RHINO RESOURCE PARTNERS LP INTRODUCTION TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.1
INTRODUCTION TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On March 19, 2014 (the “Closing Date”), Rhino Exploration LLC, a wholly owned subsidiary of Rhino Resource Partners LP (the “Partnership”), entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with Gulfport Energy Corporation (“Gulfport”) and pursuant thereto sold the Partnership’s oil and gas properties in the Utica Shale region of eastern Ohio (the “Utica Assets”) for approximately $184 million (the “Purchase Price”). The Purchase Agreement is effective as of January 1, 2014 and the Purchase Price is adjusted for any unsettled expenditures made and/or proceeds received from the Partnership’s portion of its Utica Assets prior to the effective date. On the Closing Date, the Partnership was immediately due approximately $179 million, net of any adjustments described above, and the remaining approximately $5 million is scheduled to be paid within approximately 90 days of the Closing Date, subject to ongoing legal title work related to specific properties. The Partnership used the initial proceeds of the sale of the Utica Assets to pay off approximately $177.4 million of the then outstanding balance on its credit facility.
The following unaudited pro forma consolidated financial statements and explanatory notes present how the consolidated financial statements of the Partnership may have appeared had the sale of the Utica Assets occurred as of December 31, 2013 (with respect to the balance sheet information presented) and had the sale of the Utica Assets occurred as of January 1, 2013 (with respect to the statement of operations information presented). In addition, the Partnership determined the sale of the Utica Assets constituted a discontinued operation and the year ended December 31, 2012 and 2011 statements of operations have been presented on a pro forma basis to exclude any operating activities from the Utica Assets for these periods.
The unaudited pro forma consolidated financial statements have been derived from, and should be read together with, the historical consolidated financial statements and the related notes of the Partnership included in its Annual Report on Form 10-K for the year ended December 31, 2013.
The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to represent what the results of operations or financial position of the Partnership would actually have been had the transactions described above occurred on the dates noted above, or to project the results of operations or financial position of the Partnership for any future periods. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. The pro forma adjustments are directly attributable to the transaction and are expected to have a continuing impact on the results of operations of the Partnership. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma financial information have been made.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2013
(in thousands)
|
|
|
Rhino |
|
Pro Forma |
|
|
| |||
|
|
|
Partners LP |
|
Utica |
|
Pro Forma |
| |||
|
ASSETS |
|
|
|
|
|
|
| |||
|
CURRENT ASSETS: |
|
|
|
|
|
|
| |||
|
Cash and cash equivalents |
|
$ |
423 |
|
$ |
15,403 |
(1) |
$ |
15,826 |
|
|
Accounts receivable, net of allowance |
|
25,915 |
|
(454 |
)(2) |
25,461 |
| |||
|
Inventories |
|
18,580 |
|
|
|
18,580 |
| |||
|
Advance royalties, current portion |
|
179 |
|
|
|
179 |
| |||
|
Prepaid expenses and other |
|
4,572 |
|
|
|
4,572 |
| |||
|
Total current assets |
|
49,669 |
|
14,949 |
|
64,618 |
| |||
|
PROPERTY, PLANT AND EQUIPMENT: |
|
|
|
|
|
|
| |||
|
At cost, including coal properties, mine development and construction costs |
|
733,284 |
|
(58,576 |
)(2) |
674,708 |
| |||
|
Less accumulated depreciation, depletion and amortization |
|
(252,797 |
) |
3,079 |
(2) |
(249,718 |
) | |||
|
Net property, plant & equipment |
|
480,487 |
|
(55,497 |
) |
424,990 |
| |||
|
Advance royalties, net of current portion |
|
5,580 |
|
|
|
5,580 |
| |||
|
Investment in unconsolidated affiliate |
|
21,243 |
|
|
|
21,243 |
| |||
|
Intangible assets, net |
|
1,148 |
|
|
|
1,148 |
| |||
|
Other non-current assets |
|
9,640 |
|
|
|
9,640 |
| |||
|
TOTAL |
|
$ |
567,767 |
|
$ |
(40,548 |
) |
$ |
527,219 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
| |||
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
| |||
|
Accounts payable |
|
$ |
22,951 |
|
$ |
(5,241 |
)(2) |
$ |
17,710 |
|
|
Accrued expenses and other |
|
20,567 |
|
|
|
20,567 |
| |||
|
Current portion of long-term debt |
|
1,024 |
|
|
|
1,024 |
| |||
|
Current portion of asset retirement obligations |
|
1,614 |
|
|
|
1,614 |
| |||
|
Current portion of postretirement benefits |
|
334 |
|
|
|
334 |
| |||
|
Total current liabilities |
|
46,490 |
|
(5,241 |
) |
41,249 |
| |||
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
| |||
|
Long-term debt, net of current portion |
|
170,022 |
|
(167,040 |
)(1) |
2,982 |
| |||
|
Asset retirement obligations, net of current portion |
|
32,878 |
|
(41 |
)(2) |
32,837 |
| |||
|
Other non-current liabilities |
|
16,220 |
|
|
|
16,220 |
| |||
|
Postretirement benefits, net of current portion |
|
5,786 |
|
|
|
5,786 |
| |||
|
Total non-current liabilities |
|
224,906 |
|
(167,081 |
) |
57,825 |
| |||
|
Total liabilities |
|
271,396 |
|
(172,322 |
) |
99,074 |
| |||
|
PARTNERS’ CAPITAL: |
|
|
|
|
|
|
| |||
|
Limited partners |
|
283,339 |
|
129,138 |
(3) |
412,477 |
| |||
|
General partner |
|
10,801 |
|
2,636 |
(3) |
13,437 |
| |||
|
Accumulated other comprehensive income |
|
2,231 |
|
|
|
2,231 |
| |||
|
Total partners’ capital |
|
296,371 |
|
131,774 |
|
428,145 |
| |||
|
TOTAL |
|
$ |
567,767 |
|
$ |
(40,548 |
) |
$ |
527,219 |
|
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
(in thousands)
|
|
|
Rhino Resource |
|
Pro Forma |
|
|
| |||
|
|
|
Partners LP |
|
Utica |
|
Pro Forma |
| |||
|
REVENUES: |
|
|
|
|
|
|
| |||
|
Coal sales |
|
$ |
236,601 |
|
|
|
$ |
236,601 |
| |
|
Freight and handling revenues |
|
2,159 |
|
|
|
2,159 |
| |||
|
Other revenues |
|
39,131 |
|
(5,626 |
)(1) |
33,505 |
| |||
|
Total revenues |
|
277,891 |
|
(5,626 |
) |
272,265 |
| |||
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
| |||
|
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below) |
|
201,042 |
|
(1,337 |
)(1) |
199,705 |
| |||
|
Freight and handling costs |
|
1,294 |
|
|
|
1,294 |
| |||
|
Depreciation, depletion and amortization |
|
42,609 |
|
(2,982 |
)(1) |
39,627 |
| |||
|
Selling, general and administrative (exclusive of depreciation, depletion and amortization shown separately above) |
|
19,800 |
|
|
|
19,800 |
| |||
|
Asset impairment loss |
|
1,667 |
|
|
|
1,667 |
| |||
|
(Gain) loss on sale/acquisition of assets—net |
|
(10,359 |
) |
|
|
(10,359 |
) | |||
|
Total costs and expenses |
|
256,053 |
|
(4,319 |
) |
251,734 |
| |||
|
INCOME FROM OPERATIONS |
|
21,838 |
|
(1,307 |
) |
20,531 |
| |||
|
INTEREST AND OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
| |||
|
Interest expense and other |
|
(7,898 |
) |
4,989 |
(2) |
(2,909 |
) | |||
|
Interest income and other |
|
207 |
|
|
|
207 |
| |||
|
Equity in net income (loss) of unconsolidated affiliates |
|
(4,729 |
) |
|
|
(4,729 |
) | |||
|
Total interest and other income (expense) |
|
(12,420 |
) |
4,989 |
|
(7,431 |
) | |||
|
INCOME BEFORE INCOME TAXES FROM CONTINUING OPERATIONS |
|
9,418 |
|
3,682 |
|
13,100 |
| |||
|
INCOME TAXES |
|
— |
|
— |
|
— |
| |||
|
NET INCOME FROM CONTINUING OPERATIONS |
|
$ |
9,418 |
|
$ |
3,682 |
|
$ |
13,100 |
|
|
|
|
|
|
|
|
|
| |||
|
General partner’s interest in net income |
|
$ |
188 |
|
74 |
(3) |
$ |
262 |
| |
|
Common unitholders’ interest in net income |
|
$ |
5,217 |
|
2,019 |
(3) |
$ |
7,236 |
| |
|
Subordinated unitholders’ interest in net income |
|
$ |
4,013 |
|
1,589 |
(3) |
$ |
5,602 |
| |
|
Net income per limited partner unit, basic: |
|
|
|
|
|
|
| |||
|
Common units |
|
$ |
0.33 |
|
0.13 |
(3) |
$ |
0.46 |
| |
|
Subordinated units |
|
$ |
0.32 |
|
0.13 |
(3) |
$ |
0.45 |
| |
|
Net income per limited partner unit, diluted: |
|
|
|
|
|
|
| |||
|
Common units |
|
$ |
0.33 |
|
0.13 |
(3) |
$ |
0.46 |
| |
|
Subordinated units |
|
$ |
0.32 |
|
0.13 |
(3) |
$ |
0.45 |
| |
|
Weighted average number of limited partner units outstanding, basic: |
|
|
|
|
|
|
| |||
|
Common units |
|
15,751 |
|
|
|
15,751 |
| |||
|
Subordinated units |
|
12,397 |
|
|
|
12,397 |
| |||
|
Weighted average number of limited partner units outstanding, diluted: |
|
|
|
|
|
|
| |||
|
Common units |
|
15,760 |
|
|
|
15,760 |
| |||
|
Subordinated units |
|
12,397 |
|
|
|
12,397 |
| |||
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands)
|
|
|
Rhino Resource |
|
Pro Forma |
|
|
| |||
|
|
|
Partners LP |
|
Utica |
|
Pro Forma |
| |||
|
REVENUES: |
|
|
|
|
|
|
| |||
|
Coal sales |
|
$ |
304,568 |
|
|
|
$ |
304,568 |
| |
|
Freight and handling revenues |
|
6,357 |
|
|
|
6,357 |
| |||
|
Other revenues |
|
41,066 |
|
(248 |
)(1) |
40,818 |
| |||
|
Total revenues |
|
351,991 |
|
(248 |
) |
351,743 |
| |||
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
| |||
|
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below) |
|
247,783 |
|
(108 |
)(1) |
247,675 |
| |||
|
Freight and handling costs |
|
5,833 |
|
|
|
5,833 |
| |||
|
Depreciation, depletion and amortization |
|
41,370 |
|
(96 |
)(1) |
41,274 |
| |||
|
Selling, general and administrative (exclusive of depreciation, depletion and amortization shown separately above) |
|
20,442 |
|
|
|
20,442 |
| |||
|
(Gain) loss on sale/acquisition of assets—net |
|
(4,890 |
) |
|
|
(4,890 |
) | |||
|
Total costs and expenses |
|
310,538 |
|
(204 |
) |
310,334 |
| |||
|
INCOME FROM OPERATIONS |
|
41,453 |
|
(44 |
) |
41,409 |
| |||
|
INTEREST AND OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
| |||
|
Interest expense and other |
|
(7,767 |
) |
|
|
(7,767 |
) | |||
|
Interest income and other |
|
92 |
|
|
|
92 |
| |||
|
Equity in net income (loss) of unconsolidated affiliates |
|
5,757 |
|
|
|
5,757 |
| |||
|
Total interest and other income (expense) |
|
(1,918 |
) |
— |
|
(1,918 |
) | |||
|
INCOME BEFORE INCOME TAXES FROM CONTINUING OPERATIONS |
|
39,535 |
|
(44 |
) |
39,491 |
| |||
|
INCOME TAXES |
|
— |
|
— |
|
— |
| |||
|
NET INCOME FROM CONTINUING OPERATIONS |
|
$ |
39,535 |
|
$ |
(44 |
) |
$ |
39,491 |
|
|
|
|
|
|
|
|
|
| |||
|
General partner’s interest in net income |
|
$ |
790 |
|
— |
(3) |
$ |
790 |
| |
|
Common unitholders’ interest in net income |
|
$ |
21,422 |
|
(24 |
)(3) |
$ |
21,398 |
| |
|
Subordinated unitholders’ interest in net income |
|
$ |
17,323 |
|
(20 |
)(3) |
$ |
17,303 |
| |
|
Net income per limited partner unit, basic: |
|
|
|
|
|
|
| |||
|
Common units |
|
$ |
1.40 |
|
— |
(3) |
$ |
1.40 |
| |
|
Subordinated units |
|
$ |
1.40 |
|
— |
(3) |
$ |
1.40 |
| |
|
Net income per limited partner unit, diluted: |
|
|
|
|
|
|
| |||
|
Common units |
|
$ |
1.40 |
|
— |
(3) |
$ |
1.40 |
| |
|
Subordinated units |
|
$ |
1.40 |
|
— |
(3) |
$ |
1.40 |
| |
|
Weighted average number of limited partner units outstanding, basic: |
|
|
|
|
|
|
| |||
|
Common units |
|
15,331 |
|
|
|
15,331 |
| |||
|
Subordinated units |
|
12,397 |
|
|
|
12,397 |
| |||
|
Weighted average number of limited partner units outstanding, diluted: |
|
|
|
|
|
|
| |||
|
Common units |
|
15,335 |
|
|
|
15,335 |
| |||
|
Subordinated units |
|
12,397 |
|
|
|
12,397 |
| |||
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011
(in thousands)
|
|
|
|
|
Pro Forma |
|
|
| |||
|
|
|
Rhino Resource |
|
Utica |
|
Pro Forma Combined |
| |||
|
REVENUES: |
|
|
|
|
|
|
| |||
|
Coal sales |
|
$ |
333,876 |
|
|
|
$ |
333,876 |
| |
|
Freight and handling revenues |
|
5,750 |
|
|
|
5,750 |
| |||
|
Other revenues |
|
27,595 |
|
|
|
27,595 |
| |||
|
Total revenues |
|
367,221 |
|
— |
|
367,221 |
| |||
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
| |||
|
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below) |
|
267,603 |
|
|
|
267,603 |
| |||
|
Freight and handling costs |
|
4,329 |
|
|
|
4,329 |
| |||
|
Depreciation, depletion and amortization |
|
36,325 |
|
|
|
36,325 |
| |||
|
Selling, general and administrative (exclusive of depreciation, depletion and amortization shown separately above) |
|
21,815 |
|
|
|
21,815 |
| |||
|
(Gain) loss on sale/acquisition of assets—net |
|
(3,172 |
) |
|
|
(3,172 |
) | |||
|
Total costs and expenses |
|
326,900 |
|
— |
|
326,900 |
| |||
|
INCOME FROM OPERATIONS |
|
40,321 |
|
— |
|
40,321 |
| |||
|
INTEREST AND OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
| |||
|
Interest expense and other |
|
(6,062 |
) |
|
|
(6,062 |
) | |||
|
Interest income and other |
|
51 |
|
|
|
51 |
| |||
|
Equity in net income (loss) of unconsolidated affiliates |
|
2,988 |
|
|
|
2,988 |
| |||
|
Total interest and other income (expense) |
|
(3,023 |
) |
— |
|
(3,023 |
) | |||
|
INCOME BEFORE INCOME TAXES FROM CONTINUING OPERATIONS |
|
37,298 |
|
— |
|
37,298 |
| |||
|
INCOME TAXES |
|
— |
|
— |
|
— |
| |||
|
NET INCOME FROM CONTINUING OPERATIONS |
|
$ |
37,298 |
|
$ |
— |
|
$ |
37,298 |
|
|
|
|
|
|
|
|
|
| |||
|
General partner’s interest in net income |
|
$ |
746 |
|
|
|
$ |
746 |
| |
|
Common unitholders’ interest in net income |
|
$ |
19,205 |
|
|
|
$ |
19,205 |
| |
|
Subordinated unitholders’ interest in net income |
|
$ |
17,347 |
|
|
|
$ |
17,347 |
| |
|
Net income per limited partner unit, basic: |
|
|
|
|
|
|
| |||
|
Common units |
|
$ |
1.40 |
|
|
|
$ |
1.40 |
| |
|
Subordinated units |
|
$ |
1.40 |
|
|
|
$ |
1.40 |
| |
|
Net income per limited partner unit, diluted: |
|
|
|
|
|
|
| |||
|
Common units |
|
$ |
1.40 |
|
|
|
$ |
1.40 |
| |
|
Subordinated units |
|
$ |
1.40 |
|
|
|
$ |
1.40 |
| |
|
Weighted average number of limited partner units outstanding, basic: |
|
|
|
|
|
|
| |||
|
Common units |
|
13,725 |
|
|
|
13,725 |
| |||
|
Subordinated units |
|
12,397 |
|
|
|
12,397 |
| |||
|
Weighted average number of limited partner units outstanding, diluted: |
|
|
|
|
|
|
| |||
|
Common units |
|
13,744 |
|
|
|
13,744 |
| |||
|
Subordinated units |
|
12,397 |
|
|
|
12,397 |
| |||
Pro Forma Adjustments
Statement of Financial Position
(1) Reflects the receipt of the total proceeds from the Utica Assets sale of $182.4 million less the payoff of the balance on the Partnership’s revolving credit facility of approximately $167.0 million, which equals the pro forma net increase in cash of approximately $15.4 million.
(2) The specific balance sheet items associated with the Utica Assets sale are adjusted to arrive at the pro forma balances at December 31, 2013.
(3) The net pro forma gain calculated on the Utica Assets sale as of December 31, 2013 is allocated to the specific components of Partners’ capital based upon the method outlined in the Partnership’s second amended and restated agreement of limited partnership. The net pro forma gain on the Utica Assets sale is calculated as follows:
|
|
|
As of December 31, 2013 |
| |
|
|
|
(thousands) |
| |
|
Total cash received |
|
$ |
182,443 |
|
|
Accounts receivable |
|
(454 |
) | |
|
Property, plant and equipment, at cost |
|
(58,576 |
) | |
|
Accumulated depreciation, depletion and amortization |
|
3,079 |
| |
|
Accounts payable |
|
5,241 |
| |
|
Asset retirement obligations, net of current portion |
|
41 |
| |
|
Net gain on Utica Assets sale |
|
$ |
131,774 |
|
Statement of Operations
(1) Reflects the adjustments of the revenue, cost of operations and depreciation, depletion and amortization components associated with the Utica Assets that would not be present during any of the applicable years presented. Note there were no operating activities for the Utica Assets for the year ended December 31, 2011.
(2) The pro forma adjustment for interest expense contains various components. Assuming the Utica Assets sale occurred on January 1, 2013, the Partnership would have repaid the outstanding balance on the revolving credit facility and would have avoided the interest expense occurred on the revolving credit facility during the year ended December 31, 2013. In addition, the Partnership would have amended the revolving credit facility on January 1, 2013 to a total borrowing capacity of $200 million, identical to the revolving credit facility amendment executed on the Closing Date. The pro forma zero balance on the revolving credit facility at January 1, 2013 would have lowered the unused revolving credit facility rate to 0.375% from 0.50% and would have lowered the letters of credit (“LOC”) fee rate to 2.50% from 3.00% for the year ended December 31, 2013. The table below reflects the calculation for the change in interest expense for the year ended December 31, 2013.
|
|
|
For the year ended December 31, 2013 |
|
|
|
|
(thousands) |
|
|
Interest expense related to revolving credit facility |
|
(5,093 |
) |
|
Interest expense related to unused fee on revolving credit facility |
|
(544 |
) |
|
Pro forma interest expense saved on LOC fees |
|
(112 |
) |
|
Pro forma unused credit facility fee |
|
760 |
|
|
Interest expense avoided |
|
(4,989 |
) |
The detail of the pro forma amounts calculated for the interest expense saved on LOC fees and the unused credit facility fee are detailed below.
|
|
|
Letters of Credit Fees |
| |
|
|
|
(in thousands, except |
| |
|
Average LOC’s outstanding during the year ended December 31, 2013 |
|
$ |
22,039 |
|
|
Interest rate differential on LOC’s for the year ended December 31, 2013 |
|
0.500 |
% | |
|
Pro forma interest expense saved on LOC fees for the year ended December 31, 2013 |
|
$ |
112 |
|
|
|
|
Unused Credit Facility |
| |
|
|
|
(in thousands, except |
| |
|
Revolving credit facility pro forma unused amount |
|
$ |
200,000 |
|
|
Interest rate for unused amount on revolving credit facility |
|
0.375 |
% | |
|
Pro forma unused revolving credit facility fee for the year ended December 31, 2013 |
|
$ |
760 |
|
(3) For the years ended December 31, 2013 and 2012, the allocation of the change in pro forma net income to each applicable partners’ interest is based upon the method outlined in the Partnership’s second amended and restated agreement of limited partnership. The pro forma adjustments for earnings per common and subordinated unit are based upon the pro forma adjustments for net income applicable to each limited partner class, divided by the weighted average number of units outstanding applicable to each partner class.