters of credit, cash deposits or other suitable forms of collateral.
As
of September 30, 2017, we had $26.1 million in letters of credit outstanding, of which $20.7 million served as collateral for
surety bonds.
Critical
Accounting Policies and Estimates
Our
financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The
preparation of these financial statements requires management to make estimates and judgments that affect the reported amount
of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Management evaluates
its estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and other
factors that are believed to be reasonable under the circumstances. Nevertheless, actual results may differ from the estimates
used and judgments made.
The
accounting policies and estimates that we have adopted and followed in the preparation of our consolidated financial statements
are fully described in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no significant changes
in these policies and estimates as of September 30, 2017.
Recent
Accounting Pronouncements
Refer
to Item 1. Note 2 of the notes to the unaudited condensed consolidated financial statements for a discussion of recent accounting
pronouncements, which is incorporated herein by reference. There are no known future impacts or material changes or trends of
new accounting guidance beyond the disclosures provided in Note 2.