Related-Party Transactions | 13. Related-Party Transactions The chairman of our general partner’s board of directors and the controlling member of Foresight Reserves, Chris Cline, directly and indirectly beneficially owns a 31% and 4% interest in the general and limited partner interests of NRP, respectively. Additionally, Donald R. Holcomb, who served as a director on NRP’s board through April 2016, is the member for the Cline Trust Company LLC, which owns 20.3 million of the Partnership’s common units. We routinely engage in transactions in the normal course of business with NRP and its subsidiaries and Foresight Reserves and its affiliates. These transactions include production royalties, transportation services, administrative arrangements, coal handling and storage services, supply agreements, service agreements, land leases and sale-leaseback financing arrangements (see Note 11, sale-leaseback financing arrangements are excluded from the discussion and tables below). We also acquire, from time to time, mining equipment from Foresight Reserves and affiliated entities. Also, in connection with the reorganization of the Partnership pursuant to the execution of the MSA, Foresight Reserves paid retention bonuses to certain Partnership employees which were recorded as capital contributions during the period of payment (see Note 4). On April 16, 2015, Foresight Reserves and Murray Energy executed a purchase and sale agreement whereby Murray Energy paid Foresight Reserves $1.37 billion to acquire a 34% voting interest in FEGP, 77.5% of FELP’s incentive distribution rights (“IDR”) and nearly 50% of the outstanding limited partner units in FELP, including all of the outstanding subordinated units. FEGP will continue to govern the Partnership subsequent to this transaction. As part of the transaction, Murray Energy obtained an option, subject to certain conditions described below, to purchase an additional 46% of the voting interests in FEGP for $25 million during a five-year period. Murray Energy’s ability to exercise the option is conditioned upon (i) the exercise of the call option with respect to Colt LLC, a wholly-owned subsidiary of Foresight Reserves and (ii) the refinancing of the FELP notes and FELP’s existing credit facilities on terms reasonably acceptable to Foresight Reserves, or any other transaction (whether by amendment, waiver or a consent solicitation) that would have the effect of eliminating the “change of control” provisions of the FELP notes and FELP’s existing credit facilities with respect to the exercise of the option. Murray Management Services Agreement On April 16, 2015, a MSA was executed between FEGP and Murray American Coal, Inc. (the ”Manager”), a wholly-owned subsidiary of Murray Energy, pursuant to which the Manager will provide certain management and administration services to FELP for a quarterly fee of $3.5 million ($14.0 million on an annual basis), subject to contractual adjustments. To the extent that FELP or FEGP directly incurs costs for any services covered under the MSA, then the Manager’s quarterly fee is reduced accordingly. Also, to the extent that the Manager utilizes outside service providers to perform any of the services under the MSA, then the Manager is responsible for those outside service provider costs. The initial term of the MSA extends through December 31, 2022 and is subject to termination provisions. After taking into account the contractual adjustments for direct costs incurred by FELP, the amount of net expense due to the Manager for the three months ended March 31, 2016 was $2.1 million. Murray Energy Transport Lease and Overriding Royalty Agreements On April 16, 2015, American Century Transport LLC (“American Transport”), a newly created subsidiary of the Partnership, entered into a purchase and sale agreement (the “PSA”) with American Energy Corporation (“American Energy”), a subsidiary of Murray Energy, pursuant to which American Energy sold to American Transport certain mining and transportation assets for $63.0 million. Concurrent with the PSA, American Transport entered into a lease agreement (the “Transport Lease”) with American Energy pursuant to which (i) American Transport will lease to American Energy a tract of real property, two coal preparation plants and related coal handling facilities at the Transport Mine situated in Belmont and Monroe Counties, Ohio and (ii) American Transport will receive from American Energy a fee ranging from $1.15 to $1.75 for every ton of coal mined, processed and/or transported using such assets, subject to a quarterly recoupable minimum fee of $1.7 million. The Transport Lease is being accounted for as a direct financing lease. The total remaining minimum payments under the Transport Lease was $97.0 million at March 31, 2016, with unearned income equal to $36.6 million. The unearned income will be reflected as other revenue over the term of the lease using the effective interest method. Any amounts in excess of the contractual minimums will be recorded as other revenue when earned. As of March 31, 2016, the outstanding Transport Lease financing receivable was $60.4 million, of which $2.6 million was classified as current in the condensed consolidated balance sheet. Also, on April 16, 2015, American Century Minerals LLC (“Minerals”), a newly created subsidiary of the Partnership, entered into an overriding royalty agreement (“ORRA”) with Murray Energy subsidiaries’ American Energy and Consolidated Land Company (collectively, “AEC”), pursuant to which AEC granted to Minerals an overriding royalty interest ranging from $0.30 to $0.50 for each ton of coal mined, removed and sold from certain coal reserves situated near the Century Mine in Belmont and Monroe Counties, Ohio for $12.0 million. The ORRA is subject to a minimum recoupable quarterly fee of $0.5 million. This overriding royalty was accounted for as a financing arrangement. The payments the Partnership receives with respect to the ORRA will be reflected partially as a return of the initial investment (reduction in the affiliate financing receivable) and partially as other revenue over the life of the agreement using the effective interest method. Any amounts in excess of the contractual minimums will be recorded as other revenue when earned. The total remaining minimum payments under the ORRA was $33.6 million at March 31, 2016, with unearned income equal to $21.8 million. As of March 31, 2016, the outstanding ORRA financing receivable was $11.8 million, of which $0.2 million was classified as current in the condensed consolidated balance sheet. Other Murray Transactions During the three months ended March 31, 2016, we purchased $0.4 million in equipment, supplies and rebuild services from affiliates of Murray Energy. During the three months ended March 31, 2016, our affiliate, Coalfield Construction, provided $0.3 million in equipment, supplies and rebuild services to affiliates of Murray Energy. During the three months ended March 31, 2016, we purchased $0.6 million in coal from Murray Energy and its affiliates to meet quality specifications under certain customer contracts. During the three months ended March 31, 2016, Murray Energy transported coal under our transportation agreement with a third-party rail company resulting in usage fees owed to the third-party rail company of $3.6 million. These usage fees were billed to Murray Energy, resulting in no impact to our condensed consolidated statement of operations. The usage of the railway line with this third-party rail company by Murray Energy counts toward the minimum annual throughput volume requirement with the third-party rail company, thereby reducing the Partnership’s exposure to contractual liquidated damage charges. During the three months ended March 31, 2016, we earned $0.5 million in other revenues for Murray Energy’s usage of our Sitran terminal. 2021 Senior Notes On August 23, 2013, Cline Resource and Development Company (“CRDC”) acquired $16.5 million of outstanding principal amount of our 2021 Senior Notes (the “Original Purchase”). During September and October 2013, CRDC sold the Original Purchase primarily to affiliates, including $8.0 million to Chris Cline, $4.0 million to an entity controlled by John F. Dickinson, a director of our general partner’s board of directors until December 31, 2015, and $3.2 million to Michael Beyer, the former chief executive officer of the Partnership. Additional amounts were acquired independently in 2015 by Chris Cline and The Cline Trust Company LLC, as discussed below. As of March 31, 2016 and December 31, 2015, Chris Cline owned $44.5 million of the outstanding principal on our 2021 Senior Notes. Chris Cline acquired $8.0 million in principal of the Original Purchase and, during the year ended December 31, 2015, acquired an additional $36.5 million in principal from third parties in open market transactions. During the three months ended March 31, 2016 and 2015, $0 and $0.6 million, respectively, of interest on the 2021 Senior Notes was paid to Chris Cline. As of March 31, 2016 and December 31, 2015, $2.2 million and $1.3 million, respectively, of interest on the 2021 Senior Notes was accrued to the benefit of Chris Cline. As of March 31, 2016 and December 31, 2015, The Cline Trust Company LLC owned $10.0 million in principal of our 2021 Senior Notes, all of which was acquired during the year ended December 31, 2015. No interest has been paid to The Cline Trust Company LLC. As of March 31, 2016 and December 31, 2015, $0.5 million and $0.3 million of interest on the 2021 Senior Notes was accrued to the benefit of The Cline Trust Company LLC. The entity controlled by Mr. Dickinson, who resigned as a director of our general partner’s board of directors on December 31, 2015, owned $4.0 million of the outstanding principal on our 2021 Senior Notes as of December 31, 2015, all of which was acquired from the Original Purchase. During the three months ended March 31, 2015, $0.3 million of interest on the 2021 Senior Notes was paid to Mr. Dickinson. As of December 31, 2015, $0.1 million of interest on the 2021 Senor Notes was accrued to the benefit of the entity controlled by Mr. Dickinson. Also, Michael Beyer, who resigned in May 2015, acquired $3.2 million in principal from the Original Purchase. Mr. Beyer disposed of his 2021 Senior Notes in September of 2015. Mr. Beyer was no longer an affiliate of the Partnership subsequent to his termination date. For the three months ended March 31, 2015, $0.3 million in interest was paid to Mr. Beyer. Mineral Reserve Leases Our mines have a series of mineral reserve leases with Colt, LLC (“Colt”) and Ruger, LLC (“Ruger”), subsidiaries of Foresight Reserves. Each of these leases have initial terms of 10 years with six renewal periods of five years each, at the election of the lessees, and generally require the lessees to pay the greater of $3.40 per ton or 8.0% of the gross sales price, as defined in the respective agreements, of such coal. We also have overriding royalty agreements with Ruger pursuant to which we pay royalties equal to 8.0% of the gross selling price, as defined in the agreements. Each of these mineral reserve leases generally requires a minimum annual royalty payment, which is recoupable only against actual production royalties from future tons mined during the period of 10 years following the date on which any such royalty is paid. We also lease mineral reserves under lease agreements with subsidiaries of NRP, including WPP, HOD, and Independence Energy, LLC (“Independence”). The initial terms of these agreements vary, however, and each carries an option by the lessee to extend the leases until all merchantable and mineable coal has been mined and removed. Royalty payments under these arrangements are generally determined based on the greater of a minimum per ton amount (ranging from $2.50 per ton to $5.40 per ton) or a percentage of the gross sales price (generally 8.0% - 9.0%), as defined in the respective agreements. We are also subject under certain of these mineral reserve agreements to overriding royalties and/or wheelage fees. Our mineral reserve leases with NRP subsidiaries generally also require minimum quarterly or annual royalties which are generally recoupable on future tons mined and sold during the preceding five-year period from the excess tonnage royalty payments on a first paid, first recouped basis. In July 2015, we provided notice to WPP declaring a force majeure event at our Hillsboro mine due to elevated carbon monoxide levels as a result of a mine fire, which has required the stoppage of mining operations since March 2015. As a result of the force majeure event, we have not made $23.6 million in minimum deficiency payments to WPP in accordance with the force majeure provisions of the royalty agreement. WPP is asserting that the stoppage of mining operations as a result of the mine fire does not constitute an event of force majeure under the royalty agreement (see Note 18). As of March 31, 2016 and December 31, 2015, we have established a $43.2 million and $46.3 million reserve, respectively, against contractual prepaid royalties between Hillsboro and WPP given that the recoupment of certain prior minimum royalty payments was improbable given the remaining recoupment period available and forecasted demand for Hillsboro coal based on current and forecasted near-term market conditions. During the three months ended March 31, 2016, the recoupment period of $3.1 million in prepaid royalties between Hillsboro and WPP expired, resulting in the write-off of the prepaid royalty and the corresponding reserve. We continually evaluate our ability to recoup prepaid royalty balances which includes, among other things, assessing mine production plans, sales commitments, current and forecasted future coal market conditions, and remaining years available for recoupment. Convent Marine Terminal Amendment In August 2011, an affiliated company owned by Foresight Reserves acquired the IC RailMarine Terminal in Convent, Louisiana. This terminal, commonly referred to as the Convent Marine Terminal (“CMT”), is owned by Raven Energy LLC (“Raven”), an entity once controlled and beneficially owned by Christopher Cline. The terminal is designed to ship and receive commodities via rail, river barge and ocean vessel. We have a materials handling and storage agreement for throughput at the terminal under which we pay fees based on the tonnages of coal we move through the terminal, subject to minimum annual take-or-pay volume commitments. Effective May 1, 2015, the Partnership amended its materials handling and storage agreement with Raven to reduce the minimum annual throughput volume at CMT to 5.0 million tons and to extend the duration of the contract by one year to 2022. In August 2015, The Cline Group sold Raven to an entity under which it does not have significant influence; therefore the business activities with Raven are no longer considered affiliate transactions subsequent to the sale date. Limited Partnership Agreement The Partnership’s general partner manages the Partnership’s operations and activities as specified in the partnership agreement. The general partner of the Partnership is managed by its board of directors. Foresight Reserves and Murray Energy have the right to select the directors of the general partner. The members of the board of directors of the general partner are not elected by the unitholders and are not subject to reelection by the unitholders. The officers of the general partner manage the day-to-day affairs of the Partnership’s business. The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses incurred or payments made by the general partner on behalf of the Partnership. The following table summarizes certain affiliate amounts included in our condensed consolidated balance sheets: Affiliated Company Balance Sheet Location March 31, 2016 December 31, 2015 (In Thousands) Foresight Reserves and affiliated entities Due from affiliates - current $ 123 $ 145 Murray Energy and affiliated entities Due from affiliates - current 3,923 16,316 NRP and affiliated entities Due from affiliates - current 84 154 Total $ 4,130 $ 16,615 Murray Energy and affiliated entities Financing receivables - affiliate - current $ 2,741 $ 2,689 Total $ 2,741 $ 2,689 Murray Energy and affiliated entities Due from affiliates - noncurrent $ 1,843 $ 2,691 Total $ 1,843 $ 2,691 Murray Energy and affiliated entities Financing receivables - affiliate - noncurrent $ 69,434 $ 70,139 Total $ 69,434 $ 70,139 Foresight Reserves and affiliated entities Prepaid royalties - current and noncurrent $ 67,832 $ 69,555 NRP and affiliated entities Prepaid royalties - current and noncurrent 404 — Total $ 68,236 $ 69,555 Foresight Reserves and affiliated entities Due to affiliates - current $ 2,595 $ 1,054 Murray Energy and affiliated entities Due to affiliates - current 3,880 5,020 NRP and affiliated entities Due to affiliates - current 1,792 2,462 Total $ 8,267 $ 8,536 A summary of certain expenses (income) incurred with affiliated entities is as follows for the three months ended March 31, 2016 and 2015: Three Months Ended March 31, 2016 March 31, 2015 (In Thousands) Coal sales – Murray Energy and affiliated entities (1) $ 30 $ — Overriding royalty and lease revenues – Murray Energy and affiliated entities (2) $ (2,470 ) $ — Terminal revenues - Murray Energy and affiliated entities (2) $ (518 ) $ — Royalty expense – (3) $ 2,843 $ 9,006 Royalty expense – Foresight Reserves and affiliated entities (3) $ 3,447 $ 2,630 Loadout services – NRP and affiliated entities (3) $ 1,723 $ 2,325 Purchased goods and services – Murray Energy and affiliated entities (4) $ 392 $ — Purchased coal - Murray Energy and affiliated entities (5) $ 550 $ — Terminal fees – Foresight Reserves and affiliated entities (6) $ — $ 9,264 Management services – Murray Energy and affiliated entities (7) $ 2,078 $ — Administrative fee income – Foresight Reserves and affiliated entities (8) $ — $ (47 ) Principal location in the condensed consolidated financial statements: (1) – Coal sales (2) – Other revenues (3) – Cost of coal produced (excluding depreciation, depletion and amortization) (4) – Cost of coal produced (excluding depreciation, depletion and amortization) and property, plant and equipment, as applicable (5) – Cost of coal purchased (6) – Transportation (7) – Selling, general and administrative (8) – Other operating income, net We also purchased $2.1 million and $4.3 million in mining supplies from an affiliated joint venture under a supply agreement during the three months ended March 31, 2016 and 2015, respectively (see Note 14). |