RHINO RESOURCE PARTNERS L.P. Unless the context clearly indicates otherwise, references in this report to "we," "our," "us" or similar terms refer toRhino Resource Partners LP and its subsidiaries. References to our "general partner" refer toRhino GP LLC , the general partner ofRhino Resource Partners LP . The following discussion of the historical financial condition and results of operations should be read in conjunction with the historical financial statements and accompanying notes included elsewhere in this report. In addition, this discussion includes forward-looking statements that are subject to risks and uncertainties that may result in actual results differing from statements we make. See "Cautionary Note Regarding Forward- Looking Statements." Factors that could cause actual results to differ include those risks and uncertainties discussed in Part I, Item 1A. "Risk Factors." InSeptember 2019 , we entered into an asset purchase agreement and a coal supply asset purchase agreement related to our Pennyrile mining operation ("Pennyrile") with a third party. Please read below for additional details. Our consolidated statements of operations have been retrospectively adjusted to reclassify our Pennyrile operations to discontinued operations for the years endedDecember 31, 2019 and 2018. Overview Through a series of transactions completed in the first quarter of 2016, Royal Energy Resources, Inc. ("Royal") acquired a majority ownership and control of us and 100% ownership of our general partner. We are a diversified coal producing limited partnership formed inDelaware that is focused on coal and energy related assets and activities. We produce, process and sell high quality coal of various steam and metallurgical grades. We market our steam coal primarily to electric utility companies as fuel for their steam powered generators. Customers for our metallurgical coal are primarily steel and coke producers who use our coal to produce coke, which is used as a raw material in the steel manufacturing process. 61 We have a geographically diverse asset base with coal reserves located inCentral Appalachia ,Northern Appalachia , theIllinois Basin and the Western Bituminous region. As ofDecember 31, 2019 , we controlled an estimated 277.6 million tons of proven and probable coal reserves, consisting of an estimated 171.1 million tons of steam coal and an estimated 106.5 million tons of metallurgical coal. In addition, as ofDecember 31, 2019 , we controlled an estimated 190.7 million tons of non-reserve coal deposits. Periodically, we retain outside experts to independently verify our coal reserve and our non-reserve coal deposit estimates. The most recent audit by an independent engineering firm of our coal reserve and non-reserve coal deposit estimates was completed byMarshall Miller & Associates, Inc. as ofDecember 31, 2019 , and covered a majority of the coal reserves and non-reserve coal deposits that we controlled as of such date. We intend to continue to periodically retain outside experts to assist management with the verification of our estimates of our coal reserves and non-reserve coal deposits going forward. We operate underground and surface mines located inKentucky ,Ohio ,Virginia ,West Virginia andUtah . The number of mines that we operate will vary from time to time depending on a number of factors, including the existing demand for and price of coal, depletion of economically recoverable reserves and availability of experienced labor. Our principal business strategy is to safely, efficiently and profitably produce and sell both steam and metallurgical coal from our diverse asset base in order to resume, and, over time, increase our quarterly cash distributions. In addition, we intend to continue to expand and potentially diversify our operations through strategic acquisitions, including the acquisition of long-term, cash generating natural resource assets. We believe that such assets will allow us to grow our cash available for distribution and enhance stability of our cash flow.
For the year endedDecember 31, 2019 , we generated revenues from continuing operations of approximately$181.0 million and a net loss from continuing operations of approximately$47.6 million . For the year endedDecember 31, 2019 , we produced approximately 3.2 million tons of coal from continuing operations and sold approximately 3.0 million tons of coal from continuing operations, approximately 82.0% of which were pursuant to long-term supply contracts. Current Liquidity and Outlook
As ofDecember 31, 2019 , our available liquidity was$0.1 million . We also have a delayed draw term loan commitment in the amount of$25 million contingent upon the satisfaction of certain conditions precedent specified in the financing agreement discussed below. OnDecember 27, 2017 , we entered into a financing agreement ("Financing Agreement"), which provides us with a multi-draw loan in the original aggregate principal amount of$80 million . The total principal amount is divided into a$40 million commitment, the conditions for which were satisfied at the execution of the Financing Agreement and a$40 million additional commitment that was contingent upon the satisfaction of certain conditions precedent specified in the Financing Agreement. As ofDecember 31, 2019 , we had utilized$15 million of the$40 million additional commitment, which results in$25 million of the additional commitment remaining. We used approximately$17.3 million of the initial Financing Agreement net proceeds to repay all amounts outstanding and terminate the amended and restated credit agreement withPNC Bank, National Association , as Administrative Agent. The Financing Agreement initially had a termination date ofDecember 27, 2020 , which was amended toDecember 27, 2022 per the fifth amendment to the Financing Agreement discussed further below. For more information about our Financing Agreement, please read "- Liquidity and Capital Resources-Financing Agreement." Beginning in the later part of the third quarter of 2019, we have experienced significantly weaker market demand and have seen prices move lower for the qualities of met and steam coal we produce. This downward price trend has been exacerbated by the recent coronavirus pandemic. In response to this reduced demand and to the significant health threats to our employees, onMarch 20, 2020 , we temporarily idled production at several of our mines. We will continue to monitor conditions to ensure the health and welfare of our employees. We do not expect the idling of the coal production activities will affect our ability to fulfill current customer commitments, as loading and shipping crews will remain in place to ship coal from existing inventories. If we continue to experience weak demand and prices continue to lower for our met and steam coal, we may not be able to continue to give the required representations or meet all of the covenants and restrictions included in our Financing Agreement. If we violate any of the covenants or restrictions in our Financing Agreement, including the fixed-charge coverage ratio, some or all of our indebtedness may become immediately due and payable, and our Lenders may not be willing to make any loans under the additional commitment available under our Financing Agreement. If we are unable to give a required representation or we violate a covenant or restriction, then we will need a waiver from our Lenders under our Financing Agreement, or they may declare an event of default and, after applicable specified cure periods, all amounts outstanding under the Financing Agreement would become immediately due and payable. Although we believe our Lenders are well secured under the terms of our Financing Agreement, there is no assurance that the Lenders would agree to any such waiver. Failure to obtain financing or to generate sufficient cash flow from operations could cause us to further curtail our operations and reduce spending and alter our business plan. We are currently considering alternatives to address our liquidity and balance sheet issues, such as selling additional assets or seeking merger opportunities, and depending on the urgency of our liquidity constraints, we may be required to pursue such an option at an inopportune time. 62 As ofDecember 31, 2019 , we are unable to demonstrate that we have sufficient liquidity to operate our business over the next twelve months from the date of filing our Annual Report on Form 10-K and thus substantial doubt is raised about our ability to continue as a going concern. Accordingly, our independent registered public accounting firm has included an emphasis paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year endedDecember 31, 2019 . The presence of the going concern emphasis paragraph in our auditors' report may have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors, lenders and employees, making it difficult to raise additional financing to the extent needed to conduct normal operations. As a result, our business, results of operations, financial condition and prospects could be materially adversely affected. We continue to take measures, including the suspension of cash distributions on our common and subordinated units and cost and productivity improvements, to enhance and preserve our liquidity in order to fund our ongoing operations and necessary capital expenditures and meet our financial commitments and debt
service obligations. Recent Developments
OnSeptember 6, 2019 , we entered into an Asset Purchase Agreement (the "Pennyrile APA") withAlliance Coal, LLC ("Buyer") and Alliance Resource Partners, L.P. ("Buyer Parent") pursuant to which we agreed to sell to Buyer all of the real property, permits, equipment and inventory and certain other assets associated with Pennyrile in exchange for approximately$3.7 million , subject to certain adjustments. Pursuant to the Pennyrile APA, we retain liability for certain employee claims, subsidence claims arising from pre-closing mining operations, MSHA liabilities and certain other matters. The Pennyrile APA also provides that Buyer shall have the right to conduct diligence on the Pennyrile mine complex and may contest the fair market value of the purchased assets or the estimate of the costs of the assumed liabilities following such diligence investigation. In the event Buyer does contest such amounts, the parties will attempt to resolve the dispute and to the extent they cannot, will submit the matter to a third party to make a final determination with respect to such matters, and will adjust the purchase price accordingly. The parties have made customary representations, warranties and covenants in the Pennyrile APA. The closing of the transactions contemplated by the Asset Purchase Agreement are subject to a number of closing conditions, including, among others, the performance of applicable covenants and accuracy of representations and warranties and absence of material adverse changes in the condition of Pennyrile. The transaction was completed in the first quarter
of 2020.
Coal Supply Asset Purchase Agreement
OnSeptember 6, 2019 , we entered into an Asset Purchase Agreement with the Buyer and Buyer Parent for the sale and assignment of certain coal supply agreements associated with Pennyrile (the "Coal Supply APA") in exchange for approximately$7.3 million . The Coal Supply APA includes customary representations of the parties thereto and indemnification for losses arising from the breaches of such representations and for liabilities arising during the period in which the relevant parties were not party to the coal supply agreements. The transactions contemplated by the Coal Supply APA closed upon the execution thereof. Discontinued Operations The Pennyrile operating results for the year endedDecember 31, 2019 and 2018 are recorded as discontinued operations, including a$38.7 million impairment loss associated with the sale. 63
Blackjewel Assignment Agreement
OnAugust 14, 2019 , our wholly owned subsidiaryJewell Valley Mining LLC , entered into a general assignment and assumption agreement and bill of sale (the "Assignment Agreement") withBlackjewel L.L.C. ,Blackjewel Holdings L.L.C. ,Revelation Energy Holdings, LLC ,Revelation Management Corp. ,Revelation Energy, LLC ,Dominion Coal Corporation ,Harold Keene Coal Co. LLC ,Vansant Coal Corporation ,Lone Mountain Processing LLC ,Powell Mountain Energy, LLC , andCumberland River Coal LLC (together, "Blackjewel") to purchase certain assets from Blackjewel for cash consideration of$850,000 plus an additional royalty of$250,000 that is payable within one year from the date of the purchase, as well as the assumption of associated reclamation obligations. The assets that are subject of the Assignment Agreement consist of three underground mines inVirginia that were actively producing coal prior to Blackjewel's filing for relief under Chapter 11 of the United States Bankruptcy Code, along with a preparation plant, rail loadout facility, related mineral and surface rights and infrastructure and certain purchase contracts to be assumed at our option. We resumed mining operations at two of the mines in the fourth quarter of 2019. Settlement Agreement
OnJune 28, 2019 , we entered into a settlement agreement with a third party which allows the third party to maintain certain pipelines pursuant to designated permits at ourCentral Appalachia operations. The agreement required the third party to pay us$7.0 million in consideration. We received$4.2 million onJuly 3, 2019 and the balance of$2.8 million was received onJanuary 2, 2020 . We recorded a gain of$6.9 million during the second quarter of 2019 related to this settlement agreement. Financing Agreement OnFebruary 13, 2019 , we entered into a second amendment ("Amendment") to the Financing Agreement. The Amendment provided the Lender's consent for us to pay a one-time cash distribution onFebruary 14, 2019 to the Series A Preferred Unitholders not to exceed approximately$3.2 million . The Amendment allowed us to sell our remaining shares of Mammoth Energy Services, Inc. (NASDAQ: TUSK)("Mammoth Inc. ") and utilize the proceeds for payment of the one-time cash distribution to the Series A Preferred Unitholders and waived the requirement to use such proceeds to prepay the outstanding principal amount outstanding under the Financing Agreement. The Amendment also waived any Event of Default that has or would otherwise arise under Section 9.01(c) of the Financing Agreement solely by reason of us failing to comply with the Fixed Charge Coverage Ratio covenant in Section 7.03(b) of the Financing Agreement for the fiscal quarter endingDecember 31, 2018 . The Amendment includes an amendment fee of approximately$0.6 million payable by us onMay 13, 2019 and an exit fee equal to 1% of the principal amount of the term loans made under the Financing Agreement that is payable on the earliest of (w) the final maturity date of the Financing Agreement, (x) the termination date of the Financing Agreement, (y) the acceleration of the obligations under the Financing Agreement for any reason, including, without limitation, acceleration in accordance with Section 9.01 of the Financing Agreement, including as a result of the commencement of an insolvency proceeding and (z) the date of any refinancing of the term loan under the Financing Agreement. The Amendment amended the definition of the Make-Whole Amount under the Financing Agreement to extend the date of the Make-Whole Amount period toDecember 31, 2019 . OnMay 8, 2019 , we entered into a third amendment ("Third Amendment") to the Financing Agreement. The Third Amendment includes the Lenders' agreement to waive any Event of Default that arose or would otherwise arise under the Financing Agreement for failing to comply with the Fixed Charge Coverage Ratio for the six months endedMarch 31, 2019 . The Third Amendment increased the original exit fee of 3.0% to 6.0%. The original exit fee of 3% was included in the Financing Agreement at the execution date and the increase of the total exit fee to 6% was included as part of the amendment datedFebruary 13, 2019 discussed above and this Third Amendment. The exit fee is applied to the principal amount of the loans made under the Financing Agreement that is payable on the earliest of (a) the final maturity date, (b) the termination date of the Financing agreement for any reason, (c) the acceleration of the obligations in the Financing Agreement for any reason and (d) the date of any refinancing of the term loan under the Financing Agreement. 64 OnAugust 16, 2019 , we entered into a fourth amendment (the "Fourth Amendment") to the Financing Agreement originally executed onDecember 27, 2017 with the Lenders. The Fourth Amendment provided a$5.0 million term loan provided by the Lenders to us under the delayed draw feature of the Financing Agreement, and extended the period by which an applicable premium payable to the Lenders will be calculated to the final maturity date. OnSeptember 6, 2019 , we entered into a fifth amendment (the "Fifth Amendment"). The Fifth Amendment (i) extended the maturity of the Financing Agreement toDecember 27, 2022 , (ii) provided a$5.0 million term loan provided by the Lenders to us under the delayed draw feature of the Financing Agreement, (iii) extended the period by which an applicable premium payable to the Lenders will be calculated toDecember 31, 2021 , (iv) modified certain definitions and concepts to account for our recent acquisition of properties from Blackjewel, (v) permitted the disposition of the Pennyrile mining complex and (vi) provided for the payment of additional fees to the Lenders, including a consent fee of$1.0 million , an amendment fee of$825,000 and an increase in the lender exit fee of 1.00% to a total exit fee of 7.0% of the amount of term loans made under the Financing Agreement that is payable at the maturity of the Financing Agreement. OnMarch 2, 2020 , we entered into a sixth amendment (the "Sixth Amendment") to the Financing Agreement. The Sixth Amendment, among other things, provides a consent by the Origination Agent to a$3.0 million delayed draw term loan and increases the lender exit fee payable by the Partnership to the Lenders upon the maturity date (or earlier termination or acceleration date) by an additional 1.0%. Distribution Suspension Beginning with the quarter endedJune 30, 2015 and continuing through the quarter endedDecember 31, 2018 , we have suspended the cash distribution on our common units. For each of the quarters endedSeptember 30, 2014 ,December 31, 2014 andMarch 31, 2015 , we announced cash distributions per common unit at levels lower than the minimum quarterly distribution. We have not paid any distribution on our subordinated units for any quarter after the quarter endedMarch 31, 2012 . The distribution suspension and prior reductions were the result of prolonged weakness in the coal markets, which has continued to adversely affect our cash flow. Pursuant to our partnership agreement, our common units accrue arrearages every quarter when the distribution level is below the minimum level of$4.45 per unit. Since our distributions for the quarters endedSeptember 30, 2014 ,December 31, 2014 andMarch 31, 2015 were below the minimum level and we altogether suspended the distribution beginning with the quarter endedJune 30, 2015 , we have accumulated arrearages atDecember 31, 2019 related to the common unit distribution of approximately$907.2 million . Asset Impairments-2019 We performed a comprehensive review of our current coal mining operations as well as potential future development projects to ascertain any potential impairment losses during 2019. We identified two properties that were impaired based upon changes in market conditions, financing alternatives or other factors, specifically at ourRhino Eastern and Taylorville Mining undeveloped properties where market conditions related to any future development deteriorated in the fourth quarter of 2019. We determined that the probability of obtaining the financing required for these projects would be remote as ofDecember 31, 2019 . We recorded approximately$26.0 million of total asset impairment and related charges related to these undeveloped properties for the year endedDecember 31, 2019 , which is recorded on the Asset impairment and related charges line of the consolidated statements of operations. The$26.0 million impairment included a$17.9 million impairment related to future development ofRhino Eastern and an$8.1 million impairment related to future development ofTaylorville Mining LLC .
Factors That Impact Our Business
Our results of operations in the near term could be impacted by a number of factors, including (1) our ability to fund our ongoing operations and necessary capital expenditures, (2) the availability of transportation for coal shipments, (3) poor mining conditions resulting from geological conditions or the effects of prior mining, (4) equipment problems at mining locations, (5) adverse weather conditions and natural disasters or (6) the availability and costs of key supplies and commodities such as steel, diesel fuel and explosives. 65
On a long-term basis, our results of operations could be impacted by, among other factors, (1) our ability to fund our ongoing operations and necessary capital expenditures, (2) changes in governmental regulation, (3) the availability and prices of competing electricity-generation fuels, (4) the world-wide demand for steel, which utilizes metallurgical coal and can affect the demand and prices of metallurgical coal that we produce, (5) our ability to secure or acquire high-quality coal reserves and (6) our ability to find buyers for coal under favorable supply contracts. We have historically sold a majority of our coal through supply contracts and anticipate that we will continue to do so. As ofDecember 31, 2019 , we had commitments under supply contracts to deliver annually scheduled base quantities of coal as follows: Year Tons Number of customers (in thousands) 2020 1,734 12 2021 400 3 2022 250 3
Some of the contracts have sales price adjustment provisions, subject to certain limitations and adjustments, based on a variety of factors and indices.
Results of Operations Segment Information As ofDecember 31, 2019 , we have three reportable business segments:Central Appalachia ,Northern Appalachia andRhino Western . Additionally, we have an Other category that includes our ancillary businesses. OurCentral Appalachia segment consists of three mining complexes:Tug River ,Rob Fork and Jewell Valley, which, as ofDecember 31, 2019 , together included five underground mines, three surface mines and four preparation plants and loadout facilities in easternKentucky ,Virginia and southernWest Virginia . OurNorthern Appalachia segment consists of theHopedale mining complex and theLeesville field. TheHopedale mining complex, located in northernOhio , includes one underground mine and one preparation plant and loadout facility as ofDecember 31, 2019 . OurRhino Western segment includes one underground mine in the Western Bituminous region at ourCastle Valley mining complex inUtah . Our Other category is comprised of our ancillary businesses.
Evaluating Our Results of Operations
Our management uses a variety of non-GAAP financial measurements to analyze our performance, including (1) Adjusted EBITDA, (2) coal revenues per ton and (3) cost of operations per ton.
Adjusted EBITDA. The discussion of our results of operations below includes references to, and analysis of, our segments' Adjusted EBITDA results. Adjusted EBITDA represents net income before deducting interest expense, income taxes and depreciation, depletion and amortization, while also excluding certain non-cash and/or non-recurring items. Adjusted EBITDA is used by management primarily as a measure of our segments' operating performance. Adjusted EBITDA should not be considered an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Because not all companies calculate Adjusted EBITDA identically, our calculation may not be comparable to similarly titled measures of other companies. Please read "-Reconciliation of Adjusted EBITDA" for reconciliations of Adjusted EBITDA to net income by segment for each of
the periods indicated. Coal Revenues Per Ton. Coal revenues per ton represents coal revenues divided by tons of coal sold. Coal revenues per ton is a key indicator of our effectiveness in obtaining favorable prices for our product. 66
Cost of Operations Per Ton. Cost of operations per ton sold represents the cost of operations (exclusive of DD&A) divided by tons of coal sold. Management uses this measurement as a key indicator of the efficiency of operations. Summary. (Unless otherwise specified, the following discussion of the results of operations for the years endedDecember 31, 2019 and 2018 excludes operating results relating to Pennyrile. The Pennyrile operating results are recorded as discontinued operations in our consolidated statements of operations.)
The following table sets forth certain information regarding our revenues,
operating expenses, other income and expenses, and operational data for years
ended
Year Ended December 31, Increase/(Decrease)
2019 2018 $ % *
(in millions, except per ton data and %)
Statement of Operations Data:
Coal revenues $ 178.9 $ 193.8 $ (14.9 ) (7.7 %)
Other revenues 2.1 2.7 (0.6 ) (22.7 %)
Total revenues 181.0 196.5 (15.5 ) (7.9 %)
Costs and expenses:
Cost of operations (exclusive of
DD&A shown separately below) 167.4 163.6 3.8 2.4 %
Freight and handling costs 4.7 9.1 (4.4 ) (47.7 %)
Depreciation, depletion and
amortization 14.5 14.4 0.1 0.2 %
Selling, general and administrative
(exclusive of DD&A shown separately
above) 14.9 12.6 2.3 17.3 %
Asset impairment and related
charges 26.0 - 26.0 n/a
Loss/(Gain) on sale/disposal of
assets (6.7 ) (3.3 ) (3.4 ) 96.7 %
(Loss)/Income from operations (39.8 ) 0.1 (39.9 ) (50026.1 %)
Interest expense and other (7.9 ) (8.5 ) 0.6 (7.4 %)
Interest income and other 0.1 0.1 - (86.7 %)
Total interest and other (income)
expense (7.8 ) (8.4 ) 0.6 (6.8 %)
Net (loss) from continuing
operations (47.6 ) (8.3 ) (39.3 ) 471.0 %
Net (loss) from discontinued
operations (51.9 ) (7.7 ) (44.2 ) 574.8 %
Net (loss) $ (99.5 ) $ (16.0 ) (83.5 ) 520.8 %
Total tons sold (in thousands
except %) 2,989.8 3,310.0 (320.2 ) (9.7 %)
Coal revenues per ton $ 59.84 $ 58.55 $ 1.29 2.2 %
Cost of operations per ton $ 56.00 $ 49.41 $ 6.59 13.3 %
Other Financial Data
Adjusted EBITDA from continuing
operations $ 1.5 $ 19.4 $ (17.9 ) (92.5 %)
Adjusted EBITDA from discontinued
operations $ (7.2 ) $ 0.2 $ (7.4 ) (3398.2 %)
Adjusted EBITDA $ (5.7 ) $ 19.6 $ (25.3 ) (129.5 %)
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table. 67
Year Ended
Revenues. For the year endedDecember 31, 2019 , our total revenues decreased to$181.0 million from$196.5 million for the year endedDecember 31, 2018 . We sold approximately 3.0 million tons of coal during the year endedDecember 31, 2019 , which was a decrease of 0.3 million tons, or a 9.7% decrease, from the 3.3 million tons of coal sold during the year endedDecember 31, 2018 . The decrease in revenue and tons sold was primarily the result of decreased sales inCentral Appalachia due to lower demand for met and steam coal produced in this region. Cost of Operations. Total cost of operations increased by$3.8 million or 2.4% to$167.4 million for the year endedDecember 31, 2019 as compared to$163.6 million for the year endedDecember 31, 2018 . Our cost of operations per ton was$56.00 for the year endedDecember 31, 2019 , an increase of$6.59 , or 13.3%, from the year endedDecember 31, 2018 . The increase in cost of operations per ton was primarily due to the increase in cost of operations at ourNorthern Appalachia operations as we encountered adverse geological conditions during 2019. We also experienced an increase in the cost of labor at all of our segments and an increase in equipment maintenance at ourCentral Appalachia operations. Freight and Handling. Total freight and handling cost decreased to$4.7 million for the year endedDecember 31, 2019 as compared to$9.1 million for the year endedDecember 31, 2018 . The decrease in freight and handling costs was primarily the result of fewer export sales that require us to pay railroad transportation to the port of export. We also incurred$1.1million in demurrage charges during 2018 due to rail transportation constraints that caused shipments to be delayed to the port of export. Depreciation, Depletion and Amortization. Total DD&A expense for the year endedDecember 31, 2019 was$14.5 million as compared to$14.4 million for the year endedDecember 31, 2018 .
For the year ended
For the year endedDecember 31, 2019 , our depletion expense decreased to$1.6 million compared to$1.7 million for the year endedDecember 31, 2018 . This decrease is primarily due to the decrease in tons produced in 2019 compared
to 2018.
For the year ended
Selling, General and Administrative. SG&A expense for the year endedDecember 31, 2019 increased to$14.9 million as compared to$12.6 million for the year endedDecember 31, 2018 primarily due to a$2.0 million expense recorded as the result of an agreement reached with a third party to assume the surety bonds associated withSands Hill Mining LLC that had not been transferred from our bond portfolio by the purchaser ofSands Hill Mining LLC as required by the sale agreement executed with the purchaser inNovember 2017 .
Interest Expense. Interest expense for the year ended
Net Loss. Net loss was approximately$47.6 million for the year endedDecember 31, 2019 compared to a net loss of approximately$8.3 million for the year endedDecember 31, 2018 . The net loss for the year endedDecember 31, 2019 was primarily the result of$26.0 million in asset impairments. The asset impairments and related charges included a$17.9 million impairment related to future development ofRhino Eastern and an$8.1 million impairment related to future development ofTaylorville Mining LLC (please read -"Asset Impairments-2019" above for additional discussion). In addition to the asset impairments, we also experienced a decrease in total revenue of$15.5 million primarily due to fewer tons of coal sold from ourCentral Appalachia mining
operation. 68 Adjusted EBITDA. Adjusted EBITDA from continuing operations decreased to$1.5 million for the year endedDecember 31, 2019 as compared to$19.4 million for the year endedDecember 31, 2018 . The decrease in Adjusted EBITDA during the year endedDecember 31, 2019 was primarily due to the decrease in revenue discussed above and an increase in labor costs across all segments. Including net loss from discontinued operations of approximately$51.9 million , which related to our Pennyrile Energy operation sold inSeptember 2019 , our net loss was$99.5 million and Adjusted EBITDA was$(5.7) million for the year endedDecember 31, 2019 . Including net loss from discontinued operations of$7.7 million , which also related to our Pennyrile Energy operation, our net loss was$16.0 million and Adjusted EBITDA was$19.6 million for the year endedDecember 31, 2018 . Segment Results
The following tables set forth certain information regarding our revenues,
operating expenses, other income and expenses, and operational data by
reportable segment for the years ended
Central Appalachia Year Ended December 31, Increase/(Decrease)
2019 2018 $ % *
(in millions, except per ton data and %)
Coal revenues $ 115.7 $ 139.4 $ (23.7 ) (17.0 %)Freight and handling revenues - -
- n/a
Other revenues 0.4 0.3 0.1 20.2 %
Total revenues 116.1 139.7 (23.6 ) (16.9 %)
Coal revenues per ton $ 79.11 $ 74.78 $ 4.33 5.8 %
Cost of operations (exclusive of
depreciation, depletion and
amortization shown separately
below) 109.5 112.1 (2.6 ) (2.4 %)
Freight and handling costs 3.5 9.1 (5.6 ) (60.7 %)
Depreciation, depletion and
amortization 8.1 8.7 (0.6 ) (7.8 %)
Selling, general and administrative
costs 0.2 0.9 (0.7 ) (80.4 %)
Asset impairment and related
charges 17.9 - 17.9 n/a
Cost of operations per ton $ 74.89 $ 60.16 $ 14.73 24.5 %
Net income from continuing
operations (16.2 ) 8.8 (25.0 ) (284.2 %)
Adjusted EBITDA from continuing
operations 9.8 18.3 (8.5 ) (46.6 %)
Tons sold (in thousands except %) 1,462.1 1,864.1 (402.0 ) (21.6 %)
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table. Tons of coal sold in ourCentral Appalachia segment decreased by approximately 21.6% to approximately 1.5 million tons for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , primarily due to a decrease in demand for met and steam coal tons from this region. Coal revenues decreased by approximately$23.7 million , or 17.0%, to approximately$115.7 million for the year endedDecember 31, 2019 from approximately$139.4 million for the year endedDecember 31, 2018 . This decrease was primarily due to the decrease in demand for met and steam coal tons sold from this region. Coal revenues per ton for ourCentral Appalachia segment increased by$4.33 , or 5.8%, to$79.11 per ton for the year endedDecember 31, 2019 as compared to$74.78 for the year endedDecember 31, 2018 . This increase was primarily due to the increase in contracted sale prices for our met and
steam coal from this region. 69 Cost of operations decreased by$2.6 million , or 2.4%, to$109.5 million for the year endedDecember 31, 2019 from$112.1 million for the year endedDecember 31, 2018 . Our cost of operations per ton of$74.89 for the year endedDecember 31, 2019 increased 24.5% compared to$60.16 per ton for the year endedDecember 31, 2018 . Total cost of operations per ton increased inCentral Appalachia due to the decrease in coal tons sold resulting in fixed costs being allocated to fewer tons during 2019. We also experienced an increase in labor and maintenance costs in this region during 2019 compared to 2018. Total freight and handling cost decreased to$3.5 million for the year endedDecember 31, 2019 from approximately$9.1 million for the year endedDecember 31, 2018 . The decrease in freight and handling costs was primarily the result of fewer export sales that require us to pay railroad transportation to the port of export during 2019. We also incurred$1.1 in demurrage charges during 2018 due to rail transportation constraints that caused shipments to be delayed to the port of export. For ourCentral Appalachia segment, net loss was approximately$16.2 million for the year endedDecember 31, 2019 , a decrease of$25.0 million in net income as compared to the year endedDecember 31, 2018 . The net loss was impacted by the$17.9 million asset impairment charge related toRhino Eastern properties as discussed earlier and the decrease in coal revenues during 2019. Central Appalachia Overview of Results by Product. Additional information for theCentral Appalachia segment detailing the types of coal produced and sold, premium high-vol met coal and steam coal for the years endedDecember 31, 2019 and 2018, is presented below. Note that ourNorthern Appalachia andRhino Western segments currently produce and sell only steam coal. (In thousands, except per ton Year ended Year ended Increase data and %) December 31, 2019 December 31, 2018 (Decrease) %* Met coal tons sold 701.3 873.9 (19.8 %) Steam coal tons sold 760.8 990.2 (23.2 %) Total tons sold 1,462.1 1,864.1 (21.6 %) Met coal revenue $ 73,284 $ 87,015 (15.8 %) Steam coal revenue $ 42,384 $ 52,380 (19.1 %) Total coal revenue $ 115,668 $ 139,395 (17.0 %)
Met coal revenues per ton $ 104.50 $ 99.57 5.0 % Steam coal revenues per ton $ 55.71 $ 52.90 5.3 % Total coal revenues per ton $ 79.11 $ 74.78 5.8 % Met coal tons produced 524.4 515.5 1.7 % Steam coal tons produced 1,079.7
1,229.3 (12.2 %) Total tons produced 1,604.1 1,744.8 (8.1 %)
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table.
70
Northern Appalachia Year Ended December 31, Increase/(Decrease)
2019 2018 $ % *
(in millions, except per ton data and %)
Coal revenues $ 23.8 $ 18.2 $ 5.6 30.5 %
Freight and handling revenues - -
- n/a
Other revenues 1.6 2.2 (0.6 ) (25.8 %)
Total revenues 25.4 20.4 5.0 24.4 %
Coal revenues per ton $ 48.31 $ 43.05 $ 5.26 12.2 %
Cost of operations (exclusive of
depreciation, depletion and
amortization shown separately below) 30.8 23.5 7.3 31.2 %
Freight and handling costs 1.2 - 1.2 n/a
Depreciation, depletion and
amortization 1.7 1.2 0.5 42.2 %
Selling, general and administrative
costs 0.1 0.2 (0.1 ) (55.8 %)
Cost of operations per ton $ 62.63 $ 55.48 $ 7.15 12.9 %
Net (loss) from continuing operations (8.4 ) (4.4 ) (4.0 ) 89.3 %
Adjusted EBITDA from continuing
operations (6.7 ) (3.1 ) (3.6 ) 115.7 %
Tons sold (in thousands except %) 492.6 423.6
69.0 16.3 %
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table. For ourNorthern Appalachia segment, tons of coal sold increased by approximately 16.3% for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 as we experienced increased demand for coal from this region.
Coal revenues were approximately$23.8 million for the year endedDecember 31, 2019 , an increase of approximately$5.6 million , or 30.5%, from approximately$18.2 million for the year endedDecember 31, 2018 . Coal revenues per ton increased by$5.26 or 12.2% to$48.31 per ton for the year endedDecember 31, 2019 , as compared to$43.05 for the year endedDecember 31, 2018 , which was primarily due to an increase in contracted sale prices for tons sold from ourHopedale complex compared to the prior year. Cost of operations increased by$7.3 million , or 31.2%, to$30.8 million for the year endedDecember 31, 2019 from$23.5 million for the year endedDecember 31, 2018 . Our cost of operations per ton was$62.63 for the year endedDecember 31, 2019 , an increase of$7.15 , or 12.9%, compared to$55.48 for the year endedDecember 31, 2018 . The increase in total cost of operations and cost of operations per ton was primarily the result of adverse geological conditions we encountered during 2019. We also experienced an increase in operating expenses including labor, maintenance, roof support and contract services. Net loss in ourNorthern Appalachia segment was$8.4 million for the year endedDecember 31, 2019 compared to net loss of$4.4 million for the year endedDecember 31, 2018 . The increase in net loss for the year endedDecember 31, 2019 was primarily due to the increase in the cost of operations partially offset by the increase in contracted sale prices of tons sold compared to the same period in 2018. 71 Rhino Western Year Ended December 31, Increase/(Decrease) 2019 2018 $ % * (in millions, except per ton data and %) Coal revenues$ 39.4 $ 36.2 $ 3.2 9.0 %
Freight and handling revenues - -
- n/a
Other revenues - - - n/a
Total revenues 39.4 36.2 3.2 8.9 %
Coal revenues per ton $ 38.10 $ 35.40 $ 2.70 7.6 %
Cost of operations (exclusive of
depreciation, depletion and
amortization shown separately below) 29.8 30.5
(0.7 ) (2.3 %)
Freight and handling costs - - - n/a
Depreciation, depletion and
amortization 4.3 4.1 0.2 5.8 %
Selling, general and administrative
costs 0.1 0.1 - (44.9 %)
Cost of operations per ton $ 28.77 $ 29.80 $ (1.03 ) (3.5 %)
Net income from continuing operations 4.5 1.4 3.1 223.6 %
Adjusted EBITDA from continuing
operations 9.6 5.5 4.1 75.1 %
Tons sold (in thousands except %) 1,035.1 1,022.3
12.8 1.3 %
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table.
Tons of coal sold from our
Coal revenues increased by approximately$3.2 million , or 9.0%, to approximately$39.4 million for the year endedDecember 31, 2019 from approximately$36.2 million for the year endedDecember 31, 2018 . Coal revenues per ton for ourRhino Western segment increased by$2.70 or 7.6% to$38.10 per ton for the year endedDecember 31, 2019 as compared to$35.40 per ton for the year endedDecember 31, 2018 due to higher contracted sale prices. Cost of operations decreased by$0.7 million , or 2.3%, to$29.8 million for the year endedDecember 31, 2019 from$30.5 million for the year endedDecember 31, 2018 . Our cost of operations per ton was$28.77 for the year endedDecember 31, 2019 , a decrease of$1.03 , or 3.5%, compared to$29.80 for the year endedDecember 31, 2018 . Total cost of operations and cost of operations per ton decreased slightly for the year endedDecember 31, 2019 compared to 2018 primarily due to lower operating costs.
Net income in our
Other Year Ended December 31, Increase/(Decrease)
2019 2018 $ % *
(in millions, except per ton data and %)
Coal revenues $ - $ - n/a n/aFreight and handling revenues - -
n/a n/a
Other revenues 0.1 0.2 $ (0.1 ) (70.2 %)
Total revenues 0.1 0.2 (0.1 ) (70.2 %)Coal revenues per ton** n/a n/a n/a n/a Cost of operations (exclusive of depreciation, depletion and amortization shown separately below) (2.7 ) (2.5 ) (0.2 ) 5.0 % Freight and handling costs - - - n/a Depreciation, depletion and amortization 0.4 0.4 - (12.4 %) Selling, general and administrative costs 14.5 11.4 3.1 27.5 % Asset impairment and related charges 8.1 - 8.1 n/a Cost of operations per ton** n/a n/a n/a n/a Net (loss) from continuing operations (27.5 ) (14.1 ) (13.4 ) 95.7 % Adjusted EBITDA from continuing operations (11.2 ) (1.3 ) (9.9 ) 759.2 % Tons sold (in thousands except %) n/a n/a
n/a n/a
* Percentages and per ton amounts are calculated based on actual amounts and not
the rounded amounts presented in this table.
** The Other category includes results for our ancillary businesses. The
activities performed by these ancillary businesses do not directly relate to
coal production. As a result, coal revenues and coal revenues per ton are not
presented for the Other category. Cost of operations presented for our Other
category includes costs incurred by our ancillary businesses. As a result,
cost per ton measurements are not presented for this category. 72
Other revenues for our Other category were
For the Other category, we had net loss from continuing operations of$27.5 million for the year endedDecember 31, 2019 as compared to net loss from continuing operations of$14.1 million for the year endedDecember 31, 2018 . Net loss for the year endedDecember 31, 2019 was impacted by the$8.1 million asset impairment charge related toTaylorville Mining LLC and the$2.0 million SG&A expense discussed above.
Reconciliation of Adjusted EBITDA
The following tables present reconciliations of Adjusted EBITDA to the most
directly comparable GAAP financial measures for each of the periods indicated.
Adjusted EBITDA excludes the effect of certain non-cash and/or non-recurring
items. Adjusted EBITDA is used by management primarily as a measure of our
segments' operating performance. Adjusted EBITDA should not be considered an
alternative to net income, income from operations, cash flows from operating
activities or any other measure of financial performance or liquidity presented
in accordance with GAAP. Because not all companies calculate Adjusted EBITDA
identically, our calculation may not be comparable to similarly titled measures
of other companies.
Central Northern Rhino Illinois
Year ended December 31, 2019 Appalachia Appalachia Western Basin Other Total
(in millions)
Net income/(loss) $ (16.2 ) $ (8.4 ) $ 4.5 $ - $ (27.5 ) $ (47.6 )
Plus:
DD&A 8.1 1.7 4.3 - 0.4 14.5
Interest expense - - - - 7.9 7.9
EBITDA from continuing
operations† $ (8.1 ) $ (6.7 ) $ 8.8 $ - $ (19.2 ) $ (25.2 )
Plus: Non-cash asset impairment
(1) 17.9 - - - 8.1 26.0
Plus: Loss from sale of non-core
assets (2) - - 0.8 - - 0.8
Adjusted EBITDA from continuing
operations 9.8 (6.7 ) 9.6 - (11.2 ) 1.5
EBITDA from discontinued
operations - - - (45.9 ) - (45.9 )
Plus: Loss on impairment of
assets (3) - - - 38.7 - 38.7
Adjusted EBITDA $ 9.8 $ (6.7 ) $ 9.6$ (7.2 ) $ (11.2 ) $ (5.7 ) Central Northern Rhino Illinois Year ended December 31, 2018 Appalachia Appalachia Western Basin Other Total (in millions) Net (loss)/income$ 8.8 $ (4.4 ) $ 1.4 $ -$ (14.1 ) $ (8.3 ) Plus: - DD&A 8.7 1.2 4.1 - 0.4 14.4 Interest expense - - - - 8.5 8.5 EBITDA from continuing operations†$ 17.5 $ (3.2 ) $ 5.5 $ -$ (5.2 ) $ 14.6 Plus: Provision for doubtful accounts (4) 0.8 0.1 - - - 0.9 Plus: Cumulative effect from adoption of ASU 2016-01 (5) - - - - 3.7 3.7 Plus: Mark-to-market adjustment -unrealized loss - - - - 0.2 0.2 Adjusted EBITDA from continuing operations†$ 18.3 $ (3.1 ) $ 5.5 $ -$ (1.3 ) $ 19.4 EBITDA from discontinued operations - - - 0.2 - 0.2 Adjusted EBITDA$ 18.3 $ (3.1 ) $ 5.5 $ 0.2 $ (1.3 ) $ 19.6 73 For the Year Ended December 31, 2019 2018 (in millions) Net cash (used in)/provided by operating activities $ (11.4 ) $ 18.6 Plus: Gain on sale of assets 6.7 3.4 Interest expense 7.9 8.5 Decrease in deferred revenue - - Less:
Decrease in net operating assets 4.1 10.2 Mark-to-market adjustment - unrealized loss - 0.2 Amortization of advance royalties 1.6 0.6 Amortization of debt discount 0.4 0.4 Amortization of debt issuance costs 2.0 1.8 Increase in provision for doubtful accounts (4) - 0.9 Loss on sale of assets - - Loss on impairment of assets 64.7 - Loss on retirement of advance royalties 0.3 0.1 Equity based compensation - 0.2 Accretion on asset retirement obligations 1.3 1.3 EBITDA† (71.2 ) 14.8 Plus: Loss from sale of non-core assets (2) 0.8 Plus: Cumulative effect from adoption of ASU 2016-01 (5) - 3.7 Plus: Non-cash bad debt expense - 0.9 Plus: Mark-to-market adjustment -unrealized loss - 0.2 Plus: Loss on asset impairments (1)(3) 64.7 - Adjusted EBITDA (5.7 ) 19.6 Less: Adjusted EBITDA from discontinued operations (7.2 ) 0.2 Adjusted EBITDA from continuing operations $ 1.5
$ 19.4
† Calculated based on actual amounts and not the rounded amounts presented in
this table.
* Totals may not foot due to rounding.
(1) During the year ended
charges of
future development of
development of
(2) During the year ended
western
resulted in losses of approximately
asset that we chose to monetize despite the loss incurred.
(3) We recorded an impairment loss of
our Pennyrile assets for year ended
$38.7 million is recorded in discontinued operations for the year endedDecember 31, 2019 .
(4) During the year ended
accounts of approximately
number of customers in
(5) During the year ended
of our TUSK stock was impacted by the adoption of ASU 2016-01, which resulted
in
Comprehensive Income instead of being recognized in net income.
We believe that the isolation and presentation of these specific items to
arrive at Adjusted EBITDA is useful because it enhances investors'understanding of how we assess the performance of our business. We believe
the adjustment of these items provide investors with additional information
that they can utilize in evaluating our performance. Additionally, we believe
the isolation of these items provide investors with enhanced comparability to
prior and future periods of our operating results.
74
Liquidity and Capital Resources
Liquidity
As ofDecember 31, 2019 , our available liquidity was$0.1 million . We also have a delayed draw term loan commitment in the amount of$25 million contingent upon the satisfaction of certain conditions precedent specified in the financing agreement discussed below. OnDecember 27, 2017 , we entered into a Financing Agreement, which provides us with a multi-draw loan in the original aggregate principal amount of$80 million . The total principal amount is divided into a$40 million commitment, the conditions for which were satisfied at the execution of the Financing Agreement and a$40 million additional commitment that was contingent upon the satisfaction of certain conditions precedent specified in the Financing Agreement. As ofDecember 31, 2019 , we had utilized$15 million of the$40 million additional commitment, which results in$25 million of the additional commitment remaining. We used approximately$17.3 million of the initial Financing Agreement net proceeds to repay all amounts outstanding and terminate the amended and restated credit agreement withPNC Bank, National Association , as Administrative Agent. The Financing Agreement initially had a termination date ofDecember 27, 2020 , which was amended toDecember 27, 2022 per the fifth amendment to the Financing Agreement discussed further below. Our business is capital intensive and requires substantial capital expenditures for purchasing, upgrading and maintaining equipment used in developing and mining our reserves, as well as complying with applicable environmental and mine safety laws and regulations. Our principal liquidity requirements are to finance current operations, fund capital expenditures, including acquisitions from time to time, and service our debt. Historically, our sources of liquidity included cash generated by our operations, cash available on our balance sheet and issuances of equity securities. Beginning in the later part of the third quarter of 2019, we have experienced significantly weaker market demand and have seen prices move lower for the qualities of met and steam coal we produce. This downward price trend has been exacerbated by the recent coronavirus pandemic. In response to this reduced demand and to the significant health threats to our employees, onMarch 20, 2020 , we temporarily idled production at several of our mines. We will continue to monitor conditions to ensure the health and welfare of our employees. We do not expect the idling of the coal production activities will affect our ability to fulfill current customer commitments, as loading and shipping crews will remain in place to ship coal from existing inventories. If we continue to experience weak demand and prices continue to lower for our met and steam coal, we may not be able to continue to give the required representations or meet all of the covenants and restrictions included in our Financing Agreement. If we violate any of the covenants or restrictions in our Financing Agreement, including the fixed-charge coverage ratio, some or all of our indebtedness may become immediately due and payable, and our Lenders may not be willing to make any loans under the additional commitment available under our Financing Agreement. If we are unable to give a required representation or we violate a covenant or restriction, then we will need a waiver from our Lenders under our Financing Agreement, or they may declare an event of default and, after applicable specified cure periods, all amounts outstanding under the Financing Agreement would become immediately due and payable. Although we believe our Lenders are well secured under the terms of our Financing Agreement, there is no assurance that the Lenders would agree to any such waiver. Failure to obtain financing or to generate sufficient cash flow from operations could cause us to further curtail our operations and reduce spending and alter our business plan. We are currently considering alternatives to address our liquidity and balance sheet issues, such as selling additional assets or seeking merger opportunities, and depending on the urgency of our liquidity constraints, we may be required to pursue such an option at an inopportune time. 75 As ofDecember 31, 2019 , we are unable to demonstrate that we have sufficient liquidity to operate our business over the next twelve months from the date of filing our Annual Report on Form 10-K and thus substantial doubt is raised about our ability to continue as a going concern. Accordingly, our independent registered public accounting firm has included an emphasis paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year endedDecember 31, 2019 . The presence of the going concern emphasis paragraph in our auditors' report may have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors, lenders and employees, making it difficult to raise additional financing to the extent needed to conduct normal operations. As a result, our business, results of operations, financial condition and prospects could be materially adversely affected. We evaluated our Financing Agreement atDecember 31, 2019 to determine whether the debt liability should be classified as a long-term or current liability on our consolidated statements of financial position. We determined that we were in violation of certain debt covenants in the financing agreement as ofDecember 31, 2019 and the Lenders were unwilling to grant a waiver to us for these events of default as of the filing date of this Form 10-K. The Financing Agreement contains negative covenants that restrict our ability to, among other things, permit the trailing nine month fixed charge coverage ratio of us and our subsidiaries to be less than 1.20 to 1.00. The Financing Agreement also requires us to receive an annual unqualified audit opinion from our external audit firm that does not include an emphasis paragraph on our ability to continue as a going concern. As ofDecember 31, 2019 , our fixed charge coverage ratio was less than 1.20 to 1.00 and our annual report on Form 10-K includes an audit opinion from our external auditors that includes an emphasis paragraph regarding our ability to continue as a going concern. Based upon these covenant violations, our debt liability is currently callable by the Lenders and we reclassified
the debt liability as current. Debt issuance costs related to the debt liability have also been reclassified to current. However, since we are currently in negotiations with our Lenders, we have not changed the amortization period of these costs. Included in debt costs are the exit fees described further in Note 11, which absent a waiver, are also callable with the accompanying debt as ofDecember 31, 2019 . (Please read Note 11 for additional discussion of our financing agreement). We continue to take measures, including the suspension of cash distributions on our common and subordinated units and cost and productivity improvements, to enhance and preserve our liquidity in order to fund our ongoing operations and necessary capital expenditures and meet our financial commitments and debt
service obligations. Cash Flows
Net cash used in operating activities was$11.4 million for the year endedDecember 31, 2019 as compared net cash provided by operating activities of$18.6 million for the year endedDecember 31, 2018 . This decrease in cash provided by operating activities was primarily the result of higher net loss and negative working capital changes, including increases in our inventory during the fourth quarter of 2019 due to the weak coal market conditions. Net cash provided by investing activities was$1.6 million for the year endedDecember 31, 2019 as compared to net cash used in investing activities of$7.6 million for the year endedDecember 31, 2018 . The decrease in cash used in investing activities was primarily due to lower capital expenditures in 2019 compared to 2018. Net cash provided by financing activities was$3.7 million for the year endedDecember 31, 2019 , which was primarily attributable to proceeds from our Financing Agreement and other debt partially offset by payment of the distribution on the Series A preferred units and repayments of other debt. Net cash used in financing activities was$26.0 million for the year endedDecember 31, 2018 , which was primarily attributable to payments on debt, deposits paid on our workers' compensation and surety bond programs and payment of the distribution on the Series A preferred units partially offset by proceeds from our Financing Agreement. 76 Capital Expenditures Our mining operations require investments to expand, upgrade or enhance existing operations and to meet environmental and safety regulations. Maintenance capital expenditures are those capital expenditures required to maintain our long-term operating capacity. For example, maintenance capital expenditures include expenditures associated with the replacement of equipment and coal reserves, whether through the expansion of an existing mine or the acquisition or development of new reserves, to the extent such expenditures are made to maintain our long-term operating capacity. Expansion capital expenditures are those capital expenditures that we expect will increase our operating capacity over the long term. Examples of expansion capital expenditures include the acquisition of reserves, acquisition of equipment for a new mine or the expansion of an existing mine to the extent such expenditures are expected to expand our long-term operating capacity. Actual maintenance capital expenditures for the year endedDecember 31, 2019 were approximately$7.8 million . These amounts were primarily used to rebuild, repair or replace older mining equipment. Expansion capital expenditures for the year endedDecember 31, 2019 were approximately$6.3 million , which were primarily related to expenditures at our new Jewell Valley mines. For the year endedDecember 31, 2020 , we have budgeted$10 million to$12 million for maintenance capital expenditures and$1 million to$2 million for expansion
capital expenditures. Financing Agreement OnDecember 27, 2017 , we entered into a Financing Agreement, pursuant to which the Lenders agreed to provide us with a multi-draw term loan in the original aggregate principal amount of$80 million , subject to the terms and conditions set forth in the Financing Agreement. The total principal amount is divided into a$40 million commitment, the conditions of which were satisfied at the execution of the Financing Agreement (the "Effective Date Term Loan Commitment") and a$40 million additional commitment that was contingent upon the satisfaction of certain conditions precedent specified in the Financing Agreement ("Delayed Draw Term Loan Commitment"). As ofDecember 31, 2019 , we have utilized$15 million of the$40 million additional commitment, which results in$25 million of the additional commitment remaining. Loans made pursuant to the Financing Agreement are secured by substantially all of our assets. The Financing Agreement originally had a termination date ofDecember 27, 2020 , which was amended toDecember 27, 2022 per the fifth amendment to the Financing Agreement discussed further below. Loans made pursuant to the Financing Agreement are, at our option, either "Reference Rate Loans" or "LIBOR Rate Loans." Reference Rate Loans bear interest at the greatest of (a) 4.25% per annum, (b) the Federal Funds Rate plus 0.50% per annum, (c) the LIBOR Rate (calculated on a one-month basis) plus 1.00% per annum or (d) the Prime Rate (as published in theWall Street Journal ) or if no such rate is published, the interest rate published by theFederal Reserve Board as the "bank prime loan" rate or similar rate quoted therein, in each case, plus an applicable margin of 9.00% per annum (or 12.00% per annum if we have elected to capitalize an interest payment pursuant to the PIK Option, as described below). LIBOR Rate Loans bear interest at the greater of (x) the LIBOR for such interest period divided by 100% minus the maximum percentage prescribed by theFederal Reserve for determining the reserve requirements in effect with respect to eurocurrency liabilities for any Lender, if any, and (y) 1.00%, in each case, plus 10.00% per annum (or 13.00% per annum if we have elected to capitalize an interest payment pursuant to the PIK Option). Interest payments are due on a monthly basis for Reference Rate Loans and one-, two- or three-month periods, at our option, for LIBOR Rate Loans. If there is no event of default occurring or continuing, we may elect to defer payment on interest accruing at 6.00% per annum by capitalizing and adding such interest payment to the principal amount of the applicable term loan (the "PIK Option"). 77 CommencingDecember 31, 2018 , the principal for each loan made under the Financing Agreement will be payable on a quarterly basis in an amount equal to$375,000 per quarter, with all remaining unpaid principal and accrued and unpaid interest originally due onDecember 27, 2020 (see discussion of fifth amendment below). In addition, we must make certain prepayments over the term of any loans outstanding, including: (i) the payment of 25% of Excess Cash Flow (as that term is defined in the Financing Agreement) for each fiscal year, commencing with respect to the year endingDecember 31, 2019 , (ii) subject to certain exceptions, the payment of 100% of the net cash proceeds from the dispositions of certain assets, the incurrence of certain indebtedness or receipts of cash outside of the ordinary course of business, and (iii) the payment of the excess of the outstanding principal amount of term loans outstanding over the amount of the Collateral Coverage Amount (as that term is defined in the Financing Agreement). In addition, the Lenders are entitled to (i) certain fees, including 1.50% per annum of the unused Delayed Draw Term Loan Commitment for as long as such commitment exists, (ii) for the 12-month period following the execution of the Financing Agreement, a make-whole amount equal to the interest and unused Delayed Draw Term Loan Commitment fees that would have been payable but for the occurrence of certain events, including among others, bankruptcy proceedings or the termination of the Financing Agreement by us, and (iii) audit and collateral monitoring fees and origination and exit fees. The Financing Agreement requires us to comply with several affirmative covenants at any time loans are outstanding, including, among others: (i) the requirement to deliver monthly, quarterly and annual financial statements, (ii) the requirement to periodically deliver certificates indicating, among other things, (a) compliance with terms of Financing Agreement and ancillary loan documents, (b) inventory, accounts payable, sales and production numbers, (c) the calculation of the Collateral Coverage Amount (as that term is defined in the Financing Agreement), (d) projections for the business and (e) coal reserve amounts; (iii) the requirement to notify the Administrative Agent of certain events, including events of default under the Financing Agreement, dispositions, entry into material contracts, (iv) the requirement to maintain insurance, obtain permits, and comply with environmental and reclamation laws (v) the requirement to sell up to$5.0 million of shares inMammoth Inc. and use the net proceeds therefrom to prepay outstanding term loans and (vi) establish and maintain cash management services and establish a cash management account and deliver a control agreement with respect to such account to the Collateral Agent. The Financing Agreement also contains negative covenants that restrict our ability to, among other things: (i) incur liens or additional indebtedness or make investments or restricted payments, (ii) liquidate or merge with another entity, or dispose of assets, (iii) change the nature of our respective businesses; (iv) make capital expenditures in excess, or, with respect to maintenance capital expenditures, lower than, specified amounts, (v) incur restrictions on the payment of dividends, (vi) prepay or modify the terms of other indebtedness, (vii) permit the Collateral Coverage Amount to be less than the outstanding principal amount of the loans outstanding under the Financing Agreement or (viii) permit the trailing six month Fixed Charge Coverage Ratio to be less than 1.20 to 1.00 commencing with the six-month period ending June
30, 2018. The Financing Agreement contains customary events of default, following which the Collateral Agent may, at the request of Lenders, terminate or reduce all commitments and accelerate the maturity of all outstanding loans to become due and payable immediately together with accrued and unpaid interest thereon and exercise any such other rights as specified under the Financing Agreement and ancillary loan documents.
OnApril 17, 2018 , we amended our Financing Agreement to allow for certain activities, including a sale leaseback of certain pieces of equipment, the extension of the due date for lease consents required under the Financing Agreement toJune 30, 2018 and the distribution to holders of the Series A preferred units of$6.0 million (accrued in the consolidated financial statements atDecember 31, 2017 ). Additionally, the amendments provided that the Partnership could sell additional shares ofMammoth Inc. stock and retain 50% of the proceeds with the other 50% used to reduce debt. We reduced our outstanding debt by$3.4 million with proceeds from the sale ofMammoth Inc. stock in the second quarter of 2018. OnJuly 27, 2018 , we entered into a consent$5.0 million loan from the Delayed Draw Term Loan Commitment, which was repaid in full onOctober 26, 2018 pursuant to the terms of the consent. The consent also included a waiver of the requirements relating to the use of proceeds of any sale of the shares ofMammoth Inc. set forth in the consent to the Financing Agreement, dated as ofApril 17, 2018 and also waived any Event of Default that arose or would otherwise arise under the Financing Agreement for failing to comply with the Fixed Charge Coverage Ratio for the six months endedJune 30, 2018 . OnNovember 8, 2018 , we entered into a consent with our Lenders related to the Financing Agreement. The consent included the Lenders' agreement to waive any Event of Default that arose or would otherwise arise under the Financing Agreement for failing to comply with the Fixed Charge Coverage Ratio for the six months endedSeptember 30, 2018 . 78 OnDecember 20, 2018 , we entered into a limited consent and Waiver to the Financing Agreement. The Waiver related to sales of certain real property inWestern Colorado , the net proceeds of which were required to be used to reduce our debt under the Financing Agreement. As of the date of the Waiver, we had sold 9 individual lots in smaller transactions. Rather than transmitting net proceeds with respect to each individual transaction, we agreed with the Lenders in principle to delay repayment until an aggregate payment could be made at the end of 2018. OnDecember 18, 2018 , we used the sale proceeds of approximately$379,000 to reduce the debt. The Waiver (i) contains a ratification by the Lenders of the sale of the individual lots to date and waives the associated technical defaults under the Financing Agreement for not making immediate payments of net proceeds therefrom, (ii) permits the sale of certain specified additional lots and (iii) subject to Lender consent, permits the sale of other lots on a going forward basis. The net proceeds of future sales will be held by us until a later date to be determined by the Lenders. OnFebruary 13, 2019 , we entered into a second amendment to the Financing Agreement. The Amendment provided the Lender's consent for us to pay a one-time cash distribution onFebruary 14, 2019 to the Series A Preferred Unitholders not to exceed approximately$3.2 million . The Amendment allowed us to sell our remaining shares of Mammoth Energy Services, Inc. and utilize the proceeds for payment of the one-time cash distribution to the Series A Preferred Unitholders and waived the requirement to use such proceeds to prepay the outstanding principal amount outstanding under the Financing Agreement. The Amendment also waived any Event of Default that has or would otherwise arise under Section 9.01(c) of the Financing Agreement solely by reason of us failing to comply with the Fixed Charge Coverage Ratio covenant in Section 7.03(b) of the Financing Agreement for the fiscal quarter endingDecember 31, 2018 . The Amendment included an amendment fee of approximately$0.6 million payable by us onMay 13, 2019 and an exit fee equal to 1% of the principal amount of the term loans made under the Financing Agreement that is payable on the earliest of (w) the final maturity date of the Financing Agreement, (x) the termination date of the Financing Agreement, (y) the acceleration of the obligations under the Financing Agreement for any reason, including, without limitation, acceleration in accordance with Section 9.01 of the Financing Agreement, including as a result of the commencement of an insolvency proceeding and (z) the date of any refinancing of the term loan under the Financing Agreement. The Amendment amended the definition of the Make-Whole Amount under the Financing Agreement to extend the date of the Make-Whole Amount period toDecember 31, 2019 . OnMay 8, 2019 , we entered into Third Amendment to the Financing Agreement. The Third Amendment included the Lender's agreement to waive any Event of Default that arose or would otherwise arise under the Financing Agreement for failing to comply with the Fixed Charge Coverage Ratio for the six months endedMarch 31, 2019 . The Third Amendment increased the original exit fee of 3.0% to 6.0%. The original exit fee of 3% was included in the Financing Agreement at the execution date and the increase of the total exit fee to 6% was included as part of the amendment datedFebruary 13, 2019 discussed above and this Third Amendment. The exit fee is applied to the principal amount of the loans made under the Financing Agreement that is payable on the earliest of (a) the final maturity date, (b) the termination date of the Financing agreement for any reason, (c) the acceleration of the obligations in the Financing Agreement for any reason and (d) the date of any refinancing of the term loan under the Financing Agreement. OnAugust 16, 2019 , we entered into the Fourth Amendment to the Financing Agreement originally executed onDecember 27, 2017 with the Lenders. The Fourth Amendment provides a$5.0 million term loan provided by the Lenders to us under the delayed draw feature of the Financing Agreement, and extended the period by which an applicable premium payable to the Lenders will be calculated to the final maturity date.
OnSeptember 6, 2019 , we entered into the Fifth Amendment to the Financing Agreement. The Fifth Amendment (i) extended the maturity of the Financing Agreement toDecember 27, 2022 , (ii) provided us with a$5.0 million term loan provided by the Lenders under the delayed draw feature of the Financing Agreement, (iii) extended the period by which an applicable premium payable to the Lenders will be calculated toDecember 31, 2021 , (iv) modified certain definitions and concepts to account for our recent acquisition of properties from Blackjewel, (v) permitted the disposition of the Pennyrile mining complex and (vi) provided for the payment of additional fees to the Lenders, including a consent fee of$1.0 million , an amendment fee of$825,000 and an increase in the lender exit fee of 1.00% to a total exit fee of 7.0% of the amount of term loans made under the Financing Agreement that is payable upon the maturity of the Financing Agreement. OnMarch 2, 2020 , we entered into a sixth amendment (the "Sixth Amendment") to the Financing Agreement. The Sixth Amendment, among other things, provides a consent by the Origination Agent to a$3.0 million delayed draw term loan and increases the lender exit fee payable by the Partnership to the Lenders upon the maturity date (or earlier termination or acceleration date) by an additional 1.0%. 79 AtDecember 31, 2019 ,$27.5 million was outstanding under the financing agreement at a variable interest rate of Libor plus 10.00% (11.80% atDecember 31, 2019 ),$5.0 million of borrowings outstanding at a variable interest rate of Libor plus 10.00% (11.74% atDecember 31, 2019 ) and$5.0 million of borrowings outstanding at a variable interest rate of Libor plus 10.00% (11.71% atDecember 31, 2019 ). Common Unit Warrants OnDecember 27, 2017 , we entered into a warrant agreement with certain parties that are also parties to the Financing Agreement discussed above. The warrant agreement included the issuance of a total of 683,888 Common Unit Warrants at an exercise price of$1.95 per unit, which was the closing price of our units on the OTC market as ofDecember 27, 2017 . The Common Unit Warrants have a five year expiration date. The Common Unit Warrants and the Rhino common units after exercise are both transferable, subject to applicable US securities laws. The Common Unit Warrant exercise price is$1.95 per unit, but the price per unit will be reduced by future common unit distributions and other further adjustments in price included in the warrant agreement for transactions that are dilutive to the amount of Rhino's common units outstanding. The warrant agreement includes a provision for a cashless exercise where the warrant holders can receive a net number of common units. Per the warrant agreement, the warrants are detached from the Financing Agreement and fully transferable.
Off-Balance Sheet Arrangements
In the normal course of business, we are a party to off-balance sheet arrangements that include guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit and surety bonds. No liabilities related to these arrangements are reflected in our consolidated balance sheet, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements. Federal and state laws require us to secure certain long-term obligations related to mine closure and reclamation costs. We typically secure these obligations by using surety bonds, an off-balance sheet instrument. The use of surety bonds is less expensive for us than the alternative of posting a 100% cash bond or a bank letter of credit. We then provide cash collateral to secure our surety bonding obligations in an amount up to a certain percentage of the aggregate bond liability that we negotiate with the surety companies. To the extent that surety bonds become unavailable, we would seek to secure our reclamation obligations with letters of credit, cash deposits or other suitable forms of collateral. As ofDecember 31, 2019 , we had$7.9 million in cash collateral held by third-parties of which$3.0 million serves as collateral for approximately$41.6 million in surety bonds outstanding that secure the performance of our reclamation obligations. The other$4.9 million serves as collateral for our self-insured workers' compensation program. Of the$41.6 million of surety bonds, approximately$0.4 million relates to surety bonds forDeane Mining, LLC , which have not been transferred or replaced by the buyer ofDeane Mining LLC as was agreed to by the parties as part of the transaction. We can provide no assurances that a surety company will underwrite the surety bonds of the purchaser ofDeane Mining LLC , nor are we aware of the actual amount of reclamation at any given time. Further, if there was a claim under these surety bonds prior to the transfer or replacement of such bonds by the buyer ofDeane Mining, LLC , we may be responsible to the surety company for any amounts it pays in respect of such claim. While the buyer is required to indemnify us for damages, including reclamation liabilities, pursuant to the agreements governing the sales of this entity, we may not be successful in obtaining any indemnity or any amounts received may be inadequate. See Part I "Business-Regulation and Laws-Surety Bonds."
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with accounting principles that are generally accepted inthe United States . The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Management evaluates its estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Nevertheless, actual results may differ from the estimates used and judgments made. Note 2 to the consolidated financial statements included elsewhere in this annual report provides a summary of all significant accounting policies. We believe that of these significant accounting policies, the following may involve a higher degree of judgment or complexity. 80 Property, Plant and Equipment
Property, plant, and equipment, including coal properties, mine development costs and construction costs, are recorded at cost, which includes construction overhead and interest, where applicable. Expenditures for major renewals and betterments are capitalized, while expenditures for maintenance and repairs are expensed as incurred. Mining and other equipment and related facilities are depreciated using the straight-line method based upon the shorter of estimated useful lives of the assets or the estimated life of each mine. Coal properties are depleted using the units-of-production method, based on estimated proven and probable reserves. Mine development costs are amortized using the units-of-production method, based on estimated proven and probable reserves. Gains or losses arising from sales or retirements are included in current operations. OnMarch 30, 2005 , theFinancial Accounting Standards Board (FASB) ratified the consensus reached by theEmerging Issues Task Force , or EITF, on accounting for stripping costs in the mining industry. This accounting guidance applies to stripping costs incurred in the production phase of a mine for the removal of overburden or waste materials for the purpose of obtaining access to coal that will be extracted. Under the guidance, stripping costs incurred during the production phase of the mine are variable production costs that are included in the cost of inventory produced and extracted during the period the stripping costs are incurred. We have recorded stripping costs for all of our surface mines incurred during the production phase as variable production costs that are included in the cost of inventory produced. We define a surface mine as a location where we utilize operating assets necessary to extract coal, with the geographic boundary determined by property control, permit boundaries, and/or economic threshold limits. Multiple pits that share common infrastructure and processing equipment may be located within a single surface mine boundary, which can cover separate coal seams that typically are recovered incrementally as the overburden depth increases. In accordance with the accounting guidance for extractive mining activities, we define a mine in production as one from which saleable minerals have begun to be extracted (produced) from an ore body, regardless of the level of production; however, the production phase does not commence with the removal of de minimis saleable mineral material that occurs in conjunction with the removal of overburden or waste material for the purpose of obtaining access to an ore body. We capitalize only the development cost of the first pit at a mine site that may include multiple pits. Asset Impairments We follow the accounting guidance on the impairment or disposal of property, plant and equipment, which requires that projected future cash flows from use and disposition of assets be compared with the carrying amounts of those assets when potential impairment is indicated. When the sum of projected undiscounted cash flows is less than the carrying amount, impairment losses are recognized. In determining such impairment losses, we must determine the fair value for the assets in question in accordance with the applicable fair value accounting guidance. Once the fair value is determined, the appropriate impairment loss must be recorded as the difference between the carrying amount of the assets and their respective fair values. Also, in certain situations, expected mine lives are shortened because of changes to planned operations. When that occurs and it is determined that the mine's underlying costs are not recoverable in the future, reclamation and mine closing obligations are accelerated and the mine closing accrual is increased accordingly. To the extent it is determined that asset carrying values will not be recoverable during a shorter mine life, a provision for such impairment is recognized. We performed a comprehensive review of our current coal mining operations as well as potential future development projects to ascertain any potential impairment losses during 2019. We identified two properties that were impaired based upon changes in our strategic plans, market conditions or other factors, specifically at ourRhino Eastern and Taylorville Mining undeveloped properties where market conditions related to any future development deteriorated in the fourth quarter of 2019. We determined that the probability of obtaining the financing required for these projects would be remote as ofDecember 31, 2019 . We recorded approximately$26.0 million of total asset impairment and related charges related to these undeveloped properties for the year endedDecember 31, 2019 , which is recorded on the Asset impairment and related charges line of the consolidated statements of operations. The$26.0 million impairment included a$17.9 million impairment related to future development ofRhino Eastern and an$8.1 million impairment related to future development of Taylorville Mining
LLC. 81 We performed a comprehensive review of our coal mining operations as well as potential future development projects for the year endedDecember 31, 2018 to ascertain any potential impairment losses. We did not record any impairment losses for coal properties, mine development costs or coal mining equipment and related facilities for the year endedDecember 31, 2018 . Asset Retirement Obligations The accounting guidance for asset retirement obligations addresses asset retirement obligations that result from the acquisition, construction, or normal operation of long-lived assets. This guidance requires companies to recognize asset retirement obligations at fair value when the liability is incurred or acquired. Upon initial recognition of a liability, an amount equal to the liability is capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. We have recorded the asset retirement costs in Coal properties. We estimate our future cost requirements for reclamation of land where we have conducted surface and underground mining operations, based on our interpretation of the technical standards of regulations enacted by theU.S. Office of Surface Mining , as well as state regulations. These costs relate to reclaiming the pit and support acreage at surface mines and sealing portals at underground mines. Other reclamation costs are related to refuse and slurry ponds, as well as holding and related termination or exit costs. We expense contemporaneous reclamation which is performed prior to final mine closure. The establishment of the end of mine reclamation and closure liability is based upon permit requirements and requires significant estimates and assumptions, principally associated with regulatory requirements, costs and recoverable coal reserves. Annually, we review our end of mine reclamation and closure liability and make necessary adjustments, including mine plan and permit changes and revisions to cost and production levels to optimize mining and reclamation efficiency. When a mine life is shortened due to a change in the mine plan, mine closing obligations are accelerated, the related accrual is increased and the related asset is reviewed for impairment, accordingly. The adjustments to the liability from annual recosting reflect changes in expected timing, cash flow, and the discount rate used in the present value calculation of the liability. Each respective year includes a range of discount rates that are dependent upon the timing of the cash flows of the specific obligations. Changes in the asset retirement obligations for the year endedDecember 31, 2019 were calculated with discount rates that ranged from 11.4% to 12.6%. Changes in the asset retirement obligations for the year endedDecember 31, 2018 were calculated with discount rates that ranged from 10.6% to 12.1%. The discount rates changed from previous years due to changes in applicable market indicators that are used to arrive at an appropriate discount rate. Other recosting adjustments to the liability are made annually based on inflationary cost increases or decreases and changes in the expected operating periods of the mines. The related inflation rate utilized in the recosting adjustments was
2.2% for 2019 and 2.3% for 2018.
Workers' Compensation and Pneumoconiosis ("black lung") Benefits
Certain of our subsidiaries are liable under federal and state laws to pay workers' compensation and coal workers' black lung benefits to eligible employees, former employees and their dependents. We currently utilize an insurance program and state workers' compensation fund participation to secure our on-going obligations depending on the location of the operation. Premium expense for workers' compensation benefits is recognized in the period in which the related insurance coverage is provided. Our black lung benefit liability is calculated using the service cost method that considers the calculation of the actuarial present value of the estimated black lung obligation. The actuarial calculations using the service cost method for our black lung benefit liability are based on numerous assumptions including disability incidence, medical costs, mortality, death benefits, dependents
and interest rates. In addition, our liability for traumatic workers' compensation injury claims is the estimated present value of current workers' compensation benefits, based on actuarial estimates. The actuarial estimates for our workers' compensation liability are based on numerous assumptions including claim development patterns, mortality, medical costs and interest rates. 82 Revenue Recognition We adopted ASU 2014-09, Topic 606 onJanuary 1, 2018 , using the modified retrospective method. The adoption of Topic 606 had no impact on revenue amounts recorded in our financial statements (See Note 19 to the consolidated financial statements included elsewhere in this annual report for additional discussion). Most of our revenues are generated under coal sales contracts with electric utilities, coal brokers, domestic and non-U.S. steel producers, industrial companies or other coal-related organizations. Revenue is recognized and recorded when shipment or delivery to the customer has occurred, prices are fixed or determinable and the title or risk of loss has passed in accordance with the terms of the sales agreement. Under the typical terms of these agreements, risk of loss transfers to the customers at the mine or port, when the coal is loaded on the rail, barge, truck or other transportation source that delivers coal to its destination. Advance payments received are deferred and recognized in revenue as coal is shipped and title has passed. Freight and handling costs paid directly to third-party carriers and invoiced separately to coal customers are recorded as freight and handling costs and freight and handling revenues, respectively. Freight and handling costs billed to customers as part of the contractual per ton revenue of customer contracts is included in coal sales revenue. Other revenues generally consist of coal royalty revenues, coal handling and processing revenues, rebates and rental income. With respect to other revenues recognized in situations unrelated to the shipment of coal, we carefully review the facts and circumstances of each transaction and do not recognize revenue until the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable and collectability is reasonably assured.
Derivative Financial Instruments
We occasionally use diesel fuel contracts to manage the risk of fluctuations in the cost of diesel fuel. Our diesel fuel contracts meet the requirements for the normal purchase normal sale, or NPNS, exception prescribed by the accounting guidance on derivatives and hedging, based on the terms of the contracts and management's intent and ability to take physical delivery of the diesel fuel. Income Taxes
We are considered a partnership for income tax purposes. Accordingly, the partners report our taxable income or loss on their individual tax returns.
Recent Accounting Pronouncements
Refer to Item 8. Note 2 of the notes to the consolidated financial statements for a discussion of recent accounting pronouncements, which is incorporated herein by reference. There are no known future impacts or material changes or trends of new accounting guidance beyond the disclosures provided in Note 2.
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