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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________TO_____________
COMMISSION FILE NO.: 0-26823
ALLIANCE RESOURCE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1564280
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1717 SOUTH BOULDER AVENUE, SUITE 600, TULSA, OKLAHOMA 74119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(918) 295-7600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of August 11, 2000, 8,982,780 Common Units and 6,422,531
Subordinated Units are outstanding.
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TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 .............................................................. 1
Consolidated and Combined Statements of Income for the three months
ended June 30, 2000 and 1999 (Predecessor) and the six months ended
June 30, 2000 and 1999 (Predecessor) ........................................... 2
Consolidated and Combined Condensed Statements of Cash Flows for
the six months ended June 30, 2000 and 1999 (Predecessor) ...................... 3
Consolidated Statement of Partners' Capital (Deficit) from January 1, 2000
to June 30, 2000 ............................................................... 4
Notes to Consolidated and Combined Financial Statements ........................ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .............................................................. 11
FORWARD-LOOKING STATEMENTS ..................................................... 12
</TABLE>
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PART II
OTHER INFORMATION
<TABLE>
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ITEM 1. LEGAL PROCEEDINGS .............................................................. 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ...................................... 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ............................................................... 13
ITEM 5. OTHER INFORMATION .............................................................. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................................... 13
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
2000 1999
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 1,192 $ 8,000
Trade receivables ..................................................... 38,704 33,056
Marketable securities (at cost, which approximates fair value) ........ 36,249 42,339
Inventories ........................................................... 22,370 21,130
Advance royalties ..................................................... 1,557 1,557
Prepaid expenses and other assets ..................................... 7,957 923
----------- -----------
Total current assets ............................................. 108,029 107,005
PROPERTY, PLANT AND EQUIPMENT AT COST 288,089 278,221
LESS ACCUMULATED DEPECIATION, DEPLETION AND AMORTIZATION (115,786) (102,709)
----------- -----------
172,303 175,512
OTHER ASSETS:
Advance royalties ..................................................... 8,147 8,306
Coal supply agreements, net ........................................... 18,102 19,879
Other long-term assets ................................................ 3,809 4,112
----------- -----------
$ 310,390 $ 314,814
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable....................................................... $ 17,994 $ 19,377
Due to affiliates ..................................................... 7,326 806
Accrued taxes other than income taxes ................................. 5,213 4,574
Accrued payroll and related expenses................................... 6,829 8,811
Accrued interest....................................................... 5,401 5,491
Workers' compensation and pneumoconiosis benefits ..................... 4,249 4,317
Other current liabilities ............................................. 5,148 2,937
----------- -----------
Total current liabilities......................................... 52,160 46,313
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities .......................... 230,000 230,000
Accrued pneumoconiosis benefits ....................................... 21,764 21,655
Workers' compensation ................................................. 16,426 15,696
Reclamation and mine closing .......................................... 13,506 13,407
Other liabilities ..................................................... 3,718 3,671
----------- -----------
Total liabilities ......................................... 337,574 330,742
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL (DEFICIT):
Common Unitholders 8,982,780 units outstanding ................. 152,273 158,705
Subordinated Unitholder 6,422,531 units outstanding ............ 118,675 123,273
General Partners ............................................... (298,132) (297,906)
----------- -----------
Total Partners' capital (deficit) ................................ (27,184) (15,928)
----------- -----------
$ 310,390 $ 314,814
=========== ===========
</TABLE>
See notes to unaudited consolidated and combined financial statements.
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
PARTNERSHIP PREDECESSOR PARTNERSHIP PREDECESSOR
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
SALES AND OPERATING REVENUES:
Coal sales ............................................. $ 82,698 $ 86,566 $ 168,739 $ 169,364
Other sales and operating revenues .................... 167 179 599 443
-------------- ------------ ----------- -----------
Total revenues ............................... 82,865 86,745 169,338 169,807
-------------- ------------ ----------- -----------
EXPENSES:
Operating expenses ..................................... 59,436 60,199 123,529 117,042
Outside purchases....................................... 4,332 6,704 7,293 15,168
General and administrative ............................. 3,625 3,404 7,212 6,953
Depreciation, depletion and amortization ............ 9,560 9,443 19,201 19,376
Interest expense (net of interest income and interest
capitalized for the three and six months ended
June 30, 2000 of $656 and $1,362, respectively)... 4,204 39 8,262 79
-------------- ------------ ----------- -----------
Total operating expenses .................. 81,157 79,789 165,497 158,618
-------------- ------------ ----------- -----------
INCOME FROM OPERATIONS .................................... 1,708 6,956 3,841 11,189
OTHER INCOME ............................................. 390 156 623 197
-------------- ------------ ----------- -----------
INCOME BEFORE INCOME TAXES ................................ 2,098 7,112 4,464 11,386
INCOME TAX EXPENSE ....................................... -- 2,178 -- 3,483
-------------- ------------ ----------- -----------
NET INCOME ............................................... $ 2,098 $ 4,934 $ 4,464 $ 7,903
============== ============ =========== ===========
GENERAL PARTNERS' INTEREST IN NET INCOME ................. $ 42 $ 89
============== ===========
LIMITED PARTNERS' INTEREST IN NET INCOME ................. $ 2,056 $ 4,375
============== ===========
BASIC AND DILUTED NET INCOME PER LIMITED
PARTNER UNIT ............................................. $ 0.13 $ 0.28
============== ===========
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING-BASIC ........................................ 15,405,311 15,405,311
============== ===========
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING-DILUTED ...................................... 15,550,845 15,550,845
============== ===========
</TABLE>
See notes to unaudited consolidated and combined financial statements.
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------
PARTNERSHIP PREDECESSOR
JUNE 30, JUNE 30,
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 15,939 $ 18,408
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ........................................ (14,233) (13,626)
Proceeds from sale of property, plant and equipment............................... 73 147
Purchase of marketable securities................................................. (35,714) --
Proceeds from the maturity of marketable securities .............................. 42,847 --
----------- -----------
Net cash used in investing activities ............................... (7,027) (13,479)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to Partners ......................................................... (15,720) --
Return of capital to Parent....................................................... -- (4,929)
----------- -----------
Net cash used in financing activities................................ (15,720) (4,929)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............................................ (6,808) --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................... 8,000 --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 1,192 $ --
=========== ===========
CASH PAID FOR:
Interest ......................................................................... $ 9,423 $ --
=========== ===========
Income taxes paid through Parent ................................................. $ -- $ 4,638
=========== ===========
</TABLE>
See notes to unaudited consolidated and combined financial statements.
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FROM JANUARY 1, 2000 TO JUNE 30, 2000
(IN THOUSANDS, EXCEPT UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
NUMBER OF LIMITED PARTNERS'
PARTNER UNITS GENERAL CAPITAL
COMMON SUBORDINATED COMMON SUBORDINATED PARTNERS (DEFICIT)
------ ------------ ------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 8,982,780 6,422,531 $ 158,705 $ 123,273 $(297,906) $ (15,928)
Distribution to Partners ...... -- -- (8,983) (6,422) (315) (15,720)
Net income .................... -- -- 2,551 1,824 89 4,464
---------- ---------- ---------- ---------- --------- ----------
Balance at June 30, 2000 ......... 8,982,780 6,422,531 $ 152,273 $ 118,675 $(298,132) $ (27,184)
========== ========== ========== ========== ========= ==========
</TABLE>
See notes to unaudited consolidated and combined financial statements.
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND PRESENTATION
Alliance Resource Partners, L.P. is a Delaware limited partnership that
was formed on May 17, 1999, to acquire, own and operate certain coal production
and marketing assets of Alliance Resource Holdings, Inc., a Delaware corporation
("ARH" or "Parent") (formerly known as Alliance Coal Corporation) and
substantially all of its operating subsidiaries (collectively, the
"Partnership").
Prior to August 20, 1999, (a) MAPCO Coal Inc., a Delaware corporation
and direct wholly-owned subsidiary of ARH merged with and into Alliance Coal,
LLC, a Delaware limited liability company ("Alliance Coal"), which prior to
August 20, 1999 was also a wholly-owned subsidiary of ARH, (b) several other
indirect corporate subsidiaries of ARH were merged with and into corresponding
limited liability companies, each of which is a wholly-owned subsidiary of
Alliance Coal, and (c) two indirect limited liability company subsidiaries of
ARH became subsidiaries of Alliance Coal as a result of the merger described in
clause (a) above. Collectively, the coal production and marketing assets and
operating subsidiaries of ARH acquired by the Partnership are referred to as the
Alliance Resource Group (the "Predecessor"). The Delaware limited partnerships
and limited liability companies that comprise the Partnership are as follows:
Alliance Resource Partners, L.P., Alliance Resource Operating Partners, L.P.
(the "Intermediate Partnership"), Alliance Coal, LLC (the holding company for
operations), Alliance Land, LLC, Alliance Properties, LLC, Backbone Mountain,
LLC, Excel Mining, LLC, Gibson County Coal, LLC, Hopkins County Coal, LLC, MC
Mining, LLC, Mettiki Coal, LLC, Mettiki Coal (WV), LLC, Mt. Vernon Transfer
Terminal, LLC, Pontiki Coal, LLC, Toptiki Coal, LLC, Webster County Coal, LLC,
and White County Coal, LLC.
The accompanying consolidated financial statements include the accounts
and operations of the Partnership and present the financial position as of June
30, 2000, and the results of their operations, cash flows and changes in
partners' capital (deficit) for the three and six months ended June 30, 2000.
All material intercompany transactions and accounts have been eliminated. The
accompanying combined financial statements include the accounts and operations
of the Predecessor for the periods indicated. All significant intercompany
transactions and accounts have been eliminated.
These consolidated and combined financial statements and notes thereto
for interim periods are unaudited. However, in the opinion of management, these
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation of the results of the
periods presented. Results for interim periods are not necessarily indicative of
results for a full year.
These consolidated and combined financial statements and notes are
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and should be read in conjunction with the
consolidated and combined financial statements and notes included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1999.
Initial Public Offering and Concurrent Transactions
On August 20, 1999, the Partnership completed its initial public
offering (the "IPO") of 7,750,000 Common Units ("Common Units") representing
limited partner interests in the Partnership at a price of $19.00 per unit.
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Concurrently with the closing of the IPO, the Partnership entered into
a Contribution and Assumption Agreement (the "Contribution Agreement"), dated
August 20, 1999, among the Partnership and the other parties named therein,
whereby, among other things, ARH contributed its 100% member interest in
Alliance Coal, which is the sole member of fourteen subsidiary operating limited
liability companies, to the Intermediate Partnership which holds a 99.999%
non-managing member interest in Alliance Coal. The Partnership and the
Intermediate Partnership are managed by Alliance Resource Management GP, LLC, a
Delaware limited liability company (the "Managing GP"), which, as a result of
the consummation of the transactions under the Contribution Agreement, holds (a)
a 0.99% and 1.0001% managing general partner interest in the Partnership and the
Intermediate Partnership, respectively, and (b) a 0.001% managing member
interest in Alliance Coal. Also as a result of the consummation of the
transactions completed under the Contribution Agreement, Alliance Resource GP,
LLC, a Delaware limited liability company and wholly-owned subsidiary of ARH
(the "Special GP"), holds, (a) 1,232,780 Common Units, (b) 6,422,531
Subordinated Units ("Subordinated Units") convertible into Common Units in the
future upon the occurrence of certain events and (c) a 0.01% special general
partner interest in each of the Partnership and the Intermediate Partnership.
Concurrently with the closing of the IPO, the Special GP issued and the
Intermediate Partnership assumed the obligations with respect to $180 million
principal amount of 8.31% senior notes due August 20, 2014. The Special GP also
entered into, and the Intermediate Partnership assumed the obligations under, a
$100 million credit facility. The credit facility consists of three tranches,
including a $50 million term loan facility, a $25 million working capital
facility, and a $25 million revolving credit facility. The Partnership has
borrowings outstanding of $50 million under the term loan facility and no
borrowings outstanding under either the working capital facility or the
revolving credit facility at June 30, 2000. The weighted average interest rate
on the term loan facility at June 30, 2000 was 7.69%. The credit facility
agreement expires August 2004. The senior notes and credit facility contain
various restrictive and affirmative covenants, including the amount of
distributions by the Intermediate Partnership and the incurrence of other debt.
The Partnership was in compliance with the covenants of both the senior notes
and credit facility at June 30, 2000.
Consistent with guidance provided by the Emerging Issues Task Force in
Issue No. 87-21 "Change of Accounting Basis in Master Limited Partnership
Transactions", the Partnership maintained the historical cost of the $121
million of net assets received under the Contribution Agreement.
Analysis of Pro Forma Results of Operations
For the six months ended June 30, 1999, the pro forma total revenues
would have been approximately $169,807,000. For the six months ended June 30,
1999, the pro forma net income would have been approximately $1,749,000 and net
income per limited partner unit would have been $0.11. The pro forma results of
operations reflect certain pro forma adjustments to the historical results of
operations as if the Partnership had been formed on January 1, 1999. The pro
forma adjustments include (a) pro forma interest on debt assumed by the
Partnership and (b) the elimination of income tax expense as income taxes will
be borne by the partners and not the Partnership.
2. CONTINGENCIES
Transloading Facility Dispute
The Partnership is involved in litigation with Seminole Electric
Cooperative, Inc. ("Seminole") with respect to Seminole's termination of a
long-term contract for the transloading of coal from rail to barge through the
Partnership's terminal in Indiana. Seminole filed a lawsuit December 16, 1998,
seeking declaratory relief as to the damages owed to the Partnership as a result
of such termination. Rather than
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pay the damages stipulated in the contract for breach, Seminole sought the
court's agreement that the proper damage award should be calculated based on the
Partnership's loss of net profits from its terminal for the term of the
agreement.
Seminole ceased transloading any coal shipments through the terminal and
is transporting coal deliveries by rail under the separate supply contract. The
Partnership is exploring alternative uses for the terminal. The Partnership is
vigorously defending its contract rights and believes those damages will be in
excess of the carrying value of the terminal.
In April 2000, the parties agreed to submit this dispute to binding
arbitration to commence during June 2000, and filed a joint motion to stay the
litigation during the pendency of the arbitration. As part of the agreement to
proceed with binding arbitration, the parties entered into an Interim Coal
Supply Agreement effective May 1, 2000, a copy of which is filed with this Form
10-Q as Exhibit 10.15. The arbitration took place during June 2000, with closing
arguments in early August 2000. A decision from the arbitrator is expected by
the end of August.
General Litigation
The Partnership is involved in various lawsuits, claims and regulatory
proceedings incidental to its business. In the opinion of management, the
outcome of such matters will not have a material adverse effect on the
Partnership's business, financial position or results of operations.
3. COAL PREPARATION PLANT
On March 23, 2000, the Partnership entered into an arrangement with the
Special GP for construction of a coal preparation plant and ancillary facilities
(collectively the "coal preparation plant") at a new mining complex currently
under development. Under the terms of the arrangement, the Special GP is
constructing the coal preparation plant at an anticipated cost of approximately
$23.1 million and has the option to sell or lease the coal preparation plant to
the Partnership when construction is completed within the next year. Accumulated
costs associated with this "build-to-suit" facility totaled approximately $7.7
million as of June 30, 2000. The asset and corresponding liability are included
in the Partnership's balance sheet as prepaid expenses and other assets and due
to affiliates, respectively, since it is the Partnership's current intention to
enter into an operating lease agreement with the Special GP or a third party for
the use of the coal preparation plant. In the event that the operating lease is
entered into with either the Special GP or a third party, the Partnership would
derecognize the corresponding asset and liability associated with the coal
preparation plant from its consolidated balance sheet once construction is
completed and the lease term begins.
4. SUBSEQUENT EVENTS
On July 24, 2000, the Partnership declared a minimum quarterly
distribution for the period from April 1, 2000, to June 30, 2000, of $0.50 per
unit, on all of its Common and Subordinated Units outstanding, totaling
approximately $7,703,000.
The Partnership has additionally entered into discussions with the
Special GP to lease in excess of 150 million saleable tons of Pittsburgh No. 8
seam coal located on the common border of West Virginia and Pennsylvania. The
Pittsburgh No. 8 coal seam is known for its low cost and high Btu content.
Timing of the coal reserve lease, if an agreement can be reached, and subsequent
development of these reserves will be dependent on market conditions.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
PARTNERSHIP PREDECESSOR PARTNERSHIP PREDECESSOR
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tons sold (000's) 3,500 3,768 7,225 7,345
Tons produced (000's) 3,168 3,429 7,056 7,020
Revenues per ton sold $ 23.68 $ 23.02 $ 23.44 $ 23.12
Cost per ton sold (1) $ 19.26 $ 18.66 $ 19.11 $ 18.95
</TABLE>
(1) Cost per ton is based on the total of operating expenses, outside purchases
and general and administrative expenses divided by tons sold.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Coal sales. Coal sales for the three months ended June 30, 2000 (the
"2000 Quarter") decreased 4.5% to $82.7 million from $86.6 million for the three
months ended June 30, 1999 (the "1999 Quarter"). The decrease of $3.9 million is
primarily attributed to reduced shipments from Illinois Basin operations and
planned reduced participation in low margin, coal export brokerage markets. The
brokerage business is not expected to be material in the future. The Partnership
additionally suspended production at one of its surface mines on May 12, 2000,
in response to reduced demand, primarily reflecting unplanned outages by two
large utility customers. This production capacity is anticipated to remain idle
until market conditions warrant increased production. Tons sold decreased 7.1%
to 3.5 million for the 2000 Quarter from 3.8 million for the 1999 Quarter. Tons
produced decreased 7.6% to 3.2 million tons for the 2000 Quarter from 3.4
million for the 1999 Quarter.
Other sales and operating revenues. Other sales and operating revenues
were comparable for the 2000 Quarter and the 1999 Quarter at $0.2 million.
Operating expenses. Operating expenses were comparable for the 2000
Quarter and the 1999 Quarter at $59.4 million and $60.2 million, respectively.
However, the Partnership has experienced adverse mining conditions at its
Mettiki longwall mine located in western Maryland resulting in increased
operating expenses, which were offset by cost savings as a result of suspended
production at one of the Partnership's surface mines in western Kentucky. See
"Coal sales" above concerning suspended production.
Outside purchases. Outside purchases declined 35.4% to $4.3 million for
the 2000 Quarter compared to $6.7 million for the 1999 Quarter. The decrease of
$2.4 million was the result of lower coal export brokerage volumes. See "Coal
sales" above concerning the decrease in coal export brokerage volumes.
General and administrative. General and administrative expenses were
comparable for the 2000 Quarter and the 1999 Quarter at $3.6 million and $3.4
million, respectively.
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Depreciation, depletion and amortization. Depreciation, depletion and
amortization expense were comparable for the 2000 Quarter and the 1999 Quarter
at $9.6 million and $9.4 million, respectively.
Interest expense. Interest expense was $4.2 million for the 2000 Quarter
compared to less than $0.1 million for the 1999 Quarter. The increase reflects
the interest on the $180 million principal amount of 8.31% senior notes and $50
million of borrowings on the term loan facility in connection with the IPO and
concurrent transactions occurring on August 20, 1999. See "Part I, Item 1.
Financial Statements - - Note 1. Organization and Presentation."
Income before income taxes. Income before income taxes decreased 70.5% to
$2.1 million for the 2000 Quarter compared with $7.1 million for the 1999
Quarter. The decrease of $5.0 million is primarily related to interest expense
associated with the debt incurred concurrent with the closing of the IPO.
Income tax expense. The Partnership's earnings or loss for federal income
taxes purposes will be included in the tax returns of the individual partners.
Accordingly, no recognition is given to income taxes in the accompanying
financial statements of the Partnership. The Predecessor is included in the
consolidated federal income tax return of ARH. Federal and state income taxes
are calculated as if the Predecessor had filed its return on a separate company
basis utilizing an effective income tax rate of 31%.
EBITDA (income from operations before net interest expense, income taxes,
depreciation, depletion and amortization) decreased 4.4% to $15.9 million for
the 2000 Quarter compared with $16.6 million for the 1999 Quarter. The $0.7
million decrease is primarily attributable to adverse mining conditions
encountered at the Partnership's Mettiki longwall mine located in western
Maryland resulting from a sandstone intrusion, which reduced productivity for
the 2000 Quarter. The adverse mining conditions continued through the end of
July.
EBITDA should not be considered as an alternative to net income, income
before income taxes, cash flows from operating activities or any other measure
of financial performance presented in accordance with generally accepted
accounting principles. EBITDA is not intended to represent cash flow and does
not represent the measure of cash available for distribution, but provides
additional information for evaluating the Partnership's ability to make minimum
quarterly distributions. The Partnership's method of computing EBITDA also may
not be the same method used to compute similar measures reported by other
companies, or EBITDA may be computed differently by the Partnership in different
contexts (i.e., public reporting versus computation under financing agreements).
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Coal sales. Coal sales were comparable for the six months ended June 30,
2000 (the "2000 Period") and the six months ended June 30, 1999 (the "1999
Period") at $168.7 million and $169.4 million, respectively. Tons sold decreased
1.6% to 7.2 million for the 2000 Period from 7.3 million for the 1999 Period.
Tons produced increased 0.5% to 7.1 million for the 2000 Period from 7.0 million
in the 1999 Period.
Other sales and operating revenues. Other sales and operating revenues
were comparable for the 2000 Period and the 1999 Period at $0.6 million and $0.4
million, respectively.
Operating expenses. Operating expenses increased 5.5% to $123.5 million
for the 2000 Period from $117.0 million for the 1999 Period. The increase of
$6.5 million was a result of increased production volumes at the Partnership's
restructured Pontiki/Excel operation, additional expenses associated with
unexpected weather-related problems (including localized flooding and tornadoes
that interrupted production at several mines), and adverse mining conditions at
its Mettiki longwall mine
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located in western Maryland resulting in increased operating expenses, which
were offset by cost savings as a result of suspended production at one of the
Partnership's surface mines in western Kentucky.
Outside purchases. Outside purchases declined 51.9% to $7.3 million for
the 2000 Period from $15.2 million for the 1999 Period. The decrease of $7.9
million was the result of planned reduced participation in the low margin, coal
export brokerage markets.
General and administrative. General and administrative expenses were
comparable for the 2000 Period and the 1999 Period at $7.2 million and $7.0
million, respectively.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization expense were comparable for the 2000 Period and the 1999 Period at
$19.2 million and $19.4 million, respectively.
Interest expense. Interest expense was $8.3 million for the 2000 Period
compared to less than $0.1 million for the 1999 Period. The increase reflects
the interest on the $180 million principal amount of 8.31% senior notes and $50
million of borrowings on the term loan facility in connection with the IPO and
concurrent transactions occurring on August 20, 1999. See "Part I., Item 1.
Financial statements- - Note 1. Organization and Presentation."
Income before income taxes. Income before income taxes was $4.5 million
for the 2000 Period compared to $11.4 million for the 1999 Period. The decrease
of $6.9 million was primarily attributable to interest expense associated with
the debt incurred concurrent with the closing of the IPO.
EBITDA (income from operations before net interest expense, income taxes,
depreciation and depletion and amortization) increased 3.5% to $31.9 million for
the 2000 Period compared with $30.8 million for the 1999 Period. The $1.1
million increase is primarily attributable to increased production and sales
volumes at the Partnership's restructured Pontiki/Excel operation.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash flows provided by operating activities was $15.9 million in the 2000
Period compared to $18.4 million in the 1999 Period. The decrease in cash flows
provided by operating activities is principally attributable to changes in
working capital.
Net cash used in investing activities was $7.0 million for the 2000
Period compared to $13.5 million in the 1999 Period. The decrease is principally
attributable to liquidating $7.1 million of U.S. Treasury Notes to fund various
qualifying capital expenditures.
Net cash used in financing activities was $15.7 million for the 2000
Period compared to $4.9 million in the 1999 Period. The increase was the result
of two minimum quarterly distributions paid in the 2000 Period of $0.50 per unit
on its Common and Subordinated Units outstanding totaling approximately $15.4
million. The Partnership has additionally paid quarterly distributions to its
General Partners of approximately $0.3 million.
Capital Expenditures
Capital expenditures were comparable for the 2000 Period and the 1999
Period at $14.2 million and $13.6 million, respectively.
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<PAGE> 14
Notes Offering and Credit Facility
Concurrently with the closing of the IPO, the Special GP issued and the
Intermediate Partnership assumed the obligations with respect to $180 million
principal amount of 8.31% senior notes due August 20, 2014. The Special GP also
entered into, and the Intermediate Partnership assumed the obligations under, a
$100 million credit facility. The credit facility consists of three tranches,
including a $50 million term loan facility, a $25 million working capital
facility and a $25 million revolving credit facility. The Partnership has
borrowings outstanding of $50 million under the term loan facility and no
borrowings outstanding under either the working capital facility or the
revolving credit facility at June 30, 2000. The weighted average interest rate
on the term loan facility at June 30, 2000, was 7.69%. The credit facility
expires August 2004. The senior notes and credit facility are guaranteed by
Alliance Coal, LLC and all of it subsidiaries. In addition, the credit facility
is secured further by a pledge of treasury securities, which, upon written
notice, are released for purposes of financing qualifying capital expenditures
of the Intermediate Partnership or its subsidiaries. The senior notes and credit
facility contain various restrictive and affirmative covenants, including the
amount of distributions by the Intermediate Partnership and the incurrence of
other debt.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. During June 2000, FASB issued SFAS No. 138, which
amends certain provisions of SFAS No. 133. The Partnership has not determined
the impact on its financial statements that may result from adoption of SFAS
133, as amended, which is required to be implemented by the Partnership no later
than January 1, 2001.
In December 1999, the Securities and Exchange commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 expresses the views of the SEC staff in applying accounting
principles generally accepted in the United States of America regarding certain
revenue recognition issues. The Partnership does not anticipate the adoption of
SAB No. 101, effective October 1, 2000, will have a material impact on its
financial position, results of operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Almost all of the Partnership's and the Predecessor's transactions are
denominated in U. S. dollars, as a result, they do not have material exposure to
currency exchange-rate risks.
The Predecessor did not, and the Partnership does not, engage in any
interest rate, foreign currency exchange rate or commodity price-hedging
transactions.
The Intermediate Partnership assumed obligations under a $100 million
credit facility. Borrowings under the credit facility are at variable rates and,
as a result, the Partnership has interest rate exposure.
As of June 30, 2000, there were no significant changes in the
Partnership's quantitative and qualitative disclosures about market risk as set
forth in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1999.
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<PAGE> 15
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements.
These statements are based on the Partnership's beliefs as well as assumptions
made by and information currently available to the Partnership. When used in
this document, the words "anticipate," "believe," "expect," "estimate,"
"forecast," "project," and similar expressions identify forward-looking
statements. These statements reflect the Partnership's current views with
respect to future events and are subject to various risks, uncertainties and
assumptions including but not limited to:
o the Partnership's dependence on significant customer contracts and the
terms of those contracts, including renewing customer contracts upon
expiration and the price of coal sold under new customer contracts;
o the Partnership's productivity levels and margins that it earns from
the sale of coal;
o the effects of any unanticipated increases in labor costs, adverse
changes in work rules or unexpected cash payments associated with
post-mine reclamation, workers' compensation claims, and environmental
litigation or cleanup;
o the risk of major mine-related accidents or interruptions; and
o the effects of any adverse change in the domestic coal industry,
electric utility industry, or general economic conditions.
If one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in this Form 10-Q. Except as required by applicable securities
laws, the Partnership does not intend to update these forward-looking
statements.
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<PAGE> 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material litigation was filed against the Partnership during the
three months ended June 30, 2000. Except as otherwise set forth herein, there
were no material changes in legal proceedings previously disclosed.
See "Part I, Item 1. Financial Statements -- Note 2. Contingencies."
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
10.14 -- Amendment No. 1 to the Restated and Amended Coal Supply Agreement
effective April 1, 1996 between MAPCO Coal Inc., Webster County Coal
Corporation, White County Coal Corporation, and Seminole Electric
Cooperative, Inc. (Portions of this agreement have been omitted based
on a request for confidential treatment. Those omitted portions have
been filed with the Securities and Exchange Commission).
10.15 -- Interim Coal Supply Agreement effective May 1, 2000 between Alliance
Coal, LLC and Seminole Electric Cooperative, Inc. (Portions of this
agreement have been omitted based on a request for confidential
treatment. Those omitted portions have been filed with the Securities and
Exchange Commission).
27.1 -- Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
None
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<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in Tulsa, Oklahoma, on August 11, 2000.
ALLIANCE RESOURCE PARTNERS, L. P.
By: Alliance Resource Management GP, LLC
its managing general partner
/s/ Michael L. Greenwood
------------------------
Michael L. Greenwood
Senior Vice President,
Chief Financial Officer
and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
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<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
10.14 -- Amendment No. 1 to the Restated and Amended Coal Supply Agreement
effective April 1, 1996 between MAPCO Coal Inc., Webster County Coal
Corporation, White County Coal Corporation, and Seminole Electric
Cooperative, Inc. (Portions of this agreement have been omitted based
on a request for confidential treatment. Those omitted portions have
been filed with the Securities and Exchange Commission).
10.15 -- Interim Coal Supply Agreement effective May 1, 2000 between Alliance
Coal, LLC and Seminole Electric Cooperative, Inc. (Portions of this
agreement have been omitted based on a request for confidential
treatment. Those omitted portions have been filed with the Securities and
Exchange Commission).
27.1 -- Financial Data Schedule.
</TABLE>
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