ALLIANCE RESOURCE PARTNERS LP [ARLP] Filings

10-Q 1 arlp-20230930x10q.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, 2023

☐ 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 8, 2023, 127,125,437 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, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements	5
	1. Organization and Presentation	5
	2. Acquisitions	6
	3. Contingencies	7
	4. Inventories	7
	5. Fair Value Measurements	7
	6. Long-Term Debt	8
	7. Income Taxes	10
	8. Variable Interest Entities	11
	9. Equity Investments	12
	10. Partners' Capital	14
	11. Revenue from Contracts with Customers	17
	12. Earnings per Limited Partner Unit	18
	13. Workers' Compensation and Pneumoconiosis	19
	14. Common Unit-Based Compensation Plans	20
	15. Components of Pension Plan Net Periodic Benefit Cost	21
	16. Segment Information	21
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	38
ITEM 4.	Controls and Procedures	39
	Forward-Looking Statements	40

PART II
OTHER INFORMATION

ITEM 1.	Legal Proceedings	42
ITEM 1A.	Risk Factors	42
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
ITEM 3.	Defaults Upon Senior Securities	43
ITEM 4.	Mine Safety Disclosures	43
ITEM 5.	Other Information	43
ITEM 6.	Exhibits	43

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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,
	2023		2022*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	197,243	$	296,023
Trade receivables		220,138		241,412
Other receivables		13,854		8,601
Inventories, net		135,868		77,326
Advance royalties		5,824		7,556
Prepaid expenses and other assets		14,962		26,675
Total current assets		587,889		657,593
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost		4,133,738		3,931,422
Less accumulated depreciation, depletion and amortization		(2,152,278)		(2,050,754)
Total property, plant and equipment, net		1,981,460		1,880,668
OTHER ASSETS:
Advance royalties		73,798		67,713
Equity method investments		44,966		49,371
Equity securities		92,541		42,000
Operating lease right-of-use assets		17,249		14,950
Other long-term assets		16,138		15,726
Total other assets		244,692		189,760
TOTAL ASSETS	$	2,814,041	$	2,728,021

LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable	$	116,819	$	95,122
Accrued taxes other than income taxes		22,516		22,967
Accrued payroll and related expenses		40,803		39,623
Accrued interest		10,631		5,000
Workers' compensation and pneumoconiosis benefits		14,052		14,099
Other current liabilities		30,715		53,790
Current maturities, long-term debt, net		38,603		24,970
Total current liabilities		274,139		255,571
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities, net		321,208		397,203
Pneumoconiosis benefits		102,193		100,089
Accrued pension benefit		11,770		12,553
Workers' compensation		41,303		39,551
Asset retirement obligations		143,707		142,254
Long-term operating lease obligations		14,358		12,132
Deferred income tax liabilities		34,343		35,814
Other liabilities		18,092		24,828
Total long-term liabilities		686,974		764,424
Total liabilities		961,113		1,019,995

COMMITMENTS AND CONTINGENCIES - (NOTE 3)

PARTNERS' CAPITAL:
ARLP Partners' Capital:
Limited Partners - Common Unitholders 127,125,437 and 127,195,219 units outstanding, respectively		1,867,721		1,656,025
General Partner's interest		—		66,548
Accumulated other comprehensive loss		(39,365)		(41,054)
Total ARLP Partners' Capital		1,828,356		1,681,519
Noncontrolling interest		24,572		26,507
Total Partners' Capital		1,852,928		1,708,026
TOTAL LIABILITIES AND PARTNERS' CAPITAL	$	2,814,041	$	2,728,021

*Recast as discussed in Note 1 – Organization and Presentation.

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,
	2023		2022*		2023		2022*
SALES AND OPERATING REVENUES:
Coal sales	$	549,123	$	550,563	$	1,688,238	$	1,470,730
Oil & gas royalties		34,125		38,695		101,709		111,378
Transportation revenues		34,964		28,548		95,729		93,305
Other revenues		18,309		14,655		55,603		40,348
Total revenues		636,521		632,461		1,941,279		1,715,761

EXPENSES:
Operating expenses (excluding depreciation, depletion and amortization)		339,099		330,694		1,012,224		909,567
Transportation expenses		34,964		28,548		95,729		93,305
Outside coal purchases		11,530		—		15,739		151
General and administrative		20,097		21,360		61,312		62,462
Depreciation, depletion and amortization		65,393		70,669		199,582		202,499
Total operating expenses		471,083		451,271		1,384,586		1,267,984

INCOME FROM OPERATIONS		165,438		181,190		556,693		447,777

Interest expense (net of interest capitalized for the three and nine months ended September 30, 2023 and 2022 of $1,809, $264, $4,432 and $505, respectively)		(7,736)		(9,245)		(29,845)		(28,304)
Interest income		2,669		426		8,084		554
Equity method investment income (loss)		(1,842)		2,108		(3,784)		4,576
Other income (expense)		223		193		(173)		1,339
INCOME BEFORE INCOME TAXES		158,752		174,672		530,975		425,942

INCOME TAX EXPENSE		3,401		6,600		11,641		55,646

NET INCOME		155,351		168,072		519,334		370,296

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(1,652)		(364)		(4,660)		(977)

NET INCOME ATTRIBUTABLE TO ARLP	$	153,699	$	167,708	$	514,674	$	369,319

NET INCOME ATTRIBUTABLE TO ARLP
GENERAL PARTNER	$	—	$	3,101	$	1,384	$	6,582
LIMITED PARTNERS	$	153,699	$	164,607	$	513,290	$	362,737

EARNINGS PER LIMITED PARTNER UNIT - BASIC AND DILUTED	$	1.18	$	1.25	$	3.93	$	2.76

WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED		127,125,437		127,195,219		127,198,805		127,195,219

* Recast as discussed in Note 1 – Organization and Presentation.

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,
	2023		2022*		2023		2022*

NET INCOME	$	155,351	$	168,072	$	519,334	$	370,296

OTHER COMPREHENSIVE INCOME:

Defined benefit pension plan
Amortization of prior service cost (1)		47		47		140		140
Amortization of net actuarial loss (1)		169		495		513		1,467
Total defined benefit pension plan adjustments		216		542		653		1,607

Pneumoconiosis benefits
Amortization of net actuarial loss (1)		345		260		1,036		779
Total pneumoconiosis benefits adjustments		345		260		1,036		779

OTHER COMPREHENSIVE INCOME		561		802		1,689		2,386

COMPREHENSIVE INCOME		155,912		168,874		521,023		372,682

Less: Comprehensive income attributable to noncontrolling interest		(1,652)		(364)		(4,660)		(977)

COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP	$	154,260	$	168,510	$	516,363	$	371,705

(1)	Amortization of prior service cost and net actuarial loss is included in the computation of net periodic benefit cost (credit) (see Notes 13 and 15 for additional details).

* Recast as discussed in Note 1 – Organization and Presentation.

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,
	2023		2022*

CASH FLOWS FROM OPERATING ACTIVITIES	$	735,411	$	556,206

CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures		(295,356)		(221,286)
Change in accounts payable and accrued liabilities		(23,006)		39,500
Proceeds from sale of property, plant and equipment		3,436		5,006
Contributions to equity method investments		(2,257)		(20,220)
Purchase of equity securities		(49,560)		(32,639)
JC Resources acquisition		(64,999)		—
Payments for acquisitions of businesses		—		(11,391)
Escrow deposit for oil & gas reserve acquisition		—		(4,150)
Oil & gas reserve acquisition		(13,902)		—
Other		1,160		(2,317)
Net cash used in investing activities		(444,484)		(247,497)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under securitization facility		—		27,500
Payments under securitization facility		—		(27,500)
Payments on equipment financings		(11,421)		(12,360)
Borrowing under long-term debt		75,000		—
Payments on long-term debt		(120,080)		—
Payments on finance lease obligations		(334)		(623)
Payment of debt issuance costs		(11,744)		—
Payments for purchases of units under unit repurchase program		(19,432)		—
Payments for tax withholdings related to settlements under deferred compensation plans		(10,334)		—
Excess purchase price over the contributed basis from JC Resources acquisition		(7,251)		—
Cash retained by JC Resources in acquisition		(2,933)		(7,652)
Distributions paid to Partners		(273,767)		(130,898)
Other		(7,411)		(1,108)
Net cash used in financing activities		(389,707)		(152,641)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(98,780)		156,068
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		296,023		122,403
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	197,243	$	278,471

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	22,411	$	18,708
Cash paid for income taxes	$	10,420	$	17,404

SUPPLEMENTAL NON-CASH ACTIVITY:
Accounts payable for purchase of property, plant and equipment	$	21,275	$	47,825
Right-of-use assets acquired by operating lease	$	2,596	$	1,291
Market value of common units issued under deferred compensation plans before tax withholding requirements	$	28,906	$	—

* Recast as discussed in Note 1 – Organization and Presentation.

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, an indirect wholly owned subsidiary of ARLP.

●

References to "Alliance Minerals" mean Alliance Minerals, LLC, an indirect wholly owned subsidiary of ARLP.

●

References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, an indirect wholly owned subsidiary of ARLP.

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.

JC Resources Acquisition

On February 22, 2023, we acquired approximately 2,682 oil & gas net royalty acres in the Delaware Basin from JC Resources LP ("JC Resources"), an entity owned by Mr. Craft, for $72.3 million, which was funded with cash on hand ("JC Resources Acquisition"). Because JC Resources is owned by Mr. Craft, the JC Resources Acquisition is accounted for as a reorganization of entities under common control, whereby the assets and liabilities acquired from JC Resources are combined with the ARLP Partnership at their historical amounts for all periods presented. The recasting of 2022 for the JC Resources Acquisition increased revenues by $4.0 million and $10.0 million for the three and nine months ended September 30, 2022, respectively, and increased income from operations, net income and comprehensive income by $3.1 million and $6.6 million for the three and nine months ended September 30, 2022, respectively. We did not recast historical earnings per limited partner unit as pre-acquisition earnings from the JC Resources Acquisition were allocated to our general partner. For more information on this acquisition please see Note 2 – Acquisitions.

Ascend Investment

On August 22, 2023, we purchased $25.0 million of Series D Preferred Stock (the "Ascend Preferred Stock") from Ascend Elements, Inc. ("Ascend"), a U.S.-based manufacturer and recycler of sustainable, engineered battery materials for electric vehicles. The Ascend Preferred Stock provides for non-cumulative dividends when and if declared by Ascend's board of directors. Each share is convertible, at any time, at our option, into shares of common stock of Ascend. Our investment in Ascend furthers our business strategy to pursue opportunities that support the advancement of energy and related infrastructure and leverage our core competencies and relationships. For more information on this investment please see Note 9 – Equity Investments.

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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, 2023 and December 31, 2022, the results of our operations and comprehensive income for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. 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, 2022.

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, 2023.

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.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and on deposit, including highly liquid investments with maturities of three months or less. At times the ARLP Partnership maintains deposits in federally insured financial institutions in excess of stated federally insured limits. Management monitors the credit ratings and concentration of risk with these financial institutions on a continuing basis to safeguard cash deposits. Based on this monitoring and other diligence, including discussions with representatives of the financial institutions, we have no reason to believe that any of the financial institutions in which we have deposits in excess of stated federally insured limits are facing financial difficulties, defaults or limited liquidity situations that would cause us to be unable to access to our deposits.

2.ACQUISITIONS

JC Resources

As discussed in Note 1 – Organization and Presentation, on February 22, 2023, we completed the JC Resources Acquisition, which gives us increased exposure to a prolific area of the Delaware Basin that is within close proximity to reserves that we currently own. This acquisition was approved by the conflicts committee of MGP's board of directors, which is comprised entirely of independent directors. Because JC Resources is under common control with us, we recorded the acquisition at JC Resources' carrying value for each period presented. The carrying value of the mineral interests as well as related receivables and payables at February 22, 2023 was $65.0 million inclusive of $25.4 million and $37.8 million of mineral interests in proved and unproved properties, respectively. The JC Resources Acquisition increased revenues included in our condensed consolidated statements of income by $3.0 million and $8.3 million for the three and nine months ended September 30, 2023, respectively.

Acquisition Agreement

On January 27, 2023, we entered into a one-year collaborative agreement with a third party, effective January 1, 2023, committing up to $35.0 million for the acquisition of oil & gas mineral interests in the Midland and Delaware Basins. Under the agreement, the third party assists us in the identification, evaluation, and acquisition of target oil & gas mineral interests. In exchange for these services, the third party receives a participation share, partially funded by the third party, and is paid a periodic management fee. As of September 30, 2023, we have purchased $4.0 million and $3.8 million of

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oil & gas mineral interests in proved and unproved properties, respectively, pursuant to this agreement. Management fees paid under this agreement have been immaterial.

Miscellaneous Acquisitions

In addition to the acquisitions under the collaborative agreement discussed above, we purchased $3.6 million and $2.5 million of oil & gas mineral interests in proved and unproved properties, respectively, within the Midland and Delaware Basins during the nine months ended September 30, 2023.

3.CONTINGENCIES

Certain of our subsidiaries are party to litigation in which the plaintiffs allege violations of the Fair Labor Standards Act and state law due to 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 and collective action certification, which we oppose, and the courts have not yet made definitive final rulings on those issues. We believe our ultimate exposure, if any, will not be material to our results of operations or financial position; however, if our current belief as to the merit of the claims 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.

4.INVENTORIES

Inventories consist of the following:


	September 30,		December 31,
	2023		2022

	(in thousands)

Coal	$	67,965	$	23,553
Supplies (net of reserve for obsolescence of $7,869 and $6,601, respectively)		67,903		53,773
Total inventories, net	$	135,868	$	77,326

During the nine months ended September 30, 2023, we recorded lower of cost or net realizable value adjustments of $14.2 million to our coal inventories as a result of lower coal sale prices and higher cost per ton primarily due to the impact of the Mettiki longwall being idle since June 2023 as a result of delayed development of a new longwall district.

5.FAIR VALUE MEASUREMENTS

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


	September 30, 2023						December 31, 2022
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

	(in thousands)
Long-term debt	$	—	$	369,985	$	—	$	—	$	424,420	$	—
Total	$	—	$	369,985	$	—	$	—	$	424,420	$	—

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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 6 – 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.

6.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,
	2023		2022		2023		2022

	(in thousands)
Revolving credit facility	$	—	$	—	$	(8,207)	$	(2,702)
Term loan		70,312		—		(1,432)		—
Senior notes		284,608		400,000		(1,058)		(2,134)
Securitization facility		—		—		—		—
November 2019 equipment financing		12,552		21,072		—		—
June 2020 equipment financing		3,036		5,937		—		—
		370,508		427,009		(10,697)		(4,836)
Less current maturities		(39,026)		(24,970)		423		—
Total long-term debt	$	331,482	$	402,039	$	(10,274)	$	(4,836)

Credit Facility

On January 13, 2023, Alliance Coal, as borrower, entered into a Credit Agreement (the "Credit Agreement") with various financial institutions. The Credit Agreement provides for a $425 million revolving credit facility, which includes a sublimit of $15.0 million for swingline borrowings and permits the issuance of letters of credit up to the full amount of $425 million (the "Revolving Credit Facility"), and for a term loan in an aggregate principal amount of $75 million (the "Term Loan"). The Credit Agreement matures on March 9, 2027, at which time the aggregate outstanding principal amount of all Revolving Credit Facility advances and all Term Loan advances are required to be repaid in full. The Credit Agreement will instead mature on January 30, 2025, if on that date our Senior Notes, as discussed below, are still outstanding and Alliance Coal does not have liquidity of at least $200 million. Interest is payable quarterly, with principal of the Term Loan due in quarterly installments equal to 6.25% of the original principal amount of the Term Loan beginning with the quarter ending June 30, 2023 and the balance payable at maturity. The Revolving Credit Facility replaces the $459.5 million revolving credit facility, which included a sublimit of $125.0 million for the issuance of letters of credit and a sublimit of $15.0 million for swingline borrowings, extended to the Intermediate Partnership under its Fifth Amended and Restated Credit Agreement, dated as of March 9, 2020 that would have expired on March 9, 2024. We incurred debt issuance costs during the nine months ended September 30, 2023 of $11.7 million in connection with the Credit Agreement. These debt issuance costs are deferred and amortized as a component of interest expense over the term of the Revolving Credit Facility.

The Revolving Credit Facility is underwritten by a syndicate of eighteen financial institutions and the obligations of the lenders are individual obligations, which means the failure of one or more lenders to be able to fund its obligation does not relieve the remaining lenders from funding their obligations. Based on our diligence, including discussions with representatives of certain of these financial institutions, as of September 30, 2023 we have no reason to believe that the banks within our syndicate are facing financial difficulties, defaults or limited liquidity situations that would cause them to be unable to fund their obligations under the Credit Agreement. However, should any of the banks in our syndicate experience conditions in the future that limit their ability to fund their obligations, the amount available under the Revolving Credit Facility could be reduced.

The Credit Agreement is guaranteed by ARLP and certain of its subsidiaries, including the Intermediate Partnership and most of the direct and indirect subsidiaries of Alliance Coal (the "Subsidiary Guarantors"). The Credit

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Agreement also is secured by substantially all of the assets of the Subsidiary Guarantors and Alliance Coal. Borrowings under the Credit Agreement bear interest, at our option, at either (i) an adjusted one-month, three-month or six-month term rate based on the secured overnight financing rate published by the Federal Reserve Bank of New York, plus the applicable margin or (ii) the base rate plus the applicable margin. The base rate is the highest of (i) the Overnight Bank Funding Rate plus 0.50%, (ii) the Administrative Agent's prime rate, and (iii) the Daily Simple Secured Overnight Financing Rate plus 100 basis points. The applicable margin for borrowings under the Credit Agreement are determined by reference to the Consolidated Debt to Consolidated Cash Flow Ratio. For borrowings under the Term Loan, we elected the three-month term rate, with applicable margin, which was 8.55% as of September 30, 2023. At September 30, 2023, we had $41.0 million of letters of credit outstanding with $384.0 million available for borrowing under the Revolving Credit Facility. We incurred an annual commitment fee of 0.50% on the undrawn portion of the Revolving Credit Facility. We utilize the Credit Agreement, as appropriate, for working capital requirements, capital expenditures and investments, scheduled debt payments and distribution payments.

The Credit Agreement contains various restrictions affecting Alliance Coal and its subsidiaries, including, among other things, restrictions on incurrence of additional indebtedness and liens, sale of assets, investments, mergers and consolidations and transactions with affiliates. In each case, these restrictions are subject to various exceptions. In addition, restrictions apply to cash distributions by Alliance Coal to the Intermediate Partnership if such distribution would result in exceeding a minimum fixed charge coverage ratio (as determined in the Credit Agreement) or in Alliance Coal having liquidity of less than $200 million. The Credit Agreement requires us to maintain (a) a debt of Alliance Coal to cash flow ratio of not more than 1.5 to 1.0, (b) a consolidated debt of Alliance Coal and the Intermediate Partnership to cash flow ratio of not more than 2.5 to 1.0 and (c) an interest coverage ratio of not less than 3.0 to 1.0, in each case, during the four most recently ended fiscal quarters. The debt of Alliance Coal to cash flow ratio, consolidated debt of Alliance Coal and the Intermediate Partnership to cash flow ratio, and interest coverage ratio were 0.10 to 1.0, 0.43 to 1.0 and 95.83 to 1.0, respectively, for the trailing twelve months ended September 30, 2023. We were in compliance with the covenants of the Credit Agreement as of September 30, 2023 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. During the nine months ended September 30, 2023, we repurchased or redeemed $115.4 million of our Senior Notes. The gain on extinguishment of the Senior Notes is immaterial.

Accounts Receivable Securitization

Certain direct and indirect wholly owned subsidiaries of our Intermediate Partnership are party to a $60.0 million accounts receivable securitization facility ("Securitization Facility"). 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, 2023, we had $11.7 million of letters of credit outstanding with $48.3 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. In January 2023, we extended the term of the Securitization Facility to January 2024. The Securitization Facility was previously scheduled to mature in January 2023. At September 30, 2023, we did not have any outstanding borrowings under the Securitization Facility.

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

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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 reverted 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.

7.INCOME TAXES

Components of income tax expense are as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

	(in thousands)
Current:
Federal	$	5,429	$	5,944	$	13,676	$	17,153
State		373		387		946		1,218
		5,802		6,331		14,622		18,371
Deferred:
Federal		(2,077)		267		(2,598)		34,932
State		(324)		2		(383)		2,343
		(2,401)		269		(2,981)		37,275
Income tax expense	$	3,401	$	6,600	$	11,641	$	55,646

On March 15, 2022, Alliance Minerals changed its U.S. 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. The Tax Election resulted in the recognition of an initial deferred tax liability of $37.3 million and a corresponding increase to income tax expense for the nine months ended September 30, 2022.

The effective income tax rate for our income tax expense for the three and nine months ended September 30, 2023 is less than the federal statutory rate, primarily due to the portion of income not subject to income taxes. The effective income tax rate for our income tax expense for the three and nine months ended September 30, 2022 is less than the federal statutory rate, primarily due to the portion of income not subject to income taxes, partially offset by the effect of the Tax Election.

Our 2020 through 2022 tax years remain open to examination by tax authorities, and lower-tier partnership income tax returns for the tax years ended December 31, 2020 and 2021 are being audited by the Internal Revenue Service.

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8.VARIABLE INTEREST ENTITIES

Cavalier Minerals

On November 10, 2014, our subsidiary, Alliance Minerals, and Bluegrass Minerals Management, LLC ("Bluegrass Minerals") entered into a limited liability company agreement (the "Cavalier Agreement") to create Cavalier Minerals JV, LLC ("Cavalier Minerals"), which was formed to indirectly acquire oil & gas mineral interests through its ownership in AllDale I & II. Alliance Minerals owns a 96% member interest in Cavalier Minerals, and Bluegrass Minerals owns a 4% member interest in Cavalier Minerals and a profits interest which entitles it to receive distributions equal to 25% of all distributions (including in liquidation) after all members have recovered their investment. All members have recovered their investment and Bluegrass Minerals began receiving its profits interest distributions in late 2022. We hold the managing member interest in Cavalier Minerals.

We have concluded that Cavalier Minerals is a variable interest entity ("VIE") which we consolidate as the primary beneficiary because we are the managing member and a substantial equity owner in Cavalier Minerals. Bluegrass Minerals' equity ownership of Cavalier Minerals is accounted for as noncontrolling ownership interest in our condensed consolidated balance sheets. In addition, earnings attributable to Bluegrass Minerals are recognized as noncontrolling interest in our condensed consolidated statements of income.

AllDale III

In February 2017, Alliance Minerals committed to directly invest $