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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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11/05/2019 | 12:37pm 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 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 seven 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 Permian (Delaware and Midland), Anadarko (SCOOP/STACK), 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 August 2, 2019, our subsidiary, AR Midland, LP ("AR Midland") acquired certain mineral interests from Wing Resources LLC and Wing Resources II LLC (collectively, "Wing") for $144.9 million (the "Wing Acquisition"). 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 Wing Acquisition, the AllDale Acquisition and our previous investments held through Cavalier Minerals, we control approximately 52,000 net royalty acres in premier oil & gas resource plays. These acquisitions provide us with diversified exposure to industry leading operators and are consistent with our general business strategy to grow our Minerals segment. Please read "Item 1. Financial Statements (Unaudited) - Note 3 - Acquisitions" of this Quarterly Report on Form 10-Q for more information on the Wing and AllDale Acquisitions.

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 realigned our reportable segments in the first quarter of 2019 to include our oil & gas mineral interests within a new Minerals reportable segment. The mineral interests acquired through the Wing Acquisition in August 2019 are also included within the Minerals reportable segment. As a part of our realignment, 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 reflect our Illinois Basin related activities. Prior periods have been recast to include our oil & gas mineral interests in the Minerals segment, and Mt. Vernon and MAC in the Illinois Basin segment.

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Illinois Basin reportable segment includes currently operating mining complexes

(a) Gibson County Coal, LLC's mining complex, which includes the Gibson North

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

? Coal, LLC's mining complex ("River View") and (d) 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, LLC ("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) Webster County Coal, LLC's Dotiki mining complex ("Dotiki"), which ceased production in August 2019, (b) White County Coal, LLC's Pattiki mining complex ("Pattiki"), (c) 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 (d) 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, AR Midland, which acquired

oil & gas mineral interests in the Wing Acquisition, 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 11 -

Investments" and "Note 10 - 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 11 - 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 9 - Long-term Debt" "and Note

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

AROP Funding and the Kodiak redemption, respectively.

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

We reported net income attributable to ARLP of $39.1 million for the three months ended September 30, 2019 ("2019 Quarter") compared to $73.7 million for the three months ended September 30, 2018 ("2018 Quarter"). The decrease of $34.6 million was primarily due to lower revenues and a $15.2 million non-cash asset impairment discussed in more detail below. Total revenues were $464.7 million in the 2019 Quarter compared to $497.8 million in the 2018 Quarter as coal sales revenues declined due to reduced coal sales volumes and prices.

 Reduced coal sales revenues were partially offset by the addition of oil & gas
royalty revenues resulting from our 2019 acquisitions within our Minerals
segment.



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                                                  Three Months Ended September 30,
                                              2019         2018         2019        2018
                                                (in thousands)           (per ton sold)
Tons sold                                       9,320       10,071         N/A         N/A
Tons produced                                  10,071        9,874         N/A         N/A
Coal sales                                  $ 420,005$ 460,330$  45.06$  45.71
Coal - Segment Adjusted EBITDA Expense
(1) (2)                                     $ 286,564$ 309,216$  30.75$  30.70

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 $40.3 million or 8.8% to $420.0 million for the 2019 Quarter from $460.3 million for the 2018 Quarter. The decrease was attributable to a volume variance of $34.3 million resulting from decreased tons sold and a price variance of $6.0 million due to lower average coal sales prices. Coal sales volumes declined 7.5% to 9.3 million tons primarily due to lower export sales from our Gibson South mine and reduced volumes from our Dotiki mine which ceased production in the 2019 Quarter due to weak market conditions. These decreases were partially offset by increased sales at our River View mine. Coal sales price realizations declined 1.4% in the 2019 Quarter to $45.06 per ton sold, compared to $45.71 per ton sold during the 2018 Quarter.

Oil & gas royalties. 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. In August 2019, we acquired additional oil & gas mineral interests through the Wing Acquisition. Our mineral interests contributed royalty revenues of $14.0 million in the 2019 Quarter. Please read "Item 1. Financial Statements (Unaudited) - Note 3 - Acquisitions" of this Quarterly Report on Form 10-Q for more information on the AllDale and Wing Acquisitions.

Coal - Segment Adjusted EBITDA Expense. Segment Adjusted EBITDA Expense, excluding our Minerals segment, decreased 7.3% to $286.6 million, primarily as a result of reduced coal sales volumes. On a per ton basis, Segment Adjusted EBITDA Expense, excluding our Minerals segment, remained comparable to the 2018 Quarter, increasing slightly to $30.75 per ton in the 2019 Quarter resulting from reduced production at our Gibson South and MC Mining operations, lower recoveries at our River View and Mettiki mines and sales of higher-cost purchased coal in the 2019 Quarter, offset in part by reduced longwall move days at our Tunnel Ridge, Mettiki and Hamilton mines and increased production from our low cost per ton River View operation due to additional mining units. In addition, other cost increases are discussed by category below:

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

? increased 2.5% to $9.92 per ton in the 2019 Quarter from $9.68 per ton in the

2018 Quarter. The increase of $0.24 per ton was primarily due to sales and

production volume variances discussed above;

Maintenance expenses per ton produced increased 3.4% to $3.66 per ton in the

? 2019 Quarter from $3.54 per ton in the 2018 Quarter. The increase of $0.12 per

ton produced was primarily due to sales and production volume variances

   discussed above;



Mine administration expenses increased $2.0 million for the 2019 Quarter

? compared to the 2018 Quarter, primarily due to higher outside services

   expenses; and



Outside coal purchases increased $10.6 million in the 2019 Quarter as a result

? of sales from purchased coal, which generally cost higher on a per ton basis

   than our produced coal.



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

Material and supplies expenses per ton produced decreased 5.6% to $10.68 per

? ton in the 2019 Quarter from $11.31 per ton in the 2018 Quarter. The decrease

of $0.63 per ton produced resulted primarily from decreases of


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$0.23 per ton for roof support, $0.12 per ton for outside expenses and $0.12 per

ton for contract labor used in the mining process reflecting in part an improved

production mix from lower cost mines discussed above; and

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

? prices and volumes decreased $1.03 per produced ton sold in the 2019 Quarter

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

production mix and lower excise tax rates in 2019.

General and administrative. General and administrative expenses for the 2019 Quarter increased to $17.9 million compared to $15.8 million in the 2018 Quarter. The increase of $2.1 million was primarily due to higher professional services fees resulting from both the AllDale and Wing Acquisitions.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased to $72.3 million in the 2019 Quarter from $70.2 million in the 2018 Quarter. The increase of $2.1 million resulted primarily from production from our oil & gas mineral interests, partially offset by lower depreciation at our Tunnel Ridge mine reflecting increased coal inventory and related depreciation included therein as well as favorable fixed asset in-service timing.

Asset impairment. During the 2019 Quarter, we ceased coal production at our Dotiki mine to focus on maximizing production at our lower-cost mines in the Illinois Basin. Consequently, we recorded a non-cash asset impairment charge of $15.2 million in the 2019 Quarter. Please read "Item 1. Financial Statements (Unaudited) - Note 4 - Long-Lived Asset Impairment" of this Quarterly Report on Form 10-Q.

Equity method investment income. Equity method investment income decreased to $0.7 million in the 2019 Quarter from $6.0 million in the 2018 Quarter as a result of the AllDale Acquisition and related consolidation of AllDale I & II in 2019. Equity method investment income in the 2019 Quarter is generated by our AllDale III investment. Prior to 2019, our investments in AllDale I & II also generated equity method investment income in addition to AllDale III.

Equity securities income. Equity securities income decreased $4.0 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 $20.0 million and $28.7 million for the 2019 and 2018 Quarters, respectively.

The decrease of $8.7 million was primarily attributable to decreased coal tonnage for which we arrange third-party transportation at certain mines resulting primarily from reduced coal export shipments, partially offset by an increase in average third-party transportation rates in the 2019 Quarter.

Transportation revenues are recognized in an amount equal to transportation expenses when title to the coal passes to the customer.



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Segment Adjusted EBITDA.  Our 2019 Quarter Segment Adjusted EBITDA decreased
$13.4 million, or 7.9%, to $156.2 million from the 2018 Quarter Segment Adjusted
EBITDA of $169.6 million.  Segment Adjusted EBITDA, tons sold, coal sales, other
revenues, oil & gas royalties, BOE volume and Segment Adjusted EBITDA Expense by
segment are as follows:




                                               Three Months Ended
                                                 September 30,
                                               2019         2018        Increase (Decrease)
                                                         (in thousands)
Segment Adjusted EBITDA
Coal - Illinois Basin                        $  87,780$  93,014$    (5,234)     (5.6) %
Coal - Appalachia                               55,178       63,671         (8,493)    (13.3) %
Minerals                                        12,202        5,744           6,458       (1)
Other and Corporate                              3,243        9,254         (6,011)    (65.0) %
Elimination                                    (2,240)      (2,105)           (135)     (6.4) %
Total Segment Adjusted EBITDA (2)            $ 156,163$ 169,578$   (13,415)     (7.9) %

Tons sold
Coal - Illinois Basin                            6,553        7,246           (693)     (9.6) %
Coal - Appalachia                                2,767        2,825            (58)     (2.1) %
Other and Corporate                                144          233            (89)    (38.2) %
Elimination                                      (144)        (233)              89      38.2 %
Total tons sold                                  9,320       10,071           (751)     (7.5) %

Coal sales
Coal - Illinois Basin                        $ 256,293$ 289,263$   (32,970)    (11.4) %
Coal - Appalachia                              162,316      168,365         (6,049)     (3.6) %
Other and Corporate                              5,689       10,056         (4,367)    (43.4) %
Elimination                                    (4,293)      (7,354)           3,061      41.6 %
Total coal sales                             $ 420,005$ 460,330$   (40,325)     (8.8) %

Other revenues
Coal - Illinois Basin                        $   5,264$   3,565$      1,699      47.7 %
Coal - Appalachia                                  852          716             136      19.0 %
Minerals                                           208            -             208       (1)
Other and Corporate                              7,434        7,606           (172)     (2.3) %
Elimination                                    (3,030)      (3,156)             126       4.0 %
Total other revenues                         $  10,728$   8,731$      1,997      22.9 %

BOE volume and oil & gas royalties
Volume - BOE (3)                                   433            -             433       (1)
Oil & gas royalties                          $  13,969    $       -    $     13,969       (1)

Segment Adjusted EBITDA Expense
Coal - Illinois Basin                        $ 173,779$ 199,813$   (26,034)    (13.0) %
Coal - Appalachia                              107,990      105,412           2,578       2.4 %
Minerals                                         2,517            -           2,517       (1)
Other and Corporate                              9,878       12,396         (2,518)    (20.3) %
Elimination                                    (5,083)      (8,405)           3,322      39.5 %

Total Segment Adjusted EBITDA Expense (2) $ 289,081$ 309,216$ (20,135) (6.5) %

(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).




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Illinois Basin - Segment Adjusted EBITDA decreased 5.6% to $87.8 million in the 2019 Quarter from $93.0 million in the 2018 Quarter. The decrease of $5.2 million was primarily attributable to lower coal sales, which decreased 11.4% to $256.3 million in the 2019 Quarter from $289.3 million in the 2018 Quarter, partially offset by reduced operating expenses. The decrease of $33.0 million in coal sales reflects lower coal sales volumes and price realizations. Tons sold in the 2019 Quarter decreased 9.6% compared to the 2018 Quarter as a result of lower export sales from our Gibson South mine and the cessation of production at our Dotiki mine in the 2019 Quarter to focus on maximizing production at our lower-cost mines. Coal sales price per ton sold in the 2019 Quarter decreased 2.0% reflecting lower domestic and export sales prices due to weak market conditions. Segment Adjusted EBITDA Expense decreased 13.0% to $173.8 million in the 2019 Quarter from $199.8 million in the 2018 Quarter primarily as a result of reduced coal sales volumes. Segment Adjusted EBITDA Expense per ton decreased $1.06 per ton sold to $26.52 from $27.58 per ton sold in the 2018 Quarter, primarily due to a longwall move at our Hamilton mine in the 2018 Quarter and reduced sales of higher cost tons following the cessation of production at our Dotiki mine in the 2019 Quarter, as well as certain cost increases described above under "-Coal - Segment Adjusted EBITDA Expense."

Appalachia - Segment Adjusted EBITDA decreased 13.3% to $55.2 million for the 2019 Quarter from $63.7 million in the 2018 Quarter. The decrease of $8.5 million was primarily attributable to lower coal sales, which decreased 3.6% to $162.3 million in the 2019 Quarter from $168.4 million in the 2018 Quarter. The decrease of $6.1 million in coal sales resulted primarily from lower coal sale prices and volumes. Coal sales price per ton sold in the 2019 Quarter decreased 1.6% compared to the 2018 Quarter due to reduced high priced export volumes and decreased export price realizations at our Mettiki mine, partially offset by increased domestic prices from our MC Mining operation. Sales volumes decreased 2.1% in the 2019 Quarter compared to the 2018 Quarter as a result of lower export sales volumes from our Mettiki and MC Mining operations. Segment Adjusted EBITDA Expense increased 2.4% to $108.0 million in the 2019 Quarter from $105.4 million in the 2018 Quarter due to higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $1.72 per ton sold to $39.03 compared to $37.31 per ton sold in the 2018 Quarter, primarily due to lower recoveries at our Mettiki and MC Mining mines and sales from higher-cost purchased coal in the 2019 Quarter. These increases were partially offset by the comparative impact of longwall moves at our Mettiki and Tunnel Ridge mines in the 2018 Quarter and reduced selling expenses across the region in the 2019 Quarter.

Minerals - Segment Adjusted EBITDA increased to $12.2 million for the 2019 Quarter from $5.7 million in the 2018 Quarter. The increase of $6.5 million primarily resulted from the AllDale Acquisition in 2019.

Other and Corporate - Segment Adjusted EBITDA decreased by $6.1 million to $3.2 million in the 2019 Quarter compared to $9.3 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.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

We reported net income attributable to ARLP of $373.6 million for the nine months ended September 30, 2019 ("2019 Period") compared to $315.8 million for the nine months ended September 30, 2018 ("2018 Period"). The increase of $57.8 million was primarily due to higher revenues and a $170.0 million net gain related to the AllDale Acquisition, partially offset by a $15.2 million non-cash asset impairment and increased outside coal purchases and depreciation, depletion and amortization in the 2019 Period as well as an $80.0 million net gain on settlement of litigation in the 2018 Period. Improved coal sales prices and the addition of royalty revenues in the 2019 Period drove total revenues higher to $1.51 billion compared to $1.47 billion in the 2018 Period.




                                                     Nine Months Ended September 30,
                                               2019           2018          2019        2018
                                                  (in thousands)             (per ton sold)
Tons sold                                        29,857         29,957         N/A         N/A
Tons produced                                    31,430         30,070         N/A         N/A
Coal sales                                  $ 1,357,331$ 1,359,865$  45.46$  45.39
Coal - Segment Adjusted EBITDA Expense
(1) (2)                                     $   905,426$   900,486$  30.33$  30.06

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 revenues of $1.36 billion for the 2019 Period were comparable to the 2018 Period. Compared to the 2018 Period, coal sales volumes fell slightly due to a volume variance of $4.5 million resulting from reduced tons sold, partially offset by a price variance of $2.0 million due to higher average coal sales prices. Coal sales price realizations in the 2019 Period increased modestly to $45.46 per ton sold, compared $45.39 per ton sold in the 2018 Period. Coal production increased 4.5% compared to the 2018 Period to 31.4 million tons, primarily due to increased production from additional mining units at our River View mine, the resumption of operations in the second quarter of 2018 at our Gibson North mine and strong performance at our Tunnel Ridge mine during the 2019 Period. These increases were partially offset by curtailed production at our Gibson South mine due to weak market exports, the production ceasing at our Dotiki mine and lower recoveries at our Mettiki and MC Mining operations in the 2019 Period.

Oil & gas royalties. Our mineral interests contributed oil & gas royalties of $36.3 million in the 2019 Period. Please read "Item 1. Financial Statements (Unaudited) - Note 3 - Acquisitions" of this Quarterly Report on Form 10-Q for more information on the AllDale and Wing Acquisitions.

Coal - Segment Adjusted EBITDA Expense. Segment Adjusted EBITDA Expense, excluding our Minerals segment, increased 0.5% to $905.4 million for the 2019 Period from $900.5 million for the 2018 Period primarily as a result of higher expenses per ton. Segment Adjusted EBITDA Expense per ton, excluding our Minerals segment, increased to $30.33 per ton sold compared to $30.06 per ton sold in the 2018 Period due to lower recoveries at our River View, Gibson North, Mettiki and MC Mining operations offset in part by increased production at the Gibson North mine and improved productivity at our Hamilton and Tunnel Ridge mines. In addition, other cost increases are discussed by category below:

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

? increased 3.6% to $9.53 per ton in the 2019 Period from $9.20 per ton in the

2018 Period. The increase of $0.33 per ton was primarily due to sales and

production volume variances discussed above; and

Outside coal purchases increased $14.5 million in the 2019 Period as a result

? of sales from purchased coal, which is generally higher-cost than produced

   coal, in the 2019 Period.



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

Material and supplies expenses per ton produced decreased slightly to $10.98

per ton in the 2019 Period from $11.04 per ton in the 2018 Period. The

decrease in material and supplies expenses per ton produced resulted primarily

? from improved production mix of lower-cost mines discussed above and related

decreases of $0.14 per ton for power and fuel used in the mining process and

$0.11 per ton for outside expenses, partially offset by an increase of $0.18

per ton in longwall subsidence expense; and

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

? prices and volumes decreased $0.80 per produced ton sold in the 2019 Period

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

production mix and lower excise tax rates in 2019.

General and administrative. General and administrative expenses for the 2019 Period increased to $55.2 million compared to $49.5 million in the 2018 Period.

The increase of $5.7 million was due to higher professional services fees primarily resulting from both the AllDale and Wing Acquisitions.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased to $220.4 million in the 2019 Period from $204.2 million in the 2018 Period. The increase of $16.2 million resulted primarily from depletion beginning in the 2019 Period attributable to production from our oil & gas mineral interests, increases at our River View mine due to additional mining units and increases at our Hamilton mine due to unfavorable fixed asset in-service timing. These increases were partially offset by decreased deprecation resulting from favorable fixed asset in-service timing at our Tunnel Ridge mine and reduced volumes at our Mettiki mine.

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.

Asset impairment. During the 2019 Period, we ceased coal production at our Dotiki mine to focus on maximizing production at our lower-cost mines in the Illinois Basin. Consequently, we recorded a non-cash asset impairment charge of $15.2 million in the 2019 Period. Please read "Item 1. Financial Statements (Unaudited) - Note 4 - Long-Lived Asset Impairment" of this Quarterly Report on Form 10-Q.

Equity method investment income. Equity method investment income decreased to $1.5 million in the 2019 Period from $14.6 million in the 2018 Period as a result of the AllDale Acquisition and related consolidation of AllDale I & II in the 2019 Period. Equity method investment income in the 2019 Period is generated by our AllDale III investment. Prior to 2019, our investments in AllDale I & II also generated equity method investment income in addition to AllDale III.

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

Transportation revenues and expenses. Transportation revenues and expenses were $82.9 million and $76.0 million for the 2019 and 2018 Periods, respectively.

The increase of $6.9 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 coal tonnage for which we arrange third-party transportation at certain mines. Transportation revenues are recognized in an amount equal to transportation expenses when title to the coal passes to the customer.

Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest increased to $7.4 million in the 2019 Period from $0.6 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 $8.0
million, or 1.5%, to $528.1 million from the 2018 Period Segment Adjusted EBITDA
of $520.1 million.  Segment Adjusted EBITDA, tons sold, coal sales, other
revenues, oil & gas royalties, BOE volume and Segment Adjusted EBITDA Expense by
segment are as follows:




                                               Nine Months Ended
                                                 September 30,
                                              2019           2018         Increase (Decrease)
                                                         (in thousands)
Segment Adjusted EBITDA
Coal - Illinois Basin                      $   306,592$   301,931$      4,661       1.5 %
Coal - Appalachia                              167,612        177,361         (9,749)     (5.5) %
Minerals                                        32,432         13,984          18,448       (1)
Other and Corporate                             28,155         33,107         (4,952)    (15.0) %
Elimination                                    (6,721)        (6,315)           (406)     (6.4) %

Total Segment Adjusted EBITDA (2) $ 528,070$ 520,068$ 8,002 1.5 %

Tons sold
Coal - Illinois Basin                           21,793         22,074           (281)     (1.3) %
Coal - Appalachia                                8,064          7,881             183       2.3 %
Other and Corporate                                422            636           (214)    (33.6) %
Elimination                                      (422)          (634)             212      33.4 %
Total tons sold                                 29,857         29,957           (100)     (0.3) %

Coal sales
Coal - Illinois Basin                      $   875,544$   875,792$      (248)     (0.0) %
Coal - Appalachia                              477,720        476,540           1,180       0.2 %
Other and Corporate                             16,530         27,165        (10,635)    (39.1) %
Elimination                                   (12,463)       (19,632)           7,169      36.5 %
Total coal sales                           $ 1,357,331$ 1,359,865$    (2,534)     (0.2) %

Other revenues
Coal - Illinois Basin                      $    10,557$    12,299$    (1,742)    (14.2) %
Coal - Appalachia                                2,753          2,268             485      21.4 %
Minerals                                         1,079              -           1,079       (1)
Other and Corporate                             26,745         30,047         (3,302)    (11.0) %
Elimination                                    (9,229)        (9,476)             247       2.6 %
Total other revenues                       $    31,905$    35,138$    (3,233)     (9.2) %

BOE volume and oil & gas royalties
Volume - BOE (3)                                 1,113              -           1,113       (1)
Oil & gas royalties                        $    36,254    $         -    $     36,254       (1)

Segment Adjusted EBITDA Expense
Coal - Illinois Basin                      $   579,510$   586,160$    (6,650)     (1.1) %
Coal - Appalachia                              312,861        301,448          11,413       3.8 %
Minerals                                         6,109              -           6,109       (1)
Other and Corporate                             28,026         35,671         (7,645)    (21.4) %
Elimination                                   (14,971)       (22,793)           7,822      34.3 %

Total Segment Adjusted EBITDA Expense $ 911,535$ 900,486$ 11,049 1.2 %

(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).




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Illinois Basin - Segment Adjusted EBITDA increased 1.5% to $306.6 million in the 2019 Period from $301.9 million in the 2018 Period. The increase of $4.7 million was primarily attributable to higher coal sales prices, which increased 1.3% to $40.18 per ton sold in the 2019 Period from $39.68 per ton sold in the 2018 Period, and lower operating expenses, partially offset by lower coal sales volumes. Tons sold in the 2019 Period decreased 1.3% compared to the 2018 Period as a result of lower export sales from our Gibson South mine and the cessation of production at our Dotiki mine in the 2019 Period to focus on maximizing production at our lower-cost mines, offset in part by additional production units at the River View mine in the 2019 Period. Segment Adjusted EBITDA Expense decreased 1.1% to $579.5 million in the 2019 Period from $586.2 million in the 2018 Period due to reduced coal sales volumes. Segment Adjusted EBITDA Expense per ton increased slightly to $26.59 per ton sold in the 2019 Period due to certain cost increases described above under "-Coal - Segment Adjusted EBITDA Expense."

Appalachia - Segment Adjusted EBITDA decreased 5.5% to $167.6 million for the 2019 Period from $177.4 million in the 2018 Period. The decrease of $9.8 million was primarily attributable to reduced coal sales prices and increased operating expenses, partially offset by higher coal sales volumes. Coal sales, which increased slightly to $477.7 million in the 2019 Period from $476.5 million in the 2018 Period resulted from higher coal sales volumes of 8.1 million tons sold in the 2019 Period, compared to 7.9 million tons sold in the 2018 Period, due to a strong performance at our Tunnel Ridge longwall operation, partially offset by lower coal sales prices. Segment Adjusted EBITDA Expense increased 3.8% to $312.9 million in the 2019 Period from $301.4 million in the 2018 Period due to increased sales volumes and higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased 1.4% to $38.80 per ton compared to $38.25 per ton sold in the 2018 Period reflecting lower recoveries at our Mettiki and MC Mining operations, offset in part by improved productivity at our Tunnel Ridge mine.

Minerals - Segment Adjusted EBITDA increased to $32.4 million for the 2019 Period from $14.0 million in the 2018 Period. The increase of $18.4 million primarily resulted from the AllDale Acquisition in the 2019 Period.

Other and Corporate - Segment Adjusted EBITDA decreased by $4.9 million to $28.2 million in the 2019 Period compared to $33.1 million in the 2018 Period. The decrease was primarily attributable to reduced coal brokerage activity and 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, asset impairment 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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  Table of Contents

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




                                        Three Months Ended           Nine Months Ended
                                          September 30,                September 30,
                                        2019          2018          2019           2018
                                                         (in thousands)
Consolidated Segment Adjusted
EBITDA                               $  156,163$  169,578$   528,070$   520,068
General and administrative             (17,885)      (15,836)       (55,218)       (49,513)
Depreciation, depletion and
amortization                           (72,348)      (70,196)      (220,400)      (204,194)
Settlement gain                               -             -              -         80,000
Asset impairment                       (15,190)             -       (15,190)              -
Interest expense, net                  (11,606)       (9,808)       (33,510)       (30,532)
Acquisition gain                              -             -        177,043              -
Income tax (expense) benefit               (50)           (5)          (130)              2
Acquisition gain attributable to
noncontrolling interest                       -             -        (7,083)              -
Net income attributable to ARLP      $   39,084$   73,733$   373,582$   315,831
Noncontrolling interest                     117           236          7,407            571
Net income                           $   39,201$   73,969$   380,989$   316,402

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          Nine Months Ended
                                          September 30,               September 30,
                                        2019          2018          2019          2018
                                                        (in thousands)
Segment Adjusted EBITDA Expense      $  289,081$  309,216$  911,535$  900,486
Outside coal purchases                 (10,599)             -      (15,910)       (1,442)
Other expense                             (228)         (812)         (370)       (2,201)
Operating expenses (excluding
depreciation, depletion and
amortization)                        $  278,254$  308,404$  895,255$  896,843






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  Table of Contents

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.

On August 2, 2019, we closed on the Wing Acquisition using cash on hand and borrowings under our revolving credit facility for $145.0 million. On February 8, 2019, Kodiak redeemed our preferred equity interest for $135.0 million in cash. 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. For more information on these transactions, please read "Item 1. Financial Statements (Unaudited) - Note 3. Acquisitions" and "- Note 11. Investments" of this Quarterly Report on Form 10-Q.

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. Since inception through September 30, 2019, we have purchased units for a total of $75.8 million under the program.

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.




Mine Development Project

We have begun development activity for MC Mining's Excel Mine No. 5 and currently anticipate deploying total capital of approximately $29.0 million to $31.0 million during 2019 with an additional $15.0 million to $20.0 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 $408.4 million for the 2019 Period compared to $579.3 million for the 2018 Period. The decrease in cash provided by operating activities was impacted by $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. Additional decreases also resulted from unfavorable working capital changes related to trade receivables, inventories, prepaid expenses and other, and payroll and related benefit accruals. These decreases were partially offset by a favorable working capital change related to accounts payable.

Net cash used in investing activities was $423.6 million for the 2019 Period compared to $195.3 million for the 2018 Period. The increase in cash used in investing activities was primarily attributable to the AllDale Acquisition, the Wing Acquisition and increased capital expenditures for mine infrastructure and equipment at various mines. This increase


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was partially offset by cash received from the redemption of our equity securities in the 2019 Period and cash used for equity method investment contributions in the 2018 Period.

Net cash used in financing activities was $197.2 million for the 2019 Period compared to $352.4 million for the 2018 Period. The decrease in cash used in financing activities was primarily attributable to decreases in overall net payments on the securitization facility and unit repurchase program and increased net proceeds under our revolving facility in the 2019 Period compared to the 2018 Period.




Capital Expenditures



Capital expenditures increased to $241.1 million in the 2019 Period from $184.4 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 $330.0 million to $350.0 million, which includes expenditures for maintenance capital at various mines. Management anticipates funding remaining 2019 capital requirements with cash and cash equivalents ($31.8 million as of September 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 4.43% as of September 30, 2019. At September 30, 2019, we had $9.3 million of letters of credit outstanding with $245.5 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 1.13 to 1.0 and 14.7 to 1.0, respectively, for the trailing twelve months ended September 30, 2019. We remain in compliance with the covenants of the Credit Agreement as of September 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 institutional buyers. The Senior Notes have a term of eight years, maturing on May 1, 2025 (the "Term") and accrue


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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. In January 2019, we extended the term of the Securitization Facility to January 2020. In October 2019, we extended the term from January 2020 to January 2021. At September 30, 2019, we had $66.5 million outstanding balance under the Securitization Facility.

Cavalier Credit Agreement. On October 6, 2015, Cavalier Minerals (see Note 10 - 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 Cavalier Credit Facility terminated on October 6, 2019. During the term of the Cavalier Credit Facility, the commitment was reduced by any distributions received from Cavalier Minerals' investment in AllDale II. As of September 30, 2019, the commitment was $64.6 million. Mineral Lending is an entity owned by (a) Alliance Resource Holdings II, Inc. ("ARH II"), an entity owned by Mr. Craft and Kathleen S. Craft, (b) an entity owned by an individual who is an officer and director of ARH II ("ARH Officer") and (c) charitable foundations established by Mr. Craft and Kathleen S. Craft. We had no borrowings from the facility since its inception and there was no commitment fee under the 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 September 30, 2019, we had $5.0 million in letters of credit outstanding under this agreement.



Related-Party Transactions


We have related-party transactions and activities with Mr. Craft, MGP, ARH II and their respective affiliates. These related-party transactions and activities relate principally to 1) mineral leases with charitable foundations established by Mr. Craft and Kathleen S. Craft, 2) the use of aircraft, and 3) providing administrative services with respect to the mineral interests Mr. Craft acquired concurrently with the Wing Acquisition. We also have transactions with (a) WKY CoalPlay, LLC ("WKY CoalPlay") regarding three mineral leases, (b) Bluegrass Minerals Management, LLC ("Bluegrass Minerals") through its noncontrolling ownership interest in Cavalier Minerals and (c) AllDale III to support its acquisition of oil & gas mineral interests. For more information regarding the Wing Acquisition, WKY CoalPlay, Bluegrass Minerals and AllDale III, please read "Item 1. Financial Statements (Unaudited) - Note 3. Acquisitions", "- Note 10. Variable Interest Entities" and "- Note 11. 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.



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  Table of Contents

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. Acquisitions" and "- Note 11. 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.



Other Information



Insurance


Effective October 1, 2019, we renewed our annual property and casualty insurance program. Our property insurance was procured from our wholly owned captive insurance company, Wildcat Insurance. Wildcat Insurance charged certain of our subsidiaries for the premiums on this program and in return purchased reinsurance for the program in the standard market. The maximum limit in the commercial property program is $100.0 million per occurrence, excluding a $1.5 million deductible for property damage, a 60, 75, 90 or 120 day waiting period for underground business interruption depending on the mining complex and an additional $10.0 million overall aggregate deductible. We have elected to retain a 10% participating interest in our commercial property insurance program. As previously stated in our Annual Report on Form 10-K for the year ended December 31, 2018 under "Item 1A. Risk Factors-Our profitability may decline due to unanticipated mine operating conditions and other events that are not within our control and that may not be fully covered under our insurance policies," we can make no assurances that we will not experience significant insurance claims in the future that could have a material adverse effect on our business, financial condition, results of operations and ability to purchase property insurance in the future.

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Financials (USD)
Sales 2019 2 018 M
EBIT 2019 255 M
Net income 2019 400 M
Debt 2019 -
Yield 2019 -
P/E ratio 2019 3,53x
P/E ratio 2020 10,7x
Capi. / Sales2019 0,70x
Capi. / Sales2020 0,74x
Capitalization 1 409 M
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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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