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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
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
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ALLIANCE RESOURCE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1564280
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1717 SOUTH BOULDER AVENUE, SUITE 600, TULSA, OKLAHOMA 74119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(918) 295-7600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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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. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of May 9, 2003, 11,481,262 Common Units and 6,422,531 Subordinated
Units are outstanding.
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TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets as of March 31, 2003 and
December 31, 2002 .............................................................. 1
Consolidated Statements of Income for the three-months
ended March 31, 2003 and 2002 .................................................. 2
Condensed Consolidated Statements of Cash Flows for the three-
months ended March 31, 2003 and 2002 ........................................... 3
Notes to Consolidated Financial Statements ..................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................................. 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .............................................................. 9
ITEM 4 CONTROLS AND PROCEDURES ........................................................ 10
FORWARD-LOOKING STATEMENTS ..................................................... 11
i
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .............................................................. 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ...................................... 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................................ 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ............................................................... 12
ITEM 5. OTHER INFORMATION .............................................................. 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................................... 12
ii
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT DATA)
ASSETS
MARCH 31, DECEMBER 31,
2003 2002
---------- ----------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 29,292 $ 9,028
Trade receivables, net ............................................ 40,239 33,018
Marketable securities ............................................. 446 470
Inventories ....................................................... 24,803 13,165
Advance royalties ................................................. 5,233 5,232
Prepaid expenses and other assets ................................. 1,886 2,784
---------- ----------
Total current assets ......................................... 101,899 63,697
PROPERTY, PLANT AND EQUIPMENT AT COST 450,271 446,629
LESS ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION (222,764) (216,777)
---------- ----------
227,507 229,852
OTHER ASSETS:
Advance royalties ................................................. 8,824 10,542
Coal supply agreements, net ....................................... 7,487 8,167
Other long-term assets ............................................ 3,861 4,674
---------- ----------
$ 349,578 $ 316,932
========== ==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................. $ 21,477 $ 23,330
Due to affiliates ................................................. 1,571 1,286
Accrued taxes other than income taxes ............................. 8,687 8,105
Accrued payroll and related expenses .............................. 11,189 10,004
Accrued interest .................................................. 1,622 5,361
Workers' compensation and pneumoconiosis benefits ................. 5,465 5,275
Other current liabilities ......................................... 12,923 9,877
Current maturities, long-term debt ................................ 17,500 16,250
---------- ----------
Total current liabilities .................................... 80,434 79,488
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities ...................... 195,000 195,000
Accrued pneumoconiosis benefits ................................... 16,508 16,067
Workers' compensation ............................................. 20,711 19,949
Reclamation and mine closing ...................................... 21,957 21,821
Due to affiliates ................................................. 6,933 20,652
Other liabilities ................................................. 3,000 2,717
---------- ----------
Total liabilities ............................................ 344,543 355,694
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL (DEFICIT):
Common Unitholders 11,481,262 and 8,982,780 units outstanding,
respectively .................................................... 201,816 144,219
Subordinated Unitholder 6,422,531 units outstanding ............... 114,713 112,916
General Partners .................................................. (306,043) (290,472)
Unrealized loss on marketable securities .......................... (176) (150)
Minimum pension liability ......................................... (5,275) (5,275)
---------- ----------
Total Partners' capital (deficit) ............................ 5,035 (38,762)
---------- ----------
$ 349,578 $ 316,932
========== ==========
See notes to consolidated financial statements.
1
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------ ------------
SALES AND OPERATING REVENUES:
Coal sales ............................................................ $ 114,450 $ 115,845
Transportation revenues ............................................... 4,315 5,096
Other sales and operating revenues .................................... 6,160 4,447
----------- -----------
Total revenues .............................................. 124,925 125,388
----------- -----------
EXPENSES:
Operating expenses .................................................... 82,752 84,517
Transportation expenses ............................................... 4,315 5,096
Outside purchases...................................................... 1,019 2,805
General and administrative ............................................ 5,651 4,941
Depreciation, depletion and amortization .............................. 13,131 12,991
Interest expense (net of interest income and interest capitalized
for the three months ended March 31, 2003 and 2002 of
$279 and $333, respectively)....................................... 3,967 3,937
----------- -----------
Total operating expenses ....................................... 110,835 114,287
----------- -----------
INCOME FROM OPERATIONS ................................................... 14,090 11,101
OTHER INCOME ............................................................. (7) 452
----------- -----------
INCOME BEFORE INCOME TAXES ............................................... 14,083 11,553
INCOME TAXES ............................................................. 955 153
----------- -----------
NET INCOME ............................................................... $ 13,128 $ 11,400
=========== ===========
ALLOCATION OF NET INCOME:
PORTION APPLICABLE TO WARRIOR COAL EARNINGS (LOSS)
PRIOR TO ITS ACQUISITION ON FEBRUARY 14, 2003 ........................ $ (666) $ 180
PORTION APPLICABLE TO PARTNERS' INTEREST ............................... 13,794 11,220
----------- -----------
NET INCOME ............................................................... $ 13,128 $ 11,400
=========== ===========
GENERAL PARTNERS' INTEREST IN
NET INCOME (LOSS) ...................................................... $ (389) $ 404
=========== ===========
LIMITED PARTNERS' INTEREST IN
NET INCOME ............................................................ $ 13,517 $ 10,996
=========== ===========
BASIC NET INCOME PER LIMITED
PARTNER UNIT .......................................................... $ 0.81 $ 0.71
=========== ===========
DILUTED NET INCOME PER LIMITED
PARTNER UNIT .......................................................... $ 0.79 $ 0.69
=========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING-BASIC ..................................................... 16,593,609 15,405,311
=========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING-DILUTED 17,176,824 15,841,062
=========== ===========
See notes to consolidated financial statements.
2
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2003 2002
---------- ----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 13,047 $ 15,385
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ...................... (10,131) (17,091)
Purchase of Warrior Coal ....................................... (12,661) -
Proceeds from sale of property, plant and equipment............. 38 4
Proceeds from the maturity of marketable securities ............ - 57
---------- ----------
Net cash used in investing activities ..................... (22,754) (17,030)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common unit offering to public ................... 53,965 -
Cash contribution by General Partners........................... 9 -
Payment of Warrior Coal's revolving credit agreement balance.... (17,000) -
Borrowings under revolving credit and working capital facilities 10,600 17,500
Payments under revolving credit and working capital facilities . (5,600) (12,500)
Payments on long-term debt ..................................... (3,750) (3,750)
Distribution to Partners ....................................... (8,253) (7,860)
---------- ----------
Net cash provided by (used in) financing activities ....... 29,971 (6,610)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ........................... 20,264 (8,255)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................. 9,028 11,093
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................ $ 29,292 $ 2,838
========== ==========
CASH PAID FOR:
Interest ........................................................ $ 7,928 $ 7,921
========== ==========
Income taxes to taxing authorities .............................. $ 200 $ -
========== ==========
See notes to consolidated financial statements.
3
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND PRESENTATION
Alliance Resource Partners, L.P., a Delaware limited partnership (the
"Partnership") was formed in May 1999 to acquire, own and operate certain coal
production and marketing assets of Alliance Resource Holdings, Inc., a Delaware
corporation ("ARH") (formerly known as Alliance Coal Corporation), consisting of
substantially all of ARH's operating subsidiaries, but excluding ARH.
The accompanying consolidated financial statements include the accounts
and operations of the Partnership and present the financial position as of March
31, 2003 and December 31, 2002, and the results of its operations and cash flows
for the three-months ended March 31, 2003 and 2002. All material intercompany
transactions and accounts have been eliminated.
On February 14 and March 14, 2003, the Partnership issued 2,250,000 and
288,000 additional Common Units at a public offering price of $22.51 per unit
and received net proceeds of $48.5 million and $6.2 million, respectively,
before expenses of approximately $0.7 million excluding underwriters fees.
On February 14, 2003, the Partnership acquired Warrior Coal, LLC
("Warrior Coal") (Note 3). Because the Warrior Coal acquisition is between
entities under common control, the acquisition is recorded at historical cost in
a manner similar to that used in a pooling of interests. Accordingly, the
consolidated financial statements and notes of the Partnership have been
restated to reflect the combined historical results of operations, financial
position and cash flows of the Partnership and Warrior Coal for all periods
presented.
These consolidated financial statements and notes thereto for interim
periods are unaudited. However, in the opinion of management, these financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the results of the periods
presented. Results for interim periods are not necessarily indicative of results
for a full year.
These consolidated financial statements and notes are prepared pursuant
to the rules and regulations of the Securities and Exchange Commission for
interim reporting and should be read in conjunction with the consolidated
financial statements and notes included in the Partnership's Annual Report on
Form 10-K for the year ended December 31, 2002.
2. CONTINGENCIES
The Partnership is involved in various lawsuits, claims and regulatory
proceedings incidental to its business. The Partnership provides for costs
related to litigation and regulatory proceedings, including civil fines issued
as part of the outcome of these proceedings, when a loss is probable and the
amount is reasonably determinable. In the opinion of management, the outcome of
these matters, to the extent not previously provided for or covered under
insurance, will not have a material adverse effect on the Partnership's
business, financial position or results of operations, although management
cannot give any assurance to that effect.
The Partnership is involved in a dispute with PSI Energy Inc. ("PSI")
concerning the procedures for and testing of a certain coal quality
specification relating to the minimum Hardgrove Grindability Index
4
(i.e. physical hardness of coal) of coal supplied by its Gibson County mining
complex. Gibson County Coal and PSI have had on-going discussions since March
2001 concerning the procedures for and testing of coal supplied by the Gibson
County mining complex, and have been unable to resolve their differences
to-date. During March and April 2002, PSI withheld approximately $234,000 in
payments due to Gibson County Coal; PSI has not withheld any additional payments
and has verbally advised that it does not intend to withhold any future payments
until this dispute is resolved. Based on Gibson County Coal's understanding of
PSI's position, the current penalties alleged by PSI are estimated to be
approximately $2,450,000 through March 31, 2003.
During April 2002, Gibson County Coal and PSI agreed to proceed with
mediation in an effort to resolve this contractual dispute. The mediation of the
dispute occurred in August 2002 during which the parties concluded an outline of
a tentative settlement, subject to the negotiation of a definitive settlement
agreement. The parties are in the process of negotiating such settlement
agreement, but no assurance can be provided that a final settlement can be
reached. In the event the final settlement agreement and certain other
agreements cannot be concluded, the parties will proceed with either additional
mediation efforts or resort to arbitration. Gibson County Coal continues to
strongly disagree with PSI's position.
3. ACQUISITION
On February 14, 2003, the Partnership acquired Warrior Coal pursuant to
the terms of an Amended and Restated Put and Call Option Agreement ("Put/Call
Agreement") with ARH Warrior Holdings, Inc., a subsidiary of ARH. The
Partnership acquired Warrior Coal for approximately $12.7 million and paid
Warrior Coal's borrowings of $17.0 million under a revolving credit agreement
between Alliance Resource GP, LLC, a subsidiary of ARH, and Warrior Coal.
Because the Warrior Coal acquisition was between entities under common control,
the acquisition is accounted for at historical cost in a manner similar to that
used in a pooling of interests. As a result of recording Warrior Coal's assets
and liabilities at their historical book values, as required by generally
accepted accounting principles, while acquiring Warrior Coal at market value,
the General Partners' capital account was decreased by $7.9 million. The
Partnership financed the transaction with the net proceeds of the recently
completed public offering of 2,538,000 Common Units (Note 1).
Under the terms of the Put/Call Agreement, the Partnership assumed
certain other obligations, including a mineral lease and sublease with SGP Land,
LLC, an affiliate of ARH Warrior Holdings, Inc., covering coal reserves that
have been and will continue to be mined by Warrior Coal. The terms and
conditions of the mineral lease and sub-lease remained unchanged following the
closing of the acquisition.
4. SUBSEQUENT EVENTS
On April 3, 2003, the Partnership announced that Hopkins County Coal,
LLC ("Hopkins"), an indirect subsidiary of the Partnership, gave notice, in
accordance with the Worker Adjustment and Retraining Notification Act of 1998,
of an impending reduction-in-force scheduled for June 2, 2003, impacting
approximately 120 employees at its two operating surface mines, preparation
plant, and related operations located near Madisonville, Kentucky. At this time
Hopkins expects to idle indefinitely these facilities until new sales
commitments in the Illinois basin are obtained. The Partnership has reviewed the
carrying value of the applicable Hopkins asset group in accordance with
Financial Accounting Standards Board No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," and has determined that the sum of the
undiscounted cash flows from the expected future operation of Hopkins exceeds
the carrying amount of the applicable asset group.
5
On April 25, 2003, the Partnership declared a minimum quarterly
distribution for the period from January 1, 2003 to March 31, 2003, of $0.525
per unit, totaling approximately $9,399,000, on all of its Common and
Subordinated Units outstanding, payable on May 15, 2003, to all unitholders of
record on May 5, 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
SELECTED OPERATING DATA
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31,
2003 2002
--------- ---------
Tons sold (000s) 4,456 4,474
Tons produced (000s) 4,990 4,760
Revenues per ton sold (1) $27.07 $26.89
Cost per ton sold (2) $20.07 $20.62
(1) Revenues per ton sold is based on the total of coal sales and other sales
and operating revenues divided by tons sold.
(2) Cost per ton is based on the total of operating expenses, outside purchases
and general and administrative expenses divided by tons sold.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Coal sales. Coal sales for the three months ended March 31, 2003 (the
"2003 Quarter") decreased 1.2% to $114.5 million from $115.8 million for the
three months ended March 31, 2002 (the "2002 Quarter"). The decrease of $1.3
million reflects a slightly lower average sales price. Tons sold were comparable
for the 2002 and 2001 quarters at 4.5 million, respectively. Tons produced
increased 4.8% to 5.0 million tons for the 2003 Quarter from 4.8 million for the
2002 Quarter.
Transportation revenues. Transportation revenues decreased to $4.3
million for the 2003 Quarter from $5.1 million for the 2002 Quarter. The
decrease of $0.8 million was primarily attributable to reduced shipments to a
customer with above-average transportation costs.
Other sales and operating revenues. Other sales and operating revenues
increased to $6.2 million for the 2003 Quarter from $4.4 million for the 2002
Quarter. The increase of $1.8 million is primarily attributable to accelerated
shipments to Synfuel Solutions Operating, LLC, ("SSO"), which shipments resulted
in an increase of the fees earned under the various rental and service
agreements the Partnership has with SSO.
Operating expenses. Operating expenses decreased 2.1% to $82.8 million
for the 2003 Quarter from $84.5 million for the 2002 Quarter. The decrease of
$1.7 million primarily results from improved mining conditions resulting in
lower per ton costs compared to the prior year quarter.
Transportation expenses. See "Transportation revenues" above concerning
the decrease in transportation expenses.
6
Outside purchases. Outside purchases decreased to $1.0 million for the
2003 Quarter compared to $2.8 million for the 2002 Quarter. The decrease of $1.8
million was primarily the result of not purchasing coal from a third-party
contractor that recently ceased production. Assuming sufficient market demand,
the Partnership has the ability to replace these purchased coal tons with its
own production.
General and administrative. General and administrative expense
increased to $5.7 million for the 2003 Quarter compared to $4.9 million for the
2002 Quarter. The increase of $0.8 million is primarily attributable to higher
accruals related to the Short-Term Incentive Plan, combined with additional
units granted under the Long-Term Incentive Plan.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization expense was comparable for the 2003 and 2002 Quarters at $13.1
million and $13.0 million, respectively.
Interest expense. Interest expense was comparable for each of the 2003
and 2002 Quarters at approximately $4.0 million.
Income taxes. Income taxes increased to $0.9 million for the 2003
Quarter compared to $0.2 million for the 2002 Quarter. Although the Partnership
is not a taxable entity for federal or state income tax purposes, the
Partnership's indirect subsidiary, Alliance Service, Inc. is subject to federal
and state income taxes. In conjunction with a decision to relocate the coal
synfuel facility from Hopkins to Warrior Coal, agreements for a portion of the
services provided to the coal synfuel producer were assigned to Alliance
Service, Inc. in December 2002. Additionally, Warrior Coal was subject to income
taxes prior to its acquisition by the Partnership on February 14, 2003.
Net income. Net income increased to $13.1 million for the 2003 Quarter
from $11.4 million for the 2002 Quarter. The increase of $1.7 million is
primarily attributable to improved mining conditions resulting in lower per ton
operating costs compared to the prior year quarter and an increase of the fees
earned under the various rental and service agreements the Partnership has with
SSO.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash provided by operating activities was $13.0 million for the 2003
Quarter compared to $15.4 million in the 2002 Quarter. The decrease in cash
provided by operating activities was principally attributable to a greater
increase in coal inventory in the 2003 Quarter compared to the 2002 Quarter.
Net cash used in investing activities was $22.8 million for the 2003
Quarter compared to $17.0 million in the 2002 Quarter. The increase is
principally attributable to the Warrior Coal acquisition during the 2003 Quarter
offset by a decrease in capital expenditures associated with a new service shaft
at Dotiki and the extension of Pattiki into an adjacent coal reserve area, both
of which are nearing completion.
Net cash provided by financing activities was $30.0 million for the
2003 Quarter compared to net cash used in financing activities of $6.6 million
in the 2002 Quarter. The increased cash is primarily attributable to the
proceeds received from a Common Unit offering during the 2003 Quarter offset by
the payment of Warrior Coal's revolving credit agreement balance.
7
Capital Expenditures
Capital expenditures increased to $22.8 million in the 2003 Quarter,
which includes the acquisition of Warrior Coal, compared to $17.1 million in the
2002 Quarter. See discussion of "Cash Flows -- Net cash used in investing
activities under -- " above concerning the increase in capital expenditures.
Notes Offering and Credit Facility
Alliance Resource Operating Partners, L.P. (the "Intermediate
Partnership") has $180 million principal amount of 8.31% senior notes due August
20, 2014 payable in ten equal annual installments of $18 million beginning in
August 2005 with interest payable semiannually. The Intermediate Partnership
also has a $100 million credit facility. The credit facility consists of three
tranches, including a $50 million term loan facility, a $25 million working
capital facility and a $25 million revolving credit facility. The Partnership
has borrowings outstanding of $27.5 million under the term loan facility, $5
million outstanding on the revolving credit facility and no borrowings
outstanding under the working capital facility at March 31, 2003. The weighted
average interest rate on the term loan facility at March 31, 2003 was 4.31%. The
interest rate on the revolving credit facility was 4.5% at March 31, 2003. The
credit facility expires August 2004. The senior notes and credit facility are
guaranteed by all of the subsidiaries of the Intermediate Partnership. The
senior notes and credit facility contain various restrictive and affirmative
covenants, including the amount of distributions by the Intermediate Partnership
and the incurrence of other debt. The Partnership was in compliance with the
covenants of both the credit facility and senior notes at March 31, 2003.
The Partnership has entered into agreements with three banks to provide
letters of credit in an aggregate amount of $35.0 million to maintain surety
bonds to secure its obligations for reclamation liabilities and workers'
compensation benefits. At March 31, 2003, the Partnership had $21.6 million in
letters of credit outstanding. The Special General Partner guarantees the
letters of credit.
Related Party Transactions
On February 14, 2003, the Partnership acquired Warrior Coal pursuant to
the terms of the Put/Call Agreement with ARH Warrior Holdings, Inc., a
subsidiary of ARH. The Partnership acquired Warrior Coal for approximately $12.7
million and paid Warrior Coal's borrowings of $17.0 million under a revolving
credit agreement between Alliance Resource GP, LLC, a subsidiary of ARH, and
Warrior Coal. Because the Warrior Coal acquisition was between entities under
common control, the acquisition is accounted for at historical cost in a manner
similar to that used in a pooling of interests. As a result of recording Warrior
Coal's assets and liabilities at their historical book values, as required by
generally accepted accounting principles, while acquiring Warrior Coal at market
value, the General Partners' capital account was decreased by $7.9 million. The
Partnership financed the transaction with the net proceeds of the recently
completed public offering of 2,538,000 Common Units. See Note 1 to the
consolidated financial statements in "Item 1. Financial Statements" above.
Under the terms of the Put/Call Agreement, the Partnership assumed
certain other obligations, including a mineral lease and sublease with SGP Land,
LLC, an affiliate of ARH Warrior Holdings, Inc., covering coal reserves that
have been and will continue to be mined by Warrior Coal. The terms and
conditions of the mineral lease and sub-lease remained unchanged following the
closing of the acquisition. Prior to the acquisition of Warrior Coal on February
14, 2003, the Partnership purchased coal from and sold coal to Warrior Coal and
had agreements with Warrior Coal related to administrative services and
reclamation procedures.
8
The Partnership has continuing related party transactions with its
Managing General Partner and the Special General Partner, including the Special
General Partner's affiliates. These related party transactions relate
principally to the provision of administrative services by the Managing General
Partner, mineral and equipment leases with the Special General Partner,
including its affiliates, and guarantees from the Special General Partner for
letters of credit.
Please read the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2002, "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Related Party Transactions - "
for additional information concerning the related party transactions described
above.
Recent Accounting Pronouncements
On January 1, 2003, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement
Obligations," which requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred.
When the liability is initially recorded, a cost is capitalized by increasing
the carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value for each period, and the capitalized cost is
depreciated over the useful life of the related asset. To settle the liability,
the obligations for its recorded amount is paid or a gain or loss upon
settlement is incurred. Since the Partnership has historically adhered to
accounting principles similar to SFAS No. 143, this standard had no material
effect on the Partnership's consolidated financial statements upon adoption.
On January 1, 2003, the Partnership adopted Financial Accounting
Standards Board Interpretation No. 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This interpretation elaborates on the disclosures to be made by a
guarantor in its financial statements about its obligations under certain
guarantees that it has issued. It also requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations it
has undertaken in issuing the guarantee. This Interpretation had no material
effect on the Partnership's consolidated financial statements upon adoption.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of the Partnership's transactions are denominated in U.S. dollars
and, as a result, the Partnership does not have material exposure to currency
exchange-rate risks.
The Partnership did not engage in any interest rate, foreign currency
exchange rate or commodity price-hedging transactions as of March 31, 2003.
The Intermediate Partnership assumed obligations under a $100 million
credit facility. Borrowings under the credit facility are at variable rates and,
as a result, the Partnership has interest rate exposure. The Partnership's
earnings are not materially affected by changes in interest rates. If interest
rates increased by 100 basis points, interest expense for the three months ended
March 31, 2003 would have increased by approximately $72,000.
As of March 31, 2003, there were no significant changes in the
Partnership's quantitative and qualitative disclosures about market risk as set
forth in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2002.
9
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to filing of this report, an evaluation
was carried out by management, including our chief executive officer and
principal accounting officer, of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule 13a-14(c) under
the Securities Exchange Act of 1934). Based upon this evaluation, the chief
executive officer and the principal accounting officer concluded that the design
and operation of these disclosure controls and procedures were effective.
Subsequent to this evaluation on May 5, 2003 through the date of this
filing on Form 10-Q for the quarterly period ended March 31, 2003, there have
been no significant changes in the Partnership's internal controls or in other
factors that could significantly affect these controls, including any
significant deficiencies or material weaknesses of internal controls that would
require corrective action.
Each of the chief executive officer and the principal accounting
officer of our Managing General Partner has furnished as Exhibit 99.1 and
Exhibit 99.2, respectively, a certificate to the Securities and Exchange
Commission as required by Section 906 of the Sarbanes-Oxley Act of 2002.
10
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains 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," "estimate," "expect," "forecast", "may,"
"project", "will," and similar expressions identify forward-looking statements.
These statements reflect our current views with respect to future events and are
subject to various risks, uncertainties and assumptions. Specific factors which
could cause actual results to differ from those in the forward-looking
statements, include:
- competition in coal markets and our ability to respond to the
competition;
- fluctuation in coal price, which could adversely affect our
operating results and cash flows;
- deregulation of the electric utility industry or the effects of
any adverse change in the domestic coal industry, electric utility
industry, or general economic conditions;
- dependence on significant customer contracts, including renewing
customer contracts upon expiration of existing contracts;
- customer bankruptcies and/or cancellations of, or breaches to,
existing contracts;
- customer delays or defaults in making payments;
- fluctuations in coal demand, prices and availability due to labor
and transportation costs and disruptions, equipment availability,
governmental regulations and other factors;
- our productivity levels and margins that we earn on our coal
sales;
- any unanticipated increases in labor costs, adverse changes in
work rules, or unexpected cash payments associated with post-mine
reclamation and workers' compensation claims;
- any unanticipated increases in transportation costs and risk of
transportation delays or interruptions;
- greater than expected environmental regulation, costs and
liabilities;
- a variety of operational, geologic, permitting, labor and
weather-related factors;
- risk of major mine-related accidents or interruptions;
- results of litigation;
- difficulty maintaining our surety bonds for mine reclamation as
well as workers' compensation and black lung benefits; and
- difficulty obtaining commercial property insurance, and risks
associated with our 15.48% participation (excluding any applicable
deductible) in the commercial insurance property program.
If one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, our actual results may differ materially
from those described in any forward-looking statement. When considering
forward-looking statements, you should also keep in mind the risk factors
described in our Annual Report on Form 10-K for the year ended December 31,
2002. The risk factors could also cause our actual results to differ materially
from those contained in any forward-looking statement. We disclaim any
obligation to update the above list or to announce publicly the result of any
revisions to any of the forward-looking statements to reflect future events or
developments.
You should consider the above information when reading any
forward-looking statements contained:
- in this Quarterly Report on Form 10-Q;
- other reports filed by us with the SEC;
- our press releases; and
- oral statements made by us or any of our officers or other persons
acting on our behalf.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information under "Contingencies" in Note 2 of the Notes to
Unaudited Consolidated Financial Statements herein is hereby incorporated by
reference. See also "Item 3. Legal Proceedings" in the Annual Report on Form
10-K for the year ended December 31, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.39 Amendment No. 3 to the Restated and Amended Coal Supply
Agreement effective January 1, 2003 between Webster County
Coal, LLC, White County Coal, LLC and Seminole Electric
Cooperative, Inc.
99.1 Certification of Joseph W. Craft III, President and Chief
Executive Officer of Alliance Resource Management GP, LLC, the
managing general partner of Alliance Resource Partners, L.P.,
dated May 9, 2003, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 furnished herewith.
99.2 Certification of Dale G. Wilkerson, Vice President and
Controller (Principal Accounting Officer) of Alliance Resource
Management GP, LLC, the managing general partner of Alliance
Resource Partners, L.P., dated May 9, 2003, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 furnished
herewith.
(b) Reports on Form 8-K:
A Form 8-K was filed on January 29, 2003 to submit to the
Securities and Exchange Commission a press release announcing earnings
and operating results for the fourth quarter of 2002. The press release
contains the following financial statements: (i) consolidated
statements of income and operating data for the three months ended
December 31, 2002 and 2001; (ii)
12
consolidated balance sheets at December 31, 2002 and 2001; and (iii)
consolidated condensed statements of cash flow for the year ended
December 31, 2002 and 2001.
A Form 8-K was filed on February 12, 2003 reporting that the
Partnership had entered into an underwriting agreement, with the
underwriters named therein with respect to the issuance and sale by the
Partnership of 2,250,000 units representing limited partner interest in
the Partnership in an underwritten public offering. Attached as
exhibits were the Underwriting Agreement dated as of February 10, 2003
by and among the Partnership and the underwriters named therein,
Opinion and Consent of Vinson & Elkins LLP as to the legality of the
securities being registered, Opinion and Consent of Vinson & Elkins LLP
relating to tax matters and Press Release dated February 10, 2003.
13
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 May 9, 2003.
ALLIANCE RESOURCE PARTNERS, L. P.
By: Alliance Resource Management GP, LLC
its managing general partner
/s/ Joseph W. Craft III
-------------------------------------
Joseph W. Craft III
President, Chief Executive
Officer and Director
/s/ Dale G. Wilkerson
-------------------------------------
Dale G. Wilkerson
Vice President and Controller
(Principal Accounting
Officer)
14
CERTIFICATION
I, Joseph W. Craft III certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alliance
Resource Partners, L.P.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Joseph W. Craft III
- ------------------------------------------
Joseph W. Craft III
President, Chief Executive
Officer and Director
15
CERTIFICATION
I, Dale G. Wilkerson certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alliance
Resource Partners, L.P.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Dale G. Wilkerson
- ----------------------------------
Dale G. Wilkerson
Vice President and Controller
(Principal Accounting
Officer)
16
INDEX TO EXHIBITS
10.39 Amendment No. 3 to the Restated and Amended Coal Supply
Agreement effective January 1, 2003 between Webster County
Coal, LLC, White County Coal, LLC and Seminole Electric
Cooperative, Inc.
99.1 Certification of Joseph W. Craft III, President and Chief
Executive Officer of Alliance Resource Management GP, LLC, the
managing general partner of Alliance Resource Partners, L.P.,
dated May 9, 2003, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 furnished herewith.
99.2 Certification of Dale G. Wilkerson, Vice President and
Controller (Principal Accounting Officer) of Alliance Resource
Management GP, LLC, the managing general partner of Alliance
Resource Partners, L.P., dated May 9, 2003, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 furnished
herewith.