F O R T H E
LONG H AU L
2 0 1 6 A N N U A L R E P O R T
A L L I A N C E R E S O U R C E P A R T N E R S, L . P. // A L L I A N C E H O L D I N G S G P, L . P.
PERFORMANCE
VALUE
RELIABILITY
for the long haul
FELLOW UNITHOLDERS,
AT ALLIANCE, WE HAVE ALWAYS TAKEN THE LONG VIEW.
When responding to market challenges of the past year,
we, not only made strategic decisions that delivered
excellent results, but consistently acted with an eye toward
the future—working to lay the groundwork for long-term
performance, value and reliability for our unitholders.
We finished the year strong. Robust performance, including
reductions in operating expenses and near-record coal
shipments in the second half of the year, led to sequential
third- and fourth-quarter increases to net income and
EBITDA. Solid performance throughout the latter half of
2016 also helped to drive year-over-year increases to
net income and EBITDA for the full year.
1
Managing volumes to meet market demand and
We made tough but necessary decisions during
reduce expenses, ARLP responded quickly and
a difficult year for the coal industry—curtailing
strategically, trimming production to 35.2 million
coal production and reducing distributions to
tons and sales to 36.7 million tons, approximately
our unitholders, among others. These decisions
15% and 9% below our 2015 record levels. As a
enhanced ARLP’s competitive advantages and
result, we finished the year with less than 1 million
allowed us to strengthen our balance sheet by paying
tons of coal inventory.
Our final 2016 sales volume, average coal sales
price, and total revenues were all within our initial
guidance for the year, however, our strategic
moves helped our cost-containment efforts to far
down debt and amending our revolving credit facility
to provide sufficient liquidity to execute our plans.
Our strategy not only delivered impressive results,
but positioned us to take advantage of improving
market conditions in the years to come.
exceed expectations. We shifted production to our
I’m grateful to our team for their steady expertise,
lowest-cost mines, which led to significant cost
unwavering dedication, and strategic decision-
improvements compared to 2015—as operating
making. And I’m grateful to you for your faith in
expenses decreased 17.3% and Segment-Adjusted
our team. Here’s to the long haul.
EBITDA expense-per-ton fell by 9.2% to $31.07.
Lower costs and improved productivity from our
Tunnel Ridge and Gibson South mines, drove actual
results for 2016 well above our early expectations,
as ARLP posted net income $73.9 million and
EBITDA $112.7 million above the midpoints of our
initial guidance, respectively.
JOSEPH W. CRAFT III
President, Chief Executive Officer,
and Director of ARLP and AHGP,
and Chairman of the Board of AHGP
March 16, 2017
2
“While the results our team
achieved are impressive under any
circumstances, I trust you agree
they are remarkable in light of the
market conditions we faced at the
beginning of 2016.”
— Joe Craft
3
“ARLP has effectively managed
its leverage under difficult
market conditions.”
— Market Realist
PERFORMANCE
for the long haul
Conditions in the U.S. thermal markets deteriorated sharply coming into 2016
and continued to weaken during the first third of the year. A warm winter
and low natural gas prices led to anemic coal demand, prompting utilities to
defer deliveries, build inventories, and delay contracting decisions. Still, we
performed. Here’s what we did:
Alliance responded to market conditions by curtailing
performance, or the outlook of our balance sheet,
coal volumes to meet reduced demand levels and,
but to preserve liquidity to help us maintain access to
in the process, shifted production to our lowest-
the debt capital markets during a period of uncertainty
cost mines to improve efficiencies, reduce costs,
in our industry and financial difficulties for many
and minimize capital requirements. These initiatives
competitors. As a result of our strong cash flow,
enabled our operating team to effectively manage
ARLP paid down $269.4 million of debt during 2016
our coal production volumes through a period of
as our distribution coverage ratio increased to nearly
extreme market weakness and positioned our
two times for the full year.
marketing team to capitalize on opportunities as
conditions began to improve.
As always, we approached our business with a
thoughtful plan of action, leveraging our expertise
We also took steps to strengthen our balance
and never wavering from our core values or our
sheet. Capital expenditures came in approximately
proven strategy for success. The results speak
$50 million less than our budget. We took the difficult
for themselves.
step to adjust distributions, not because of our
4
VALUE
for the long haul
The market wasn’t kind to those who weren’t
prepared or able to respond decisively. At ARLP,
however, we continued our history of industry-
leading performance. With our financial
strength and low-cost, strategically located
operations, we remain confident in our
ability to create long-term value for
unitholders. Here’s where we ended 2016:
Bottom line: Year-over-year, 2016’s net income
for approximately $480 million of senior secured
increased 10.8% to $339.4 million and EBITDA rose
financing maturing in May 2019. Despite challenging
3.5% to $692.7 million. Adjusted for the $77.6 million
debt markets facing the coal industry, ARLP was able
of net non-cash charges in 2015, adjusted net income
to obtain this financing at a modest increase in pricing
and adjusted EBITDA were lower by 11.6% and 7.3%,
across the leverage grid with borrowings under the
respectively.
revolver bearing interest at an attractive rate of LIBOR
plus 235 basis points at ARLP’s current leverage of
As anticipated, weak market conditions drove
ARLP’s average price realizations down 5.3% in
less than one times.
2016 to an average of $50.76 per ton sold. Lower
As part of our debt reduction efforts, we significantly
coal sales prices, and planned reductions in
reduced borrowings under our revolver and have paid
production drove 2016 coal sales revenues lower
down our existing term loan to a remaining balance of
to $1.86 billion, compared to $2.16 billion for 2015.
$50 million, which will be paid in full at the expiration
Operating expenses, on the other hand, improved
of its primary term in May 2017. With the completion
17.3% compared to 2015, contributing to a 9.2%
of this amended credit facility and our strong balance
improvement in Segment-Adjusted EBITDA expense
sheet, ARLP maintains sufficient liquidity and financial
of $31.07 per ton sold.
flexibility to take advantage of opportunities that may
develop as we execute our strategy.
We ended 2016 with a healthy balance sheet. Total
liquidity was $575.2 million with a very conservative
leverage ratio of 0.9 times net debt-to-trailing
EBITDA. We recently completed an amendment and
extension of our revolving credit facility that provides
5
WITH EXPECTATIONS OF A STRONGER THERMAL MARKET,
ARLP IS PLANNING FOR INCREASED PRODUCTION
AND SALES VOLUMES, COMING PRIMARILY FROM
OUR ILLINOIS BASIN OPERATIONS.
GIBSON COMPLEX
HAMILTON COMPLEX
Ohio
Illinois
Indiana
Pennsylvania
Maryland
1
2
West Virginia
Kentucky
Virginia
RIVER VIEW COMPLEX
DOTIKI COMPLEX
WARRIOR COMPLEX
6
WITH EXPECTATIONS OF A STRONGER THERMAL MARKET,
ARLP IS PLANNING FOR INCREASED PRODUCTION
AND SALES VOLUMES, COMING PRIMARILY FROM
OUR ILLINOIS BASIN OPERATIONS.
TUNNEL RIDGE COMPLEX
Illinois
Indiana
Ohio
Pennsylvania
Maryland
METTIKI COMPLEX
West Virginia
Kentucky
Virginia
MC MINING COMPLEX
ILLINOIS BASIN
current operations
APPALACHIA
current operations
MOUNT VERNON
transfer terminal
HENDERSON/UNION
reserves
INACTIVE OPERATIONS
1. Gibson Complex
North Mine
2. Sebree Complex
Onton Mine
7
RELIABILITY
for the long haul
By 2040, global electricity demand is projected to rise 60%1 and coal-fired
power plants are expected to continue to provide the largest share of the world’s
electricity, powering nearly one-third of the energy used in homes, factories and
offices.2 In the shorter-term, rising natural gas prices and planned reductions
of current regulatory burdens—plus the proven track record of our team at
Alliance—fuel an optimistic outlook. Here’s what we expect:
Supply/demand fundamentals continue to point
and less stringent environmental and energy
to a cyclical recovery in the U.S. thermal coal market.
policies should provide clarity and stability to
Supply discipline by producers resulted in an 18%
coal markets and set the stage for growing coal
decline in domestic coal production and an estimated
demand in the future.
25 million ton stockpile reduction during 2016. Higher
natural gas prices prompted us to expect increased
coal demand for the first half of 2017 compared to last
year. Full-year forecasts by the U.S. Energy Information
Administration show coal consumption in the electric
power sector increasing 6% in 2017.3 In addition to this
more balanced supply/demand dynamic, resurgence
in the export coal markets has added further support
to improved U.S. market conditions.
Longer-term, the Trump administration has already
made moves to reduce the overreaching regulatory
burden that has plagued the coal industry for the last
eight years and to bolster the existing fleet of coal-fired
generating power plants. A return to more reasonable
With our low-cost, strategically-located operations,
strong market presence, robust distribution
coverage and conservative balance sheet, ARLP
is well-positioned to deliver industry-leading
performance and value for our unitholders for
the foreseeable future.
“Alliance Resource is a
well-run company with
a strong asset base.”
— Yahoo! Finance
1 ExxonMobil, “2017 Outlook For Energy: A View To 2040,” December 2016
2 The Daily Caller, “Report: Coal Is Still King In 2040,” January 3, 2017
3 U.S. Energy Information Administration, “Short-Term Energy Outlook,”
January 10, 2017
8
ARLP COAL – TONS PRODUCED
ARLP COAL – TONS SOLD
41.2
40.7
38.8
35.2
34.8
2016
2015
2014
2013
2012
36.7
40.2
39.7
38.8
35.2
40
35
30
25
20
15
10
10
15
20
25
30
35
40
Million Tons
Million Tons
ARLP REVENUES
ARLP EBITDA
$1.93
$2.27
$2.30
$2.21
$2.03
2016
2015
2014
2013
2012
$692.7
$669.6
$685.9
$803.7
$581.1
2.40
2.20
2.00
1.80
1.60
1.40
1.20
1.00
100
200
300
400
500
600
700
800
Dollars in Billions
Dollars in Millions
ARLP NET INCOME
ARLP TOTAL ASSETS
$497.2
$339.4
$306.2
$393.5
$335.6
2016
2015
2014
2013
2012
$2.19
$2.36
$2.29
$2.12
$1.96
500
450
400
350
300
250
200
150
100
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
Dollars in Millions
Dollars in Billions
ARLP DISTRIBUTIONS PAID Distributions paid per LP unit
AHGP DISTRIBUTIONS PAID Distributions paid per LP unit
$1.99
$2.66
$2.47*
$2.28*
$2.08*
2016
2015
2014
2013
2012
$2.61
$3.77
$3.44
$3.10
$2.72
3.00
2.00
1.00
0
0
1.00
2.00
3.00
4.00
Dollars
Dollars
Amounts rounded to the nearest penny. *Adjusted for 2:1 Unit Split.
Reconciliation of GAAP “net income attributable to ARLP” to non-GAAP “Adjusted net income”
(in thousands)
Net income attributable to ARLP
Asset impairment charge
Acquisition gain, net
Adjusted net income
Year Ended December 31
2016
2015
2014
2013
2012
$ 339,398
$ 306,198
$ 497,229
$ 393,490
$ 335,571
-
-
100,130
(22,548)
-
-
-
-
19,031
-
339,398
$ 383,780
$ 497,229
$ 393,490
$ 354,602
Reconciliation of GAAP “net income attributable to ARLP” to non-GAAP “EBITDA,”
“Adjusted EBITDA” and “Distributable Cash Flow”
(in thousands)
Net income attributable to ARLP
Net income (loss) attributable to noncontrolling interests
Net Income
Depreciation, depletion and amortization
Interest expense, net
Capitalized interest
Income tax expense (benefit)
EBITDA
Asset impairment
Acquisition gain, net
Adjusted EBITDA
Equity in (income) loss of affiliates
Interest expense, net
Income tax (expense) benefit
Estimated maintenance capital expenditures 1
Distributable Cash Flow
Distributions paid to partners
Distribution Coverage Ratio
Year Ended December 31
2016
2015
2014
2013
2012
$ 339,398
$ 306,198
$ 497,229
$ 393,490
$ 335,571
140
339,538
322,509
31,017
(358)
13
692,719
-
-
692,719
(3,543)
(31,017)
(13)
(167,409)
$ 490,737
$ 247,915
1.98
(27)
306,171
333,713
30,389
(695)
21
669,599
100,130
(22,548)
747,181
49,046
(30,389)
(21)
(204,243)
$ 561,574
$ 346,799
1.62
(16)
497,213
274,566
32,746
(833)
-
-
393,490
264,911
35,074
(8,992)
1,396
803,692
685,879
-
-
803,692
16,648
(32,746)
-
(240,419)
$ 547,175
$ 317,626
1.72
-
-
685,879
24,441
(35,074)
(1,396)
(221,058)
$ 452,792
$ 288,439
1.57
-
335,571
218,122
36,891
(8,436)
(1,082)
581,066
19,031
-
600,097
14,650
(36,891)
1,082
(191,400)
$ 387,538
$ 257,923
1.50
1, Our maintenance capital expenditures, as defined under the terms of our partnership agreement, are those capital expenditures required to maintain, over the long-term, the operating capacity of our capital assets.
We estimate maintenance capital expenditures on an annual basis based upon a five-year planning horizon.
Reconciliation of GAAP “Operating Expenses” to non-GAAP “Segment Adjusted EBITDA
Expense per ton”
(in thousands, except per ton data)
Operating expense
Outside coal purchases
Other income
Segment Adjusted EBITDA Expense
Divided by tons sold
Year Ended December 31
2016
2015
2014
2013
2012
$ 1,138,848
$ 1,377,053
$ 1,383,360
$ 1,398,763
$ 1,303,291
1,514
(725)
327
(955)
14
(1,566)
2,030
(1,891)
38,607
(3,115)
$ 1,139,637
$ 1,376,425
$ 1,381,808
$ 1,398,902
$ 1,338,783
36,680
40,247
39,731
38,835
35,170
Segment Adjusted EBITDA Expense per ton
$ 31.07
$ 34.20
$ 34.78
$ 36.02
$ 38.07
Partnership Tax Details
Unitholders are partners in the partnership and receive quarterly
cash distributions. Cash distributions generally are not taxable as
long as the individual unitholder’s tax basis remains above zero.
A partnership generally is not subject to federal or state income
tax. The annual income, gains, losses, deductions or credits
of the partnership flow through to the unitholders, who are
required to report their allocated share of these amounts on
their individual tax returns, as though the unitholder had
incurred these items directly.
Schedule K-1
Unitholders of record receive Schedule K-1 packages that
summarize their allocated share of the partnership’s reportable
tax items for the fiscal year. It is important to note that cash
distributions received should not be reported as taxable income.
Only the amounts provided on the Schedule K-1 should be
entered on each unitholder’s tax return.
Schedule K-1 information also is available on our web sites.
Please visit www.arlp.com and www.ahgp.com.
Unitholders should refer questions regarding their
Schedule K-1 as follows:
By Mail
K-1 Support
P.O. Box 799060
Dallas, TX 75379-9060
By Phone/Fax
Alliance Resource Partners, L.P.
Phone (800) 485-6875 Fax (866) 554-3842
Alliance Holdings GP, L.P.
Phone (866) 867-4060 Fax (866) 554-3842
Transfer Agent and Registrar
Direct requests regarding transfer of units, lost certificates,
lost distribution checks or address changes to:
American Stock Transfer and Trust Company
Attn: Shareholder Services
59 Maiden Lane – Plaza Level
New York, NY 10038
(800) 937-5449
Investor Information and Form 10-K
For more information or free copies of the 2016 Form 10-K,
please contact the appropriate e-mail address or phone number
listed below. Form 10-K also may be downloaded from the
Partnerships’ Web sites.
Alliance Resource Partners, L.P.
investorrelations@arlp.com
E-mail:
Phone:
(918) 295-7674
Web site: www.arlp.com
Alliance Holdings GP, L.P.
investorrelations@ahgp.com
E-mail:
Phone:
(918) 295-1415
Web site: www.ahgp.com
Executive Officers & Directors
ARLP ›› AHGP ››
Joseph W. Craft III ››››
President, Chief Executive Officer, and
Director of ARLP and AHGP, and Chairman
of the Board of AHGP
Brian L. Cantrell ››››
Senior Vice President and
Chief Financial Officer
R. Eberley Davis ››››
Senior Vice President,
General Counsel and Secretary
Robert G. Sachse ››
Executive Vice President
Charles R. Wesley ››
Executive Vice President
and Director
Thomas M. Wynne ››
Senior Vice President and
Chief Operating Officer
Nick Carter ››
Director, member of the Audit,
Compensation and Conflicts
Committees for ARLP
John P. Neafsey ››
Director, Chairman of the
Board of Directors, Chairman of the
Conflicts Committee, and member of the
Audit and Compensation Committees
John H. Robinson ››
Director, Chairman of the Compensation
Committee, and member of the Audit and
Conflicts Committees
Wilson M. Torrence ››››
Director, Chairman of the Audit Committee
for ARLP and AHGP and member of the
ARLP Compensation Committee
Thomas M. Davidson, Sr. ››
Director, Chairman of the Conflicts
Committee and member of the
Audit Committee
Robert J. Druten ››
Director and member of the Audit and
Conflicts Committees
General Information
The following information applies to
Alliance Resource Partners, L.P. (ARLP)
and Alliance Holdings GP, L.P. (AHGP)
unless specified otherwise.
Partnership Offices
1717 South Boulder Avenue, Suite 400
Tulsa, OK 74119
(918) 295-7600
Partnership Mailing Address
P.O. Box 22027
Tulsa, OK 74121-2027
Contact
Brian L. Cantrell
Senior Vice President and
Chief Financial Officer
(918) 295-7674
brian.cantrell@arlp.com
Business Structure
Publicly traded master limited partnership.
Common Unit Trading
Common units are traded on the NASDAQ
Global Select Market.
NASDAQ Ticker Symbols
Alliance Resource Partners, L.P. (ARLP)
Alliance Holdings GP, L.P. (AHGP)
Common Units Outstanding
at 02/24/2017
ARLP 74,597,036 common units
AHGP 59,863,000 common units
Independent Auditors
Ernst & Young LLP
1700 One Williams Center
Tulsa, OK 74172
Unitholder Information
Cash Distributions
The partnerships expect to make quarterly
distributions to unitholders of record on the
applicable record dates according to the
following schedules:
Alliance Resource Partners, L.P.
Within 45 days after the end of each March,
June, September and December.
Alliance Holdings GP, L.P.
Within 50 days after the end of each March,
June, September and December.
F O R T H E
LONG H AU L
P.O. Box 22027, Tulsa, Oklahoma 74121-2027 // www.arlp.com // www.ahgp.com