0001558370-17-008216.txt : 20171106 0001558370-17-008216.hdr.sgml : 20171106 20171106151351 ACCESSION NUMBER: 0001558370-17-008216 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 82 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171106 DATE AS OF CHANGE: 20171106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE RESOURCE PARTNERS LP CENTRAL INDEX KEY: 0001086600 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE SURFACE MINING [1221] IRS NUMBER: 731564280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26823 FILM NUMBER: 171179322 BUSINESS ADDRESS: STREET 1: 1717 SOUTH BOULDER AVENUE CITY: TULSA STATE: OK ZIP: 74119 BUSINESS PHONE: 9182957600 10-Q 1 arlp-20170930x10q.htm 10-Q arlp_Current folio_10Q

 

 

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, 2017

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 [X]

Accelerated Filer [   ]

Non-Accelerated Filer [   ]

Smaller Reporting Company [   ]

 

 

(Do not check if 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   [X]  No

 

As of November 6, 2017, 130,704,217 common units are outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

 

PART I 

 

FINANCIAL INFORMATION 

 

 

 

 

 

 

Page

 

 

 

ITEM 1. 

Financial Statements (Unaudited)

 

 

 

 

 

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

1

 

 

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

4

 

 

 

 

Condensed Consolidated Statement of Partners' Capital for the nine months ended September 30, 2017

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

ITEM 2. 

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

26

 

 

 

ITEM 3. 

Quantitative and Qualitative Disclosures about Market Risk

39

 

 

 

ITEM 4. 

Controls and Procedures

40

 

 

 

 

Forward-Looking Statements

41

 

 

 

PART II 

 

OTHER INFORMATION 

 

 

 

ITEM 1. 

Legal Proceedings

43

 

 

 

ITEM 1A. 

Risk Factors

43

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

ITEM 3. 

Defaults Upon Senior Securities

43

 

 

 

ITEM 4. 

Mine Safety Disclosures

43

 

 

 

ITEM 5. 

Other Information

43

 

 

 

ITEM 6. 

Exhibits

44

 

 

 

 

 

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, 

 

 

 

2017

    

2016

 

ASSETS

    

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,393

 

$

39,782

 

Trade receivables

 

 

129,031

 

 

152,032

 

Other receivables

 

 

709

 

 

279

 

Due from affiliates

 

 

288

 

 

271

 

Inventories, net

 

 

87,667

 

 

61,051

 

Advance royalties, net

 

 

1,207

 

 

1,207

 

Prepaid expenses and other assets

    

 

10,356

    

 

22,050

 

Total current assets

 

 

247,651

 

 

276,672

 

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

 

 

Property, plant and equipment, at cost

 

 

2,938,362

 

 

2,920,988

 

Less accumulated depreciation, depletion and amortization

 

 

(1,436,470)

 

 

(1,335,145)

 

Total property, plant and equipment, net

 

 

1,501,892

 

 

1,585,843

 

OTHER ASSETS:

 

 

 

 

 

 

 

Advance royalties, net

 

 

40,578

 

 

29,372

 

Equity investments in affiliates

 

 

144,349

 

 

138,817

 

Cost investments

 

 

102,800

 

 

 —

 

Goodwill

 

 

136,399

 

 

136,399

 

Other long-term assets

 

 

32,983

 

 

25,939

 

Total other assets

 

 

457,109

 

 

330,527

 

TOTAL ASSETS

 

$

2,206,652

 

$

2,193,042

 

 

 

 

 

 

 

 

 

LIABILITIES AND PARTNERS' CAPITAL

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

73,597

 

$

64,055

 

Due to affiliates

 

 

759

 

 

906

 

Accrued taxes other than income taxes

 

 

20,544

 

 

18,273

 

Accrued payroll and related expenses

 

 

41,124

 

 

41,576

 

Accrued interest

 

 

13,083

 

 

316

 

Workers' compensation and pneumoconiosis benefits

 

 

9,732

 

 

9,897

 

Current capital lease obligations

 

 

28,220

 

 

27,196

 

Other current liabilities

 

 

16,697

 

 

14,778

 

Current maturities, long-term debt, net

 

 

100,000

 

 

149,874

 

Total current liabilities

 

 

303,756

 

 

326,871

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

Long-term debt, excluding current maturities, net

 

 

385,449

 

 

399,446

 

Pneumoconiosis benefits

 

 

64,197

 

 

62,822

 

Accrued pension benefit

 

 

39,497

 

 

42,070

 

Workers' compensation

 

 

52,477

 

 

40,400

 

Asset retirement obligations

 

 

125,146

 

 

125,266

 

Long-term capital lease obligations

 

 

64,358

 

 

85,540

 

Other liabilities

 

 

16,248

 

 

17,203

 

Total long-term liabilities

 

 

747,372

 

 

772,747

 

Total liabilities

 

 

1,051,128

 

 

1,099,618

 

 

 

 

 

 

 

 

 

PARTNERS' CAPITAL:

 

 

 

 

 

 

 

Alliance Resource Partners, L.P. ("ARLP") Partners' Capital:

 

 

 

 

 

 

 

Limited Partners - Common Unitholders 130,704,217 and 74,375,025 units outstanding, respectively

 

 

1,173,066

 

 

1,400,202

 

General Partners’ interest

 

 

14,781

 

 

(273,788)

 

Accumulated other comprehensive loss

 

 

(37,694)

 

 

(38,540)

 

Total ARLP Partners' Capital

 

 

1,150,153

 

 

1,087,874

 

Noncontrolling interest

 

 

5,371

 

 

5,550

 

Total Partners' Capital

 

 

1,155,524

 

 

1,093,424

 

TOTAL LIABILITIES AND PARTNERS' CAPITAL

 

$

2,206,652

 

$

2,193,042

 

 

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

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

SALES AND OPERATING REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal sales

 

$

435,162

 

$

533,817

 

$

1,256,168

 

$

1,357,578

 

Transportation revenues

 

 

8,009

 

 

7,692

 

 

24,933

 

 

19,732

 

Other sales and operating revenues

 

 

10,018

 

 

10,565

 

 

31,888

 

 

26,743

 

Total revenues

 

 

453,189

 

 

552,074

 

 

1,312,989

 

 

1,404,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (excluding depreciation, depletion and amortization)

 

 

295,385

 

 

326,891

 

 

796,845

 

 

842,417

 

Transportation expenses

 

 

8,009

 

 

7,692

 

 

24,933

 

 

19,732

 

Outside coal purchases

 

 

 —

 

 

1,514

 

 

 —

 

 

1,514

 

General and administrative

 

 

15,005

 

 

18,114

 

 

45,982

 

 

53,015

 

Depreciation, depletion and amortization

 

 

69,962

 

 

101,432

 

 

194,109

 

 

245,736

 

Total operating expenses

 

 

388,361

 

 

455,643

 

 

1,061,869

 

 

1,162,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

 

64,828

 

 

96,431

 

 

251,120

 

 

241,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense (net of interest capitalized for the three and nine months ended September 30, 2017 and 2016 of $107, $47, $354 and $320, respectively)

 

 

(10,773)

 

 

(8,001)

 

 

(28,904)

 

 

(23,386)

 

Interest income

 

 

 4

 

 

 3

 

 

82

 

 

 8

 

Equity in income of affiliates

 

 

3,798

 

 

1,105

 

 

10,414

 

 

1,041

 

Cost investment income

 

 

2,800

 

 

 —

 

 

2,800

 

 

 —

 

Debt extinguishment loss

 

 

 —

 

 

 —

 

 

(8,148)

 

 

 —

 

Other income

 

 

774

 

 

293

 

 

2,461

 

 

545

 

INCOME BEFORE INCOME TAXES

 

 

61,431

 

 

89,831

 

 

229,825

 

 

219,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE (BENEFIT)

 

 

 5

 

 

 7

 

 

(3)

 

 

 4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

61,426

 

 

89,824

 

 

229,828

 

 

219,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LESS:  NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

 

 

(155)

 

 

(44)

 

 

(425)

 

 

(40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO ALLIANCE RESOURCE PARTNERS, L.P. ("NET INCOME OF ARLP")

 

$

61,271

 

$

89,780

 

$

229,403

 

$

219,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GENERAL PARTNERS' INTEREST IN NET INCOME OF ARLP

 

$

612

 

$

20,571

 

$

21,362

 

$

60,723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIMITED PARTNERS' INTEREST IN NET INCOME OF ARLP

 

$

60,659

 

$

69,209

 

$

208,041

 

$

159,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED NET INCOME OF ARLP PER LIMITED PARTNER UNIT (Note 9)

 

$

0.52

 

$

0.91

 

$

2.32

 

$

2.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTIONS PAID PER LIMITED PARTNER UNIT

 

$

0.5000

 

$

0.4375

 

$

1.3750

 

$

1.5500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED

 

 

114,237,979

 

 

74,375,025

 

 

87,924,986

 

 

74,347,157

 

 

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

 

Nine Months Ended

 

 

    

September 30, 

 

September 30, 

 

 

 

2017

    

2016

    

2017

    

2016

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

61,426

 

$

89,824

 

$

229,828

 

$

219,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost (1)

 

 

46

 

 

 —

 

 

140

 

 

 —

 

Amortization of net actuarial loss (1)

 

 

774

 

 

787

 

 

2,319

 

 

2,365

 

Total defined benefit pension plan adjustments

 

 

820

 

 

787

 

 

2,459

 

 

2,365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pneumoconiosis benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial gain (1)

 

 

(479)

 

 

(660)

 

 

(1,613)

 

 

(1,982)

 

Total pneumoconiosis benefits adjustments

 

 

(479)

 

 

(660)

 

 

(1,613)

 

 

(1,982)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME

 

 

341

 

 

127

 

 

846

 

 

383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

 

61,767

 

 

89,951

 

 

230,674

 

 

220,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Comprehensive income attributable to noncontrolling interest

 

 

(155)

 

 

(44)

 

 

(425)

 

 

(40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP

 

$

61,612

 

$

89,907

 

$

230,249

 

$

220,186

 


(1)

Amortization of prior service cost and net actuarial gain or loss is included in the computation of net periodic benefit cost (see Notes 10 and 12 for additional details).

 

See notes to condensed consolidated financial statements.

3


 

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2017

    

2016

    

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

$

456,079

 

$

494,528

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

 

 

 

Capital expenditures

 

 

(105,455)

 

 

(70,267)

 

Increase (decrease) in accounts payable and accrued liabilities

 

 

4,182

 

 

(7,965)

 

Proceeds from sale of property, plant and equipment

 

 

1,488

 

 

756

 

Contributions to equity investments in affiliates

 

 

(16,487)

 

 

(65,367)

 

Purchase of cost investment

 

 

(100,000)

 

 

 —

 

Distributions received from investments in excess of cumulative earnings

 

 

10,880

 

 

2,167

 

Payment for acquisition of business

 

 

 —

 

 

(1,011)

 

Payment for acquisition of customer contracts

 

 

 —

 

 

(23,000)

 

Net cash used in investing activities

 

 

(205,392)

 

 

(164,687)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Borrowings under securitization facility

 

 

100,000

 

 

44,600

 

Payments under securitization facility

 

 

(100,000)

 

 

(27,700)

 

Payments on term loan

 

 

(50,000)

 

 

(106,250)

 

Borrowings under revolving credit facilities

 

 

165,000

 

 

140,000

 

Payments under revolving credit facilities

 

 

(420,000)

 

 

(215,000)

 

Borrowings under long-term debt

 

 

400,000

 

 

 —

 

Payment on long-term debt

 

 

(145,000)

 

 

 —

 

Proceeds on capital lease transactions

 

 

 —

 

 

33,881

 

Payments on capital lease obligations

 

 

(20,186)

 

 

(17,769)

 

Payment of debt issuance costs

 

 

(16,221)

 

 

 —

 

Payment for debt extinguishment

 

 

(8,148)

 

 

 —

 

Contributions to consolidated company from affiliate noncontrolling interest

 

 

251

 

 

2,557

 

Net settlement of employee withholding taxes on vesting of Long-Term Incentive Plan

 

 

(2,988)

 

 

(1,336)

 

Cash contributions by General Partners

 

 

905

 

 

47

 

Distributions paid to Partners

 

 

(173,284)

 

 

(194,870)

 

Other

 

 

(2,405)

 

 

(60)

 

Net cash used in financing activities

 

 

(272,076)

 

 

(341,900)

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(21,389)

 

 

(12,059)

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

39,782

 

 

33,431

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

18,393

 

$

21,372

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for interest

 

$

13,679

 

$

20,194

 

Cash paid for income taxes

 

$

10

 

$

 7

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITY:

 

 

 

 

 

 

Accounts payable for purchase of property, plant and equipment

 

$

12,414

 

$

4,669

 

Assets acquired by capital lease

 

$

 —

 

$

37,089

 

Market value of common units issued under Long-Term Incentive and Directors Deferred Compensation Plans before tax withholding requirements

 

$

8,149

 

$

3,642

 

 

See notes to condensed consolidated financial statements.

4


 

 

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Number of

 

Limited 

 

General

 

Other

 

 

 

 

 

 

 

 

 

Limited Partner

 

Partners’

 

Partners’

 

Comprehensive

 

Noncontrolling

 

Total Partners’

 

 

    

Units

    

Capital

    

Capital (Deficit)

    

Income (Loss)

    

Interest

    

 Capital

 

Balance at January 1, 2017

 

74,375,025

 

$

1,400,202

 

$

(273,788)

 

$

(38,540)

 

$

5,550

 

 

1,093,424

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

208,041

 

 

21,362

 

 

 —

 

 

425

 

 

229,828

 

Actuarially determined long-term liability adjustments

 

 —

 

 

 —

 

 

 —

 

 

846

 

 

 —

 

 

846

 

Total comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

230,674

 

Issuance of units to Long-Term Incentive Plan participants upon vesting

 

222,011

 

 

(2,988)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,988)

 

Issuance of units to MGP in Exchange Transaction

 

56,100,000

 

 

14,171

 

 

(14,171)

 

 

 —

 

 

 —

 

 

 —

 

Issuance of units to SGP in Exchange Transaction

 

7,181

 

 

(320,838)

 

 

320,838

 

 

 —

 

 

 —

 

 

 —

 

Exchange Transaction fees

 

 —

 

 

(1,550)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,550)

 

Common unit-based compensation

 

 —

 

 

8,947

 

 

 —

 

 

 —

 

 

 —

 

 

8,947

 

Distributions on common unit-based compensation

 

 —

 

 

(2,392)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,392)

 

General Partners contributions

 

 —

 

 

 —

 

 

905

 

 

 —

 

 

 —

 

 

905

 

Contributions to consolidated company from affiliate noncontrolling interest

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

251

 

 

251

 

Distributions from consolidated company to affiliate noncontrolling interest

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(855)

 

 

(855)

 

Distributions to Partners

 

 —

 

 

(130,527)

 

 

(40,365)

 

 

 —

 

 

 —

 

 

(170,892)

 

Balance at September 30, 2017

 

130,704,217

 

$

1,173,066

 

$

14,781

 

$

(37,694)

 

$

5,371

 

$

1,155,524

 

 

See notes to condensed consolidated financial statements.

 

5


 

 

 

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 sole general partner and, prior to the Exchange Transaction discussed below, its managing general partner. 

·

References to "SGP" mean Alliance Resource GP, LLC, ARLP's special general partner prior to the Exchange Transaction discussed below.

·

References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P.

·

References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, the land-holding company for the mining operations of Alliance Resource Operating Partners, L.P.

·

References to "Alliance Coal" mean Alliance Coal, LLC, the holding company for the mining operations of Alliance Resource Operating Partners, L.P., also referred to as our primary operating subsidiary.

·

References to "AHGP" mean Alliance Holdings GP, L.P., individually as the parent company, and not on a consolidated basis.

·

References to "AGP" mean Alliance GP, LLC, the general partner of Alliance Holdings GP, L.P.

 

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 to acquire, upon completion of ARLP's initial public offering on August 19, 1999, certain coal production and marketing assets of Alliance Resource Holdings, Inc., a Delaware corporation ("ARH"), consisting of substantially all of ARH's operating subsidiaries, but excluding ARH.  ARH is owned by Joseph W. Craft III, the President and Chief Executive Officer and a Director of MGP, and Kathleen S. Craft.  SGP, a Delaware limited liability company, is owned by ARH.  SGP owns 20,641,168 common units of AHGP’s 59,863,000 outstanding common units, 7,181 common units of ARLP and, prior to the Exchange Transaction discussed below, owned a 0.01% special general partner interest in both ARLP and the Intermediate Partnership. 

 

We are managed by MGP, a Delaware limited liability company and the sole general partner of ARLP.  MGP holds a non-economic general partner interest in ARLP, a 1.0001% managing general partner interest in the Intermediate Partnership and a 0.001% managing member interest in Alliance Coal.  AHGP is a Delaware limited partnership that was formed to become the owner and controlling member of MGP.  AHGP completed its initial public offering on May 15, 2006.  AHGP owns directly and indirectly 87,188,338 common units of ARLP’s 130,704,217 outstanding common units.  AHGP indirectly owns 100% of the members' interest of MGP.  ARLP and its consolidated subsidiaries represent virtually all the net assets and operations of AHGP.  See discussions below regarding MGP’s and AHGP’s change of ownership in ARLP effective with the Exchange Transaction on July 28, 2017.

 

Exchange Transaction

 

On July 28, 2017, MGP contributed to ARLP all of its incentive distribution rights ("IDRs") and its managing general partner interest in ARLP in exchange for 56,100,000 ARLP common units and a non-economic general partner interest in ARLP.  In conjunction with this transaction and on the same economic basis as MGP, SGP also contributed to ARLP its 0.01% general partner interests in both ARLP and the Intermediate Partnership in exchange for 7,181 ARLP common units (collectively the "Exchange Transaction").  In connection with the Exchange Transaction, ARLP amended its partnership agreement to reflect, among other things, cancellation of the IDRs and the economic general partner interest

6


 

in ARLP and issuance of a non-economic general partner interest to MGP.  MGP is the sole general partner of ARLP following the Exchange Transaction, and no control, management or governance changes otherwise occurred. 

 

The Exchange Transaction constituted an exchange of equity interests between entities under common control and not a transfer of a business.  Therefore, the exchange resulted in a reclassification, as of the date of the Exchange Transaction, of a $306.7 million deficit capital balance from the General Partners' interest line item to the Limited Partners - Common Unitholders line item in our condensed consolidated balance sheets.  The reclassification amounts represented the carrying value of the exchanged interests, which included the SGP’s deficit balance associated with its prior special general partner interests in ARLP and the Intermediate Partnership, partially offset, by MGP’s capital balance associated with its prior managing general partner interest in ARLP.  The SGP deficit balance primarily resulted from contribution and assumption agreements associated with the formation of the ARLP Partnership in 1999.

 

Simultaneously with the Exchange Transaction discussed above, MGP became a wholly-owned subsidiary of MGP II, LLC ("MGP II") which is owned 100% directly and indirectly by AHGP and was created in connection with the Exchange Transaction.  MGP II holds the 56,100,000 ARLP common units discussed above.

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements include the accounts and operations of the ARLP Partnership and present the consolidated financial position as of September 30, 2017 and December 31, 2016, the results of operations and comprehensive income for the three and nine months ended September 30, 2017 and 2016, cash flows for the nine months ended September 30, 2017 and 2016, and changes in partners' capital for the nine months ended September 30, 2017 of ARLP, the Intermediate Partnership (a subsidiary of ARLP and a variable interest entity of which ARLP is the primary beneficiary), Alliance Coal (a subsidiary of the Intermediate Partnership and a variable interest entity of which the Intermediate Partnership is the primary beneficiary) and other directly and indirectly wholly- and majority-owned subsidiaries of the Intermediate Partnership and Alliance Coal.  The Intermediate Partnership, Alliance Coal and their wholly- and majority-owned subsidiaries represent virtually all the net assets of the ARLP Partnership.  MGP's interests in both Alliance Coal and the Intermediate Partnership are reported as part of the general partner interest in the ARLP Partnership.  For the periods presented prior to the Exchange Transaction, MGP's managing general partner interest and IDRs in ARLP and the SGP's special general partner interests in ARLP and the Intermediate Partnership are also reported as part of the general partner interest in the ARLP Partnership.  All intercompany transactions and accounts have been eliminated.  See Note 7 – Variable Interest Entities for more information regarding ARLP's consolidation of the Intermediate Partnership and Alliance Coal.  See Note 9 – Net Income of ARLP Per Limited Partner Unit for more information regarding allocations to the limited and general partner interests.

 

These condensed consolidated financial statements and notes are unaudited. However, in the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the results for the periods presented.  Results presented for prior periods have been recast to reflect an immaterial reclassification of depreciation, depletion, and amortization capitalized into coal inventory as an adjustment to Depreciation, depletion, and amortization rather than Operating expenses (excluding depreciation, depletion, and amortization).  This reclassification did not impact Total operating expenses,  Income from operations,  Net income,  Net income of ARLP or Basic and diluted net income of ARLP per limited partner unit.  Results for interim periods are not necessarily indicative of results to be expected for the full year ending December 31, 2017.

 

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 of 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, 2016.

 

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.

 

7


 

Investments

 

Our investments and ownership interests in which we do not have a controlling financial interest are accounted for either under the cost method of accounting if we do not have the ability to exercise significant influence over the entity, or under the equity method of accounting if we have the ability to exercise significant influence over the entity. 

 

Historical cost is used to account for investments accounted for under the cost method and distributions received on those investments are recorded as income unless those distributions are considered a return on investment in which case the historical cost is reduced.  Our cost method investment includes Kodiak Gas Services, LLC ("Kodiak").  See Note 8 – Investments for further discussion of this cost method investment.

 

Investments accounted for under the equity method are initially recorded at cost, and the difference between the basis of our investment and the underlying equity in the net assets of the joint venture at the investment date, if any, is amortized over the lives of the related assets that gave rise to the difference.  In the event our ownership entitles us to a disproportionate sharing of income or loss, our equity in income or losses of affiliates is allocated based on the hypothetical liquidation at book value ("HLBV") method of accounting.

 

Under the HLBV method, equity in income or losses of affiliates is allocated based on the difference between our claim on the net assets of the equity method investee at the end and beginning of the period, with consideration of certain eliminating entries regarding differences of accounting for various related-party transactions, after taking into account contributions and distributions, if any. Our share of the net assets of the equity method investee is calculated as the amount we would receive if the equity method investee were to liquidate all of its assets at net book value and distribute the resulting cash to creditors, other investors and us according to the respective priorities.  None of our current equity investments use the HLBV method. Our last use of this method was in 2015 which will be discussed in our upcoming Form 10-K.

 

Our equity method investments include AllDale Minerals, LP ("AllDale I"), and AllDale Minerals II, LP ("AllDale II") (collectively "AllDale Minerals"), both held by our subsidiary Cavalier Minerals JV, LLC ("Cavalier Minerals").  We also have an equity method investment in AllDale Minerals III, LP ("AllDale III") which is not held through Cavalier Minerals but rather held directly by us.  See Note 8 – Investments for further discussion of these equity method investments. 

 

We review our investments and ownership interests accounted for under both the equity method of accounting and the cost method of accounting for impairment whenever events or changes in circumstances indicate a loss in the value of the investment may be other-than-temporary.

 

 

2.NEW ACCOUNTING STANDARDS

 

New Accounting Standards Issued and Adopted

 

In January 2017, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04").  The ASU simplifies the subsequent measurement of goodwill by eliminating the need for an entity to determine the implied fair value of goodwill to calculate an impairment charge.  Under the new guidance an entity compares the fair value of the reporting unit containing the goodwill to its carrying value and records any excess carrying value as an impairment charge.  This new standard is applied prospectively and is effective for annual and interim periods beginning after December 15, 2019; however, early adoption is permitted. We have early adopted this new standard and will apply the guidance to any future goodwill impairment assessments.

 

In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09").  ASU 2016-09 simplifies the accounting for several aspects of share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, flexibility in the accounting for forfeitures and classification on the statement of cash flows.  ASU 2016-09 was effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted.  The adoption of ASU 2016-09 did not have a material impact on our condensed consolidated financial statements.

8


 

 

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory ("ASU 2015-11").  ASU 2015-11 simplifies the subsequent measurement of inventory.  It replaces the current lower of cost or market test with the lower of cost or net realizable value test.  Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  The new standard was applied prospectively and was effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted.  The adoption of ASU 2015-11 did not have a material impact on our condensed consolidated financial statements.

 

New Accounting Standards Issued and Not Yet Adopted

 

In March 2017, the FASB issued ASU 2017-07, Compensation–Retirement Benefits (Topic 715) ("ASU 2017-07").  ASU 2017-07 requires that an employer disaggregate the service cost component from the other components of net benefit cost.  It also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization.  The new guidance will be applied retroactively to all periods presented.  ASU 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods.  We do not anticipate ASU 2017-07 will have a material impact on our consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").  ASU 2016-13 changes the impairment model for most financial assets and certain other instruments to require the use of a new forward-looking "expected loss" model that generally will result in earlier recognition of allowances for losses.  The new standard will require disclosure of significantly more information related to these items.  ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for the fiscal year beginning after December 15, 2018, including interim periods.  We are currently evaluating the effect of adopting ASU 2016-13, but do not anticipate it will have a material impact on our consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02").  ASU 2016-02 increases transparency and comparability among organizations by requiring lessees to record right-to-use assets and corresponding lease liabilities on the balance sheet and disclosing key information about lease arrangements.  The new guidance will classify leases as either finance or operating (similar to current standard's  "capital" or "operating" classification), with classification affecting the pattern of income recognition in the statement of income.  ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted.  We have developed an assessment team and are currently evaluating the effect of adopting ASU 2016-02.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09").  ASU 2014-09 is a new revenue recognition standard that provides a five-step analysis of transactions to determine when and how revenue is recognized.  The core principle of the new standard is as follows:

 

An entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. 

 

ASU 2014-09 was originally effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.  In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date ("ASU 2015-14"), which deferred the effective date by one year while providing the option to early adopt the standard on the original effective date. 

 

We developed an assessment team to determine the effect of adopting ASU 2014-09.  As part of our assessment process, we applied the five-step analysis outlined in the new standard to certain contracts representative of the majority of our coal sales contracts and determined that our pattern of recognition appears consistent between both the new and existing standards. We also reviewed the expanded disclosure requirements under the new standard and determined the additional information to be disclosed.  In addition, we reviewed our business processes, systems and internal controls over financial reporting to support the new recognition and disclosure requirements under the new standard.  Based on the results of our assessment team, we have started our implementation of the new standard.  We continue to report our implementation progress for the new standard to our management and audit committee of our general partner. 

9


 

 

We continue to monitor closely, (a) activities of the FASB and various non-authoritative groups with respect to implementation issues that may impact our determinations, (b) existing contracts for consistency with current implementation determinations derived from our assessment process and (c) our revenue recognition policy, where applicable, for required modifications.

 

We do not expect that the adoption of the new standard will have a material impact on our financial statements, but will require expanded disclosures including presenting, by type and by segment, revenues for all periods presented and expected revenues by year for performance obligations that are unsatisfied or partially unsatisfied as of the date of presentation.  The new standard allows for two methods of adoption: a full retrospective adoption method and a modified retrospective method.  We have elected to use the modified retrospective method of adoption, which allows a cumulative effect adjustment to equity as of the date of adoption.  As we do not anticipate a change in the recognition pattern of our revenues, we do not expect to have a cumulative effect adjustment when we adopt the new standard.

 

 

3.CONTINGENCIES

 

Various lawsuits, claims and regulatory proceedings incidental to our business are pending against the ARLP Partnership.  We record accruals for potential losses related to these matters when, in management's opinion, such losses are 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 were different from management's current opinion and in amounts greater than our accruals, then they could have a material adverse effect.

 

4.INVENTORIES

 

Inventories consist of the following:

 

 

 

 

 

 

 

 

 

 

    

September 30, 

 

December 31, 

 

 

 

2017

    

2016

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Coal

 

$

51,657

 

$

29,242

 

Supplies (net of reserve for obsolescence of $5,015 and $4,940, respectively)

 

 

36,010

 

 

31,809

 

Total inventories, net

 

$

87,667

 

$

61,051

 

 

 

5.FAIR VALUE MEASUREMENTS

 

The following table summarizes our fair value measurements within the hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

    

Level 1

    

Level 2

    

Level 3

    

Level 1

    

Level 2

    

Level 3

 

 

 

(in thousands)

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 —

 

$

 —

 

$

9,700

 

$

 —

 

$

 —

 

$

9,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional disclosures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt