Edgar Filing: NATURAL RESOURCE PARTNERS LP

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-31465

______________________________________________________

NATURAL RESOURCE PARTNERS L.P.

(Exact name of registrant as specified in its charter)

______________________________________________________



Delaware		35-2164875
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1201 Louisiana Street, Suite 3400

Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

(713) 751-7507

(Registrant’s telephone number, including area code)

______________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of "accelerated filer", "large accelerated filer", "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	¨	Accelerated Filer	ý
Non-accelerated Filer	¨ (Do not check if a smaller reporting company)	Smaller Reporting Company	¨
		Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

At November 2, 2018 there were 12,245,920 Common Units outstanding.

NATURAL RESOURCE PARTNERS, L.P.

TABLE OF CONTENTS



		Page
Part I. Financial Information
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Statements of Partners’ Capital	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	52
Part II. Other Information
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosure	53
Item 5.	Other Information	53
Item 6.	Exhibits	54
	Signatures	55

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS



	September 30,			December 31,
(In thousands, except unit data)	2018			2017
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents	$	63,387		$	29,827
Accounts receivable, net	55,734			47,026
Accounts receivable—affiliates	22			161
Inventory	9,572			7,553
Prepaid expenses and other	4,665			5,838
Current assets of discontinued operations	988			991
Total current assets	134,368			91,396
Land	24,809			25,247
Plant and equipment, net	48,148			46,170
Mineral rights, net	869,106			883,885
Intangible assets, net	46,998			49,554
Equity in unconsolidated investment	242,901			245,433
Long-term contracts receivable	39,416			40,776
Other assets	6,188			6,547
Other assets—affiliate	—			156
Total assets	$	1,411,934		$	1,389,164
LIABILITIES AND CAPITAL
Current liabilities
Accounts payable	$	7,467		$	6,957
Accounts payable—affiliates	608			562
Accrued liabilities	14,005			16,890
Accrued liabilities—affiliates	—			515
Accrued interest	5,540			15,484
Current portion of deferred revenue	1,403			—
Current portion of long-term debt, net	75,201			79,740
Current liabilities of discontinued operations	—			401
Total current liabilities	104,224			120,549
Deferred revenue	40,885			100,605
Long-term debt, net	716,514			729,608
Other non-current liabilities	1,958			2,808
Other non-current liabilities—affiliate	—			346
Total liabilities	863,581			953,916
Commitments and contingencies (see Note 15)
Class A Convertible Preferred Units (250,000 and 258,844 units issued and outstanding at September 30, 2018 and December 31, 2017, respectively, at $1,000 par value per unit; liquidation preference of $1,500 per unit)	164,587			173,431
Partners’ capital
Common unitholders’ interest (12,245,920 and 12,232,006 units issued and outstanding at September 30, 2018 and December 31, 2017, respectively)	319,673			199,851
General partner’s interest	4,293			1,857
Warrant holders’ interest	66,816			66,816
Accumulated other comprehensive loss	(4,081		)	(3,313		)
Total partners’ capital	386,701			265,211
Non-controlling interest	(2,935		)	(3,394		)
Total capital	383,766			261,817
Total liabilities and capital	$	1,411,934		$	1,389,164

The accompanying notes are an integral part of these consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per unit data)	2018			2017			2018			2017
Revenues and other income
Coal royalty and other	$	42,459		$	43,507		$	134,428		$	111,269
Coal royalty and other—affiliates	59			335			484			23,178
Transportation and processing services	6,853			5,571			17,238			9,717
Transportation and processing services—affiliate	—			—			—			6,013
Construction aggregates	30,398			29,553			91,055			82,399
Road construction and asphalt paving services	6,250			5,157			13,154			13,087
Equity in earnings of Ciner Wyoming	8,836			8,993			34,986			27,676
Gain on asset sales, net	163			171			1,033			3,576
Total revenues and other income	$	95,018		$	93,287		$	292,378		$	276,915
Operating expenses
Operating and maintenance expenses	$	35,134		$	32,441		$	103,403		$	93,089
Operating and maintenance expenses—affiliates	2,414			2,154			8,944			6,928
Depreciation, depletion and amortization	8,221			8,306			24,741			26,195
Amortization expense—affiliate	—			—			—			1,008
General and administrative	2,249			2,648			8,068			10,757
General and administrative—affiliates	934			1,207			2,714			3,183
Asset impairments	—			—			242			1,778
Total operating expenses	$	48,952		$	46,756		$	148,112		$	142,938

Income from operations	$	46,066		$	46,531		$	144,266		$	133,977
Other expense, net
Interest expense, net	$	(17,501	)	$	(20,032	)	$	(53,205	)	$	(63,464	)
Debt modification expense	—			—			—			(7,939		)
Loss on extinguishment of debt	—			—			—			(4,107		)
Total other expense, net	$	(17,501	)	$	(20,032	)	$	(53,205	)	$	(75,510	)

Net income from continuing operations	$	28,565		$	26,499		$	91,061		$	58,467
Loss from discontinued operations	(24		)	(433		)	(72		)	(507		)
Net income	$	28,541		$	26,066		$	90,989		$	57,960
Net loss (income) attributable to non-controlling interest	359			—			(510		)	—
Net income attributable to NRP	$	28,900		$	26,066		$	90,479		$	57,960
Less: income attributable to preferred unitholders	(7,500		)	(7,650		)	(22,500		)	(17,688		)
Net income attributable to common unitholders and general partner	$	21,400		$	18,416		$	67,979		$	40,272

Net income attributable to common unitholders	$	20,972		$	18,046		$	66,619		$	39,466
Net income attributable to the general partner	$	428		$	370		$	1,360		$	806

Income from continuing operations per common unit (see Note 5)
Basic	$	1.71		$	1.51		$	5.45		$	3.27
Diluted	$	1.30		$	1.08		4.06			2.67
Net income per common unit (see Note 5)
Basic	$	1.71		$	1.48		$	5.44		$	3.23
Diluted	$	1.30		$	1.07		4.06			2.65

Net income	$	28,541		$	26,066		$	90,989		$	57,960
Comprehensive income (loss) from unconsolidated investment and other	791			(268		)	(768		)	(1,413		)
Comprehensive income	$	29,332		$	25,798		$	90,221		$	56,547
Comprehensive loss (income) attributable to non-controlling interest	359			—			(510		)	—
Comprehensive income attributable to NRP	$	29,691		$	25,798		$	89,711		$	56,547

The accompanying notes are an integral part of these consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(Unaudited)



	Common Unitholders				General Partner			Warrant Holders		Accumulated Other Comprehensive Loss			Partners' Capital Excluding Non-Controlling Interest			Non-Controlling Interest			Total Capital
	Common Unitholders
(In thousands)	Units	Amounts
Balance at December 31, 2017	12,232	$	199,851		$	1,857		$	66,816	$	(3,313	)	$	265,211		$	(3,394	)	$	261,817
Cumulative effect of adoption of accounting standard (See Note 2)	—	69,057			1,409			—		—			70,466			—			70,466
Net income ⁽¹⁾	—	88,669			1,810			—		—			90,479			510			90,989
Distributions to common unitholders and general partner	—	(16,526		)	(337		)	—		—			(16,863		)	—			(16,863		)
Distributions to preferred unitholders	—	(22,310		)	(455		)	—		—			(22,765		)	—			(22,765		)
Issuance of unit-based awards	14	410			—			—		—			410			—			410
Unit-based awards amortization and vesting	—	472			—			—		—			472			—			472
Comprehensive income (loss) from unconsolidated investment and other	—	50			9			—		(768		)	(709		)	(51		)	(760		)
Balance at September 30, 2018	12,246	$	319,673		$	4,293		$	66,816	$	(4,081	)	$	386,701		$	(2,935	)	$	383,766


(1)	Net income includes $22.5 million attributable to Preferred Unitholders that accumulated during the period, of which $22.1 million is allocated to the common unitholders and $0.5 million is allocated to the general partner.

The accompanying notes are an integral part of these consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine Months Ended September 30,
(In thousands)	2018			2017
Cash flows from operating activities
Net income	$	90,989		$	57,960
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
Depreciation, depletion and amortization	24,741			26,195
Amortization expense—affiliate	—			1,008
Distributions from unconsolidated investment	34,653			31,104
Equity earnings from unconsolidated investment	(34,986		)	(27,676		)
Gain on asset sales, net	(1,033		)	(3,576		)
Debt modification expense	—			7,939
Loss on extinguishment of debt	—			4,107
Loss from discontinued operations	72			507
Asset impairments	242			1,778
Unit-based compensation expense	1,226			(23		)
Amortization of debt issuance costs and other	2,541			6,547
Other—affiliates	(190		)	(974		)
Change in operating assets and liabilities:
Accounts receivable	(7,004		)	508
Accounts receivable—affiliates	139			285
Accounts payable	670			730
Accounts payable—affiliates	46			(270		)
Accrued liabilities	(1,984		)	(7,096		)
Accrued liabilities—affiliates	(515		)	—
Accrued interest	(9,944		)	(5,322		)
Deferred revenue	9,200			(5		)
Deferred revenue—affiliates	—			(10,166		)
Other items, net	(846		)	(2,166		)
Net cash provided by operating activities of continuing operations	$	108,017		$	81,394
Net cash used in operating activities of discontinued operations	(469		)	(607		)
Net cash provided by operating activities	$	107,548		$	80,787

Cash flows from investing activities
Distributions from unconsolidated investment in excess of cumulative earnings	$	2,097		$	5,646
Proceeds from sale of assets	1,149			1,419
Return of long-term contract receivable	2,606			1,807
Return of long-term contract receivable—affiliate	—			804
Acquisition of plant and equipment and other	(9,666		)	(6,236		)
Net cash provided by (used in) investing activities of continuing operations	$	(3,814	)	$	3,440
Net cash provided by investing activities of discontinued operations	—			206
Net cash provided by (used in) investing activities	$	(3,814	)	$	3,646

NATURAL RESOURCE PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine Months Ended September 30,
(In thousands)	2018			2017
Cash flows from financing activities
Proceeds from issuance of preferred units and warrants, net	$	—		$	242,100
Proceeds from issuance of 2022 Senior Notes, net	—			103,688
Borrowings on credit facility	35,000			69,000
Repayments of loans	(55,720		)	(356,292		)
Redemption of preferred units paid-in-kind	(8,844		)	—
Distributions to common unitholders and general partner	(16,863		)	(16,850		)
Distributions to preferred unitholders	(22,765		)	(5,019		)
Contributions to discontinued operations	(469		)	(401		)
Debt issuance costs and other	(982		)	(40,187		)
Net cash used in financing activities of continuing operations	$	(70,643	)	$	(3,961	)
Net cash provided by financing activities of discontinued operations	469			401
Net cash used in financing activities	$	(70,174	)	$	(3,560	)

Net increase in cash and cash equivalents	$	33,560		$	80,873
Cash and cash equivalents at beginning of period	29,827			40,371
Cash and cash equivalents at end of period	$	63,387		$	121,244

Supplemental cash flow information:
Cash paid during the period for interest from continuing operations	$	58,153		$	61,857
Issuance of 2022 Senior Notes in exchange for 2018 Senior Notes	$	—		$	240,638

The accompanying notes are an integral part of these consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

Nature of Business

Natural Resource Partners L.P. (the "Partnership") engages principally in the business of owning, operating, managing and leasing a diversified portfolio of mineral properties in the United States, including interests in coal, natural soda ash from trona, construction aggregates and other natural resources. As used in these Notes to Consolidated Financial Statements, the terms "NRP," "we," "us" and "our" refer to Natural Resource Partners L.P. and its subsidiaries, unless otherwise stated or indicated by context.

Principles of Consolidation and Reporting

The accompanying unaudited Consolidated Financial Statements of the Partnership have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management's opinion, all necessary adjustments to fairly present the Partnership's results of operations, financial position and cash flows for the periods presented have been made and all such adjustments were of a normal and recurring nature, except as noted in "Revision of Previously Issued Financial Statements" below. Certain reclassifications have been made to prior period amounts on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows to conform with current period presentation. These reclassifications had no impact on previously reported net income or cash flows from operating, investing or financing activities.

Revision of Previously Issued Financial Statements

During the three months ended September 30, 2018, NRP identified an error related to its modified retrospective adoption of ASC 606 on January 1, 2018 for certain coal and aggregates royalty leases. As a result, the Partnership has revised its financial statements as of and for the three months ended March 31, 2018 and as of and for the three and six months ended June 30, 2018, respectively, to correct this error as presented in Note 2. Revenue from Contracts with Customers. Management has concluded that the impact of the misstatements were not material to the previously issued consolidated financial statements. Additional information regarding the error and the effect of the revisions on the previously issued consolidated financial statements is provided in Note 2. Revenue from Contracts with Customers.

Recently Adopted Accounting Standards

Revenue Recognition

On January 1, 2018, NRP adopted Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, and all the related amendments (the “new revenue standard” and "ASC 606") to all open contracts using the modified retrospective method. The adoption of the new revenue standard impacted royalty revenue from NRP's coal and aggregates royalty leases as further described below. NRP recognized a $70.5 million cumulative effect of adoption adjustment in the opening balance of partners' capital on January 1, 2018. Prior year information has not been restated and continues to be reported under the accounting standards in effect for those periods. The new revenue standard had no impact on revenues from NRP's Construction Aggregates or Soda Ash operating segments.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

A majority of NRP’s coal and aggregates royalty revenue continues to be recognized over the lease term based on production. For coal and aggregates royalty leases for which NRP expects consideration from minimum payments to be greater than consideration from production over the lease term, royalty revenue is now recognized straight-line over the lease term based on the minimum payment consideration. The cumulative effects of the changes made to the Partnership's Consolidated Balance Sheet at January 1, 2018 for the adoption of the new revenue standard were as follows:



(In thousands)	Balance at December 31, 2017		Adjustments due to ASC 606 (As Adjusted)¹			Balance at January 1, 2018
Assets
Accounts receivable, net (including affiliates)	$	47,187	$	4,875		$	52,062

Liabilities
Current portion of deferred revenue	$	—	$	1,022		$	1,022
Deferred revenue	100,605		(66,613		)	33,992

Partners’ capital
Common unitholders’ interest	$	199,851	$	69,057		$	268,908
General partner’s interest	1,857		1,409			3,266
Total partners’ capital	265,211		70,466			335,677


(1)	Refer to "Revision to Original Adoption of ASC 606" in Note 2. Revenue from Contracts with Customers for adjustments made to original adoption entries.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

The impact of adoption of the new revenue standard on NRP’s Consolidated Balance Sheet and Consolidated Statements of Comprehensive Income was as follows:



	As of September 30, 2018
(In thousands)	As Reported		Balances without Adoption of ASC 606		Effect of Change
Assets
Accounts receivable, net (including affiliates)	$	55,756	$	52,966	$	2,790
Total assets	1,411,934		1,409,144		2,790

Liabilities and capital
Current portion of deferred revenue	$	1,403	$	—	$	1,403
Deferred revenue	40,885		100,185		(59,300		)
Total liabilities	863,581		921,478		(57,897		)
Partners’ capital
Common unitholders’ interest	$	319,673	$	260,200	$	59,473
General partner’s interest	4,293		3,079		1,214
Total partners’ capital	386,701		326,014		60,687
Total liabilities and capital	1,411,934		1,409,144		2,790



	For the Three Months Ended September 30, 2018
(In thousands, except per unit data)	As Reported		Amounts without Adoption of ASC 606		Effect of Change
Coal royalty and other revenues (including affiliates)	$	42,518	$	45,680	$	(3,162	)
Net income from continuing operations	28,565		31,727		(3,162		)
Net income	28,541		31,703		(3,162		)
Net income per common unit (basic)	1.71		1.96		(0.25		)
Net income per common unit (diluted)	1.30		1.44		(0.14		)



	For the Nine Months Ended September 30, 2018
(In thousands, except per unit data)	As Reported		Amounts without Adoption of ASC 606		Effect of Change
Coal royalty and other revenues (including affiliates)	$	134,912	$	144,501	$	(9,589	)
Net income from continuing operations	91,061		100,840		(9,779		)
Net income	90,989		100,768		(9,779		)
Net income per common unit (basic)	5.44		6.22		(0.78		)
Net income per common unit (diluted)	4.06		4.50		(0.44		)

Recently Issued Accounting Standards

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires a lessee to recognize assets and liabilities on the balance sheet for the present value of the rights and obligations created by all leases with terms of more than 12 months. This standard does not apply to leases that explore for or use minerals, oil, natural gas and similar non-regenerative resources, including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. The guidance also requires disclosures designed to give financial statement users information on the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual and interim periods beginning after December 15, 2018 and is to be adopted using a modified retrospective approach. The Partnership is currently evaluating the impact of the provisions of this guidance on its consolidated financial statements.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

2. Revenue from Contracts with Customers

Coal Royalty and Other Segment

The following table represents the Partnership's Coal Royalty and Other segment revenues (including affiliates) by major source:



	Three Months Ended		Nine Months Ended
(In thousands)	September 30, 2018
Coal royalty revenue	$	30,709	$	96,473
Production lease minimum revenue	1,769		6,310
Minimum lease straight-line revenue	567		1,739
Wheelage revenue	1,572		5,155
Coal overriding royalty revenue	3,918		10,492
Aggregates royalty revenue	888		3,551
Oil and gas royalty revenue	1,427		5,679
Property tax revenue	1,263		3,968
Other revenue	405		1,545
Coal royalty and other revenues⁽¹⁾	$	42,518	$	134,912
Transportation and processing services revenue ⁽²⁾	6,853		17,238
Total Coal royalty and other segment revenues	$	49,371	$	152,150


(1)	Represents revenue from contracts with customers as defined under ASC 606.

(2)

Revenue from contracts with customers as defined under ASC 606 was $3.6 million and $9.6 million for the three and nine months ended September 30, 2018, respectively. The remaining transportation and processing services revenue of $3.3 million and $7.6 million for the three and nine months ended September 30, 2018, respectively, related to other NRP-owned infrastructure leased to and operated by third party operators accounted for under ASC 840, Leases.

Coal Royalty and Other segment revenues

Royalty-based leases. Approximately two-thirds of our royalty-based leases have initial terms of five to 40 years, with substantially all lessees having the option to extend the lease for additional terms. For these types of leases, the lessees generally make payments to NRP based on the greater of a percentage of the gross sales price or a fixed price per ton of mineral they mine or sell. Most of NRP’s coal and aggregates royalty leases require the lessee to pay quarterly or annual minimum amounts, either made in advance or arrears, which are generally recoupable through actual royalty production over certain time periods that generally range from three to five years.

In accordance with previous accounting standards in effect prior to January 1, 2018, NRP recognized all coal and aggregates royalty revenue over the lease term based on production. The recognition of revenue from minimum payments was deferred until either recoupment through royalty production occurred or when the recoupment period expired for unrecouped minimums.

Under the new revenue recognition standard, management has defined NRP's coal and aggregates royalty lease performance obligation as providing the lessee the right to mine and sell NRP's coal or aggregates over the lease term. The Partnership then evaluated the likelihood that consideration NRP expected to receive from its lessees resulting from production would exceed consideration expected to receive from minimum payments over the lease term.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

As a result of this evaluation, revenue recognition from the Partnership's royalty-based leases is based on either production or minimum payments as follows:

•

Production Leases: Leases for which the Partnership expects that consideration from production will be greater than consideration from minimums over the lease term. Revenue recognition for these leases is recognized over time based on production as Coal royalty revenue or Aggregates royalty revenue, as applicable. Deferred revenue from minimums is recognized as royalty revenue when recoupment occurs or as Production lease minimum revenue when the recoupment period expires. In addition, NRP recognizes breakage revenue from minimums when NRP determines that recoupment is remote. This breakage revenue is included in Production lease minimum revenue.


•	Minimum Leases: Leases for which the Partnership expects that consideration from minimums will be greater than consideration from production over the lease term. Revenue recognition for these leases is recognized straight-line over the lease term based on the minimum consideration amount as Minimum lease straight-line revenue.

This evaluation is performed at the inception of the lease and only reassessed upon modification or renewal of the lease.

The Partnership also has overriding royalty revenue interests in certain oil and gas wells and coal reserves. Revenue from these interests is recognized over time based on when the respective commodities are sold.

Wheelage. Revenue related to fees collected per ton to transport foreign coal across property owned by the Partnership that is recognized over time as transportation across our property occurs.

Other revenue. Other revenue consists primarily of rental payments and surface damage fees related to certain land owned by the Partnership and is recognized straight-line over time as it is earned. Other revenues also include property tax revenues. The majority of property taxes paid on our properties are reimbursable by the lessee and are recognized on a gross basis over time which reflects the reimbursement of property taxes by the lessee. Property taxes paid by NRP are included in Operating and maintenance expenses on the Partnership's Consolidated Statements of Comprehensive Income.

Transportation and processing services revenue. The Partnership owns transportation and processing infrastructure that is leased to third parties and collects throughput fees for which it recognizes revenue over time based on the coal tons transported over the beltlines or processed through the facilities.

Contract modifications

Contract modifications that impact goods or services or the transaction price are evaluated in accordance with ASC 606. A majority of our contract modifications pertain to our coal and aggregates royalty contracts and include, but are not limited to, extending the lease term, changes to royalty rates, floor prices or minimum consideration, assignment of the contract, or termination due to the exhaustion of merchantable and mineable reserves. In accordance with the transition guidance in paragraph 606-10-65-1, revenues from contracts that were modified before January 1, 2018 were not retrospectively restated for those modifications and instead reflected the aggregate effect of those modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligation.

Contract Assets and Liabilities

Contract assets include receivables from contracts with customers and are recorded when the right to consideration becomes unconditional. Receivables are recognized when the minimums are contractually owed, production occurs or minimums accrued for based on the passage of time.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Contract liabilities represent minimum consideration received, contractually owed or earned based on the passage of time. The following table details the Partnership's Coal Royalty and Other segment receivables and liabilities resulting from contracts with customers:



	September 30,		January 1,
(In thousands)	2018		2018
Receivables
Total accounts receivable, net (including affiliates)⁽¹⁾	$	29,485	$	25,443
Prepaid expenses and other ⁽²⁾	2,673		2,830

Contract liabilities
Current portion of deferred revenue	$	1,403	$	1,022
Deferred revenue	40,885		33,992


(1)	Included in this amount is $2.3 million and $1.9 million of accounts receivable related to accrued minimum consideration as of September 30, 2018 and January 1, 2018, respectively.


(2)	Prepaid expenses and other includes notes receivable from contracts with customers.

The following table shows the activity related to the Partnership's Coal Royalty and Other segment deferred revenue:



(In thousands)	Nine Months Ended September 30, 2018
Balance at December 31, 2017	$	100,605
Cumulative adjustment for change in accounting principle ⁽¹⁾	(65,591		)
Balance at January 1, 2018 (current and non-current)	$	35,014
Recognition of previously deferred revenue	(11,694		)
Accrued minimum payments due	3,837
Cash received for minimum payments	15,131
Balance at September 30, 2018 (current and non-current)	$	42,288


(1)	Included in this amount is $(67.5) million recognized in Partners' capital and $1.9 million of accrued minimum consideration recognized in Accounts receivable, net.

The following table shows the Partnership's Coal Royalty and Other segment revenue recognized during the three and nine months ended September 30, 2018 that was included in the deferred revenue balance at the beginning of the period:



	Three Months Ended		Nine Months Ended
(In thousands)	September 30, 2018
Production leases - revenue impact
Recoupments recognized in Coal and aggregates royalty revenue	$	3,166	$	8,554
Breakage revenue recognized in Production lease minimum revenue	273		867
Expiration of unrecouped minimums recognized in Production lease minimum revenue	497		846
Minimum leases - revenue impact
Minimum lease amortization recognized in Minimum lease straight-line revenue	483		1,427
Total previously deferred revenue recognized	$	4,419	$	11,694

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Remaining Performance Obligations

The Partnership's non-cancelable annual minimum payments due under the lease terms of its coal and aggregates royalty leases are as follows:



Lease Term ⁽¹⁾	Weighted Average Remaining Years as of September 30, 2018	Annual Minimum Payments (In thousands)
1 - 5 years	0.3	$	8,562
5 - 10 years	1.6	13,292
10+ years	9.5	34,205


(1)	The Partnership applied the practical expedient for disclosing remaining performance obligations for contracts with an expected duration of one year or less, and have excluded those contracts from this disclosure.

The Partnership's non-cancelable annual minimum payments on its coal and aggregates royalty leases are recognized as revenue as discussed above. In addition, the Partnership's non-cancelable annual minimum payments due under terms of its coal and aggregates overriding royalty agreements include a $1.8 million annual minimum that expires in 2023 and a $1.0 million minimum that expires upon exhaustion of the mineable and recoverable coal reserves, respectively.

Construction Aggregates Segment

The Partnership's Construction Aggregates segment revenues from contracts with customers by major source are as follows:



	Three Months Ended		Nine Months Ended
(In thousands)	September 30, 2018
Crushed stone, sand and gravel	$	16,618	$	48,427
Delivery and fuel income	10,825		32,587
Other revenues	2,955		10,041
Total construction aggregates revenues	$	30,398	$	91,055
Road construction and asphalt paving services	6,250		13,154
Total construction aggregates segment revenues	$	36,648	$	104,209

Construction Aggregates segment revenues

The majority of the Construction Aggregates segment revenues is recognized at a point in time with the exception of revenue related to construction contracts, which is recognized on the percentage-of-completion method as discussed below. The majority of the Partnership's construction contracts have an original expected duration of one year or less. As such, the Partnership has elected to apply the practical expedient and not disclose remaining performance obligations for contracts with an original expected duration of one year or less. Additional discussion of the Partnership's major sources of Construction Aggregates segment revenue are as follows:

Crushed stone, sand and gravel and other revenues. Revenue from the sale of crushed stone, sand, gravel and asphalt is recognized based on a fixed price when title is transferred to the buyer and collectibility of the sales proceeds is reasonably assured (typically occurs when products are picked up or delivered to the customer). Other revenues consist of brokered stone sales and barge and service revenues. Brokered stone sales include aggregates purchases from third party quarries, which are then sold and transported to customers and recorded as revenue at the time of delivery. The purchase price of aggregates from third party quarries are recorded as expenses. Barge and service revenues relate to loading and unloading services at marine terminals and are recorded as revenue at the time the service is performed.

Delivery and fuel income. Revenue related to pass through delivery and fuel costs the Partnership incurs to deliver its products is recognized on a gross basis and is subsequently reimbursed by the customer. The related costs are recognized when incurred and are included in Operating and maintenance expenses on the Consolidated Statements of Comprehensive Income.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Road construction and asphalt paving services revenue. Revenue related to construction contracts is recognized on the percentage-of-completion method, measured by the percentage of total costs incurred to date to the estimated total costs for each contract.

The Partnership had $23.2 million and $23.0 million in receivables from Construction Aggregates segment related contracts with customers included in Accounts receivable, net on its Consolidated Balance Sheets as of September 30, 2018 and January 1, 2018, respectively.

Revision to Original Adoption of ASC 606

During the third quarter of 2018, the Partnership identified an error related to the modified retrospective adoption of ASC 606 on January 1, 2018 for certain coal and aggregates royalty leases. Specifically, in evaluating its contracts for revenue recognition, NRP identified certain coal and aggregates royalty leases as minimum leases that should have been classified as production leases. As a result of these errors, the Partnership incorrectly accelerated the recognition of deferred revenue for these leases resulting in an overstatement of both the transition adjustment to the opening balance of Partners' capital at January 1, 2018 and revenue during the three months ended March 31, 2018 and the three and six months ended June 30, 2018, respectively. After evaluating the quantitative and qualitative aspects of the error to the Partnership's financial results, management has determined that the misstatements and the adjustments are not material to the prior period financial statements. However, in order to properly reflect the application of ASC 606 retrospectively, the Partnership has recasted its Consolidated Financial Statements as of and for the three months ended March 31, 2018 and as of and for the three and six months ended June 30, 2018, respectively.

The following table shows the effects of correcting the classification of certain coal and aggregates royalty leases in connection with the modified retrospective adoption of ASC 606 on the cumulative effects of the changes made to the Consolidated Balance Sheet at January 1, 2018:



	Balance at January 1, 2018
(In thousands)	As Originally Reported		Corrected Balance		Effect of Correction
Assets
Accounts receivable, net (including affiliates)	$	50,666	$	52,062	$	1,396

Liabilities
Current portion of deferred revenue	$	1,973	$	1,022	$	(951	)
Deferred revenue	11,858		33,992		22,134

Partners’ capital
Common unitholders’ interest	$	288,299	$	268,908	$	(19,391	)
General partner’s interest	3,662		3,266		(396		)
Total partners’ capital	355,464		335,677		(19,787		)

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

The following tables show the effect of correcting the classification of certain coal and aggregates royalty leases in connection with the modified retrospective adoption of ASC 606 on the Partnership's originally reported Consolidated Balance Sheets at March 31, 2018 and June 30, 2018:



	Balance at March 31, 2018
(In thousands)	As Originally Reported		Corrected Balance		Effect of Correction
Assets
Accounts receivable, net (including affiliates)	$	55,745	$	56,497	$	752
Total assets	1,377,206		1,377,958		752

Liabilities and capital
Current portion of deferred revenue	$	1,554	$	1,377	$	(177	)
Deferred revenue	14,622		37,072		22,450
Total liabilities	848,367		870,641		22,274
Partners’ capital
Common unitholders’ interest	$	301,344	$	280,252	$	(21,092	)
General partner’s interest	3,924		3,494		(430		)
Total partners’ capital	367,646		346,124		(21,522		)
Total liabilities and capital	1,377,206		1,377,958		752



	Balance at June 30, 2018
(In thousands)	As Originally Reported		Corrected Balance		Effect of Correction
Assets
Accounts receivable, net (including affiliates)	$	59,452	$	59,178	$	(274	)
Total assets	1,411,806		1,411,532		(274		)

Liabilities and capital
Current portion of deferred revenue	$	2,732	$	1,871	$	(861	)
Deferred revenue	17,136		40,224		23,088
Total liabilities	857,299		879,526		22,227
Partners’ capital
Common unitholders’ interest	$	326,125	$	304,074	$	(22,051	)
General partner’s interest	4,427		3,977		(450		)
Total partners’ capital	392,496		369,995		(22,501		)
Total liabilities and capital	1,411,806		1,411,532		(274		)

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

The following tables show the effect of correcting the classification of certain coal and aggregates royalty leases in connection with the modified retrospective adoption of ASC 606 on the Partnership's originally reported Consolidated Statement of Comprehensive Income for the three months ended March 31, 2018 and June 30, 2018 and the six months ended June 30, 2018:



	For the Three Months Ended March 31, 2018
(In thousands, except per unit data)	As Originally Reported		Corrected Amount		Effect of Correction
Revenues and other income
Coal royalty and other revenues (including affiliates)	$	46,210	$	44,474	$	(1,736	)
Total revenues and other income	89,026		87,290		(1,736		)

Income from operations	$	44,058	$	42,322	$	(1,736	)
Net income from continuing operations	26,088		24,352		(1,736		)
Net income	26,074		24,338		(1,736		)
Net income attributable to common unitholders and general partner	18,574		16,838		(1,736		)

Net income attributable to common unitholders	$	18,203	$	16,501	$	(1,702	)
Net income attributable to the general partner	371		337		(34		)

Income from continuing operations per common unit
Basic	$	1.49	$	1.35	$	(0.14	)
Diluted	1.16		1.08		(0.08		)
Net income per common unit
Basic	$	1.49	$	1.35	$	(0.14	)
Diluted	1.15		1.08		(0.07		)

Comprehensive income	$	24,949	$	23,213	$	(1,736	)



	For the Three Months Ended June 30, 2018
(In thousands, except per unit data)	As Originally Reported		Corrected Amount		Effect of Correction
Revenues and other income
Coal royalty and other revenues (including affiliates)	$	48,899	$	47,920	$	(979	)
Total revenues and other income	111,049		110,070		(979		)

Income from operations	$	56,857	$	55,878	$	(979	)
Net income from continuing operations	39,123		38,144		(979		)
Net income	39,089		38,110		(979		)
Net income attributable to NRP	38,220		37,241		(979		)
Net income attributable to common unitholders and general partner	30,720		29,741		(979		)

Net income attributable to common unitholders	$	30,105	$	29,146	$	(959	)
Net income attributable to the general partner	615		595		(20		)

Income from continuing operations per common unit
Basic	$	2.46	$	2.38	$	(0.08	)
Diluted	1.75		1.71		(0.04		)
Net income per common unit
Basic	$	2.46	$	2.38	$	(0.08	)
Diluted	1.75		1.71		(0.04		)

Comprehensive income	$	38,655	$	37,676	$	(979	)
Comprehensive income attributable to NRP	37,786		36,807		(979		)

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)



	For the Six Months Ended June 30, 2018
(In thousands, except per unit data)	As Originally Reported		Corrected Amount		Effect of Correction
Revenues and other income
Coal royalty and other revenues (including affiliates)	$	95,109	$	92,394	$	(2,715	)
Total revenues and other income	200,075		197,360		(2,715		)

Income from operations	$	100,915	$	98,200	$	(2,715	)
Net income from continuing operations	65,211		62,496		(2,715		)
Net income	65,163		62,448		(2,715		)
Net income attributable to NRP	64,294		61,579		(2,715		)
Net income attributable to common unitholders and general partner	49,294		46,579		(2,715		)

Net income attributable to common unitholders	$	48,308	$	45,647	$	(2,661	)
Net income attributable to the general partner	986		932		(54		)

Income from continuing operations per common unit
Basic	$	3.95	$	3.73	$	(0.22	)
Diluted	2.96		2.83		(0.13		)
Net income per common unit
Basic	$	3.95	$	3.73	$	(0.22	)
Diluted	2.95		2.83		(0.12		)

Comprehensive income	$	63,604	$	60,889	$	(2,715	)
Comprehensive income attributable to NRP	62,735		60,020		(2,715		)

3. Class A Convertible Preferred Units

On March 2, 2017, NRP issued $250 million of Class A Convertible Preferred Units representing limited partner interests in NRP (the "Preferred Units") to certain entities controlled by funds affiliated with The Blackstone Group, L.P. (collectively referred to as "Blackstone") and certain affiliates of GoldenTree Asset Management LP (collectively referred to as "GoldenTree") (together the "Preferred Purchasers") pursuant to a Preferred Unit and Warrant Purchase Agreement. NRP issued 250,000 Preferred Units to the Preferred Purchasers at a price of $1,000 per Preferred Unit (the "Per Unit Purchase Price"), less a 2.5% structuring and origination fee. The Preferred Units entitle the Preferred Purchasers to receive cumulative distributions at a rate of 12% per year, up to one half of which NRP may pay in additional Preferred Units (such additional Preferred Units, the "paid-in-kind units" or "PIK Units"), subject to approval by the Board of Directors.

During the three months ended March 31, 2018, the Partnership redeemed all of the outstanding PIK Units, which resulted in an $8.8 million cash payment during the period.

Activity related to the Preferred Units is as follows:



(In thousands, except unit data)	Units Outstanding		Financial Position
Balance at December 31, 2017	258,844		$	173,431
Redemption of PIK Units	(8,844	)	(8,844		)
Balance at September 30, 2018	250,000		$	164,587

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

4. Common and Preferred Unit Distributions

The Partnership makes cash distributions to common unitholders on a quarterly basis, subject to approval by the Board of Directors. As discussed in Note 3 above, the Partnership also makes distributions to the preferred unitholders.

Common Unit Distributions

Distributions made on the common units and the general partner's general partner ("GP") interest are made on a pro-rata basis in accordance with their relative percentage interests in the Partnership. The general partner is entitled to receive 2% of such distributions. The following table shows the distributions declared and paid to common unitholders during the nine months ended September 30, 2018 and 2017, respectively:



				Total Distributions (in thousands)
Date Paid	Period Covered by Distribution	Distribution per Common Unit		Common Units		GP Interest		Total
2018
February 14, 2018	October 1 - December 31, 2017	$	0.45	$	5,505	$	112	$	5,617
May 14, 2018	January 1 - March 31, 2018	$	0.45	$	5,510	$	113	$	5,623
August 14, 2018	April 1 - June 30, 2018	$	0.45	$	5,511	$	112	$	5,623

2017
February 14, 2017	October 1 - December 31, 2016	$	0.45	$	5,503	$	112	$	5,615
May 12, 2017	January 1 - March 31, 2017	$	0.45	$	5,506	$	113	$	5,619
August 14, 2017	April 1 - June 30, 2017	$	0.45	$	5,504	$	112	$	5,616

Preferred Unit Distributions

The following table shows the distributions declared and paid to Preferred Unitholders during the nine months ended September 30, 2018 and 2017, respectively:



Date Paid	Period Covered by Distribution	Distribution per Preferred Unit		Total Distribution Declared (in thousands)
2018
February 7, 2018	October 1 - December 31, 2017	$	30.00	$	7,765
May 14, 2018	January 1 - March 31, 2018	$	30.00	$	7,500
August 14, 2018	April 1 - June 30, 2018	$	30.00	$	7,500

2017
May 30, 2017	March 2 - March 31, 2017	$	5.00	$	2,500
August 29, 2017	April 1 - June 30, 2017	$	15.00	$	7,538

Income available to common unitholders and the general partner is reduced by Preferred Unit distributions that accumulated during the period. During the three and nine months ended September 30, 2018, NRP reduced net income attributable to common unitholders and the general partner by $7.5 million and $22.5 million, respectively, as a result of accumulated Preferred Unit distributions earned during the period. The $7.5 million Preferred Unit distribution earned during the three months ended September 30, 2018 will be paid on November 14, 2018.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

5. Net Income Per Common Unit

Basic net income per common unit is computed by dividing net income, after considering income attributable to preferred unitholders and the general partner’s general partner interest, by the weighted average number of common units outstanding. Diluted net income per common unit includes the effect of NRP's Preferred Units and Warrants, if the inclusion of these items is dilutive.

The dilutive effect of the Preferred Units is calculated using the if-converted method. Under the if-converted method, the Preferred Units are assumed to be converted at the beginning of the period, and the resulting common units are included in the denominator of the diluted net income per unit calculation for the period being presented. Distributions declared in the period and undeclared distributions on the Preferred Units that accumulated during the period are added back to the numerator for purposes of the if-converted calculation.

The dilutive effect of the Warrants is calculated using the treasury stock method, which assumes that the proceeds from the exercise of these instruments are used to purchase common units at the average market price for the period. The calculation of the dilutive effect of the Warrants for the three and nine months ended September 30, 2018 and 2017, respectively, did not include the net settlement of Warrants to purchase 2.25 million common units with a strike price of $34.00 because the impact would have been anti-dilutive.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

The following table reconciles the numerators and denominators of the basic and diluted net income per common unit computations and calculates basic and diluted net income per common unit:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per unit data)	2018			2017			2018			2017
Allocation of net income:
Net income from continuing operations	$	28,565		$	26,499		$	91,061		$	58,467
Add (less): net loss (income) attributable to non-controlling interest	359			—			(510		)	—
Less: income attributable to preferred unitholders	(7,500		)	(7,650		)	(22,500		)	(17,688		)
Net income from continuing operations attributable to common unitholders and general partner	$	21,424		$	18,849		$	68,051		$	40,779
Less: net income from continuing operations attributable to the general partner	(428		)	(379		)	(1,361		)	(816		)
Net income from continuing operations attributable to common unitholders	$	20,996		$	18,470		$	66,690		$	39,963

Net loss from discontinued operations	$	(24	)	$	(433	)	$	(72	)	$	(507	)
Less: net loss from discontinued operations attributable to the general partner	—			9			1			10
Net loss from discontinued operations attributable to common unitholders	$	(24	)	$	(424	)	$	(71	)	$	(497	)

Net income	$	28,541		$	26,066		$	90,989		$	57,960
Add (less): net loss (income) attributable to non-controlling interest	359			—			(510		)	—
Less: income attributable to preferred unitholders	(7,500		)	(7,650		)	(22,500		)	(17,688		)
Net income attributable to common unitholders and general partner	$	21,400		$	18,416		$	67,979		$	40,272
Less: net income attributable to the general partner	(428		)	(370		)	(1,360		)	(806		)
Net income attributable to common unitholders	$	20,972		$	18,046		$	66,619		$	39,466

Basic income (loss) per common unit:
Weighted average common units—basic	12,246			12,232			12,243			12,232
Basic net income from continuing operations per common unit	$	1.71		$	1.51		$	5.45		$	3.27
Basic net loss from discontinued operations per common unit	$	—		$	(0.03	)	$	(0.01	)	$	(0.04	)
Basic net income per common unit	$	1.71		$	1.48		$	5.44		$	3.23

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands, except per unit data)	2018			2017			2018			2017
Diluted income (loss) per common unit:
Weighted average common units—basic	12,246			12,232			12,243			12,232
Plus: dilutive effect of Warrants	470			225			474			330
Plus: dilutive effect of Preferred Units	9,124			11,523			9,124			8,909
Weighted average common units—diluted	21,840			23,980			21,841			21,471

Net income from continuing operations	$	28,565		$	26,499		$	91,061		$	58,467
Add (less): net loss (income) attributable to non-controlling interest	359			—			(510		)	—
Diluted net income from continuing operations attributable to common unitholders and general partner	$	28,924		$	26,499		$	90,551		$	58,467
Less: diluted net income from continuing operations attributable to the general partner	(578		)	(530		)	(1,811		)	(1,169		)
Diluted net income from continuing operations attributable to common unitholders	$	28,346		$	25,969		$	88,740		$	57,298

Diluted net loss from discontinued operations attributable to common unitholders	$	(24	)	$	(424	)	$	(71	)	$	(497	)

Net income	$	28,541		$	26,066		$	90,989		$	57,960
Add (less): net loss (income) attributable to non-controlling interest	359			—			(510		)	—
Diluted net income attributable to common unitholders and general partner	$	28,900		$	26,066		$	90,479		$	57,960
Less: diluted net income attributable to the general partner	(578		)	(521		)	(1,810		)	(1,159		)
Diluted net income attributable to common unitholders	$	28,322		$	25,545		$	88,669		$	56,801

Diluted net income from continuing operations per common unit	$	1.30		$	1.08		$	4.06		$	2.67
Diluted net loss from discontinued operations per common unit	$	—		$	(0.02	)	$	—		$	(0.02	)
Diluted net income per common unit	$	1.30		$	1.07		$	4.06		$	2.65

6. Segment Information

The Partnership's operating segments are strategic business units that offer distinct products and services to different customers in different geographies within the U.S. that are managed accordingly. NRP has the following three operating segments:

Coal Royalty and Other—consists primarily of coal royalty and coal-related transportation and processing assets. Other assets include aggregates royalty, industrial mineral royalty, oil and gas royalty and timber. The Partnership's coal reserves are primarily located in Appalachia, the Illinois Basin and the western United States. The Partnership's aggregates and industrial minerals properties are located in a number of states across the United States. The Partnership's oil and gas royalty assets are primarily located in Louisiana and Pennsylvania.

Soda Ash—consists of the Partnership's 49% non-controlling equity interest in Ciner Wyoming, a trona ore mining operation and soda ash refinery in the Green River Basin of Wyoming. Ciner Resources LP, the Partnership's operating partner, mines the trona, processes it into soda ash, and distributes the soda ash both domestically and internationally to the glass and chemicals industries. The Partnership receives regular quarterly distributions from Ciner Wyoming.

Construction Aggregates—consists of the Partnership's construction aggregates materials business that operates hard rock quarries, an underground limestone mine, sand and gravel plants, asphalt plants and marine terminals. Construction Aggregates operates in Pennsylvania, West Virginia, Tennessee, Kentucky and Louisiana.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Direct segment costs and certain other costs incurred at the corporate level that are identifiable and that benefit the Partnership's segments are allocated to the operating segments accordingly. These allocated costs generally include: insurance, taxes, legal, information technology and shared facilities services and are included in Operating and maintenance expenses and Operating and maintenance expenses—affiliates on the Consolidated Statements of Comprehensive Income. Intersegment sales are at prices that approximate market and are eliminated on the Partnership's Consolidated Statements of Comprehensive Income.

Corporate and Financing includes functional corporate departments that do not earn revenues. Costs incurred by these departments include interest and financing, corporate headquarters and overhead, centralized treasury and accounting and other corporate-level activity not specifically allocated to a segment and are included in General and administrative expenses and General and administrative expenses—affiliates on the Consolidated Statements of Comprehensive Income.

The following table summarizes certain financial information for each of the Partnership's operating segments:



	Operating Segments
(In thousands)	Coal Royalty and Other		Soda Ash		Construction Aggregates			Corporate and Financing			Total
Three Months Ended September 30, 2018
Revenues (including affiliates)	$	49,371	$	8,836	$	36,648		$	—		$	94,855
Intersegment revenues (expenses)	58		—		(58		)	—			—
Gain on asset sales, net	—		—		163			—			163
Operating and maintenance expenses (including affiliates)	6,790		—		30,758			—			37,548
Depreciation, depletion and amortization	4,888		—		3,333			—			8,221
General and administrative (including affiliates)	—		—		—			3,183			3,183
Other expense, net	—		—		8			17,493			17,501
Net income (loss) from continuing operations	37,751		8,836		2,654			(20,676		)	28,565
Loss from discontinued operations	—		—		—			—			(24		)

Three Months Ended September 30, 2017
Revenues (including affiliates)	$	49,413	$	8,993	$	34,710		$	—		$	93,116
Intersegment revenues (expenses)	78		—		(78		)	—			—
Gain on asset sales, net	154		—		17			—			171
Operating and maintenance expenses (including affiliates)	6,348		—		28,247			—			34,595
Depreciation, depletion and amortization	5,305		—		3,001			—			8,306
General and administrative (including affiliates)	—		—		—			3,855			3,855
Other expense, net	—		—		59			19,973			20,032
Net income (loss) from continuing operations	37,992		8,993		3,342			(23,828		)	26,499
Loss from discontinued operations	—		—		—			—			(433		)

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)



	Operating Segments
(In thousands)	Coal Royalty and Other		Soda Ash		Construction Aggregates			Corporate and Financing			Total
Nine Months Ended September 30, 2018
Revenues (including affiliates)	$	152,150	$	34,986	$	104,209		$	—		$	291,345
Intersegment revenues (expenses)	173		—		(173		)	—			—
Gain on asset sales, net	819		—		214			—			1,033
Operating and maintenance expenses (including affiliates)	21,122		—		91,225			—			112,347
Depreciation, depletion and amortization	15,364		—		9,377			—			24,741
General and administrative (including affiliates)	—		—		—			10,782			10,782
Asset impairment	242		—		—			—			242
Other expense, net	—		—		28			53,177			53,205
Net income (loss) from continuing operations	116,414		34,986		3,620			(63,959		)	91,061
Loss from discontinued operations	—		—		—			—			(72		)

Nine Months Ended September 30, 2017
Revenues (including affiliates)	$	150,177	$	27,676	$	95,486		$	—		$	273,339
Intersegment revenues (expenses)	208		—		(208		)	—			—
Gain on asset sales, net	3,367		—		209			—			3,576
Operating and maintenance expenses (including affiliates)	19,151		—		80,866			—			100,017
Depreciation, depletion and amortization (including affiliates)	17,653		—		9,550			—			27,203
General and administrative (including affiliates)	—		—		—			13,940			13,940
Asset impairment	1,778		—		—			—			1,778
Other expense, net	—		—		632			74,878			75,510
Net income (loss) from continuing operations	115,170		27,676		4,439			(88,818		)	58,467
Loss from discontinued operations	—		—		—			—			(507		)

As of September 30, 2018
Total assets of continuing operations	$	968,312	$	242,901	$	196,684		$	3,049		$	1,410,946
Total assets of discontinued operations	—		—		—			—			988

As of December 31, 2017
Total assets of continuing operations	$	945,237	$	245,433	$	191,374		$	6,129		$	1,388,173
Total assets of discontinued operations	—		—		—			—			991

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

7. Equity Investment

The Partnership accounts for its 49% investment in Ciner Wyoming using the equity method of accounting. Activity related to this investment is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2018			2017			2018			2017
Balance at beginning of period	$	245,524		$	248,919		$	245,433		$	255,901
Income allocation to NRP’s equity interests	10,036			10,171			38,525			30,925
Amortization of basis difference	(1,200		)	(1,178		)	(3,539		)	(3,249		)
Comprehensive income (loss) from unconsolidated investment	791			(280		)	(768		)	(1,445		)
Distribution	(12,250		)	(12,250		)	(36,750		)	(36,750		)
Balance at end of period	$	242,901		$	245,382		$	242,901		$	245,382

The following table represents summarized financial information for Ciner Wyoming as derived from the respective unaudited financial statements for the three and nine months ended September 30, 2018 and 2017, respectively:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Sales	$	123,366	$	122,576	$	354,467	$	368,885
Gross profit	26,253		27,872		68,497		80,788
Net income	20,481		20,758		78,623		63,112

8. Plant and Equipment, Net

The Partnership’s plant and equipment consist of the following:



	September 30,			December 31,
(In thousands)	2018			2017
Plant and equipment	$	92,924		$	84,173
Construction in process	1,250			803
Less accumulated depreciation	(46,026		)	(38,806		)
Total plant and equipment, net	$	48,148		$	46,170

Depreciation expense included in Depreciation, depletion and amortization on the Partnership's Consolidated Statements of Comprehensive Income totaled $2.7 million and $2.4 million for the three months ended September 30, 2018 and 2017 and $7.7 million and $7.8 million for the nine months ended September 30, 2018 and 2017, respectively.

9. Mineral Rights, Net

The Partnership’s mineral rights consist of the following:



	September 30, 2018
(In thousands)	Carrying Value		Accumulated Depletion			Net Book Value
Coal properties	$	1,169,862	$	(447,561	)	$	722,301
Aggregates properties	150,642		(20,345		)	130,297
Oil and gas royalty properties	12,395		(7,514		)	4,881
Other	13,161		(1,534		)	11,627
Total mineral rights, net	$	1,346,060	$	(476,954	)	$	869,106

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)



	December 31, 2017
(In thousands)	Carrying Value		Accumulated Depletion			Net Book Value
Coal properties	$	1,170,104	$	(436,964	)	$	733,140
Aggregates properties	150,642		(16,836		)	133,806
Oil and gas royalty properties	12,395		(7,158		)	5,237
Other	13,168		(1,466		)	11,702
Total mineral rights, net	$	1,346,309	$	(462,424	)	$	883,885

Depletion expense related to the Partnership’s mineral rights is included in Depreciation, depletion and amortization on the Partnership's Consolidated Statements of Comprehensive Income and totaled $4.6 million and $5.0 million for the three months ended September 30, 2018 and 2017, respectively, and $14.5 million and $16.7 million for the nine months ended September 30, 2018 and 2017, respectively.

In October 2018, NRP and Foresight Energy LP ("Foresight Energy") settled litigation related to the Hillsboro/Deer Run mine that provided NRP with $25 million in consideration of disputed past due amounts, as well as the right to receive $11 million non-recoupable annual minimum payments through the end of 2033. NRP will also receive additional cash flow from royalties resulting from any future production at the Hillsboro/Deer Run mine. Refer to Note 15. Commitments and Contingencies—Legal —Foresight Energy Settlement for more information on this settlement. As of September 30, 2018, NRP had approximately 179 million tons of estimated reserves at the Hillsboro mine with a net book value of $235 million. The Partnership determined there was no impairment of these assets as of September 30, 2018. The Partnership is evaluating the impact of the settlement on the amount of expected future cash flows from minimums and future production royalties from its Hillsboro property. If the Partnership determines that it will be unable to generate sufficient cash flow from this asset, the carrying value of this asset would be impaired.

10. Intangible Assets, Net

The Partnership's intangible assets primarily consist of above-market coal transportation contracts with subsidiaries of Foresight Energy in which the Partnership receives throughput fees for the handling and transportation of coal. The Partnership's intangible assets also include permits, aggregates-related trade names and other agreements. The Partnership's intangible assets included on its Consolidated Balance Sheets are as follows:



	September 30,			December 31,
(In thousands)	2018			2017
Intangible assets	$	86,336		$	86,336
Less: accumulated amortization	(39,338		)	(36,782		)
Total intangible assets, net	$	46,998		$	49,554

Amortization expense included in Depreciation, depletion and amortization on the Partnership's Consolidated Statements of Comprehensive Income was $0.9 million and $0.9 million for the three months ended September 30, 2018 and 2017, respectively, and $2.6 million and $1.7 million for the nine months ended September 30, 2018 and 2017, respectively. Amortization expense included in amortization expense—affiliates on the Partnership's Consolidated Statements of Comprehensive Income was $1.0 million for the nine months ended September 30, 2017. As of May 9, 2017, Foresight Energy was no longer deemed to be an affiliate of the Partnership. Refer to Note 13. Related Party Transactions for additional details.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

11. Debt, Net

The Partnership's debt consists of the following:



	September 30,			December 31,
(In thousands)	2018			2017
NRP LP debt:
10.500% senior notes, with semi-annual interest payments in March and September, due March 2022, $241 million issued at par and $105 million issued at 98.75%	$	345,638		$	345,638
Opco debt:
Revolving credit facility	95,000			60,000
Senior notes
4.91% with semi-annual interest payments in June and December, with annual principal payments in June, due June 2018	—			4,586
8.38% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2019	21,334			42,670
5.05% with semi-annual interest payments in January and July, with annual principal payments in July, due July 2020	15,298			22,946
5.55% with semi-annual interest payments in June and December, with annual principal payments in June, due June 2023	13,429			16,115
4.73% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2023	44,693			44,693
5.82% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2024	89,589			104,520
8.92% with semi-annual interest payments in March and September, with annual principal payments in March, due March 2024	27,200			31,733
5.03% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2026	120,547			120,547
5.18% with semi-annual interest payments in June and December, with annual principal payments in December, due December 2026	34,396			34,396
Total debt at face value	$	807,124		$	827,844
Net unamortized debt discount	(1,365		)	(1,661		)
Net unamortized debt issuance costs	(14,044		)	(16,835		)
Total debt, net	$	791,715		$	809,348
Less: current portion of long-term debt	75,201			79,740
Total long-term debt, net	$	716,514		$	729,608

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

NRP LP Debt

2022 Senior Notes

As of September 30, 2018 and December 31, 2017, NRP and NRP Finance were in compliance with the terms of their debt agreements.

Opco Debt

All of Opco’s debt is guaranteed by its wholly owned subsidiaries and is secured by certain of the assets of Opco and its wholly owned subsidiaries other than NRP Trona LLC. As of September 30, 2018 and December 31, 2017, Opco was in compliance with the terms of the financial covenants contained in its debt agreements.

Opco Credit Facility

Opco’s Third Amended and Restated Credit Agreement, as amended (the "Opco Credit Facility"), matures on April 30, 2020. As of September 30, 2018, Opco had $95.0 million of indebtedness outstanding and $55.0 million in available borrowing capacity under the Opco Credit Facility. The commitments under the Opco Credit Facility will be reduced from $150 million to $100 million at December 31, 2018 and remaining at $100 million through maturity in April 2020.

The weighted average interest rates for the borrowings outstanding under the Opco Credit Facility for the three months ended September 30, 2018 and 2017 were 6.34% and 5.49%, respectively. The weighted average interest rates for the borrowings outstanding under the Opco Credit Facility for nine months ended September 30, 2018 and 2017 were 6.18% and 5.22%, respectively. Debt issue cost related to the Opco credit facility were $2.4 million and $4.6 million at September 30, 2018 and December 31, 2017, respectively, and have been capitalized and included in Other assets on the Partnership's Consolidated Balance Sheets.

The Opco Credit Facility is collateralized and secured by liens on certain of Opco’s assets with carrying values of $639.3 million and $649.7 million classified as Land, Plant and equipment and Mineral rights on the Partnership’s Consolidated Balance Sheet as of September 30, 2018 and December 31, 2017, respectively.

Opco Senior Notes

As of September 30, 2018 and December 31, 2017, the private placement senior notes ("Opco Senior Notes") had cumulative principal balances of $366.5 million and $422.2 million, respectively. Opco made mandatory principal payments of $55.7 million and $56.1 million during the nine months ended September 30, 2018 and September 30, 2017, respectively.

The 8.38% and 8.92% Opco Senior Notes also provide that in the event that Opco’s leverage ratio of consolidated indebtedness to consolidated EBITDDA (as defined in the Note Purchase Agreements) exceeds 3.75 to 1.00 at the end of any fiscal quarter, then in addition to all other interest accruing on these notes, additional interest in the amount of 2.00% per annum shall accrue on the notes for the two succeeding quarters and for as long thereafter as the leverage ratio remains above 3.75 to 1.00. Opco has not exceeded the 3.75 to 1.00 ratio at the end of any fiscal quarter through September 30, 2018.

12. Fair Value Measurements

Fair Value of Financial Instruments

The Partnership’s financial instruments consist of cash and cash equivalents, accounts receivable, contracts receivable, accounts payable, debt, Preferred Units and warrants. The carrying amounts reported on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the three and nine months ended September 30, 2018 or 2017.

The Partnership uses available market data and valuation methodologies to estimate the fair value of debt. The fair value of debt is the estimated amount the Partnership would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period end market rate. The credit spread is the Partnership's default or repayment risk.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

The following table shows the carrying amount and estimated fair value of the Partnership's debt and contracts receivable:



	September 30, 2018				December 31, 2017
(In thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Debt:
NRP 2022 Senior Notes ⁽¹⁾	$	333,119	$	370,697	$	330,404	$	366,376
Opco Senior Notes ⁽²⁾	363,596		393,056		418,944		447,538
Opco Revolving Credit Facility ⁽³⁾	95,000		95,000		60,000		60,000

Assets:
Contracts receivable, current and long-term ⁽⁴⁾	$	41,228	$	28,855	$	43,826	$	30,517


(1)	The Level 1 fair value is based upon quotations obtained for identical instruments on the closing trading prices near period end.


(2)	Due to no observable quoted prices on these instruments, the Level 3 fair value is estimated by management using quotations obtained for the NRP Senior Notes on the closing trading prices near period end.


(3)	The Level 3 fair value approximates the outstanding borrowing amount because the interest rates are variable and reflective of market rates and the terms of the credit facility allow the Partnership to repay this debt at any time without penalty.


(4)	The Level 3 fair value is determined based on the present value of future cash flow projections related to the underlying assets.

NRP has embedded derivatives in the Preferred Units related to certain conversion options, redemption features and the change of control provision that are accounted for separately from the Preferred Units as assets and liabilities at fair value on the Partnership's Consolidated Balance Sheets. Level 3 valuation of the embedded derivatives are based on numerous factors including the likelihood of the event occurring. The embedded derivatives are revalued quarterly and changes in their fair value would be recorded in other income (expense) in the Partnership's Consolidated Statements of Comprehensive Income. The embedded derivatives had zero value as of September 30, 2018 and December 31, 2017.

13. Related Party Transactions

Cline Affiliates and Foresight Energy L.P.

Mr. Chris Cline, both individually and through another affiliate, Adena Minerals, LLC ("Adena"), owned a 31% interest in NRP (GP) LP, NRP's general partner ("NRP GP"), through May 9, 2017. On May 9, 2017, Adena sold its 31% limited partner interest in NRP GP to Great Northern Properties Limited Partnership (“GNPLP”) and Western Pocahontas Properties Limited Partnership ("WPPLP") (the “Adena Sale”). GNPLP and WPPLP are companies controlled by Corbin J. Robertson, the Chairman and Chief Executive Officer of GP Natural Resource Partners LLC (the general partner of NRP GP) (“GP LLC”). Upon closing of this transaction, NRP no longer considers the various companies affiliated with Chris Cline, including Foresight Energy to be affiliates of NRP. As a result, all transactions (including revenues, expenses and cash flows) after May 9, 2017 with the various companies affiliated with Chris Cline, including Foresight Energy, are considered to be third party transactions.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Revenues and expenses related to transactions with Foresight Energy are included in the Partnership's Consolidated Statements of Comprehensive Income as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Revenues
Coal royalty and other	$	8,199	$	13,251	$	23,269	$	13,894
Coal royalty and other—affiliates	—		—		—		21,203
Transportation and processing services	6,836		5,571		17,187		9,717
Transportation and processing services—affiliate	—		—		—		6,013

Expenses
Operating and maintenance expense	$	478	$	415	$	1,290	$	700
Operating and maintenance expense—affiliates	—		—		—		452

Coal Royalty and Other Revenues

Various subsidiaries of Foresight Energy lease coal reserves from the Partnership. In addition, NRP owns a contractual overriding royalty interest at Foresight Energy's Sugar Camp mine in the Illinois Basin which provides for payments based upon production from specific tons at Foresight Energy's Sugar Camp operations on certain reserves owned by another affiliate of Chris Cline. This overriding royalty is accounted for as a financing arrangement. Revenues related to these transactions are included in Coal royalty and other revenues in the Partnership's Consolidated Statements of Comprehensive Income.

Transportation and Processing Services Revenues and Expenses

The Partnership owns transportation and processing infrastructure related to certain of its coal properties, including loadout and other transportation assets at Foresight Energy's Williamson and Macoupin mines in the Illinois Basin, for which it collects throughput fees. These fees are included in Transportation and processing services revenues in the Partnership's Consolidated Statements of Comprehensive Income.

NRP is responsible for operating and maintaining the rail load out transportation assets at the Williamson mine and subcontracts the operating responsibilities to a subsidiary of Foresight Energy. Expenses related to these operations are included in Operating and maintenance expenses in the Partnership's Consolidated Statements of Comprehensive Income.

In addition, NRP owns rail loadout and associated infrastructure at the Sugar Camp mine, an Illinois Basin mine also operated by a subsidiary of Foresight Energy LP. While the Partnership owns coal reserves at the Williamson and Macoupin mines, it does not own coal reserves at the Sugar Camp mine. The infrastructure at the Sugar Camp mine is leased to a subsidiary of Foresight Energy and NRP collects throughput fees, which are included in Transportation and processing services revenues in the Partnership's Consolidated Statements of Comprehensive Income.

NRP's Sugar Camp rail load out lease with a subsidiary of Foresight Energy is accounted for as a financing lease. The following table shows certain amounts related to NRP's Sugar Camp rail load out facility financing lease:



	September 30,		December 31,
(In thousands)	2018		2017
Projected remaining payments	$	67,727	$	71,452
Unearned income	25,872		28,366

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Reimbursements to Affiliates of our General Partner

The Partnership’s general partner does not receive any management fee or other compensation for its management of NRP. However, in accordance with the partnership agreement, the general partner and its affiliates are reimbursed for services provided to the Partnership and for expenses incurred on the Partnership’s behalf. Employees of Quintana Minerals Corporation ("QMC") and WPPLP, affiliates of the Partnership, provide their services to manage the Partnership's business. QMC and WPPLP charge the Partnership the portion of their employee salary and benefits costs related to their employee services provided to NRP. These QMC and WPPLP employee management service costs are presented as Operating and maintenance expenses—affiliates and General and administrative—affiliates on the Partnership's Consolidated Statements of Comprehensive Income. NRP also reimburses overhead costs incurred by its affiliates to manage the Partnership's business. These overhead costs include certain rent, legal, accounting, treasury, information technology, insurance, administration of employee benefits and other corporate services incurred by or on behalf of the Partnership’s general partner and its affiliates and are presented as Operating and maintenance expenses—affiliates and General and administrative—affiliates on the Partnership's Consolidated Statements of Comprehensive Income.

Direct general and administrative expenses charged to the Partnership by QMC and WPPLP are included in the Partnership's Consolidated Statement of Comprehensive Income as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2018		2017		2018		2017
Operating and maintenance expenses—affiliates	$	1,835	$	1,772	$	5,469	$	5,737
General and administrative—affiliates	934		1,207		2,714		3,183

During the three months ended September 30, 2018 and 2017, the Partnership recognized $0.6 million and $0.4 million in Operating and maintenance expenses—affiliates, respectively, on its Consolidated Statements of Comprehensive Income related to a non-participating production royalty payable to WPPLP pursuant to a conveyance agreement entered into in 2007 in which coal royalty revenues received from a third party by NRP are passed back to WPPLP. These charges were $3.5 million and $0.7 million during the nine months ended September 30, 2018 and 2017, respectively.

At December 31, 2017, the Partnership had Other assets—affiliate from WPPLP on its Consolidated Balance Sheets related to a non-production royalty receivable from WPPLP for overriding royalty interest of $0.2 million. The Partnership had Accounts payable—affiliates on its Consolidated Balance Sheets to QMC of $0.4 million and WPPLP of $0.2 million as of September 30, 2018 and to QMC of $0.4 million and WPPLP of $0.1 million as of December 31, 2017.

Quintana Capital Group GP, Ltd.

Corbin J. Robertson, Jr. is a principal in Quintana Capital Group GP, Ltd. ("Quintana Capital"), which controls several private equity funds focused on investments in the energy business. In connection with the formation of Quintana Capital, the Partnership adopted a formal conflicts policy that establishes the opportunities that will be pursued by the Partnership and those that will be pursued by Quintana Capital. The governance documents of Quintana Capital’s affiliated investment funds reflect the guidelines set forth in the Partnership's conflicts policy. At September 30, 2018, a fund controlled by Quintana Capital owned a substantial interest in Corsa Coal Corp. ("Corsa"), a coal mining company traded on the TSX Venture Exchange that was one of the Partnership’s lessees in Tennessee. During the three months ended June 30, 2018, Corsa assigned its lease with NRP to a third party and is no longer deemed a related party.

Coal related revenues from Corsa totaled $0.3 million for the three months ended September 30, 2017. Coal related revenues from Corsa totaled $0.4 million and $1.0 million for the nine months ended September 30, 2018 and 2017, respectively. At December 31, 2017, the Partnership had Accounts receivable—affiliates totaling $0.2 million from Corsa on its Consolidated Balance Sheet.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Quinwood Coal Company Royalty

In May 2017, a subsidiary of Alpha Natural Resources assigned two coal leases with us to Quinwood Coal Company ("Quinwood"), an entity wholly owned by Corbin J. Robertson III. In connection with this lease assignment, Quinwood forfeited the historical recoupable balance related to this property. As a result, NRP recognized $0.9 million of deferred minimum payments received in prior periods from a subsidiary of Alpha as Coal royalty and other—affiliates revenue on its Consolidated Statements of Comprehensive Income during the nine months ended September 30, 2017.

14. Major Customers

Revenues from customers that exceeded 10 percent of total revenues and other income for any of the periods presented below are as follows:



	Three Months Ended September 30,								Nine Months Ended September 30,
	2018				2017				2018				2017
(In thousands)	Revenues		Percent		Revenues		Percent		Revenues		Percent		Revenues		Percent
Foresight Energy	$	15,035	15.8	%	$	18,781	20.1	%	$	40,456	13.8	%	$	50,827	18.4	%

Revenues from Foresight Energy are included within the Partnership's Coal Royalty and Other segment.

15. Commitments and Contingencies

Legal

NRP is involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, Partnership management believes these claims will not have a material effect on the Partnership’s financial position, liquidity or operations. During the third quarter, NRP was also involved in the matters described below.

Anadarko Contingent Consideration Payment Dispute

In January 2013, NRP acquired a non-controlling 48.51% general partner interest in OCI Wyoming, L.P. ("OCI LP") and all of the preferred stock and a portion of the common stock of OCI Wyoming Co. ("OCI Co") (which in turn owned a 1% limited partner interest in OCI LP) from Anadarko Holding Company and its subsidiary, Big Island Trona Company (together, "Anadarko"). The remaining general partner interest in OCI LP and common stock of OCI Co were owned by subsidiaries of OCI Chemical Corporation. The acquisition agreement provided for additional contingent consideration of up to $50 million to be paid by NRP if certain performance criteria were met at OCI LP as defined in the purchase and sale agreement in any of the years 2013, 2014 or 2015. For those years, NRP paid an aggregate of $11.5 million to Anadarko in full satisfaction of these contingent consideration payment obligations.

In July 2013, pursuant to a series of transactions in connection with an initial public offering by a subsidiary of OCI Chemical Corporation, the ownership structure in OCI LP was simplified. In connection with such reorganization, NRP exchanged the stock of OCI Co for a limited partner interest in OCI LP. Following the reorganization, NRP's interest in OCI LP increased to 49%, consisting of both limited and general partner interests. The restructuring did not have any impact on the operations, revenues, management or control of OCI LP.

In July 2017, Anadarko filed a lawsuit against Opco and NRP Trona LLC alleging that the transactions conducted in 2013 triggered an acceleration of NRP's obligation under the purchase agreement with Anadarko to pay additional contingent consideration in full and demanded immediate payment of such amount, together with interest, court costs and attorneys’ fees. NRP does not believe the reorganization transactions triggered an obligation to pay any additional contingent consideration, and is vigorously defending this lawsuit. However, the ultimate outcome cannot be predicted with certainty given the early stage of this matter, and the Partnership estimates a possible range of loss between $0, if it prevails, and approximately $40 million plus interest, court costs and attorneys’ fees if Anadarko prevails and is awarded the full damages it seeks.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Foresight Energy Settlement

On October 19, 2018, NRP, through one of its subsidiaries, and Foresight Energy entered into a definitive agreement to settle the lawsuits regarding Foresight Energy’s Hillsboro/Deer Run mine and Macoupin/Shay mine (the “Settlement Agreement”). On October 31, 2018, the parties finalized definitive additional documentation pursuant to the Settlement Agreement, and NRP received an upfront payment of $25 million from Foresight Energy in consideration of disputed past due amounts. In addition, NRP and Foresight Energy have amended the coal mining lease with respect to the Deer Run mine to change the $30 million recoupable annual minimum royalty payments to $11 million non-recoupable annual minimum payments and extend the current lease term through the end of 2033. All claims will be dismissed in both the Hillsboro and Macoupin lawsuits. The dismissal of the Macoupin lawsuit has no net impact to the financial results as such amounts have been fully reserved in previous periods.

16. Unit-Based Compensation

2017 Long-Term Incentive Plan

In December 2017, the 2017 Long-Term Incentive Plan (the “2017 LTIP”) was approved and it became effective in January 2018. The 2017 LTIP authorizes 800,000 common units that are available for delivery by the Partnership pursuant to awards under the plan. The term is 10 years from the date of Board approval or, if earlier, the date the 2017 LTIP is terminated by the Board or the committee appointed by the Board to administer the 2017 LTIP, or the date all available common units available have been delivered. Common units delivered pursuant to the 2017 LTIP will consist, in whole or part, of (i) common units acquired in the open market, (ii) common units acquired from the Partnership (including newly issued units), any of our affiliates or any other person or (iii) any combination of the foregoing.

Employees, consultants and non-employee directors of the Partnership, the General Partner, GP LLC and their affiliates are generally eligible to receive awards under the 2017 LTIP. The 2017 LTIP provides for the issuance of a variety of equity-based grants, including grants of (i) options, (ii) unit appreciation rights, (iii) restricted units, (iv) phantom units, (v) cash awards, (vi) performance awards, (vii) distribution equivalent rights, and (viii) other unit-based awards. The plan is administered by the Compensation, Nominating and Governance Committee of the Board, which will determine the terms and conditions of awards granted under the 2017 LTIP. The Partnership recognizes forfeitures for any awards issued under this plan as they occur.

In connection with the phantom unit awards, the Compensation, Nominating and Governance Committee also granted tandem Distribution Equivalent Rights ("DERs"), which entitle the holders to receive distributions equal to the distributions paid on the Partnership’s common units between the date the units are granted and the vesting date. The DERs are payable in cash upon vesting but may be subject to forfeiture if the grantee ceases employment prior to vesting.

NATURAL RESOURCE PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(Unaudited)

Unit-Based Awards

Unit-based awards under the 2017 LTIP are generally issued to certain employees and non-employee directors of the Partnership. Awards granted to employees vest at the end of a three year period and awards granted to non-employee directors are immediately vested. Directors are given the option to take immediate issuance of the vested awards or defer such issuance until a later date. Upon deferral of issuance, such units will continue to accumulate DERs until issuance.

A summary of the activity during nine months ended September 30, 2018 is as follows:



(In thousands)	Common Units		Weighted Average Exercise Price
Outstanding at January 1, 2018	—		$	—
Granted	75		$	29.16
Fully vested and issued	(14	)	$	29.44
Forfeitures	—		$	—
Outstanding at September 30, 2018	61		$	29.10

The awards granted in the first quarter of 2018 were valued using the closing price of NRP's units as of the grant date. The grant date fair value of the 2017 LTIP awards granted during the period was $2.2 million, including awards granted to board members with a grant date fair value of $0.6 million which immediately vested and of which $0.4 million were issued. Total unit-based compensation expense associated with these awards was $0.2 million for the three months ended September 30, 2018 and $0.9 million for the nine months ended September 30, 2018 and is included in General and administrative expense and Operating and maintenance expense in the Partnership's Consolidated Statements of Comprehensive Income. The unamortized cost associated with unvested outstanding awards as of September 30, 2018 is $1.3 million, which is to be recognized over a weighted average period of 2.4 years.

17. Subsequent Events

The following represents material events that have occurred subsequent to September 30, 2018 through the time of the Partnership’s filing of its Quarterly Report on Form 10-Q with the SEC:

Settlement of Foresight Energy Disputes

On October 19, 2018, NRP and Foresight Energy settled both the Hillsboro and Macoupin lawsuits as disclosed in Note 15. Commitments and Contingencies.

Distributions Declared

In October 2018, the Board of Directors of GP Natural Resource Partners LLC declared a distribution of $0.45 per common unit to be paid by the Partnership on November 14, 2018 to common unitholders of record on November 7, 2018. In addition, the Board declared a distribution on NRP's 12.0% Class A Convertible Preferred Units with respect to the third quarter totaling $7.5 million in cash.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following review of operations for the three and nine month periods ended September 30, 2018 and 2017 should be read in conjunction with our Consolidated Financial Statements and the Notes included in this Form 10-Q and with the Consolidated Financial Statements, Notes and Management’s Discussion and Analysis included in the Natural Resource Partners LP Annual Report on Form 10-K for the year ended December 31, 2017.

As used herein, unless the context otherwise requires: "we," "our," "us" and the "Partnership" refer to Natural Resource Partners L.P. and, where the context requires, our subsidiaries. References to "NRP" and "Natural Resource Partners" refer to Natural Resource Partners L.P. only, and not to NRP (Operating) LLC or any of Natural Resource Partners L.P.’s subsidiaries. References to "Opco" refer to NRP (Operating) LLC, a wholly owned subsidiary of NRP, and its subsidiaries. NRP Finance Corporation ("NRP Finance") is a wholly owned subsidiary of NRP and a co-issuer with NRP on the 2022 senior notes.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Statements included in this 10-Q may constitute forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements which are also forward-looking statements. Such forward-looking statements include, among other things, statements regarding: our business strategy; our liquidity and access to capital and financing sources; our financial strategy; prices of and demand for coal, trona and soda ash, construction aggregates and other natural resources; estimated revenues, expenses and results of operations; the amount, nature and timing of capital expenditures; projected production levels by our lessees and our construction aggregates business; Ciner Wyoming LLC’s ("Ciner Wyoming's") trona mining and soda ash refinery operations; the impact of governmental policies, laws and regulations, as well as regulatory and legal proceedings involving us, and of scheduled or potential regulatory or legal changes; and global and U.S. economic conditions.

These forward-looking statements speak only as of the date hereof and are made based upon our current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. You should not put undue reliance on any forward-looking statements. See "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017 for important factors that could cause our actual results of operations or our actual financial condition to differ.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) from continuing operations less equity earnings from unconsolidated investment; plus (minus) net loss (income) attributable to non-controlling interest; plus total distributions from unconsolidated investment, interest expense, net, debt modification expense, loss on extinguishment of debt, depreciation, depletion and amortization and asset impairments.

Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income or loss, net income or loss attributable to partners, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. There are significant limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the effect of certain recurring items that materially affect our net income (loss), the lack of comparability of results of operations of different companies and the different methods of calculating Adjusted EBITDA reported by different companies. In addition, Adjusted EBITDA presented below is not calculated or presented on the same basis as Consolidated EBITDA as defined in our partnership agreement or Consolidated EBITDDA as defined in Opco's debt agreements. For a description of Opco's debt agreements, see Note 11. Debt, Net in the Notes to Consolidated Financial Statements included herein as well as "Item 8. Financial Statements and Supplementary Data—Note 13. Debt" in our Annual Report on Form 10-K for the year ended December 31, 2017 as for a description of Opco’s debt agreements.

Adjusted EBITDA is a supplemental performance measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis.

Distributable Cash Flow (Non-GAAP Financial Measure)

Our Distributable cash flow ("DCF") represents net cash provided by operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings, proceeds from sales of assets, including those included in discontinued operations, and return of long-term contract receivables (including affiliate); less maintenance capital expenditures and distributions to non-controlling interest. DCF is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. DCF may not be calculated the same for us as for other companies. In addition, DCF presented below is not calculated or presented on the same basis as Distributable cash flow as defined in our partnership agreement, which is used as a metric to determine whether we are able to increase quarterly distributions to our common unitholders. DCF is a supplemental liquidity measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess our ability to make cash distributions to our common and preferred unitholders and our general partner and repay debt.

Free Cash Flow (Non-GAAP Financial Measure)

Our Free cash flow ("FCF") represents net cash provided by operating activities of continuing operations plus distributions from unconsolidated investment in excess of cumulative earnings and return of long-term contract receivables (including affiliate); less maintenance and expansion capital expenditures, cash flow used in mitigation payments and acquisition costs classified as financing activities and distributions to non-controlling interest. FCF is calculated before mandatory debt repayments. FCF is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities. FCF may not be calculated the same for us as for other companies. FCF is a supplemental liquidity measure used by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess the Partnership's ability to make cash distributions to our common and preferred unitholders and our general partner and repay debt.

Introduction

The following discussion and analysis presents management's view of our business, financial condition and overall performance. Our discussion and analysis consists of the following subjects:

•Executive Overview

•Results of Operations

•Liquidity and Capital Resources

•Off-Balance Sheet Transactions

•Related Party Transactions

•Summary of Critical Accounting Estimates

•Recent Accounting Standards

Executive Overview

We are a diversified natural resource company engaged principally in the business of owning, operating, managing and leasing a portfolio of mineral properties in the United States, including interests in coal, soda ash from trona and other natural resources, and operating a construction aggregates business. Our common units trade on the New York Stock Exchange under the symbol "NRP".

Our business is organized into three operating segments:

Coal Royalty and Other—consists primarily of coal royalty properties and coal-related transportation and processing assets. Other assets include aggregates, industrial mineral and oil and gas royalty properties and timber. Our coal reserves are primarily located in Appalachia, the Illinois Basin and in the western United States. Our aggregates and industrial minerals are located in a number of states across the United States. Our oil and gas royalty assets are primarily located in Louisiana and Pennsylvania.

Soda Ash—consists of our 49% non-controlling equity interest in Ciner Wyoming, a trona ore mining operation and soda ash refinery, in the Green River Basin of Wyoming. Ciner Resources LP, our operating partner, mines the trona, processes it into soda ash and distributes the soda ash both domestically and internationally to the glass and chemicals industries. We receive quarterly distributions from Ciner Wyoming.

Construction Aggregates—consists of our construction aggregates materials business that operates hard rock quarries, an underground limestone mine, sand and gravel plants, asphalt plants and marine terminals. The construction aggregates business operates in Pennsylvania, West Virginia, Tennessee, Kentucky and Louisiana.

Our 2018 year-to-date financial results by segment for the nine months ended September 30, 2018 are as follows:



	Operating Segments
(In thousands)	Coal Royalty and Other		Soda Ash		Construction Aggregates			Corporate and Financing			Total
Revenues and other income	$	152,969	$	34,986	$	104,423		$	—		$	292,378
Net income (loss) from continuing operations	$	116,414	$	34,986	$	3,620		$	(63,959	)	$	91,061
Adjusted EBITDA ⁽¹⁾	$	131,510	$	36,750	$	13,025		$	(10,782	)	$	170,503

Cash flow provided by (used in) continuing operations
Operating activities	$	132,122	$	34,653	$	10,224		$	(68,982	)	$	108,017
Investing activities	$	3,432	$	2,097	$	(9,343	)	$	—		$	(3,814	)
Financing activities	$	—	$	—	$	(754	)	$	(69,889	)	$	(70,643	)
Distributable cash flow ⁽¹⁾	$	135,554	$	36,750	$	6,051		$	(68,982	)	$	109,373
Free cash flow ⁽¹⁾	$	134,728	$	36,750	$	(196	)	$	(68,982	)	$	102,300


(1)	See "Results of Operations" below for reconciliations to the most comparable GAAP financial measures.

Corporate and Financing includes functional corporate departments that do not earn revenues, such as interest and financing, corporate headquarters and overhead, centralized treasury and accounting and other corporate-level activity not specifically allocated to a segment.

Current Results/Market Commentary

Coal Royalty and Other Business Segment

Results in the first nine months of 2018 were driven by continued strength in both metallurgical and thermal coal markets. Metallurgical coal prices of all grades have been driven higher from 2017 levels due to worldwide steel production growth along with a muted supply response from metallurgical coal producers due to various constraints. Benefiting from higher metallurgical coal prices, we derived approximately 68% of our coal royalty revenues and approximately 57% of our coal royalty production from metallurgical coal during the nine months ended September 30, 2018. For the remainder of 2018, we are monitoring ongoing trade and tariff negotiations in order to assess the associated risk to global economic growth. We currently expect metallurgical coal markets to remain stable due to supportive steel industry fundamentals combined with logistical and operational supply constraints across the industry.

The domestic market for thermal coal has benefited from increased export demand from Asia, principally India, and northern Europe resulting in higher year over year prices in Central and Northern Appalachia. Utility coal stockpiles are materially below 5 year averages, which should provide additional positive pressure on domestic thermal coal prices in 2019 as utilities will be forced to enter the market and bid against export elevated coal prices to replenish their supply. Meanwhile, natural gas inventories are near 10 year lows which should similarly provide upward price support. In addition, we expect natural gas production growth to stabilize throughout 2019 due to capital discipline from producers and expected liquefied natural gas export growth. Higher natural gas prices are expected to increase domestic thermal coal’s competitiveness and increase coal burn, potentially helping to stabilize the domestic thermal market despite the long term trend of continued coal fired power plant retirements and increased availability of renewable power generation.

Soda Ash Business Segment

Ciner Wyoming's results are primarily affected by the global supply of and demand for soda ash, which in turn directly impacts the prices Ciner Wyoming and other producers charge for its products. Demand for soda ash in the United States is driven in a large part by economic growth and activity levels in the end markets that the glass-making industry serve, such as the automotive and construction industries. Because the United States is a well-developed market for soda ash, we expect that domestic demand will remain stable for the near future. Because future United States capacity growth is expected to come from the four major producers in the Green River Basin, we also expect that U.S. supply levels will remain relatively stable in the near term.

Soda ash demand in international markets has continued to grow in conjunction with GDP. We expect that future global economic growth will positively influence global demand, which will likely result in increased exports, primarily from the United States, Turkey and to a limited extent, from China, the largest suppliers of soda ash to international markets. However, in the near term, new supply coming on-line, primarily in Turkey, may exceed any new growth in demand and could have an impact on international pricing.

Construction Aggregates Business Segment

Our construction aggregates business is largely dependent on the strength of the local markets that it serves. In particular, key drivers of performance in the regions of our operations include: 1) natural gas drilling customers in the Marcellus shale, 2) traditional construction markets of Southwest Pennsylvania and Northern West Virginia, 3) energy-related and infrastructure spending in the Louisiana market, and 4) military spending and traditional construction markets in the Clarksville, Tennessee market. The business is also seasonal, with lower production and sales during the first quarter each year.

Results of Operations

Third Quarter of 2018 and 2017 Compared

Revenues and Other Income

The following table includes our revenues and other income by business segment for the three months ended September 30, 2018 and 2017:



	For the Three Months Ended September 30,				Increase (Decrease)			Percentage Change
Business Segment (In thousands)	2018		2017		Increase (Decrease)			Percentage Change
Coal Royalty and Other	$	49,371	$	49,567	$	(196	)	—	%
Soda Ash	8,836		8,993		(157		)	(2	)%
Construction Aggregates	36,811		34,727		2,084			6	%
Total	$	95,018	$	93,287	$	1,731		2	%

The changes in revenue and other income is discussed for each of our business segments below:

Coal Royalty and Other

The table below presents coal production, coal royalty revenue per ton and coal royalty revenues (including affiliates) by major coal producing region and the significant categories of other revenues:



	Three Months Ended September 30,					Increase (Decrease)			Percentage Change
(In thousands, except percent and per ton data)	2018			2017		Increase (Decrease)			Percentage Change
Coal production (tons)
Appalachia
Northern	349			226		123			54	%
Central	3,873			3,596		277			8	%
Southern	346			468		(122		)	(26	)%
Total Appalachia	4,568			4,290		278			6	%
Illinois Basin	609			794		(185		)	(23	)%
Northern Powder River Basin	855			849		6			1	%
Total coal production	6,032			5,933		99			2	%
Coal royalty revenue per ton
Appalachia
Northern	$	4.01		$	3.26	$	0.75		23	%
Central	5.37			4.77		0.60			13	%
Southern	6.82			5.73		1.09			19	%
Illinois Basin	4.89			4.32		0.57			13	%
Northern Powder River Basin	3.79			3.47		0.32			9	%
Combined average coal royalty revenue per ton	5.10			4.54		0.56			12	%
Coal royalty revenues
Appalachia
Northern	$	1,402		$	737	$	665		90	%
Central	20,786			17,154		3,632			21	%
Southern	2,359			2,683		(324		)	(12	)%
Total Appalachia	24,547			20,574		3,973			19	%
Illinois Basin	2,973			3,431		(458		)	(13	)%
Northern Powder River Basin	3,237			2,945		292			10	%
Unadjusted coal royalty revenue	30,757			26,950		3,807			14	%
Coal royalty adjustment for minimum leases⁽¹⁾	(48		)	—		(48		)	(100	)%
Total coal royalty revenue	$	30,709		$	26,950	$	3,759		14	%
Other revenues						—
Production lease minimum revenue ^{(1) (2)}	$	1,769		$	9,812	$	(8,043	)	(82	)%
Minimum lease straight-line revenue⁽¹⁾	567			—		567			100	%
Property tax revenue	1,263			513		750			146	%
Wheelage revenue	1,572			1,219		353			29	%
Coal overriding royalty revenue	3,918			3,059		859			28	%
Lease assignment fee	—			1,000		(1,000		)	(100	)%
Aggregates royalty revenues	888			817		71			9	%
Oil and gas royalty revenues	1,427			117		1,310			1,120	%
Other	405			356		49			14	%
Total other revenues	$	11,809		$	16,893	$	(5,084	)	(30	)%
Coal royalty and other	42,518			43,843		(1,325		)	(3	)%
Transportation and processing services	6,853			5,570		1,283			23	%
Gain on asset sales, net	—			154		(154		)	(100	)%
Total coal royalty and other segment revenues and other income	$	49,371		$	49,567	$	(196	)	—	%

(1)

These line items were impacted by the adoption of the new revenue recognition standard effective January 1, 2018. The total impact of the adoption of this standard in the three months ended September 30, 2018 was a net decrease of $3.2 million in coal royalty and other revenues. Refer to Note 1. Basis of Presentation for the overall impact of the adoption of the new revenue recognition standard on our consolidated financial statements and Note 2. Revenue from Contracts with Customers for further discussion on changes in our revenue recognition policies as a result of this adoption.

(2)

Production lease minimum revenue decreased in total by $8.0 million as compared to the prior year quarter. Of this decrease, $4.3 million was the result of higher revenue from the expiration of minimums recognized in the prior year period and $3.7 million was a result of the new revenue recognition standard, which included $5.0 million of expired minimums from minimum leases which is now recognized straight-line over the lease term in Minimum lease straight-line revenue, partially offset by $1.3 million of breakage revenue related to production leases.

Coal Royalty Revenue

Coal royalty revenues increased $3.8 million, or 14%, from $27.0 million in the three months ended September 30, 2017 to $30.7 million in the three months ended September 30, 2018. This increase is primarily driven by a $4.0 million increase in Appalachia as a result of higher metallurgical and thermal coal prices and higher metallurgical coal production, partially offset by lower thermal coal production.

Other Revenues

Total other revenues decreased $5.1 million, or 30%, from $16.9 million in the three months ended September 30, 2017 to $11.8 million in the three months ended September 30, 2018 as a result of the impact of the new revenue recognition standard as discussed above, partially offset by increased performance of our natural gas royalty properties.

Transportation and Processing Services

Transportation and processing services revenue increased $1.3 million, or 23%, from $5.6 million in the three months ended September 30, 2017 to $6.9 million in the three months ended September 30, 2018 driven by the increase in tons processed and transported using our assets at the Sugar Camp, Williamson, and Macoupin mines.

Construction Aggregates

The table below presents major sources of Construction Aggregates revenues:



	For the Three Months Ended September 30,				Increase (Decrease)			Percentage Change
(In thousands)	2018		2017		Increase (Decrease)			Percentage Change
Crushed stone, sand and gravel	$	16,618	$	16,724	$	(106	)	(1	)%
Delivery and fuel income	10,825		9,980		845			8	%
Other	2,955		2,849		106			4	%
Total construction aggregates revenues	$	30,398	$	29,553	$	845		3	%
Road construction and asphalt paving services	6,250		5,157		1,093			21	%
Gain on asset sales, net	163		17		146			859	%
Total construction aggregates revenues and other income	$	36,811	$	34,727	$	2,084		6	%

Total construction aggregates revenues and other income increased $2.1 million, or 6%, from $34.7 million in the three months ended September 30, 2017 to $36.8 million in the three months ended September 30, 2018. This increase is primarily due to higher road construction and asphalt paving project activity. While delivery and fuel income increased $0.8 million, this revenue was fully offset by higher delivery and fuel costs.

Operating and Other Expenses

The table below presents the significant categories of our consolidated operating and other expenses:



	For the Three Months Ended September 30,				Increase (Decrease)			Percentage Change
(In thousands)	2018		2017		Increase (Decrease)			Percentage Change
Operating expenses
Operating and maintenance expenses (including affiliates)	$	37,548	$	34,595	$	2,953		9	%
Depreciation, depletion and amortization (including affiliates)	8,221		8,306		(85		)	(1	)%
General and administrative (including affiliates)	3,183		3,855		(672		)	(17	)%
Total operating expenses	$	48,952	$	46,756	$	2,196		5	%

Other expense, net
Interest expense, net	$	17,501	$	20,032	$	(2,531	)	(13	)%
Total other expense, net	$	17,501	$	20,032	$	(2,531	)	(13	)%

Total operating expenses increased $2.2 million, or 5%, from $46.8 million in the three months ended September 30, 2017 to $49.0 million in the three months ended September 30, 2018. This increase is primarily related to the following:


•	Operating and maintenance expenses (including affiliate) increased $3.0 million, or 9% due to the following:

◦

Construction Aggregates segment operating and maintenance expenses include the costs to operate the segment and primarily consist of delivery and fuel, production costs, repair and maintenance, labor costs and utilities. Operating and maintenance costs for this segment increased $2.5 million, or 9%, from $28.2 million in the three months ended September 30, 2017 to $30.8 million in the three months ended September 30, 2018 primarily as a result of higher cost of materials and increased materials used due to increased construction and asphalt paving activity as well as higher delivery and labor costs.

◦

Coal Royalty and Other segment operating and maintenance expenses include costs to manage the segment and primarily consist of property taxes, legal, royalty and employee related costs. Operating and maintenance costs for this segment increased $0.4 million, or 7%, from $6.3 million in the three months ended September 30, 2017 to $6.8 million in the three months ended September 30, 2018 primarily as a result of increased legal and consulting fees related to the lawsuits regarding Foresight Energy’s Hillsboro/Deer Run mine and Macoupin/Shay mine in addition to higher property tax expense and increased overriding royalty interest fees, partially offset by $1.5 million of bad debt expense during the three months ended September 30, 2017 related to the write-off of a note receivable.


•	General and administrative (G&A) expense decreased $0.7 million, or 17%, primarily due to lower salaries and benefits and lower professional fees.

Total other expense, net decreased $2.5 million, or 13%, primarily due to decreased interest expense, net resulting from lower principal balances during the third quarter of 2018 as a result of debt repayments, partially offset by higher weighted average interest rates.

Adjusted EBITDA (Non-GAAP Financial Measure)

The following table reconciles net income (loss) from continuing operations (the most comparable GAAP financial measure) to Adjusted EBITDA by business segment for the three months ended September 30, 2018 and 2017:



	Operating Segments
For the Three Months Ended (in thousands)	Coal Royalty and Other		Soda Ash			Construction Aggregates		Corporate and Financing			Total
September 30, 2018
Net income (loss) from continuing operations	$	37,751	$	8,836		$	2,654	$	(20,676	)	$	28,565
Less: equity earnings from unconsolidated investment	—		(8,836		)	—		—			(8,836		)
Add: net loss attributable to non-controlling interest	359		—			—		—			359
Add: total distributions from unconsolidated investment	—		12,250			—		—			12,250
Add: interest expense, net	—		—			8		17,493			17,501
Add: depreciation, depletion and amortization	4,888		—			3,333		—			8,221
Adjusted EBITDA	$	42,998	$	12,250		$	5,995	$	(3,183	)	$	58,060

September 30, 2017
Net income (loss) from continuing operations	$	37,992	$	8,993		$	3,342	$	(23,828	)	$	26,499
Less: equity earnings from unconsolidated investment	—		(8,993		)	—		—			(8,993		)
Add: total distributions from unconsolidated investment	—		12,250			—		—			12,250
Add: interest expense, net	—		—			59		19,973			20,032
Add: depreciation, depletion and amortization	5,305		—			3,001		—			8,306
Adjusted EBITDA	$	43,297	$	12,250		$	6,402	$	(3,855	)	$	58,094

Total Consolidated Adjusted EBITDA was flat for the three months ended September 30, 2018 as compared to the same quarter of 2017. While Adjusted EBITDA decreased in our Coal Royalty and Other segment and Construction Aggregates segment as a result of the higher operating and maintenance expense as explained above, Corporate and Financing Adjusted EBITDA increased as a result of lower G&A costs, also discussed above.

Distributable Cash Flow and Free Cash Flow (Non-GAAP Financial Measures)

The following table presents the three major categories of the statement of cash flows by business segment:



	Operating Segments
For the Three Months Ended (in thousands)	Coal Royalty and Other		Soda Ash		Construction Aggregates			Corporate and Financing			Total
September 30, 2018
Cash flow provided by (used in) continuing operations
Operating activities	$	41,604	$	12,250	$	6,941		$	(27,368	)	$	33,427
Investing activities	1,590		—		(3,571		)	—			(1,981		)
Financing activities	—		—		(239		)	(20,795		)	(21,034		)

September 30, 2017
Cash flow provided by (used in) continuing operations
Operating activities	$	44,119	$	8,992	$	2,155		$	(29,466	)	$	25,800
Investing activities	676		3,258		(1,163		)	—			2,771
Financing activities	484		—		—			51,406			51,890

The following table reconciles net cash provided by operating activities (the most comparable GAAP financial measure) by business segment to Distributable cash flow ("DCF") and Free cash flow ("FCF") for the three months ended September 30, 2018 and 2017:



	Operating Segments
For the Three Months Ended (in thousands)	Coal Royalty and Other			Soda Ash		Construction Aggregates			Corporate and Financing			Total
September 30, 2018
Net cash provided by (used in) operating activities of continuing operations	$	41,604		$	12,250	$	6,941		$	(27,368	)	$	33,427
Add: proceeds from sale of assets	—			—		238			—			238
Add: return on long-term contract receivables	1,590			—		—			—			1,590
Less: maintenance capital expenditures	—			—		(1,473		)	—			(1,473		)
Distributable cash flow	$	43,194		$	12,250	$	5,706		$	(27,368	)	$	33,782
Less: proceeds from the sale of assets	—			—		(238		)	—			(238		)
Less: expansion capital expenditures	—			—		(2,336		)	—			(2,336		)
Less: mitigation payments and acquisition costs classified as financing activities	—			—		(239		)	—			(239		)
Free cash flow	$	43,194		$	12,250	$	2,893		$	(27,368	)	$	30,969

September 30, 2017
Net cash provided by (used in) operating activities of continuing operations	$	44,119		$	8,992	$	2,155		$	(29,466	)	$	25,800
Add: distributions from unconsolidated investment in excess of cumulative earnings	—			3,258		—			—			3,258
Add: proceeds from sale of assets	76			—		75			—			151
Add: return on long-term contract receivables	600			—		—			—			600
Less: maintenance capital expenditures	—			—		(926		)	—			(926		)
Distributable cash flow	$	44,795		$	12,250	$	1,304		$	(29,466	)	$	28,883
Less: proceeds from the sale of assets	(76		)	—		(75		)	—			(151		)
Less: expansion capital expenditures	—			—		(312		)	—			(312		)
Free cash flow	$	44,719		$	12,250	$	917		$	(29,466	)	$	28,420

DCF and FCF increased $4.9 million and $2.5 million, respectively, in the three months ended September 30, 2018 as compared to the three months ended September 30, 2017. This increase is due primarily to the following:


•	Coal Royalty and Other segment DCF and FCF decreased $1.6 million and $1.5 million, respectively, primarily as a result of the timing of payments.


•	Construction Aggregates segment DCF and FCF increased $4.4 million and $2.0 million, respectively, primarily due to the timing of certain operating payments, partially offset by increased capital expenditures.


•	Corporate and Financing DCF and FCF increased $2.1 million primarily as a result of interest payments made in 2017 on NRP's 9.125% Senior Notes, which were fully repaid in the fourth quarter of 2017.

Results of Operations

First Nine Months of 2018 and 2017 Compared

Revenues and Other Income

The following table shows our revenues and other income by business segment for the nine months ended September 30, 2018 and 2017:



	For the Nine Months Ended September 30,				Increase (Decrease)			Percentage Change
Business Segment (In thousands)	2018		2017		Increase (Decrease)			Percentage Change
Coal Royalty and Other	$	152,969	$	153,544	$	(575	)	—	%
Soda Ash	34,986		27,676		7,310			26	%
Construction Aggregates	104,423		95,695		8,728			9	%
Total	$	292,378	$	276,915	$	15,463		6	%

The changes in revenues and other income for each business segment are discussed below:

Coal Royalty and Other

The table below presents coal production, coal royalty revenue per ton and coal royalty revenues (including affiliates) derived from our major coal producing regions and the significant categories of other revenues:



	For the Nine Months Ended September 30,					Increase (Decrease)			Percentage Change
(In thousands, except per ton data)	2018			2017		Increase (Decrease)			Percentage Change
Coal production (tons)
Appalachia
Northern	1,490			1,672		(182		)	(11	)%
Central	11,582			11,193		389			3	%
Southern	1,288			1,721		(433		)	(25	)%
Total Appalachia	14,360			14,586		(226		)	(2	)%
Illinois Basin	2,091			3,545		(1,454		)	(41	)%
Northern Powder River Basin	2,896			2,708		188			7	%
Total coal production	19,347			20,839		(1,492		)	(7	)%
Coal royalty revenue per ton
Appalachia
Northern	$	3.82		$	1.36	$	2.46		181	%
Central	5.57			5.09		0.48			9	%
Southern	6.98			5.95		1.03			17	%
Illinois Basin	4.56			3.68		0.88			24	%
Northern Powder River Basin	2.70			2.89		(0.19		)	(7	)%
Combined average coal royalty revenue per ton	4.99			4.34		0.65			15	%
Coal royalty revenues
Appalachia
Northern	$	5,698		$	2,279	$	3,419		150	%
Central	64,538			57,027		7,511			13	%
Southern	8,985			10,242		(1,257		)	(12	)%
Total Appalachia	79,221			69,548		9,673			14	%
Illinois Basin	9,533			13,055		(3,522		)	(27	)%
Northern Powder River Basin	7,817			7,827		(10		)	—	%
Unadjusted coal royalty revenue	96,571			90,430		6,141			7	%
Coal royalty adjustment for minimum leases ⁽¹⁾	(98		)	—		(98		)	(100	)%
Total coal royalty revenue	$	96,473		$	90,430	$	6,043		7	%
Other revenues
Production lease minimum revenue ^{(1) (2)}	$	6,310		$	22,556	$	(16,246	)	(72	)%
Minimum lease straight-line revenue ^{(1) (2)}	1,739			—		1,739			100	%
Property tax revenue	3,968			4,311		(343		)	(8	)%
Wheelage revenue	5,155			3,510		1,645			47	%
Coal overriding royalty revenue	10,492			5,769		4,723			82	%
Lease assignment fee	—			1,000		(1,000		)	(100	)%
Aggregates royalty revenues	3,551			3,513		38			1	%
Oil and gas royalty revenues	5,679			2,532		3,147			124	%
Other	1,545			827		718			87	%
Total other revenues	$	38,439		$	44,018	$	(5,579	)	(13	)%
Coal royalty and other	134,912			134,448		464			—	%
Transportation and processing services	17,238			15,729		1,509			10	%
Gain on asset sales, net	819			3,367		(2,548		)	(76	)%
Total coal royalty and other segment revenues and other income	$	152,969		$	153,544	$	(575	)	—	%

(1)

These line items were impacted by the adoption of the new revenue recognition standard in the first quarter of 2018. The total impact of the adoption of this standard in the nine months ended September 30, 2018 was a net decrease of $9.6 million in coal royalty and other revenues. Refer to Note 1. Basis of Presentation for the overall impact on our consolidated financial statements and Note 2. Revenue from Contracts with Customers for further discussion on changes in our revenue recognition policies.

(2)

Production lease minimum revenue decreased in total by $16.2 million year-over-year. Of this decrease, $5.0 million was the result of higher revenue from the expiration of minimums recognized in the prior year and $11.2 million was a result of the new revenue recognition standard, which included $16.7 million of expired minimums from minimum leases which is now recognized straight-line over the entire lease term in Minimum lease straight-line revenue, partially offset by $5.5 million in breakage revenue related to production leases.

Coal Royalty Revenue

Coal royalty revenues increased $6.0 million, or 7%, from $90.4 million in the nine months ended September 30, 2017 to $96.5 million in the nine months ended September 30, 2018 primarily driven by the following:


•	Appalachia: Coal royalty revenue increased $9.7 million in this region as a result of higher metallurgical and thermal coal prices and higher metallurgical coal production as a result of increased demand, partially offset by lower thermal coal production as a result of the availability of qualified labor and lessee's capital constraints which limits their ability to increase production.

•

Illinois Basin: Despite a 24% increase in coal royalty price per ton, a 41% decrease in production in this region led to a net $3.5 million decrease in coal royalty revenue. The decreased production was primarily a result of the temporary relocation of certain production off of NRP's coal reserves. However, the decrease in coal royalty revenue was more than offset by a $4.9 million increase in overriding royalty revenue and wheelage primarily associated with the production of non-NRP coal.

Other Revenues

Total other revenues decreased $5.6 million, or 13%, from $44.0 million in the nine months ended September 30, 2017 to $38.4 million in the nine months ended September 30, 2018 primarily as a result of the impact of the new revenue recognition standard as discussed above, partially offset by the temporary relocation of certain production off of NRP's coal reserves in the Illinois Basin in exchange for overriding royalty revenue and wheelage from the production of non-NRP coal as described above in addition to increased performance of our natural gas royalty properties.

Transportation and Processing Services

Transportation and processing services revenue increased $1.5 million, or 10%, from $15.7 million in the nine months ended September 30, 2017 to $17.2 million in the nine months ended September 30, 2018 primarily driven by the increase in tons processed and transported using our assets at the Williamson and Sugar Camp mines.

Gain on Asset Sales, Net

Gain on asset sales, net for the segment decreased $2.5 million, or 76%, in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Asset sale gains during the nine months ended September 30, 2017 included sales of aggregates royalty properties and condemnation payments for a net gain of $3.4 million. There were no material sales during the nine months ended September 30, 2018.

Soda Ash

Revenues and other income related to our Soda Ash segment increased $7.3 million, or 26%, from $27.7 million in the nine months ended September 30, 2017 to $35.0 million in the nine months ended September 30, 2018. This increase was primarily as a result of Ciner Wyoming's litigation settlement of a royalty dispute that resulted in $12.7 million of income, partially offset by a $5.4 million decrease primarily due to lower production and sales resulting from unexpected repairs during scheduled outages encountered and resolved during the second quarter of 2018 and lower production during the third quarter of 2018 primarily due to ore grade degradation.

Construction Aggregates

The table below presents the major sources of Construction Aggregates revenues:



	For the Nine Months Ended September 30,				Increase (Decrease)			Percentage Change
(In thousands)	2018		2017		Increase (Decrease)			Percentage Change
Crushed stone, sand and gravel	$	48,427	$	44,379	$	4,048		9	%
Delivery and fuel income	32,587		27,822		4,765			17	%
Other	10,041		10,198		(157		)	(2	)%
Total construction aggregates revenues	$	91,055	$	82,399	$	8,656		11	%
Road construction and asphalt paving services	13,154		13,087		67			1	%
Gain on asset sales, net	214		209		5			2	%
Total construction aggregates revenues and other income	$	104,423	$	95,695	$	8,728		9	%

Total construction aggregates revenues and other income increased $8.7 million, or 9%, from $95.7 million in the nine months ended September 30, 2017 to $104.4 million in the nine months ended September 30, 2018. Crushed stone, sand and gravel revenues increased $4.0 million primarily due to increased construction project and energy sector activity. While delivery and fuel income increased $4.8 million, this revenue was fully offset by higher delivery and fuel costs.

Operating and Other Expenses

The table below presents the significant categories of our consolidated operating and other expenses:



	For the Nine Months Ended September 30,				Increase (Decrease)			Percentage Change
(In thousands)	2018		2017		Increase (Decrease)			Percentage Change
Operating expenses
Operating and maintenance expenses (including affiliates)	$	112,347	$	100,017	$	12,330		12	%
Depreciation, depletion and amortization (including affiliates)	24,741		27,203		(2,462		)	(9	)%
General and administrative (including affiliates)	10,782		13,940		(3,158		)	(23	)%
Asset impairments	242		1,778		(1,536		)	(86	)%
Total operating expenses	$	148,112	$	142,938	$	5,174		4	%

Other expense, net
Interest expense, net	$	53,205	$	63,464	$	(10,259	)	(16	)%
Debt modification expense	—		7,939		(7,939		)	(100	)%
Loss on extinguishment of debt	—		4,107		(4,107		)	(100	)%
Total other expense, net	$	53,205	$	75,510	$	(22,305	)	(30	)%

Total operating expenses increased $5.2 million, or 4%, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 due to the following:


•	Operating and maintenance expenses (including affiliate) increased $12.3 million, or 12%, from $100.0 million in the nine months ended September 30, 2017 to $112.3 million in the nine months ended September 30, 2018.

◦

Construction Aggregates segment operating and maintenance expenses increased $10.4 million, or 13%, from $80.9 million in the nine months ended September 30, 2017 to $91.2 million in the nine months ended September 30, 2018 primarily as a result of higher delivery, materials and labor costs from the increased production activity, higher repair and maintenance expense due to timing of repairs and higher fuel costs as a result of increased diesel prices.


◦	Coal Royalty and Other segment operating and maintenance expenses increased $2.0 million, or 10%, from $19.2 million in the nine months ended September 30, 2017 to $21.1 million in the nine months ended September 30, 2018 primarily as a result of increased overriding royalty interest fees partially offset by lower property tax expense.


•	DD&A expense decreased primarily due to lower coal production in the Illinois Basin.


•	G&A expense decreased primarily due to performance-based awards that vested in March 2017 following the completion of our recapitalization transactions, partially offset by expense related to equity awards that were granted in 2018 in addition to the increased expense related to our long-term incentive awards as a result of an increase in our unit-price.


•	Asset impairments in the nine months ended September 30, 2017 related to our timber assets. There were no material asset impairments in the nine months ended September 30, 2018.

Total other expense, net decreased $22.3 million, or 30%, for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 due to the following:


•	Interest expense, net decreased primarily due to lower debt balances during the first half of 2018 as a result of progress made to repay debt partially offset by higher weighted average interest rates.


•	Debt modification expense in the nine months ended September 30, 2017 resulted from the exchange of $241 million of our 2018 Senior Notes for 2022 Senior Notes.


•	Loss on extinguishment of debt in the nine months ended September 30, 2017 resulted from the 4.563% premium paid to redeem the 2018 Senior Notes in April 2017.

Adjusted EBITDA (Non-GAAP Financial Measure)

The following table reconciles net income (loss) from continuing operations (the most comparable GAAP financial measure) to Adjusted EBITDA by business segment for the nine months ended September 30, 2018 and 2017:



	Operating Segments
For the Nine Months Ended (In thousands)	Coal Royalty and Other			Soda Ash			Construction Aggregates		Corporate and Financing			Total
September 30, 2018
Net income (loss) from continuing operations	$	116,414		$	34,986		$	3,620	$	(63,959	)	$	91,061
Less: equity earnings from unconsolidated investment	—			(34,986		)	—		—			(34,986		)
Less: net income attributable to non-controlling interest	(510		)	—			—		—			(510		)
Add: total distributions from unconsolidated investment	—			36,750			—		—			36,750
Add: interest expense, net	—			—			28		53,177			53,205
Add: depreciation, depletion and amortization	15,364			—			9,377		—			24,741
Add: asset impairments	242			—			—		—			242
Adjusted EBITDA	$	131,510		$	36,750		$	13,025	$	(10,782	)	$	170,503

September 30, 2017
Net income (loss) from continuing operations	$	115,170		$	27,676		$	4,439	$	(88,818	)	$	58,467
Less: equity earnings from unconsolidated investment	—			(27,676		)	—		—			(27,676		)
Add: total distributions from unconsolidated investment	—			36,750			—		—			36,750
Add: interest expense, net	—			—			632		62,832			63,464
Add: debt modification expense	—			—			—		7,939			7,939
Add: loss on extinguishment of debt	—			—			—		4,107			4,107
Add: depreciation, depletion and amortization	17,653			—			9,550		—			27,203
Add: asset impairments	1,778			—			—		—			1,778
Adjusted EBITDA	$	134,601		$	36,750		$	14,621	$	(13,940	)	$	172,032

Adjusted EBITDA decreased $1.5 million, or 1%, from $172.0 million in the nine months ended September 30, 2017 to $170.5 million in the nine months ended September 30, 2018 primarily as a result of the following:


•	Coal Royalty and Other Adjusted EBITDA decreased $3.1 million primarily as a result of the decrease in other segment revenues, including gain on sale of assets and increased operating and maintenance expenses as discussed above. These decreases were partially offset by the increase in coal royalty and transportation and processing services revenues as discussed above.


•	Construction Aggregates segment Adjusted EBITDA decreased $1.6 million as a result of the increase in operating expenses as discussed above, partially offset by higher production and sales of crushed stone, gravel and sand.


•	Corporate and Financing Adjusted EBITDA increased $3.2 million as a result of the decrease in general and administrative expenses as discussed above.

Distributable Cash Flow and Free Cash Flow (Non-GAAP Financial Measure)

The following table presents the three major categories of the statement of cash flows by business segment:



	Operating Segments
For the Nine Months Ended (In thousands)	Coal Royalty and Other		Soda Ash		Construction Aggregates			Corporate and Financing			Total
September 30, 2018
Cash flow provided by (used in) continuing operations
Operating activities	$	132,122	$	34,653	$	10,224		$	(68,982	)	$	108,017
Investing activities	3,432		2,097		(9,343		)	—			(3,814		)
Financing activities	—		—		(754		)	(69,889		)	(70,643		)

September 30, 2017
Cash flow provided by (used in) continuing operations
Operating activities	$	120,588	$	31,104	$	11,677		$	(81,975	)	$	81,394
Investing activities	3,570		5,646		(5,776		)	—			3,440
Financing activities	517		—		(1,096		)	(3,382		)	(3,961		)

The following table reconciles net cash provided by operating activities (the most comparable GAAP financial measure) by business segment to DCF and FCF:



	Operating Segments
For the Nine Months Ended (In thousands)	Coal Royalty and Other			Soda Ash		Construction Aggregates			Corporate and Financing			Total
September 30, 2018
Net cash provided by (used in) operating activities of continuing operations	$	132,122		$	34,653	$	10,224		$	(68,982	)	$	108,017
Add: distributions from unconsolidated investment in excess of cumulative earnings	—			2,097		—			—			2,097
Add: proceeds from sale of assets	826			—		323			—			1,149
Add: return on long-term contract receivables	2,606			—		—			—			2,606
Less: maintenance capital expenditures	—			—		(4,496		)	—			(4,496		)
Distributable cash flow	$	135,554		$	36,750	$	6,051		$	(68,982	)	$	109,373
Less: proceeds from the sale of assets	(826		)	—		(323		)	—			(1,149		)
Less: expansion capital expenditures	—			—		(5,170		)	—			(5,170		)
Less: mitigation payments and acquisition costs classified as financing activities	—			—		(754		)	—			(754		)
Free cash flow	$	134,728		$	36,750	$	(196	)	$	(68,982	)	$	102,300

September 30, 2017
Net cash provided by (used in) operating activities of continuing operations	$	120,588		$	31,104	$	11,677		$	(81,975	)	$	81,394
Add: return of equity from unconsolidated investment	—			5,646		—			—			5,646
Add: proceeds from sale of assets	959			—		460			—			1,419
Add: return on long-term contract receivables	2,611			—		—			—			2,611
Less: maintenance capital expenditures	—			—		(5,310		)	—			(5,310		)
Distributable cash flow	$	124,158		$	36,750	$	6,827		$	(81,975	)	$	85,760
Less: proceeds from the sale of assets	(959		)	—		(460		)	—			(1,419		)
Less: expansion capital expenditures	—			—		(926		)	—			(926		)
Less: mitigation payments and acquisition costs classified as financing activities	—			—		(1,096		)	—			(1,096		)
Free cash flow	$	123,199		$	36,750	$	4,345		$	(81,975	)	$	82,319

DCF and FCF increased $23.6 million and $20.0 million, respectively, in the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017. This increase is due primarily to the following:


•	Coal Royalty and Other segment DCF and FCF increased $11.4 million and $11.5 million, respectively, as a result of the timing of cash receipts from both coal royalty production and minimums and property tax reimbursements.


•	Construction Aggregates segment DCF and FCF decreased $0.8 million and $4.5 million, respectively, primarily due to the timing of certain operating payments. The decrease in FCF was impacted by increased expansion capital expenditures as a result of a new project that began in 2018.


•	Corporate and Financing DCF and FCF increased $13.0 million primarily as a result of lower G&A payments and lower cash paid for interest year-over-year.

Liquidity and Capital Resources

Current Liquidity

As of September 30, 2018, we had total liquidity of $118.4 million, consisting of $63.4 million of cash and cash equivalents and $55.0 million in borrowing capacity under our Opco Credit Facility. We remain focused on further reducing our debt and improving our liquidity metrics.

Cash Flows

Cash flows provided by operating activities increased $26.8 million, from $80.8 million in the nine months ended September 30, 2017 to $107.5 million in the nine months ended September 30, 2018 primarily related to lower G&A payments primarily as a result of the payment of the performance-based awards in 2017 following the completion of our recapitalization transactions, lower cash paid for interest on our debt and increased operating cash flows in our Coal Royalty and Other segment as a result of the timing of cash receipts from both coal royalty production and minimums and property tax reimbursements. These increased cash flows were partially offset by lower cash provided by operating activities in our Construction Aggregates segment primarily due to the timing of certain operating payments.

Cash flows used in investing activities increased $7.5 million, from $3.6 million provided in the nine months ended September 30, 2017 to $3.8 million used in the nine months ended September 30, 2018 primarily due to a smaller portion of our distribution from Ciner Wyoming classified as an investing activity year-over-year in addition to higher capital expenditures within our Construction Aggregates segment.

Cash flows used in financing activities increased $66.6 million, from $3.6 million in the nine months ended September 30, 2017 to $70.2 million in the nine months ended September 30, 2018 primarily due to the decrease in debt repayments year-over-year and the debt issue costs incurred in the first quarter of 2017 related to the March 2017 recapitalization transactions. These decreases in cash outflows were partially offset by the proceeds received related to the March 2017 recapitalization transactions, lower borrowings on our credit facility year-over-year, a $17.7 million increase in preferred unit distributions and the $8.8 million PIK Unit redemption in the nine months ended September 30, 2018.

Capital Expenditures

On an annual basis, we generally fund most of our capital expenditures, excluding any significant property acquisitions, with cash generated from operations, and if required, borrowings under our revolving credit facility. We budget these expenditures based on our projected cash flows for the year. A portion of the capital expenditures associated with our construction aggregates segment are maintenance capital expenditures, which are capital expenditures made to maintain the long-term production capacity of those businesses. Expansion capital expenditures are made to increase productive capacity.

Capital Resources and Obligations

Debt

We had the following debt outstanding as of September 30, 2018 and December 31, 2017:



(In thousands)	September 30, 2018		December 31, 2017
Current portion of long-term debt, net	$	75,201	$	79,740
Long-term debt, net	716,514		729,608
Total debt, net	$	791,715	$	809,348

We have been and continue to be in compliance with the terms of the financial covenants contained in our debt agreements. For additional information regarding our debt and the agreements governing our debt, including the covenants contained therein, see Note 11. Debt, Net to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Off-Balance Sheet Transactions

We do not have any off-balance sheet arrangements with unconsolidated entities or related parties and accordingly, there are no off-balance sheet risks to our liquidity and capital resources from unconsolidated entities.

Related Party Transactions

The information required set forth under Note 13. Related Party Transactions to the consolidated financial statements is incorporated herein by reference.

Summary of Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 include estimates surrounding our implementation of the new revenue recognition standard. We evaluate the total cash flows expected under each lease to determine the likelihood that consideration received from our lessees resulting from coal production would exceed consideration received from minimum payments over the lease term. As a result of the evaluation, we either recognize revenue on our coal and aggregates royalty leases based on production or minimum payments as further described in Note 2. Revenue from Contracts with Customers.

Recent Accounting Standards

The information set forth under Note 1. Basis of Presentation to the consolidated financial statements is incorporated herein by reference.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, which includes adverse changes in commodity prices and interest rates as discussed below:

Commodity Price Risk

We are dependent upon the effective marketing of the coal mined by our lessees. Our lessees sell the coal under various long-term and short-term contracts as well as on the spot market. Current conditions in the coal industry may make it difficult for our lessees to extend existing contracts or enter into supply contracts with terms of one year or more. Our lessees’ failure to negotiate long-term contracts could adversely affect the stability and profitability of our lessees’ operations and adversely affect our coal royalty revenues. If more coal is sold on the spot market, coal royalty revenues may become more volatile due to fluctuations in spot coal prices.

We also have market risk related to prices for our aggregates products, and those prices are primarily driven by economic conditions in the local markets in which the products are sold.

The market price of soda ash and energy costs directly affects the profitability of Ciner Wyoming’s operations. If the market price for soda ash declines, Ciner Wyoming’s sales will decrease. Historically, the global market and, to a lesser extent, the domestic market for soda ash have been volatile and are likely to remain volatile in the future. In order to mitigate the risk of energy cost fluctuations, Ciner Wyoming hedges a portion of its forecasted natural gas purchases by entering into physical or financial hedges.

Interest Rate Risk

Our exposure to changes in interest rates results from our borrowings under the Opco Credit Facility, which is subject to variable interest rates based upon LIBOR. At September 30, 2018, we had $95.0 million outstanding in variable interest rate debt. If interest rates were to increase by 1%, annual interest expense would increase approximately $1.0 million, assuming the same principal amount remained outstanding during the year.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

NRP carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of NRP management, including the Chief Executive Officer and Chief Financial Officer of the general partner of the general partner of NRP. This evaluation is performed to determine if our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

During the third quarter of 2018, the Partnership identified a non-cash error related to the modified retrospective adoption of ASC 606 on January 1, 2018 and determined that this error constituted a material weakness in the Partnership’s internal control over financial reporting, as described below. Based upon that discovery, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the last day of the period covered by this report.

The material weakness in internal control over financial reporting primarily resulted from a deficiency in the design and operating effectiveness of a key control to ensure complete and accurate adoption of ASC 606. Specifically, in evaluating its contracts for revenue recognition, NRP identified certain coal and aggregates royalty leases as minimum leases that should have been classified as production leases. As a result, the Partnership incorrectly accelerated the recognition of deferred revenue, resulting in an overstatement of the transition adjustment to the opening balance of Partners' capital and revenue.

To remediate the material weakness described above, we have enhanced and revised the design of the existing ASC 606 adoption control and procedures to properly determine lease classification, modified retrospective adoption and the ongoing recognition of revenue under ASC 606. During the fourth quarter of 2018, the Partnership successfully performed and tested the enhanced control on all of its coal and aggregates royalty leases and concluded that the material weakness has been remediated.

Notwithstanding the material weakness, management, including our Chief Executive Officer and Chief Financial Officer, believes the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

Changes in the Partnership’s Internal Control Over Financial Reporting

Except as noted above, there were no material changes in the Partnership’s internal control over financial reporting during the first nine months of 2018 that materially affected, or were reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, we believe these claims will not have a material effect on our financial position, liquidity or operations.

For more information regarding certain other legal proceedings involving the Partnership, including the lawsuits involving Anadarko and Foresight, see Note 15. Commitments and Contingencies to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS

During the period covered by this report there were no material changes from the risk factors previously disclosed in Natural Resource Partners L.P.’s Annual Report on Form 10-K for the year ended December 31, 2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by SEC regulations is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



Exhibit Number		Description
2.1		Purchase Agreement, dated as of January 23, 2013, by and among Anadarko Holding Company, Big Island Trona Company, NRP Trona LLC and NRP (Operating) LLC (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on January 25, 2013).
3.1		Fifth Amended and Restated Agreement of Limited Partnership of Natural Resource Partners L.P., dated as of March 2, 2017 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on March 6, 2017).
3.2		Fifth Amended and Restated Agreement of Limited Partnership of NRP (GP) LP, dated as of December 16, 2011 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on December 16, 2011).
3.3		Fifth Amended and Restated Limited Liability Company Agreement of GP Natural Resource Partners LLC, dated as of October 31, 2013 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on October 31, 2013).
3.4		Certificate of Limited Partnership of Natural Resource Partners L.P.(incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed April 19, 2002, File No. 333-86582).
10.1		Settlement Agreement dated October 19, 2018 by and among WPP LLC and Foresight Energy LP (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the Quarter ended September 30, 2018 filed by Foresight Energy LP on November 7, 2018).
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley.
32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.
95.1*		Mine Safety Disclosure.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*		Filed herewith
**		Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned and thereunto duly authorized.



	NATURAL RESOURCE PARTNERS L.P.
	By:	NRP (GP) LP, its general partner
	By:	GP NATURAL RESOURCE
		PARTNERS LLC, its general partner

Date: November 9, 2018
	By:	/s/ CORBIN J. ROBERTSON, JR.
		Corbin J. Robertson, Jr.
		Chairman of the Board and
		Chief Executive Officer
		(Principal Executive Officer)



Date: November 9, 2018
	By:	/s/ CHRISTOPHER J. ZOLAS
		Christopher J. Zolas
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)

Date: November 9, 2018
	By:	/s/ JENNIFER L. ODINET
		Jennifer L. Odinet
		Chief Accounting Officer
		(Principal Accounting Officer)