Document/Exhibit Description Pages Size
1: 10-Q Alliance Resource Partners Lp - September 30, 2001 20 87K
2: EX-10.20 Letter of Credit Facility Agreement 21 61K
3: EX-10.21 Promissory Note Agreement 3 14K
4: EX-10.22 Guarantee Agreement 10 43K
5: EX-10.23 Letter of Credit Facility Agreement 20 55K
6: EX-10.24 Guarantee Agreement 8 33K
7: EX-10.25 Letter of Credit Facility Agreement 22 62K
8: EX-10.26 Promissory Note Agreement 3 14K
9: EX-10.27 Guarantee Agreement 10 42K
10: EX-10.28 Guaranty Fee Agreement 2 11K
10-Q — Alliance Resource Partners Lp – September 30, 2001
Document Table of Contents
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 SEPTEMBER 30, 2001
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 November 13, 2001, 8,982,780 Common Units and 6,422,531
Subordinated Units are outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
[Enlarge/Download Table]
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Page
----
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000 .............................................................. 1
Consolidated Statements of Income for the three and nine-months
ended September 30, 2001 and 2000 .............................................. 2
Condensed Consolidated Statements of Cash Flows for the
nine-months ended September 30, 2001 and 2000 .................................. 3
Notes to Consolidated Financial Statements ..................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................................. 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .............................................................. 12
FORWARD-LOOKING STATEMENTS ..................................................... 13
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PART II
OTHER INFORMATION
[Enlarge/Download Table]
ITEM 1. LEGAL PROCEEDINGS .............................................................. 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ...................................... 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ............................................................... 14
ITEM 5. OTHER INFORMATION .............................................................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................................... 14
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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)
[Enlarge/Download Table]
ASSETS
SEPTEMBER 30, DECEMBER 31,
2001 2000
---- ----
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 15,828 $ 6,933
Trade receivables ............................................ 41,358 35,898
Due from affiliates .......................................... -- 208
Marketable securities (at cost, which approximates fair value) 10,013 37,398
Inventories .................................................. 10,537 10,842
Advance royalties ............................................ 2,865 2,865
Prepaid expenses and other assets ............................ 269 1,168
--------- ---------
Total current assets .................................... 80,870 95,312
PROPERTY, PLANT AND EQUIPMENT AT COST ........................... 355,833 320,445
LESS ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION ....... (160,893) (135,782)
--------- ---------
194,940 184,663
OTHER ASSETS:
Advance royalties ............................................ 12,203 10,009
Coal supply agreements, net .................................. 13,092 16,324
Other long-term assets ....................................... 2,558 2,858
--------- ---------
$ 303,663 $ 309,166
========= =========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 29,830 $ 25,558
Due to affiliates ............................................ 240 --
Accrued taxes other than income taxes ........................ 5,421 4,863
Accrued payroll and related expenses ......................... 9,428 6,975
Accrued interest ............................................. 1,662 5,439
Workers' compensation and pneumoconiosis benefits ............ 4,343 4,415
Other current liabilities .................................... 5,174 5,710
Current maturities, long-term debt ........................... 15,000 3,750
--------- ---------
Total current liabilities ............................... 71,098 56,710
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities ................. 215,000 226,250
Accrued pneumoconiosis benefits .............................. 14,233 21,651
Workers' compensation ........................................ 17,433 16,748
Reclamation and mine closing ................................. 15,418 14,940
Due to affiliates ............................................ 2,609 1,278
Other liabilities ............................................ 2,907 3,376
--------- ---------
Total liabilities ....................................... 338,698 340,953
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL (DEFICIT):
Common Unitholders 8,982,780 units outstanding ............... 147,784 149,642
Subordinated Unitholder 6,422,531 units outstanding .......... 115,468 116,794
General Partners ............................................. (298,287) (298,223)
--------- ---------
Total Partners' capital (deficit) ....................... (35,035) (31,787)
--------- ---------
$ 303,663 $ 309,166
========= =========
See notes to consolidated financial statements.
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(UNAUDITED)
[Enlarge/Download Table]
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
SALES AND OPERATING REVENUES:
Coal sales ............................................ $ 111,733 $ 92,433 $ 316,561 $ 261,172
Transportation revenues ............................... 4,782 3,405 13,995 10,139
Other sales and operating revenues .................... 1,379 621 4,812 1,220
----------- ------------ ------------ ------------
Total revenues .............................. 117,894 96,459 335,368 272,531
----------- ------------ ------------ ------------
EXPENSES:
Operating expenses .................................... 77,049 69,050 227,880 192,579
Transportation expenses ............................... 4,782 3,405 13,995 10,139
Outside purchases ..................................... 8,825 4,567 22,050 11,860
General and administrative ............................ 4,279 3,610 13,225 10,822
Depreciation, depletion and amortization .............. 11,016 9,624 33,371 28,825
Interest expense (net of interest income and
interest capitalized for the three months and
nine months ended September 30, 2001 and 2000 of
$324, $805, $1,492 and $2,168, respectively) ........ 4,261 4,240 12,744 12,502
Unusual items ......................................... -- (9,466) (7,691) (9,466)
----------- ------------ ------------ ------------
Total operating expenses ................. 110,212 85,030 315,574 257,261
----------- ------------ ------------ ------------
INCOME FROM OPERATIONS ................................... 7,682 11,429 19,794 15,270
OTHER INCOME ............................................. 134 131 538 754
----------- ------------ ------------ ------------
NET INCOME ............................................... $ 7,816 $ 11,560 $ 20,332 $ 16,024
=========== ============ ============ ============
GENERAL PARTNERS' INTEREST IN
NET INCOME .......................................... $ 156 $ 231 $ 407 $ 320
=========== ============ ============ ============
LIMITED PARTNERS' INTEREST IN
NET INCOME .......................................... $ 7,660 $ 11,329 $ 19,925 $ 15,704
=========== ============ ============ ============
BASIC NET INCOME PER LIMITED
PARTNER UNIT ........................................ $ 0.50 $ 0.74 $ 1.29 $ 1.02
=========== ============ ============ ============
DILUTED NET INCOME PER LIMITED
PARTNER UNIT ........................................ $ 0.49 $ 0.73 $ 1.27 $ 1.01
=========== ============ ============ ============
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING-BASIC ................................... 15,405,311 15,405,311 15,405,311 15,405,311
=========== ============ ============ ============
WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING-DILUTED ................................. 15,678,013 15,552,017 15,676,639 15,550,827
=========== ============ ============ ============
See notes to consolidated financial statements.
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
[Enlarge/Download Table]
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
2001 2000
---- ----
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES ............. $ 45,489 $ 41,399
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ............ (40,499) (27,194)
Proceeds from sale of property, plant and equipment .. 100 74
Purchase of marketable securities .................... (10,013) (54,751)
Proceeds from the maturity of marketable securities .. 37,398 60,271
-------- --------
Net cash used in investing activities ... (13,014) (21,600)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to Partners ............................. (23,580) (23,580)
-------- --------
Net cash used in financing activities ... (23,580) (23,580)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................. 8,895 (3,781)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........ 6,933 8,000
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............. $ 15,828 $ 4,219
======== ========
CASH PAID FOR:
Interest ........................................... $ 17,519 $ 18,029
======== ========
See notes to consolidated financial statements.
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ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND PRESENTATION
Alliance Resource Partners, L.P., a Delaware limited partnership (the
"Partnership"), 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") (formerly known as Alliance Coal Corporation),
consisting of substantially all of ARH's operating subsidiaries, but excluding
ARH.
The accompanying consolidated financial statements include the accounts
and operations of the Partnership and present the financial position as of
September 30, 2001 and December 31, 2000, and the results of its operations for
the three-month and nine-month periods ended September 30, 2001 and 2000 and
cash flows for the nine months ended September 30, 2001 and 2000. All material
intercompany transactions and accounts have been eliminated. Certain
reclassifications have been made to the 2000 consolidated statements to conform
with classifications used in 2001.
These consolidated financial statements and notes thereto for interim
periods are unaudited. However, in the opinion of management, these financial
statements reflect all adjustments necessary for a fair presentation of the
results for the periods presented. Results for interim periods are not
necessarily indicative of results for a full year.
These consolidated 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, 2000.
2. COMMITMENTS AND CONTINGENCIES
General Litigation
The Partnership is involved in various lawsuits, claims and regulatory
proceedings, including those conducted by the Mine Safety and Health
Administration, incidental to its business. The Partnership provides for costs
related to litigation and regulatory proceedings, including civil fines issued
as part of the outcome of such proceedings, when a loss is probable and the
amount is reasonably determinable. During the 2000 Quarter, the Partnership also
recorded an expense of $2,675,000 consisting of $675,000 relating to a
settlement and $2,000,000 attributable to contingencies associated with other
litigation matters, which is reflected in "Unusual items" in the accompanying
consolidated and combined statements of income. In the opinion of management,
the outcome of such matters to the extent not previously provided for or covered
under insurance, will not have a material adverse effect on the Partnership's
business, financial position or results of operations, although management
cannot give any assurance to that effect.
Other
During September 2001, the Partnership completed its annual property
insurance renewal. Recent insurance carrier losses worldwide have created a
tightening market reducing available capacity for
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underwriting property insurance. As a result, the Partnership and its affiliates
retained a 12.5% participating interest along with its insurance carriers in the
commercial property program. The aggregate maximum limit in the commercial
property program is $75,000,000 per occurrence, of which, we are responsible for
a maximum limit of $9,375,000 per occurrence of the amount covered by property
insurance. While we do not have a significant history of material insurance
claims, the ultimate amount of clams incurred, if any, are dependent on future
developments. We cannot assure you that we will not experience significant
insurance claims in the future, which, as a result of the Partnership's
participation in the commercial property program, could have a material adverse
effect on our business, financial condition and results of operations.
3. UNUSUAL ITEMS
The Unusual items for the nine months ended September 30, 2001 and 2000
are as follows (in thousands):
[Download Table]
SEPTEMBER 30,
-------------
2001 2000
---- ----
Pneumoconiosis ("black lung") benefits $(7,691) $ --
Gain on settlement of transloading facility dispute -- (12,141)
Litigation matters -- 2,675
------- --------
$(7,691) $ (9,466)
======= ========
During the quarter ended June 30, 2001, the Partnership revised its
method of estimating coal workers' pneumoconiosis ("black lung") benefits
liability. Previously, the Partnership accrued the black lung benefits liability
at the present value of the actuarially determined current and future estimated
black lung benefit payments. The revision results in the accrual of the black
lung benefits liability using a service cost method as prescribed by Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"). The Partnership
believes that the SFAS 106 method of estimating the black lung liability is more
widely used in practice by other coal companies and better matches black lung
costs over the service lives of the miners who ultimately receive black lung
benefits. The effect of this revision in estimating the black lung liability
resulted in a reduction of this liability and a corresponding non-cash increase
in net income of $7,691,000 or $0.50 and $0.49 per basic and dilutive limited
partner unit for the nine months ended September 30, 2001.
The Partnership was involved in litigation with Seminole with respect to
Seminole's termination of a long-term contract for the transloading of coal from
rail to barge through the Mt. Vernon terminal in Indiana. The final resolution
between the parties, reached in conjunction with an arbitrator's decision
rendered during the three months ended September 30, 2000 ("2000 Quarter"),
included both cash payments and amendments to an existing coal supply contract.
The Partnership recorded income of $12,141,000, which is net of litigation
expenses of approximately $881,000 and an impairment charge of $2,439,000
relating to the facility's assets. Additionally during the 2000 Quarter, the
Partnership recorded an expense of $2,675,000, consisting of $675,000 relating
to a settlement and $2,000,000 attributable to contingencies associated with
other litigation matters.
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4. SUBSEQUENT EVENT
On October 25, 2001, the Partnership declared a minimum quarterly
distribution for the period from July 1, 2001 to September 30, 2001, of $0.50
per unit, totaling approximately $7,703,000, on all of its Common and
Subordinated Units outstanding, payable on November 14, 2001 to all unitholders
of record on November 2, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED OPERATING DATA
[Download Table]
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Tons sold (000s) 4,335 4,051 12,915 11,276
Tons produced (000s) 3,905 3,249 11,973 10,305
Revenues per ton sold (1) $ 26.09 $ 22.97 $ 24.88 $ 23.27
Cost per ton sold (2) $ 20.80 $ 19.06 $ 20.38 $ 19.09
(1) Revenues per ton sold is based on the total of coal sales and other sales
and operating revenues divided by tons sold.
(2) 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 September 30, 2001 Compared to Three Months Ended September
30, 2000
Coal sales. Coal sales for the three months ended September 30, 2001 (the
"2001 Quarter") increased 20.9% to $111.7 million from $92.4 million for the
three months ended September 30, 2000 (the "2000 Quarter"). The increase of
$19.3 million was primarily attributable to higher sales prices and utility
demand, as well as additional revenues from the new Gibson County Coal, LLC
mining complex, which was not in operation during the 2000 Quarter, and
increased activity in the domestic coal brokerage market due to favorable spot
price levels. Tons sold increased 7.0% to 4.3 million for the 2001 Quarter from
4.1 million for the 2000 Quarter. Tons produced increased 20.2% to 3.9 million
tons for the 2001 Quarter from 3.2 million for the 2000 Quarter.
Transportation revenues. Transportation revenues increased to $4.8
million for the 2001 Quarter from $3.4 million for the 2000 Quarter. The
increase of $1.4 million was primarily attributable to increased tons sold. The
Partnership reflects reimbursement of the cost of transporting coal to customers
through third party carriers as transportation revenues and the corresponding
expense as transportation expense in the consolidated statements of income. No
profit margin is realized on transportation revenues.
Other sales and operating revenues. Other sales and operating revenues
increased to $1.4 million for the 2001 Quarter from $0.6 million for the 2000
Quarter. The increase of $0.8 million resulted from increased activity at a
third party coal synfuel production facility at the Partnership's Hopkins County
Coal, LLC mining complex. Hopkins County Coal receives various fees for
operating the third party's
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coal synfuel facility and providing other services. The synfuel shipments
continue on a month-to-month basis. While current negotiations are underway to
continue synfuel arrangements on a longer-term basis, continuation of the
operating revenues associated with the coal synfuel production facility can not
be assured.
Operating expenses. Operating expenses increased 11.6% to $77.0 million
for the 2001 Quarter from $69.1 million for the 2000 Quarter. The increase of
$7.9 million primarily resulted from increased sales volumes and the addition of
operating expenses associated with the new Gibson County Coal mining complex,
which was not in operation during the 2000 Quarter, and difficult mining
conditions were encountered at certain operations, resulting in higher operating
costs primarily offset by the receipt and recognition of an insurance claim
settlement of approximately $2.8 million due to equipment losses and excess
costs incurred at the Mettiki mine during the quarter ended March 31, 2000.
Transportation expenses. See "Transportation revenues" above concerning
the increase in transportation expenses.
Outside purchases. Outside purchases increased to $8.8 million for the
2001 Quarter compared to $4.6 million for the 2000 Quarter. The increase of $4.2
million primarily resulted from increased activity in the domestic coal
brokerage market due to improved profit margins on spot coal sales, which
resulted in increased volumes at higher purchase prices. The higher brokerage
volumes are largely attributable to short-term opportunities in the domestic
coal brokerage markets, which are not expected to be material in the future.
General and administrative. General and administrative expenses increased
18.5% to $4.3 million for the 2001 Quarter compared to $3.6 million for the 2000
Quarter. The increase of $0.7 million was primarily attributable to accruals
related to the additional restricted units granted under the Long-Term Incentive
Plan, which is impacted by the increased market value of the common units.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization expenses increased 14.5% to $11.0 million for the 2001 Quarter
compared to $9.6 million for the 2000 Quarter. The increase of $1.4 million
resulted primarily from the additional depreciation expense associated with the
new Gibson County Coal mining complex, which was not in operation during the
2000 Quarter.
Interest expense. Interest expense was comparable for the 2001 and 2000
Quarters at $4.3 and $4.2 million, respectively.
Unusual Items. During the 2000 Quarter, the Partnership was 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 Mt. Vernon terminal in Indiana. The final resolution
between the parties, reached in conjunction with an arbitrator's decision
rendered during the 2000 Quarter, included both cash payments and amendments to
an existing coal supply contract. The Partnership recorded income of $12.2
million, which is net of litigation expenses and impairment charges relating to
certain Mt. Vernon transloading facility assets. Additionally, the Partnership
recorded an expense of $2.7 million related to other litigation matters. The net
effect of these unusual items was $9.5 million.
EBITDA (income from operations before net interest expense, depreciation,
depletion and amortization) decreased 9.2% to $23.1 million for the 2001 Quarter
compared with $25.4 million for the 2000 Quarter. The $2.3 million decrease is
attributable to the unusual items recorded during the 2000
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Quarter, which was partially offset by higher sales prices and utility demand
during the 2001 Quarter, increased activity in the domestic coal brokerage
market due to favorable spot price levels, and receipt and recognition of an
insurance claim settlement of $2.8 million. See "Unusual items" described above.
EBITDA should not be considered as an alternative to net income, income
from operations, cash flows from operating activities or any other measure of
financial performance presented in accordance with generally accepted accounting
principles. EBITDA has not been adjusted for unusual items. 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).
Nine Months Ended September 30, 2001 compared to Nine Months Ended September 30,
2000
Coal sales. Coal sales for the nine months ended September 30, 2001 (the
"2001 Period") increased 21.2% to $316.6 million from $261.2 million for the
nine months ended September 30, 2000 (the "2000 Period"). The increase of $55.4
million was primarily attributable to higher sales prices and utility demand as
well as additional revenues from the new Gibson County Coal mining complex,
which was not in operation during the 2000 Period, and increased activity in the
domestic coal brokerage market due to favorable spot price levels. Tons sold
increased 14.5% to 12.9 million for the 2001 Period from 11.3 million for the
2000 Period. Tons produced increased 16.2% to 12.0 million tons for the 2001
Period from 10.3 million for the 2000 Period.
Transportation revenues. Transportation revenues increased to $14.0
million for the 2001 Period from $10.1 million for the 2000 Period. The increase
of $3.9 million was primarily attributable to increased tons sold. The
Partnership reflects reimbursement of the cost of transporting coal to customers
through third party carriers as transportation revenues and the corresponding
expense as transportation expense in the consolidated statements of income. No
profit margin is realized on transportation revenues.
Other sales and operating revenues. Other sales and operating revenues
increased to $4.8 million for the 2001 Period from $1.2 million for the 2000
Period. The increase of $3.6 million results from increased activity at a third
party coal synfuel production facility at the Partnership's Hopkins County Coal
mining complex. Hopkins County Coal receives various fees for operating the
third party's coal synfuel facility and providing other services. The synfuel
shipments continue on a month-to-month basis. While current negotiations are
underway to continue synfuel arrangements on a longer-term basis, continuation
of the operating revenues associated with the coal synfuel production facility
can not be assured.
Operating expenses. Operating expenses increased 18.3% to $227.9 million
for the 2001 Period from $192.6 million for the 2000 Period. The increase of
$35.3 million primarily resulted from increased sales volumes and the addition
of operating expenses associated with the new Gibson County Coal mining complex,
which was not in operation during the 2000 Period, and difficult mining
conditions were encountered at certain operations, which placed an undue burden
on equipment scheduled for replacement, resulting in higher operating costs
primarily offset by the receipt and recognition of an insurance claim settlement
of approximately $2.8 million due to equipment losses and excess costs incurred
at the Mettiki mine during the quarter ended March 31, 2000.
-8-
Transportation expenses. See "Transportation revenues" above concerning
the increase in transportation expenses.
Outside purchases. Outside purchases increased to $22.1 million for the
2001 Period compared to $11.9 million for the 2000 Period. The increase of $10.2
million primarily resulted from increased activity in the domestic coal
brokerage market due to improved profit margins on spot coal sales, which
resulted in increased volumes at higher purchase prices. The higher brokerage
volumes are largely attributable to short-term opportunities in the domestic
coal brokerage markets, which are not expected to be material in the future.
General and administrative. General and administrative expenses increased
22.2% to $13.2 million for the 2001 Period compared to $10.8 million for the
2000 Period. The increase of $2.4 million was primarily attributable to higher
accruals related to the Short-Term Incentive Plan, combined with additional
restricted units granted under the Long-Term Incentive Plan. The Long-Term
Incentive Plan accrual is impacted by the increased market value of the common
units.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization expenses increased 15.8% to $33.4 million for the 2001 Period
compared to $28.8 million for the 2000 Period. The increase of $4.6 million
primarily resulted from additional depreciation expense associated with the new
Gibson County Coal mining complex, which was not in operation during the 2000
Period.
Interest expense. Interest expense was comparable for the 2001 and 2000
Periods at $12.7 million and $12.5 million respectively.
Unusual items. During the 2001 Period, the Partnership revised its
methodology for estimating workers' pneumoconiosis ("black lung") benefits
liability. The Partnership had previously accrued the black lung benefits
liability at the present value of the actuarially determined current and future
estimated black lung benefits payments. The revision results in the accrual of
the black lung benefits liability using a service cost method as prescribed by
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"). The Partnership
believes the SFAS 106 method, among other things, is more widely used in
practice by other coal companies. The effect of this revision resulted in a
reduction of the black lung benefits liability and a corresponding increase in
net income of $7.7 million.
During the 2000 Period, the Partnership was involved in litigation with
Seminole with respect to Seminole's termination of a long-term contract for the
transloading of coal from rail to barge through the Mt. Vernon terminal in
Indiana. The final resolution between the parties, reached in conjunction with
an arbitrator's decision rendered during the 2000 Quarter, included both cash
payments and amendments to an existing coal supply contract. During the 2000
Period, the Partnership recorded income of $12.2 million, which is net of
litigation expenses and impairment charges relating to certain Mt. Vernon
transloading facility assets. Additionally, the Partnership recorded an expense
of $2.7 million related to other litigation matters. The net effect of these
unusual items was $9.5 million.
EBITDA (income from operations before net interest expense, depreciation,
depletion and amortization) increased 15.9% to $66.4 million for the 2001 Period
compared with $57.4 million for the 2000 Period. The $9.0 million increase is
primarily attributable to higher sales prices and utility demand during the 2001
Period, the new Gibson County Coal mining complex, which was not in operation
during
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the 2000 Period, and receipt and recognition of an insurance claim settlement of
approximately $2.8 million.
EBITDA should not be considered as an alternative to net income, income
from operations, cash flows from operating activities, or any other measure of
financial performance presented in accordance with generally accepted accounting
principles. EBITDA has not been adjusted for unusual items. 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).
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash provided by operating activities was $45.5 million for the 2001
Period compared to $41.4 million in the 2000 Period. The increase in cash
provided by operating activities was principally attributable to increased
profitability and a decrease in working capital.
Net cash used in investing activities was $13.0 million for the 2001
Period compared to net cash used in investing activities of $21.6 million in the
2000 Period. The decreased use of cash is principally attributable to the
liquidation of marketable securities which was partially offset by increased
capital expenditures related to the extension of our White County Coal, LLC mine
into adjacent coal reserves and the addition of a new mining unit at our Webster
County Coal, LLC mine.
Net cash used in financing activities was comparable for the 2001 and
2000 Periods at $23.6 million.
Capital Expenditures
Capital expenditures increased to $40.5 million in the 2001 Period
compared to $27.2 million in the 2000 Period. See "Cash Flows" above concerning
the increase in capital expenditures.
Notes Offering and Credit Facility
Concurrently with the closing of the Partnership's initial public
offering, Alliance Resource GP, LLC (the "Special GP"), the Partnership's
special general partner, issued and Alliance Resource Operating Partners, L.P.
(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 September 30, 2001. The weighted average interest
rate on the term loan facility at September 30, 2001, was 4.10%. The credit
facility expires August 2004. The senior notes and credit facility are
guaranteed by all of the subsidiaries of the Intermediate Partnership. The
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senior notes and credit facility contain various restrictive and affirmative
covenants, including limitations on the amount of distributions by the
Intermediate Partnership and the incurrence of other debt.
The Partnership has entered into agreements with three banks to provide
letters of credit in an aggregate amount of $25.0 million. The letters of credit
are guaranteed by the Special GP. At September 30, 2001, the Partnership had
$10.0 million in letters of credit outstanding.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and No. 142, "Goodwill and Intangible Assets." SFAS No. 141
eliminates the pooling-of-interest method of accounting for business
combinations and requires that all business combinations be accounted for under
the purchase method. In addition, it further clarifies the criteria for
recognition of intangible assets separately from goodwill. This statement is
effective for business combinations completed after June 30, 2001. SFAS No. 142
discontinues the practice of amortizing goodwill and indefinite lived intangible
assets and initiates an annual review for impairment. This statement is
effective January 1, 2002, for all goodwill and other intangible assets included
in an entity's statement of financial position at that date, regardless of when
those assets were initially recognized. SFAS 141 and 142 are not expected to
have a material impact on the Partnership's financial position or results of
operations.
During August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires the fair value of a liability for an
asset retirement obligation to be recognized in the period in which it is
incurred. When the liability is initially recorded, a cost is capitalized by
increasing the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. To settle the
liability, the obligation for its recorded amount is paid or a gain or loss upon
settlement is incurred. Since the Partnership has previously adhered to
accounting principles similar to SFAS No. 143 in accounting for its reclamation
and mine closing costs, the Partnership does not believe that adoption of SFAS
No. 143, effective January 1, 2003, will have a material impact on its financial
position, results of operations or cash flows.
During August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121,
"Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting and reporting provisions relating to disposal
of a segment of a business contained in Accounting Principles Board ("APB")
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." This statement also amends Accounting
Research Bulletin No. 51, "Consolidated Financial Statements" to eliminate the
exception to consolidation for which control is likely to be temporary. This
statement is effective January 1, 2002, and is not expected to have a material
impact on the Partnership's financial position or results of operations upon
adoption.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Almost all of the Partnership's transactions are denominated in U.S.
dollars, and as a result, it does not have material exposure to currency
exchange-rate risks.
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 Intermediate Partnership has interest rate exposure.
As of September 30, 2001, 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, 2000.
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FORWARD-LOOKING STATEMENTS
Alliance Resource Partners, L.P. is including the following cautionary
statement in this Report on Form 10-Q to make applicable and take advantage of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 for any forward-looking statements made by, or on behalf of, the
Partnership. With the exception of historical matters, any matters discussed are
forward-looking statements (as defined in Section 21E of the Securities Exchange
Act of 1934) 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:
- fluctuations in coal demand, price and availability due to labor and
transportation costs and disruptions, equipment availability,
governmental regulations and other factors;
- competition in coal markets and the Partnership's ability to respond to
such competition;
- deregulation of the electric utility industry and or the effects of any
adverse change in the domestic coal industry, electric utility
industry, or general economic conditions;
- dependence on significant customer contracts, including renewing
customer contracts upon expiration;
- customer cancellations of, or breaches to, existing contracts;
- customer delays or defaults in making payments;
- greater than expected environmental regulation, costs and liabilities;
- a variety of operational, geologic, permitting, labor and
weather-related factors;
- risk of major mine-related accidents or interruptions; and
- results of litigation.
- risks associated with our 12.5% participation in the commercial
property program.
Additional information concerning these and other factors can be found in
the Partnership's press releases and public periodic filings with the Securities
and Exchange Commission, including the Partnership's Annual Report on Form 10-K
for the year ended December 31, 2000 filed on March 26, 2001. Except as required
by applicable securities laws, the Partnership does not intend to update its
forward-looking statements.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information under "Contingencies" in Note 2 of the Notes to Unaudited
Consolidated Financial Statements herein is hereby incorporated by reference.
See also "Item 3. Legal Proceedings" in the Annual Report on Form 10-K for the
year ended December 31, 2000.
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:
[Enlarge/Download Table]
Exhibit No. Description
----------- -----------
10.20 -- Letter of Credit Facility Agreement dated as of June 29, 2001, between
Alliance Resource Partners, L.P. and Bank of Oklahoma, National
Association.
10.21 -- Promissory Note Agreement dated as of July 31, 2001, between Alliance
Resource Partners, L.P. and Bank of Oklahoma, N. A.
10.22 -- Guarantee Agreement, dated as of July 31, 2001, between Alliance Resource
GP, LLC and Bank of Oklahoma, N.A.
10.23 -- Letter of Credit Facility Agreement dated as of August 30, 2001, between
Alliance Resource Partners, L.P. and Fifth Third Bank.
10.24 -- Guarantee Agreement, dated as of August 30, 2001, between Alliance Resource
GP, LLC. and Firth Third Bank.
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[Enlarge/Download Table]
10.25 -- Letter of Credit Facility Agreement dated as of October 2, 2001, between
Alliance Resource Partners, L.P. and Bank of the Lakes, National
Association
10.26 -- Promissory Note Agreement dated as of October 2, 2001, between Alliance
Resource Partners, L.P. and Bank of the Lakes, N.A.
10.27 -- Guarantee Agreement, dated as of October 2, 2001, between Alliance Resource
GP, LLC and Bank of the Lakes, N.A.
10.28 -- Guaranty Fee Agreement dated as of July 31, 2001, between Alliance Resource
Partners, L.P. and Alliance Resource GP, LLC.
(b) Reports on Form 8-K:
None
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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 November 13, 2001.
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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EXHIBIT INDEX
[Enlarge/Download Table]
Exhibit No. Description
----------- -----------
10.20 -- Letter of Credit Facility Agreement dated as of June 29, 2001, between
Alliance Resource Partners, L.P. and Bank of Oklahoma, National
Association.
10.21 -- Promissory Note Agreement dated as of July 31, 2001, between Alliance
Resource Partners, L.P. and Bank of Oklahoma, N. A.
10.22 -- Guarantee Agreement, dated as of July 31, 2001, between Alliance Resource
GP, LLC and Bank of Oklahoma, N.A.
10.23 -- Letter of Credit Facility Agreement dated as of August 30, 2001, between
Alliance Resource Partners, L.P. and Fifth Third Bank.
10.24 -- Guarantee Agreement, dated as of August 30, 2001, between Alliance Resource
GP, LLC and Fifth Third Bank, N.A.
10.25 -- Letter of Credit Facility Agreement dated as of October 2, 2001, between
Alliance Resource Partners, L.P. and Bank of the Lakes, National
Association.
10.26 -- Promissory Note Agreement dated as of October 2, 2001, between Alliance
Resource Partners, L.P. and Bank of the Lakes, N.A.
10.27 -- Guarantee Agreement, dated as of October 2, 2001, between Alliance Resource
GP, LLC and Bank of the Lakes, N.A.
10.28 -- Guaranty Fee Agreement dated as of July 31, 2001, between Alliance Resource
Partners, L.P. and Alliance Resource GP, LLC.
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Dates Referenced Herein and Documents Incorporated by Reference
4 Subsequent Filings that Reference this Filing
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