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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

OR

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

For the transition period from ________________to________________

Commission File No.: 0-26823

ALLIANCE RESOURCE PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

Delaware

   

73-1564280

(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)

1717 South Boulder Avenue, Suite 400, Tulsa, Oklahoma 74119

(Address of principal executive offices and zip code)

(918) 295-7600

(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. [X] Yes   [   ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  [X ] Yes   [   ] No

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

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer  

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common units representing limited partner interests

ARLP

NASDAQ Global Select Market

As of November 7, 2022, 127,195,219 common units are outstanding.

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Page

ITEM 1.

Financial Statements (Unaudited)

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

1

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021

2

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021

3

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

4

Notes to Condensed Consolidated Financial Statements

5

1.     Organization and Presentation

5

2.     New Accounting Standards

7

3.     Acquisition

7

4.     Contingencies

8

5.     Inventories

9

6.     Fair Value Measurements

9

7.     Long-Term Debt

9

8.     Income Taxes

11

9.    Variable Interest Entities

13

10.    Investments

14

11.   Partners' Capital

15

12.   Revenue from Contracts with Customers

18

13.   Earnings per Limited Partner Unit

19

14.   Workers' Compensation and Pneumoconiosis

20

15.   Common Unit-Based Compensation Plans

20

16.   Components of Pension Plan Net Periodic Benefit Cost

22

17.   Segment Information

22

18.   Subsequent Events

25

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

26

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

39

ITEM 4.

Controls and Procedures

39

Forward-Looking Statements

41

PART II

OTHER INFORMATION

ITEM 1.

Legal Proceedings

43

ITEM 1A.

Risk Factors

43

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

ITEM 3.

Defaults Upon Senior Securities

44

ITEM 4.

Mine Safety Disclosures

44

ITEM 5.

Other Information

44

ITEM 6.

Exhibits

44

i

PART I

FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

September 30, 

December 31, 

2022

    

2021

ASSETS

    

 

CURRENT ASSETS:

Cash and cash equivalents

$

278,471

$

122,403

Trade receivables

 

190,435

 

129,531

Other receivables

 

6,873

 

680

Inventories, net

 

98,765

 

60,302

Advance royalties

 

3,458

 

4,958

Prepaid expenses and other assets

    

 

14,733

    

 

21,354

Total current assets

 

592,735

 

339,228

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment, at cost

 

3,765,400

 

3,608,347

Less accumulated depreciation, depletion and amortization

 

(2,034,345)

 

(1,909,669)

Total property, plant and equipment, net

 

1,731,055

 

1,698,678

OTHER ASSETS:

Advance royalties

 

70,181

 

63,524

Equity method investments

 

46,158

 

26,325

Equity securities

32,639

 

Goodwill

4,373

4,373

Operating lease right-of-use assets

15,395

14,158

Other long-term assets

 

11,845

 

13,120

Total other assets

 

180,591

 

121,500

TOTAL ASSETS

$

2,504,381

$

2,159,406

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:

Accounts payable

$

97,032

$

69,586

Accrued taxes other than income taxes

 

25,133

 

17,787

Accrued payroll and related expenses

 

42,966

 

36,805

Accrued interest

 

12,500

 

5,000

Workers' compensation and pneumoconiosis benefits

 

12,296

 

12,293

Current finance lease obligations

 

302

 

840

Current operating lease obligations

 

2,757

 

1,820

Other current liabilities

 

45,375

 

17,375

Current maturities, long-term debt, net

 

15,133

 

16,071

Total current liabilities

 

253,494

 

177,577

LONG-TERM LIABILITIES:

Long-term debt, excluding current maturities, net

 

409,944

 

418,942

Pneumoconiosis benefits

 

109,687

 

107,560

Accrued pension benefit

 

23,415

 

25,590

Workers' compensation

 

39,031

 

44,911

Asset retirement obligations

 

124,622

 

123,517

Long-term finance lease obligations

 

533

 

618

Long-term operating lease obligations

 

12,778

 

12,366

Deferred income tax liabilities

 

37,607

 

391

Other liabilities

 

25,450

 

21,865

Total long-term liabilities

 

783,067

 

755,760

Total liabilities

 

1,036,561

 

933,337

COMMITMENTS AND CONTINGENCIES - (NOTE 4)

PARTNERS' CAPITAL:

ARLP Partners' Capital:

Limited Partners - Common Unitholders 127,195,219 units outstanding

 

1,518,679

 

1,279,183

Accumulated other comprehensive loss

 

(61,843)

 

(64,229)

Total ARLP Partners' Capital

 

1,456,836

 

1,214,954

Noncontrolling interest

10,984

11,115

Total Partners' Capital

1,467,820

1,226,069

TOTAL LIABILITIES AND PARTNERS' CAPITAL

$

2,504,381

$

2,159,406

See notes to condensed consolidated financial statements.

1

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except unit and per unit data)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

    

SALES AND OPERATING REVENUES:

Coal sales

$

550,563

$

362,264

$

1,470,730

$

975,725

Oil & gas royalties

35,312

20,109

102,166

51,222

Transportation revenues

 

28,548

 

22,027

 

93,305

 

45,153

Other revenues

 

13,997

 

11,039

 

39,583

 

24,404

Total revenues

 

628,420

 

415,439

 

1,705,784

 

1,096,504

EXPENSES:

Operating expenses (excluding depreciation, depletion and amortization)

 

330,298

 

233,201

 

908,546

 

642,760

Transportation expenses

 

28,548

 

22,027

 

93,305

 

45,153

Outside coal purchases

 

 

6,065

 

151

 

6,179

General and administrative

 

21,341

 

18,655

 

62,394

 

51,651

Depreciation, depletion and amortization

 

70,143

 

68,763

 

200,191

 

192,698

Total operating expenses

 

450,330

 

348,711

 

1,264,587

 

938,441

INCOME FROM OPERATIONS

 

178,090

 

66,728

 

441,197

 

158,063

Interest expense (net of interest capitalized for the three and nine months ended September 30, 2022 and 2021 of $264, $123, $505 and $314, respectively)

 

(9,245)

 

(9,408)

 

(28,304)

 

(29,646)

Interest income

 

426

 

19

 

554

 

51

Equity method investment income

 

2,108

 

703

 

4,576

 

1,106

Other income (expense)

 

192

 

(84)

 

1,337

 

(2,632)

INCOME BEFORE INCOME TAXES

 

171,571

 

57,958

 

419,360

 

126,942

INCOME TAX EXPENSE

 

6,600

 

234

 

55,646

 

227

NET INCOME

164,971

57,724

363,714

126,715

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

(364)

 

(176)

 

(977)

 

(384)

NET INCOME ATTRIBUTABLE TO ARLP

$

164,607

$

57,548

$

362,737

$

126,331

EARNINGS PER LIMITED PARTNER UNIT - BASIC AND DILUTED

$

1.25

$

0.44

$

2.76

$

0.97

WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED

 

127,195,219

 

127,195,219

 

127,195,219

 

127,195,219

See notes to condensed consolidated financial statements.

2

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

    

September 30, 

September 30, 

2022

    

2021

    

2022

    

2021

    

NET INCOME

$

164,971

$

57,724

$

363,714

$

126,715

OTHER COMPREHENSIVE INCOME:

Defined benefit pension plan

Amortization of prior service cost (1)

47

47

140

140

Amortization of net actuarial loss (1)

 

495

 

1,141

 

1,467

 

3,424

Total defined benefit pension plan adjustments

 

542

 

1,188

 

1,607

 

3,564

Pneumoconiosis benefits

Amortization of net actuarial loss (1)

 

260

 

1,043

 

779

 

3,129

Total pneumoconiosis benefits adjustments

 

260

 

1,043

 

779

 

3,129

OTHER COMPREHENSIVE INCOME

 

802

 

2,231

 

2,386

 

6,693

COMPREHENSIVE INCOME

165,773

59,955

366,100

133,408

Less: Comprehensive income attributable to noncontrolling interest

(364)

(176)

(977)

(384)

COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP

$

165,409

$

59,779

$

365,123

$

133,024

(1)Amortization of prior service cost and net actuarial loss is included in the computation of net periodic benefit cost (see Notes 14 and 16 for additional details).

See notes to condensed consolidated financial statements.

3

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended

September 30, 

    

2022

    

2021

    

CASH FLOWS FROM OPERATING ACTIVITIES

$

548,554

$

310,977

CASH FLOWS FROM INVESTING ACTIVITIES:

Property, plant and equipment:

Capital expenditures

 

(221,286)

 

(88,661)

Increase in accounts payable and accrued liabilities

 

39,500

 

2,281

Proceeds from sale of property, plant and equipment

 

5,006

 

6,432

Contributions to equity method investments

 

(20,220)

 

Purchase of equity securities

 

(32,639)

 

Distributions received from investments in excess of cumulative earnings

387

 

1,088

Payment for acquisition of business

 

(11,391)

 

Escrow deposit for oil & gas reserve acquisitions

(4,150)

(1,550)

Other

 

(2,704)

 

Net cash used in investing activities

 

(247,497)

 

(80,410)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under securitization facility

27,500

 

35,000

Payments under securitization facility

(27,500)

 

(90,900)

Payments on equipment financings

(12,360)

 

(12,888)

Borrowings under revolving credit facilities

 

 

15,000

Payments under revolving credit facilities

 

 

(102,500)

Borrowings from line of credit

 

 

3,230

Payments on finance lease obligations

 

(623)

 

(568)

Payment of debt issuance costs

 

 

(113)

Payments for purchase of units and tax withholdings related to settlements under deferred compensation plans

 

 

(1,090)

Distributions paid to Partners

(130,898)

 

(26,086)

Other

 

(1,108)

 

(615)

Net cash used in financing activities

 

(144,989)

 

(181,530)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

156,068

 

49,037

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

122,403

 

55,574

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

278,471

$

104,611

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest

$

18,708

$

20,045

Cash paid for income taxes

$

17,404

$

11

SUPPLEMENTAL NON-CASH ACTIVITY:

Accounts payable for purchase of property, plant and equipment

$

47,825

$

8,012

Right-of-use assets acquired by operating lease

$

1,291

$

Market value of common units issued under deferred compensation plans before tax withholding requirements

$

$

1,082

See notes to condensed consolidated financial statements.

4

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.ORGANIZATION AND PRESENTATION

Significant Relationships Referenced in Notes to Condensed Consolidated Financial Statements

References to "we," "us," "our" or "ARLP Partnership" mean the business and operations of Alliance Resource Partners, L.P., the parent company, as well as its consolidated subsidiaries.
References to "ARLP" mean Alliance Resource Partners, L.P., individually as the parent company, and not on a consolidated basis.
References to "MGP" mean Alliance Resource Management GP, LLC, ARLP's general partner.  
References to "Mr. Craft" mean Joseph W. Craft III, the Chairman, President and Chief Executive Officer of MGP.
References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P.
References to "Alliance Coal" mean Alliance Coal, LLC, the holding company for our coal mining operations.
References to "Alliance Minerals" mean Alliance Minerals, LLC, the holding company for our oil and gas mineral interests.
References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, the land holding company for certain of our coal mineral interests, including the subsidiaries of Alliance Resource Properties, LLC.

Organization

ARLP is a Delaware limited partnership listed on the NASDAQ Global Select Market under the ticker symbol "ARLP."  ARLP was formed in May 1999 and completed its initial public offering on August 19, 1999 when it acquired substantially all of the coal production and marketing assets of Alliance Resource Holdings, Inc., a Delaware corporation, and its subsidiaries.  We are managed by our general partner, MGP, a Delaware limited liability company which holds a non-economic general partner interest in ARLP.

Change in Tax Status

On March 15, 2022, Alliance Minerals changed its federal income tax status from a pass-through entity to a taxable entity via a "check the box" election (the "Tax Election"), which became effective January 1, 2022. This election for Alliance Minerals is anticipated to reduce the total income tax burden on our oil & gas royalties, as Alliance Minerals will pay entity-level taxes at corporate tax rates that are well below individual tax rates that would otherwise be paid by our unitholders. For more information on the Tax Election please see Note 8 – Income Taxes.

Francis Investment

On April 5, 2022, we committed to invest up to $50 million in Francis Renewable Energy, LLC ("Francis") through the purchase of preferred equity interests.  As of September 30, 2022, we have elected to hold our commitment to Francis at our initial $20 million convertible note investment. Francis currently is active in the installation, management and operation of metered-for-fee, public-access electric vehicle ("EV") charging stations. Francis also develops and constructs EV charging stations for third-party customers.  Our investment in Francis furthers our business strategy to develop strategic relationships and invest in attractive opportunities in the fast-growing energy infrastructure transition.  For more information on this investment please see Note 9 – Variable Interest Entities.

5

Infinitum Investment

On April 29, 2022, we purchased $32.6 million of Series D Preferred Stock from Infinitum Electric, Inc. ("Infinitum"), a Texas-based startup developer and manufacturer of electric motors featuring printed circuit board stators which have the potential to result in motors that are smaller, lighter, quieter, more efficient and capable of operating at a fraction of the carbon footprint of conventional electric motors.  The preferred stock provides for non-cumulative dividends when and if declared by Infinitum's board of directors.  Each share is convertible, at any time, at our option, into shares of common stock of Infinitum.  Our investment in Infinitum furthers our business strategy to develop strategic relationships and invest in attractive opportunities in the fast-growing energy infrastructure transition.  For more information on this investment please see Note 10 – Investments.

On November 2, 2022, we purchased an additional $9.4 million of Series D Preferred Stock in Infinitum.

NGP ETP IV Investment

On June 2, 2022, we committed to purchase $25.0 million of limited partner interests in NGP ETP IV, L.P. ("NGP ETP IV"), a private equity fund sponsored by NGP Energy Capital Management, LLC ("NGP").   NGP ETP IV focuses on investments that are part of the global transition toward a lower carbon economy by partnering with top tier management teams and investing growth equity in companies that drive or enable the growth of renewable energy, the electrification of our economy or the efficient use of energy. For more information on this investment please see Note 9 – Variable Interest Entities.

Belvedere Acquisition

On September 9, 2022, we acquired approximately 394 net oil & gas royalty acres in the Delaware Basin from Belvedere Operating, LLC ("Belvedere") for a purchase price of $11.4 million (the "Belvedere Acquisition"). This acquisition enhances our ownership position in the Permian Basin and furthers our business strategy to grow our Oil & Gas Royalties segment. For more information on this acquisition please see Note 3 – Acquisition.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts and operations of the ARLP Partnership and present our financial position as of September 30, 2022 and December 31, 2021, the results of our operations and comprehensive income for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021.  All intercompany transactions and accounts have been eliminated.

These condensed consolidated financial statements and notes are prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and do not include all the information normally included with financial statements prepared in accordance with generally accepted accounting principles ("GAAP") of the United States.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

These condensed consolidated financial statements and notes are unaudited. However, in the opinion of management, these condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of the results for the periods presented.  Results for interim periods are not necessarily indicative of results to be expected for the full year ending December 31, 2022.

Use of Estimates

The preparation of the ARLP Partnership's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in our condensed consolidated financial statements.  Actual results could differ from those estimates.

6

Income Taxes

We are not a taxable entity for federal or state income tax purposes; the tax effect of our activities accrues to our unitholders. Although publicly traded partnerships as a general rule are taxed as corporations, we qualify for an exemption because at least 90% of our income consists of qualifying income, as defined in Section 7704(c) of the Internal Revenue Code.  Net income for financial statement purposes may differ significantly from taxable income reportable to unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under our partnership agreement. Individual unitholders have different investment bases depending upon the timing and price of acquisition of their partnership units. Furthermore, each unitholder's tax accounting, which is partially dependent upon the unitholder's tax position, differs from the accounting followed in our consolidated financial statements.  Accordingly, the aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each unitholder's tax attributes in our partnership is not available to us.

Our subsidiary Alliance Minerals within our Oil & Gas Royalties segment and certain other subsidiaries within our Other, Corporate and Elimination category are subject to federal and state income taxes.  We use the liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities and (ii) operating losses and tax credit carryforwards.  Deferred income tax assets and liabilities are based on enacted rates applicable to the future period when those temporary differences are expected to be recovered or settled.  The effect of a change in tax status or a change in tax rates on deferred tax assets and liabilities is recognized in the period the change in status is elected or rate change is enacted.  A valuation allowance is provided for deferred tax assets when it is more likely than not the deferred tax assets will not be realized.

2.NEW ACCOUNTING STANDARDS

New Accounting Standards Issued and Adopted

In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance ("ASU 2021-10").  ASU 2021-10 increases the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity's accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements.  We adopted ASU 2021-10 on January 1, 2022.  The adoption of ASU 2021-10 did not have a material impact on our condensed consolidated financial statements.

3.ACQUISITION

Belvedere

On September 9, 2022 (the "Belvedere Acquisition Date"), our subsidiary, Alliance Royalty, LLC acquired approximately 394 net oil & gas royalty acres in the Delaware Basin from Belvedere for a cash purchase price of $11.4 million, which was funded with cash on hand. This acquisition gives us increased exposure to a prolific area of the Delaware Basin and is within close proximity to reserves that we currently own.  Because the mineral interests acquired in the Belvedere Acquisition include royalty interests in both developed properties and undeveloped properties, we have determined that the acquisition should be accounted for as a business combination and the underlying assets should be recorded at fair value as of the Belvedere Acquisition Date on our condensed consolidated balance sheet.

The following table summarizes the fair value allocation of assets acquired as of the Belvedere Acquisition Date:

(in thousands)

Mineral interests in proved properties

$

7,724

Mineral interests in unproved properties

3,667

$

11,391

7

The fair value of the mineral interests was determined using an income approach consisting of a discounted cash flow model.  The assumptions used in the discounted cash flow model included estimated production, projected cash flows, forward oil & gas prices and risk adjusted discount rates.  Certain assumptions used are not observable in active markets; therefore, the fair value measurements represent Level 3 fair value measurements.  

The amounts of revenue and earnings from the mineral interests acquired in the Belvedere Acquisition included in our condensed consolidated statements of income since the Belvedere Acquisition Date are as follows:

Three Months Ended

September 30, 

2022

    

(in thousands)

Revenue

$

112

Net income

 

78

The following represents our pro forma revenues and net income for the three and nine months ended September 30, 2022 and 2021 as if the mineral interests acquired in the Belvedere Acquisition had been included in our consolidated results since January 1, 2021.  These amounts have been calculated after applying our accounting policies.

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

(in thousands)

Total revenues

As reported

$

628,420

$

415,439

$

1,705,784

$

1,096,504

Pro forma

628,645

415,943

1,706,641

1,097,261

Net income

As reported

$

164,971

$

57,724

$

363,714

$

126,715

Pro forma

165,168

58,154

364,472

127,375

4.CONTINGENCIES

We are party to litigation that has been initiated against certain of our subsidiaries in which the plaintiffs allege violations of the Fair Labor Standards Act and Kentucky Wage and Hour Act due to an alleged failure to compensate for time "donning" and "doffing" equipment and to account for certain bonuses in the calculation of overtime rates and pay.  The plaintiffs seek class or collective action certification.  Because the litigation of these matters is in the early stages, we cannot reasonably estimate a range of potential exposure at this time.  We believe the plaintiffs' claims are without merit and our ultimate exposure, if any, will not be material to our results of operations or financial position and we intend to defend the litigation vigorously.  However, if our current belief that the claims are without merit is not upheld, it is reasonably possible that the ultimate resolution of these matters could result in a potential loss that may be material to our results of operations.

We also have various other lawsuits, claims and regulatory proceedings incidental to our business that are pending against the ARLP Partnership.  We record an accrual for a potential loss related to these matters when, in management's opinion, such loss is probable and reasonably estimable.  Based on known facts and circumstances, we believe the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity.  However, if the results of these matters are different from management's current expectations and in amounts greater than our accruals, such matters could have a material adverse effect on our business and operations.

8

5.INVENTORIES

Inventories consist of the following:

    

September 30, 

December 31, 

2022

    

2021

 

(in thousands)

Coal

$

48,676

$

24,845

Supplies (net of reserve for obsolescence of $5,914 and $5,554, respectively)

 

50,089

 

35,457

Total inventories, net

$

98,765

$

60,302

6.FAIR VALUE MEASUREMENTS

The following table summarizes our fair value measurements within the hierarchy not included elsewhere in these notes:

September 30, 2022

December 31, 2021

    

Level 1

    

Level 2

    

Level 3

    

Level 1

    

Level 2

    

Level 3

 

(in thousands)

Long-term debt

$

$

417,464

$

$

$

457,758

$

Total

$

$

417,464

$

$

$

457,758

$

The carrying amounts for cash equivalents, accounts receivable, accounts payable, accrued and other liabilities approximate fair value due to the short maturity of those instruments.

The estimated fair value of our long-term debt, including current maturities, is based on interest rates that we believe are currently available to us in active markets for issuance of debt with similar terms and remaining maturities (See Note 7 – Long-Term Debt).  The fair value of debt, which is based upon these interest rates, is classified as a Level 2 measurement under the fair value hierarchy.

7.LONG-TERM DEBT

Long-term debt consists of the following:

Unamortized Discount and

Principal

Debt Issuance Costs

September 30, 

December 31, 

September 30, 

December 31, 

    

2022

    

2021

    

2022

    

2021

 

(in thousands)

Revolving credit facility

$

$

$

(3,281)

$

(5,019)

Senior notes

 

400,000

 

400,000

 

(2,362)

 

(3,048)

Securitization facility

May 2019 equipment financing

1,503

November 2019 equipment financing

23,846

31,972

June 2020 equipment financing

6,874

9,605

 

430,720

 

443,080

 

(5,643)

 

(8,067)

Less current maturities

 

(15,133)

 

(16,071)

 

 

Total long-term debt

$

415,587

$

427,009

$

(5,643)

$

(8,067)

Credit Facility.  On March 9, 2020, our Intermediate Partnership entered into a Fifth Amended and Restated Credit Agreement (the "Credit Agreement") with various financial institutions.  The Credit Agreement provides for a $459.5 million revolving credit facility, including a sublimit of $125 million for the issuance of letters of credit and a sublimit of $15.0 million for swingline borrowings (the "Revolving Credit Facility"), with a termination date of March 9, 2024.  

9

The Credit Agreement is guaranteed by certain of our Intermediate Partnership's material direct and indirect subsidiaries (the "Restricted Subsidiaries") and is secured by substantially all the assets of the Restricted Subsidiaries.  The Credit Agreement is also guaranteed by Alliance Minerals but the oil and gas mineral assets of Alliance Minerals and its direct and indirect subsidiaries (collectively with Alliance Minerals, the "Unrestricted Subsidiaries") are not collateral under the Credit Agreement.  Borrowings under the Revolving Credit Facility bear interest, at our option, at either (i) the Base Rate at the greater of three benchmarks or (ii) a Eurodollar Rate, plus margins for (i) or (ii), as applicable, that fluctuate depending upon the ratio of Consolidated Debt to Consolidated Cash Flow (each as defined in the Credit Agreement).  The Eurodollar Rate, with applicable margin, under the Revolving Credit Facility was 5.49% as of September 30, 2022.  On September 30, 2022, we had $44.1 million of letters of credit outstanding with $415.4 million available for borrowing under the Revolving Credit Facility. We incur an annual commitment fee of 0.35% on the undrawn portion of the Revolving Credit Facility.  We utilize the Revolving Credit Facility, as appropriate, for working capital requirements, capital expenditures and investments, scheduled debt payments and distribution payments.

The Credit Agreement contains various restrictions affecting the Intermediate Partnership and its Restricted Subsidiaries including, among other things, restrictions on incurrence of additional indebtedness and liens, sale of assets, investments, mergers and consolidations and transactions with affiliates, including transactions with Unrestricted Subsidiaries.  In each case, these restrictions are subject to various exceptions.  In addition, the payment of cash distributions is restricted if such payment would result in a fixed charge coverage ratio of less than 1.0 to 1.0 (as defined in the Credit Agreement) for the four most recently ended fiscal quarters.  The Credit Agreement requires the Intermediate Partnership to maintain (a) a debt to cash flow ratio of not more than 2.5 to 1.0, (b) a cash flow to interest expense ratio of not less than 3.0 to 1.0 and (c) a first lien debt to cash flow ratio of not more than 1.5 to 1.0, in each case, during the four most recently ended fiscal quarters. The debt to cash flow ratio, cash flow to interest expense ratio and first lien debt to cash flow ratio were 0.64 to 1.0, 17.63 to 1.0 and 0.05 to 1.0, respectively, for the trailing twelve months ended September 30, 2022.  We remained in compliance with the covenants of the Credit Agreement as of September 30, 2022 and anticipate remaining in compliance with the covenants.  

Senior Notes.  On April 24, 2017, the Intermediate Partnership and Alliance Resource Finance Corporation (as co-issuer), a wholly owned subsidiary of the Intermediate Partnership ("Alliance Finance"), issued an aggregate principal amount of $400.0 million of senior unsecured notes due 2025 ("Senior Notes") in a private placement to qualified institutional buyers.  The Senior Notes have a term of eight years, maturing on May 1, 2025 (the "Term") and accrue interest at an annual rate of 7.5%.  Interest is payable semi-annually in arrears on each May 1 and November 1.  The indenture governing the Senior Notes contains customary terms, events of default and covenants relating to, among other things, the incurrence of debt, the payment of distributions or similar restricted payments, undertaking transactions with affiliates and limitations on asset sales.  The issuers of the Senior Notes may redeem all or a part of the notes at any time at redemption prices set forth in the indenture governing the Senior Notes.    

Accounts Receivable Securitization.  On December 5, 2014, certain direct and indirect wholly owned subsidiaries of our Intermediate Partnership entered into a $100.0 million accounts receivable securitization facility ("Securitization Facility").  In January 2021, we reduced the borrowing availability under the facility to $60.0 million.  Under the Securitization Facility, certain subsidiaries sell certain trade receivables on an ongoing basis to our Intermediate Partnership, which then sells the trade receivables to AROP Funding, LLC ("AROP Funding"), a wholly owned bankruptcy-remote special purpose subsidiary of our Intermediate Partnership, which in turn borrows on a revolving basis up to $60.0 million secured by the trade receivables.  After the sale, Alliance Coal, as servicer of the assets, collects the receivables on behalf of AROP Funding.  The Securitization Facility bears interest based on a short-term bank yield index.  On September 30, 2022, we had $9.2 million of letters of credit outstanding with $50.8 million available for borrowing under the Securitization Facility. The agreement governing the Securitization Facility contains customary terms and conditions, including limitations with regards to certain customer credit ratings.  The Securitization Facility is scheduled to mature in January 2023.  On September 30, 2022, we had no outstanding balance under the Securitization Facility.  

May 2019 Equipment Financing.  On May 17, 2019, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $10.0 million in exchange for conveying its interest in certain equipment owned indirectly by the Intermediate Partnership and entering into a master lease agreement for that equipment (the "May 2019 Equipment Financing"). The May 2019 Equipment Financing contained customary terms and events of default and provided for thirty-six monthly payments with an implicit interest rate of 6.25%.  The May 2019 Equipment Financing matured on May 1, 2022 and the equipment reverted to the Intermediate Partnership.

10

November 2019 Equipment Financing.  On November 6, 2019, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $53.1 million in exchange for conveying its interest in certain equipment owned indirectly by the Intermediate Partnership and entering into a master lease agreement for that equipment (the "November 2019 Equipment Financing").  The November 2019 Equipment Financing contains customary terms and events of default and an implicit interest rate of 4.75%, providing for a four-year term with forty-seven monthly payments of $1.0 million and a balloon payment of $11.6 million upon maturity on November 6, 2023.  Upon maturity, the equipment will revert to the Intermediate Partnership.  

June 2020 Equipment Financing.  On June 5, 2020, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $14.7 million in exchange for conveying its interest in certain equipment owned indirectly by the Intermediate Partnership and entering into a master lease agreement for that equipment (the "June 2020 Equipment Financing"). The June 2020 Equipment Financing contains customary terms and events of default and provides for forty-eight monthly payments with an implicit interest rate of 6.1%, maturing on June 5, 2024. Upon maturity, the equipment will revert to the Intermediate Partnership.

8.INCOME TAXES

Components of income tax expense are as follows:

Three Months Ended

Nine Months Ended

 

September 30, 

September 30,