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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Alliance Resource Partners, L.P.    ARLP

ALLIANCE RESOURCE PARTNERS, L.P.

(ARLP)
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Alliance Resource Partners L P : LP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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08/05/2019 | 10:50am EST

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 "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.




Summary


We operate in the United States as a diversified natural resource company that generates income from the production and marketing of coal to major domestic and international utilities and industrial users as well as income from oil & gas mineral interests. We began coal mining operations in 1971 and, since then, have grown through acquisitions and internal development in strategic producing regions to become the second largest coal producer in the eastern United States.

As is customary in the coal industry, we have entered into long-term coal supply agreements with many of our customers. In 2014, we began acquiring oil & gas mineral interests in premier oil & gas producing regions across the United States.

We have three reportable segments, Illinois Basin, Appalachia and Minerals. We also have an "all other" category referred to as Other and Corporate. The two coal 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 mining segments include eight underground mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia and a coal loading terminal in Indiana on the Ohio River. The Minerals segment includes our oil & gas mineral interests which are located primarily in the Anadarko (SCOOP/STACK), Permian (Delaware and Midland), Williston (Bakken) and Appalachian basins. We have no operations within our Minerals reportable segment other than receiving royalties for our oil & gas mineral interests.

On January 3, 2019 (the "AllDale Acquisition Date"), we acquired all of the limited partner interests not owned by Cavalier Minerals JV, LLC ("Cavalier Minerals") in AllDale Minerals LP ("AllDale I") and AllDale Minerals II, LP ("AllDale II", and collectively with AllDale I, "AllDale I & II") and the general partner interests in AllDale I & II for $176.0 million (the "AllDale Acquisition"). As a result of the AllDale Acquisition and our previous investments held through Cavalier Minerals, we now control approximately 43,000 net royalty acres in premier oil & gas resource plays. The AllDale Acquisition provides us with diversified exposure to industry leading operators and is consistent with our general business strategy to pursue accretive acquisitions.

Please read "Item 1. Financial Statements (Unaudited) - Note 3 - Acquisition" of this Quarterly Report on Form 10-Q for more information on the AllDale Acquisition.

As a result of the AllDale Acquisition, we now control the underlying oil & gas mineral interests held by AllDale I & II. This control over the oil & gas mineral interests held by AllDale I & II reflects a strategic change in how we manage our business and how resources are allocated by our chief operating decision maker. Due to this strategic change we have restructured our reportable segments in the first quarter of 2019 to include our oil & gas mineral interests within a new Minerals reportable segment. We have also included our Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") and Mid-America Carbonates, LLC ("MAC") in the Illinois Basin reportable segment rather than Other and Corporate to better align our Illinois Basin related activities.

Prior periods have been recast to include our oil & gas minerals interests in the Minerals segment, and Mt. Vernon and MAC in the Illinois Basin segment.

Illinois Basin reportable segment includes currently operating mining complexes

? (a) Webster County Coal, LLC's Dotiki mining complex ("Dotiki"), (b) Gibson

County Coal, LLC's mining complex, which includes the Gibson


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North and Gibson South mines, (c) Warrior Coal, LLC's mining complex, (d) River

View Coal, LLC's mining complex ("River View") and (e) Hamilton County Coal,

LLC's mining complex ("Hamilton"). The Illinois Basin reportable segment also

includes our currently operating Mt. Vernon coal loading terminal in Indiana on

the Ohio River. The Gibson North mine had been idled since the fourth quarter

of 2015 in response to market conditions but resumed production in May 2018.

The Illinois Basin reportable segment also includes MAC's manufacturing and sales (primarily to our mines) of rock dust, CR Services, LLC, CR Machine Shop, LLC, certain properties and equipment of Alliance Resource Properties, ARP Sebree, LLC, ARP Sebree South, LLC, UC Coal, LLC and its subsidiaries, UC Mining, LLC and UC Processing, LLC (collectively "UC Coal") and our mining complexes currently not operating: (a) White County Coal, LLC's Pattiki mining complex ("Pattiki"), (b) Hopkins County Coal, LLC's mining complex, which includes the Elk Creek mine, the Pleasant View surface mineable reserves and the Fies underground project and (c) Sebree Mining, LLC's mining complex, which includes the Onton mine, Steamport, LLC and certain reserves.

Appalachia reportable segment includes currently operating mining complexes (a)

Mettiki mining complex ("Mettiki"), (b) Tunnel Ridge, LLC mining complex

("Tunnel Ridge"), and (c) MC Mining, LLC mining complex ("MC Mining"). Mettiki

? includes Mettiki Coal (WV), LLC's Mountain View mine and Mettiki Coal, LLC's

preparation plant. The Appalachia reportable segment also includes the Penn

Ridge property and certain properties and equipment of Alliance Resource

   Properties.



Minerals reportable segment includes AllDale I & II; Alliance Royalty, LLC;

AllRoy GP, LLC; CavMM, LLC; and Alliance Minerals, LLC's ("Alliance Minerals")

? equity interests in AllDale Minerals III, LP ("AllDale III") and Cavalier

Minerals. Please read "Item 1 - Financial Statements (Unaudited) - Note 10 -

Investments" and "Note 9 - Variable Interest Entities" of this Quarterly Report

on Form 10-Q for more information on Alliance Minerals and Cavalier Minerals.

Other and Corporate includes marketing and administrative activities, Alliance

Service, Inc. ("ASI") and its subsidiary, Matrix Design Group, LLC and its

subsidiaries Matrix Design International, LLC and Matrix Design Africa (PTY)

LTD ("Matrix Design"), Alliance Design Group, LLC (collectively along with

Matrix Design, the "Matrix Group"), ASI's ownership of aircraft, Alliance

Coal's coal brokerage activity, Alliance Minerals' equity investment in Kodiak

Gas Services, LLC ("Kodiak") which was redeemed in February 2019 by Kodiak (see

? Note 10 - Investments) certain of Alliance Resource Properties' land and

mineral interest activities, Pontiki Coal, LLC's legacy workers' compensation

and pneumoconiosis liabilities, Wildcat Insurance, LLC, which assists the ARLP

Partnership with its insurance requirements, AROP Funding, LLC ("AROP Funding")

and Alliance Resource Finance Corporation ("Alliance Finance"). Please read

"Item 1. Financial Statements (Unaudited) - Note 8. Long-term Debt" "and Note

10. Investments" of this Quarterly Report on Form 10-Q for more information on

AROP Funding and the Kodiak redemption, respectively.

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

We reported net income attributable to ARLP of $58.1 million for the three months ended June 30, 2019 ("2019 Quarter") compared to $86.2 million for the three months ended June 30, 2018 ("2018 Quarter"). The decrease of $28.1 million was primarily due to lower coal sales, higher total operating expenses and lower equity securities income in the 2019 Quarter. Total revenues increased slightly to $517.1 million in the 2019 Quarter compared to $516.1 million for the 2018 Quarter, as the addition of oil & gas royalties and increased transportation revenues were partially offset by reduced coal sales.




                                                     Three Months Ended June 30,
                                              2019         2018         2019        2018
                                                (in thousands)           (per ton sold)
Tons sold                                      10,216       10,488         N/A         N/A
Tons produced                                  10,036        9,714         N/A         N/A
Coal sales                                  $ 461,310$ 475,925$  45.16$  45.38
Coal - Segment Adjusted EBITDA Expense
(1) (2)                                     $ 317,832$ 311,811$  31.11$  29.73


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For a definition of Segment Adjusted EBITDA Expense and related (1) reconciliation to comparable generally accepted accounting principles

("GAAP") financial measures, please see below under "-Reconciliation of

non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses."

(2) Coal - Segment Adjusted EBITDA Expense is defined as consolidated Segment

    Adjusted EBITDA Expense excluding our Minerals segment.



Coal sales. Coal sales decreased $14.6 million or 3.1% to $461.3 million for the 2019 Quarter from $475.9 million for the 2018 Quarter. The decrease was attributable to a volume variance of $12.3 million resulting from decreased tons sold and a price variance of $2.3 million due to lower average coal sales prices. Coal sales volumes declined 2.6% to 10.2 million tons as flooding and high water continued to delay approximately 500,000 tons of planned export shipments in the 2019 Quarter which we expect will be shipped in the second half of the year. Also in comparison, the 2018 Quarter benefited from the fulfillment of 1.4 million tons in shipments delayed during the first quarter of 2018. Production volumes increased 3.3% compared to the 2018 Quarter to 10.0 million tons, primarily due to increased production from the addition of two mining units at our River View mine, strong performance at our Tunnel Ridge mine and a full quarter of production from our Gibson North mine, which resumed operations in the 2018 Quarter. Coal sales price realizations declined slightly in the 2019 Quarter to $45.16 per ton sold, compared to $45.38 per ton sold during the 2018 Quarter.

Royalty revenues. As a result of the AllDale Acquisition on January 3, 2019, we obtained control of AllDale I & II and thus began consolidation of AllDale I & II in our financial statements. As a result of the consolidation, in the first quarter of 2019 we began recording royalty revenues from AllDale I & II. Prior to 2019, our investments in AllDale I & II were accounted for as equity method investments. AllDale I & II contributed royalty revenues of $11.9 million in the 2019 Quarter. Please read "Item 1. Financial Statements (Unaudited) - Note 3 - Acquisition" of this Quarterly Report on Form 10-Q for more information on the AllDale Acquisition.

Coal - Segment Adjusted EBITDA Expense. Segment Adjusted EBITDA Expense, excluding our Minerals segment, of $317.8 million for the 2019 Quarter remained comparable to the 2018 Quarter. On a per ton basis, Segment Adjusted EBITDA Expense, excluding our Minerals segment, increased to $31.11 per ton sold compared to $29.73 per ton sold in the 2018 Quarter due to a longwall move at our Hamilton mine, lower recoveries at our River View mine due to adverse geological conditions, higher coal inventory costs and sales of higher-cost, outside coal purchases, partially offset by reduced expenses per ton resulting from strong production at our Tunnel Ridge mine. In addition, other cost increases are discussed by category below:

Labor and benefit expenses per ton produced, excluding workers' compensation,

increased 6.3% to $9.83 per ton in the 2019 Quarter from $9.25 per ton in the

? 2018 Quarter. The increase of $0.58 per ton was primarily due to additional

labor expenses at our River View mine in addition to the impact of a longwall

move at our Hamilton mine in the 2019 Quarter; and

Workers' compensation expenses per ton produced increased to $0.82 per ton in

the 2019 Quarter from $0.45 per ton in the 2018 Quarter. The increase of $0.37

? per ton produced resulted from the impact of lower discount rates and adverse

claims experience on mid-year actuarial workers' compensation accrual

   adjustments.



Segment Adjusted EBITDA Expense increases above were partially offset by the following decreases:

Material and supplies expenses per ton produced decreased 1.9% to $11.24 per

ton in the 2019 Quarter from $11.46 per ton in the 2018 Quarter. The decrease

? of $0.22 per ton produced resulted primarily from decreases of $0.11 per ton

for power and fuel used in the mining process and $0.10 per ton in longwall

   subsidence expense; and



Production taxes and royalty expenses incurred as a percentage of coal sales

? prices and volumes decreased $0.56 per produced ton sold in the 2019 Quarter

compared to the 2018 Quarter primarily as a result of a favorable state

production mix and a lower federal excise tax rate in 2019.

General and administrative. General and administrative expenses for the 2019 Quarter increased to $19.5 million compared to $17.0 million in the 2018 Quarter. The increase of $2.5 million was primarily due to higher professional services resulting from the AllDale Acquisition and increased benefit accruals.



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Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased to $76.9 million in the 2019 Quarter from $72.2 million in the 2018 Quarter. The increase of $4.7 million resulted primarily from production from our AllDale I & II oil & gas mineral interests.

Equity method investment income. Equity method investment income decreased to $0.6 million in the 2019 Quarter from $4.8 million in the 2018 Quarter as a result of the AllDale Acquisition and related consolidation of AllDale I & II in 2019. Prior to 2019, our investments in AllDale I & II were accounted for as equity method investments.

Equity securities income. Equity securities income decreased $3.9 million compared to the 2018 Quarter as we did not recognize equity securities income in the 2019 Quarter due to the redemption of our preferred interest in Kodiak in the first quarter of 2019.

Transportation revenues and expenses. Transportation revenues and expenses were $32.6 million and $27.5 million for the 2019 and 2018 Quarters, respectively.

The increase of $5.1 million was primarily attributable to an increase in average third-party transportation rates in the 2019 Quarter resulting from higher shipping costs for coal exported to international markets, partially offset by decreased tonnage for which we arrange third-party transportation at certain mines. The cost of third-party transportation services are passed through to our customers and we recognize transportation revenue equal to transportation expense when title to the coal passes to the customer.



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Segment Adjusted EBITDA. Our 2019 Quarter Segment Adjusted EBITDA decreased $20.0 million, or 10.8%, to $165.3 million from the 2018 Quarter Segment Adjusted EBITDA of $185.3 million. Segment Adjusted EBITDA, tons sold, coal sales, other revenues, royalty revenues, BOE volume and Segment Adjusted EBITDA Expense by segment are as follows:




                                               Three Months Ended
                                                   June 30,
                                               2019         2018        Increase (Decrease)
                                                         (in thousands)
Segment Adjusted EBITDA
Coal - Illinois Basin                        $  96,075$ 111,967$   (15,892)    (14.2) %
Coal - Appalachia                               53,779       60,069         (6,290)    (10.5) %
Minerals                                        11,098        4,652           6,446       (1)
Other and Corporate                              6,551       10,717         (4,166)    (38.9) %
Elimination                                    (2,240)      (2,105)           (135)     (6.4) %
Total Segment Adjusted EBITDA (2)            $ 165,263$ 185,300$   (20,037)    (10.8) %

Tons sold
Coal - Illinois Basin                            7,567        7,820           (253)     (3.2) %
Coal - Appalachia                                2,649        2,666            (17)     (0.6) %
Other and Corporate                                142          222            (80)    (36.0) %
Elimination                                      (142)        (220)              78      35.5 %
Total tons sold                                 10,216       10,488           (272)     (2.6) %

Coal sales
Coal - Illinois Basin                        $ 301,981$ 310,464$    (8,483)     (2.7) %
Coal - Appalachia                              157,951      162,886         (4,935)     (3.0) %
Other and Corporate                              5,551        9,398         (3,847)    (40.9) %
Elimination                                    (4,173)      (6,823)           2,650      38.8 %
Total coal sales                             $ 461,310$ 475,925$   (14,615)     (3.1) %

Other revenues
Coal - Illinois Basin                        $   2,405$   4,388$    (1,983)    (45.2) %
Coal - Appalachia                                  950          723             227      31.4 %
Minerals                                           536            -             536       (1)
Other and Corporate                             10,439       10,600           (161)     (1.5) %
Elimination                                    (3,108)      (3,031)            (77)     (2.5) %

Total other sales and operating revenues $ 11,222$ 12,680$ (1,458) (11.5) %


Royalty revenues and BOE volume
Volume - BOE (3)                                   274            -             274       (1)
Oil & gas royalties                          $  11,892    $       -    $     11,892       (1)

Segment Adjusted EBITDA Expense
Coal - Illinois Basin                        $ 208,309$ 202,886$      5,423       2.7 %
Coal - Appalachia                              105,122      103,538           1,584       1.5 %
Minerals                                         1,765            -           1,765       (1)
Other and Corporate                              9,442       13,136         (3,694)    (28.1) %
Elimination                                    (5,041)      (7,749)           2,708      34.9 %

Total Segment Adjusted EBITDA Expense (2) $ 319,597$ 311,811$ 7,786 2.5 %

(1) Percentage change not meaningful.

For a definition of Segment Adjusted EBITDA and related reconciliation to (2) comparable GAAP financial measures, please see below under "-Reconciliation

of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income."

(3) Barrels of oil equivalent ("BOE") is calculated on a 6:1 basis (6,000 cubic

    feet of natural gas to one barrel of oil).




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Illinois Basin - Segment Adjusted EBITDA decreased 14.2% to $96.1 million in the 2019 Quarter from $112.0 million in the 2018 Quarter. The decrease of $15.9 million was primarily attributable to lower coal sales, which decreased 2.7% to $302.0 million in the 2019 Quarter from $310.5 million in the 2018 Quarter, and increased operating expenses. The decrease of $8.5 million in coal sales reflects decreased coal sales volumes partially offset by higher price realizations. Tons sold in the 2019 Quarter decreased 3.2% compared to the 2018 Quarter as a result of lower volumes at our Hamilton and Gibson South mines due to reduced export sales, as well as significant fulfillments in the 2018 Quarter of delayed first quarter 2018 shipments, partially offset by increased domestic sales volumes from our Gibson North and River View mines. Segment Adjusted EBITDA Expense increased 2.7% to $208.3 million in the 2019 Quarter from $202.9 million in the 2018 Quarter due to higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $1.59 per ton sold to $27.53 from $25.94 per ton sold in the 2018 Quarter, primarily due to a longwall move at our Hamilton mine, as well as reduced recoveries and per ton cost increases for labor and materials and supplies expenses at our River View mine during the 2019 Quarter in addition to certain cost increases described above under "-Coal - Segment Adjusted EBITDA Expense."

Appalachia - Segment Adjusted EBITDA decreased 10.5% to $53.8 million for the 2019 Quarter from $60.1 million in the 2018 Quarter. The decrease of $6.3 million was primarily attributable to lower coal sales, which decreased 3.0% to $158.0 million in the 2019 Quarter from $162.9 million in the 2018 Quarter. The decrease of $4.9 million in coal sales resulted primarily from lower coal sale prices, which decreased 2.4% compared to the 2018 Quarter due to decreased export price realizations and export volumes at our Mettiki mine, partially offset by increased domestic prices from our MC Mining operation. Segment Adjusted EBITDA Expense increased slightly to $105.1 million in the 2019 Quarter from $103.5 million in the 2018 Quarter due to higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $0.84 per ton sold to $39.68 compared to $38.84 per ton sold in the 2018 Quarter, primarily due to reduced recoveries at our Mettiki and MC Mining mines and sales of higher cost outside coal purchases, as well as certain cost increases described above under "-Coal - Segment Adjusted EBITDA Expense," partially offset by strong production at our Tunnel Ridge mine during the 2019 Quarter.

Minerals - Segment Adjusted EBITDA increased to $11.1 million for the 2019 Quarter from $4.7 million in the 2018 Quarter. The increase of $6.4 million primarily resulted from the AllDale Acquisition in 2019.

Other and Corporate - Segment Adjusted EBITDA decreased by $4.1 million to $6.6 million in the 2019 Quarter compared to $10.7 million in the 2018 Quarter. The decrease was primarily attributable to lower equity securities income as a result of the redemption of our preferred interest in Kodiak in the first quarter of 2019 and decreased coal brokerage activity.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

We reported net income attributable to ARLP of $334.5 million for the six months ended June 30, 2019 ("2019 Period") compared to $242.1 million for the six months ended June 30, 2018 ("2018 Period"). The increase of $92.4 million was primarily due to higher revenues and gains related to the AllDale Acquisition and the redemption of our preferred equity interest in Kodiak. Increased coal sales volumes, improved coal sales prices and the addition of royalty revenues in the 2019 Period drove total revenues higher to $1.04 billion compared to $0.97 billion in the 2018 Period.




                                                      Six Months Ended June 30,
                                              2019         2018         2019        2018
                                                (in thousands)           (per ton sold)
Tons sold                                      20,537       19,886         N/A         N/A
Tons produced                                  21,359       20,196         N/A         N/A
Coal sales                                  $ 937,326$ 899,535$  45.64$  45.23
Coal - Segment Adjusted EBITDA Expense
(1) (2)                                     $ 618,862$ 591,270$  30.13$  29.73

For a definition of Segment Adjusted EBITDA Expense and related (1) reconciliation to comparable GAAP financial measures, please see below under

"-Reconciliation of non-GAAP "Segment Adjusted EBITDA Expense" to GAAP

"Operating Expenses."

(2) Coal - Segment Adjusted EBITDA Expense is defined as consolidated Segment

    Adjusted EBITDA Expense excluding our Minerals segment.




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Coal sales. Coal sales increased $37.8 million or 4.2% to $937.3 million for the 2019 Period from $899.5 million for the 2018 Period. The increase was attributable to a volume variance of $29.5 million resulting from increased tons sold and a price variance of $8.3 million due to higher average coal sales prices. For the 2019 Period, a strong performance at our Tunnel Ridge mine, increased volumes from our River View mine due to the additional two production units previously mentioned and the resumption of operations in the 2018 Period at our Gibson North mine drove coal sales volumes up by 3.3% to 20.5 million tons and production volumes higher by 5.8% to 21.4 million tons, both as compared to the 2018 Period. Total coal sales volumes benefited from increased domestic shipments offset in part by a reduction in export volumes as flooding and high water continued to delay approximately 500,000 tons of planned export shipments in the 2019 Period, which we expect will be shipped in the second half of the year. Coal sales price realizations increased 0.9% to $45.64 per ton sold in the 2019 Period, compared to $45.23 per ton sold during the 2018 Period.

Royalty revenues. AllDale I & II contributed royalty revenues of $22.3 million in the 2019 Period. Please read "Item 1. Financial Statements (Unaudited) - Note 3 - Acquisition" of this Quarterly Report on Form 10-Q for more information on the AllDale Acquisition.

Coal - Segment Adjusted EBITDA Expense. Segment Adjusted EBITDA Expense, excluding our Minerals segment, increased 4.7% to $618.9 million for the 2019 Period from $591.3 million for the 2018 Period primarily as a result of increased coal sales volumes. On a per ton basis, Segment Adjusted EBITDA Expense, excluding our Minerals segment, increased to $30.13 per ton sold compared to $29.73 per ton sold in the 2018 Period due to a longwall move in the 2019 Period at our Hamilton mine and lower recoveries and mining conditions at certain mines in addition to other cost increases, which are discussed by category below:

Labor and benefit expenses per ton produced, excluding workers' compensation,

increased 4.4% to $9.35 per ton in the 2019 Period from $8.96 per ton in the

? 2018 Period. The increase of $0.39 per ton was primarily due to additional

labor expenses at our River View mine in addition to the impact of a longwall

move at our Hamilton mine in the 2019 Period and other production variances

   previously discussed;



Workers' compensation expenses per ton produced increased to $0.55 per ton in

the 2019 Period from $0.45 per ton in the 2018 Period. The increase of $0.10

? per ton produced resulted from increased workers' compensation expense due to

the impact of lower discount rates and adverse claims experience on mid-year

   actuarial adjustments; and



Material and supplies expenses per ton produced increased 2.0% to $11.12 per

ton in the 2019 Period from $10.90 per ton in the 2018 Period. The increase of

? $0.22 per ton produced resulted primarily from increases of $0.25 per ton in

longwall subsidence expense and $0.21 per ton for roof support, partially

offset by a decrease of $0.18 per ton for power and fuel used in the mining

   process.



Segment Adjusted EBITDA Expense increases above were partially offset by the following decrease:

Production taxes and royalty expenses incurred as a percentage of coal sales

? prices and volumes decreased $0.69 per produced ton sold in the 2019 Period

compared to the 2018 Period primarily as a result of a favorable state

production mix and a lower federal excise tax rate in 2019.

General and administrative. General and administrative expenses for the 2019 Period increased to $37.3 million compared to $33.7 million in the 2018 Period.

The increase of $3.6 million was due to higher professional services primarily resulting from the AllDale Acquisition and increased benefit accruals.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased to $148.1 million in the 2019 Period from $134.0 million in the 2018 Period. The increase of $14.1 million resulted primarily from increased coal sales volumes mentioned above and depletion beginning in the 2019 Period, attributable to production from our AllDale I & II oil & gas mineral interests.

Settlement gain. During the 2018 Period, we finalized an agreement with a customer and certain of its affiliates to settle litigation we initiated in 2015. The agreement provided for a $93.0 million cash payment to us in the 2018 Period, future conditional coal supply commitments, continued export transloading capacity for our Appalachian mines and the acquisition of certain coal reserves near our Tunnel Ridge operation. A settlement gain of $80.0 million was recorded in


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the 2018 Period reflecting the cash payment received net of $13.0 million of combined legal fees paid and associated incentive compensation accruals.

Equity method investment income. Equity method investment income decreased to $0.9 million in the 2019 Period from $8.6 million in the 2018 Period as a result of the AllDale Acquisition and related consolidation of AllDale I & II in the 2019 Period. Prior to 2019, our investments in AllDale I & II were accounted for as equity method investments.

Acquisition gain. We were required to re-measure Cavalier Minerals' equity method investments in AllDale I & II to fair value as a result of the AllDale Acquisition. The re-measurement resulted in a gain of $177.0 million in the 2019 Period.

Transportation revenues and expenses. Transportation revenues and expenses were $62.9 million and $47.3 million for the 2019 and 2018 Periods, respectively.

The increase of $15.6 million was primarily attributable to an increase in average third-party transportation rates in the 2019 Period resulting from higher shipping costs for coal exported to international markets, partially offset by decreased tonnage for which we arrange third-party transportation at certain mines. The cost of third-party transportation services are passed through to our customers and we recognize transportation revenue equal to transportation expense when title to the coal passes to the customer.

Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest increased to $7.3 million in the 2019 Period from $0.3 million in the 2018 Period as a result of allocating $7.1 million of the acquisition gain discussed above to noncontrolling interest related to Bluegrass Minerals' equity interest in Cavalier Minerals.



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Segment Adjusted EBITDA.  Our 2019 Period Segment Adjusted EBITDA increased
$21.4 million, or 6.1%, to $371.9 million from the 2018 Period Segment Adjusted
EBITDA of $350.5 million.  Segment Adjusted EBITDA, tons sold, coal sales, other
revenues, royalty revenues, BOE volume and Segment Adjusted EBITDA Expense by
segment are as follows:




                                               Six Months Ended
                                                   June 30,
                                              2019          2018        Increase (Decrease)
                                                        (in thousands)
Segment Adjusted EBITDA
Coal - Illinois Basin                       $ 218,812$  208,917$      9,895       4.7 %
Coal - Appalachia                             112,434       113,690         (1,256)     (1.1) %
Minerals                                       20,230         8,240          11,990       (1)
Other and Corporate                            24,912        23,853           1,059       4.4 %
Elimination                                   (4,481)       (4,210)           (271)     (6.4) %
Total Segment Adjusted EBITDA (2)           $ 371,907$  350,490$     21,417       6.1 %

Tons sold
Coal - Illinois Basin                          15,240        14,828             412       2.8 %
Coal - Appalachia                               5,297         5,056             241       4.8 %
Other and Corporate                               278           403           (125)    (31.0) %
Elimination                                     (278)         (401)             123      30.7 %
Total tons sold                                20,537        19,886             651       3.3 %

Coal sales
Coal - Illinois Basin                       $ 619,251$  586,529$     32,722       5.6 %
Coal - Appalachia                             315,404       308,175           7,229       2.3 %
Other and Corporate                            10,841        17,109         (6,268)    (36.6) %
Elimination                                   (8,170)      (12,278)           4,108      33.5 %
Total coal sales                            $ 937,326$  899,535$     37,791       4.2 %

Other revenues
Coal - Illinois Basin                       $   5,293$    8,734$    (3,441)    (39.4) %
Coal - Appalachia                               1,901         1,552             349      22.5 %
Minerals                                          871             -             871       (1)
Other and Corporate                            19,311        22,441         (3,130)    (13.9) %
Elimination                                   (6,199)       (6,320)             121       1.9 %

Total other sales and operating revenues $ 21,177$ 26,407$ (5,230) (19.8) %


Royalty revenues and BOE volume
Volume - BOE (3)                                  526             -             526       (1)
Oil & gas royalties                         $  22,285    $        -    $     22,285       (1)

Segment Adjusted EBITDA Expense
Coal - Illinois Basin                       $ 405,731$  386,347$     19,384       5.0 %
Coal - Appalachia                             204,871       196,036           8,835       4.5 %
Minerals                                        3,592             -           3,592       (1)
Other and Corporate                            18,148        23,275         (5,127)    (22.0) %
Elimination                                   (9,888)      (14,388)           4,500      31.3 %

Total Segment Adjusted EBITDA Expense $ 622,454$ 591,270$ 31,184 5.3 %

(1) Percentage change not meaningful.

For a definition of Segment Adjusted EBITDA and related reconciliation to (2) comparable GAAP financial measures, please see below under "-Reconciliation

of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income."

(3) Barrels of oil equivalent ("BOE") is calculated on a 6:1 basis (6,000 cubic

    feet of natural gas to one barrel of oil).




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Illinois Basin - Segment Adjusted EBITDA increased 4.7% to $218.8 million in the 2019 Period from $208.9 million in the 2018 Period. The increase of $9.9 million was primarily attributable to higher coal sales, which increased 5.6% to $619.3 million in the 2019 Period from $586.5 million in the 2018 Period, partially offset by increased operating expenses and lower operating revenues from our Mt. Vernon transloading facility. The increase of $32.8 million in coal sales reflects higher coal sales volumes and prices. The resumption of operations at our Gibson North mine in the 2018 Period and the addition of two production units at the River View mine in the second half of 2018 drove Illinois Basin coal sales volumes in the 2019 Period higher by 2.8% to 15.2 million tons compared to 14.8 million tons sold in the 2018 Period. Coal sales volumes also benefited from increased domestic shipments, offset in part by a reduction in export volumes due to weather disruptions throughout the first half of 2019, which also reduced transloading tonnage running through our Mt. Vernon facility. Coal sales price per ton sold in the 2019 Period increased 2.7% due to higher export sales prices compared to the 2018 Period. Segment Adjusted EBITDA Expense increased 5.0% to $405.7 million in the 2019 Period from $386.3 million in the 2018 Period due to increased sales volumes and higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $0.56 per ton sold to $26.62 from $26.06 per ton sold in the 2018 Period, primarily due to a longwall move at our Hamilton mine and reduced recoveries at our River View mine during the 2019 Period, as well as certain per ton cost increases described above under "-Coal - Segment Adjusted EBITDA Expense."

Appalachia - Segment Adjusted EBITDA decreased 1.1% to $112.4 million for the 2019 Period from $113.7 million in the 2018 Period. The decrease of $1.3 million was primarily attributable to reduced coal sales prices and increased operating expenses, partially offset by higher coal sales volumes. Coal sales, which increased 2.3% to $315.4 million in the 2019 Period from $308.2 million in the 2018 Period resulted from higher coal sales volumes of 5.3 million tons sold in the 2019 Period, compared to 5.1 million tons sold in the 2018 Period, as a result of a strong performance at our Tunnel Ridge longwall operation, partially offset by lower coal sales prices. Segment Adjusted EBITDA Expense increased 4.5% to $204.9 million in the 2019 Period from $196.0 million in the 2018 Period due to increased sales volumes. Segment Adjusted EBITDA Expense per ton decreased slightly to $38.68 per ton compared to $38.77 per ton sold in the 2018 Period reflecting the strong production and sales performance at our Tunnel Ridge mine and certain cost variances described above under "-Coal - Segment Adjusted EBITDA Expense."

Minerals - Segment Adjusted EBITDA increased to $20.2 million for the 2019 Period from $8.2 million in the 2018 Period. The increase of $12.0 million primarily resulted from the AllDale Acquisition in the 2019 Period.

Other and Corporate - Segment Adjusted EBITDA increased by $1.0 million to $24.9 million in the 2019 Period compared to $23.9 million in the 2018 Period. The increase was primarily attributable to higher equity securities income in the 2019 Period as a result of the redemption of our preferred interest in Kodiak, which included an $11.5 million gain due to an early redemption premium, partially offset by reduced mining technology product sales from Matrix Group.

Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income" and reconciliation of 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, general and administrative expenses, settlement gain and acquisition gain. 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.

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 evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments.




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The following is a reconciliation of consolidated Segment Adjusted EBITDA to net income, the most comparable GAAP financial measure:




                                        Three Months Ended            Six Months Ended
                                            June 30,                     June 30,
                                        2019          2018          2019           2018
                                                         (in thousands)
Consolidated Segment Adjusted
EBITDA                               $  165,263$  185,300$   371,907$   350,490
General and administrative             (19,521)      (17,026)       (37,333)       (33,677)
Depreciation, depletion and
amortization                           (76,913)      (72,150)      (148,052)      (133,998)
Settlement gain                               -             -              -         80,000
Interest expense, net                  (10,573)       (9,931)       (21,904)       (20,724)
Acquisition gain                              -             -        177,043              -
Income tax (expense) benefit              (186)           (3)           (80)              7
Acquisition gain attributable to
noncontrolling interest                       -             -        (7,083)              -
Net income attributable to ARLP      $   58,070$   86,190$   334,498$   242,098
Noncontrolling interest                     114           187          7,290            335
Net income                           $   58,184$   86,377$   341,788$   242,433

Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, coal purchases and other 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 sales and operating 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, the most comparable GAAP financial measure:




                                        Three Months Ended           Six Months Ended
                                            June 30,                    June 30,
                                        2019          2018          2019          2018
                                                        (in thousands)
Segment Adjusted EBITDA Expense      $  319,597$  311,811$  622,454$  591,270
Outside coal purchases                  (5,311)          (68)       (5,311)       (1,442)
Other expense                              (13)         (542)         (142)       (1,389)
Operating expenses (excluding
depreciation, depletion and
amortization)                        $  314,273$  311,201$  617,001$  588,439






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Liquidity and Capital Resources



Liquidity


We have historically satisfied our working capital requirements and funded our capital expenditures, investments and debt service obligations with cash generated from operations, cash provided by the issuance of debt or equity, borrowings under credit and securitization 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, commitments and distribution payments. Nevertheless, our ability to satisfy our working capital requirements, 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 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 results, current cash position, current unitholder distributions, anticipated future cash flows and sources of financing that we expect to have available, we do not anticipate any constraints to our liquidity at this time. However, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future 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, 2018.

In May 2018, the MGP board of directors approved the establishment of a unit repurchase program authorizing us to repurchase up to $100 million of ARLP common units. 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. 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 unit repurchase program.

On January 3, 2019, we acquired all of the limited partner interests in AllDale I & II not owned by Cavalier Minerals and the general partner interests in AllDale I & II for $176.0 million, which was funded with cash on hand and borrowings under our revolving credit facility. On February 8, 2019, Kodiak redeemed our preferred equity interest for $135.0 million in cash. On August 2, 2019, we closed on the Wing Acquisition using cash on hand and borrowings under our revolving credit facility. For more information on these transactions, please read "Item 1. Financial Statements (Unaudited) - Note 3. Acquisition", "- Note 10. Investments" and "- Note 18. Subsequent Events" of this Quarterly Report on Form 10-Q.




Mine Development Project

We have begun development activity for MC Mining's Excel Mine No. 5 and currently anticipate deploying total capital of approximately $35.0 million to $40.0 million during 2019 with an additional $5.0 million to $10.0 million during the first half of 2020, which we expect to fund with cash from operations or borrowings under our credit facilities. We anticipate the new mine will enable us to access an additional 15 million tons of coal reserves with an expected mine life of approximately 12 years assuming the current level of production at MC Mining's Excel Mine No. 4 continues at the new mine. We expect the development plan for the new Excel Mine No. 5 will provide a seamless transition from the current MC Mining operation as its reserves deplete in 2020.



Cash Flows


Cash provided by operating activities was $301.7 million for the 2019 Period compared to $373.2 million for the 2018 Period. The decrease in cash provided by operating activities was primarily due to $93 million received in the 2018 Period for a one-time settlement related to litigation with a customer and certain of its affiliates initiated in 2015. The decrease also resulted from unfavorable working capital changes related to inventories, and payroll and related benefit accruals. The decreases were partially offset by a favorable working capital change related to accounts payable.

Net cash used in investing activities was $209.8 million for the 2019 Period compared to $128.0 million for the 2018 Period. The increase in cash used in investing activities was primarily attributable to the AllDale Acquisition, an escrow payment for the Wing Acquisition and increased capital expenditures for mine infrastructure and equipment at


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various mines. This increase was partially offset by cash received from the redemption of our equity securities in the 2019 Period and equity method investment contributions in the 2018 Period.

Net cash used in financing activities was $280.9 million for the 2019 Period compared to $200.8 million for the 2018 Period. The increase in cash used in financing activities was primarily attributable to increased overall net payments on the securitization and revolving credit facilities and an increase in withholding taxes on issuance of units primarily under our long-term incentive plan in the 2019 Period compared to the 2018 Period. These increases were partially offset by proceeds received in connection with equipment financing in the 2019 Period.



Capital Expenditures


Capital expenditures increased to $165.6 million in the 2019 Period from $120.7 million in the 2018 Period. See our discussion of "Cash Flows" above concerning the increase in capital expenditures.

We currently project average estimated annual maintenance capital expenditures over the five-year period beginning in January 2019 of approximately $5.57 per ton produced. Our anticipated total capital expenditures (including investments) for the year ending December 31, 2019 are estimated in a range of $345.0 million to $375.0 million, which includes expenditures for maintenance capital at various mines. Management anticipates funding remaining 2019 capital requirements with cash and cash equivalents ($55.2 million as of June 30, 2019), cash flows from operations and investments, borrowings under revolving credit and securitization facilities and cash provided from the issuance of debt or equity. We will continue to have significant capital 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


Credit Agreement. On January 27, 2017, our Intermediate Partnership entered into a Fourth Amended and Restated Credit Agreement (the "Credit Agreement") with various financial institutions. The Credit Agreement provides for a $494.75 million revolving credit facility, including a sublimit of $125 million for the issuance of letters of credit and a sublimit of $15.0 million for swingline borrowings (the "Revolving Credit Facility"), with a termination date of May 23, 2021.

The Credit Agreement is guaranteed by all of the material direct and indirect subsidiaries of our Intermediate Partnership, and is secured by substantially all of the Intermediate Partnership's assets. Borrowings under the Revolving Credit Facility bear interest, at the option of the Intermediate Partnership, at either (i) the Base Rate at the greater of three benchmarks or (ii) a Eurodollar Rate, plus margins for (i) or (ii), as applicable, that fluctuate depending upon the ratio of Consolidated Debt to Consolidated Cash Flow (each as defined in the Credit Agreement). The Eurodollar Rate, with applicable margin, under the Revolving Credit Facility was 4.77% as of June 30, 2019. At June 30, 2019, we had $9.3 million of letters of credit outstanding with $415.5 million available for borrowing under the Revolving Credit Facility. We currently incur an annual commitment fee of 0.35% on the undrawn portion of the Revolving Credit Facility.

We utilize the Revolving Credit Facility, as appropriate, for working capital requirements, capital expenditures and investments, scheduled debt payments and distribution payments.

The Credit Agreement contains various restrictions affecting our Intermediate Partnership and its subsidiaries including, among other things, restrictions on incurrence of additional indebtedness and liens, sale of assets, investments, mergers and consolidations and transactions with affiliates, in each case subject to various exceptions, and the payment of cash distributions by our Intermediate Partnership if such payment would result in a certain fixed charge coverage ratio (as defined in the Credit Agreement). The Credit Agreement requires the Intermediate Partnership to maintain (a) a debt to cash flow ratio of not more than 2.5 to 1.0 and (b) a cash flow to interest expense ratio of not less than 3.0 to 1.0, in each case, during the four most recently ended fiscal quarters. The debt to cash flow ratio and cash flow to interest expense ratio were 0.87 to 1.0 and 15.7 to 1.0, respectively, for the trailing twelve months ended June 30, 2019. We remain in compliance with the covenants of the Credit Agreement as of June 30, 2019.

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


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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. At any time prior to May 1, 2020, the issuers of the Senior Notes may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of one or more equity offerings at a redemption price equal to 107.5% of the principal amount redeemed, plus accrued and unpaid interest, if any, to the redemption date. The issuers of the Senior Notes may also redeem all or a part of the notes at any time on or after May 1, 2020, at redemption prices set forth in the indenture governing the Senior Notes. At any time prior to May 1, 2020, the issuers of the Senior Notes may redeem the Senior Notes at a redemption price equal to the principal amount of the Senior Notes plus a "make-whole" premium, plus accrued and unpaid interest, if any, to the redemption date.

Accounts Receivable Securitization. On December 5, 2014, certain direct and indirect wholly owned subsidiaries of our Intermediate Partnership entered into a $100.0 million accounts receivable securitization facility ("Securitization Facility"). Under the Securitization Facility, certain subsidiaries sell 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 $100.0 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 Eurodollar Rate. It was renewed in January 2019 and matures in January 2020. At June 30, 2019, we had $75.0 million outstanding balance under the Securitization Facility.

Cavalier Credit Agreement. On October 6, 2015, Cavalier Minerals (see Note 9 - Variable Interest Entities) entered into a credit agreement (the "Cavalier Credit Agreement") with Mineral Lending, LLC ("Mineral Lending") for a $100.0 million line of credit (the "Cavalier Credit Facility"). The commitment under the Cavalier Credit Facility is reduced by any distributions received from Cavalier Minerals' investment in AllDale II. As of June 30, 2019, the commitment under the Cavalier Credit Facility was $67.5 million. Mineral Lending is an entity owned by (a) Alliance Resource Holdings II, Inc. ("ARH II"), an entity owned by Joseph W. Craft III, the Chairman, President and Executive Officer of MGP ("Mr. Craft") and Kathleen S. Craft, (b) an entity owned by an individual who is an officer and director of ARH II and (c) charitable foundations established by Mr. Craft and Kathleen S. Craft. There is no commitment fee under the facility. Mineral Lending's obligation to make the line of credit available terminates no later than October 6, 2019. Borrowings under the Cavalier Credit Facility bear interest at a one month LIBOR rate plus 6% with interest payable quarterly, and mature on September 30, 2024, at which time all amounts then outstanding are required to be repaid. The Cavalier Credit Agreement requires repayment of the principal balance beginning in 2018, in quarterly payments of an amount equal to the greater of $1.3 million initially, escalated to $2.5 million after two years, or fifty percent of Cavalier Minerals' excess cash flow. To secure payment of the facility, Cavalier Minerals pledged all of its partnership interests, owned or later acquired, in AllDale I & II. Cavalier Minerals may prepay the Cavalier Credit Facility at any time in whole or in part subject to terms and conditions described in the Cavalier Credit Agreement. As of June 30, 2019, Cavalier Minerals had not drawn on the Cavalier Credit Facility.

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 by an indirect wholly-owned subsidiary of the Intermediate Partnership and entering into a master lease agreement for that equipment (the "Equipment Financing"). The Equipment Financing contains customary terms and events of default and provides for thirty-six monthly payments with an implicit interest rate of 6.25%, maturing on May 1, 2022. Upon maturity, the equipment will revert back to the Intermediate Partnership.

Other. 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. At June 30, 2019, we had $5.0 million in letters of credit outstanding under this agreement.



Related-Party Transactions


We have related-party transactions with MGP, ARH II and their respective affiliates. These related-party transactions relate principally to mineral leases with charitable foundations established by Mr. Craft and Kathleen S. Craft and agreements relating to the use of aircraft. We also have transactions with (a) WKY CoalPlay, LLC ("WKY CoalPlay") regarding three mineral leases, (b) Bluegrass Minerals Management, LLC ("Bluegrass Minerals") through its


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noncontrolling ownership interest in Cavalier Minerals and (c) AllDale III to support its acquisition of oil & gas mineral interests. For more information regarding WKY CoalPlay, Bluegrass Minerals and AllDale III, please read "Item 1. Financial Statements (Unaudited) - Note 9. Variable Interest Entities" and "- Note 10. Investments" of this Quarterly Report on Form 10-Q. Please read our Annual Report on Form 10-K for the year ended December 31, 2018, "Item 8. Financial Statements and Supplementary Data - Note 18. Related-Party Transactions" for additional information concerning related-party transactions.

Prior to the AllDale Acquisition and Kodiak redemption, we also had transactions with AllDale I & II to support their acquisition of oil & gas mineral interests, and Kodiak to support its gas compression services. For more information regarding the AllDale Acquisition and Kodiak redemption, please read "Item 1. Financial Statements (Unaudited) - Note 3. Acquisition" and "- Note 10. Investments" of this Quarterly Report on Form 10-Q.



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.

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Financials (USD)
Sales 2019 2 001 M
EBIT 2019 262 M
Net income 2019 405 M
Debt 2019 -
Yield 2019 21,0%
P/E ratio 2019 3,26x
P/E ratio 2020 9,68x
Capi. / Sales2019 0,65x
Capi. / Sales2020 0,70x
Capitalization 1 308 M
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NameTitle
Joseph W. Craft Chairman, President & Chief Executive Officer
Thomas M. Wynne Chief Operating Officer & Senior Vice President
Brian L. Cantrell Chief Financial Officer & Senior Vice President
Charles R. Wesley Director & Executive Vice President
John Harris Robinson Independent Director
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