We utilize the two-class method in calculating basic and diluted earnings per limited partner unit ("EPU"). Subsequent to the Simplification Transactions, net income attributable to ARLP is only allocated to limited partners and participating securities under deferred compensation plans. Prior to the Simplification Transactions, net income attributable to ARLP was allocated to the general partners, limited partners and participating securities under deferred compensation plans in accordance with their respective partnership ownership percentages, after giving effect to any special income or expense allocations. Prior to the Exchange Transaction, net income attributable to ARLP was also allocated to our general partner, MGP, for incentive distributions. Please see Note 1 – Organization and Presentation for more information on the Simplification Transactions and the Exchange Transaction.

Our participating securities under deferred compensation plans include rights to nonforfeitable distributions or distribution equivalents. Our participating securities are outstanding awards under our LTIP and phantom units in notional accounts under our SERP and the Directors' Deferred Compensation Plan.

In connection with the Exchange Transaction, ARLP amended its partnership agreement to reflect, among other things, cancellation of the IDRs and the economic general partner interest in ARLP and issuance of a non-economic general partner interest to MGP. The IDR provisions of our partnership agreement prior to the Exchange Transaction are outlined in Note 10 – Partners' Capital. Beginning with distributions declared for the three months ended June 30, 2017, we no longer make distributions with respect to the IDRs.

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

The following is a reconciliation of net income attributable to ARLP used for calculating basic and diluted earnings per unit and the weighted-average units used in computing EPU.

(1)

Amounts for 2019 and 2018 reflect the impact of the Simplification Transactions which ended net income allocations and quarterly cash distributions to MGP after May 31, 2018. Amounts for 2017 reflect the impact of the Exchange Transaction ending distributions that would have been paid for the IDRs and a 0.99% general partner interest in ARLP, both of which were held by MGP prior to the 2017 Exchange Transaction. For the time period between the Exchange Transaction and the Simplification Transactions, MGP maintained a 1.0001% general partner interest in the Intermediate Partnership and a 0.001% managing member interest in Alliance Coal and thus received quarterly distributions and income and loss allocations during this time period. The SGP had a nominal general partner interest prior to the Exchange Transaction.

(2)

MGP made a capital contribution of $1.0 million during 2017 to Alliance Coal for the purpose of funding certain general and administrative expenses. As provided under our partnership agreement, we made a special allocation to MGP of certain general and administrative expenses equal to its contribution. Net income attributable to ARLP allocated to the limited partners was not burdened by this expense. See Note 10 – Partners' Capital for more information regarding this contribution.

(3)

Diluted EPU gives effect to all potentially dilutive common units outstanding during the period using the treasury stock method. Diluted EPU excludes all potentially dilutive units calculated under the treasury stock method if their effect is anti-dilutive. For the years ended December 31, 2019, 2018 and 2017, the combined total of LTIP, SERP and Directors' Deferred Compensation Plan units of 1,284,013, 1,658,908 and 1,466,404, respectively, were considered anti-dilutive under the treasury stock method.

On a pro forma basis, as if the Exchange Transaction and the Simplification Transactions had taken place on January 1, 2017, the reconciliation of net income attributable to ARLP to basic and diluted earnings per unit and the weighted-average units used in computing EPU are as follows:


	Year Ended December 31,
	2019		2018		2017
	(in thousands, except per unit data)
Net income attributable to ARLP	$	399,414	$	366,604	$	303,638
Pro forma adjustments (1)		—		(1,265)		(1,943)
Pro forma net income of ARLP		399,414		365,339		301,695
Less:
Distributions to participating securities		(4,254)		(5,114)		(4,339)
Undistributed earnings attributable to participating securities		(2,237)		(1,627)		(680)

Net income attributable to ARLP available to limited partners (2)	$	392,923	$	358,598	$	296,676

Weighted-average limited partner units outstanding – basic and diluted (2)		128,117		131,310		132,024

Pro forma earnings per limited partner unit - basic and diluted (3)	$	3.07	$	2.73	$	2.25

(1)	Pro forma adjustments to net income attributable to ARLP primarily represent the elimination of administrative service revenues from AHGP and the inclusion of general and administrative expenses incurred at AHGP.

(2)

Net income attributable to ARLP available to limited partners reflects net income allocations made for all periods presented based on the ownership structure subsequent to the Simplification Transactions. Accordingly, no general partner income allocations are presented above. Pro forma amounts above also reflect weighted average units outstanding as if the issuance of 56,128,141 ARLP common units in the Exchange Transaction and 1,322,388 ARLP common units in the Simplification Transactions applied to all periods presented.

(3)