What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-05 · 162 added, 331 removed, 173 unchanged (74% of the section changed)

10 unchanged sentences

mean Alliance Resource Management GP, LLC, ARLP's general partner.

● References to "Mr.

mean Joseph W.

Craft III, the Chairman, President and Chief Executive Officer of MGP.

● References to "Intermediate Partnership"

3 unchanged sentences

● References to "Alliance Minerals"

mean Alliance Minerals, LLC, the holding company for the oil and gas minerals interests of Alliance Resource Partners, L.P.

We are a diversified natural resource company operating in the United States 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.

mean Alliance Minerals, LLC, the holding company for the oil and gas minerals interests of Alliance Resource Operating Partners, L.P.

● References to "Alliance Resource Properties"

mean Alliance Resource Properties, LLC (the land holding company for certain coal mineral interests of Alliance Resource Operating Partners, L.P.) including the subsidiaries of Alliance Resource Properties, LLC.

We are a diversified natural resource company operating in the United States that generates operating and royalty income from the production and marketing of coal to major domestic and international utilities and industrial users as well as royalty income from oil & gas mineral interests.

We began coal mining operations in 1971 and, since then, have grown through acquisitions and internal development in strategic producing regions to become the second largest coal producer in the eastern United States.

2 unchanged sentences

As is customary in the coal industry, we have entered into long-term coal supply agreements with many of our customers.

In addition to our mining operations, in 2007, Alliance Resource Properties began acquiring control of coal mineral interests and leasing the coal reserves to our mining operations.

In 2014, we began acquiring oil & gas mineral interests in premier oil & gas producing regions across the United States.

We have three reportable segments, Illinois Basin, Appalachia, and Minerals.

We have four reportable segments, Illinois Basin Coal Operations, Appalachia Coal Operations, Oil & Gas Royalties and Coal Royalties.

We also have an "all other"

category referred to as Other and Corporate.

Our two reportable coal 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 seven 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 includes our oil & gas mineral interests which are located primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK), and Williston (Bakken) basins.

Our two coal operations 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 operations reportable segments include seven mining complexes operating in Illinois, Indiana, Kentucky, Maryland, Pennsylvania and West Virginia and a coal loading terminal in Indiana on the Ohio River.

Our Oil & Gas Royalties reportable segment includes our oil & gas mineral interests which are located primarily in the Permian (Delaware and Midland), Anadarko (SCOOP/STACK), and Williston (Bakken) basins.

Our ownership in these basins includes approximately 55,500 net royalty acres which provides us with diversified exposure to industry leading operators consistent with our general business strategy to grow our oil & gas mineral interest business.

We market our mineral interests for lease to operators in those regions and generate royalty income from the leasing and development of those mineral interests.

● Illinois Basin reportable segment includes currently operating mining complexes (a) Gibson County Coal, LLC's ("Gibson") mining complex, which includes the Gibson South mine, (b) Warrior Coal, LLC's ("Warrior") mining complex, (c) River View Coal, LLC's ("River View") mining complex and (d) Hamilton County Coal, LLC's ("Hamilton") mining complex.

The Illinois Basin reportable segment also includes our operating Mt.

We market our oil & gas mineral interests for lease to operators in those regions and generate royalty income from the leasing and development of those mineral interests.

Our Coal Royalties reportable segment includes coal reserves controlled by Alliance Resource Properties, which are either (a) leased to certain of our coal mining entities or (b) unleased but near our coal mining operations.

Beginning in the first quarter of 2021, we began to strategically view and manage our coal royalty activities separately from our coal operations since acquiring and managing a variety of royalty producing assets have similar management attributes.

As a result, we restructured our reportable segments to better reflect this strategic view in how we manage our business and allocate resources.

Prior periods have been recast to include Alliance Resource Properties within our new Coal Royalties reportable segment with offsetting recast adjustments primarily to our coal operations reportable

segments and to a lesser extent, our Other and Corporate category.

Our reported eliminations were recast also to reflect intercompany royalty revenues and offsetting intercompany royalty expense resulting from our new Coal Royalties reportable segment.

● Illinois Basin Coal Operations reportable segment includes currently operating mining complexes (a) the Gibson County Coal, LLC ("Gibson") mining complex, which includes the Gibson South mine, (b) the Warrior Coal, LLC ("Warrior") mining complex, (c) the River View Coal, LLC ("River View") mining complex and (d) the Hamilton County Coal, LLC ("Hamilton") mining complex.

The Illinois Basin Coal Operations reportable segment also includes our operating Mt.

Vernon Transfer Terminal, LLC ("Mt.

Vernon") coal loading terminal in Indiana on the Ohio River.

The Illinois Basin reportable segment also includes Mid-America Carbonates, LLC ("MAC") and other support services as well as non-operating mining complexes (a) Gibson North mine, which ceased production in fourth quarter of 2019, (b) Webster County Coal, LLC's Dotiki mining complex, which ceased production in August 2019, (c) White County Coal, LLC's Pattiki mining complex, (d) Hopkins County Coal, LLC's mining complex, and (e) Sebree Mining, LLC's mining complex.

● 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's ("MC Mining") mining complex.

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 assets, which are primarily coal mineral interests.

● Minerals reportable segment includes oil & gas mineral interests held by AR Midland, LP ("AR Midland") and AllDale I & II and includes Alliance Minerals' equity interests in both AllDale Minerals III, LP ("AllDale III") (Note 11 – Investments) and Cavalier Minerals.

AR Midland acquired its mineral interest in the Wing Acquisition (Note 3 – Acquisition).

Our Coal Royalties reportable segment controls other coal reserves near our Illinois Basin operations, which have not yet been leased to our Illinois Basin mining entities.

The Illinois Basin Coal Operations reportable segment also includes Mid-America Carbonates, LLC ("MAC") and other support services as well as non-operating mining complexes (a) the Gibson North mine, which ceased production in fourth quarter of 2019, (b) Webster County Coal, LLC's Dotiki mining complex, (c) White County Coal, LLC's Pattiki mining complex, (d) Hopkins County Coal, LLC's mining complex, and (e) Sebree Mining, LLC's mining complex.

● Appalachia Coal Operations reportable segment includes currently operating mining complexes (a) the Mettiki mining complex ("Mettiki"), (b) the Tunnel Ridge, LLC mining complex ("Tunnel Ridge"), and (c) the MC Mining, LLC ("MC Mining") mining complex.

The Mettiki mining complex includes Mettiki Coal (WV), LLC's Mountain View mine and Mettiki Coal, LLC's preparation plant.

Our Coal Royalties reportable segment discussed below, controls the Penn Ridge coal reserves near our Tunnel Ridge operations which have not yet been leased to Tunnel Ridge.

● Oil & Gas Royalties reportable segment includes oil & gas mineral interests held by AR Midland, LP ("AR Midland") and AllDale I & II and includes Alliance Minerals' equity interests in both AllDale Minerals III, LP ("AllDale III") (Note 9 – Investment) and Cavalier Minerals.

Please read "Item 1.

Financial Statements (Unaudited) — Note 3 – Acquisition"

— Note 11 – Investments"

of this Quarterly Report on Form 10-Q for more information on the Wing Acquisition and AllDale III, respectively.

In February 2019, Kodiak redeemed our equity investment (see Note 11 – Investments).

In addition, Other and Corporate includes certain Alliance Resource Properties, LLC's land and coal mineral interest activities, Pontiki Coal, LLC's 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 9 – Long-Term Debt).

Financial Statements (Unaudited) — Note 9 – Investment"

of this Quarterly Report on Form 10-Q for more information on AllDale III.

● Coal Royalties reportable segment includes coal reserves held or controlled by Alliance Resource Properties, consisting of (a) reserves leased to certain of our mining complexes in both the Illinois Basin Coal Operations and Appalachia Coal Operations reportable segments and (b) reserves near our coal mining operations but not yet leased to our coal mining entities.

About two thirds of the coal sold by our Coal Operations' mines is leased from our Coal Royalties entities.

● Other and Corporate includes marketing and administrative activities, Matrix Design Group, LLC and its subsidiaries ("Matrix Design"), Alliance Design Group, LLC ("Alliance Design") (collectively, Matrix Design and Alliance Design referred to as the "Matrix Group"), Pontiki Coal, LLC's 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 7 – Long-Term Debt).

Please read "Item 1.

Financial Statements (Unaudited) — Note 7 – Long-Term Debt"

— Note 11 – Investments"

of this Quarterly Report on Form 10-Q for more information on AROP Funding and Kodiak redemption, respectively.

Market Developments and Our Response for the Nine Months Ended September 30, 2020

We began the year anticipating our results for the nine months ended September 30, 2020 (the "2020 Period") would be negatively impacted by challenging coal market conditions primarily due to low natural gas prices and the overhang of coal supply caused by the collapse of thermal coal export prices during the second half of 2019.

During the first half of the year, mild weather conditions and deteriorating natural gas prices placed increased pressure on the performance of our coal operations.

Also, our Minerals segment results were impacted by natural gas prices remaining low and the collapse in oil prices following actions by the Organization of Petroleum Exporting Countries and Russia.

These trends accelerated substantially during the first half of the year with unprecedented demand destruction across all energy markets due to the disruptions to global economies in response to the COVID-19 pandemic.

In response to these challenges, we halted production at all of our mining complexes in the Illinois Basin at the end of March and our MC Mining complex in East Kentucky in early April.

With an objective of reducing coal production to match existing contracted sales commitments for 2020, we planned to curtail production at these operations as long as it was possible to meet customer obligations from existing coal inventories.

Throughout the quarter ended June 30, 2020 (the "Sequential Quarter") we monitored coal inventories at each location and worked closely with customers to determine when it would be necessary to resume coal production.

Underground production operations resumed in the Sequential Quarter at each of our mining complexes.

All of our seven mining complexes are now producing coal.

However, several mines will continue to run at less than capacity due to a limited spot market in the U.S.

and a seaborne market that continues to be sub-economic for U.S.

Also in response to these market conditions, we have continuously undertaken numerous efforts to optimize cash flows, reduce working capital requirements and strictly control capital expenditures and expenses.

In addition, the Board of Directors of ARLP's general partner (the "Board") suspended cash distributions to unitholders beginning with the quarter ended March 31, 2020 ("First Quarter").

During the quarter ended September 30, 2020 (the "2020 Quarter"), improved economic activity, increased coal demand and recovering oil & gas production volumes and prices positively impacted our performance.

Stronger commodity prices led oil & gas operators to bring previously shut-in wells back online and slowly resume drilling and completion activity positively impacting our Minerals segment.

Impact of the COVID-19 Pandemic

In the 2020 Period, a variety of measures in the U.S.

and abroad in response to the COVID-19 pandemic resulted in a reduction in the global demand for energy.

These measures included travel restrictions, gathering bans and stay-at-home orders.

All of our operations are classified as essential in the states in which we operate.

Therefore, to protect our employees during the COVID-19 pandemic, we implemented numerous health and safety protocols designed to contain

and mitigate the risk of infection from COVID-19.

We will continually evaluate the need for further safeguards as the pandemic continues.

As discussed above, we curtailed coal production during the 2020 Period in response to global energy demand destruction caused by the COVID-19 pandemic, including the temporary cessation of production at various operations in both the Illinois Basin and Appalachian regions.

Due to the ongoing and unforeseen impacts of the COVID-19 pandemic, on April 15, 2020, 116 employees of the Gibson County mining complex and 78 employees of the Hamilton mining complex were notified that their employment would be terminated permanently on April 26, 2020.

In light of the downturn in market conditions during the 2020 Period and the ongoing uncertainty surrounding the COVID-19 pandemic, we have also taken the following additional actions:

● To mitigate the reduced revenues from lower coal sales volumes and depressed commodity prices impacting our minerals segment, we have undertaken numerous efforts to optimize cash flows, reduce working capital requirements and strictly control capital expenditures, operating expenses and general and administrative expenses.

Our cost control initiatives during the 2020 Period have resulted in significant reductions in expenses in each of these categories compared to the same period in 2019.

The cost reductions are discussed in more detail below.

● The Board has suspended the cash distribution to unitholders beginning with the First Quarter.

● In March 2020, we withdrew our initial 2020 operating and financial guidance provided on January 27, 2020, which did not reflect the impact of the COVID-19 pandemic.

● On March 9, 2020, we strengthened our liquidity by entering into a $537.75 million (reducing to $459.5 million on May 23, 2021) revolving credit facility with a termination date of March 9, 2024, replacing the $494.75 million revolving credit facility that was set to expire on May 23, 2021.

The loan under the revolving credit facility is guaranteed by certain of our direct and indirect subsidiaries and substantially all of their assets, with the exception of our oil and gas subsidiaries and their assets.

● We have further enhanced our liquidity by reducing our total debt by $100.4 million during the 2020 Quarter.

We are continuing to monitor and may take further actions to minimize any adverse impact caused by the COVID-19 pandemic.

Beginning in the First Quarter, the trend of our earnings was impacted by the significant decrease in global energy demand caused by the COVID-19 pandemic, as well as already weak coal market conditions and declining oil prices resulting from actions of major oil producing countries.

These impacts continued and were more fully realized in the Sequential Quarter, as production was curtailed at a majority of our mines and oil & gas commodity prices declined.

Later in the Sequential Quarter, we were able to bring our coal production back online at all of our mines.

Financial and operating results for the 2020 Quarter have improved due to increased demand for coal and oil & gas compared to the Sequential Quarter.

The following comparisons between the 2020 Quarter, the Sequential Quarter, and the First Quarter reflect the trend of earnings during the 2020 Period.

(1) 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 (loss)."

(2) 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."

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

Please see our discussion in "Part I - Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations"

in our Forms 10-Q for the quarterly periods ended June 30, 2020 and March 31, 2020 for more information with respect to the results of the Sequential Quarter and the First Quarter, respectively.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

We reported net income attributable to ARLP of $27.2 million for the 2020 Quarter compared to $39.1 million for the three months ended September 30, 2019 ("2019 Quarter").

The decrease of $11.9 million was primarily due to lower revenues, partially offset by reduced total operating expenses reflecting in part a $15.2 million impairment charge in the 2019 Quarter discussed below.

Total revenues decreased to $355.7 million in the 2020 Quarter compared to $464.7 million for the 2019 Quarter due to reduced coal sales volumes and prices as a result of weak coal markets amid reduced global energy demand during the COVID-19 pandemic.

Operating expenses of $216.0 million for the 2020 Quarter were also lower compared to $278.3 million in the 2019 Quarter.

Three Months Ended September 30,

of this Quarterly Report on Form 10-Q for more information on AROP Funding.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

We reported net income attributable to ARLP of $24.7 million for the three months ended March 31, 2021 ("2021 Quarter") compared to a net loss attributable to ARLP of $144.8 million for the three months ended March 31, 2020 ("2020 Quarter").

The increase of $169.5 million was primarily due to non-cash asset and goodwill impairment charges of $157.0 million recorded in the 2020 Quarter and reduced operating expenses, partially offset by lower revenues.

Total revenues decreased to $318.6 million in the 2021 Quarter compared to $350.8 million for the 2020 Quarter due to reduced coal sales volumes and price realizations as well as lower contract buy-out revenues, partially offset by higher transportation revenues due to increased coal sales into the export markets.

Weather-related transportation disruptions and an unplanned customer plant outage impacted anticipated coal shipments during the 2021 Quarter, contributing to a 9.2% reduction in total revenues compared to the 2020 Quarter.

Lower coal volumes and ongoing efficiency initiatives at our mining operations contributed to lower operating expenses of $196.5 million for the 2021 Quarter, compared to $234.3 million for the 2020 Quarter, largely offsetting lower total revenues.

In general, the results from the 2021 Quarter benefited as compared to

the 2020 Quarter, from significantly reduced disruptions to global energy demand created by the COVID-19 pandemic that negatively impacted our results for the 2020 Quarter.

Three Months Ended March 31,

(in thousands)

(per ton sold)

Tons produced

(per ton/BOE sold)

Coal - Tons sold

Coal - Tons produced

Coal - Coal sales

Coal - Segment Adjusted EBITDA Expense (1) (2)

Oil & Gas Royalties - BOE sold (3)

Oil & Gas Royalties - Royalties

Coal Royalties - Tons sold

Coal Royalties - Intercompany royalties

(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.

(2) Coal - Segment Adjusted EBITDA Expense is defined as consolidated Segment Adjusted EBITDA Expense excluding expenses of our Oil & Gas Royalties segment and is adjusted for intercompany transactions with our Coal Royalties segment.

(3) Average sales price per BOE is defined as oil & gas royalty revenues excluding lease bonus revenue divided by total BOE sold.

Coal sales decreased $27.1 million or 8.6% to $287.5 million for the 2021 Quarter from $314.6 million for the 2020 Quarter.

The decrease was attributable to a volume variance of $18.3 million resulting from decreased tons sold and a price variance of $8.8 million due to lower average coal sales prices.

Tons sold declined to 7.7 million tons in the 2020 Quarter compared to 9.3 million tons in the 2019 Quarter primarily reflecting reduced sales of export

Coal sales price realizations also fell by 3.3% in the 2020 Quarter to $43.59 per ton sold, compared to $45.06 per ton sold during the 2019 Quarter due to lower priced thermal and metallurgical markets compared to the 2019 Quarter.

Oil & gas royalties .

Our mineral interests contributed royalty revenues of $9.7 million in the 2020 Quarter compared to $14.0 million for the 2019 Quarter.

The decrease in royalty revenues is primarily due to lower oil & gas sales price realizations resulting from reduced global energy demand amid the COVID-19 pandemic.

Partially offsetting lower prices, royalty revenues benefited from higher volumes as a result of the Wing Acquisition in August 2019.

Please read "Item 1.

Financial Statements (Unaudited) — Note 3 – Acquisition"

of this Quarterly Report on Form 10-Q for more information on the Wing Acquisition.

Tons sold declined to 6.8 million tons in the 2021 Quarter compared to 7.3 million tons in the 2020 Quarter primarily reflecting weather-related transportation disruptions, and an unplanned customer plant outage offset in part by increased export volumes.

Coal sales price realizations also fell by 3.0% in the 2021 Quarter to $42.10 per ton sold, compared to $43.39 per ton sold during the 2020 Quarter due to the expiration of higher priced contract shipments.

Coal - Segment Adjusted EBITDA Expense .

Segment Adjusted EBITDA Expense, excluding our Minerals segment, decreased 24.7% to $215.9 million, as a result of reduced tons sold and lower expense per ton.

On a per ton basis, Segment Adjusted EBITDA Expense, excluding our Minerals segment, decreased 8.8% in the 2020 Quarter to $28.03 per ton sold, compared to $30.75 per ton in the 2019 Quarter, primarily due to ongoing expense control initiatives at all operations, a favorable sales mix from our lower cost mines, improved recovery percentages from certain mines and lower inventory costs, particularly at our Appalachian mines.

In addition, other cost decreases are discussed by category below:

Segment Adjusted EBITDA Expense for our coal operations decreased 15.7% to $202.9 million, as a result of reduced tons sold and lower expense per ton.

On a per ton basis, Segment Adjusted EBITDA Expense for our coal operations decreased 10.5% in the 2021 Quarter to $29.72 per ton sold, compared to $33.20 per ton in the 2020 Quarter, primarily due to ongoing expense control and efficiency initiatives at all of our mining operations and improved recoveries at our Hamilton, Warrior, Tunnel Ridge and MC Mining operations.

In addition, other cost decreases are discussed below by category:

● Labor and benefit expenses per ton produced, excluding workers' compensation, decreased 13.2% to $9.43 per ton in the 2021 Quarter from $10.87 per ton in the 2020 Quarter.

The decrease of $1.44 per ton was primarily due to decreased labor expenses at various mines resulting from ongoing expense controls, efficiency initiatives and improved recoveries at certain mines mentioned above.

● Material and supplies expenses per ton produced decreased 9.0% to $9.95 per ton in the 2021 Quarter from $10.94 per ton in the 2020 Quarter.

The decrease of $1.10 per ton produced resulted primarily from related decreases of $0.33 per ton for contract labor used in the mining process, $0.29 per ton for roof support and $0.28 per ton for outside expenses, partially offset by an increase of $0.24 per ton in longwall subsidence expense .

The decrease of $0.99 per ton produced resulted primarily from related decreases of $0.57 per ton for outside expenses used in the mining processes, $0.19 per ton for environmental and reclamation expenses other than longwall subsidence, $0.18 per ton for certain ventilation expenses, $0.17 per ton for power and fuel used in the mining process and $0.14 per ton for safety related materials and supplies, partially offset by an increase of $0.60 per ton in longwall subsidence expense primarily at our Tunnel Ridge operation .

● Maintenance expenses per ton produced decreased 29.9% to $2.56 per ton in the 2021 Quarter from $3.65 per ton in the 2020 Quarter.

The decrease of $0.85 per ton produced was primarily due to reduced maintenance requirements as a result of curtailed production.

● Operating expenses benefited from a $4.0 million decrease associated with the commencement of a sales-type lease in the 2020 Quarter for certain properties at our Pattiki mining complex, which ceased production in 2016 and where reclamation activities are ongoing.

● We had no sales of outside coal purchases in the 2020 Quarter compared to $10.6 million in the 2019 Quarter.

Thus, costs per ton in the 2020 Quarter benefited as our cost of outside coal purchases are generally higher on a per ton basis than our produced coal.

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

● Labor and benefit expenses per ton produced, excluding workers' compensation, increased 4.7% to $10.39 per ton in the 2020 Quarter from $9.92 per ton in the 2019 Quarter.

The increase of $0.47 per ton was primarily due to reduced production and resulting higher fixed costs per ton.

● Production taxes and royalty expenses per ton incurred as a percentage of coal sales prices and volumes increased $0.86 per produced ton sold in the 2020 Quarter compared to the 2019 Quarter primarily as a result of a $0.60 per ton government-imposed increase in the federal black lung excise tax, effective January 1, 2020 and an unfavorable state production mix increasing severance taxes per ton, in addition to increased excise taxes per ton resulting from a greater mix of domestic vs.

export shipments.

The decrease of $1.09 per ton produced was primarily due to reduced maintenance expenses at our longwall mining operations and improved recoveries previously mentioned.

Segment Adjusted EBITDA Expense decreases per ton above were partially offset by the following increase:

● Production taxes and royalty expenses per ton incurred as a percentage of coal sales prices and volumes increased $0.23 per produced ton sold in the 2021 Quarter compared to the 2020 Quarter primarily as a result of increased production in states with higher severance taxes per ton.

Other revenues .

Other revenues were principally comprised of Mt.

Vernon transloading revenues in our Illinois Basin segment, oil & gas lease bonuses in our Minerals segment and Matrix Design sales in Other & Corporate, in addition to revenues not specific to any particular segment such as contract buy-out revenues and other outside services.

Vernon transloading revenues in our Illinois Basin Coal Operations segment, Matrix Design sales in Other & Corporate as well as revenues not specific to any particular segment such as contract buy-out revenues and other outside services.

Other revenues decreased to $6.1 million in the 2021 Quarter from $17.1 million in the 2020 Quarter.

The decrease of $6.7 million was primarily due to reduced sales of mining technology products by our Matrix Design subsidiary and lower volumes at our Mt.

Vernon transloading facility.

General and administrative.

General and administrative expenses for the 2020 Quarter decreased to $13.9 million compared to $17.9 million in the 2019 Quarter.

The decrease of $4.0 million was primarily due to lower incentive compensation expenses and reduced outside services.

The decrease of $11.0 million was primarily due to a customer buy-out of certain coal contracts at our Tunnel Ridge mine during the 2020 Quarter.

Depreciation, depletion and amortization.

Depreciation, depletion and amortization expense increased to $80.2 million for the 2020 Quarter compared to $72.3 million for the 2019 Quarter primarily as a result of charges related to increased sales from coal inventory.

Depreciation, depletion and amortization expense decreased to $59.2 million for the 2021 Quarter compared to $73.9 million for the 2020 Quarter primarily as a result of reduced sales volumes and increased mine life estimates for certain mines.

Asset impairment.

During the 2019 Quarter, we ceased coal production at our Dotiki mine to focus on maximizing production at our lower-cost mines in the Illinois Basin.

Consequently, we recorded a non-cash asset impairment charge of $15.2 million in the 2019 Quarter.

During the 2020 Quarter, we recorded $25.0 million of non-cash asset impairment charges due to sealing our idled Gibson North mine, resulting in its permanent closure, and a decrease in the fair value of certain mining equipment and greenfield coal reserves as a result of weakened coal market conditions.

Please read "Item 1.

1 unchanged sentence

of this Quarterly Report on Form 10-Q.

Goodwill impairment.

During the 2020 Quarter, we recorded a $132.0 million non-cash goodwill impairment charge associated with our Hamilton mine, primarily as the result of reduced expected production volumes due to weakened coal market conditions and low energy demand resulting in part from the COVID-19 pandemic.

Please read "Item 1.

Financial Statements (Unaudited)— Note 3 – Goodwill Impairment "

of this Quarterly Report on Form 10-Q.

Transportation revenues and expenses .

Transportation revenues and expenses were $11.1 million and $4.7 million for the 2021 and 2020 Quarters, respectively.

The decrease of $13.8 million was primarily attributable to decreased coal tonnage for which we arrange third-party transportation at certain mines primarily due to reduced coal shipments to international markets and a decrease in average third-party transportation rates in the 2020 Quarter.

The increase of $6.4 million was primarily attributable to increased average third-party transportation rates in the 2021 Quarter and increased coal tonnage for which we arrange third-party transportation at certain mines primarily due to increased coal shipments to international markets.

Transportation revenues are recognized in an amount equal to transportation expenses when title to the coal passes to the customer.

1 unchanged sentence

Our 2021 Quarter Segment Adjusted EBITDA decreased $1.9 million, or 1.7%, to $109.8 million from the 2020 Quarter Segment Adjusted EBITDA of $111.7 million.

Segment Adjusted EBITDA, tons sold, coal sales, other revenues, oil & gas royalties, BOE volume and Segment Adjusted EBITDA Expense by segment are as follows:

Segment Adjusted EBITDA, tons sold, coal sales, other revenues, oil & gas royalties, BOE volume, coal royalties, coal royalties tons sold and Segment Adjusted EBITDA Expense by segment are as follows:

Three Months Ended

September 30,

Increase (Decrease)

1 unchanged sentence

Segment Adjusted EBITDA

Coal - Illinois Basin

Coal - Appalachia

Illinois Basin Coal Operations

Appalachia Coal Operations

Oil & Gas Royalties

Coal Royalties

Other and Corporate

Total Segment Adjusted EBITDA (2)

Coal - Illinois Basin

Coal - Appalachia

Other and Corporate

Coal - Tons sold

Illinois Basin Coal Operations

Appalachia Coal Operations

Total tons sold

Coal - Illinois Basin

Coal - Appalachia

Other and Corporate

Illinois Basin Coal Operations

Appalachia Coal Operations

Total coal sales

Other revenues

Coal - Illinois Basin

Coal - Appalachia

Illinois Basin Coal Operations

Appalachia Coal Operations

Oil & Gas Royalties

Coal Royalties

Other and Corporate

Total other revenues

BOE volume and oil & gas royalties

Volume - BOE (3)

Oil & gas royalties

Segment Adjusted EBITDA Expense

Coal - Illinois Basin

Coal - Appalachia

Illinois Basin Coal Operations

Appalachia Coal Operations

Oil & Gas Royalties

Coal Royalties

Other and Corporate

Elimination (3)

Total Segment Adjusted EBITDA Expense

(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 (loss)."

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

Illinois Basin – Segment Adjusted EBITDA decreased 7.0% to $81.6 million in the 2020 Quarter from $87.8 million in the 2019 Quarter.

The decrease of $6.2 million was primarily attributable to lower coal sales, which decreased 19.5% to $206.4 million in the 2020 Quarter from $256.3 million in the 2019 Quarter, partially offset by reduced operating expenses.

The decrease of $49.9 million in coal sales primarily reflects reduced tons sold, which decreased 20.4% compared to the 2019 Quarter due to the impacts of the COVID-19 pandemic and reduced export shipments.

Segment Adjusted EBITDA Expense decreased 28.1% to $125.0 million in the 2020 Quarter from $173.8 million in the 2019 Quarter primarily as a result of reduced tons sold and decreased per ton costs.

Segment Adjusted EBITDA Expense per ton decreased $2.57 per ton sold to $23.95 from $26.52 per ton sold in the 2019 Quarter primarily as a result of reduced maintenance expenses per ton as well as lower materials and supplies expenses per ton across the region.

Both decreases reflect a greater mix of sales from lower cost River View production, the elimination of high cost Dotiki production beginning late in the 2019 Quarter and improved recovery percentages at Gibson, partially offset by reduced total coal production volumes from the region.

See also certain cost variances described above under "–Coal - Segment Adjusted EBITDA Expense."

Appalachia – Segment Adjusted EBITDA decreased 21.4% to $43.4 million for the 2020 Quarter from $55.2 million in the 2019 Quarter.

The decrease of $11.8 million was primarily attributable to lower coal sales, which decreased 20.3% to $129.4 million in the 2020 Quarter from $162.3 million in the 2019 Quarter, partially offset by reduced operating expenses.

The decrease of $32.9 million in coal sales reflects lower tons sold and price realizations.

Tons sold decreased 10.3% in the 2020 Quarter compared to the 2019 Quarter due to the impacts of the COVID-19 pandemic and coal market deterioration, particularly with regards to the international shipments.

Coal sales price per ton sold in the 2020 Quarter decreased 11.1% compared to the 2019 Quarter primarily due to weak market conditions and the absence of higher priced metallurgical coal sales in the 2020 Quarter.

Segment Adjusted EBITDA Expense decreased 19.9% to $86.4 million in the 2020 Quarter from $108.0 million in the 2019 Quarter due to reduced tons sold and decreased per ton costs.

Segment Adjusted EBITDA Expense per ton decreased $4.21 per ton sold to $34.82 compared to $39.03 per ton sold in the 2019 Quarter, as a result of improved recoveries at our Mettiki and Tunnel Ridge mines, lower maintenance expenses across the region, lower inventory costs and the absence of higher cost purchased tons sold.

See also certain cost variances described above under "–Coal - Segment Adjusted EBITDA Expense."

Minerals – Segment Adjusted EBITDA decreased to $8.9 million for the 2020 Quarter from $12.2 million in the 2019 Quarter.

The decrease of $3.3 million was primarily due to lower sales price realizations per BOE resulting from reduced demand amid the COVID-19 pandemic, partially offset by higher volumes, which increased 8.1% compared to the 2019 Quarter primarily as a result of production from the additional mineral interests acquired in the Wing Acquisition.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

We reported a net loss attributable to ARLP of $164.2 million for the 2020 Period compared to net income attributable to ARLP of $373.6 million for the nine months ended September 30, 2019 ("2019 Period").

The decrease of $537.8 million was primarily due to a $546.8 million decline in total revenues, a non-cash goodwill impairment charge of $132.0 million recorded in the 2020 Period, a net gain of $170.0 million related to the 2019 AllDale Acquisition and the elimination of equity securities income due to the redemption of our preferred interest in Kodiak in the 2019 Period.

These net income reductions were partially offset by lower operating expenses and transportation expenses of $637.5 million and $16.7 million, respectively, for the 2020 Period compared to $895.3 million and $82.9 million, respectively, in the 2019 Period.

Total revenues decreased 36.2% to $961.6 million for the 2020 Period compared to $1.51 billion for the 2019 Period primarily due to lower coal sales and transportation revenues resulting from weak market conditions and disruptions caused by the COVID-19 pandemic.

Nine Months Ended September 30,

(in thousands)

(per ton sold)

Tons produced

Coal - Segment Adjusted EBITDA Expense (1) (2)

(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.

Coal sales decreased $470.6 million or 34.7% to $886.7 million for the 2020 Period from $1.36 billion for the 2019 Period.

The decrease was attributable to a volume variance of $441.8 million resulting from decreased tons sold and a price variance of $28.8 million due to lower average coal sales prices.

Tons sold declined 32.5% to 20.1 million tons in the 2020 Period primarily due to reduced shipments to international markets, which also caused coal sales price realizations to decline 3.1% in the 2020 Period to $44.03 per ton sold, compared to $45.46 per ton sold during the 2019 Period.

As a result of temporarily idling production at certain mines in response to weak market conditions during the 2020 Period, coal production volumes fell to 19.5 million tons, a reduction of 37.8% compared to the 2019 Period.

Oil & Gas Royalties

Oil & gas royalty revenues decreased to $31.7 million in the 2020 Period compared to $36.3 million for the 2019 Period.

The decrease was primarily due to lower average product prices, partially offset by higher volumes resulting from the Wing Acquisition in August 2019, and continued drilling and development of our mineral interests.

Coal - Segment Adjusted EBITDA Expense .

Segment Adjusted EBITDA Expense, excluding our Minerals segment, decreased 29.7% to $636.1 million, primarily as a result of reduced tons sold.

Segment Adjusted EBITDA Expense per ton increased 4.2% in the 2020 Period to $31.59 per ton, compared to $30.33 per ton in the 2019 Period.

The increase is attributed primarily to the per ton cost impact of lower coal volumes in addition to other cost increases which are discussed below by category:

● Labor and benefit expenses per ton produced, excluding workers' compensation, increased 15.6% to $11.02 per ton in the 2020 Period from $9.53 per ton in the 2019 Period.

The increase of $1.49 per ton was primarily due to curtailed production.

● Production taxes and royalty expenses per ton incurred as a percentage of coal sales prices and volumes increased $0.71 per produced ton sold in the 2020 Period compared to the 2019 Period primarily as a result of a $0.60 per ton government-imposed increase in the federal black lung excise tax, effective January 1, 2020 and an unfavorable state production mix increasing severance taxes per ton, in addition to increased excise taxes per ton resulting from a greater mix of domestic vs.

export shipments.

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

● Material and supplies expenses per ton produced decreased 4.1% to $10.53 per ton in the 2020 Period from $10.98 per ton in the 2019 Period.

The decrease of $0.45 per ton produced resulted primarily from related decreases of $0.52 per ton for roof support and $0.36 per ton for contract labor used in the mining process, partially offset by increases of $0.27 per ton for power and fuel used in the mining process and $0.16 per ton for outside expenses .

In addition, material and supplies expenses per ton produced benefited from a greater mix of production from our lower cost per ton mines, River View and Tunnel Ridge.

● Maintenance expenses per ton produced decreased 8.8% to $3.23 per ton in the 2020 Period from $3.54 per ton in the 2019 Period.

The decrease of $0.31 per ton produced was primarily due to reduced maintenance requirements as a result of curtailed production.

● We had no sales of outside coal purchases in the 2020 Period compared to $15.9 million in the 2019 Period.

Thus, costs per ton in the 2020 Period benefited as our cost of outside coal purchases are generally higher on a per ton basis than our produced coal.

General and administrative.

General and administrative expenses for the 2020 Period decreased to $41.1 million compared to $55.2 million in the 2019 Period.

The decrease of $14.1 million was primarily due to lower incentive compensation expenses, including the reversal of cumulative previously recognized expense for restricted units in our LTIP granted in 2019 that are no longer considered probable for vesting at the end of 2021.

Please read "Item 1.

Financial Statements (Unaudited) — Note 16 – Compensation Plans"

of this Quarterly Report on Form 10-Q for more information on our LTIP and vesting matters.

Depreciation, depletion and amortization .

Depreciation, depletion and amortization expense increased to $237.7 million for the 2020 Period compared to $220.4 million for 2019 Period primarily due to charges related to increased sales from coal inventory and increased oil & gas production from our Minerals segment in the 2020 Period.

Asset impairments.

During the 2020 Period, we recorded $25.0 million of non-cash asset impairment charges due to sealing our idled Gibson North mine, resulting in its permanent closure, and a decrease in the fair value of certain mining equipment and greenfield coal reserves as a result of weakened coal market conditions.

During the 2019 Period, we recorded an asset impairment charge of $15.2 million due to the cessation of production at our Dotiki mine.

Please read "Item 1.

Financial Statements (Unaudited) — Note 4 – Long-Lived Asset Impairments"

of this Quarterly Report on Form 10-Q.

Goodwill impairment.

During the 2020 Period, we recorded a $132.0 million non-cash goodwill impairment charge associated with our Hamilton mine, primarily as the result of reduced expected production volumes due to weakened coal market conditions and low energy demand resulting in part from the COVID-19 pandemic.

Please read "Item 1.

Financial Statements (Unaudited) — Note 5 – Goodwill Impairment"

of this Quarterly Report on Form 10-Q.

Equity securities income .

Equity securities income decreased $12.9 million compared to the 2019 Period as we did not recognize equity securities income in the 2020 Period due to the redemption of our preferred interest in Kodiak in the 2019 Period.

Acquisition gain .

We recorded a non-cash acquisition gain of $177.0 million in the 2019 Period associated with the AllDale Acquisition to reflect the fair value of the interests in AllDale I and II we already owned at the time of the acquisition.

Transportation revenues and expenses .

Transportation revenues and expenses were $16.7 million and $82.9 million for the 2020 and 2019 Periods, respectively.

The decrease of $66.2 million was largely attributable to decreased coal tonnage for which we arrange third-party transportation at certain mines primarily reflecting reduced coal shipments to international markets and a decrease in average third-party transportation rates in the 2020 Period.

Transportation revenues are recognized in an amount equal to transportation expenses when title to the coal passes to the customer.

Net income attributable to noncontrolling interest .

Net income attributable to noncontrolling interest decreased to $0.1 million in the 2020 Period from $7.4 million in the 2019 Period as a result of allocating $7.1 million of the acquisition gain discussed above to noncontrolling interest in the 2019 Period.

Segment Adjusted EBITDA.

Our 2020 Period Segment Adjusted EBITDA decreased $221.6 million, or 42.0%, to $306.5 million from the 2019 Period Segment Adjusted EBITDA of $528.1 million.

Segment Adjusted EBITDA, tons sold, coal sales, other revenues, oil & gas royalties, BOE volume and Segment Adjusted EBITDA Expense by segment are as follows:

Nine Months Ended

September 30,

Increase (Decrease)

(in thousands)

Segment Adjusted EBITDA

Coal - Illinois Basin

Coal - Appalachia

Other and Corporate

Total Segment Adjusted EBITDA (2)

Coal - Illinois Basin

Coal - Appalachia

Other and Corporate

Total tons sold

Coal - Illinois Basin

Coal - Appalachia

Other and Corporate

Total coal sales

Other revenues

Coal - Illinois Basin

Coal - Appalachia

Other and Corporate

Total other revenues

BOE volume and oil & gas royalties

Volume - BOE (4)

Oil & gas royalties

Segment Adjusted EBITDA Expense

Coal - Illinois Basin

Coal - Appalachia

Other and Corporate

Total Segment Adjusted EBITDA Expense

Coal Royalties

Volume - Tons sold (5)

Intercompany coal royalties

(1) Percentage change not meaningful.

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to GAAP "net income (loss)."

(3) Primarily includes the elimination of intercompany coal royalty revenues and expenses between our Coal Royalties Segment and our Coal Operations Segments.

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

Illinois Basin – Segment Adjusted EBITDA decreased 48.5% to $157.8 million in the 2020 Period from $306.6 million in the 2019 Period.

The decrease of $148.8 million was primarily attributable to lower coal sales, which decreased 38.4% to $539.6 million in the 2020 Period from $875.5 million in the 2019 Period, partially offset by reduced operating expenses.

The decrease of $335.9 million in coal sales primarily reflects reduced tons sold, which decreased 37.5% compared to the 2019 Period due to curtailed production across all of our mining operations in the region as a result of weak coal market conditions, particularly international markets, amid the COVID-19 pandemic.

Segment Adjusted EBITDA Expense decreased 33.8% to $383.5 million in the 2020 Period from $579.5 million in the 2019 Period primarily as a result of reduced tons sold.

Segment Adjusted EBITDA Expense per ton increased $1.56 per ton sold to $28.15 from $26.59 per ton sold in the 2019 Period, primarily due to reduced coal volumes and related increased fixed costs per ton, in addition to certain cost increases described above under "–Coal - Segment Adjusted EBITDA Expense."

Appalachia – Segment Adjusted EBITDA decreased 27.6% to $121.4 million for the 2020 Period from $167.6 million in the 2019 Period.

The decrease of $46.2 million was primarily attributable to lower coal sales, which decreased 27.3% to $347.1 million in the 2020 Period from $477.7 million in the 2019 Period, partially offset by reduced operating expenses.

(5) Represents tons sold by our Coal Operations Segments associated with coal reserves leased from our Coal Royalties Segment.

Illinois Basin Coal Operations – Segment Adjusted EBITDA increased 33.1% to $57.7 million in the 2021 Quarter from $43.3 million in the 2020 Quarter.

The increase of $14.4 million was primarily attributable to reduced operating expenses, partially offset by lower coal sales, which decreased 8.3% to $182.6 million in the 2021 Quarter from $199.1 million in the 2020 Quarter.

The decrease of $16.5 million in coal sales primarily reflects reduced tons sold, which decreased 5.9% compared to the 2020 Quarter due to reduced domestic sales partially offset by increased export volumes.

Segment Adjusted EBITDA Expense decreased 19.9% to $125.6 million in the 2021 Quarter from $156.7 million in the 2020 Quarter primarily as a result of reduced tons sold and decreased per ton costs.

Segment Adjusted EBITDA Expense per ton decreased $4.61 per ton sold to $26.38 from $30.99 per ton sold in the 2020 Quarter primarily as a result of ongoing expense control and efficiency initiatives in the region and improved recoveries at our Hamilton and Warrior operations.

See also certain cost variances described above under "–Coal - Segment Adjusted EBITDA Expense."

Appalachia Coal Operations – Segment Adjusted EBITDA decreased 33.4% to $31.5 million for the 2021 Quarter from $47.3 million in the 2020 Quarter.

The decrease of $15.8 million was primarily attributable to lower contract buy-out revenues at Tunnel Ridge as discussed above and lower coal sales, which decreased 9.3% to $104.8 million in the 2021 Quarter from $115.5 million in the 2020 Quarter, partially offset by reduced operating expenses.

The decrease of $10.7 million in coal sales reflects lower tons sold and price realizations.

Sales volumes decreased 19.2% in the 2020 Period compared to the 2019 Period due to curtailed production in the region as a result of weak coal market conditions, particularly international markets, amid the COVID-19 pandemic.

Coal sales price per ton sold in the 2020 Period decreased 10.1% compared to the 2019 Period primarily due to reduced metallurgical tons sold and price realizations at our Mettiki mine.

Segment Adjusted EBITDA Expense decreased 23.3% to $240.1 million in the 2020 Period from $312.9 million in the 2019 Period due to reduced tons sold and decreased per ton costs.

Segment Adjusted EBITDA Expense per ton decreased $1.94 per ton sold to $36.86 compared to $38.80 per ton sold in the 2019 Period, as a result of fewer longwall move days at both our Tunnel Ridge and Mettiki mines, reduced roof support and contract labor expenses per ton and the absence of higher cost purchased tons sold in the 2020 Period, partially offset by curtailed production in the region during the 2020 Period increasing fixed costs per ton, and an increased sales mix of higher-cost Mettiki tonnage.

Tons sold decreased 5.8% in the 2021 Quarter compared to the 2020 Quarter due to reduced sales volumes at our Tunnel Ridge mine as a result of an unplanned customer plant outage and weather-related delays.

Coal sales price per ton sold in the 2021 Quarter decreased 3.7% compared to the 2020 Quarter primarily due to the expiration of higher priced contract shipments.

Segment Adjusted EBITDA Expense decreased 7.7% to $73.7 million in the 2021 Quarter from $79.9 million in the 2020 Quarter due to reduced tons sold and decreased per ton costs.

Segment Adjusted EBITDA Expense per ton decreased $0.76 per ton sold to $35.65 compared to $36.41 per ton sold in the 2020 Quarter, as a result of ongoing expense control and efficiency initiatives as well as improved recoveries at our Tunnel Ridge and MC Mining operations.

See also certain cost variances described above under "–Coal - Segment Adjusted EBITDA Expense."

Minerals – Segment Adjusted EBITDA decreased to $29.5 million for the 2020 Period from $32.4 million in the 2019 Period reflecting reduced average sales price per BOE due to reduced demand amid the COVID-19 pandemic, partially offset by production volumes from the additional mineral interests acquired in the Wing Acquisition in August 2019 and from continued drilling and development activities.

Other and Corporate – Segment Adjusted EBITDA decreased by $23.5 million to $4.7 million in the 2020 Period compared to $28.2 million in the 2019 Period.

The decrease was primarily attributable to lower equity securities income as a result of the redemption of our preferred interest in Kodiak in the 2019 Period, decreased coal brokerage activity and lower mining technology product sales from the Matrix Group.

Oil & Gas Royalties – Segment Adjusted EBITDA decreased to $11.9 million for the 2021 Quarter from $13.8 million in the 2020 Quarter.

The decrease of $1.9 million was primarily due to reduced volumes, which decreased 19.2% compared to the 2020 Quarter, partially offset by higher sales price realizations per BOE.

Coal Royalties – Segment Adjusted EBITDA increased 5.3% to $7.3 million for the 2021 Quarter from $6.9 million in the 2020 Quarter.

The increase of $0.4 million was a result of higher average intercompany royalty rates per ton received from our mining operations and reduced selling expenses, partially offset by reduced coal sales volumes by our mining operations from reserves owned or controlled by our Coal Royalties Segment entities.

Reconciliation of non-GAAP "Segment Adjusted EBITDA"

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to GAAP "Operating Expenses"

Segment Adjusted EBITDA (a non-GAAP financial measure) is defined as net income (loss) attributable to ARLP before net interest expense, income taxes, depreciation, depletion and amortization, general and administrative expenses, asset and goodwill impairments 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.

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

5 unchanged sentences

Interest expense, net

Acquisition gain

Income tax expense

Acquisition gain attributable to noncontrolling interest

Income tax benefit

Net income (loss) attributable to ARLP

1 unchanged sentence

Net income (loss)

Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses, coal purchases and other expense.

Segment Adjusted EBITDA Expense (a non-GAAP financial measure) includes operating expenses and other expense.

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.

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Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Segment Adjusted EBITDA Expense

Outside coal purchases

Other expense

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Risk Factors"

in our Annual Report on Form 10-K for the year ended December 31, 2019 and "Part II - Item 1A.

Risk Factors"

in our Form 10-Q for the quarterly period ended March 31, 2020.

In responding to weak market conditions, lower commodity prices, and the lockdown initiated in the First Quarter to certain areas of the global economy due to the COVID-19 pandemic, the Partnership took numerous actions to optimize cash flows and preserve liquidity by reducing capital expenditures, working capital, costs and expenses, including adjusting its corporate support structure to better align with current operating levels.

We have also utilized certain provisions of the Coronavirus Aid Relief and Economic Security Act of 2020 which modestly increased our short-term liquidity.

Additional actions to enhance our liquidity include our Board's decisions to suspend the cash distributions beginning with the First Quarter.

We have also strengthened our liquidity by entering into a $537.75 million (reducing to $459.5 million on May 23, 2021) revolving credit facility with a termination date of March 9, 2024, replacing the $494.75 million revolving credit facility that was set to expire on May 23, 2021.

In addition, on June 5, 2020 we entered into a $14.7 million equipment financing arrangement which provides for forty-eight monthly payments with an implicit interest rate of 6.1%, maturing on June 5, 2024.

We have further enhanced our liquidity by reducing our total debt by $117.5 million in the 2020 Period.

in our Annual Report on Form 10-K for the year ended December 31, 2020.

In May 2018, the Board approved the establishment of a unit repurchase program authorizing us to repurchase up to $100 million of ARLP common units.

1 unchanged sentence

The unit repurchase program authorization does not obligate us to repurchase any dollar amount or number of units.

Since inception through September 30, 2020, we have purchased units for a total of $93.5 million under the program.

During the nine months ended September 30, 2020, we did not repurchase and retire any units.

Since inception through March 31, 2021, we have purchased units for a total of $93.5 million under the program.

During the three months ended March 31, 2021, we did not repurchase and retire any units.

The timing of any future unit repurchases and the ultimate number of units to be purchased will depend on a number of factors, including business and market conditions, our future financial performance, and other capital priorities.

2 unchanged sentences

of this Quarterly Report on Form 10-Q for more information on unit repurchase program.

Mine Development Project

In 2018, we began development of MC Mining's Excel Mine No.

5 Mine") which continued through 2019 and into 2020.

In July 2020, the No.

5 Mine began production.

We expect the No.

5 Mine will enable us to access an additional 15 million tons of coal reserves with an expected mine life of approximately 12 years assuming production levels similar to MC Mining's former Excel Mine No.

Cash provided by operating activities was $291.8 million for the 2020 Period compared to $408.4 million for the 2019 Period.

The decrease in cash provided by operating activities was primarily due to a net loss in the 2020 Period as

compared to net income in the 2019 Period adjusted for changes from certain non-cash items discussed above such as an acquisition gain and impairments.

The decrease in net income was partially offset by a favorable working capital change primarily related to trade receivables and inventories and other favorable comparisons.

Net cash used in investing activities was $108.9 million for the 2020 Period compared to $423.6 million for the 2019 Period.

The decrease in cash used in investing activities was primarily attributable to the AllDale and Wing Acquisitions during 2019 Period and decreased capital expenditures for mine infrastructure and equipment at various mines during the 2020 Period.

The decreased net cash used compared to the 2019 Period was partially offset by cash received from the redemption of our Kodiak equity securities in the 2019 Period.

Net cash used in financing activities was $185.2 million for the 2020 Period compared to $197.2 million for the 2019 Period.

The decrease in cash used in financing activities was primarily attributable to reduction in distributions paid to partners in the 2020 Period, partially offset by lower net proceeds from borrowings under the revolving credit facility.

Cash provided by operating activities was $54.6 million for the 2021 Quarter compared to $78.7 million for the 2020 Quarter.

The decrease in cash provided by operating activities was primarily due to unfavorable working capital changes related to trade receivables and accrued taxes other than income taxes which was partially offset by a favorable working capital change related to accounts payable.

Net cash used in investing activities was $22.7 million for the 2021 Quarter compared to $51.3 million for the 2020 Quarter.

The decrease in cash used in investing activities was primarily attributable to the decrease in capital expenditures for mine infrastructure and equipment at various mines during the 2021 Quarter.

Net cash used in financing activities was $53.0 million for the 2021 Quarter compared to $34.2 million for the 2020 Quarter.

The increase in cash used in financing activities was primarily attributable to lower net proceeds from borrowings under the revolving credit facility, partially offset by the cash benefit of suspending quarterly distributions to unitholders, which were first suspended in May 2020 related to the 2020 Quarter.

Quarterly distributions to unitholders will resume for the 2021 Quarter in May 2021.

Capital Expenditures

Capital expenditures decreased to $102.8 million in the 2020 Period from $241.1 million in the 2019 Period.

Capital expenditures decreased to $31.4 million in the 2021 Quarter from $50.4 million in the 2020 Quarter.

See our discussion of "Cash Flows"

above concerning the decrease in capital expenditures.

We currently project average estimated annual maintenance capital expenditures over the five-year period beginning in January 2020 of approximately $4.86 per ton produced.

We currently project average estimated annual maintenance capital expenditures over the next five-year of approximately $4.90 per ton produced.

Our anticipated total capital expenditures, including maintenance capital expenditures, for 2021 are estimated in a range of $120.0 million to $125.0 million.

Management anticipates funding remaining 2020 capital requirements with cash and cash equivalents ($34.1 million as of September 30, 2020), cash flows from operations and investments, borrowings under revolving credit and securitization facilities and cash provided from the issuance of debt or equity.

Management anticipates funding remaining 2021 capital requirements with our March 31, 2021 cash and cash equivalents of $34.4 million, 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.

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The Credit Agreement provides for a $537.75 million revolving credit facility, reducing to $459.5 million on May 23, 2021, 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 March 9, 2024.

The Credit Facility replaced the $494.75 million revolving credit facility extended to the Intermediate Partnership under its Fourth Amended and Restated Credit Agreement, dated as of January 27, 2017, by various banks and other lenders that would have expired on May 23, 2021.

Concurrently with the entry into the Credit Agreement, we reorganized the entities holding our oil & gas interests such that Alliance Royalty, LLC became a direct wholly-owned subsidiary of Alliance Minerals.

The Credit Agreement is guaranteed by certain of our Intermediate Partnership's material direct and indirect subsidiaries (the "Restricted Subsidiaries") and is secured by substantially all of the assets of the Restricted Subsidiaries.

The Credit Agreement is not guaranteed or secured by the assets of the Intermediate Partnership's oil & gas minerals subsidiary, Alliance Minerals, or its direct and indirect subsidiaries (collectively the "Unrestricted Subsidiaries").

The Credit Agreement is also guaranteed by Alliance Minerals but the oil and gas minerals assets of Alliance Minerals and its direct and indirect subsidiaries (collectively with Alliance Minerals, the "Unrestricted Subsidiaries") are not collateral under the Credit Agreement.

Borrowings under the Revolving Credit Facility bear interest, at our option, 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 3.01% as of September 30, 2020.

At September 30, 2020, we had $21.8 million of letters of credit outstanding with $381.0 million available for borrowing under the Revolving Credit Facility.

The Eurodollar Rate, with applicable margin, under the Revolving Credit Facility was 2.97% as of March 31, 2021.

At March 31, 2021, we had $21.8 million of letters of credit outstanding with $461.0 million available for borrowing under the Revolving Credit Facility.

We incur an annual commitment fee of 0.35% on the undrawn portion of the Revolving Credit Facility.

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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, (b) a cash flow to interest expense ratio of not less than 3.0 to 1.0 and (c) a first lien debt to cash flow ratio of not more than 1.5 to 1.0, in each case, during the four most recently ended fiscal quarters.

The debt to cash flow ratio, cash flow to interest expense ratio and first lien debt to cash flow ratio were 1.69 to 1.0, 8.22 to 1.0 and 0.69 to 1.0, respectively, for the trailing twelve months ended September 30, 2020.

We remain in compliance with the covenants of the Credit Agreement as of September 30, 2020 and expect to remain in compliance with such covenants for the balance of the year, provided economic conditions do not deteriorate substantially.

The debt to cash flow ratio, cash flow to interest expense ratio and first lien debt to cash flow ratio were 1.43 to 1.0, 8.67 to 1.0 and 0.39 to 1.0, respectively, for the trailing twelve months ended March 31, 2021.

We remained in compliance with the covenants of the Credit Agreement as of March 31, 2021 and anticipate remaining in compliance with the covenants.

Senior Notes.

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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.

The Securitization Facility bears interest based on a Eurodollar

The agreement governing the Securitization Facility contains customary terms and conditions, including limitations with regards to certain customer credit ratings.

In October 2019, we extended the term of the Securitization Facility to January 2021.

At September 30, 2020, we had a $72.2 million outstanding balance under the Securitization Facility.

In January 2021, we extended the term of the Securitization Facility to January 2022 and reduced the borrowing availability under the facility to $60.0 million.

The Securitization Facility was previously scheduled to mature in January 2021.

On March 31, 2021, we had a $38.1 million outstanding balance under the Securitization Facility.

May 2019 Equipment Financing .

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The May 2019 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.

Upon maturity, the equipment will revert to the Intermediate Partnership.

November 2019 Equipment Financing.

On November 6, 2019, the Intermediate Partnership entered into an equipment financing arrangement accounted for as debt, wherein the Intermediate Partnership received $53.1 million in exchange for conveying its interest in certain equipment owned indirectly by the Intermediate Partnership and entering into a master lease agreement for that equipment (the "November 2019 Equipment Financing").

The November 2019 Equipment Financing contains customary terms and events of default and an implicit interest rate of 4.75% that provides for a four year term with forty-seven monthly payments of $1.0 million and a balloon payment of $11.6 million upon maturity on November 6, 2023.

At maturity, the equipment will revert back to the Intermediate Partnership.

The November 2019 Equipment Financing contains customary terms and events of default and an implicit interest rate of 4.75%, providing for a four-year term with forty-seven monthly payments of $1.0 million and a balloon payment of $11.6 million upon maturity on November 6, 2023.

Upon maturity, the equipment will revert to the Intermediate Partnership.

June 2020 Equipment Financing.

1 unchanged sentence

The June 2020 Equipment Financing contains customary terms and events of default and provides for forty-eight monthly payments with an implicit interest rate of 6.1%, maturing on June 5, 2024.

Upon maturity, the equipment will revert back to the Intermediate Partnership.

Upon maturity, the equipment will revert to the Intermediate Partnership.

Line of Credit.

On February 19, 2021, we entered into a line of credit arrangement with a related party for $5.0 million.

The line of credit has a maturity date of February 28, 2023, with an option to extend it for an additional six months and accrue interest at an annual rate of 3.50%.

Interest is payable quarterly commencing March 31, 2021, and continuing each March 31, June 30, September 30 and December 31 thereafter through and including February 28, 2023.

The agreement contains customary terms and events of default and is guaranteed by ARLP.

We utilize the line of credit, as appropriate, for capital expenditure and investments.

As of March 31, 2021, we had drawn $1.8 million under this agreement.

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 September 30, 2020, we had $5.0 million in letters of credit outstanding under this agreement.

On March 31, 2021, we had $5.0 million in letters of credit outstanding under this agreement.

Related-Party Transactions

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Craft, MGP, ARH II and their respective affiliates.

These related-party transactions and activities relate principally to 1) mineral leases with charitable foundations established by Mr.

Craft and Kathleen S.

Craft, 2) the use of aircraft, and 3) providing administrative services with respect to the mineral interests Mr.

Craft acquired concurrently with the Wing Acquisition.

We also have transactions with (a) WKY CoalPlay, LLC ("WKY CoalPlay") regarding three mineral leases, (b) Bluegrass Minerals Management, LLC ("Bluegrass Minerals") through its noncontrolling ownership interest in Cavalier Minerals and (c) AllDale III to support its acquisition of oil & gas mineral interests.

For more information regarding the Wing Acquisition, WKY CoalPlay, Bluegrass Minerals and AllDale III, please read "Item 1.

Financial Statements (Unaudited) — Note 3 – Acquisition", "

— Note 10 – Variable Interest Entities"

— Note 11 – Investments"

These related-party transactions and activities relate principally to 1) coal mineral leases with The Joseph W.

Craft III Foundation and The Kathleen S.

Craft Foundation, 2) the use of aircraft, and 3) providing administrative services with respect to certain oil & gas mineral interests Mr.

Craft acquired in 2019.

We also have related-party transactions with (a) WKY CoalPlay, LLC ("WKY CoalPlay") regarding four mineral leases, (b) Bluegrass Minerals Management, LLC ("Bluegrass Minerals") through its noncontrolling ownership interest in our consolidated subsidiary, Cavalier Minerals and (c) with our equity interest in AllDale III.

For more information regarding the Bluegrass Minerals and AllDale III, please read "Item 1.

Financial Statements (Unaudited) — Note 8 – Variable Interest Entities"

— Note 9 – Investment"

of this Quarterly Report on Form 10-Q.

We also have a line of credit with a related party as discussed in "Item 1.

Financial Statements (Unaudited) — Note 7 – Long-Term Debt"

of this Quarterly Report on Form 10-Q.

Please read our Annual Report on Form 10-K for the year ended December 31, 2020, "Item 8.

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for additional information concerning related-party transactions.

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.

Other Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis