S-1 1 d279673ds1.htm FORM S-1 Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on February 2, 2012

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

FORESIGHT ENERGY PARTNERS LP

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   1220  

(State or other jurisdiction of

incorporation)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

211 North Broadway

Suite 2600

Saint Louis, MO 63102

(314) 932-6160

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Oscar Martinez

Chief Financial Officer

211 North Broadway

Suite 2600

Saint Louis, MO 63102

(314) 932-6160

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

William M. Hartnett, Esq.

William J. Miller, Esq.

Cahill Gordon & Reindel LLP

80 Pine Street

New York, New York 10005

Telephone: (212) 701-3000

Fax: (212) 269-5420

 

Mike Rosenwasser, Esq.

E. Ramey Layne, Esq.

Vinson & Elkins L.L.P.

666 Fifth Avenue

New York, New York 10103

Telephone: (212) 237-0000

Fax: (212) 237-0100

 

Joshua Davidson, Esq.

Douglass M. Rayburn, Esq.

Baker Botts L.L.P.

One Shell Plaza

910 Louisiana Street

Houston, Texas 77002

Telephone: (713) 229-1234

Fax: (713) 229-2727

 

Jason R. Lehner, Esq.

Shearman & Sterling LLP

599 Lexington Avenue

New York, New York 10022

Telephone: (212) 848-4000

Fax: (646) 848-7974

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the “Securities Act”), check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer

 

¨

    Accelerated filer   ¨
Non-accelerated filer   x   (Do not check if a smaller reporting company)   Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of
securities to be registered
 

Proposed maximum
aggregate

offering price(1)(2)

  Amount of
registration fee

Common units representing limited partner interests

  $100,000,000   $11,460

 

 

(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Includes common units that the underwriters have the option to purchase to cover over-allotments, if any.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED FEBRUARY 2, 2012

PRELIMINARY PROSPECTUS

 

Common Units

Representing Limited Partner Interests

FORESIGHT ENERGY PARTNERS LP

 

 

This is the initial public offering of our common units representing limited partner interests. Prior to this offering, there has been no public market for our common units. We are offering              common units in this offering. We currently expect the initial public offering price to be between $         and $         per common unit.

The underwriters have the option to purchase up to          additional common units from us at the initial public offering price, less the underwriting discounts and a structuring fee payable to                     , within 30 days from the date of this prospectus to cover over-allotments, if any.

We will apply to have our common units listed on the New York Stock Exchange under the symbol “FELP.” The listing is subject to the approval of our application.

 

 

Investing in our common units involves risks. See “Risk Factors” beginning on page 17.

The risks include the following:

 

   

We may not have sufficient cash to enable us to pay the minimum quarterly distribution on our common units following establishment of cash reserves and payment of costs and expenses, including reimbursement of expenses to our general partner.

 

   

Restrictions in the agreements governing our indebtedness could limit our ability to make distributions to our unitholders.

 

   

A decline in coal prices could adversely affect our results of operations and cash available for distribution to our unitholders.

 

   

We could be negatively impacted by the competitiveness of the global markets in which we compete and declines in the market demand for coal.

 

   

Our mining operations are subject to extensive and costly environmental laws and regulations, and such current and future laws and regulations could materially increase our operating costs or limit our ability to produce and sell coal.

 

   

Foresight Reserves, L.P. owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including Foresight Reserves, L.P., have conflicts of interest with us and limited fiduciary duties, and they may favor their own interests to the detriment of us and our unitholders.

 

   

Holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors, or initially to remove our general partner without its consent.

 

   

Unitholders will experience immediate and substantial dilution of $         per common unit.

 

   

There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and unitholders could lose all or part of their investment.

 

   

Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service were to treat us as a corporation for federal income tax purposes or we were to become subject to material additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to you could be substantially reduced.

 

   

Our unitholders will be required to pay taxes on their share of income even if they do not receive any cash distributions from us.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     Per Common Unit      Total  

Public Offering Price

   $                    $                

Underwriting Discount (1)

   $         $     

Proceeds to Foresight Energy Partners LP (before expenses)

   $         $     

 

  (1) Excludes a structuring fee of     % of the gross proceeds of this offering payable to                         . Please see “Underwriting.”

The underwriters expect to deliver the common units to purchasers on or about                 , 2012.

 

 

                    , 2012


Table of Contents

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

 

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     17   

USE OF PROCEEDS

     50   

DILUTION

     51   

CAPITALIZATION

     52   

DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

     53   

HOW WE MAKE DISTRIBUTIONS TO OUR PARTNERS

     65   

SELECTED HISTORICAL FINANCIAL INFORMATION

     78   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     81   

BUSINESS

     97   

THE COAL INDUSTRY

     114   

ENVIRONMENTAL AND OTHER REGULATORY MATTERS

     130   

MANAGEMENT

     136   

COMPENSATION DISCUSSION AND ANALYSIS

     139   

CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

     144   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     151   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     156   

DESCRIPTION OF INDEBTEDNESS

     157   

DESCRIPTION OF COMMON UNITS

     162   

THE PARTNERSHIP AGREEMENT

     164   

UNITS ELIGIBLE FOR FUTURE SALE

     178   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     180   

INVESTMENT IN FORESIGHT ENERGY PARTNERS LP BY EMPLOYEE BENEFIT PLANS

     198   

UNDERWRITING

     199   

LEGAL MATTERS

     205   

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     206   

EXPERTS—COAL RESERVES

     207   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     208   

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

APPENDIX A: FORM OF PARTNERSHIP AGREEMENT

     A-1   

APPENDIX B: CERTAIN DEFINED TERMS—BUSINESS

     B-1   

APPENDIX C: CERTAIN DEFINED TERMS—OFFERING STRUCTURE

     C-1   

 


Table of Contents

Coal Reserve Information

Reserves are broadly defined as that part of a mineral deposit which could be economically and legally extracted or produced at the time of reserve determination and are further classified as proven or probable according to the degree of certainty of existence. The reserves in this prospectus are classified by reliability or accuracy in decreasing order of geological assurance as Proven (Measured) and Probable (Indicated). The terms and criteria utilized to estimate reserves for this study are based on United States Geological Survey Circular 891 and in general accordance with the SEC guidelines, and are summarized as follows:

 

   

Proven (Measured) Reserves: Tonnages computed from seam measurements as observed and recorded in drill holes, mine workings, and/or seam outcrop prospect openings. The sites for measurement are so closely spaced and the geological extent of the coal is so well defined that the size, shape, depth and mineral contents of the reserves are well-established. This classification has the highest degree of geological assurance.

 

   

Probable (Indicated) Reserves: Tonnages computed by projection of data from available seam measurements for a distance beyond the Proven classification. The assurance, although lower than for Proven, is high enough to assume continuity between points of measurement. This classification has a moderate degree of geological assurance. Further exploration is necessary to place these reserves in the Proven classification.

As of January 1, 2010, all of our proven and probable coal reserves were assigned reserves, which are coal reserves that have been designated for mining by a specific operation.

The information appearing in this prospectus concerning estimates of our proven and probable coal reserves was prepared by Weir International, Inc. as of January 1, 2010. Unless otherwise noted, all estimates regarding our proven and probable coal reserves discussed in this prospectus are based on the reserve report discussed immediately above. All Btus per pound are expressed on an as-received basis.

Market and Industry Data and Forecasts

In this prospectus, we rely on and refer to information regarding the coal industry, future coal production and consumption and future electricity generation in the United States and internationally from the EIA, Wood Mackenzie, BP Statistical Review, World Coal Institute, Hanou Energy Consulting, Ventyx and Bloomberg L.P., none of whom are affiliated with us. Wood Mackenzie has consented to being named in this prospectus. While we believe that these sources of information are reliable, neither we nor the underwriters have independently verified such information, and neither we nor the underwriters make any representation as to the accuracy or completeness of such information.

When we make statements in this prospectus about our position in our industry or any sector of our industry or about our market share, we are making statements of our belief. This belief is based on data from various sources (including government data industry publications, surveys and forecasts), on estimates and assumptions that we have made based on that data and other sources and our knowledge of the markets for our products.

 

-i-


Table of Contents

While we believe our third party sources are reliable, we have not independently verified market and industry data provided by third parties. Accordingly, we cannot assure you that any of these assumptions are accurate or that our assumptions correctly reflect our position in our industry.

While we are not aware of any misstatements regarding any industry data presented in this prospectus, our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the section entitled “Risk Factors.”

Special Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements about our business, operations, and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, and intentions. You can identify these forward-looking statements by the use of forward-looking words such as “outlook”, “intends”, “plans,” “estimates,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “anticipates,” “foresees,” or the negative version of these words or other comparable words and phrases. Any forward-looking statements contained in this prospectus speak only as of the date on which we make it and are based upon our historical performance and on current plans, estimates, and expectations. Our future results and financial condition may differ materially from those we currently anticipate as a result of the various factors. Among those factors that could cause actual results to differ materially are:

 

   

Availability of cash flow to pay minimum quarterly distribution on our common units;

 

   

Access to the necessary capital to fund the capital expenditures required to reach full productive capacity at our mines;

 

   

Adverse or abnormal geologic conditions, which may be unforeseen;

 

   

Our ability to develop our existing coal reserves and meet any expected development timeline;

 

   

Our ability to produce coal at existing and planned operations;

 

   

Delays in the receipt of, or failure to receive, or revocation of necessary government permits;

 

   

Our ability to meet certain provisions in our existing coal supply agreements, enter into new coal supply agreements or extend existing agreements;

 

   

Future legislation and changes in regulations or governmental policies or changes in enforcement or interpretations thereof;

 

   

The outcome of pending or future litigation;

 

   

The loss of, or significant reduction in, purchases by our largest customers;

 

   

Competition from other fuels, which may affect the economic competitiveness of coal;

 

   

Defects in title or loss of any leasehold interests in our properties;

 

   

Changes in coal prices or the costs of mining or transporting coal;

 

   

Change in consumption patterns by utilities;

 

   

Competition both within the coal industry and outside of it;

 

   

The inherent risk of coal mining operations;

 

   

Labor availability, relations and other workforce factors;

 

   

Failure of contractor-operated sources to fulfill the terms of our contracts;

 

   

The impact of worldwide economic and political conditions;

 

   

Volatility in the capital and credit markets;

 

   

Customer deferrals of contracted shipments;

 

-ii-


Table of Contents
   

Difficulty in obtaining equipment, parts and raw materials;

 

   

Major equipment failures;

 

   

Availability, reliability and costs of transportation;

 

   

Delays in moving our longwall equipment;

 

   

Transportation interruptions such as floodings or derailments;

 

   

Uncertainties in estimating economically recoverable coal reserves;

 

   

Customer performance and credit risks;

 

   

The impact of wars and acts of terrorism;

 

   

Costs related to government regulation;

 

   

Environmental regulations and impact on customers’ demand for coal;

 

   

Material liabilities from hazardous substances and environmental contamination;

 

   

The unavailability of insurance to cover certain uninsurable environmental risks;

 

   

The contract prices we receive for coal;

 

   

Market demand for domestic and foreign coal, electricity and steel;

 

   

The consummation of financing, acquisition or disposition transactions and the effect thereof on our business;

 

   

The impact of our IPO Reorganization;

 

   

Our plans and objectives for future operations and the acquisition or development of additional coal reserves or other acquisition opportunities;

 

   

Our relationships with, and other conditions affecting, our customers;

 

   

Timing of reductions or increases in customer coal inventories;

 

   

Long-term coal sales arrangements;

 

   

The number of coal-fired plants built in the future versus expectations;

 

   

Weather conditions or catastrophic weather-related damage;

 

   

Earthquakes and other natural disasters;

 

   

Changes in energy policy;

 

   

The availability and cost of competing energy resources;

 

   

Our ability to obtain services that have otherwise been provided by Foresight Reserves and Foresight Management;

 

   

Our existing or future indebtedness;

 

   

Changes in postretirement benefit and pension obligations;

 

   

Our assumptions concerning our reclamation and mine closure obligations;

 

   

Our liquidity, results of operations and financial condition; and

 

   

Other factors, including those discussed in “Risk Factors.”

Before you invest in our common units, you should be aware that the occurrence of the events described above and elsewhere in this prospectus could have a material adverse effect on our business, results of operations and financial position. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

-iii-


Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common units. The information presented in this prospectus assumes (1) an initial public offering price of $         per common unit (the midpoint of the price range set forth on the cover page of this prospectus) and (2) unless otherwise indicated, that the underwriters’ option to purchase additional common units is not exercised. You should read the entire prospectus carefully, including the section describing the risks of investing in our common units under “Risk Factors” and the consolidated financial statements contained elsewhere in this prospectus before making an investment decision. Some of the statements in this summary constitute forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” For the definitions of certain terms used in this prospectus, see “Appendix B: Certain Defined Terms—Business” and “Appendix C: Certain Defined Terms—Offering Structure.”

References in this prospectus to “Foresight Energy Partners LP,” “we,” “our,” “us,” or like terms when used in a historical context refer to the business of our predecessor, Foresight Energy LLC and its subsidiaries, which will be our wholly-owned subsidiaries following this offering. When used in the present tense or prospectively, those terms refer to Foresight Energy Partners LP and its subsidiaries, giving effect to the IPO Reorganization. References in this prospectus to “Foresight Reserves” refer to Foresight Reserves, L.P., our sponsor, and its affiliates and principals.

Foresight Energy Partners LP

We are a low cost producer of high quality thermal coal with expertise in operating and developing highly productive underground mines in the Illinois Basin. We have invested over $1.5 billion in four mining complexes with long reserve lives which we believe will provide us with significant sustainable free cash flow. We have significant near-term and long-term growth opportunities through our approximately 3 billion tons of coal reserves. We believe our first operation, Williamson, was the most productive underground coal mine in the United States for the fourth quarter of 2011 on a clean tons produced per man hour basis. Our leading productivity translates into low costs, and we believe we are the lowest cost underground coal producer in the United States at $19.41 per ton in 2010. We have developed infrastructure to provide each mining complex with multiple transportation options, providing widespread cost competitive access to both domestic and international markets. We believe we are among the largest United States exporters of thermal coal, and in recent years, we have exported approximately 33% of our coal to Europe, South America, Africa and Asia.

Our four mining complexes (Williamson, Sugar Camp, Hillsboro and Macoupin) are designed to support up to 8 longwall mining systems, giving them a combined productive capacity of up to 65 million tons of high Btu coal per year. We currently operate one longwall system at Williamson and plan to commence one longwall system at each of Sugar Camp and Hillsboro in the first nine months of 2012, having already invested most of the expansion capital necessary to develop these mines. Longwall mining is a highly-automated, underground mining technique that enables high volume, low cost operations. Our approximately 3 billion tons of reserves consist of three large contiguous blocks of coal, each benefiting from thick seams and roof and floor geology favorable for longwall mining. The geology, mine plan, equipment and infrastructure at each of Sugar Camp and Hillsboro are relatively similar to Williamson and we anticipate similar productivity at these complexes.

We sell a significant portion of our coal under long-term agreements with terms of one year or longer. We market and sell our coal to a diverse customer base including electric utility and industrial companies in the eastern United States, as well as the seaborne thermal coal market. For 2012, 2013 and 2014, we have secured

 

 

-1-


Table of Contents

coal sales commitments for approximately 12.8 million tons, 14.0 million tons and 11.7 million tons, respectively, of which all in 2012, approximately 9.2 million tons in 2013 and approximately 5.3 million tons in 2014 are priced. The following table describes our contracted position for 2012, 2013 and 2014 as of January 31, 2012:

 

     2012      2013      2014  
     Tons      Price      Tons      Price      Tons      Price  

Committed and priced

     12.8       $ 58.13         9.2       $ 61.08         5.3       $ 69.18   

Committed and unpriced

     0            4.8            6.4      

We have developed infrastructure that provides each of our mining complexes with multiple transportation outlets and have direct and indirect access to all five Class I railroads giving us unique access to multiple domestic and seaborne markets. We control a seaborne export terminal in Louisiana and a barge-loading river terminal on the Ohio River. We have numerous contractual arrangements with railroads and river terminals giving us long-term access with price certainty. This logistical advantage gives us the flexibility to direct shipments to the markets that offer the price necessary to achieve the highest margin for our coal.

Since our inception, we have invested over $1.5 billion in our four mining complexes and related transportation infrastructure. This significant initial investment included infrastructure and design that we believe will enable us to maintain productivity levels from the initial development over a sustained period of time and allow expansion of production more quickly and more cost effectively than greenfield mine developments. We plan to take advantage of this initial development strategy and additional longwall mining systems in the upcoming years to grow our production. The table below outlines our mining complexes:

 

     Williamson      Sugar Camp      Hillsboro      Macoupin      Total  

Mine Type

     Longwall         Longwall         Longwall        
 
Continuous
Miner
  
  
  

Number of Potential Longwalls(1)

     1         4         3         —           8   

Short tons in millions:

              

Coal Reserves(2)

     396         1,328         879         360         2,964   

2010 Production(2)

     5.8         0.3         0.02         1.0         7.2   

First Nine Months of 2011 Production(3)

     5.6         0.6         0.3         1.4         7.9   

Long-term Potential Productive Capacity(4)

     7         28         27         3         65   

 

(1) Represents total number of longwall mining systems that could be deployed, including the one currently in operation at Williamson. We plan to have one longwall mining system in operation at each of Williamson, Sugar Camp and Hillsboro in the first nine months of 2012.
(2) See “Coal Reserve Information” for more information.
(3) For the nine months ended September 30, 2011, as reported by MSHA.
(4) Annual productive capacity is an estimate of the design capacity at each mine based on the number of potential longwall mining units and two continuous miner units supporting each longwall mining system at each of Williamson, Sugar Camp and Hillsboro, and two continuous miner units operating at Macoupin. Achievement of full productive capacity and the timing are subject to risks and uncertainties, including, among others, adverse geology, delays in obtaining required permits, engineering and mine design adjustments, and access to the liquidity necessary to develop the mines, any of which may reduce productive capacity or delay planned start-up and ramp-up or result in additional costs. See “Risk Factors” for a more detailed discussion of such risks and uncertainties.

 

 

-2-


Table of Contents

In 2010, we produced 7.2 million tons of coal, and during the first nine months of 2011, we produced 7.9 million tons of coal. For the twelve months ended September 30, 2011, we produced 9.6 million tons of coal and generated revenues of $475.4 million and Adjusted EBITDA of $178.9 million. For the year ended December 31, 2010 and the nine months ended September 30, 2011 we generated $7.9 million and $50.6 million of net income, respectively. See note 3 of “—Summary Historical Consolidated Financial and Other Information” for a reconciliation of net income to Adjusted EBITDA.

Our Strategy

Our business strategy is to increase our profitability and steadily and sustainably grow cash distributions to our common unitholders by:

Maintaining industry-leading cost structure and high productivity. We believe low operating costs are critical to maintain stable financial performance and sustain profitability and cash flow throughout business and commodity cycles.

Growing production and operating cash flows. We expect our coal production and cash flow to significantly increase when Sugar Camp and Hillsboro commence longwall operations during the first nine months of 2012. Nearly all the expansion capital has been spent at each project and both are producing and selling development coal. We have a visible pipeline of additional growth projects beyond these two longwalls to further develop our vast reserve base.

Securing a stable revenue base. We intend to expand our portfolio of long-term coal supply agreements to increase the stability of our operating cash flows and mitigate the effects of coal price volatility.

Maintain and enhance our transportation and logistics network. We will continue to develop assets and infrastructure to ensure that we have low cost transportation options to reach existing and new customers and markets for our coal and thereby maximize the margin of our coal sales.

Maintaining a diverse and high-quality customer base. We have sold coal or are currently selling coal to 46 different customers and end users in 16 states and 12 countries around the world.

Continuing to operate with industry-leading safety standards. Safety is our priority and it is incorporated in all aspects of our operations including mine design, equipment selections and operating processes. We will continue to work with equipment manufacturers to make mining equipment and the mining process safer. We will continue to implement safety measures to maintain the high quality of our underground infrastructure including using ventilation and roof control measures that exceed industry standards.

Our Strengths

Industry-leading productivity driving low costs and attractive margins. Our leading productivity derives from a combination of attractive geology, innovative mine design, a highly motivated and skilled workforce, automated longwall mining systems and significant investment in infrastructure. We believe Williamson was the most productive underground coal mine in the United States for the fourth quarter of 2011 on a clean tons produced per man hour basis. This high productivity results in low operating costs. During the first nine months of 2011, our consolidated cash costs of production were $18.68 per ton, which we believe makes us the lowest cost underground producer in the United States. Our low costs drive margins that are among the highest in the U.S. coal industry, and in the first nine months of 2011, we generated $25.98 cash margin per ton. Our high productivity and low costs position us to outperform our competitors and generate positive cash flow in all coal market conditions. Given our favorable cost position, we believe our coal will remain competitive and retain its position as base load fuel for our customers.

 

 

-3-


Table of Contents

Significant near-term production growth enabled by over $1.5 billion of capital already invested. We plan to commence new longwall mining operations at each of Sugar Camp and Hillsboro in the first nine months of 2012, which we expect will significantly increase our coal production. At each of these two complexes, we are currently producing coal from continuous miners, and the underground and surface facilities are already largely constructed. At full run rate, each of these longwalls has a targeted productive capacity of at least 7 million tons per year. Sugar Camp and Hillsboro are designed to provide us with organic growth opportunities for subsequent years by adding additional longwall mining systems to the same complexes. Because we have already made the significant investment in large scale surface and underground infrastructure, our growth from these complexes will have shorter lead time and lower costs than greenfield development, which will enable us to generate incremental cash flows.

Portfolio of sales contracts at attractive prices provide revenue visibility and stability. We believe our long-term coal sales contracts provide significant revenue visibility and will generate stable and consistent cash flows. For 2012, 2013 and 2014, we have secured coal sales commitments for approximately 12.8 million tons, 14.0 million tons and 11.7 million tons, respectively, of which all in 2012, approximately 9.2 million tons in 2013 and approximately 5.3 million tons in 2014 are priced.

Broad domestic and export market access through a variety of transportation options allows us to maximize margins. We complement our low cost mining operations with competitive low cost transportation options to the domestic and international markets. Our mines are attractively positioned in close proximity to railroads and rivers and we have developed transportation optionality for each of our mining complexes. We have direct and indirect access to all five Class I rail lines. We also control a seaborne export terminal in Louisiana and a barge-loading river terminal on the Ohio River. We have long-term contractual access to two additional barge-loading river terminals on the Ohio and Mississippi Rivers. In order to protect access to these transportation options, we have entered into agreements with terms up to 10 years. Across all transportation options, we currently have 7 million tons of seaborne coal throughput capacity per year, and plan to increase capacity to 10 million tons of seaborne coal throughput per year in the near-term and 18 million tons of seaborne coal throughput per year in the long-term without investing significant additional capital. This broad market access enables us to maximize prices and margins realized for our coal sales.

Large, contiguous, high quality reserve base supports long mine lives and efficient, economic production expansion. We control approximately 3.0 billion tons of coal reserves, which we believe ranks us 5th among public companies in the United States and 10th among public companies globally. Almost all of our reserves are found in three large, contiguous blocks of coal: two in central Illinois and one in southern Illinois, where the size of reserves and the geologic conditions are favorable for longwall mining. The contiguous nature of our reserves enables us to develop centrally located mining complexes with long mine lives and enables us to utilize the same infrastructure to support future growth. This reduces the need to continually spend development capital for greenfield infrastructure, such as slopes, shafts and basic surface facilities, in order to maintain and grow production levels.

Best-in-class management capabilities. Our chairman and senior operations personnel have, on average, more than 30 years of experience in the coal industry. They are hands-on operators and have substantial experience in efficient mine design and planning, increasing productivity, reducing costs, building infrastructure, implementing our marketing strategy and safe mining operations. In addition to their operating strengths, our senior executives have experience in identifying, acquiring, financing and integrating relevant businesses that will enhance the value of our assets.

 

 

-4-


Table of Contents

Coal Market Overview

Coal remains an in-demand, cost-competitive energy source relative to alternative fossil fuels and other alternative energy sources. Growth in domestic electricity demand continues to drive demand for thermal coal. According to the EIA, total United States electricity consumption is expected to grow by 13.0% from 2010 to 2025. Coal will continue to remain a critical component of power generation, with coal-powered electricity expected to grow by 11% during this period. Coal, particularly coal produced in the Illinois Basin, has historically been a low-cost source of energy relative to its substitutes because of the high prices for alternative fossil fuels. Coal also has a lower all-in cost relative to other alternative energy sources, such as nuclear, hydroelectric, wind and solar power.

Demand for Illinois Basin coal is growing in the U.S. Many domestic utilities have installed or are planning to install scrubbers, which is expanding the market for high sulfur coal from the Illinois Basin and the Northern Appalachian region. According to Wood Mackenzie estimates, 198 GWs, or 63% of total capacity, of electric generating units in the United States was scrubbed in 2011. Wood Mackenzie expects scrubbed capacity to increase to 268 GWs, or 100% of total capacity, by 2025. In addition, Wood Mackenzie forecasts domestic Illinois Basin demand increasing by over 75 million tons within the next 15 years, with much of the demand deriving from the southeastern and midwest regions. Shortages and decreases in supply in the eastern United States continue to affect pricing in the entire United States market.

Expected long-term increases in international demand and the United States export market. We believe that the Pacific Basin demand for global seaborne thermal coal will increase in the near-term and create a shortfall in the Atlantic Basin supply, as quantities of thermal coal from traditional European and South African suppliers shift to Asia over the decade. This will create growing export opportunities for United States and South American producers to export to coal-fired plants in Europe.

Developments in United States regional coal markets. Coal production in the Central Appalachian region of the United States has declined in recent years because of production challenges, reserve degradation and difficulties acquiring permits needed to conduct mining operations. In addition, underground mining operations have become subject to additional, more costly and stringent safety regulations, which have had the effect of increasing their operating costs and capital expenditure requirements.

Risk Factors

An investment in our common units involves risks. Those risks are described under the caption “Risk Factors” beginning on page 17.

Our Management

We are managed and operated by the board of directors and executive officers of our general partner, Foresight Energy GP LLC. Following this offering,     % of our outstanding common units and all of our outstanding subordinated units and incentive distribution rights will be owned, directly or indirectly, by Foresight Reserves. As a result of owning our general partner, Foresight Reserves will have the right to appoint all members of the board of directors of our general partner, including the independent directors. Our unitholders will not be entitled to elect our general partner or its directors or otherwise directly participate in our management or operation. For more information about the executive officers and directors of our general partner, please read “Management.”

Following the consummation of this offering, neither our general partner nor Foresight Reserves will receive any management fee, but we will reimburse our general partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement provides that our general partner will

 

 

-5-


Table of Contents

determine in good faith the expenses that are allocable to us. In addition, pursuant to an administrative services agreement, Foresight Reserves will be entitled to reimbursement for certain expenses that it incurs on our behalf. Please read “Certain Relationships and Related Party Transactions.”

Our operations will be conducted through, and our operating assets will be owned by, our wholly-owned subsidiary, Foresight Energy LLC, and its subsidiaries. Foresight Energy Partners LP does not have any employees. All of the employees that conduct our business will be employed by our general partner or our subsidiaries.

The Cline Group, Foresight Reserves’ indirect parent, has well-established experience in the development and operation of coal mining facilities. Over the last 30 years, The Cline Group has acquired, permitted, developed or operated over 25 separate coal mining operations in Appalachia and the Illinois Basin. In September 2007, Riverstone Holdings LLC invested in Foresight Reserves. Riverstone is an energy and power-focused private equity firm with approximately $17 billion of assets under management across 6 private investment funds.

Conflicts of Interest and Fiduciary Duties

Our general partner has a legal duty to manage us in good faith. However, the officers and directors of our general partner also have fiduciary duties to manage our general partner in a manner beneficial to Foresight Reserves. As a result, conflicts of interest may arise in the future between us and our unitholders, on the one hand, and Foresight Reserves and our general partner, on the other hand.

Our partnership agreement limits the liability and reduces the duties owed by our general partner to our unitholders. Our partnership agreement also restricts the remedies available to our unitholders for actions that might otherwise constitute a breach of our general partner’s duties. By purchasing a common unit, the purchaser agrees to be bound by the terms of our partnership agreement, and each unitholder is treated as having consented to various actions and potential conflicts of interest contemplated in the partnership agreement that might otherwise be considered a breach of fiduciary or other duties under Delaware law.

For a more detailed description of the conflicts of interest and the fiduciary duties of our general partner, please read “Conflicts of Interest and Fiduciary Duties.” For a description of other relationships with our affiliates, please read “Certain Relationships and Related Party Transactions.”

IPO Reorganization

In connection with the closing of this offering, the following transactions will occur:

 

   

Foresight Reserves will contribute all of its membership interests in Foresight Energy LLC to us;

 

   

we will issue to Foresight Reserves an aggregate of          common units and          subordinated units, representing a combined     % limited partner interest in us;

 

   

we will issue to our general partner the incentive distribution rights, which entitle the holder to an increasing percentage, up to a maximum of 50% of the cash we distribute in excess of $         per unit per quarter, as described under “Distribution Policy and Restrictions on Distributions”;

 

   

we will issue          common units to the public, representing a     % limited partner interest in us, and will use the net proceeds from this offering as described under “Use of Proceeds”;

 

   

to the extent the underwriters exercise their option to purchase          additional common units, we will issue such units to the public and distribute the net proceeds to Foresight Reserves; and

 

   

to the extent the underwriters do not exercise their option to purchase additional common units, we will issue those common units to Foresight Reserves.

 

 

-6-


Table of Contents

Pro Forma Corporate Structure

The following chart summarizes our corporate structure after giving effect to this offering and the use of proceeds therefrom and the IPO Reorganization:

 

     Percentage
Interest
 

Public Common Units

          %(1) 

Interests of Foresight Reserves:

  

Common Units

          %(1)

Subordinated Units

          %

Non-Economic General Partner Interest

          %(2) 

Incentive Distribution Rights

          %(3) 
  

 

 

 
     100.0
  

 

 

 

 

(1) Assumes no exercise of the underwriters’ option.
(2) Our general partner owns a non-economic general partner interest in us. Please read “How We Make Distributions To Our Partners—Partnership Interests—General Partner Interest.”
(3) Incentive distribution rights represent a variable interest in distributions and thus are not expressed as a fixed percentage. See “How We Make Distributions To Our Partners—Adjusted Operating Surplus—Incentive Distribution Rights”. Distributions with respect to the incentive distribution rights will be classified as distributions with respect to equity interests. Incentive distribution rights will be issued to Foresight Energy GP LLC, our general partner, which is wholly-owned by Foresight Reserves.

 

 

-7-


Table of Contents

LOGO

Partnership Information

We are a Delaware limited partnership formed in January 2012. Our principal executive offices are located at 211 North Broadway, Suite 2600, Saint Louis, Missouri 63102. The telephone number of our principal offices is (314) 932-6160 and our website is www.foresight.com. We intend to make our periodic reports and other information filed with or furnished to the SEC available free of charge through our website as soon as reasonably practicable after those reports and other information are electronically filed or furnished to the SEC. The information on our website is not part of, and is not incorporated by reference into, this prospectus.

 

 

-8-


Table of Contents

The Offering

 

Common units offered to the public

             common units.

 

               common units if the underwriters exercise their option to purchase an additional              common units in full.

 

Units outstanding after this offering

             common units and              subordinated units.

 

  If the underwriters do not exercise their option to purchase additional common units, we will issue              common units to Foresight Reserves upon the option’s expiration for no additional consideration. If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Foresight Reserves at the expiration of the option period. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units outstanding.

 

Use of proceeds

We intend to use all of the net proceeds of this offering of approximately $         million (after deducting the underwriting discounts, expenses, and the structuring fee, or $             million if the underwriters’ option to purchase additional units is exercised in full, to make a distribution to Foresight Reserves. We will not retain any proceeds from this offering.

 

Distribution policy

We expect to make a minimum quarterly distribution in cash of $         ($         on an annualized basis) on each common unit and subordinated unit to the extent we have sufficient cash after the establishment of reserves and payment of fees and expenses. Distributions on the common units will be in cash, but during the PIK period described below, distributions on the subordinated units will be in the form of additional subordinated units. The effect of paying distributions on subordinated units in additional subordinated units, which we refer to as distributions in kind or distributions of equity, is as if we had paid cash distributions on those units to Foresight Reserves and Foresight Reserves had recontributed that cash to us in exchange for additional subordinated units. Notwithstanding that the subordinated units will not receive cash distributions during the PIK period, in order to make distributions in kind on these securities we will have to have sufficient operating surplus to have paid them in cash. After the PIK period, distributions on the subordinated units will be made in cash. Our ability to make distributions at the minimum quarterly distribution rate is subject to various restrictions and other factors described in more detail under “Distribution Policy and Restrictions on Distributions” and “Risk Factors.”

 

  We will pay a prorated distribution for the first quarter during which we are a publicly-traded partnership. Such distribution will cover the

 

 

-9-


Table of Contents
  period from the closing date of this offering to and including                     , 2012. We expect to pay this cash distribution before                     , 2012.

 

  We will pay quarterly distributions of cash or equity (as described below in “—Payment-In-Kind Distributions”), as applicable, in the following manner:

 

   

first, 100.0% to the holders of common units, until each common unit has received the minimum quarterly distribution of $         plus any arrearages from prior quarters;

 

   

second, 100.0% to the holders of subordinated units, until each subordinated unit has received the minimum quarterly distribution of $        ; and

 

   

third, 100.0% to the holders of the common and subordinated units pro rata, until each common and subordinated unit has received a distribution of $        .

 

  If distributions to our common unitholders exceed $         per unit in any quarter, our unitholders and the general partner (as holder of our incentive distribution rights) will receive distributions according to the following percentage allocations:

 

     Marginal Percentage
Interest in
Distributions
 

Total Quarterly Distribution
Target Amount

   Unitholders     General
Partner
 

above $             up to $            

     85.0     15.0

above $             up to $            

     75.0     25.0

above $            

     50.0     50.0

 

  We refer to the additional increasing distributions to our general partner as “incentive distributions.” The incentive distributions will be paid in cash. In certain circumstances, our general partner, or the subsequent holders of our incentive distribution rights, will have the right to reset the target distribution levels to higher levels based on our cash distributions at the time of the exercise of this reset election. Please read “How We Make Distributions to Our Partners—Adjusted Operating Surplus—Incentive Distribution Rights” and “—General Partner’s Right to Reset Incentive Distribution Levels.”

Pro forma cash available for distribution generated during the year ended December 31, 2011 was approximately $         million, respectively. The amount of available cash we need to pay the minimum quarterly distribution for four quarters on our common units and subordinated units to be outstanding immediately after this offering is approximately $         million (or an average of approximately $         million per quarter). As a result, for the year ended December 31, 2011 we would have generated available cash sufficient to pay 100% of the minimum quarterly distribution on all of our common units, but only approximately         % of the minimum quarterly distribution on our subordinated units during that period.

 

 

-10-


Table of Contents
  We believe, based on our financial forecast and related assumptions included in “Distribution Policy and Restrictions on Distributions,” that we will have sufficient cash available to pay the minimum quarterly distribution of $        , in cash or in equity, as applicable, on all of our common and subordinated units for each quarter in the six months ending December 31, 2012 and the twelve months ending December 31, 2013. However, we do not have a legal obligation to pay quarterly distributions at our minimum quarterly distribution rate or at any other rate and there is no guarantee that we will pay distributions to our unitholders in any quarter. Please read “Distribution Policy and Restrictions on Distributions.”

 

PIK period

The “PIK period” is the period during which distributions on the subordinated units will be made in additional subordinated units. The PIK period will commence on the date of the closing of the offering and end on the date that is the earlier of (i) August 15, 2017 (the maturity date of the Senior Notes) and (ii) the date by which we (a) redeem, repurchase, defease or retire the Senior Notes, or otherwise amend the indenture governing the Senior Notes and (b) amend or terminate our Senior Secured Credit Facility, in each case in a manner that permits us to distribute cash to all unitholders. Following the end of the PIK period, each outstanding subordinated unit will be entitled to receive any distributions in cash. The purpose of this feature is to:

 

   

provide the Partnership with cash for reinvestment in expansion capital projects that otherwise would be paid to subordinated unitholders; and

 

   

support the payment of cash distributions in an amount equal to at least the minimum quarterly distribution to our common unitholders during the period in which we expect the provisions of the indenture and credit facility will restrict our ability to pay cash distributions to all unitholders in accordance with our distribution policy.

 

  Any subordinated units that convert prior to the end of the PIK period pursuant to the applicable subordination test set forth below will convert into PIK common units. All distributions paid in respect of PIK common units will be in the form of additional PIK common units.

 

Determination of amount of payment-in-kind distributions

The number of subordinated units (or PIK common units) that will be distributed to a subordinated unit (or PIK common unit) in lieu of a cash distribution will equal a fraction, the numerator of which is the amount of the cash distribution paid on a common unit and the denominator of which is the volume-weighted average price of the common units for the 10 trading days immediately preceding the ex-dividend date for the associated distribution in respect of the common units.

 

 

-11-


Table of Contents

 

Subordinated units

Foresight Reserves initially will own, directly or indirectly, all                 of our subordinated units. Holders of the subordinated units will not be entitled to receive any distribution until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. During the PIK period, we will pay distributions on the subordinated units by issuing additional subordinated units. After the PIK period, we will pay distributions on the subordinated units in cash. Subordinated units will not accrue arrearages.

 

Conversion of subordinated units

The subordination period will end on the first business day after we have (1) earned and paid (in cash or in kind, as applicable) at least $                 per unit (the minimum quarterly distribution on an annualized basis) on each unit for each of three consecutive, non-overlapping four quarter periods ending on or after June 30, 2015; or (2) paid (in cash or in kind, as applicable) at least $                 per unit (150.0% of the annualized minimum quarterly distribution) on each outstanding unit for four consecutive quarters ending on or after September 30, 2013 without a material deviation from our distribution coverage policy, and earned an aggregate $                 per unit amount over such period.

 

  When the subordination period ends, all subordinated units will convert into an equal number of common units, unless conversion occurs prior to the end of the PIK period, in which case they will convert into PIK common units. After conversion, common units will not be entitled to arrearages.

 

  The subordinated units of any holder will also convert into common units upon the removal of our general partner other than for cause if no units held by such holder or its affiliates are voted in favor of that removal.

 

General partner’s right to reset the target distribution levels

Our general partner, as the initial holder of all of our incentive distribution rights, has the right, at any time after the PIK period when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (50.0%) for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our cash distributions at the time of the exercise of the reset election. If our general partner transfers all or a portion of our incentive distribution rights in the future, then the holder or holders of a majority of our incentive distribution rights will be entitled to exercise this right. The following assumes that our general partner holds all of the incentive distribution rights at the time that a reset election is made. Following a reset election, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution, and the target

 

 

-12-


Table of Contents
 

distribution levels will be reset to correspondingly higher levels based on the same percentage increases above the reset minimum quarterly distribution as the current target distribution levels.

 

  If our general partner elects to reset the target distribution levels, it will be entitled to receive common units. The number of common units to be issued to our general partner will equal the number of common units that would have entitled the holder to an aggregate quarterly cash distribution in the prior quarter equal to the distributions to our general partner on the incentive distribution rights in such quarter. Please read “How We Make Distributions To Our Partners—Adjusted Operating Surplus—General Partner’s Right to Reset Incentive Distribution Levels.”

 

Issuance of additional units

Our partnership agreement authorizes us to issue an unlimited number of additional units without the approval of our unitholders. Please read “Units Eligible for Future Sale” and “The Partnership Agreement—Issuance of Additional Interests.”

 

Limited voting rights

Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, our unitholders will have only limited voting rights on matters affecting our business. Our unitholders will have no right to elect our general partner or its directors on an annual or other continuing basis. Our general partner may not be removed except by a vote of the holders of at least 66 2/3% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. Upon consummation of this offering, Foresight Reserves will own an aggregate of     % of our outstanding units (or     % of our outstanding units, if the underwriters exercise their option to purchase additional common units in full). This will give Foresight Reserves the ability to prevent the removal of our general partner. Please read “The Partnership Agreement—Voting Rights.”

 

Call right

If at any time our general partner and its affiliates own more than 80% of the outstanding aggregate common units, our general partner will have the right, but not the obligation, to purchase all of the remaining common units at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Please read “The Partnership Agreement—Call Right.”

 

Estimated ratio of taxable income to distributions

We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2014, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be less than     % of the cash distributed to you with respect to that period. For

 

 

-13-


Table of Contents
 

example, if you receive an annual distribution of $         per unit, we estimate that your average allocable federal taxable income per year will be no more than approximately $         per unit. Thereafter, the ratio of allocable taxable income to cash distributions to you could substantially increase. Please read “Material U.S. Federal Income Tax Consequences—Tax Consequences of Unit Ownership” beginning on page 181 for the basis of this estimate.

 

Material federal income tax consequences

For a discussion of the material federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read “Material U.S. Federal Income Tax Consequences” beginning on page 180.

 

Exchange listing

We intend to apply to list our common units on the NYSE under the symbol “FELP.”

Risk Factors

You should consider carefully all of the information set forth in this prospectus and, in particular, should evaluate the specific risk factors set forth in the section entitled “Risk Factors” beginning on page 17 for an explanation of certain risks of investing in our common units.

Summary Historical Consolidated Financial and Other Information

The following table sets forth our summary historical consolidated financial and other data, at the dates and for the periods indicated. The summary historical consolidated statements of operations data for the years ended December 31, 2008, 2009 and 2010 and the summary historical consolidated balance sheet data as of December 31, 2009 and 2010 have been derived from Foresight Energy LLC’s audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated balance sheet data as of September 30, 2011 and the summary historical consolidated statement of operations data for the nine months ended September 30, 2010 and 2011 have been derived from Foresight Energy LLC’s unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the information set forth herein. Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or for any future period. The summary financial information presented below should be read in conjunction with the information presented under “Selected Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes thereto appearing in this prospectus.

 

 

-14-


Table of Contents

Summary Historical Consolidated Financial and Other Information

($ in thousands, except averages)

 

     For the Years Ended December 31,     For the Nine Months
Ended September 30,
 
     2010     2009     2008     2011     2010  

Revenues

          

Coal sales revenue

   $ 362,592      $ 271,249      $ 238,842      $ 358,931      $ 246,087   

Costs and Expenses

          

Cost of coal sales

     130,610        101,528        109,421        119,762        88,272   

Transportation expense

     58,482        48,933        46,942        72,615        32,489   

Depreciation, depletion and amortization

     55,590        38,937        27,886        52,451        39,778   

Accretion

     2,068        1,735        203        1,279        1,477   

Selling, general, and administrative

     28,367        22,610        11,913        26,083        17,386   

Other operating (income) expense, net(1)

     (2,611     (3,208     334        52        (964

Loss on commodity contracts

     —          —          —          847        —     

Gain on coal sale contract termination

     —          —          (44,019     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     90,086        60,714        86,162        85,842        67,649   

Other income and expense:

          

Interest and securities income

     67        427        1,360        4        52   

Interest expense

     (40,498     (46,466     (43,625     (35,196     (32,615

Loss on interest rate swaps

     —          (586     —          —          (550
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

     49,655        14,089        43,897        50,650        34,536   

Net loss from discontinued operations

     (40,893     (50,545     (41,249     —          (40,893
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     8,762        (36,456     2,648        50,650        (6,357

Less: Net income attributable to non-controlling interests

     909        246        56        50        867   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to controlling interests

   $ 7,853      $ (36,702   $ 2,592      $ 50,600      $ (7,224
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Statement of Cash Flows

          

Net cash from operating activities

   $ 32,044      $ 107,400      $ 75,624      $ 45,403      $ (62,793

Net cash from investing activities

   $ (250,168   $ (408,714   $ (198,138   $ (242,490   $ (171,664

Net cash from financing activities

   $ 203,486      $ 329,604      $ 135,397      $ 186,070      $ 200,343   

Investment in mining rights, equipment and development

   $ (255,460   $ (348,445   $ (182,627   $ (242,490   $ (176,958

Balance Sheet Data (at period end)

          

Cash and investments in available-for-sale securities

   $ 33,451      $ 57,031      $ 28,585      $ 22,434      $ 13,975   

Property, plant, equipment, and mine development, net

   $ 995,425      $ 634,250      $ 365,663      $ 1,233,767      $ 841,497   

Total assets

   $ 1,131,880      $ 1,036,160      $ 697,394      $ 1,421,744      $ 993,902   

Total long-term debt(2)

   $ 605,390      $ 345,753      $ 353,956      $ 806,905      $ 536,107   

Total equity

   $ 282,066      $ 133,103      $ 86,702      $ 362,689      $ 242,995   

Other Data

          

Adjusted EBITDA(3)

   $ 147,744      $ 101,386      $ 70,232      $ 139,572      $ 108,354   

Capital expenditures

   $ (255,460   $ (348,445   $ (182,627   $ (242,490   $ (176,958

Tons produced(4)

     6,813        5,921        5,411        6,982        5,297   

Tons sold(4)

     6,730        5,635        5,484        6,410        4,550   

Average realized price per ton sold(5)

   $ 53.88      $ 48.14      $ 43.55      $ 56.00      $ 54.09   

Average cost of sales per ton sold(6)

   $ 19.41      $ 18.02      $ 19.95      $ 18.68      $ 19.40   

 

 

-15-


Table of Contents

 

(1) For the period ended December 31, 2009, this relates primarily to a one-time sale of equipment at Macoupin.
(2) Total long-term debt does not include $143.5 million of certain lease transactions (including coal and surface leases) that are characterized as financing arrangements due to the involvement of certain of our affiliates in mining related to the leases. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and Related Party Transactions.” It also includes, among other items, other liabilities of discontinued operations.
(3) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization, accretion, and excluding the items or expenses as set forth below. Adjusted EBITDA is not a measure of performance defined in accordance with GAAP. However, management believes that Adjusted EBITDA is useful to investors in evaluating our performance because it is a commonly used financial analysis tool for measuring and comparing companies in our industry in areas of operating performance. Management believes that the disclosure of Adjusted EBITDA offers an additional view of our operations that, when coupled with the GAAP results and the reconciliation to GAAP results, provides a more complete understanding of our results of operations and the factors and trends affecting our business. Adjusted EBITDA should not be considered as an alternative to net income (loss) as an indicator of our performance or as an alternative to net cash provided by operating activities as a measure of liquidity. The primary material limitations associated with the use of Adjusted EBITDA as compared to GAAP results are (i) it may not be comparable to similarly titled measures used by other companies in our industry, and (ii) it excludes financial information that some may consider important in evaluating our performance. We compensate for these limitations by providing disclosure of the differences between Adjusted EBITDA and GAAP results, including providing a reconciliation of Adjusted EBITDA to GAAP results, to enable investors to perform their own analysis of our operating results.

The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, net income (loss) from continuing operations:

 

     For the Years Ended
December 31,
    For the Nine Months
Ended September 30,
 
     2010     2009     2008     2011     2010  
     ($ in thousands)  

Net income (loss) from continuing operations

   $ 49,655      $ 14,089      $ 43,897      $ 50,650      $ 34,536   

Interest expense

     40,498        46,466        43,625        35,196        32,615   

Interest income

     (67     (427     (1,360     (4     (52

Depreciation, depletion and amortization

     55,590        38,937        27,886        52,451        39,778   

Accretion

     2,068        1,735        203        1,279        1,477   

Loss on interest rate swaps

     —          586        —          —          —     

Loss/(Gain) on coal sale contract termination

     —          —          (44,019     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 147,744      $ 101,386      $ 70,232      $ 139,572      $ 108,354   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(4) Only includes tons produced and tons sold from our Williamson mine prior to January 1, 2010, as our Macoupin mine was in development prior to this period. Only includes tons produced and tons sold from our Williamson and Macoupin mines for the year ended December 31, 2010 and the nine months ended September 30, 2011 and 2010, as our Sugar Camp and Hillsboro mines are in development. Macoupin produced and sold 0.2 million tons in the year ended December 31, 2009, for which revenues and costs associated with this production and coal sales were capitalized as mine development. Sugar Camp produced and sold 0.6 and 0.1 million tons for the nine months ended September 30, 2011 and 2010, respectively, and 0.3 million tons for the year ended December 31, 2010, for which revenues and costs associated with this production and coal sales were capitalized as mine development.
(5) Calculated as coal sales revenue divided by tons sold.
(6) Calculated as cost of coal sales divided by tons sold.

 

 

-16-


Table of Contents

RISK FACTORS

An investment in our common units involves risks. Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. You should carefully consider the risks described below, together with the other information in this prospectus, before investing in our common units. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations. We cannot assure you that any of the events discussed in this prospectus will not occur. If they do, our business, financial condition, results of operation and cash available for distribution could be materially and adversely affected. In such case, we might not be able to make distributions on our common units, the trading price of our common units could decline, and you could lose all or part of your investment in, and expected return on, the common units.

Risks Related to Our Business

We may not have sufficient cash to enable us to pay the minimum quarterly distribution on our common units following establishment of cash reserves and payment of costs and expenses, including reimbursement of expenses to our general partner. For the twelve months ended December 31, 2011, our aggregate distributions would have been $         per unit, significantly less than the $         per unit that we project that we will be able to pay for each of the six months ending December 31, 2012 and the twelve months ending December 31, 2013.

We may not have sufficient cash each quarter to pay the full amount of our minimum quarterly distribution of $         per unit, or $         per unit per year. The payment of the full minimum quarterly distribution on all of the common units and subordinated units to be outstanding after completion of this offering would require us to have cash available for distribution of approximately $         million per quarter, or $         million per year. For the year ended December 31, 2011, on a pro forma basis, our annual distribution would have been $         per unit, significantly less than the $         per unit distribution we project that we will to be able to pay for the six months ending December 31, 2012 and the twelve months ending December 31, 2013. Our expected aggregate annual distribution amount for each of the forecast periods is based on the price assumptions set forth in “Distribution Policy and Restrictions on Distributions — Significant Forecast Assumptions.” If our price assumptions prove to be inaccurate, our actual distribution for the six months ending December 31, 2012 and the twelve months ending December 31, 2013 may be significantly lower than our forecasted distributions, or we may not be able to pay a distribution at all during those periods.

In addition, while the subordinated units (and any PIK common units) will not receive cash distributions during the PIK period, the distribution of additional subordinated units (or PIK common units, if applicable) may substantially increase the number of units that will be outstanding after the PIK period and, after the PIK period, the amount of cash required on a quarterly and annual basis to pay the full minimum quarterly distribution on all units. The amount of cash we can distribute on our common and subordinated units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:

 

   

the amount of coal we are able to produce from our properties, which could be adversely affected by, among other things, operating difficulties and unfavorable geologic conditions;

 

   

the price at which we are able to sell coal, which is affected by the supply of and demand for domestic and foreign coal;

 

   

the level of our operating costs, including reimbursement of expenses to our general partner;

 

   

the price and availability of alternative fuels;

 

   

the impact of delays in the receipt of or failure to receive or revocation of necessary governmental permits;

 

-17-


Table of Contents
   

the impact of existing and future environmental and climate change regulations, including those impacting coal-fired power plants;

 

   

prevailing economic and market conditions;

 

   

difficulties in collecting our receivables because of credit or financial problems of customers;

 

   

the effects of new or expanded health and safety regulations;

 

   

domestic and foreign governmental regulation, including changes in governmental regulation of the mining industry or the electric utility industry;

 

   

the proximity to and capacity of transportation facilities;

 

   

changes in tax laws; and

 

   

force majeure.

In addition, the actual amount of cash we will have available for distribution will depend on other factors, including:

 

   

the level of capital expenditures we make;

 

   

the cost of acquisitions;

 

   

our debt service requirements and other liabilities;

 

   

fluctuations in our working capital needs;

 

   

our ability to borrow funds and access capital markets;

 

   

restrictions contained in debt agreements to which we are a party; and

 

   

the amount of cash reserves established by our general partner.

For a description of additional restrictions and factors that may affect our ability to pay cash distributions, please read “Distribution Policy and Restrictions on Distributions.”

Restrictions in the agreements governing our indebtedness could limit our ability to make distributions to our partners.

The indenture governing our Senior Notes and our Senior Secured Credit Facility prohibit us from making distributions to unitholders if any default or event of default (as defined in the each agreement) exists. In addition, both the agreements contain covenants limiting our ability to pay distributions to unitholders to amounts that we refer to as each agreement’s “restricted payment basket.” The restricted payment basket of the Senior Secured Credit Facility consists of, in pertinent part, aggregate net proceeds of capital contributions and certain other investment returns plus 50% of consolidated net income (or, less 50% of consolidated net loss) accrued on a cumulative basis. The restricted payment basket of the indenture consists of, in pertinent part, aggregate net proceeds of capital contributions and certain other investment returns plus 50% of consolidated net income (or, less 100% of consolidated net loss) accrued on a cumulative basis. Accordingly, non-cash losses, such as an impairment of the value of our properties, will reduce the respective restricted payment basket. As of December 31, 2011, our restricted payments basket under the Senior Secured Credit Facility and indenture were equal to approximately $                 million and $                 million, respectively. The aggregate minimum quarterly distribution on our common units will be $                 million. Our Senior Notes mature in August 2017 and our Senior Secured Credit Facility matures in August 2014. If the amount in each restricted payment basket in respect of any quarter is materially reduced or does not increase at a sufficient rate to cover our distribution rate, we may be restricted in paying all or part of the minimum quarterly distribution to our unitholders. See “Description of Indebtedness.”

 

-18-


Table of Contents

The assumptions underlying our forecast of cash available for distribution included in “Distribution Policy and Restrictions on Distributions” are inherently uncertain and subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause cash available for distribution to differ materially from our estimates.

Our forecast of cash available for distribution set forth in “Distribution Policy and Restrictions on Distributions” has been prepared by management, and we have not received an opinion or report on it from any independent registered public accountants. The assumptions underlying our forecast of cash available for distribution are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause cash available for distribution to differ materially from our estimates. If we do not achieve our forecasted results, we may not be able to pay the minimum quarterly distribution or any amount on our common units or subordinated units, in which event the market price of our common units may decline materially.

The amount of cash we have available for distribution to our partners depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.

The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from reserves and working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may not pay cash distributions during periods when we record net income.

We are dependent on our Williamson complex and suspension of production at that complex may materially adversely affect our business.

We are in the process of developing one longwall system at each of Sugar Camp and Hillsboro. Until these longwalls are operational, we are dependent upon the continuous operation of Williamson for substantially all of our revenues. If Williamson were to cease production for any reason, it would have a material adverse effect on our results of operations, business and financial position, as well as our ability to pay distributions to our unitholders.

The Sugar Camp and Hillsboro longwall systems are still under development, may not achieve anticipated productive capacity, may experience unanticipated costs or may be delayed or not completed at all.

The Sugar Camp and Hillsboro longwall systems are still under development. The development of a longwall system is a complex and challenging process that may take longer and cost more than estimated, or not be completed at all. In addition, anticipated productive capacity may not be achieved. We may encounter additional adverse geological conditions or delays in obtaining, maintaining or renewing required construction, environmental or operating or mine design permits. Construction delays cause reduced production and cash flow while certain fixed costs, such as minimum royalties and debt payments, must still be paid on a predetermined schedule. Once production begins, if any of our longwalls were to cease production for any reason, it would have a material adverse effect on our results of operations, business and financial position, as well as our ability to pay distributions to our unitholders.

Our future success depends upon our ability to obtain necessary permits to mine all of our coal reserves.

In order to develop our coal reserves that are economically recoverable, we must obtain, maintain or renew various governmental permits. We make no assurances that we will be able to obtain, maintain or renew any of

 

-19-


Table of Contents

the governmental permits that we need to continue developing our proven and probable coal reserves. The inability to conduct mining operations may have a material adverse effect on our results of operations, business and financial position, as well as the ability to pay distributions to our unitholders.

Our business requires substantial capital expenditures and we may not have access to the capital required to reach full productive capacity at our mines.

Our business is capital intensive due to construction of new mines and infrastructure and maintenance of existing operations. Specifically, the exploration, permitting and development of coal reserves, mining costs, the maintenance of machinery and equipment and compliance with applicable laws and regulations require substantial capital expenditures. While a significant amount of the capital expenditures required to build-out our new mines has been spent, we must continue to invest capital to maintain or to increase our production. As of September 30, 2011, we expect the longwalls currently in development at each of Sugar Camp and Hillsboro will require approximately an additional $94.4 million to achieve anticipated productive capacity, and an additional $17.7 million will be required to complete our transportation projects. We cannot assure you that we will be able to maintain our production levels or generate sufficient cash flow, or that we will have access to sufficient financing to continue our production, exploration, permitting and development activities at or above our present levels and we may be required to defer all or a portion of our capital expenditures. Our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders may be materially adversely affected if we cannot make such capital expenditures.

A substantial or extended decline in coal prices or increase in the costs of mining or transporting coal could adversely affect our operating results and the value of our coal reserves.

Our operating results depend, in part, on the margins that we receive on sales of our coal. Our margins reflect the price we receive for our coal over our cost of producing and transporting our coal and depend upon many factors, including:

 

   

The market price for coal;

 

   

The supply of, and demand for, domestic and foreign coal;

 

   

Competition from other coal suppliers;

 

   

Advances in power technologies;

 

   

The worldwide demand for electricity;

 

   

The impact of worldwide energy conservation measures;

 

   

Legislative, regulatory and judicial developments, including those related to the release of GHG;

 

   

The cost of using, and the availability of, alternative fuels, including the effects of technological developments;

 

   

Air emission, wastewater discharge and other environmental standards for coal-fired power plants and technologies developed to help meet these standards;

 

   

Delays in the receipt of, or failure to receive, or revocation of necessary government permits;

 

   

Weather conditions;

 

   

The efficiency of our mines;

 

   

The pricing terms contained in our long-term contracts;

 

   

Cancellation or renegotiation of contracts;

 

   

The availability and cost of fuel, equipment and other supplies;

 

-20-


Table of Contents
   

Transportation costs;

 

   

The availability of transportation infrastructure, including flooding and railroad derailments;

 

   

The cost and availability of our contract miners;

 

   

The availability of skilled employees; and

 

   

Work stoppages or other labor difficulties.

Substantial or extended declines in the price that we receive for our coal or increases in the costs of mining or transporting our coal could have a material adverse effect on our operating results and our ability to generate the cash flows we require to invest in our operations, satisfy our obligations and pay distributions to unitholders.

We face numerous uncertainties in estimating our economically recoverable coal reserves and inaccuracies in our estimates could result in lower than expected revenues, higher than expected costs and decreased profitability.

Forecasts of our future performance are based on, among other things, estimates of our recoverable coal reserves. We base our reserve information on engineering, economic and geological data assembled and analyzed by third parties and our staff, which includes various engineers and geologists. The reserve estimates as to both quantity and quality are updated from time to time to reflect production of coal from the reserves and new drilling or other data received. There are numerous uncertainties inherent in estimating quantities and qualities of coal and costs to mine recoverable reserves, including many factors beyond our control. Estimates of economically recoverable coal reserves necessarily depend upon a number of variable factors and assumptions, any one of which may, if incorrect, result in an estimate that varies considerably from actual results. These factors and assumptions include:

 

   

Geologic and mining conditions, which may not be fully identified by available exploration data and may differ from our experience in areas we currently mine;

 

   

Future coal prices, operating costs and capital expenditures;

 

   

Severance and excise taxes, royalties and development and reclamation costs;

 

   

Future mining technology improvements;

 

   

The effects of regulation by governmental agencies;

 

   

Ability to obtain, maintain and renew all required permits;

 

   

Employee health and safety; and

 

   

Historical production from the area compared with production from other producing areas.

As a result, actual coal tonnage recovered from identified reserve areas or properties and revenues and expenditures with respect to our reserves may vary materially from estimates. These estimates thus may not accurately reflect our actual reserves. Any material inaccuracy in our estimates related to our reserves could result in lower than expected revenues, higher than expected costs or decreased profitability which could materially adversely affect our ability to pay distributions to our unitholders.

We may not be able to obtain equipment, parts and raw materials in a timely manner, in sufficient quantities or at reasonable costs to support our coal mining and transportation operations.

We use equipment in our coal mining and transportation operations such as continuous miners, conveyors, shuttle cars, roof bolters, shearers, shield trains and trucks. We procure this equipment from a concentrated group of suppliers, and obtaining this equipment often involves long lead times. Occasionally, demand for such equipment by mining companies can be high and some types of equipment may be in short supply. Delays in

 

-21-


Table of Contents

receiving or shortages of this equipment, as well as the raw materials used in the manufacturing of supplies and mining equipment, which, in some cases, do not have ready substitutes, or the cancellation of our supply contracts under which we obtain equipment and other consumables, could limit our ability to obtain these supplies or equipment. In addition, if any of our suppliers experiences an adverse event, or decides to no longer do business with us, we may be unable to obtain sufficient equipment and raw materials in a timely manner or at a reasonable price to allow us to meet our production goals and our revenues may be adversely impacted. We use considerable quantities of steel and petroleum-based fuels in the mining process. If the prices of steel, petroleum products or other materials continue to increase or if the value of the U.S. dollar declines relative to foreign currencies with respect to certain imported supplies or other products, our operating expenses will increase, which could materially and adversely impact our profitability.

Major equipment and plant failures could reduce our ability to produce and ship coal and materially and adversely affect our results of operations.

We depend on several major pieces of equipment and plants to produce and ship our coal, including, but not limited to, longwall mining systems, preparation plants, and transloading facilities. If any of these pieces of equipment or facilities suffered major damage or were destroyed by fire, abnormal wear, flooding, incorrect operation, or otherwise, we may be unable to replace or repair them in a timely manner or at a reasonable cost which would impact our ability to produce and ship coal and materially and adversely affect our results of operations, business and financial condition and our ability to pay distributions to our unitholders.

We are involved in legal proceedings that if determined adversely to us, could significantly impact our profitability, financial position or liquidity.

We are or may be involved in various legal proceedings that arise in the ordinary course of business. Some of the lawsuits seek fines or penalties and damages in very large amounts, or seek to restrict our business activities. In particular, we are subject to legal proceedings relating to our receipt of and compliance with permits under the SMCRA and the CWA and to other legal proceedings relating to environmental matters involving current and historical operations, ownership of land, or permitting. It is currently unknown what the ultimate resolution of these proceedings will be, but these proceedings could have a material adverse effect on our results of operations, cash flows and financial condition as well as our ability to make distributions to our unitholders. See “Business—Legal Proceedings and Liabilities.”

Failure to meet certain provisions in our coal supply agreements could result in economic penalties.

Most of our coal supply agreements contain provisions requiring us to deliver coal meeting quality thresholds for certain characteristics such as heat value, sulfur content, ash content, hardness and ash fusion temperature. Failure to meet these specifications could result in economic penalties, including price adjustments, purchasing replacement coal in a higher priced open market, the rejection of deliveries or termination of the contracts. In some of the contract price adjustment provisions, failure of the parties to agree on price adjustments may allow either party to terminate the contract.

Many agreements also contain provisions that permit the parties to adjust the contract price upward or downward for specific events, including inflation or deflation, and changes in the laws regulating the timing, production, sale or use of coal. Moreover, a limited number of these agreements permit the customer to terminate the contract if transportation costs, which are typically borne by the customer, increase substantially or, in the event of changes in regulations affecting the coal industry, that increase the price of coal beyond specified amounts.

 

-22-


Table of Contents

Substantially all of our coal sales contracts are forward sales contracts. If the production costs underlying these contracts increase, our results of operations could be materially and adversely affected.

Substantially all of our coal sales contracts are forward sales contracts under which customers agree to pay a specified price under their contracts for coal to be delivered in future years. The profitability of these contracts depends on our ability to adequately control the costs of the coal production underlying the contracts. These production costs are subject to variability due to a number of factors, including increases in the cost of labor, supplies or other raw materials. We occasionally enter into hedge or other arrangements to offset the cost variability underlying these forward sales contracts. To the extent our costs increase but pricing under these coal sales contracts remains fixed, we will be unable to pass increasing costs on to our customers. If we are unable to control our costs, our profitability under our forward sales contracts may be impaired and our results of operations, business and financial condition, and our ability to make distributions to our unitholders could be materially and adversely affected.

The loss of, or significant reduction in, purchases by our largest customers could adversely affect our revenues.

We derived approximately 64% and 47% of our total coal revenues from our five largest customers for the year ended December 31, 2010 and the first three quarters of 2011, respectively. Negotiations to extend existing agreements or enter into long-term agreements with those and other customers may not be successful, and those customers may not continue to purchase coal from us. If any of our top customers were to significantly reduce their purchases of coal from us, or if we were unable to sell coal to our top customers on terms as favorable to us as the terms under our current contracts, our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders may be materially adversely affected.

Certain of our customers may seek to defer contracted shipments of coal, which could affect our results of operations and liquidity.

In an economic downturn, certain customers have sought and others may seek to delay shipments or request deferrals under existing agreements. For example, we are currently engaged in a lawsuit with the Tennessee Valley Authority relating to their failure to accept and pay for coal pursuant to a contract with us entered into in September 2008. See “Business—Legal Proceedings and Liabilities.” There is no assurance that we will be able to resolve existing and potential deferrals on favorable terms, or at all. Any such deferrals may have an adverse effect on our business, results of operations and financial condition.

Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates.

Our ability to receive payment for coal sold and delivered depends on the continued creditworthiness of our customers. Many utilities have sold their power plants to non-regulated affiliates or third parties that may be less creditworthy, thereby increasing the risk we bear on payment default. These new power plant owners may have credit ratings that are below investment grade. In addition, some of our customers have been adversely affected by the current economic downturn, which may impact their ability to fulfill their contractual obligations. Competition with other coal suppliers could force us to extend credit to customers and on terms that could increase the risk we bear on payment default. We also have contracts to supply coal to energy trading and brokering companies under which those companies sell coal to end users. If the creditworthiness of the energy trading and brokering companies declines, this would increase the risk that we may not be able to collect payment for all coal sold and delivered to or on behalf of these energy trading and brokering companies. An inability to collect payment from these counterparties may materially adversely affect our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

 

-23-


Table of Contents

Some of our customers blend our coal with coal from other sources, making our sales dependent upon our customers locating additional sources of coal.

Our coal’s characteristics, particularly the sulfur or chlorine content, are such that many of our customers blend our coal with other purchased supplies of coal before burning it in their boilers. Some of our current or future coal sales may therefore be dependent in part on those customers’ ability to locate additional sources of coal with offsetting characteristics which may not be available in the future on terms that render the customers’ overall cost of blended coal economic. A loss of business from such customers may materially adversely affect our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

Our operations are subject to risks, some of which are not insurable, and we cannot assure you that our existing insurance would be adequate in the event of a loss.

Insurance against certain risks, including certain liabilities for environmental pollution or hazards, is not generally available to us or other companies within the mining industry. We cannot assure you that insurance coverage will be available in the future at commercially reasonable costs, or at all, or that the amounts for which we are insured or that we may receive, or the timing of any such receipt, will be adequate to cover all of our losses. Uninsured events may adversely affect our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business.

At December 31, 2011, our total indebtedness was approximately $897.4 million, including our Senior Notes, Senior Secured Credit Facility and longwall financings. We had unused capacity of $76.0 million under our Senior Secured Credit Facility and $6.8 million under our longwall financings. Our substantial indebtedness could adversely affect our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders:

 

   

making it more difficult for us to satisfy our debt obligations;

 

   

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

 

   

limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

 

   

limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage compared to our competitors who have less leverage and who therefore may be able to take advantage of opportunities that our leverage prevents us from exploiting; and

 

   

increasing our vulnerability to adverse economic, industry or competitive developments.

Our ability to generate the significant amount of cash needed to service our debt and financial obligations and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash

 

-24-


Table of Contents

flows from operating activities sufficient to permit us to make payments on our indebtedness. If we are unable to fund our debt service obligations, it will have an adverse effect on our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of our existing or future debt instruments may restrict us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

We have future mine closure and reclamation obligations the timing of and amount for which are uncertain. In addition, our failure to maintain required financial assurances could affect our ability to secure reclamation and coal lease obligations, which could adversely affect our ability to mine or lease the coal.

In view of the uncertainties concerning future mine closure and reclamation costs on our properties, the ultimate timing and future costs of these obligations could differ materially from our current estimates. At September 30, 2011, we recorded total asset retirement obligations of approximately $23.0 million. Our estimates for this future liability are subject to change based on new or amendments to existing applicable laws and regulation, the nature of ongoing operations and technological innovations. Although we accrue for future costs, we do not reserve cash in respect of these obligations or otherwise fund these obligations in advance. As a result, we will have significant cash costs when we are required to close and restore mine sites that may, among other things, affect our ability to satisfy our obligations under our indebtedness and other contractual commitments. We cannot assure you that we will be able to obtain financing on satisfactory terms to fund these costs or at all.

In addition, regulatory authorities require us to provide financial assurance to secure, in whole or in part, our future reclamation projects in the United States and our obligations under coal leases in the United States. The amount and nature of the financial assurances are dependent upon a number of factors, including our financial condition and reclamation cost estimates. Changes to these amounts, as well as the nature of the collateral to be provided, could significantly increase our costs, making the maintenance and development of existing and new mines less economically feasible. Currently, the security we provide consists of surety bonds. The premium rates and terms of the surety bonds are subject to annual renewals. Our failure to maintain, or inability to acquire, surety bonds or other forms of financial assurance that are required by applicable law, contract or permit could adversely affect our ability to operate. That failure could result from a variety of factors including the lack of availability, higher expense or unfavorable market terms of new surety bonds or other forms of financial assurance. There can be no guarantee that we will be able to maintain or add to our current level of financial assurance. Additionally, any capital resources that we do utilize for this purpose will reduce our resources available for our operations and commitments as well as our ability to pay distributions to our unitholders.

Defects in title or loss of any leasehold interests in our properties could limit our ability to conduct mining operations on these properties or result in significant unanticipated costs.

Substantially all of our coal reserves are leased. A title defect or the loss of any lease upon expiration of its term, upon a default or otherwise, could adversely affect our ability to mine the associated reserves and/or process the coal that we mine. Title to most of our owned or leased properties and mineral rights is not usually verified until we make a commitment to mine a property, which may not occur until after we have obtained necessary permits and completed exploration of the property. In some cases, we rely on title information or representations and warranties provided by our lessors or grantors. Our right to mine certain of our reserves has in the past been, and may again in the future be, adversely affected if defects in title, boundaries or other rights

 

-25-


Table of Contents

necessary for mining exist or if a lease expires. Any challenge to our title or leasehold interests could delay the mining of the property and could ultimately result in the loss of some or all of our interest in the property. From time to time we also may be in default with respect to leases for properties on which we have mining operations. In such events, we may have to close down or significantly alter the sequence of such mining operations which may adversely affect our future coal production and future revenues. If we mine on property that we do not own or lease, we could incur liability for such mining and be subject to regulatory sanction and penalties. Also, in any such case, the investigation and resolution of title issues would divert management’s time from our business and our results of operations could be adversely affected. Additionally, if we lose any leasehold interests relating to any of our preparation plants, we may need to find an alternative location to process our coal and load it for delivery to customers, which could result in significant unanticipated costs.

In order to obtain, maintain or renew leases or mining contracts to conduct our mining operations on property where these defects exist, we may in the future have to incur unanticipated costs. In addition, we may not be able to successfully negotiate new leases or mining contracts for properties containing additional reserves, or maintain our leasehold interests in properties where we have not commenced mining operations during the term of the lease. Some leases have minimum production requirements. Failure to meet those requirements could result in losses of prepaid royalties and, in some rare cases, could result in a loss of the lease itself. As a result, our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders may be materially adversely affected.

Substantially all of our coal reserves are leased and are subject to minimum royalty payments that are due regardless of whether coal is actually mined.

Substantially all of the reserves that our operating companies currently mine and will mine are leased from third parties. Each of those leases requires that minimum royalties be paid regardless of production levels from the leased reserves. See “Business—Coal Reserves.” If certain operations do not meet production goals then we could suffer shortage of cash due to the ongoing requirement to pay minimum royalty payments despite a lack of production and the attendant sales revenue. As a result, our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders may be materially adversely affected.

Significant increases in, or the imposition of new, taxes we pay on the coal we produce could materially and adversely affect our results of operations.

A substantial portion of our operations are in Illinois. If Illinois were to impose a state severance tax or any other tax applicable solely to our Illinois operations, we may be significantly impacted and our results of operations, business and financial condition, as well as the ability to pay distributions to our unitholders. could be materially and adversely affected. Any imposition or change in the Illinois state severance tax or any county tax could disproportionately impact us relative to our competitors that are more geographically diverse.

We operate our mines with a limited work force. Our ability to operate our mines efficiently and profitably could be impaired if we lose key personnel or fail to continue to attract qualified contractors.

We manage our business with a number of key personnel at each location, including key contractors. In addition, as our business develops and expands, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel and contractors. We cannot be certain that key personnel will continue to be employed by us or that we will be able to attract and retain qualified personnel and contractors in the future. Failure to retain or attract key personnel could have a material adverse effect on our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

 

-26-


Table of Contents

We operate our mines with a work force that is contracted through our operators. While none of our contractors’ employees are members of unions, our work force may not remain non-union in the future.

None of our contractors’ employees are represented under collective bargaining agreements. However, all of our work force may not remain non-union in the future, and proposed legislation such as the Employee Free Choice Act, could, if enacted, make union organization more likely. If some or all of our current operations were to become unionized, it could adversely affect our productivity, increase our labor costs and increase the risk of work stoppages at our mining complexes. In addition, even if we remain non-union, our operations may still be adversely affected by work stoppages at our facilities or at unionized companies, particularly if union workers were to orchestrate boycotts against our operations.

A shortage of skilled mining labor in the United States could decrease our labor productivity and increase our labor costs, which would adversely affect our profitability.

Efficient coal mining using complex and sophisticated techniques and equipment requires skilled laborers, preferably with at least one year of experience, and proficiency in multiple mining tasks, including mining equipment maintenance. Any shortage of skilled mining labor reduces the productivity of our experienced employees who must assist in training unskilled employees. If a shortage of experienced labor occurs, it could have an adverse impact on our labor productivity and costs and our ability to expand production in the event there is an increase in the demand for our coal, which could adversely affect our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

Failures of contractor-operated sources to fulfill the delivery terms of their contracts with us could adversely affect our operations and reduce our profitability.

Within our normal mining operations, we utilize contract miners for all of our coal production and transportation companies to deliver our coal. If any of the contract mining or transportation companies with whom we contract went bankrupt or were otherwise unavailable to provide their services, our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders could be materially adversely affected. Our contract miners and contract transportation companies pass their costs to us. Our profitability or exposure to loss on transactions or relationships such as these is dependent upon a variety of factors, including the reliability of the third-party; the price and financial viability of the third-party; our willingness to reimburse temporary cost increases experienced by the third-party; our ability to pass on cost increases to customers; our ability to substitute, when economical, third-party coal sources with internal production or coal purchased in the market; and other factors.

Our ability to operate our business effectively could be impaired if we fail to attract and retain key personnel.

Our ability to operate our business and implement our strategies depends, in part, on the continued contributions of our executive officers and other key employees. The loss of any of our key senior executives could have a material adverse effect on our business unless and until we find a replacement. A limited number of persons exist with the requisite experience and skills to serve in our senior management positions. We may not be able to locate or employ qualified executives on acceptable terms. In addition, we believe that our future success will depend on our continued ability to attract and retain highly skilled personnel with coal industry experience. Competition for these persons in the coal industry is intense and we may not be able to successfully recruit, train or retain qualified managerial personnel. As a public company, our future success also will depend on our ability to hire and retain management with public company experience. We may not be able to continue to employ key personnel or attract and retain qualified personnel in the future. Our failure to retain or attract key personnel could have a material adverse effect on our ability to effectively operate our business.

 

-27-


Table of Contents

Coal mining operations are subject to inherent risks and are dependent on many factors and conditions beyond our control, any of which may adversely affect our productivity and our financial condition.

Our mining operations, including our transportation infrastructure, are influenced by changing conditions that can affect the safety of our workforce, production levels, delivery of our coal and costs for varying lengths of time and, as a result, can diminish our revenues and profitability. A shutdown of any of our mines or prolonged disruption of production at any of our mines or transportation of our coal to customers would result in a decrease in our revenues and profitability, which could be material. Certain factors affecting the production and sale of our coal that could result in decreases in our revenues and profitability include:

 

   

Adverse geologic conditions including floor and roof conditions, variations in seam height and washouts;

 

   

Fire or explosions from methane, coal or coal dust or explosive materials;

 

   

Inclement or hazardous weather conditions and natural disasters, such as heavy rain, high winds and flooding;

 

   

Industrial accidents;

 

   

Seismic activities, ground failures, rock bursts or structural cave-ins or slides;

 

   

Environmental hazards;

 

   

Delays in the receipt of, or failure to receive, or revocation of necessary government permits;

 

   

Changes in the manner of enforcement of existing laws and regulations.

 

   

Changes in laws or regulations, including permitting requirements and the imposition of additional regulations, taxes or fees;

 

   

Accidental or unexpected mine water inflows;

 

   

Delays in moving our longwall equipment;

 

   

Railroad derailments;

 

   

River flooding;

 

   

Interruption or loss of power, fuel, or parts;

 

   

Increased or unexpected reclamation costs;

 

   

Equipment availability, replacement or repair costs; and

 

   

Mining and processing equipment failures and unexpected maintenance problems;

These risks, conditions and events could result in damage to, or destruction of value of, our coal properties, our coal production or transportation facilities, personal injury or death, environmental damage to our properties or the properties of others, delays or prohibitions on mining our coal or in the transportation of coal, monetary losses and potential legal liability, and could have a material adverse effect on our operating results and our ability to generate the cash flows we require to invest in our operations and satisfy our obligations. In particular, underground mining and related processing activities present inherent risks of injury to persons and damage to equipment. Our insurance policies only provide limited coverage for some of these risks and will not fully cover these risks. Significant mine accidents could occur, potentially resulting in a mine shutdown, and could have a substantial impact on our results of operations, financial condition or cash flows. These risks, conditions or events have had, and can be expected in the future to have, a significant impact on our business and operating results.

 

-28-


Table of Contents

Any change in consumption patterns by generators away from the use of coal could affect our ability to sell the coal we produce.

Coal powers 42% of the world’s electricity needs and the domestic electricity generation industry accounts for approximately 90% of domestic coal consumption. The amount of coal consumed by the electric generation industry is affected primarily by the overall demand for electricity, environmental and other governmental regulations, and the price and availability of renewable energy sources, including biomass, hydroelectric, wind and solar power, and other non-renewable fuel sources, including natural gas and nuclear. For example, the relatively recent low price of natural gas resulted, in some instances, in domestic generators increasing natural gas consumption while decreasing coal consumption. Future environmental regulation of GHG emissions could accelerate the use by utilities of fuels other than coal. Domestically, state and federal mandates for increased use of electricity derived from renewable energy sources could affect demand for our coal. A number of states have enacted mandates that require electricity suppliers to rely on renewable energy sources in generating a certain percentage of power. Such mandates, combined with other incentives to use renewable energy sources, such as tax credits, could make alternative fuel sources more competitive with coal. A decrease in coal consumption by the electric generation industry could adversely affect the price of coal, which could negatively affect our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

Competition within the coal industry may adversely affect our ability to sell coal and excess production capacity in the industry could put downward pressure on coal prices.

We compete with other producers primarily on the basis of price, coal quality, transportation cost and reliability of delivery. We cannot assure you that competition from other producers will not adversely affect us in the future. The coal industry has experienced consolidation in recent years, including consolidation among some of our major competitors. As a result, a substantial portion of coal production is from companies that have significantly greater resources than we do. We cannot assure you that the result of current or further consolidation in the industry will not adversely affect us. In addition, potential changes to international trade agreements, trade concessions or other political and economic arrangements may benefit coal producers operating in countries other than the United States, where our mining operations are currently located. We cannot assure you that we will be able to compete on the basis of price or other factors with companies that in the future may benefit from favorable trading or other arrangements. We compete directly for United States and international coal sales with numerous other coal producers located in the United States and internationally, in countries such as Australia, China, India, South Africa, Indonesia, Russia and Colombia. The price of coal in the markets into which we sell is also influenced by the price of coal in the markets in which we do not sell our coal because significant oversupply of coal from other markets could materially reduce the prices we receive for our coal. Increases in coal prices could encourage the development of expanded capacity by new or existing coal producers, which could result in lower coal prices. As a result, our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders may be materially adversely affected.

The availability or reliability of current transportation facilities and our current dependence on a single rail carrier for transport from Williamson could affect the demand for our coal or temporarily impair our ability to supply coal to our customers. In addition, our inability to expand our transportation capabilities and options could further impair our ability to deliver coal efficiently to our customers.

Coal producers depend upon rail, barge, truck, overland conveyor, ocean-going vessels and port facilities to deliver coal to customers. Disruption of these transportation services because of weather-related problems, infrastructure damage, strikes, lock-outs, lack of fuel or maintenance items, transportation delays, lack of rail or port capacity or other events could temporarily impair our ability to supply coal to customers and thus could adversely affect our results of operations, cash flows and financial condition.

Currently, coal produced at Williamson is transported to our customers by a single rail carrier. If there are significant disruptions in the rail services provided by that carrier, then costs of transportation for our coal could increase substantially until we develop our alternative rail right-of-way. Additionally, if there are disruptions of

 

-29-


Table of Contents

the transportation services provided by the railroad and we are unable to find alternative transportation providers to ship our coal, our business and profitability could be adversely affected. While we currently have contracts in place for transportation of coal from our facilities and have continued to develop alternative transportation options, there is no assurance that we will be able to renew these contracts or to develop these alternative transportation options on terms that remain favorable to us. Any failure to do so could have a material adverse impact on our financial position and results of operations.

Significant increases in transportation costs could make our coal less competitive when compared to alternative fuels or coal produced from other regions.

Transportation costs represent a significant portion of the total cost of coal for our customers, and the cost of transportation is an important factor in a customer’s purchasing decision. Increases in transportation costs, including increases resulting from emission control requirements and fluctuations in the price of diesel fuel and demurrage, could make coal a less competitive source of energy when compared to alternative fuels such as natural gas, or could make our coal production less competitive than coal produced in other regions of the United States or abroad.

Significant decreases in transportation costs could result in increased competition from coal producers in other parts of the country and from abroad, including coal imported into the United States. Coordination of the many eastern loading facilities, the large number of small shipments, terrain and labor issues all combine to make shipments originating in the eastern United States inherently more expensive on a per ton-mile basis than shipments originating in the western United States. Historically, high coal transportation rates and transportation constraints from the western coal producing areas into eastern United States markets limited the use of western coal in those markets. However, a decrease in rail rates or an increase in rail capacity from the western coal producing areas to markets served by eastern United States producers could create major competitive challenges for eastern producers. Increased competition due to changing transportation costs could have an adverse effect on our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

Our ability to mine and ship coal is affected by adverse weather conditions, which could have an adverse effect on our revenues.

Adverse weather conditions can impact our ability to mine and ship our coal and our customers’ ability to take delivery of our coal. Lower than expected shipments by us during any period could have an adverse effect on our revenues. For example, in the second quarter of 2011 heavy rain reduced the ability of the railroads and barges our customers used to transport coal from our mines. In addition, severe weather may affect our ability to conduct our mining operations and severe rain, ice or snowfall may affect our ability to load and transport coal. If we are unable to conduct our operations due to severe weather, our business could be materially and adversely affected.

As our existing coal supply agreements expire, our revenues and operating profits could be negatively impacted if we are unable to extend existing agreements or enter into new agreements due to competition, changing coal purchasing patterns or other variables.

As our coal supply agreements expire, we will compete with other coal suppliers to renew these agreements or to obtain new sales. To the extent our other mines in operation do not have contracts for coal or if we cannot renew these coal supply agreements with our customers or find alternate customers willing to purchase our coal, our revenue and operating profits could suffer.

Our customers may decide not to extend existing agreements or enter into new long-term contracts or, in the absence of long-term contracts, may decide to purchase fewer tons of coal than in the past or on different terms, including under different pricing terms. The global recession experienced in 2008 and 2009 resulted in decreased

 

-30-


Table of Contents

demand worldwide for electricity. Any decrease in demand may cause our customers to delay negotiations for new contracts and/or request lower pricing terms. Furthermore, uncertainty caused by laws and regulations affecting electric utilities could deter our customers from entering into long-term coal supply agreements. Some long-term contracts contain provisions for termination due to environmental changes if these changes prohibit utilities from burning the contracted coal. To the degree that we operate outside of long-term contracts, our revenues are subject to pricing in the spot market that can be significantly more volatile than the pricing structure negotiated through a long-term coal supply agreement. This volatility could materially adversely affect our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders if spot market pricing for coal is unfavorable.

The current challenging economic environment, along with difficult and volatile conditions in the capital and credit markets, could materially adversely affect our financial position, results of operations or cash flows, and we are unsure whether these conditions will improve in the near future.

The United States economy and global credit markets remain volatile. Worsening economic conditions or factors that negatively affect the economic health of the United States and Europe could reduce our revenues and thus adversely affect our results of operations. The recent financial and sovereign debt crises in North America and Europe have led to a global economic slowdown, with the economies of those regions showing significant signs of weakness resulting in greater volatility in the United States economy and in the global capital and credit markets. These markets have been experiencing disruption, including, among other things, volatility in security prices, diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others, failure and potential failures of major financial institutions, unprecedented government support of financial institutions and high unemployment rates. Instability in consumer confidence and increased unemployment have increased concerns of prolonged economic weakness. Furthermore, these developments may adversely affect the ability of our customers and suppliers to obtain financing to perform their obligations to us. We are unable to predict the duration and severity of the current crisis or determine the specific impact of the current economic conditions on our business at this time, but we believe that further deterioration or a prolonged period of economic weakness will have an adverse impact on our results of operations, business and financial condition, as well as our ability to pay distributions to our unitholders.

Risks Related to Environmental, Health, Safety and Other Regulation

Our mining operations, including our transportation infrastructure, are extensively regulated, which imposes significant costs on us, and changes to existing and potential future regulations or violations of regulations could increase those costs or limit our ability to produce coal.

The coal mining industry is subject to increasingly strict regulation by federal, state and local authorities on matters such as:

 

   

Surface subsidence from underground mining;

 

   

Employee health and safety;

 

   

Permits and other licensing requirements;

 

   

Remediation of contaminated soil, surface water and groundwater;

 

   

Air emissions;

 

   

Water quality standards;

 

   

The discharge of materials into the environment, including waste water;

 

   

Storage, treatment and disposal of petroleum products and substances which are regarded as hazardous under applicable laws or which, if spilled, could reach waterways or wetlands;

 

   

Protection of human health, plant life and wildlife, including endangered and threatened species;

 

   

Reclamation and restoration of mining properties after mining is completed;

 

-31-


Table of Contents
   

Wetlands protection;

 

   

Dam Permitting; and

 

   

The effects, if any, that mining has on groundwater quality and availability.

Because we engage in longwall mining at Williamson and intend to do so at Sugar Camp and Hillsboro, subsidence issues are particularly important to our operations. Failure to timely secure subsidence rights or any associated mitigation agreements, or any related regulatory action, could materially affect our results by causing delays or changes in our mining plan through stoppages or increased costs because of the necessity of obtaining such rights.

In addition, the utility industry is subject to extensive regulation regarding the environmental impact of its power generation activities, which could affect demand for our coal. It is possible that new environmental legislation or regulations may be adopted, or that existing laws or regulations may be differently interpreted or more stringently enforced, any of which could have a significant impact on our mining operations or our customers’ ability to use coal.

Because of the extensive and detailed nature of these regulatory requirements, it is extremely difficult for us and other underground coal mining companies in particular, as well as the coal industry in general, to comply with all requirements at all times. We have been cited for violations of regulatory requirements in the past and we expect to be cited for violations in the future. None of our violations to date has had a material impact on our operations or financial condition, but future violations may have a material adverse impact on our business, result of operations or financial condition. While it is not possible to quantify all of the costs of compliance with applicable federal and state laws and associated regulations, those costs have been and are expected to continue to be significant. Compliance with these laws and regulations, and delays in the receipt of, or failure to receive or revocation of necessary government permits, can substantially increase the cost of coal mining or have a material adverse effect on our results of operations, cash flows and financial condition.

We may be unable to obtain, maintain or renew permits necessary for our operations, which would materially and adversely affect our production, cash flow and profitability.

Mining companies must regularly obtain, maintain or renew a number of permits that impose strict requirements on various environmental and operational matters in connection with coal mining. These include permits issued by various federal, state and local agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change frequently, and are often subject to discretionary interpretations by the regulators, all of which may make compliance more difficult or impractical, and may possibly preclude the continuance of ongoing mine development or operations or the development of future mining operations. The public, including non-governmental organizations, anti-mining groups and individuals, have certain statutory rights to comment upon and submit objections to requested permits and environmental impact statements prepared in connection with applicable regulatory processes, and otherwise engage in the permitting process, including bringing citizens’ claims to challenge the issuance or renewal of permits, the validity of environmental impact statements or performance of mining activities. Accordingly, required permits may not be issued in a timely fashion or renewed at all, or permits issued or renewed may not be maintained, may be challenged or may be conditioned in a manner that may restrict our ability to efficiently and economically conduct our mining activities, any of which would materially reduce our production, cash flow, and profitability. For example, the principal operating permit for Hillsboro, issued in 2009 under SMCRA by the IDNR, is currently being challenged by an environmental organization and several individuals which, if successful, could result in delay, modification or cessation of activities at the mine site, any of which could materially and adversely affect our production, cash flow and profitability. See “Business—Legal Proceedings and Liabilities.”

New legislation or administrative regulations or new judicial interpretations or administrative enforcement of existing laws and regulations, including proposals related to the protection of the environment that would

 

-32-


Table of Contents

further regulate and tax the coal industry may also require us to change operations significantly or incur increased costs. Such changes could have a material adverse effect on our financial condition and results of operations. See “Environmental and Other Regulatory Matters.”

Extensive governmental regulation pertaining to employee safety and health imposes significant costs on our mining operations and could materially and adversely affect our results of operations.

Federal and state safety and health regulations in the coal mining industry are among the most comprehensive and pervasive systems for protection of employee safety and health affecting any segment of United States industry. Compliance with these requirements imposes significant costs on us and can result in reduced productivity.

The possibility exists that new health and safety legislation and/or regulations and orders may be adopted that may materially and adversely affect our mining operations. For example, in response to underground mine accidents in the last decade, state and federal legislatures and regulatory authorities have increased scrutiny of mine safety matters and adopted more stringent requirements governing all forms of mining, including increased sanctions for and disclosure regarding non-compliance. In 2006, Congress enacted the Mine Improvement and New Emergency Response Act, or MINER Act, which imposed additional obligations on all coal operators, including, among other matters:

 

   

The development of new emergency response plans;

 

   

Ensuring the availability of mine rescue teams;

 

   

Prompt notification to federal authorities of incidents that pose a reasonable risk of death; and

 

   

Increased penalties for violations of the applicable federal laws and regulations.

There is also a possibility that new federal legislation pending in Congress known as the Supplemental Mine Improvement and New Emergency Response Act, or S-MINER Act, could be enacted. Various states also have enacted new laws and regulations addressing many of these same subjects.

Federal and state health and safety authorities inspect our operations, and we anticipate a significant increase in the frequency and scope of these inspections. In recent years, federal authorities have also conducted special inspections of coal mines for, among other safety concerns, the accumulation of coal dust and the proper ventilation of gases such as methane. In addition, the federal government has announced that it is considering changes to mine safety rules and regulations, which could potentially result in or require additional safety training and planning, enhanced safety equipment, more frequent mine inspections, stricter enforcement practices and enhanced reporting requirements.

Our contractors must compensate employees for work-related injuries. If they do not make adequate provisions for their workers’ compensation liabilities, it could harm our future operating results. Under the Black Lung Benefits Revenue Act of 1977 and Black Lung Benefits Reform Act of 1977, as amended in 1981, each coal mine operator must secure payment of federal black lung benefits to claimants who are current and former employees and contribute to a trust fund for the payment of benefits and medical expenses to claimants who last worked in the coal industry before July 1973. The trust fund is funded by an excise tax on coal production of up to $1.10 per ton for underground coal, not to exceed 4.4% of the gross sales price. For the nine month period ended September 30, 2011, we recognized $5.2 million of expense related to this tax. If this tax increases, or if we could no longer pass it on to the purchasers of our coal under our coal sales agreements, our operating costs could be increased and our results could be materially and adversely harmed. If new laws or regulations increase the number and award size of claims, it could materially and adversely harm our business. See “Environmental and Other Regulatory Matters.” In addition, the erosion through tort liability of the protections we are currently provided by workers’ compensation laws could increase our liability for work-related injuries and materially and adversely affect our operating results.

 

-33-


Table of Contents

Finally, as a public company, we will be subject to the Dodd-Frank Wall Street Reform and Consumer Protection Act provisions requiring disclosure in our periodic and other reports filed with the SEC regarding specified health and safety violations, orders and citations, related assessments and legal actions and mining-related fatalities.

Federal or state regulatory agencies have the authority to order certain of our mines to be temporarily or permanently closed under certain circumstances, which could materially and adversely affect our ability to meet our customers’ demands.

Federal or state regulatory agencies, including MSHA, IDNR and IEPA, have the authority under certain circumstances following significant health, safety or environmental incidents as pursuant to permitting authority to order a mine to be temporarily or permanently closed. If this occurred, we may be required to incur capital expenditures to re-open the mine. In the event that these agencies order the closing of our mines, our coal sales contracts generally permit us to issue force majeure notices which suspend our obligations to deliver coal under these contracts. However, our customers may challenge our issuances of force majeure notices in connection with these closures. If these challenges are successful, we may have to purchase coal from third-party sources, if it is available, to fulfill these obligations, incur capital expenditures to re-open the mines and/or negotiate settlements with the customers, which may include price reductions, the reduction of commitments or the extension of time for delivery or terminate customers’ contracts. Any of these actions could have a material adverse effect on our business and results of operations.

Our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us.

Certain of our current and historical coal mining operations use or have used hazardous and other regulated materials and have generated hazardous wastes. In addition, many of the locations that we own or operate were used for coal mining and/or involved hazardous materials either before or after we were involved with these locations. We may be subject to claims under federal and state statutes and/or common law doctrines for penalties, toxic torts and other damages, as well as for natural resource damages and for the investigation and remediation of soil, surface water, groundwater, and other media under laws such as the CERCLA, commonly known as Superfund, or the Clean Water Act. Such claims may arise, for example, out of current, former or threatened conditions at sites that we own or operate currently, as well as at sites that we and companies we acquired owned or operated in the past, or sent waste to for treatment or disposal and at contaminated sites that have always been owned or operated by third parties. For example, we are conducting remediation of refuse storage areas and groundwater contamination at Macoupin pursuant to our agreement with Illinois regulators. See “Business—Legal Proceedings and Liabilities.” Liability may be strict, joint and several, so that we, regardless of whether we caused contamination, may be held responsible for more than our share of the contamination or other damages, or even for the entire share. These and other similar unforeseen impacts that our operations may have on the environment, as well as exposures to regulated materials or wastes associated with our operations, could result in costs and liabilities that could adversely affect us.

New developments in the regulation of GHG emissions and coal ash could materially adversely affect our customers’ demand for coal and our results of operations, cash flows and financial condition.

Coal-fueled power plants produce carbon dioxide and other GHG as a by-product of their operations. GHG emissions have received increasing scrutiny from local, state, federal and international government bodies. Future regulation of GHG could occur pursuant to future United States treaty obligations or statutory or regulatory change. In addition, the EPA and other regulators are using existing laws, including the federal Clean Air Act, to seek to limit emissions of carbon dioxide and other GHG emissions, from major sources, including coal-fueled power plants. State and regional climate change initiatives to regulate GHG emissions, such as the RGGI of certain northeastern and mid-Atlantic states, the Western Climate Initiative, the Midwestern Greenhouse Gas Reduction Accord, and the California Global Warming Solutions Act, either have already taken

 

-34-


Table of Contents

effect or may take effect before federal action. The permitting of new coal-fired power plants has also recently been contested by state regulators and environmental organizations over concerns related to GHG emissions from the new plants. Further, governmental agencies have been providing grants or other financial incentives to entities developing or selling alternative energy sources with lower levels of GHG emissions, which may lead to more competition from those entities. There have also been several public nuisance lawsuits brought against power, coal, oil and gas companies alleging that their operations are contributing to climate change. The plaintiffs are seeking various remedies, including punitive and compensatory damages and injunctive relief. While the United States Supreme Court recently determined that such claims cannot be pursued under Federal law, plaintiffs may seek to proceed under state common law. Global treaties are also being considered that place restrictions on carbon dioxide and other GHG emissions.

A well-publicized failure in December 2008 of a coal ash slurry impoundment maintained by the Tennessee Valley Authority used to store ash from its coal burning power plants has led to new legislative and regulatory scrutiny and proposals that, if enacted, may impose significant obligations on us or our customers. The EPA has proposed regulations to address the management of coal ash that could result in treating coal ash as a hazardous waste, and doing so would increase regulatory obligations, costs and potential liability for handling coal ash for our utility customers and for us if we were to use coal ash for reclamation, or store or dispose of coal ash for any of our utility customers.

Current and future international, federal, state, regional or local laws, regulations or court orders regulating GHG emissions and/or coal ash could require additional controls on coal-fueled power plants and industrial boilers and may cause some users of coal to close existing facilities, reduce construction of new facilities or switch from coal to alternative fuels. These ongoing and future developments may have a material adverse impact on the global supply and demand for coal, and as a result could materially adversely affect our results of operations, cash flows and financial condition. Even in the absence of future developments, increased awareness of, and any adverse publicity regarding, GHG emissions and coal ash use, storage or disposal could adversely affect our customers’ reputation and reduce demand for coal.

Extensive environmental regulations, including existing and potential future regulatory requirements relating to air emissions, affect our customers and could reduce the demand for coal as a fuel source and cause coal prices and sales of our coal to materially decline.

The operations of our customers are subject to extensive environmental regulation particularly with respect to air emissions. For example, the federal Clean Air Act and similar state and local laws extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides, mercury, and other compounds emitted into the air from electric power plants, which are the largest end-users of our coal. A series of more stringent requirements relating to particulate matter, ozone, haze, mercury, sulfur dioxide, nitrogen oxide and other air pollutants will, or are expected to become effective in coming years. These requirements include the federal CSAPR and MATS. In addition, concerted conservation efforts that result in reduced electricity consumption could cause coal prices and sales of our coal to materially decline.

More stringent air emissions limitations may require significant emissions control expenditures for many coal-fired power plants and could have the effect of making coal-fired plants less profitable. As a result, some power plants may switch to other fuels that generate less of these emissions or they may close. Any switching of fuel sources away from coal, closure of existing coal-fired plants, or reduced construction of new plants could have a material adverse effect on demand for and prices received for our coal. See “Environmental and Other Regulatory Matters.”

 

-35-


Table of Contents

Risks Inherent in an Investment in Us

Foresight Reserves owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including Foresight Reserves, have conflicts of interest with us and limited fiduciary duties, and they may favor their own interests to the detriment of us and our unitholders.

Following the offering, Foresight Reserves will own and control our general partner and will appoint all of the directors of our general partner. Although our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders, the executive officers and directors of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to Foresight Reserves. Therefore, conflicts of interest may arise between Foresight Reserves and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates over the interests of our common unitholders. These conflicts include the following situations, among others:

 

   

our general partner is allowed to take into account the interests of parties other than us, such as Foresight Reserves, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;

 

   

neither our partnership agreement nor any other agreement requires Foresight Reserves to pursue a business strategy that favors us;

 

   

our partnership agreement limits the liability of and reduces fiduciary duties owed by our general partner and also restricts the remedies available to unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty;

 

   

except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;

 

   

our general partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders;

 

   

our general partner determines the amount and timing of any capital expenditure and whether a capital expenditure is classified as a maintenance and replacement capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating surplus. Our partnership agreement does not set a limit on the amount of maintenance and replacement capital expenditures that our general partner may estimate. Please read “How We Make Distributions To Our Partners—Capital Expenditures” for a discussion on when a capital expenditure constitutes a maintenance and replacement capital expenditure or an expansion capital expenditure. This determination can affect the amount of cash that is distributed to our unitholders, which, in turn, may affect the ability of the subordinated units to convert. Please read “How We Make Distributions To Our Partners—Partnership Interests—Subordination Period”;

 

   

our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period;

 

   

our partnership agreement permits us to distribute up to $         million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or the incentive distribution rights;

 

   

our general partner determines which costs incurred by it and its affiliates are reimbursable by us;

 

   

our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf;

 

-36-


Table of Contents
   

our general partner intends to limit its liability regarding our contractual and other obligations;

 

   

our general partner may exercise its right to call and purchase common units if it and its affiliates own more than 80% of the common units;

 

   

our general partner controls the enforcement of obligations that it and its affiliates owe to us;

 

   

our general partner decides whether to retain separate counsel, accountants or others to perform services for us;

 

   

our general partner may transfer its incentive distribution rights without unitholder approval; and

 

   

our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or the unitholders. This election may result in lower distributions to the common unitholders in certain situations.

In addition, Foresight Reserves currently holds substantial interests in other companies in the energy and natural resource sectors. We may compete directly with entities in which Foresight Reserves has an interest for acquisition opportunities and potentially will compete with these entities for new business or extensions of the existing services provided by us. Please read “—Foresight Reserves and affiliates of our general partner may compete with us” and “Conflicts of Interest and Fiduciary Duties.”

Our general partner intends to limit its liability regarding our obligations.

Our general partner intends to limit its liability under contractual arrangements between us and third parties so that the counterparties to such arrangements have recourse only against our assets, and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s fiduciary duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.

It is our policy to distribute a significant portion of our available cash to our partners, which could limit our ability to grow and make acquisitions.

Pursuant to our cash distribution policy, we expect that, following the PIK period, we will distribute a significant portion of our available cash to our partners and will rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy may impair our ability to grow.

In addition, because we intend to distribute a significant portion of our available cash, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may impact the available cash that we have to distribute to our unitholders. See “Distribution Policy and Restrictions on Distributions.”

 

 

-37-


Table of Contents

We may issue additional units without unitholder approval, and expect to issue additional subordinated units, which will dilute existing unitholder ownership interests.

Our partnership agreement does not limit the number of additional limited partner interests, including limited partner interest that rank senior to the common units, that we may issue at any time without the approval of our unitholders. We expect to issue additional subordinated units to the holders of the subordinated units during the PIK period. In addition, if the subordinated units convert prior to the end of the PIK period, they will convert into PIK common units, which will be entitled to receive additional PIK common units in lieu of cash distributions. The issuance of additional common units or other equity interests of equal or senior rank will have the following effects:

 

   

our existing unitholders’ proportionate ownership interest in us will decrease;

 

   

the amount of cash available for distribution on each unit may decrease;

 

   

because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

 

   

the ratio of taxable income to distributions may increase;

 

   

the relative voting strength of each previously outstanding unit may be diminished; and

 

   

the market price of the common units may decline.

In addition, to the extent that we are unable to generate a sufficiently large return from investment of the proceeds of the issuance of additional units, or, with respect to the subordinated units and any PIK common units, reinvestment of the cash we retain by paying distributions in kind, such issuances will be dilutive to the existing unitholders.

Our partnership agreement replaces our general partner’s fiduciary duties to holders of our units.

Our partnership agreement contains provisions that eliminate and replace the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, or otherwise free of fiduciary duties to us and our unitholders. This entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:

 

   

how to allocate business opportunities among us and its affiliates;

 

   

whether to exercise its call right;

 

   

how to exercise its voting rights with respect to the units it owns;

 

   

whether to exercise its registration rights;

 

   

whether to elect to reset target distribution levels; and

 

   

whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement.

By purchasing a common unit, a unitholder is treated as having consented to the provisions in the partnership agreement, including the provisions discussed above. Please read “Conflicts of Interest and Fiduciary Duties—Fiduciary Duties.”

 

 

-38-


Table of Contents

Our partnership agreement restricts the remedies available to holders of our units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement:

 

   

provides that whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner, our general partner is required to make such determination, or take or decline to take such other action, in good faith, and will not be subject to any other or different standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;

 

   

provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning that it believed that the decision was in the best interest of our partnership;

 

   

provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and

 

   

provides that our general partner will not be in breach of its obligations under the partnership agreement or its fiduciary duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:

 

  (1) approved by the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval; or

 

  (2) approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates.

In connection with a situation involving a transaction with an affiliate or a conflict of interest, any determination by our general partner must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Please read “Conflicts of Interest and Fiduciary Duties.”

Foresight Reserves and affiliates of our general partner may compete with us.

Our partnership agreement provides that our general partner will be restricted from engaging in any business activities other than acting as our general partner and those activities incidental to its ownership interest in us. The parent and affiliates of our general partner are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us.

In addition, certain affiliates of our general partner, including The Cline Group and Riverstone, currently hold substantial interests in other companies in the coal mining business. For example, The Cline Group makes investments and purchases entities that acquire, own and operate coal mining businesses. These investments and acquisitions may include entities or assets that we would have been interested in acquiring. Therefore, affiliates of our general partner may compete with us for investment opportunities, and our affiliates of our general partner may own an interest in entities that compete with us.

 

 

-39-


Table of Contents

Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our general partner or any of its affiliates, including its executive officers, directors and Foresight Reserves. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and our unitholders. Please read “Conflicts of Interest and Fiduciary Duties.”

Our general partner may elect to cause us to issue common units and general partner units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights, without the approval of the conflicts committee of its board of directors or the holders of our common units. This could result in lower distributions to holders of our common units.

Our general partner has the right, as the initial holder of our incentive distribution rights, at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (50%) for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.

If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units. The number of common units to be issued to our general partner will equal the number of common units which would have entitled the holder to an aggregate quarterly cash distribution in the prior quarter equal to the distributions to our general partner on the incentive distribution rights in the prior quarter. It is possible that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. This risk could be elevated if our incentive distribution rights have been transferred to a third party. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that our common unitholders would have otherwise received had we not issued new common units to our general partner in connection with resetting the target distribution levels. Please read “How We Make Distributions To Our Partners—Adjusted Operating Surplus—General Partner’s Right to Reset Incentive Distribution Levels.”

Holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors, which could reduce the price at which the common units will trade.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will have no right on an annual or ongoing basis to elect our general partner or its board of directors. The board of directors of our general partner, including the independent directors, is chosen entirely by its members and not by our unitholders. Unlike publicly traded corporations, we will not conduct annual meetings of our unitholders to elect directors or conduct other matters routinely conducted at annual meetings of stockholders of corporations. As a result of these limitations, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

 

-40-


Table of Contents

Even if holders of our common units are dissatisfied, they cannot initially remove our general partner without its consent.

If our unitholders are dissatisfied with the performance of our general partner, they will have limited ability to remove our general partner. Unitholders initially will be unable to remove our general partner without its consent because our general partner and its affiliates will own sufficient units upon the completion of this offering to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding common and subordinated units voting together as a single class is required to remove our general partner. Following the closing of this offering, Foresight Reserves will own an aggregate of     % of our common and subordinated units (or     % if the underwriters exercise their option to purchase additional common units in full). Also, if our general partner is removed without cause during the subordination period and no units held by the holders of the subordinated units or their affiliates are voted in favor of that removal, all remaining subordinated units will automatically be converted into common units and any existing arrearages on the common units will be extinguished. Cause is narrowly defined in our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business.

Unitholders will experience immediate and substantial dilution of $         per common unit.

The assumed initial public offering price of $         per common unit exceeds pro forma net tangible book value of $         per common unit. Based on the assumed initial public offering price of $         per common unit, unitholders will incur immediate and substantial dilution of $         per common unit. This dilution results primarily because the assets contributed to us by affiliates of our general partner are recorded at their historical cost in accordance with GAAP, and not their fair value. Please read “Dilution.”

Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of the members of our general partner to transfer their respective membership interests in our general partner to a third party. The new members of our general partner would then be in a position to replace the board of directors and executive officers of our general partner with their own designees and thereby exert significant control over the decisions taken by the board of directors and executive officers of our general partner. This effectively permits a “change of control” without the vote or consent of the unitholders.

Our general partner has a call right that may require unitholders to sell their common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its

 

-41-


Table of Contents

call right. If our general partner exercised its limited call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act. Upon consummation of this offering, and assuming no exercise of the underwriters’ option to purchase additional common units, Foresight Reserves will own an aggregate of     % of our common and subordinated units. At the end of the subordination period, assuming no additional issuances of units (other than upon the conversion of the PIK common and subordinated units), Foresight Reserves will own     % of our common units. For additional information about the limited call right, please read “The Partnership Agreement—Call Right.”

The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by Foresight Reserves or other large holders.

After this offering, we will have              common units and              subordinated units outstanding, which includes the          common units we are selling in this offering that may be resold in the public market immediately. At the end of the subordination period, all of the subordinated units will convert into an equal number of common units, unless conversion occurs prior to the end of the PIK period, in which case they would convert into PIK common units. All of the units that are issued to Foresight Reserves will be subject to resale restrictions under a 180-day lock-up agreement with the underwriters. Each of the lock-up agreements with the underwriters may be waived in the discretion of certain of the underwriters. Sales by Foresight Reserves or other large holders of a substantial number of our common units in the public markets following this offering, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities. In addition, we have agreed to provide registration rights to Foresight Reserves. Under our partnership agreement, our general partner and its affiliates have registration rights relating to the offer and sale of any units that they hold, subject to certain limitations. Please read “Units Eligible for Future Sale.”

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 20% or more of any class of units then outstanding, other than our general partner and its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.

Cost reimbursements due to our general partner and its affiliates for services provided to us or on our behalf will reduce cash available for distribution to our unitholders. The amount and timing of such reimbursements will be determined by our general partner.

Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us. In addition, pursuant to an administrative services agreement, Foresight Reserves will be entitled to reimbursement for certain expenses that it incurs on our behalf. Our partnership agreement does not limit the amount of expenses for which our general partner and its affiliates may be reimbursed. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates will reduce the amount of available cash to pay distributions to our unitholders. Please read “Distribution Policy and Restrictions on Distributions” and “Certain Relationships and Related Party Transactions.”

 

-42-


Table of Contents

At any time after August 15, 2014, our general partner may amend certain agreements governing our indebtedness in a manner that terminates the PIK period.

At any time after August 15, 2014, our general partner may, in its sole discretion, redeem, retire, repurchase, or otherwise refinance the Senior Notes or otherwise amend the indenture or the Senior Secured Credit Facility, in each case in a manner that terminates our PIK period. Following the termination of the PIK period, distributions in respect of any outstanding subordinated units will be paid in cash (and any PIK common units will convert into an equal number of common units). Under our partnership agreement, such a decision will explicitly be deemed not to be a violation of the fiduciary duties that might otherwise be owed by our general partner to our unitholders.

There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and unitholders could lose all or part of their investment.

Prior to this offering, there has been no public market for the common units. After this offering, there will be only              publicly traded common units representing an aggregate     % limited partner interest in us. We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. Unitholders may not be able to resell their common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.

The initial public offering price for our common units will be determined by negotiations between us and the representative of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units may decline below the initial public offering price. The market price of our common units may also be influenced by many factors, some of which are beyond our control, including:

 

   

our quarterly distributions;

 

   

our quarterly or annual earnings or those of other companies in our industry;

 

   

announcements by us or our competitors of significant contracts or acquisitions;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

general economic conditions;

 

   

volatility in the capital and credit markets;

 

   

the failure of securities analysts to cover our common units after this offering or changes in financial estimates by analysts;

 

   

future sales of our common units; and

 

   

the other factors described in these “Risk Factors.”

Unitholders may have liability to repay distributions and in certain circumstances may be personally liable for the obligations of the partnership.

Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible

 

-43-


Table of Contents

distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Liabilities to partners on account of their partnership interests and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

It may be determined that the right, or the exercise of the right by the limited partners as a group, to (i) remove or replace our general partner, (ii) approve some amendments to our partnership agreement or (iii) take other action under our partnership agreement constitutes “participation in the control” of our business. A limited partner that participates in the control of our business within the meaning of the Delaware Act may be held personally liable for our obligations under the laws of Delaware, to the same extent as our general partner. This liability would extend to persons who transact business with us under the reasonable belief that the limited partner is a general partner. Neither our partnership agreement nor the Delaware Act specifically provides for legal recourse against our general partner if a limited partner were to lose limited liability through any fault of our general partner. Please read “The Partnership Agreement—Limited Liability.”

We will be required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls. If we are unable to achieve and maintain effective internal controls, our operating results and financial condition could be harmed.

We will be required to comply with Section 404 of the Sarbanes-Oxley Act beginning with the year ending                         . Section 404 will require that we evaluate our internal control over financial reporting to enable management to report on, and our independent registered public accounting firm to audit, the effectiveness of those controls. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with U.S. GAAP. While we have begun the lengthy process of evaluating our internal controls, we are in the early phases of our review and will not complete our review until well after this offering is completed. We cannot predict the outcome of our review at this time. During the course of the review, we may identify control deficiencies of varying degrees of severity.

Management has taken steps to improve and continues to improve our internal control over financial reporting, including identification of the gaps in skills base and expertise of staff required in the finance group to operate as a publicly traded partnership. We will incur significant costs to remediate our material weaknesses and deficiencies and improve our internal controls if any are identified. To comply with these requirements, we may need to upgrade our systems, including information technology, implement additional financial and management controls, reporting systems and procedures and hire additional accounting, finance and legal staff. If we are unable to upgrade our systems and procedures in a timely and effective fashion, we may not be able to comply with our financial reporting requirements and other rules that apply to publicly traded partnerships.

As a publicly traded partnership, we will be required to report control deficiencies that constitute a material weakness in our internal control over financial reporting. We will also be required to obtain an audit report from our independent registered public accounting firm regarding the effectiveness of our internal controls over financial reporting. If we fail to implement the requirements of Section 404 in a timely manner, if we or our independent registered public accounting firm are unable to conclude that our internal control over financial reporting are effective or if we fail to comply with our financial reporting requirements, investors may lose confidence in the accuracy and completeness of our financial reports. In addition, we or members of our management could be the subject of adverse publicity, investigations and sanctions by regulatory authorities, including the SEC and the NYSE, and be subject to unitholder lawsuits. Any of the above consequences could impose significant unanticipated costs on us.

 

-44-


Table of Contents

The NYSE does not require a publicly traded partnership like us to comply with certain of its corporate governance requirements.

We intend to apply to list our common units on the NYSE. Because we will be a publicly traded partnership, the NYSE will not require us to have a majority of independent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, unitholders will not have the same protections afforded to certain corporations that are subject to all of the NYSE corporate governance requirements. Please read “Management—Management of Foresight Energy Partners LP.”

We will incur increased costs as a result of being a publicly traded partnership.

We have no history operating as a publicly traded partnership. As a publicly traded partnership, we will incur significant legal, accounting and other expenses that we did not incur prior to this offering. In addition, the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and the NYSE, require publicly traded entities to adopt various corporate governance practices that will further increase our costs. Before we are able to make distributions to our members, we must first pay or reserve cash for our expenses, including the costs of being a publicly traded partnership. As a result, the amount of cash we have available for distribution to our members will be affected by the costs associated with being a publicly traded partnership.

Prior to this offering, we have not filed reports with the SEC. Following this offering, we will become subject to the public reporting requirements of the Exchange Act. We expect these rules and regulations to increase certain of our legal and financial compliance costs and to make activities more time-consuming and costly. For example, as a result of becoming a publicly traded partnership, we are required to have at least three independent directors, create an audit committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our SEC reporting requirements.

We also expect to incur significant expense in order to obtain director and officer liability insurance. Because of the limitations in coverage for directors, it may be more difficult for us to attract and retain qualified persons to serve on our board or as executive officers.

We estimate that we will incur approximately $                 million of incremental costs per year associated with being a publicly traded partnership; however, it is possible that our actual incremental costs of being a publicly traded partnership will be higher than we currently estimate.

Tax Risks to Common Unitholders

In addition to reading the following risk factors, please read “Material U.S. Federal Income Tax Consequences” for a more complete discussion of the expected material federal income tax consequences of owning and disposing of common units.

Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income tax purposes or we were to become subject to material additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to you could be substantially reduced.

The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for U.S. federal income tax purposes. We have not requested, and do not plan to request, a ruling from the Internal Revenue Service, or the IRS, on this or any other tax matter affecting us.

 

-45-


Table of Contents

Despite the fact that we are organized as a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treated as a corporation for U.S. federal income tax purposes. Although we do not believe, based upon our current operations, that we will be so treated, a change in our business (or a change in current law) could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity.

If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35%, and would likely pay state income tax at varying rates. Distributions to you would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to the unitholders, likely causing a substantial reduction in the value of our common units.

Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, members of Congress have recently considered substantive changes to the existing federal income tax laws that affect publicly traded partnerships. Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes, or other proposals will be reintroduced or will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units.

You will be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

Because our unitholders will be treated as partners to whom we will allocate taxable income that could be different in amount than the cash we distribute, you will be required to pay any federal income taxes and, in some cases, state and local income taxes on your share of our taxable income whether or not you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that results from that income.

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

We will be considered to have terminated as a partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Immediately following this offering, Foresight Reserves LP will own, directly and indirectly, more than 50% of the total interests in our capital and profits. Therefore, a transfer by Foresight Reserves LP of all or a portion of its interests in us could result in a termination of us as a partnership for federal income tax purposes. Our termination would, among other things, result in the closing of our taxable year for all unitholders and could

 

-46-


Table of Contents

result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than the calendar year, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination would not affect our classification as a partnership for federal income tax purposes, but instead, after our termination, we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to determine that a termination occurred. Please read “Material U.S. Federal Income Tax Consequences—Disposition of Units—Constructive Termination” for a discussion of the consequences of our termination for federal income tax purposes.

Tax gain or loss on the disposition of our common units could be more or less than expected.

If you sell your common units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those common units. Because distributions in excess of your allocable share of our net taxable income result in a decrease in your tax basis in your common units, the amount, if any, of such prior excess distributions with respect to the units you sell will, in effect, become taxable income to you if you sell such units at a price greater than your tax basis in those units, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture of depletion and depreciation deductions and certain other items. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if you sell your units, you may incur a tax liability in excess of the amount of cash you receive from the sale. Please read “Material U.S. Federal Income Tax Consequences—Disposition of Units—Recognition of Gain or Loss” for a further discussion of the foregoing.

Tax-exempt entities and non-U.S. persons face unique tax issues from owning common units that may result in adverse tax consequences to them.

Investments in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (or “IRAs”), and non-U.S. persons raise issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes, and non-U.S. persons will be required to file U.S. federal tax returns and pay tax on their shares of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before investing in our common units.

If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our cash available for distribution to you.

The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest by the IRS may materially and adversely impact the market for our common units and the price at which they trade. Our costs of any contest by the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our cash available for distribution.

We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

Because we cannot match transferors and transferees of common units, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative

 

-47-


Table of Contents

impact on the value of our common units or result in audit adjustments to your tax returns. Please read “Material U.S. Federal Income Tax Consequences—Tax Consequences of Unit Ownership—Section 754 Election” for a further discussion of the effect of the depreciation and amortization positions we adopt.

We will prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. Nonetheless, we allocate certain deductions for depletion and depreciation of capital additions based upon the date the underlying property is placed in service. The use of this proration method may not be permitted under existing Treasury Regulations, and although the U.S. Treasury Department issued proposed Treasury Regulations allowing a similar monthly simplifying convention, such regulations are not final and do not specifically authorize the use of the proration method we have adopted. Accordingly, our counsel is unable to opine as to the validity of this method. If the IRS were to successfully challenge our proration method, we may be required to change the allocation of items of income, gain, loss, and deduction among our unitholders.

A unitholder whose common units are loaned to a “short seller” to cover a short sale of common units may be considered as having disposed of those common units. If so, he would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.

Because there is no tax concept of loaning a partnership interest, a unitholder whose common units are loaned to a “short seller” to cover a short sale of common units may be considered as having disposed of the loaned units. In that case, he may no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller should modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common units.

Certain U.S. federal income tax preferences currently available with respect to coal exploration and development may be eliminated as a result of future legislation.

President Obama’s Proposed Fiscal Year 2012 budget (the “Budget Proposal”) recommends elimination of certain key U.S. federal income tax preferences related to coal exploration and development. The Budget Proposal would (1) eliminate current deductions and 60-month amortization for exploration and development costs relating to coal and other hard mineral fossil fuels, (2) repeal the percentage depletion allowance with respect to coal properties, (3) repeal capital gains treatment of coal royalties, and (4) exclude from the definition of domestic production gross receipts all gross receipts derived from the sale, exchange, or other disposition of coal, other hard mineral fossil fuels, or primary products thereof. The passage of any legislation as a result of the Budget Proposal or any other similar changes in U.S. federal income tax laws could eliminate or defer certain tax deductions that are currently available with respect to coal exploration and development, and any such change could increase the taxable income allocable to our unitholders and negatively impact the value of an investment in our units.

 

-48-


Table of Contents

You will likely be subject to state and local taxes and return filing requirements in states where you do not live as a result of investing in our common units.

In addition to U.S. federal income taxes, you will likely be subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if you do not live in any of those jurisdictions. You will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. As we make acquisitions or expand our business, we may own assets or conduct business in additional states or foreign jurisdictions that impose a personal income tax. It is your responsibility to file all U.S. federal, foreign, state and local tax returns. Our counsel has not rendered an opinion on the foreign, state or local tax consequences of an investment in our common units.

 

-49-


Table of Contents

USE OF PROCEEDS

We expect to receive approximately $         million of net proceeds from the sale of common units by us in this offering, after deducting the underwriting discounts, the estimated expenses of this offering and the structuring fee, based on an assumed initial public offering price of $         per common unit (the mid-point of the price range set forth on the cover page of the prospectus). We intend to use the net proceeds of this offering to make a distribution to Foresight Reserves and will not retain any proceeds from this offering.

If the underwriters exercise their option to purchase additional common units in full, the additional net proceeds to us would be approximately $         million (and the total net proceeds to us would be approximately $         million), in each case assuming an initial public offering price per common unit of $         (the mid-point of the price range set forth on the cover page of the prospectus). The net proceeds from any exercise of such option will also be paid as a special distribution to Foresight Reserves. If the underwriters do not exercise their option, we will issue              common units to Foresight Reserves upon the expiration of the option for no additional consideration.

A $1.00 increase (or decrease) in the assumed initial public offering price of $         per common unit would increase (decrease) the net proceeds to us from this offering by $          million, assuming the number of common units offered by us, as set forth on the cover page of this prospectus, remains the same and assuming the underwriters do not exercise their option to purchase additional common units, and after deducting the underwriting discounts and the structuring fee. The actual initial public offering price is subject to market conditions and negotiations between us and the underwriters.

 

-50-


Table of Contents

DILUTION

Dilution is the amount by which the offering price paid by the purchasers of common units sold in this offering will exceed the pro forma net tangible book value per common unit after the offering. On a pro forma basis as of December 31, 2011, after giving effect to the offering of common units and the application of the related net proceeds, and assuming the underwriters’ option to purchase additional common units is not exercised, our net tangible book value was $         million, or $         per common unit. Net tangible book value excludes $         million of net intangible assets. Purchasers of common units in this offering will experience immediate and substantial dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table:

 

Assumed initial public offering price per common unit

   $               

Pro forma net tangible book value per common unit before the offering(1)

  

Increase in net tangible book value per common unit attributable to purchasers in the offering

  

Less: Pro forma net tangible book value per common unit after the offering(2)

  

Immediate dilution in tangible net book value per common unit to purchasers in the offering(3)

   $                

 

(1) Determined by dividing the number of units (         common units and          subordinated units to be issued to our general partner and its affiliates, including Foresight Reserves, for the contribution of assets and liabilities to us) into the net tangible book value of the contributed assets and liabilities.
(2) Determined by dividing the total number of units to be outstanding after the offering (         common units and          subordinated units) into our pro forma net tangible book value, after giving effect to the application of the expected net proceeds of the offering.
(3) If the initial public offering price were to increase or decrease by $1.00 per common unit, then dilution in net tangible book value per common unit would equal $         and $        , respectively.

The following table sets forth the number of units that we will issue and the total consideration contributed to us by our general partner and its affiliates and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus:

 

     Units Acquired      Total Consideration  
     Number    Percent      Amount      Percent  
            (in thousands)         

General partner and affiliates(1)(2)(3)

        %       $           %   

Purchasers in the offering

        %       $           %   

Total

        100.0%       $           100.00%   

 

(1) The units acquired by our general partner and its affiliates, including Foresight Reserves, consist of         common units and          subordinated units.
(2) The assets contributed by our general partner and its affiliates were recorded at historical cost in accordance with GAAP. Book value of the consideration provided by our general partner and its affiliates, as of December 31, 2011, equals parent net investment, which was $         million and is not affected by this offering.
(3) Assumes the underwriters’ option to purchase additional common units is not exercised.

 

-51-


Table of Contents

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of September 30, 2011:

 

   

On an actual basis; and

 

   

On an as adjusted basis, after giving effect to this offering, the use of proceeds therefrom and the IPO Reorganization.

You should read this table together with “Use of Proceeds,” “Selected Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Indebtedness” and our consolidated historical financial statements, along with the notes thereto, included elsewhere in this prospectus.

 

       As of September 30, 2011    
       Actual       As
  Adjusted  
 
     ($ in thousands)  

Cash

   $ 22,434      $                
  

 

 

   

 

 

 

Debt(1):

    

Revolving credit agreement due 2014(2)

   $ 246,000      $     

9.625% Senior Notes due 2017(2)

     397,795     

5.780% Long-wall financing agreement(2)

     87,000     

5.555% Long-wall financing agreement(2)

     76,110     
  

 

 

   

 

 

 

Total debt

   $ 806,905      $     
  

 

 

   

 

 

 

Partners’ capital:

    

Limited partners:

    

Common unitholders—public

    

Common unitholders—Foresight Reserves

    

Subordinated unitholders—Foresight Reserves

    

General partner

    

Total Foresight Energy Partners LP partners’ capital

    

Members Equity:

    

Controlling interest

   $ 363,631      $     

Non-controlling interest

     (942  
  

 

 

   

 

 

 

Total members’ equity

     362,689     
  

 

 

   

 

 

 

Total Capitalization

   $ 1,192,028      $     
  

 

 

   

 

 

 

 

(1) Total debt does not include $143.7 million of certain lease transactions (including coal and surface leases) that are characterized as financing transactions due to the continuing involvement of certain of our affiliates in mining related to the leases, or any related accrued interest on such leases. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and Related Party Transactions.”
(2) See “Description of Indebtedness” for a complete description of these facilities.

 

-52-


Table of Contents

DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

You should read the following discussion of our cash distribution policy in conjunction with “—Significant Forecast Assumptions” below, which includes the factors and assumptions upon which we base our cash distribution policy. In addition, you should read “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.

For additional information regarding our historical and pro forma combined results of operations, you should refer to the audited historical combined financial statements as of December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010, the unaudited historical condensed combined financial statements as of September 30, 2011 and for the nine months ended September 30, 2010 and 2011.

General

Our Cash Distribution Policy

It is our intent to distribute at least the minimum quarterly distribution of $         per unit ($         per unit on an annualized basis) on all of our units to the extent we have sufficient cash from our operations after the establishment of cash reserves and payment of our expenses. Furthermore, we expect that if we are successful in executing our business strategy, we will grow our business in a steady and sustainable manner and distribute to our unitholders a portion of any increase in our cash available for distribution resulting from such growth. In addition, we expect to adopt a distribution coverage policy in which we may reserve a higher percentage of our operating surplus in respect of quarters where we believe commodity prices are high, and reserve a lower percentage of operating surplus in times of low commodity prices. We believe this policy will support steady and sustainably growing distributions. In addition, we may borrow amounts to fund distributions in quarters when we generate less cash than is necessary to sustain or grow our cash distributions per unit. The board of directors of our general partner will determine the amount of our quarterly distributions and may change our distribution policy at any time.

Notwithstanding our cash distribution policy, certain provisions of the indenture governing the Senior Notes and our Senior Secured Credit Facility will restrict the ability of our operating subsidiaries to distribute cash to us. Our equity capital structure is designed to support the payment of cash distributions in an amount equal to at least the minimum quarterly distribution to our common unitholders during the period in which we expect the provisions of the indenture and credit facility will restrict our ability to pay cash distributions to all unitholders in accordance with our distribution policy. See “How We Make Distributions to Our Partners—Partnership Interests—Common Units,” “—Subordinated Units,” “—Adjusted Operating Surplus—PIK Common Units” and “—General—Payment-In-Kind Distributions” for a further description of the features of our equity capital structure.

Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

There is no guarantee that we will make quarterly cash distributions to our unitholders. We do not have a legal obligation to pay quarterly distributions at our minimum quarterly distribution rate or at any other rate. Our cash distribution policy is subject to certain restrictions and may be changed at any time. The reasons for such uncertainties in our stated cash distribution policy include the following factors:

 

   

Our Senior Secured Credit Facility and the indenture governing the Senior Notes contain financial tests and covenants that we must satisfy. Importantly, the restricted payment basket of the Senior Secured Credit Facility consists of, in pertinent part, aggregate net proceeds of capital contributions and certain other investment returns plus 50% of consolidated net income (or, less 50% of consolidated net loss) accrued on a cumulative basis. The restricted payment basket of the indenture consists of, in pertinent part, aggregate net proceeds of capital contributions and certain other investment returns plus 50% of consolidated net income (or, less 100% of consolidated net loss) accrued on a cumulative basis.

 

-53-


Table of Contents
   

Accordingly, non-cash losses, such as an impairment of the value of our properties, will reduce the restricted payment baskets. As of December 31, 2011, our restricted payments baskets under the credit facility and indenture were equal to approximately $                 million and $                 million, respectively. The aggregate minimum quarterly distribution on our common units will be $                 million. These financial tests and covenants are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Arrangements” and “Description of Indebtedness.” Should we be unable to satisfy these restrictions or if we are otherwise in default under our credit facility or the indenture, we will be prohibited from making cash distributions to you notwithstanding our cash distribution policy.

 

   

Our general partner will have the authority to establish cash reserves for the prudent conduct of our business and for future cash distributions to our unitholders, and the establishment of or increase in those reserves could result in a reduction in cash distributions from levels we currently anticipate pursuant to our stated cash distribution policy. Our partnership agreement does not set a limit on the amount of cash reserves that our general partner may establish. Any decision to establish cash reserves made by our general partner in good faith will be binding on our unitholders.

 

   

Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all direct and indirect expenses they incur on our behalf. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us, but does not limit the amount of expenses for which our general partner and its affiliates may be reimbursed. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates will reduce the amount of cash to pay distributions to our unitholders.

 

   

Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by our board.

 

   

Under Section 17-607 of the Delaware Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets.

 

   

We may lack sufficient cash to pay distributions to our unitholders due to cash flow shortfalls attributable to a number of operational, commercial or other factors as well as increases in our operating or selling, general and administrative expenses, principal and interest payments on our outstanding debt, tax expenses, working capital requirements and anticipated cash needs.

 

   

If we make distributions out of capital surplus, as opposed to operating surplus, any such distributions would constitute a return of capital and would result in a reduction in the minimum quarterly distribution and the target distribution levels. Please read “How We Make Distributions to Our Partners—Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels.” We do not anticipate that we will make any distributions from capital surplus.

 

   

Our ability to make distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, the provisions of existing and future indebtedness, applicable state partnership and limited liability company laws and other laws and regulations.

Our Ability to Grow May Be Dependent on Our Ability to Access External Expansion Capital

We expect to generally distribute a significant percentage of our cash from operations to our unitholders on a quarterly basis, after the establishment of cash reserves and payment of our expenses. Therefore, our growth may not be as fast as businesses that reinvest most or all of their cash to expand ongoing operations. Moreover, our future growth may be slower than our historical growth. We expect that, following the PIK period, we will rely upon external financing sources in large part, including bank borrowings and issuances of debt and equity interests, to fund our expansion capital expenditures. To the extent we are unable to finance growth externally, our cash distribution policy could significantly impair our ability to grow.

 

-54-


Table of Contents

Our Minimum Quarterly Distribution

Pursuant to our distribution policy, we intend upon completion of this offering to declare a minimum quarterly distribution of $         per unit for each complete quarter, or $         per unit on an annualized basis. The payment of the full minimum quarterly distribution on all of the common units and subordinated units to be outstanding after completion of this offering would require us to have cash available for distribution of approximately $         million per quarter, or $         million per year. Our ability to make cash distributions at the minimum quarterly distribution rate will be subject to the factors described above under “—General—Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.” Quarterly distributions, if any, will be made within 60 days after the end of each quarter.

The table below sets forth the amount of common units and subordinated units that will be outstanding immediately after this offering, and the cash needed to pay the aggregate minimum quarterly distribution on all of such units for a single fiscal quarter and a four quarter period:

 

          Distributions(1)  
     Number of Units    One Quarter      Annualized  

Common units

      $         $     

Subordinated units

        
  

 

  

 

 

    

 

 

 

Total

      $         $     
  

 

  

 

 

    

 

 

 

 

(1) As described in more detail in “How We Make Distributions to Our Partners,” we will pay distributions in kind with respect to our subordinated units until the end of the PIK period.

We will pay our distributions on or about the last day of each of February, May, August and November to holders of record on or about the 15th day of each such month. We will adjust the quarterly distribution for the period from the closing of this offering through                     , 2012 based on the actual length of the period.

In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our minimum quarterly distribution of $         per common and subordinated unit each quarter for the six months ending December 31, 2012, and the year ending December 31, 2013. In those sections we present the following two tables:

 

   

“Unaudited Pro Forma Cash Available for Distribution,” in which we present our estimate of the amount of cash we would have had available for distribution for each of the four quarters ended December 31, 2011 based on our unaudited pro forma financial statements that are included in this prospectus.

 

   

“Estimated Cash Available for Distribution,” in which we demonstrate our anticipated ability to generate the cash available for distribution necessary for us to pay the minimum quarterly distribution on all units for the six months ending December 31, 2012 and fiscal year ending December 31, 2013.

Unaudited Pro Forma Cash Available for Distribution

The following table illustrates, on a pro forma basis for the fiscal year ended December 31, 2011, cash available to pay distributions assuming that the IPO Reorganization, the consummation of this offering and the application of proceeds therefrom had occurred as of January 1, 2011.

If we had completed the transactions contemplated in this prospectus on January 1, 2011 our unaudited pro forma cash available for distribution for the fiscal year ended December 31, 2011 would have been $         million. This amount would have enabled us to make an annualized distribution of 100% of the minimum quarterly distribution on our common units, but only approximately         % of the minimum quarterly distribution on the subordinated units.

 

 

-55-


Table of Contents

Unaudited pro forma cash available for distribution includes incremental general and administrative expenses that we expect we will incur as a publicly-traded partnership, including costs associated with SEC reporting requirements, annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and director compensation. We estimate that these incremental general and administrative expenses initially will be approximately $             million per year.

Cash available for distribution is a cash accounting concept, while our unaudited pro forma combined financial statements have been prepared on an accrual basis. We derived the amounts of pro forma cash available for distribution stated above in the manner described in the table below. As a result, the amount of pro forma cash available for distribution should only be viewed as a general indication of the amount of cash available for distribution that we might have generated had we been formed and completed the transactions contemplated in this prospectus in earlier periods.

 

-56-


Table of Contents

Foresight Energy Partners LP

Unaudited Pro Forma Cash Available for Distribution

 

     Pro Forma     
   Three Months Ended     
     March 31,
2011
   June 30,
2011
   September 30,
2011
   December 31,
2011
   Year Ended
December 31,
2011
     ($ in thousands, except average coal price)

Operating Data:

              

Coal produced in tons

              

(Increase) decrease to coal inventory in tons

              

Coal purchased in tons

              
  

 

  

 

  

 

  

 

  

 

Coal sales in tons

              

Coal sales in tons—committed

              

Wgt. avg. coal sales price per ton—committed

              

Coal sales in tons—uncommitted

              

Wgt. avg. coal sales price per ton—uncommitted

              

Financial Data:

              

Coal revenue—committed

              

Coal revenue—uncommitted

              

Other coal revenue

              

Other revenues

              
  

 

  

 

  

 

  

 

  

 

Total revenues

              
  

 

  

 

  

 

  

 

  

 

Costs and expenses:

              

Cost of coal sales

              

Transportation expense

              

Depreciation, depletion and amortization

              

Accretion

              

Selling, general and administrative

              

Other operating (income) expense, net

              

Loss on commodity contracts

              

Gain on coal sale contract termination

              
  

 

  

 

  

 

  

 

  

 

Total costs and expenses

              
  

 

  

 

  

 

  

 

  

 

Income from operations

              

Interest and other income (expense):

              

Interest expense

              

Interest income

              
  

 

  

 

  

 

  

 

  

 

Net income

              
  

 

  

 

  

 

  

 

  

 

 

-57-


Table of Contents
     Pro Forma     
   Three Months Ended     
     March 31,
2011
   June 30,
2011
   September 30,
2011
   December 31,
2011
   Year Ended
December 31,
2011
     ($ in thousands, except distributions per unit)     

Net income

              
  

 

  

 

  

 

  

 

  

 

Plus:

              

Interest expense

              

Interest and securities income

              

Depreciation, depletion and amortization

              

Accretion

              
  

 

  

 

  

 

  

 

  

 

Adjusted EBITDA(1)

              
  

 

  

 

  

 

  

 

  

 

Less:

              

Cash interest expense

              

Equity in net income of unconsolidated affiliate

              

Maintenance capital expenditures

              

Expansion capital expenditures

              

Plus:

              

Borrowings or cash on hand for expansion capital expenditures

              
  

 

  

 

  

 

  

 

  

 

Cash available for distribution and expansion capital reinvestment

              
  

 

  

 

  

 

  

 

  

 

Implied cash distributions based on the minimum quarterly distribution per unit:

              

Aggregate minimum quarterly distribution per unit

              

Cash distributions to common unitholders

              

Cash retained for expansion capital reinvestment(2)

              
  

 

  

 

  

 

  

 

  

 

Total distributions

              
  

 

  

 

  

 

  

 

  

 

Excess (shortfall)

              
  

 

  

 

  

 

  

 

  

 

Interest Coverage Ratio(3)

              

Minimum Interest Coverage Ratio

              

Net Leverage Ratio(3)

              

Maximum Net Leverage Ratio

              

Cash distributions

              

Restricted Payment Basket(4)

              
  

 

  

 

  

 

  

 

  

 

 

(1) Please read Note 3 to “Selected Historical Financial Information.”
(2) Cash retained for expansion capital reinvestment represents the amount of cash that would have been distributed to holders of subordinated units if such units were entitled to participate in cash distributions during the period presented. We expect that the cash we retain will be used for expansion capital projects during the PIK period that provide a rate of return at least as great as the yield of our common units during that time.
(3) Our Senior Secured Credit Facility requires us to maintain, as of the last day of each fiscal quarter, a consolidated interest coverage ratio (the ratio of our consolidated EBITDA to our consolidated cash interest charges) and measured for the preceding four quarters) of not less than 2.0 to 1.0 for the quarters ended March 31, 2011 and June 20, 2011; 2.25 to 1.00 for the quarter ended September 30, 2011; and 2.50 to 1.00 for quarters ending thereafter.

 

-58-


Table of Contents

Our Senior Secured Credit Facility also requires us to maintain, as of the last day of any fiscal quarter, a consolidated net leverage ratio (the ratio of consolidated funded indebtedness less the sum of all unrestricted cash, cash equivalents and short term marketable debt securities that in the aggregate exceed $20.0 million) to consolidated EBITDA for the preceding four quarters. Each of these terms has a specific meaning set forth in the Senior Secured Credit Facility. The maximum consolidated net leverage ratio allowed under the Senior Secured Credit Facility is as follows:

 

Fiscal Quarter

Ending

  Maximum Consolidated Net Leverage Ratio
March 31, 2011   5.50 to 1.00
June 30, 2011   5.25 to 1.00
September 30, 2011   5.00 to 1.00
December 31, 2011   5.00 to 1.00
March 31, 2012   5.50 to 1.00
June 30, 2012   4.75 to 1.00
September 30, 2012   4.50 to 1.00
December 31, 2012   3.50 to 1.00
March 31, 2013 and thereafter   3.00 to 1.00 (or 3.50 to 1.00 beginning in any fiscal quarter in which the longwalls at Sugar Camp and Hillsboro have completed their first pass)
(4) Each of our Senior Secured Credit Facility and the indenture governing the Senior Notes restricts our ability to make cash distributions to our unitholders. If no event of default exists under either the facility or the indenture, each document allows us to make distributions of a certain amount, which we refer to as each agreement’s “restricted payment basket.” The restricted payment basket under each of the credit facility and the indenture consists of, in pertinent part, aggregate net proceeds of capital contributions and certain other investment returns plus 50% of consolidated net income (or, less (i) 100% of consolidated net loss with respect to the indenture and (ii) 50% of consolidated net loss with respect to the Senior Secured Credit Facility) accrued on a cumulative basis. The amount set forth above is the restricted payment basket calculated under our credit facility. The restricted payment basket under our indenture is approximately $         higher because the calculation of consolidated net income under the indenture began at an earlier date.

Estimated Cash Available for Distribution

The following table sets forth our calculation of forecasted cash available for distribution to our unitholders and general partner for the six months ending December 31, 2012 and for the year ending December 31, 2013 on a quarterly basis. We forecast that our cash available for distribution generated during the six months ending December 31, 2012 and during the year ending December 31, 2013 will be approximately $         million and $         million, respectively. These amounts would be sufficient to pay the minimum quarterly distribution of $         per unit on all of our common and subordinated units for each quarter during such periods. Since our revenue and cash available for distribution will likely fluctuate over time as a result of changes in coal prices as well as other factors, the board of directors of our general partner expects to reserve all or a portion of any cash generated in excess of the amount sufficient to pay the full minimum quarterly distribution on all units, as a whole, to allow us to maintain and to gradually increase our quarterly cash distributions.

We are providing the financial forecast to supplement our pro forma and historical consolidated financial statements in support of our belief that we will have sufficient cash available to allow us to pay distributions on all of our common and subordinated units for each quarter in the six months ending December 31, 2012 and the year ending December 31, 2013 at the minimum quarterly distribution rate. Please read “—Significant Forecast Assumptions” for further information as to the assumptions we have made for the financial forecast. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” for information as to the accounting policies we have followed for the financial forecast.

 

-59-


Table of Contents

Our forecast reflects our judgment as of the date of this prospectus of conditions we expect to exist and the course of action we expect to take during the six months ending December 31, 2012 and the year ending December 31, 2013. We believe that our actual results of operations will approximate those reflected in our forecast, but we can give no assurance that our forecasted results will be achieved. If our estimates are not achieved, we may not be able to pay distributions on our common and subordinated units at the minimum quarterly distribution rate of $         per unit each quarter (or $         per unit on an annualized basis) or any other rate. The assumptions and estimates underlying the forecast are inherently uncertain and, though we consider them reasonable as of the date of this prospectus, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the forecast, including, among others, risks and uncertainties contained in “Risk Factors.” Accordingly, there can be no assurance that the forecast is indicative of our future performance or that actual results will not differ materially from those presented in the forecast. Inclusion of the forecast in this prospectus should not be regarded as a representation by any person that the results contained in the forecast will be achieved.

We do not, as a matter of course, make public forecasts as to future sales, earnings or other results. However, we have prepared the following forecast to present the forecasted cash available for distribution to our unitholders and general partner during the forecasted period. The accompanying forecast was not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in our view, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and our expected future financial performance. However, this information is not necessarily indicative of future results.

Neither our independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the forecast contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the forecast. We do not undertake to release publicly after this offering any revisions or updates to the financial forecast or the assumptions on which our forecasted results of operations are based.

 

-60-


Table of Contents

Foresight Energy Partners LP

Forecasted Cash Available for Distribution

 

    Three Months Ending   Six Months
Ending
December 31,
2012
       Three Months Ending   Year Ending
December 31,
2013
            
  September 30,
2012
  December 31,
2012
         March 31,
2013
  June 30,
2013
  September 30,
2013
  December 31,
2013
 
    ($ in thousands, except average coal price)

Operating Data:

                   

Coal produced in tons

                   

(Increase) decrease to coal inventory in tons

                   

Coal purchased in tons

                   

Coal sales in tons

                   

Coal sales in tons—committed

                   

Wgt. avg. coal sales price per ton—committed

                   

Coal sales in tons—uncommitted

                   

Wgt. avg. coal sales price per ton—uncommitted

                   

Financial Data:

                   

Coal revenue—committed

                   

Coal revenue—
uncommitted

                   

Other coal revenue

                   

Other revenues

                   

Total revenues

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Costs and expenses:

                   

Cost of coal sales

                   

Transportation expense

                   

Depreciation, depletion and amortization

                   

Accretion

                   

Selling, general and administrative

                   

Other operating (income) expense, net

                   

Loss on commodity contracts

                   

Gain on coal sale contract termination

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Total costs and expenses

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Income from operations

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

-61-


Table of Contents
    Three Months Ending   Six Months
Ending
December 31,
2012
       Three Months Ending   Year Ending
December 31,
2013
            
  September 30,
2012
  December 31,
2012
         March 31,
2013
  June 30,
2013
  September 30,
2013
  December 31,
2013
 
    ($ in thousands, except ratios and distributions per unit)

Interest and other income (expense):

                   

Interest expense

                   

Interest income

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Net income

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Net income

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Plus:

                   

Depreciation, depletion and amortization

                   

Interest expense

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Adjusted EBITDA(1)

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Less:

                   

Cash interest expense

                   

Maintenance and replacement capital expenditures

                   

Expansion capital expenditures

                   

Plus:

                   

Borrowings or cash on hand for expansion capital expenditures

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Cash available for distribution and expansion capital reinvestment

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Implied cash distributions based on the minimum quarterly distribution per unit:

                   

Aggregate minimum quarterly distribution per unit

                   

Cash distributions to common unitholders

                   

Cash retained for expansion capital reinvestment(2)

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Total distributions

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

-62-


Table of Contents
    Three Months Ending   Six Months
Ending
December 31,
2012
       Three Months Ending   Year Ending
December 31,
2013
            
  September 30,
2012
  December 31,
2012
         March 31,
2013
  June 30,
2013
  September 30,
2013
  December 31,
2013
 
    ($ in thousands, except ratios and distributions per unit)

Excess (shortfall)

                   
 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

Interest Coverage Ratio(3)

                   

Minimum Interest Coverage Ratio

                   

Net Leverage Ratio(3)

                   

Maximum Net Leverage Ratio

                   

Cash available for distribution and expansion capital reinvestment

                   

Restricted Payment Basket(4)

                   

 

(1) Please read Note 3 to “Selected Historical Financial Information.”
(2) Cash retained for expansion capital reinvestment represents the amount of cash that would have been distributed to holders of subordinated units if such units were entitled to participate in cash distributions during the forecast periods. We expect that the cash we retain will be used for expansion capital projects during the PIK period that provide a rate of return at least as great as the yield of our common units during that time.

Unlike payment-in-kind distributions, the hypothetical cash distributions presented above do not compound over such periods. The table below illustrates the compounding effects of payment-in-kind distributions in respect of two full quarters offering and assumes (i) that we distribute the minimum quarterly distribution of $         per common unit each quarter and (ii) a constant price per common unit of $         (10% lower than the midpoint of the range), $         (the mid-point of the range set forth on the cover page of this prospectus), and $         (10% higher than the mid-point of the range).

 

     Price Per Common Unit
     $            
10% lower
   $            
Midpoint
   $            
10% higher

Subordinated units outstanding immediately following this offering

        

Distribution-in-kind for the quarter ending September 30, 2012

        

Total outstanding subordinated units after first distribution

        

Distribution-in-kind for the quarter ending December 31, 2012

        

Total outstanding subordinated units after second distribution

        

 

(3) Our senior secured credit facility requires us to maintain, as of the last day of each fiscal quarter, a consolidated interest coverage ratio (the ratio of our consolidated EBITDA to our consolidated cash interest charges) and measured for the preceding four quarters) of not less than 2.0 to 1.0 for the quarters ended March 31, 2011 and June 20, 2011; 2.25 to 1.00 for the quarter ended September 30, 2011; and 2.50 to 1.00 for quarters ending thereafter.

Our Senior Secured Credit Facility also requires us to maintain, as of the last day of any fiscal quarter, a net leverage ratio (the ratio of consolidated funded indebtedness less the sum of all unrestricted cash, cash equivalents and short term marketable debt securities that in the aggregate exceed $20.0 million to consolidated EBITDA for the preceding four quarters). Each of these terms has a specific meaning set forth in the Senior Secured Credit Facility. The maximum consolidated net leverage ratio allowed under the Senior Secured Credit Facility is as follows:

 

Fiscal Quarter Ending    Maximum Consolidated Net Leverage
Ratio

March 31, 2011

   5.50 to 1.00

June 30, 2011

   5.25 to 1.00

September 30, 2011

   5.00 to 1.00

December 31, 2011

   5.00 to 1.00

March 31, 2012

   5.50 to 1.00

June 30, 2012

   4.75 to 1.00

September 30, 2012

   4.50 to 1.00

December 31, 2012

   3.50 to 1.00

March 31, 2013 and thereafter

   3.00 to 1.00 (or 3.50 to 1.00 beginning in any fiscal quarter in which the longwalls at Sugar Camp and Hillsboro have completed their first pass)

 

-63-


Table of Contents
(4) Each of our Senior Secured Credit Facility and the indenture the Senior Notes restricts our ability to make cash distributions to our unitholders. If no event of default exists under either the facility or the indenture, each document allows us to make distributions of an amount, which we refer to as each agreement’s “restricted payment basket.” The restricted payment basket under each of the credit facility and the indenture consists of, in pertinent part, aggregate net proceeds of capital contributions and certain other investment returns plus 50% of consolidated net income (or, less (i) 100% of consolidated net loss with respect to the indenture and (ii) 50% of consolidated net loss with respect to the Senior Secured Credit Facility) accrued on a cumulative basis. The amount set forth above is the restricted payment basket available under our credit facility. The restricted payment basket of the indenture is approximately $             higher because the calculation of consolidated net income under the indenture began at an earlier date.

Significant Forecast Assumptions

 

-64-


Table of Contents

HOW WE MAKE DISTRIBUTIONS TO OUR PARTNERS

General

Intent to Distribute the Minimum Quarterly Distribution

Within 60 days after the end of each quarter, beginning with the quarter ending                     , 2012, we intend to make distributions to unitholders of record on the applicable record date. We intend to distribute to our unitholders on a quarterly basis an amount of cash or equity, as applicable, equal to at least the minimum quarterly distribution of $             per unit, or $             per unit per year, to the extent we have sufficient cash available for distribution. We will adjust the minimum quarterly distribution for the period from the closing of the offering through                     , 2012.

Our partnership agreement does not contain a requirement for us to pay distributions, whether in the form of cash or equity, to our unitholders. However, it does contain provisions intended to motivate our general partner to make steady, increasing and sustainable distributions over time. See “Distribution Policy and Restrictions on Distributions—General—Our Cash Distribution Policy.”

Payment-In-Kind Distributions

From the date of the closing of this offering until the date that is the earlier of (i) August 15, 2017 and (ii) the date by which we (a) redeem, repurchase, defease or retire the Senior Notes, or otherwise amend the indenture governing the Senior Notes and (b) amend or terminate our Senior Secured Credit Facility, in each case, in a manner that permits us to distribute cash to all unitholders, we will pay distributions in respect of our subordinated units in the form of additional subordinated units. We refer to this period as the “PIK period.” The purpose of this feature is to support the payment of cash distributions in an amount equal to at least the minimum quarterly distribution to our common unitholders during the period in which we expect the provisions of the indenture and credit facility will restrict our ability to pay cash distributions to all unitholders in accordance with our distribution policy. The distribution in kind feature is intended to approximate a scenario in which we distribute cash to the holders of our subordinated units and then they reinvest those cash distributions for additional subordinated units. At the end of the PIK period, future distributions with respect to any outstanding subordinated units will be paid in cash.

Operating Surplus and Capital Surplus

General

Distributions, whether made in cash or in kind, will be made from “operating surplus” or “capital surplus.” Distributions from operating surplus are made differently than we would distribute cash from capital surplus. Operating surplus distributions will be made to our unitholders and, if we make quarterly distributions above the first target distribution level described below, the holder of our incentive distribution rights. We do not anticipate that we will make any distributions from capital surplus. In such an event, however, any capital surplus distribution would be made pro rata to all unitholders, but the holder of the incentive distribution rights would generally not participate in any capital surplus distributions with respect to those rights. For purposes of determining whether a distribution is made from operating surplus, all distributions paid in-kind will be treated as having been made in cash.

Operating Surplus

We define operating surplus as:

 

   

$             million (as described below); plus

 

   

all of our cash receipts after the closing of this offering, excluding cash from interim capital transactions (as defined below); plus

 

-65-


Table of Contents
   

working capital borrowings made after the end of a period but on or before the date of determination of operating surplus for the period; plus

 

   

cash distributions paid in respect of equity issued (including incremental distributions on incentive distribution rights), other than equity issued in this offering, to finance all or a portion of expansion capital expenditures in respect of the period from such financing until the earlier to occur of the date the capital asset commences commercial service and the date that it is abandoned or disposed of; plus

 

   

cash distributions paid in respect of equity issued (including incremental distributions on incentive distribution rights) to pay the construction period interest on debt incurred, or to pay construction period distributions on equity issued, to finance the expansion capital expenditures referred to above, in each case, in respect of the period from such financing until the earlier to occur of the date the capital asset is placed in service and the date that it is abandoned or disposed of; less

 

   

all of our operating expenditures (as defined below) after the closing of this offering; less

 

   

the amount of cash reserves established by our general partner to provide funds for future operating expenditures; less

 

   

all working capital borrowings not repaid within twelve months after having been incurred; less

 

   

any loss realized on disposition of an investment capital expenditure.

As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not limited to cash generated by our operations. For example, it includes a basket of $ million that will enable us, if we choose, to distribute as operating surplus cash we receive in the future from non-operating sources such as asset sales, issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus. In addition, the effect of including, as described above, certain cash distributions on equity interests in operating surplus will be to increase operating surplus by the amount of any such cash distributions. As a result, we may also distribute as operating surplus up to the amount of any such cash that we receive from non-operating sources.

The proceeds of working capital borrowings increase operating surplus and repayments of working capital borrowings are generally operating expenditures, as described below, and thus reduce operating surplus when made. However, if a working capital borrowing is not repaid during the twelve-month period following the borrowing, it will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowing is in fact repaid, it will be excluded from operating expenditures because operating surplus will have been previously reduced by the deemed repayment.

We define operating expenditures in our partnership agreement, and it generally means all of our cash expenditures, including, but not limited to, taxes, reimbursement of expenses to our general partner or its affiliates, payments made under interest rate hedge agreements or commodity hedge agreements (provided that (1) with respect to amounts paid in connection with the initial purchase of an interest rate hedge contract or a commodity hedge contract, such amounts will be amortized over the life of the applicable interest rate hedge contract or commodity hedge contract and (2) payments made in connection with the termination of any interest rate hedge contract or commodity hedge contract prior to the expiration of its stipulated settlement or termination date will be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such interest rate hedge contract or commodity hedge contract), officer compensation, repayment of working capital borrowings, debt service payments and estimated maintenance and replacement capital expenditures, provided that operating expenditures will not include:

 

   

repayment of working capital borrowings deducted from operating surplus pursuant to the penultimate bullet point of the definition of operating surplus above when such repayment actually occurs;

 

   

payments (including prepayments and prepayment penalties and the purchase price of indebtedness that is repurchased and cancelled) of principal of and premium on indebtedness, other than working capital borrowings;

 

-66-


Table of Contents
   

expansion capital expenditures;

 

   

actual maintenance and replacement capital expenditures;

 

   

investment capital expenditures;

 

   

payment of transaction expenses relating to interim capital transactions;

 

   

distributions to our partners (including distributions in respect of our incentive distribution rights); or

 

   

repurchases of equity interests except to fund obligations under employee benefit plans.

Capital Surplus

Capital surplus is defined in our partnership agreement as any distribution of cash in excess of our operating surplus. Accordingly, capital surplus would generally be generated only by the following (which we refer to as “interim capital transactions”):

 

   

borrowings other than working capital borrowings;

 

   

sales of our equity and debt securities; and

 

   

sales or other dispositions of assets for cash, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of normal retirement or replacement of assets.

Characterization of Cash Distributions

Our partnership agreement requires that we treat distributions, whether in cash or in equity, as coming from operating surplus until the sum of all distributions since the closing of this offering equals the operating surplus from the closing of this offering through the end of the quarter immediately preceding that distribution. Our partnership agreement requires that we treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus. As described above, operating surplus includes up to $             million, which does not reflect actual cash on hand that is available for distribution to our unitholders. Rather, it is a provision that will enable us, if we choose, to distribute as operating surplus up to this amount that would otherwise be distributed as capital surplus. We do not anticipate that we will make any distributions from capital surplus.

Capital Expenditures

Estimated maintenance and replacement capital expenditures reduce operating surplus, but expansion capital expenditures, actual maintenance and replacement capital expenditures and investment capital expenditures do not. Maintenance and replacement capital expenditures are those capital expenditures required to maintain our long-term operating capacity. Examples of maintenance and replacement 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. Maintenance and replacement capital expenditures will also include interest (and related fees) on debt incurred and distributions on equity issued (including incremental distributions on incentive distribution rights) to finance all or any portion of the construction or development of a replacement asset that is paid in respect of the period that begins when we enter into a binding obligation to commence constructing or developing a replacement asset and ending on the earlier to occur of the date that any such replacement asset commences commercial service and the date that it is abandoned or disposed of. Capital expenditures made solely for investment purposes will not be considered maintenance and replacement capital expenditures.

Because our maintenance and replacement capital expenditures can be irregular, the amount of our actual maintenance and replacement capital expenditures may differ substantially from period to period, which could cause similar fluctuations in the amounts of operating surplus if we subtracted actual maintenance and replacement capital expenditures from operating surplus.

 

-67-


Table of Contents

Our partnership agreement will require that an estimate of the average quarterly maintenance and replacement capital expenditures necessary to maintain our operating capacity over the long-term be subtracted from operating surplus each quarter as opposed to the actual amounts spent. The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus for those periods will be subject to review and change by our general partner at least once a year, provided that any change is approved by our conflicts committee. The estimate will be made at least annually and whenever an event occurs that is likely to result in a material adjustment to the amount of our maintenance and replacement capital expenditures, such as a major acquisition or expansion or the introduction of new governmental regulations that will impact our business. For purposes of calculating operating surplus, any adjustment to this estimate will be prospective only. For a discussion of the amounts we have allocated toward estimated maintenance and replacement capital expenditures, please read “Distribution Policy and Restrictions on Distributions.”

The use of estimated maintenance and replacement capital expenditures in calculating operating surplus will have the following effects:

 

   

it will reduce the risk that maintenance and replacement capital expenditures in any one quarter will be large enough to render operating surplus less than the minimum quarterly distribution in respect of all units for the quarter and subsequent quarters;

 

   

it may increase our ability to distribute as operating surplus cash we receive from non-operating sources; and

 

   

it may be more difficult for us to raise our distribution above the minimum quarterly distribution and pay incentive distributions on the incentive distribution rights held by our general partner.

Expansion capital expenditures are those capital expenditures that we expect will increase our operating capacity for the long term. Examples of expansion capital expenditures include the acquisition of reserves, equipment or a new mine or the expansion of an existing mine, to the extent such capital expenditures are expected to expand our long-term operating capacity. Expansion capital expenditures will also include interest (and related fees) on debt incurred and distributions on equity issued (including incremental distributions on incentive distribution rights) to finance all or any portion of the construction of such capital improvement in respect of the period that commences when we enter into a binding obligation to commence construction of a capital improvement and ending on the earlier to occur of the date any such capital improvement commences commercial service and the date that it is disposed of or abandoned. Capital expenditures made solely for investment purposes will not be considered expansion capital expenditures.

Investment capital expenditures are those capital expenditures that are neither maintenance and replacement capital expenditures nor expansion capital expenditures. Investment capital expenditures largely will consist of capital expenditures made for investment purposes. Examples of investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investment purposes or development of assets that are in excess of the maintenance of our existing operating capacity or revenues, but which are not expected to expand, for more than the short term, our operating capacity or revenues.

Neither investment capital expenditures nor expansion capital expenditures are included in operating expenditures, and thus will not reduce operating surplus. Because expansion capital expenditures include interest payments (and related fees) on debt incurred to finance all or a portion of the construction or improvement of a capital asset in respect of a period that begins when we enter into a binding obligation to commence construction of a capital improvement and ending on the earlier to occur of the date any such capital asset commences commercial service and the date that it is abandoned or disposed of, such interest payments also do not reduce operating surplus. Losses on disposition of an investment capital expenditure will reduce operating surplus when realized and cash receipts from an investment capital expenditure will be treated as a cash receipt for purposes of calculating operating surplus only to the extent the cash receipt is a return on principal.

 

-68-


Table of Contents

Capital expenditures that are made in part for maintenance and replacement capital purposes, investment capital purposes and/or expansion capital purposes will be allocated as maintenance and replacement capital expenditures, investment capital expenditures or expansion capital expenditures by our general partner.

Partnership Interests

Common Units

At the closing of this offering, our common units and incentive distribution rights will be the only partnership interests entitled to cash. Please see “Description of Common Units.”

Subordinated Units

Foresight Reserves will initially own all of our subordinated units. The subordinated units will generally share pro rata with our common units with respect to the payment of distributions except that, for each quarter during the subordination period, holders of the subordinated units will not be entitled to receive any distribution from operating surplus until the common units have received the minimum quarterly distribution from operating surplus plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. The subordinated units will only be entitled to receive distributions in kind to the extent the distributions, if made in cash, could have been made from operating surplus. The subordinated units will not accrue arrearages.

During the PIK period, any distributions paid with respect to a subordinated unit will be in the form of additional subordinated units, the number of which will be calculated in the manner set forth below in “—Calculation of Payment-In-Kind Distributions.” When the subordination period ends, all of the subordinated units will convert into an equal number of common units, unless conversion occurs prior to the end of the PIK period, in which case they will convert into PIK common units. Please read “—Subordination Period.”

 

Calculation of Payment-In-Kind Distributions

The fractional number of subordinated units we distribute in kind with respect to each subordinated unit will be determined by dividing the distribution paid on a common unit in respect of the same quarter by the volume weighted average price of our common units for the 10 trading days immediately preceding the date on which the common units begin trading ex-dividend. We will calculate the number of PIK common units that we distribute in kind with respect to each existing PIK common unit in the same manner.

Subordination Period

General. Our partnership agreement provides that, during the subordination period (which we describe below), the common units will have the right to receive distributions from operating surplus each quarter in an amount equal to $             per common unit, which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions from operating surplus may be made on the subordinated units, respectively. The practical effect of the subordination period is to increase the likelihood that during such periods there will be sufficient cash from operating surplus to pay the minimum quarterly distribution on the common units.

Except as described below, the subordination period will begin on the closing date of this offering and will expire on the first business day after the distribution to unitholders in respect of any quarter, beginning with the quarter ending June 30, 2015, if each of the following has occurred:

 

   

distributions (in cash or in equity) on each of the outstanding units equaled or exceeded the minimum quarterly distribution of $         per unit for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date; and

 

 

-69-


Table of Contents
   

the “adjusted operating surplus” (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distribution on all of the units during those periods on a fully diluted weighted average basis.

Early Termination of Subordination Period. Notwithstanding the foregoing, the subordination period will automatically terminate on the first business day after the distribution to unitholders in respect of any quarter, beginning with the quarter ending June 30, 2014, if each of the following has occurred:

 

   

distributions (in cash or in equity) on each of the outstanding units equaled or exceeded $         (150.0% of the annualized minimum quarterly distribution) for each quarter in the four-quarter period immediately preceding that date without a material deviation from our distribution coverage policy; and

 

   

the “adjusted operating surplus” (as defined below) generated during the four-quarter period immediately preceding that date equaled or exceeded the sum of $         (150.0% of the annualized minimum quarterly distribution) on all of the outstanding units on a fully diluted weighted average basis and the related distribution on the incentive distribution rights.

When the subordination period ends, each outstanding subordinated unit will convert into one common unit and will then participate pro-rata with the other common units in cash distributions.

Adjusted Operating Surplus

Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net increases in working capital borrowings and net drawdowns of reserves of cash generated in prior periods. Adjusted operating surplus consists of:

 

   

operating surplus generated with respect to that period (excluding any amounts attributable to the items described in the first bullet point under “—Operating Surplus and Capital Surplus—Operating Surplus” above); less

 

   

any net increase in working capital borrowings with respect to that period; less

 

   

any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus

 

   

any net decrease in working capital borrowings with respect to that period; plus

 

   

any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium; plus

 

   

any net decrease made in subsequent periods in cash reserves for operating expenditures initially established with respect to such period to the extent such decrease results in a reduction of adjusted operating surplus in subsequent periods pursuant to the third bullet point above.

Conversion of Outstanding Subordinated and PIK Common Units Upon Removal of the General Partner

If the unitholders remove our general partner other than for cause:

 

   

the subordinated units and any PIK common units held by any person will immediately and automatically convert into common units on a one-for-one basis, provided (1) neither such person nor any of its affiliates voted any of its units in favor of the removal and (2) such person is not an affiliate of the successor general partner; and

 

   

if all of the subordinated units convert pursuant to the foregoing, all cumulative arrearages on the common will be extinguished and the subordination period will end.

 

-70-


Table of Contents

Distributions From Operating Surplus During Subordination Period

Our partnership agreement requires that we make distributions from operating surplus for any quarter during the subordination period in the following manner:

 

   

first, 100.0% to the common unitholders, pro rata until we distribute for each common unit an amount equal to the minimum quarterly distribution for that quarter and any arrearages in payment of the minimum quarterly distribution for prior quarters;

 

   

second, 100.0% to the subordinated unitholders, pro rata, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and

 

   

thereafter, in the manner described in “—General Partner Interest” and “—Incentive Distribution Rights” below.

Distributions of Cash From Operating Surplus After The Subordination Period

Our partnership agreement requires that we make distributions of cash from operating surplus for any quarter after the subordination period in the following manner:

 

   

first, 100.0% to all common unitholders, pro rata, until we distribute for each common unit an amount equal to the minimum quarterly distribution for that quarter; and

 

   

thereafter, in the manner described in “—Incentive Distribution Rights” below.

PIK Common Units

If the subordination period ends during the PIK period, the subordinated units will convert into PIK common units. Our partnership agreement provides that the PIK common units will participate pro rata with the common units with respect to the payment of distributions. However, we will pay distributions on PIK common units by issuing additional PIK common units in an amount calculated in the manner described above in “—Partnership Interests—Calculation of Payment-In-Kind Distributions.” At the end of the PIK period, the PIK common units will convert into common units.

General Partner Interest

Our general partner owns a non-economic general partner interest in us and thus will not be entitled to distributions that we make prior to our liquidation in respect of such interest.

Incentive Distribution Rights

Incentive distribution rights represent the right to receive an increasing percentage (15.0%, 25.0% and 50.0%) of quarterly distributions from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. For purposes of calculating the amount of incentive distributions to be made to the holders of incentive distribution rights, all distributions in kind will be treated as if they were paid in cash. Upon the closing of this offering, our general partner will hold all of our incentive distribution rights, but may transfer these rights separately from its non-economic general partner interest.

If for any quarter:

 

   

We have distributed cash from operating surplus or, with respect to the subordinated units, the equity equivalent thereof, to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and

 

   

We have distributed cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

 

-71-


Table of Contents

then, our partnership agreement requires that any incremental distributions from operating surplus for that quarter will be made among the unitholders and the general partner in the following manner:

 

   

first, 100.0% to all unitholders, pro rata, until each unitholder receives a total of $         per unit for that quarter (the “first target distribution”);

 

   

second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives a total of $         per unit for that quarter (the “second target distribution”);

 

   

third, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives a total of $         per unit for that quarter (the “third target distribution”); and

 

   

thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.

Percentage Allocations of Distributions From Operating Surplus

The following table illustrates the percentage allocations of cash, or, with respect to the subordinated units during the PIK period, the equity equivalent thereof, from operating surplus between the unitholders and our general partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of our general partner and the unitholders in any distributions from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Per Unit.” The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.

 

    

Total Quarterly Distribution Per
Common and

Subordinated Unit(1)

   Marginal Percentage
Interest in
Distribution
 
        Unitholders     General
Partner
 

Minimum Quarterly Distribution

   $              100.0     0

First Target Distribution

   above $        up to $              100.0     0

Second Target Distribution

   above $        up to $              85.0     15.0

Third Target Distribution

   above $        up to $              75.0     25.0

Thereafter

   above $              50.0     50.0

 

(1) The amounts in this column include the value of the additional units that will be paid in kind to the holders of the subordinated units each quarter until the end of the PIK period.

General Partner’s Right to Reset Incentive Distribution Levels

Our general partner, as the initial holder of our incentive distribution rights, has the right under our partnership agreement to elect to relinquish the right to receive incentive distribution payments based on the initial target distribution levels and to reset, at higher levels, the target distribution levels upon which the incentive distribution payments to our general partner would be set. If our general partner transfers all or a portion of our incentive distribution rights in the future, then the holder or holders of a majority of our incentive distribution rights will be entitled to exercise this right. The following discussion assumes that our general partner holds all of the incentive distribution rights at the time that a reset election is made. The right to reset the target distribution levels upon which the incentive distributions are based may be exercised, without approval of our unitholders or the conflicts committee of our general partner, at any time after the PIK period when there are no subordinated units outstanding and we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distribution for the prior four consecutive fiscal quarters. The reset and target distribution levels will be higher than the target distribution levels prior to the reset such that there will be no incentive distributions paid under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our general partner would exercise this reset right in

 

-72-


Table of Contents

order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made to our general partner.

In connection with the resetting of the target distribution levels and the corresponding relinquishment by our general partner of incentive distribution payments based on the target cash distributions prior to the reset, our general partner will be entitled to receive a number of newly issued common units based on a predetermined formula described below that takes into account the “cash parity” value of the cash distributions related to the incentive distribution rights received by our general partner for the quarter prior to the reset event as compared to the average cash distributions per common unit during this period.

The number of common units that our general partner would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to the quotient determined by dividing (x) the amount of cash distributions received by our general partner in respect of its incentive distribution rights for the most recent quarterly distribution by (y) the amount of cash distributed per common unit for such quarter.

Following a reset election, a baseline distribution amount will be calculated as an amount equal to the cash distribution amount per unit for the fiscal quarter immediately preceding the reset election (which amount we refer to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to be correspondingly higher such that we would make distributions from operating surplus for each quarter thereafter as follows:

 

   

first, 100.0% to all common unitholders, pro rata, until each unitholder receives an amount per unit equal to 115.0% of the reset minimum quarterly distribution for that quarter;

 

   

second, 85.0% to all common unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives an amount per unit equal to 125.0% of the reset minimum quarterly distribution for the quarter;

 

   

third, 75.0% to all common unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives an amount per unit equal to 150.0% of the reset minimum quarterly distribution for the quarter; and

 

   

thereafter, 50.0% to all common unitholders, pro rata, and 50.0% to our general partner.

Because a reset election can only occur after the subordination period expires, the reset minimum quarterly distribution will have no significance except as a baseline for the target distribution levels.

The following table illustrates the percentage allocation of distributions from operating surplus between the unitholders and our general partner at various distribution levels (1) pursuant to the distribution provisions of our partnership agreement in effect at the closing of this offering, as well as (2) following a hypothetical reset of the target distribution levels based on the assumption that the quarterly distribution amount per common unit during the prior fiscal quarter immediately preceding the reset election was $        .

 

     Quarterly Distribution
Per Unit Prior
to Reset
   Unitholders     General
Partner
    Quarterly Distribution
Per Unit Following
Hypothetical Reset

First Target Distribution

   up to $              100.0     0.0   above $         up to $        (1)

Second Target Distribution

   above $         up to $              85.0     15.0   above $         up to $        (2)

Third Target Distribution

   above $         up to $              75.0     25.0   above $         up to $        (3)

Thereafter

   above $              50.0     50.0   above $        

 

(1) This amount is 115.0% of the hypothetical reset minimum quarterly distribution.
(2) This amount is 125.0% of the hypothetical reset minimum quarterly distribution.
(3) This amount is 150.0% of the hypothetical reset minimum quarterly distribution.

 

-73-


Table of Contents

The following table illustrates the total amount of distributions from operating surplus that would be distributed to the unitholders and our general partner in respect of its incentive distribution rights, based on the amount distributed per quarter for the quarter immediately prior to the reset. The table assumes that immediately prior to the reset there would be              common units outstanding and the distribution to each common unit would be $         per quarter for the quarter prior to the reset.

 

   

Quarterly

Distributions

Per Unit Prior
to Reset

  Distributions
to Common
Unitholders
Prior to
Reset
      Cash Distributions to General
Partner Prior to Reset  
    Total
Distributions
 
        Common
Units
    Incentive
Distribution
Rights
    Total    

First Target Distribution

  up to $               —          —         

Second Target Distribution

  above $         up to $               —           

Third Target Distribution

  above $         up to $               —           

Thereafter

  above $               —           
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $          —        $        $        $     
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table illustrates the total amount of distributions from operating surplus that would be distributed to the unitholders and our general partner in respect of its incentive distribution rights, with respect to the quarter in which the reset occurs. The table reflects that as a result of the reset there would be          common units outstanding and the distribution to each common unit would be $        . The number of common units to be issued to our general partner upon the reset was calculated by dividing (1) the amount received by our general partner in respect of its incentive distribution rights for the quarter prior to the reset as shown in the table above, or $         million, by (2) the amount distributed on each common unit for the quarter prior to the reset as shown in the table above, or $         .

 

    Quarterly
Distributions
Per Unit After Reset
    Distributions to
Common
Unitholders
After Reset
    Cash Distributions to General
Partner After Reset
    Total
Distributions
 
        Common
Units
    Incentive
Distribution
Rights
        Total        

First Target Distribution

    up to $                  —          —         

Second Target Distribution

    above $         up to $                —          —          —          —          —     

Third Target Distribution

  above $          up to $                —          —          —          —          —     

Thereafter

    above $                —          —          —          —          —     
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $                   —        $               $            
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Our general partner will be entitled to cause the target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive distributions for the prior four consecutive fiscal quarters based on the highest level of incentive distributions that it is entitled to receive under our partnership agreement.

Distributions From Capital Surplus

How Distributions From Capital Surplus Will Be Made

Our partnership agreement requires that we make distributions from capital surplus, if any, in the following manner:

 

   

first, 100.0% to all common and subordinated unitholders, pro rata, until the minimum quarterly distribution is reduced to zero, as described below;

 

   

second, 100.0% to the common unitholders, pro rata, until we distribute for each common unit an amount of cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and

 

   

thereafter, we will make all distributions from capital surplus as if they were from operating surplus.

 

-74-


Table of Contents

Effect of a Distribution From Capital Surplus

Our partnership agreement treats a distribution of cash from capital surplus as the repayment of the initial unit price from this initial public offering, which is a return of capital. Each time a distribution of cash from capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the corresponding reduction in relation to the fair market value of the common units prior to the announcement of the distribution. Because distributions of capital surplus will reduce the minimum quarterly distribution and target distribution levels after any of these distributions are made, it may be easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution of capital surplus before the minimum quarterly distribution is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.

If we reduce the minimum quarterly distribution and target distribution levels to zero, all future distributions from operating surplus will be made such that 50.0% is paid to all unitholders, pro rata, and 50.0% is paid to the holder of incentive distribution rights, pro rata.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our common units into fewer common units or subdivide our common units into a greater number of common units, our partnership agreement specifies that the following items will be proportionately adjusted:

 

   

the minimum quarterly distribution;

 

   

the target distribution levels;

 

   

the unrecovered initial unit price;

 

   

the per unit amount of any outstanding arrearages in payment of the minimum quarterly distribution on the common units; and

 

   

the number of subordinated units.

For example, if a two-for-one split of the common units should occur, the minimum quarterly distribution, the target distribution levels and the unrecovered initial unit price would each be reduced to 50.0% of its initial level, and each subordinated unit would convert into two subordinated units. Our partnership agreement provides that we do not make any adjustment by reason of the issuance of additional units for cash or property.

In addition, if as a result of a change in law or interpretation thereof, we or any of our subsidiaries is treated as an association taxable as a corporation or is otherwise subject to additional taxation as an entity for U.S. federal, state, local or non-U.S. income or withholding tax purposes, our general partner may, in its sole discretion, reduce the minimum quarterly distribution and the target distribution levels for each quarter by multiplying each distribution level by a fraction, the numerator of which is cash for that quarter (after deducting our manager’s estimate of our additional aggregate liability for the quarter for such income and withholdings taxes payable by reason of such change in law or interpretation) and the denominator of which is the sum of (1) cash for that quarter, plus (2) our general partner’s estimate of our additional aggregate liability for the quarter for such income and withholding taxes payable by reason of such change in law or interpretation thereof. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be accounted for in distributions with respect to subsequent quarters.

Distributions of Cash Upon Liquidation

General

If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We

 

-75-


Table of Contents

will distribute any remaining proceeds to the unitholders and the holders of the incentive distribution rights, in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.

The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle the holders of common units to a preference over the holders of subordinated units upon our liquidation, to the extent required to permit common unitholders to receive their unrecovered initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable the common unitholders to fully recover all of these amounts, even though there may be cash available for distribution to the holders of subordinated units. Any further net gain recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution rights of our general partner.

Manner of Adjustments for Gain

The manner of the adjustment for gain is set forth in the partnership agreement. If our liquidation occurs before the end of the subordination period, we will generally allocate any gain to the partners in the following manner:

 

   

first, to our general partner to the extent of certain prior losses specially allocated to our general partner;

 

   

second, 100.0% to the common unitholders, until the capital account for each common unit is equal to the sum of: (1) the unrecovered initial unit price; (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and (3) any unpaid arrearages in payment of the minimum quarterly distribution;

 

   

third, 100.0% to the subordinated unitholders, pro rata, until the capital account for each subordinated unit is equal to the sum of: (1) the unrecovered initial unit price; and (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;

 

   

fourth, 100.0% to all unitholders, pro rata, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed 100.0% to the unitholders, pro rata, for each quarter of our existence;

 

   

fifth, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of cash from operating surplus in excess of the first target distribution per unit that we distributed 85.0% to the unitholders, pro rata, and 15.0% to our general partner for each quarter of our existence;

 

   

sixth, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of cash from operating surplus in excess of the second target distribution per unit that we distributed 75.0% to the unitholders, pro rata, and 25.0% to our general partner for each quarter of our existence; and

 

   

thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.

The percentage interests set forth above for our general partner assume our general partner has not transferred the incentive distribution rights.

 

-76-


Table of Contents

If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that clause (3) of the second bullet point above and all of the third bullet point above will no longer be applicable.

We may make special allocations of gain among the partners in a manner to create economic uniformity among the common units into which the subordinated units convert and the common units held by public unitholders.

Manner of Adjustments for Losses

If our liquidation occurs before the end of the subordination period, we will generally allocate any loss to our general partner and the unitholders in the following manner:

 

   

first, 100.0% to holders of subordinated units in proportion to the positive balances in their capital accounts until the capital accounts of the subordinated unitholders have been reduced to zero;

 

   

second, 100.0% to the holders of common units in proportion to the positive balances in their capital accounts, until the capital accounts of the common unitholders have been reduced to zero; and

 

   

thereafter, 100.0% to our general partner.

If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that all of the first bullet point above will no longer be applicable.

We may make special allocations of loss among the partners in a manner to create economic uniformity among the common units into which the subordinated units convert and the common units held by public unitholders.

Adjustments to Capital Accounts

Our partnership agreement requires that we make adjustments to capital accounts upon the issuance of additional units. In this regard, our partnership agreement specifies that we allocate any unrealized and, for U.S. federal income tax purposes, unrecognized gain resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units, our partnership agreement requires that we generally allocate any later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner which results, to the extent possible, in the partners’ capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had been made. By contrast to the allocations of gain, and except as provided above, we generally will allocate any unrealized and unrecognized loss resulting from the adjustments to capital accounts upon the issuance of additional units to the unitholders and our general partner based on their respective percentage ownership of us. In this manner, prior to the end of the subordination period, we generally will allocate any such loss equally with respect to our common and subordinated units. In the event we make negative adjustments to the capital accounts as a result of such loss, future positive adjustments resulting from the issuance of additional units will be allocated in a manner designed to reverse the prior negative adjustments, and special allocations will be made upon liquidation in a manner that results, to the extent possible, in our unitholders’ capital account balances equaling the amounts they would have been if no earlier adjustments for loss had been made.

 

-77-


Table of Contents

SELECTED HISTORICAL FINANCIAL INFORMATION

The following table sets forth our selected historical consolidated financial information derived from our: (i) audited financial statements for the years ended December 31, 2010, 2009 and 2008; (ii) unaudited financial statements for the years ended December 31, 2007 and 2006; and (iii) unaudited condensed financial statements for the nine months ended September 30, 2011 and 2010. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the information set forth herein. Operating results for the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011 or for any future period. This data should be read in conjunction with consolidated financial statements and related notes included elsewhere in this prospectus.

The following information is only a summary and should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.

 

    For the Years Ended December 31,     For the Nine Months
Ended September 30,
 
    2010     2009     2008     2007     2006     2011     2010  
    ($ in thousands, except averages)  

Statement of Operations Data

             

Revenues

             

Coal sales revenue

  $ 362,592      $ 271,249      $ 238,842      $ —        $ —        $ 358,931      $ 246,087   

Costs and Expenses

             

Cost of coal sales

    130,610        101,528        109,421        —          —          119,762        88,272   

Transportation expense

    58,482        48,933        46,942        —          —          72,615        32,489   

Depreciation, depletion and amortization

    55,590        38,937        27,886        226        143        52,451        39,778   

Accretion

    2,068        1,735        203        —          —          1,279        1,477   

Selling, general, and administrative

    28,367        22,610        11,913        13,581        11,836        26,083        17,386   

Other operating (income) expense, net(1)

    (2,611     (3,208     334        (80     (960     52        (964

Loss on commodity contracts

    —          —          —          —          —          847        —     

Gain on coal sale contract termination

    —          —          (44,019     —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    90,086        60,714        86,162        (13,727     (11,019     85,842        67,649   

Other income and expense:

             

Interest and securities income

    67        427        1,360        359        270        4        52   

Interest expense

    (40,498     (46,466     (43,625     (21,618     (8,179     (35,196     (32,615

Loss on interest rate swaps

    —          (586     —          —          —          —          (550
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

    49,655        14,089        43,897        (34,986     (18,928     50,650        34,536   

Net loss from discontinued operations

    (40,893     (50,545     (41,249     (51,059     (12,364     —          (40,893
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    8,762        (36,456     2,648        (86,045     (31,292     50,650        (6,357

Less: Net income attributable to non-controlling interests

    909        246        56        (650     7        50        867   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to controlling interests

  $ 7,853      $ (36,702   $ 2,592      $ (85,395   $ (31,299   $ 50,600      $ (7,224
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

-78-


Table of Contents
    For the Years Ended December 31,     For the Nine Months
Ended September 30,
 
    2010     2009     2008     2007     2006     2011     2010  
    ($ in thousands, except averages)  

Statement of Cash Flows

             

Net cash from operating activities

  $ 32,044      $ 107,400      $ 75,624      $ (80,861   $ (5,340   $ 45,403      $ (62,793

Net cash from investing activities

  $ (250,168   $ (408,714   $ (198,138   $ 137,930   $ (247,881   $ (242,490   $ (171,664

Net cash from financing activities

  $ 203,486      $ 329,604      $ 135,397      $ 206,429      $ 270,867      $ 186,070      $ 200,343   

Investment in mining rights, equipment and development

  $ (255,460   $ (348,445   $ (182,627   $ (143,737   $ (236,898   $ (242,490   $ (176,958

Balance Sheet Data (at period end)

             

Cash and investments in available-for-sale securities

  $ 33,451      $ 57,031      $ 28,585      $ 2,240      $ 4,633      $ 22,434      $ 13,975   

Property, plant, equipment, and mine development, net

  $ 995,425      $ 634,250      $ 365,663      $ 278,745      $ 198,810      $ 1,233,767      $ 841,497   

Total assets

  $ 1,131,880      $ 1,036,160      $ 697,394      $ 509,119      $ 345,753      $ 1,421,744      $ 993,902   

Total long-term debt (2)

  $ 605,390      $ 345,753      $ 353,956      $ 691,162      $ 540,736      $ 806,905      $ 536,107   

Total equity

  $ 282,066      $ 133,103      $ 86,702      $ (470,003   $ (369,388   $ 362,689      $ 242,995   

Other Data

             

Adjusted EBITDA (3)

  $ 147,744      $ 101,386      $ 70,232      $ (13,501   $ (10,876   $ 139,572      $ 108,354   

Capital expenditures

  $ (255,460   $ (348,445   $ (182,627   $ (143,737   $ (236,898   $ (242,490   $ (176,958

Tons produced (4)

    6,813        5,921        5,411        —          —          6,982        5,297   

Tons sold (4)

    6,730        5,635        5,484        —          —          6,410        4,550   

Average realized price per ton sold (5)

  $ 53.88      $ 48.14      $ 43.55      $ —        $ —        $ 56.00      $