ALLIANCE RESOURCE PARTNERS LP [ARLP] Filings

10-Q 1 arlp-20220930x10q.htm 10-Q

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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

☐ 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.

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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,