Alliance Resource Partners, L.P. (NASDAQ: ARLP) today reported
financial and operating results for the quarter ended June 30, 2019
(the "2019 Quarter"). Total revenues increased slightly to $517.1
million in the 2019 Quarter compared to $516.1 million for the
quarter ended June 30, 2018 (the "2018 Quarter"). Net income
attributable to ARLP for the 2019 Quarter declined to $58.1
million, or $0.44 per basic and diluted limited partner unit,
compared to $86.2 million, or $0.64 per basic and diluted limited
partner unit, for the 2018 Quarter. EBITDA in the 2019 Quarter of
$145.7 million was also lower compared to $168.3 million in the
2018 Quarter. (Unless otherwise noted, all references in this
release to "net income" refer to "net income attributable to ARLP."
For a definition of EBITDA and related reconciliations to
comparable GAAP financial measures, please see the end of this
release.)
ARLP also announced today that the Board of Directors of its
general partner increased the cash distribution to unitholders for
the 2019 Quarter to $0.54 per unit (an annualized rate of $2.16 per
unit), payable on August 14, 2019 to all unitholders of record as
of the close of trading on August 7, 2019. The announced
distribution represents a 3.8% increase over the cash distribution
of $0.52 per unit for the 2018 Quarter and a 0.9% increase over the
cash distribution of $0.535 per unit for the quarter ended March
31, 2019 (the "Sequential Quarter").
"Mild temperatures, swollen rivers and declining natural gas
prices led to lower coal demand in the 2019 Quarter. 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," said Joseph W. Craft III,
Chairman, President and Chief Executive Officer. "Operating cost
per ton sold for the 2019 Quarter was impacted primarily by lower
production due to two longwall moves, one at our Hamilton mine in
the Illinois Basin and the other at our Tunnel Ridge mine in the
Appalachia region, as well as our previously announced delay of
ARLP’s planned growth ramp for Illinois Basin production intended
for sale in the export market. An unexpected $4.8 million non-cash
accrual was also booked in the 2019 Quarter as a result of a
mid-year actuarial adjustment for workers’ compensation
expense."
Mr. Craft added, "As expected, our oil and gas minerals segment
delivered double digit Segment Adjusted EBITDA growth compared to
both the 2018 Quarter and the Sequential Quarter. We are on track
to close the previously announced $145 million Wing acquisition
early next month which will increase our ownership position in the
prolific liquids rich Midland Basin and add to our earnings in 2019
and beyond."
Consolidated Financial Results
Three Months Ended June 30, 2019 Compared to Three Months
Ended June 30, 2018
Coal Operations –
Reflecting lower coal sales volumes and
prices, coal sales revenues for the 2019 Quarter decreased 3.1% to
$461.3 million, compared to $475.9 million for the 2018 Quarter.
Coal sales volumes declined 2.6% to 10.2 million tons as
persistent, weather-related transportation issues resulted in the
delay of approximately 500,000 tons out of 750,000 tons of planned
coal shipments deferred from the first quarter of 2019 while the
2018 Quarter benefited from the fulfillment of 1.4 million tons of
shipments delayed in the first quarter of 2018. 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.
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. Transportation revenues and expenses increased to
$32.6 million in the 2019 Quarter from $27.5 million in the 2018
Quarter primarily due to higher shipping costs for coal exported to
international markets.
Total Segment Adjusted EBITDA Expense per ton
increased 4.6% in the 2019 Quarter to $31.11 per ton, compared to
$29.73 per ton 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, mid-year actuarial adjustments to
workers' compensation expense in both regions and increased labor
expenses per ton in the Illinois Basin. Lower coal sales revenues
and higher expenses in the 2019 Quarter led total Segment Adjusted
EBITDA from our coal operations to decline 12.8% to $154.2 million,
compared to $176.8 million for the 2018 Quarter. (For a definition
of Segment Adjusted EBITDA, Segment Adjusted EBITDA Expense and
related reconciliation to comparable GAAP financial measures,
please see the end of this release.)
Minerals –
For the 2019 Quarter, our mineral interests
contributed total revenues of $12.4 million, which includes oil
& gas royalty revenues and lease bonuses reflected in other
revenues. Including equity income from our AllDale III investment,
ARLP’s mineral segment contributed Segment Adjusted EBITDA of $11.1
million to results for the 2019 Quarter, compared to a contribution
of $4.7 million in the 2018 Quarter. (Following the AllDale
acquisition, results related to the mineral interests controlled by
ARLP are included in our consolidated results while activity
related to our limited partner interest in AllDale III continues to
be reflected as equity method investment income. Please see ARLP
Press Release dated January 3, 2019 for a full description of the
AllDale acquisition.)
As a result of the redemption by Kodiak Gas Services, LLC
("Kodiak") of our preferred equity interest for $135.0 million cash
in the Sequential Quarter, ARLP did not realize equity securities
income in the 2019 Quarter, compared to $3.9 million in the 2018
Quarter.
Compared to the 2018 Quarter, depreciation, depletion and
amortization increased 6.6% to $76.9 million primarily due to
depletion from production of our oil & gas royalty interests in
the 2019 Quarter.
Six Months Ended June 30, 2019 Compared to Six Months
Ended June 30, 2018
Total revenues, excluding transportation revenues, increased
5.9% to $980.8 million for the six months ended June 30, 2019 (the
“2019 Period”), compared to $925.9 million for the six months ended
June 30, 2018 (the “2018 Period”), primarily due to increased coal
sales volumes, higher coal sales prices and the addition of oil
& gas royalty revenues in the 2019 Period. Higher revenues,
combined with the contribution of our minerals segment, including a
$170.0 million non-cash net gain related to the AllDale
acquisition, and the redemption of our preferred interest in Kodiak
led to increased net income, which rose 38.2% to $334.5 million for
the 2019 Period, or $2.57 per basic and diluted limited partner
unit, compared to $242.1 million, or $1.80 per basic and diluted
limited partner unit, for the 2018 Period. EBITDA also increased
27.1% in the 2019 Period to $504.5 million compared to $396.8
million in the 2018 Period. Excluding the 2019 Period impact of the
gain related to the AllDale acquisition and an $80.0 million net
gain on settlement of litigation in the 2018 Period (each described
in more detail below), Adjusted EBITDA increased 5.6% to $334.6
million in the 2019 Period, compared to $316.8 million for the 2018
Period. (For a definition of Adjusted EBITDA and related
reconciliations to comparable GAAP financial measures, please see
the end of this release.)
Coal Operations –
Due to increased coal sales volumes and
prices, coal sales revenues for the 2019 Period increased 4.2% to
$937.3 million, compared to $899.5 million for the 2018 Period. For
the 2019 Period, 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 Quarter 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
due to weather disruptions throughout the first half of 2019. 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. Transportation revenues and expenses increased to $62.9
million in the 2019 Period from $47.3 million in the 2018 Period
primarily due to increased transportation cost of coal shipped to
international markets.
Total Segment Adjusted EBITDA Expense per ton
for our coal operations increased 1.3% in the 2019 Period to $30.13
per ton, compared to $29.73 per ton in the 2018 Period, primarily
due to increased workers’ compensation expense and increased labor
and materials and supplies expenses per ton at certain mines in
addition to a longwall move in the 2019 Period at our Hamilton
mine. Expenses per ton benefited from a higher production and sales
mix from our lower cost per ton mines in addition to a strong
production performance at Tunnel Ridge mentioned above.
Increased coal sales revenues drove Segment
Adjusted EBITDA from our coal operations higher to $338.8 million
for the 2019 Period, compared to $334.7 million for the 2018
Period.
Minerals –
For the 2019 Period, our mineral interests
contributed total revenues of $23.2 million which includes oil
& gas royalty revenues and lease bonuses reflected in other
revenues. We also recorded in the 2019 Period a non-cash
acquisition gain of $177.0 million, of which $7.1 million was
attributable to noncontrolling interest, to reflect the fair value
of the interests in AllDale I and II we already owned at the time
of the AllDale acquisition. Inclusive of this gain, our minerals
segment contributed $174.6 million to ARLP’s net income, compared
to $8.2 million for the 2018 Period. Excluding the impact of the
acquisition gain, Segment Adjusted EBITDA related to oil & gas
royalties increased to $20.2 million for the 2019 Period, compared
to $8.2 million for the 2018 Period.
ARLP's equity securities income increased $5.3 million in the
2019 Period compared to the 2018 Period primarily as a result of an
$11.5 million cash premium received upon the early redemption of
our preferred equity interest in Kodiak in the Sequential
Quarter.
In the 2018 Period, ARLP finalized an agreement with a customer
and certain of its affiliates to settle litigation we initiated in
2015. The settlement agreement provided for a $93.0 million cash
payment to ARLP, future conditional coal supply commitments,
continued export trans-loading capacity for our Appalachian mines
and the acquisition of 57 million tons of additional coal reserves
near our Tunnel Ridge operation. A settlement gain of $80.0 million
was recorded in the 2018 Period reflecting the cash payment
received net of certain costs associated with the gain.
Compared to the 2018 Period, depreciation, depletion and
amortization increased 10.5% to $148.1 million primarily due to
increased coal sales volumes and depletion from production of our
oil & gas royalty interests in the 2019 Period.
Segment Results and Analysis
2019
Second
2018
Second
% Change
Quarter /
2019
First
% Change
(in millions, except per ton and
per BOE data)
Quarter
Quarter
Quarter
Quarter
Sequential
Coal
Operations
Illinois
Basin
Tons sold
7.567
7.820
(3.2)
%
7.673
(1.4)
%
Coal sales price per ton (1)
$
39.91
$
39.70
0.5
%
$
41.35
(3.5)
%
Segment Adjusted EBITDA Expense per ton
(2)
$
27.53
$
25.94
6.1
%
$
25.73
7.0
%
Segment Adjusted EBITDA (2)
$
96.1
$
112.0
(14.2)
%
$
122.7
(21.7)
%
Appalachia
Tons sold
2.649
2.666
(0.6)
%
2.648
—
%
Coal sales price per ton (1)
$
59.63
$
61.10
(2.4)
%
$
59.46
0.3
%
Segment Adjusted EBITDA Expense per ton
(2)
$
39.68
$
38.84
2.2
%
$
37.67
5.3
%
Segment Adjusted EBITDA (2)
$
53.8
$
60.1
(10.5)
%
$
58.7
(8.3)
%
Total
Coal
Tons sold
10.216
10.488
(2.6)
%
10.321
(1.0)
%
Coal sales price per ton (1)
$
45.16
$
45.38
(0.5)
%
$
46.12
(2.1)
%
Segment Adjusted EBITDA Expense per ton
(2)
$
31.11
$
29.73
4.6
%
$
29.17
6.7
%
Segment Adjusted EBITDA (2)
$
154.2
$
176.8
(12.8)
%
$
184.6
(16.5)
%
Minerals
(3)
Volume - BOE
0.274
—
n/m
0.252
8.7
%
Volume - oil percentage of BOE
53.7
%
—
n/m
53.2
%
0.9
%
Average sales price - BOE (4)
$
43.52
$
—
n/m
$
41.20
5.6
%
Segment Adjusted EBITDA Expense (2)
$
1.77
$
—
n/m
$
1.83
(3.4)
%
Segment Adjusted EBITDA (2), (3)
$
11.1
$
4.7
n/m
$
9.1
21.5
%
Consolidated
Total (5)
Total revenues
$
517.1
$
516.1
0.2
%
$
526.6
(1.8)
%
Segment Adjusted EBITDA Expense (2)
$
319.6
$
311.8
2.5
%
$
302.9
5.5
%
Segment Adjusted EBITDA (2)
$
165.3
$
185.3
(10.8)
%
$
206.6
(20.0)
%
____________________________
n/m - Percentage change not
meaningful.
(1)
Coal sales price per ton is defined as
total coal sales divided by total tons sold.
(2)
For definitions of Segment Adjusted EBITDA
Expense and Segment Adjusted EBITDA and related reconciliations to
comparable GAAP financial measures, please see the end of this
release. Segment Adjusted EBITDA Expense per ton is defined as
Segment Adjusted EBITDA Expense – Coal (as reflected in the
reconciliation table at the end of this release) divided by total
tons sold.
(3)
We restructured our reportable segments in
2019 to include our consolidated oil & gas mineral interests
held by AllDale I & II and our equity method investment in
AllDale Minerals III, LP (collectively with AllDale I & II, the
"AllDale Partnerships") in a new Minerals reportable segment. The
2018 Quarter includes equity method investment income from the
AllDale Partnerships prior to the AllDale acquisition.
(4)
Average sales price - BOE is defined as
royalty revenues excluding lease bonus revenue divided by total
barrels of oil equivalent ("BOE"). BOE is calculated on a 6:1 basis
(6,000 cubic feet of natural gas to one barrel of oil).
(5)
Total reflects consolidated results, which
include our other and corporate category and eliminations in
addition to the Illinois Basin, Appalachia and Minerals segments
highlighted above.
Tons sold in the 2019 Quarter decreased 3.2% in the Illinois
Basin 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 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. Primarily due
to lower export sales volumes in the 2019 Quarter, Illinois Basin
coal sales tons also decreased 1.4% compared to the Sequential
Quarter. In Appalachia, sales volumes in the 2019 Quarter were
consistent with both the 2018 and Sequential Quarters. ARLP ended
the 2019 Quarter with total coal inventory of 1.6 million tons, an
increase of 0.5 million tons compared to the end of the 2018
Quarter and a decrease of 0.1 million tons compared to the end of
the Sequential Quarter.
Illinois Basin coal sales price per ton sold in the 2019 Quarter
decreased 3.5% as compared to the Sequential Quarter reflecting
both lower domestic and export sales prices due to weakened market
conditions. In Appalachia, coal sales price per ton decreased 2.4%
compared to the 2018 Quarter due to decreased export volumes and
price realizations at our Mettiki mine, partially offset by
increased domestic prices from our MC Mining operation.
In the Illinois Basin, Segment Adjusted EBITDA Expense per ton
increased 6.1% and 7.0% compared to the 2018 and Sequential
Quarters, respectively, 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 Appalachia, Segment
Adjusted EBITDA Expense per ton increased 2.2% compared to the 2018
Quarter as a result of reduced recoveries across the region offset
partially by strong production at our Tunnel Ridge mine.
Sequentially, Segment Adjusted EBITDA Expense per ton in Appalachia
increased 5.3% due to adverse geology encountered at the start of a
new panel following a longwall move at our Tunnel Ridge mine in the
2019 Quarter. Compared to the 2018 and Sequential Quarters, both
regions were also impacted by increased workers’ compensation
expense in the 2019 Quarter primarily due to the impact of lower
discount rates on mid-year actuarial adjustments. In addition,
reduced production during seasonal vacation down-time in the 2019
Quarter also increased Segment Adjusted EBITDA Expense per ton
compared to the Sequential Quarter.
Total Segment Adjusted EBITDA compared to the 2018 Quarter
benefited from the AllDale acquisition in the Sequential Quarter.
Segment Adjusted EBITDA from our Minerals segment increased by $6.4
million and $2.0 million compared to the 2018 and Sequential
Quarters, respectively.
Market Update and Outlook
"The thermal coal markets, both domestic and export, have
experienced significant volatility over the past two months," said
Mr. Craft. "In the U.S., mild weather has reduced overall power
demand while low natural gas prices and competition from subsidized
renewables have been a drag on coal-fired generation. These
conditions have allowed eastern utilities to replenish stockpiles
to levels that may neutralize the current weather-induced increase
in demand. As such, we are expecting limited spot coal purchases
over the balance of 2019. The international markets also remain
under pressure as mild weather, weak power generation, low LNG
prices and excessive coal inventories at European ports have
contributed to reduced pricing for seaborne thermal coal. Over the
past month export prices have been rising, however, signaling
better opportunities for the second half of 2019."
"ARLP is evaluating the appropriate action to take for the
balance of the year in light of this uncertain market environment.
As a result, we have widened our estimated range for coal volumes
in ARLP’s updated 2019 guidance provided below. At the mid-point,
we now expect to produce and sell approximately 41.6 million tons
in 2019, two million tons below the targets discussed in our last
earnings release. The weakness in the market has most of the coal
industry contemplating their own production scenarios, some of
which could provide opportunity for ARLP. Fortunately, our
low-cost, strategically located coal operations will allow ARLP to
mitigate the impact of these near term challenges by adjusting our
operating schedules up or down as necessary while at the same time
positioning us to take advantage of opportunities that may
materialize."
Mr. Craft continued, "Looking to our oil & gas royalty
platform, we continue to be pleased with the performance of this
segment of ARLP’s business. Minerals production and Segment
Adjusted EBITDA increased 8.7% and 21.5%, respectively, over the
Sequential Quarter and the expected contribution to ARLP’s 2019
full-year results from our existing royalty interests remains
intact. With the expected closing next month of the recently
announced transaction to acquire an additional 9,000 net royalty
acres in the Midland Basin portion of the Permian, we anticipate
increased contribution to 2019 results from our minerals segment
and believe this new business platform will deliver long-term
growth in cash flow and value for ARLP unitholders. "
In conclusion, Mr. Craft said, "Although we currently anticipate
ARLP’s full-year 2019 results will be below our original
expectations, we remain on track to produce and sell record tonnage
this year and continue to believe we are well positioned to
successfully navigate the current challenging conditions until
markets improve. We are also confident that ARLP will generate
distributable cash flow in 2019 to support the announced increase
to our quarterly unitholder distribution while maintaining a
comfortable coverage ratio."
ARLP is updating its 2019 full-year guidance for its operating
and investment activities as follows:
2019 Full Year
Guidance
Coal
Volumes (Million
Short Tons)
Illinois Basin Production
30.5 — 31.5
Appalachia Production
10.3 — 10.8
Total Coal Production
40.8 — 42.3
Illinois Basin Sales Tons
30.5 — 31.6
Appalachia Sales Tons
10.3 — 10.8
Total Sales Tons
40.8 — 42.4
Committed & Priced Sales
Tons
2019 — Domestic
31.4
2019 — Export
7.8
2020 — Domestic
23.8
2020 — Exports
0.1
Per Ton
Estimates
Coal Sales Price per ton sold (1)
~ $44.75 — $45.25
Segment Adjusted EBITDA Expense per ton
sold (2)
~ $29.20 — $30.20
Segment Adjusted EBITDA per ton sold
(2)
~ $15.80 — $16.00
Minerals
Net Average Daily Production (BOE/d)
3,400 — 3,600
Percentage Oil
~ 59.0%
Production and Ad Valorem Taxes (% of
Revenue)
~6.1%
EBITDA (3) contribution from Minerals (4)
– excluding AllDale Gain (5)
$37.0 — $47.0 million
Consolidated
Revenues (Excluding Transportation
Revenues)
$1.91 — $2.00 billion
EBITDA (3) — excluding AllDale Gain
(5)
$625.0 — $665.0 million
Net Income Attributable to ARLP
$432.5 — $472.5 million
Depreciation, depletion and
amortization
$310.0 — $320.0 million
Capital Expenditures and Investments
(6)
$345.0 — $375.0 million
____________________________
(1)
Sales price per ton is defined as total
coal sales divided by total tons sold.
(2)
For definitions of Segment Adjusted EBITDA
Expense and Segment Adjusted EBITDA and related reconciliations to
comparable GAAP financial measures, please see the end of this
release. Segment Adjusted EBITDA Expense per ton excludes Minerals
and Segment Adjusted EBITDA per ton excludes Minerals and equity
securities income.
(3)
For a definition of EBITDA and related
reconciliations to comparable GAAP financial measures, please see
the end of this release.
(4)
The estimated EBITDA contribution from
Minerals is subject to a number of factors including estimated
drilling activity, oil and gas production volumes and price
realizations, each of which is subject to change.
(5)
In the first quarter of 2019, ARLP
recorded a non-cash gain on acquisition of $170.0 million, net of
$7.1 million allocated to noncontrolling interest, to reflect the
fair value of its previous investments in the AllDale I and II
partnerships.
(6)
Capital expenditures in 2019 are primarily
related to maintenance capital expenditures for ARLP’s coal
operations, including $35.0 - $40.0 million for development of the
Excel Mine No. 5, and $45.0 - $50.0 million of growth capital to
support future production increases at our River View and Gibson
South mines. Considering its current five-year planning horizon,
ARLP is estimating total average maintenance capital expenditures
for its coal operations of approximately $5.57 per ton produced for
long-term distribution planning purposes.
A conference call regarding ARLP's 2019 Quarter financial
results is scheduled for today at 10:00 a.m. Eastern. To
participate in the conference call, dial (877) 506-1589 and request
to be connected to the Alliance Resource Partners, L.P. earnings
conference call. Canadian callers should dial (855) 669-9657 and
all other international callers should dial (412) 317-5240 and
request to be connected to the same call. Investors may also listen
to the call via the "investor information" section of ARLP's
website at http://www.arlp.com.
An audio replay of the conference call will be available for
approximately one week. To access the audio replay, dial US Toll
Free (877) 344-7529; International Toll (412) 317-0088; Canada Toll
Free (855) 669-9658 and request to be connected to replay access
code 10133360.
This announcement is intended to be a qualified notice under
Treasury Regulation Section 1.1446-4(b), with 100% of the
partnership’s distributions to foreign investors attributable to
gross income, gain or loss that is effectively connected with a
United States trade or business. Accordingly, ARLP's distributions
to foreign investors are subject to federal income tax withholding
at the highest applicable tax rate.
About Alliance Resource Partners, L.P.
ARLP is a diversified natural resource company that generates
income from coal production and oil and gas mineral interests
located in strategic producing regions across the United
States.
ARLP currently produces coal from eight mining complexes it
operates in Illinois, Indiana, Kentucky, Maryland and West
Virginia. ARLP also operates a coal loading terminal on the Ohio
River at Mount Vernon, Indiana. ARLP markets its coal production to
major domestic and international utilities and industrial users and
is currently the second largest coal producer in the eastern United
States.
ARLP generates royalty income from mineral interests it owns in
premier oil and gas producing regions in the United States,
primarily the Anadarko, Permian, Williston and Appalachian
basins.
In addition, ARLP also generates income from a variety of other
sources.
News, unit prices and additional information about ARLP,
including filings with the Securities and Exchange Commission
("SEC"), are available at http://www.arlp.com. For more
information, contact the investor relations department of ARLP at
(918) 295-7674 or via e-mail at investorrelations@arlp.com.
The statements and projections used throughout this release are
based on current expectations. These statements and projections are
forward-looking, and actual results may differ materially. These
projections do not include the potential impact of any mergers,
acquisitions or other business combinations that may occur after
the date of this release. We have included more information below
regarding business risks that could affect our results.
FORWARD-LOOKING STATEMENTS: With the exception of
historical matters, any matters discussed in this press release are
forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from projected
results. These risks, uncertainties and contingencies include, but
are not limited to, the following: changes in coal prices, which
could affect our operating results and cash flows; changes in
competition in domestic and international coal markets and our
ability to respond to such changes; legislation, regulations, and
court decisions and interpretations thereof, both domestic and
foreign, including those relating to the environment and the
release of greenhouse gases, mining, miner health and safety and
health care; deregulation of the electric utility industry or the
effects of any adverse change in the coal industry, electric
utility industry, or general economic conditions; risks associated
with the expansion of our operations and properties; our ability to
identify and complete acquisitions; dependence on significant
customer contracts, including renewing existing contracts upon
expiration; adjustments made in price, volume or terms to existing
coal supply agreements; changing global economic conditions or in
industries in which our customers operate; recent action and the
possibility of future action on trade made by United States and
foreign governments; the effect of new tariffs and other trade
measures; liquidity constraints, including those resulting from any
future unavailability of financing; customer bankruptcies,
cancellations or breaches to existing contracts, or other failures
to perform; customer delays, failure to take coal under contracts
or defaults in making payments; fluctuations in coal demand, prices
and availability; changes in oil & gas prices, which could,
among other things, affect our investments in oil & gas mineral
interests; our productivity levels and margins earned on our coal
sales; decline in or change in the coal industry's share of
electricity generation, including as a result of environmental
concerns related to coal mining and combustion and the cost and
perceived benefits of other sources of electricity, such as natural
gas, nuclear energy and renewable fuels; changes in raw material
costs; changes in the availability of skilled labor; our ability to
maintain satisfactory relations with our employees; increases in
labor costs including costs of health insurance and taxes resulting
from the Affordable Care Act, adverse changes in work rules, or
cash payments or projections associated with post-mine reclamation
and workers' compensation claims; increases in transportation costs
and risk of transportation delays or interruptions; operational
interruptions due to geologic, permitting, labor, weather-related
or other factors; risks associated with major mine-related
accidents, mine fires, mine floods or other interruptions; results
of litigation, including claims not yet asserted; foreign currency
fluctuations that could adversely affect the competitiveness of our
coal abroad; difficulty maintaining our surety bonds for mine
reclamation as well as workers' compensation and black lung
benefits; difficulty in making accurate assumptions and projections
regarding post-mine reclamation as well as pension, black lung
benefits and other post-retirement benefit liabilities;
uncertainties in estimating and replacing our coal reserves;
uncertainties in estimating and replacing our oil & gas
reserves; uncertainties in the amount of oil & gas production
due to the level of drilling and completion activity by the
operators of our oil & gas properties; a loss or reduction of
benefits from certain tax deductions and credits; difficulty
obtaining commercial property insurance, and risks associated with
our participation in the commercial insurance property program; and
difficulty in making accurate assumptions and projections regarding
future revenues and costs associated with equity investments in
companies we do not control.
Additional information concerning these and other
factors can be found in ARLP's public periodic filings with the
SEC, including ARLP's Annual Report on Form 10-K for the year ended
December 31, 2018, filed on February 22, 2019 and ARLP's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2019, filed on
May 6, 2019 with the SEC. Except as required by applicable
securities laws, ARLP does not intend to update its forward-looking
statements.
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND OPERATING DATA
(In thousands, except unit and
per unit data)
(Unaudited)
Three Months
Ended
Six Months
Ended
June 30,
June 30,
2019
2018
2019
2018
Tons Sold
10,216
10,488
20,537
19,886
Tons Produced
10,036
9,714
21,359
20,196
Mineral Interest Volumes
(BOE)
274
—
526
—
SALES AND OPERATING
REVENUES:
Coal sales
$
461,310
$
475,925
$
937,326
$
899,535
Oil & gas royalties
11,892
—
22,285
—
Transportation revenues
32,630
27,532
62,868
47,317
Other revenues
11,222
12,680
21,177
26,407
Total revenues
517,054
516,137
1,043,656
973,259
EXPENSES:
Operating expenses (excluding
depreciation, depletion and amortization)
314,273
311,201
617,001
588,439
Transportation expenses
32,630
27,532
62,868
47,317
Outside coal purchases
5,311
68
5,311
1,442
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)
Total operating expenses
448,648
427,977
870,565
724,873
INCOME FROM
OPERATIONS
68,406
88,160
173,091
248,386
Interest expense, net
(10,711)
(9,955)
(22,133)
(20,813)
Interest income
138
24
229
89
Equity method investment income
550
4,839
874
8,575
Equity securities income
—
3,854
12,906
7,578
Acquisition gain
—
—
177,043
—
Other expense
(13)
(542)
(142)
(1,389)
INCOME BEFORE INCOME
TAXES
58,370
86,380
341,868
242,426
INCOME TAX EXPENSE
(BENEFIT)
186
3
80
(7)
NET INCOME
58,184
86,377
341,788
242,433
LESS: NET INCOME ATTRIBUTABLE TO
NONCONTROLLING INTEREST
(114)
(187)
(7,290)
(335)
NET INCOME ATTRIBUTABLE TO
ARLP
$
58,070
$
86,190
$
334,498
$
242,098
NET INCOME ATTRIBUTABLE TO
ARLP
GENERAL PARTNER
$
—
$
—
$
—
$
1,560
LIMITED PARTNERS
$
58,070
$
86,190
$
334,498
$
240,538
BASIC AND DILUTED NET INCOME OF
ARLP PER LIMITED PARTNER UNIT
$
0.44
$
0.64
$
2.57
$
1.80
WEIGHTED-AVERAGE NUMBER OF UNITS
OUTSTANDING – BASIC AND DILUTED
128,391,191
131,279,910
128,271,158
131,050,836
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except unit
data)
(Unaudited)
June 30,
December
31,
2019
2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
55,215
$
244,150
Trade receivables
178,128
174,914
Other receivables
628
395
Inventories, net
84,661
59,206
Advance royalties, net
1,274
1,274
Prepaid expenses and other assets
11,592
20,747
Total current assets
331,498
500,686
PROPERTY, PLANT AND
EQUIPMENT:
Property, plant and equipment, at cost
3,496,144
2,925,808
Less accumulated depreciation, depletion
and amortization
(1,584,513)
(1,513,450)
Total property, plant and equipment,
net
1,911,631
1,412,358
OTHER ASSETS:
Advance royalties, net
52,911
42,923
Equity method investments
28,672
161,309
Equity securities
—
122,094
Goodwill
136,399
136,399
Operating lease right-of-use assets
20,421
—
Other long-term assets
21,189
18,979
Total other assets
259,592
481,704
TOTAL ASSETS
$
2,502,721
$
2,394,748
LIABILITIES AND PARTNERS'
CAPITAL
CURRENT
LIABILITIES:
Accounts payable
$
108,116
$
96,397
Accrued taxes other than income taxes
17,507
16,762
Accrued payroll and related expenses
42,484
43,113
Accrued interest
5,154
5,022
Workers' compensation and pneumoconiosis
benefits
11,270
11,137
Current finance lease obligations
38,214
46,722
Current operating lease obligations
5,554
—
Other current liabilities
18,734
19,718
Current maturities, long-term debt,
net
78,144
92,000
Total current liabilities
325,177
330,871
LONG-TERM
LIABILITIES:
Long-term debt, excluding current
maturities, net
467,141
564,004
Pneumoconiosis benefits
73,607
68,828
Accrued pension benefit
40,841
43,135
Workers' compensation
45,422
41,669
Asset retirement obligations
132,414
127,655
Long-term finance lease obligations
2,549
10,595
Long-term operating lease obligations
14,806
—
Other liabilities
21,285
20,304
Total long-term liabilities
798,065
876,190
Total liabilities
1,123,242
1,207,061
PARTNERS' CAPITAL:
ARLP Partners' Capital:
Limited Partners - Common Unitholders
128,391,191 and 128,095,511 units outstanding, respectively
1,417,962
1,229,268
Accumulated other comprehensive loss
(50,573)
(46,871)
Total ARLP Partners' Capital
1,367,389
1,182,397
Noncontrolling interest
12,090
5,290
Total Partners' Capital
1,379,479
1,187,687
TOTAL LIABILITIES AND PARTNERS'
CAPITAL
$
2,502,721
$
2,394,748
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended
June 30,
2019
2018
CASH FLOWS FROM OPERATING
ACTIVITIES
$
301,703
$
373,244
CASH FLOWS FROM INVESTING
ACTIVITIES:
Property, plant and equipment:
Capital expenditures
(165,627)
(120,646)
Increase in accounts payable and accrued
liabilities
4,442
2,376
Proceeds from sale of property, plant and
equipment
701
477
Contributions to equity method
investments
—
(11,400)
Distributions received from investments in
excess of cumulative earnings
2,358
1,191
Payment for acquisition of business, net
of cash acquired
(175,060)
—
Escrow payment for Wing acquisition
(10,875)
—
Cash received from redemption of equity
securities
134,288
—
Net cash used in investing activities
(209,773)
(128,002)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under securitization
facility
118,000
112,600
Payments under securitization facility
(135,000)
(123,500)
Proceeds from equipment financing
10,000
—
Payments on equipment financing
(253)
—
Borrowings under revolving credit
facilities
90,000
70,000
Payments under revolving credit
facilities
(195,000)
(100,000)
Payments on finance lease obligations
(16,554)
(14,952)
Payments for purchases of units under unit
repurchase program
(5,251)
(7,639)
Net settlement of withholding taxes on
issuance of units in deferred compensation plans
(7,817)
(2,081)
Cash contribution by General Partner
—
41
Cash contribution by affiliated entity
—
2,142
Cash obtained in Simplification
Transactions
—
1,139
Distributions paid to Partners
(138,500)
(137,443)
Other
(490)
(1,080)
Net cash used in financing
activities
(280,865)
(200,773)
NET CHANGE IN CASH AND CASH
EQUIVALENTS
(188,935)
44,469
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD
244,150
6,756
CASH AND CASH EQUIVALENTS AT END
OF PERIOD
$
55,215
$
51,225
Reconciliation of GAAP "net income
attributable to ARLP" to non-GAAP "EBITDA," "Adjusted EBITDA" and
"Distributable Cash Flow" (in thousands).
EBITDA is defined as net income attributable to ARLP before net
interest expense, income taxes and depreciation, depletion and
amortization and Adjusted EBITDA is EBITDA modified for certain
items that may not reflect the trend of future results, such as
settlement gains and acquisition gains. Distributable cash flow
("DCF") is defined as Adjusted EBITDA excluding interest expense
(before capitalized interest), interest income, income taxes and
estimated maintenance capital expenditures. Distribution coverage
ratio ("DCR") is defined as DCF divided by distributions paid to
partners.
Management believes that the presentation of such additional
financial measures provides useful information to investors
regarding our performance and results of operations because these
measures, when used in conjunction with related GAAP financial
measures, (i) provide additional information about our core
operating performance and ability to generate and distribute cash
flow, (ii) provide investors with the financial analytical
framework upon which management bases financial, operational,
compensation and planning decisions and (iii) present measurements
that investors, rating agencies and debt holders have indicated are
useful in assessing us and our results of operations.
EBITDA, Adjusted EBITDA, DCF and DCR should not be considered as
alternatives to net income attributable to ARLP, net income, income
from operations, cash flows from operating activities or any other
measure of financial performance presented in accordance with GAAP.
EBITDA, Adjusted EBITDA and DCF are not intended to represent cash
flow and do not represent the measure of cash available for
distribution. Our method of computing EBITDA, Adjusted EBITDA, DCF
and DCR may not be the same method used to compute similar measures
reported by other companies, or EBITDA, Adjusted EBITDA, DCF and
DCR may be computed differently by us in different contexts (i.e.
public reporting versus computation under financing
agreements).
Three Months Ended
Six Months Ended
Three Months Ended
Year Ended
June 30,
June 30,
March 31,
December 31,
2019
2018
2019
2018
2019
2019E Midpoint
Net income attributable to ARLP
$
58,070
$
86,190
$
334,498
$
242,098
$
276,428
$
452,500
Depreciation, depletion and
amortization
76,913
72,150
148,052
133,998
71,139
315,000
Interest expense, net
10,811
10,227
22,396
21,285
11,585
47,000
Capitalized interest
(238)
(296)
(492)
(561)
(254)
—
Income tax expense (benefit)
186
3
80
(7)
(106)
500
EBITDA
145,742
168,274
504,534
396,813
358,792
815,000
Settlement gain
—
—
—
(80,000)
—
—
Acquisition gain
—
—
(177,043)
—
(177,043)
(170,000)
Acquisition gain attributable to
noncontrolling interest
—
—
7,083
—
7,083
—
Adjusted EBITDA
145,742
168,274
334,574
316,813
188,832
645,000
Interest expense, net
(10,811)
(10,227)
(22,396)
(21,285)
(11,585)
(47,000)
Income tax (expense) benefit
(186)
(3)
(80)
7
106
(500)
Estimated maintenance capital expenditures
(1)
(55,901)
(45,850)
(118,970)
(95,325)
(63,069)
(231,400)
Distributable Cash Flow
$
78,844
$
112,194
$
193,128
$
200,210
$
114,284
$
366,100
Distributions paid to partners
$
69,489
$
69,047
$
138,500
$
137,443
$
69,011
$
278,800
Distribution Coverage Ratio
1.13
1.62
1.39
1.46
1.66
1.31
____________________________
(1)
Our maintenance capital expenditures are
those capital expenditures required to maintain, over the
long-term, the operating capacity of our capital assets. We
estimate maintenance capital expenditures on an annual basis based
upon a five-year planning horizon. For the 2019 planning horizon,
average annual estimated maintenance capital expenditures are
assumed to be $5.57 per ton produced compared to the estimated
$4.72 per ton produced in 2018. Our actual maintenance capital
expenditures fluctuate depending on various factors, including
maintenance schedules and timing of capital projects, among others.
We annually disclose our actual maintenance capital expenditures in
our Form 10-K filed with the SEC.
Reconciliation of GAAP "Operating
Expenses" to non-GAAP "Segment Adjusted EBITDA Expense" and
Reconciliation of non-GAAP "Adjusted EBITDA" to "Segment Adjusted
EBITDA" and "Segment Adjusted EBITDA" (in thousands).
Segment Adjusted EBITDA Expense includes operating expenses,
coal purchases and other expense. Segment Adjusted EBITDA Expense –
Coal excludes expenses of our Minerals segment. Transportation
expenses are excluded as these expenses are passed through to our
customers and, consequently, we do not realize any margin 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 EBITDA and 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.
Three Months
Ended
Six Months
Ended
Three Months
Ended
June 30,
June 30,
March 31,
2019
2018
2019
2018
2019
Operating expense
$
314,273
$
311,201
$
617,001
$
588,439
$
302,728
Outside coal purchases
5,311
68
5,311
1,442
—
Other expense
13
542
142
1,389
129
Segment Adjusted EBITDA Expense
319,597
311,811
622,454
591,270
302,857
Minerals expenses
(1,765)
—
(3,592)
—
(1,827)
Segment Adjusted EBITDA Expense - Coal
$
317,832
$
311,811
$
618,862
$
591,270
$
301,030
Divided by tons sold
10,216
10,488
20,537
19,886
10,321
Segment Adjusted EBITDA Expense per
ton
$
31.11
$
29.73
$
30.13
$
29.73
$
29.17
Segment Adjusted EBITDA 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 –
Coal excludes the contribution of our Minerals segment and equity
securities income to allow management to focus solely on the
operating performance of our coal segments.
Three Months
Ended
Six Months
Ended
Three Months
Ended
June 30,
June 30,
March 31,
2019
2018
2019
2018
2019
Adjusted EBITDA (See reconciliation to
GAAP above)
$
145,742
$
168,274
$
334,574
$
316,813
$
188,832
General and administrative
19,521
17,026
37,333
33,677
17,812
Segment Adjusted EBITDA
165,263
185,300
371,907
350,490
206,644
Minerals segment
(11,098)
(4,652)
(20,230)
(8,240)
(9,132)
Equity securities income
—
(3,854)
(12,906)
(7,578)
(12,906)
Segment Adjusted EBITDA – Coal
$
154,165
$
176,794
$
338,771
$
334,672
$
184,606
Divided by tons sold
10,216
10,488
20,537
19,886
10,321
Segment Adjusted EBITDA per ton
$
15.09
$
16.86
$
16.50
$
16.83
$
17.89
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190726005066/en/
Brian L. Cantrell Alliance Resource
Partners, L.P. (918) 295-7673
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