Back to GetFilings.com
================================================================================
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, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of November 10, 2003, 11,481,262 Common Units and 6,422,531
Subordinated Units are outstanding.
================================================================================
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets as of September 30, 2003 and December
31, 2002 1
Condensed Consolidated Statements of Income for the three-months and
nine-months ended September 30, 2003 and 2002 2
Condensed Consolidated Statements of Cash Flows for the nine-months ended
September 30, 2003 and 2002 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
ITEM 4. CONTROLS AND PROCEDURES 16
FORWARD-LOOKING STATEMENTS 17
i
PART 2
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
ii
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT DATA)
SEPTEMBER 30, DECEMBER 31,
2003 2002
-------------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,340 $ 9,028
Trade receivables, net 42,658 33,018
Marketable securities (at cost, which approximates fair value) 23,519 470
Inventories 16,652 13,165
Advance royalties 5,233 5,232
Prepaid expenses and other assets 3,601 2,784
------------ -------------
Total current assets 93,003 63,697
PROPERTY, PLANT AND EQUIPMENT AT COST 471,102 446,629
LESS ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION (244,411) (216,777)
------------ -------------
226,691 229,852
OTHER ASSETS:
Advance royalties 8,917 10,542
Coal supply agreements, net 6,126 8,167
Other long-term assets 4,750 4,674
------------ -------------
$ 339,487 $ 316,932
============ =============
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 19,628 $ 23,330
Due to affiliates 2,321 1,286
Accrued taxes other than income taxes 9,698 8,105
Accrued payroll and related expenses 11,594 10,004
Accrued interest 1,661 5,361
Workers' compensation and pneumoconiosis benefits 4,949 5,275
Other current liabilities 6,535 9,877
Current maturities, long-term debt - 16,250
------------ -------------
Total current liabilities 56,386 79,488
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities 201,000 195,000
Accrued pneumoconiosis benefits 17,284 16,067
Workers' compensation 23,801 19,949
Reclamation and mine closing 22,159 21,821
Due to affiliates 10,930 20,652
Other liabilities 2,702 2,717
------------ -------------
Total liabilities 334,262 355,694
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL (DEFICIT):
Common Unitholders 11,481,262 and 8,982,780 units outstanding, 200,331 144,219
respectively
Subordinated Unitholder 6,422,531 units outstanding 116,333 112,916
General Partners (306,038) (290,472)
Unrealized loss on marketable securities (126) (150)
Minimum pension liability (5,275) (5,275)
------------ -------------
Total Partners' capital (deficit) 5,225 (38,762)
------------ -------------
$ 339,487 $ 316,932
============ =============
See notes to condensed consolidated financial statements.
1
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------- ----------- ----------- -----------
2003 2002 2003 2002
----------- ----------- ----------- -----------
SALES AND OPERATING REVENUES:
Coal sales $ 131,131 $ 122,241 $ 368,170 $ 355,657
Transportation revenues 5,231 5,032 14,617 14,490
Other sales and operating revenues 5,437 5,507 17,408 14,849
----------- ----------- ----------- -----------
Total revenues 141,799 132,780 400,195 384,996
----------- ----------- ----------- -----------
EXPENSES:
Operating expenses 98,464 99,780 276,149 268,510
Transportation expenses 5,231 5,032 14,617 14,490
Outside purchases 3,844 2,773 5,233 8,384
General and administrative 6,494 4,316 18,799 14,422
Depreciation, depletion and amortization 12,556 12,903 39,349 38,516
Interest expense (net of interest income and
interest capitalized
For the three-months and nine-months ended
September 30, 2003 and 2002 of $83, $521,
$450 and $1,158, respectively) 4,088 4,008 12,045 12,154
----------- ----------- ----------- -----------
Total operating expenses 130,677 128,812 366,192 356,476
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 11,122 3,968 34,003 28,520
OTHER INCOME 344 (412) 794 425
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 11,466 3,556 34,797 28,945
INCOME TAX EXPENSE (BENEFIT) 663 (570) 2,338 (593)
----------- ----------- ----------- -----------
NET INCOME $ 10,803 $ 4,126 $ 32,459 $ 29,538
=========== =========== =========== ===========
ALLOCATION OF NET INCOME:
PORTION APPLICABLE TO WARRIOR COAL
EARNINGS (LOSS) PRIOR TO ITS ACQUISITION ON
FEBRUARY 14, 2003 $ - $ (675) $ (666) $ (703)
PORTION APPLICABLE TO PARTNERS' INTEREST 10,803 4,801 33,125 30,241
----------- ----------- ----------- -----------
NET INCOME $ 10,803 $ 4,126 $ 32,459 $ 29,538
=========== =========== =========== ===========
GENERAL PARTNERS' INTEREST IN NET INCOME (LOSS) $ 216 $ (579) $ (3) $ (98)
=========== =========== =========== ===========
LIMITED PARTNERS' INTEREST IN NET INCOME $10,587 $4,705 $ 32,462 $ 29,636
=========== =========== =========== ===========
BASIC NET INCOME PER LIMITED PARTNER UNIT $ 0.59 $ 0.31 $ 1.86 $ 1.92
=========== =========== =========== ===========
DILUTED NET INCOME PER LIMITED PARTNER UNIT $ 0.57 $ 0.30 $ 1.80 $ 1.87
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING-BASIC 17,903,793 15,405,311 17,471,864 15,405,311
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING-DILUTED 18,487,787 15,844,316 18,053,904 15,842,689
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
2
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2003 2002
--------- ---------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 62,491 $ 56,374
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plan and equipment (34,190) (48,579)
Purchase of Warrior Coal (12,661) -
Proceeds from sale of property, plant and equipment 413 322
Purchase of marketable securities (23,021) -
Proceeds from maturity of marketable securities - 10,085
--------- ---------
Net cash used in investing activities (69,459) (38,172)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common unit offering to public 53,956 -
Cash contribution by General Partners 9 -
Payments on Warrior Coal revolver (17,000) -
Borrowings under revolving credit and working capital 31,600 61,700
facilities
Payments under revolving credit and working capital (10,600) (51,700)
facilities
Payments on long-term debt (31,250) (11,250)
Distributions to Partners (27,435) (23,580)
--------- ---------
Net cash used in financing activities (720) (24,830)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (7,688) (6,628)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,028 11,093
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,340 $ 4,465
========= =========
CASH PAID FOR:
Interest $ 15,803 $ 16,836
========= =========
Income taxes $ 2,281 $ -
========= =========
See notes to condensed consolidated financial statements.
3
ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND PRESENTATION
Alliance Resource Partners, L.P., a Delaware limited partnership (the
"Partnership"), was formed in May 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 condensed consolidated financial statements include
the accounts and operations of the Partnership and present the financial
position as of September 30, 2003 and December 31, 2002, and the results of its
operations for the three-month and nine-month periods ended September 30, 2003
and 2002 and cash flows for the nine-month periods ended September 30, 2003 and
2002. All material intercompany transactions and accounts have been eliminated.
On February 14 and March 14, 2003, the Partnership issued 2,250,000 and
288,000 additional Common Units at a public offering price of $22.51 per unit
and received net proceeds of $48.5 million and $6.2 million, respectively,
before expenses of approximately $0.7 million, excluding underwriters' fees.
On February 14, 2003, the Partnership acquired Warrior Coal, LLC
("Warrior Coal") (Note 3). Because the Warrior Coal acquisition is between
entities under common control, the acquisition is recorded at historical cost in
a manner similar to that used in a pooling of interests. Accordingly, the
condensed consolidated financial statements and notes of the Partnership have
been restated to reflect the combined historical results of operations,
financial position and cash flows of the Partnership and Warrior Coal for all
periods presented.
These condensed consolidated 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 condensed 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 financial statements and notes included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 2002.
2. CONTINGENCIES
The Partnership is involved in various lawsuits, claims and regulatory
proceedings 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 these proceedings, when a loss is probable and the
amount is reasonably determinable. Although the ultimate outcome of these
matters cannot be predicted with certainty, in the opinion of management, the
outcome of these matters, to the extent not previously provided for or covered
under insurance, are not expected to have a material adverse effect on the
Partnership's business, financial position or results of operations.
Nonetheless, these matters or estimates that are based on current facts and
circumstances, if resolved in a manner different from the basis on
4
which management has formed its opinion, could have a material adverse effect on
the Partnership's financial position or results of operations.
On October 15, 2003, the West Virginia Department of Environmental
Protection ("WVDEP") issued a letter denying Mettiki Coal (WV), LLC's, one of
our subsidiaries, application for an underground mining permit for its proposed
E-Mine. The E-Mine is a proposed longwall underground mine to be located
primarily in Tucker County, West Virginia. The stated basis of WVDEP's denial
was that Mettiki Coal (WV) had failed to show that the proposed mine was
designed to prevent long-term material damage to the hydrologic balance outside
the permit area. WVDEP expressed its belief that the mine would likely produce
acid mine drainage, which would require treatment for an indefinite period.
WVDEP takes the position that the applicable surface mining laws require
reclamation of land and water resources, and that treatment for an indefinite
period is not an acceptable reclamation alternative. However, WVDEP previously
issued a permit to Island Creek Coal Company to mine the same general reserve
area without expressing such concerns. Mettiki Coal (WV) has thirty days from
its receipt of the denial of the permit application to appeal that decision to
the West Virginia Surface Mine Board ("SMB"). The SMB, a seven-member board,
typically hears cases within several months after appeals are filed and rarely
waits more than several weeks after hearing a case to render a final decision.
Mettiki Coal (WV) anticipates that it will vigorously pursue the appeal of the
denial of the surface mining permit application to the SMB. Mettiki Coal (WV)
has approximately $1.1 million of advance minimum royalties associated with the
E-Mine reserves, which management believes are fully recoverable.
In August 2003, the Partnership resolved its dispute with PSI Energy
Inc. ("PSI") concerning the procedures for and testing of a certain coal quality
specification relating to the minimum Hardgrove Grindability Index (i.e.
physical hardness of coal) of coal supplied by the Gibson County Coal mining
complex. See information under "Contingencies" in Note 2 of the Notes to
Unaudited Condensed Consolidated Financial Statements in the Quarterly Reports
on Form 10-Q for the quarterly periods ended March 31, 2003 and June 30, 2003.
At that time, Gibson County Coal and PSI concluded a definitive settlement
agreement that is consistent with the tentative settlement reached during
mediation procedures that occurred in August 2002. As part of the settlement,
the Partnership agreed with PSI to exchange mutual releases of any and all
claims related to the contract dispute. The Partnership's previously recorded
accruals of approximately $800,000 relating to the dispute were consistent with
the terms of the executed settlement agreement and certain other agreements.
3. ACQUISITION
On February 14, 2003, the Partnership acquired Warrior Coal pursuant to
the terms of an Amended and Restated Put and Call Option Agreement ("Put/Call
Agreement") with ARH Warrior Holdings, Inc. ("ARH Warrior"), a subsidiary of
ARH. The Partnership acquired Warrior Coal for approximately $12.7 million and
paid Warrior Coal's borrowings of $17.0 million under a revolving credit
agreement between Alliance Resource GP, LLC (the "Special GP"), a subsidiary of
ARH, and Warrior Coal. Because the Warrior Coal acquisition was between entities
under common control, the acquisition is accounted for at historical cost in a
manner similar to that used in a pooling of interests. As a result of recording
Warrior Coal's assets and liabilities at their historical book values, as
required by generally accepted accounting principles, while acquiring Warrior
Coal at market value, the General Partners' capital account was decreased by
$7.9 million. The Partnership financed the transaction with a portion of the net
proceeds of the public offering of 2,538,000 Common Units (Note 1) in February
and March 2003.
Under the terms of the Put/Call Agreement, the Partnership assumed
certain other obligations, including a mineral lease and sublease with SGP Land,
LLC, an affiliate of ARH Warrior, covering coal reserves that have been and will
continue to be mined by Warrior Coal. The terms and conditions of the mineral
lease and sub-lease remained unchanged following the closing of the acquisition.
5
4. MINE IDLING
On June 2, 2003, the Partnership idled its Hopkins County Coal mining
complex. Hopkins County Coal's two surface mines produced 1.6 million tons of
coal in 2002 and was idled in response to soft market demand. The Partnership
continues to evaluate the recoverability of the appropriate asset group and has
concluded that there is no impairment loss.
5. COAL SYNFUEL
The Partnership entered into long-term agreements with Synfuel
Solutions Operating LLC ("SSO") to host and operate its coal synfuel facility
located at Warrior Coal (originally the coal synfuel facility was located at
Hopkins County Coal), as well as supply the facility with coal feedstock, assist
SSO with the marketing of coal synfuel, and provide rental and other services.
These agreements expire on December 31, 2007, and provide the Partnership with
coal sales, rental and service fees from SSO based on the synfuel facility
throughput tonnages. These amounts are dependent on the ability of SSO's members
to use certain qualifying tax credits applicable to the facility. Warrior Coal
has maintained arrangements whereby it may sell any coal not purchased by SSO to
other coal buyers.
As previously disclosed, the term of each of the agreements with SSO is
subject to early cancellation provisions customary for transactions of these
types, including the unavailability of synfuel tax credits, the termination of
associated coal synfuel sales contracts, and the occurrence of certain force
majeure events. Assuming the currently forecasted throughput tonnages for the
SSO synfuel facility, the incremental annual net income benefit from the
combination of the various coal synfuel-related agreements is between $13
million and $15 million, assuming that coal pricing would not be impacted
without the availability of synfuel. The continuation of the incremental net
income benefit associated with SSO's coal synfuel facility cannot be assured.
The Partnership earns income by supplying SSO's synfuel facility with coal
feedstock, assisting SSO with the marketing of coal synfuel, and providing
rental and other services. Pursuant to our agreements with SSO, the Partnership
is not obligated to make retroactive adjustments or reimbursements if SSO's tax
credits are disallowed.
In June 2003, the Internal Revenue Service ("IRS") announced a review
of the test procedures and results relied upon by taxpayers and the IRS in
issuing private letter rulings ("PLRs") relating to the level of chemical change
required to qualify for synfuel tax credits. The IRS also suspended the issuance
of new private letter rulings ("PLRs") related to coal synfuel facilities. In
October 2003, the IRS stated that it has finished the review started in June
2003. As a result of this review, the IRS has determined that the test
procedures and results used by taxpayers are scientifically valid if the
procedures are applied in a consistent and unbiased manner. Further, the IRS
will resume to issuing rulings on significant chemical change, but only under
the guidelines set forth in Rev. Proc. 2001-30, as modified by Rev. Proc.
2001-34. Although the IRS will resume its ruling practice, the IRS indicated it
has continuing concerns regarding the sampling and data/record retention
practices prevalent in the synthetic fuels industry. Accordingly, in order to
receive future rulings, the IRS has advised that taxpayers will be required to
strictly conform with certain sampling, testing and documentation procedures.
The Partnership has been advised by SSO that the IRS may eventually
review SSO's PLR issued for its synfuel facility. The Partnership is unable to
predict the outcome of any such review or the ultimate impact, if any, of the
review on SSO's synfuel facility. SSO continues to produce and sell coal
synfuel.
6. NET INCOME PER LIMITED PARTNER UNIT
6
A reconciliation of net income and weighted average units used in
computing basic and diluted earnings per unit is as follows (in thousands,
except per unit data):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------------
2003 2002 2003 2002
---------------------- --------------------------
Limited partners' interest in net income $ 10,587 $ 4,705 $ 32,462 29,636
Weighted average limited partner units - basic 17,904 15,405 17,472 15,405
Basic net income per limited partner unit $ 0.59 $ 0.31 $ 1.86 $ 1.92
========= ========= ======== ==========
Weighted average limited partner units - basic 17,904 15,405 17,472 15,405
Units contingently issuable:
Restricted units for Long-Term Incentive Plan 527 390 527 390
Directors' compensation units deferred 17 13 16 13
Supplemental Executive Retirement Plan 40 36 39 35
--------- --------- -------- ----------
Weighted average limited partner units, assuming
dilutive effect of restricted units 18,488 15,844 18,054 15,843
--------- --------- -------- ----------
Diluted net income per limited partner unit $ 0.57 $ 0.30 $ 1.80 $ 1.87
========= ========= ======== ==========
7. RESTRICTED UNIT-BASED COMPENSATION
The Partnership has elected to account for the compensation expense of
the non-vested restricted units granted under the Long-Term Incentive Plan using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and the related Financial
Accounting Standards Board Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans."
Compensation cost for the non-vested restricted units is recorded on a pro-rata
basis, as appropriate, given the "cliff vesting" nature of the grants, based on
the current market value of the Partnership's Common Units at the end of each
period.
7
Consistent with the disclosure requirements of Statement of Financial
Accounting Standards ("SFAS") No. 148, "Accounting for Stock Based Compensation
Transition and Disclosure," and amendment of SFAS No. 123, "Accounting for
Stock-Based Compensation," the following table provides pro forma results as if
the fair value-based method had been applied to all outstanding and non-vested
awards, including Long-Term Incentive Plan units, in each period presented (in
thousands, except per unit data):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ------------ ---------
Net income, as reported $ 10,803 $ 4,126 $ 32,459 $ 29,538
Add: compensation expenses related to Long-Term
Incentive Plan units included in reported net income 1,850 557 4,591 1,515
Deduct: compensation expense related to Long-
Term Incentive Plan units determined under fair
value method for all awards (879) (568) (2,615) (1,685)
---------- ---------- ------------ ---------
Net income, pro forma $ 11,774 $ 4,115 $ 34,435 $ 29,368
========== ========== ============ =========
General partners' interest in net income (loss), pro forma $ 235 $ (579) $ 36 $ (102)
========== ========== ============ =========
Limited partners' interest in net income, pro forma $ 11,539 $ 4,694 $ 34,399 $ 29,470
========== ========== ============ =========
Earnings per limited partner unit:
Basic, as reported $ 0.59 $ 0.31 $ 1.86 $ 1.92
========== ========== ============ =========
Basic, pro forma $ 0.64 $ 0.30 $ 1.97 $ 1.91
========== ========== ============ =========
Diluted, as reported $ 0.57 $ 0.30 $ 1.80 $ 1.87
========== ========== ============ =========
Diluted, pro forma $ 0.62 $ 0.30 $ 1.91 $ 1.86
========== ========== ============ =========
8. SUBSEQUENT EVENTS
On October 24, 2003, the Partnership declared a quarterly distribution
of $0.525 per unit for the quarterly period ended September 30, 2003 (an
annualized rate of $2.10), on all of its Common and Subordinated Units
outstanding, payable on November 14, 2003, to all unitholders of record as of
November 3, 2003. The total distribution is approximately $9,591,000.
As of September 30, 2003, the Partnership satisfied the early
conversion financial test for converting one-half of the Subordinated Units into
Common Units as provided for under applicable provisions in the Partnership
Agreement. On October 24, 2003, the Board of Directors (and its Conflicts
Committee) of Alliance Resource Management GP, LLC, the managing general
partners of the Partnership, approved management's determination that such early
conversion financial test was satisfied as of September 30, 2003. As a result,
one-half of the outstanding Subordinated Units (i.e., 3,211,265 Subordinated
Units) held by the Special GP, will convert into Common Units on November 15,
2003. The remainder of the Subordinated Units are expected to convert into
Common Units in the fourth quarter of 2004, assuming the Partnership continues
to meet the financial test requirements of the Partnership Agreement. As of
November 15, 2003, the Special GP, will own 4,444,045 and 3,211,266 of the
Partnership's Common and Subordinated Units, respectively. As of that date,
total units outstanding, both common and subordinated, are expected to remain at
17,903,793.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SELECTED OPERATING DATA
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------- --------------------------------------
2003 2002 2003 2002
----------------- ----------------- ----------------- -----------------
Tons sold (000s) 5,181 4,703 14,386 13,620
Tons produced (000s) 4,729 4,080 14,362 13,531
Revenues per ton sold (1) $26.36 $27.16 $ 26.80 $ 27.20
Cost per ton sold (2) $21.00 $22.72 $ 20.87 $ 21.39
(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, 2003 Compared to Three Months Ended September
30, 2002
Coal sales. Coal sales for the three-months ended September 30, 2003
(the "2003 Quarter") increased 7.3% to $131.1 million from $122.2 million for
the three-months ended September 30, 2002 (the "2002 Quarter"). The increase of
$8.9 million was primarily attributable to higher sales volumes (0.5 million
tons) partially offset by lower sales prices. Tons sold increased 10.2% to 5.2
million for the 2003 Quarter from 4.7 million for the 2002 Quarter. Tons
produced increased 15.9% to 4.7 million tons for the 2003 Quarter from 4.1
million for the 2002 Quarter.
Transportation revenues. Transportation revenues were comparable for
the 2003 and 2002 Quarters at $5.2 million and $5.0 million, respectively. 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 condensed consolidated statements of
income. No profit margin is realized on transportation revenues.
Other sales and operating revenues. Other sales and operating revenues
were comparable for the 2003 and 2002 Quarters at $5.4 million and $5.5 million,
respectively.
Operating expenses. Operating expenses decreased 1.3% to $98.5 million
for the 2003 Quarter from $99.8 million for the 2002 Quarter. The decrease of
$1.3 million reflects Hopkins County Coal's idling of its two surface mines in
June 2003 and closure of its depleted underground mine in April 2003,
substantially offset by an increase in aggregate operating expenses at Warrior
Coal. Operating expenses declined on a cost-per-ton sold basis as production
increased at all of the Partnership's active operations. The increased
production reflects the absence of the adverse geologic conditions encountered
at the Mettiki mine in the third quarter of 2002 and the emerging benefit of
several strategic capital investments made during the past two years. The
Partnership has added continuous miner units at its Gibson County Coal, Warrior
Coal and MC Mining mines and made infrastructure investments, such as new mine
shafts, at the Dotiki, Warrior Coal and Pattiki mines.
Transportation expenses. See "Transportation revenues" above concerning
the increase in transportation expenses.
9
Outside purchases. Outside purchases increased 38.6% $3.8 million for
the 2003 Quarter compared to $2.8 million for the 2002 Quarter. The increase of
$1.0 million was primarily attributable to short-term opportunities in the
domestic brokerage markets partially offset by a decrease in coal purchases from
a third-party contractor that ceased production in the fourth quarter of 2002.
General and administrative. General and administrative expenses
increased 50.5% to $6.5 million for the 2003 Quarter compared to $4.3 million
for the 2002 Quarter. The increase of $2.2 million was primarily attributable to
increased accruals associated with the Partnership's managing general partners'
incentive compensation plans. The majority of the increase in these accruals is
attributable to the Long-Term Incentive Plan, which is a restrictive unit
program and is impacted by the increased market value of the Partnership's
Common Units.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization expense were comparable for the 2003 and 2002 Quarters at $12.6
million and $12.9 million, respectively.
Interest expense. Interest expense was comparable for the 2003 and 2002
Quarters at $4.1 million and $4.0 million, respectively.
Income taxes. Income taxes increased to $0.7 million for the 2003
Quarter compared to $(0.6) million for the 2002 Quarter. Although the
Partnership is not a taxable entity for federal or state income tax purposes,
the Partnership's indirect wholly-owned subsidiary, Alliance Service, Inc.
("Alliance Service") is subject to federal and state income taxes. In
conjunction with a decision to relocate the coal synfuel facility from Hopkins
County Coal to Warrior Coal, agreements for a portion of the services provided
to the coal synfuel producer were assigned to Alliance Service in December 2002.
Additionally, Warrior Coal was subject to income taxes prior to its acquisition
by the Partnership on February 14, 2003.
Net income. Net income increased 161.8% to $10.8 million for the 2003
Quarter from $4.1 million for the 2002 Quarter. The increase of $6.7 million is
attributable to the combination of lower cost-per-ton sold operating expenses
and higher sales volumes partially offset by higher general and administrative
expenses and increased income tax expense. Lower cost-per-ton operating expenses
and increased sales volumes reflect the increase in production, which is
attributable to the factors discussed under operating expenses above. The higher
general and administrative expenses primarily reflect the increased accruals for
the Long-Term Incentive Plan, and the increased income tax expense is associated
with the coal-synfuel related services now performed by Alliance Service.
Nine Months Ended September 30, 2003 compared to Nine Months Ended September 30,
2002
Coal sales. Coal sales for the nine-months ended September 30, 2003
(the "2003 Period") increased 3.5% to $368.2 million from $355.7 million for the
nine-months ended September 30, 2002 (the "2002 Period"). The increase of $12.5
million was primarily attributable to higher sales volumes partially offset by
lower sales prices. Tons sold increased 5.6% to 14.4 million for the 2003 Period
from 13.6 million for the 2002 Period. Tons produced increased 6.1% to 14.4
million tons for the 2003 Period from 13.5 million for the 2002 Period.
Transportation revenues. Transportation revenues were comparable for
the 2003 and 2002 Periods at $14.6 million and $14.5 million, respectively. 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 condensed consolidated statements of
income. No profit margin is realized on transportation revenues.
10
Other sales and operating revenues. Other sales and operating revenues
increased 17.2% to $17.4 million for the 2003 Period from $14.8 million for the
2002 Period. The increase of $2.6 million is primarily attributable to
additional rental and service fees associated with increased volumes at a
third-party coal synfuel facility originally located at Hopkins County Coal and
moved to Warrior Coal in April 2003.
Operating expenses. Operating expenses increased 2.8% to $276.1 million
for the 2003 Period from $268.5 million for the 2002 Period. The increase of
$7.6 million is primarily attributable to the increase in aggregate operating
expenses associated with additional sales of produced coal, especially from the
Warrior Coal mine. These increases were significantly offset by a decrease in
operating expenses at Hopkins County Coal, which idled its two surface mines in
June 2003 and closed it depleted underground mine in April 2003. Operating
expenses declined on a cost-per-ton sold basis as production increased at all
but one of the Partnership's active operations. The increased production
reflects the absence of the adverse geologic conditions encountered at the
Mettiki mine in the third quarter of 2002 and the emerging benefit of several
strategic capital investments made during the past two years. The Partnership
has added continuous miner units at its Gibson County Coal, Warrior Coal and MC
Mining mines and made infrastructure investments, such as new mine shafts, at
the Dotiki, Warrior Coal and Pattiki mines.
Transportation expenses. See "Transportation revenues" above concerning
the decrease in transportation expenses.
Outside purchases. Outside purchases decreased 37.6% to $5.2 million
for the 2003 Period compared to $8.4 million for the 2002 Period. The decrease
of $3.2 million was primarily the result of not purchasing coal from a
third-party contractor that ceased production in the fourth quarter of 2002.
General and administrative. General and administrative expenses
increased 30.3% to $18.8 million for the 2003 Period compared to $14.4 million
for the 2002 Period. The increase of $4.4 million was attributable primarily to
increased accruals associated with the Partnership's managing general partners'
incentive compensation plans. The majority of the increase in these accruals is
attributable to the Long-Term Incentive Plan, which is a restrictive unit
program and is impacted by the increased market value of the Partnership's
Common Units
Depreciation, depletion and amortization. Depreciation, depletion and
amortization expenses increased 2.2% to $39.3 million for the 2003 Period
compared to $38.5 million for the 2002 Period. The increase of $0.8 million was
primarily the result of additional depreciation expense associated with recently
completed capital expenditures at Pattiki that were necessary for the extension
across the fault zone into an adjacent coal reserve area. Pattiki's transition
of operating units to the new reserve area began in October 2002 and was
competed in May 2003.
Interest expense. Interest expense was comparable for each of the 2003
and 2002 Periods at $12.0 million and $12.2 million, respectively.
Income taxes. Income taxes increased to $2.3 million for the 2003
Period compared to $(0.6) million for the 2002 Period. Although the Partnership
is not a taxable entity for federal or state income tax purposes, the
Partnership's indirect subsidiary, Alliance Service is subject to federal and
state income taxes. In conjunction with a decision to relocate the coal synfuel
facility from Hopkins County Coal to Warrior Coal, agreements for a portion of
the services provided to the coal synfuel producer were assigned to Alliance
Service in December 2002. Additionally, Warrior Coal was subject to income taxes
prior to its acquisition by the Partnership on February 14, 2003.
11
Net income. Net income increased 9.9% to $32.5 million for the 2003
Period from $29.5 million for the 2002 Period. The increase of $3.0 million is
primarily attributable to cost-lower per-ton sold operating costs, higher sales
volumes and additional volumes associated with the coal synfuel-related
agreements partially offset by higher general and administrative and income tax
expenses. Lower cost-per-ton operating expenses and increased sales volumes
reflect the increase in production, which is attributable to the factors
discussed under operating expenses above. The higher general and administrative
expenses primarily reflect increased accruals for the Long-Term Incentive Plan,
and the increased income tax expense is associated with the coal-synfuel related
services now performed by Alliance Service.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash provided by operating activities was $62.5 million for the 2003
Period compared to $56.4 million for the 2002 Period. The increase in cash
provided by operating activities was principally attributable to higher net
income and decreased working capital during the 2003 Period compared to the 2002
Period.
Net cash used in investing activities was $69.5 million for the 2003
Period compared to $38.2 million for the 2002 Period. The increase in the use of
cash is principally attributable to purchasing of marketable securities in the
2003 Period compared to the receipt of proceeds from the maturity of marketable
securities in the 2002 Period.
Net cash used in financing activities was $0.7 million for the 2003
Period compared to $24.8 million for the 2002 Period. The decrease is primarily
attributable to the proceeds received from a Common Unit offering during the
2003 Period partially offset by an increase in distributions to Partners due to
an increase in the quarterly distribution rate of $0.025 per unit to $0.525 per
unit and the additional Common Units outstanding from the Common Unit offering,
payment of Warrior Coal's borrowings of $17.0 million under a revolving credit
agreement and an increase in net payments of $10 million combined for the
revolving credit facility and long-term debt.
Capital Expenditures
Capital expenditures were comparable for each of the 2003 and 2002
Periods at $46.9 million and $48.6 million, respectively. The capital
expenditures in the 2003 Period of $46.9 million included $12.7 million for the
Warrior Coal acquisition. Excluding the Warrior Coal acquisition, capital
expenditures for the 2003 Period decreased $14.4 million compared to capital
expenditures for the 2002 Period. The decrease is primarily attributable to the
substantial completion of the extension into an adjacent reserve area at Pattiki
in late 2002 and the new service shaft at Dotiki during April 2003. The majority
of the capital expenditures associated with the Pattiki and Dotiki projects were
incurred during 2002. Capital expenditures for the remainder of 2003 are
estimated to be $10.2 million.
Insurance
During September 2003, the Partnership completed its annual property
and casualty insurance renewal. Recent insurance carrier losses worldwide have
created a tightening market reducing available capacity for underwriting
property insurance. As a result, the Partnership and its affiliates retained a
10% participating interest along with its insurance carriers in the commercial
property program. The aggregate maximum limit in the commercial property program
is $75 million per occurrence of which the
12
Partnership would be responsible for a maximum limit of $7.5 million for each
occurrence, excluding a $3.5 million deductible. While the Partnership does not
have a significant history of material insurance claims, the ultimate amount of
occurrences incurred and claims made, if any, are dependent on future
developments. The Partnership can make no assurances that it 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 its business, financial condition and results of
operations.
Notes Offering and Credit Facility
Alliance Resource Operating Partners, L.P. (the "Intermediate
Partnership") has $180 million principal amount of 8.31% senior notes due August
20, 2014, payable in ten equal annual installments of $18 million beginning in
August 2005 with interest payable semiannually. On August 22, 2003, the
Intermediate Partnership completed a new $85 million revolving credit facility
which expires September 30, 2006. The new revolving credit facility replaces a
$100 million credit facility that would have expired August 2004. The original
$100 million credit facility consisted of three tranches, including a term loan
facility with an initial balance of $50 million, a $25 million working capital
facility and a $25 million revolving credit facility. On August 22, 2003, the
balance of the term loan facility was $20 million, which could not be increased
and was paid in full with borrowings under the new revolving credit agreement.
The interest rate on the new revolving credit facility is based on either the
(i) London Interbank Offered Rate or (ii) the "Base Rate," which is equal to the
greater of the JPMorgan Chase Prime Rate or the Federal Funds Rate plus 1/2 of
1%, plus, in either case, an applicable margin. The interest rate on the
revolving credit facility at September 30, 2003 was 2.62%. The Partnership
incurred certain costs aggregating $1.2 million associated with the new
revolving credit facility; these costs have been deferred and are being
amortized as a component of interest expense over the term of the revolving
credit facility. At September 30, 2003, the balance of the revolving credit
facility was $20.0 million. Letters of credit can be issued under the revolving
credit facility not to exceed $30 million; outstanding letters of credit reduce
amounts available under the revolving credit facility. At September 30, 2003,
the Partnership had letters of credit of $9.0 million outstanding under the
revolving credit facility. The senior notes and revolving credit facility are
guaranteed by all of the subsidiaries of the Intermediate Partnership. The
senior notes and revolving 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 revolving credit facility and senior notes at
September 30, 2003.
The Partnership previously entered into and has maintained agreements
with two banks to provide additional letters of credit in an aggregate amount of
$25.0 million to maintain surety bonds to secure its obligations for reclamation
liabilities and workers' compensation benefits. At September 30, 2003, the
Partnership had $16.8 million in letters of credit outstanding under these
agreements. Alliance Resource GP, LLC, the Partnership's special general partner
(the "Special GP"), guarantees these letters of credit.
Conversion of Subordinated Units
As of September 30, 2003, the Partnership satisfied the early
conversion financial test for converting one-half of the Subordinated Units into
Common Units as provided for under applicable provisions in the Partnership
Agreement. On October 24, 2003, the Board of Directors (and its Conflicts
Committee) of Alliance Resource Management GP, LLC, (the "Managing GP"),
approved management's determination that such early conversion financial test
was satisfied as of September 30, 2003. As a result, one-half of the outstanding
Subordinated Units (i.e., 3,211,265 Subordinated Units) held by the Special GP,
will convert into Common Units on November 15, 2003. The remainder of the
Subordinated Units are expected to convert into Common Units in the fourth
quarter of 2004, assuming the Partnership
13
continues to meet the financial test requirements of the Partnership Agreement.
As of November 15, 2003, the Special GP, will own 4,444,045 and 3,211,266 of the
Partnership's Common Units and Subordinated Units, respectively. As of that
date, total units outstanding, both common and subordinated, are expected to
remain at 17,903,793.
Related Party Transactions
On February 14, 2003, the Partnership acquired Warrior Coal pursuant to
the terms of the Put/Call Agreement with ARH Warrior Holdings, Inc.("ARH
Warrior"), a subsidiary of ARH. The Partnership acquired Warrior Coal for
approximately $12.7 million and paid Warrior Coal's borrowings of $17.0 million
under a revolving credit agreement between the Special GP and Warrior Coal.
Because the Warrior Coal acquisition was between entities under common control,
the acquisition is accounted for at historical cost in a manner similar to that
used in a pooling of interests. As a result of recording Warrior Coal's assets
and liabilities at their historical book values, as required by generally
accepted accounting principles, while acquiring Warrior Coal at market value,
the General Partners' capital account was decreased by $7.9 million. The
Partnership financed the transaction with a portion of the net proceeds of the
public offering of 2,538,000 Common Units in February and March, 2003. See Note
1 to the condensed consolidated financial statements in "Item 1. Financial
Statements" above.
Under the terms of the Put/Call Agreement, the Partnership assumed
certain other obligations, including a mineral lease and sublease with SGP Land,
LLC, an affiliate of ARH Warrior, covering coal reserves that have been and will
continue to be mined by Warrior Coal. The terms and conditions of the mineral
lease and sub-lease remained unchanged following the closing of the acquisition.
Prior to the acquisition of Warrior Coal on February 14, 2003, the Partnership
purchased coal from and sold coal to Warrior Coal and had agreements with
Warrior Coal related to administrative services and reclamation procedures.
The Partnership has continuing related-party transactions with its
Managing GP and the Special GP, including the Special GP's affiliates. These
related party transactions relate principally to the provision of administrative
services by the Managing GP, mineral and equipment leases with the Special GP,
including its affiliates, and guarantees from the Special GP for letters of
credit.
Please read the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2002, "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Related Party Transactions - "
for additional information concerning the related party transactions described
above.
Coal Synfuel
The Partnership entered into long-term agreements with Synfuel
Solutions Operating LLC ("SSO") to host and operate its coal synfuel facility
located at Warrior Coal (originally the coal synfuel facility was located at
Hopkins County Coal), as well as supply the facility with coal feedstock, assist
SSO with the marketing of coal synfuel, and provide rental and other services.
These agreements expire on December 31, 2007, and provide the Partnership with
coal sales, rental and service fees from SSO based on the synfuel facility
throughput tonnages. These amounts are dependent on the ability of SSO's members
to use certain qualifying tax credits applicable to the facility. Warrior Coal
has maintained arrangements whereby it may sell any coal not purchased by SSO to
other coal buyers.
As previously disclosed, the term of each of the agreements with SSO is
subject to early cancellation provisions customary for transactions of these
types, including the unavailability of synfuel tax credits, the termination of
associated coal synfuel sales contracts, and the occurrence of certain force
14
majeure events. Assuming the currently forecasted throughput tonnages for the
SSO synfuel facility, the incremental annual net income benefit from the
combination of the various coal synfuel-related agreements is between $13
million and $15 million, assuming that coal pricing would not be impacted
without the availability of synfuel. The continuation of the incremental net
income benefit associated with SSO's coal synfuel facility cannot be assured.
The Partnership earns income by supplying SSO's synfuel facility with coal
feedstock, assisting SSO with the marketing of coal synfuel, and providing
rental and other services. Pursuant to our agreements with SSO, the Partnership
is not obligated to make retroactive adjustments or reimbursements if SSO's tax
credits are disallowed.
In June, 2003 the Internal Revenue Service ("IRS") announced a review
of the test procedures and results relied upon by taxpayers and the IRS in
issuing private letter rulings ("PLRs") relating to the level of chemical change
required to qualify for synfuel tax credits. The IRS also has suspended the
issuance of new private letter rulings ("PLRs") related to coal synfuel
facilities. The Partnership believes the IRS may eventually review SSO's PLR
issued for its synfuel facility. In October 2003, the IRS stated that it has
finished the review started in June 2003. As a result of this review, the IRS
has determined that the test procedures and results used by taxpayers are
scientifically valid if the procedures are applied in a consistent and unbiased
manner. Further, the IRS will resume issuing rulings on significant chemical
change, but only under the guidelines set forth in Rev. Proc. 2001-30, as
modified by Rev. Proc. 2001-34. Although the IRS will resume its ruling
practice, the IRS indicated it has continuing concerns regarding the sampling
and data/record retention practices prevalent in the synthetic fuels industry.
Accordingly, in order to receive future rulings, the IRS has advised that
taxpayers will be required to strictly conform with certain sampling, testing
and documentation procedures.
The Partnership has been advised by SSO that the IRS may eventually
review SSO's PLR issued for its synfuel facility. The Partnership is unable to
predict the outcome of any such review or the ultimate impact, if any, of the
review on SSO's synfuel facility. SSO continues to produce and sell coal
synfuel.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2003, the Partnership adopted Statement of Financial
Accounting Standards ("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 for each period, and the capitalized cost is
depreciated over the useful life of the related asset. To settle the liability,
the obligations for its recorded amount is paid or a gain or loss upon
settlement is incurred. Since the Partnership has historically adhered to
accounting principles similar to SFAS No. 143, this standard had no material
effect on the Partnership's consolidated financial statements upon adoption.
On January 1, 2003, the Partnership adopted Financial Accounting
Standards Board Interpretation No. 45 "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This interpretation elaborates on the disclosures to be made by a
guarantor in its financial statements about its obligations under certain
guarantees that it has issued. It also requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations it
has undertaken in issuing the guarantee. This interpretation had no material
effect on the Partnership's consolidated financial statements upon adoption.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All of the Partnership's transactions are denominated in U.S. dollars
and, as a result, the Partnership does not have material exposure to currency
exchange-rate risks.
The Partnership did not engage in any interest rate, foreign currency
exchange-rate or commodity price-hedging transactions as of September 30, 2003.
On August 22, 2003, the Intermediate Partnership completed a new $85
million revolving credit facility which replaces a $100 million credit facility.
Borrowings under the new revolving credit facility and the previous credit
facility are and were at variable rates and, as a result, the Partnership has
interest rate exposure. The Partnership's earnings are not materially affected
by changes in interest rates. If interest rates would have increased by 100
basis points, interest expense for the nine-months ended September 30, 2003
would have increased by approximately $173,000.
As of September 30, 2003, 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, 2002.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out by management, including our chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon this
evaluation, the chief executive officer and the chief financial officer
concluded that the design and operation of these disclosure controls and
procedures were effective as of the end of the period covered by this report.
During the quarterly period ended September 30, 2003, there have not been any
changes in the Partnership's internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) identified
in connection with this evaluation that have materially affected, or is
reasonably likely to materially affect, the Partnership's internal control over
financial reporting.
Each of the chief executive officer and the chief financial officer of
our Managing GP has furnished as Exhibit 32.1 and Exhibit 32.2, respectively, a
certificate to the Securities and Exchange Commission as required by Section 906
of the Sarbanes-Oxley Act of 2002.
16
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements.
These statements are based on our beliefs as well as assumptions made by, and
information currently available to, us. When used in this document, the words
"anticipate," "believe," "continue," "estimate," "expect," "forecast", "may,"
"project", "will," and similar expressions identify forward-looking statements.
These statements reflect our current views with respect to future events and are
subject to various risks, uncertainties and assumptions. Specific factors which
could cause actual results to differ from those in the forward-looking
statements include:
- competition in coal markets and our ability to respond to the
competition;
- fluctuation in coal prices, which could adversely affect our
operating results and cash flows;
- deregulation of the electric utility industry and/or the
effects of any adverse changes in the domestic coal industry,
electric utility industry, or general economic conditions;
- dependence on significant customer contracts, including
renewing customer contracts upon expiration;
- loss of the ability by us or others to realize benefits from
state and federal tax credits;
- customer cancellations of, or breaches to, existing contracts;
- customer delays or defaults in making payments;
- fluctuations in coal demand, price and availability due to
labor and transportation costs and disruptions, equipment
availability, governmental regulations and other factors;
- our productivity levels and margins that we earn on our coal
sales;
- any unanticipated increases in labor costs or unexpected cash
payments associated with post-mine reclamation and workers'
compensation claims;
- greater than expected environmental regulations, costs and
liabilities;
- a variety of operational, geologic, permitting, labor and
weather-related factors;
- risks of major mine-related accidents or interruptions;
- results of litigation;
- difficulty maintaining our surety bonds for mine reclamation
as well as workers' compensation and black lung benefits; and
- difficulty in obtaining commercial property insurance.
If one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, our actual results may differ materially
from those described in any forward-looking statement. When considering
forward-looking statements, you should also keep in mind the risk factors
described in our Annual Report on Form 10-K for the year ended December 31,
2002. Those risk factors could also cause our actual results to differ
materially from those contained in any forward-looking statement. We disclaim
any obligation to update the above list or to announce publicly the result of
any revisions to any of the forward-looking statements to reflect future events
or developments.
You should consider the above information when reading any
forward-looking statements contained in:
- this Quarterly Report on Form 10-Q;
- other reports filed by us with the SEC;
- our press releases; and
- oral statements made by us or any of our officers or other
persons acting on our behalf.
17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information under "Contingencies" in Note 2 of the Notes to
Unaudited Condensed 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, 2002.
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:
10.41 Credit Agreement, dated as of August 22, 2003, among Alliance
Resource Operating Partners, L.P., JP Morgan Chase Bank (as
paying agent), Citicorp USA Inc. and JP Morgan Chase Bank (as
co-administrative agents) and lenders named therein.
10.42 Extension of Consulting Agreement with Mr. Sachse, dated
September 30, 2003.
31.1 Certification of Joseph W. Craft III, President and Chief
Executive Officer of Alliance Resource Management GP, LLC, the
managing general partner of Alliance Resource Partners, L.P.,
dated November 10, 2003, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 furnished herewith.
31.2 Certification of Brian L. Cantrell, Senior Vice President and
Chief Financial Officer of Alliance Resource Management GP,
LLC, the managing general partner of Alliance Resource
Partners, L.P., dated November 10, 2003, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 furnished herewith.
32.1 Certification of Joseph W. Craft III, President and Chief
Executive Officer of Alliance Resource Management GP, LLC, the
managing general partner of Alliance Resource Partners, L.P.,
dated November 10, 2003, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 furnished herewith.
18
32.2 Certification of Brian L. Cantrell Senior Vice President and
Chief Financial Officer of Alliance Resource Management GP,
LLC, the managing general partner of Alliance Resource
Partners, L.P., dated November 10, 2003, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 furnished herewith.
(b) Reports on Form 8-K:
A Form 8-K was filed on July 28, 2003 to submit to the
Securities and Exchange Commission a press release announcing earnings
and operating results for the second quarter of 2003. The press release
contains the following financial statements: (i) consolidated
statements of income and operating data for the three-months and
six-months ended June 30, 2003 and 2002; (ii) consolidated balance
sheets at June 30, 2003 and December 31, 2002; and (iii) consolidated
condensed statements of cash flows for the six-months ended June 30,
2003 and 2002.
19
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 10, 2003.
ALLIANCE RESOURCE PARTNERS, L.P.
By: Alliance Resource Management GP, LLC
its managing general partner
/s/ Joseph W. Craft III
-----------------------------------------
Joseph W. Craft III
President, Chief Executive
Officer and Director
/s/ Brian L. Cantrell
----------------------------------
Brian L. Cantrell
Senior Vice President and Chief Financial
Officer
20
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.41 Credit Agreement, dated as of August 22, 2003, among Alliance
Resource Operating Partners, L.P., JP Morgan Chase Bank (as
paying agent), Citicorp USA Inc. and JP Morgan Chase Bank (as
co-administrative agents) and lenders named therein.
10.42 Extension of Consulting Agreement with Mr. Sachse, dated
September 30, 2003.
31.1 Certification of Joseph W. Craft III, President and Chief
Executive Officer of Alliance Resource Management GP, LLC, the
managing general partner of Alliance Resource Partners, L.P.,
dated November 10, 2003, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 furnished herewith.
31.2 Certification of Brian L. Cantrell, Senior Vice President and
Chief Financial Officer of Alliance Resource Management GP,
LLC, the managing general partner of Alliance Resource
Partners, L.P., dated November 10, 2003, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 furnished herewith.
32.1 Certification of Joseph W. Craft III, President and Chief
Executive Officer of Alliance Resource Management GP, LLC, the
managing general partner of Alliance Resource Partners, L.P.,
dated November 10, 2003, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 furnished herewith.
32.2 Certification of Brian L. Cantrell, Senior Vice President and
Chief Financial Officer of Alliance Resource Management GP,
LLC, the managing general partner of Alliance Resource
Partners, L.P., dated November 10, 2003, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 furnished herewith.
21