10-Q 1 arlp-20240331x10q.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 March 31, 2024

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 May 9, 2024, 128,061,981 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 March 31, 2024 and December 31, 2023

1

Condensed Consolidated Statements of Income for the three months ended March 31, 2024 and 2023

2

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023

3

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

4

Notes to Condensed Consolidated Financial Statements

5

1.     Organization and Presentation

5

2.     New Accounting Standards

6

3.     Acquisitions

6

4.     Contingencies

7

5.     Inventories

7

6.     Digital Assets

8

7.     Fair Value Measurements

8

8.     Long-Term Debt

9

9.     Income Taxes

11

10.   Variable Interest Entities

11

11.   Equity Investments

13

12.   Partners' Capital

14

13.   Revenue from Contracts with Customers

16

14.   Earnings per Limited Partner Unit

16

15.   Workers' Compensation and Pneumoconiosis

17

16.   Common Unit-Based Compensation Plans

18

17.   Components of Pension Plan Net Periodic Benefit Cost

19

18.   Segment Information

19

ITEM 2.

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

23

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

30

ITEM 4.

Controls and Procedures

31

Forward-Looking Statements

32

PART II

OTHER INFORMATION

ITEM 1.

Legal Proceedings

34

ITEM 1A.

Risk Factors

34

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

ITEM 3.

Defaults Upon Senior Securities

34

ITEM 4.

Mine Safety Disclosures

34

ITEM 5.

Other Information

35

ITEM 6.

Exhibits

35

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)

March 31, 

December 31, 

2024

    

2023

ASSETS

    

 

CURRENT ASSETS:

Cash and cash equivalents

$

133,957

$

59,813

Trade receivables

 

272,191

 

282,622

Other receivables

 

9,208

 

9,678

Inventories, net

 

162,197

 

127,556

Advance royalties

 

6,173

 

7,780

Digital assets

 

30,325

 

9,579

Prepaid expenses and other assets

    

 

16,891

    

 

19,093

Total current assets

 

630,942

 

516,121

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment, at cost

 

4,284,051

 

4,172,544

Less accumulated depreciation, depletion and amortization

 

(2,204,392)

 

(2,149,881)

Total property, plant and equipment, net

 

2,079,659

 

2,022,663

OTHER ASSETS:

Advance royalties

 

78,933

 

71,125

Equity method investments

 

45,693

 

46,503

Equity securities

92,541

 

92,541

Operating lease right-of-use assets

16,357

16,569

Other long-term assets

 

21,662

 

22,904

Total other assets

 

255,186

 

249,642

TOTAL ASSETS

$

2,965,787

$

2,788,426

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:

Accounts payable

$

107,600

$

108,269

Accrued taxes other than income taxes

 

21,367

 

21,007

Accrued payroll and related expenses

 

27,301

 

29,884

Accrued interest

 

9,067

 

3,558

Workers' compensation and pneumoconiosis benefits

 

15,913

 

15,913

Other current liabilities

 

46,295

 

28,498

Current maturities, long-term debt, net

 

76,422

 

20,338

Total current liabilities

 

303,965

 

227,467

LONG-TERM LIABILITIES:

Long-term debt, excluding current maturities, net

 

354,619

 

316,821

Pneumoconiosis benefits

 

128,809

 

127,249

Accrued pension benefit

 

8,112

 

8,618

Workers' compensation

 

36,843

 

37,257

Asset retirement obligations

 

147,769

 

146,925

Long-term operating lease obligations

 

13,684

 

13,661

Deferred income tax liabilities

 

33,060

 

33,450

Other liabilities

 

17,522

 

18,381

Total long-term liabilities

 

740,418

 

702,362

Total liabilities

 

1,044,383

 

929,829

COMMITMENTS AND CONTINGENCIES - (NOTE 4)

PARTNERS' CAPITAL:

ARLP Partners' Capital:

Limited Partners - Common Unitholders 128,061,981 and 127,125,437 units outstanding, respectively

 

1,958,382

 

1,896,027

Accumulated other comprehensive loss

 

(60,602)

 

(61,525)

Total ARLP Partners' Capital

 

1,897,780

 

1,834,502

Noncontrolling interest

23,624

24,095

Total Partners' Capital

1,921,404

1,858,597

TOTAL LIABILITIES AND PARTNERS' CAPITAL

$

2,965,787

$

2,788,426

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

March 31, 

    

2024

    

2023

    

SALES AND OPERATING REVENUES:

Coal sales

$

561,879

$

578,784

Oil & gas royalties

37,030

34,497

Transportation revenues

 

30,753

 

30,238

Other revenues

 

22,035

 

19,403

Total revenues

 

651,697

 

662,922

EXPENSES:

Operating expenses (excluding depreciation, depletion and amortization)

 

363,859

 

338,723

Transportation expenses

 

30,753

 

30,238

Outside coal purchases

 

9,112

 

General and administrative

 

22,129

 

21,085

Depreciation, depletion and amortization

 

65,549

 

65,550

Total operating expenses

 

491,402

 

455,596

INCOME FROM OPERATIONS

 

160,295

 

207,326

Interest expense (net of interest capitalized for the three months ended March 31, 2024 and 2023 of $2,298 and $1,407, respectively)

 

(7,749)

 

(12,676)

Interest income

 

1,276

 

2,790

Equity method investment income (loss)

 

(553)

 

52

Change in fair value of digital assets

 

11,853

 

Other expense

 

(606)

 

(573)

INCOME BEFORE INCOME TAXES

 

164,516

 

196,919

INCOME TAX EXPENSE

 

4,949

 

4,241

NET INCOME

159,567

192,678

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

 

(1,510)

 

(1,493)

NET INCOME ATTRIBUTABLE TO ARLP

$

158,057

$

191,185

NET INCOME ATTRIBUTABLE TO ARLP

GENERAL PARTNER

$

$

1,384

LIMITED PARTNERS

$

158,057

$

189,801

EARNINGS PER LIMITED PARTNER UNIT - BASIC AND DILUTED

$

1.21

$

1.45

WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED

 

127,670,897

 

127,289,340

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

March 31, 

    

2024

    

2023

    

NET INCOME

$

159,567

$

192,678

OTHER COMPREHENSIVE INCOME:

Defined benefit pension plan

Amortization of prior service cost (1)

47

47

Amortization of net actuarial loss (1)

 

37

 

173

Total defined benefit pension plan adjustments

 

84

 

220

Pneumoconiosis benefits

Amortization of net actuarial loss (1)

 

839

 

345

Total pneumoconiosis benefits adjustments

 

839

 

345

OTHER COMPREHENSIVE INCOME

 

923

 

565

COMPREHENSIVE INCOME

160,490

193,243

Less: Comprehensive income attributable to noncontrolling interest

(1,510)

(1,493)

COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP

$

158,980

$

191,750

(1)Amortization of prior service cost and net actuarial loss is included in the computation of net periodic benefit cost (credit) (see Notes 15 and 17 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)

Three Months Ended

March 31, 

    

2024

    

2023

    

CASH FLOWS FROM OPERATING ACTIVITIES

$

209,673

$

221,688

CASH FLOWS FROM INVESTING ACTIVITIES:

Property, plant and equipment:

Capital expenditures

 

(123,846)

 

(95,474)

Change in accounts payable and accrued liabilities

 

4,331

 

12,110

Proceeds from sale of property, plant and equipment

 

164

 

2,395

Contributions to equity method investments

 

(625)

 

(540)

JC Resources acquisition

 

(64,999)

Oil & gas reserve asset acquisitions

(1,822)

(2,800)

Other

 

1,286

 

2,160

Net cash used in investing activities

 

(120,512)

 

(147,148)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under securitization facility

75,000

 

Payments under securitization facility

(30,000)

 

Proceeds from equipment financings

54,626

 

Payments on equipment financings

(1,976)

 

(3,759)

Borrowings under revolving credit facilities

 

20,000

 

Payments under revolving credit facilities

 

(20,000)

 

Borrowing under long-term debt

 

75,000

Payments on long-term debt

 

(4,688)

 

(26,633)

Payment of debt issuance costs

 

 

(11,653)

Payments for purchases of units under unit repurchase program

 

(18,209)

Payments for tax withholdings related to settlements under deferred compensation plans

 

(13,292)

 

(9,320)

Excess purchase price over the contributed basis from JC Resources acquisition

 

(7,251)

Cash retained by JC Resources in acquisition

 

(2,933)

Distributions paid to Partners

(91,246)

 

(91,938)

Other

 

(3,441)

 

(2,617)

Net cash used in financing activities

 

(15,017)

 

(99,313)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

74,144

 

(24,773)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

59,813

 

296,023

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

133,957

$

271,250

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest

$

3,248

$

2,175

SUPPLEMENTAL NON-CASH ACTIVITY:

Accounts payable for purchase of property, plant and equipment

$

18,917

$

56,391

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

$

32,566

$

27,906

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, 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.

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 March 31, 2024 and December 31, 2023 and the results of our operations, comprehensive income and cash flows for the three months ended March 31, 2024 and 2023.  All intercompany transactions and accounts have been eliminated. Certain immaterial amounts in the prior quarter have been reclassified to conform to the current quarter presentation.

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, 2023.

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, 2024.

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.

5

Digital Assets

We began our crypto-mining activities during the second half of 2020 as we started mining bitcoin as a pilot project to monetize already paid for, yet underutilized, electricity load.  We continue to periodically be awarded digital assets through our crypto-mining activities. The awards are accounted for as revenue and valued at the exchange quoted price at the time they are awarded. Beginning January 1, 2024, with our adoption of the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60) ("ASU 2023-08"), the digital assets we hold are subsequently remeasured to fair value based on the exchange quoted price as of the balance sheet date and included on our condensed consolidated balance sheets within the Digital assets line item.  The fair value of our digital assets are based on the exchange quoted price and represent a Level 1 input under the fair value hierarchy. The activity from remeasurement of digital assets to fair value is reflected in our condensed consolidated statements of income within the Change in fair value of digital assets line item. Digital assets sold for cash nearly immediately after they are awarded to us for mining activities are presented as cash flows from operating activities, while other sales are reflected as cash flows from investing activities in our condensed consolidated statements of cash flows. Our realized gains or losses are determined as the difference between the proceeds received when the digital assets are sold and our cost basis in the digital assets. Our cost basis is the value of the digital assets when they are awarded less any impairment recognized prior to our adoption of ASU 2023-08. We use a first-in, first-out methodology to assign costs to our digital assets in the calculation of our realized gains or losses. See Note 6 – Digital Assets for additional information.  

2.NEW ACCOUNTING STANDARDS

New Accounting Standards Issued and Adopted

In December 2023, the FASB issued ASU 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60) ("ASU 2023-08"), which requires an entity to measure certain digital assets at fair value with changes in the fair value recognized in net income. In addition, the guidance requires additional disclosures related to digital assets once adopted.  We adopted ASU 2023-08, effective January 1, 2024, which resulted in a cumulative-effect adjustment to increase the opening balance of Partners' Capital of $6.2 million.  See Note 6 – Digital Assets for more information on our digital assets.

New Accounting Standards Issued and Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 primarily requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker ("CODM"), the amount and composition of other segment items, and the title and position of the CODM. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-07, but do not expect it to have a material effect on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 primarily requires enhanced disclosures to (1) disclose specific categories in the rate reconciliation, (2) disclose the amount of income taxes paid and expensed disaggregated by federal, state, and foreign taxes, with further disaggregation by individual jurisdictions if certain criteria are met, and (3) disclose income (loss) from continuing operations before income tax (benefit) disaggregated between domestic and foreign. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09, but do not expect it to have a material effect on our consolidated financial statements.

3.ACQUISITIONS

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. On February 19, 2024, we renewed this agreement for an additional one-year term, committing up to $25.0 million.  Under

6

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.  During the three months ended March 31, 2024, we purchased $0.3 million and $0.1 million of 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 $0.3 million and $1.2 million of oil & gas mineral interests in proved and unproved properties, respectively, during the three months ended March 31, 2024.

4.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. In April 2024, we entered into a settlement agreement with the plaintiffs pursuant to which we agreed to settle such litigation for $15.3 million. As a result of reaching this settlement, which is subject to court approval, we have accrued $15.3 million as of March 31, 2024.  Our $15.3 million accrual is included in the Other current liabilities line item on our condensed consolidated balance sheet.

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 (if any), such matters could have a material adverse effect on our business and operations.

5.INVENTORIES

Inventories consist of the following:

    

March 31, 

December 31, 

2024

    

2023

 

(in thousands)

Coal

$

88,108

$

56,549

Finished goods (net of reserve for obsolescence of $745 and $728, respectively)

4,174

3,908

Work in process

562

791

Raw materials

2,097

2,144

94,941

63,392

Supplies (net of reserve for obsolescence of $7,719 and $7,439, respectively)

 

67,256

 

64,164

Total inventories, net

$

162,197

$

127,556

During the three months ended March 31, 2024, we recorded lower of cost or net realizable value adjustments of $7.3 million to our coal inventories. These adjustments are a result of lower coal sale prices and higher cost per ton primarily due to a longwall move at Hamilton County Coal, LLC ("Hamilton") and ongoing development activities at the Henderson County mine at our River View Coal, LLC ("River View") mining complex.

Certain of our subsidiaries, primarily consisting of Matrix Design Group, LLC, its subsidiaries, and Alliance Design Group, LLC (collectively referred to as "Matrix Group"), manufacture a variety of products for our mining operations and third parties.  These products are primarily consumed internally by our mining operations with associated inventory historically presented as supplies inventory.  Recently Matrix Group has been increasing its production of

7

products with the intention to increase third-party sales.  We have therefore presented our manufactured goods inventories in the table above separately from our historical presentation of supplies inventory.

6.DIGITAL ASSETS

The following table sets forth our digital assets as shown on the condensed consolidated balance sheet:

March 31, 2024

Units

Cost Basis

Fair Value

Digital assets:

(in thousands, except unit data)

Bitcoin

425.10

$

12,769

$

30,325

Total

$

12,769

$

30,325

The following table represents a reconciliation of the fair values of our digital assets:

Three Months Ended

March 31, 

    

2024

Digital assets:

(in thousands)

Beginning balance

$

15,811

Additions

3,604

Dispositions

(943)

Change in fair value gains

11,853

Ending balance

$

30,325

As discussed in Note 2 – New Accounting Standards, our beginning balance is inclusive of a cumulative-effect adjustment of $6.2 million as of January 1, 2024.  Additions are the result of awarded digital assets received from our crypto-mining activities, while dispositions are the result of sales and payments for services. During the three months ended March 31, 2024, we had digital asset dispositions of $0.9 million, inclusive of realized gains of $0.6 million.

7.FAIR VALUE MEASUREMENTS

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

March 31, 2024

December 31, 2023

    

Level 1

    

Level 2

    

Level 3

    

Level 1

    

Level 2

    

Level 3

 

(in thousands)

Long-term debt

$

$

440,659

$

$

$

347,116

$

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 8 – Long-Term Debt for additional information on our long-term debt.

8

8.LONG-TERM DEBT

Long-term debt consists of the following:

Unamortized Discount and

Principal

Debt Issuance Costs

March 31, 

December 31, 

March 31, 

December 31, 

    

2024

    

2023

    

2024

    

2023

 

(in thousands)

Revolving credit facility

$

$

$

(7,478)

$

(8,118)

Term loan

 

56,250

 

60,938

 

(1,304)

 

(1,416)

Senior notes

 

284,607

 

284,607

 

(724)

 

(891)

Securitization facility

45,000

June 2020 equipment financing

1,028

2,039

February 2024 equipment financing

53,662

 

440,547

 

347,584

 

(9,506)

 

(10,425)

Less current maturities

 

(76,873)

 

(20,789)

 

451

 

451

Total long-term debt

$

363,674

$

326,795

$

(9,055)

$

(9,974)

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 on 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 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 March 31, 2024 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 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 8.46% as of March 31, 2024.  At March 31, 2024, 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.  

9

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 0.21 to 1.0, 0.59 to 1.0 and 59.18 to 1.0, respectively, for the trailing twelve months ended March 31, 2024. We were in compliance with the covenants of the Credit Agreement as of March 31, 2024 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 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.

Accounts Receivable Securitization

Certain direct and indirect wholly owned subsidiaries of our Intermediate Partnership are party to a $90.0 million accounts receivable securitization facility ("Securitization Facility") which matures in January 2025. 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 $90.0 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 March 31, 2024, we had $11.7 million of letters of credit outstanding with $33.3 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.

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.

February 2024 Equipment Financing

On February 28, 2024, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $54.6 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 "February 2024 Equipment Financing"). The February 2024 Equipment Financing contains customary terms and events of default and provides for forty-eight monthly payments with an implicit interest rate of 8.29%, maturing on February 28, 2028. Upon maturity, the equipment will revert to the Intermediate Partnership.

10

9.INCOME TAXES

Components of income tax expense are as follows:

Three Months Ended

March 31, 

2024

    

2023

    

(in thousands)

Current:

Federal

$

4,718

$

4,312

State

 

338

 

301

 

5,056

 

4,613

Deferred:

Federal

 

(127)

 

(331)

State

 

20

 

(41)

 

(107)

 

(372)

Income tax expense

$

4,949

$

4,241

The effective income tax rates for our income tax expense for the three months ended March 31, 2024 and 2023 are less than the federal statutory rate, primarily due to the portion of income not subject to income taxes.

Our 2020 through 2023 tax years remain open to examination by tax authorities, and certain lower-tier partnership income tax returns for the tax years ended December 31, 2020 and 2021 are being audited by the Internal Revenue Service.

10.VARIABLE INTEREST ENTITIES

AllDale I & II and Cavalier Minerals

We own the general partner interests and, including the limited partner interests we hold through our ownership in Cavalier Minerals JV, LLC ("Cavalier Minerals"), approximately 97% of the limited partner interests in AllDale Minerals LP ("AllDale I") and AllDale Minerals II, LP ("AllDale II", and collectively with AllDale I, "AllDale I & II"). As the general partner of AllDale I & II, we are entitled to receive 20.0% of all distributions from AllDale I & II with the remaining 80.0% allocated to limited partners based upon ownership percentages.

Cavalier Minerals owns approximately 72% of the limited partner interests in AllDale I & II. We own the managing member interest and a 96% member interest in Cavalier Minerals. Bluegrass Minerals Management, LLC ("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 have concluded that AllDale I, AllDale II and Cavalier Minerals are variable interest entities ("VIEs") which we consolidate as the primary beneficiary because we have the power to direct the activities that most significantly impact the economic performance of AllDale I, AllDale II and Cavalier Minerals in addition to having substantial equity ownership.

Our share of Cavalier Minerals' investment in AllDale I & II is eliminated in consolidation and Bluegrass Minerals' investment in Cavalier Minerals is accounted for as noncontrolling ownership interest on our condensed consolidated balance sheets. Additionally, earnings attributable to Bluegrass Minerals are recognized as noncontrolling interest in our condensed consolidated statements of income.

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The following table presents the carrying amounts and classification of AllDale I & II's assets and liabilities included in our condensed consolidated balance sheets:

March 31, 

December 31, 

2024

    

2023

Assets (liabilities):

    

(in thousands)

 

Cash and cash equivalents

$

4,229

$

4,690

Trade receivables

 

17,131

 

16,058

Total property, plant and equipment, net

 

385,580

 

389,767

Accounts payable

(202)

(175)

Accrued taxes other than income taxes

 

(280)

(958)

AllDale III

AllDale Minerals III, LP ("AllDale III") owns oil & gas mineral interests in areas around the oil & gas mineral interests we own. Alliance Minerals owns a 13.9% limited partner interest in AllDale III. Alliance Minerals' investment in AllDale III is subject to a 25% profits interest for the general partner that is subject to a return hurdle equal to the greater of 125% of cumulative capital contributions and a 10% internal rate of return, and following an 80/20 "catch-up" provision for the general partner.

We have concluded that AllDale III is a VIE that we do not consolidate because we are not the primary beneficiary and AllDale III is structured as a limited partnership with the limited partners (1) not having the ability to remove the general partner and (2) not participating significantly in the operational decisions. We are not the primary beneficiary of AllDale III because we do not have the power to direct the activities that most significantly impact AllDale III's economic performance. See Note 11 – Equity Investments for more information about the accounting for our investment in AllDale III.

Francis

On April 5, 2022, we invested $20 million in Francis Renewable Energy, LLC ("Francis"), in the form of a convertible note. Our convertible note matured on April 1, 2023 and was converted into a preferred equity interest in Francis.  Prior to conversion, we had determined the note more closely represented equity as opposed to debt. Therefore, we accounted for the convertible note as an equity contribution even though we did not participate in Francis' earnings or losses and were not eligible to receive distributions during the term of the note. Subsequent to the conversion on April 1, 2023, we participate in earnings and losses and are eligible to receive distributions. As of March 31, 2024, we held approximately 16.7% of Francis' equity.

We have concluded that Francis is a VIE that we do not consolidate because we are not the primary beneficiary and Francis' management structure is similar to a limited partnership with the non-managing members (i) not having the ability to remove the managing member and (ii) not participating significantly in the operational decisions. We are not the primary beneficiary of Francis because we do not have the power to direct the activities that most significantly impact Francis's economic performance. See Note 11 – Equity Investments for more information about the accounting for our investment in Francis.

NGP ET IV

On June 2, 2022, we committed to purchase $25.0 million of limited partner interests in NGP Energy Transition, L.P. ("NGP ET IV"), a private equity fund sponsored by NGP and focused on investments that are part of the global transition toward a lower carbon economy. This commitment represents a 3.6% interest in NGP ET IV. As of March 31, 2023, we have funded $7.2 million of this commitment.  

We have concluded that NGP ET IV is a VIE that we do not consolidate because we are not the primary beneficiary and NGP ET IV is structured as a limited partnership with limited partners (i) not having the ability to remove the general partner and (ii) not participating significantly in the operational decisions. We are not the primary beneficiary of NGP ET IV because we do not have the power to direct the activities that most significantly impact NGP ET IV's economic performance. See Note 11 – Equity Investments for more information about the accounting for our investment in NGP ET IV.

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11.           EQUITY INVESTMENTS

AllDale III

We account for our ownership interest in the income or loss of AllDale III as an equity method investment. We record equity income or loss based on AllDale III's distribution structure. The changes in our equity method investment in AllDale III were as follows:

Three Months Ended

March 31, 

    

2024

    

2023

(in thousands)

Beginning balance

$

23,933

$

25,284

Equity method investment income

507

425

Distributions received

(882)

(1,014)

Ending balance

$

23,558

$

24,695

Francis

We account for our ownership interest in the income or loss of Francis as an equity method investment. Prior to the conversion of our convertible note, we did not participate in Francis' earnings or losses; however, upon conversion on April 1, 2023 we began participating. As a development stage company, Francis depends primarily on capital contributions to meet its operating and debt obligations.  We currently believe that the carrying value of our investment is recoverable; however, if Francis is unable to raise sufficient funds to continue its operations and meet its debt obligations, it could have an adverse effect on our investment. The changes in our equity method investment in Francis were as follows:

Three Months Ended

March 31, 

2024

        

2023

    

(in thousands)

Beginning balance

$

16,487

$

20,000

Equity method investment loss

(1,097)

Ending balance

$

15,390

$

20,000

NGP ET IV

We account for our ownership interest in the income or loss of NGP ET IV as an equity method investment. The changes in our equity method investment in NGP ET IV were as follows:

Three Months Ended

March 31, 

2024

        

2023

(in thousands)

Beginning balance

$

6,083

$

4,087

Contributions

625

540

Equity method investment income (loss)

37

(373)

Ending balance

$

6,745

$

4,254

Infinitum

During 2022, we purchased $42.0 million of Series D Preferred Stock ("Series D Preferred Stock") in Infinitum Electric, Inc. ("Infinitum"), a Texas-based startup developer and manufacturer of electric motors featuring printed circuit board stators.  On September 8, 2023, we purchased $24.6 million of Series E Preferred Stock ("Series E Preferred Stock" and, together with the "Series D Preferred Stock," the "Infinitum Preferred Stock") in Infinitum.  The Infinitum Preferred Stock provides for non-cumulative dividends when and if declared by Infinitum's board of directors. Each share of

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Infinitum Preferred Stock is convertible, at any time, at our option, into shares of common stock of Infinitum. We account for our ownership interest in Infinitum as an equity investment without a readily determinable fair value. Absent an observable price change, it is not practicable to estimate the fair value of our investment in Infinitum because of the lack of a quoted market price for our ownership interests.  Therefore, we use a measurement alternative other than fair value to account for our investment.

Ascend

On August 22, 2023, we purchased $25.0 million of Series D Preferred Stock (the "Ascend Preferred Stock") in 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. We account for our ownership interest in Ascend as an equity investment without a readily determinable fair value.  Absent an observable price change, it is not practicable to estimate the fair value of our investment in Ascend because of the lack of a quoted market price for our ownership interests.  Therefore, we use a measurement alternative other than fair value to account for our investment.  

12.PARTNERS' CAPITAL

Distributions

Distributions paid or declared during 2023 and 2024 were as follows:

Payment Date

    

Per Unit Cash Distribution

 

Total Cash Distribution

 

(in thousands)

February 14, 2023

$

0.7000

$

91,938

May 15, 2023

0.7000

90,930

August 14, 2023

0.7000

90,899

November 14, 2023

0.7000

90,812

Total

$

2.8000

$

364,579

February 14, 2024

$

0.7000

$

91,246

May 15, 2024 (1)

0.7000

Total

$

1.4000

$

91,246

(1)On April 26, 2024, we declared this quarterly distribution payable on May 15, 2024 to all unitholders of record as of May 8, 2024.  

Unit Repurchase Program

In January 2023, the board of directors of MGP authorized a $93.5 million increase to the unit repurchase program  authorizing us to be able to repurchase up to a total of $100.0 million of ARLP common units from that date. No units were repurchased during the three months ended March 31, 2024. During the three months ended March 31, 2023, we repurchased and retired 860,060 units at an average unit price of $21.17 for an aggregate purchase price of $18.2 million.  Since inception of the unit repurchase program, we have repurchased and retired 6,390,446 units at an average unit price of $17.67 for an aggregate purchase price of $112.9 million.

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Change in Partners' Capital

The following tables present the quarterly change in Partners' Capital for the three months ended March 31, 2024 and 2023:

Accumulated

Number of

Limited 

General

Other