00010866002020-01-01arlp:IllinoisBasinSegmentMember2019-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2019

☐ 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.~~L.P.

(Exact name of registrant as specified in its charter)

Delaware

73-1564280

(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)

1717 South Boulder Avenue, Suite 400, Tulsa, Oklahoma74119

(Address of principal executive offices and zip code)

~~(918)~~ (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. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). [X ] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ~~[X]~~.☒	Accelerated Filer ~~[ ]~~☐	Non-Accelerated Filer ~~[ ]~~☐	Smaller Reporting Company ~~[ ]~~
		~~(Do not check if smaller reporting company)~~☐
Emerging Growth Company ~~[ ]~~☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~[ ]~~☐ Yes ~~[X]~~☒ No

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common units representing limited partner interests	ARLP	NASDAQ Global Select Market

As of ~~November 6, 2017, 130,704,217~~August 5, 2019, 128,391,191 common units are outstanding.

Table of Contents

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION


		Page
		~~Page~~

ITEM 1.	Financial Statements (Unaudited)

	ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018	1

	Condensed Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	2

	Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	3

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	4

	~~Condensed Consolidated Statement of Partners' Capital for the nine months ended September 30, 2017~~	5

	Notes to Condensed Consolidated Financial Statements	6 5
	1. Organization and Presentation	5
	2. New Accounting Standards	6
	3. Acquisition	7
	4. Contingencies	8
	5. Inventories	9
	6. Leases	9
	7. Fair Value Measurements	10
	8. Long-Term Debt	11
	9. Variable Interest Entities	12
	10. Investments	14
	11. Partners' Capital	15
	12. Revenue from Contracts with Customers	18
	13. Earnings per Limited Partner Unit	19
	14. Workers' Compensation and Pneumoconiosis	20
	15. Compensation Plans	20
	16. Components of Pension Plan Net Periodic Benefit Cost	22
	17. Segment Information	22
	18. Subsequent Events	25
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	39
		40
ITEM 4.	Controls and Procedures	40
		41
	Forward-Looking Statements	41 42

PART II

OTHER INFORMATION

ITEM 1.	Legal Proceedings	43
		44
ITEM 1A.	Risk Factors	43
		44
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
		44
ITEM 3.	Defaults Upon Senior Securities	43
		45
ITEM 4.	Mine Safety Disclosures	43
		45
ITEM 5.	Other Information	43
		45
ITEM 6.	Exhibits	44 46

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

(Unaudited)

September 30,

December 31,

2017

2016

ASSETS


CURRENT ASSETS:

Cash and cash equivalents

$
18,393

$
39,782

Trade receivables

129,031

152,032

Other receivables

709

279

Due from affiliates

288

271

Inventories, net

87,667

61,051

Advance royalties, net

1,207

1,207

Prepaid expenses and other assets


10,356


22,050

Total current assets

247,651

276,672

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment, at cost

2,938,362

2,920,988

Less accumulated depreciation, depletion and amortization

(1,436,470)

(1,335,145)

Total property, plant and equipment, net

1,501,892

1,585,843

OTHER ASSETS:

Advance royalties, net

40,578

29,372

Equity investments in affiliates

144,349

138,817

Cost investments

102,800

—

Goodwill

136,399

136,399

Other long-term assets

32,983

25,939

Total other assets

457,109

330,527

TOTAL ASSETS

$
2,206,652

$
2,193,042

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:

Accounts payable

$
73,597

$
64,055

Due to affiliates

759

906

Accrued taxes other than income taxes

20,544

18,273

Accrued payroll and related expenses

41,124

41,576

Accrued interest

13,083

316

Workers' compensation and pneumoconiosis benefits

9,732

9,897

Current capital lease obligations

28,220

27,196

Other current liabilities

16,697

14,778

Current maturities, long-term debt, net

100,000

149,874

Total current liabilities

303,756

326,871

LONG-TERM LIABILITIES:

Long-term debt, excluding current maturities, net

385,449

399,446

Pneumoconiosis benefits

64,197

62,822

Accrued pension benefit

39,497

42,070

Workers' compensation

52,477

40,400

Asset retirement obligations

125,146

125,266

Long-term capital lease obligations

64,358

85,540

Other liabilities

16,248

17,203

Total long-term liabilities

747,372

772,747

Total liabilities

1,051,128

1,099,618

PARTNERS' CAPITAL:

Alliance Resource Partners, L.P. ("ARLP") Partners' Capital:

Limited Partners - Common Unitholders 130,704,217 and 74,375,025 units outstanding, respectively

1,173,066

1,400,202

General Partners’ interest

14,781

(273,788)

Accumulated other comprehensive loss

(37,694)

(38,540)

Total ARLP Partners' Capital

1,150,153

1,087,874

Noncontrolling interest

5,371

5,550

Total Partners' Capital

1,155,524

1,093,424

TOTAL LIABILITIES AND PARTNERS' CAPITAL

$
2,206,652

$
2,193,042


	June 30,		December 31,
	2019		2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	55,215	$	244,150
Trade receivables		178,128		174,914
Other receivables		628		395
Inventories, net		84,661		59,206
Advance royalties, net		1,274		1,274
Prepaid expenses and other assets		11,592		20,747
Total current assets		331,498		500,686
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost		3,496,144		2,925,808
Less accumulated depreciation, depletion and amortization		(1,584,513)		(1,513,450)
Total property, plant and equipment, net		1,911,631		1,412,358
OTHER ASSETS:
Advance royalties, net		52,911		42,923
Equity method investments		28,672		161,309
Equity securities		—		122,094
Goodwill		136,399		136,399
Operating lease right-of-use assets		20,421		—
Other long-term assets		21,189		18,979
Total other assets		259,592		481,704
TOTAL ASSETS	$	2,502,721	$	2,394,748

LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable	$	108,116	$	96,397
Accrued taxes other than income taxes		17,507		16,762
Accrued payroll and related expenses		42,484		43,113
Accrued interest		5,154		5,022
Workers' compensation and pneumoconiosis benefits		11,270		11,137
Current finance lease obligations		38,214		46,722
Current operating lease obligations		5,554		—
Other current liabilities		18,734		19,718
Current maturities, long-term debt, net		78,144		92,000
Total current liabilities		325,177		330,871
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities, net		467,141		564,004
Pneumoconiosis benefits		73,607		68,828
Accrued pension benefit		40,841		43,135
Workers' compensation		45,422		41,669
Asset retirement obligations		132,414		127,655
Long-term finance lease obligations		2,549		10,595
Long-term operating lease obligations		14,806		—
Other liabilities		21,285		20,304
Total long-term liabilities		798,065		876,190
Total liabilities		1,123,242		1,207,061

PARTNERS' CAPITAL:
ARLP Partners' Capital:
Limited Partners - Common Unitholders 128,391,191 and 128,095,511 units outstanding, respectively		1,417,962		1,229,268
Accumulated other comprehensive loss		(50,573)		(46,871)
Total ARLP Partners' Capital		1,367,389		1,182,397
Noncontrolling interest		12,090		5,290
Total Partners' Capital		1,379,479		1,187,687
TOTAL LIABILITIES AND PARTNERS' CAPITAL	$	2,502,721	$	2,394,748

See notes to condensed consolidated financial statements.

Table of Contents

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,


2017

2016

2017

2016

SALES AND OPERATING REVENUES:

Coal sales

$
435,162

$
533,817

$
1,256,168

$
1,357,578

Transportation revenues

8,009

7,692

24,933

19,732

Other sales and operating revenues

10,018

10,565

31,888

26,743

Total revenues

453,189

552,074

1,312,989

1,404,053

EXPENSES:

Operating expenses (excluding depreciation, depletion and amortization)

295,385

326,891

796,845

842,417

Transportation expenses

8,009

7,692

24,933

19,732

Outside coal purchases

—

1,514

—

1,514

General and administrative

15,005

18,114

45,982

53,015

Depreciation, depletion and amortization

69,962

101,432

194,109

245,736

Total operating expenses

388,361

455,643

1,061,869

1,162,414

INCOME FROM OPERATIONS

64,828

96,431

251,120

241,639

Interest expense (net of interest capitalized for the three and nine months ended September 30, 2017 and 2016 of $107, $47, $354 and $320, respectively)

(10,773)

(8,001)

(28,904)

(23,386)

Interest income

4

3

82

8

Equity in income of affiliates

3,798

1,105

10,414

1,041

Cost investment income

2,800

—

2,800

—

Debt extinguishment loss

—

—

(8,148)

—

Other income

774

293

2,461

545

INCOME BEFORE INCOME TAXES

61,431

89,831

229,825

219,847

INCOME TAX EXPENSE (BENEFIT)

5

7

(3)

4

NET INCOME

61,426

89,824

229,828

219,843

LESS:  NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

(155)

(44)

(425)

(40)

NET INCOME ATTRIBUTABLE TO ALLIANCE RESOURCE PARTNERS, L.P. ("NET INCOME OF ARLP")

$
61,271

$
89,780

$
229,403

$
219,803

GENERAL PARTNERS' INTEREST IN NET INCOME OF ARLP

$
612

$
20,571

$
21,362

$
60,723

LIMITED PARTNERS' INTEREST IN NET INCOME OF ARLP

$
60,659

$
69,209

$
208,041

$
159,080

BASIC AND DILUTED NET INCOME OF ARLP PER LIMITED PARTNER UNIT (Note 9)

$
0.52

$
0.91

$
2.32

$
2.08

DISTRIBUTIONS PAID PER LIMITED PARTNER UNIT

$
0.5000

$
0.4375

$
1.3750

$
1.5500

WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED

114,237,979

74,375,025

87,924,986

74,347,157


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
SALES AND OPERATING REVENUES:
Coal sales	$	461,310	$	475,925	$	937,326	$	899,535
Oil & gas royalties		11,892		—		22,285		—
Transportation revenues		32,630		27,532		62,868		47,317
Other revenues		11,222		12,680		21,177		26,407
Total revenues		517,054		516,137		1,043,656		973,259

EXPENSES:
Operating expenses (excluding depreciation, depletion and amortization)		314,273		311,201		617,001		588,439
Transportation expenses		32,630		27,532		62,868		47,317
Outside coal purchases		5,311		68		5,311		1,442
General and administrative		19,521		17,026		37,333		33,677
Depreciation, depletion and amortization		76,913		72,150		148,052		133,998
Settlement gain		—		—		—		(80,000)
Total operating expenses		448,648		427,977		870,565		724,873

INCOME FROM OPERATIONS		68,406		88,160		173,091		248,386

Interest expense (net of interest capitalized for the three and six months ended June 30, 2019 and 2018 of $238, $296, $492 and $561, respectively)		(10,711)		(9,955)		(22,133)		(20,813)
Interest income		138		24		229		89
Equity method investment income		550		4,839		874		8,575
Equity securities income		—		3,854		12,906		7,578
Acquisition gain		—		—		177,043		—
Other expense		(13)		(542)		(142)		(1,389)
INCOME BEFORE INCOME TAXES		58,370		86,380		341,868		242,426

INCOME TAX EXPENSE (BENEFIT)		186		3		80		(7)

NET INCOME		58,184		86,377		341,788		242,433

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(114)		(187)		(7,290)		(335)

NET INCOME ATTRIBUTABLE TO ARLP	$	58,070	$	86,190	$	334,498	$	242,098

NET INCOME ATTRIBUTABLE TO ARLP
GENERAL PARTNER	$	—	$	—	$	—	$	1,560
LIMITED PARTNERS	$	58,070	$	86,190	$	334,498	$	240,538

EARNINGS PER LIMITED PARTNER UNIT - BASIC AND DILUTED	$	0.44	$	0.64	$	2.57	$	1.80

WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED		128,391,191		131,279,910		128,271,158		131,050,836

See notes to condensed consolidated financial statements.

Table of Contents

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018

NET INCOME	$	58,184	$	86,377	$	341,788	$	242,433

OTHER COMPREHENSIVE INCOME (LOSS):

Defined benefit pension plan
Amortization of prior service cost (1)		46		47		93		94
Amortization of net actuarial loss (1)		982		969		1,961		1,938
Total defined benefit pension plan adjustments		1,028		1,016		2,054		2,032

Pneumoconiosis benefits
Net actuarial loss		—		—		(3,465)		—
Amortization of net actuarial loss (gain) (1)		(1,146)		—		(2,291)		1
Total pneumoconiosis benefits adjustments		(1,146)		—		(5,756)		1

OTHER COMPREHENSIVE INCOME (LOSS)		(118)		1,016		(3,702)		2,033

COMPREHENSIVE INCOME		58,066		87,393		338,086		244,466

Less: Comprehensive income attributable to noncontrolling interest		(114)		(187)		(7,290)		(335)

COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP	$	57,952	$	87,206	$	330,796	$	244,131

Three Months Ended

Nine Months Ended


September 30,

September 30,

2017

2016

2017

2016


NET INCOME

$
61,426

$
89,824

$
229,828

$
219,843

OTHER COMPREHENSIVE INCOME (LOSS):

Defined benefit pension plan

Amortization of prior service cost (1)

46

—

140

—

Amortization of net actuarial loss (1)

774

787

2,319

2,365

Total defined benefit pension plan adjustments

820

787

2,459

2,365

Pneumoconiosis benefits

Amortization of net actuarial gain (1)

(479)

(660)

(1,613)

(1,982)

Total pneumoconiosis benefits adjustments

(479)

(660)

(1,613)

(1,982)

OTHER COMPREHENSIVE INCOME

341

127

846

383

COMPREHENSIVE INCOME

61,767

89,951

230,674

220,226

Less: Comprehensive income attributable to noncontrolling interest

(155)

(44)

(425)

(40)

COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP

$
61,612

$
89,907

$
230,249

$
220,186

(1)

~~(1)~~

Amortization of prior service cost and net actuarial gain or loss is included in the computation of net periodic benefit cost (see Notes 1014 and 1216 for additional details).

See notes to condensed consolidated financial statements.

Table of Contents

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended

September 30,


2017

2016


CASH FLOWS FROM OPERATING ACTIVITIES

$
456,079

$
494,528

CASH FLOWS FROM INVESTING ACTIVITIES:

Property, plant and equipment:

Capital expenditures

(105,455)

(70,267)

Increase (decrease) in accounts payable and accrued liabilities

4,182

(7,965)

Proceeds from sale of property, plant and equipment

1,488

756

Contributions to equity investments in affiliates

(16,487)

(65,367)

Purchase of cost investment

(100,000)

—

Distributions received from investments in excess of cumulative earnings

10,880

2,167

Payment for acquisition of business

—

(1,011)

Payment for acquisition of customer contracts

—

(23,000)

Net cash used in investing activities

(205,392)

(164,687)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under securitization facility

100,000

44,600

Payments under securitization facility

(100,000)

(27,700)

Payments on term loan

(50,000)

(106,250)

Borrowings under revolving credit facilities

165,000

140,000

Payments under revolving credit facilities

(420,000)

(215,000)

Borrowings under long-term debt

400,000

—

Payment on long-term debt

(145,000)

—

Proceeds on capital lease transactions

—

33,881

Payments on capital lease obligations

(20,186)

(17,769)

Payment of debt issuance costs

(16,221)

—

Payment for debt extinguishment

(8,148)

—

Contributions to consolidated company from affiliate noncontrolling interest

251

2,557

Net settlement of employee withholding taxes on vesting of Long-Term Incentive Plan

(2,988)

(1,336)

Cash contributions by General Partners

905

47

Distributions paid to Partners

(173,284)

(194,870)

Other

(2,405)

(60)

Net cash used in financing activities

(272,076)

(341,900)

NET CHANGE IN CASH AND CASH EQUIVALENTS

(21,389)

(12,059)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

39,782

33,431

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
18,393

$
21,372

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest

$
13,679

$
20,194

Cash paid for income taxes

$
10

$
7

NON-CASH INVESTING AND FINANCING ACTIVITY:

Accounts payable for purchase of property, plant and equipment

$
12,414

$
4,669

Assets acquired by capital lease

$
—

$
37,089

Market value of common units issued under Long-Term Incentive and Directors Deferred Compensation Plans before tax withholding requirements

$
8,149

$
3,642


	Six Months Ended
	June 30,
	2019		2018

CASH FLOWS FROM OPERATING ACTIVITIES	$	301,703	$	373,244

CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures		(165,627)		(120,646)
Increase in accounts payable and accrued liabilities		4,442		2,376
Proceeds from sale of property, plant and equipment		701		477
Contributions to equity method investments		—		(11,400)
Distributions received from investments in excess of cumulative earnings		2,358		1,191
Payment for acquisition of business, net of cash acquired		(175,060)		—
Escrow payment for Wing acquisition		(10,875)		—
Cash received from redemption of equity securities		134,288		—
Net cash used in investing activities		(209,773)		(128,002)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under securitization facility		118,000		112,600
Payments under securitization facility		(135,000)		(123,500)
Proceeds from equipment financing		10,000		—
Payments on equipment financing		(253)		—
Borrowings under revolving credit facilities		90,000		70,000
Payments under revolving credit facilities		(195,000)		(100,000)
Payments on finance lease obligations		(16,554)		(14,952)
Payments for purchases of units under unit repurchase program		(5,251)		(7,639)
Net settlement of withholding taxes on issuance of units in deferred compensation plans		(7,817)		(2,081)
Cash contribution by General Partner		—		41
Cash contribution by affiliated entity		—		2,142
Cash obtained in Simplification Transactions		—		1,139
Distributions paid to Partners		(138,500)		(137,443)
Other		(490)		(1,080)
Net cash used in financing activities		(280,865)		(200,773)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(188,935)		44,469
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		244,150		6,756
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	55,215	$	51,225

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	20,748	$	19,934
Cash paid for income taxes	$	—	$	34

SUPPLEMENTAL NON-CASH ACTIVITY:
Accounts payable for purchase of property, plant and equipment	$	19,027	$	18,012
Assets acquired by finance lease	$	—	$	835
Right-of-use assets acquired by operating lease	$	25,179	$	—
Market value of common units issued under deferred compensation plans before tax withholding requirements	$	17,415	$	6,142
Acquisition of business:
Fair value of assets assumed	$	484,303	$	—
Previously held equity-method investments		(307,322)		—
Cash paid, net of cash acquired		(175,060)		—
Fair value of liabilities assumed	$	1,921	$	—

See notes to condensed consolidated financial statements.

Table of Contents

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL~~

~~(In thousands)~~

~~(Unaudited)~~

Accumulated

Number of

Limited

General

Other

Limited Partner

Partners’

Partners’

Comprehensive

Noncontrolling

Total Partners’


Units

Capital

Capital (Deficit)

Income (Loss)

Interest

Capital

Balance at January 1, 2017

74,375,025

$
1,400,202

$
(273,788)

$
(38,540)

$
5,550

1,093,424

Comprehensive income:

Net income

—

208,041

21,362
��

—

425

229,828

Actuarially determined long-term liability adjustments

—

—

—

846

—

846

Total comprehensive income

—

—

—

—

—

230,674

Issuance of units to Long-Term Incentive Plan participants upon vesting

222,011

(2,988)

—

—

—

(2,988)

Issuance of units to MGP in Exchange Transaction

56,100,000

14,171

(14,171)

—

—

—

Issuance of units to SGP in Exchange Transaction

7,181

(320,838)

320,838

—

—

—

Exchange Transaction fees

—

(1,550)

—

—

—

(1,550)

Common unit-based compensation

—

8,947

—

—

—

8,947

Distributions on common unit-based compensation

—

(2,392)

—

—

—

(2,392)

General Partners contributions

—

—

905

—

—

905

Contributions to consolidated company from affiliate noncontrolling interest

—

—

—

—

251

251

Distributions from consolidated company to affiliate noncontrolling interest

—

—

—

—

(855)

(855)

Distributions to Partners

—

(130,527)

(40,365)

—

—

(170,892)

Balance at September 30, 2017

130,704,217

$
1,173,066

$
14,781

$
(37,694)

$
5,371

$
1,155,524

~~See notes to condensed consolidated financial statements.~~

~~Table of Contents~~

~~ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(Unaudited)~~

~~1.ORGANIZATION~~1.ORGANIZATION AND PRESENTATION

Significant Relationships Referenced in Notes to Condensed Consolidated Financial Statements

●

References to "we," "us," "our" or "ARLP Partnership" mean the business and operations of Alliance Resource Partners, L.P., the parent company, as well as its consolidated subsidiaries.

●

References to "ARLP" mean Alliance Resource Partners, L.P., individually as the parent company, and not on a consolidated basis.

●

References to "MGP" mean Alliance Resource Management GP, LLC, ARLP's ~~sole general partner and, prior to the Exchange Transaction discussed below, its managing~~ general partner.

●

~~References to "SGP" mean Alliance Resource GP, LLC, ARLP's special general partner prior to the Exchange Transaction discussed below.~~

References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P.

●

References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, the land-holding company for the mining operations of Alliance Resource Operating Partners, L.P.

●

References to "Alliance Coal" mean Alliance Coal, LLC, the holding company for the coal mining operations of Alliance Resource Operating Partners, L.P.~~, also referred to as our primary operating subsidiary.~~

~~References to "AHGP" mean Alliance Holdings GP, L.P., individually as the parent company, and not on a consolidated basis.~~

~~References to "AGP" mean Alliance GP, LLC, the general partner of Alliance Holdings GP, L.P.~~

Organization

ARLP is a Delaware limited partnership listed on the NASDAQ Global Select Market under the ticker symbol "ARLP." ARLP was formed in May 1999 ~~to acquire, upon completion of ARLP's~~and completed its initial public offering on August 19, 1999 ~~certain~~when it acquired substantially all of the coal production and marketing assets of Alliance Resource Holdings, Inc., a Delaware corporation, ~~("ARH"), consisting of substantially all of ARH's operating subsidiaries, but excluding ARH. ARH is owned by Joseph W. Craft III, the President~~ and Chief Executive Officer and a Director of MGP, and Kathleen S. Craft. SGP, a Delaware limited liability company, is owned by ARH. SGP owns 20,641,168 common units of AHGP’s 59,863,000 outstanding common units, 7,181 common units of ARLP and, prior to the Exchange Transaction discussed below, owned a 0.01% special general partner interest in both ARLP and the Intermediate Partnership.

its subsidiaries. We are managed by our general partner, MGP, a Delaware limited liability company ~~and the sole general partner of ARLP. MGP~~which holds a non-economic general partner interest in ARLP, a 1.0001% managing general partner interest in the Intermediate Partnership and a 0.001% managing member interest in Alliance Coal. AHGP is a Delaware limited partnership that was formed to become the owner and controlling member of MGP. AHGP completed its initial public offering on May 15, 2006. AHGP owns directly and indirectly 87,188,338 common units of ARLP’s 130,704,217 outstanding common units. AHGP indirectly owns 100%ARLP.

AllDale I & II Acquisition

On January 3, 2019 (the " AllDale Acquisition Date"), we acquired all of the members' interest of MGP. ARLP and its consolidated subsidiaries represent virtually all the net assets and operations of AHGP. See discussions below regarding MGP’s and AHGP’s change of ownershiplimited partner interests not owned by Cavalier Minerals JV, LLC ("Cavalier Minerals") in ~~ARLP effective with the Exchange Transaction on July 28, 2017.~~

~~Exchange Transaction~~

~~On July 28, 2017, MGP contributed to ARLP all of its incentive distribution rights~~AllDale Minerals LP ("~~IDRs"~~AllDale I") and ~~its managing general partner interest in ARLP in exchange for 56,100,000 ARLP common units~~AllDale Minerals II, LP ("AllDale II", and ~~a non-economic general partner interest in ARLP. In conjunction~~collectively with ~~this transaction~~AllDale I, "AllDale I & II") and on the ~~same economic basis as MGP, SGP also contributed to ARLP its 0.01%~~ general partner interests in ~~both ARLP and the Intermediate Partnership in exchange for 7,181 ARLP common units (collectively the "Exchange Transaction"~~AllDale I & II (the "AllDale Acquisition"). ~~In connection with the Exchange Transaction, ARLP amended its partnership agreement to reflect, among other things, cancellation~~As a result of the ~~IDRs~~AllDale Acquisition and ~~the economic~~our previous investments held through Cavalier Minerals, we now control approximately 43,000 net royalty acres in premier oil & gas resource plays. The AllDale Acquisition provides us with diversified exposure to industry leading operators and is consistent with our general ~~partner interest~~

~~Table of Contents~~

~~in ARLP and issuance of a non-economic general partner interest~~business strategy to ~~MGP. MGP is the sole general partner of ARLP following the Exchange Transaction, and no control, management or governance changes otherwise occurred.~~ pursue accretive acquisitions. See Note 3 – Acquisition for more information.

The Exchange Transaction constituted an exchange of equity interests between entities under common control and not a transfer of a business. Therefore, the exchange resulted in a reclassification, as of the date of the Exchange Transaction, of a $306.7 million deficit capital balance from the ~~General Partners' interest~~ ~~line item to the~~ ~~Limited Partners - Common Unitholders~~ line item in our condensed consolidated balance sheets. The reclassification amounts represented the carrying value of the exchanged interests, which included the SGP’s deficit balance associated with its prior special general partner interests in ARLP and the Intermediate Partnership, partially offset, by MGP’s capital balance associated with its prior managing general partner interest in ARLP. The SGP deficit balance primarily resulted from contribution and assumption agreements associated with the formation of the ARLP Partnership in 1999.

Simultaneously with the Exchange Transaction discussed above, MGP became a wholly-owned subsidiary of MGP II, LLC ("MGP II") which is owned 100% directly and indirectly by AHGP and was created in connection with the Exchange Transaction. MGP II holds the 56,100,000 ARLP common units discussed above.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts and operations of the ARLP Partnership and present ~~the consolidated~~our financial position as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the results of our operations and comprehensive income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, and the cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and 2016, and changes in partners' capital for the nine months ended September 30, 2017 of ARLP, the Intermediate Partnership (a subsidiary of ARLP and a variable interest entity of which ARLP is the primary beneficiary), Alliance Coal (a subsidiary of the Intermediate Partnership and a variable interest entity of which the Intermediate Partnership is the primary beneficiary) and other directly and indirectly wholly- and majority-owned subsidiaries of the Intermediate Partnership and Alliance Coal. The Intermediate Partnership, Alliance Coal and their wholly- and majority-owned subsidiaries represent virtually all the net assets of the ARLP Partnership. MGP's interests in both Alliance Coal and the Intermediate Partnership are reported as part of the general partner interest in the ARLP Partnership. For the periods presented prior to the Exchange Transaction, MGP's managing general partner interest and IDRs in ARLP and the SGP's special general partner interests in ARLP and the Intermediate Partnership are also reported as part of the general partner interest in the ARLP Partnership.2018. All intercompany transactions and accounts have been eliminated. See Note 7 – Variable Interest Entities for more information regarding ARLP's consolidation of the Intermediate Partnership and Alliance Coal. See Note 9 – Net Income of ARLP Per Limited Partner Unit for more information regarding allocations to the limited and general partner interests.

These condensed consolidated financial statements and notes are unaudited. However, in the opinion of management, these financial statements reflect all normal recurring adjustments necessary for a fair presentation of the results for the periods presented. Results presented for prior periods have been recast to reflect an immaterial reclassification of depreciation, depletion, and amortization capitalized into coal inventory as an adjustment to ~~Depreciation, depletion, and amortization~~ ~~rather than~~ ~~Operating expenses (excluding depreciation, depletion, and amortization). This reclassification did not impact~~ ~~Total operating expenses~~, ~~Income from operations~~, ~~Net income~~, ~~Net income of ARLP~~ or ~~Basic and diluted net income of ARLP per limited partner unit. Results for interim periods are not necessarily indicative of results to be expected for the full year ending December 31, 2017.~~

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 do not include all of the information normally included with financial statements prepared in accordance with generally accepted accounting principles ("GAAP") of the United States. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018 and particularly as it relates to the simplification transactions completed by the Partnership on May 31, 2018 ("Simplification Transactions").

Table of Contents

For the periods presented prior to the Simplification Transactions, MGP's previous interests in both Alliance Coal and the Intermediate Partnership are reported as part of the general partner's interest in the ARLP Partnership's condensed consolidated financial statements.

These condensed consolidated financial statements and notes are unaudited. However, in the opinion of management, these condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair presentation of the results for the periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year ending December 31, 2019.

Use of Estimates

The preparation of the ARLP Partnership's condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in our condensed consolidated financial statements. Actual results could differ from those estimates.

Leases

~~Table~~We lease buildings and equipment under operating lease agreements that provide for the payment of ~~Contents~~

~~Investments~~

minimum rentals. We also have noncancelable lease agreements with third parties for land and equipment under finance lease obligations. Some of our arrangements within these agreements have both lease and non-lease components, which are generally accounted for separately. We have elected a practical expedient to account for lease and non-lease components as a single lease component for leases of buildings and office equipment. Our ~~investments~~leases have lease terms of one year to 20 years, some of which include automatic renewals up to ten years which are likely to be exercised, and ~~ownership interests in~~some of which ~~we do not have a controlling financial interest~~include options to terminate the lease within one year. We also hold numerous mineral reserve leases with both related parties as well as third parties, none of which are accounted for as an operating lease or as a finance lease.

We review each agreement to determine if an arrangement within the agreement contains a lease at the inception of an arrangement. Once an arrangement is determined to contain either ~~under~~an operating or finance lease with a term greater than 12 months, we recognize a lease liability for the ~~cost method of accounting if we do not have~~obligation to make lease payments and a right-of-use asset for the ~~ability~~right to ~~exercise significant influence over the entity, or under the equity method of accounting if we have the ability to exercise significant influence over the entity.~~

Historical cost is used to account for investments accounted for under the cost method and distributions received on those investments are recorded as income unless those distributions are considered a return on investment in which case the historical cost is reduced. Our cost method investment includes Kodiak Gas Services, LLC ("Kodiak"). See Note 8 – Investments for further discussion of this cost method investment.

~~Investments accounted for under the equity method are initially recorded at cost, and the difference between the basis of our investment and~~use the underlying ~~equity in~~asset for the net assets of the joint venture at the investment date, if any, is amortized over the lives of the related assets that gave rise to the difference. In the event our ownership entitles us to a disproportionate sharing of income or loss, our equity in income or losses of affiliates is allocatedlease term based on the ~~hypothetical liquidation at book~~present value ~~("HLBV") method~~ of ~~accounting.~~

~~Under~~lease payments over the ~~HLBV method, equity~~lease term. The lease term includes all noncancelable periods defined in ~~income or losses~~the lease as well as periods covered by options to extend the lease that we are reasonably certain to exercise. As an implicit borrowing rate cannot be determined under most of ~~affiliates is allocated~~our leases, we use our incremental borrowing rate based on the ~~difference between our claim on~~information available at commencement date in determining the ~~net assets~~present value of the equity method investee at the end and beginning of the period, with consideration of certain eliminating entries regarding differences of accounting for various related-party transactions, after taking into account contributions and distributions, if any. Our share of the net assets of the equity method investee is calculated as the amount we would receive if the equity method investee werelease payments.

Expenses related to ~~liquidate all of its assets at net book value and distribute the resulting cash~~leases determined to ~~creditors, other investors and us according to the respective priorities. None of our current equity investments use the HLBV method. Our last use of this method was in 2015 which~~be operating leases will be ~~discussed~~recognized on a straight-line basis over the lease term including any reasonably assured renewal periods, while those determined to be finance leases will be recognized following a front-loaded expense profile in ~~our upcoming Form 10-K.~~

~~Our equity method investments include AllDale Minerals, LP ("AllDale I"),~~which interest and ~~AllDale Minerals II, LP ("AllDale II") (collectively "AllDale Minerals"), both held by our subsidiary Cavalier Minerals JV, LLC ("Cavalier Minerals"). We also have an equity method investment~~amortization are presented separately in ~~AllDale Minerals III, LP ("AllDale III") which~~the income statement. The determination of whether a lease is ~~not held through Cavalier Minerals but rather held directly by us. See Note 8 – Investments for further discussion of these equity method investments.~~

~~We review our investments and ownership interests~~ accounted for ~~under both~~as a finance lease or an operating lease requires management to make estimates primarily about the ~~equity method of accounting and the cost method of accounting for impairment whenever events or changes in circumstances indicate a loss in the~~fair value of the ~~investment may be other-than-temporary.~~asset and its estimated economic useful life.

~~2.NEW~~2.NEW ACCOUNTING STANDARDS

New Accounting Standards Issued and Adopted

In ~~January 2017,~~February 2016, the Financial Accounting Standards Board ~~(the "FASB"~~("FASB") issued Accounting Standards Update ("ASU") ~~2017-04,~~ ~~Intangibles–Goodwill and Other~~2016-02, Leases (Topic ~~350): Simplifying the Test for Goodwill Impairment~~842) ("ASU 2017-04"). The ASU simplifies the subsequent measurement of goodwill by eliminating the need for an entity to determine the implied fair value of goodwill to calculate an impairment charge. Under the new guidance an entity compares the fair value of the reporting unit containing the goodwill to its carrying value and records any excess carrying value as an impairment charge. This new standard is applied prospectively and is effective for annual and interim periods beginning after December 15, 2019; however, early adoption is permitted. We have early adopted this new standard and will apply the guidance to any future goodwill impairment assessments.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ ~~("ASU 2016-09"~~2016-02"). ASU ~~2016-09 simplifies~~2016-02 requires lessees to record right-of-use assets and corresponding lease liabilities on the ~~accounting for several aspects~~balance sheet and disclose key information about lease arrangements. Leases are now classified as either finance or operating, with the resulting classification affecting the pattern of ~~share-based payment transactions, including~~expense recognition in the income ~~tax consequences, classification of awards as either equity or liabilities, flexibility in~~statement. We elected to use the ~~accounting for forfeitures and classification~~modified retrospective transition method which allows a cumulative effect adjustment on the ~~statement of cash flows. ASU 2016-09 was effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted.~~balance sheet upon adoption. The adoption of ~~ASU 2016-09 did~~the standard resulted in the recognition of approximately $25.0 million in additional net lease assets and respective lease liabilities as of January 1, 2019.

As part of our transition there are a number of practical expedients available in the new standard. We elected a package of practical expedients that, among other things, allows us to not ~~have~~reassess the lease classification of expired or existing leases. In addition to the package of practical expedients, we also elected to use a ~~material impact on our condensed consolidated financial statements.~~

practical expedient allowing us to use hindsight in determining the lease term for existing leases.

Table of Contents

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~ ("ASU 2015-11"). ASU 2015-11 simplifies the subsequent measurement of inventory. It replaces the current lower of cost or market test with the lower of cost or net realizable value test. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard was applied prospectively and was effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption permitted. The adoption of ASU 2015-11 did not have a material impact on our condensed consolidated financial statements.

New Accounting Standards Issued and Not Yet Adopted

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Compensation–Retirement Benefits (Topic 715)~~ ("ASU 2017-07"). ASU 2017-07 requires that an employer disaggregate the service cost component from the other components of net benefit cost. It also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The new guidance will be applied retroactively to all periods presented. ASU 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We do not anticipate ASU 2017-07 will have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments to require the use of a new forward-looking "expected loss" model that generally will result in earlier recognition of allowances for losses. The new standard will require disclosure of significantly more information related to these items. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for the fiscal year beginning after December 15, 2018, including interim periods. We ~~are currently evaluating the effect~~do not have a history of ~~adopting ASU 2016-13, but~~credit losses on our financial instruments, accordingly we do not anticipate itASU 2016-13 will have a material impact on our condensed consolidated financial statements.

3.ACQUISITION

~~In February 2016,~~

On the ~~FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~("ASU 2016-02"). ASU 2016-02 increases transparency~~AllDale Acquisition Date, we acquired all of the limited partner interests not owned by Cavalier Minerals in AllDale I & II and ~~comparability among organizations~~the general partner interests in AllDale I & II for $176.0 million, which was funded with cash on hand and borrowings under the Revolving Credit Facility discussed in Note 8 – Long-Term Debt. As a result of the AllDale Acquisition and our previous investments held through Cavalier Minerals, we now control approximately 43,000 net royalty acres strategically positioned in the core of the Anadarko (SCOOP/STACK), Permian (Delaware and Midland), Williston (Bakken) and Appalachian basins. The AllDale Acquisition provides us with diversified exposure to industry leading operators and is consistent with our general business strategy to pursue accretive acquisitions.

Because the underlying mineral interests held by ~~requiring lessees to record right-to-use~~AllDale I & II include royalty interests in producing properties, we have determined that the AllDale Acquisition should be accounted for as a business combination and the underlying assets and ~~corresponding lease~~ liabilities of AllDale I & II should be recorded at their AllDale Acquisition Date fair value on our condensed consolidated balance sheet. We consider our fair value measurements to be preliminary as we continue to obtain additional information from operators of the mineral interests about reserve and production quantities and projections.

The total fair value of the cash paid in the AllDale Acquisition and our previous investments were as follows:


	As of January 3, 2019
	(in thousands)

Cash	$	175,960
Previously held investments		307,322
Total	$	483,282

Prior to the AllDale Acquisition Date, we accounted for our investments in AllDale I & II, held through Cavalier Minerals, as equity method investments. The combined fair value of our equity method investments on the ~~balance sheet~~AllDale Acquisition Date was $307.3 million. We re-measured our equity method investments, which had an aggregate carrying value of $130.3 million immediately prior to the AllDale Acquisition. The re-measurement resulted in a gain of $177.0 million which is recorded in the Acquisition gain line item in our condensed consolidated statements of income.

The following table summarizes the fair value allocation of assets acquired and ~~disclosing key information about lease arrangements.~~liabilities assumed as of the AllDale Acquisition Date:


	As of January 3, 2019
	(in thousands)

Cash and cash equivalents	$	900
Mineral interests in proved properties		159,617
Mineral interests in unproved properties		314,084
Receivables		10,602
Accounts payable		(1,921)
Net assets acquired	$	483,282

Table of Contents

Our previous equity method investments in AllDale I & II were held through Cavalier Minerals. Bluegrass Minerals continues to hold a 4% membership interest (the "Bluegrass Interest") as well as a profits interest in Cavalier Minerals as it did before the AllDale Acquisition. This Bluegrass Interest represents an indirect noncontrolling interest in AllDale I & II. The ~~new guidance will classify leases as either finance or operating (similar to current standard's "capital" or "operating" classification), with classification affecting~~AllDale Acquisition Date fair value of the ~~pattern~~Bluegrass Interest was $12.3 million.

The fair value of our previous equity method investments, the mineral interests and the Bluegrass Interest were determined using an income approach primarily comprised of discounted cash flow models. The assumptions used in the discounted cash flow models include estimated production, projected cash flows, forward oil & gas prices and a risk adjusted discount rate. Certain assumptions used are not observable in active markets, therefore the fair value measurements represent Level 3 fair value measurements. AllDale I & II's carrying value of the receivables and accounts payable represent their fair value given their short-term nature.

The amounts of revenue and earnings, exclusive of the acquisition gain, of AllDale I & II included in our condensed consolidated statements of income ~~recognition~~since the AllDale Acquisition Date are as follows:


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2019		2019
	(in thousands)

Revenue	$	12,428	$	23,156
Net income		4,901		8,982

The following represents the pro forma revenues and net income for the three and six months ended June 30, 2018 as if AllDale I & II had been included in our consolidated results since January 1, 2018. These amounts have been calculated after applying our accounting policies. Pro forma information is not necessary for the ~~statement~~three and six months ended June 30, 2019 as the AllDale Acquisition occurred at the beginning of ~~income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We~~the year. Additionally, our results have ~~developed an assessment team and are currently evaluating~~been adjusted to remove the effect of ~~adopting ASU 2016-02.~~our past equity method investments in AllDale I & II.


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2018		2018
	(in thousands)
Total revenues
As reported	$	516,137	$	973,259
Pro forma		525,013		989,894

Net income
As reported	$	86,377	$	242,433
Pro forma		85,062		240,645

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ ("ASU 2014-09"). ASU 2014-09 is a new revenue recognition standard that provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the new standard is as follows:

4.CONTINGENCIES

An entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

~~ASU 2014-09 was originally effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14,~~ ~~Revenue from Contracts with Customers: Deferral of the Effective Date~~ ~~("ASU 2015-14"), which deferred the effective date by one year while providing the option to early adopt the standard on the original effective date.~~

We developed an assessment team to determine the effect of adopting ASU 2014-09. As part of our assessment process, we applied the five-step analysis outlined in the new standard to certain contracts representative of the majority of our coal sales contracts and determined that our pattern of recognition appears consistent between both the new and existing standards. We also reviewed the expanded disclosure requirements under the new standard and determined the additional information to be disclosed. In addition, we reviewed our business processes, systems and internal controls over financial reporting to support the new recognition and disclosure requirements under the new standard. Based on the results of our assessment team, we have started our implementation of the new standard. We continue to report our implementation progress for the new standard to our management and audit committee of our general partner.

~~Table of Contents~~

We continue to monitor closely, (a) activities of the FASB and various non-authoritative groups with respect to implementation issues that may impact our determinations, (b) existing contracts for consistency with current implementation determinations derived from our assessment process and (c) our revenue recognition policy, where applicable, for required modifications.

We do not expect that the adoption of the new standard will have a material impact on our financial statements, but will require expanded disclosures including presenting, by type and by segment, revenues for all periods presented and expected revenues by year for performance obligations that are unsatisfied or partially unsatisfied as of the date of presentation. The new standard allows for two methods of adoption: a full retrospective adoption method and a modified retrospective method. We have elected to use the modified retrospective method of adoption, which allows a cumulative effect adjustment to equity as of the date of adoption. As we do not anticipate a change in the recognition pattern of our revenues, we do not expect to have a cumulative effect adjustment when we adopt the new standard.

~~3.CONTINGENCIES~~

Various lawsuits, claims and regulatory proceedings incidental to our business are pending against the ARLP Partnership. We record accruals for potential losses related to these matters when, in management's opinion, such losses are probable and reasonably estimable. Based on known facts and circumstances, we believe the ultimate outcome of these outstanding lawsuits, claims and regulatory proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity. However, if the results of these matters were different from management's current opinion and in amounts greater than our accruals, then they could have a material adverse effect.

Table of Contents

5.INVENTORIES

~~4.INVENTORIES~~

Inventories consist of the following:


	September 30,		December 31,
	2017		2016
	(in thousands)


					June 30,		December 31,
					2019		2018
					(in thousands)

Coal	$	51,657	$	29,242	$	46,387	$	20,929
Supplies (net of reserve for obsolescence of $5,015 and $4,940, respectively)		36,010		31,809
Supplies (net of reserve for obsolescence of $5,306 and $5,453, respectively)						38,274		38,277
Total inventories, net	$	87,667	$	61,051	$	84,661	$	59,206

~~5.FAIR~~

6.LEASES

The components of lease expense were as follows:


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2019		2019
	(in thousands)

Finance lease cost:
Amortization of right-of-use assets	$	4,496	$	9,017
Interest on lease liabilities		619		1,333
Operating lease cost		2,400		5,409
Short-term lease cost		106		296
Variable lease cost		343		675
Total lease cost	$	7,964	$	16,730

Supplemental cash flow information related to leases was as follows:


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2019		2019
	(in thousands)

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	2,325	$	5,291
Operating cash flows for finance leases	$	619	$	1,333
Financing cash flows for finance leases	$	9,213	$	16,554

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—	$	25,179

Supplemental balance sheet information related to leases was as follows:


	June 30,		December 31,
	2019		2018
	(in thousands)
Finance leases:
Property and equipment finance lease assets, gross	$	140,717	$	141,019
Accumulated depreciation		(83,291)		(74,576)
Property and equipment finance lease assets, net	$	57,426	$	66,443

Table of Contents


	June 30,
	2019
Weighted average remaining lease term
Operating leases		11.8 years
Finance leases		0.9 years

Weighted average discount rate
Operating leases		6.0	%
Finance leases		5.2	%

Maturities of lease liabilities as of June 30, 2019 were as follows:


	Operating leases		Finance leases
	(in thousands)

2019	$	3,796	$	30,921
2020		3,788		8,748
2021		2,236		913
2022		2,172		913
2023		1,995		140
Thereafter		14,864		560
Total lease payments		28,851		42,195
Less imputed interest		(8,491)		(1,432)
Total	$	20,360	$	40,763

7.FAIR VALUE MEASUREMENTS

The following table summarizes our fair value measurements within the hierarchy:

September 30, 2017

December 31, 2016


Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

(in thousands)

Measured on a recurring basis:

Contingent consideration

$
—

$
—

$
9,700

$
—

$
—

$
9,700

Additional disclosures:

Long-term debt

—

536,296

—

—

559,509

—

Total

$
—

$
536,296

$
9,700

$
—

$
559,509

$
9,700


	June 30, 2019						December 31, 2018
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(in thousands)
Long-term debt	$	—	$	587,757	$	—	$	—	$	669,864	$	—
Total	$	—	$	587,757	$	—	$	—	$	669,864	$	—

The carrying amounts for cash equivalents, accounts receivable, accounts payable, accrued and other liabilities, due from affiliates and due to affiliates approximate fair value due to the short maturity of those instruments.

The estimated fair value of our long-term debt, including current maturities, is based on interest rates that we believe are currently available to us in active markets for issuance of debt with similar terms and remaining maturities

~~Table of Contents~~

~~(See~~ (See Note 68 – Long-Term Debt). The fair value of debt, which is based upon these interest rates, is classified as a Level 2 measurement under the fair value hierarchy.

~~The estimated fair value~~

Table of our contingent consideration arrangement is based on a probability-weighted discounted cash flow model. The assumptions in the model include a risk-adjusted discount rate, forward coal sales price curves, cost of debt and probabilities of meeting certain contractual threshold coal sales prices. The fair value measurement is based on significant inputs not observable in active markets and thus represents a Level 3 fair value measurement under the fair value hierarchy.Contents

8.LONG-TERM DEBT

~~6.LONG-TERM DEBT~~

Long-term debt consists of the following:


					Unamortized Discount and
	Principal				Debt Issuance Costs
	September 30,		December 31,		September 30,		December 31,
	2017		2016		2017		2016
	(in thousands)
Revolving Credit facility	$	—	$	255,000	$	(7,615)	$	(453)

													Unamortized Discount and
									Principal				Debt Issuance Costs
									June 30,		December 31,		June 30,		December 31,
									2019		2018		2019		2018
									(in thousands)
Revolving credit facility									$	70,000	$	175,000	$	(4,126)	$	(5,203)
Senior notes		400,000		—		(6,936)		—		400,000		400,000		(5,336)		(5,793)
Series B senior notes		—		145,000		—		(101)
Term loan		—		50,000		—		(126)
Securitization facility		100,000		100,000		—		—		75,000		92,000		—		—
		500,000		550,000		(14,551)		(680)
Equipment financing										9,747		—		—		—
										554,747		667,000		(9,462)		(10,996)
Less current maturities		(100,000)		(150,000)		—		126		(78,144)		(92,000)		—		—
Total long-term debt	$	400,000	$	400,000	$	(14,551)	$	(554)	$	476,603	$	575,000	$	(9,462)	$	(10,996)

Credit Facility.On January 27, 2017, our Intermediate Partnership entered into a Fourth Amended and Restated Credit Agreement (the "Credit Agreement") with various financial ~~institutions~~institutions. The Credit Agreement provides for a ~~revolving credit facility and term loan (the "Credit Facility"). The Credit Facility replaced the $250 million term loan ("Replaced Term Loan") and $700~~$494.75 million revolving credit facility, ("Replaced Revolving Credit Facility") extended to the Intermediate Partnership on May 23, 2012 (the "Replaced Credit Agreement") by various banks and other lenders that would have expired on May 23, 2017.

~~The Credit Agreement provided for a $776.5 million revolving credit facility, reducing to $494.75 million on May 23, 2017,~~ including a sublimit of $125 million for the issuance of letters of credit and a sublimit of $15.0 million for swingline borrowings (the "Revolving Credit Facility"), ~~and for a term loan~~ with a remaining principal balance of $50.0 million (the "Term Loan"). The outstanding revolver balance and term loan balance under the Replaced Credit Agreement were considered advanced under the Credit Facility on January 27, 2017. On April 3, 2017, we entered into an amendment to the Credit Agreement (the "Amendment") to (a) extend the termination date of ~~the Revolving Credit Facility as to $461.25 million of commitments to~~ May 23, 2021, (b) eliminate the Cavalier Condition and the Senior Notes Condition (both as defined in the Credit Agreement) and (c) effectuate certain other changes. In connection with the Amendment, we increased the commitments under the Revolving Credit Facility from $479.75 million to $494.75 million, effective May 23, 2017 (of which $33.5 million expire on May 23, 2019). We incurred debt issuance costs in 2017 of $8.9 million in connection with the Credit Agreement. These debt issuance costs are deferred and are being amortized as a component of interest expense over the term of the Credit Facility.2021.

Borrowings under the Revolving Credit Facility bear interest, at the option of the Intermediate Partnership, at either (i) the Base Rate at the greater of three benchmarks or (ii) a Eurodollar Rate, plus margins for (i) or (ii), as applicable, that fluctuate depending upon the ratio of Consolidated Debt to Consolidated Cash Flow (each as defined in the Credit Agreement). ~~We elected a~~The Eurodollar Rate, ~~which,~~ with applicable margin, under the Revolving Credit Facility was ~~3.59%~~4.77% as of ~~September~~June 30, ~~2017.~~2019. At ~~September~~June 30, ~~2017,~~2019, we had ~~$8.1~~$9.3 million of letters of credit outstanding with ~~$486.7~~$415.5 million available for borrowing under the Revolving Credit Facility. We currently incur an annual commitment fee of 0.35% on the undrawn portion of the

~~Table of Contents~~

Revolving Credit Facility. We utilize the Revolving Credit Facility, as appropriate, for working capital requirements, capital expenditures and investments, ~~in affiliates,~~ scheduled debt payments and distribution payments.

The Credit Agreement contains various restrictions affecting our Intermediate Partnership and its subsidiaries including, among other things, restrictions on incurrence of additional indebtedness and liens, sale of assets, investments, mergers and consolidations and transactions with affiliates, in each case subject to various exceptions, and the payment of cash distributions by our Intermediate Partnership if such payment would result in a certain fixed charge coverage ratio (as defined in the Credit Agreement). The Amendment lowered this fixed charge ratio from less than 1.25 to 1.0 to 1.15 to 1.0 for each rolling four-quarter period and further limited the Intermediate Partnership’s ability to incur certain unsecured debt. See Note 7 – Variable Interest Entities for further discussion of restrictions on the cash available for distribution. The Amendment raised the debt to cash flow ratio from 2.25 to 1.0 to 2.50 to 1.0 and also removed the requirement for the Intermediate Partnership to remain in control of a certain amount of mineable coal reserves relative to its annual production. The Credit Agreement requires the Intermediate Partnership to maintain (a) a debt to cash flow ratio of not more than 2.5 to 1.0 and (b) a cash flow to interest expense ratio of not less than 3.0 to 1.0, in each case, during the four most recently ended fiscal quarters. The debt to cash flow ratio and cash flow to interest expense ratio were ~~0.84~~0.87 to 1.0 and ~~19.2~~15.7 to 1.0, respectively, for the trailing twelve months ended ~~September~~June 30, ~~2017.~~2019. We ~~were compliant~~remain in compliance with the covenants of the Credit Agreement as of ~~September~~June 30, ~~2017.~~2019.

~~On January 27, 2017, the Intermediate Partnership also amended the 2008 Note Purchase Agreement dated June 26, 2008, for $145.0 million of Series B~~ Senior Notes which bore interest at 6.72% and were due to mature on June 26, 2018 with interest payable semi-annually (the "Series B Senior Notes"). The amendment provided for certain modifications to the terms and provisions of the Note Purchase Agreement, including granting liens on substantially all of the Intermediate Partnership's assets to secure its obligations under the Note Purchase Agreement on an equal basis with the obligations under the Credit Agreement. The amendment also modified certain covenants to align them with the applicable covenants in the Credit Agreement. As discussed below, we repaid the Series B Senior Notes in May 2017.

Notes.On April 24, 2017, the Intermediate Partnership and Alliance Resource Finance Corporation(as co-issuer), a wholly owned subsidiary of the Intermediate Partnership("Alliance Finance"), issued an aggregate principal amount of $400.0 million of senior unsecured notes due 2025 ("Senior Notes") in a private placement to qualified institutional buyers.The Senior Notes have a term of eight years, maturing on May 1, 2025 (the "Term") and accrue interest at an annual rate of 7.5%. Interest is payable semi-annually in arrears on each May 1 and November 1. The indenture governing the Senior Notes contains customary terms, events of default and covenants relating to, among other things, the incurrence of debt, the payment of distributions or similar restricted payments, undertaking transactions with affiliates and limitations on asset sales. At any time prior to May 1, ~~commencing~~2020, the issuers of the Senior Notes may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of one or more equity offerings at a redemption price equal to 107.5% of the principal amount redeemed, plus accrued and unpaid interest, if any, to the redemption date. The issuers of the Senior Notes may also redeem all or a part of the notes at any time on or after May 1, 2020, at redemption prices set forth in the indenture governing the Senior Notes. At any time prior to May 1, 2020, the

Table of Contents

issuers of the Senior Notes may redeem the Senior Notes at a redemption price equal to the principal amount of the Senior Notes plus a "make-whole" premium, plus accrued and unpaid interest, if any, to the redemption date.

Accounts Receivable Securitization. On December 5, 2014, certain direct and indirect wholly owned subsidiaries of our Intermediate Partnership entered into a $100.0 million accounts receivable securitization facility ("Securitization Facility"). Under the Securitization Facility, certain subsidiaries sell trade receivables on an ongoing basis to our Intermediate Partnership, which then sells the trade receivables to AROP Funding, LLC ("AROP Funding"), a wholly owned bankruptcy-remote special purpose subsidiary of our Intermediate Partnership, which in turn borrows on a revolving basis up to $100.0 million secured by the trade receivables. After the sale, Alliance Coal, as servicer of the assets, collects the receivables on behalf of AROP Funding. The Securitization Facility bears interest based on a Eurodollar Rate. It was renewed in January 2019 and matures in January 2020. At June 30, 2019, we had $75.0 million outstanding balance under the Securitization Facility.

Cavalier Credit Agreement. On October 6, 2015, Cavalier Minerals (see Note 9 – Variable Interest Entities) entered into a credit agreement (the "Cavalier Credit Agreement") with Mineral Lending, LLC ("Mineral Lending") for a $100.0 million line of credit (the "Cavalier Credit Facility"). The commitment under the Cavalier Credit Facility is reduced by any distributions received from Cavalier Minerals' investment in AllDale II. As of June 30, 2019, the commitment under the Cavalier Credit Facility was $67.5 million. Mineral Lending is an entity owned by (a) Alliance Resource Holdings II, Inc. ("ARH II"), an entity owned by Joseph W. Craft III, the Chairman, President and Chief Executive Officer of MGP ("Mr. Craft") and Kathleen S. Craft, (b) an entity owned by an individual who is an officer and director of ARH II ("ARH Officer") and (c) charitable foundations established by Mr. Craft and Kathleen S. Craft. There is no commitment fee under the facility. Mineral Lending's obligation to make the line of credit available terminates no later than October 6, 2019. Borrowings under the Cavalier Credit Facility bear interest at a one month LIBOR rate plus 6% with interest payable quarterly, and mature on September 30, 2024, at which time all amounts then outstanding are required to be repaid. The Cavalier Credit Agreement requires repayment of the principal balance beginning in 2018, in quarterly payments of an amount equal to the greater of $1.3 million initially, escalated to $2.5 million after two years, or fifty percent of Cavalier Minerals' excess cash flow. To secure payment of the facility, Cavalier Minerals pledged all of its partnership interests, owned or later acquired, in AllDale I & II. Cavalier Minerals may prepay the Cavalier Credit Facility at any time in whole or in part subject to terms and conditions described in the Cavalier Credit Agreement. As of June 30, 2019, Cavalier Minerals had not drawn on the Cavalier Credit Facility.

Equipment Financing. On May 17, 2019, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $10.0 million in exchange for conveying its interest in certain equipment owned by an indirect wholly-owned subsidiary of the Intermediate Partnership and entering into a master lease agreement for that equipment (the “Equipment Financing”). The Equipment Financing contains customary terms and events of default and provides for thirty-six monthly payments with an implicit interest rate of 6.25%, maturing on May 1, 2022. Upon maturity, the equipment will revert back to the Intermediate Partnership.

9.VARIABLE INTEREST ENTITIES

Cavalier Minerals

On November 10, 2014, our subsidiary, Alliance Minerals, and Bluegrass Minerals Management, LLC ("Bluegrass Minerals") entered into a limited liability company agreement (the "Cavalier Agreement") to create Cavalier Minerals, which was formed to indirectly acquire oil & gas mineral interests through its ownership in AllDale I & II. Alliance Minerals' ownership interest in Cavalier Minerals is 96%. Bluegrass Minerals owns a 4% membership interest in Cavalier Minerals and a profits interest which entitles it to receive distributions equal to 25% of all distributions (including in liquidation) after all members have recovered their investment. Distributions with respect to Bluegrass Minerals' profits interest will be offset by all distributions received by Bluegrass Minerals from the former general partners of AllDale I & II. Bluegrass Minerals was Cavalier Minerals' managing member prior to the AllDale Acquisition (see Note 3 – Acquisition). In conjunction with the AllDale Acquisition, we became the managing member in Cavalier Minerals. Total contributions to and cumulative distributions from Cavalier Minerals are as follows:

Table of Contents


	Alliance		Bluegrass
	Minerals		Minerals
	(in thousands)
Contributions	$	143,112	$	5,963
Distributions		62,870		2,619

We have concluded that Cavalier Minerals is a variable interest entity ("VIE") which we consolidate as the primary beneficiary because we are the managing member and a substantial equity owner in Cavalier Minerals. Bluegrass Minerals' equity ownership of Cavalier Minerals is accounted for as noncontrolling ownership interest in our condensed consolidated balance sheets. In addition, earnings attributable to Bluegrass Minerals are recognized as noncontrolling interest in our condensed consolidated statements of income.

AllDale I & II

As a result of the AllDale Acquisition, we now own 100% of the general partner interests and, including the limited partner interests we hold indirectly through our ownership in Cavalier Minerals, approximately 97% of the limited partner interests in AllDale I & II. See Note 3 – Acquisition for more information on the AllDale Acquisition. As the general partner of AllDale I & II, we are entitled to receive 20.0% of all distributions from AllDale I & II with the remaining 80.0% allocated to limited partners based upon ownership percentages.

Since AllDale I & II are structured as limited partnerships with the limited partners 1) not having the ability to remove the general partner and 2) not participating significantly in the operational decisions, we concluded that AllDale I & II are VIEs. We consolidate AllDale I & II as the primary beneficiary because we have the power to direct the activities that most significantly impact AllDale I & II's economic performance in addition to substantial equity ownership.

The following table presents the carrying amounts and classification of AllDale I & II's assets and liabilities included in our condensed consolidated balance sheets:


	June 30,
	2019
Assets (liabilities):	(in thousands)
Cash and cash equivalents	$	3,076
Trade receivables		9,253
Other receivables		335
Prepaid expenses and other assets		45
Total property, plant and equipment, net		463,961
Other long-term assets		107
Accounts payable		(313)
Due to affiliates		(17)
Accrued taxes other than income taxes		(54)
Other current liabilities		(404)

AllDale III

In February 2017, Alliance Minerals committed to directly invest $30.0 million in AllDale Minerals III, LP ("AllDale III") which was created for similar investment purposes as AllDale I & II. Alliance Minerals completed funding of this commitment in 2018.Alliance Minerals' limited partner interest in AllDale III at June 30, 2019 was 13.9%.

The AllDale III Partnership Agreement includes a 25% profits interest for the general partner, subject to a return hurdle equal to the greater of 125% of cumulative capital contributions and a 10% internal rate of return, and following an 80/20 "catch-up" provision for the general partner. AllDale III distributed to Alliance Minerals $0.6 million and $0.3 million during the three months ended June 30, 2019 and 2018, respectively, and $1.2 million and $0.7 million during the six months ended June 30, 2019 and 2018, respectively.

Since AllDale III is structured as a limited partnership with the limited partners 1) not having the ability to remove the general partner and 2) not participating significantly in the operational decisions, we concluded that AllDale III is a

Table of Contents

VIE.We are not the primary beneficiary of AllDale III as we do not have the power to direct the activities that most significantly impact AllDale III's economic performance. We account for our ownership interest in the income or loss of AllDale III as an equity method investment. We record equity income or loss based on AllDale III's distribution structure.

WKY CoalPlay

On November 17, 2014, SGP Land, LLC ("SGP Land"), an indirect, wholly owned subsidiary of ARH II, and two limited liability companies ("Craft Companies") owned by irrevocable trusts established by Mr. Craft, entered into a limited liability company agreement to form WKY CoalPlay, LLC ("WKY CoalPlay"). WKY CoalPlay was formed, in part, to purchase and lease coal reserves. WKY CoalPlay is managed by the ARH Officer discussed in Note 8 – Long-Term Debt, who is also a trustee of the irrevocable trusts owning the Craft Companies. In December 2014 and February 2015, we entered into various coal reserve leases with WKY CoalPlay. During the six months ended June 30, 2019, we paid $10.8 million of advanced royalties to WKY CoalPlay.

We have concluded that WKY CoalPlay is a VIE because of our ability to exercise options to acquire reserves under lease with WKY CoalPlay, which is not within the control of the equity holders and, if it occurs, could potentially limit the expected residual return to the owners of WKY CoalPlay. We do not have any economic or governance rights related to WKY CoalPlay and our options that provide us with a variable interest in WKY CoalPlay's reserve assets do not give us any rights that constitute power to direct the primary activities that most significantly impact WKY CoalPlay's economic performance. SGP Land has the sole ability to replace the manager of WKY CoalPlay at its discretion and therefore has power to direct the activities of WKY CoalPlay. Consequently, we concluded that SGP Land is the primary beneficiary of WKY CoalPlay.

10.INVESTMENTS

AllDale III

As discussed in Note 9 – Variable Interest Entities, we account for our ownership interest in the income or loss of AllDale III as an equity method investment. We record equity income or loss based on AllDale III's distribution structure. The changes in our equity method investment in AllDale III for each of the periods presented were as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)
Beginning balance	$	28,770	$	25,249	$	28,974	$	14,182
Contributions		—		—		—		11,400
Equity method investment income		550		155		874		197
Distributions received		(648)		(278)		(1,176)		(653)
Ending balance	$	28,672	$	25,126	$	28,672	$	25,126

Kodiak

On July 19, 2017, Alliance Minerals purchased $100 million of Series A-1 Preferred Interests from Kodiak Gas Services, LLC ("Kodiak"), a privately-held company providing large-scale, high-utilization gas compression assets to customers operating primarily in the Permian Basin. This structured investment provided us with a quarterly cash or payment-in-kind return. We accounted for our ownership interests in Kodiak as equity securities without readily determinable fair values. On February 8, 2019, Kodiak redeemed our preferred interest for $135.0 million in cash resulting in an $11.5 million gain due to an early redemption premium. The gain is included in the Equity securities income line item. We no longer hold any ownership interests in Kodiak.

Table of Contents

11.PARTNERS' CAPITAL

Distributions

Distributions paid or declared during 2018 and 2019 were as follows:


Payment Date	Per Unit Cash Distribution		Total Cash Distribution
			(in thousands)

February 14, 2018	$	0.5100	$	68,396
May 15, 2018		0.5150		69,047
August 14, 2018		0.5200		69,239
November 14, 2018		0.5250		69,220
Total	$	2.0700	$	275,902

February 14, 2019	$	0.5300	$	69,011
May 15, 2019		0.5350		69,489
August 14, 2019 (1)		0.5400		—
Total	$	1.6050	$	138,500

(1)	On July 26, 2019, we declared this quarterly distribution payable on August 14, 2019 to all unitholders of record as of August 7, 2019.

Unit Repurchase Program

In May 2018, the MGP board of directors approved the establishment of a unit repurchase program authorizing us to repurchase and retire up to $100 million of ARLP common units. The program has no time limit and we may repurchase units from time to time in the open market or in other privately negotiated transactions. The unit repurchase program authorization does not obligate us to repurchase any dollar amount or number of units. During the six months ended June 30, 2019, we repurchased and retired 300,970 units for $5.3 million. Since inception of the program, we have repurchased and retired 3,985,045 units at an average unit price of $19.03 for an aggregate purchase price of $75.9 million. Total units repurchased includes the repurchase and retirement of 35 units representing fractional units as part of the Simplification Transactions which are not part of the unit repurchase program.

Table of Contents

Change in Partners' Capital

The following tables present the quarterly change in Partners' Capital for the six months ended June 30, 2019 and 2018:


				Accumulated
	Number of	Limited		Other
	Limited Partner	Partners'		Comprehensive		Noncontrolling		Total Partners’
	Units	Capital		Loss		Interest		Capital
	(in thousands, except unit data)
Balance at January 1, 2019	128,095,511	$	1,229,268	$	(46,871)	$	5,290	$	1,187,687
Comprehensive income:
Net income	—		276,428		—		7,176		283,604
Actuarially determined long-term liability adjustments	—		—		(3,584)		—		(3,584)
Total comprehensive income									280,020
Settlement of deferred compensation plans	596,650		(7,817)		—		—		(7,817)
Purchase of units under unit repurchase program	(300,970)		(5,251)		—		—		(5,251)
Common unit-based compensation	—		2,743		—		—		2,743
Distributions on deferred common unit-based compensation	—		(1,280)		—		—		(1,280)
Distributions from consolidated company to noncontrolling interest	—		—		—		(262)		(262)
Distributions to Partners	—		(67,731)		—		—		(67,731)
Balance at March 31, 2019	128,391,191		1,426,360		(50,455)		12,204		1,388,109
Comprehensive income:
Net income	—		58,070		—		114		58,184
Actuarially determined long-term liability adjustments	—		—		(118)		—		(118)
Total comprehensive income									58,066
Common unit-based compensation	—		3,021		—		—		3,021
Distributions on deferred common unit-based compensation	—		(799)		—		—		(799)
Distributions from consolidated company to noncontrolling interest	—		—		—		(228)		(228)
Distributions to Partners	—		(68,690)		—		—		(68,690)
Balance at June 30, 2019	128,391,191	$	1,417,962	$	(50,573)	$	12,090	$	1,379,479

Table of Contents


						Accumulated
	Number of	Limited		General		Other
	Limited Partner	Partners'		Partner's		Comprehensive		Noncontrolling		Total Partners’
	Units	Capital		Capital		Income (Loss)		Interest		Capital
	(in thousands, except unit data)
Balance at January 1, 2018	130,704,217	$	1,183,219	$	14,859	$	(51,940)	$	5,348	$	1,151,486
Comprehensive income:
Net income	—		154,348		1,560		—		148		156,056
Actuarially determined long-term liability adjustments	—		—		—		1,017		—		1,017
Total comprehensive income											157,073
Settlement of deferred compensation plans	199,039		(2,081)		—		—		—		(2,081)
Simplification Transactions fees	—		(1)		—		—		—		(1)
Common unit-based compensation	—		3,006		—		—		—		3,006
Distributions on deferred common unit-based compensation	—		(1,062)		—		—		—		(1,062)
General Partner contribution	—		—		41		—		—		41
Distributions from consolidated company to noncontrolling interest	—		—		—		—		(162)		(162)
Distributions to Partners	—		(66,660)		(674)		—		—		(67,334)
Balance at March 31, 2018	130,903,256		1,270,769		15,786		(50,923)		5,334		1,240,966
Comprehensive income:
Net income	—		86,190		—		—		187		86,377
Actuarially determined long-term liability adjustments	—		—		—		1,016		—		1,016
Total comprehensive income											87,393
Settlement of deferred compensation plans	—		(664)		—		—		—		(664)
Issuance of units to Owners of SGP in Simplification Transactions	1,322,388		14,742		(15,106)		—		—		(364)
Issuance of units to SGP related to Exchange Transaction	20,960		—		—		—		—		—
Simplification Transactions fees	—		(59)		—		—		—		(59)
Contribution of units and cash by affiliated entity	(467,018)		2,142		—		—		—		2,142
Purchase of units under unit repurchase program	(383,599)		(7,639)		—		—		—		(7,639)
Common unit-based compensation	—		2,897		—		—		—		2,897
Distributions on deferred common unit-based compensation	—		(910)		—		—		—		(910)
Distributions from consolidated company to noncontrolling interest	—		—		—		—		(194)		(194)
Distributions to Partners	—		(67,457)		(680)		—		—		(68,137)
Balance at June 30, 2018	131,395,987	$	1,300,011	$	—	$	(49,907)	$	5,327	$	1,255,431

Table of Contents

12.REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table illustrates the disaggregation of our revenues by type, including a reconciliation to our segment presentation as presented in Note 17 – Segment Information, for the three and six months ended June 30, 2019 and 2018.


	Illinois						Other and
	Basin		Appalachia		Minerals		Corporate		Elimination		Consolidated
	(in thousands)
Three Months Ended June 30, 2019

Coal sales	$	301,981	$	157,951	$	—	$	5,551	$	(4,173)	$	461,310
Oil & gas royalties		—		—		11,892		—		—		11,892
Transportation revenues		31,287		1,343		—		—		—		32,630
Other revenues		2,405		950		536		10,439		(3,108)		11,222
Total revenues	$	335,673	$	160,244	$	12,428	$	15,990	$	(7,281)	$	517,054

Three Months Ended June 30, 2018

Coal sales	$	310,464	$	162,886	$	—	$	9,398	$	(6,823)	$	475,925
Transportation revenues		26,327		1,203		—		2		—		27,532
Other revenues		4,388		723		—		10,600		(3,031)		12,680
Total revenues	$	341,179	$	164,812	$	—	$	20,000	$	(9,854)	$	516,137

Six Months Ended June 30, 2019

Coal sales	$	619,251	$	315,404	$	—	$	10,841	$	(8,170)	$	937,326
Oil & gas royalties		—		—		22,285		—		—		22,285
Transportation revenues		60,525		2,343		—		—		—		62,868
Other revenues		5,293		1,901		871		19,311		(6,199)		21,177
Total revenues	$	685,069	$	319,648	$	23,156	$	30,152	$	(14,369)	$	1,043,656

Six Months Ended June 30, 2018

Coal sales	$	586,529	$	308,175	$	—	$	17,109	$	(12,278)	$	899,535
Transportation revenues		44,598		2,717		—		2		—		47,317
Other revenues		8,734		1,552		—		22,441		(6,320)		26,407
Total revenues	$	639,861	$	312,444	$	—	$	39,552	$	(18,598)	$	973,259

The following table illustrates the amount of our transaction price for all current coal supply contracts allocated to performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2019 and disaggregated by segment and contract duration.


							2022 and
	2019		2020		2021		Thereafter		Total
	(in thousands)

Illinois Basin coal revenues	$	533,472	$	580,097	$	236,331	$	—	$	1,349,900
Appalachia coal revenues		354,869		303,517		130,316		434,700		1,223,402
Other and Corporate coal revenues		11,798		—		—		—		11,798
Elimination		(8,864)		—		—		—		(8,864)
Total coal revenues (1)	$	891,275	$	883,614	$	366,647	$	434,700	$	2,576,236

(1) Coal revenues consists of coal sales and transportation revenues.

Table of Contents

13.EARNINGS PER LIMITED PARTNER UNIT

We utilize the two-class method in calculating basic and diluted earnings per limited partner unit ("EPU"). Subsequent to the Simplification Transactions, net income attributable to ARLP is only allocated to limited partners and participating securities under deferred compensation plans. Prior to the Simplification Transactions, net income attributable to ARLP was allocated to MGP, limited partners and participating securities under deferred compensation plans in accordance with their respective ownership percentages of the ARLP Partnership, after giving effect to any special income or expense allocations.

Our participating securities under deferred compensation plans include rights to nonforfeitable distributions or distribution equivalents. Our participating securities are outstanding awards under our Long-Term Incentive Plan ("LTIP") and phantom units in notional accounts under our Supplemental Executive Retirement Plan ("SERP") and the MGP Amended and Restated Deferred Compensation Plan for Directors ("Directors' Deferred Compensation Plan").

As a result of the Simplification Transactions, MGP no longer holds economic interests in the Intermediate Partnership or Alliance Coal. We no longer make distributions or allocate income and losses to MGP in our calculation of EPU.

The following is a reconciliation of net income attributable to ARLP used for calculating basic and diluted earnings per unit and the weighted-average units used in computing EPU for the three and six months ended June 30, 2019 and 2018:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands, except per unit data)
Net income attributable to ARLP	$	58,070	$	86,190	$	334,498	$	242,098
Adjustments:
General partner's equity ownership (1)		—		—		—		(1,560)

Limited partners' interest in net income attributable to ARLP		58,070		86,190		334,498		240,538

Less:
Distributions to participating securities		(1,122)		(1,261)		(2,227)		(2,532)
Undistributed earnings attributable to participating securities		—		(343)		(3,196)		(1,898)

Net income attributable to ARLP available to limited partners	$	56,948	$	84,586	$	329,075	$	236,108

Weighted-average limited partner units outstanding – basic and diluted		128,391		131,280		128,271		131,051

Earnings per limited partner unit - basic and diluted (2)	$	0.44	$	0.64	$	2.57	$	1.80

(1)

Amounts presented for periods subsequent to the first quarter of 2018 reflect the impact of the Simplification Transactions which ended net income allocations and quarterly cash distributions to MGP after May 31, 2018. Prior to the Simplification Transactions, MGP maintained a 1.0001% general partner interest in the Intermediate Partnership and a 0.001% managing member interest in Alliance Coal and thus received quarterly distributions and income and loss allocations during this time period.

(2)

Diluted EPU gives effect to all potentially dilutive common units outstanding during the period using the treasury stock method. Diluted EPU excludes all potentially dilutive units calculated under the treasury stock method if their effect is anti-dilutive. The combined total of LTIP, SERP and Directors' Deferred Compensation Plan units of 1,060 and 1,227 for the three and six months ended June 30, 2019, respectively, and 1,469 and 1,511 for the three and six months ended June 30, 2018, respectively, were considered anti-dilutive under the treasury stock method.

Table of Contents

14.WORKERS' COMPENSATION AND PNEUMOCONIOSIS

The changes in the workers' compensation liability, including current and long-term liability balances, for each of the periods presented were as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)
Beginning balance	$	48,428	$	54,646	$	49,539	$	54,439
Accruals increase		2,247		285		4,208		2,926
Payments		(2,452)		(3,048)		(5,925)		(5,845)
Interest accretion		401		364		802		727
Valuation loss (1)		4,801		695		4,801		695
Ending balance	$	53,425	$	52,942	$	53,425	$	52,942

(1)

Our estimate of the liability for the present value of current workers′ compensation benefits is based on our actuarial calculations. Our actuarial calculations are based on a blend of actuarial projection methods and numerous assumptions including claims development patterns, mortality, medical costs and interest rates. We conducted a mid-year 2019 review of our actuarial assumptions which resulted in a valuation loss in 2019 due to unfavorable changes in claims development and a decrease in the discount rate from 3.89% to 3.06%. Our mid-year 2018 actuarial review resulted in a valuation loss in 2018 primarily attributable to unfavorable changes in claims development, offset in part by an increase in the discount rate used to calculate the estimated present value of future obligations from 3.22% to 3.82%.

We limit our exposure to traumatic injury claims by purchasing a high deductible insurance policy that starts paying benefits after deductibles for a claim have been met. The deductible level may vary by claim year. Our workers' compensation liability above is presented on a gross basis and does not include our expected receivables on our insurance policy. Our receivables for traumatic injury claims under this policy as of June 30, 2019 are $8.5 million and are included in Other long-term assets on our condensed consolidated balance sheet.

Certain of our mine operating entities are liable under state statutes and the Federal Coal Mine Health and Safety Act of 1969, as amended, to pay pneumoconiosis, or black lung, benefits to eligible employees and former employees and their dependents. Components of the net periodic benefit cost for each of the periods presented are as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)
Service cost	$	646	$	632	$	1,291	$	1,262
Interest cost (1)		762		636		1,522		1,271
Net amortization (1)		(1,146)		—		(2,291)		1
Net periodic benefit cost	$	262	$	1,268	$	522	$	2,534

(1)	Interest cost and net amortization is included in the Other expense line item within our condensed consolidated statements of income.

15.COMPENSATION PLANS

Long-Term Incentive Plan

We maintain the LTIP for certain employees and officers of MGP and its affiliates who perform services for us. The LTIP awards are grants of non-vested "phantom" or notional units, also referred to as "restricted units", which upon satisfaction of time and performance-based vesting requirements, entitle the LTIP participant to receive ARLP common units. Annual grant levels and vesting provisions for designated participants are recommended by the Chairman, President and Chief Executive Officer of MGP, subject to review and approval of the compensation committee of the MGP board

Table of Contents

of directors (the "Compensation Committee"). Vesting of all grants outstanding is subject to the satisfaction of certain financial tests, which management currently believes is probable. Grants issued to LTIP participants are expected to cliff vest on January 1st of the third year following issuance of the grants. We account for forfeitures of non-vested LTIP grants as they occur. We will settle the non-vested LTIP grants by delivery of ARLP common units, except for the portion of the grants that will satisfy employee tax withholding obligations of LTIP participants. As provided under the distribution equivalent rights ("DERs") provisions of the LTIP and the terms of the LTIP awards, all non-vested grants include contingent rights to receive quarterly distributions in cash or, at the discretion of the Compensation Committee, phantom units in lieu of cash credited to a bookkeeping account with value, equal to the cash distributions we make to unitholders during the vesting period.

A summary of non-vested LTIP grants as of and for the six months ended June 30, 2019 is as follows:


	Number of units	Weighted average grant date fair value per unit		Intrinsic value
				(in thousands)

Non-vested grants at January 1, 2019	1,828,080	$	17.18	$	31,699
Granted	586,644		19.93
Vested (1)	(885,381)		12.38
Forfeited	(6,558)		21.06
Non-vested grants at June 30, 2019	1,522,785		21.01		25,857

(1)	During the six months ended June 30, 2019, we issued 596,650 unrestricted common units to the LTIP participants. The remaining vested units were settled in cash to satisfy tax withholding obligations of the LTIP participants.

LTIP expense was $2.7 million for each of the three months ended June 30, 2019 and 2018 and $5.1 million and $5.4 million for the six months ended June 30, 2019 and 2018, respectively. The total obligation associated with the LTIP as of June 30, 2019 was $15.0 million and is included in the partners' capital Limited partners-common unitholders line item in our condensed consolidated balance sheets. As of June 30, 2019, there was $17.0 million in total unrecognized compensation expense related to the non-vested LTIP grants that are expected to vest. That expense is expected to be recognized over a weighted-average period of 1.6 years.

After consideration of the January 1, ~~2017.~~2019 vesting and subsequent issuance of 596,650 common units, approximately 1.9 million units remain available under the LTIP for issuance in the future, assuming all grants issued in 2019, 2018 and 2017 and currently outstanding are settled with common units without reduction for tax withholding, no future forfeitures occur and DERs continue being paid in cash versus additional phantom units.

Supplemental Executive Retirement Plan and Directors' Deferred Compensation Plan

We utilize the SERP to provide deferred compensation benefits for certain officers and key employees. All allocations made to participants under the SERP are made in the form of "phantom" ARLP units and SERP distributions will be settled in the form of ARLP common units. The SERP is administered by the Compensation Committee.

Our directors participate in the Directors' Deferred Compensation Plan. Pursuant to the Directors' Deferred Compensation Plan, for amounts deferred either automatically or at the election of the director, a notional account is established and credited with notional common units of ARLP, described in the Directors' Deferred Compensation Plan as "phantom" units. Distributions from the Directors' Deferred Compensation Plan will be settled in the form of ARLP common units.

For both the SERP and Directors' Deferred Compensation Plan, when quarterly cash distributions are made with respect to ARLP common units, an amount equal to such quarterly distribution is credited to each participant's notional account as additional phantom units. All grants of phantom units under the SERP and Directors' Deferred Compensation Plan vest immediately.

Table of Contents

A summary of SERP and Directors' Deferred Compensation Plan activity as of and for the six months ended June 30, 2019 is as follows:


	Number of units	Weighted average grant date fair value per unit		Intrinsic value
				(in thousands)

Phantom units outstanding as of January 1, 2019	635,837	$	27.34	$	11,025
Granted	34,320		18.84
Issued	(115,484)		25.20
Phantom units outstanding as of June 30, 2019	554,673		27.26		9,418

Total SERP and Directors' Deferred Compensation Plan expense was $0.4 million for each of the three months ended June 30, 2019 and 2018 and $0.7 million and $0.8 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, the total obligation associated with the SERP and Directors' Deferred Compensation Plan was $15.1 million and is included in the partners' capital Limited partners-common unitholders line item in our condensed consolidated balance sheets. During the six months ended June 30, 2019, we provided 115,484 ARLP common units to a director under the Directors' Deferred Compensation Plan.

16.COMPONENTS OF PENSION PLAN NET PERIODIC BENEFIT COSTS

Eligible employees at certain of our mining operations participate in a defined benefit plan (the "Pension Plan") that we sponsor. The Pension Plan is currently closed to new applicants and participants in the Pension Plan are no longer receiving benefit accruals for service. The benefit formula for the Pension Plan is a fixed dollar unit based on years of service. Components of the net periodic benefit cost for each of the periods presented are as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)
Interest cost	$	1,216	$	1,116	$	2,432	$	2,232
Expected return on plan assets		(1,234)		(1,548)		(2,466)		(2,984)
Amortization of prior service cost		46		47		93		94
Amortization of net loss		982		969		1,961		1,938
Net periodic benefit cost (1)	$	1,010	$	584	$	2,020	$	1,280

(1)

Net periodic benefit cost for the Pension Plan is included in the Other expense line item within our condensed consolidated statements of income.

During the six months ended June 30, 2019, we made contribution payments of $1.2 million to the Pension Plan for the 2018 plan year and $1.1 million for the 2019 plan year. In July 2019, we made a contribution payment of $1.1 million for the 2019 plan year.

17.SEGMENT INFORMATION

We operate in the United States as a diversified natural resource company that generates income from the production and marketing of coal to major domestic and international utilities and industrial users as well as income from oil & gas mineral interests. We aggregate multiple operating segments into three reportable segments, Illinois Basin, Appalachia, and Minerals. We also have an "all other" category referred to as Other and Corporate. Our two coal reportable segments correspond to major coal producing regions in the eastern United States with similar economic characteristics including coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues. The two coal segments include eight mining complexes operating in Illinois, Indiana, Kentucky, Maryland and West Virginia and a coal loading terminal in Indiana on the Ohio River. The Minerals reportable segment aggregates our oil & gas mineral interests which are located primarily in the Anadarko (SCOOP/STACK), Permian (Delaware and Midland), Williston (Bakken) and Appalachian basins. We have no operations within our Minerals reportable segment other than receiving royalties for our oil & gas mineral interests.

Table of Contents

As a result of the AllDale Acquisition discussed in Note 3 – Acquisitions, we now control the underlying oil & gas mineral interests held by AllDale I & II. This control over the oil & gas mineral interests held by AllDale I & II reflects a strategic change in how we manage our business and how resources are allocated by our chief operating decision maker. Due to this strategic change, we have restructured our reportable segments in the first quarter of 2019 to include our oil & gas mineral interests within a new Minerals reportable segment. We have also included our Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") and Mid-America Carbonates, LLC ("MAC") in the Illinois Basin reportable segment rather than Other and Corporate to better align our Illinois Basin related activities. Prior periods have been recast to include our oil & gas minerals interests in the Minerals segment, and Mt. Vernon and MAC in the Illinois Basin segment.

The Illinois Basin reportable segment includes currently operating mining complexes (a) Webster County Coal, LLC's Dotiki mining complex, (b) Gibson County Coal, LLC's mining complex, which includes the Gibson North and Gibson South mines, (c) Warrior Coal, LLC's mining complex, (d) River View Coal, LLC's mining complex and (e) Hamilton County Coal, LLC's mining complex. The Illinois Basin reportable segment also includes our currently operating Mt. Vernon coal loading terminal in Indiana on the Ohio River. The Gibson North mine had been idled since the fourth quarter of 2015 in response to market conditions but resumed production in May 2018.

The Illinois Basin reportable segment also includes White County Coal, LLC's Pattiki mining complex, Hopkins County Coal, LLC's mining complex, which includes the Elk Creek mine, the Pleasant View surface mineable reserves and the Fies underground project, Sebree Mining, LLC's mining complex, which includes the Onton mine, Steamport, LLC and certain reserves, CR Services, LLC, CR Machine Shop, LLC, certain properties and equipment of Alliance Resource Properties, ARP Sebree, LLC, ARP Sebree South, LLC, UC Coal, LLC and its subsidiaries, UC Mining, LLC and UC Processing, LLCandMid-America Carbonates, LLC ("MAC").

The Appalachia reportable segment includes currently operating mining complexes (a) Mettiki mining complex, (b) Tunnel Ridge, LLC mining complex and (c) MC Mining, LLC mining complex. The Mettiki mining complex includes Mettiki Coal (WV), LLC's Mountain View mine and Mettiki Coal, LLC's preparation plant. The Appalachia reportable segment also includes the Penn Ridge property and certain properties and equipment of Alliance Resource Properties.

The Minerals reportable segment includes AllDale I & II, Alliance Royalty, LLC, AllRoy GP, LLC, CavMM, LLC, and Alliance Minerals' equity interests in both AllDale III (Note 10 – Investments) and Cavalier Minerals.

Other and Corporate includes marketing and administrative activities, ASI and its subsidiary, Matrix Design Group, LLC and its subsidiaries Matrix Design International, LLC and Matrix Design Africa (PTY) LTD ("Matrix Design"), Alliance Design Group, LLC ("Alliance Design") (collectively, the Matrix Design entities and Alliance Design are referred to as the "Matrix Group"), ASI's ownership of aircraft, Alliance Coal's coal brokerage activity, Alliance Minerals' equity investment in Kodiak which was redeemed in February 2019 by Kodiak (see Note 10 – Investments), certain of Alliance Resource Properties' land and mineral interest activities, Pontiki Coal, LLC's prior workers' compensation and pneumoconiosis liabilities, Wildcat Insurance, LLC ("Wildcat Insurance"), which assists the ARLP Partnership with its insurance requirements, and AROP Funding and Alliance Finance (both discussed in Note 8 – Long-Term Debt).

Table of Contents

Reportable segment results as of and for the three and six months ended June 30, 2019 and 2018 are presented below.


	Illinois						Other and		Elimination
	Basin		Appalachia		Minerals		Corporate		(1)		Consolidated
	(in thousands)
Three Months Ended June 30, 2019

Revenues - Outside	$	331,500	$	160,244	$	12,428	$	12,882	$	—	$	517,054
Revenues - Intercompany		4,173		—		—		3,108		(7,281)		—
Total revenues (2)		335,673		160,244		12,428		15,990		(7,281)		517,054

Segment Adjusted EBITDA Expense (3)		208,309		105,122		1,765		9,442		(5,041)		319,597
Segment Adjusted EBITDA (4)		96,075		53,779		11,098		6,551		(2,240)		165,263
Capital expenditures		59,476		20,987		—		1,121		—		81,584

Three Months Ended June 30, 2018

Revenues - Outside	$	334,355	$	164,812	$	—	$	16,970	$	—	$	516,137
Revenues - Intercompany		6,824		—		—		3,030		(9,854)		—
Total revenues (2)		341,179		164,812		—		20,000		(9,854)		516,137

Segment Adjusted EBITDA Expense (3)		202,886		103,538		—		13,136		(7,749)		311,811
Segment Adjusted EBITDA (4)		111,967		60,069		4,652		10,717		(2,105)		185,300
Capital expenditures		46,555		21,445		—		1,121		—		69,121

Six Months Ended June 30, 2019

Revenues - Outside	$	676,899	$	319,648	$	23,156	$	23,953	$	—	$	1,043,656
Revenues - Intercompany		8,170		—		—		6,199		(14,369)		—
Total revenues (2)		685,069		319,648		23,156		30,152		(14,369)		1,043,656

Segment Adjusted EBITDA Expense (3)		405,731		204,871		3,592		18,148		(9,888)		622,454
Segment Adjusted EBITDA (4)		218,812		112,434		20,230		24,912		(4,481)		371,907
Total assets		1,407,019		483,265		516,503		460,353		(364,419)		2,502,721
Capital expenditures (5)		107,930		54,333		—		3,364		—		165,627

Six Months Ended June 30, 2018

Revenues - Outside	$	627,650	$	312,377	$	—	$	33,232	$	—	$	973,259
Revenues - Intercompany		12,211		67		—		6,320		(18,598)		—
Total revenues (2)		639,861		312,444		—		39,552		(18,598)		973,259

Segment Adjusted EBITDA Expense (3)		386,347		196,036		—		23,275		(14,388)		591,270
Segment Adjusted EBITDA (4)		208,917		113,690		8,240		23,853		(4,210)		350,490
Total assets		1,440,776		454,972		158,376		394,175		(182,465)		2,265,834
Capital expenditures		84,034		34,820		—		1,792		—		120,646

(1)

The elimination column represents the elimination of intercompany transactions and is primarily comprised of sales from the Matrix Group to our mining operations, coal sales and purchases between operations within different segments, sales of receivables to AROP Funding, financing between segments and insurance premiums paid to Wildcat Insurance.

(2)	Revenues included in the Other and Corporate column are primarily attributable to the Matrix Group revenues, administrative service revenues from affiliates, Wildcat Insurance revenues and brokerage coal sales.

Table of Contents

(3)	Segment Adjusted EBITDA Expense includes operating expenses, coal purchases and other income. Transportation expenses are excluded as these expenses are recognized in an amount equal to transportation revenues when title passes to the customer.

The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to Operating expenses (excluding depreciation, depletion and amortization):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)
Segment Adjusted EBITDA Expense	$	319,597	$	311,811	$	622,454	$	591,270
Outside coal purchases		(5,311)		(68)		(5,311)		(1,442)
Other expense		(13)		(542)		(142)		(1,389)
Operating expenses (excluding depreciation, depletion and amortization)	$	314,273	$	311,201	$	617,001	$	588,439

(4)

Segment Adjusted EBITDA is defined as net income attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization, general and administrative expenses, settlement gain and acquisition gain. Management therefore is able to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments. Consolidated Segment Adjusted EBITDA is reconciled to net income as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)
Consolidated Segment Adjusted EBITDA	$	165,263	$	185,300	$	371,907	$	350,490
General and administrative		(19,521)		(17,026)		(37,333)		(33,677)
Depreciation, depletion and amortization		(76,913)		(72,150)		(148,052)		(133,998)
Settlement gain		—		—		—		80,000
Interest expense, net		(10,573)		(9,931)		(21,904)		(20,724)
Acquisition gain		—		—		177,043		—
Income tax (expense) benefit		(186)		(3)		(80)		7
Acquisition gain attributable to noncontrolling interest		—		—		(7,083)		—
Net income attributable to ARLP	$	58,070	$	86,190	$	334,498	$	242,098
Noncontrolling interest		114		187		7,290		335
Net income	$	58,184	$	86,377	$	341,788	$	242,433

(5)	Capital Expenditures shown exclude the AllDale Acquisition on January 3, 2019 (Note 3 – Acquisitions) and the escrow payment made in connection with the Wing Acquisition (Note 18 – Subsequent Events).

18.SUBSEQUENT EVENTS

Other than those events described below and in Notes 11 and 16, there were no subsequent events.

Wing Acquisition

On June 21, 2019, ARLP entered into an agreement with Wing Resources LLC and Wing Resources II LLC (collectively, "Wing") to acquire certain mineral interests. The agreement provides for the acquisition of approximately 9,000 net royalty acres in the Midland Basin, with exposure to more than 400,000 gross acres, for a cash purchase price of $145 million (the "Wing Acquisition") before consideration of typical closing adjustments for due diligence and the net cash impact related to a May 1, 2019 effective date, among other adjustments. Upon entering into the agreement, we provided a cash deposit of $10.9 million, which was held in escrow and applied to the purchase price upon closing of the transaction. On August 2, 2019, ARLP closed on the Wing Acquisition using cash on hand and borrowings under our Revolving Credit Facility.

Table of Contents

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Significant relationships referenced in this management's discussion and analysis of financial condition and results of operations include the following:

●

References to "we," "us," "our" or "ARLP Partnership" mean the business and operations of Alliance Resource Partners, L.P., the parent company, as well as its consolidated subsidiaries.

●

References to "ARLP" mean Alliance Resource Partners, L.P., individually as the parent company, and not on a consolidated basis.

●

References to "MGP" mean Alliance Resource Management GP, LLC, ARLP's general partner.

●

References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P.

●

References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, the land-holding company for the mining operations of Alliance Resource Operating Partners, L.P.

●

References to "Alliance Coal" mean Alliance Coal, LLC, the holding company for the mining operations of Alliance Resource Operating Partners, L.P.

Summary

We have three reportable segments, Illinois Basin, Appalachia and Minerals. We also have an "all other" category referred to as Other and Corporate. The two coal reportable segments correspond to major coal producing regions in the eastern United States with similar economic characteristics including coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues. The two coal mining segments include eight underground mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia and a coal loading terminal in Indiana on the Ohio River. The Minerals segment includes our oil & gas mineral interests which are located primarily in the Anadarko (SCOOP/STACK), Permian (Delaware and Midland), Williston (Bakken) and Appalachian basins. We have no operations within our Minerals reportable segment other than receiving royalties for our oil & gas mineral interests.

On January 3, 2019 (the "AllDale Acquisition Date"), we acquired all of the limited partner interests not owned by Cavalier Minerals JV, LLC ("Cavalier Minerals") in AllDale Minerals LP ("AllDale I") and AllDale Minerals II, LP ("AllDale II", and collectively with AllDale I, "AllDale I & II") and the general partner interests in AllDale I & II for $176.0 million (the "AllDale Acquisition"). As a result of the AllDale Acquisition and our previous investments held through Cavalier Minerals, we now control approximately 43,000 net royalty acres in premier oil & gas resource plays. The AllDale Acquisition provides us with diversified exposure to industry leading operators and is consistent with our general business strategy to pursue accretive acquisitions. Please read “Item 1. Financial Statements (Unaudited) - Note 3 – Acquisition” of this Quarterly Report on Form 10-Q for more information on the AllDale Acquisition.

As a result of the AllDale Acquisition, we now control the underlying oil & gas mineral interests held by AllDale I & II. This control over the oil & gas mineral interests held by AllDale I & II reflects a strategic change in how we manage our business and how resources are allocated by our chief operating decision maker. Due to this strategic change we have restructured our reportable segments in the first quarter of 2019 to include our oil & gas mineral interests within a new Minerals reportable segment.We have also included our Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") and Mid-America Carbonates, LLC ("MAC") in the Illinois Basin reportable segment rather than Other and Corporate to better align our Illinois Basin related activities. Prior periods have been recast to include our oil & gas minerals interests in the Minerals segment, and Mt. Vernon and MAC in the Illinois Basin segment.

●

Illinois Basin reportable segment includes currently operating mining complexes (a) Webster County Coal, LLC's Dotiki mining complex ("Dotiki"), (b) Gibson County Coal, LLC's mining complex, which includes the Gibson

Table of Contents

North and Gibson South mines, (c) Warrior Coal, LLC's mining complex, (d) River View Coal, LLC's mining complex ("River View") and (e) Hamilton County Coal, LLC's mining complex ("Hamilton"). The Illinois Basin reportable segment also includes our currently operating Mt. Vernon coal loading terminal in Indiana on the Ohio River. The Gibson North mine had been idled since the fourth quarter of 2015 in response to market conditions but resumed production in May 2018.

The Illinois Basin reportable segment also includes MAC's manufacturing and sales (primarily to our mines) of rock dust, CR Services, LLC, CR Machine Shop, LLC, certain properties and equipment of Alliance Resource Properties, ARP Sebree, LLC, ARP Sebree South, LLC, UC Coal, LLC and its subsidiaries, UC Mining, LLC and UC Processing, LLC (collectively "UC Coal") and our mining complexes currently not operating: (a) White County Coal, LLC's Pattiki mining complex ("Pattiki"), (b) Hopkins County Coal, LLC's mining complex, which includes the Elk Creek mine, the Pleasant View surface mineable reserves and the Fies underground project and (c) Sebree Mining, LLC's mining complex, which includes the Onton mine, Steamport, LLC and certain reserves.

●

Appalachia reportable segment includes currently operating mining complexes (a) Mettiki mining complex ("Mettiki"), (b) Tunnel Ridge, LLC mining complex ("Tunnel Ridge"), and (c) MC Mining, LLC mining complex ("MC Mining"). Mettiki includes Mettiki Coal (WV), LLC's Mountain View mine and Mettiki Coal, LLC's preparation plant. The Appalachia reportable segment also includes the Penn Ridge property and certain properties and equipment of Alliance Resource Properties.

●

Minerals reportable segment includes AllDale I & II; Alliance Royalty, LLC; AllRoy GP, LLC; CavMM, LLC; and Alliance Minerals, LLC's ("Alliance Minerals") equity interests in AllDale Minerals III, LP ("AllDale III") and Cavalier Minerals. Please read "Item 1 - Financial Statements (Unaudited) - Note 10 – Investments" and "Note 9 – Variable Interest Entities" of this Quarterly Report on Form 10-Q for more information on Alliance Minerals and Cavalier Minerals.

●

Other and Corporate includes marketing and administrative activities, Alliance Service, Inc. ("ASI") and its subsidiary, Matrix Design Group, LLC and its subsidiaries Matrix Design International, LLC and Matrix Design Africa (PTY) LTD ("Matrix Design"), Alliance Design Group, LLC (collectively along with Matrix Design, the "Matrix Group"), ASI's ownership of aircraft, Alliance Coal's coal brokerage activity, Alliance Minerals' equity investment in Kodiak Gas Services, LLC ("Kodiak") which was redeemed in February 2019 by Kodiak (see Note 10 – Investments) certain of Alliance Resource Properties' land and mineral interest activities, Pontiki Coal, LLC's legacy workers' compensation and pneumoconiosis liabilities, Wildcat Insurance, LLC, which assists the ARLP Partnership with its insurance requirements, AROP Funding, LLC ("AROP Funding")and Alliance Resource Finance Corporation ("Alliance Finance"). Please read "Item 1. Financial Statements (Unaudited) – Note 8. Long-term Debt" "and Note 10. Investments" of this Quarterly Report on Form 10-Q for more information on AROP Funding and the Kodiak redemption, respectively.

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

We reported net income attributable to ARLP of $58.1 million for the three months ended June 30, 2019 ("2019 Quarter") compared to $86.2 million for the three months ended June 30, 2018 ("2018 Quarter"). The decrease of $28.1 million was primarily due to lower coal sales, higher total operating expenses and lower equity securities income in the 2019 Quarter. Total revenues increased slightly to $517.1 million in the 2019 Quarter compared to $516.1 million for the 2018 Quarter, as the addition of oil & gas royalties and increased transportation revenues were partially offset by reduced coal sales.


	Three Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)				(per ton sold)
Tons sold		10,216		10,488		N/A		N/A
Tons produced		10,036		9,714		N/A		N/A
Coal sales	$	461,310	$	475,925	$	45.16	$	45.38
Coal - Segment Adjusted EBITDA Expense (1) (2)	$	317,832	$	311,811	$	31.11	$	29.73

Table of Contents

(1)	For a definition of Segment Adjusted EBITDA Expense and related reconciliation to comparable generally accepted accounting principles ("GAAP") financial measures, please see below under "—Reconciliation of non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses."

(2)	Coal - Segment Adjusted EBITDA Expense is defined as consolidated Segment Adjusted EBITDA Expense excluding our Minerals segment.

Coal sales. Coal sales decreased $14.6 million or 3.1% to $461.3 million for the 2019 Quarter from $475.9 million for the 2018 Quarter. The decrease was attributable to a volume variance of $12.3 million resulting from decreased tons sold and a price variance of $2.3 million due to lower average coal sales prices. Coal sales volumes declined 2.6% to 10.2 million tons as flooding and high water continued to delay approximately 500,000 tons of planned export shipments in the 2019 Quarter which we expect will be shipped in the second half of the year. Also in comparison, the 2018 Quarter benefited from the fulfillment of 1.4 million tons in shipments delayed during the first quarter of 2018. Production volumes increased 3.3% compared to the 2018 Quarter to 10.0 million tons, primarily due to increased production from the addition of two mining units at our River View mine, strong performance at our Tunnel Ridge mine and a full quarter of production from our Gibson North mine, which resumed operations in the 2018 Quarter. Coal sales price realizations declined slightly in the 2019 Quarter to $45.16 per ton sold, compared to $45.38 per ton sold during the 2018 Quarter.

Royalty revenues. As a result of the AllDale Acquisition on January 3, 2019, we obtained control of AllDale I & II and thus began consolidation of AllDale I & II in our financial statements. As a result of the consolidation, in the first quarter of 2019 we began recording royalty revenues from AllDale I & II. Prior to 2019, our investments in AllDale I & II were accounted for as equity method investments. AllDale I & II contributed royalty revenues of $11.9 million in the 2019 Quarter. Please read "Item 1. Financial Statements (Unaudited) - Note 3 – Acquisition" of this Quarterly Report on Form 10-Q for more information on the AllDale Acquisition.

Coal - Segment Adjusted EBITDA Expense. Segment Adjusted EBITDA Expense, excluding our Minerals segment, of $317.8 million for the 2019 Quarter remained comparable to the 2018 Quarter. On a per ton basis, Segment Adjusted EBITDA Expense, excluding our Minerals segment, increased to $31.11 per ton sold compared to $29.73 per ton sold in the 2018 Quarter due to a longwall move at our Hamilton mine, lower recoveries at our River View mine due to adverse geological conditions, higher coal inventory costs and sales of higher-cost, outside coal purchases, partially offset by reduced expenses per ton resulting from strong production at our Tunnel Ridge mine. In addition, other cost increases are discussed by category below:

●

Labor and benefit expenses per ton produced, excluding workers' compensation, increased 6.3% to $9.83 per ton in the 2019 Quarter from $9.25 per ton in the 2018 Quarter. The increase of $0.58 per ton was primarily due to additional labor expenses at our River View mine in addition to the impact of a longwall move at our Hamilton mine in the 2019 Quarter; and

●

Workers' compensation expenses per ton produced increased to $0.82 per ton in the 2019 Quarter from $0.45 per ton in the 2018 Quarter. The increase of $0.37 per ton produced resulted from the impact of lower discount rates and adverse claims experience on mid-year actuarial workers' compensation accrual adjustments.

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

●

Material and supplies expenses per ton produced decreased 1.9% to $11.24 per ton in the 2019 Quarter from $11.46 per ton in the 2018 Quarter. The decrease of $0.22 per ton produced resulted primarily from decreases of $0.11 per ton for power and fuel used in the mining process and $0.10 per ton in longwall subsidence expense; and

●

Production taxes and royalty expenses incurred as a percentage of coal sales prices and volumes decreased $0.56 per produced ton sold in the 2019 Quarter compared to the 2018 Quarter primarily as a result of a favorable state production mix and a lower federal excise tax rate in 2019.

General and administrative. General and administrative expenses for the 2019 Quarter increased to $19.5 million compared to $17.0 million in the 2018 Quarter. The increase of $2.5 million was primarily due to higher professional services resulting from the AllDale Acquisition and increased benefit accruals.

Table of Contents

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased to $76.9 million in the 2019 Quarter from $72.2 million in the 2018 Quarter. The increase of $4.7 million resulted primarily from production from our AllDale I & II oil & gas mineral interests.

Equity method investment income. Equity method investment income decreased to $0.6 million in the 2019 Quarter from $4.8 million in the 2018 Quarter as a result of the AllDale Acquisition and related consolidation of AllDale I & II in 2019. Prior to 2019, our investments in AllDale I & II were accounted for as equity method investments.

Equity securities income. Equity securities income decreased $3.9 million compared to the 2018 Quarter as we did not recognize equity securities income in the 2019 Quarter due to the redemption of our preferred interest in Kodiak in the first quarter of 2019.

Transportation revenues and expenses. Transportation revenues and expenses were $32.6 million and $27.5 million for the 2019 and 2018 Quarters, respectively. The increase of $5.1 million was primarily attributable to an increase in average third-party transportation rates in the 2019 Quarter resulting from higher shipping costs for coal exported to international markets, partially offset by decreased tonnage for which we arrange third-party transportation at certain mines. The cost of third-party transportation services are passed through to our customers and we recognize transportation revenue equal to transportation expense when title to the coal passes to the customer.

Table of Contents

Segment Adjusted EBITDA. Our 2019 Quarter Segment Adjusted EBITDA decreased $20.0 million, or 10.8%, to $165.3 million from the 2018 Quarter Segment Adjusted EBITDA of $185.3 million. Segment Adjusted EBITDA, tons sold, coal sales, other revenues,royalty revenues, BOE volume and Segment Adjusted EBITDA Expense by segment are as follows:


	Three Months Ended
	June 30,
	2019		2018		Increase (Decrease)
	(in thousands)
Segment Adjusted EBITDA
Coal - Illinois Basin	$	96,075	$	111,967	$	(15,892)	(14.2)	%
Coal - Appalachia		53,779		60,069		(6,290)	(10.5)	%
Minerals		11,098		4,652		6,446	(1)
Other and Corporate		6,551		10,717		(4,166)	(38.9)	%
Elimination		(2,240)		(2,105)		(135)	(6.4)	%
Total Segment Adjusted EBITDA (2)	$	165,263	$	185,300	$	(20,037)	(10.8)	%

Tons sold
Coal - Illinois Basin		7,567		7,820		(253)	(3.2)	%
Coal - Appalachia		2,649		2,666		(17)	(0.6)	%
Other and Corporate		142		222		(80)	(36.0)	%
Elimination		(142)		(220)		78	35.5	%
Total tons sold		10,216		10,488		(272)	(2.6)	%

Coal sales
Coal - Illinois Basin	$	301,981	$	310,464	$	(8,483)	(2.7)	%
Coal - Appalachia		157,951		162,886		(4,935)	(3.0)	%
Other and Corporate		5,551		9,398		(3,847)	(40.9)	%
Elimination		(4,173)		(6,823)		2,650	38.8	%
Total coal sales	$	461,310	$	475,925	$	(14,615)	(3.1)	%

Other revenues
Coal - Illinois Basin	$	2,405	$	4,388	$	(1,983)	(45.2)	%
Coal - Appalachia		950		723		227	31.4	%
Minerals		536		—		536	(1)
Other and Corporate		10,439		10,600		(161)	(1.5)	%
Elimination		(3,108)		(3,031)		(77)	(2.5)	%
Total other sales and operating revenues	$	11,222	$	12,680	$	(1,458)	(11.5)	%

Royalty revenues and BOE volume
Volume - BOE (3)		274		—		274	(1)
Oil & gas royalties	$	11,892	$	—	$	11,892	(1)

Segment Adjusted EBITDA Expense
Coal - Illinois Basin	$	208,309	$	202,886	$	5,423	2.7	%
Coal - Appalachia		105,122		103,538		1,584	1.5	%
Minerals		1,765		—		1,765	(1)
Other and Corporate		9,442		13,136		(3,694)	(28.1)	%
Elimination		(5,041)		(7,749)		2,708	34.9	%
Total Segment Adjusted EBITDA Expense (2)	$	319,597	$	311,811	$	7,786	2.5	%

(1)	Percentage change not meaningful.

(2)	For a definition of Segment Adjusted EBITDA and related reconciliation to comparable GAAP financial measures, please see below under "—Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income."

(3)	Barrels of oil equivalent ("BOE") is calculated on a 6:1 basis (6,000 cubic feet of natural gas to one barrel of oil).

Table of Contents

Illinois Basin – Segment Adjusted EBITDA decreased 14.2% to $96.1 million in the 2019 Quarter from $112.0 million in the 2018 Quarter. The decrease of $15.9 million was primarily attributable to lower coal sales, which decreased 2.7% to $302.0 million in the 2019 Quarter from $310.5 million in the 2018 Quarter, and increased operating expenses. The decrease of $8.5 million in coal sales reflects decreased coal sales volumes partially offset by higher price realizations. Tons sold in the 2019 Quarter decreased 3.2% compared to the 2018 Quarter as a result of lower volumes at our Hamilton and Gibson South mines due to reduced export sales, as well as significant fulfillments in the 2018 Quarter of delayed first quarter 2018 shipments, partially offset by increased domestic sales volumes from our Gibson North and River View mines. Segment Adjusted EBITDA Expense increased 2.7% to $208.3 million in the 2019 Quarter from $202.9 million in the 2018 Quarter due to higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $1.59 per ton sold to $27.53 from $25.94 per ton sold in the 2018 Quarter, primarily due to a longwall move at our Hamilton mine, as well as reduced recoveries and per ton cost increases for labor and materials and supplies expenses at our River View mine during the 2019 Quarterin addition to certain cost increases described above under "–Coal - Segment Adjusted EBITDA Expense."

Appalachia – Segment Adjusted EBITDA decreased 10.5% to $53.8 million for the 2019 Quarter from $60.1 million in the 2018 Quarter. The decrease of $6.3 million was primarily attributable to lower coal sales, which decreased 3.0% to $158.0 million in the 2019 Quarter from $162.9 million in the 2018 Quarter. The decrease of $4.9 million in coal sales resulted primarily from lower coal sale prices, which decreased 2.4% compared to the 2018 Quarter due to decreased export price realizations and export volumes at our Mettiki mine, partially offset by increased domestic prices from our MC Mining operation. Segment Adjusted EBITDA Expense increased slightly to $105.1 million in the 2019 Quarter from $103.5 million in the 2018 Quarter due to higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $0.84 per ton sold to $39.68 compared to $38.84 per ton sold in the 2018 Quarter, primarily due to reduced recoveries at our Mettiki and MC Mining mines and sales of higher cost outside coal purchases, as well as certain cost increases described above under "–Coal - Segment Adjusted EBITDA Expense," partially offset by strong production at our Tunnel Ridge mine during the 2019 Quarter.

Minerals – Segment Adjusted EBITDA increased to $11.1 million for the 2019 Quarter from $4.7 million in the 2018 Quarter. The increase of $6.4 million primarily resulted from the AllDale Acquisition in 2019.

Other and Corporate – Segment Adjusted EBITDA decreased by $4.1 million to $6.6 million in the 2019 Quarter compared to $10.7 million in the 2018 Quarter. The decrease was primarily attributable to lower equity securities income as a result of the redemption of our preferred interest in Kodiak in the first quarter of 2019 and decreased coal brokerage activity.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

We reported net income attributable to ARLP of $334.5 million for the six months ended June 30, 2019 ("2019 Period") compared to $242.1 million for the six months ended June 30, 2018 ("2018 Period"). The increase of $92.4 million was primarily due to higher revenues and gains related to the AllDale Acquisition and the redemption of our preferred equity interest in Kodiak. Increased coal sales volumes, improved coal sales prices and the addition of royalty revenues in the 2019 Period drove total revenues higher to $1.04 billion compared to $0.97 billion in the 2018 Period.


	Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)				(per ton sold)
Tons sold		20,537		19,886		N/A		N/A
Tons produced		21,359		20,196		N/A		N/A
Coal sales	$	937,326	$	899,535	$	45.64	$	45.23
Coal - Segment Adjusted EBITDA Expense (1) (2)	$	618,862	$	591,270	$	30.13	$	29.73

(1)	For a definition of Segment Adjusted EBITDA Expense and related reconciliation to comparable GAAP financial measures, please see below under "—Reconciliation of non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses."

(2)	Coal - Segment Adjusted EBITDA Expense is defined as consolidated Segment Adjusted EBITDA Expense excluding our Minerals segment.

Table of Contents

Coal sales. Coal sales increased $37.8 million or 4.2% to $937.3 million for the 2019 Period from $899.5 million for the 2018 Period. The increase was attributable to a volume variance of $29.5 million resulting from increased tons sold and a price variance of $8.3 million due to higher average coal sales prices. For the 2019 Period, a strong performance at our Tunnel Ridge mine, increased volumes from our River View mine due to the additional two production units previously mentioned and the resumption of operations in the 2018 Period at our Gibson North mine drove coal sales volumes up by 3.3% to 20.5 million tons and production volumes higher by 5.8% to 21.4 million tons, both as compared to the 2018 Period. Total coal sales volumes benefited from increased domestic shipments offset in part by a reduction in export volumes as flooding and high water continued to delay approximately 500,000 tons of planned export shipments in the 2019 Period, which we expect will be shipped in the second half of the year. Coal sales price realizations increased 0.9% to $45.64 per ton sold in the 2019 Period, compared to $45.23 per ton sold during the 2018 Period.

Royalty revenues. AllDale I & II contributed royalty revenues of $22.3 million in the 2019 Period. Please read "Item 1. Financial Statements (Unaudited) - Note 3 – Acquisition" of this Quarterly Report on Form 10-Q for more information on the AllDale Acquisition.

Coal - Segment Adjusted EBITDA Expense. Segment Adjusted EBITDA Expense, excluding our Minerals segment, increased 4.7% to $618.9 million for the 2019 Period from $591.3 million for the 2018 Period primarily as a result of increased coal sales volumes. On a per ton basis, Segment Adjusted EBITDA Expense, excluding our Minerals segment, increased to $30.13 per ton sold compared to $29.73 per ton sold in the 2018 Period due to a longwall move in the 2019 Period at our Hamilton mine and lower recoveries and mining conditions at certain mines in addition to other cost increases, which are discussed by category below:

●

Labor and benefit expenses per ton produced, excluding workers' compensation, increased 4.4% to $9.35 per ton in the 2019 Period from $8.96 per ton in the 2018 Period. The increase of $0.39 per ton was primarily due to additional labor expenses at our River View mine in addition to the impact of a longwall move at our Hamilton mine in the 2019 Period and other production variances previously discussed;

●

Workers' compensation expenses per ton produced increased to $0.55 per ton in the 2019 Period from $0.45 per ton in the 2018 Period. The increase of $0.10 per ton produced resulted from increased workers' compensation expense due to the impact of lower discount rates and adverse claims experience on mid-year actuarial adjustments; and

●

Material and supplies expenses per ton produced increased 2.0% to $11.12 per ton in the 2019 Period from $10.90 per ton in the 2018 Period. The increase of $0.22 per ton produced resulted primarily from increases of $0.25 per ton in longwall subsidence expense and $0.21 per ton for roof support, partially offset by a decrease of $0.18 per ton for power and fuel used in the mining process.

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

●

Production taxes and royalty expenses incurred as a percentage of coal sales prices and volumes decreased $0.69 per produced ton sold in the 2019 Period compared to the 2018 Period primarily as a result of a favorable state production mix and a lower federal excise tax rate in 2019.

General and administrative. General and administrative expenses for the 2019 Period increased to $37.3 million compared to $33.7 million in the 2018 Period. The increase of $3.6 million was due to higher professional services primarily resulting from the AllDale Acquisition and increased benefit accruals.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense increased to $148.1 million in the 2019 Period from $134.0 million in the 2018 Period. The increase of $14.1 million resulted primarily from increased coal sales volumes mentioned above and depletion beginning in the 2019 Period, attributable to production from our AllDale I & II oil & gas mineral interests.

Settlement gain. During the 2018 Period, we finalized an agreement with a customer and certain of its affiliates to settle litigation we initiated in 2015. The agreement provided for a $93.0 million cash payment to us in the 2018 Period, future conditional coal supply commitments, continued export transloading capacity for our Appalachian mines and the acquisition of certain coal reserves near our Tunnel Ridge operation. A settlement gain of $80.0 million was recorded in

Table of Contents

the 2018 Period reflecting the cash payment received net of $13.0 million of combined legal fees paid and associated incentive compensation accruals.

Equity method investment income. Equity method investment income decreased to $0.9 million in the 2019 Period from $8.6 million in the 2018 Period as a result of the AllDale Acquisition and related consolidation of AllDale I & II in the 2019 Period. Prior to 2019, our investments in AllDale I & II were accounted for as equity method investments.

Acquisition gain. We were required to re-measure Cavalier Minerals' equity method investments in AllDale I & II to fair value as a result of the AllDale Acquisition. The re-measurement resulted in a gain of $177.0 million in the 2019 Period.

Transportation revenues and expenses. Transportation revenues and expenses were $62.9 million and $47.3 million for the 2019 and 2018 Periods, respectively. The increase of $15.6 million was primarily attributable to an increase in average third-party transportation rates in the 2019 Period resulting from higher shipping costs for coal exported to international markets, partially offset by decreased tonnage for which we arrange third-party transportation at certain mines. The cost of third-party transportation services are passed through to our customers and we recognize transportation revenue equal to transportation expense when title to the coal passes to the customer.

Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest increased to $7.3 million in the 2019 Period from $0.3 million in the 2018 Period as a result of allocating $7.1 million of the acquisition gain discussed above to noncontrolling interest related to Bluegrass Minerals' equity interest in Cavalier Minerals.

Table of Contents

Segment Adjusted EBITDA. Our 2019 Period Segment Adjusted EBITDA increased $21.4 million, or 6.1%, to $371.9 million from the 2018 Period Segment Adjusted EBITDA of $350.5 million. Segment Adjusted EBITDA, tons sold, coal sales, other revenues,royalty revenues, BOE volume and Segment Adjusted EBITDA Expense by segment are as follows:


	Six Months Ended
	June 30,
	2019		2018		Increase (Decrease)
	(in thousands)
Segment Adjusted EBITDA
Coal - Illinois Basin	$	218,812	$	208,917	$	9,895	4.7	%
Coal - Appalachia		112,434		113,690		(1,256)	(1.1)	%
Minerals		20,230		8,240		11,990	(1)
Other and Corporate		24,912		23,853		1,059	4.4	%
Elimination		(4,481)		(4,210)		(271)	(6.4)	%
Total Segment Adjusted EBITDA (2)	$	371,907	$	350,490	$	21,417	6.1	%

Tons sold
Coal - Illinois Basin		15,240		14,828		412	2.8	%
Coal - Appalachia		5,297		5,056		241	4.8	%
Other and Corporate		278		403		(125)	(31.0)	%
Elimination		(278)		(401)		123	30.7	%
Total tons sold		20,537		19,886		651	3.3	%

Coal sales
Coal - Illinois Basin	$	619,251	$	586,529	$	32,722	5.6	%
Coal - Appalachia		315,404		308,175		7,229	2.3	%
Other and Corporate		10,841		17,109		(6,268)	(36.6)	%
Elimination		(8,170)		(12,278)		4,108	33.5	%
Total coal sales	$	937,326	$	899,535	$	37,791	4.2	%

Other revenues
Coal - Illinois Basin	$	5,293	$	8,734	$	(3,441)	(39.4)	%
Coal - Appalachia		1,901		1,552		349	22.5	%
Minerals		871		—		871	(1)
Other and Corporate		19,311		22,441		(3,130)	(13.9)	%
Elimination		(6,199)		(6,320)		121	1.9	%
Total other sales and operating revenues	$	21,177	$	26,407	$	(5,230)	(19.8)	%

Royalty revenues and BOE volume
Volume - BOE (3)		526		—		526	(1)
Oil & gas royalties	$	22,285	$	—	$	22,285	(1)

Segment Adjusted EBITDA Expense
Coal - Illinois Basin	$	405,731	$	386,347	$	19,384	5.0	%
Coal - Appalachia		204,871		196,036		8,835	4.5	%
Minerals		3,592		—		3,592	(1)
Other and Corporate		18,148		23,275		(5,127)	(22.0)	%
Elimination		(9,888)		(14,388)		4,500	31.3	%
Total Segment Adjusted EBITDA Expense	$	622,454	$	591,270	$	31,184	5.3	%

(1)	Percentage change not meaningful.

(2)	For a definition of Segment Adjusted EBITDA and related reconciliation to comparable GAAP financial measures, please see below under "—Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income."

(3)	Barrels of oil equivalent ("BOE") is calculated on a 6:1 basis (6,000 cubic feet of natural gas to one barrel of oil).

Table of Contents

Illinois Basin – Segment Adjusted EBITDA increased 4.7% to $218.8 million in the 2019 Period from $208.9 million in the 2018 Period. The increase of $9.9 million was primarily attributable to higher coal sales, which increased 5.6% to $619.3 million in the 2019 Period from $586.5 million in the 2018 Period, partially offset by increased operating expenses and lower operating revenues from our Mt. Vernon transloading facility. The increase of $32.8 million in coal sales reflects higher coal sales volumes and prices. The resumption of operations at our Gibson North mine in the 2018 Period and the addition of two production units at the River View mine in the second half of 2018 drove Illinois Basin coal sales volumes in the 2019 Period higher by 2.8% to 15.2 million tons compared to 14.8 million tons sold in the 2018 Period. Coal sales volumes also benefited from increased domestic shipments, offset in part by a reduction in export volumes due to weather disruptions throughout the first half of 2019, which also reduced transloading tonnage running through our Mt. Vernon facility. Coal sales price per ton sold in the 2019 Period increased 2.7% due to higher export sales prices compared to the 2018 Period. Segment Adjusted EBITDA Expense increased 5.0% to $405.7 million in the 2019 Period from $386.3 million in the 2018 Period due to increased sales volumes and higher expenses per ton. Segment Adjusted EBITDA Expense per ton increased $0.56 per ton sold to $26.62 from $26.06 per ton sold in the 2018 Period, primarily due to a longwall move at our Hamilton mine and reduced recoveries at our River View mine during the 2019 Period, as well as certain per ton cost increases described above under "–Coal - Segment Adjusted EBITDA Expense."

Appalachia – Segment Adjusted EBITDA decreased 1.1% to $112.4 million for the 2019 Period from $113.7 million in the 2018 Period. The decrease of $1.3 million was primarily attributable to reduced coal sales prices and increased operating expenses, partially offset by higher coal sales volumes. Coal sales, which increased 2.3% to $315.4 million in the 2019 Period from $308.2 million in the 2018 Period resulted from higher coal sales volumes of 5.3 million tons sold in the 2019 Period, compared to 5.1 million tons sold in the 2018 Period, as a result of a strong performance at our Tunnel Ridge longwall operation, partially offset by lower coal sales prices. Segment Adjusted EBITDA Expense increased 4.5% to $204.9 million in the 2019 Period from $196.0 million in the 2018 Period due to increased sales volumes. Segment Adjusted EBITDA Expense per ton decreased slightly to $38.68 per ton compared to $38.77 per ton sold in the 2018 Period reflecting the strong production and sales performance at our Tunnel Ridge mine and certain cost variances described above under "–Coal - Segment Adjusted EBITDA Expense."

Minerals – Segment Adjusted EBITDA increased to $20.2 million for the 2019 Period from $8.2 million in the 2018 Period. The increase of $12.0 million primarily resulted from the AllDale Acquisition in the 2019 Period.

Other and Corporate – Segment Adjusted EBITDA increased by $1.0 million to $24.9 million in the 2019 Period compared to $23.9 million in the 2018 Period. The increase was primarily attributable to higher equity securities income in the 2019 Period as a result of the redemption of our preferred interest in Kodiak, which included an $11.5 million gain due to an early redemption premium, partially offset by reduced mining technology product sales from Matrix Group.

Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income" and reconciliation of non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses"

Segment Adjusted EBITDA (a non-GAAP financial measure) is defined as net income attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization, general and administrative expenses, settlement gain and acquisition gain. Segment Adjusted EBITDA is a key component of consolidated EBITDA, which is used as a supplemental financial measure by management and by external users of our financial statements such as investors, commercial banks, research analysts and others. We believe that the presentation of EBITDA provides useful information to investors regarding our performance and results of operations because EBITDA, when used in conjunction with related GAAP financial measures, (i) provides additional information about our core operating performance and ability to generate and distribute cash flow, (ii) provides investors with the financial analytical framework upon which we base financial, operational, compensation and planning decisions and (iii) presents a measurement that investors, rating agencies and debt holders have indicated is useful in assessing us and our results of operations.

Table of Contents

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)
Consolidated Segment Adjusted EBITDA	$	165,263	$	185,300	$	371,907	$	350,490
General and administrative		(19,521)		(17,026)		(37,333)		(33,677)
Depreciation, depletion and amortization		(76,913)		(72,150)		(148,052)		(133,998)
Settlement gain		—		—		—		80,000
Interest expense, net		(10,573)		(9,931)		(21,904)		(20,724)
Acquisition gain		—		—		177,043		—
Income tax (expense) benefit		(186)		(3)		(80)		7
Acquisition gain attributable to noncontrolling interest		—		—		(7,083)		—
Net income attributable to ARLP	$	58,070	$	86,190	$	334,498	$	242,098
Noncontrolling interest		114		187		7,290		335
Net income	$	58,184	$	86,377	$	341,788	$	242,433

Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, coal purchases and other income. Transportation expenses are excluded as these expenses are passed through to our customers and, consequently, we do not realize any gain or loss on transportation revenues. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by our management to assess the operating performance of our segments. Segment Adjusted EBITDA Expense is a key component of Segment Adjusted EBITDA in addition to coal sales, royalty revenues and other sales and operating revenues. The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management to focus solely on the evaluation of segment operating performance as it primarily relates to our operating expenses.

The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to operating expense, the most comparable GAAP financial measure:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)
Segment Adjusted EBITDA Expense	$	319,597	$	311,811	$	622,454	$	591,270
Outside coal purchases		(5,311)		(68)		(5,311)		(1,442)
Other expense		(13)		(542)		(142)		(1,389)
Operating expenses (excluding depreciation, depletion and amortization)	$	314,273	$	311,201	$	617,001	$	588,439

Table of Contents

Liquidity and Capital Resources

Liquidity

We have historically satisfied our working capital requirements and funded our capital expenditures, investments and debt service obligations with cash generated from operations, cash provided by the issuance of debt or equity, borrowings under credit and securitization facilities and other financing transactions. We believe that existing cash balances, future cash flows from operations and investments, borrowings under credit facilities and cash provided from the issuance of debt or equity will be sufficient to meet our working capital requirements, capital expenditures and additional investments, debt payments, commitments and distribution payments. Nevertheless, our ability to satisfy our working capital requirements, to fund planned capital expenditures, to service our debt obligations or to pay distributions will depend upon our future operating performance and access to and cost of financing sources, which will be affected by prevailing economic conditions generally and in the coal and oil & gas industries specifically, as well as other financial and business factors, some of which are beyond our control. Based on our recent operating results, current cash position, current unitholder distributions, anticipated future cash flows and sources of financing that we expect to have available, we do not anticipate any constraints to our liquidity at this time. However, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future liquidity may be adversely affected. Please read "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018.

In May 2018, the MGP board of directors approved the establishment of a unit repurchase program authorizing us to repurchase up to $100 million of ARLP common units. The program has no time limit and we may repurchase units from time to time in the open market or in other privately negotiated transactions. The unit repurchase program authorization does not obligate us to repurchase any dollar amount or number of units. Please read "Part II - Item 2. Unregistered Sales of Equity Securities and Use of Proceeds" of this Quarterly Report on Form 10-Q for more information on unit repurchase program.

On January 3, 2019, we acquired all of the limited partner interests in AllDale I & II not owned by Cavalier Minerals and the general partner interests in AllDale I & II for $176.0 million, which was funded with cash on hand and borrowings under our revolving credit facility. On February 8, 2019, Kodiak redeemed our preferred equity interest for $135.0 million in cash. On August 2, 2019, we closed on the Wing Acquisition using cash on hand and borrowings under our revolving credit facility.For more information on these transactions, please read "Item 1. Financial Statements (Unaudited) – Note 3. Acquisition", "– Note 10. Investments" and "– Note 18. Subsequent Events" of this Quarterly Report on Form 10-Q.

Mine Development Project

We have begun development activity for MC Mining's Excel Mine No. 5 and currently anticipate deploying total capital of approximately $35.0 million to $40.0 million during 2019 with an additional $5.0 million to $10.0 million during the first half of 2020, which we expect to fund with cash from operations or borrowings under our credit facilities. We anticipate the new mine will enable us to access an additional 15 million tons of coal reserves with an expected mine life of approximately 12 years assuming the current level of production at MC Mining's Excel Mine No. 4 continues at the new mine. We expect the development plan for the new Excel Mine No. 5 will provide a seamless transition from the current MC Mining operation as its reserves deplete in 2020.

Cash Flows

Cash provided by operating activities was $301.7 million for the 2019 Period compared to $373.2 million for the 2018 Period. The decrease in cash provided by operating activities was primarily due to $93 million received in the 2018 Period for a one-time settlement related to litigation with a customer and certain of its affiliates initiated in 2015. The decrease also resulted from unfavorable working capital changes related to inventories, and payroll and related benefit accruals. The decreases were partially offset by a favorable working capital change related to accounts payable.

Net cash used in investing activities was $209.8 million for the 2019 Period compared to $128.0 million for the 2018 Period. The increase in cash used in investing activities was primarily attributable to the AllDale Acquisition, an escrow payment for the Wing Acquisition and increased capital expenditures for mine infrastructure and equipment at

Table of Contents

various mines. This increase was partially offset by cash received from the redemption of our equity securities in the 2019 Period and equity method investment contributions in the 2018 Period.

Net cash used in financing activities was $280.9 million for the 2019 Period compared to $200.8 million for the 2018 Period. The increase in cash used in financing activities was primarily attributable to increased overall net payments on the securitization and revolving credit facilities and an increase in withholding taxes on issuance of units primarily under our long-term incentive plan in the 2019 Period compared to the 2018 Period. These increases were partially offset by proceeds received in connection with equipment financing in the 2019 Period.

Capital Expenditures

Capital expenditures increased to $165.6 million in the 2019 Period from $120.7 million in the 2018 Period. See our discussion of "Cash Flows" above concerning the increase in capital expenditures.

We currently project average estimated annual maintenance capital expenditures over the five-year period beginning in January 2019 of approximately $5.57 per ton produced. Our anticipated total capital expenditures (including investments) for the year ending December 31, 2019 are estimated in a range of $345.0 million to $375.0 million, which includes expenditures for maintenance capital at various mines. Management anticipates funding remaining 2019 capital requirements with cash and cash equivalents ($55.2 million as of June 30, 2019), cash flows from operations and investments, borrowings under revolving credit and securitization facilities and cash provided from the issuance of debt or equity. We will continue to have significant capital requirements over the long-term, which may require us to incur debt or seek additional equity capital. The availability and cost of additional capital will depend upon prevailing market conditions, the market price of our common units and several other factors over which we have limited control, as well as our financial condition and results of operations.

Debt Obligations

Credit Agreement. On January 27, 2017, our Intermediate Partnership entered into a Fourth Amended and Restated Credit Agreement (the "Credit Agreement") with various financial institutions. The Credit Agreement provides for a $494.75 million revolving credit facility, including a sublimit of $125 million for the issuance of letters of credit and a sublimit of $15.0 million for swingline borrowings (the "Revolving Credit Facility"), with a termination date of May 23, 2021.

The Credit Agreement is guaranteed by all of the material direct and indirect subsidiaries of our Intermediate Partnership, and is secured by substantially all of the Intermediate Partnership's assets. Borrowings under the Revolving Credit Facility bear interest, at the option of the Intermediate Partnership, at either (i) the Base Rate at the greater of three benchmarks or (ii) a Eurodollar Rate, plus margins for (i) or (ii), as applicable, that fluctuate depending upon the ratio of Consolidated Debt to Consolidated Cash Flow (each as defined in the Credit Agreement). The Eurodollar Rate, with applicable margin, under the Revolving Credit Facility was 4.77% as of June 30, 2019. At June 30, 2019, we had $9.3 million of letters of credit outstanding with $415.5 million available for borrowing under the Revolving Credit Facility. We currently incur an annual commitment fee of 0.35% on the undrawn portion of the Revolving Credit Facility. We utilize the Revolving Credit Facility, as appropriate, for working capital requirements, capital expenditures and investments, scheduled debt payments and distribution payments.

Senior Notes.On April 24, 2017, the Intermediate Partnership and Alliance Resource Finance Corporation (as co-issuer), a wholly owned subsidiary of the Intermediate Partnership ("Alliance Finance"), issued an aggregate principal amount of $400.0 million of senior unsecured notes due 2025 ("Senior Notes") in a private placement to qualified

Table of Contents

institutional buyers. The Senior Notes have a term of eight years, maturing on May 1, 2025 (the "Term") and accrue interest at an annual rate of 7.5%. Interest is payable semi-annually in arrears on each May 1 and November 1. The indenture governing the Senior Notes contains customary terms, events of default and covenants relating to, among other things, the incurrence of debt, the payment of distributions or similar restricted payments, undertaking transactions with affiliates and limitations on asset sales. At any time prior to May 1, 2020, the issuers of the Senior Notes may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of one or more equity offerings at a redemption price equal to 107.5% of the principal amount redeemed, plus accrued and unpaid interest, if any, to the redemption date. The issuers of the Senior Notes may also redeem all or a part of the notes at any time on or after May 1, 2020, at redemption prices set forth in the indenture governing the Senior Notes. At any time prior to May 1, 2020, the issuers of the Senior Notes may redeem the Senior Notes at a redemption price equal to the principal amount of the Senior Notes plus a "make-whole" premium, plus accrued and unpaid interest, if any, to the redemption date. The net proceeds from issuance of the Senior Notes and cash on hand were used to repay the Revolving Credit Facility, Term Loan and Series B Senior Notes (including a make-whole payment of $8.1 million). We incurred discount and debt issuance costs of $7.3 million in connection with issuance of the Senior Notes. These costs are deferred and are currently being amortized as a component of interest expense over the Term.

Accounts Receivable Securitization.On December 5, 2014, certain direct and indirect ~~wholly-owned~~wholly owned subsidiaries of our Intermediate Partnership entered into a $100.0 million accounts receivable securitization facility ("Securitization Facility"). Under the Securitization Facility, certain subsidiaries sell trade receivables on an ongoing basis to our Intermediate Partnership, which then sells the trade receivables to AROP Funding, LLC ("AROP Funding"), a ~~wholly-owned~~wholly owned bankruptcy-remote special purpose subsidiary of our Intermediate Partnership, which in turn borrows on a revolving basis up to $100.0 million secured by the trade receivables. After the sale, Alliance Coal, as servicer of the assets, collects the receivables on behalf of AROP Funding. The Securitization Facility bears interest based on a Eurodollar Rate. It was renewed in ~~December 2016~~January 2019 and matures in ~~December 2017.~~January 2020. At ~~September~~June 30, ~~2017,~~2019, we had ~~$100.0~~$75.0 million outstanding balance under the Securitization Facility.

Cavalier Credit Agreement. On October 6, 2015, Cavalier Minerals (see Note 79 – Variable Interest Entities) entered into a credit agreement (the "Cavalier Credit Agreement") with Mineral Lending, LLC ("Mineral Lending") for a $100.0 million line of credit (the

~~Table of Contents~~

~~"Cavalier~~ "Cavalier Credit Facility"). The commitment under the Cavalier Credit Facility is reduced by any distributions received from Cavalier Minerals' investment in AllDale II. As of June 30, 2019, the commitment under the Cavalier Credit Facility was $67.5 million. Mineral Lending is an entity owned by (a) Alliance Resource Holdings II, Inc. ("ARH ~~II,"~~II"), an entity owned by Joseph W. Craft III, the ~~parent~~Chairman, President and Executive Officer of ~~ARH),~~MGP ("Mr. Craft") and Kathleen S. Craft, (b) an entity owned by an ~~officer of ARH~~individual who is ~~also a~~an officer and director of ARH II ~~("ARH Officer")~~ and (c) charitable foundations established by ~~the President and Chief Executive Officer of MGP~~Mr. Craft and Kathleen S. Craft. There is no commitment fee under the facility. Mineral Lending's obligation to make the line of credit available terminates no later than October 6, 2019. Borrowings under the Cavalier Credit Facility bear interest at a one month LIBOR rate plus 6% with interest payable ~~quarterly. Repayment~~quarterly, and mature on September 30, 2024, at which time all amounts then outstanding are required to be repaid. The Cavalier Credit Agreement requires repayment of the principal balance ~~will begin following the first fiscal quarter after the earlier of the date on which the aggregate amount borrowed exceeds $90.0 million or December 31, 2017,~~beginning in 2018, in quarterly payments of an amount equal to the greater of $1.3 million initially, escalated to $2.5 million after two years, or fifty percent of Cavalier Minerals' excess cash flow. ~~The Cavalier Credit Facility matures September 30, 2024, at which time all amounts then outstanding are required to be repaid.~~ To secure payment of the facility, Cavalier Minerals pledged all of its partnership interests, owned or later acquired, in AllDale ~~Minerals.~~I & II. Cavalier Minerals may prepay the Cavalier Credit Facility at any time in whole or in part subject to terms and conditions described in the Cavalier Credit Agreement. As of ~~September~~June 30, ~~2017,~~2019, Cavalier Minerals had not drawn on the Cavalier Credit Facility. ~~Alliance Minerals,~~

Equipment Financing. On May 17, 2019, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $10.0 million in exchange for conveying its interest in certain equipment owned by an indirect wholly-owned subsidiary of the Intermediate Partnership and entering into a master lease agreement for that equipment (the “Equipment Financing”). The Equipment Financing contains customary terms and events of default and provides for thirty-six monthly payments with an implicit interest rate of 6.25%, maturing on May 1, 2022. Upon maturity, the equipment will revert back to the Intermediate Partnership.

Other. We also have an agreement with a bank to provide additional letters of credit in an amount of $5.0 million to maintain surety bonds to secure certain asset retirement obligations and our obligations for workers' compensation benefits. At June 30, 2019, we had $5.0 million in letters of credit outstanding under this agreement.

Related-Party Transactions

We have related-party transactions with MGP, ARH II and their respective affiliates. These related-party transactions relate principally to mineral leases with charitable foundations established by Mr. Craft and Kathleen S. Craft and agreements relating to the use of aircraft. We also have transactions with (a) WKY CoalPlay, LLC ("~~Alliance Minerals"~~WKY CoalPlay") has the right to require Cavalier Minerals to draw the full amount available under the Cavalier Credit Facility and distribute the proceeds to the members of Cavalier Minerals, including Alliance Minerals.

~~7.VARIABLE INTEREST ENTITIES~~

~~Cavalier Minerals~~

~~On November 10, 2014, our subsidiary, Alliance Minerals, and~~regarding three mineral leases, (b) Bluegrass Minerals Management, LLC ("Bluegrass Minerals") ~~entered into a limited liability company agreement (the "Cavalier Agreement") to create Cavalier Minerals, which was formed to indirectly acquire oil and gas mineral interests, initially~~ through its 71.7% noncontrolling ownership interest in AllDale I and subsequently through its 72.8% noncontrolling ownership interest in AllDale II. Bluegrass Minerals is owned and controlled by the ARH Officer discussed in Note 6 – Long-Term Debt and is Cavalier Minerals' managing member. Alliance Minerals and Bluegrass Minerals initially committed funding of $48.0 million and $2.0 million, respectively, to Cavalier Minerals, and Cavalier Minerals committed funding of $49.0 million to AllDale I. On October 6, 2015, Alliance Minerals and Bluegrass Minerals committed to fund an additional $96.0 million and $4.0 million, respectively, to Cavalier Minerals, and Cavalier Minerals committed to fund $100.0 million to AllDale II. Contributions in 2017 sufficiently completed funding to Cavalier Minerals for these commitments. Cavalier Minerals is not expected to call on further funding of these commitments from Alliance Minerals and Bluegrass Minerals.

Table of Contents

~~Contributions made from Alliance Minerals and Bluegrass Minerals to Cavalier Minerals for each period presented are as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

(in thousands)

Alliance Minerals

Beginning cumulative commitment fulfilled

$
143,112

$
95,597

$
137,077

$
63,498

Capital contributions - Cash

—

30,184

6,035

61,360

Capital contributions - Net AllDale Minerals' distributions received by Cavalier Minerals (1)

—

385

—

1,308

Ending cumulative commitment fulfilled

143,112

126,166

143,112

126,166

Remaining commitment

888

17,834

888

17,834

Total committed

$
144,000

$
144,000

$
144,000

$
144,000

Bluegrass Minerals

Beginning cumulative commitment fulfilled

$
5,963

$
3,983

$
5,712

$
2,646

Capital contributions - Cash

—

1,258

251

2,557

Capital contributions - Net AllDale Minerals' distributions received by Cavalier Minerals (1)

—

16

—

54

Ending cumulative commitment fulfilled

5,963

5,257

5,963

5,257

Remaining commitment

37

743

37

743

Total committed

$
6,000

$
6,000

$
6,000

$
6,000

~~(1)~~

~~Represents distributions received from AllDale Minerals net of distributions reinvested and payments to Bluegrass Minerals for administration expense.~~

In accordance with the Cavalier Agreement, Bluegrass Minerals is entitled to receive an incentive distribution from Cavalier Minerals equal to 25% of all distributions (including in liquidation) after all members have recovered their investment. The incentive distributions are reduced by certain distributions received by Bluegrass Minerals or its owner from AllDale Minerals Management, LLC ("AllDale Minerals Management"), the managing member of AllDale Minerals. Distributions paid to Alliance Minerals and Bluegrass Minerals from Cavalier Minerals for each period presented are as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

(in thousands)

Alliance Minerals

$
12,430

$
1,444

$
20,514

$
1,444

Bluegrass Minerals

518

60

855

60

~~Alliance Minerals'~~noncontrolling ownership interest in Cavalier Minerals ~~at September 30, 2017 was 96%. The remainder~~and (c) AllDale III to support its acquisition of the equity ownership is held by Bluegrass Minerals. We have consolidated Cavalier Minerals' financial results as we concluded that Cavalier Minerals is a variable interest entity ("VIE") and we are the primary beneficiary because neither Bluegrass Minerals nor Alliance Minerals individually has both the power and the benefits related to Cavalier Minerals and we are most closely aligned with Cavalier Minerals through our substantial equity ownership. Bluegrass Minerals' equity ownership of Cavalier Minerals is accounted for as noncontrolling ownership interest in our condensed consolidated balance sheets. In addition, earnings attributable to Bluegrass Minerals are recognized as noncontrolling interest in our condensed consolidated statements of income.

~~WKY CoalPlay~~

On November 17, 2014, SGP Land, LLC ("SGP Land"), a wholly-owned subsidiary of SGP, and two limited liability companies ("Craft Companies") owned by irrevocable trusts established by the President and Chief Executive Officer of MGP entered into a limited liability company agreement to formoil & gas mineral interests. For more information regarding WKY CoalPlay, ~~LLC ("WKY CoalPlay"). WKY CoalPlay was formed, in part, to purchase and lease coal reserves. WKY CoalPlay is managed by the ARH Officer~~

~~Table of Contents~~

discussed in Note 6 – Long-Term Debt, who is also an employee of SGP Land and trustee of the irrevocable trusts owning the Craft Companies. In December 2014 and February 2015, we entered into various coal reserve leases with WKY CoalPlay. During the nine months ended September 30, 2017, we paid $10.8 million of advanced royalties to WKY CoalPlay. As of September 30, 2017, we had $30.0 million of advanced royalties outstanding under the leases, which is reflected in the ~~Advance royalties, net~~ ~~line items in our condensed consolidated balance sheets.~~

~~Alliance Coal and the Intermediate Partnership~~

Alliance Coal is a limited liability company designed to operate as the operating subsidiary of the Intermediate Partnership and holds the interests in the mining operations and Alliance Service, Inc. ("ASI"). The Intermediate Partnership is a limited partnership that holds the non-managing member interest in Alliance Coal and the sole member interests in Alliance Resource Properties, Alliance Minerals and other entities. Together Alliance Coal and the Intermediate Partnership and their subsidiaries represent virtually all the net assets of ARLP. Both the Intermediate Partnership and Alliance Coal were designed to operate as the operating subsidiaries of ARLP and to distribute available cash to ARLP so that ARLP can distribute available cash to its partners. We considered MGP's and ARLP's ownership in the Intermediate Partnership and MGP's and the Intermediate Partnership's ownership in Alliance Coal separately for the purposes of determining whether the Intermediate Partnership and Alliance Coal are VIEs.

The Intermediate Partnership holds a 99.999% non-managing interest and MGP holds the 0.001% managing member interest in Alliance Coal. To determine whether Alliance Coal is a VIE, we considered that since Alliance Coal is structured as the equivalent of a limited partnership with the non-managing member 1) not having the ability to remove its managing member and 2) not participating significantly in the operational decisions, Alliance Coal represents a VIE.

We determined that neither the MGP nor the Intermediate Partnership have both the power and the benefits related to Alliance Coal. We then considered which of the two was most closely aligned with Alliance Coal and thus would be designated the primary beneficiary of Alliance Coal for consolidation purposes. We determined that the Intermediate Partnership was most closely aligned with Alliance Coal and is the primary beneficiary. We based our determination of alignment on 1) the purpose and design of Alliance Coal which is to (a) be the operating subsidiary of the Intermediate Partnership and (b) distribute all of its available cash to the Intermediate Partnership such that the Intermediate Partnership can pay its partners and debt obligations, 2) AHGP's common control over both the Intermediate Partnership and MGP, as discussed in Note 1 – Organization and Presentation, to achieve the aforementioned purpose and design and 3) the Intermediate Partnership's debt funding for Alliance Coal for capital expenditures, operations and other purposes as needed and related risks and collateral requirements in the debt arrangements.

ARLP holds a 98.9899% limited partnership interest and a 0.01% general partner interest in the Intermediate Partnership and MGP holds the 1.0001% managing general partner interest in the Intermediate Partnership. To determine whether the Intermediate Partnership is a VIE, we considered that since the Intermediate Partnership is structured as a limited partnership with the limited partner 1) not having the ability to remove its managing general partner and 2) not participating significantly in the operational decisions, the Intermediate Partnership represents a VIE.

We determined that neither the MGP nor ARLP have both the power and the benefits related to Intermediate Partnership. We then considered which of the two was most closely aligned with the Intermediate Partnership and thus would be designated the primary beneficiary of the Intermediate Partnership for consolidation purposes. We determined that ARLP was most closely aligned with the Intermediate Partnership and is the primary beneficiary. We based our determination of alignment on 1) the purpose and design of the Intermediate Partnership which is to (a) be the operating subsidiary to ARLP and (b) distribute all of its available cash to ARLP to pay its partners and 2) AHGP's common control over ARLP, MGP and the Intermediate Partnership, as discussed in Note 1 – Organization and Presentation, to achieve the aforementioned purpose and design.

~~Table of Contents~~

The effect of the partnership agreements of ARLP and the Intermediate Partnership and the operating agreement of Alliance Coal (collectively the "Agreements") is that on a quarterly basis 100% of available cash from our operations must be distributed by ARLP to its partners (apart from certain nominal distributions from the Intermediate Partnership and Alliance Coal). Available cash is determined as defined in the Agreements and represents all cash with the exception of cash reserves (i) for the proper conduct of the business including reserves for future capital expenditures and for anticipated credit needs of the Partnership Group, (ii) to comply with debt obligations or (iii) to provide funds for certain subsequent distributions. Cash reserves may not be established for the purpose of funding subsequent distributions if the effect would be to prevent ARLP from making the minimum quarterly distributions plus any cumulative distribution arrearage. MGP, as the managing member of Alliance Coal and the managing general partner of the Intermediate Partnership, is responsible for distributing this cash to ARLP so it can meet its distribution requirements. As discussed in Note 6 – Long-Term Debt, the Intermediate Partnership's debt covenants place additional restrictions on distributions to ARLP by limiting cash available for distribution from the Intermediate Partnership based on various debt covenants pertaining to the most recent preceding quarter. MGP does not have the ability, without the consent of the limited partners, to amend the Agreements.

~~8.INVESTMENTS~~

~~AllDale Minerals~~

In November 2014, Cavalier Minerals (see Note 7 – Variable Interest Entities) was created to indirectly purchase, through its equity investments in AllDale Minerals, oil and gas mineral interests in various geographic locations within producing basins in the continental U.S. In February 2017, Alliance Minerals, which is included in our Other and Corporate category (see Note 13 – Segment Information), committed to directly (rather than through Cavalier Minerals) invest $30.0 million in AllDale III which was created for similar investment purposes. We account for our ownership interest in the income or loss of AllDaleBluegrass Minerals and AllDale III, (collectively, the "AllDale Partnerships") as equity method investments. We record equity income or loss based on the AllDale Partnerships' individual distribution structures. The changes in our aggregate equity method investment in the AllDale Partnerships for each of the periods presented were as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

(in thousands)

Beginning balance

$
149,592

$
96,670

$
138,817

$
64,509

Contributions

3,900

32,181

16,487

65,367

Equity in income of affiliates

3,798

1,105

10,414

1,041

Distributions received

(12,941)

(1,905)

(21,369)

(2,866)

Ending balance

$
144,349

$
128,051

$
144,349

$
128,051

~~Table of Contents~~

~~Kodiak~~

On July 19, 2017, Alliance Minerals purchased $100 million of Series A-1 Preferred Interests from Kodiak, a privately-held gas compression company providing large-scale, high-utilization compression assets to customers operating primarily in the Permian Basin. This structured investment provides us with a quarterly cash or payment-in-kind return. Our ownership interests in Kodiak are senior to all other Kodiak equity interests and subordinate only to Kodiak's senior secured debt facility. We account for our ownership interests in Kodiak as a cost method investment. It is not practicable to estimate the fair value of our investment in Kodiak because of the lack of a quoted market price for our ownership interests. The changes in our investment in Kodiak for the three months ended September 30, 2017 were as follows:

Three Months Ended

September 30,

2017

(in thousands)

Beginning balance

$
—

Contributions

100,000

Payment‑in‑kind distributions received

2,800

Ending balance

$
102,800

~~9.NET INCOME OF ARLP PER LIMITED PARTNER UNIT~~

We utilize the two-class method in calculating basic and diluted earnings per unit ("EPU"). Net income of ARLP is allocated to the general partners and limited partners in accordance with their respective partnership percentages, after giving effect to any special income or expense allocations, including incentive distributions to our general partner, MGP. On July 28, 2017, MGP contributed to ARLP all of its IDRs and its general partner interest in ARLP in exchange for 56,100,000 ARLP common units and a non-economic general partner interest in ARLP. In conjunction with this transaction and on the same economic basis as MGP, SGP also contributed to ARLP its 0.01% general partner interests in both ARLP and the Intermediate Partnership in exchange for 7,181 ARLP common units. In connection with the Exchange Transaction, ARLP amended its partnership agreement to reflect, among other things, cancellation of the IDRs and the economic general partner interest in ARLP and issuance of a non-economic general partner interest to MGP. Following the transactions, ARLP has 130,704,217 common units outstanding. Under the IDR provisions of our partnership agreement prior to the Exchange Transaction, MGP was entitled to receive 15% of the amount we distributed in excess of $0.1375 per unit, 25% of the amount we distributed in excess of $0.15625 per unit, and 50% of the amount we distributed in excess of $0.1875 per unit. Beginning with distributions declared for the three months ended June 30, 2017, we no longer make distributions with respect to the IDRs.

Outstanding awards under our Long-Term Incentive Plan ("LTIP") and phantom units in notional accounts under our Supplemental Executive Retirement Plan ("SERP") and the MGP Amended and Restated Deferred Compensation Plan for Directors ("Deferred Compensation Plan") include rights to nonforfeitable distributions or distribution equivalents and are therefore considered participating securities. As such, we allocate undistributed and distributed earnings to these outstanding awards in our calculation of EPU. The following is a reconciliation of net income of ARLP used for

~~Table of Contents~~

~~calculating basic and diluted earnings per unit and the weighted-average units used in computing EPU for the three and nine months ended September 30, 2017 and 2016:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016


(in thousands, except per unit data)

Net income of ARLP

$
61,271

$
89,780

$
229,403

$
219,803

Adjustments:

MGP's priority distributions (1)

—

(19,159)

(19,216)

(57,477)

General partners' equity ownership (1)

(612)

(1,412)

(2,946)

(3,246)

General partners' special allocation of certain general and administrative expenses (2)

—

—

800

—

Limited partners' interest in net income of ARLP

60,659

69,209

208,041

159,080

Less:

Distributions to participating securities

(1,125)

(887)

(3,194)

(2,640)

Undistributed earnings attributable to participating securities

—

(974)

(1,001)

(1,524)

Net income of ARLP available to limited partners

$
59,534

$
67,348

$
203,846

$
154,916

Weighted-average limited partner units outstanding – basic and diluted

114,238

74,375

87,925

74,347

Basic and diluted net income of ARLP per limited partner unit (3)

$
0.52

$
0.91

$
2.32

$
2.08

~~(1)~~

Amounts for the three and nine months ended September 30, 2017 reflect the impact of the Exchange Transaction eliminating second and third quarter distributions that would have been paid for the IDRs and the 0.99% general partner interest in ARLP, both of which were held by MGP prior to the Exchange Transaction. MGP maintained its 1.0001% general partner interest in the Intermediate Partnership and thus continues to receive the Intermediate Partnership quarterly distribution notwithstanding the Exchange Transaction. Because the Exchange Transaction occurred prior to the record date for ARLP’s second and third quarter distributions, all of the second and third quarter earnings less the Intermediate Partnership’s general partner interest were allocated to ARLP's limited partners. The Exchange Transaction also shifted SGP’s nominal general partnership interest for its second and third quarter earnings and subsequent distributions to the limited partner interest.

~~(2)~~

During the nine months ended September 30, 2017, an affiliated entity controlled by Mr. Craft made a capital contribution of $0.8 million to AHGP for the purpose of funding certain general and administrative expenses. Upon AHGP's receipt of the contribution, it contributed the same to its subsidiary MGP, our general partner, which in turn contributed the same amount to our subsidiary, Alliance Coal. As provided under our partnership agreement, we made a special allocation to MGP of certain general and administrative expenses equal to its contribution. Net income of ARLP allocated to the limited partners was not burdened by this expense.

~~(3)~~

Diluted EPU gives effect to all potentially dilutive common units outstanding during the period using the treasury stock method. Diluted EPU excludes all potentially dilutive units calculated under the treasury stock method if their effect is anti-dilutive. The combined total of LTIP, SERP and Deferred Compensation Plan units of 1,401 and 1,417 for the three and nine months ended September 30, 2017, respectively, and 1,227 and 735 for the three and nine months ended September 30, 2016, respectively, were considered anti-dilutive under the treasury stock method.

~~Table of Contents~~

On a pro forma basis, as if the Exchange Transaction had taken place on January 1, 2016, the reconciliation of net income of ARLP to basic and diluted earnings per unit and the weighted-average units used in computing EPU for the three and nine months ended September 30, 2017 and 2016 are as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016


(in thousands, except per unit data)

Net income of ARLP

$
61,271

$
89,780

$
229,403

$
219,803

Adjustments:

General partners' equity ownership

(612)

(899)

(2,294)

(2,200)

General partners' special allocation of certain general and administrative expenses (1)

—

—

800

—

Limited partners' interest in net income of ARLP

60,659

88,881

227,909

217,603

Less:

Distributions to participating securities

(1,125)

(887)

(3,194)

(2,640)

Undistributed earnings attributable to participating securities

—

(485)

(601)

(653)

Net income of ARLP available to limited partners (2)

$
59,534

$
87,509

$
224,114

$
214,310

Weighted-average limited partner units outstanding – basic and diluted (2)

130,704

130,482

130,673

130,454

Pro forma basic and diluted net income of ARLP per limited partner unit (3)

$
0.46

$
0.67

$
1.72

$
1.64

~~(1)~~

~~(2)~~

The pro forma amounts presented above reflect net income allocations as if distributions had been made for all periods presented based on the limited and general partner interests outstanding as a result of the Exchange Transaction. Accordingly, the Adjustment - General partners’ equity ownership line item above no longer includes the (a) IDR distributions to MGP, (b) general partner interest distributions from ARLP to MGP and SGP and (c) general partner distributions from the Intermediate Partnership to SGP. Pro forma amounts above also reflect weighted average units outstanding as if the issuance of 56,107,181 ARLP common units in the Exchange Transaction applied to all periods presented.

~~(3)~~

Diluted EPU gives effect to all potentially dilutive common units outstanding during the period using the treasury stock method. Diluted EPU excludes all potentially dilutive units calculated under the treasury stock method if their effect is anti-dilutive. The combined total of LTIP, SERP and Deferred Compensation Plan units of 1,401 and 1,417 for the three and nine months ended September 30, 2017, respectively, and 1,227 and 735 for the three and nine months ended September 30, 2016, respectively, were considered anti-dilutive under the treasury stock method.

~~Table of Contents~~

~~10.WORKERS' COMPENSATION AND PNEUMOCONIOSIS~~

~~The changes in the workers' compensation liability, including current and long-term liability balances, for each of the periods presented were as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(in thousands)

Beginning balance

$
59,981

$
56,403

$
48,131

$
54,558

Accruals increase

1,999

2,480

16,673

7,904

Payments

(2,357)

(2,238)

(7,799)

(8,226)

Interest accretion

421

492

1,261

1,476

Valuation loss (1)

—

—

1,778

1,425

Ending balance

$
60,044

$
57,137

$
60,044

$
57,137

~~(1)~~

Our liability for the estimated present value of current workers′ compensation benefits is based on our actuarial estimates. Our actuarial calculations are based on a blend of actuarial projection methods and numerous assumptions including claim development patterns, mortality, medical costs and interest rates. We conducted a mid-year review of our actuarial assumptions which resulted in a valuation loss in 2017 primarily attributable to a decrease in the discount rate used to calculate the estimated present value of future obligations from 3.52% at December 31, 2016 to 3.38% at June 30, 2017 and unfavorable changes in claims development. Our mid-year 2016 actuarial review resulted in a valuation loss primarily attributable to a decrease in the discount rate used to calculate the estimated present value of future obligations from 3.63% at December 31, 2015 to 2.89% at June 30, 2016, partially offset by favorable changes in claims development.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(in thousands)

Service cost

$
580

$
644

$
1,682

$
1,936

Interest cost

649

627

1,906

1,880

Amortization of net actuarial gain (1)

(479)

(660)

(1,613)

(1,982)

Net periodic benefit cost

$
750

$
611

$
1,975

$
1,834

~~(1)~~

~~Amortization of net actuarial gain is included in the~~ ~~Operating expenses (excluding depreciation, depletion and amortization)~~ ~~line item within our condensed consolidated statements of income.~~

~~11.COMPENSATION PLANS~~

~~Long-Term Incentive Plan~~

We have the LTIP for certain employees and officers of MGP and its affiliates who perform services for us. The LTIP awards are grants of non-vested "phantom" or notional units, also referred to as "restricted units", which upon satisfaction of time and performance-based vesting requirements, entitle the LTIP participant to receive ARLP common units. Annual grant levels and vesting provisions for designated participants are recommended by the President and Chief Executive Officer of MGP, subject to review and approval of the compensation committee of the MGP board of directors (the "Compensation Committee"). Vesting of all grants outstanding are subject to the satisfaction of certain financial tests, which management currently believes are probable. Grants issued to LTIP participants are expected to cliff vest on January 1st of the third year following issuance of the grants. We expect to settle the non-vested LTIP grants by delivery of ARLP common units, except for the portion of the grants that will satisfy tax withholding obligations of LTIP participants. As provided under the distribution equivalent rights provisions of the LTIP and the terms of the LTIP awards, all non-vested grants include contingent rights to receive quarterly distributions in cash or, in the case of the 2016 and 2017 grants, at the

~~Table of Contents~~

discretion of the Compensation Committee, cash or in lieu of cash, phantom units credited to a bookkeeping account with value, equal to the cash distributions we make to unitholders during the vesting period.

~~A summary of non-vested LTIP grants as of and for the nine months ended September 30, 2017 is as follows:~~

Number of units

Weighted average grant date fair value per unit

Intrinsic value

(in thousands)

Non-vested grants at January 1, 2017

1,604,748

$
23.19

$
36,027

Granted

475,310

23.17

Vested (1)

(350,516)

40.73

Forfeited

(35,516)

20.01

Non-vested grants at September 30, 2017

1,694,026

19.62

32,779

~~(1)~~

During the nine months ended September 30, 2017, we issued 222,011 unrestricted common units to the LTIP participants. The remaining vested units were settled in cash to satisfy tax withholding obligations of the LTIP participants.

LTIP expense was $2.8 million and $3.1 million for the three months ended September 30, 2017 and 2016, respectively, and $8.2 million and $9.0 million for the nine months ended September 30, 2017 and 2016, respectively. The total obligation associated with the LTIP as of September 30, 2017 was $18.9 million and is included in the partners' capital ~~Limited partners-common unitholders~~ line item in our condensed consolidated balance sheets. As of September 30, 2017, there was $14.3 million in total unrecognized compensation expense related to the non-vested LTIP grants that are expected to vest. That expense is expected to be recognized over a weighted-average period of 1.4 years.

After consideration of the January 1, 2017 vesting and subsequent issuance of 222,011 common units, approximately 2.5 million units remain available under the LTIP for issuance in the future, assuming all grants issued in 2017, 2016 and 2015 and currently outstanding are settled with common units, without reduction for tax withholding, and no future forfeitures occur.

~~Supplemental Executive Retirement Plan and Directors Deferred Compensation Plan~~

Our directors participate in the Deferred Compensation Plan. Pursuant to the Deferred Compensation Plan, for amounts deferred either automatically or at the election of the director, a notional account is established and credited with notional common units of ARLP, described in the Deferred Compensation Plan as "phantom" units. Distributions from the Deferred Compensation Plan will be settled in the form of ARLP common units.

For both the SERP and Deferred Compensation Plan, when quarterly cash distributions are made with respect to ARLP common units, an amount equal to such quarterly distribution is credited to each participant's notional account as additional phantom units. All grants of phantom units under the SERP and Deferred Compensation Plan vest immediately.

~~Table of Contents~~

~~A summary of SERP and Deferred Compensation Plan activity as of and for the nine months ended September 30, 2017 is as follows:~~

Number of units

Weighted average grant date fair value per unit

Intrinsic value

(in thousands)

Phantom units outstanding as of January 1, 2017

494,018

$
29.77

$
11,091

Granted

40,359

21.22

Phantom units outstanding as of September 30, 2017

534,377

29.13

10,340

Total SERP and Deferred Compensation Plan expense was $0.3 million for each of the three months ended September 30, 2017 and 2016, and $1.0 million and $0.9 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the total obligation associated with the SERP and Deferred Compensation Plan was $15.6 million and is included in the partners' capital ~~Limited partners-common unitholders~~ ~~line item in our condensed consolidated balance sheets.~~

~~12.COMPONENTS OF PENSION PLAN NET PERIODIC BENEFIT COSTS~~

Eligible employees at certain of our mining operations participate in a defined benefit plan (the "Pension Plan") that we sponsor. The Pension Plan is currently closed to new applicants and effective January 31, 2017, participants in the Pension Plan are no longer receiving benefit accruals for service. The amendment did not affect pension benefits accrued prior to January 31, 2017. The benefit formula for the Pension Plan is a fixed dollar unit based on years of service. Components of the net periodic benefit cost for each of the periods presented are as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016


(in thousands)

Service cost

$
—

$
524

$
—

$
1,720

Interest cost

1,138

1,118

3,408

3,381

Expected return on plan assets

(1,240)

(1,363)

(3,743)

(3,937)

Amortization of prior service cost (1)

46

—

140

��

Amortization of net loss (1)

774

787

2,319

2,365

Net periodic benefit cost

$
718

$
1,066

$
2,124

$
3,529

~~(1)~~

~~Amortization of prior service cost and net actuarial loss is included in the~~ ~~Operating expenses (excluding depreciation, depletion and amortization)~~ ~~line item within our condensed consolidated statements of income.~~

~~During the nine months ended September 30, 2017, we made contribution payments of~~ ~~$1.1 million~~ ~~to the Pension Plan for the 2016 plan year and $1.2 million for the 2017 plan year. On October 16, 2017, we made a contribution payment~~ of ~~$0.6~~ ~~million for the 2017 plan year.~~

~~13.SEGMENT INFORMATION~~

We operate in the eastern U.S. as a producer and marketer of coal to major utilities and industrial users. We aggregate multiple operating segments into two reportable segments, Illinois Basin and Appalachia, and we have an "all other" category referred to as Other and Corporate. Our reportable segments correspond to major coal producing regions in the eastern U.S. Similar economic characteristics for our operating segments within each of these two reportable segments generally include coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues.

The Illinois Basin reportable segment is comprised of multiple operating segments, including currently operating mining complexes (a) Webster County Coal, LLC's Dotiki mining complex, (b) Gibson County Coal, LLC's mining complex, which includes the Gibson North (currently idled) and Gibson South mines, (c) Warrior Coal, LLC's mining

~~Table of Contents~~

complex, (d) River View Coal, LLC's mining complex and (e) Hamilton County Coal, LLC's mining complex. The Gibson North mine has been idled since the fourth quarter of 2015 in response to market conditions.

The Illinois Basin reportable segment also includes White County Coal, LLC's Pattiki mining complex ("Pattiki"), Hopkins County Coal, LLC's mining complex, which includes the Elk Creek mine, the Pleasant View surface mineable reserves and the Fies underground project, Sebree Mining, LLC's mining complex, which includes the Onton mine, Steamport, LLC and certain reserves, CR Services, LLC, CR Machine Shop, LLC, certain properties and equipment of Alliance Resource Properties, ARP Sebree, LLC, ARP Sebree South, LLC and UC Coal, LLC and its subsidiaries, UC Mining, LLC and UC Processing, LLC (collectively "UC Coal"). The Pattiki mine ceased production in December 2016. The Elk Creek mine depleted its reserves in March 2016 and ceased production on April 1, 2016. Our Onton mine has been idled since the fourth quarter of 2015 in response to market conditions. UC Coal equipment assets acquired in 2015 continue to be deployed as needed at various Illinois Basin operating mines.

The Appalachia reportable segment is comprised of multiple operating segments, including the Mettiki mining complex, the Tunnel Ridge, LLC mining complex and the MC Mining, LLC mining complex. The Mettiki mining complex includes Mettiki Coal (WV), LLC's Mountain View mine and Mettiki Coal, LLC's preparation plant.

Other and Corporate includes marketing and administrative activities, ASI and its subsidiary, Matrix Design Group, LLC and its subsidiaries Matrix Design International, LLC and Matrix Design Africa (PTY) LTD ("Matrix Design"), Alliance Design Group, LLC ("Alliance Design") (collectively, the Matrix Design entities and Alliance Design are referred to as the "Matrix Group"), ASI's ownership of aircraft, the Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") dock activities, Alliance Coal's coal brokerage activity, Mid-America Carbonates, LLC ("MAC"), certain of Alliance Resource Properties' land and mineral interest activities, Pontiki Coal, LLC's throughput receivables and prior workers' compensation and pneumoconiosis liabilities, Wildcat Insurance, LLC ("Wildcat Insurance"), Alliance Minerals, and its affiliate, Cavalier Minerals (Note 7 – Variable Interest Entities), both of which hold equity investments in various AllDale Partnerships (Note 8 –Investments), AROP Funding and our new subsidiary formed March 30, 2017, Alliance Finance (both discussed in Note 6 - Long-Term Debt). On July 19, 2017, Alliance Minerals purchased $100 million of Series A‑1 Preferred Interests from Kodiak (Note 8 – Investments).

~~Table of Contents~~

~~Reportable segment results as of and for the three and nine months ended September 30, 2017 and 2016 are presented below.~~

Illinois



Other and

Elimination



Basin

Appalachia

Corporate

(1)

Consolidated

(in thousands)

Three Months Ended September 30, 2017

Revenues - Outside

$
266,931

$
152,865

$
33,393

$
—

$
453,189

Revenues - Intercompany

18,446

1,390

3,977

(23,813)

—

    Total revenues (2)

285,377

154,255

37,370

(23,813)

453,189

Segment Adjusted EBITDA Expense (3)

192,465

97,316

26,421

(21,591)

294,611

Segment Adjusted EBITDA (4)

86,377

55,465

17,547

(2,222)

157,167

Capital expenditures

26,328

11,126

484

—

37,938

Three Months Ended September 30, 2016

Revenues - Outside

$
360,221

$
154,852

$
37,001

$
—

$
552,074

Revenues - Intercompany

18,267

—

4,826

(23,093)

—

    Total revenues (2)

378,488

154,852

41,827

(23,093)

552,074

Segment Adjusted EBITDA Expense (3)

227,526

94,201

26,664

(20,279)

328,112

Segment Adjusted EBITDA (4)

145,424

58,497

16,268

(2,814)

217,375

Capital expenditures

10,893

10,306

466

—

21,665

Nine Months Ended September 30, 2017

Revenues - Outside

$
763,765

$
458,815

$
90,409

$
—

$
1,312,989

Revenues - Intercompany

46,740

1,390

11,985

(60,115)

—

    Total revenues (2)

810,505

460,205

102,394

(60,115)

1,312,989

Segment Adjusted EBITDA Expense (3)

504,201

276,252

67,382

(53,451)

794,384

Segment Adjusted EBITDA (4)

285,928

179,396

48,226

(6,664)

506,886

Total assets

1,406,831

468,580

454,314

(123,073)

2,206,652

Capital expenditures

66,444

37,167

1,844

—

105,455

Nine Months Ended September 30, 2016

Revenues - Outside

$
921,796

$
407,406

$
74,851

$
—

$
1,404,053

Revenues - Intercompany

40,448

3,806

13,723

(57,977)

—

    Total revenues (2)

962,244

411,212

88,574

(57,977)

1,404,053

Segment Adjusted EBITDA Expense (3)

567,214

261,933

63,575

(49,336)

843,386

Segment Adjusted EBITDA (4)

381,042

143,699

25,876

(8,641)

541,976

Total assets

1,541,513

480,920

370,280

(148,438)

2,244,275

Capital expenditures

41,264

27,317

1,686

—

70,267

~~(1)~~

The elimination column represents the elimination of intercompany transactions and is primarily comprised of sales from the Matrix Group and MAC to our mining operations, coal sales and purchases between operations within different segments, sales of receivables to AROP Funding and insurance premiums paid to Wildcat Insurance.

~~(2)~~

Revenues included in the Other and Corporate column are primarily attributable to the Matrix Group revenues, Mt. Vernon transloading revenues, administrative service revenues from affiliates, MAC revenues, Wildcat Insurance revenues and brokerage coal sales.

~~Table of Contents~~

~~(3)~~

Segment Adjusted EBITDA Expense includes operating expenses, coal purchases and other income. Transportation expenses are excluded as these expenses are passed through to our customers and consequently we do not realize any gain or loss on transportation revenues. We review Segment Adjusted EBITDA Expense per ton for cost trends. Results presented for Segment Adjusted EBITDA Expense for the three and nine months ended September 30, 2016 have been recast to reflect a reclassification of depreciation and depletion capitalized into coal inventory as adjustments to ~~Depreciation, depletion and amortization~~ ~~rather than~~ ~~Operating expenses (excluding depreciation, depletion and amortization)~~.

~~The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to~~ ~~Operating expenses (excluding depreciation, depletion and amortization)~~:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(in thousands)

Segment Adjusted EBITDA Expense

$
294,611

$
328,112

$
794,384

$
843,386

Outside coal purchases

—

(1,514)

—

(1,514)

Other income

774

293

2,461

545

Operating expenses (excluding depreciation, depletion and amortization)

$
295,385

$
326,891

$
796,845

$
842,417

~~(4)~~

Segment Adjusted EBITDA is defined as net income (prior to the allocation of noncontrolling interest) before net interest expense, income taxes, depreciation, depletion and amortization, general and administrative expenses and debt extinguishment loss. Management therefore is able to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments. Results presented for Segment Adjusted EBITDA for the three and nine months ended September 30, 2016 have been recast to reflect a reclassification of depreciation and depletion capitalized into coal inventory as adjustments to ~~Depreciation, depletion and amortization~~ ~~rather than~~ ~~Operating expenses (excluding depreciation, depletion and amortization). Consolidated Segment Adjusted EBITDA is reconciled to net income as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(in thousands)

Consolidated Segment Adjusted EBITDA

$
157,167

$
217,375

$
506,886

$
541,976

General and administrative

(15,005)

(18,114)

(45,982)

(53,015)

Depreciation, depletion and amortization

(69,962)

(101,432)

(194,109)

(245,736)

Interest expense, net

(10,769)

(7,998)

(28,822)

(23,378)

Debt extinguishment loss

—

—

(8,148)

—

Income tax (expense) benefit

(5)

(7)

3

(4)

Net income

$
61,426

$
89,824

$
229,828

$
219,843

~~14.SUBSEQUENT EVENTS~~

On October 27, 2017, we declared a quarterly distribution for the quarter ended September 30, 2017, of $0.505 per unit, on all common units outstanding, totaling approximately $66.7 million, including distributions of $0.7 million to MGP with respect to its general partner interest in the Intermediate Partnership, payable on November 14, 2017 to all unitholders of record as of November 7, 2017.

~~Table of Contents~~

~~ITEM 2.MANAGEMENT~~'~~S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Significant relationships referenced in this management's discussion and analysis of financial condition and results of operations include the following:~~

~~References to "we," "us," "our" or "ARLP Partnership" mean the business and operations of Alliance Resource Partners, L.P., the parent company, as well as its consolidated subsidiaries.~~

~~References to "ARLP" mean Alliance Resource Partners, L.P., individually as the parent company, and not on a consolidated basis.~~

~~References to "MGP" mean Alliance Resource Management GP, LLC, ARLP's sole general partner.~~

~~References to "SGP" mean Alliance Resource GP, LLC, ARLP's special general partner prior to the Exchange Transaction discussed below.~~

~~References to "Intermediate Partnership" mean Alliance Resource Operating Partners, L.P., the intermediate partnership of Alliance Resource Partners, L.P.~~

~~References to "Alliance Resource Properties" mean Alliance Resource Properties, LLC, the land-holding company for the mining operations of Alliance Resource Operating Partners, L.P.~~

References to "Alliance Coal" mean Alliance Coal, LLC, the holding company for the mining operations of Alliance Resource Operating Partners, L.P., also referred to as our primary operating subsidiary.

~~References to "AHGP" mean Alliance Holdings GP, L.P., individually as the parent company, and not on a consolidated basis.~~

~~References to "AGP" mean Alliance GP, LLC, the general partner of Alliance Holdings GP, L.P.~~

~~Summary~~

~~We are a diversified producer and marketer of coal primarily to major United States (~~"~~U.S.~~") utilities and industrial users. We began mining operations in 1971 and, since then, have grown through acquisitions and internal development to become the second largest coal producer in the eastern U.S. ~~As is customary in the coal industry, we have entered into long-term coal supply agreements with many of our customers. W~~e operate eight underground mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia, as well as a coal loading terminal on the Ohio River at Mt. Vernon, Indiana. We also generate income from other sources, including investments in oil and gas royalty interests and midstream services.

We have two reportable segments: Illinois Basin and Appalachia, and an "all other" category referred to as Other and Corporate. Our reportable segments correspond to major coal producing regions in the eastern U.S. Factors similarly affecting financial performance of our operating segments within each of these two reportable segments generally include coal quality, geology, coal marketing opportunities, mining and transportation methods and regulatory issues.

~~Illinois Basin~~ reportable segment is comprised of multiple operating segments, including currently operating mining complexes (a) Webster County Coal, LLC's Dotiki mining complex ("Dotiki"); (b) Gibson County Coal, LLC's mining complex, which includes the Gibson North (currently idled) and Gibson South mines; (c) Warrior Coal, LLC's mining complex ("Warrior"); (d) River View Coal, LLC's mining complex ("River View") and (e) ~~Hamilton County Coal, LLC's~~ ~~mining complex~~ ("~~Hamilton~~")~~. The Gibson North mine has been idled since the fourth quarter of 2015 in response to market conditions.~~

The Illinois Basin reportable segment also includes White County Coal, LLC's Pattiki mining complex ("Pattiki"); Hopkins County Coal, LLC's mining complex, which includes the Elk Creek mine ("Elk Creek"), the Pleasant View surface mineable reserves and the Fies underground project; Sebree Mining, LLC's mining complex, which includes the Onton mine, Steamport, LLC and certain reserves; CR Services, LLC; CR Machine Shop, LLC; certain properties and equipment of Alliance Resource Properties; ARP Sebree, LLC; ARP Sebree South, LLC and UC Coal, LLC and its subsidiaries, UC Mining, LLC and UC Processing, LLC (collectively "UC Coal"). The Pattiki mine ceased production in December 2016. The Elk Creek mine depleted its reserves in March 2016 and ceased production on April 1, 2016. Our Onton mine has been idled since the fourth quarter of 2015 in response to market conditions.~~UC Coal equipment assets acquired in 2015 continue to be deployed as needed at various Illinois Basin operating mines.~~

~~Table of Contents~~

~~Appalachia~~ reportable segment is comprised of multiple operating segments, including the Mettiki mining complex ("Mettiki"); the Tunnel Ridge, LLC mining complex ("Tunnel Ridge"); and the MC Mining, LLC mining complex ("MC Mining"). Mettiki includes Mettiki Coal (WV), LLC's Mountain View mine and Mettiki Coal, LLC's preparation plant.

~~Other and Corporate~~ includes marketing and administrative activities; Alliance Service, Inc. ("ASI") and its subsidiary, Matrix Design Group, LLC ("Matrix Design") and its subsidiaries Matrix Design International, LLC and Matrix Design Africa (PTY) LTD; Alliance Design Group, LLC; ASI's ownership of aircraft; the Mt. Vernon Transfer Terminal, LLC ("Mt. Vernon") dock activities; Alliance Coal's coal brokerage activity; Mid-America Carbonates, LLC's manufacturing and sales (primarily to our mines) of rock dust; certain of Alliance Resource Properties' land and mineral interest activities; Pontiki Coal, LLC's throughput receivables and legacy workers' compensation and pneumoconiosis liabilities; Wildcat Insurance, LLC; Alliance Minerals, LLC ("Alliance Minerals"), which holds direct equity investments in AllDale Minerals III, LP ("AllDale III"), and its affiliate, Cavalier Minerals JV, LLC ("Cavalier Minerals"), which holds equity investments in ~~AllDale Minerals, LP and AllDale Minerals II, LP (collectively with AllDale III, the~~ "~~AllDale Partnerships~~"), ~~AROP Funding, LLC ("AROP Funding")and our new subsidiary formed March 30, 2017, Alliance Resource Finance Corporation ("Alliance Finance").~~ ~~On July 19, 2017, Alliance Minerals purchased $100 million of Series A Preferred Interests from Kodiak Gas Services, LLC (~~"~~Kodiak~~"~~). Please read~~ ~~"Item 1. Financial~~ ~~Statements (Unaudited) – Note 6. Long-term Debt," "–~~ ~~Note 7. Variable Interest Entities,~~" ~~and~~ "– ~~Note 8. Investments~~" ~~of this Quarterly Report on Form 10-Q for more information on AROP Funding, Alliance Finance, Alliance Minerals, Cavalier Minerals, the AllDale Partnerships and Kodiak.~~

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~

We reported net income attributable to ARLP of $61.3 million for the three months ended September 30, 2017 ("2017 Quarter") compared to $89.8 million for the three months ended September 30, 2016 ("2016 Quarter"). The decrease of $28.5 million was principally due to lower revenues resulting from reduced coal sales volumes and prices. Lower revenues were offset in part by reduced operating expenses and depreciation, depletion and amortization, and increased income from our investments in oil and gas mineral interests and compression services. Operating expenses decreased compared to the 2016 Quarter primarily as a result of decreased coal sales volumes in the 2017 Quarter and the continuing benefits of our initiatives to shift production to lower-cost operations, partially offset by the impact of adverse geological conditions encountered at our Hamilton mine in the 2017 Quarter. Results presented for the 2016 Quarter have been recast to reflect a reclassification of depreciation and depletion capitalized into coal inventory as an adjustment to depreciation, depletion and amortization rather than operating expenses.

On July 28, 2017, MGP contributed to ARLP all of its incentive distribution rights ("IDRs") and its managing general partner interest in ARLP in exchange for 56,100,000 ARLP common units and a non-economic general partner interest in ARLP. In conjunction with this transaction and on the same economic basis as MGP, SGP also contributed to ARLP its 0.01% general partner interests in both ARLP and the Intermediate Partnership in exchange for 7,181 ARLP common units (collectively the "Exchange Transaction"). In connection with the Exchange Transaction, ARLP amended its partnership agreement to reflect, among other things, cancellation of the IDRs and the economic general partner interest in ARLP and issuance of a non-economic general partner interest to MGP. Please read "Item 1. Financial Statements (Unaudited) – Note 1. Organization and Presentation" of this Quarterly Report on Form 10-Q for more information on the Exchange Transaction.

In the 2017 Quarter, as a result of the Exchange Transaction, net income was not allocated to the IDRs and the related general partner interests exchanged; however, additional net income, in a corresponding amount, was allocated to limited partner interests. We reported earnings per basic and diluted limited partner unit of $0.52 in the 2017 Quarter compared to $0.91 in the 2016 Quarter. On a pro forma basis, as if the Exchange Transaction had taken place on January 1, 2016, basic and diluted net income of ARLP per limited partner unit in the 2017 Quarter would have been $0.46 compared to $0.67 ("Pro Forma EPU") in the 2016 Quarter, reflecting the decline in net income attributable to ARLP as discussed above. Pleaseplease read "Item 1. Financial Statements (Unaudited) – Note 9. Net Income of ARLP Per Limited Partner Unit" of this Quarterly Report on Form 10-Q for more information on the impact of the Exchange Transaction on earnings per basic and diluted limited partner unit, including a table providing a reconciliation of Pro Forma EPU amounts to net income of ARLP.

~~Table of Contents~~

Three Months Ended September 30,


2017

2016

2017

2016

(in thousands)

(per ton sold)

Tons sold

9,645

10,757

N/A

N/A

Tons produced

8,521

8,512

N/A

N/A

Coal sales

$
435,162

$
533,817

$
45.12

$
49.63

Operating expenses and outside coal purchases

$
295,385

$
328,405

$
30.63

$
30.53

~~Coal sales~~. Coal sales decreased $98.6 million or 18.5% to $435.2 million for the 2017 Quarter from $533.8 million for the 2016 Quarter. The decrease was attributable to a volume variance of $55.2 million resulting from reduced tons sold and a price variance of $43.4 million due to lower average coal sales prices. Reduced tons sold reflect significantly higher sales from coal inventory in the 2016 Quarter due to sizable contract deferrals by our customers in the first half of 2016 and the absence of sales at our Pattiki mine (which was closed in the fourth quarter of 2016) during the 2017 Quarter. Average coal sales prices decreased $4.51 per ton sold in the 2017 Quarter to $45.12 compared to $49.63 per ton sold in the 2016 Quarter, primarily as a result of the expiration of higher-priced legacy contracts, offset in part by higher price realizations at our Mettiki mine from its participation in the metallurgical coal markets and improved prices at our MC Mining mine in the 2017 Quarter. Total production in the 2017 Quarter was comparable to the 2016 Quarter.

~~Operating expenses and outside coal purchases~~. Operating expenses and outside coal purchases decreased 10.1% to $295.4 million for the 2017 Quarter from $328.4 million for the 2016 Quarter primarily as a result of decreased coal sales volumes in the 2017 Quarter. On a per ton basis, operating expenses and outside coal purchases increased slightly to $30.63 per ton sold from $30.53 per ton sold in the 2016 Quarter, due primarily to the previously discussed adverse geological conditions encountered at our Hamilton mine in the 2017 Quarter, partially offset by our initiatives to shift production to lower-cost operations. The most significant operating expense variances by category are discussed below:

~~Material and supplies expenses per ton produced increased~~ ~~7.3% to~~ ~~$10.64~~ ~~per ton in the 2017 Quarter from $9.92 per ton in the 2016 Quarter. The increase of~~ ~~$0.72~~ per ton produced resulted primarily from increases of $0.36 per ton for contract labor used in the mining process, $0.29 per ton for roof support and $0.13 per ton for certain ventilation expenses, partially offset by a decrease of $0.09 per ton in longwall subsidence expense; and

~~Maintenance expenses per ton produced increased~~ ~~13.9% to~~ ~~$3.61~~ ~~per ton in the 2017 Quarter from $3.17 per ton in the 2016 Quarter. The increase of~~ ~~$0.44~~ ~~per ton produced was primarily due to increased maintenance expenses at several mines in both reportable segments.~~

~~Operating expenses and outside coal purchases per ton increases discussed above were partially offset by the following decreases:~~

Labor and benefit expenses per ton produced, excluding workers' compensation, decreased 6.7% to $10.08 per ton in the 2017 Quarter from $10.80 per ton in the 2016 Quarter. This decrease of $0.72 per ton was primarily attributable to lower health care benefit expenses; and

Production taxes and royalty expenses incurred as a percentage of coal sales prices and volumes decreased $0.15 per produced ton sold in the 2017 Quarter compared to the 2016 Quarter primarily as a result of lower excise taxes per ton resulting from a favorable state production mix, increased export sales and lower average coal sales prices as discussed above.

~~General and administrative.~~ General and administrative expenses for the 2017 Quarter decreased to $15.0 million compared to $18.1 million in the 2016 Quarter. The decrease of $3.1 million was primarily due to lower incentive compensation expenses.

~~Depreciation, depletion and amortization~~. Depreciation, depletion and amortization expense decreased to $70.0 million in the 2017 Quarter from $101.4 million in the 2016 Quarter. The decrease of $31.4 million resulted primarily from the closure of the Pattiki mine in the fourth quarter of 2016 and reduced sales volumes at other Illinois Basin mines.

~~Interest expense.~~ Interest expense, net of capitalized interest, increased to $10.8 million in the 2017 Quarter from $8.0 million in the 2016 Quarter primarily due to interest incurred under our Senior Notes issued in April 2017 offset in part by reduced borrowings under our revolving credit facility and the payment of our Term Loan and Series B Senior

~~Table of Contents~~

Notes. Interest payable under our $400 million senior unsecured notes due 2025 (the "Senior Notes"), revolving credit facility, Term Loan and Series B Senior Notes is discussed below under "–Debt Obligations."

~~Equity in income of affiliates. Equity in income of affiliates increased $2.7 million in the 2017 Quarter compared to the 2016 Quarter due toincreased income from our investments in the AllDale Partnerships.~~

~~Cost investment income~~. Distributions of additional preferred interests received from our new Kodiak investment contributed $2.8 million of cost investment income to the 2017 Quarter. Please read "Item 1. Financial Statements (Unaudited) – Note 8. Investments" of this Quarterly Report on Form 10-Q for more information on Kodiak.

~~Segment Adjusted EBITDA.~~ Our 2017 Quarter Segment Adjusted EBITDA decreased $60.2 million, or 27.7%, to $157.2 million from the 2016 Quarter Segment Adjusted EBITDA of $217.4 million. Segment Adjusted EBITDA, tons sold, coal sales, other sales and operating revenues and Segment Adjusted EBITDA Expense by segment are:

Three Months Ended

September 30,

2017

2016

Increase (Decrease)


(in thousands)



Segment Adjusted EBITDA

Illinois Basin

$
86,377

$
145,424

$
(59,047)

(40.6)
%

Appalachia

55,465

58,497

(3,032)

(5.2)
%

Other and Corporate

17,547

16,268

1,279

7.9
%

Elimination

(2,222)

(2,814)

592

21.0
%

Total Segment Adjusted EBITDA (1)

$
157,167

$
217,375

$
(60,208)

(27.7)
%

Tons sold

Illinois Basin

6,872

7,853

(981)

(12.5)
%

Appalachia

2,773

2,855

(82)

(2.9)
%

Other and Corporate

527

593

(66)

(11.1)
%

Elimination

(527)

(544)

17

3.1
%

Total tons sold

9,645

10,757

(1,112)

(10.3)
%

Coal sales

Illinois Basin

$
278,739

$
372,879

$
(94,140)

(25.2)
%

Appalachia

151,882

151,952

(70)

(0.0)
%

Other and Corporate

24,378

27,252

(2,874)

(10.5)
%

Elimination

(19,837)

(18,266)

(1,571)

(8.6)
%

Total coal sales

$
435,162

$
533,817

$
(98,655)

(18.5)
%

Other sales and operating revenues

Illinois Basin

$
104

$
71

$
33

46.5
%

Appalachia

899

745

154

20.7
%

Other and Corporate

12,990

14,575

(1,585)

(10.9)
%

Elimination

(3,975)

(4,826)

851

17.6
%

Total other sales and operating revenues

$
10,018

$
10,565

$
(547)

(5.2)
%

Segment Adjusted EBITDA Expense

Illinois Basin

$
192,465

$
227,526

$
(35,061)

(15.4)
%

Appalachia

97,316

94,201

3,115

3.3
%

Other and Corporate

26,421

26,664

(243)

(0.9)
%

Elimination

(21,591)

(20,279)

(1,312)

(6.5)
%

Total Segment Adjusted EBITDA Expense (1)

$
294,611

$
328,112

$
(33,501)

(10.2)
%

~~(1)~~

For a definition of Segment Adjusted EBITDA and Segment Adjusted EBITDA Expense and related reconciliations to comparable generally accepted accounting principles ("GAAP") financial measures, please see below under "—Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income" and reconciliation of non-GAAP

~~Table of Contents~~

"Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses." Results presented for Segment Adjusted EBITDA and Segment Adjusted EBITDA Expense for the three months ended September 30, 2016 have been recast to reflect a reclassification of depreciation and depletion capitalized into coal inventory as adjustments to depreciation, depletion and amortization rather than operating expenses.

Illinois Basin – Segment Adjusted EBITDA decreased 40.6% to $86.4 million in the 2017 Quarter from $145.4 million in the 2016 Quarter. The decrease of $59.0 million was primarily attributable to lower coal sales, which decreased 25.2% to $278.7 million in the 2017 Quarter from $372.9 million in the 2016 Quarter. The decrease of $94.2 million in coal sales primarily reflects lower average coal sales prices of $40.56 in the 2017 Quarter compared to $47.48 in the 2016 Quarter, resulting from the expiration and/or renegotiation of certain higher-priced legacy contracts and reduced sales volumes in the 2017 Quarter. Tons sold decreased 12.5% compared to the 2016 Quarter, primarily due to the closure of our Pattiki mine in the fourth quarter of 2016 and reduced sales volumes from our Dotiki and River View mines, partially offset by increased volumes at our Hamilton mine. Although total production for the 2017 Quarter was comparable to the 2016 Quarter, the 2016 Quarter included significantly higher sales from coal inventory resulting in the unfavorable comparison of sales volumes between the two quarters. Segment Adjusted EBITDA Expense decreased 15.4% to $192.5 million in the 2017 Quarter from $227.5 million in the 2016 Quarter due to reduced sales volumes. Segment Adjusted EBITDA Expense per ton decreased $0.96 per ton sold to $28.01 from $28.97 per ton sold in the 2016 Quarter, primarily due to lower selling expenses and health care benefit expenses as well as our initiatives to shift production to lower-cost operations, partially offset by reduced recoveries across the region and adverse geological conditions encountered at our Hamilton mine in the 2017 Quarter.

Appalachia – Segment Adjusted EBITDA decreased 5.2% to $55.5 million for the 2017 Quarter from $58.5 million in the 2016 Quarter. The decrease of $3.0 million was primarily attributable to reduced sales volumes and increased operating expenses, offset in part by increased coal sales prices. Coal sales in the 2017 Quarter were comparable to the 2016 Quarter as a decrease of 2.9% in tons sold, primarily due to reduced sales volumes at our Mettiki mine, was substantially offset by higher coal sales prices, which increased 2.9% to $54.77 per ton sold compared to $53.22 per ton sold in the 2016 Quarter. The increase in coal sales prices primarily reflects higher price realizations at our Mettiki mine from its participation in the metallurgical coal markets and improved prices at our MC Mining mine in the 2017 Quarter. Segment Adjusted EBITDA Expense increased 3.3% to $97.3 million in the 2017 Quarter from $94.2 million in the 2016 Quarter and Segment Adjusted EBITDA Expense per ton increased $2.09 per ton sold to $35.09 compared to $33.00 per ton sold in the 2016 Quarter, primarily due to higher selling expenses at the MC Mining and Mettiki mines and lower recoveries across the region, partially offset by lower health care benefit expenses at our MC Mining and Tunnel Ridge mines.

Other and Corporate – Segment Adjusted EBITDA increased by $1.2 million to $17.5 million in the 2017 Quarter compared to $16.3 million in the 2016 Quarter. The increase was primarily attributable to higher equity income from the AllDale Partnerships and cost investment income from Kodiak in the 2017 Quarter, partially offset by reduced intercompany coal brokerage sales.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

We reported net income attributable to ARLP of $229.4 million for the nine months ended September 30, 2017 ("2017 Period") compared to $219.8 million for the nine months ended September 30, 2016 ("2016 Period"). The increase of $9.6 million was due to increased coal sales volumes, which rose to 27.7 million tons sold in the 2017 Period compared to 26.2 million tons sold in the 2016 Period, lower depreciation, depletion and amortization, lower operating expenses and higher equity in income of affiliates from our investments in oil and gas mineral interests, offset in part by lower coal sales price realizations and a debt extinguishment loss of $8.1 million related to the early repayment of our Series B Senior Notes in May 2017. Total revenues decreased to $1.3 billion in the 2017 Period compared to $1.4 billion in the 2016 Period as lower coal sales prices more than offset increased sales volumes and other sales and operating revenues. Even though sales and production volumes increased for the 2017 Period, operating expenses were lower compared to the 2016 Period, reflecting the continuing benefits of our recent initiatives to shift production to our lower-cost operations and lower health care benefit expenses. The favorable production cost mix and lower selling expenses in the 2017 Period significantly lowered operating expenses per ton sold compared to the 2016 Period. Results presented for the 2016 Period

~~Table of Contents~~

have been recast to reflect a reclassification of depreciation and depletion capitalized into coal inventory as an adjustment to depreciation, depletion and amortization rather than operating expenses.

Nine Months Ended September 30,


2017

2016

2017

2016


(in thousands)

(per ton sold)

Tons sold

27,721

26,177

N/A

N/A

Tons produced

28,211

25,759

N/A

N/A

Coal sales

$
1,256,168

$
1,357,578

$
45.31

$
51.86

Operating expenses and outside coal purchases

$
796,845

$
843,931

$
28.75

$
32.24

~~Coal sales~~. Coal sales decreased $101.4 million or 7.5% to $1.3 billion for the 2017 Period from $1.4 billion for the 2016 Period. The decrease was attributable to lower average coal sales prices, which reduced coal sales by $181.5 million, partially offset by the benefit of increased tons sold, which contributed $80.1 million in additional coal sales. Average coal sales prices decreased $6.55 per ton sold in the 2017 Period to $45.31 compared to $51.86 per ton sold in the 2016 Period, primarily due to the expiration of higher-priced legacy contracts, partially offset by higher price realizations at our Mettiki mine from its participation in the metallurgical coal markets in the 2017 Period. Sales and production volumes rose to 27.7 million tons sold and 28.2 million tons produced in the 2017 Period compared to 26.2 million tons sold and 25.8 million tons produced in the 2016 Period, primarily due to strong performances at the Gibson South, River View, Hamilton and Tunnel Ridge mines.

~~Operating expenses and outside coal purchases.~~ Operating expenses and outside coal purchases decreased 5.6% to $796.8 million for the 2017 Period from $843.9 million for the 2016 Period primarily as a result of the previously discussed favorable production cost mix. On a per ton basis, operating expenses and outside coal purchases decreased 10.8% to $28.75 per ton sold from $32.24 per ton sold in the 2016 Period, due primarily to increased sales and production volumes and the continuing benefits from previously discussed initiatives to shift production to our lower-cost operations. The most significant operating expense variances by category are discussed below:

~~Labor and benefit expenses per ton produced, excluding workers~~' compensation, decreased 16.5% to $9.26 per ton in the 2017 Period from $11.09 per ton in the 2016 Period. This decrease of $1.83 per ton was primarily attributable to lower labor and benefit costs per ton due to fewer employees resulting in part from our increased mix of lower-cost production as well as ~~lower health care benefit expenses~~;

Workers' compensation expenses per ton produced decreased to $0.49 per ton in the 2017 Period from $0.63 per ton in the 2016 Period. The decrease of $0.14 per ton produced was due to fewer employees resulting in part from our increased mix of lower-cost production, partially offset by a decrease in the discount rate used to calculate the estimated present value of future obligations and unfavorable changes in claims development;

Material and supplies expenses per ton produced decreased 1.0% to $9.66 per ton in the 2017 Period from $9.76 per ton in the 2016 Period. The decrease of $0.10 per ton produced resulted primarily from the increased mix of lower-cost production and related decreases of $0.18 per ton for power and fuel used in the mining process and $0.07 per ton for general mining materials and supplies, partially offset by an increase of $0.23 per ton for contract labor used in the mining process; and

Production taxes and royalty expenses decreased $0.75 per produced ton sold in the 2017 Period compared to the 2016 Period primarily as a result of lower excise taxes per ton resulting from a favorable state production mix, and lower average coal sales prices.

~~Operating expenses and outside coal purchases per ton decreases discussed above were partially offset by the following increase:~~

Maintenance expenses per ton produced increased 6.3% to $3.35 per ton in the 2017 Period from $3.15 per ton in the 2016 Period. The increase of $0.20 per ton produced was primarily due to increased maintenance expenses at several mines in both reportable segments.

~~Other sales and operating revenues. Other sales and operating revenues were principally comprised of Mt. Vernon transloading revenues, Matrix Design sales, other outside services and administrative services revenue from~~

~~Table of Contents~~

affiliates. Other sales and operating revenues increased to $31.9 million in the 2017 Period from $26.7 million in the 2016 Period. The increase of $5.2 million was primarily due to increased mining technology product sales by Matrix Design and increased transloading revenues from Mt. Vernon, partially offset in comparison to the 2016 Period by proceeds of coal supply contract buy-outs received in the 2016 Period.

~~General and administrative.~~ General and administrative expenses for the 2017 Period decreased to $46.0 million compared to $53.0 million in the 2016 Period. The decrease of $7.0 million was primarily due to lower incentive compensation expenses.

~~Depreciation, depletion and amortization~~. Depreciation, depletion and amortization expense decreased to $194.1 million for the 2017 Period compared to $245.7 million for the 2016 Period primarily as a result of the depletion of reserves at our Elk Creek mine in the first quarter of 2016, closure of the Pattiki mine in the fourth quarter of 2016, volume reductions at our Dotiki mine, the use of surplus equipment from our idled mines at the Warrior and River View mines and ongoing capital reduction initiatives at all of our operations.

~~Interest expense.~~ Interest expense, net of capitalized interest, increased to $28.9 million in the 2017 Period from $23.4 million in the 2016 Period primarily due to interest incurred under our Senior Notes issued in April 2017, offset in part by reduced borrowings under our revolving credit facility and the payment of our Term Loan and Series B Senior Notes. Interest payable under our Senior Notes, revolving credit facility, Term Loan and Series B Senior Notes is discussed below under "–Debt Obligations."

~~Equity in income of affiliates. Equity in income of affiliates increased $9.4 million in the 2017 Period compared to the 2016 Period due to increased income from our investments in the AllDale Partnerships.~~

~~Cost investment income~~. Distributions of additional preferred interests received from our new Kodiak investment contributed $2.8 million of cost investment income to the 2017 Period. Please read "Item 1. Financial Statements (Unaudited) – Note 8. Investments" of this Quarterly Report on Form 10-Q for more information on Kodiak.

~~Debt extinguishment loss. We recognized a debt extinguishment loss of $8.1 million in the 2017 Period to reflect a make-whole payment incurred to repay our Series B Senior Notes in May 2017.~~

~~Transportation revenues and expenses~~. Transportation revenues and expenses were $24.9 million and $19.7 million for the 2017 and 2016 Periods, respectively. The increase of $5.2 million was primarily attributable to increased tonnage for which we arrange third-party transportation at certain mines and an increase in ~~average third-party transportation rates in the 2017 Period. The cost of third-party transportation services are passed through to our customers.~~

~~Table of Contents~~

~~Segment Adjusted EBITDA. Our 2017 Period Segment Adjusted EBITDA decreased $35.1~~ ~~million, or~~ ~~6.5~~%, to $506.9 million from the 2016 Period Segment Adjusted EBITDA of $542.0 million. Segment Adjusted EBITDA, tons sold, coal sales, other sales and operating revenues and Segment Adjusted EBITDA Expense by segment are:

Nine Months Ended

September 30,

2017

2016

Increase (Decrease)


(in thousands)



Segment Adjusted EBITDA

Illinois Basin

$
285,928

$
381,042

$
(95,114)

(25.0)
%

Appalachia

179,396

143,699

35,697

24.8
%

Other and Corporate

48,226

25,876

22,350

86.4
%

Elimination

(6,664)

(8,641)

1,977

22.9
%

Total Segment Adjusted EBITDA (1)

$
506,886

$
541,976

$
(35,090)

(6.5)
%

Tons sold

Illinois Basin

19,635

18,892

743

3.9
%

Appalachia

8,071

7,236

835

11.5
%

Other and Corporate

1,350

1,248

102

8.2
%

Elimination

(1,335)

(1,199)

(136)

(11.3)
%

Total tons sold

27,721

26,177

1,544

5.9
%

Coal sales

Illinois Basin

$
789,081

$
940,843

$
(151,762)

(16.1)
%

Appalachia

453,267

402,914

50,353

12.5
%

Other and Corporate

61,951

58,074

3,877

6.7
%

Elimination

(48,131)

(44,253)

(3,878)

(8.8)
%

Total coal sales

$
1,256,168

$
1,357,578

$
(101,410)

(7.5)
%

Other sales and operating revenues

Illinois Basin

$
1,048

$
7,413

$
(6,365)

(85.9)
%

Appalachia

2,381

2,717

(336)

(12.4)
%

Other and Corporate

40,442

30,336

10,106

33.3
%

Elimination

(11,983)

(13,723)

1,740

12.7
%

Total other sales and operating revenues

$
31,888

$
26,743

$
5,145

19.2
%

Segment Adjusted EBITDA Expense

Illinois Basin

$
504,201

$
567,214

$
(63,013)

(11.1)
%

Appalachia

276,252

261,933

14,319

5.5
%

Other and Corporate

67,382

63,575

3,807

6.0
%

Elimination

(53,451)

(49,336)

(4,115)

(8.3)
%

Total Segment Adjusted EBITDA Expense (1)

$
794,384

$
843,386

$
(49,002)

(5.8)
%

~~(1)~~

For a definition of Segment Adjusted EBITDA and Segment Adjusted EBITDA Expense and related reconciliations to comparable GAAP financial measures, please see below under "—Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income" and reconciliation of non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses." Results presented for Segment Adjusted EBITDA and Segment Adjusted EBITDA Expense for the nine months ended September 30, 2016 have been recast to reflect a reclassification of depreciation and depletion capitalized into coal inventory as adjustments to depreciation, depletion and amortization rather than operating expenses.

Illinois Basin – Segment Adjusted EBITDA decreased 25.0% to $285.9 million in the 2017 Period from $381.0 million in the 2016 Period. The decrease of $95.1 million was primarily attributable to lower coal sales, which decreased 16.1% to $789.1 million in the 2017 Period from $940.8 million in the 2016 Period, partially offset by decreased expenses resulting from a favorable production mix. The coal sales decrease of $151.7 million primarily reflects lower average coal sales prices of $40.19 in the 2017 Period compared to $49.80 in the 2016 Period, primarily resulting from the expiration

~~Table of Contents~~

of higher-priced legacy contracts. Lower sales prices were partially offset by increased tons sold, which increased 3.9% to 19.6 million tons in the 2017 Period compared to 18.9 million tons in the 2016 Period. Higher sales volumes resulted from strong performances at the Gibson South, River View and Hamilton mines, offset in part by the previously mentioned depletion of reserves at our Elk Creek mine in the 2016 first quarter, the closure of the Pattiki mine in the 2016 fourth quarter and reduced sales at our Dotiki mine. Segment Adjusted EBITDA Expense decreased 11.1% to $504.2 million in the 2017 Period from $567.2 million in the 2016 Period and Segment Adjusted EBITDA Expense per ton decreased $4.34 per ton sold to $25.68 compared to $30.02 per ton sold in the 2016 Period, primarily due to a significant increase in low-cost longwall production from the Hamilton mine, increased production at our River View and Gibson South operations and a related reduced mix of sales volumes from our higher cost mines, as well as reduced selling expenses, lower health care benefit expenses and certain cost decreases described above under "–Operating expenses and outside coal purchases."

Appalachia – Segment Adjusted EBITDA increased 24.8% to $179.4 million for the 2017 Period from $143.7 million in the 2016 Period. The increase of $35.7 million was primarily attributable to increased tons sold, which rose 11.5% to 8.1 million tons sold in the 2017 Period compared to 7.2 million tons sold in the 2016 Period, and lower Segment Adjusted EBITDA Expense per ton. Coal sales increased 12.5% to $453.3 million compared to $402.9 million in the 2016 Period. The increase of $50.4 million primarily resulted from increased sales volumes across the region, including increased export sales from our Mettiki and MC Mining mines and higher average coal sales prices of $56.16 in the 2017 Period compared to $55.68 in the 2016 Period. Higher price realizations in the 2017 Period were a result of sales from our Mettiki mine into the metallurgic coal export market and improved prices at our MC Mining mine. Segment Adjusted EBITDA Expense increased 5.5% to $276.3 million in the 2017 Period from $261.9 million in the 2016 Period due to increased sales volumes. However, Segment Adjusted EBITDA Expense per ton decreased $1.97 per ton sold to $34.23 compared to $36.20 per ton sold in the 2016 Period, as a result of increased production across the region, particularly at our Tunnel Ridge longwall operation resulting in part from increased longwall unit shifts and fewer longwall move days during the 2017 Period, and increased unit shifts at our MC Mining operations, as well as certain other cost decreases described above under "–Operating expenses and outside coal purchases."

Other and Corporate – Segment Adjusted EBITDA increased by $22.3 million to $48.2 million for the 2017 Period compared to $25.9 million in the 2016 Period. The increase was primarily attributable to higher equity income from the AllDale Partnerships and increased mining technology product sales by Matrix Design. In the 2017 Period, Segment Adjusted EBITDA Expense increased to $67.4 million for the 2017 Period compared to $63.6 million for the 2016 Period primarily as a result of increased brokerage activity and Matrix Design sales discussed above.

Elimination – Segment Adjusted EBITDA Expense eliminations increased in the 2017 Period to $53.5 million from $49.3 million in the 2016 Period and coal sales eliminations increased to $48.1 million from $44.3 million, reflecting increased intercompany coal sales brokerage activity.

~~Reconciliation of non-GAAP "Segment Adjusted EBITDA" to GAAP "net income" and reconciliation of non-GAAP "Segment Adjusted EBITDA Expense" to GAAP "Operating Expenses"~~

~~Segment Adjusted EBITDA~~ ~~(a non-GAAP financial measure)~~ is defined as net income (prior to the allocation of noncontrolling interest) before net interest expense, income taxes, depreciation, depletion and amortization, general and administrative expenses and debt extinguishment loss. Segment Adjusted EBITDA is a key component of consolidated EBITDA, which is used as a supplemental financial measure by management and by external users of our financial statements such as investors, commercial banks, research analysts and others. We believe that the presentation of EBITDA provides useful information to investors regarding our performance and results of operations because EBITDA, when used in conjunction with related GAAP financial measures, (i) provides additional information about our core operating performance and ability to generate and distribute cash flow, (ii) provides investors with the financial analytical framework upon which we base financial, operational, compensation and planning decisions and (iii) presents a measurement that investors, rating agencies and debt holders have indicated is useful in assessing us and our results of operations.

Segment Adjusted EBITDA is also used as a supplemental financial measure by our management for reasons similar to those stated in the previous explanation of EBITDA. In addition, the exclusion of corporate general and administrative expenses from consolidated Segment Adjusted EBITDA allows management to focus solely on the evaluation of segment operating profitability as it relates to our revenues and operating expenses, which are primarily controlled by our segments.Results presented for Segment Adjusted EBITDA for the three and nine months ended September 30, 2016 have been recast to reflect a reclassification of depreciation and depletion capitalized into coal inventory as adjustments to depreciation, depletion and amortization rather than operating expenses.

~~Table of Contents~~

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

Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, coal purchases and other income. Transportation expenses are excluded as these expenses are passed through to our customers and, consequently, we do not realize any gain or loss on transportation revenues. Segment Adjusted EBITDA Expense is used as a supplemental financial measure by our management to assess the operating performance of our segments. Segment Adjusted EBITDA Expense is a key component of Segment Adjusted EBITDA in addition to coal sales and other sales and operating revenues. The exclusion of corporate general and administrative expenses from Segment Adjusted EBITDA Expense allows management to focus solely on the evaluation of segment operating performance as it primarily relates to our operating expenses. Results presented for Segment Adjusted EBITDA Expense for the three and nine months ended September 30, 2016 have been recast to reflect a reclassification of depreciation and depletion capitalized into coal inventory as adjustments to depreciation, depletion and amortization rather than operating expenses.

~~The following is a reconciliation of consolidated Segment Adjusted EBITDA Expense to operating expense, the most comparable GAAP financial measure:~~

~~Liquidity and Capital Resources~~

~~Liquidity~~

We have historically satisfied our working capital requirements and funded our capital expenditures, investments and debt service obligations with cash generated from operations, cash provided by the issuance of debt or equity, borrowings under credit and securitization facilities and sale-leaseback transactions. We believe that existing cash balances, future cash flows from operations, borrowings under credit facilities and cash provided from the issuance of debt or equity will be sufficient to meet our working capital requirements, capital expenditures and additional investments, debt payments, commitments and distribution payments. Nevertheless, our ability to satisfy our working capital requirements, to fund planned capital expenditures and investments, to service our debt obligations or to pay distributions will depend upon our future operating performance and access to and cost of financing sources, which will be affected by prevailing economic conditions generally and in the coal industry specifically, as well as other financial and business factors, some of which are beyond our control. Based on our recent operating results, current cash position, current unitholder distributions, anticipated future cash flows and sources of financing that we expect to have available, we do not anticipate any constraints to our liquidity at this time. However, to the extent operating cash flow or access to and cost of financing

~~Table of Contents~~

sources are materially different than expected, future liquidity may be adversely affected. Please read "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016.

~~Cash Flows~~

Cash provided by operating activities was $456.1 million for the 2017 Period compared to $494.5 million for the 2016 Period. The decrease in cash provided by operating activities was primarily due to a decrease in net income adjusted for non-cash items, an increase in coal inventories in the 2017 Period compared to a decrease in coal inventories in the 2016 Period and a smaller decrease in prepaid expenses and other assets in the 2017 Period. These decreases were offset in part by increased distributions received from the AllDale Partnerships and favorable working capital changes related to trade receivables, accounts payable, accrued interest and other long-term liabilities in the 2017 Period compared to the 2016 Period.

Net cash used in investing activities was $205.4 million for the 2017 Period compared to $164.7 million for the 2016 Period. The increase in cash used in investing activities was primarily attributable to the funding of our new cost investment in Kodiak in the 2017 Period and increased capital expenditures for mine infrastructure and equipment at various mines in the 2017 Period compared to the 2016 Period. Decreased purchases of equity investments in affiliates, ~~the lack of customer contract buy-outs in the 2017 Period~~ and favorable changes in accounts payable related to property, plant and equipment purchases partially offset increases in use of cash in investing activities previously discussed. Please read "Item 1. Financial Statements (Unaudited) – Note 8. Investments" of this Quarterly Report on Form 10-Q for more information on Kodiak.

~~Net cash used in financing activities was~~ ~~$272.1~~ million for the 2017 Period compared to $341.9 million for the 2016 Period. The decrease in cash used in financing activities was primarily attributable to proceeds received from the issuance of our Senior Notes, decreased payments under the Term Loan and a decrease in distributions paid to partners in the 2017 Period compared to the 2016 Period. Repayment of the Series B Senior Notes, increased overall net payments on the securitization and revolving credit facilities, payment of debt issuance and extinguishment costs and no proceeds received from sales-leaseback transactions in the 2017 Period partially offset decreases in net cash used in financing activities previously discussed.

~~Capital Expenditures~~

~~Capital expenditures increased to~~ ~~$105.5~~ ~~million in the 2017 Period from $70.3 million in the 2016 Period. See our discussion of~~ ~~"Cash Flows" above concerning the increase in capital expenditures.~~

~~Our anticipated total capital expenditures for the year ending December 31, 2017 are estimated in a range of~~ ~~$145.0 million~~ to ~~$165.0~~ ~~million, which includes expenditures for maintenance capital at various mines.~~ In addition to these capital expenditures, we anticipate funding in 2017 investments of approximately $120.0 million to $130.0 million related to our commitment to acquire oil and gas mineral interests and including our $100 million investment in Kodiak as discussed in "Item 1. Financial ~~Statements (Unaudited) – Note 8. Investments" of this Quarterly Report on Form 10-Q.~~ ~~Management anticipates funding remaining 2017 capital requirements with cash and cash equivalents ($18.4~~ million as of September 30, 2017), cash flows from operations, borrowings under revolving credit and securitization facilities and cash provided from the issuance of debt or equity. We will continue to have significant capital requirements over the long-term, which may require us to incur debt or seek additional equity capital. The availability and cost of additional capital will depend upon prevailing market conditions, the market price of our common units and several other factors over which we have limited control, as well as our financial condition and results of operations.

~~Debt Obligations~~

~~Credit Agreement.~~On January 27, 2017, our Intermediate Partnership entered into a Fourth Amended and Restated Credit Agreement (the "Credit Agreement") with various financial institutions for a revolving credit facility and term loan (the "Credit Facility"). The Credit Facility replaced the $250 million term loan ("Replaced Term Loan") and $700 million revolving credit facility ("Replaced Revolving Credit Facility") extended to the Intermediate Partnership on May 23, 2012 (the "Replaced Credit Agreement") by various banks and other lenders that would have expired on May 23, 2017.

~~Table of Contents~~

The Credit Agreement provided for a $776.5 million revolving credit facility, reducing to $494.75 million on May 23, 2017, including a sublimit of $125 million for the issuance of letters of credit and a sublimit of $15.0 million for swingline borrowings (the "Revolving Credit Facility"), and for a term loan with a remaining principal balance of $50.0 million (the "Term Loan"). The outstanding revolver balance and term loan balance under the Replaced Credit Agreement were considered advanced under the Credit Facility on January 27, 2017. On April 3, 2017, we entered into an amendment to the Credit Agreement (the "Amendment") to (a) extend the termination date of the Revolving Credit Facility as to $461.25 million of commitments to May 23, 2021, (b) eliminate the Cavalier Condition and the Senior Notes Condition (both as defined in the Credit Agreement) and (c) effectuate certain other changes. In connection with the Amendment, we increased the commitments under the Revolving Credit Facility from $479.75 million to $494.75 million, effective May 23, 2017 (of which $33.5 million expire on May 23, 2019). We incurred debt issuance costs in 2017 of $8.9 million in connection with the Credit Agreement. These debt issuance costs are deferred and are being amortized as a component of interest expense over the term of the Credit Facility.

Borrowings under the Credit Facility bear interest, at the option of the Intermediate Partnership, at either (i) the Base Rate at the greater of three benchmarks or (ii) a Eurodollar Rate, plus margins for (i) or (ii), as applicable, that fluctuate depending upon the ratio of Consolidated Debt to Consolidated Cash Flow (each as defined in the Credit Agreement). We elected a Eurodollar Rate, which, with applicable margin, was 3.59% as of September 30, 2017. At September 30, 2017, we had $8.1 million of letters of credit outstanding with $486.7 million available for borrowing under the Revolving Credit Facility. We currently incur an annual commitment fee of 0.35% on the undrawn portion of the Revolving Credit Facility. We utilize the Revolving Credit Facility, as appropriate, for working capital requirements, capital expenditures and investments in affiliates, scheduled debt payments and distribution payments.

The Credit Agreement contains various restrictions affecting our Intermediate Partnership and its subsidiaries including, among other things, incurrence of additional indebtedness and liens, sale of assets, investments, mergers and consolidations and transactions with affiliates, in each case subject to various exceptions, and the payment of cash distributions by our Intermediate Partnership if such payment would result in a certain fixed charge coverage ratio (as defined in the Credit Agreement). The Amendment lowered this fixed charge ratio from less than 1.25 to 1.0 to 1.15 to 1.0 for each rolling four-quarter period and further limited the Intermediate Partnership’s ability to incur certain unsecured debt. See "Item 1. Financial ~~Statements (Unaudited) –~~ ~~Note 7.~~ Variable Interest Entities" of this Quarterly Report on Form 10-Q for further discussion of restrictions on the cash available for distribution. The Amendment raised the debt to cash flow ratio from 2.25 to 1.0 to 2.50 to 1.0 and also removed the requirement for the Intermediate Partnership to remain in control of a certain amount of mineable coal reserves relative to its annual production. The Credit Agreement requires the Intermediate Partnership maintain (a) a debt to cash flow ratio of not more than 2.5 to 1.0 and (b) a cash flow to interest expense ratio of not less than 3.0 to 1.0, in each case, during the four most recently ended fiscal quarters. The debt to cash flow ratio and cash flow to interest expense ratio were 0.84 to 1.0 and 19.2 to 1.0, respectively, for the trailing twelve months ended September 30, 2017. We were compliant with the covenants of the Credit Agreement as of September 30, 2017.

~~Series B Senior Notes.~~ On January 27, 2017, the Intermediate Partnership also amended the 2008 Note Purchase Agreement dated June 26, 2008, for $145.0 million of Series B Senior Notes which bore interest at 6.72% and were due to mature on June 26, 2018 with interest payable semi-annually. The amendment provided for certain modifications to the terms and provisions of the Note Purchase Agreement, including granting liens on substantially all of the Intermediate Partnership's assets to secure its obligations under the Note Purchase Agreement on an equal basis with the obligations under the Credit Agreement. The amendment also modified certain covenants to align them with the applicable covenants in the Credit Agreement. As discussed below, we repaid the Series B Senior Notes in May 2017.

~~Senior Notes.~~ On April 24, 2017, the Intermediate Partnership and Alliance Resource Finance Corporation (as co-issuer), a wholly owned subsidiary of the Intermediate Partnership ("Alliance Finance"), issued an aggregate principal amount of $400.0 million of our Senior Notes in a private placement to qualified institutional buyers. The Senior Notes have a term of eight years, maturing on May 1, 2025 (the "Term") and accrue interest at an annual rate of 7.5%. Interest is payable semi-annually in arrears on each May 1 and November 1, commencing on November 1, 2017. The indenture governing the Senior Notes contains customary terms, events of default and covenants relating to, among other things, the incurrence of debt, the payment of distributions or similar restricted payments, undertaking transactions with affiliates and

~~Table of Contents~~

limitations on asset sales. At any time prior to May 1, 2020, the issuers of the Senior Notes may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of one or more equity offerings at a redemption price equal to 107.5% of the principal amount redeemed, plus accrued and unpaid interest, if any, to the redemption date. The issuers of the Senior Notes may also redeem all or a part of the notes at any time on or after May 1, 2020, at redemption prices set forth in the indenture governing the Senior Notes. At any time prior to May 1, 2020, the issuers of the Senior Notes may redeem the Senior Notes at a redemption price equal to the principal amount of the Senior Notes plus a "make-whole" premium, plus accrued and unpaid interest, if any, to the redemption date. The net proceeds from issuance of the Senior Notes and cash on hand were used to repay the Revolving Credit Facility, Term Loan and Series B Senior Notes (including a make-whole payment of $8.1 million). We incurred discount and debt issuance costs of $7.3 million in connection with issuance of the Senior Notes. These costs are deferred and are currently being amortized as a component of interest expense over the Term.

~~Accounts Receivable Securitization.~~ On December 5, 2014, certain direct and indirect wholly-owned subsidiaries of our Intermediate Partnership entered into a $100.0 million accounts receivable securitization facility ("Securitization Facility"). Under the Securitization Facility, certain subsidiaries sell trade receivables on an ongoing basis to our Intermediate Partnership, which then sells the trade receivables to AROP Funding, LLC ("AROP Funding"), a wholly-owned bankruptcy-remote special purpose subsidiary of our Intermediate Partnership, which in turn borrows on a revolving basis up to $100.0 million secured by the trade receivables. After the sale, Alliance Coal, as servicer of the assets, collects the receivables on behalf of AROP Funding. The Securitization Facility bears interest based on a Eurodollar Rate. It was renewed in December 2016 and matures in December 2017. At September 30, 2017, we had $100.0 million outstanding under the Securitization Facility.

~~Cavalier Credit Agreement~~. On October 6, 2015, Cavalier Minerals entered into a credit agreement (the "Cavalier Credit Agreement") with Mineral Lending, LLC ("Mineral Lending") for a $100.0 million line of credit (the "Cavalier Credit Facility"). There is no commitment fee under the facility. Borrowings under the Cavalier Credit Facility bear interest at a one month LIBOR rate plus 6% with interest payable quarterly. Repayment of the principal balance will begin following the first fiscal quarter after the earlier of the date on which the aggregate amount borrowed exceeds $90.0 million or December 31, 2017, in quarterly payments of an amount equal to the greater of $1.3 million initially, escalated to $2.5 million after two years, or fifty percent of Cavalier Minerals' excess cash flow. The Cavalier Credit Facility matures September 30, 2024, at which time all amounts then outstanding are required to be repaid. To secure payment of the facility, Cavalier Minerals pledged all of its partnership interests, owned or later acquired, in AllDale Minerals, LP and AllDale Minerals II, LP. Cavalier Minerals may prepay the Cavalier Credit Facility at any time in whole or in part subject to terms and conditions described in the Cavalier Credit Agreement. As of September 30, 2017, Cavalier Minerals had not drawn on the Cavalier Credit Facility. Alliance Minerals has the right to require Cavalier Minerals to draw the full amount available under the Cavalier Credit Facility and distribute the proceeds to the members of Cavalier Minerals, including Alliance Minerals

~~Other.~~ In addition to the letters of credit available under the Credit Facility discussed above, we also have an agreement with one bank to provide additional letters of credit of $5.0 million to maintain surety bonds to secure our obligations for workers' ~~compensation benefits. At September 30, 2017, we had~~ ~~$5.0~~ ~~million in letters of credit outstanding under the agreement.~~

~~Related-Party Transactions~~

We have continuing related-party transactions with MGP, MGP II, AHGP and SGP and its affiliates. These related-party transactions relate principally to the provision of administrative services to AHGP and Alliance Resource Holdings II, Inc. and their respective affiliates, mineral leases with SGP and its affiliates, and agreements relating to the use of aircraft. For more information regarding MGP II, please read ~~"Item 1. Financial~~ ~~Statements (Unaudited) – Note 1. Organization and Presentation~~" ~~of this Quarterly Report on Form 10-Q. We also have transactions with (a) WKY CoalPlay, LLC (~~"~~WKY CoalPlay~~"~~) regarding three mineral leases, (b) Kodiak to support its compression services and (c) Bluegrass Minerals Management, LLC (~~"~~Bluegrass Minerals~~") and, through Alliance Minerals and Cavalier Minerals, the AllDale Partnerships to support the acquisition of oil and gas mineral interests. For more information regarding WKY CoalPlay, Kodiak, the AllDale Partnerships and Bluegrass Minerals, please read ~~"Item 1. Financial~~ ~~Statements (Unaudited) – Note 7. Variable Interest Entities~~" and "– Note ~~8. Investments~~"10. Investments" of this Quarterly Report on Form 10-Q. Please read our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~ "~~Item 7. Management~~'~~s Discussion~~2018, "Item 8. Financial Statements and ~~Analysis of Financial Condition and Results of Operations~~Supplementary Data – Note 18. Related-Party ~~Transactions~~"Transactions" for additional information concerning related-party transactions.

~~Table~~Prior to the AllDale Acquisition and Kodiak redemption, we also had transactions with AllDale I & II to support their acquisition of ~~Contents~~

oil & gas mineral interests, and Kodiak to support its gas compression services. For more information regarding the AllDale Acquisition and Kodiak redemption, please read "Item 1. Financial Statements (Unaudited) – Note 3. Acquisition" and "– Note 10. Investments" of this Quarterly Report on Form 10-Q.

New Accounting Standards

See "Item 1. Financial Statements (Unaudited) – Note 2. New Accounting Standards" of this Quarterly Report on Form 10-Q for a discussion of new accounting standards.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Other Information~~

~~White Oak IRS Notice~~

~~The previously communicated IRS audit of White Oak Resources, LLC for the tax year ended December 31, 2011 is ongoing.~~

~~ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Commodity Price Risk

We have significant long-term coal supply agreements. Most of the long-term coal supply agreements are subject to price adjustment provisions, which periodically permit an increase or decrease in the contract price typically to reflect changes in specified indices or changes in production costs resulting from regulatory changes, or both.

Our results of operations are highly dependent upon the prices we receive for our coal. The short-term coal contracts favored by some of our customers leave us more exposed to risks of declining price periods. Also, a significant decline in oil and natural gas prices would have a significant impact on our royalty revenues.

We have exposure to coal, oil and natural gas sales prices and price risk for supplies that are used directly or indirectly in the normal course of coal and oil & gas production such as steel, electricity and other supplies. We manage our risk for these items through strategic sourcing contracts for normal quantities required by our operations. ~~We do~~Historically, we have not ~~utilize~~utilized any commodity price-hedges or other derivatives related to ~~these~~either our sales price or supply cost risks.

Credit Risk

Most of our ~~sales tonnage~~coal is ~~consumed by~~sold to United States electric ~~utilities.~~utilities or into the international markets through brokered transactions. Therefore, our credit risk is primarily with domestic electric power ~~generators.~~generators and reputable global brokerage firms. Our policy is to independently evaluate each ~~customer’s~~customer's creditworthiness prior to entering into transactions and to constantly monitor outstanding accounts receivable against established credit limits. When deemed appropriate by our credit management department, we will take steps to reduce our credit exposure to customers that do not meet our credit standards or whose credit has deteriorated. These steps may include obtaining letters of credit or cash collateral, requiring prepayment for shipments or establishing customer trust accounts held for our benefit in the event of a failure to pay.

Exchange Rate Risk

Almost all of our transactions are denominated in ~~U.S. Dollars,~~United States dollars, and as a result, we do not have material exposure to currency exchange-rate risks.However, because coal is sold internationally in United States dollars, general economic conditions in foreign markets and changes in foreign currency exchange rates may provide our foreign competitors with a competitive advantage. If our competitors' currencies decline against the United States dollar or against foreign purchasers' local currencies, those competitors may be able to offer lower prices for coal to these purchasers. Furthermore, if the currencies of overseas purchasers were to significantly decline in value in comparison to the United States dollar, those purchasers may seek decreased prices for the coal we sell to them. Consequently, currency fluctuations could adversely affect the competitiveness of our coal in international markets.

Table of Contents

Interest Rate Risk

Borrowings under the Revolving Credit ~~Agreement,~~Facility, Securitization Facility and Cavalier Credit Agreement are at variable rates and, as a result, we have interest rate exposure. Historically, our earnings have not been materially affected by changes in interest ~~rates. We do~~rates and we have not ~~utilize any~~utilized interest rate derivative instruments related to our outstanding debt. We had ~~$100.0~~$70.0 million in borrowings under the Revolving Credit Facility and $75.0 million in borrowings under the Securitization Facility at ~~September~~June 30, ~~2017.~~ 2019. A one percentage point increase in the interest rates related to the Revolving Facility and Securitization Facility would result in an annualized increase in interest expense of ~~$1.0~~$1.5 million, based on borrowing levels at ~~September~~June 30, ~~2017. With respect to our fixed-rate borrowings, a one percentage point increase in interest rates would result in a decrease of approximately~~ ~~$27.6~~ ~~million in the estimated fair value of these borrowings.~~2019.

~~As of September 30, 2017, the estimated fair value of our long-term debt was approximately~~ ~~$536.3 million~~. The fair values of long-term debt are estimated using discounted cash flow analyses, based upon our current incremental borrowing rates for similar types of borrowing arrangements as of September 30, 2017. There were no other changes in our quantitative and qualitative disclosures about market risk as set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

~~Table of Contents~~

ITEM 4.CONTROLS AND PROCEDURES

We maintain controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of ~~September~~June 30, ~~2017.~~2019. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these controls and procedures are effective as of ~~September~~June 30, ~~2017.~~2019.

During the quarterly period ended ~~September~~June 30, ~~2017,~~2019, other than the changes that have resulted or may result from the AllDale Acquisition as discussed below, there have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with this evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On January 3, 2019 (the "AllDale Acquisition Date"), we acquired all of the limited partner interests in AllDale Minerals, LP and AllDale Minerals II, LP (collectively, "AllDale I & II") not owned by Cavalier Minerals JV, LLC and the general partner interests in AllDale I & II (the "AllDale Acquisition") as described in "Item 1. Financial Statements (Unaudited) – Note 3. Acquisition" of this Quarterly Report on Form 10-Q. As a result of the AllDale Acquisition, we now own 100% of the general partner interests and, including the limited partner interests we hold indirectly through our ownership in Cavalier Minerals, approximately 97% of the limited partner interests in AllDale I & II. In addition, we assumed control and began accounting for AllDale I & II on a consolidated basis. At this time, we continue to evaluate the business and internal controls and processes of AllDale I & II and are making various changes to their management and organizational structures based on our business plan. We are in the process of implementing our internal control structure over the acquired businesses. We expect to complete the evaluation and integration of the internal controls and processes of AllDale I & II in the first quarter of 2020.

Table of Contents

FORWARD-LOOKING STATEMENTS

Certain statements and information in this Quarterly Report on Form 10-Q may constitute "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. Without limiting the foregoing, all statements relating to our future outlook, anticipated capital expenditures, future cash flows and borrowings and sources of funding are forward-looking statements. These statements reflect our current views with respect to future events and are subject to numerous assumptions that we believe are reasonable, but are open to a wide range of uncertainties and business risks, and actual results may differ materially from those discussed in these statements. Among the factors that could cause actual results to differ from those in the forward-looking statements are:

●

changes in coal prices, which could affect our operating results and cash flows;

●

changes in competition in domestic and international coal markets and our ability to respond to such changes;

●

legislation, regulations, and court decisions and interpretations thereof, both domestic and foreign, including those relating to the environment and the release of greenhouse gases, mining, miner health and safety and health care;

●

deregulation of the electric utility industry or the effects of any adverse change in the coal industry, electric utility industry, or general economic conditions;

●

risks associated with the expansion of our operations and properties;

●

our ability to identify and complete acquisitions;

●

dependence on significant customer contracts, including renewing existing contracts upon expiration;

●

adjustments made in price, volume or terms to existing coal supply agreements;

●

changing global economic conditions or in industries in which our customers operate;

●

recent action and the possibility of future action on trade made by United States and foreign governments;

●

the effect of new tariffs and other trade measures;

●

liquidity constraints, including those resulting from any future unavailability of financing;

●

customer bankruptcies, cancellations or breaches to existing contracts, or other failures to perform;

●

customer delays, failure to take coal under contracts or defaults in making payments;

●

fluctuations in coal demand, prices and availability;

●

~~continuation or worsening of depressed~~changes in oil ~~and~~& gas prices, ~~adversely affecting~~which could, among other things, affect our investments in oil ~~and~~& gas mineral ~~interests and midstream services;~~

interests;

●

our productivity levels and margins earned on our coal sales;

●

decline in or change in the coal ~~industry~~'sindustry's share of electricity generation, including as a result of environmental concerns related to coal mining and combustion and the cost and perceived benefits of other sources of electricity, such as natural gas, nuclear energy and renewable fuels;

●

changes in raw material costs;

●

changes in the availability of skilled labor;

●

our ability to maintain satisfactory relations with our employees;

●

increases in labor costs including costs of health insurance and taxes resulting from the Affordable Care Act, adverse changes in work rules, or cash payments or projections associated with post-mine reclamation and ~~workers′~~workers' compensation claims;

●

increases in transportation costs and risk of transportation delays or interruptions;

●

operational interruptions due to geologic, permitting, labor, weather-related or other factors;

●

risks associated with major mine-related accidents, ~~such as~~ mine fires, mine floods or other interruptions;

●

results of litigation, including claims not yet asserted;

●

foreign currency fluctuations that could adversely affect the competitiveness of our coal abroad;

●

difficulty maintaining our surety bonds for mine reclamation as well as ~~workers′~~workers' compensation and black lung benefits;

●

difficulty in making accurate assumptions and projections regarding post-mine reclamation as well as pension, black lung benefits and other post-retirement benefit liabilities;

●

uncertainties in estimating and replacing our coal reserves;

●

uncertainties in estimating and replacing our oil & gas reserves;

Table of Contents

●

uncertainties in the amount of oil & gas production due to the level of drilling and completion activity by the operators of our oil & gas properties;

●

a loss or reduction of benefits from certain tax deductions and credits;

●

difficulty obtaining commercial property insurance, and risks associated with our participation ~~(excluding any applicable deductible)~~ in the commercial insurance property program;

●

difficulty in making accurate assumptions and projections regarding future revenues and costs associated with equity investments in companies we do not control; and

●

other factors, including those discussed in "~~Item~~"Item 1A. Risk ~~Factors~~"Factors" and "~~Item~~"Item 3. Legal ~~Proceedings~~"Proceedings" in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2018.

~~Table of Contents~~

If one or more of these or other 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 ~~"Risk~~"Item 1A. Risk Factors" below. These 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 information above when reading or considering any forward-looking statements contained in:

●

this Quarterly Report on Form 10-Q;

●

other reports filed by us with the SEC;

●

our press releases;

●

our website http://www.arlp.com; and

●

written or oral statements made by us or any of our officers or other authorized persons acting on our behalf.

4243

Table of Contents

PART II

OTHER INFORMATION

~~PART II~~

~~OTHER INFORMATION~~

ITEM 1.LEGAL PROCEEDINGS

The information in Note 3.4. Contingencies to the Unaudited Condensed Consolidated Financial Statements included in "~~Part~~"Part I. Item 1. Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q herein is hereby incorporated by reference. See also "~~Item~~"Item 3. Legal ~~Proceedings~~"Proceedings" of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

ITEM 1A.RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factor set forth below and the risk factors discussed in Part I, Item 1A "~~Risk Factors~~""Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q are not our only risks. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial based on current knowledge and factual circumstances, if such knowledge or facts change, also may materially adversely affect our business, financial condition and/or operating results in the future. ~~We do not believe there~~

The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.

The present United States federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units, may be modified by administrative, legislative or judicial changes or differing interpretations at any time. From time to time, members of Congress have ~~been any material~~proposed and considered substantive changes to the ~~risk factors previously disclosed~~existing United States federal income tax laws that would affect publicly traded partnerships including elimination of partnership tax treatment for certain publicly traded partnerships. Any modification to the United States federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for United States federal income tax purposes. For example, recently enacted legislation repealed Section 199 of the Code, which, prior to its repeal, entitled our unitholders to a deduction equal to a specified percentage of our qualified production activities income that was allocated to such unitholder. In addition, the “Clean Energy for America Act”, which is similar to legislation that was commonly proposed during the Obama Administration, was introduced in the Senate on May 2, 2019. If enacted, this proposal would, among other things, repeal the qualifying income exception within Section 7704(d)(1)(E) of the Code upon which we rely for our status as a partnership for United States federal income tax purposes.

In addition, the Treasury Department has issued, and in the future may issue, regulations interpreting those laws that affect publicly traded partnerships. There can be no assurance that there will not be further changes to United States federal income tax laws or the Treasury Department’s interpretation of such income tax laws in a manner that could impact our ability to qualify as a publicly traded partnership in the future. We are unable to predict whether any changes or other proposals will ultimately be enacted. Any future legislative changes could negatively impact the value of an investment in our ~~Annual Report~~common units. You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on ~~Form 10-K for the year ended December 31, 2016.~~your investment in our common units.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 31, 2018, ARLP announced that the MGP board of directors approved the establishment of a unit repurchase program authorizing ARLP to repurchase up to $100 million of its outstanding limited partner common units. The unit repurchase program is intended to enhance ARLP’s ability to achieve its goal of creating long-term value for its unitholders and provides another means, along with quarterly cash distributions, of returning cash to unitholders. The program has no time limit and ARLP may repurchase units from time to time in the open market or in other privately negotiated transactions. The unit repurchase program authorization does not obligate ARLP to repurchase any dollar amount or number of units, and repurchases may be commenced or suspended from time to time without prior notice.

Table of Contents

During the three months ended June 30, 2019, we did not repurchase and retire any units. Since inception of the program, we have repurchased and retired 3,985,010 units at an average unit price of $19.03 for an aggregate purchase price of $75.8 million. The remaining authorized amount for unit repurchases under this program was $24.2 million.

~~None.~~

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.

ITEM 5.OTHER INFORMATION

None.

4345

Table of Contents

ITEM 6.EXHIBITS


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	SEC File No. and Film No.	Exhibit	Filing Date	Filed Herewith*

3.1	Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P.	8-K	000-26823 17990766	3.2	07/28/2017

3.2	Amendment No. 1 to Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P.	10-K	000-26823 18634634	3.9	02/23/2018

3.3	Amendment No. 2 to Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P.	8-K	000-26823 18883834	3.3	06/06/2018

3.4	Amendment No. 3 to Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P.	8-K	000-26823 18883834	3.4	06/06/2018

3.5	Amended and Restated Agreement of Limited Partnership of Alliance Resource Operating Partners, L.P.	10-K	000-26823 583595	3.2	03/29/2000

3.6	Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Alliance Resource Operating Partners, L.P.	8-K	000-26823 18883834	3.5	06/06/2018

3.7	Amended and Restated Certificate of Limited Partnership of Alliance Resource Partners, L.P.	8-K	000-26823 17990766	3.6	07/28/2017

3.8	Certificate of Limited Partnership of Alliance Resource Operating Partners, L.P.	S-1/A	333-78845 99669102	3.8	07/23/1999

3.9	Certificate of Formation of Alliance Resource Management GP, LLC	S-1/A	333-78845 99669102	3.7	07/23/1999

3.10	Third Amended and Restated Operating Agreement of Alliance Resource Management GP, LLC	8-K	000-26823 18883834	3.7	06/06/2018

3.11	Certificate of Formation of MGP II, LLC	8-K	000-26823 17990766	3.5	07/28/2017

3.12	Amended and Restated Operating Agreement of MGP II, LLC	8-K	000-26823 17990766	3.4	07/28/2017

Incorporated by Reference
Exhibit
Number

Exhibit Description

Form

SEC
File No. and
Film No.

Exhibit

Filing Date

Filed
Herewith*

3.1

Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P.

8-K

000-26823
17990766

3.2

07/28/2017

3.2

Amended and Restated Agreement of Limited Partnership of Alliance Resource Operating Partners, L.P.

10-K

000-26823
583595

3.2

03/29/2000

3.3

Amended and Restated Certificate of Limited Partnership of Alliance Resource Partners, L.P.

8-K

000-26823
17990766

3.6

07/28/2017

3.4

Certificate of Limited Partnership of Alliance Resource Operating Partners, L.P.

S-1/A

333-78845
99669102

3.8

07/23/1999

3.5

Certificate of Formation of Alliance Resource Management GP, LLC

S-1/A

333-78845
99669102

3.7

07/23/1999

3.6

Second Amended and Restated Operating Agreement of Alliance Resource Management GP, LLC

8-K

000-26823
17990766

3.3

07/28/2017

3.7

Certificate of Formation of MGP II, LLC

8-K

000-26823
17990766

3.5

07/28/2017

3.8

Amended and Restated Operating Agreement of MGP II, LLC

8-K

000-26823
17990766

3.4

07/28/2017

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 6, 2017, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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 6, 2017, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Table of Contents



										Incorporated by Reference
	Exhibit Number				Exhibit Description		Form	SEC File No. and Film No.	Exhibit	Filing Date	Filed Herewith*
10.1		~~Exhibit~~Purchase and Sale Agreement by and between Wing Resources LLC, and Wing Resources II LLC, as sellers, and Alliance Resource Partners, L.P., as buyer, dated as of June 21, 2019		~~Filing Date~~		Filed Herewith*

~~32.1~~ 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 6, 2017,~~August 5, 2019, pursuant to Section ~~906~~302 of the Sarbanes-Oxley Act of 2002.

~~32.2~~ 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 6, 2017,~~August 5, 2019, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Joseph W. Craft III, President and Chief Executive Officer of Alliance Resource Management GP, LLC, the general partner of Alliance Resource Partners, L.P., dated August 5, 2019, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~95.1~~ 32.2		Certification of Brian L. Cantrell, Senior Vice President and Chief Financial Officer of Alliance Resource Management GP, LLC, the general partner of Alliance Resource Partners, L.P., dated August 5, 2019, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

95.1		Federal Mine Safety and Health Act Information

101			Interactive Data File (Form 10-Q for the quarter ended ~~September~~June 30, ~~2017~~2019 filed in Inline XBRL).

* Or furnished, in the case of Exhibits 32.1 and 32.2.

4547

Table of Contents

SIGNATURES

~~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 6, 2017.~~August 5, 2019.


	ALLIANCE RESOURCE PARTNERS, L.P.

	By:	Alliance Resource Management GP, LLC
		its general partner

		/s/ Joseph W. Craft, III
		Joseph W. Craft, III
		President, Chief Executive Officer
		and ~~Director,~~Chairman, duly authorized to sign on behalf of the registrant.


		/s/ ~~Brian L. Cantrell~~Robert J. Fouch
		~~Brian L. Cantrell~~Robert J. Fouch
		~~Senior~~ Vice President, Controller and
		Chief ~~Financial~~Accounting Officer

4648


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
SALES AND OPERATING REVENUES:
Coal sales	$	435,162	$	533,817	$	1,256,168	$	1,357,578
Transportation revenues		8,009		7,692		24,933		19,732
Other sales and operating revenues		10,018		10,565		31,888		26,743
Total revenues		453,189		552,074		1,312,989		1,404,053

EXPENSES:
Operating expenses (excluding depreciation, depletion and amortization)		295,385		326,891		796,845		842,417
Transportation expenses		8,009		7,692		24,933		19,732
Outside coal purchases		—		1,514		—		1,514
General and administrative		15,005		18,114		45,982		53,015
Depreciation, depletion and amortization		69,962		101,432		194,109		245,736
Total operating expenses		388,361		455,643		1,061,869		1,162,414

INCOME FROM OPERATIONS		64,828		96,431		251,120		241,639

Interest expense (net of interest capitalized for the three and nine months ended September 30, 2017 and 2016 of $107, $47, $354 and $320, respectively)		(10,773)		(8,001)		(28,904)		(23,386)
Interest income		4		3		82		8
Equity in income of affiliates		3,798		1,105		10,414		1,041
Cost investment income		2,800		—		2,800		—
Debt extinguishment loss		—		—		(8,148)		—
Other income		774		293		2,461		545
INCOME BEFORE INCOME TAXES		61,431		89,831		229,825		219,847

INCOME TAX EXPENSE (BENEFIT)		5		7		(3)		4

NET INCOME		61,426		89,824		229,828		219,843

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(155)		(44)		(425)		(40)

NET INCOME ATTRIBUTABLE TO ALLIANCE RESOURCE PARTNERS, L.P. ("NET INCOME OF ARLP")	$	61,271	$	89,780	$	229,403	$	219,803

GENERAL PARTNERS' INTEREST IN NET INCOME OF ARLP	$	612	$	20,571	$	21,362	$	60,723

LIMITED PARTNERS' INTEREST IN NET INCOME OF ARLP	$	60,659	$	69,209	$	208,041	$	159,080

BASIC AND DILUTED NET INCOME OF ARLP PER LIMITED PARTNER UNIT (Note 9)	$	0.52	$	0.91	$	2.32	$	2.08

DISTRIBUTIONS PAID PER LIMITED PARTNER UNIT	$	0.5000	$	0.4375	$	1.3750	$	1.5500

WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED		114,237,979		74,375,025		87,924,986		74,347,157


							Accumulated
	Number of	Limited		General			Other
	Limited Partner	Partners’		Partners’			Comprehensive		Noncontrolling		Total Partners’
	Units	Capital		Capital (Deficit)			Income (Loss)		Interest		Capital
Balance at January 1, 2017	74,375,025	$	1,400,202	$	(273,788)		$	(38,540)	$	5,550		1,093,424
Comprehensive income:
Net income	—		208,041		21,362	��		—		425		229,828
Actuarially determined long-term liability adjustments	—		—		—			846		—		846
Total comprehensive income	—		—		—			—		—		230,674
Issuance of units to Long-Term Incentive Plan participants upon vesting	222,011		(2,988)		—			—		—		(2,988)
Issuance of units to MGP in Exchange Transaction	56,100,000		14,171		(14,171)			—		—		—
Issuance of units to SGP in Exchange Transaction	7,181		(320,838)		320,838			—		—		—
Exchange Transaction fees	—		(1,550)		—			—		—		(1,550)
Common unit-based compensation	—		8,947		—			—		—		8,947
Distributions on common unit-based compensation	—		(2,392)		—			—		—		(2,392)
General Partners contributions	—		—		905			—		—		905
Contributions to consolidated company from affiliate noncontrolling interest	—		—		—			—		251		251
Distributions from consolidated company to affiliate noncontrolling interest	—		—		—			—		(855)		(855)
Distributions to Partners	—		(130,527)		(40,365)			—		—		(170,892)
Balance at September 30, 2017	130,704,217	$	1,173,066	$	14,781		$	(37,694)	$	5,371	$	1,155,524


	September 30, 2017						December 31, 2016
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	(in thousands)
Measured on a recurring basis:
Contingent consideration	$	—	$	—	$	9,700	$	—	$	—	$	9,700

Additional disclosures:
Long-term debt		—		536,296		—		—		559,509		—
Total	$	—	$	536,296	$	9,700	$	—	$	559,509	$	9,700


	Illinois				Other and		Elimination
	Basin		Appalachia		Corporate		(1)		Consolidated
	(in thousands)
Three Months Ended September 30, 2017

Revenues - Outside	$	266,931	$	152,865	$	33,393	$	—	$	453,189
Revenues - Intercompany		18,446		1,390		3,977		(23,813)		—
Total revenues (2)		285,377		154,255		37,370		(23,813)		453,189

Segment Adjusted EBITDA Expense (3)		192,465		97,316		26,421		(21,591)		294,611
Segment Adjusted EBITDA (4)		86,377		55,465		17,547		(2,222)		157,167
Capital expenditures		26,328		11,126		484		—		37,938

Three Months Ended September 30, 2016

Revenues - Outside	$	360,221	$	154,852	$	37,001	$	—	$	552,074
Revenues - Intercompany		18,267		—		4,826		(23,093)		—
Total revenues (2)		378,488		154,852		41,827		(23,093)		552,074

Segment Adjusted EBITDA Expense (3)		227,526		94,201		26,664		(20,279)		328,112
Segment Adjusted EBITDA (4)		145,424		58,497		16,268		(2,814)		217,375
Capital expenditures		10,893		10,306		466		—		21,665

Nine Months Ended September 30, 2017

Revenues - Outside	$	763,765	$	458,815	$	90,409	$	—	$	1,312,989
Revenues - Intercompany		46,740		1,390		11,985		(60,115)		—
Total revenues (2)		810,505		460,205		102,394		(60,115)		1,312,989

Segment Adjusted EBITDA Expense (3)		504,201		276,252		67,382		(53,451)		794,384
Segment Adjusted EBITDA (4)		285,928		179,396		48,226		(6,664)		506,886
Total assets		1,406,831		468,580		454,314		(123,073)		2,206,652
Capital expenditures		66,444		37,167		1,844		—		105,455

Nine Months Ended September 30, 2016

Revenues - Outside	$	921,796	$	407,406	$	74,851	$	—	$	1,404,053
Revenues - Intercompany		40,448		3,806		13,723		(57,977)		—
Total revenues (2)		962,244		411,212		88,574		(57,977)		1,404,053

Segment Adjusted EBITDA Expense (3)		567,214		261,933		63,575		(49,336)		843,386
Segment Adjusted EBITDA (4)		381,042		143,699		25,876		(8,641)		541,976
Total assets		1,541,513		480,920		370,280		(148,438)		2,244,275
Capital expenditures		41,264		27,317		1,686		—		70,267


	Three Months Ended September 30,
	2017		2016		2017		2016
	(in thousands)				(per ton sold)
Tons sold		9,645		10,757		N/A		N/A
Tons produced		8,521		8,512		N/A		N/A
Coal sales	$	435,162	$	533,817	$	45.12	$	49.63
Operating expenses and outside coal purchases	$	295,385	$	328,405	$	30.63	$	30.53


	Nine Months Ended September 30,
	2017		2016		2017		2016
	(in thousands)				(per ton sold)
Tons sold		27,721		26,177		N/A		N/A
Tons produced		28,211		25,759		N/A		N/A
Coal sales	$	1,256,168	$	1,357,578	$	45.31	$	51.86
Operating expenses and outside coal purchases	$	796,845	$	843,931	$	28.75	$	32.24


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	SEC File No. and Film No.	Exhibit	Filing Date	Filed Herewith*

3.1	Fourth Amended and Restated Agreement of Limited Partnership of Alliance Resource Partners, L.P.	8-K	000-26823 17990766	3.2	07/28/2017

3.2	Amended and Restated Agreement of Limited Partnership of Alliance Resource Operating Partners, L.P.	10-K	000-26823 583595	3.2	03/29/2000

3.3	Amended and Restated Certificate of Limited Partnership of Alliance Resource Partners, L.P.	8-K	000-26823 17990766	3.6	07/28/2017

3.4	Certificate of Limited Partnership of Alliance Resource Operating Partners, L.P.	S-1/A	333-78845 99669102	3.8	07/23/1999

3.5	Certificate of Formation of Alliance Resource Management GP, LLC	S-1/A	333-78845 99669102	3.7	07/23/1999

3.6	Second Amended and Restated Operating Agreement of Alliance Resource Management GP, LLC	8-K	000-26823 17990766	3.3	07/28/2017

3.7	Certificate of Formation of MGP II, LLC	8-K	000-26823 17990766	3.5	07/28/2017

3.8	Amended and Restated Operating Agreement of MGP II, LLC	8-K	000-26823 17990766	3.4	07/28/2017

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 6, 2017, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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 6, 2017, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.