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, 2022March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to________________
Commission File No.: 0-26823
ALLIANCE RESOURCE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware |
| 73-1564280 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
1717 South Boulder Avenue, Suite 400, Tulsa, Oklahoma 74119
(Address of principal executive offices and zip code)
(918) 295-7600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X ] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | |
Large Accelerated Filer ☒ | Accelerated Filer ☐ | Non-Accelerated Filer ☐ | Smaller Reporting Company ☐ |
Emerging Growth Company ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common units representing limited partner interests | ARLP | NASDAQ Global Select Market |
As of November 7, 2022,May 9, 2023, 127,195,219 common units are outstanding.
TABLE OF CONTENTS
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i
PART I
FINANCIAL INFORMATION
| | |
| | Page |
| | |
| ||
| ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES | |
| Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 | 1 |
| Condensed Consolidated Statements of Income for the three months ended March 31, 2023 and 2022 | 2 |
| 3 | |
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 | 4 |
| 5 | |
| 5 | |
| 6 | |
| 6 | |
| 7 | |
| 7 | |
| 8 | |
| 10 | |
| 10 | |
| 12 | |
| 13 | |
| 15 | |
| 15 | |
| 16 | |
| 17 | |
| 18 | |
| 18 | |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 21 | |
29 | ||
30 | ||
| 31 | |
| | |
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33 | ||
33 | ||
34 | ||
34 | ||
34 | ||
34 | ||
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)
| | | | | | | | | | | | | | |
| | September 30, | | December 31, | | | March 31, | | December 31, | | ||||
| | 2022 |
| 2021 | | | 2023 |
| 2022* | | ||||
ASSETS |
| | | | | |
|
| | | | | |
|
CURRENT ASSETS: | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 278,471 | | $ | 122,403 | | | $ | 271,250 | | $ | 296,023 | |
Trade receivables | |
| 190,435 | |
| 129,531 | | |
| 266,334 | |
| 241,412 | |
Other receivables | |
| 6,873 | |
| 680 | | |
| 9,892 | |
| 8,601 | |
Inventories, net | |
| 98,765 | |
| 60,302 | | |
| 108,648 | |
| 77,326 | |
Advance royalties | |
| 3,458 | |
| 4,958 | | |
| 5,824 | |
| 7,556 | |
Prepaid expenses and other assets |
|
| 14,733 |
|
| 21,354 | |
|
| 19,330 |
|
| 26,675 | |
Total current assets | |
| 592,735 | |
| 339,228 | | |
| 681,278 | |
| 657,593 | |
PROPERTY, PLANT AND EQUIPMENT: | | | | | | | | | | | | | | |
Property, plant and equipment, at cost | |
| 3,765,400 | |
| 3,608,347 | | |
| 4,018,071 | |
| 3,931,422 | |
Less accumulated depreciation, depletion and amortization | |
| (2,034,345) | |
| (1,909,669) | | |
| (2,108,819) | |
| (2,050,754) | |
Total property, plant and equipment, net | |
| 1,731,055 | |
| 1,698,678 | | |
| 1,909,252 | |
| 1,880,668 | |
OTHER ASSETS: | | | | | | | | | | | | | | |
Advance royalties | |
| 70,181 | |
| 63,524 | | |
| 75,331 | |
| 67,713 | |
Equity method investments | |
| 46,158 | |
| 26,325 | | |
| 48,949 | |
| 49,371 | |
Equity securities | | | 32,639 | |
| — | | | | 42,000 | |
| 42,000 | |
Goodwill | | | 4,373 | | | 4,373 | | |||||||
Operating lease right-of-use assets | | | 15,395 | | | 14,158 | | | | 15,944 | | | 14,950 | |
Other long-term assets | |
| 11,845 | |
| 13,120 | | |
| 14,995 | |
| 15,726 | |
Total other assets | |
| 180,591 | |
| 121,500 | | |
| 197,219 | |
| 189,760 | |
TOTAL ASSETS | | $ | 2,504,381 | | $ | 2,159,406 | | | $ | 2,787,749 | | $ | 2,728,021 | |
| | | | | | | | | | | | | | |
LIABILITIES AND PARTNERS' CAPITAL | | | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | | |
Accounts payable | | $ | 97,032 | | $ | 69,586 | | | $ | 115,106 | | $ | 95,122 | |
Accrued taxes other than income taxes | |
| 25,133 | |
| 17,787 | | |
| 23,554 | |
| 22,967 | |
Accrued payroll and related expenses | |
| 42,966 | |
| 36,805 | | |
| 33,772 | |
| 39,623 | |
Accrued interest | |
| 12,500 | |
| 5,000 | | |
| 13,002 | |
| 5,000 | |
Workers' compensation and pneumoconiosis benefits | |
| 12,296 | |
| 12,293 | | |
| 14,098 | |
| 14,099 | |
Current finance lease obligations | |
| 302 | |
| 840 | | |||||||
Current operating lease obligations | |
| 2,757 | |
| 1,820 | | |||||||
Other current liabilities | |
| 45,375 | |
| 17,375 | | |
| 51,706 | |
| 53,790 | |
Current maturities, long-term debt, net | |
| 15,133 | |
| 16,071 | | |
| 40,554 | |
| 24,970 | |
Total current liabilities | |
| 253,494 | |
| 177,577 | | |
| 291,792 | |
| 255,571 | |
LONG-TERM LIABILITIES: | | | | | | | | | | | | | | |
Long-term debt, excluding current maturities, net | |
| 409,944 | |
| 418,942 | | |
| 418,329 | |
| 397,203 | |
Pneumoconiosis benefits | |
| 109,687 | |
| 107,560 | | |
| 100,825 | |
| 100,089 | |
Accrued pension benefit | |
| 23,415 | |
| 25,590 | | |
| 12,250 | |
| 12,553 | |
Workers' compensation | |
| 39,031 | |
| 44,911 | | |
| 40,117 | |
| 39,551 | |
Asset retirement obligations | |
| 124,622 | |
| 123,517 | | |
| 143,010 | |
| 142,254 | |
Long-term finance lease obligations | |
| 533 | |
| 618 | | |||||||
Long-term operating lease obligations | |
| 12,778 | |
| 12,366 | | |
| 13,424 | |
| 12,132 | |
Deferred income tax liabilities | |
| 37,607 | |
| 391 | | |
| 35,583 | |
| 35,814 | |
Other liabilities | |
| 25,450 | |
| 21,865 | | |
| 25,258 | |
| 24,828 | |
Total long-term liabilities | |
| 783,067 | |
| 755,760 | | |
| 788,796 | |
| 764,424 | |
Total liabilities | |
| 1,036,561 | |
| 933,337 | | |
| 1,080,588 | |
| 1,019,995 | |
| | | | | | | | | | | | | | |
COMMITMENTS AND CONTINGENCIES - (NOTE 4) | | | | | | | | |||||||
COMMITMENTS AND CONTINGENCIES - (NOTE 3) | | | | | | | | |||||||
| | | | | | | | | | | | | | |
PARTNERS' CAPITAL: | | | | | | | | | | | | | | |
ARLP Partners' Capital: | | | | | | | | | | | | | | |
Limited Partners - Common Unitholders 127,195,219 units outstanding | |
| 1,518,679 | |
| 1,279,183 | | |
| 1,721,938 | |
| 1,656,025 | |
General Partner's interest | |
| — | |
| 66,548 | | |||||||
Accumulated other comprehensive loss | |
| (61,843) | |
| (64,229) | | |
| (40,489) | |
| (41,054) | |
Total ARLP Partners' Capital | |
| 1,456,836 | |
| 1,214,954 | | |
| 1,681,449 | |
| 1,681,519 | |
Noncontrolling interest | | | 10,984 | | | 11,115 | | | | 25,712 | | | 26,507 | |
Total Partners' Capital | | | 1,467,820 | | | 1,226,069 | | | | 1,707,161 | | | 1,708,026 | |
TOTAL LIABILITIES AND PARTNERS' CAPITAL | | $ | 2,504,381 | | $ | 2,159,406 | | | $ | 2,787,749 | | $ | 2,728,021 | |
*Recast as discussed in Note 1 – Organization and Presentation.
See notes to condensed consolidated financial statements.
1
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except unit and per unit data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022* |
| ||||||
SALES AND OPERATING REVENUES: | | | | | | | | | | | | | | | | | | | | |
Coal sales | | $ | 550,563 | | $ | 362,264 | | $ | 1,470,730 | | $ | 975,725 | | | $ | 578,784 | | $ | 388,360 | |
Oil & gas royalties | | | 35,312 | | | 20,109 | | | 102,166 | | | 51,222 | | | | 34,497 | | | 33,396 | |
Transportation revenues | |
| 28,548 | |
| 22,027 | |
| 93,305 | |
| 45,153 | | |
| 30,238 | |
| 29,372 | |
Other revenues | |
| 13,997 | |
| 11,039 | |
| 39,583 | |
| 24,404 | | |
| 19,403 | |
| 12,294 | |
Total revenues | |
| 628,420 | |
| 415,439 | |
| 1,705,784 | |
| 1,096,504 | | |
| 662,922 | |
| 463,422 | |
| | | | | | | | | | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | | | | | |
Operating expenses (excluding depreciation, depletion and amortization) | |
| 330,298 | |
| 233,201 | |
| 908,546 | |
| 642,760 | | |
| 338,723 | |
| 262,023 | |
Transportation expenses | |
| 28,548 | |
| 22,027 | |
| 93,305 | |
| 45,153 | | |
| 30,238 | |
| 29,372 | |
Outside coal purchases | |
| — | |
| 6,065 | |
| 151 | |
| 6,179 | | |||||||
General and administrative | |
| 21,341 | |
| 18,655 | |
| 62,394 | |
| 51,651 | | |
| 21,085 | |
| 18,622 | |
Depreciation, depletion and amortization | |
| 70,143 | |
| 68,763 | |
| 200,191 | |
| 192,698 | | |
| 65,550 | |
| 64,140 | |
Total operating expenses | |
| 450,330 | |
| 348,711 | |
| 1,264,587 | |
| 938,441 | | |
| 455,596 | |
| 374,157 | |
| | | | | | | | | | | | | | | | | | | | |
INCOME FROM OPERATIONS | |
| 178,090 | |
| 66,728 | |
| 441,197 | |
| 158,063 | | |
| 207,326 | |
| 89,265 | |
| | | | | | | | | | | | | | | | | | | | |
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 expense (net of interest capitalized for the three months ended March 31, 2023 and 2022 of $1,407 and $70, respectively) | |
| (12,676) | |
| (9,662) | | |||||||||||||
Interest income | |
| 426 | |
| 19 | |
| 554 | |
| 51 | | |
| 2,790 | |
| 35 | |
Equity method investment income | |
| 2,108 | |
| 703 | |
| 4,576 | |
| 1,106 | | |
| 52 | |
| 883 | |
Other income (expense) | |
| 192 | |
| (84) | |
| 1,337 | |
| (2,632) | | |
| (573) | |
| 567 | |
INCOME BEFORE INCOME TAXES | |
| 171,571 | |
| 57,958 | |
| 419,360 | |
| 126,942 | | |
| 196,919 | |
| 81,088 | |
| | | | | | | | | | | | | | | | | | | | |
INCOME TAX EXPENSE | |
| 6,600 | |
| 234 | |
| 55,646 | |
| 227 | | |
| 4,241 | |
| 42,715 | |
| | | | | | | | | | | | | | | | | | | | |
NET INCOME | | | 164,971 | | | 57,724 | | | 363,714 | | | 126,715 | | | | 192,678 | | | 38,373 | |
| | | | | | | | | | | | | | | | | | | | |
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST | | | (364) | |
| (176) | |
| (977) | |
| (384) | | |
| (1,493) | |
| (290) | |
| | | | | | | | | | | | | | | | | | | | |
NET INCOME ATTRIBUTABLE TO ARLP | | $ | 164,607 | | $ | 57,548 | | $ | 362,737 | | $ | 126,331 | | | $ | 191,185 | | $ | 38,083 | |
| | | | | | | | | | | | | | | | | | | | |
NET INCOME ATTRIBUTABLE TO ARLP | | | | | | | | |||||||||||||
GENERAL PARTNER | | $ | 1,384 | | $ | 1,431 | | |||||||||||||
LIMITED PARTNERS | | $ | 189,801 | | $ | 36,652 | | |||||||||||||
| | | | | | | | |||||||||||||
EARNINGS PER LIMITED PARTNER UNIT - BASIC AND DILUTED | | $ | 1.25 | | $ | 0.44 | | $ | 2.76 | | $ | 0.97 | | | $ | 1.45 | | $ | 0.28 | |
| | | | | | | | | | | | | | | | | | | | |
WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED | |
| 127,195,219 | |
| 127,195,219 | |
| 127,195,219 | |
| 127,195,219 | | |
| 127,289,340 | |
| 127,195,219 | |
* Recast as discussed in Note 1 – Organization and Presentation.
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, | | ||||
|
| 2023 |
| 2022* |
| ||
| | | | | | | |
NET INCOME | | $ | 192,678 | | $ | 38,373 | |
| | | | | | | |
OTHER COMPREHENSIVE INCOME: | | | | | | | |
| | | | | | | |
Defined benefit pension plan | | | | | | | |
Amortization of prior service cost (1) | | | 47 | | | 47 | |
Amortization of net actuarial loss (1) | |
| 173 | |
| 483 | |
Total defined benefit pension plan adjustments | |
| 220 | |
| 530 | |
| | | | | | | |
Pneumoconiosis benefits | | | | | | | |
Amortization of net actuarial loss (1) | |
| 345 | |
| 260 | |
Total pneumoconiosis benefits adjustments | |
| 345 | |
| 260 | |
| | | | | | | |
OTHER COMPREHENSIVE INCOME | |
| 565 | |
| 790 | |
| | | | | | | |
COMPREHENSIVE INCOME | | | 193,243 | | | 39,163 | |
| | | | | | | |
Less: Comprehensive income attributable to noncontrolling interest | | | (1,493) | | | (290) | |
| | | | | | | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP | | $ | 191,750 | | $ | 38,873 | |
| | | | | | | | | | | | | |
| | 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 (credit) (see Notes |
* Recast as discussed in Note 1 – Organization and Presentation.
See notes to condensed consolidated financial statements.
3
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended | | | Three Months Ended | | ||||||||
| | September 30, | | | March 31, | | ||||||||
|
| 2022 |
| 2021 |
|
| 2023 |
| 2022* |
| ||||
| | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | $ | 548,554 | | $ | 310,977 | | | $ | 223,259 | | $ | 90,626 | |
| | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | |
Property, plant and equipment: | | | | | | | | | | | | | | |
Capital expenditures | |
| (221,286) | |
| (88,661) | | |
| (95,474) | |
| (59,153) | |
Increase in accounts payable and accrued liabilities | |
| 39,500 | |
| 2,281 | | |||||||
Change in accounts payable and accrued liabilities | |
| 12,110 | |
| 13,551 | | |||||||
Proceeds from sale of property, plant and equipment | |
| 5,006 | |
| 6,432 | | |
| 2,395 | |
| 928 | |
Contributions to equity method investments | |
| (20,220) | |
| — | | |
| (540) | |
| — | |
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) | | |||||||
JC Resources acquisition | | | (64,999) | |
| — | | |||||||
Oil & gas reserve acquisition | | | (2,800) | | | — | | |||||||
Other | |
| (2,704) | |
| — | | |
| 589 | |
| (851) | |
Net cash used in investing activities | |
| (247,497) | |
| (80,410) | | |
| (148,719) | |
| (45,525) | |
| | | | | | | | | | | | | | |
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) | | | | (3,759) | |
| (4,472) | |
Borrowings under revolving credit facilities | |
| — | |
| 15,000 | | |||||||
Payments under revolving credit facilities | |
| — | |
| (102,500) | | |||||||
Borrowings from line of credit | |
| — | |
| 3,230 | | |||||||
Borrowing under long-term debt | | | 75,000 | |
| — | | |||||||
Payments on long-term debt | |
| (26,633) | |
| — | | |||||||
Payments on finance lease obligations | |
| (623) | |
| (568) | | |
| (278) | |
| (203) | |
Payment of debt issuance costs | |
| — | |
| (113) | | |
| (11,653) | |
| — | |
Payments for purchase of units and tax withholdings related to settlements under deferred compensation plans | |
| — | |
| (1,090) | | |||||||
Payments for purchases of units under unit repurchase program | | | (18,209) | |
| — | | |||||||
Payments for tax withholdings related to settlements under deferred compensation plans | |
| (9,320) | |
| — | | |||||||
Excess purchase price over the contributed basis from JC Resources acquisition | | | (7,251) | |
| — | | |||||||
Cash retained by JC Resources in acquisition | | | (2,933) | |
| (1,590) | | |||||||
Distributions paid to Partners | | | (130,898) | |
| (26,086) | | | | (91,938) | |
| (32,750) | |
Other | |
| (1,108) | |
| (615) | | |
| (2,339) | |
| (298) | |
Net cash used in financing activities | |
| (144,989) | |
| (181,530) | | |
| (99,313) | |
| (39,313) | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| 156,068 | |
| 49,037 | | |
| (24,773) | |
| 5,788 | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 122,403 | |
| 55,574 | | |
| 296,023 | |
| 122,403 | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 278,471 | | $ | 104,611 | | | $ | 271,250 | | $ | 128,191 | |
| | | | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | | | |
Cash paid for interest | | $ | 18,708 | | $ | 20,045 | | | $ | 2,175 | | $ | 1,254 | |
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 | | | $ | 56,391 | | $ | 21,876 | |
Right-of-use assets acquired by operating lease | | $ | 1,291 | | $ | — | | | $ | — | | $ | 99 | |
Market value of common units issued under deferred compensation plans before tax withholding requirements | | $ | — | | $ | 1,082 | | | $ | 27,906 | | $ | — | |
* Recast as discussed in Note 1 – Organization and Presentation.
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, |
● | References to "Alliance Minerals" mean Alliance Minerals, LLC, |
● | References to "Alliance Resource Properties" mean 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"), aprivate 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.
BelvedereJC Resources Acquisition
On September 9, 2022,February 22, 2023, we acquired approximately 394 net2,682 oil & gas net royalty acres in the Delaware Basin from Belvedere Operating, LLCJC Resources LP ("Belvedere"JC Resources"), an entity owned by Mr. Craft, for a purchase price of $11.4$72.3 million, (the "Belvederewhich was funded with cash on hand ("JC Resources Acquisition"). This acquisition enhancesBecause 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 JC Resources Acquisition increased revenues by $2.6 million and income from operations, net income and comprehensive income by $1.4 million for the three months ended March 31, 2022. We did not recast historical earnings per limited partner unit as pre-acquisition earnings from the JC Resources Acquisition were allocated to our ownership position in the Permian Basin and furthers our business strategy to grow our Oil & Gas Royalties segment.general partner. For more information on this acquisition please see Note 32 – 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, 2022March 31, 2023 and December 31, 2021,2022 and 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 ninethree months ended September 30, 2022March 31, 2023 and 2021.2022. 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, 2021.2022.
5
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, 2022.2023.
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.
6
Income TaxesCash and Cash Equivalents
WeCash 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 not a taxable entity for federalfacing financial difficulties, defaults or state income tax purposes; the tax effect of our activities accrueslimited liquidity situations that would cause us to be unable to access 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.deposits.
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.ACQUISITIONS
BelvedereJC Resources
On September 9, 2022 (the "BelvedereAs discussed in Note 1 – Organization and Presentation, on February 22, 2023, we completed the JC Resources 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 andthat 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 the mineral interests acquired in the Belvedere Acquisition include royalty interests in both developed properties and undeveloped properties,JC Resources is under common control with us, we have determined thatrecorded the acquisition should be accountedat JC Resources' carrying value 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.
each period presented.
The following table summarizes the fair value allocation of assets acquired as of the Belvedere Acquisition Date:
| | | | |
| | (in thousands) | | |
| | | | |
| | | | |
Mineral interests in proved properties | | $ | 7,724 | |
Mineral interests in unproved properties | | | 3,667 | |
| | $ | 11,391 | |
7
The faircarrying value of the mineral interests as well as related receivables and payables at February 22, 2023 was determined using an income approach consisting$65.0 million inclusive of $25.4 million and $37.8 million of mineral interests in proved and unproved properties, respectively.
Acquisition Agreement
On January 27, 2023, we entered into a discounted cash flow model. The assumptions used inone-year collaborative agreement with a third party, effective January 1, 2023, committing up to $35.0 million for the discounted cash flow model included estimated production, projected cash flows, forwardacquisition of 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 includedMidland and Delaware Basins. Under the agreement, the third party assists us in our condensed consolidated statementsthe identification, evaluation, and acquisition of income sincetarget oil & gas mineral interests. In exchange for these services, 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 revenuesthird party receives a participation share, partially funded by the third party, and net income for the threeis paid a periodic management fee. As of March 31, 2023, we have purchased $1.6 million and nine months ended September 30, 2022 and 2021 as if the$1.2 million of oil & gas mineral interests acquired in the Belvedere Acquisition had been included in our consolidated results since January 1, 2021. These amountsproved and unproved properties, respectively, pursuant to this agreement. Management feespaid under this agreement have been calculated after applying our accounting policies.immaterial.
| | | | | | | | | | | | | |
| | 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 | |
4.3.CONTINGENCIES
WeCertain of our subsidiaries 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 Actstate law 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 orand collective action certification. Becausecertification, which we oppose, and the litigationcourts have not yet made definitive final rulings on those issues. We have scheduled a mediation with the plaintiffs for June 12, 2023. We do not have an estimate of these matters is in the early stages, we cannot reasonably estimate a range of potential exposure atexposure; however, we are in the process of developing such an estimate based on the facts related to these matters. We are defending this time. Welitigation vigorously and continue to believe the plaintiffs' claims are without merit andmerit. We believe 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,position; 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.
6
We also have various other lawsuits, claims and regulatory proceedings incidental to our business that are pending against the ARLP Partnership. We record an accrual for a potential loss related to these matters when, in management's opinion, such loss is probable and reasonably estimable. Based on known facts and circumstances, we believe the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity. However, if the results of these matters are different from management's current expectations and in amounts greater than our accruals, such matters could have a material adverse effect on our business and operations.
8
5.4.INVENTORIES
Inventories consist of the following:
| | | | | | | | | | | | | | |
|
| September 30, | | December 31, | |
| March 31, | | December 31, | | ||||
| | 2022 |
| 2021 |
| | 2023 |
| 2022 |
| ||||
| | (in thousands) | | | (in thousands) | | ||||||||
| | | | | | | | | | | | | | |
Coal | | $ | 48,676 | | $ | 24,845 | | | $ | 50,406 | | $ | 23,553 | |
Supplies (net of reserve for obsolescence of $5,914 and $5,554, respectively) | |
| 50,089 | |
| 35,457 | | |||||||
Supplies (net of reserve for obsolescence of $6,967 and $6,601, respectively) | |
| 58,242 | |
| 53,773 | | |||||||
Total inventories, net | | $ | 98,765 | | $ | 60,302 | | | $ | 108,648 | | $ | 77,326 | |
6.5.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 | | | March 31, 2023 | | December 31, 2022 | | ||||||||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Level 1 |
| Level 2 |
| Level 3 |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||||||||||||||
Long-term debt | | $ | — | | $ | 417,464 | | $ | — | | $ | — | | $ | 457,758 | | $ | — | | | $ | — | | $ | 469,904 | | $ | — | | $ | — | | $ | 424,420 | | $ | — | |
Total | | $ | — | | $ | 417,464 | | $ | — | | $ | — | | $ | 457,758 | | $ | — | | | $ | — | | $ | 469,904 | | $ | — | | $ | — | | $ | 424,420 | | $ | — | |
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 76 – 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
7.6.LONG-TERM DEBT
Long-term debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Unamortized Discount and | | | | | Unamortized Discount and | | ||||||||||||||||
| | Principal | | Debt Issuance Costs | | | Principal | | Debt Issuance Costs | | ||||||||||||||||
| | September 30, | | December 31, | | September 30, | | December 31, | | | March 31, | | December 31, | | March 31, | | December 31, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||
Revolving credit facility | | $ | — | | $ | — | | $ | (3,281) | | $ | (5,019) | | | $ | — | | $ | — | | $ | (9,313) | | $ | (2,702) | |
Term Loan | |
| 75,000 | |
| — | |
| (1,643) | |
| — | | |||||||||||||
Senior notes | |
| 400,000 | |
| 400,000 | |
| (2,362) | |
| (3,048) | | |
| 373,367 | |
| 400,000 | |
| (1,779) | |
| (2,134) | |
Securitization facility | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | | | — | |
May 2019 equipment financing | | | — | | | 1,503 | | | — | | | — | | |||||||||||||
November 2019 equipment financing | | | 23,846 | | | 31,972 | | | — | | | — | | | | 18,266 | | | 21,072 | | | — | | | — | |
June 2020 equipment financing | | | 6,874 | | | 9,605 | | | — | | | — | | | | 4,985 | | | 5,937 | | | — | | | — | |
| |
| 430,720 | |
| 443,080 | |
| (5,643) | |
| (8,067) | | |
| 471,618 | |
| 427,009 | |
| (12,735) | |
| (4,836) | |
Less current maturities | |
| (15,133) | |
| (16,071) | |
| — | |
| — | | |
| (40,974) | |
| (24,970) | |
| 420 | |
| — | |
Total long-term debt | | $ | 415,587 | | $ | 427,009 | | $ | (5,643) | | $ | (8,067) | | | $ | 430,644 | | $ | 402,039 | | $ | (12,315) | | $ | (4,836) | |
Credit Facility. On March 9, 2020, our Intermediate PartnershipJanuary 13, 2023, Alliance Coal, as borrower, entered into a Fifth Amended and Restated 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 of 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, includingwhich included a sublimit of $125$125.0 million for the issuance of letters of credit and a sublimit of $15.0 million for swingline borrowings, (the "Revolvingextended to the Intermediate Partnership under its Fifth Amended and Restated Credit Facility"), with a termination dateAgreement, dated as of March 9, 2020 that would have expired on March 9, 2024. We incurred debt issuance costs during the three months ended March 31, 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.
9
TableThe Revolving Credit Facility is underwritten by a syndicate of Contentseighteen 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, 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 ourits subsidiaries, including the Intermediate Partnership's materialPartnership and most of the direct and indirect subsidiaries of Alliance Coal (the "Restricted Subsidiaries""Subsidiary Guarantors") and. The Credit Agreement also is secured by substantially all of the assets of the Restricted Subsidiaries. The Credit Agreement is also guaranteed bySubsidiary Guarantors and 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 collateralCoal. Borrowings under the Credit Agreement. Borrowings under the Revolving Credit FacilityAgreement bear interest, at our option, at either (i) an adjusted term rate plus the Base Rate at the greater of three benchmarksapplicable margin or (ii) a Eurodollarthe base rate plus the applicable margin. The base rate is the highest of (i) the Overnight Bank Funding Rate plus margins0.50%, (ii) the Administrative Agent's prime rate, and (iii) the Daily Simple Secured Overnight Financing Rate plus 100 basis points. The applicable margin for (i) or (ii), as applicable, that fluctuate depending uponborrowings under the ratio ofCredit Agreement are determined by reference to the Consolidated Debt to Consolidated Cash Flow (each as defined in the Credit Agreement). The Eurodollar Rate, with applicable margin, under the Revolving Credit FacilityRatio and was 5.49%0.54% as of September 30, 2022. On September 30, 2022,March 31, 2023. At March 31, 2023, we had $44.1$41.0 million of letters of credit outstanding with $415.4$384.0 million available for borrowing under the Revolving Credit Facility. We incurincurred an annual commitment fee of 0.35%0.50% on the undrawn portion of the Revolving Credit Facility. We utilize the Revolving Credit Facility,
8
Agreement, 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 PartnershipAlliance Coal and its Restricted Subsidiariessubsidiaries, 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.affiliates. In each case, these restrictions are subject to various exceptions. In addition, the payment ofrestrictions apply to cash distributions is restrictedby Alliance Coal to the Intermediate Partnership if such paymentdistribution would result in exceeding a minimum fixed charge coverage ratio of less than 1.0 to 1.0 (as defineddetermined in the Credit Agreement) for the four most recently ended fiscal quarters.or in Alliance Coal having liquidity of less than $200 million. The Credit Agreement requires the Intermediate Partnershipus 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 (b) a cash flow toand (c) an interest expensecoverage 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 of Alliance Coal to cash flow ratio, cash flow to interest expense ratioconsolidated debt of Alliance Coal and first lien debtthe Intermediate Partnership to cash flow ratio, and interest coverage ratio were 0.640.09 to 1.0, 17.630.54 to 1.0 and 0.05294.35 to 1.0, respectively, for the trailing twelve months ended September 30, 2022.March 31, 2023. We remainedwere in compliance with the covenants of the Credit Agreement as of September 30, 2022March 31, 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 three months ended March 31, 2023, we repurchased $26.6 million of our Senior Notes. The issuersgain on extinguishment 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.is immaterial.
Accounts Receivable Securitization. On December 5, 2014, certainCertain direct and indirect wholly owned subsidiaries of our Intermediate Partnership entered intoare party to a $100.0$60.0 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,March 31, 2023, we had $9.2$11.7 million of letters of credit outstanding with $50.8$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 iswas previously scheduled to mature in January 2023. On September 30, 2022,At March 31, 2023, we had nodid not have any outstanding balanceborrowings under the Securitization Facility.
May 2019 Equipment Financing. On May 17, 2019, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $10.0 million in exchange for conveying its interest in certain equipment owned indirectly by the Intermediate Partnership and entering into a master lease agreement for that equipment (the "May 2019 Equipment Financing"). The May 2019 Equipment Financing contained customary terms and events of default and provided for thirty-six monthly payments with an implicit interest rate of 6.25%. The May 2019 Equipment Financing matured on May 1, 2022 and the equipment reverted to the Intermediate Partnership.
10
November 2019 Equipment Financing. On November 6, 2019, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $53.1 million in exchange for conveying its interest in certain equipment owned indirectly by the Intermediate Partnership and entering into a master lease agreement for that equipment (the "November 2019 Equipment Financing"). The November 2019 Equipment Financing contains customary terms and events of default and an implicit interest rate of 4.75%, providing for a four-year term with forty-seven monthly payments of $1.0 million and a balloon payment of $11.6 million upon maturity on November 6, 2023. Upon maturity, the equipment will revert to the Intermediate Partnership.
June 2020 Equipment Financing. On June 5, 2020, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $14.7 million in exchange for conveying its interest in certain equipment owned indirectly by the Intermediate Partnership and entering into a master lease agreement for that equipment (the "June 2020 Equipment Financing"). The June 2020 Equipment Financing contains customary terms and events of default and provides for forty-eight monthly payments with an implicit interest rate of 6.1%, maturing on June 5, 2024. Upon maturity, the equipment will revert to the Intermediate Partnership.
9
8.7.INCOME TAXES
Components of income tax expense are as follows:
| | | | | | | | | | | | | | |||||||
| | Three Months Ended | | Nine Months Ended |
| | | | | | | | ||||||||
| | September 30, | | September 30, | | | Three Months Ended March 31, | | ||||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 |
| ||||||
| | (in thousands) | | | (in thousands) | |||||||||||||||
Current: | | | | | | | | | | | | | | | | | | | | |
Federal | | $ | 5,944 | | $ | 2 | | $ | 17,153 | | $ | 1 | | | $ | 4,312 | | $ | 5,034 | |
State | |
| 387 | |
| — | |
| 1,218 | |
| — | | |
| 301 | |
| 386 | |
| |
| 6,331 | |
| 2 | |
| 18,371 | |
| 1 | | |
| 4,613 | |
| 5,420 | |
Deferred: | | | | | | | | | | | | | | | | | | | | |
Federal | |
| 267 | |
| 188 | |
| 34,932 | |
| 182 | | |
| (331) | |
| 34,920 | |
State | |
| 2 | |
| 44 | |
| 2,343 | |
| 44 | | |
| (41) | |
| 2,375 | |
| |
| 269 | |
| 232 | |
| 37,275 | |
| 226 | | |
| (372) | |
| 37,295 | |
Income tax expense | | $ | 6,600 | | $ | 234 | | $ | 55,646 | | $ | 227 | | | $ | 4,241 | | $ | 42,715 | |
On March 15, 2022, Alliance Minerals'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 ninethree months ended September 30,March 31, 2022. This increase in income tax expense reduced net income by $37.3 million, or approximately $0.29 per basic and diluted limited partner unit, for the nine months ended September 30, 2022. Recognition of the initial deferred tax liability and expense is primarily the result of the $177.0 million non-cash acquisition gain recognized in 2019 related to the acquisition of the remaining interests in AllDale Minerals LP ("AllDale I") and AllDale Minerals II, LP ("AllDale II", and collectively with AllDale I, "AllDale I & II") (the "Acquisition Gain"). The Acquisition Gain was recognized to step up to fair value the financial reporting basis of the interests we already owned at the time of acquisition. The tax basis of the underlying properties of AllDale I & II did not include the Acquisition Gain.
11
Reconciliations of income taxes at the U.S. federal statutory tax rate to income taxes at our effective tax rate are as follows:
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||||||
| | September 30, | | September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | (in thousands) | | ||||||||||
Income taxes at statutory rate | | $ | 36,030 | | $ | 12,171 | | $ | 88,066 | | $ | 26,658 | |
| | | | | | | | | | | | | |
Less: Income taxes at statutory rate on Partnership income not subject to income taxes | |
| (29,888) | |
| (11,777) | |
| (71,562) | |
| (25,935) | |
| | | | | | | | | | | | | |
Increase (decrease) resulting from: | | | | | | | | | | | | | |
State taxes, net of federal income tax | |
| 426 | |
| 66 | |
| 1,244 | |
| 138 | |
Change in valuation allowance of deferred tax assets | |
| 9 | |
| (361) | |
| 10 | |
| (666) | |
Deferred taxes related to tax election | | | — | | | — | | | 37,253 | | | — | |
Other | |
| 23 | |
| 135 | |
| 635 | |
| 32 | |
Income tax expense | | $ | 6,600 | | $ | 234 | | $ | 55,646 | | $ | 227 | |
The effective income tax rate for our income tax expense for the three and nine months ended September 30, 2022March 31, 2023 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 previously discussed.taxes. The effective income tax rate for our income tax expense for the three and nine months ended September 30, 2021March 31, 2022 is lessgreater than the federal statutory rate, primarily due to the effect of the Tax Election previously discussed, partially offset by the portion of income not subject to income taxes.
Significant components of deferred tax liabilities and deferred tax assets are as follows:
| | | | | | | |
| | September 30, | | December 31, |
| ||
|
| 2022 |
| 2021 |
| ||
| | (in thousands) | | ||||
Deferred tax liabilities: | | | | | | | |
Property, plant and equipment | | $ | (38,770) | | $ | (2,169) | |
Total deferred tax liabilities | | | (38,770) | | | (2,169) | |
| | | | | | | |
Deferred tax assets: | | | | | | | |
Federal loss carryovers and credits | | | 734 | | | 1,328 | |
Other | |
| 764 | |
| 808 | |
Total deferred tax assets | | | 1,498 | | | 2,136 | |
Less valuation allowance | | | (327) | | | (317) | |
Net deferred tax assets | | | 1,171 | | | 1,819 | |
| | | | | | | |
Overall net deferred tax liabilities | | $ | (37,599) | | $ | (350) | |
The change in deferred tax liabilities for property, plant and equipment is primarily as a result of the Alliance Minerals' Tax Election and associated impact of the Acquisition Gain discussed above.
Federal loss carryovers and credits are primarily due to net operating losses and research and development credits associated with the operations of other subsidiaries that are taxable for federal income tax purposes.
The valuation allowance as of September 30, 2022 and 2021 serves to reduce the available deferred tax assets to amounts that will, more likely than not, be realized. We considered all available positive and negative evidence, which incorporates available tax planning strategies and our estimate of future reversals of existing temporary differences, and have determined that a portion of our deferred tax assets relating to state losses and credits may not be realized.
Our 2019 through 20212022 tax years remain open to examination by tax authorities. We have been notified by the Internal Revenue Service that lower-tier partnership income tax returns for the tax year ended December 31, 2020 have been selected for audit.
12
9.8.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. Distributions with respect to Bluegrass Minerals' profits interest will beare offset by all distributions received by Bluegrass Minerals from the former general partners of AllDale I & II. To date, there has been noAll members have recovered their investment and Bluegrass Minerals began receiving its profits interest distribution.distributions in late 2022. We hold the managing member interest in Cavalier Minerals. Total contributions to and cumulative distributions from Cavalier Minerals are as follows:
| | | | | | | |
| | Alliance | | Bluegrass | | ||
| | Minerals | | Minerals | | ||
| | (in thousands) | | ||||
Contributions | | $ | 143,112 | | $ | 5,963 | |
Distributions | | | 136,597 | | | 5,691 | |
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 $30.0 million in AllDale Minerals III, LP ("AllDale III") which was created for similar investment purposes as AllDale I & II. Alliance Minerals completed funding of this commitment in 2018. Alliance Minerals' limited partner interest in AllDale III is 13.9%.
10
The AllDale III Partnership Agreement includes a 25% profits interest for the general partner, 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.
Since AllDale III is structured as a limited partnership with the limited partners (i)(1) not having the ability to remove the general partner and (ii)(2) not participating significantly in the operational decisions, we concluded that AllDale III is a VIE. We are not the primary beneficiary of AllDale III as we do not have the power to direct the activities that most significantly impact AllDale III's economic performance. 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. See Note 109 – Investments for more information.
Francis
On April 5, 2022, we committed to invest up to $50invested $20 million in Francis through the purchase of preferred equity interests. We funded $20 million on April 5, 2022,Renewable Energy, LLC ("Francis"), in the form of a convertible note with a maturity date of April 1, 2023. As of September 30, 2022, we have elected to hold our commitment to Francis at our initial $20 million convertible note investment.note. Our convertible note represents an ownership interestmatured on April 1, 2023 and was converted into preferred equity interests in Francis upon conversion. We haveFrancis. Prior to conversion, we had determined the note more closely representsrepresented equity as opposed to debt. Therefore, we will accountaccounted for the convertible note as an equity contribution even though we willdid not participate in Francis' earnings or losses and were not eligible to receive distributions during the term of the note. After the conversion on April 1, 2023, we will notparticipate in earnings and losses and be eligible to receive distributions until the note converts.distributions.
We have concluded that Francis is a VIE as the 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
13
in the operational decisions. We are not the primary beneficiary of Francis as we do not have the power to direct the activities that most significantly impact Francis's economic performance. We account for our ownership interest in the income or loss of Francis as an equity method investment. WeAfter the conversion of our note to preferred equity, we will record equity income or loss based on Francis' distribution structure. See Note 109 – Investments for more information.
NGP ETP IV
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 and focused on investments that are part of the global transition toward a lower carbon economy. WeAs of March 31, 2023, we have funded $0.2$4.6 million during the nine months ended September 30, 2022.of this commitment. Our final ownership percentage in NGP ETP IV is not yet known.
We have concluded that NGP ETP IV is a VIE as it 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 ETP IV as we do not have the power to direct the activities that most significantly impact NGP ETP IV's economic performance. We account for our ownership interest in the income or loss of NGP ETP IV as an equity method investment. See Note 109 – Investments for more information.
11
10.9.INVESTMENTS
AllDale III
As discussed in Note 98 – Variable Interest Entities, 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 for each of the periods presented were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | |
| 2023 |
| 2022 | | ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Beginning balance | | $ | 26,278 | | $ | 26,274 | | $ | 26,325 | | $ | 27,268 | | | $ | 25,284 | | $ | 26,325 | |
Equity method investment income | | | 2,108 | | | 703 | | 4,576 | | | 1,106 | | | | 425 | | | 883 | | |
Distributions received | | | (2,448) | | | (797) | | | (4,963) | | | (2,194) | | | | (1,014) | | | (1,014) | |
Ending balance | | $ | 25,938 | | $ | 26,180 | | $ | 25,938 | | $ | 26,180 | | | $ | 24,695 | | $ | 26,194 | |
Francis
As discussed in Note 98 – Variable Interest Entities, we accountedaccount for our ownership interest in the income or loss of Francis as an equity method investment. The changes inAs a development stage company, Francis depends on capital contributions to meet its operating and debt obligations. We currently believe that the carrying value of our equity method investment inis recoverable; however, if Francis for the threeis unable to raise sufficient funds to continue its operations and nine months ended September 30, 2022 were as follows:meet its debt obligations, it could have an adverse effect on our investment.
| | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||
| | September 30, | | September 30, | | ||
|
| 2022 |
| 2022 |
| ||
| | (in thousands) | | ||||
Beginning balance | | $ | 20,000 | | $ | — | |
Contributions | | | — | | | 20,000 | |
Ending balance | | $ | 20,000 | | $ | 20,000 | |
14
NGP ETP IV
As discussed in Note 98 – Variable Interest Entities, we account for our ownership interest in the income or loss of NGP ETP IV as an equity method investment. The changes in our equity method investment in NGP ETP IV for three and nine months ended September 30, 2022March 31, 2023 were as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | |||
| | September 30, | | September 30, | | | | March 31, | | |||
|
| 2022 |
| 2022 | |
|
| 2023 | | |||
| | (in thousands) | | | | (in thousands) | | |||||
Beginning balance | | $ | 110 | | $ | — | | | | $ | 4,087 | |
Contributions | | | 110 | | | 220 | | | | | 540 | |
Equity method investment loss | | | | (373) | | |||||||
Ending balance | | $ | 220 | | $ | 220 | | | | $ | 4,254 | |
Infinitum
On April 29, 2022, we purchased $32.6We hold $42.0 million of Series D Preferred Stock fromin Infinitum Electric, Inc. ("Infinitum"), a Texas-based startup developer and manufacturer of electric motors featuring printed circuit board stators. TheOur 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. We account for our ownership interest in Infinitum as an equity investment without a readily determinable fair value. 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. There have been no fair value adjustments in our investment in Infinitum subsequent to our purchase.purchases. During the period we have not observed any price changes that have occurred to identical or similar securities sold by Infinitum that would indicate an adjustment to the fair value of our investment is warranted.
As discussed in Note 1 – Organization and Presentation, on November 2, 2022, we purchased an additional $9.4 million12
11.10.PARTNERS' CAPITAL
Distributions
Distributions paid or declared during 20212022 and 20222023 were as follows:
| | | | | | | | | | | | | | |
Payment Date |
| Per Unit Cash Distribution |
| Total Cash Distribution |
|
| Per Unit Cash Distribution |
| Total Cash Distribution |
| ||||
| | | | | (in thousands) | | | | | | (in thousands) | | ||
| | | | | | | | | | | | | | |
May 14, 2021 | | $ | 0.1000 | | $ | 13,045 | | |||||||
August 13, 2021 | | | 0.1000 | | | 13,041 | | |||||||
November 12, 2021 | | | 0.2000 | | | 26,072 | | |||||||
Total | | $ | 0.4000 | | $ | 52,158 | | |||||||
| | | | | | | | |||||||
February 14, 2022 | | $ | 0.2500 | | $ | 32,750 | | | $ | 0.2500 | | $ | 32,750 | |
May 13, 2022 | | | 0.3500 | | | 45,810 | | | | 0.3500 | | | 45,810 | |
August 12, 2022 | | | 0.4000 | | | 52,338 | | | | 0.4000 | | | 52,338 | |
November 14, 2022 (1) | | | 0.5000 | | | — | | |||||||
November 14, 2022 | | | 0.5000 | | | 65,449 | | |||||||
Total | | $ | 1.5000 | | $ | 130,898 | | | $ | 1.5000 | | $ | 196,347 | |
| | | | | | | | |||||||
February 14, 2023 | | $ | 0.7000 | | $ | 91,938 | | |||||||
May 15, 2023 (1) | | | 0.7000 | | | — | | |||||||
Total | | $ | 1.4000 | | $ | 91,938 | |
(1) | On |
15
Unit Repurchase Program
In May 2018,January 2023, the MGP board of directors approvedof MGP authorized a $93.5 million increase to the establishment of a unit repurchase program, authorizing uswhich had $6.5 million of available capacity as of December 31, 2022. As a result, we are authorized to repurchase and retire up to $100a total of $100.0 million of ARLP common units. The program has no time limitDuring the first quarter of 2023, we repurchased and we may repurchaseretired 860,060 units from time to time in the open market or in other privately negotiated transactions. Theat an average unit repurchase program authorization does not obligate us to repurchase any dollar amount or numberprice of units. No unit repurchases were made during the nine months ended September 30, 2022.$21.17 for an aggregate purchase price of $18.2 million. Since inception of the unit repurchase program, we have repurchased and retired 5,460,6396,320,664 units at an average unit price of $17.12$17.67 for an aggregate purchase price of $93.5$111.7 million.The remaining authorized amount for unit repurchases under this program is $6.5 million.
Change in Partners' Capital
The following tables present the quarterly change in Partners' Capital for the nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | |
| | | | | | Accumulated | | | | | | | | ||
| | Number of | | Limited | | Other | | | | | | | | ||
| | Limited Partner | | Partners' | | Comprehensive | | Noncontrolling | | Total Partners' | | ||||
|
| Units |
| Capital |
| Income (Loss) |
| Interest |
| Capital |
| ||||
| | (in thousands, except unit data) | | ||||||||||||
Balance at January 1, 2022 |
| 127,195,219 | | $ | 1,279,183 | | $ | (64,229) | | $ | 11,115 | | $ | 1,226,069 | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income |
| — | |
| 36,652 | |
| — | | | 290 |
|
| 36,942 | |
Actuarially determined long-term liability adjustments |
| — | |
| — | |
| 790 | |
| — |
|
| 790 | |
Total comprehensive income |
| | | | | | | | | | |
| | 37,732 | |
Common unit-based compensation |
| — | |
| 2,640 | | | — | | | — | | | 2,640 | |
Distributions on deferred common unit-based compensation |
| — | |
| (950) | | | — | | | — | | | (950) | |
Distributions from consolidated company to noncontrolling interest | | — | | | — | | | — | | | (298) | | | (298) | |
Distributions to Partners |
| — | | | (31,800) | | | — | | | — | | | (31,800) | |
Balance at March 31, 2022 | | 127,195,219 | | | 1,285,725 | | | (63,439) | | | 11,107 | | | 1,233,393 | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income |
| — | |
| 161,478 | |
| — | | | 323 |
|
| 161,801 | |
Actuarially determined long-term liability adjustments |
| — | |
| — | |
| 794 | |
| — |
|
| 794 | |
Total comprehensive income |
| | | | | | | | | | |
| | 162,595 | |
Common unit-based compensation |
| — | |
| 2,340 | | | — | | | — | | | 2,340 | |
Distributions on deferred common unit-based compensation |
| — | |
| (1,292) | | | — | | | — | | | (1,292) | |
Distributions from consolidated company to noncontrolling interest | | — | | | — | | | — | | | (325) | | | (325) | |
Distributions to Partners |
| — | | | (44,518) | | | — | | | — | | | (44,518) | |
Balance at June 30, 2022 | | 127,195,219 | | $ | 1,403,733 | | $ | (62,645) | | $ | 11,105 | | $ | 1,352,193 | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income |
| — | |
| 164,607 | |
| — | | | 364 |
|
| 164,971 | |
Actuarially determined long-term liability adjustments |
| — | |
| — | |
| 802 | |
| — |
|
| 802 | |
Total comprehensive income |
| — | | | — | | | — | | | — |
| | 165,773 | |
Common unit-based compensation |
| — | |
| 2,677 | | | — | | | — | | | 2,677 | |
Distributions on deferred common unit-based compensation |
| — | |
| (1,461) | | | — | | | — | | | (1,461) | |
Distributions from consolidated company to noncontrolling interest | | — | | | — | | | — | | | (485) | | | (485) | |
Distributions to Partners |
| — | | | (50,877) | | | — | | | — | | | (50,877) | |
Balance at September 30, 2022 |
| 127,195,219 | | $ | 1,518,679 | | $ | (61,843) | | $ | 10,984 | | $ | 1,467,820 | |
1613
| | | | | | | | | | | | | | | |
| | | | | | Accumulated | | | | | | | | ||
| | Number of | | Limited | | Other | | | | | | | | ||
| | Limited Partner | | Partners' | | Comprehensive | | Noncontrolling | | Total Partners' | | ||||
|
| Units |
| Capital |
| Income (Loss) |
| Interest |
| Capital |
| ||||
| | (in thousands, except unit data) | | ||||||||||||
Balance at January 1, 2021 |
| 127,195,219 | | $ | 1,148,565 | | $ | (87,674) | | $ | 11,376 | | $ | 1,072,267 | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income |
| — | |
| 24,748 | |
| — | | | 78 |
|
| 24,826 | |
Actuarially determined long-term liability adjustments |
| — | |
| — | |
| 2,231 | |
| — |
|
| 2,231 | |
Total comprehensive income |
| | | | | | | | | | |
| | 27,057 | |
Common unit-based compensation |
| — | |
| 723 | | | — | | | — | | | 723 | |
Distributions from consolidated company to noncontrolling interest | | — | | | — | | | — | | | (141) | | | (141) | |
Balance at March 31, 2021 |
| 127,195,219 | | | 1,174,036 | | | (85,443) | | | 11,313 | | | 1,099,906 | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income |
| — | |
| 44,035 | |
| — | | | 130 |
|
| 44,165 | |
Actuarially determined long-term liability adjustments |
| — | |
| — | |
| 2,231 | |
| — |
|
| 2,231 | |
Total comprehensive loss |
| | | | | | | | | | |
| | 46,396 | |
Common unit-based compensation |
| — | |
| 1,485 | | | — | | | — | | | 1,485 | |
Distributions on deferred common unit-based compensation |
| — | |
| (324) | | | — | | | — | | | (324) | |
Distributions from consolidated company to noncontrolling interest | | — | | | — | | | — | | | (222) | | | (222) | |
Distributions to Partners |
| — | | | (12,721) | | | — | | | — | | | (12,721) | |
Balance at June 30, 2021 |
| 127,195,219 | | | 1,206,511 | | | (83,212) | | | 11,221 | | | 1,134,520 | |
Comprehensive income: | | | | | | | | | | | | | | | |
Net income |
| — | |
| 57,548 | |
| — | | | 176 |
|
| 57,724 | |
Actuarially determined long-term liability adjustments |
| — | |
| — | |
| 2,231 | |
| — |
|
| 2,231 | |
Total comprehensive income |
| | | | | | | | | | |
| | 59,955 | |
Settlement of deferred compensation plans | | | | | (1,090) | | | — | | | — | | | (1,090) | |
Common unit-based compensation |
| — | |
| 1,746 | | | — | | | — | | | 1,746 | |
Distributions on deferred common unit-based compensation |
| — | |
| (323) | | | — | | | — | | | (323) | |
Distributions from consolidated company to noncontrolling interest | | — | | | — | | | — | | | (252) | | | (252) | |
Distributions to Partners |
| — | | | (12,718) | | | — | | | — | | | (12,718) | |
Balance at September 30, 2021 |
| 127,195,219 | | $ | 1,251,674 | | $ | (80,981) | | $ | 11,145 | | $ | 1,181,838 | |
17
Change in Partners' Capital
The following tables present the quarterly change in Partners' Capital for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accumulated | | | | | | | | ||
| | Number of | | Limited | | General | | Other | | | | | | | | |||
| | Limited Partner | | Partners' | | Partner's | | Comprehensive | | Noncontrolling | | Total Partners' | | |||||
|
| Units |
| Capital |
| Capital |
| Income (Loss) |
| Interest |
| Capital |
| |||||
| | (in thousands, except unit data) | | |||||||||||||||
Balance at January 1, 2023 |
| 127,195,219 | | $ | 1,656,025 | | $ | 66,548 | | $ | (41,054) | | $ | 26,507 | | $ | 1,708,026 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | |
Net income |
| — | |
| 189,801 | |
| 1,384 | |
| — | | | 1,493 |
|
| 192,678 | |
Actuarially determined long-term liability adjustments |
| — | |
| — | |
| — | |
| 565 | |
| — |
|
| 565 | |
Total comprehensive loss |
| | | | | | | | | | | | | |
| | 193,243 | |
Settlement of deferred compensation plans | | 860,060 | | | (9,320) | | | — | | | — | | | — | | | (9,320) | |
Purchase of units under unit repurchase program | | (860,060) | | | (18,209) | | | — | | | — | | | — | | | (18,209) | |
Common unit-based compensation |
| — | |
| 2,830 | | | — | | | — | | | — | | | 2,830 | |
Distributions on deferred common unit-based compensation |
| — | |
| (2,901) | | | — | | | — | | | — | | | (2,901) | |
Distributions from consolidated company to affiliate noncontrolling interest | | — | | | — | | | — | | | — | | | (2,288) | | | (2,288) | |
JC Resources acquisition - See Note 1 | | — | | | (7,251) | | | (64,999) | | | — | | | — | | | (72,250) | |
Cash retained by JC Resources in acquisition - See Note 1 | | — | | | — | | | (2,933) | | | — | | | — | | | (2,933) | |
Distributions to Partners |
| — | | | (89,037) | | | — | | | — | | | — | | | (89,037) | |
Balance at March 31, 2023 | | 127,195,219 | | $ | 1,721,938 | | $ | — | | $ | (40,489) | | $ | 25,712 | | $ | 1,707,161 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Accumulated | | | | | | | | ||
| | Number of | | Limited | | General | | Other | | | | | | | | |||
| | Limited Partner | | Partners' | | Partner's | | Comprehensive | | Noncontrolling | | Total Partners' | | |||||
|
| Units |
| Capital |
| Capital * |
| Income (Loss) |
| Interest |
| Capital * |
| |||||
| | (in thousands, except unit data) | | |||||||||||||||
Balance at January 1, 2022 |
| 127,195,219 | | $ | 1,279,183 | | $ | 68,075 | | $ | (64,229) | | $ | 11,115 | | $ | 1,294,144 | |
Comprehensive income: | | | | | | | | | | | | | | | | | | |
Net income |
| — | |
| 36,652 | |
| 1,431 | |
| — | | | 290 |
|
| 38,373 | |
Actuarially determined long-term liability adjustments |
| — | |
| — | |
| — | |
| 790 | |
| — |
|
| 790 | |
Total comprehensive income |
| | | | | | | | | | | | | |
| | 39,163 | |
Common unit-based compensation |
| — | |
| 2,640 | | | — | | | — | | | — | | | 2,640 | |
Distributions on deferred common unit-based compensation |
| — | |
| (950) | | | — | | | — | | | — | | | (950) | |
Distributions from consolidated company to affiliate noncontrolling interest | | — | | | — | | | — | | | — | | | (298) | | | (298) | |
Cash retained by JC Resources in acquisition - See Note 1 | | — | | | — | | | (1,590) | | | — | | | — | | | (1,590) | |
Distributions to Partners |
| — | | | (31,800) | | | — | | | — | | | — | | | (31,800) | |
Balance at March 31, 2022 |
| 127,195,219 | | $ | 1,285,725 | | $ | 67,916 | | $ | (63,439) | | $ | 11,107 | | $ | 1,301,309 | |
* Recast as discussed in Note 1 – Organization and Presentation.
14
12.11.REVENUE FROM CONTRACTS WITH CUSTOMERS
The following table illustrates the disaggregation of our revenues by type, including a reconciliation to our segment presentation as presented in Note 1716 – Segment Information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Coal Operations | | Royalties | | Other, | | | | |
| Coal Operations | | Royalties | | Other, | | | | | ||||||||||||||||||
| | Illinois |
| |
| | | |
| Corporate and |
| | | | | Illinois |
| |
| | | |
| Corporate and |
| | | | ||||||||||
|
| Basin |
| Appalachia |
| Oil & Gas |
| Coal |
| Elimination |
| Consolidated | |
| Basin |
| Appalachia |
| Oil & Gas |
| Coal |
| Elimination |
| Consolidated | | ||||||||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2022 | | |||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2023 | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Coal sales | | $ | 314,271 | | $ | 236,292 | | $ | — | | $ | — | | $ | — | | $ | 550,563 | | | $ | 336,910 | | $ | 241,874 | | $ | — | | $ | — | | $ | — | | $ | 578,784 | |
Oil & gas royalties | | | — | | | — | | | 35,312 | | | — | | | — | | | 35,312 | | | | — | | | — | | | 34,497 | | | — | | | — | | | 34,497 | |
Coal royalties | | | — | | | — | | | — | | | 16,708 | | | (16,708) | | | — | | | | — | | | — | | | — | | | 15,513 | | | (15,513) | | | — | |
Transportation revenues | | | 19,508 | | | 9,040 | | | — | | | — | | | — | | | 28,548 | | | | 21,328 | | | 8,910 | | | — | | | — | | | — | | | 30,238 | |
Other revenues | | | 1,455 | | | 392 | | | 2,260 | | | — | | | 9,890 | | | 13,997 | | | | 2,168 | | | 475 | | | 1,040 | | | — | | | 15,720 | | | 19,403 | |
Total revenues | | $ | 335,234 | | $ | 245,724 | | $ | 37,572 | | $ | 16,708 | | $ | (6,818) | | $ | 628,420 | | | $ | 360,406 | | $ | 251,259 | | $ | 35,537 | | $ | 15,513 | | $ | 207 | | $ | 662,922 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | | |||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Coal sales | | $ | 217,637 | | $ | 144,627 | | $ | — | | $ | — | | $ | — | | $ | 362,264 | | | $ | 253,905 | | $ | 134,455 | | $ | — | | $ | — | | $ | — | | $ | 388,360 | |
Oil & gas royalties | | | — | | | — | | | 20,109 | | | — | | | — | | | 20,109 | | |||||||||||||||||||
Oil & gas royalties * | | | — | | | — | | | 33,396 | | | — | | | — | | | 33,396 | | |||||||||||||||||||
Coal royalties | | | — | | | — | | | — | | | 13,456 | | | (13,456) | | | — | | | | — | | | — | | | — | | | 15,167 | | | (15,167) | | | — | |
Transportation revenues | | | 12,121 | | | 9,906 | | | — | | | — | | | — | | | 22,027 | | | | 18,891 | | | 10,481 | | | — | | | — | | | — | | | 29,372 | |
Other revenues | | | 1,335 | | | 411 | | | 1,082 | | | — | | | 8,211 | | | 11,039 | | | | 1,900 | | | 363 | | | 124 | | | — | | | 9,907 | | | 12,294 | |
Total revenues | | $ | 231,093 | | $ | 154,944 | | $ | 21,191 | | $ | 13,456 | | $ | (5,245) | | $ | 415,439 | | | $ | 274,696 | | $ | 145,299 | | $ | 33,520 | | $ | 15,167 | | $ | (5,260) | | $ | 463,422 | |
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Nine Months Ended September 30, 2022 | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Coal sales | | $ | 858,565 | | $ | 612,165 | | $ | — | | $ | — | | $ | — | | $ | 1,470,730 | | |||||||||||||||||||
Oil & gas royalties | | | — | | | — | | | 102,166 | | | — | | | — | | | 102,166 | | |||||||||||||||||||
Coal royalties | | | — | | | — | | | — | | | 46,400 | | | (46,400) | | | — | | |||||||||||||||||||
Transportation revenues | | | 59,848 | | | 33,457 | | | — | | | — | | | — | | | 93,305 | | |||||||||||||||||||
Other revenues | | | 5,014 | | | 1,083 | | | 2,946 | | | — | | | 30,540 | | | 39,583 | | |||||||||||||||||||
Total revenues | | $ | 923,427 | | $ | 646,705 | | $ | 105,112 | | $ | 46,400 | | $ | (15,860) | | $ | 1,705,784 | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Nine Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| |
| | | | | | | | | | | | | | | | | | |||||||||||||||||||
Coal sales | | $ | 610,435 | | $ | 365,290 | | $ | — | | $ | — | | $ | — | | $ | 975,725 | | |||||||||||||||||||
Oil & gas royalties | | | — | | | — | | | 51,222 | | | — | | | — | | | 51,222 | | |||||||||||||||||||
Coal royalties | | | — | | | — | | | — | | | 36,410 | | | (36,410) | | | — | | |||||||||||||||||||
Transportation revenues | | | 27,235 | | | 17,918 | | | — | | | — | | | — | | | 45,153 | | |||||||||||||||||||
Other revenues | | | 2,590 | | | 1,078 | | | 1,576 | | | — | | | 19,160 | | | 24,404 | | |||||||||||||||||||
Total revenues | | $ | 640,260 | | $ | 384,286 | | $ | 52,798 | | $ | 36,410 | | $ | (17,250) | | $ | 1,096,504 | |
* Recast as discussed in Note 1 – Organization and Presentation.
The following table illustrates the amount of our transaction price for all current coal supply contracts allocated to performance obligations that are unsatisfied or partially unsatisfied as of September 30, 2022March 31, 2023 and disaggregated by segment and contract duration.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 2025 and | | | | | | | | | | | | | 2026 and | | | ||||
|
| 2022 |
| 2023 |
| 2024 |
| Thereafter |
| Total |
| 2023 |
| 2024 |
| 2025 |
| Thereafter |
| Total | ||||||||||
| | (in thousands) | | (in thousands) | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Illinois Basin Coal Operations coal revenues | | $ | 380,626 | | $ | 853,006 | | $ | 489,615 | | $ | 480,298 | | $ | 2,203,545 | | $ | 998,751 | | $ | 891,382 | | $ | 344,601 | | $ | 243,600 | | $ | 2,478,334 |
Appalachia Coal Operations coal revenues | | | 298,080 | | | 372,353 | | | 310,436 | | | 156,700 | | | 1,137,569 | | | 646,670 | | | 550,147 | | | 325,425 | | | 1,600 | | | 1,523,842 |
Total coal revenues (1) | | $ | 678,706 | | $ | 1,225,359 | | $ | 800,051 | | $ | 636,998 | | $ | 3,341,114 | | $ | 1,645,421 | | $ | 1,441,529 | | $ | 670,026 | | $ | 245,200 | | $ | 4,002,176 |
(1) Coal revenues generally consists of consolidated revenues excluding our Oil & Gas Royalties segment as well as intercompany revenues from our Coal Royalties segment.
18
1312.EARNINGS PER LIMITED PARTNER UNIT
We utilize the two-class method in calculating basic and diluted earnings per limited partner unit ("EPU"). NetSubsequent to the JC Resources Acquisition, which is discussed in more detail in Note 1 – Organization and Presentation, net income attributable to ARLP is allocated to limited partners and participating securities under deferred compensation plans, which include rights towith nonforfeitable distributions or distribution equivalents. Netequivalents, while net losses attributable to ARLP are allocated only to limited partners but not to participating securities. Prior to the JC Resources Acquisition, in addition to limited partners and participating securities allocations, amounts are also allocated to our general partner for historical earnings from the mineral interests acquired in the JC Resources Acquisition.
15
Our participating securities are outstanding restricted unit awards under our Long-Term Incentive Plan ("LTIP") and phantom units in notional accounts under our Supplemental Executive Retirement Plan ("SERP") and the MGP Amended and Restated Deferred Compensation Plan for Directors ("Directors' Deferred Compensation Plan").
The following is a reconciliation of net income attributable to ARLP used for calculating basic and diluted earnings per unit and the weighted-average units used in computing EPU for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 (1) |
| ||||||
| | (in thousands, except per unit data) | | | (in thousands, except per unit data) | | ||||||||||||||
| | | | | | | | |||||||||||||
Net income attributable to ARLP | | $ | 164,607 | | $ | 57,548 | | $ | 362,737 | | $ | 126,331 | | | $ | 191,185 | | $ | 38,083 | |
Adjustment: | | | | | | | | |||||||||||||
General partner's interest in net income attributable to ARLP | |
| (1,384) | |
| (1,431) | | |||||||||||||
| | | | | | | | |||||||||||||
Limited partners' interest in net income attributable to ARLP | |
| 189,801 | |
| 36,652 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Less: | | | | | | | | | | | | | | | | | | | | |
Distributions to participating securities | |
| (2,180) | |
| (765) | |
| (5,452) | |
| (1,384) | | |
| (2,432) | |
| (1,552) | |
Undistributed earnings attributable to participating securities | |
| (3,275) | |
| (951) | |
| (6,504) | |
| (1,832) | | |
| (2,979) | |
| — | |
| | | | | | | | | | | | | | | | | | | | |
Net income attributable to ARLP available to limited partners | | $ | 159,152 | | $ | 55,832 | | $ | 350,781 | | $ | 123,115 | | | $ | 184,390 | | $ | 35,100 | |
| | | | | | | | | | | | | | | | | | | | |
Weighted-average limited partner units outstanding – basic and diluted | |
| 127,195 | |
| 127,195 | |
| 127,195 | |
| 127,195 | | |
| 127,289 | |
| 127,195 | |
| | | | | | | | | | | | | | | | | | | | |
Earnings per limited partner unit - basic and diluted (1) | | $ | 1.25 | | $ | 0.44 | | $ | 2.76 | | $ | 0.97 | | |||||||
Earnings per limited partner unit - basic and diluted (2) | | $ | 1.45 | | $ | 0.28 | |
(1) | Recast as discussed in Note 1 – Organization and Presentation. |
(2) | Diluted EPU gives effect to all potentially dilutive common units outstanding during the period using the treasury stock method. Diluted EPU excludes all potentially dilutive units calculated under the treasury stock method if their effect is anti-dilutive. The combined total of LTIP, SERP and Directors' Deferred Compensation Plan units of |
19
14.13.WORKERS' COMPENSATION AND PNEUMOCONIOSIS
The changes in the workers' compensation liability, including current and long-term liability balances, for each of the periods presented were as follows:
| | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended |
| ||||||||
| | September 30, | | September 30, | | ||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
| | (in thousands) | | ||||||||||
Beginning balance | | $ | 47,221 | | $ | 52,059 | | $ | 53,448 | | $ | 54,739 | |
Accruals increase | |
| 2,918 | |
| 1,674 | |
| 7,464 | |
| 4,911 | |
Payments | |
| (2,856) | |
| (2,939) | |
| (8,938) | |
| (7,914) | |
Interest accretion | |
| 287 | |
| 232 | |
| 861 | |
| 695 | |
Valuation gain (1) | |
| — | |
| — | |
| (5,265) | |
| (1,405) | |
Ending balance | | $ | 47,570 | | $ | 51,026 | | $ | 47,570 | | $ | 51,026 | |
| | | | | | | |
|
| Three Months Ended |
| ||||
| | March 31, | | ||||
| | 2023 |
| 2022 | | ||
| | (in thousands) | | ||||
Beginning balance | | $ | 49,452 | | $ | 53,448 | |
Changes in accruals | |
| 3,874 | |
| 2,275 | |
Payments | |
| (3,859) | |
| (2,804) | |
Interest accretion | |
| 550 | |
| 287 | |
Ending balance | | $ | 50,017 | | $ | 53,206 | |
We limit our exposure to traumatic injury claims by purchasing a high deductible insurance policy that starts paying benefits after deductibles for a claim have been met. The deductible level may vary by claim year. Our workers' compensation liability above is presented on a gross basis and does not include our expected receivables on our insurance policy. Our receivables for traumatic injury claims under this policy as of September 30, 2022March 31, 2023 are $5.7$4.1 million and are included in Other long-term assets on our condensed consolidated balance sheet.
16
Certain of our mine operating entities are liable under state statutes and the Federal Coal Mine Health and Safety Act of 1969, as amended, to pay pneumoconiosis, or black lung, benefits to eligible employees and former employees and their dependents. Components of the net periodic benefit cost for each of the periods presented are as follows:
| | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
| | 2023 |
| 2022 |
| ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Black lung benefits: | | | | | | | | |||||||||||||
Service cost | | $ | 949 | | $ | 1,007 | | $ | 2,850 | | $ | 3,027 |
| | $ | 669 | | $ | 947 |
|
Interest cost (1) | |
| 747 | |
| 636 | |
| 2,243 | |
| 1,909 | | |
| 1,238 | |
| 747 | |
Net amortization (1) | |
| 260 | |
| 1,043 | |
| 779 | |
| 3,129 | | |
| 346 | |
| 260 | |
Net periodic benefit cost | | $ | 1,956 | | $ | 2,686 | | $ | 5,872 | | $ | 8,065 | | | $ | 2,253 | | $ | 1,954 | |
(1) | Interest cost and net amortization are included in the Other income (expense) line item within our condensed consolidated statements of income. |
15.14.COMMON UNIT-BASED COMPENSATION PLANS
Long-Term Incentive Plan
We maintain the LTIP for certain employees and officers of MGP and its affiliates who perform services for us. As part of our LTIP, unit awards of non-vested "phantom" or notional units, also referred to as "restricted units", may be granted which upon satisfaction of time and performance-based vesting requirements, entitle the LTIP participant to receive ARLP common units. Certain awards may also contain a minimum-value guarantee payable in ARLP common units or cash that would be paid regardless of whether or not the awards vest, as long as service requirements are met. Annual grant levels, vesting provisions and minimum-value guarantees of restricted units for designated participants are recommended by Mr. Craft, subject to review and approval of the compensation committee of the MGP board of directors
20
(the "Compensation Committee"). Vesting of all restricted units outstanding is subject to the satisfaction of certain financial tests. If it is not probable the financial tests for a particular grant of restricted units will be met, any previously expensed amounts for that grant are reversed and no future expense will be recognized for that grant. Assuming the financial tests are met, grants of restricted units issued to LTIP participants are generally expected to cliff vest on January 1st of the third year following issuance of the grants. We expect to settle restricted unit grants by delivery of newly-issued ARLP common units, except for the portion of the grants that will satisfy employee tax withholding obligations of LTIP participants. We account for forfeitures of non-vested LTIP restricted unit grants as they occur. As provided under the distribution equivalent rights ("DERs") provisions of the LTIP and the terms of the LTIP restricted unit awards, all non-vested restricted units include contingent rights to receive quarterly distributions in cash or, at the discretion of the Compensation Committee, phantom units in lieu of cash credited to a bookkeeping account with value equal to the cash distributions we make to unitholders during the vesting period. If it is not probable the financial tests for a particular grant of restricted units will be met, any previously paid DER amounts for that grant are reversed from Partners' Capital and recorded as compensation expense and future DERs for that grant, if any, will be recognized as compensation expense when paid.
A summary of non-vested LTIP grants as of and for the ninethree months ended September 30, 2022March 31, 2023 is as follows:
| | | | | | | | | | | | | | | | | | |
|
| Number of units |
| Weighted average grant date fair value per unit |
| Intrinsic value |
|
| Number of units |
| Weighted average grant date fair value per unit |
| Intrinsic value |
| ||||
| | | | | | | (in thousands) | | | | | | | | (in thousands) | | ||
| | | | | | | | | | | | | | | | | | |
Non-vested grants at January 1, 2022 | | 3,130,475 | | $ | 5.59 | | $ | 39,569 | | |||||||||
Non-vested grants at January 1, 2023 | | 3,697,133 | | $ | 7.40 | | | 75,126 | | |||||||||
Granted (1) |
| 769,907 | | | 14.65 | | | | |
| 447,225 | | | 21.54 | | | | |
Vested (2) |
| (1,291,330) | |
| 5.02 | | | | | |||||||||
Forfeited |
| (200,119) | |
| 6.96 | | | | |
| (118,144) | |
| 6.48 | | | | |
Non-vested grants at September 30, 2022 |
| 3,700,263 | |
| 7.40 | | | 84,736 | | |||||||||
Non-vested grants at March 31, 2023 |
| 2,734,884 | |
| 10.88 | | | 55,163 | |
(1) | The restricted units granted during |
(2) | During the three months ended March 31, 2023, we issued 860,060 unrestricted common units to the LTIP participants. The remaining vested units were settled in cash to satisfy tax withholding obligations of the LTIP participants. |
LTIP expense for grants of restricted units was $2.4$2.3 million and $1.7 million for each of the three months ended September 30, 2022March 31, 2023 and 2021, respectively, and $6.8 million and $3.8 million for the nine months ended September 30, 2022 and 2021, respectively.2022. The total obligation associated with LTIP grants of restricted units as of September 30, 2022March 31, 2023 was $13.4$11.5 million and is included in the partners' capital Limited partners-common unitholders line item in our condensed consolidated balance sheets. As of September 30, 2022,March 31, 2023, there was $14.0$18.2 million in total unrecognized compensation expense related to the non-vested LTIP restricted unit grants that are expected to vest. That expense is expected to be recognized over a weighted-average period of 1.11.3 years.
Supplemental Executive Retirement Plan and Directors' Deferred Compensation Plan
We utilize the SERP to provide deferred compensation benefits for certain officers and key employees. All allocations made to participants under the SERP are made in the form of "phantom" ARLP units and SERP distributions will be settled in the form of ARLP common units. The SERP is administered by the Compensation Committee.
Our directors participate in the Directors' Deferred Compensation Plan. Pursuant to the Directors' Deferred Compensation Plan, for amounts deferred either automatically or at the election of the director, a notional account is established and credited with notional common units of ARLP, described in the Directors' Deferred Compensation Plan as "phantom" units. Distributions from the Directors' Deferred Compensation Plan will be settled in the form of ARLP common units.
For both the SERP and Directors' Deferred Compensation Plan, when quarterly cash distributions are made with respect to ARLP common units, an amount equal to such quarterly distribution is credited to each participant's notional account as additional phantom units. All grants of phantom units under the SERP and Directors' Deferred Compensation Plan vest immediately.
2117
Supplemental Executive Retirement Plan and Directors' Deferred Compensation Plan
A summary of SERP and Directors' Deferred Compensation Plan activity as of and for the ninethree months ended September 30, 2022March 31, 2023 is as follows:
| | | | | | | | | | | | | | | | | | |
|
| Number of units |
| Weighted average grant date fair value per unit |
| Intrinsic value |
|
| Number of units |
| Weighted average grant date fair value per unit |
| Intrinsic value |
| ||||
| | | | | | | (in thousands) | | | | | | | | (in thousands) | | ||
| | | | | | | | | | | | | | | | | | |
Phantom units outstanding as of January 1, 2022 | | 668,698 | | $ | 20.37 | | $ | 8,452 | | |||||||||
Phantom units outstanding as of January 1, 2023 | | 742,540 | | $ | 20.28 | | $ | 15,088 | | |||||||||
Granted | | 37,758 | | | 18.25 | | | | | | 23,980 | | | 21.30 | | | | |
Phantom units outstanding as of September 30, 2022 |
| 706,456 | |
| 20.26 | | | 16,178 | | |||||||||
Phantom units outstanding as of March 31, 2023 |
| 766,520 | |
| 20.31 | | | 15,461 | |
Total SERP and Directors' Deferred Compensation Plan expense was $0.4$0.6 million and $0.1$0.2 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $0.9 million and $0.3 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022,March 31, 2023, the total obligation associated with the SERP and Directors' Deferred Compensation Plan was $14.3$15.6 million and is included in the partners' capital Limited partners-common unitholders line item in our condensed consolidated balance sheets.
16.15.COMPONENTS OF PENSION PLAN NET PERIODIC BENEFIT COSTS
Eligible employees at certain of our mining operations participate in a defined benefit plan (the "Pension Plan") that we sponsor. The Pension Plan is currently closed to new applicants and participants in the Pension Plan are no longer receiving benefit accruals for service. The benefit formula for the Pension Plan is a fixed dollar unit based on years of service. Components of the net periodic benefit cost for each of the periods presented are as follows:
| | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
| | 2023 |
| 2022 |
| ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Interest cost | | $ | 940 | | $ | 860 | | $ | 2,808 | | $ | 2,580 | | | $ | 1,295 | | $ | 932 | |
Expected return on plan assets | |
| (1,654) | |
| (1,671) | |
| (4,983) | |
| (5,013) | | |
| (1,598) | |
| (1,665) | |
Amortization of prior service cost | | | 47 | | | 47 | | | 140 | | | 140 | | | | 47 | | | 47 | |
Amortization of net loss | |
| 495 | |
| 1,141 | |
| 1,467 | |
| 3,424 | | |
| 173 | |
| 483 | |
Net periodic benefit cost (1) | | $ | (172) | | $ | 377 | | $ | (568) | | $ | 1,131 | | |||||||
Net periodic benefit credit (1) | | $ | (83) | | $ | (203) | |
(1) | Net periodic benefit |
As a result of certain pension plan contribution relief provided by the American Rescue Plan Act enacted in March 2021, we do not expect to make contributions to the Pension Plan during 2022.2023.
17.16.SEGMENT INFORMATION
We operate in the United States as a diversified natural resource company that generates operating and royalty income from the production and marketing of coal to major domestic and international utilities, metallurgical and industrial users as well as royalty income from oil & gas mineral interests. In addition, we continue to position ourselves as a reliable energy partner for the future as we pursue opportunities that support the advancement of energy and related infrastructure. We aggregate multiple operating segments into four reportable segments, Illinois Basin Coal Operations, Appalachia Coal Operations, Oil & Gas Royalties and Coal Royalties. We also have an "all other" category referred to as Other, Corporate and Elimination. Our two coal operations reportable segments correspond to major coal producing regions in the eastern United States with similar economic characteristics including coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues. The two coal operations reportable segments include seven mining complexes operating in Illinois, Indiana, Kentucky, Maryland, Pennsylvania, and West Virginia and a coal-loadingcoal loading terminal in Indiana on the Ohio River. Our Oil & Gas Royalties reportable segment includes our oil & gas mineral interests which are located primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK) and Williston (Bakken) basins. The operations within our Oil & Gas Royalties reportable segment primarily include receiving royalties and lease bonuses for our oil & gas mineral interests. Our Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties, which are either (a) leased to our mining complexes or (b) near our coal mining operations but not yet leased.
22
The Illinois Basin Coal Operations reportable segment includes operating mining complexes (a) the Gibson County Coal, LLC mining complex, (b) the Warrior Coal, LLC mining complex, (c) the River View Coal, LLC mining complex and (d) the Hamilton County Coal, LLC mining complex. The segment also includes our Mt. Vernon Transfer Terminal, LLC coal-loading terminal in Indiana which operates on the Ohio River, Mid-America Carbonates, LLC and other support services, and our non-operating Illinois Basin mining complexes.
The Appalachia Coal Operations reportable segment includes operating mining complexes (a) the Mettiki mining complex, (b) the Tunnel Ridge, LLC mining complex and (c) the MC Mining, LLC mining complex.
The Oil & Gas Royalties reportable segment includes oil & gas mineral interests held by AR Midland, LP ("AR Midland") and AllDale I & II and includes Alliance Minerals' equity interests in both AllDale III (Note 10 – Investments) and Cavalier Minerals.
The Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties that are (a) leased to certain of our mining complexes in both the Illinois Basin Coal Operations and Appalachia Coal Operations reportable segments or (b) located near our operations and external mining operations. Approximately two thirds of the coal sold by our Coal Operations' mines is leased from our Coal Royalties entities.
Other, Corporate and Elimination includes marketing and administrative activities, Matrix Design Group, LLC, its subsidiaries, and Alliance Design Group, LLC (collectively referred to as the "Matrix Group"), our investments in Francis, Infinitum and NGP ETP IV (see Note 10 – Investments), Wildcat Insurance, LLC, which assists the ARLP Partnership with its insurance requirements, AROP Funding and Alliance Finance (both discussed in Note 7 – Long-Term Debt), Pontiki Coal, LLC's workers' compensation and pneumoconiosis liabilities and other miscellaneous activities. The eliminations included in Other, Corporate and Elimination primarily represent the intercompany coal royalty transactions described above between our Coal Royalties reportable segment and our coal operations' mines.
2318
bonuses for our oil & gas mineral interests. Our Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties, which are either (a) leased to our mining complexes or (b) near our coal mining operations but not yet leased.
The Illinois Basin Coal Operations reportable segment includes (a) the Gibson County Coal, LLC's ("Gibson County Coal") mining complex, (b) the Warrior Coal, LLC ("Warrior") mining complex, (c) the River View mining complex and (d) the Hamilton mining complex. The segment also includes our Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") coal loading terminal in Indiana which operates on the Ohio River, Mid-America Carbonates, LLC ("MAC") and other support services, and our non-operating mining complexes.
The Appalachia Coal Operations reportable segment includes (a) the Mettiki mining complex, (b) the Tunnel Ridge mining complex and (c) the MC Mining, LLC ("MC Mining") mining complex.
The Oil & Gas Royalties reportable segment includes oil & gas mineral interests held by AR Midland, LP ("AR Midland") and AllDale I & II and includes Alliance Minerals' equity interests in both AllDale III (Note 9 – Investments) and Cavalier Minerals.
The Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties that are (a) leased to certain of our mining complexes in both the Illinois Basin Coal Operations and Appalachia Coal Operations reportable segments or (b) located near our operations and external mining operations. Approximately two-thirds of the coal sold by our Coal Operations' mines is leased from our Coal Royalties entities.
Other, Corporate and Elimination includes marketing and administrative activities, Matrix Design Group, LLC, its subsidiaries, and Alliance Design Group, LLC (collectively referred to as the "Matrix Group"), our investments in Francis, Infinitum and NGP ETP IV (see Note 9 – Investments), Wildcat Insurance, which assists the ARLP Partnership with its insurance requirements, AROP Funding and Alliance Finance (both discussed in Note 6 – Long-Term Debt) and other miscellaneous activities. The eliminations included in Other, Corporate and Elimination primarily represent the intercompany coal royalty transactions described above between our Coal Royalties reportable segment and our coal operations' mines.
Reportable segment results are presented below.
| | | | | | | | | | | | | | | | | | | |
|
| Coal Operations | | Royalties | | Other, | | | |
| |||||||||
| | Illinois |
| |
| | | | | Corporate and |
| | | | |||||
|
| Basin |
| Appalachia |
| Oil & Gas |
| Coal | | Elimination |
| Consolidated |
| ||||||
| | (in thousands) |
| ||||||||||||||||
Three Months Ended March 31, 2023 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Revenues - Outside | | $ | 360,406 | | $ | 251,259 | | $ | 35,537 | | $ | — | | $ | 15,720 | | $ | 662,922 | |
Revenues - Intercompany | | | — | | | — | | | — | | | 15,513 | | | (15,513) | | | — | |
Total revenues (2) | | | 360,406 | | | 251,259 | | | 35,537 | | | 15,513 | | | 207 | | | 662,922 | |
| | | | | | | | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense (3) | |
| 207,069 | | | 125,799 | | | 4,424 | | | 5,388 | | | (3,384) | |
| 339,296 | |
Segment Adjusted EBITDA (4) | |
| 132,008 | | | 116,550 | | | 30,045 | | | 10,125 | | | 3,219 | |
| 291,947 | |
Total assets | |
| 840,792 | | | 459,834 | | | 768,728 | | | 326,064 | | | 392,331 | |
| 2,787,749 | |
Capital expenditures (5) | |
| 61,982 | | | 32,505 | | | 2 | | | 400 | | | 585 | |
| 95,474 | |
| | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | |
Revenues - Outside (1) | | $ | 274,696 | | $ | 145,299 | | $ | 33,520 | | $ | — | | $ | 9,907 | | $ | 463,422 | |
Revenues - Intercompany | | | — | | | — | | | — | | | 15,167 | | | (15,167) | | | — | |
Total revenues (2) | | | 274,696 | | | 145,299 | | | 33,520 | | | 15,167 | | | (5,260) | | | 463,422 | |
| | | | | | | | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense (1) (3) | |
| 177,589 | | | 83,715 | | | 3,277 | | | 4,819 | | | (7,944) | |
| 261,456 | |
Segment Adjusted EBITDA (1) (4) | |
| 78,215 | | | 51,103 | | | 30,835 | | | 10,348 | | | 2,686 | |
| 173,187 | |
Total assets (1) | |
| 704,627 | | | 425,929 | | | 718,710 | | | 291,153 | | | 153,044 | |
| 2,293,463 | |
Capital expenditures (5) | |
| 36,547 | | | 18,345 | | | — | | | — | | | 4,261 | |
| 59,153 | |
(1) | Recast for the JC Resources Acquisition as discussed in Note 1 – Organization and Presentation. |
19
Reportable segment results are presented below.
| | | | | | | | | | | | | | | | | | | |
|
| Coal Operations | | Royalties | | Other, | | | |
| |||||||||
| | Illinois |
| |
| | | | | Corporate and |
| | | | |||||
|
| Basin |
| Appalachia |
| Oil & Gas |
| Coal | | Elimination |
| Consolidated |
| ||||||
| | (in thousands) |
| ||||||||||||||||
Three Months Ended September 30, 2022 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Revenues - Outside | | $ | 335,234 | | $ | 245,724 | | $ | 37,572 | | $ | — | | $ | 9,890 | | $ | 628,420 | |
Revenues - Intercompany | | | — | | | — | | | — | | | 16,708 | | | (16,708) | | | — | |
Total revenues (1) | | | 335,234 | | | 245,724 | | | 37,572 | | | 16,708 | | | (6,818) | | | 628,420 | |
| | | | | | | | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense (2) | |
| 194,967 | |
| 134,672 | |
| 3,531 | |
| 5,545 | |
| (8,609) | |
| 330,106 | |
Segment Adjusted EBITDA (3) | |
| 120,760 | |
| 102,012 | |
| 35,783 | |
| 11,163 | |
| 1,792 | |
| 271,510 | |
Capital expenditures | |
| 39,529 | |
| 17,780 | |
| — | |
| 40,033 | |
| 1,962 | |
| 99,304 | |
| | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | |
Revenues - Outside | | $ | 231,093 | | $ | 154,944 | | $ | 21,191 | | $ | — | | $ | 8,211 | | $ | 415,439 | |
Revenues - Intercompany | | | — | | | — | | | — | | | 13,456 | | | (13,456) | | | — | |
Total revenues (1) | | | 231,093 | | | 154,944 | | | 21,191 | | | 13,456 | | | (5,245) | | | 415,439 | |
| | | | | | | | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense (2) | |
| 149,666 | |
| 92,312 | |
| 2,639 | |
| 4,258 | |
| (9,525) | |
| 239,350 | |
Segment Adjusted EBITDA (3) | |
| 69,305 | |
| 52,726 | |
| 19,080 | |
| 9,198 | |
| 4,280 | |
| 154,589 | |
Capital expenditures | |
| 19,081 | |
| 12,531 | |
| — | |
| 30 | |
| 1,393 | |
| 33,035 | |
| | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2022 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Revenues - Outside | | $ | 923,427 | | $ | 646,705 | | $ | 105,112 | | $ | — | | $ | 30,540 | | $ | 1,705,784 | |
Revenues - Intercompany | | | — | | | — | | | — | | | 46,400 | | | (46,400) | | | — | |
Total revenues (1) | | | 923,427 | | | 646,705 | | | 105,112 | | | 46,400 | | | (15,860) | | | 1,705,784 | |
| | | | | | | | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense (2) | |
| 567,253 | | | 335,756 | | | 9,766 | | | 15,762 | | | (21,177) | |
| 907,360 | |
Segment Adjusted EBITDA (3) | |
| 296,327 | | | 277,492 | | | 98,944 | | | 30,638 | | | 5,317 | |
| 708,718 | |
Total assets | |
| 731,441 | | | 428,000 | | | 689,874 | | | 325,498 | | | 329,569 | |
| 2,504,381 | |
Capital expenditures | |
| 111,419 | | | 58,616 | | | — | | | 40,033 | | | 11,218 | |
| 221,286 | |
| | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, 2021 | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | |
Revenues - Outside | | $ | 640,260 | | $ | 384,286 | | $ | 52,798 | | $ | — | | $ | 19,160 | | $ | 1,096,504 | |
Revenues - Intercompany | | | — | | | — | | | — | | | 36,410 | | | (36,410) | | | — | |
Total revenues (1) | | | 640,260 | | | 384,286 | | | 52,798 | | | 36,410 | | | (17,250) | | | 1,096,504 | |
| | | | | | | | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense (2) | |
| 415,423 | | | 240,494 | | | 7,116 | | | 13,157 | | | (24,619) | |
| 651,571 | |
Segment Adjusted EBITDA (3) | |
| 197,601 | | | 125,873 | | | 46,405 | | | 23,253 | | | 7,370 | |
| 400,502 | |
Total assets | |
| 703,060 | | | 422,504 | | | 601,695 | | | 289,100 | | | 132,616 | |
| 2,148,975 | |
Capital expenditures | |
| 47,997 | | | 34,579 | | | — | | | 30 | | | 6,055 | |
| 88,661 | |
Revenues included in the Other, Corporate and Elimination column are attributable to intercompany eliminations, which are primarily intercompany coal royalty eliminations, outside revenues at the Matrix Group and other outside miscellaneous sales and revenue activities. |
Segment Adjusted EBITDA Expense includes operating expenses, coal purchases, if applicable, and other income. Transportation expenses are excluded as transportation revenues are recognized in an amount equal to transportation expenses when title passes to the customer. |
24
The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to Operating expenses (excluding depreciation, depletion and amortization):
| | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
| | 2023 |
| 2022 |
| ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Operating expenses (excluding depreciation, depletion and amortization) | | $ | 338,723 | | $ | 262,023 | | |||||||||||||
Other expense (income) | |
| 573 | |
| (567) | | |||||||||||||
Segment Adjusted EBITDA Expense | | $ | 330,106 | | $ | 239,350 | | $ | 907,360 | | $ | 651,571 | | | $ | 339,296 | | $ | 261,456 | |
Outside coal purchases | |
| — | |
| (6,065) | |
| (151) | |
| (6,179) | | |||||||
Other income (expense) | |
| 192 | |
| (84) | |
| 1,337 | |
| (2,632) | | |||||||
Operating expenses (excluding depreciation, depletion and amortization) | | $ | 330,298 | | $ | 233,201 | | $ | 908,546 | | $ | 642,760 | |
Segment Adjusted EBITDA is defined as net income attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization, and general and administrative expenses. Management therefore is able to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments. Consolidated Segment Adjusted EBITDA is reconciled to net income as follows: |
| | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
| | 2023 |
| 2022 |
| ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Consolidated Segment Adjusted EBITDA | | $ | 271,510 | | $ | 154,589 | | $ | 708,718 | | $ | 400,502 | | |||||||
Net income | | $ | 192,678 | | $ | 38,373 | | |||||||||||||
Noncontrolling interest | | | (1,493) | | | (290) | | |||||||||||||
Net income attributable to ARLP | | $ | 191,185 | | $ | 38,083 | | |||||||||||||
General and administrative | |
| (21,341) | |
| (18,655) | |
| (62,394) | |
| (51,651) | | |
| 21,085 | |
| 18,622 | |
Depreciation, depletion and amortization | |
| (70,143) | |
| (68,763) | |
| (200,191) | |
| (192,698) | | |
| 65,550 | |
| 64,140 | |
Interest expense, net | |
| (8,819) | |
| (9,389) | |
| (27,750) | |
| (29,595) | | |
| 9,886 | |
| 9,627 | |
Income tax expense | |
| (6,600) | |
| (234) | |
| (55,646) | |
| (227) | | |
| 4,241 | |
| 42,715 | |
Net income attributable to ARLP | | $ | 164,607 | | $ | 57,548 | | $ | 362,737 | | $ | 126,331 | | |||||||
Noncontrolling interest | | | 364 | | | 176 | | | 977 | | | 384 | | |||||||
Net income | | $ | 164,971 | | $ | 57,724 | | $ | 363,714 | | $ | 126,715 | | |||||||
Consolidated Segment Adjusted EBITDA | | $ | 291,947 | | $ | 173,187 | |
(5) | Capital Expenditure shown excludes the $72.3 million paid for the JC Resources Acquisition and $2.8 million paid towards the Acquisition Agreement entered into on January 27, 2023 (See Note 2 – Acquisitions). |
18.SUBSEQUENT EVENTS
Jase Acquisition
On October 26, 2022, we acquired approximately 3,928 oil & gas net royalty acres in the Midland and Delaware Basins from Jase Minerals, LP for a purchase price of $81.2 million which was funded with cash on hand. Because the acquisition includes both developed and undeveloped properties we will account for the acquisition as a business combination. This acquisition enhanced our ownership position in the Permian Basin.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Significant relationships referenced in this management's discussion and analysis of financial condition and results of operations include the following:
● | 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, |
● | References to "Alliance Minerals" mean Alliance Minerals, LLC, |
● | References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, |
Summary
We are a diversified natural resource company operating in the United States that generates operating and royalty income from the production and marketing of coal to major domestic utilities, industrial users and international utilities and industrial userscustomers, as well as royalty income from oil & gas mineral interestslocated in strategic producing regions across the United States. In addition, we continue to position ourselves as a reliable energy partner for the future as we pursue opportunities that support the advancement of energy and related infrastructure. We began coal mining operations in 1971intend to pursue strategic investments that leverage our core competencies and since then, have grown through acquisitionsrelationships with electric utilities, industrial customers, and internal development in strategic producing regions to becomefederal and state governments.
We are currently the largest coal producer in the eastern United States. OurStates with seven operating underground mining operations are locatedcomplexes near many of the major eastern utility generating plants and on major coal hauling railroads in the eastern United States.Illinois, Indiana, Kentucky, Maryland, Pennsylvania, and West Virginia, as well as a coal-loading terminal in Indiana. Two of our mines have loading facilities located on the banks of the Ohio River. As is customary in the coal industry, we have entered into long-term coal supply agreements with many of our customers.
In addition to our mining operations, in 2007, Alliance Resource Properties began acquiring controlowns or leases substantially all of our measured, indicated and inferred coal mineral interestsresources and leasing the majority of our proved and probable coal mineral reserves in the Illinois and resourcesAppalachia Basins that are (a) leased to our internal mining complexes or (b) near other internal and external coal mining operations. In 2014, we began acquiring
We currently own oil & gas mineral interests in approximately 65,000 net royalty acres in premier oil & gas producing regions acrossof the United States. States, primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK), and Williston (Bakken) basins providing us with diversified exposure to industry-leading operators consistent with our general strategy to grow our oil & gas mineral interest business.
We have invested in energy and infrastructure opportunities including our investments in Francis, Infinitum, and NGP ETP IV, which are in the businesses of, respectively, electric vehicle charging stations, electric motor manufacturing, and private equity investments in renewable energy, the electrification of our economy or the efficient use of energy.
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 (the "Acquisition Agreement").
On February 22, 2023, we acquired mineral interests in approximately 2,682 oil & gas net royalty acres in the Delaware Basin from JC Resources, LP ("JC Resources"), a related-party entity owned by Mr. Craft (the "JC Resources Acquisition").
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For more information about the Acquisition Agreement and the JC Resources Acquisition, please read "Item 1. Financial Statements (Unaudited)—Note 2 – Acquisitions" of this Quarterly Report on Form 10-Q.
We have four reportable segments, Illinois Basin Coal Operations, Appalachia Coal Operations, Oil & Gas Royalties and Coal Royalties. We also have an "all other" category referred to as Other, Corporate and Elimination. Our two coal operations reportable segments correspond to major coal producing regions in the eastern United States with similar economic characteristics including coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues. The two coal operations reportable segments include seven mining complexes operating in Illinois, Indiana, Kentucky, Maryland,Pennsylvania and West Virginia and a coal-loading terminal in Indiana on the Ohio River. Our Oil & Gas Royalties reportable segment includes our oil & gas mineral interests which are located primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK), and Williston (Bakken) basins. Our ownership in these basins includes approximately 57,000 net royalty acres, which provides us with diversified exposure to industry leading operators consistent with our general strategy to grow our oil & gas mineral interest business. We market our oil & gas mineral interests for lease to operators in those regions and generate royalty income from the leasing and development of those mineral interests. Our Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource Properties, which are either a)(a) leased to our mining complexes or (b) near our coal mining operations but not yet leased.
● | Illinois Basin Coal Operations reportable segment includes |
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● | Appalachia Coal Operations reportable segment includes |
● | Oil & Gas Royalties reportable segment includes oil & gas mineral interests held by AR Midland |
● | Coal Royalties reportable segment includes coal mineral reserves and resources owned or leased by Alliance Resource |
● | Other, Corporate and Elimination includes marketing and administrative activities, Matrix Design Group, LLC |
Three Months Ended September 30, 2022March 31, 2023 Compared to Three Months Ended September 30, 2021March 31, 2022
Total revenues for the three months ended September 30, 2022 ("2022 Quarter") increased 51.3% to a record $628.4 million compared to $415.4 million for the three months ended September 30, 2021 (the "2021 Quarter") as a result of significantly higher coal sales and oil & gas royalties revenues. Coal sales increased $188.3 million to $550.6 million in the 2022 Quarter on the strength of record coal sales prices, which rose 40.5% to $59.94 per ton sold compared to $42.65 per ton sold in the 2021 Quarter, and increased coal sales volumes, which were higher by 8.1% compared to the 2021 Quarter. Total operating expenses increased to $450.3 million in the 2022 Quarter, compared to $348.7 million in the 2021 Quarter, due primarily to increased coal sales volumes and ongoing inflationary cost pressures. Net income attributable to ARLP for the 2022 Quarter increased 186.0% to $164.6 million, or $1.25 per basic and diluted limited partner unit, compared to $57.5 million, or $0.44 per basic and diluted limited partner unit, for the 2021 Quarter.
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | Three Months Ended March 31, | | ||||||||||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
|
| 2023 |
| 2022 (1) |
| 2023 |
| 2022 (1) |
| ||||||||
| | (in thousands) | | (per ton / per BOE sold) | | | (in thousands) | | (per ton / per BOE sold) | | ||||||||||||||||
Coal - Tons sold |
| | 9,185 |
| | 8,494 |
| | N/A |
| | N/A |
|
| | 8,469 |
| | 8,162 |
| | N/A |
| | N/A |
|
Coal - Tons produced |
| | 8,988 |
| | 7,986 |
| | N/A |
| | N/A |
|
| | 9,244 |
| | 9,178 |
| | N/A |
| | N/A |
|
Coal - Coal sales | | $ | 550,563 | | $ | 362,264 | | $ | 59.94 | | $ | 42.65 | | | $ | 578,784 | | $ | 388,360 | | $ | 68.34 | | $ | 47.58 | |
Coal - Segment Adjusted EBITDA Expense (1) (2) | | $ | 337,738 | | $ | 245,909 | | $ | 36.77 | | $ | 28.95 | | |||||||||||||
Coal - Segment Adjusted EBITDA Expense (2) (3) | | $ | 335,876 | | $ | 261,742 | | $ | 39.66 | | $ | 32.07 | | |||||||||||||
Oil & Gas Royalties - BOE sold | | | 551 |
| | 414 |
| | N/A |
| | N/A | | | | 759 |
| | 544 |
| | N/A |
| | N/A | |
Oil & Gas Royalties - Royalties | | $ | 35,312 | | $ | 20,109 | | $ | 64.03 | | $ | 48.64 | | | $ | 34,497 | | $ | 33,396 | | $ | 45.42 | | $ | 61.35 | |
Coal Royalties - Tons sold | | | 5,654 |
| | 5,344 |
| | N/A |
| | N/A | | | | 5,057 |
| | 5,553 |
| | N/A |
| | N/A | |
Coal Royalties - Intercompany royalties | | $ | 16,708 | | $ | 13,456 | | $ | 2.96 | | $ | 2.52 | | | $ | 15,513 | | $ | 15,167 | | $ | 3.07 | | $ | 2.73 | |
(1) | Recast for the JC Resources Acquisition. For more information, please read "Item 1. Financial Statements (Unaudited)—Note 1 – Organization and Presentation" of this Quarterly Report on Form 10-Q. |
(2) | For a definition of Segment Adjusted EBITDA Expense and related reconciliation to comparable generally accepted accounting principles ("GAAP") financial measures, please see below under "—Reconciliation of GAAP 'Operating Expenses' to non-GAAP 'Segment Adjusted EBITDA |
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During the three months ended March 31, 2023 ("2023 Quarter"), we redefined Coal - Segment Adjusted EBITDA Expense to reflect the activity of Alliance Coal, which is |
Average sales price per BOE is defined as oil & gas royalty revenues excluding lease bonus revenue divided by total BOE sold. |
Coal salesTotal Revenues. Coal salesTotal revenues for the 2023 Quarter increased $188.343.0% to $662.9 million or 52.0%compared to $550.6$463.4 million for the 2022 Quarter as a result of significantly higher coal sales. Coal sales increased 49.0% to $578.8 million in the 2023 Quarter from $362.3$388.4 million forin the 2021 Quarter. The increase was attributable to a price variance of $158.8 million2022 Quarter due to higher average coal sales prices and a volume variance of $29.5$175.8 million resulting from increased tons sold. Improvedin higher price realizations and strong coal demand in both the domestic and export markets, during the 2022 Quarter drove coal sales prices higher by 40.5% in the 2022 Quarterwhich reflects a 43.6% increase to $59.94$68.34 per ton sold compared to $42.65$47.58 per ton sold duringin the 2021 Quarter. Coal2022 Quarter, and $14.6 million in increased coal sales volumes, increased by 8.1% to 9.2 million tons soldreflecting a 3.8% increase compared to 8.5the 2022 Quarter.
Total operating expenses. Total operating expenses increased to $455.6 million tons sold in the 20212023 Quarter, compared to $374.2 million in the 2022 Quarter, due primarily to favorable market conditions.increased coal sales volumes and inflationary pressures on certain expense items.
Net income attributable to ARLP. Increased revenues and lower income tax expense, partially offset by higher total operating expenses, led net income attributable to ARLP for the 2023 Quarter to $191.2 million, or $1.45 per basic and diluted limited partner unit, compared to $38.1 million, or $0.28 per basic and diluted limited partner unit, for the 2022 Quarter.
Coal - Segment Adjusted EBITDA Expense. Segment Adjusted EBITDA Expense for our coal operations increased 37.3%28.3% to $337.7$335.9 million, as a result of higher coal sales volumes and ongoing inflationary cost pressures. On a per ton basis, Segment Adjusted EBITDA Expense for our coal operations increased 27.0%23.7% to $36.77$39.66 per ton sold in the 20222023 Quarter compared to $28.95$32.07 per ton in the 20212022 Quarter, primarily due to certain cost increases, which are discussed below by category:
● | Labor and benefit expenses per ton produced, excluding workers' compensation, increased |
● | Material and supplies expenses per ton produced increased |
● | Maintenance expenses per ton produced increased |
● | Production taxes and royalty expenses per ton incurred as a percentage of coal sales prices and volumes increased |
Other revenues. Other revenues principally comprised Matrix Design sales, Mt. Vernon transloading revenues, oil & gas lease bonus revenues and other miscellaneous sales and revenue activities. Other revenues increased to $19.4 million in the 2023 Quarter from $12.3 million in the 2022 Quarter. The increase of $7.1 million was primarily due to increased sales of mining technology products by our Matrix Design subsidiary.
Income tax expense. Income tax expense decreased to $4.2 million for the 2023 Quarter compared to $42.7 million for the 2022 Quarter as a result of Alliance Minerals' election during the 2022 Quarter to be treated as a taxable
2823
Segment Adjusted EBITDA Expense increases above were partially offset by the following decrease:
Oil & gas royalties. Oil & gas royalty revenues increased to $35.3 million in the 2022 Quarter compared to $20.1 million for the 2021 Quarter. The increase of $15.2 million was primarily due to significantly higher volumes and sales price realizations per BOE in the 2022 Quarter.
Income tax expense. Income tax expense increased to $6.6 million for the 2022 Quarter compared to $0.2 million for the 2021 Quarter as a result of Alliance Minerals' election to be treated as a taxable entity for federal and state income tax purposes beginning in 2022. Please read "Item 1. Financial Statements (Unaudited)—Note 8 – Income Taxes"purposes. We recognized a one-time non-cash income tax charge of $37.3 million during the 2022 Quarter related to this Quarterly Report on Form 10-Q.election.
Transportation revenues and expensesSegment Adjusted EBITDA.. Transportation revenues and expenses were $28.5 Our 2023 Quarter Segment Adjusted EBITDA increased $118.7 million and $22.0to $291.9 million for the 2022 and 2021 Quarters, respectively. The increase of $6.5 million was primarily attributable to increased average third-party transportation rates infrom the 2022 Quarter and increased coal shipments for which we arrange third-party transportation. Transportation revenues are recognized when title to the coal passes to the customer and recognized in an amount equal to the corresponding transportation expenses.Segment Adjusted EBITDA of $173.2 million.
| | | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| | ||||
| | March 31, | | | | | | | | ||||
| | 2023 |
| 2022 (1) |
| Increase (Decrease) |
| | |||||
|
| (in thousands) |
| |
|
| |||||||
Segment Adjusted EBITDA | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 132,008 | | $ | 78,215 | | $ | 53,793 | | 68.8 | % | |
Appalachia Coal Operations | |
| 116,550 | |
| 51,103 | |
| 65,447 | | 128.1 | % | |
Oil & Gas Royalties | | | 30,045 | | | 30,835 | | | (790) | | (2.6) | % | |
Coal Royalties | | | 10,125 | | | 10,348 | | | (223) | | (2.2) | % | |
Other, Corporate and Elimination (3) | |
| 3,219 | |
| 2,686 | |
| 533 |
| 19.8 | % | |
Total Segment Adjusted EBITDA (4) | | $ | 291,947 | | $ | 173,187 | | $ | 118,760 | | 68.6 | % | |
| | | | | | | | | | | | | |
Coal - Tons sold | | | | | | | | | | | | | |
Illinois Basin Coal Operations | |
| 6,190 | |
| 5,882 | |
| 308 | | 5.2 | % | |
Appalachia Coal Operations | |
| 2,279 | |
| 2,280 | |
| (1) | | (0.0) | % | |
Total tons sold | |
| 8,469 | |
| 8,162 | |
| 307 | | 3.8 | % | |
| | | | | | | | | | | | | |
Coal sales | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 336,910 | | $ | 253,905 | | $ | 83,005 | | 32.7 | % | |
Appalachia Coal Operations | |
| 241,874 | |
| 134,455 | |
| 107,419 | | 79.9 | % | |
Total coal sales | | $ | 578,784 | | $ | 388,360 | | $ | 190,424 | | 49.0 | % | |
| | | | | | | | | | | | | |
Other revenues | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 2,168 | | $ | 1,900 | | $ | 268 |
| 14.1 | % | |
Appalachia Coal Operations | |
| 475 | |
| 363 | |
| 112 |
| 30.9 | % | |
Oil & Gas Royalties | | | 1,040 | | | 124 | | | 916 |
| (2) | | |
Other, Corporate and Elimination | |
| 15,720 | |
| 9,907 | |
| 5,813 | | 58.7 | % | |
Total other revenues | | $ | 19,403 | | $ | 12,294 | | $ | 7,109 | | 57.8 | % | |
| | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 207,069 | | $ | 177,589 | | $ | 29,480 | | 16.6 | % | |
Appalachia Coal Operations | |
| 125,799 | |
| 83,715 | |
| 42,084 | | 50.3 | % | |
Oil & Gas Royalties | | | 4,424 | | | 3,277 | | | 1,147 | | 35.0 | % | |
Coal Royalties | | | 5,388 | | | 4,819 | | | 569 | | 11.8 | % | |
Other, Corporate and Elimination (3) | |
| (3,384) | |
| (7,944) | |
| 4,560 | | 57.4 | % | |
Total Segment Adjusted EBITDA Expense (4) | | $ | 339,296 | | $ | 261,456 | | $ | 77,840 | | 29.8 | % | |
| | | | | | | | | | | | | |
Oil & Gas Royalties | | | | | | | | | | | | | |
Volume - BOE (5) | | | 759 | | | 544 | | | 215 | | 39.5 | % | |
Oil & gas royalties | | $ | 34,497 | | $ | 33,396 | | $ | 1,101 |
| 3.3 | % | |
| | | | | | | | | | | | | |
Coal Royalties | | | | | | | | | | | | | |
Volume - Tons sold (6) | | | 5,057 | | | 5,553 | | | (496) | | (8.9) | % | |
Intercompany coal royalties | | $ | 15,513 | | $ | 15,167 | | $ | 346 |
| 2.3 | % | |
(1) | Recast for the JC Resources Acquisition. For more information, please read "Item 1. Financial Statements (Unaudited)—Note 1 – Organization and Presentation" of this Quarterly Report on Form 10-Q. |
(2) | Percentage change not meaningful. |
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Segment Adjusted EBITDA. Our 2022 Quarter Segment Adjusted EBITDA increased $116.9 million to $271.5 million from the 2021 Quarter Segment Adjusted EBITDA of $154.6 million. Segment Adjusted EBITDA, tons sold, coal sales, other revenues, Segment Adjusted EBITDA Expense,oil & gas royalties, BOE volume, coal royalties and coal royalties tons sold by segment are as follows:
| | | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| | ||||
| | September 30, | | | | | | | | ||||
| | 2022 |
| 2021 |
| Increase (Decrease) |
| | |||||
|
| (in thousands) |
| |
|
| |||||||
Segment Adjusted EBITDA | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 120,760 | | $ | 69,305 | | $ | 51,455 | | 74.2 | % | |
Appalachia Coal Operations | |
| 102,012 | |
| 52,726 | |
| 49,286 | | 93.5 | % | |
Oil & Gas Royalties | | | 35,783 | | | 19,080 | | | 16,703 | | 87.5 | % | |
Coal Royalties | | | 11,163 | | | 9,198 | | | 1,965 | | 21.4 | % | |
Other, Corporate and Elimination (1) | |
| 1,792 | |
| 4,280 | |
| (2,488) |
| (58.1) | % | |
Total Segment Adjusted EBITDA (2) | | $ | 271,510 | | $ | 154,589 | | $ | 116,921 | | 75.6 | % | |
| | | | | | | | | | | | | |
Coal - Tons sold | | | | | | | | | | | | | |
Illinois Basin Coal Operations | |
| 6,109 | |
| 5,750 | |
| 359 | | 6.2 | % | |
Appalachia Coal Operations | |
| 3,076 | |
| 2,744 | |
| 332 | | 12.1 | % | |
Total tons sold | |
| 9,185 | |
| 8,494 | |
| 691 | | 8.1 | % | |
| | | | | | | | | | | | | |
Coal sales | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 314,271 | | $ | 217,637 | | $ | 96,634 | | 44.4 | % | |
Appalachia Coal Operations | |
| 236,292 | |
| 144,627 | |
| 91,665 | | 63.4 | % | |
Total coal sales | | $ | 550,563 | | $ | 362,264 | | $ | 188,299 | | 52.0 | % | |
| | | | | | | | | | | | | |
Other revenues | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 1,455 | | $ | 1,335 | | $ | 120 | | 9.0 | % | |
Appalachia Coal Operations | |
| 392 | |
| 411 | |
| (19) | | (4.6) | % | |
Oil & Gas Royalties | | | 2,260 | | | 1,082 | | | 1,178 | | 108.9 | % | |
Other, Corporate and Elimination | |
| 9,890 | |
| 8,211 | |
| 1,679 | | 20.4 | % | |
Total other revenues | | $ | 13,997 | | $ | 11,039 | | $ | 2,958 | | 26.8 | % | |
| | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 194,967 | | $ | 149,666 | | $ | 45,301 | | 30.3 | % | |
Appalachia Coal Operations | |
| 134,672 | |
| 92,312 | |
| 42,360 | | 45.9 | % | |
Oil & Gas Royalties | | | 3,531 | | | 2,639 | | | 892 | | 33.8 | % | |
Coal Royalties | | | 5,545 | | | 4,258 | | | 1,287 | | 30.2 | % | |
Other, Corporate and Elimination (1) | |
| (8,609) | |
| (9,525) | |
| 916 |
| 9.6 | % | |
Total Segment Adjusted EBITDA Expense (2) | | $ | 330,106 | | $ | 239,350 | | $ | 90,756 | | 37.9 | % | |
| | | | | | | | | | | | | |
Oil & Gas Royalties | | | | | | | | | | | | | |
Volume - BOE (3) | | | 551 | | | 414 | | | 137 | | 33.1 | % | |
Oil & gas royalties | | $ | 35,312 | | $ | 20,109 | | $ | 15,203 |
| 75.6 | % | |
| | | | | | | | | | | | | |
Coal Royalties | | | | | | | | | | | | | |
Volume - Tons sold (4) | | | 5,654 | | | 5,344 | | | 310 | | 5.8 | % | |
Intercompany coal royalties | | $ | 16,708 | | $ | 13,456 | | $ | 3,252 |
| 24.2 | % | |
Other, Corporate and Elimination includes the elimination of intercompany coal royalty revenues and expenses between our Coal Royalties Segment and our Coal Operations Segments in addition to the expenses for the other miscellaneous activities included in this category. |
For definitions of Segment Adjusted EBITDA and Segment Adjusted EBITDA Expense and related reconciliations to their respective comparable GAAP financial measures, please see below under "—Reconciliation of GAAP 'net income' to non-GAAP |
30
'Segment Adjusted EBITDA' |
Barrels of oil equivalent ("BOE") is calculated on a 6:1 basis (6,000 cubic feet of natural gas to one barrel). |
Represents tons sold by our Coal Operations Segments that were produced from coal reserves leased from our Coal Royalties Segment. |
Illinois Basin Coal Operations – Segment Adjusted EBITDA increased to $120.8$132.0 million in the 2023 Quarter from $78.2 million in the 2022 Quarter from $69.3 million in the 2021 Quarter. The increase of $51.5$53.8 million was primarily attributable to higher coal sales, which increased 44.4%32.7% to $314.3$336.9 million in the 20222023 Quarter from $217.6$253.9 million in the 20212022 Quarter, partially offset by increased operating expenses. The increase in coal sales reflects higher coal sales price realizations and increased sales volumes. Coal sales price per ton sold in the 20222023 Quarter increased by 35.9%26.1% compared to the 20212022 Quarter reflecting improved price realizations in both the domestic and export markets. Coal sales volumesTons sold were higher by 6.2%5.2% compared to the 20212022 Quarter as a result of higher domesticincreased sales volumes.volumes from the Gibson South and River View mines. Segment Adjusted EBITDA Expense increased 30.3%16.6% to $195.0$207.1 million in the 20222023 Quarter from $149.7$177.6 million in the 20212022 Quarter primarily as a result of increased sales volumes and higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $5.88$3.26 per ton sold to $31.91$33.45 from $26.03$30.19 per ton sold in the 20212022 Quarter primarily as a result of ongoing inflationary pressures on numerouscertain expense items, includingmost notably labor-related expenses, and supply and maintenance costs as well asand increased sales-related expenses due to higher price realizations. An extended longwall move at our Hamilton mine during the 2022 Quarter also contributed to higher per ton expenses compared to the 2021 Quarter.
Appalachia Coal Operations – Segment Adjusted EBITDA increased 93.5%128.1% to $102.0$116.6 million for the 20222023 Quarter from $52.7$51.1 million in the 20212022 Quarter. The increase of $49.3$65.5 million was primarily attributable to higher coal sales, which increased 63.4%79.9% to $236.3$241.9 million in the 2023 Quarter from $134.5 million in the 2022 Quarter, from $144.6 million in the 2021 Quarter, due to increased prices and volumes.substantially higher coal sales prices. Coal sales prices increased by 45.7%80.0% compared to the 20212022 Quarter primarily due to substantially higher exportimproved price realizations in both the domestic and increased domestic pricing at all mines in the region.export markets. Coal sales volumes increased 12.1% compared to the 2021 Quarter as a result of higher domestic sales volumes from our Tunnel Ridge longwall operation and increased export shipments from our MC Mining operation. Segment Adjusted EBITDA Expense increased 45.9%50.3% to $134.7$125.8 million in the 2023 Quarter from $83.7 million in the 2022 Quarter from $92.3 million in the 2021 Quarter due to increased sales volumes andhigher per ton expenses. Segment Adjusted EBITDA Expense per ton increased $10.14$18.48 per ton sold to $43.78$55.20 compared to $33.64$36.72 per ton sold in the 20212022 Quarter, as a result of increased longwall move days at the Tunnel Ridge mine, reduced recoveries at the MC Mining and Mettiki operations and inflationary pressures on numerouscertain expense items, includingmost notably labor-related expenses, and supplymaterials and maintenance costs as well asand increased sales-related expenses due to higher price realizations. Adverse mining conditions and preparation plant maintenance at MC Mining as well as a longwall move at our Tunnel Ridge mine during the 2022 Quarter also contributed to higher per ton expenses compared to the 2021 Quarter.
Oil & Gas Royalties – Segment Adjusted EBITDA increaseddecreased slightly to a record $35.8$30.0 million forin the 2023 Quarter compared to $30.8 million in the 2022 Quarter from $19.1 million in the 2021 Quarter. The increase of $16.7 million was primarily due to significantly higher volumes andlower average sales price realizations per BOE.BOE, partially offset by higher BOE sold. Higher BOE volumes during the 2023 Quarter resulted from increased drilling and completion activities on our properties and additional volumes from oil & gas mineral interest acquisitions.
Coal Royalties – Segment Adjusted EBITDA increased 21.4%decreased 2.2% to a record $11.2$10.1 million for the 2023 Quarter compared to $10.3 million for the 2022 Quarter from $9.2 million in the 2021 Quarter. The increase of $2.0 million wasas a result of increasedfewer royalty tons sold and increased selling expenses, partially offset by higher average royalty rates per ton.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Total revenues increased 55.6% to $1.71 billion for the nine months ended September 30, 2022 (the "2022 Period"), compared to $1.10 billion for the nine months ended September 30, 2021 (the "2021 Period"), primarily due to substantial increases in prices and volumes from coal operations and royalties and oil & gas royalties. Total operating expenses increased to $1.26 billion in the 2022 Period, compared to $938.4 million in the 2021 Period, due primarily to increased coal sales volumes and ongoing inflationary cost pressures. Higher revenues, partially offset by increased total operating expenses and income tax expense, led to significantly higher net income attributable to ARLP, which rose 187.1% to $362.7 million for the 2022 Period, or $2.76 per basic and diluted limited partner unit, compared to $126.3 million, or $0.97 per basic and diluted limited partner unit, for the 2021 Period.
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| | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | ||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | (in thousands) | | (per ton / per BOE sold) | | ||||||||
Coal - Tons sold |
| | 26,280 |
| | 23,168 |
| | N/A |
| | N/A |
|
Coal - Tons produced |
| | 27,044 |
| | 23,468 |
| | N/A |
| | N/A |
|
Coal - Coal sales | | $ | 1,470,730 | | $ | 975,725 | | $ | 55.96 | | $ | 42.12 | |
Coal - Segment Adjusted EBITDA Expense (1) (2) | | $ | 928,232 | | $ | 667,708 | | $ | 35.32 | | $ | 28.82 | |
Oil & Gas Royalties - BOE sold | | | 1,555 |
| | 1,205 |
| | N/A |
| | N/A | |
Oil & Gas Royalties - Royalties (3) | | $ | 102,166 | | $ | 51,222 | | $ | 65.70 | | $ | 42.52 | |
Coal Royalties - Tons sold | | | 16,475 |
| | 14,572 |
| | N/A |
| | N/A | |
Coal Royalties - Intercompany royalties | | $ | 46,400 | | $ | 36,410 | | $ | 2.82 | | $ | 2.50 | |
Coal sales. Coal sales increased $495.0 million or 50.7% to $1.47 billion for the 2022 Period from $975.7 million for the 2021 Period. The increase was attributable to a price variance of $363.9 million due to higher average coal sales prices and a volume variance of $131.1 million resulting from increased tons sold. Coal sales price realizations increased by 32.9% in the 2022 Period to $55.96 per ton sold, compared to $42.12 per ton sold during the 2021 Period, due to favorable market conditions. Improved coal demand in both the domestic and export markets during the 2022 Period drove coal sales volumes higher by 13.4% to 26.3 million tons sold compared to 23.2 million tons sold in the 2021 Period.
Coal - Segment Adjusted EBITDA Expense. Segment Adjusted EBITDA Expense for our coal operations increased 39.0% to $928.2 million, as a result of higher coal sales volumesand inflationary cost pressures. On a per ton basis, Segment Adjusted EBITDA Expense for our coal operations increased 22.6% to $35.32 per ton sold in the 2022 Period compared to $28.82 per ton in the 2021 Period, primarily due to certain cost increases, which are discussed below by category:
Oil & gas royalties. Oil & gas royalty revenues increased to $102.2 million in the 2022 Period compared to $51.2 million for the 2021 Period. The increase of $51.0 million was primarily due to significantly higher sales price realizations per BOE and increased volumes in the 2022 Period.
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Other revenues. Other revenues principally comprised Matrix Design sales, Mt. Vernon transloading revenues and other miscellaneous sales and revenue activities. Other revenues increased to $39.6 million in the 2022 Period from $24.4 million in the 2021 Period. The increase of $15.2 million was primarily due to increased sales of mining technology products by our Matrix Design subsidiary and increased coal volumes shipped through our Mt. Vernon transloading facility.
General and administrative. General and administrative expenses for the 2022 Period increased to $62.4 million compared to $51.7 million in the 2021 Period. The increase of $10.7 million was primarily due to higher incentive compensation expenses.
Income tax expense. Income tax expense increased to $55.6 million for the 2022 Period compared to $0.2 million for the 2021 Period as a result of Alliance Minerals' election during the 2022 Period to be treated as a taxable entity for federal and state income tax purposes. We recognized a one-time non-cash income tax charge of $37.3 million and a current income tax expense of $17.4 million during the 2022 Period related to Alliance Minerals. Please read "Item 1. Financial Statements (Unaudited)—Note 8 – Income Taxes" of this Quarterly Report on Form 10-Q.
Transportation revenues and expenses. Transportation revenues and expenses were $93.3 million and $45.2 million for the 2022 and 2021 Periods, respectively. The increase of $48.1 million was primarily attributable to increased average third-party transportation rates in the 2022 Period and increased coal shipments for which we arrange third-party transportation. Transportation revenues are recognized when title to the coal passes to the customer and recognized in an amount equal to the corresponding transportation expenses.
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Segment Adjusted EBITDA. Our 2022 Period Segment Adjusted EBITDA increased $308.2 million to $708.7 million from the 2021 Period Segment Adjusted EBITDA of $400.5 million. Segment Adjusted EBITDA, tons sold, coal sales, other revenues, Segment Adjusted EBITDA Expense,oil & gas royalties, BOE volume, coal royalties and coal royalties tons sold by segment are as follows:
| | | | | | | | | | | | | |
| | Nine Months Ended | | | | | |
| | ||||
| | September 30, | | | | | | | | ||||
| | 2022 |
| 2021 |
| Increase (Decrease) |
| | |||||
|
| (in thousands) |
| |
|
| |||||||
Segment Adjusted EBITDA | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 296,327 | | $ | 197,601 | | $ | 98,726 | | 50.0 | % | |
Appalachia Coal Operations | |
| 277,492 | |
| 125,873 | |
| 151,619 | | 120.5 | % | |
Oil & Gas Royalties | | | 98,944 | | | 46,405 | | | 52,539 | | 113.2 | % | |
Coal Royalties | | | 30,638 | | | 23,253 | | | 7,385 | | 31.8 | % | |
Other, Corporate and Elimination (1) | |
| 5,317 | |
| 7,370 | |
| (2,053) |
| (27.9) | % | |
Total Segment Adjusted EBITDA (2) | | $ | 708,718 | | $ | 400,502 | | $ | 308,216 | | 77.0 | % | |
| | | | | | | | | | | | | |
Coal - Tons sold | | | | | | | | | | | | | |
Illinois Basin Coal Operations | |
| 17,822 | |
| 15,935 | |
| 1,887 | | 11.8 | % | |
Appalachia Coal Operations | |
| 8,458 | |
| 7,233 | |
| 1,225 | | 16.9 | % | |
Total tons sold | |
| 26,280 | |
| 23,168 | |
| 3,112 | | 13.4 | % | |
| | | | | | | | | | | | | |
Coal sales | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 858,565 | | $ | 610,435 | | $ | 248,130 | | 40.6 | % | |
Appalachia Coal Operations | |
| 612,165 | |
| 365,290 | |
| 246,875 | | 67.6 | % | |
Total coal sales | | $ | 1,470,730 | | $ | 975,725 | | $ | 495,005 | | 50.7 | % | |
| | | | | | | | | | | | | |
Other revenues | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 5,014 | | $ | 2,590 | | $ | 2,424 |
| 93.6 | % | |
Appalachia Coal Operations | |
| 1,083 | |
| 1,078 | |
| 5 |
| 0.5 | % | |
Oil & Gas Royalties | | | 2,946 | | | 1,576 | | | 1,370 |
| 86.9 | % | |
Other, Corporate and Elimination | |
| 30,540 | |
| 19,160 | |
| 11,380 | | 59.4 | % | |
Total other revenues | | $ | 39,583 | | $ | 24,404 | | $ | 15,179 | | 62.2 | % | |
| | | | | | | | | | | | | |
Segment Adjusted EBITDA Expense | | | | | | | | | | | | | |
Illinois Basin Coal Operations | | $ | 567,253 | | $ | 415,423 | | $ | 151,830 | | 36.5 | % | |
Appalachia Coal Operations | |
| 335,756 | |
| 240,494 | |
| 95,262 | | 39.6 | % | |
Oil & Gas Royalties | | | 9,766 | | | 7,116 | | | 2,650 | | 37.2 | % | |
Coal Royalties | | | 15,762 | | | 13,157 | | | 2,605 | | 19.8 | % | |
Other, Corporate and Elimination (1) | |
| (21,177) | |
| (24,619) | |
| 3,442 | | 14.0 | % | |
Total Segment Adjusted EBITDA Expense (2) | | $ | 907,360 | | $ | 651,571 | | $ | 255,789 | | 39.3 | % | |
| | | | | | | | | | | | | |
Oil & Gas Royalties | | | | | | | | | | | | | |
Volume - BOE (3) | | | 1,555 | | | 1,205 | | | 350 | | 29.0 | % | |
Oil & gas royalties | | $ | 102,166 | | $ | 51,222 | | $ | 50,944 |
| 99.5 | % | |
| | | | | | | | | | | | | |
Coal Royalties | | | | | | | | | | | | | |
Volume - Tons sold (4) | | | 16,475 | | | 14,572 | | | 1,903 | | 13.1 | % | |
Intercompany coal royalties | | $ | 46,400 | | $ | 36,410 | | $ | 9,990 |
| 27.4 | % | |
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Illinois Basin Coal Operations – Segment Adjusted EBITDA increased to $296.3 million in the 2022 Period from $197.6 million in the 2021 Period. The increase of $98.7 million was primarily attributable to higher coal sales, which increased 40.6% to $858.6 million in the 2022 Period from $610.4 million in the 2021 Period, partially offset by increased operating expenses. The increase in coal sales reflects higher coal sales price per ton, which increased by 25.7% compared to the 2021 Period due to increased domestic prices and significantly higher export prices and increased tons sold, which rose 11.8% in the 2022 Period as a result of increased sales volumes across all mines in the region. Segment Adjusted EBITDA Expense increased 36.5% to $567.3 million in the 2022 Period from $415.4 million in the 2021 Period primarily as a result of increased sales volumes and higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $5.76 per ton sold to $31.83 from $26.07 per ton sold in the 2021 Period primarily as a result of inflationary pressures on numerous expense items, including labor-related expenses and supply and maintenance costs, increased sales-related expenses due to higher price realizations, reduced recoveries across the region, a non-cash contingent accrual related to our purchase of the Hamilton mine and increased longwall move days at our Hamilton mine during the 2022 Period.
Appalachia Coal Operations – Segment Adjusted EBITDA increased 120.5% to $277.5 million for the 2022 Period from $125.9 million in the 2021 Period. The increase of $151.6 million was primarily attributable to higher coal sales, which increased 67.6% to $612.2 million in the 2022 Period from $365.3 million in the 2021 Period, due to increased prices and volumes. Coal sales prices increased by 43.3% compared to the 2021 Period primarily due to substantially higher export price realizations and increased domestic pricing in the region.Coal sales volumes increased 16.9% compared to the 2021 Period as a result of higher sales volumesreceived from our Tunnel Ridge and MC Mining operations. Segment Adjusted EBITDA Expense increased 39.6% to $335.8 million in the 2022 Period from $240.5 million in the 2021 Period due to increased sales volumes and per ton expenses. Segment Adjusted EBITDA Expense per ton increased 19.4% to $39.70 compared to $33.25 per ton sold in the 2021 Period, as a result of inflationary pressures on numerous expense items, including labor-related expenses and supply and maintenance costs, increased sales-related expenses due to higher price realizations, reduced recoveries at our Mettiki and MC Mining operations and increased longwall move days at our Tunnel Ridge mine during the 2022 Period.
Oil & Gas Royalties – Segment Adjusted EBITDA increased to $98.9 million for the 2022 Period from $46.4 million in the 2021 Period. The increase of $52.5 million was primarily due to significantly higher sales price realizations, which increased 54.5% to $65.70 per BOE, and increased volumes in the 2022 Period.
Coal Royalties – Segment Adjusted EBITDA increased 31.8% to $30.6 million for the 2022 Period from $23.3 million in the 2021 Period. The increase of $7.3 million was a result of increased royalty tons sold and higher average royalty rates per ton.mining subsidiaries.
Reconciliation of GAAP "net income" to non-GAAP "Segment Adjusted EBITDA" to GAAP "net income" and reconciliation of GAAP "Operating Expenses" to non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses"
Segment Adjusted EBITDA (a non-GAAP financial measure) is defined as net income attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization and general and administrative expenses. Segment Adjusted EBITDA is a key component of consolidated EBITDA, which is used as a supplemental financial measure by management and by external users of our financial statements such as investors, commercial banks, research analysts and others. We believe that the presentation of EBITDA provides useful information to investors regarding our performance and results of operations because EBITDA, when used in conjunction with related GAAP financial measures, (i) provides additional information about our core operating performance and ability to generate and distribute cash flow, (ii) provides investors with the financial analytical framework upon which we base financial, operational, compensation and planning decisions and (iii) presents a measurement that investors, rating agencies and debt holders have indicated is useful in assessing us and our results of operations.
25
Segment Adjusted EBITDA is also used as a supplemental financial measure by our management for reasons similar to those stated in the previous explanation of EBITDA. In addition, the exclusion of corporate general and administrative expenses from consolidated Segment Adjusted EBITDA allows management to focus solely on the
35
evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments.
The following is a reconciliation of consolidated Segment Adjusted EBITDA to net income, the most comparable GAAP financial measure:measure, to consolidated Segment Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
| | 2023 |
| 2022 |
| ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Consolidated Segment Adjusted EBITDA | | $ | 271,510 | | $ | 154,589 | | $ | 708,718 | | $ | 400,502 | | |||||||
Net income | | $ | 192,678 | | $ | 38,373 | | |||||||||||||
Noncontrolling interest | | | (1,493) | | | (290) | | |||||||||||||
Net income attributable to ARLP | | $ | 191,185 | | $ | 38,083 | | |||||||||||||
General and administrative | |
| (21,341) | |
| (18,655) | |
| (62,394) | |
| (51,651) | | |
| 21,085 | |
| 18,622 | |
Depreciation, depletion and amortization | |
| (70,143) | |
| (68,763) | |
| (200,191) | |
| (192,698) | | |
| 65,550 | |
| 64,140 | |
Interest expense, net | |
| (8,819) | |
| (9,389) | |
| (27,750) | |
| (29,595) | | |
| 9,886 | |
| 9,627 | |
Income tax expense | |
| (6,600) | |
| (234) | |
| (55,646) | |
| (227) | | |
| 4,241 | |
| 42,715 | |
Net income attributable to ARLP | | $ | 164,607 | | $ | 57,548 | | $ | 362,737 | | $ | 126,331 | | |||||||
Noncontrolling interest | | | 364 | | | 176 | | | 977 | | | 384 | | |||||||
Net income | | $ | 164,971 | | $ | 57,724 | | $ | 363,714 | | $ | 126,715 | | |||||||
Consolidated Segment Adjusted EBITDA | | $ | 291,947 | | $ | 173,187 | |
Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, coal purchases, if applicable, and other income (expense)expense (income). Transportation expenses are excluded as these expenses are passed through to our customers and, consequently, we do not realize any gain or loss on transportation revenues. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by our management to assess the operating performance of our segments. Segment Adjusted EBITDA Expense is a key component of Segment Adjusted EBITDA in addition to coal sales, royalty revenues and other revenues. The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management to focus solely on the evaluation of segment operating performance as it primarily relates to our operating expenses.
The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to operating expense,expenses, the most comparable GAAP financial measure:measure, to consolidated Segment Adjusted EBITDA Expense:
| | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | |
| Three Months Ended | | ||||||||||||
| | September 30, | | September 30, | | | March 31, | | ||||||||||||
| | 2022 |
| 2021 |
| 2022 |
| 2021 |
| | 2023 |
| 2022 |
| ||||||
| | (in thousands) | | | (in thousands) | | ||||||||||||||
Operating expenses (excluding depreciation, depletion and amortization) | | $ | 338,723 | | $ | 262,023 | | |||||||||||||
Other expense (income) | |
| 573 | |
| (567) | | |||||||||||||
Segment Adjusted EBITDA Expense | | $ | 330,106 | | $ | 239,350 | | $ | 907,360 | | $ | 651,571 | | | $ | 339,296 | | $ | 261,456 | |
Outside coal purchases | |
| — | |
| (6,065) | |
| (151) | |
| (6,179) | | |||||||
Other income (expense) | |
| 192 | |
| (84) | |
| 1,337 | |
| (2,632) | | |||||||
Operating expenses (excluding depreciation, depletion and amortization) | | $ | 330,298 | | $ | 233,201 | | $ | 908,546 | | $ | 642,760 | |
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Liquidity and Capital Resources
Liquidity
We have historically satisfied our working capital requirements and funded our capital expenditures, investments, contractual obligations and debt service obligations with cash generated from operations, cash provided by the issuance of debt or equity, borrowings under the Revolving Credit Facilitycredit and Securitization Facilitysecuritization facilities and other financing transactions. We believe that existing cash balances, future cash flows from operations and investments, borrowings under credit facilities and cash provided from the issuance of debt or equity will be sufficient to meet our working capital requirements, capital expenditures and additional investments, debt payments, contractual obligations, commitments and any distribution payments. Nevertheless, our ability to satisfy our working capital requirements and additional investments, to satisfy our contractual obligations, to fund planned capital expenditures, to service our debt obligations or to pay distributions will depend upon our future operating performance and access to and cost of financing sources, which will be affected by prevailing economic conditions generally, and in both the coal and oil & gas industries specifically, as well as other financial and business factors, some of which are beyond our control. Based on our recent operating cash flow results, current cash position, current unitholder distributions, anticipated future cash flows and sources of financing that we expect to have available, we anticipate remainingbeing in compliance with the covenants of the Credit Agreement and expect to have sufficient liquidity to fund our operations and growth strategies. However, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future covenant compliance or liquidity may be adversely affected. Please read "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Oil & Gas Acquisitions — As of March 31, 2023, we have purchased mineral interests for $2.8 million with cash on hand under our $35.0 million Acquisition Agreement. Future acquisitions under the Acquisition Agreement are expected to be funded with cash on hand or cash generated from operations.
On February 22, 2023, we closed on the JC Resources Acquisition for $72.3 million, which was funded with cash on hand.
Please read "Item 1. Financial Statements (Unaudited) – Note 2 – Acquisitions" of this Quarterly Report on Form 10-Q for additional information about the Acquisition Agreement and the JC Resources Acquisition.
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 of 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 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. 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. For additional information on the Credit Agreement, please see "Item 1. Financial Statements (Unaudited) – Note 6 – Long-Term Debt."
Accounts Receivable Securitization — In January 2023, we extended the term of our $60.0 million accounts receivable securitization facility (the "Securitization Facility") from January 2023 to January 2024. For additional information on the Securitization Facility, please see "Item 1. Financial Statements (Unaudited) – Note 6 – Long-Term Debt."
Unit Repurchase Program — In May 2018, the Board of Directors approved the establishment of a unit repurchase program authorizing us to repurchase up to $100 million of ARLP common units. In January 2023, the Board of Directors authorized a $93.5 million increase to the unit repurchase program, which had $6.5 million of available
27
capacity as of December 31, 2022. The program has no time limit and we may repurchase units from time to time in the open market or in other privately negotiated transactions. The unit repurchase program authorization does not obligate us to repurchase any dollar amount or number of units. Since inception through September 30, 2022, we have purchased units for a total of $93.5 million under the program. During the ninethree months ended September 30, 2022,March 31, 2023, we did not repurchaserepurchased and retire any units.retired 860,060 units at an average price of $21.17 for an aggregate purchase price of $18.2 million. The timing of any future unit repurchases and the ultimate number of units to be purchased will depend on a number of factors, including business and market conditions, our future financial performance, and other capital priorities. Please read "Part II - Item 2. Unregistered Sales of Equity Securities and Use of Proceeds" of this Quarterly Report on Form 10-Q for more information on the unit repurchase program.
Repurchase of Senior Notes — During the 2023 Quarter, we repurchased $26.6 million of our 7.5% senior notes due 2025. At March 31, 2023, the aggregate principal amount of our outstanding 7.5% senior notes due 2025 was $373.4 million. We expect to continue such purchases on an opportunistic basis.
Shelf Registration Statement — We currently have an effective universal shelf Registration Statement on Form S-3 that provides for the registration and sale of an unspecified amount of our equity or debt securities. We may over time, and subject to market conditions, in one or more offerings, offer and sell any of the securities described in the prospectus.
Cash Flows
Cash provided by operating activities was $548.6$223.3 million for the 2023 Quarter compared to $90.6 million for the 2022 Period compared to $311.0 million for the 2021 Period.Quarter. The increase in cash provided by operating activities was primarily due to an increase in net income adjusted for non-cash items and favorable working capital changes related primarily to trade receivables, prepaid expenses and accrued taxes other than income taxes. These increases were partially offset by unfavorable working capital changes related primarily to tradeother receivables, accounts payable and inventoriesmiscellaneous other changes compared to the 2021 Period.2022 Quarter.
Net cash used in investing activities was $247.5$148.7 million for the 2023 Quarter compared to $45.5 million for the 2022 Period compared to $80.4 million for the 2021 Period.Quarter. The increase in cash used in investing activities was primarily attributable to an increase in capital expenditures contributions to equity method investments, the purchase of equity securities in Infinitum and the acquisition of oil & gas mineral interests inreserves under the BelvedereJC Resources Acquisition during the 2022 Period.and Acquisition Agreement. Please read "Item 1. Financial Statements (Unaudited) - Note 32 – Acquisition"Acquisitions" of this Quarterly Report on Form 10-Q for additional information about the Belvedere Acquisition.JC Resources Acquisition and the Acquisition Agreement.
Net cash used in financing activities was $145.0$99.3 million for the 2023 Quarter compared to $39.3 million for the 2022 Period compared to $181.5 million for the 2021 Period.Quarter. The decreaseincrease in cash used in financing activities was primarily attributable to reduced borrowings and payments on the Revolving Credit Facility and the Securitization Facility, partially offset by increased cash distributions paid to unitholders, compared to the 2021 Period.repurchase of senior notes during the 2023 Quarter, debt issuance costs and the purchase of units under the unit repurchase program. These increases were partially offset by increased long-term borrowings.
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Cash Requirements
Management anticipates having sufficient cash flow to meet 20222023 cash requirements, including capital expenditures, scheduled payments on long-term debt, lease obligations, asset retirement obligation costs and workers' compensation and pneumoconiosis costs, with our September 30, 2022March 31, 2023 cash and cash equivalents of $278.5$271.3 million and cash flows from operations, or borrowings under our Revolving Credit Facility and Securitization Facility if necessary. We currently project average estimated annual maintenance capital expenditures over the next five years of approximately $5.66$7.05 per ton produced. Our anticipated total capital expenditures, including maintenance capital expenditures, for 20222023 are estimated in a range of $300.0$400.0 million to $325.0$460.0 million. We will continue to have significant cash requirements over the long term, which may require us to incur debt or seek additional equity capital. The availability and cost of additional capital will depend upon prevailing market conditions, the market price of our common units and several other factors over which we have limited control, as well as our financial condition and results of operations.
Debt Obligations
See "Item 1. Financial Statements (Unaudited)—Note 76 – Long-Term Debt" of this Quarterly Report on Form 10-Q for a discussion of our long-term debt obligations.
We also have an agreement with a bank to provide additional letters of credit in an amount of $5.0 million to maintain surety bonds to secure certain asset retirement obligations and our obligations for workers' compensation benefits. On September 30, 2022,March 31, 2023, we had $5.0 million in letters of credit outstanding under this agreement.
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Related-Party Transactions
We have related-party transactions and activities with Mr. Craft, MGP and their respective affiliates as well as other related parties. These related-party transactions and activities relate principally to 1)(1) coal mineral leases with The Joseph W. Craft III Foundation and The Kathleen S. Craft Foundation, 2)(2) the use of aircraft, and 3) providing administrative services with respect to certain(3) the purchase of oil & gas mineral interests from JC Resources LP, an entity owned by Mr. Craft acquired in 2019. Craft. Please read "Item 1. Financial Statements (Unaudited) – Note 2 – Acquisitions" of this Quarterly Report on Form 10-Q for more information on the purchase of oil & gas mineral interests.We also have related-party transactions with (a) WKY CoalPlay, LLC ("WKY CoalPlay") regarding fourthree mineral leases, and (b) with ourentities in which we hold equity interest in AllDale III.investments. For more information regarding AllDale III,our investments, please read "Item 1. Financial Statements (Unaudited)—Note 109 – Investments" of this Quarterly Report on Form 10-Q. Please read our Annual Report on Form 10-K for the year ended December 31, 2021,2022, "Item 8. Financial Statements and Supplementary Data—Note 2122 – Related-Party Transactions" for additional information concerning related-party transactions.
New Accounting Standards
See "Item 1. Financial Statements (Unaudited)—Note 2 – New Accounting Standards" of this Quarterly Report on Form 10-Q for a discussion of new accounting standards.
Other Information
Insurance
Effective December 1, 2021, we renewed our annual property and casualty insurance program. Our property insurance was procured from our wholly owned captive insurance company, Wildcat Insurance. Wildcat Insurance charged certain of our subsidiaries for the premiums on this program and in return purchased reinsurance for the program in the standard market. The maximum limit in the commercial property program is $100.0 million per occurrence, excluding a $1.5 million deductible for property damage, a 75- or 90-day waiting period for underground business interruption depending on the mining complex and an additional $10.0 million overall aggregate deductible. We have elected to retain a 10% participating interest in our commercial property insurance program. We can make no assurances that we will not experience significant insurance claims in the future that could have a material adverse effect on our business, financial condition, results of operations and ability to purchase property insurance in the future. Also, exposures exist for which no insurance may be available and for which we have not reserved. In addition, the insurance industry has been subject to efforts by environmental activists to restrict coverages available for fossil-fuel companies.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Commodity Price Risk
We have significant long-term coal sales contracts. Most of the long-term sales contracts are subject to price adjustment provisions, which periodically permit an increase or decrease in the contract price, typically to reflect changes in specified indices or changes in production costs resulting from regulatory changes, or both.
Our results of operations are highly dependent upon the prices we receive for our coal, oil and natural gas. Regarding coal, the short-term sales contracts favored by some of our coal customers leave us more exposed to risks of declining coal price periods. Also, a significant decline in oil & gas prices would have a significant impact on our oil & gas royalty revenues.
We have exposure to coal and oil & gas sales prices and price risk for supplies that are used directly or indirectly in the normal course of coal and oil & gas production such as steel, electricity and other supplies. We manage our risk for these items through strategic sourcing contracts for normal quantities required by our operations. Historically, we have not utilized any commodity price-hedges or other derivatives related to either our sales price or supply cost risks but may do so in the future.
Credit Risk
Most of our coal is sold to U.S. electric utilities or into the international markets through brokered transactions. Therefore, our credit risk is primarily with domestic electric power generators and reputable global brokerage firms. Our policy is to independently evaluate each customer's creditworthiness prior to entering into transactions and to constantly monitor outstanding accounts receivable. When deemed appropriate by our credit management department, we will take steps to reduce our credit exposure to customers that do not meet our credit standards or whose credit has deteriorated. These steps may include obtaining letters of credit or cash collateral, requiring prepayments for shipments or establishing customer trust accounts held for our benefit in the event of a failure to pay. Such credit risks from customers may impact the borrowing capacity of our Securitization Facility. See "Item 1. Financial Statements (Unaudited)—Note 7–6– Long-Term Debt" of this Quarterly Report on Form 10-Q for more information on our Securitization Facility.
Exchange Rate Risk
Almost all our transactions are denominated in United States dollars, and as a result, we do not have material exposure to currency exchange-rate risks. However, because coal is sold internationally in United States dollars, general economic conditions in foreign markets and changes in foreign currency exchange rates may provide our foreign competitors with a competitive advantage. If our competitors' currencies decline against the United States dollar or against foreign purchasers' local currencies, those competitors may be able to offer lower prices for coal to these purchasers. Furthermore, if the currencies of overseas purchasers were to significantly decline in value in comparison to the United States dollar, those purchasers may seek decreased prices for the coal we sell to them. Consequently, currency fluctuations could adversely affect the competitiveness of our coal in international markets.
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Interest Rate Risk
Borrowings under the Revolving Credit Facility and Securitization Facility are at variable rates and, as a result, we have interest rate exposure on any amounts drawn under these facilities. Historically, our earnings have not been materially affected by changes in interest rates and we have not utilized interest rate derivative instruments related to our outstanding debt. We did not have an outstanding balance under either the Revolving Credit Facility or the Securitization Facility at September 30, 2022.March 31, 2023.
There were no other changes in our quantitative and qualitative disclosures about market risk as set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
ITEM 4.CONTROLS AND PROCEDURES
We maintain controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated
39
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of September 30, 2022.March 31, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures are effective as of September 30, 2022.March 31, 2023.
During the quarterly period ended September 30, 2022,March 31, 2023, there have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with our evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10-Q, and certain oral statements made from time to time by our representatives, constitute "forward-looking statements." These statements are based on our beliefs as well as assumptions made by, and information currently available to, us. When used in this document, the words "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "foresee," "may," "outlook," "plan," "project," "potential," "should," "will," "would," and similar expressions identify forward-looking statements. Without limiting the foregoing, all statements relating to our future outlook, anticipated capital expenditures, future cash flows and borrowings, and sources of funding are forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and reflect our current views with respect to future events and are subject to numerous assumptions that we believe are reasonable, but are open to a wide range of uncertainties and business risks, and actual results could differ materially from those discussed in these statements. Among the factors that could cause actual results to differ from those in the forward-looking statements are:
● |
decline in the coal industry's share of electricity generation, including as a result of environmental concerns related to coal mining and combustion and the cost and perceived benefits of other sources of electricity and fuels, such as oil & gas, nuclear energy, and renewable fuels; |
● | changes in macroeconomic and market conditions and market volatility, and the impact of such changes and volatility on our financial position; |
● | changes in global economic and geo-political conditions or changes in industries in which |
● | changes in |
● | the outcome or escalation of current hostilities in Ukraine; |
● | the severity, magnitude, and duration of any future pandemics and impacts of the pandemic and of businesses' and governments' responses to the pandemic on our operations and personnel, and on demand for coal, oil, and natural gas, the financial condition of our customers and suppliers, available liquidity and capital sources and broader economic disruptions; |
● | actions of the major oil-producing countries with respect to oil production volumes and prices could have direct and indirect impacts over the near and long term on oil & gas exploration and production operations at the properties in which we hold mineral interests; |
● | changes in competition in domestic and international coal markets and our ability to respond to such changes; |
● | potential shut-ins of production by operators of the properties in which we hold oil & gas mineral interests due to low |
● | risks associated with the expansion of our operations and properties; |
● | our ability to identify and complete |
● | our ability to identify and invest in new energy and infrastructure transition ventures; |
● | the success of our development plans for our wholly owned subsidiary, Matrix Design Group, LLC, and our investments in emerging infrastructure and technology companies; |
● | dependence on significant customer contracts, including renewing existing contracts upon expiration; |
● | adjustments made in price, volume, or terms to existing coal supply agreements; |
● | the effects of and changes in trade, monetary and fiscal policies and |
● | central bank policy actions, bank failures and associated liquidity risks; |
● | the effects of and changes in taxes or tariffs and other trade measures adopted by the United States and foreign governments; |
● | legislation, regulations, and court decisions and interpretations thereof, both domestic and foreign, including those relating to the environment and the release of greenhouse gases, mining, miner health and safety, hydraulic fracturing, and health care; |
● | deregulation of the electric utility industry or the effects of any adverse change in the coal industry, electric utility industry, or general economic conditions; |
● | investors' and other stakeholders' increasing attention to environmental, social, and governance ("ESG") matters; |
● | liquidity constraints, including those resulting from any future unavailability of financing; |
● | customer bankruptcies, cancellations or breaches to existing contracts, or other failures to perform; |
● | customer delays, failure to take coal under contracts or defaults in making payments; |
31
● | disruptions to oil & gas exploration and production operations at the properties in which we hold mineral interests; |
● | changes in equipment, raw material, service or labor costs or availability, including due to inflationary pressures; |
● | changes in our ability to recruit, hire and maintain |
● | our ability to maintain satisfactory relations with our employees; |
● | increases in labor costs including costs of health insurance and taxes resulting from the Affordable Care Act, adverse changes in work rules, or cash payments or projections associated with workers' compensation claims; |
● | increases in transportation costs and risk of transportation delays or interruptions; |
● | operational interruptions due to geologic, permitting, labor, weather, supply chain |
● | risks associated with major mine-related accidents, mine fires, mine floods, or other interruptions; |
● | results of litigation, including claims not yet asserted; |
● | foreign currency fluctuations that could adversely affect the competitiveness of our coal abroad; |
● | difficulty maintaining our surety bonds for mine reclamation as well as workers' compensation and black lung benefits; |
● | difficulty in making accurate assumptions and projections regarding post-mine reclamation as well as pension, black lung benefits, and other post-retirement benefit liabilities; |
● | uncertainties in estimating and replacing our coal mineral reserves and resources; |
● | uncertainties in estimating and replacing our oil & gas reserves; |
● | uncertainties in the amount of oil & gas production due to the level of drilling and completion activity by the operators of our oil & gas properties; |
● | uncertainties in the future of the electric vehicle industry and the market for EV charging stations; |
● | the impact of current and potential changes to federal or state tax rules and regulations, including a loss or reduction of benefits from certain tax deductions and credits; |
● | difficulty obtaining commercial property insurance, and risks associated with our participation in the commercial insurance property program; |
● | evolving cybersecurity risks, such as those involving unauthorized access, denial-of-service attacks, malicious software, data privacy breaches by employees, insiders or others with authorized access, cyber or phishing-attacks, ransomware, malware, social engineering, physical breaches, or other actions; |
● | difficulty in making accurate assumptions and projections regarding future revenues and costs associated with equity investments in companies we do not control; and |
● | other factors, including those discussed in "Item 1A. Risk Factors" and "Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the year ended December 31, |
If one or more of these or other risks or uncertainties materialize, or should our underlying assumptions prove incorrect, our actual results could differ materially from those described in any forward-looking statement. When considering forward-looking statements, you should also keep in mind our risk factors and legal proceedings. Known material factors that could cause our actual results to differ from those in the forward-looking statements are described in "Item 1. Legal Proceedings" and "Item 1A. Risk Factors" below. We disclaim any obligation to update or revise any forward-looking statements or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments unless required by law.
You should consider the information above when reading or considering any forward-looking statements contained in:
● | this Quarterly Report on Form 10-Q; |
● | other reports filed by us with the SEC; |
● | our press releases; |
● | our website |
● | written or oral statements made by us or any of our officers or other authorized persons acting on our behalf. |
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PART II
OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Litigation was initiated in November 2019 in the U.S. District Court for the Western District of Kentucky (Branson v. Webster County Coal, LLC et al.) against certain of our subsidiaries in which the plaintiffs allege violations of the Fair Labor Standards Act and Kentucky Wage and Hour Actstate 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 or collective action certification. A similar lawsuit was initiated in March 2020 in the U.S. District Court for the Eastern District of Kentucky (Brewer v. Alliance Coal, LLC, et al.). Collectively, the plaintiffs of these two lawsuits allege damages ranging from approximately $22.2 million to $143.7 million. Subsequently, four additional lawsuits making similar allegations were initiated against certain of our subsidiaries: filed March 4, 2021 in the Circuit Court for Hopkins County, Kentucky (Johnson v. Hopkins County Coal, LLC, et al.); filed April 6, 2021 in the U.S. District Court for the Northern District of West Virginia (Rettig v. Mettiki Coal WV, LLC, et al.); filed April 9, 2021 in the U.S. District Court for the Southern District of Illinois (Cates v. Hamilton County Coal, LLC, et al.); and filed April 13, 2021 in the U.S. District Court for the Southern District of Indiana (Prater v. Gibson County Coal, LLC, et al.). The plaintiffs in these cases seek class and collective action certification, which we oppose, and the courts have not yet made definitive final rulings on these issues. The plaintiffs seek to recover alleged compensatory, liquidated and/or exemplary damages for the alleged underpayment, and costs and fees that potentially may be recoverable under applicable law. We have scheduled a mediation with the plaintiffs for June 12, 2023. We believe the claims made in these lawsuits are without merit and intend to defend the litigation vigorously. We do not believe this litigation will have a material adverse effect on our business, financial position or results of operations.
ITEM 1A.RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I - Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, which could materially affect our business, financial condition or future results. The risks described in these reports are not our only risks. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial based on current knowledge and factual circumstances, if such knowledge or facts change, also may materially adversely affect our business, financial condition and/or operating results in the future.
The Inflation Reduction ActAdverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could accelerateadversely affect our current and projected business operations and our financial condition and results of operations.
Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the transitionfinancial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Recently, on March 10, 2023, Silicon Valley Bank ("SVB") was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation ("FDIC") as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp., and then on May 1, 2023, First Republic Bank, were each swept into receivership. Although a low carbonstatement by the Department of the Treasury, the Federal Reserve and the FDIC indicated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. Access to any deposits in excess of insured amounts, as well as funding under our credit arrangements could be significantly impaired by factors that affect the banks in which we hold deposits, our lenders, the financial services industry, or the economy and impose new costs onin general. These factors could include, among others, events such as liquidity constraints or failures, the operators ofability to perform obligations under our mineral interests.credit agreements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.
In August 2022, President Biden signedaddition, investor concerns regarding the Inflation Reduction ActU.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or
33
systemic limitations on access to credit and liquidity sources, thereby making it more difficult to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other provisions, the IRA 2022 imposes the first every federal fee on the emissionsrisks, adversely impact our ability to meet our financial or other obligations. Any of greenhouse gases through a methane emissions charge. The IRA 2022 amends the federal Clean Air Act to impose a fee on the emission of methane from certain sources in the oil and gas sector, starting at $900 per metric ton of leaked methane in 2024 and increasing to $1,200 in 2025, and $1,500 for 2026 and thereafter. The imposition of this fee andthese impacts, or any other provisions contained with the IRA 2022 could increase costs for the operators of our properties, and consequently could adversely affect production from our mineral interests and further accelerate the transition awayimpacts resulting from the usefactors described above or other related or similar factors, could have material adverse impacts on our liquidity and our business, financial condition or results of fossil fuels, which could adversely affect our business.operations.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 31, 2018, ARLP announced that the MGP boardBoard of directorsDirectors approved the establishment of a unit repurchase program authorizing ARLP to repurchase up to $100 million of its outstanding limited partner common units. In January 2023, the Board of Directors authorized a $93.5 million increase to the unit purchase program, which had $6.5 million of available capacity as of December 31, 2022. The unit repurchase program is intended to enhance ARLP's ability to achieve its goal of creating long-term value for its unitholders and provides another means, along with quarterly cash distributions, of returning cash to unitholders. The program has no time limit and ARLP may repurchase units from time to time in the open market or in other privately negotiated transactions. The unit repurchase program authorization does not obligate ARLP to repurchase any dollar amount or number of units and repurchases may be commenced or suspended from time to time without prior notice.
DuringThe table below represents all unit repurchases for the three months ended September 30, 2022,March 31, 2023.
Period | Total Number of Units Purchased | Average Price Paid per Unit | Total Number of Units Purchased as Part of Publicly Announced Program | Maximum Dollar Value that May Yet Be Used to Repurchase Units Under the Publicly Announced Program | ||||||
(in thousands) | ||||||||||
February 1 through February 28, 2023 | 860,060 | $ | 21.17 | 860,060 | $ | 81,791 | ||||
Total | 860,060 | $ | 21.17 | 860,060 | $ | 81,791 | ||||
As of March 31, 2023, we did not repurchase and retire any units. Since inceptionhad repurchased 6,320,664 units as part of the unit repurchase program we have repurchased and retired 5,460,639 units at an average unit price of $17.12$17.67, for an aggregate purchase price of $93.5$111.7 million since inception of the unit purchase program. The remaining authorized amount for unit purchase under this program was $81.8 million.
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ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS
| | | | | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Incorporated by Reference | ||||||||||||||||
Exhibit | | Exhibit Description | | Form | | SEC | | Exhibit | | Filing Date | | Filed | ||||||||
| | | | | | | | | | | | | ||||||||
3.1 | | Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P. | | 8-K | | 000-26823 17990766 | | 3.2 | | 07/28/2017 | | | ||||||||
| | | | | | | | | | | | | ||||||||
3.2 | | | 10-K | | 000-26823 18634634 | | 3.9 | | 02/23/2018 | | | |||||||||
| | | | | | | | | | | | | ||||||||
3.3 | | | 8-K | | 000-26823 18883834 | | 3.3 | | 06/06/2018 | | | |||||||||
| | | | | | | | | | | | | ||||||||
3.4 | | | 8-K | | 000-26823 18883834 | | 3.4 | | 06/06/2018 | | | |||||||||
| | | | | | | | | | | | | ||||||||
3.5 | | Amended and Restated Agreement of Limited Partnership of Alliance Resource Operating Partners, L.P. | | 10-K | | 000-26823 583595 | | 3.2 | | 03/29/2000 | | | ||||||||
| | | | | | | | | | | | | ||||||||
3.6 | | | 8-K | | 000-26823 18883834 | | 3.5 | | 06/06/2018 | | | |||||||||
| | | | | | | | | | | | | ||||||||
3.7 | | Amended and Restated Certificate of Limited Partnership of Alliance Resource Partners, L.P. | | 8-K | | 000-26823 17990766 | | 3.6 | | 07/28/2017 | | | ||||||||
| | | | | | | | | | | | | ||||||||
3.8 | | Certificate of Limited Partnership of Alliance Resource Operating Partners, L.P. | | S-1/A | | 333-78845 99669102 | | 3.8 | | 07/23/1999 | | | ||||||||
| | | | | | | | | | | | | ||||||||
3.9 | | Certificate of Formation of Alliance Resource Management GP, LLC | | S-1/A | | 333-78845 99669102 | | 3.7 | | 07/23/1999 | | | ||||||||
| | | | | | | | | | | | |
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| | | | | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Incorporated by Reference | ||||||||||||||||
Exhibit | | Exhibit Description | | Form | | SEC | | Exhibit | | Filing Date | | Filed | ||||||||
| | | | | | | | | | | | | ||||||||
3.10 | | Third Amended and Restated Operating Agreement of Alliance Resource Management GP, LLC | | 8-K | | 000-26823 18883834 | | 3.7 | | 06/06/2018 | | | ||||||||
| | | | | | | | | | | | | ||||||||
3.11 | | | 8-K | | 000-26823 17990766 | | 3.5 | | 07/28/2017 | | | |||||||||
| | | | | | | | | | | | | ||||||||
3.12 | | | 8-K | | 000-26823 17990766 | | 3.4 | | 07/28/2017 | | | |||||||||
| | | | | | | | | | | | | ||||||||
10.1 | | Tenth Amendment to the Receivables Financing Agreement, dated as of January 14, 2022. | | 10-K | | 000-26823 22677260 | | 10.57 | | 02/25/2022 | | | ||||||||
| | | | | | | | | | | | | ||||||||
31.1 | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | ||||||||
31.2 | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | ||||||||
32.1 | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | ||||||||
32.2 | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | ||||||||
95.1 | | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | ||||||||
101 | | Interactive Data File (Form 10-Q for the quarter ended September 30, 2022 filed in Inline XBRL). | | | | | | | | | |
ITEM 6.EXHIBITS
| | | | | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Incorporated by Reference | |||||||||||||||||
Exhibit | | Exhibit Description | | Form | | SEC | | Exhibit | | Filing Date | | Filed | |||||||||
| | | | | | | | | | | | | |||||||||
3.1 | | Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P. | | 8-K | | 000-26823 17990766 | | 3.2 | | 07/28/2017 | | | |||||||||
| | | | | | | | | | | | | |||||||||
3.2 | | | 10-K | | 000-26823 18634634 | | 3.9 | | 02/23/2018 | | | ||||||||||
| | | | | | | | | | | | | |||||||||
3.3 | | | 8-K | | 000-26823 18883834 | | 3.3 | | 06/06/2018 | | | ||||||||||
| | | | | | | | | | | | | |||||||||
3.4 | | | 8-K | | 000-26823 18883834 | | 3.4 | | 06/06/2018 | | | ||||||||||
| | | | | | | | | | | | | |||||||||
3.5 | | Amended and Restated Agreement of Limited Partnership of Alliance Resource Operating Partners, L.P. | | 10-K | | 000-26823 583595 | | 3.2 | | 03/29/2000 | | | |||||||||
| | | | | | | | | | | | | |||||||||
3.6 | | | 8-K | | 000-26823 18883834 | | 3.5 | | 06/06/2018 | | | ||||||||||
| | | | | | | | | | | | | |||||||||
3.7 | | Amended and Restated Certificate of Limited Partnership of Alliance Resource Partners, L.P. | | 8-K | | 000-26823 17990766 | | 3.6 | | 07/28/2017 | | | |||||||||
| | | | | | | | | | | | | |||||||||
3.8 | | Certificate of Limited Partnership of Alliance Resource Operating Partners, L.P. | | S-1/A | | 333-78845 99669102 | | 3.8 | | 07/23/1999 | | | |||||||||
| | | | | | | | | | | | | |||||||||
3.9 | | Certificate of Formation of Alliance Resource Management GP, LLC | | S-1/A | | 333-78845 99669102 | | 3.7 | | 07/23/1999 | | | |||||||||
| | | | | | | | | | | | | |||||||||
3.10 | | Third Amended and Restated Operating Agreement of Alliance Resource Management GP, LLC | | 8-K | | 000-26823 18883834 | | 3.7 | | 06/06/2018 | | | |||||||||
| | | | | | | | | | | | | |||||||||
3.11 | | | 8-K | | 000-26823 17990766 | | 3.5 | | 07/28/2017 | | | ||||||||||
| | | | | | | | | | | | | |||||||||
3.12 | | | 8-K | | 000-26823 17990766 | | 3.4 | | 07/28/2017 | | | ||||||||||
| | | | | | | | | | | | | |||||||||
10.1 | | Eleventh Amendment to the Receivables Financing Agreement, dated as of January 13, 2023. | | 10-K | | 000-26823 23666549 | | 10.54 | | 02/24/2023 | | |
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| | | | Incorporated by Reference | |||||||||||||||||
Exhibit | | Exhibit Description | | Form | | SEC | | Exhibit | | Filing Date | | Filed | |||||||||
| | | | | | | | | | | | | |||||||||
10.2 | | | 8-K | | 000-26823 23540292 | | 10.1 | | 01/20/2023 | | | ||||||||||
| | | | | | | | | | | | | |||||||||
31.1 | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | |||||||||
31.2 | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | |||||||||
32.1 | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | |||||||||
32.2 | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | | |||||||||
95.1 | | | | | | | | | | | |||||||||||
| | | | | | | | | | | | |
36
| | | | | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Incorporated by Reference | |||||||||||||||||
Exhibit | | Exhibit Description | | Form | | SEC | | Exhibit | | Filing Date | | Filed | |||||||||
| | | | | | | | | | | | | |||||||||
101 | | Interactive Data File (Form 10-Q for the quarter ended March 31, 2023 filed in Inline XBRL). | | | | | | | | | | ||||||||||
| | | | | | | | | | | | | |||||||||
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | | | | | | |
* Or furnished, in the case of Exhibits 32.1 and 32.2.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in Tulsa, Oklahoma, on November 7, 2022.May 9, 2023.
| | | |
| ALLIANCE RESOURCE PARTNERS, L.P. | ||
| | ||
| By: | Alliance Resource Management GP, LLC | |
| | its general partner | |
| | | |
| | /s/ Joseph W. Craft, III | |
| | Joseph W. Craft, III | |
| | President, Chief Executive Officer | |
| | and Chairman, duly authorized to sign on behalf | |
| | | |
| | | |
| | /s/ Megan J. Cordle | |
| | Megan J. Cordle | |
| | Vice President, Controller and | |
| | Chief Accounting Officer |
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