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Section 1: 10-Q (10-Q)

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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 March 31, 2019

OR

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

For the transition period from ________________to________________

 

 

Commission File No.:  0-26823


ALLIANCE RESOURCE PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

 

Delaware

   

73-1564280

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer Identification No.)

1717 South Boulder Avenue, Suite 400, Tulsa, Oklahoma 74119

(Address of principal executive offices and zip code)

(918) 295-7600

(Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes   [   ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 [   ]

 

 

 

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 May 6, 2019, 128,391,191 common units are outstanding.

 

 

 

 

 


 

Table of Contents

TABLE OF CONTENTS

 

PART I 

FINANCIAL INFORMATION 

 

 

 

 

 

 

Page

 

 

 

ITEM 1. 

Financial Statements (Unaudited)

 

 

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

1

 

Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018

2

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018

3

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

4

 

Notes to Condensed Consolidated Financial Statements

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

16

 

13.   Net Income of ARLP per Limited Partner Unit

17

 

14.   Workers' Compensation and Pneumoconiosis

18

 

15.   Compensation Plans

19

 

16.   Components of Pension Plan Net Periodic Benefit Cost

20

 

17.   Segment Information

21

 

18.   Subsequent Events

23

ITEM 2. 

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

24

ITEM 3. 

Quantitative and Qualitative Disclosures about Market Risk

34

ITEM 4. 

Controls and Procedures

35

 

Forward-Looking Statements

36

 

 

 

PART II 

OTHER INFORMATION 

 

 

 

ITEM 1. 

Legal Proceedings

38

ITEM 1A. 

Risk Factors

38

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

ITEM 3. 

Defaults Upon Senior Securities

38

ITEM 4. 

Mine Safety Disclosures

39

ITEM 5. 

Other Information

39

ITEM 6. 

Exhibits

40

 

 

 

 

 

i


 

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)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

2019

    

2018

 

ASSETS

    

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,192

 

$

244,150

 

Trade receivables

 

 

194,538

 

 

174,914

 

Other receivables

 

 

2,108

 

 

395

 

Due from affiliates

 

 

16

 

 

17

 

Inventories, net

 

 

85,440

 

 

59,206

 

Advance royalties, net

 

 

1,630

 

 

1,274

 

Prepaid expenses and other assets

    

 

15,811

    

 

20,730

 

Total current assets

 

 

329,735

 

 

500,686

 

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

 

 

Property, plant and equipment, at cost

 

 

3,474,573

 

 

2,925,808

 

Less accumulated depreciation, depletion and amortization

 

 

(1,579,588)

 

 

(1,513,450)

 

Total property, plant and equipment, net

 

 

1,894,985

 

 

1,412,358

 

OTHER ASSETS:

 

 

 

 

 

 

 

Advance royalties, net

 

 

53,499

 

 

42,923

 

Equity method investments

 

 

28,770

 

 

161,309

 

Equity securities

 

 

 —

 

 

122,094

 

Goodwill

 

 

136,399

 

 

136,399

 

Operating lease right-of-use assets

 

 

22,508

 

 

 —

 

Other long-term assets

 

 

19,234

 

 

18,979

 

Total other assets

 

 

260,410

 

 

481,704

 

TOTAL ASSETS

 

$

2,485,130

 

$

2,394,748

 

 

 

 

 

 

 

 

 

LIABILITIES AND PARTNERS' CAPITAL

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

112,684

 

$

96,397

 

Due to affiliates

 

 

66

 

 

816

 

Accrued taxes other than income taxes

 

 

18,484

 

 

16,762

 

Accrued payroll and related expenses

 

 

38,896

 

 

43,113

 

Accrued interest

 

 

12,509

 

 

5,022

 

Workers' compensation and pneumoconiosis benefits

 

 

11,268

 

 

11,137

 

Current finance lease obligations

 

 

40,894

 

 

46,722

 

Current operating lease obligations

 

 

6,911

 

 

 —

 

Other current liabilities

 

 

17,429

 

 

18,902

 

Current maturities, long-term debt, net

 

 

90,000

 

 

92,000

 

Total current liabilities

 

 

349,141

 

 

330,871

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

Long-term debt, excluding current maturities, net

 

 

414,771

 

 

564,004

 

Pneumoconiosis benefits

 

 

72,922

 

 

68,828

 

Accrued pension benefit

 

 

41,917

 

 

43,135

 

Workers' compensation

 

 

40,428

 

 

41,669

 

Asset retirement obligations

 

 

131,905

 

 

127,655

 

Long-term finance lease obligations

 

 

9,082

 

 

10,595

 

Long-term operating lease obligations

 

 

15,462

 

 

 —

 

Other liabilities

 

 

21,393

 

 

20,304

 

Total long-term liabilities

 

 

747,880

 

 

876,190

 

Total liabilities

 

 

1,097,021

 

 

1,207,061

 

 

 

 

 

 

 

 

 

PARTNERS' CAPITAL:

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Limited Partners - Common Unitholders 128,391,191 and 128,095,511 units outstanding, respectively

 

 

1,426,360

 

 

1,229,268

 

Accumulated other comprehensive loss

 

 

(50,455)

 

 

(46,871)

 

Total ARLP Partners' Capital

 

 

1,375,905

 

 

1,182,397

 

Noncontrolling interest

 

 

12,204

 

 

5,290

 

Total Partners' Capital

 

 

1,388,109

 

 

1,187,687

 

TOTAL LIABILITIES AND PARTNERS' CAPITAL

 

$

2,485,130

 

$

2,394,748

 

 

See notes to condensed consolidated financial statements.

1


 

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

 

 

 

March 31, 

 

 

    

2019

    

2018

    

SALES AND OPERATING REVENUES:

 

 

 

 

 

 

 

Coal sales

 

$

476,016

 

$

423,610

 

Royalty revenues

 

 

10,728

 

 

 —

 

Transportation revenues

 

 

30,238

 

 

19,785

 

Other sales and operating revenues

 

 

9,620

 

 

13,727

 

Total revenues

 

 

526,602

 

 

457,122

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

Operating expenses (excluding depreciation, depletion and amortization)

 

 

302,728

 

 

277,238

 

Transportation expenses

 

 

30,238

 

 

19,785

 

Outside coal purchases

 

 

 —

 

 

1,374

 

General and administrative

 

 

17,812

 

 

16,651

 

Depreciation, depletion and amortization

 

 

71,139

 

 

61,848

 

Settlement gain

 

 

 —

 

 

(80,000)

 

Total operating expenses

 

 

421,917

 

 

296,896

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

 

104,685

 

 

160,226

 

 

 

 

 

 

 

 

 

Interest expense (net of interest capitalized for the three months ended March 31, 2019 and 2018 of $254 and $265, respectively)

 

 

(11,422)

 

 

(10,858)

 

Interest income

 

 

91

 

 

65

 

Equity method investment income

 

 

324

 

 

3,736

 

Equity securities income

 

 

12,906

 

 

3,724

 

Acquisition gain

 

 

177,043

 

 

 —

 

Other expense

 

 

(129)

 

 

(847)

 

INCOME BEFORE INCOME TAXES

 

 

283,498

 

 

156,046

 

 

 

 

 

 

 

 

 

INCOME TAX BENEFIT

 

 

(106)

 

 

(10)

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

283,604

 

 

156,056

 

 

 

 

 

 

 

 

 

LESS:  NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

 

 

(7,176)

 

 

(148)

 

 

 

 

 

 

 

 

 

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

 

$

276,428

 

$

155,908

 

 

 

 

 

 

 

 

 

GENERAL PARTNER'S INTEREST IN NET INCOME OF ARLP

 

$

 —

 

$

1,560

 

 

 

 

 

 

 

 

 

LIMITED PARTNERS' INTEREST IN NET INCOME OF ARLP

 

$

276,428

 

$

154,348

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED NET INCOME OF ARLP PER LIMITED PARTNER UNIT

 

$

2.12

 

$

1.16

 

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING – BASIC AND DILUTED

 

 

128,149,791

 

 

130,819,217

 

 

See notes to condensed consolidated financial statements.

2


 

Table of Contents

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

 

 

 

 

 

 

 

 

NET INCOME

 

$

283,604

 

$

156,056

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan

 

 

 

 

 

 

 

Amortization of prior service cost (1)

 

 

47

 

 

47

 

Amortization of net actuarial loss (1)

 

 

979

 

 

969

 

Total defined benefit pension plan adjustments

 

 

1,026

 

 

1,016

 

 

 

 

 

 

 

 

 

Pneumoconiosis benefits

 

 

 

 

 

 

 

Net actuarial loss

 

 

(3,465)

 

 

 —

 

Amortization of net actuarial loss (gain) (1)

 

 

(1,145)

 

 

 1

 

Total pneumoconiosis benefits adjustments

 

 

(4,610)

 

 

 1

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

(3,584)

 

 

1,017

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

 

280,020

 

 

157,073

 

 

 

 

 

 

 

 

 

Less: Comprehensive income attributable to noncontrolling interest

 

 

(7,176)

 

 

(148)

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO ARLP

 

$

272,844

 

$

156,925

 


(1)

Amortization of prior service cost and net actuarial gain or loss is included in the computation of net periodic benefit cost (see Notes 14 and 16 for additional details).

 

See notes to condensed consolidated financial statements.

3


 

Table of Contents

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

$

143,706

 

$

224,178

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

 

 

 

Capital expenditures

 

 

(84,043)

 

 

(51,525)

 

Increase (decrease) in accounts payable and accrued liabilities

 

 

6,470

 

 

(15)

 

Proceeds from sale of property, plant and equipment

 

 

103

 

 

 7

 

Contributions to equity method investments

 

 

 —

 

 

(11,400)

 

Distributions received from investments in excess of cumulative earnings

 

 

2,260

 

 

736

 

Payment for acquisition of business, net of cash acquired

 

 

(175,060)

 

 

 —

 

Cash received from redemption of equity securities

 

 

134,288

 

 

 —

 

Net cash used in investing activities

 

 

(115,982)

 

 

(62,197)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Borrowings under securitization facility

 

 

108,000

 

 

37,600

 

Payments under securitization facility

 

 

(110,000)

 

 

(70,000)

 

Borrowings under revolving credit facilities

 

 

 —

 

 

70,000

 

Payments under revolving credit facilities

 

 

(150,000)

 

 

(100,000)

 

Payments on finance lease obligations

 

 

(7,341)

 

 

(6,974)

 

Payments for purchases of units under unit repurchase program

 

 

(5,251)

 

 

 —

 

Net settlement of withholding taxes on issuance of units in deferred compensation plans

 

 

(7,817)

 

 

(2,081)

 

Cash contribution by General Partner

 

 

 —

 

 

41

 

Distributions paid to Partners

 

 

(69,011)

 

 

(68,396)

 

Other

 

 

(262)

 

 

(163)

 

Net cash used in financing activities

 

 

(241,682)

 

 

(139,973)

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 

(213,958)

 

 

22,008

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

244,150

 

 

6,756

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

30,192

 

$

28,764

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,240

 

$

2,995

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITY:

 

 

 

 

 

 

Accounts payable for purchase of property, plant and equipment

 

$

21,055

 

$

15,621

 

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.

4


 

Table of Contents

 

 

ALLIANCE RESOURCE PARTNERS, L.P. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 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 coal mining operations of Alliance Resource Operating Partners, 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 and completed its initial public offering on August 19, 1999 when it acquired substantially all of the coal production and marketing assets of Alliance Resource Holdings, Inc., a Delaware corporation, and its subsidiaries.  We are managed by our general partner, MGP, a Delaware limited liability company which holds a non-economic general partner interest in ARLP. 

 

AllDale I & II Acquisition

 

On January 3, 2019 (the "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 (the "Acquisition").  As a result of the 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 Acquisition provides us with diversified exposure to industry leading operators and is consistent with our general business strategy to pursue accretive acquisitions. See Note 3 – Acquisition for more information.

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements include the accounts and operations of the ARLP Partnership and present our financial position as of March 31, 2019 and December 31, 2018 and the results of our operations, comprehensive income and cash flows for the three months ended March 31, 2019 and 2018.  All intercompany transactions and accounts have been eliminated.

 

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, 2018 and particularly as it relates to the simplification transactions completed by the Partnership on May 31, 2018 ("Simplification Transactions").

 

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For the periods presented prior to the Simplification Transactions, completed on May 31, 2018, 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

 

We lease buildings and equipment under operating lease agreements that provide for the payment of 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 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 some of which 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 an operating or finance lease with a term greater than 12 months, we recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term based on the present value of lease payments over the lease term. The lease term includes all noncancelable periods defined in 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 our leases, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

 

Expenses related to leases determined to be operating leases will be 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 which interest and amortization are presented separately in the income statement.  The determination of whether a lease is accounted for as a finance lease or an operating lease requires management to make estimates primarily about the fair value of the asset and its estimated economic useful life. 

 

2.NEW ACCOUNTING STANDARDS

 

New Accounting Standards Issued and Adopted

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASU 2016-02").  ASU 2016-02 requires lessees to record right-of-use assets and corresponding lease liabilities on the 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 expense recognition in the income statement.  We elected to use the modified retrospective transition method which allows a cumulative effect adjustment on the balance sheet upon adoption. The adoption of 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 reassess the lease classification of expired or existing leases. In addition to the package of practical expedients, we also elected to use a practical expedient allowing us to use hindsight in determining the lease term for existing leases.

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New Accounting Standards Issued and Not Yet Adopted

 

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 do not have a history of credit losses on our financial instruments, accordingly we do not anticipate ASU 2016-13 will have a material impact on our condensed consolidated financial statements.    

 

3.ACQUISITION

 

On the Acquisition Date,  we acquired all of the limited partner interests not owned by Cavalier Minerals in AllDale I & II and 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 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 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 AllDale I & II include royalty interests in producing properties, we have determined that the Acquisition should be accounted for as a business combination and the underlying assets and liabilities of AllDale I & II should be recorded at their Acquisition Date fair value on our condensed consolidated balance sheet.

 

The total fair value of the cash paid in the 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 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 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 Acquisition using an income approach primarily comprised of a discounted cash flow model.  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 assumptions used in the determination of the fair value measurement include estimated production, projected cash flows, forward oil & gas prices and a risk adjusted discount rate. Certain assumptions are not observable in active markets and therefore the re-measurement of our equity method investments represents a Level 3 fair value measurement.

 

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The following table summarizes the fair value allocation of assets acquired and liabilities assumed as of the Acquisition Date:

 

 

 

 

 

 

 

As of January 3, 2019

 

 

(in thousands)

 

 

 

 

Cash and cash equivalents

 

$

900

Mineral interests

 

 

473,701

Receivables

 

 

10,602

Accounts payable

 

 

(1,921)

Net assets acquired

 

$

483,282

 

We determined the fair value of the mineral interests using an income approach. The income approach primarily includes the development of an entity-wide value using discounted expected cash flows based on 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 measurement of the mineral interests represents a Level 3 fair value measurement.  AllDale I & II's carrying value of the receivables and accounts payable represent their fair value given their short-term nature.

 

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 Acquisition.  This Bluegrass Interest represents an indirect noncontrolling interest in AllDale I & II.  The Acquisition Date fair value of the Bluegrass Interest was $12.3 million.  The fair value was determined using 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 measurement represents a Level 3 fair value measurement.

 

The amounts of revenue and earnings, exclusive of the acquisition gain, of AllDale I & II included in our condensed consolidated statements of income from the Acquisition Date through March 31, 2019 are as follows:

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

Revenue

 

$

10,728

 

Net income

 

 

4,081

 

 

The following represents the pro forma revenues and net income for the three months ended March 31, 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 three months ended March 31, 2019 as the Acquisition occurred at the beginning of the year.  Additionally, our results have been adjusted to remove the effect of our past equity method investments in AllDale I & II.

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2018

  

 

 

(in thousands)

 

Total revenues

 

 

 

 

As reported

 

$

457,122

 

Pro forma

 

 

464,881

 

 

 

 

 

 

Net income

 

 

 

 

As reported

 

$

156,056

 

Pro forma

 

 

155,583

 

 

 

4.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

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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.

 

5.INVENTORIES

 

Inventories consist of the following:

 

 

 

 

 

 

 

 

 

 

    

March 31, 

 

December 31, 

 

 

 

2019

    

2018

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

Coal

 

$

47,265

 

$

20,929

 

Supplies (net of reserve for obsolescence of $5,041 and $5,453, respectively)

 

 

38,175

 

 

38,277

 

Total inventories, net

 

$

85,440

 

$

59,206

 

 

 

 

 

6.LEASES

 

The components of lease expense were as follows:

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31, 

 

 

 

2019

 

 

 

(in thousands)

 

 

 

 

 

 

Finance lease cost:

 

 

 

 

Amortization of right-of-use assets

 

$

4,521

 

Interest on lease liabilities

 

 

714

 

Operating lease cost

 

 

3,009

 

Short-term lease cost

 

 

190

 

Variable lease cost

 

 

332

 

Total lease cost

 

$

8,766

 

 

Supplemental cash flow information related to leases was as follows:

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31, 

 

 

 

2019

 

 

 

(in thousands)

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Operating cash flows for operating leases

 

$

2,966

 

Operating cash flows for finance leases

 

$

714

 

Financing cash flows for finance leases

 

$

7,341

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations:

 

 

 

 

Operating leases

 

$

25,179

 

 

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Supplemental balance sheet information related to leases was as follows:

 

 

 

 

 

 

 

 

 

 

    

March 31, 

 

December 31, 

 

 

 

2019

    

2018

 

 

 

(in thousands)

 

Finance leases:

 

 

 

 

 

 

 

Property and equipment finance lease assets, gross

 

$

141,019

 

$

141,019

 

Accumulated depreciation

 

 

(79,097)

 

 

(74,576)

 

Property and equipment finance lease assets, net

 

$

61,922

 

$

66,443

 

 

 

 

 

 

 

 

 

    

March 31, 

 

 

 

 

2019

    

 

Weighted average remaining lease term

 

 

 

 

 

Operating leases

 

 

11.1 years

 

 

Finance leases

 

 

1 year

 

 

 

 

 

 

 

 

Weighted average discount rate

 

 

 

 

 

Operating leases

 

 

6.0

%

 

Finance leases

 

 

5.2

%

 

 

Maturities of lease liabilities as of March 31, 2019 were as follows:

 

 

 

 

 

 

 

 

 

 

 

Operating leases

    

Finance leases

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

2019

 

$

6,120

 

$

40,754

 

2020

 

 

3,788

 

 

8,748

 

2021

 

 

2,236

 

 

913

 

2022

 

 

2,172

 

 

913

 

2023

 

 

1,995

 

 

140

 

Thereafter

 

 

14,864

 

 

560

 

Total lease payments

 

 

31,175

 

 

52,028

 

Less imputed interest

 

 

(8,802)

 

 

(2,052)

 

Total

 

$

22,373

 

$

49,976

 

 

 

 

7.FAIR VALUE MEASUREMENTS

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

December 31, 2018

 

 

    

Level 1

    

Level 2

    

Level 3

    

Level 1

    

Level 2

    

Level 3

 

 

 

(in thousands)

 

Long-term debt

 

$

 —

 

$

541,274

 

$

 —

 

$

 —

 

$

669,864

 

$

 —

 

Total

 

$

 —

 

$

541,274

 

$

 —

 

$

 —

 

$

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 (See Note 8 – 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.

 

 

 

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8.LONG-TERM DEBT

 

Long-term debt consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized Discount and

 

 

 

Principal

 

Debt Issuance Costs

 

 

 

March 31, 

 

December 31, 

 

March 31, 

 

December 31, 

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

(in thousands)

 

Revolving credit facility

 

$

25,000

 

$

175,000

 

$

(4,665)

 

$

(5,203)

 

Senior notes

 

 

400,000

 

 

400,000

 

 

(5,564)

 

 

(5,793)

 

Securitization facility

 

 

90,000

 

 

92,000

 

 

 —

 

 

 —

 

 

 

 

515,000

 

 

667,000

 

 

(10,229)

 

 

(10,996)

 

Less current maturities

 

 

(90,000)

 

 

(92,000)

 

 

 —

 

 

 —

 

Total long-term debt

 

$

425,000

 

$

575,000

 

$

(10,229)

 

$

(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.  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 4.85% as of March 31, 2019.  At March 31, 2019, we had $9.3 million of letters of credit outstanding with $460.5 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. 

 

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 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 0.81 to 1.0 and 16.6 to 1.0, respectively, for the trailing twelve months ended March 31, 2019.  We remain in compliance with the covenants of the Credit Agreement as of March 31, 2019. 

 

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 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. 

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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 March 31, 2019, we had $90.0 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 March 31, 2019, the commitment under the Cavalier Credit Facility was $68.2 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 March 31, 2019, Cavalier Minerals had not drawn on the Cavalier Credit Facility.

 

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 Acquisition (see Note 3 – Acquisition).  In conjunction with the Acquisition, we became the managing member in Cavalier Minerals.  Total contributions to and cumulative distributions from Cavalier Minerals are as follows: 

 

 

 

 

 

 

 

 

 

 

 

Alliance

 

Bluegrass

 

 

 

Minerals

 

Minerals

 

 

 

(in thousands)

 

Contributions

 

$

143,112

 

$

5,963

 

Distributions

 

 

57,385

 

 

2,391

 

 

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.

 

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AllDale I & II

 

As a result of the 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 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:

 

 

 

 

 

 

 

 

March 31, 

 

 

 

2019

 

Assets (liabilities):

    

(in thousands)

 

Cash and cash equivalents

 

$

3,338

 

Trade receivables

 

 

7,474

 

Other receivables

 

 

1,415

 

Total property, plant and equipment, net

 

 

468,815

 

Other long-term assets

 

 

213

 

Accounts payable

 

 

(1,357)

 

Due to affiliates

 

 

(45)

 

 

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 March 31, 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 $0.5 million and $0.4 million to Alliance Minerals during the three months ended March 31, 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 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 three months ended March 31, 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

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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

 

 

 

March 31, 

 

 

    

2019

    

2018

 

 

 

(in thousands)

 

Beginning balance

 

$

28,974

 

$

14,182

 

Contributions

 

 

 —

 

 

11,400

 

Equity method investment income

 

 

324

 

 

42

 

Distributions received

 

 

(528)

 

 

(375)

 

Ending balance

 

$

28,770

 

$

25,249

 

 

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. 

 

 

 

14


 

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